2/11/2018

NE 364
Engineering Economy
Lecture 1
Introduction

NE 364 Engineering Economy

1

Course Objectives
 Introduction to the basic cost concepts and economic
environment.

 Familiarization with the principles of money- time

relations and basics of investments opportunities
assessment and evaluation.

2
NE 364 Engineering
Economy

1
 2/11/2018

Course Info
 Lecturer
Dr. Noha Galal
 Teaching Assistant
Eng. Amr Abd ElAlim
 Textbook:
William G. Sullivan, E.M. Wicks, J.T. Luxhoj,
Engineering Economy, the 15th Edition, 2010
 Lecture notes & Assignments:
 https://sites.google.com/site/ngalalcourses/

NE 364 Engineering Economy

3

Introduction
 Engineering “is the profession in which a knowledge of
the mathematical and natural sciences gained by study,
experience, and practice is applied with judgement to
develop ways to utilize, economically, the materials and
forces of nature for the benefit of mankind”

 The Accreditation Board for Engineering & Technology,

Criteria for Accrediting Programs in Engineering in the United
States (New York; Baltimore, MD: ABET, 1998)

NE 364 Engineering Economy

4

2
 2/11/2018

What is Engineering Economy?

 Engineering Economy involves the systematic

evaluation of the economic merits of proposed
solutions to engineering problems.

NE 364 Engineering Economy

5

Where can Engineering Economy

provide answers?
 Choosing the best design for a high efficiency gas
furnace
?
?

NE 364 Engineering Economy

6

3
 2/11/2018

Where can Engineering Economy

provide answers?
 Selecting the most suitable robot for a welding
operation on an automotive assembly line.

NE 364 Engineering Economy

7

Where can Engineering Economy

provide answers?
 Ex 2-11: Total Cost in material selection

 Material:
 1112 screw machine steel?
 Or Brass screw stock?
 Economic selection among materials cannot be based
solely on the costs of materials. Change in material
may affect the design, processing cost, and shipping
costs.

NE 364 Engineering Economy

8

4
 2/11/2018

Where can Engineering Economy

provide answers?
 Ex 2-13: selecting alternative machine speeds

 Speed??

 Increasing machine speed higher output rate

 BUT different machine downtime for maintenance.

NE 364 Engineering Economy

9

Where can Engineering Economy

provide answers?
 Ex 2-16: Trade-offs in energy efficiency studies
 Energy efficiency affects the annual expense of
operating an electrical device such as pump or motor.

 More energy-efficient device extra capital investment

 BUT  annual savings in electrical power expenses

NE 364 Engineering Economy

10

5
 2/11/2018

Principles of Engineering
Economy
1. Develop the Alternatives

2. Focus on the Differences

3. Use a Consistent Viewpoint

4. Use a Common Unit of Measure

5. Consider All Relevant Criteria

6. Make Uncertainty Explicit

7. Revisit Your Decisions

NE 364 Engineering Economy

11

Engineering Economy & the

Design Process
 A sound engineering economic analysis procedure
incorporates the basic seven principles .

 The seven-step procedure is also used to assist

decision making within the engineering design process.

NE 364 Engineering Economy

12

6
 2/11/2018

NE 364 Engineering Economy

13

Cost-Driven Design
Optimization
 Two main tasks are involved in cost-driven design
optimization.

1. Determine the optimal value for a certain alternative’s

design variable.

2. Select the best alternative, each with its own unique value
for the design variable.

NE 364 Engineering Economy

14

7
 2/11/2018

Steps for optimizing a design

with respect to cost
• Identify the design variable that is the primary cost driver.
1

• Express the cost model in terms of the design variable

2

• For continuous cost functions: use differentiation

3 • For discrete cost functions: Evaluate cost of each alternative

• For continuous cost functions: solve equation in step 3

4 • For discrete cost functions: optimum value has the minimum cost

NE 364 Engineering Economy

15

A simplified cost function

where,
a is a parameter that represents the directly varying cost(s),
b is a parameter that represents the indirectly varying cost(s),
k is a parameter that represents the fixed cost(s), and
X represents the design variable in question.

NE 364 Engineering Economy

16

8
 2/11/2018

NE 364 Engineering Economy

17

NE 364 Engineering Economy

18

9
 2/11/2018

NE 364 Engineering Economy

19

Course Outline
 Introduction and Overview
 Cost Concepts
 Time – money Relationships & Equivalence
 Simple Interest
 Compound Interest
 Cash flow Diagrams (Single cash flows, annuity, uniform series, uniform
gradient
 Nominal & Effective interest rates
 Applications of Money-Time Relationships (PW, AW, FW)
 Comparing Alternatives
 Benefit-to-Cost Analysis
 Depreciation

NE 364 Engineering Economy

20

10
 2/11/2018

ABET Student Outcomes

• An ability to apply knowledge of mathematics, science, and engineering.
a
• An ability to design a system, component, or process to meet desired needs
within realistic constraints such as economic, environmental, social, political,
c ethical, health and safety, manufacturability, and sustainability.

• An ability to identify, formulate, and solve engineering problems.

e

• An ability to communicate effectively.

g
• The broad education necessary to understand the impact of engineering
solutions in a global, economic, environmental, and societal context.
h

NE 364 Engineering Economy

21

Grading System
 7th Week Assessment
 Exam (20pt.) + Quizzes (10pt)
 Exam at lecture time.
 Quizzes in the tutorial.

 12th Week Assessment

 Exam (15 pt.) + Quizzes (5 pt.)
 Exam at lecture time.
 Quizzes in the tutorial.

 Continuous Assessment (10 pt.)

 Participation in Lecture + Attendance +Assignments

NE 364 Engineering Economy

22

11