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02 FUNDAMENTALS OF ENGINEERING ECONOMY

CHE40: Engineering Economy Engr. Elisa G. Eleazar

Definition Principles

of Engineering Economy of Engineering Economy


Fundamentals of Engineering Economy

Economic

Analysis Procedure

Outline

Define

engineering economy.

State

the principles of engineering


Fundamentals of Engineering Economy

economy.
Outline

the economic analysis

procedure.

Learning Objectives

Engineering

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

Fundamentals of Engineering Economy

Engineering

Economy

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

Definition of Engineering Economy

Develop the alternatives


The choice is among the alternatives. The alternatives need to be identified and defined for subsequent analysis.
Fundamentals of Engineering Economy

Focus on the Differences


Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision.

Principles of Engineering Economy

Use a Consistent Viewpoint


The prospective outcomes of the alternatives, economic and other, should be consistently developed from a defined viewpoint or perspective.

Fundamentals of Engineering Economy

Use a Common Unit of Measure

Using a common unit of measurement to enumerate as many of the prospective outcomes as possible will simplify the analysis and comparison of the alternatives. Principles of Engineering Economy

Consider All Relevant Criteria


Selection of a preferred alternative requires the use of a criterion or several criteria. The decision process should consider both the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement or made explicit in a descriptive nature.

Fundamentals of Engineering Economy

Principles of Engineering Economy

Make Uncertainty Explicit


Uncertainty is inherent in projecting the future outcomes of the alternatives and should be recognized in their analysis and comparison.

Fundamentals of Engineering Economy

Revisit Your Decisions


Improved decision making results from an adaptive process; to the extent practicable, the initial projected outcomes of the selected alternatives should be subsequently compared with actual results achieved.

Principles of Engineering Economy

Problem recognition, definition and evaluation

Development of feasible alternative

Development of the outcomes and cash flows for each alternative

Fundamentals of Engineering Economy

Economic Analysis Procedure

Selection of a criterion (or criteria)

Analysis and comparison of the alternatives

Selection of the preferred alternative

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Fundamentals of Engineering Economy

Economic Analysis Procedure

Performance monitoring and post-evaluation of results

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Fundamentals of Engineering Economy

Economic Analysis Procedure

Definition Principles

of Engineering Economy of Engineering Economy


Fundamentals of Engineering Economy

Economic

Analysis Procedure

12

Outline

Sullivan,

W., Wicks, E. and Luxhoj, J., Engineering Economy, 12th ed, USA: Pearson Education, Inc., 2003
Cost Concepts and Design Economics

Blank,

L. and Tarquin, A., Engineering Economy, 4th ed, Singapore: McGrawHill Book Co, 1998 T., Engineering Economy Applying Theory to Practice, USA: 1995

Eschenbach,

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References

FUNDAMENTALS OF ENGINEERING ECONOMY


CHE40: Engineering Economy Engr. Elisa G. Eleazar