Engineering Economy

(EE)
Chapter 1
Introduction to Engineering Economy

Luu Van Thanh

lvthanh@hcmiu.edu.vn
School of Industrial Engineering & Management
Copyright ©2009 by Pearson Education, Inc.
Upper Saddle River, New Jersey 07458
All rights reserved.
 1. Introduction
The purpose is to develop and illustrate the
principles and methodology required to
answer the basic economic question of any
design:
Do its benefits exceed its costs?

EE involves the systematic evaluation of the

economic merits of proposed solutions to
engineering problems.
Copyright ©2009 by Pearson Education, Inc.
Upper Saddle River, New Jersey 07458
All rights reserved.
 Solutions to engineering problems
must…
• promote the well-being and survival of an organization,
• embody creative and innovative technology and ideas,
• permit identification of their estimated outcomes, and
• translate profitability to the “bottom line” through a
valid and acceptable measure of merit.

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
EE analysis can play a role in many
types of situations.

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
2. The principles of EE
• 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

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
3. EE analysis procedure
• Problem definition
• Development of feasible alternatives
• Development of prospective outcomes
• Selection of a decision criterion
• Analysis and comparison of alternatives.
• Selection of the preferred alternative.
• Performance monitoring and post-evaluation of
results.

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
 Quiz 1
• Your friend bought a small apartment for $100,000 in a town. She spent
$10,000 of her own money for the apartment and obtained a mortgage from a
local bank for the remaining $90,000.
The annual mortgage payment to the bank is $10,500. She also expects that
annual maintenance on the apartment will be $15,000. There are 4 rooms in
the apartment that can each be rented for $360/month.

Refer the EE procedure to answer these questions:

(1) Does she have a problem? If so, what is it?
(2) What are her alternatives? Identify at least 03.
(3) Estimate the economic consequences and other required data for the
alternatives in part (2).
(4) Select a criterion for discriminating among alternatives, and use it to advise
your friend on which course of action to pursue.

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
4. Using Spreadsheets in EE analysis
• Most EE 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.

Copyright ©2009 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.