01 First Lecture EE PIEAS

Engineering EconomyEngineering Economy

Syed Kashif Saeed, ACMAPakistan Institute of Engineering and Applied Sciences

Engineering is the profession in which Engineering is the profession in which a knowledge of the mathematical and a knowledge of the mathematical and natural sciences gained by study , natural sciences gained by study , experience, and practice is applied experience, and practice is applied with judgment to develop ways to with judgment to develop ways to utilize, economically, the materials utilize, economically, the materials and forces of nature for the benefit of and forces of nature for the benefit of mankind. mankind.

Syed Kashif Saeed, PIEAS 2January 29, 2014

Engineering is the profession in which Engineering is the profession in which a knowledge of the mathematical and a knowledge of the mathematical and natural sciences gained by study , natural sciences gained by study , experience, and practice is applied experience, and practice is applied with judgment to develop ways to with judgment to develop ways to utilize, utilize, economicallyeconomically, the materials , the materials and forces of nature for the benefit of and forces of nature for the benefit of mankind. mankind.


[Engineering] is the art of doing [Engineering] is the art of doing that with one dollar which any that with one dollar which any bungler can do with two.bungler can do with two. Arthur Wellington (1887)Arthur Wellington (1887)


The study of how limited resources is The study of how limited resources is used to satisfy unlimited human wants.used to satisfy unlimited human wants.

What is EconomicsWhat is Economics??


The study of how individuals and The study of how individuals and societies choose to use societies choose to use scarce scarce resourcesresources that nature and previous that nature and previous generations have provided.generations have provided.

What is EconomicsWhat is Economics??


ResourcesResources??

Land: All gifts of nature, such as: water, air, minerals, sunshine, plant and tree growth, as well as the land itself which is applied to the production process.

Labor: The efforts, skills, and knowledge of people which are applied to the production

process. Capital: Include Real Capital (Physical

Capital ) like tools, buildings, machinery ; Financial Capital like money and Human Capital like Education and training applied to labor in the production process


The perspective that ultimate The perspective that ultimate economy is a concern to the economy is a concern to the engineer and the availability of engineer and the availability of sound techniques to address sound techniques to address this concern differentiate this this concern differentiate this aspect of modern engineering aspect of modern engineering practice from that of the past. practice from that of the past.

Origins of Engineering Origins of Engineering EconomyEconomy


The purpose of this course is to The purpose of this course is to develop and illustrate the develop and illustrate the principles and methodology principles and methodology required to answer the basic required to answer the basic economic question of any design: economic question of any design: Do its benefits exceed its cost?Do its benefits exceed its cost?


Engineering economy…Engineering economy…

involves the systematic evaluation of the economic merits of proposed solutions to engineering problems.


Engineering economy…Engineering economy…

To be economically acceptable (i.e. affordable) solutions to engineering problems must demonstrate a positive balance of long term benefits over long term costs.


Solutions to engineering Solutions to engineering problems mustproblems mustpromote the well-being and survival of an

organization,embody creative and innovative technology

and ideas,permit identification and scrutiny of their

estimated outcomes, andtranslate profitability to the “bottom line”

through a valid and acceptable measure of merit.


Engineering economic analysis can play Engineering economic analysis can play a role in many types of situations.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.


There are seven fundamental There are seven fundamental principles of engineering economy.principles of engineering economy.Develop the alternativesFocus on the differencesUse a consistent viewpointUse a common unit of measureConsider all relevant criteriaMake uncertainty explicitRevisit your decisions


Engineering economic analysis Engineering economic analysis procedureprocedure

Problem definitionDevelopment of alternativesDevelopment of prospective outcomesSelection of a decision criterionAnalysis and comparison of alternatives.Selection of the preferred alternative.Performance monitoring and post valuation

of results.


Electronic spreadsheets are a powerful Electronic spreadsheets are a powerful addition to the analysis arsenal.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.


Figure P1-15Figure P1-15

January 29, 2014 Syed Kashif Saeed, PIEAS 17

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01 First Lecture EE PIEAS