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    Module 1 Econ

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    reesespufff
    Engineering economy involves determining the economic feasibility of engineering projects by systematically evaluating costs and benefits. It aims to ensure the best use of capital resources. Key concepts include rate of return, types of product life, factors that affect costs, demand and supply, costs types, and reasons for replacement. The engineering economy process involves defining the problem, developing alternatives, analyzing costs and cash flows, selecting evaluation criteria, comparing alternatives, choosing the preferred option, and monitoring results.

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    Module 1 Econ

    Uploaded by

    reesespufff
    11 views6 pages
    Engineering economy involves determining the economic feasibility of engineering projects by systematically evaluating costs and benefits. It aims to ensure the best use of capital resources. Key concepts include rate of return, types of product life, factors that affect costs, demand and supply, costs types, and reasons for replacement. The engineering economy process involves defining the problem, developing alternatives, analyzing costs and cash flows, selecting evaluation criteria, comparing alternatives, choosing the preferred option, and monitoring results.

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    MODULE 1 ECON

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    Engineering economy involves determining the economic feasibility of engineering projects by systematically evaluating costs and benefits. It aims to ensure the best use of capital resources. Key concepts include rate of return, types of product life, factors that affect costs, demand and supply, costs types, and reasons for replacement. The engineering economy process involves defining the problem, developing alternatives, analyzing costs and cash flows, selecting evaluation criteria, comparing alternatives, choosing the preferred option, and monitoring results.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    11 views6 pages

    Module 1 Econ

    Uploaded by

    reesespufff
    Engineering economy involves determining the economic feasibility of engineering projects by systematically evaluating costs and benefits. It aims to ensure the best use of capital resources. Key concepts include rate of return, types of product life, factors that affect costs, demand and supply, costs types, and reasons for replacement. The engineering economy process involves defining the problem, developing alternatives, analyzing costs and cash flows, selecting evaluation criteria, comparing alternatives, choosing the preferred option, and monitoring results.

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    of 6

    MODULE 1 – ENGINEERING ECONOMY

    INTRODUCTION (FROM MS)

    ENGINEERING ECONOMY
     Process of determining whether an engineering project is to be
    undertaken or modified with the objective of obtaining the best
    utilization of capital resources taken into account some pertinent
    facts

     The analysis and evaluation of the factors that will affect the
    economic success of engineering projects to the end that a
    recommendation can be made which will insure the best use of
    capital.

    BASIC TERMS AND PRINCIPLES


     RATE OF RETURN (ROR)
    o A measure of the effectiveness of an investment of a
    capital
    o Financial Efficiency
     indicator of success of engineering and business
    project

     TYPES OF LIFE
    o PHYSICAL
     the time it takes for the machine to function
    normally
    o ECONOMIC
     a function that has something to do with revenue

     TYPES OF GOODS
    o LUXURIES
     necessities varies from person to person
    o NECESSITIES
     products that are required to support human life
     BASIC TYPES OF FACTORS THAT AFFECT ECONOMIC
    STUDIES
    o TANGIBLE
     are those which can be expressed in terms of
    monetary values
    o INTANGIBLE
     are those which are difficult to express definitely in
    terms of monetary values

     BASIC TERMS AND PRINCIPLES


    o VALUE
     Designates the worth that a person attaches to an
    object or service
    o UTILITY
     The power to satisfy human wants
    o MARKET
     The place where the vendors or the sellers and
    buyers come together
    o CLASSES OF GOODS
     CONSUMER GOODS
     are products and services that directly
    satisfy human wants. Examples: Food,
    cars. Clothing, TV, shoes, etc
     PRODUCER GOODS
     also satisfy human wants but do so
    indirectly as a part of production process.
    Examples: Bulldozers, ships, buildings,
    buses, etc
    o DEMAND
     the quantity of a certain commodity that is bought
    at a certain price at a given place and time
     Law of Demand states that the demand for a
    commodity varies inversely as the price of
    commodity.

    o SUPPLY
     the quantity of a certain commodity that is offered
    for sale at a certain price at a given place and time
     Law of Supply states that the supply of a
    commodity varies directly as the price of
    commodity.

