ENGINEERING ECONOMICS
Lec # 01 ASST PROF. ENGR
Introduction to
engineering economics ALI SALMAN
alisalman@
DEPARTMENT ceme.nust.edu.pk
DEPARTMENT
OF
OF
ENGINEERING
ENGINEERING MANAGEMENT
MANAGEMENT
NUST,
NUST, COLLEGE
COLLEGEOF
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ALI SALMAN 1
Engineering
Engineering is the 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 mankind.
Note: This definition emphasizes the applied
nature and economic aspects of engineering.
Source: ABET (Accreditation Board for Engineering and Technology-USA) 2
Economics
The branch of social science that deals with
the production, distribution and consumption of
goods and services.
The study of how limited resources are used to
satisfy unlimited human wants.
The study of how individuals and societies
choose to use limited resources that nature and
previous generations have provided.
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Engineering Economics
Engineering Economics is a subset of
economics for application to engineering.
Engineers seek solutions to problems, and
the economic viability of each potential
solution is normally considered along with
the technical aspects.
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Engineering Economy
It is the collection of techniques that
simplify the comparisons of alternatives on
economic basis.
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Needs vs. Wants
• Needs – what people
must have to live.
o Food
o Clothing
o Shelter
• Wants – the things we would like to
have, but can live without.
Why Study Engineering
Economics?
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Why Study Engineering Economics?
• There is a traditional perception stating that engineers
deal with technical part of projects and financial
matters are left to economists and financial analysts.
• Nowadays, the situation is different. Engineers are
not limited to their conventional (core) activities. Their
role is expanding. They are actively involved in
strategic and operational decision making processes
of their companies.
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• On top of that many engineers are expected to
establish their own firms. In this scenario, they need
to acquire broad knowledge to run their companies
effectively and efficiently.
• Therefore, learning the concepts, techniques and
methods of engineering economics can help them to
analyze initiated projects from the economic point of
view.
• In reality, any engineering project must be not only
physically realizable but also economically
affordable.
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For example, a child tricycle could be built with an
aluminum frame or a composite frame.
Some may argue that the composite frame will be
stronger and lighter, it is a better choice.
However, there is not much of a market for thousand
dollar tricycle.
This scenario reinforces the idea that the economic
factors of a design weigh heavily in the design
process, and that engineering economics is an
integral part of that process, regardless of the
engineering discipline.
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Role in Capital Investment Decisions
Engineers play a major role in capital
investment decisions based on their analysis,
synthesis and design efforts.
The factors considered in making the
decision are a combination of economic and
non economic factors.
Additional factors may be intangible, such as
convenience, goodwill, friendship and others.
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Fundamentally, engineering economics
involves formulating, estimating, and evaluating
the economic outcomes when alternatives to
accomplish a defined purpose are available.
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Examples of Capital Investment Decisions
for Engineering Activities:
• Should a new bonding technique be incorporated into the
manufacture of automobile brake pads?
• If a computer-vision system replaces the human
inspector in performing quality tests on an automobile
welding line, will operating costs decrease over a time
horizon of 5 years?
• Is it an economically wise decision to upgrade the
composite material production center of an airplane
factory in order to reduce costs by 20%?
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• Should a highway bypass be constructed around a city
of 25,000 people?
• Should the current roadway through the city be
expanded?
• Will we make the required rate of return if we install the
newly offered technology onto our medical laser
manufacturing line?
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Natural Sciences
The sciences involved in the study of the
physical world and its phenomena
(developments)
Social Sciences
The branch of science that studies society and
the relationships of individual within a society.
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Economy
1. The system of production, distribution and
consumption
2. The efficient use of resources
System A group of independent but interrelated
elements comprising a unified whole.
Viability Capable of being done in a practical and
useful way
Alternative An alternative is a stand alone solution
for a given thing
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Discussion
