Lecture no52 economic analysis in the service sector

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Contemporary Engineering Economics, 6 th edition

Economic Analysis in the Service

Sector

Lecture No 52 Chapter 16 Contemporary Engineering Economics

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Chapter Opening Story

Motor vehicle crashes cost

$871 billion in economic loss

and social harm.

To reduce road accidents

caused by mechanical defects,

many states implement various

car inspection program

The State of Pennsylvania’s

$25 million motor vehicle

inspection program would

reduce the fatal crashes by

127–169 per year

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Contribution of the Service Sector to the U.S

Gross Domestic Product (GDP)

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What Is Service Sector?

 Commercial Transportation

 Logistics and Distribution

 Healthcare Delivery

 Financial Engineering

 Electronic Markets and Auctions

 After-Sale Equipment Monitoring, Maintenance and Repair

 Retailing, Hotel, and Restaurant

 Hospitality and Entertainment

 Customer Call/Contact Centers

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Source: National Science Foundation, 2002

Some Unique Characteristics

of Service Sector

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Property 1

o Services are generally intangible

They have sometimes been defined as

anything of economic value that cannot be held or touched

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Property 2

o It is usually impossible to build inventories of services

o Either the demand for the service must be

backlogged or enough resources need to be provided to meet an acceptable fraction of the demand as it arises.

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Property 3

o Services are more dynamic and demand-responsive than manufactured products

o This means variability and risk are more

central issues in service industries

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Property 4

o Many services (examples are medical

treatment and equipment repair) require a

diagnostic step to design the service

(co-production) as part of its delivery

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Property 5

o Service products are usually less standardized and less subject to design specifications than manufactured goods because the outputs are tailored to customer needs as they are

delivered

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Property 6

o The dimensions of service quality are more subtle and subjective than with physical

products

o Not only are the parameters of services more

difficult to express, but customer perceptions play a much greater role in deciding what is satisfactory or valuable.

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Property 7

o Most service operations are more labor-intensive than manufacturing industries.

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Property 8

o Compared to goods industries, a much

greater fraction of the service economy is operated by governments and institutions

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Property 9

industries Often it is the only significant

equipment available to multiply human

output.

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