Engineering Economic DecisionsLecture No... What Is an Engineering Economic Decision?. Role of engineers in business Understanding the term “ engineering economic decision ” An ov
Trang 1Engineering Economic Decisions
Lecture No 1 Chapter 1 Contemporary Engineering Economics, 6 th ed.
Copyright © 2016
Trang 2What Is an Engineering Economic
Decision?
Role of engineers in business
Understanding the term “ engineering economic
decision ”
An overview of a variety of engineering economic
decision problems
Understanding the fundamental principles of
engineering economics
Trang 3Role of Engineers in Business
Create and Design
• Engineering Projects
Evaluate
• Expected Profitability
• Timing of Cash Flows
• Degree of Financial Risk
Analyze
• Production Methods
• Engineering Safety
• Environmental Impacts
• Market Assessment
Evaluate
• Impact on Financial Statements
• Firm’s Market Value
• Stock Price
Trang 4Engineering
Economic
Decisions
Plan for the acquisition of equipment (capital expenditure) that will enable the firm to design and produce products economically
Trang 5What Makes Engineering Economic
Decisions Difficult?
• Estimating a required investment
• Forecasting a product demand
• Estimating a selling price
• Estimating a manufacturing cost
• Estimating a product life
Trang 6Accounting Vs Engineering Economy
Present
Future Past
Engineering Economy
Accounting
Trang 7Common Types of Strategic
Engineering Economic Decisions
• Equipment or process selection
• Equipment replacement decisions
• New products and product expansion
• Cost reduction
• Improvement in service or quality
• Design decisions
Trang 8Fundamental Principles of Engineering Economics
• Principle 1 : A dollar earned today is worth more than
a dollar earned in the future.
• Principle 2 : The only thing that matters is the
difference between alternatives.
• Principle 3 : Marginal revenue must exceed marginal cost
• Principle 4 : Additional risk is not taken without the expected additional return
Trang 9Principle 1 : A dollar earned today is worth more than a dollar earned
in the future
Interest rate = 10%
Trang 10Principle 2 : The only thing that matters is the difference between alternatives.
Option Monthly
fuel cost Monthly maintenance Cash outlay at
signing
Monthly payment Salvage value at
end of year 3 Buy $960 $550 $6,500 $350 $9,000
Irrelevant items in decision-making
Trang 11Principle 3 : Marginal revenue must exceed
marginal cost.
Manufacturing cost
Sales revenue Marginal revenue
Marginal cost
1 unit
1 unit
Trang 12Principle 4 : Additional risk is not taken without the expected additional return.
Trang 13Two Factors in Engineering Economic
Decisions