LECTURE 1

BFT 214
Engineering Economics
BFT 214 Engineering Economics 2
Our objectives today
What is economics?
Why should we learn about economics?
Why engineers need to learn about
economics?
Engineering Economy: Why is it
important?


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What is economics?
Economics is the social science that studies
the choices that individuals, businesses,
governments, and societies make as they
cope with scarcity.
Economics is all about how people make
choices.
Economics is dealing with limited resources
and unlimited wants

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Why should we learn?
Economics knowledge is useful at a personal level
a lot of skills and knowledge that you can apply to other jobs
or to your personal life.
Learning about interest rates, exchange rates, economic
indicators and equity markets can help you make better
decisions about investing and obtaining mortgages.
It provides an understanding of how the world works
You will learn more about the impact decisions have on the
firm, industry, and national level.
You will discover the effect government policies have on the
economy and on employment; again both good and bad.

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Why engineers need to learn about
economics?
The increased diversity of
technologies, resources and
consequences of design requires
that engineers have a firm grasp
of economics.
Economic provides a rational
approach to the choice among
many alternative routes in any
complex technological
development, and serve to
stimulate technological advance
and the inventive process on
which so much of our new
technology is dependent.
An understanding of economics
is key to feasible creative
planning.
sfh
Construction projects require significant investments.
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1. Collaborating Specialists
specialists in diverse
fields need to be
able to understand
the technicalities and
jargon of areas
beyond their
expertise to
effectively
communicate.
crucial for engineers

The mathematics of physics,
chemistry and materials strength
is a highly particular skill.
Economics is a field that
synthesizes complex
technicalities of finance with
broader trends in society.
Synergy occurs
when experts
collaborate.
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2. Managing Information
Classifying and dividing types of
information between specialists is a
contemporary strategy for organizing
tasks with broad functional consequences
and risks.
Engineers need to be able to rely on the
insight, creativity and guidance
economists can provide in order to avoid
confusion and error through omission.
An engineer must have a fundamental
understanding of economics to benefit
from such shared information.

Aeronautical engineering
has important economic
implications.
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3. Money and Finance
While money is an abstract, socially
agreed upon medium of exchange,
measure of value and means of
storing wealth, engineers should
understand its functions in a way
similar to physics.
All technical projects, from bridges
to the chemical composition of solar
cells, begin to take shape with some
kind of finance.
Knowledge of economic principles
gives engineers the means to bring
ideas to form. In this sense, money
can be thought of as a material
ingredient.
Money is a tool
for bringing ideas to form.
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4. Measure of Scale
From a narrow perspective, engineering only addresses
a certain quantity of material in a particular space for a
specific period of time.
If, however, an engineer understands economics, then
broader relationships can be managed.
Mark Austin, David Lovell and Bilal Ayyub, professors of
engineering at the University of Maryland, have written
that at a time when communications, resources,
functions and consequences of any endeavor are
crucially interdependent, it is especially important for
engineers to master the view that economics takes in.
It allows comprehension of the scale of implications that
can't be measured in weight, volume, location or
duration.
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5. A Rich Intellect
Perhaps the best reason for
engineers to study economics is the
intellectual creativity a broad
knowledge base will allow.
Part of the process of invention, as
described by David Walonick, Ph.D.,
is the joining of two concepts that
were previously considered
separate. For instance, photography
was invented by bringing together
the sciences of optics and
chemistry. For the engineer who
understands economics, innovation
likely will come more naturally.
Bringing different things
together makes innovation
possible
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involves the systematic evaluation of the
economic merits of proposed solutions to
engineering problems.
deals with the concepts and techniques of
analysis useful in evaluating the worth of
systems, products, and services in relation
to their costs

Engineering Economy
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Engineering Economy
It is used to answer many different
questions
Which engineering projects are worthwhile?
Has the mining or petroleum engineer shown that
the mineral or oil deposits is worth developing?
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Which engineering projects should have a
higher priority?
Has the industrial engineer shown which factory
improvement projects should be funded with the
available dollars?

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How should the engineering project be
designed?
Has civil or mechanical engineer chosen the
best thickness for insulation?

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Solutions to engineering problems
must
promote the well-being and survival of an
organization,
embody creative and innovative
technology and ideas,
permit identification and scrutiny of their
estimated outcomes, and
translate profitability to the bottom line
through a valid and acceptable measure
of merit.
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Engineering economic analysis can play a role in
many types of situations.
Choosing the best design for a high-efficiency
gas furnace.
Selecting the most suitable robot for a welding
operation on an automotive assembly line.
Making a recommendation about whether jet
airplanes for an overnight delivery service
should be purchased or leased.
Determining the optimal staffing plan for a
computer help desk.
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There are 7 fundamental principles of
engineering economy.
Develop the alternatives
Focus on the differences
Use a consistent viewpoint
Use a common unit of measure
Consider all relevant criteria
Make uncertainty explicit
Revisit your decisions
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Engineering economic analysis
procedure
Problem definition
Development of alternatives
Development of prospective outcomes
Selection of a decision criterion
Analysis and comparison of alternatives.
Selection of the preferred alternative.
Performance monitoring and
postevaluation of results.

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Electronic spreadsheets are a powerful
addition to the analysis arsenal.
Most engineering economy problems
can be formulated and solved using a
spreadsheet.
Large problems can be quickly solved.
Proper formulation allows key
parameters to be changed.
Graphical output is easily generated.
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Next Class



Introduction to Microeconomics