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***imparting overall growth to individuals*** E
DREAMS
MACHINERY ON SALE

Rs.20,00,000
Rs.30,00,000
Rs.40,00,000
Rs.50,00,000
BALANCE CASH FLOW
X - 20 L
X + 30 L
X - 40 L
X + 50 L
---------------
= 20 L
1. Each person thinks differently
2. Each one of us approaches to solve the
problems from our own understanding
3. Ability to explain what one knows in a
simple manner is the greatest ability
4. What one thinks need not be right,
because you think it is right
5. One should be flexible to change ones’
opinion, otherwise one will be ignorant
throughout one’s life
YOU SHOULD UNDERSTAND
YOUR WHY

How? or Why?
Which is important?
 How? or Why?
Which is more important?
 How? or Why?
Which is more important?
 Engineering Economic Decisions

Any activity that is done

with a systematic plan and
executed in a scientific way
to produce a result
 Economic Decisions
Economic Goals
1.Equitable Distribution of
Income
2.Price Stability
3.Higher Levels of Employment
4.Efficiency
5.Growth
 Efficiency

•Technical

•Economical
 www.camelteam.in

It doesn’t matter how many resources you have,

if you don’t know how to use them
they will never be enough
 Economical Efficiency (Productivity)

• out put for same input

• input for the same output
• Proportionate increase in the output
• Proportionate decrease in the input
• Simultaneous increase in the output
with decrease in the input
 www.camelteam.in

SKILLING PRINCIPLES

Two kinds of education (hard skills/soft skills)

 www.camelteam.in

SKILLING PRINCIPLES

Skills are like tools

They are optional

They make tasks easy
 Decision Making

Define Problem
Search for Alternatives
Evaluation of alternatives

Choose the best alternative

Ingredients of Decision Making
1. Problem
2. Alternatives
3. Analysis
4. Review
Ingredients of Decision Making
1. Problem
2. Alternatives
3. Analysis
4. Review
 Learning

Knowledge
ATTITUDE
Skills SKILLS
Attitude
KNOWLEDGE
• 50% information after 3 hours

• 25% information after 24 hours

• 5% information after one month

• Listen with positive attitude
• Listen with positive attitude

• Take notes & review later

• Share with at least two others

 Sole
partnership
proprietor

company
•Single ownership
•Easy to form

•Small Capital
•Decisions are singular

•Greater Personal Liability

•Profits and assets are owned
 More than one owner
Still easy to form
Moderate Capital
Decisions need approval
Divided Personal Liability
Shared Profits and Assets
 Large number of owners
Limited liability

Large capital
shared profits
Legal Entity
Professional Decisions
There is nothing in caterpillar that
suggests that it can be a butterfly…

Yet it becomes a butterfly

Your past is not equivalent to your future
 Strategic Engineering
Economic Decisions
1.Equipment selection
2.Process choice
3.Replacement
4.Expansion
5.Cost reduction
 Strategic Engineering
Economic Decisions
6. Productivity Enhancement
7. Maintenance of Plant
8. Selection of Design
9. Add or Drop
10. Mix of input
 Selection
•In a factory there is a
design that provides a
choice to use either of
aluminum or steel jet
• which jet is to be used ?
 Decision information

Parameter Aluminum Steel

weight 1.0 kg 1.2 kg
Cost of making Rs. 50 Rs. 30
Per Kg.
Cost of Machining Rs. 100 Rs. 120
Per unit
 Key factor
Every Kg of excess
weight is associated
with a penalty of Rs.
1500 due to increased
fuel consumption
 Analyze
• Total cost of using aluminum
jet

• (WEIGHT X COST PER KG.) +

COST OF MACHINING
• (1 x 50) + 100 = 150
 Analyze
• Total cost of using steel jet
• (WEIGHT X COST PER KG.) +
COST OF MACHINING +
PENALTY
• (1.2 x 30) + 120 + (1.2 – 1.0=
0.2 X 1500) = 456
 COMPARE
• Total cost of using
aluminum jet = Rs. 150

• Total cost of using steel

jet = Rs. 456
 DECISION MAKING
• 1. ALUMINUM JET is to be used
• JUSTIFICATION: The economic
cost of aluminum jet is lesser to
the economic cost of steel jet.
• 2. The Differential advantage
(opportunity gain) =
456 -150 = 306
 PROCESS CHOICE
• THERE ARE TWO PROCESSES IN
MANUFACTUREING OF A PIN FOR
AEROPLANE ENGINE

