ดร.เตือนใจ สมบรูณวิวัฒน 1
Introduction to Engineering Economy/Engineering Economic Decisions
Engineering Economy :Collection of mathematical techniques that simplify economic comparisons when making moderate decisions.
Grant et. al Principles of Engineering Economy “An economy study may be defined as a comparison between alternatives in which the differences between alternatives are expressed so far as practicable in money terms. Where technical considerations are somehow involved, such comparisons may be called an engineering economy study”
ดร.เตือนใจ สมบรูณวิวัฒน 2
Personal Life
- Investment alternatives- Vehicle financing alternatives- etc.
Engineering Economic Decisions
ดร.เตือนใจ สมบรูณวิวัฒน 3
Evaluating material handling alternatives in an automated sheet metal assembly system.
• Technical requirements & constraintsWeight, speed, reliability, energy, etc.Available space, ceiling height, corporate standard system, etc.
• EconomicsInitial costMaintenance costsYears of useScrap costTax implications
• Intangibles – Vendor relationships
ดร.เตือนใจ สมบรูณวิวัฒน 4
Chapter 1Engineering Economic Decisions• Rational Decision-Making
Process• Economic Decisions• Predicting Future• Role of Engineers in
Business• Large-scale engineering
projects• Types of strategic
engineering economic decisions
ดร.เตือนใจ สมบรูณวิวัฒน 5
Rational Decision-Making Process
1. Recognize a decision problem
2. Define the goals or objectives
3. Collect all the relevant information
4. Identify a set of feasible decision alternatives
5. Select the decision criterion to use
6. Select the best alternative
ดร.เตือนใจ สมบรูณวิวัฒน 6
Which Car to Lease?1. Recognize a decision
problem2. Define the goals or
objectives3. Collect all the relevant
information4. Identify a set of feasible
decision alternatives5. Select the decision
criterion to use6. Select the best alternative
• Need a car
• Want mechanical security
• Gather technical as well as financial data
• Choose between Saturn and Honda
• Want minimum total cash outlay
• Select Honda
ดร.เตือนใจ สมบรูณวิวัฒน 7
Engineering Economic Decisions
Planning Investment
Marketing
ProfitManufacturing
ดร.เตือนใจ สมบรูณวิวัฒน 8
Predicting the Future
• Required investment• Forecasting product
demand• Estimating selling
price• Estimating
manufacturing cost• Estimating product life
ดร.เตือนใจ สมบรูณวิวัฒน 9
Role of Engineers in Business
• Participate in a variety of decision-making processes, ranging from manufacturing, through marketing, to financing decisions
• Plan for the acquisition of equipment
• Design products from the concept to shipping
ดร.เตือนใจ สมบรูณวิวัฒน 10
A Large-Scale Engineering Project
• Requires a large sum of investment
• Takes a long time to see the financial outcomes
• Difficult to predict the revenue and cost streams
ดร.เตือนใจ สมบรูณวิวัฒน 11
Types of Strategic Engineering Economic Decisions
• Equipment and Process Selection• Equipment Replacement• New Product and Product Expansion• Cost Reduction• Service Improvement• Public Works• Cost Effectiveness
ดร.เตือนใจ สมบรูณวิวัฒน 12
Equipment & Process Selection
• How do you choose between Plastic SMC and Steel sheet stock for the auto body panel?
• The choice of material will dictate the manufacturing process for the body panel as well as manufacturing costs.
ดร.เตือนใจ สมบรูณวิวัฒน 13
Which Material to Choose?
ดร.เตือนใจ สมบรูณวิวัฒน 14
Equipment Replacement
• Now is the time to replace the old machine?
• If not, when is the right time to replace the old equipment?
ดร.เตือนใจ สมบรูณวิวัฒน 15
New Product and Product Expansion
• Shall we build or acquire a new facility to meet the increased demand?
• Is it worth spending money to market a new product?
Gillette’s MACH3 Project
ดร.เตือนใจ สมบรูณวิวัฒน 16
Cost Reduction
• Should a company buy equipment to perform an operation now done manually?
• Should spend money now in order to save more money later?
ดร.เตือนใจ สมบรูณวิวัฒน 17
Service Improvement• How many more jeans would Levi need to sell to justify
the cost of additional robotic tailors?
ดร.เตือนใจ สมบรูณวิวัฒน 18
Summary
• The term engineering economic decision refers to all investment decisions relating to engineering projects.
• The five main types of engineering economic decisions are (1) equipment and process selection, (2) equipment replacement, (3) new product and product expansion, (4) cost reduction, and (5) service improvement.
• The factors of time and uncertainty are the defining aspects of any investment project.