Understand major principles of economic analysis for decision making among alternative courses of action in engineering.
Apply cost estimation and alternative analysis techniques for engineering applications.
Demonstrate knowledge of cost estimation techniques and probabilistic risk analysis.
Apply the concepts and techniques of linear programming for optimization of economic resources
Evaluate and justify selection of different alternatives by using economic analysis techniques
Understand the Concepts of Time Value of Money
Understand the Concepts of Depreciation for taking decision between the Alternatives wisely.
Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and “application of economic principles” in the analysis of engineering decisions. As a discipline, it is focused on the branch of economics known as microeconomics in that it studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Thus, it focuses on the decision-making process, its context and the environment
As a discipline though, it is closely related to others such as statistics, mathematics, and cost accounting. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics
Engineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency. Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available.
Since engineering is an important part of the manufacturing sector of the economy, engineering industrial economics is an important part of industrial or business economics. For this reason, the major courses that are covered in this course are:
- The economics of the management, operation, and growth and profitability of engineering firms;
- Macro-level engineering economic trends and issues;
- Engineering product markets and demand influences; and
- The development, marketing, and financing of new engineering technologies and products.
This Course Includes the following topics.
- Introduction: Engineering economy defined, measures of financial effectiveness, non-monetary factors and multiple objectives. Principles of engineering economy.
- The Economic Environment: Consumer and producer goods, measures of economic worth. price, supply, & demand relationship. production. factors of production laws of return.
- Cost Concepts & Analysis: Sunk & opportunity costs. fixed, variable, and incremental costs, recurring & nonrecurring costs. direct, indirect. and overhead costs, standard costs. Break-even analysis, unit cost of production, cost-benefit analysis, feasibility studies, value analysis in designing & purchasing.
- Time Value of Money: Simple interest, compound interest, cash flow diagrams, interest formulas, nominal versus effective interest rate, continuous compounding.
- Depreciation and Depletion: Purpose of depreciation, types of depreciation, economic life and what can be depreciated?
- Comparing Alternatives: Present economy, selection among machines, materials, processes, and designs, payback period method, present worth method, uniform annual cost method, rate of return method, alternatives having identical lives, alternatives having different lives.
- Linear Programming: Mathematical statement of linear programming problems graphic solution. Simplex method and duality problems.
RECOMMENDED BOOKS
(01) Engineering Economics by William G. Sullivan & James A. Bontadelli
(02) Operational Research: An Introduction by Hamdy A Taha
COURSE OUTLINE OF THIS COURSE IN DETAIL
Introduction of Economics
Introduction to Economics and Difference between Wants and Desires
- Introduction to Economics
- Difference between Want and Desires
- Do resources fulfill wants or desires?
Macro and Micro Economics, Engineering Economics and Economic Behavior
- Two Dimensions of EconomicsMacro EconomicsMicro Economics
- Engineering Economics
- Economic Environment/Behaviour
- Classification of Consumer and Producer Goods
Theory and Laws of Demand and Supply
- Theory of Demand and Supply
- Law of Supply
- Determination of Supply
- Shifts in Supply
- Law of Demand
- Demand Schedule or Demand Curve
- Determination of Demand
- Shifts in Demand
- Supply Function/Equation
- Demand Function/Equation
Understanding the Market Equilibrium and Elasticity concepts in Economics
- Market Equilibrium
- Equilibrium’s Mathematical Representation
- Price Elasticity of Demand
- Elasticity and Revenue
- Special Cases of Elasticity
Market Structure and Types of Businesses
- Market Structure
- Types of Businesses
Understanding the Time Value of Money
Understand Simple and Compound Interest with Problems and Cash Flow Diagramming
- Simple Interest
- Compound Interest
- Simple vs. Compound Interest
- Notation and Cash Flows Diagram
- Cash Flow Diagraming
- Present and Future Values of Single Cash Flow
- Discrete Cash Flow Examples Illustrating Equivalence
- Present Equivalent of Future Amount of Money
- Solving Problem related to Time Value of Money
Annuity and Deferred Annuity and Solving Example Problems related to them
- Annuity
- Relating a Uniform Series (Annuity) to its Present and Future Equivalence
- Present Equivalent of Annuity
- Solving Problems Related to the Annuity
- Deferred Annuities (Uniform Series)
- Present Equivalent of Deferred Annuity
- Solving Problems related to Present Equivalent of Deferred Annuity
- Uniform Arithmetic Gradient of Cash Flow
Gradient Problem and using Gradient Conversion for Solving Problems
- Gradient Problem
- Using Gradient Conversion Factor for solving Problems
Nominal and Effective Interest Rate and Concepts of APR and APY
- Nominal and Effective Interest Rates
- Concept of APR (Annual Percentage Rate) and APY (Annual Percentage Yield)
- Time-based Units (Interest Rate Statement)
Solving Problems related to Nominal and Effective Interest Rates
- Solving Problems related to Nominal and Effective Interest Rates
- Derivation of Effective Annual Interest Rate
Equivalence Relation: Payment Period and Compounding Period
Effective Interest rate of any time and Financial Effectiveness and Efficiency
- Effective Interest rate for any time period
- Equivalence Relation (PP<CP)
- Financial Effectiveness and Efficiency
Evaluating an Engineering Project (Comparison and Selection of Alternatives)
Taking Decision on the Basis of Present and the Future Worth Method
- The Present worth Method
- The decision of PW Method
- Relation between i & PW
- Find that the Project is Economically Justified?
