1.3.

Types of engineering economic decisions

We as people are first forced to make decisions on a daily basis which will have
a positive or negative impact on our future; In a similar way it will happen in an
Agroindustrial Engineer since due to the profession we will be performing tasks
in a company.

Every company needs the initiative of new projects, it is there where we find
different alternatives to achieve the creation and objective of said project, for
which the application of Economic Engineering is essential for us as
Agroindustrial Engineers; Once project ideas are identified, they are typically
classified as: 1. improvements in service or quality, 2. new products or product
expansion, 3. equipment and process selection, 4. cost reduction or 5.
Equipment replacement. The larger the investment, the more detailed the
analysis required to support the expense. For example, the costs of
manufacturing a new product would invariably require a very detailed economic
justification. Final decisions about new products and marketing decisions are
usually made at the highest levels of a company. On the other hand, a decision
to repair damaged equipment is made at a lower level of the company.

1. Improvements in service or quality: Investments in this category

include any activity that contributes to improving productivity, product
quality and customer satisfaction in the service sector, such as in the
financial area, in health services , etc.
An example applied to Agroindustrial engineering, an improvement in
Customer satisfaction, where an ice packaging company considers it
necessary to hire more employees, since those it has are not supplied to
fulfill its customers' orders.
Now the company's main problem is determining how much demand the
packaged ice would generate. How many bags of ice would the company
need to sell to justify the cost of more employees in that area?
2. New products or product expansion: Investments in this category are
those that increase a company's profits if production is increased.
There are two common types of expansion decision problems.
  The first type of decision making is about the expenses incurred that
must be taken into consideration with the aim of increasing the
company's production. In these situations, the first question one asks
is: “Should we build or, in any case, acquire new facilities?”
The expected future cash inflows in this investment category are the
profits from the goods and services produced in the newly acquired
facilities.

 The second type of decision problem takes into consideration the

expenses necessary to manufacture a new product or to expand to a
new geographic area. These projects generally require investing large
sums of money over long periods.

For example, at the beginning of 2014, Grupo Gloria completed the

purchase of 100% of three Colombian companies: Incolácteos,
Lechesan and Conservas California, as well as some of the assets of
Erwis Asociados and Enfriadora Vallenata, for an approximate
value of US$86. millions.
The transaction was made directly by Gloria Foods Jorb through its
subsidiary Algarra in Colombia, and considers the acquisition of
100% of the share capital and brands of Industria Colombiana de
Lácteos, Limitada – Incolácteos; Conservas California and
Santadereana Milk Pasteurizing Society – Lechesan.
“This group of companies is dedicated to the production and sale
of milk, yogurts, dairy derivatives, juices, nectars, sauces,
ozonated water , among others, with annual sales of approximately
US$76 million.
Lechesan is one of the pioneering dairy companies in Colombia ,
while Conservas California is one of the main companies in the
nectars, juices and sauces industry.

3. Equipment and process selection: This type of economic engineering

decision problem involves selecting the best way to act when there are
 several ways to achieve the requirements and objectives of a project.
Which of the various items of equipment should we purchase for a
specific purpose? The decision in these cases is often taken into account
to generate the greatest profits, that is, the equipment or item that
generates the greatest profits is selected, compared to the other items
that perform the same function.
An example for this case would be: In a beverage company you want to
carry out the project of manufacturing your own containers, for this you
need to buy new machinery, along with this you will have to invest in "x"
materials, labor, etc. For this, the Agroindustrial engineer must take into
account all these points, also evaluate the performance, cycle times of
various processes, production waste material, etc.

4. Cost reduction: The intention of a cost reduction project is to reduce the

operating costs of a company. For this, what must commonly be taken
into account is whether or not the company should purchase equipment
to develop an operation that is currently done manually or, in other
cases, spend now to save more money later.
The cash profits obtained after the investment is made will be the result
of the reduction in operating costs. Another common decision is whether
to produce a portion of the product in-house or purchase it from a
supplier to reduce the total cost of production. This is commonly known
as make-or-buy (or outsourcing) analysis.
Example: A bottled water company uses 4 drum fillers with a capacity of
2 drums at a time. In order to reduce costs, it takes into consideration the
purchase of automated fillers with a capacity of 4 drums at a time.

5. Equipment replacement: In this case the investment decision requires

considering the expense necessary to replace worn or obsolete
equipment.

1.4. Fundamental principles of economic engineering

There are basic fundamental principles that must be taken into account in any
decision to be made by the engineer, ensuring the economy of the company for
which he works.

The four principles of economic engineering are as follows:

 Principle 1: A dollar that is close is worth more than a dollar that
is far.
A fundamental concept in economic engineering is that “money has a
time value”, in an example we can see: if a company requests credit
today, tomorrow it will owe more than the capital of the original loan.
This is one of the most important concepts in economic engineering.

 Principle 2: The only thing that counts are the differences

between the alternatives.
An economic decision must be based on the differences between the
alternatives considered.
Everything that is common between the alternatives should not be
taken into account for the decision. This does not mean that the
selected alternative is better than the others. Therefore, an economic
decision in the company must be based on the objective of making
better use of limited resources. Something is always sacrificed in any
choice that is made. The opportunity cost of a choice is the value of
the best alternative sacrificed.

 Principle 3: Marginal revenue must exceed marginal cost.

Any larger expense or investment must be justified under this
principle.
Productive resources, such as natural resources, human resources,
and capital assets available to make goods and services, are limited.
Therefore, people cannot have all the goods and services they want;
As a result, they must choose those options that are most profitable.

 Principle 4: No additional risk is taken if there is no additional

expected gain.
 For future consumption, investors demand a minimum profit that must
be greater than the anticipated rate of inflation or any perceived risk.
If they are not sure they will receive enough to offset anticipated
inflation and perceived investment risk, one option for investors would
be to purchase any assets they want in advance or invest in assets
that could offer enough profits to offset any losses caused by inflation.
or potential risk.

CONCLUSION
 The application of Economic engineering in Agroindustrial
engineering is quite relevant, since for any decision making, no
matter how small, it has to be made and analyzed taking care of the
economy of the company for which it works, also ensuring
compliance with the requirements and objectives of the projects.