The Engineering Economic Equations Every Safety Professional Should Know Presented By: Jarred ODell, ASP Safety Director Syracuse Utilities

The Engineering Economic Equations

Every Safety Professional Should

Know

Presented By: Jarred O’Dell, ASPSafety DirectorSyracuse Utilities

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presentation

Why Engineering Economics

For those of you pursuing your CSP:

7 – 15 questions on the ASP Exam

7 – 15 questions on the CSP Exam

For everyone else:

Ever buy a car or a house?

Who has a credit card?

Engineering Economics

0-4


You do not need an app for that!!!


Uff Da!Uff da is an expression of Norwegian origin adopted by Scandinavian-Americans. This exclamation is an announcement that, that person is going into a state of sensory overload.

Uff Da!If you find yourself going into sensory overload and need to ask a question say:

Uff Da!

Uff Da!

Question: 1

Engineering Economics: Q1

A wealthy relative died and left you her estate. You can choose to either accept $6,000,000 today or wait and receive $10,000,000 in five years. Assume the annual interest rate over this period is 10%. You decide to…


You decide to:

A) Wait the 5 years

B) B) Take the money and run

C) Do nothing, its probably the same people

that brought you the Nigerian Lottery


Page 1


Future

Present

Amount of periodic receipt/payment

Number of years*

Annual Interest* expressed in decimal

form (e.g. 10% = .10)

F =

P =

A =

n =

i =

Page 1


Page 1





F =

P =

A =

i =

n = Page 2

10,000,000

6,000,000

N/A

10% or 0.10

5 years


F =

P =

6,000,000 (1+ 0.10)5

10,000,000(1+0.10)-5

Page 2

Question: 2


You decided to go back to school and eared your Masters Degree in mathematics. Having heard this, your supervisor throws this scenario at you:


The chief financial officer of Widget Inc. expects a 10% annual return on investments for all capital projects. What is the maximum cost that will be approved from a project that is expected to save $8,000 per year over 10 years? Assume the project will be fully depreciated in the 10 years.

Question 2

Uff Da!


F =

P =

A =

i =

n =

Page 3

N/A

???

$8,000

10% or 0.10

10 years



8000 ((1+.10)10−1

.10(1+.10)10 )Page 3

Question: 3


You recently obtained 6σ Black Belt status. Congratulations! Understandably, you are very anxious to test out your new skills. Soon you face this problem:


The financial policy of Acme requires that capital investments must have an annual return of 12%. An engineering solution to a safety problem will cost $250,000 for the initial installation, and it will cost $12,000 annually to maintain for 15 years. What is the required annual savings from this project in order for it to be approved?

Question 3


F =

P =

A =

i =

n =

Page 4

N/A

$250,000

???

12% or 0.12

10 years



A =

Page 4

Question: 4


Having recently been conferred as a Doctor in Safety and Engineering Science, your are now ina position to poses this scenario to youremployer:


Your company decided to hire an EHS/6σ, executive. If a balloon payment of $10,000,000 is due in 10 years, what amount would management have to deposit monthly into a savings account (paying interest of 6% per year) to accumulate adequate funds to pay the note?

Question 4


F =

P =

A =

i =

n =

Page 5

$10,000,000

N/A

???

6% or 0.06

10 years



A =


Future

Present

Amount of periodic receipt/payment

Number of years*

Annual Interest* expressed in decimal

form (e.g. 10% = .10)

F =

P =

A =

n =

i =

Page 1


A =

Question: 5


One of your faceless pawns is having trouble figuring out the following scenario. He humbly/fearfully asks for your help:


Calculate the monetary value after ten years of a behavior based safety program that costs $40,000 per year at the start. Assume an inflation rate of 4.3%

Question 5


F =

P =

A =

i =

n =

Page 5

???

N/A

$40,000

4.3% or 0.043

10 years



F =

Uff Da!


Documents

The Engineering Economic Equations Every Safety Professional Should Know Presented By: Jarred ODell, ASP Safety Director Syracuse Utilities