    o MARKET
     TYPES OF MARKET STRATEGIES
    SELLER BUYER
    PERFECT 1 1
    COMPETITION
    MONOPOLY 1 MANY
    MONOPSONY MANY 1
    DUOPOLY 2 MANY
    DUOPSONY MANY 2
    OLIGOPOLY 3 OR MORE MANY
    OLIGOPSONY MANY 3 OR MORE

    o TYPES OF COSTS
     FIXED
     VARIABLE
     INCREMENT
     MARGINAL
     SUNK
    o MAJOR REASONS FOR REPLACEMENT
     PHYSICAL IMPAIRMENT
     INADEQUACY
     OBSOLESCENCE
     RENTAL OR LEASE POSSIBILITIES
    MODULE 1 – ENGINEERING ECONOMY
    INTRODUCTION TO ENGINEERING ECONOMICS (CANVAS)

    ENGINEERING ECONOMICS
     previously known as engineering economy, is a subset of
    economics for application to engineering projects.
     is equated with practicality and economic feasibility.

    ENGINEERING ECONOMY
     is that branch of economics which involve the application of
    definite laws of economics, theories of investment and business
    practices to engineering problems involving cost.
     is the systematic evaluation of the economic merits of proposed
    solutions to engineering problems.
     The purpose of engineering economy is to expose all
    engineering students to the methods which are widely used for
    evaluation of projects.

    PRINCIPLES OF ENGINEERING ECONOMICS


     PRINCIPLE 1
    o Develop the alternatives. The choice is among
    alternatives
     PRINCIPLE 2
    o Focus on the differences. Only the difference in expected
    outcomes is considered.
     PRINCIPLE 3
    o Use a consistent viewpoint. Prospective outcomes of the
    alternatives, economic, etc. should be considered.
     PRINCIPLE 4
    o Use a common unit of measure. Using a common unit of
    measurement of the possible outcomes in comparing
    alternatives.
     PRINCIPLE 5
    o Consider all relevant criteria. Consider both monetary
    and other unit of measure in measurement of outcomes.
     PRINCIPLE 6
    o Make uncertainty explicit. Uncertainty is inherent in
    projecting future outcomes and should considered in their
    analysis and comparison.
     PRINCIPLE 7
    o Revisit your decisions. Projected results and decisions
    should be compared with actual results to improve the
    decision process.

    ENGINEERING ECONOMY (ANALYSIS)


    1. PROBLEM DEFINITION
    a. Problem must be well understood and stated in an explicit
    form before the project team proceeds with the rest of the
    analysis. Recognition of the problem is normally
    stimulated by internal or external organizational needs or
    requirements.
    2. DEVELOPMENT OF FEASIBLE ALTERNATIVES
    a. Searching for the potential alternatives. Screening the to
    select a smaller group of feasible alternatives.
    3. DEVELOPMENT OF THE OUTCOMES AND CASH FLOWS
    FOR EACH ALTERNATIVE
    a. Uses basic cash flows approach employed in engineering
    economy. Occurs when money is transferred from
    organization or individual to another. Represents
    economic effects of an alternative in terms of money
    spent and received. Nonmonetary factors play a
    significant role in final recommendation.
    4. SELECTION OF CRITERION
    a. Select alternative that will best serve long term interest of
    organization. Should reflect a consistent and proper
    viewpoint
    5. ANALYSIS AND COMPARISON OF THE ALTERNATIVES
    a. Largely based on cash flows estimates. Effort is required
    to obtain reasonable accurate forecast of cash flows.
    6. SELECTION OF THE PREFERRED ALTERNATIVE
    a. Alternative can be compared based on differences.
    b. Best alternative is simply a result of the total effort.
    c. Dictates the quality of the results obtain and
    recommended course of action.
    7. PERFORMANCE MONITORING AND POST-EVALUTION OF
    RESULTS
    a. Improves the achievement of related goals and
    objectives. Aim is to learn how to do better analyses.
    CAPITAL
    The term capital refers to wealth in the form of money or property
    that can be used to produce more wealth. Most engineering
    economy studies involve commitment of capital for extended
    periods of time, so effect of time must be considered. It is
    recognized that a unit of principal today is worth more than a unit
    of principal one or more years from now because of interest (or
    profits) it can earn.

    TYPES
    1. EQUITY CAPITAL
    a. is that owned by individuals who have invested their
    money or property in a business project or venture in the
    hope of receiving a profit
    2. BORROWED CAPITAL
    a. is obtained from lenders for investment, with a promise to
    repay the principal and interest on a specific date,
    whether the operations of the business have been
    profitable or not.

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