Professional Documents
Culture Documents
Engineering Economy Notes
Engineering Economy Notes
Engineering Economy
- Involves the systematic evaluation of economic
merits of proposed solutions to engineering
problems
- It is the study of the desirability of making an
investment
- Solutions to engineering problems must
demonstrate a positive balance of long-term
benefits over long-term costs, they must also:
o promote the well-being and survival of
an organization,
o embody creative and innovative
technology and ideas,
o permit identification and scrutiny of their
estimated outcomes, and
o translate profitability to the bottom line
through a valid and acceptable measure
of merit.
Principles of Engineering Economy
PRINCIPLE 1: DEVELOP THE ALTERNATIVES
-
RULE 1:
-
RULE 2:
-
Sunk Costs
Example:
Sunk Costs costs that has incurred in the past and
has no relevance to estimates of future costs and
revenues related to an alternative course of action.
These costs should be ignored in the analysis and
comparison of alternatives that affect the future.
More common cost terminology
If the electric power costs $0.10 per kWh and the pump
will be operated 4,000 hours per year, which pump
should be chosen? Recall that 1hp = 0.746 kW.