Engineering Economic Decisions

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L1: Engineering Economic Decisions
ECON 320 Engineering Economics Mahmut Ali GOKCE Industrial Systems Engineering Computer Sciences

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Lecture No.1 Chapter 1 Engineering Economic Decisions
 Rational Decision- making Process  The Engineer’s Role in Business  Types of Strategic Engineering Economic Decisions  Fundamental Principles in Engineering Economics

Bose Corporation

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Chapter Opening Story - Bose Corporation
 Dr. Amar Bose, a graduate of electrical engineering, an MIT professor, and Chairman of Bose Corporation.  He invented a directional home speaker system that reproduces the concert experience.  He formed Bose Corporation in 1964 and became the world’s No.1 speaker maker.  He became the 288th wealthiest American in 2002 by Forbes magazine.

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Engineering Economics Overview
• • • • • • Rational Decision-Making Process Economic Decisions Predicting Future Role of Engineers in Business Large-scale engineering projects Types of strategic engineering economic decisions www.izmirekonomi.edu.tr

Rational Decision-Making Process
1.
2.

3.
4. 5. 6.

Recognize a decision problem Define the goals or objectives Collect all the relevant information Identify a set of feasible decision alternatives Select the decision criterion to use Select the best alternative

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Which Car to Lease? Saturn vs. Honda
1.
2.

3.
4. 5. 6.

Recognize a decision problem Define the goals or objectives Collect all the relevant information Identify a set of feasible decision alternatives Select the decision criterion to use Select the best alternative


   

Need a car
Want mechanical security Gather technical as well as financial data Choose between Saturn and Honda Want minimum total cash outlay Select Honda



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Financial Data Required to Make an Economic Decision

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Engineering Economic Decisions
Manufacturing Profit

Planning

Investment Marketing
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Predicting the Future
 Estimating a Required investment  Forecasting a product demand  Estimating a selling price  Estimating a manufacturing cost  Estimating a product life www.izmirekonomi.edu.tr

Role of Engineers in Business
Create & Design • Engineering Projects

Analyze • Production Methods • Engineering Safety • Environmental Impacts • Market Assessment

Evaluate • Expected Profitability • Timing of Cash Flows • Degree of Financial Risk

Evaluate • Impact on Financial Statements • Firm’s Market Value • Stock Price

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Accounting Vs. Accounting
Evaluating past performance Evaluating and predicting future events

Accounting
Past

Engineering Economy
Future Present

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Two Factors in Engineering Economic Decisions
The factors of time and uncertainty are the defining aspects of any engineering economic decisions

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A Large-Scale Engineering Project
 Requires a large sum of investment  Takes a long time to see the financial outcomes  Difficult to predict the revenue and cost streams

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Types of Strategic Engineering Economic Decisions in Manufacturing Sector Service Improvement Equipment and Process Selection Equipment Replacement New Product and Product Expansion Cost Reduction

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U.S. Gross Domestic Products (GDP)
Manufacturing (14%)

Service sector (80%)
Healthcare (14%) Agriculture (2%)

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Industrial Employment
Industry 1993 1983-94 1994-2005 Employment National Projected distribution Average Change Manufacturing 12.6% -0.70% -7.2% Services Retail trade Financial 30.5% 16.7% 8.0% 60.0% 31.1% 26.8% 39.0% 13.0% 6.3%

Source: Bureau of Economic Analysis/Bureau of Labor Statistics

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Types of Strategic Engineering Economic...
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