4 TH TERM BATCH: 2010 LECTURE # 1 & 2 5/8/2011 Lec#1 & 21

1. To learn foundations of Engineering Economy 2. To learn how time & interest affect money 3. To study combining factors 4. To learn nominal & effective interest rates 5. To understand present worth and annual worth analysis 6. To study rate of analysis on: single alternative and multiple alternatives 5/8/2011 Lec#1 & 22

7. To study benefit /cost analysis 8. To study replacement & retention decisions 9. To learn selection from independent projects under budget limitation 10. To learn analytical break even analysis 11. To learn effects of inflation, cost estimation & indirect cost allocation 5/8/2011 Lec#1 & 23

 At completion of degree with the course of Engineering Economics, students find confidence for applying the jobs relevant to Project cost accounting, and banking 5/8/2011 Lec#1 & 24

1. ENGINEERING ECONOMY By: Leland Blank & Anthony Tarquin….6 th Edition 2.HAND BOOK OF INDUSTRIAL & SYSTEMS ENGINEERING. By: Adedeji B. Badiru 5/8/2011 Lec#1 & 25

1. Three class test would be taken as under: ◦ 1 st on 17 th Lecture for content covered 1-16 lecture ◦ 2 nd on 33 Lecture for content covered lecture ◦ 3 rd on 50 th Lecture for content covered lecture 2. One best test out three would be taken as the final for awarding sessional marks 3. Class Test format: MCQS 4. Sessional Marks Breakup: - Class Test: 10 marks - Attendance: 10 marks 5/8/2011 Lec#1 & 26

Defination-1: “ Engineering Economics involves Formulating, Estimating, & Evaluating the Economic Outcomes when alternatives to accomplish a defined purpose are available” Defination-2: “It is a collection of mathematical techniques that simplify economic comparison” 5/8/2011 Lec#1 & 27

 Decision made by engineers, managers, corporation presidents & individuals are commonly the result of choosing one alternative over other.  Decision often reflects a person’s educated choice of how to best invest funds, also called capital  The decision of how to invest capital will invariably change the future, hopefully for the better, ie it will be value adding 5/8/2011 Lec#1 & 28

 Engineers play a major role in capital investment decisions based on their analysis, synthesis & design efforts  Factors considered in making the decision are a combination of economic and noneconomic factors. Aditional factors may be intangible, like convinence, goodwill, friendship & others 5/8/2011 Lec#1 & 29

Some of the typical questions than best be addressed by Engineers with having knowledge of Engineering Economy, such as:  Should a new building technique be incorporated into the manufacture of automobile break pads?  If a computer vision system replaces the human inspector in performing equality tests on an automobile welding line, will operating costs decrease over time horizon of 5 years? 5/8/2011 Lec#1 & 210

 Is it an economically wise decision to upgrade the composite material production centre of an airplane factory in order to reduce costs by 20%?  Should a highway by pass be constructed around a city of 25,000 peaple, or should the current roadway through the city expanded?  Will we make the required rate of return if we install the newly offered technology onto our medical laser mfg line 5/8/2011 Lec#1 & 211

Example 1.1: Two lead engineers with a mechanical design company & a structural analysis firm work together often. They have decided that, due to their joint & frequent commercial airline travel around the region, they should evaluate the purchase of a plane co-owned by two companies. What are some of the economic based questions the engineers should answer as they evaluate the alternatives to (1) co-own a plane or (2) continue to fly commercially? 5/8/2011 Lec#1 & 212

Solution to Example 1.1: Some questions ( & what is needed to respond) for each alternative are as follows:  How much will it cost each year? ( cost estimates are needed)  How do we pay for it? ( a financing plan is needed)  Are there tax advantages? ( tax law & tax rates are needed)  What is the basis for selecting an alternative ? ( A selection criterion is needed)  What is expected rate of return? (equations are needed)  What happen if we fly less or more than we estimate now? ( sensitivity analysis is needed) 5/8/2011 Lec#1 & 213