Engineering Economy (ECON123) Overview

Course Information

• Course Title: Engineering Economy (ECON123)
• Instructor: Engr. Jerico R. Amago, CIE, SO1, SO2
• Institution: Manuel S. Enverga University Foundation, Lucena City

Engineering Definition

• Engineering is a profession utilizing knowledge in mathematics and natural sciences.
• It involves applying this knowledge with judgment to devise efficient methods for utilizing natural resources for humanity's benefit.

Engineering Process

• Determination of Objectives
• Identification of Strategic Factors
• Determination of Means
• Evaluation of Engineering Proposals
• Assistance in Decision Making

Economy/Economics

• The system governing production, distribution, and consumption of goods and services within a society.
• Often involves resource allocation and financial considerations.

Engineering Economy

• A science employing quantitative analysis to choose the most suitable option from several technical alternatives.
• It systematically assesses the economic value of proposed solutions for engineering problems.

Acceptable Engineering Solutions

• Economically acceptable solutions need to demonstrate positive long-term benefits exceeding costs over a long period.
• They must promote the well-being and longevity of the organization.
• Creativity and innovation in technology and ideas are crucial.
• The analysis and assessment of their potential outcomes must be permitted.
• Engineers need to excel at engineering economy skills for job success.

Importance of Engineering Economy

• Engineers propose solutions, accounting for their economic feasibility alongside technical aspects.

Principles of Engineering Economy

• Understanding the problem and generating alternative solutions.
• Evaluating the associated risks and uncertainties.
• Comparing different alternatives to assess viability.
• Establishing a specific viewpoint for analysis.
• Utilizing a universal method of evaluation.
• Reviewing the decision-making process.

Concepts of Decision Making

• Analysis, modeling, optimization, goal setting, knowledge management, information technology, data management.

Application Examples

• Presented case studies demonstrating the application of economic principles to assess the optimal choice among alternatives and to evaluate the economic advantage of decisions.

Cost Concept for Decision Making

• Cost: Amount paid or charged for something
  • Fixed Cost: Costs not affected by changing circumstances.
  • Variable Cost: Costs varying with circumstances.
  • Incremental Cost: Overall change in the balance sheet when adding one more unit of production.

Cost Components

• Debts, rent, insurance, and salaries are examples of fixed costs.
• Water and electricity are examples of variable costs.

Engineering Economy Techniques

• This involves several distinct stages, namely:
  • Economic Analysis:
    • Resource allocation: evaluating efficiency and unnecessary consumption.
    • Environmental impact: focusing on sustainability.
    • Employment & income generation: assessing job creation and economic growth.
    • Social welfare: measuring community quality of life improvement.
  • Financial Analysis:
    • Initial investment: determining design, building, and implementation costs.
    • Operating & maintenance costs: assessing ongoing expenses over the project's lifespan.
    • Revenue generation: identifying project income.
    • Profitability: evaluating whether sufficient returns justify the investment.
  • Intangible Analysis:
    • Risk & Uncertainty: potential hurdles, advancements resulting in success or failure.
    • Strategic Fit: evaluating project alignment with organizational goals & vision.
    • Stakeholder impact: analyzing the impact on various stakeholders (employees, customers, community).
    • Ethical Considerations: considering ethical concerns and social responsibility issues.

Terminologies

• Consumer goods/services: Products directly satisfying individual and households needs.
• Producer goods/services:Products for businesses creating other goods and services.
• Necessities: Essential for survival and basic needs (food, clothing, shelter).
• Luxuries: Desirable but non-essential goods.
• Supply: Seller willingness to sell at various prices based on available goods/services.
• Demand: Buyer's willingness to buy at varied pricing based on availability.
• Market: Place for buyers and sellers to exchange goods/services; can be physical or virtual.
• Market Structures:
  • Perfect Competition: Many buyers and sellers, similar pricing strategies, equal market entry & exit.
  • Monopoly: One seller controls the market, setting prices, high barriers to enter.
  • Monopsony: A concentrated buyer market controlling prices.
  • Oligopoly: Few sellers dominating the market with interdependent pricing.
  • Oligopsony: Few buyers dominating the market.