Introduction to Engineering Economy- Sebghatullah Karimi, Kabul Polytechnic University

1. Kardan University
Civil Engineering Faculty
Introduction to
Engineering Economy
Prepared by Sebghatullah Karimi
1392

2. Content of this lecture
1.
2.
3.
4.
Introduction to Engineering Economy
The principles of Engineering Economy
Engineering Economy and the design process
Using spreadsheets in Engineering Economy

3. Introduction to Engineering Economy
• Engineer Means:
 Problem solver,
 Find new ways doing things economically,
 Engineering is the art of doing that well with one dollar
which any bungler can do with two (Arthur M. Wellington,
1887).
The challenge:
 Every problems has multiple solutions, How to choose the
best one?
As engineers not only model the stress on a
column, they must also model the economic
impact of their recommendations.

4. Introduction to Engineering Economy
• What is engineering economy?
 Engineering project must be not only physically realizable
but also economically affordable.
 Engineering economy involves the systematic evaluation of
the economic merits of proposed solutions to engineering
problems.
Engineering is more
than a problem solving
activity

5. The Principles of Engineering Economy
• Can be discussed under seven principles:
Develop the alternatives
Identify, Define, Creativity, Innovation
Focus on the differences
Differences in the future outcomes
Use a consistent viewpoint
The prospective outcomes of the alternatives (stakeholders)
Use a common unit of measure
Monetary ( usually USD) presentation of the alternatives
and their outcomes

6. The Principles of Engineering Economy
Consider all relevant criteria
Decision making based on several criteria (organisational
objectives, e.g. long term interest)
Make risk and uncertainty explicit
Identify, define, allocate, and mitigate
Revisit your decisions
The initial projected outcomes of the selected alternatives
should be subsequently compared with actual results
achieved.

7. Engineering Economy and the design process
Engineering economic analysis
procedure
Steps:
1. Problem recognition, definition, and
evaluation.
2. Development of the feasible
alternatives.
3. Development of the outcomes and
cash flows for each alternative.
4. Selection of a criterion
5. Analysis and comparison of the
alternatives.
6. Selection of the preferred alternatives.
7. Performance monitoring and post
monitoring results.
Engineering Design
Process
Activity:
1.
2.
3.
4.
5.
6.
Problem/need
definition.
Problem/need
formulation and
evaluation.
Synthesis of possible
solutions.
Analysis, optimisation,
and evaluation.
Specification of
preferred alternatives.
Communication.

8. Engineering Economy and the design process
Engineering economic analysis procedure
Problem recognition, definition, and evaluation.
Problem must be well understood and stated in an explicit form
before the project team proceeds with the rest of the analysis.
Development of the feasible alternatives.
Searching for potential alternatives (creativity and resourcefulness),
screening them to select a smaller group of feasible alternatives for
detailed analysis.
Development of the outcomes and cash flows for each
alternative.
Cash flow approach (revenue and payments), nonmonetary factors
e.g. meeting or exceeding customer expectations, safety to
employees, employees satisfaction, etc.

9. Engineering Economy and the design process
Engineering economic analysis procedure
Selection of a criterion.
Long-term interest of the client and the organisation, environmental
concerns, etc.
Analysis and comparison of the alternatives.
Based on cash flows , exchange rate, inflation, regulatory, etc.
Selection of the preferred alternatives.
A result of the total effort of the above mentioned 5 steps. It is the
technical-economic modelling.
Performance monitoring and post monitoring
results.
Accomplished during and after the time that the result achieved. the
aim of post evaluation is to learn how to do better the job.

10. Using spreadsheets in Engineering Economy
Spreadsheets are useful tool for solving
engineering economy problems. Because of the
following reasons:
 They consist of structured, repetitive calculations that can
be expressed as formulas that rely on a few functional
relationships.
 The parameters of the problems subjected to change.
 The result must be documented.
 Graphical output is often required, as well as control over
the format of the graphs.

11. Conclusion
1. Introduction to Engineering Economy, engineer
means, the job of an engineer.
2. The principles of Engineering Economy
The seven principles of engineering economy is
discussed
3. Engineering Economy and the design process
Steps should be taken in the decision making
process and the activities should be done in the
design process.
4. Using spreadsheets in Engineering Economy
The rational behind using spreadsheets.

12. Any question