ENGINEERING ECONOMICS AND

MANAGEMENT

Engineering economics decision

 ENGINEERING ECONOMICS DECISION
Role of Engineers in Business:
• Yahoo,  Apple Computer,  Microsoft Corporation,  and Sun Microsystems produces
computer products and have a market value of several billion dollars cash.
• These companies were all started by young college students with technical
backgrounds When they went into the computer business,  these students initially
organized their companies as proprietorships. 
• As the businesses grew, they became patron and were eventually converted to
corporations
• This chapter begins by introducing the three or many forms of business organization and
briefly discusses the role of engineering in business
•  
 ROLE OF ENGINEERS IN BUSINESS
Types of Business Organization:
• As an engineer, you should understand the nature of the business organization with which you are
associated. 
• This section will present some basic information about the type of organization you should choose
should you decide to go into business for yourself. 
• The three legal forms of business, each having certain advantages and disadvantages are
proprietorships,  and corporations. 
• Proprietorships A proprietorship is a business owned by one individual.  This person is responsible
for the firm's policies, owns all its assets, and is personally liable for its debts.  A proprietorship has
two major advantages. 
• First it can be formed easily and inexpensively.  No legal and organizational requirements are
associated with setting up a proprietorship.  and organizational costs are therefore virtually nil. 
• Second, the earnings of a proprietorship are taxed at the owner's personal tax rate.which may be
lower than the rate at which in-come is taxed.  Apart from personal liability considerations, the
major disadvantage of proprietorship is that it cannot issue stocks and bonds, making it difficult to
raise capital any business expansion
 LARGE-SCALE ENGINEERING PROJECTS:

• In the development of any product. A company's engineers are called upon

to translates growth and development depend largely upon a constant flow
of idea into reality. 
• A firm ideas for new products, and for the firm to remain competitive.  It’s to
make existing products better or produce them at a lower cost. 
• In the next section. We present an example of how a design engineer's idea
eventually turned into an innovative.
 LARGE-SCALE ENGINEERING PROJECTS:
CASE STUDY
•  How a Typical Project Idea Evolves:
• Toyota Motor Corporation introduced the world's first mass produced car powered by a combination of gasoline and electricity.  Known
as the Prius, this vehicle would be the first of a new generation of Toyota cars whose engines would cut air pollution dramatically and
boost fuel efficiency to significant levels.  Toyota n short,  wants to launch and dominate a new "green” era for automobiles and it will
spend $1.5 billion to do it Developed for the Japanese market initially,  the Prius uses both a gasoline engine and an electric motor as
its motive power source.  The Prius emits less pollution than ordinary cars,and it gets more mileage,  which means less output of
carbon dioxide.  Moreover, the Prius gives Business Week illustrates and smooth The following information from how business decision
is made by the engineering staff of a larger company.  Additional information has been provided by Toyota Motor Corporation
• WHY GO FOR GREENER CAR ?
• Toyota first started to develop the Prius in 1995.  Four engineers were assigned to figure out what types of cars people would drive in
the 21st century.  After a year of research, a Emily Thornton Tokyo.  Keith Naughton (Detroit, and David Woodrufr.  Japan's Hybrid Cars
Toyota and rivals are betting on pollution if they succeed Business Week, Dec. 4, 1997 chief engineer concluded that Toyota would
have to sell cars better suited to a world with scarce natural resources.  He considered electric motors.  But an electric car can travel
only 15 km before it must be recharged.  Another option was fuel-cell cars that run on hydrogen.  But he suspected that mass
production of this type of car might not be possible for another 15 years.  So the engineer finally settled on a hybrid system powered
by an electric motor, a nickel-metal battery, and gasoline en me.  From perspective, a big bet, as oil and gasoline prices are bumping
along at record lows at that time.  Many green cars remain expensive and require trade-offs in terms of performance.  No carmaker has
ever succeeded in selling consumers en masse something they have never wanted to buy:  cleaner air.  Even in Japan, where a litre of
regular gas can cost as makers have pushing higher fuel economy and lower carbon emissions.  Toyota has earl reasons for going
green.  In the next century,  as millions of new car owners in China,  and elsewhere take to the road,  Toyota predicts that gasoline
prices will rise worldwide.  At the same time, Japan's carmakers expect pollution and global warming to such threats that governments
will act tough measures to clean the air.
What is so Unique Design? 
• It took Toyota engineers two years to develop the current power system in the Prius.  The car
comes with a dual engine powered by both an electric motor and a newly developed gasoline
engine. When the engine is in use, a special "power split device" some of the power to the
driveshaft to move the car's wheels. The also sends some to which in creates either drive the
motor or recharge Thanks to this variable transmission.  The Prius can switch back and forth
between motor and engine, or employ both, without creating any jerking motion The battery and
electric motor propel the car at slow speeds.  At normal speeds, the electric motor and gasoline
engine work together to power the wheels.  At higher speeds. the battery kicks in extra power if
the driver must pass another car or zoom up a hill When the car decelerates and brakes. The
motor converts the vehicle's kinetic energy into electricity and sends it through an inverter to be
stored in the battery .See the fig.
 ROLE OF ENGINEERS IN DECISION MAKING:
• Engineers play a vital role in capital investment decisions based upon their ability and experience to
design, analyze, and synthesize. The factors upon which a decision is based are commonly a combination
of economic and noneconomic elements. Engineering economy deals with the economic factors. By
defination, Engineering economy involves formulating, estimating, and evaluating the expected economic
outcomes of alternatives designed to accomplish a defined purpose. Mathematical techniques simplify the
economic evaluation of alternatives. Because the formulas and techniques used in engineering economics
are applicable to all types of money matters, they are equally useful in business and government, as well
as for individuals.Therefore, besides applications to projects in your future jobs, what you learn from this
book and in this course may well offer you an economic analysis tool for making personal decisions such as
car purchases, house purchases, major purchases on credit, e.g., furniture, appliances, and electronics.
Other terms that mean the same as engineering economy are engineering economic analysis, capital
allocation study, economic analysis, and similar descriptors. People make decisions; computers,
mathematics, concepts, and guidelines assist people in their decision-making process. Since most decisions
affect what will be done, the time frame of engineering economy is primarily the future. Therefore, the
numbers used in engineering economy are best estimates of what is expected to occur. The estimates and
the decision usually involve four essential elements:
 ROLE OF ENGINEERS IN DECISION MAKING:
1. Cash flows
2. Times of occurrence of cash flows
3. Interest rates for time value of money
4. Measure of economic worth for selecting an alternative
Since the estimates of cash flow amounts and timing are about the future, they will be
some-what different than what is actually observed, due to changing circumstances and
unplanned events. In short, the variation between an amount or time estimated now and
that observed in the future is caused by the stochastic (random) nature of all economic
events. Sensitivity analysis is utilized to determine how a decision might change
according to varying estimates, especially those expected to vary widely.
 WHY SHOULD ENGINEERS STUDY ECONOMICS?
 Engineers design and create.
 Designing involves economic decisions.
 Engineers must be able to incorporate economic analysis into their creative efforts.
 Often engineers must select and implement from multiple alternatives.
Understanding and applying time value of money, economic equivalence, and cost
estimation are vital for engineers.
A proper economic analysis for selection and execution is a fundamental task of
engineering.
 ENGINEERING ECONOMICS
Engineering Economics is the monetary side of the decisions that engineers make or
recommended as they work to position a firm to be profitable in a highly competitive
marketplace.

