Engineering Economy

and Management

Chapter 1: Introduction to
Engineering Economy

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 ENGINEERING ECONOMY AND
MANAGEMENT
Course Title -371
This Course Is Designed For Civil Engineering
Students In Their Third Year. The Course Intends
To Introduce The concepts of Engineering
Economy And Management, Concepts of time value
of money , Simple And Compound Interest ,Interest
formulas, Decision Making Among Alternatives And
Evaluation Of Public Projects. Inflation, depletion
and Depreciation Calculations ,Cost Of Owning And
Operating equipment, Breakeven, Minimum cost
.life, Replacement analysis

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 Engineering Economy and Management CE371
Chapter-1

Introduction -1
What is Management and Engineering – 2
Economy
The Principles of Engineering Economy -3
The Role of Engineering Economy– 4
The Process of Decision Making – 5
Category of costs-6
Example -6

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 ‫االقتصاد الهندسي‪ :‬فرع من فروع علم االقتصاد حديث نسبيا يهتم بإجراء الدراسات المتخصصة والتفصيلية‬
‫التحليلية والعلمية لإلنتاج والتسويق والتمويل وكفاءة األداء والربحية للمشروعات القائمة أو المنوي إقامتها في‬
‫المستقبل‬
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 Costs can be categorized in several
different ways.

• Fixed cost: unaffected by changes in activity level

(Insurance, taxes, and any license fees)
• Variable cost: vary in total with the quantity of output
(Direct labor, Materials used in the product )
• Incremental cost: additional cost resulting from
increasing output of a system by one (or more) units
( Car driving cost )

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 More ways to categorize costs

• Direct: can be measured and allocated to a specific

work activity
(Materials, Labor)
• Indirect: difficult to attribute or allocate to a
specific output or work activity
(overhead, maintenance)
• Standard cost: cost per unit of output,
Standard costs play an important role in cost control and
other management functions.
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• Cash cost: a cost that involves a payment of cash.
• Book cost: a cost that does not involve a cash
transaction but is reflected in the accounting
system.
( equipments, machines, Depreciation)

• Sunk cost: a cost that has occurred in the past and

has no relevance to estimates of future costs and
revenues related to an alternative course of action.
(money spend on a passport)

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• Opportunity cost: the monetary advantage foregone
due to limited resources. The cost of the best rejected
opportunity.
( A student can work with 10,000$ Per year.
or go to the university for a year and spend 5,000$.
Opportunity cost = 15,000$)

• Life-cycle cost: the summation of all costs related to a

product, structure, system, or service during its life
span.

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 Job Requires 50,000 cubic yard of asphalt, 17 weeks of 5 days
per week

1. Compare the two sites in terms of their fixed, variable and total cost

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2. Which is the better site? Site B

3. How many cubic yards of asphalt does the contractor have to

deliver before starting to make a profit if paid 8.05$ per cubic yard

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