المحاضرة الأولى في مقرر الاقتصاد الهندسي، جامعة...

ENGINEERING

ECONOMY

Muhammad Aljalali, Ph.D.

Al-Yarmouk Private University

Introduce Myself

Associate Professor in Al-Yarmouk Private University, faculty of Civil Engineering, 2016-

Associate Professor in Damascus University, faculty of Civil Engineering, 2013-2016Courses:

Engineering Economics and Business Management

Engineering Projects Management

Legal and Economic Issues for Construction (Post grad.)

Basics of Scientific Research (post grad.)

Minister of Communications and Technology, 2014-2016.

Deputy Minister of Communications and Technology, 2008-2014.

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Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy

Introduce Myself

Advisor for many Public Authorities.

Practical Experience:

Feasibility Studies

Contract Documents Preparing

Laws Development

Training in Engineering Contracts, FIDIC Contracts,

Construction Management, and Economic Analysis of

Engineering Projects.

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Course Textbook4


Engineering

Economy, Sixteen

Edition 2015.

William G. Sullivan,

Elin M. Wicks, and C.

Patrick Koelling

Course Contents5


Introduction to Engineering Economy.

Cost Concepts and Design Economics.

Cost-Estimation Techniques.

Time Value of Money.

Evaluating a Single Project.

Comparison and Selecting among Alternatives.

Depreciation and Income Taxes.

Price Changes and Exchange Rates.

Replacement Analysis

1INTRODUCTION TO

ENGINEERING ECONOMY

Muhammad Aljalali, Ph.D.

Introduction


7

The engineers role is making design of things,

Engineers achievements need price,

The basic economic question:

Do its benefits exceed its costs

Introduction


8

“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.”

Accreditation board of Engineering and Technology

Engineering

Introduction


9

Scientific Discoveries ProductsEngineering

Engineering

Introduction


10

Economics

Economics is the study of how men and society end up choosing, with or without the use of money, to employ scarce productive recourses that would have alternativeuses, to produce various commodities and distribute them for consumption, now or in the future, among various people and groups in society.

It analyzes the costs and benefits of improving patterns of resource allocation.

The economy is the choosing.

Introduction


11

Economic Problem

UNSATISFIED

WANTS

WANTS

WHICH CAN

BE SATISFIED

FROM

FREE GOODS SCARCE RESOURCES

Introduction


12

Economic Problem

Introduction


13

Engineering Economy

The systematic evaluation of the economic merits of

proposed solutions to engineering problems.

Solutions to engineering problems must demonstrate

a positive balance of long-term benefits over long-

term costs.

And ….

Introduction


14

Engineering Economy

Promote the well-being and survival of an

organization,

Embody creative and innovative technology and ideas,

Permit identification and scrutiny of their estimated

outcomes, and

Translate profitability to the “bottom line” though a

valid and acceptable measure of merit.

Introduction


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Engineering Economy

Dollar and cents side of decisions,

Tradeoffs among different types of costs and performance,

The mission of engineering economy is to balance these tradeoffs in the most economic matters.

Introduction


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Engineering Economy Problems

Choosing the best design,

Selecting the most suitable equipment,

Lease or buy decision,

Equipment replacement life,

Financing public projects or works.

Principles of Engineering Economy


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1. Develop the alternatives.

2. Focus on the differences.

3. Use a consistent viewpoint.

4. Use a common unit of measure

5. Consider all relevant criteria.

6. Make uncertainty explicit.

7. Revisit your decisions.



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Carefully define the problem! The choice

(decision) is among alternatives. The alternatives

need to be identified and then defined for

subsequent analysis.

Principle 1 — Develop the Alternatives



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Only the differences in expected future outcome

among the alternatives are relevant to their

comparison and should be considered in the

decision.

Principle 2 — Focus on the Differences



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The prospective outcomes of the alternatives,

economic and other, should be consistently

developed from a defined viewpoint

(perspective).

