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University of Sharjah

Dept. of Civil and Env. Engg.

Engineering Economics

Introduction to Engineering Economics

Dr. Mohsin Siddique


Assistant Professor
Email: msiddique@sharjah.ac.ae
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Office: 065050943
Date: 08/09/2014
INTRODUCTION

DR. MOHSIN SIDDIQUE


Teaching Experiences:
Specialization:
Asst. Prof (9/2013~)
Coastal Engineering, Hydraulic
Asst. Prof (8/2012~9/2013): FAST NU
Engineering, Sediment transport,
Asst. Prof (1/2012-8/2012): UET Lahore
hydrodynamics, Numerical modeling,
Water resources Lecturer (12/2004~12/2011); UET
Lahore

Education:
Ph.D. (2008-2011): • Contact Detail:
The University of Tokyo
• Email: msiddique@sharjah.ac.ae
M.Sc. (2005-2007): • Phone: 06-5050943
The University of Tokyo
B.Sc. (2000-2004):
UET Lahore
Class Rules
Come in time
No disturbance during lecture
Bring your text book, class notes, note book, pen and
calculator
DO NOT MISS YOUR QUIZ AND MID EXAM

No cell phone calls, No SMS


Copying of assignments is strictly prohibited
Meet the deadlines of assignments
Maintain your attendance
Course name Engineering Economics- 0401301
Lecturer Dr. Mohsin Siddique
Credits 3 3-0
Pre- and co- 3rd Year Standing
requisites
Goal: To provide engineering student with the knowledge of basic
concepts of engineering economics as a decision making tool to select the
suitable alternatives for engineering projects
Instructional Objectives
On successful completion of this course, the students should attain:
Understand the role of engineering economic analysis as a decision-making
and management/planning tool.
Gain knowledge and understanding of theoretical concepts/principles that
form the basis of engineering economics, such as time value of money,
interest, and depreciation
Identify and apply various alternative evaluation methods that are
commonly used in economic decision-making processes faced by engineers.

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Engineering Economics-0401301
Detailed Topics
The following topics will be addressed during lectures
Introduction to Engineering Economics
The decision making process
Cost estimation
Interest and Equivalence
Different interest formulae
Present worth analysis
Uniform cash flow analysis
Benefit cost analysis
Rate of return analysis
Depreciation
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Engineering Economics-0401301
Components of the Assessment
The final course mark will be made up as follows:
Quizzes 20%
Midterm test 20%
Assignment/ tutorial 15%
Final Exam 45%

An overall mark of 60% must be obtained for the course.

Assessment Criteria: The student must demonstrate the ability to:

Prepare a various decision making plans on their engineering economics analysis;


Estimate the economic aspects for the engineering projects/products;
Calculate the interests and economic equivalences on various cash flow situations;
Perform an economic analysis for various engineering alternatives; and
Calculate the depreciation of engineering products and decision making based on
the analysis.

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Text and Reference Books
1. Engineering Economic Analysis by 2. Engineering Economy By Leland
Donald G Newman, Ted G. Blank & Anthony Tarquin, 7th Ed
Eschenbach & Jerome P. Lavelle

Reference Books
Any other standard book on engineering economics &
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You may get help from Google search engine
Tentative Course Schedule
Topics
Week Week Starting Comments
Engineering Economics - 0401 301 01

1 7th Sep- 11th Sep Introduction


2 14th Sep- 18th Sep Engineering Economics and Decision Making
3 21st Sep- 25th Sep Engineering Cost and Estimation / Tutorial (or) Assignment - 1
4 28th Sep -2nd Oct Interest and Equivalence/ Quiz-I
1 class only
(Eid Al-Adha
5 5th Oct- 9th Oct More Interest Formulas Holiday)
6 12th Oct -16th Oct More Interest Formulas / Tutorial (or) Assignment - 2
7 19thOct-23rd Oct More Interest Formulas- Quiz 2
8 26th Oct -30th Oct Present Worth Analysis
9 2nd Nov- 6th Nov Present Worth Analysis
10 9th Nov- 13th Nov Mid Exam
11 16th Nov- 20th Nov Annual Cash Flow Analysis/ Tutorial (or) Assignment - 3
12 23rd Nov-27th Nov Rate of Return Analysis / Quiz-3
1 class only
(National Day
13 30th Nov- 4th Dec Benefit to Cost Ratio Analysis Holiday)
14 7th Dec- 11th Dec Depreciation
15 14th Dec-18th Dec Revisions/ Tutorial (or) Assignment - 4/ Quiz 4
16 21st Dec-25th Dec Review
17 4th Jan- 8th Jan 8
Final Exam
18 11th Jan- 15th Jan
Engineering Economics and Decision Making
Engineering economy involves formulating, estimating
and evaluating the expected outcomes of alternatives
designed to accomplish a defined purpose.

