ENGINEERING

ECONOMICS
Lecture # 01

Dr. Imran Khalil

imrankhalil@uetpeshawar.edu.pk
Meet the teacher
• Dr. Imran Khalil
• BS (Information Technology) – 2002
• MBA (HR) – 2006
• MS (Computer Sciences) – 2008
• Computer Networks
• Ph.D. (Computer Sciences) – 2020
• Theoretical Computer Science
• Research Areas
• Energy Efficient Algorithms
• Optimization
• Geographical Load Balancing
• Geographically distributed Data Centers
• Cloud Computing
Contents

• Engineering & Economics

• Why Do Engineers Need to Learn about Economics?
• What is Engineering Economics?
• Rational Decision Making Process
• Fundamental Principles of Engineering Economics

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 Why Do Engineers Need to Learn about
Economics?
• Ages ago, the most significant barriers to engineers were technological. They
simply did not yet know how to do the things that engineers wanted to do,
or hadn’t yet developed the tools to do.
• There are certainly many more challenges like this that face present-day
engineers.
• Natural resources (from which we must build things) are becoming more scarce
and more expensive.
• Negative side effects of engineering innovations (such as air pollution from
automobiles)
• Engineers must decide if the benefits of a project exceed its cost and make
this comparison in a unified framework. The framework within which to
make this comparison in the field of engineering economics strives to answer
exactly these questions, and perhaps more.

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What is Engineering Economics?

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What is Engineering Economics?

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Rational Decision-making Process

1. Recognize a decision problem

2. Define the goals or objectives
3. Collect all the relevant
information
4. Identify a set of feasible decision
alternatives
5. Select the decision criterion to
use
6. Select the best alternative
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Which Car to Lease? Corolla vs. Honda
1. Recognize a decision • Need a car
problem
2. Define the goals or
• Want mechanical security
objectives
• Gather technical as well
3. Collect all the relevant
as financial data
information
• Choose between Corolla
4. Identify a set of feasible
and Honda
decision alternatives
• Want minimum total cash
5. Select the decision criterion
outlay
to use
• Select Honda
6. Select the best alternative

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What Makes the Engineering Economic
Decision Difficult? - Predicting the Future
• Estimating a Required
investment
• Forecasting a product
demand
• Estimating a selling price
• Estimating a
manufacturing cost
• Estimating a product life

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Accounting Vs. Engineering Economy
Evaluating past performance Evaluating and predicting future events

Accounting Engineering Economy

Past Future
Present

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Two Factors in Engineering Economic Decisions

Time and uncertainty are the defining

aspects of any engineering economic
decisions

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 A Large-Scale Engineering Projects
• Requires a large sum of
investment
• Takes a long time to see
the financial outcomes
• Difficult to predict the
revenue and cost streams

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 Fundamental Principles of Engineering
Economics
• Principle 1: A nearby dollar is
worth more than a distant dollar
• Principle 2: All it counts is the
differences among alternatives
• Principle 3: Marginal revenue must
exceed marginal cost
• Principle 4: Additional risk is not
taken without the expected
additional return
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Principle 1: A nearby dollar is worth more
than a distant dollar

Today 6-month later

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Principle 2: All it counts is the differences
among alternatives
Option Monthly Monthly Cash Monthly Salvage
Fuel Maintena outlay at payment Value at
Cost nce signing end of
year 3

Buy $960 $550 $6,500 $350 $9,000

Lease $960 $550 $2,400 $550 0

Irrelevant items in decision making

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Principle 3: Marginal revenue must exceed
marginal cost

Marginal
cost

Manufacturing cost 1 unit

Marginal
Sales revenue 1 unit revenue

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Principle 4: Additional risk is not taken
without the expected additional return
Investment Class Potential Expected
Risk Return
Savings account Low/None 1.5%
(cash)

Bond (debt) Moderate 4.8%

Stock (equity) High 11.5%

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 Recommended Book(s)
[Donald G. Newman] Engineering Economics Analysis 9th Edition
[Chan S. Park] Contemporary Engineering Economics 3rd Edition

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Marks Distribution
• Sessional Marks
❑ Assignments 05%
❑ Class participation 05%
❑ Quizzes 10%
❑ Class Attendance : 10%
• Mid Term Exam 20%
• Final Term Exam 50%

CS & IT, UET Peshawar 24

References
• [Donald G. Newman et al.] Engineering Economics Analysis 9th edition
• [Chan S. Park] Contemporary Engineering Economics 3rd Edition
• Google

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