- The Future worth Method
Taking Decision on the Basis of Annual Worth Method
- The Annual worth Method
Comparing the Business Alternatives for taking the Decision
- Comparing Alternative Businesses
- Solving Problems related to Present worth analysis
- Solving Problems related to Future worth analysis
Linear Programming
Objective Functions, Constrains and Main Elements of Linear Programming
- Operations Research
- Objective Functions and Constraints of Linear Programming
- Main Elements of Linear Programming
The Reddy Mikks Company Model
Payback Period of any Investment
Understand Payback and Discounted Payback Period of any Business
- Case 1 : For Even Cash Flow
- Case 2: For Uneven Cash Flow
- Solving Problems related to the Payback Period (Even and Uneven Cash Flows)
- Discounted Payback Period
Internal Rate of Return and Solving Problems related to it
- Internal Rate of Return
- Solving Problems Related to Internal rate of Return
Understand about Incremental Cash Flow and Mutually Exclusive Project Analysis
- Incremental Cash Flow
- Mutually Exclusive Project Analysis
Replacement Decision Analysis and Lives of Asset
- Replacement Decision Analysis
- Type of Lives of Asset1. Economic Life2. Ownership Life
3. Physical Life
4. Useful Life
- Replacement Analysis Using PW (Present worth Analysis)
Replacement Analysis using Estimated Uniform Annual Cost (EUAC)
- Solving Problems related to EUAC for Replacement Analysis
Understand about the Economic Life of New Asset
Depreciation
Deprecation of Tangible and Intangible Property and Methods of Deprecation
- Deprecation of Tangible and Intangible Property
- Types of Depreciation (Normal and Monetary)
- Methods of Deprecation1. Straight Line (SL) Method2. Sum of the Year Digit Method
3. Declining Balance Method
4. Double Declining Balance
Modified Accelerated Cost Recovery (MACRS)
- Declining Balance with switch over Straight Line Method
- Modified Accelerated Cost Recovery (MACRS)
Solving Problems related to Depreciation and MACRS
Cost Concept in Economics
Concepts of Cost, Volume and Break-Even Point for any Start-up Business
- What is meant by Cost?
- Elements of the Product
Prime Cost vs Conversion Cost , Fixed Cost vs Variable Cost and Types of Cost
- Prime Cost vs Conversion Cost
- Fixed Cost vs Variable Cost
- Types of Cost· Differential Cost· Opportunity Cost
· Sunk Cost
· Standard/Average/Budgeted Cost
· Controllable Cost
· Uncontrollable Cost
Understanding Curve of Demand, Supply and Break-Even Point for Profit and Loss
- Concept of Cost, Volume, and Break-Even Point
- Understanding about Break-Even Point
- Conditions for the Profit and Loss in the Business
- The curve of Demand, Supply and Break-Even Point for Determining Conditions for the Profit and Loss
- Solving Problems related to the Topic
Evaluating Projects with Benefit-Cost Ratio Method and Dis Benefits
- Evaluating Projects with Benefit-Cost Ratio Method
- Using Conventional and Modified Approaches of Present Worth
- Dis benefits of Benefits Cost Ratio Method