Principle 3 — Use a Consistent Viewpoint



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Using a common unit of measurement to

enumerate as many of the prospective outcomes

as possible will simplify the analysis of the

alternatives.

Principle 4 — Use a Common Unit of Measure



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Selection of a preferred alternative (decision

making) 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

manner.

Principle 5 — Consider All Relevant Criteria



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Risk and uncertainty are inherent in estimating

the future outcomes of the alternatives and

should be recognized in their analysis and

comparison.

Principle 6 — Make Risk and Uncertainty Explicit



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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.

Principle 7 — Revisit Your Decision

Engineering Economy and the Design

Process


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An engineering economy study is accomplished using

a structured procedure and mathematical modeling

techniques.

The economic results are then used in decision

situation that involves two or more alternatives and

normally includes other engineering knowledge and

input.

Engineering Economy and the Design

Process


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Engineering economic analysis procedure

Step

1. Problem recognition, definition, and evaluation.

2. Development of the feasible alternatives.

3. Development of the cash flows for each alternative.

4. Selection of a criterion (or criteria).

5. Analysis and comparison of the alternatives.

6. Selection of the preferred alternatives

7. Performance monitoring and post-evaluation of results.

Engineering design process

Activity

1. Problem/need definition

2. Problem/need formulation and evaluation.

3. Synthesis of possible solutions (alternatives).

4. Analysis, optimization, and evaluation.

5. Specification of preferred alternative.

6. Communication.

Engineering Economic Analysis Steps


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• Internal or external organizational needs

• Operating problem

• Customer expectation

• Systems perspective

Redefining the problem until a consensus is reached may be the

most important part of the problem solving process!

Problem Definition



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Problem Definition

Develop of Alternatives

1. Searching for superior alternatives

2. Screening them to select a smaller group of alternatives



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Problem Definition


1. Concentrate on redefining one problem at a time in step 1.

2. Develop many redefinitions for the problem.

3. Avoid making judgments as new problem definitions are created.

4. Attempt to redefine a problem in terms that are dramatically

different from the original step 1 problem definition.

5. Make sure that the true problem is well researched and

understood.

1. Searching for superior alternatives



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Problem Definition


1. Classical brainstorming.

2. Nominal group technique NGT.

2. Developing investment alternatives



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Problem Definition

Develop of Alternatives 2. Developing investment alternatives

Classical Brainstorming:

Fundamental principles:

Deferment of judgment,

Quantity breeds quality.



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Problem Definition



Successful Rules:

1. Criticism is ruled out.

2. Freewheeling is welcomed.

3. Quantity is wanted.

4. Combination and improvement are sought.



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Problem Definition



Basic steps:

1. Preparation.

2. Brainstorming.

3. Evaluation.



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Problem Definition


Nominal Group Technique (NGT)The basic format:

1. Individual silent generation of ideas

2. Individual round-robin feedback and recording of ideas

3. Group clarification of each idea

4. Individual voting and ranking to prioritize ideas

5. Discussion of group consensus results



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Problem Definition


Nominal Group Technique (NGT)

Successful Rules:

1. Avoid the dominance of one or more

participants.

2. Avoid the suppression of conflicting

ideas.



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Problem Definition


Nominal Group Technique (NGT)

Basic steps:

1. Facilitator role.

2. Silent-generation phase (few minutes).

3. Present one idea for each participant.

4. Record each idea and discuss it.

5. Voting process.



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Problem Definition


Develop Prospective outcomes

Define benefits and costs of each alternative,

Consider nonmonetary factors,

Cash flow.



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Problem Definition



Analysis of Alternatives

According to Decision Criteria



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Problem Definition



Analysis of Alternatives

Preferred Alternative

Perf

orm

ance

Monitori

ng a

nd

Post

evalu

ation o

f R

esu

lts

Homework


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Self homework:

Problems 1-1 to 1-11.