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EE 01 Introduction and Basic Concepts

This document provides an introduction to engineering economics concepts. It discusses what engineering and economy are and defines engineering economics as the systematic evaluation of the economic merits of proposed engineering solutions. The document then provides an example problem comparing two alternative methods for the second half of a manufacturing order. It outlines the expected outcomes of the course as understanding cost estimation and analytical techniques for comparing alternatives. The document concludes with discussing rational decision making and the role of engineering economics in addressing problems where economic aspects are important.

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Mariani Sinaga
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© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
47 views

EE 01 Introduction and Basic Concepts

This document provides an introduction to engineering economics concepts. It discusses what engineering and economy are and defines engineering economics as the systematic evaluation of the economic merits of proposed engineering solutions. The document then provides an example problem comparing two alternative methods for the second half of a manufacturing order. It outlines the expected outcomes of the course as understanding cost estimation and analytical techniques for comparing alternatives. The document concludes with discussing rational decision making and the role of engineering economics in addressing problems where economic aspects are important.

Uploaded by

Mariani Sinaga
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

EKONOMIKA TEKNIK

INTRODUCTION & BASIC CONCEPTS


Discussion

As a student, you have made many economic


decisions. Can you name them?

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Discussion
What is Engineering?

What is Economy?

So, what is it that we called


Engineering Economic?

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Engineering Economics

Engineering Economics is defined as systematic


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

It is about making economic decisions. To make


one, you need the right tools : principles and
procedures.

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Engineering Economic
Problem (1)
• A machine part is manufactured at a unit cost of 40
cent for material and 15 cents for direct labor. An
investment of $500,000 in tooling is required. The
order calls for 3 million pieces. Halfway through the
order, a new method of manufacture can be put into
effect that will reduce the unit cost to 34 cents for
materials and 10 cents for direct labor-but it will require
$100,000 for additional tooling. This tooling will not be
useful for future orders. Other costs are allocated at
2.5 times the direct labor cost.
• What if anything should be done?

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Engineering Economic
Problem (2)
• Since there is only one way to handle 1.5 million pieces, our problem
concerns only the second half of the order.

• Alternative A : Continue with Present Method


• Material cost 1,500,000 pieces x 0.40 = $600,000
• Direct labor cost 1,500,000 pieces x 0.15 = $225,000
• Other costs 2.50 x direct labor cost = $562,500
• Cost for remaining 1,500,000 pieces
$1,387,500

• Alternative B : Change the Manufacturing Method


• Additional tooling cost = $100,000
• Material cost 1,500,000 pieces x 0.34 = $510,000
• Direct labor cost 1,500,000 pieces x 0.10 = $150,000
• Other costs 2.50 x direct labor cost = $375,000
• Cost for remaining 1,500,000 pieces
$1,135,000
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Expected outcomes

• For you to :
• Understand the concept of concepts of cost in
engineering projects and cost estimation
techniques.
• Understand the basic concepts of time value of
money, depreciation, inflation and price change.
• Be proficient in comparing alternatives and able to
asses trade-offs using variety of analytical
techniques.
• Be able to evaluate justifications prepared by others

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Syllabus Overview

• Introduction • Uncertainty Analysis

• Engineering and Cost • Depreciation


Estimation
• Economic Analysis in
• Interest and Equivalence Public Sectors

• Present Worth Analysis

• Annual Cash Flow


Analysis

• Rate of Return Analysis

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Course Policies

• Classroom participation – speak up!

• Readings – prepare beforehand.

• Assignment, due dates, late work, and


incompletes – consequences.

• Classroom conduct – common courtesy

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Reference
Our reference, but not limited to :

• Donald G. Newnan et al., I Nyoman Pujawan, Ekonomi


Engineering Economics Teknik, Guna Widya. Suarabaya,
Analysis, Oxford University 2009
Press. Oxford, 2004

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Discussion

• Take a look at this case


At a race track, a bettor was uncertain about
which of the five horses to bet on in the next
race. He closed his eyes and pointed his
finger at the list of horses printed in the racing
program. Upon opening his eyes, he saw that
he was pointing to horse number 4. He
hurried off to place his bet on that horse.
• Does this represent the process of decision
making?

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Rational Decision Making

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Economic Criterion
Category Economic Criterion Example of Problem

Fixed Maximize the benefits or other A project engineer has a


input outputs budget of $350,000 to
overhaul a portion of
petroleum refinery
Fixed Minimize the costs or other Lamborghini wants to produce
output inputs limited edition of super car.

Neither Maximize (benefits or other A consulting engineering firm


input nor outputs minus costs or other has more work available than
output inputs) or, stated another way, it can handle. It is considering
fixed maximize profit paying the staff for working
evenings to increase the
amount of work it can perform.
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Important Principles

• An economic decision is only as good as the


alternatives considered.
• So, do identify and defined the alternatives

• An economic decision should be based on the


differences among the alternatives
•  Ignore what is common.

• Take uncertainty into account


•  Forecast is not easy but try to make educated
forecast describing each alternative

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Important Principles

• An earlier dollar is worth more than a later dollar 


time value of money

• Marginal revenue must exceed marginal cost

• Additional risk is not taken without expected


additional return

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Further References
• Park, Chan S. 1997. Contemporary Engineering Economics. 2nd Edition.
Addison-Wesley.

• Sharma, Kal Renganathan. 2015. An Introduction to Engineering


Economics. Cognella Academic Publishing. San Diego

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Back up Material

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Grading

No Category Due date Weight


1 Quizzes and homework Impromptu 20%
2 Written exam during the mid-term exam Week #8 25%
period
3 Case study project (report + presentation) Week #12 30%
4 Written Exam during the final week Week #16 25%

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Rational Decision Making
1. Recognize problem

2. Define the goal

3. Assembly relevant data

4. Identify feasible alternatives

5. Select the criterion to determine the best alternatives

6. Construct a model

7. Predict each alternatives outcome

8. Choose the best alternative

9. Audit the result

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Role of Engineering
Economic
• By difficulty, problems can be classified as :
simple problems, intermediate problems, and
complex problems.

• The one we are interested should have these


qualities :
• The economic aspects are important in reaching
decision
• Requires careful analysis to asses all of the
consequences

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