Inherent do these decisions are tradeoffs among different type of cost and performance
provided by the proposed design or problem solution.

To be economically acceptable (affordable), solutions to engineering problems must

demonstrate a positive balance of long-term benefits over long-term costs, and they must
also promote the well being and survival of an organisation.
ACCOUNTING VS ENGINEERING ECONOMY

Evaluating past performance Evaluating and predicting future events

Past Future
Present
 PRINCIPLES OF ENGINEERING ECONOMICS
• The foundation of the discipline of Engineering Economy can be seen in terms of seven principles:

1. Develop the Alternatives.

The final choice (decision) is among alternatives. The alternatives need to be identified and
then defined for subsequent analysis.
2. Focus on the Differences.
Only the differences in expected future outcomes among the alternatives are relevant to their
comparison and should be considered in the decision.
3. Use a Consistent Viewpoint.
The prospective outcomes of the alternatives, economic and other, should be consistently
developed from a defined viewpoint (perspective).
 PRINCIPLES OF ENGINEERING ECONOMICS

4. Use a Common Unit of Measure.

Using a common unit of measurement to enumerate as many of the prospective outcomes as
possible will make easier the analysis and comparison of alternatives.

5. Consider All Relevant Criteria.

Selection of a preferred alternative (decision making) requires the use of a criterion (or several
criteria). The decision process should consider the outcomes enumerated in the monetary unit.
 PRINCIPLES OF ENGINEERING ECONOMICS
6. Make Uncertainty Explicit.
Uncertainty is inherent in projecting (or estimating) the future outcomes of the alternatives and should be
recognized in their analysis and comparison.

7. Revisit Your Decisions.

Improved decision making results from an adaptive process; to the extent practicable, the initial projected
outcomes of the selected alternative should be subsequently compared with actual results achieved.