• PROCESS A = CASTE AND LATHE

• PROCESS B =CASTE AND GRINDE

 Decision information
Parameter CAST LATHE GRIND
Process A 10 hrs 5 hrs ---
Process B 5 hrs -- 12 hrs
Operating Rs. 100 Rs. 200 Rs. 100
Cost &
labour per
unit
WHICH PROCESS SHOULD WE USE for
manufacturing 1,000 pins ?
 Analyze
Total cost process per unit
(Hrs. required on each machine X
COST per hour)
Process A (10 x100) + (5 x 200)
= Rs. 2,000 per unit
Process B (5 x 100) + (12 x100)
= Rs. 1,700 per unit
 Total cost for 1000 units
• Total cost = Number of Units x
Cost per Unit
• If Process A is Used
• 1000 x 2000 = 20,00,000
• If Process B is Used
• 1000 x 1700 = 17, 00,000
 DECISION MAKING
1. PROCESS B is to be CHOOSEN
JUSTIFICATION: The economic cost of
Process B is Rs.17,00,000 which is
lesser to the economic cost of
Process A which is Rs. 20,00,000
2. The Differential advantage
(opportunity gain) = cost of process B –
cost of process process A
= (17,00,000 – 20,00,000) = 3,00,000
PRINCIPLES OF ECONOMIC DECISIONS

• Is today’s rupee
more worth or a
rupee received
after a year
PRINCIPLES OF ECONOMIC DECISIONS

• What if I
sacrifice an
opportunity ?
PRINCIPLES OF ECONOMIC DECISIONS

• What are my
additional costs
and revenues of
an action?
PRINCIPLES OF ECONOMIC DECISIONS

• Should I assume
additional risk
without
additional
revenue?
A building contractor is planning to
build a gated community. He
needs 1000 tons of wooden
frames. They are available at a
nearby wood depot at Rs. 3,000
per ton without any additional
transportation costs. He can also
buy from a forest site which is 250
kms away at Rs. 1500 per ton.
Would your decision be different if
the transportation cost is Rs. 8 per
ton per kilometer

What is the differential cost and

revenue ?
 Suggested Solution + Model
Decision Problem: use of wooden frames
Choice between buying from a local
wood depot or forest which is 250 Kms.
away.

A1 = buying wood from the local wood

depot

A2= buying wood from forest depot

 Suggested Solution + Model
Information for analysis:
1. Cost of ton of wood from local wood
depot = Rs. 3,000
2. Cost of wood from forest site = Rs. 1500
3. Transportation costs from forest site=
Rs. 8 per ton per km.
4. Number of Kms from forest = 250 Kms.
 Suggested Solution + Model
Analysis:

Per ton cost of wood from Local

wood depot = Rs. 3,000
Per ton cost of wood from
forest = Rs. 1500
 Suggested Solution + Model

Decision : Alternative 2 is
accepted
Rationality: The cost of wood
from forest depot is less than
the cost of wood per ton from
local wood depot.
 Suggested Solution + Model
Differential Cost= Cost A1 – Cost of A2
3000 - 1500 = 1.500.
Total differential cost = 1000 X 1,500 =
15,00,000
If A1 is accepted there will be an
incremental commitment of Rs.
15,00,000.
 Suggested Solution + Model

key factor: Transportation cost of Rs. 8 is

incurred on the buying from forest
which is 250 Kms. away.
Therefore the transportation costs have
to be considered in decision making.
Transportation costs per ton of wood =
number of kms. X cost per km
8 X 250 = 2000
 Suggested Solution + Model
now the total cost of wood from
forest depot =
Cost per ton + cost of transportation

1500 + 2000 = 3500

THUS the decision changes.
Alternative A1 that is buying from
local wood depot is accepted
 Suggested Solution + Model

Rationality: The cost of wood per ton

from local wood depot is cheaper
than cost of wood from forest.

Differential Cost= Cost A1 – Cost of A2

3000 - 3500 = 500.
Total differential cost = 1000 X 500 =
5,00,000
 Suggested Solution + Model

working on total value of wood.

Number of tons of wood = 1000 tons
As per decision A1 is accepted and
hence
Cost per ton X Number of tons
3000 X 1000 = 30,00,000
 Suggested Solution + Model

Differential Revenue:
If A2 is accepted there would
have been an incremental
cost of Rs. 5,00,000 incurred.
Since A1 is accepted there is
opportunity gain of Rs.
5,00,000.
 Suggested Solution + Model
However there are non economic
factors to be considered. They are
1. Wider choice of wood in the forest
Vs. at the local depot
2. Quality of wood at the local depot
as it is stored
3. The regularity and reliability of
local dealer