Download Economic Analysis in Service Sector

Economic Analysis in the Service
Sector
Lecture No. 52
Chapter 16
Contemporary Engineering Economics
Copyright © 2016
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Chapter Opening Story
 Motor vehicle crashes cost
$871 billion in economic
loss and social harm.
 To reduce road accidents
caused by mechanical
defects, many states
implement various car
inspection program.
 The State of Pennsylvania’s
$25 million motor vehicle
inspection program would
reduce the fatal crashes by
127–169 per year.
 Is it worth undertaking?
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Contribution of the Service Sector to the U.S.
Gross Domestic Product (GDP)
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
What Is Service Sector?






Commercial Transportation
Logistics and Distribution
Healthcare Delivery
Financial Engineering
Electronic Markets and Auctions
After-Sale Equipment Monitoring, Maintenance and
Repair
 Retailing, Hotel, and Restaurant
 Hospitality and Entertainment
 Customer Call/Contact Centers
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Some Unique Characteristics
of Service Sector
Source: National Science Foundation, 2002
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 1
o Services are generally intangible.
They have sometimes been defined as
anything of economic value that cannot be
held or touched.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 2
o It is usually impossible to build inventories of
services.
o Either the demand for the service must be
backlogged or enough resources need to be
provided to meet an acceptable fraction of
the demand as it arises.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 3
o Services are more dynamic and demandresponsive than manufactured products.
o This means variability and risk are more
central issues in service industries.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 4
o Many services (examples are medical
treatment and equipment repair) require a
diagnostic step to design the service (coproduction) as part of its delivery.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 5
o Service products are usually less standardized
and less subject to design specifications than
manufactured goods because the outputs are
tailored to customer needs as they are
delivered.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 6
o The dimensions of service quality are more
subtle and subjective than with physical
products.
o Not only are the parameters of services more
difficult to express, but customer perceptions
play a much greater role in deciding what is
satisfactory or valuable.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 7
o Most service operations are more laborintensive than manufacturing industries.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 8
o Compared to goods industries, a much
greater fraction of the service economy is
operated by governments and institutions.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Property 9
o Information technology is central in service
industries. Often it is the only significant
equipment available to multiply human
output.
Contemporary Engineering Economics, 6th edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved