Download CHAPTER 1 INTRODUCTION TO ENGINEERING

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Ir. Dr. Anuar Mat
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Introduction to Subject
Chapter 1 : The World of Project Management
Chapter 2 : The Manager, the Organization, and
Ir. Dr. Anuar Mat
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Safar
Chapter 3 : Planning the Project
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Malaysia Day
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Assignment 1
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Chapter 5 : Scheduling the Project
QUIZ 1
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Chapter 6 : Allocating Resources to the Project
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Hari Raya Aidiladha
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Chapter 8 : Evaluating and Terminating the
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Prof. Zu
Chapter 1 – Introduction to Eng. Econs
Prof Zu
Chapter 2- Concepts & Design
Prof. Zu
Chapter 3 -Relationships & Equivalence
Prof. Zu
Chapter 3 -Relationships & Equivalence
Ir Zulkeflee
QUIZ 1
Chapter 4 -Applications
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Chapter 7 -Price & Exchange rates
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Assignment Deadline
Chapter 5-Comparing Alternatives
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Review
CHAPTER 1
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INTRODUCTION TO
ENGINEERING ECONOMY
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WHAT IS ECONOMICS ?
Economics is the study
of how limited resources
is used to satisfy
unlimited human wants
WHAT IS ECONOMICS ?
It is the study of how
individuals and societies
choose to use scarce
resources that nature and
previous generations have
provided
Resources
•
•
•
Land
Labor
Capital
LAND
Land includes all gifts of nature such as water, air, minerals,
sunshine, plants, trees, and land
that are applied to production
processes
LABOR
Labor includes the efforts, skills,
and knowledge of people, which
are applied to production
processes
CAPITAL
• Real Capital (Physical Capital )
Dollar
Bills
– Tools, buildings, machinery -things
which
have been produced which are used in
production processes
• Financial Capital
– Assets and money which are used in
production processes
• Human Capital
– Education and training applied to labor
in production processes
Why study Engineering
Economics?
• Engineering economics is a subset of
economics for application to
engineering projects
• Engineers seek solutions to problems,
and the economic viability of each
potential solution is normally considered
along with technical engineering
aspects
• Many professional bodies define
engineering as “….a profession in which
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 humankind"
(ABET)
Origins of Engineering
Economy
In the past, economics belong to economists only, while
the engineer limit themselves to technical, ‘hardcore’
engineering matters.
However, over the years, a new perspective emerged. The
engineer should now be concerned about economic
considerations that relate to her/her sphere of work. There
is now the availability of sound techniques to address this
concern.
This differentiates modern engineering practice from that
of the past.
Origins of Engineering
Economy
• During the later part of the 19th century,
Arthur M. Wellington (Civil Engineer)
addressed the role of economic analysis in
engineering projects, particularly in railroad
building projects
• Later, other projects followed, which
emphasized techniques relating to financial
and actuarial mathematics
Some examples where engineering economy
plays a crucial role:
• Choosing the best design for a high-efficiency gas furnace
• Selecting the most suitable robot for a welding operation in
an automotive assembly line
• Making a recommendation about whether jet airplanes for
an overnight delivery service should be purchased or
leased
• Choosing between reusable and disposable bottles for a
brand of beverages
PRINCIPLES OF ENGINEERING
ECONOMY
1. Develop alternatives
2. Focus on differences
3. Usage of a common unit of measure
4. Consider all relevant criteria
5. Make uncertainty explicit
6. Usage of a consistent viewpoint
7. Make the best decision, taking into
account all relevant considerations
8. Revisit the decisions made
DEVELOP ALTERNATIVES
The final choice (decision) is
among several alternatives. All
alternatives must be identified and
then defined explicitly for in-depth
analysis
(there is also the ‘do nothing’ alternative to consider, as
well as non-economic factors to consider (like public image, color, styles, etc))
FOCUS ON DIFFERENCES
Look at differences in expected future
outcomes among the alternatives. The
alternative that makes the biggest
beneficial economic difference should
be considered in the final decision
USE A
COMMON UNIT OF MEASURE
Using a common unit of measurement
to enumerate as many of the
prospective outcomes as possible will
make the analysis and comparison of
alternatives easier
CONSIDER ALL RELEVANT
CRITERIA
Selection of a preferred alternative
(decision making) requires the use of
a criterion (or several criteria). The
decision process should consider the
outcomes enumerated in monetary
unit and some other units of
measurement or made explicit in a
descriptive manner
MAKE UNCERTAINTY EXPLICIT
Uncertainty is inherent in projecting
(or estimating) the future outcomes of
the alternatives. Hence, it should
be recognized in all
analysis and comparisons
“decision under risk” vs.
“decision under uncertainty”
USE A CONSISTENT VIEWPOINT
The outcomes of the alternatives,
economic and otherwise, should be
consistently developed from a defined
consistent viewpoint (perspective)
Make the decision after taking into
account all possible considerations
REVISIT THE DECISION(S)
MADE
Improved decision making results
from an adaptive process
To the extent practicable,
the initial projected outcomes of the
selected alternative should be
continuously compared with actual
results achieved
In short…..
An engineering economy study is
accomplished using a structured
procedure and mathematical modeling
techniques. The economic results are
then used in a decision situation that
involves two or more alternatives and
normally includes other engineering
knowledge and input
ENGINEERING ECONOMIC ANALYSIS
PROCEDURE
1) Problem recognition, formulation, &
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 alternative
7) Performance monitoring and post-evaluation
results
ACCOUNTING AND ENGINEERING
ECONOMY STUDIES
Modern cost accounting and engineering
economy study may satisfy any or all of the
following objectives:
1) To determine the cost of products or services
2) To provide a rational basis for pricing goods or
services
3) To provide a means for controlling expenditures
4) To provide information upon which operating
decisions may be based and the results
evaluated