Mathematical techniques are used to simplify economic


evaluation of alternative and these techniques are equally
good for individual, business or government projects.

Thus this course may also offer you an economic analysis tool
for making decisions such as car purchase, house purchase,
and major purchase on credit card etc

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Engineering Economics and Decision Making
Decision Making is broad topic.
It’s is a major aspect of every
human existence. We are
surrounded by sea of problems
which may be classified depending
on difficulty level as given below;
1. Simple Problems
2. Intermediate Problems
3. Complex Problems

The Decision Making Process


1. Irrational Decision making
2. Rational Decision making

10 Rational Decision making process


Engineering Costs
Fixed Cost: These constant or unchanging regardless of the level of
output or activity.
Variable Costs: These are not constant and depends in level of out or
activity.
Marginal Costs: It is the variable cost for one more unit.
Average Costs: It is total cost divided by number of units
________________________________________________________
Profit-loss breakeven chart

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Engineering Costs
Sunk Cost: A sunk cost is money already spent as a result of past
decision.
Opportunity cost: An opportunity cost is associated with using a
resource in one activity instead of another.
Recurring and Nonrecurring costs
Recurring costs refers to any expense that is know and anticipated and that
occurs at regular interval.
Nonrecurring costs are one-of-a-kind expenses that occur at irregular
intervals and thus are sometimes difficult to plan for or anticipate from a
budgeting perspective.

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Cost Estimating
Types of Estimates
1. Rough Estimate
2. Semi-detailed estimate
3. Detailed estimate
Estimating Models
1. Per unit model
2. Segmenting model
3. Cost indexes
4. Power-sizing model
5. Triangulation
6. Improvement and learning curve

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Cash Flow Diagram (CFD)
Cash flow diagrams visually represent income and expenses over some
time interval.
It is graphical representation of cash flows drawn on the y-axis and a time
scale along x-axis.

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Cash Flow Diagram (CFD)
Categories of Cash Flows
The expenses and receipts due to engineering projects usually fall into one
of the following categories:
First cost: expense to build or to buy and install
Operations and maintenance (O&M): annual expense, such as electricity,
labor, and minor repairs
Salvage value: receipt at project termination for sale or transfer of the
equipment (can be a salvage cost)
Revenues: annual receipts due to sale of products or services
Overhaul: major capital expenditure that occurs during the asset’s life
Revenue

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Interest
1. Simple interest
Simple interest is computed only on original sum (principal), not on prior
interest earned and left in the account.
A bank account, for example, may have its simple interest every year: in this
case, an account with $1000 initial principal and 20% interest per year
would have a balance of $1200 at the end of the first year, $1400 at the end
of the second year, and so on.

2. Compound Interest
Compound interest arises when interest is added to the principal of a
deposit or loan, so that, from that moment on, the interest that has been
added also earns interest. This addition of interest to the principal is
called compounding.
A bank account, for example, may have its interest compounded every year:
in this case, an account with $1000 initial principal and 20% interest per
year would have a balance of $1200 at the end of the first year, $1440 at
the end of the second year, and so on.
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Uniform Series Formula
A A
F

0 1 2 n-1 n 0 1 2 n-1 n
P

   i(1 + i )n 
 = F [A / F , i %, n]  = P( A / P, i %, n )
i A = P
A = F
 (1 + i ) − 1  (1 + i ) − 1
n n

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Arithmetic Gradient Series

 (1 + i )n − in − 1  (1 + i )n − in − 1
F = G  = G[F / G, i %, n] P = G   = G[P / G, i %, n]
 (1 + i ) i
2 n 2
 i  

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Analysis Techniques
Present Worth Analysis
Annual Cash Flow Analysis
Rate of Return Analysis
Incremental Analysis
Other Techniques:
Future Worth Analysis
Benefit-Cost Ratio Analysis
Payback Period Analysis

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Analysis Types

Comparing Alternatives using Annual Cash Flow Analysis:


Same-Length Analysis Period
Different-Length Analysis Periods
Infinite-Length Analysis Period
Other Analysis Periods

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Depreciation
Depreciation is a decrease in value of an asset each year:
a decrease in market value
a decrease in the value to the owner
Important reasons for depreciation include
deterioration
obsolescence

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Question of the Day ?
Write your impression on need of engineering economics
course for your study?
(only a few lines are enough)

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That’s all. Have fun…however from next week we will
study well

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Thank you
Questions….

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