Questions and Answers
What is the importance of using a common unit of measure in decision making?
It helps in enumerating prospective outcomes to facilitate analysis and comparison
Why is it essential to consider both monetary outcomes and descriptive outcomes in decision making?
To have a comprehensive view while selecting a preferred alternative
What role does uncertainty play in the analysis of future outcomes in decision making?
Uncertainty is inherent and should be recognized in the analysis
Why is it recommended to revisit decisions made based on projected outcomes?
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How does engineering economy contribute to seeking new objectives?
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What is the goal of discovering limiting factors in engineering economy?
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What does Principle 2 call for when comparing alternatives in engineering economic analysis?
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What is the importance of the first five steps in the engineering economic analysis procedure?
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How does performance monitoring during the operational phase help improve project outcomes?
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What is the main objective of the performance monitoring and post-evaluation step in engineering economic analysis?
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Why is the final step, performance monitoring, often considered crucial yet not consistently done well in engineering practice?
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In engineering economic analysis, what dictates the quality of results obtained and the recommended course of action?
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What are some examples of objectives other than profit maximization or cost minimization that can be important to an organization?
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Which step in the decision-making process usually incorporates Principles 3 and 4 of Engineering Economy Principles?
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What is largely based on cash-flow estimates in the analysis of the economic aspects of an engineering problem?
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Which factor is normally required to obtain reasonably accurate forecasts in an engineering economy study?
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What kind of effort is usually required to obtain accurate forecasts of cash flows and other factors?
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When making a decision, what does the decision maker normally consider to best serve the long-term interests of the organization owners?
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Study Notes
Engineering Economic Analysis Procedure
- The procedure consists of 7 steps: problem definition, identification of alternatives, development of prospective outcomes, selection of decision criterion, analysis and comparison of alternatives, selection of preferred alternative, and performance monitoring and post-evaluation of results.
Steps 1-5: Problem Definition to Analysis of Alternatives
- Problem definition: identify the problem and determine the need for analysis.
- Identification of alternatives: generate possible alternatives to solve the problem.
- Development of prospective outcomes: determine the economic and non-monetary factors of each alternative.
- Selection of decision criterion: choose the criterion to evaluate the alternatives.
- Analysis and comparison of alternatives: evaluate the economic aspects of each alternative based on cash-flow estimates.
Principles of Engineering Economy
- Principle 1: Use a common unit of measure to enumerate prospective outcomes.
- Principle 2: Compare alternatives based on their differences.
- Principle 3: Consider all relevant criteria in the decision-making process.
- Principle 4: Make uncertainty explicit in the analysis.
- Principle 5: Revisit decisions and compare actual results with estimated outcomes.
Importance of Performance Monitoring and Post-Evaluation
- Monitoring project performance during the operational phase improves goal achievement and reduces variability.
- Post-evaluation of results helps to learn from the analysis and improve future decisions.
Applications of Engineering Economy
- Seeking new objectives: engineering economy provides principles and laws to apply technical knowledge for the benefit of mankind.
- Discovery of limiting factors: engineering economy helps to identify factors that hinder the success of a project.
Non-Monetary Factors in Decision Making
- Examples of non-monetary factors that may influence decision making: meeting customer expectations, safety, employee satisfaction, production flexibility, environmental requirements, and public relations.
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Description
Learn about the steps involved in the engineering economic analysis procedure, with a focus on comparing alternatives based on monetary differences and selecting the preferred alternative. Understand how technical-economic modeling plays a crucial role in the decision-making process.
