Module 1

INTRODUCTION TO ENGINEERING ECONOMY

I. Intended Learning Outcomes

At the end of this lesson, you are expected to:

1. know what is engineering economy

2. state the importance of engineering economy
3. state and explain the principles of engineering economy
4. explain and internalize the role of engineers in economic decision

II. Content

Introduction

The need for engineering economy is primarily motivated by the work that engineers do in
performing analyses, synthesizing, and coming to a conclusion as they work on projects of all sizes
(Leland, B. and Tarquin, A. 2012). The utilization of scientific and engineering knowledge for our benefit
is achieved through the design of things we use, such as furnaces for vaporizing trash and structures for
supporting magnetic railways (Sullivan, W.G. et.al. 2015). However, these achievements don’t occur
without a price, monetary or otherwise.

Definition of Terms

Economics – is the science that deals with the production and consumption of goods and
services and the distribution and rendering of these for human welfare.

Engineering Economy – involves the systematic evaluation of the economic merits of proposed
solutions to engineering problems (Sullivan, et.al.).

- deals with the evaluation of systems, products, and services in relationship to their costs.
Engineering economy is a field that addresses the dynamic environment of economic
calculations and principles through the prism of engineering. It is a fundamental skill that
all successful engineering firms employ in order to retain competitive advantage and
market share (Gerges, n.d.)

- involves formulating, estimating, and evaluating the expected economic outcomes of

alternatives designed to accomplish a defined purpose.

Importance of Engineering Economy

1. Seeking new objectives for the application of engineering

2. Discovery of factors limiting the success of a venture or enterprise
3. Comparison of alternatives as a basis for decision
4. Analysis of possible investment of capital
5. Determination of bases for decision

ENG’G103 SY 2021-2022
History of Engineering Economy

Engineering economy is recent as a science but it has been practiced a long time.

Arthur M. Wellington, a civil engineer, pioneered engineering interest in economic evaluation. His
interest was railway in USA.

In 1940, Eugene Grant published a text book entitled Principles of Engineering Economy. He
is considered as the father of engineering economy.

Principles of Engineering Economy

The development, study and application of any discipline must begin with a basic foundation
Engineering economy involves set of principles. In engineering economic analysis, experiences has
shown that most errors can be traced to some violation or lack of adherence to the basic principles.

Principle 1 – Develop the Alternatives

Principle 2 – Focus on the Difference
Principle 3 – Use a Consistent View Point
Principle 4 – Use a Common Unit of Measure
Principle 5 – Consider All Relevant Criteria
Principle 6 – Make Uncertainty Explicit
Principle 7 – Revisit Your Decision

Role of Engineers on Economic Decision

Engineering is involved in every detail of product’s production, from the conceptual design to the
shipping. Engineering decisions accounts majority of product cost. One of the engineer’s primary task is
to plan for the acquisition of equipment (capital expenditure decision).

Engineers play a role in effective utilization of assets. They utilize same technique for engineering
economic decision.

Engineers are called upon to translate an idea into reality. Constant flow of innovative and
creative ideas for generating new products as per ever changing needs of its clients in dynamic
environment and market conditions affect growth and development of firm, also make competitive.

Steps in the Engineering Economic Decision Making

1. Identification of problem and prospects

2. Develop feasible and relevant alternatives
3. Determine appropriate selection criteria
4. Analysis, comparison of various alternatives
5. Evaluate and recommend the alternative
6. Select the best alternative
7. Implementation of the selected alternative
8. Monitoring and controlling

ENG’G103 SY 2021-2022