Engineering Economics
with a little history and project management
thrown in for good measure!
Harishwaran ‘Hari’ Hariharan
ECE 400
The University of Tennessee
April 20,2009
Outline
•
•
•
•
Economic Revolutions, a Bit of History
Project Management
Cost of an Engineer
Value Added
July 12, 2016 Slide 2
History of Productivity
What is the first wave?
–
–
–
–
–
–
–
Took thousands of years to play out.
Move from hunter-gatherer to agrarian society.
Agricultural revolution: feed the masses.
The rise of specialization.
Family and work intermingle on the farm.
Economy and war based on land.
Epic cultures: Ancient Egypt, Greeks, Romans.
What is the second wave?
–
–
–
–
Took a mere three hundred years.
Move from agrarian to industrial society.
Industrial revolution: mass production , assembly lines.
Work and family fragment into two distinct entities
• Home and factory.
– Economy and war based on industrial strength
– Culminated with the Nuclear Family.
– Epic cultures: 18-19th England, 20th America, USSR.
July 12, 2016 Slide 3
What wave are we in?
• 50k years of human history divided into lifetimes of 65 years
– First 650 lifetimes spent in caves.
– Last 70: communicate from one to next—writing.
Third Wave
– Last 6: seen the printed word (Guttenberg Bible).
– Last 4: measure time with any precision.
– Last 2: use an electric motor.
– Current 800th lifetime, most everything we see today. May only
play out for a few decades?
• Space age? Electronic age? Global Village?
• Move from industrial to information economy.
• 1956, last year that blue collar workers > white collar.
• Mass customization: Dell, Yahoo News, Nokia, iPod
• Family and work?
• Economy and war?
July 12, 2016 Slide 4
Outline
•
•
•
•
Economic Revolutions, a Bit of History
Project Management
Cost of an Engineer
Value Added
July 12, 2016 Slide 5
J.P. Lewis, 2002.
Project Management
What is project management?
– Thousands of years
– Recognized within the past 20
years.
– Facilitation of planning to achieve a
successful project.
– Competition is time-based not
just cost-based.
What is a project?
P
– Multi-task job.
– Performance, Cost, Time, and
Scope (PCTS) reqs.
– Definite start and end time.
– If repetitive, it’s not a project.
(Done only once.)
– A project is a problem scheduled
for a solution.
July 12, 2016 Slide 6
C
P
S
C
T
S
T
C  f ( P, T , S )
Sponsor should not
specify more than
three!
J.P. Lewis, 2002.
Define
Problem
Steps in Managing a
Project
Develop
Solution
Options
Plan the
Project
Execute the
Plan
Monitor and
Control
Progress
July 12, 2016 Slide 7
Close
Project
(Postmortem)
J.P. Lewis, 2002.
•
•
•
•
•
•
•
•
•
Planning the Project
Problem statement
Objectives
Deliverables
Required resources
Work-breakdown
Schedules
Risk assessment
Control systems
Exit criteria
Project
Pain
Poor
Planning
Proper
Planning
Time
Problem: I have no place to live.
Musts
•3 bedroom
•2500 sq.ft
•garage
•1 acre
Wants
Nice
•basement
•room for
home office
•fireplace
Mission: Find a place that meets all
musts and as many others as possible.
July 12, 2016 Slide 8
J.P. Lewis, 2002.
Schedule?
• Work-breakdown structure
– project, task, subtask, work package, program, level of effort.
• Keep going until you reach a low enough level to an estimate of
the desired accuracy.
• Estimate by starting with an assumption that a certain resource
will be assigned.
• Hazard’s?
–
–
–
–
“But you told me…”
Specify applicable tolerance.
Tell how estimate was made and assumptions used.
Specify any factors that might affect the validity of the estimate.
• Parkinson’s Law: Work expands to fill the time allowed.
July 12, 2016 Slide 9
stanford.edu
July 12, 2016 Slide 10
Gantt Chart
J.P. Lewis, 2002.
Project Control and
Evaluation
• Control: The use of information to
compare progress to the plan so that
action can be taken to correct for
deviations.
• Effort used to control a project should
be worthwhile (spend $100 to buy $3
battery?)
• If you take no action in response to a
deviation, then you have a monitoring
system, not a control system.
• Project working times must be
recorded daily.
• Project evaluation is done to determine
whether a project should continue or
be cancelled.
July 12, 2016 Slide 11
Measure, measure, measure!
Outline
•
•
•
•
Economic Revolutions, a Bit of History
Project Management
Cost of an Engineer
Value Added
July 12, 2016 Slide 12
How much does an
engineer cost?
•
What do y’all expect as starting salaries?
•
What do y’all expect to “cost” your
company?
–
–
–
–
–
–
–
–
–
–
•
Civil Engineer
Computer Engineering Degree
Chemical Engineering Degree
Electrical Engineering Degree
Industrial Engineer
Mechanical Engineer
Direct Labor
Fringe Benefits (30%)
Overhead (40-100%)
Total
$38,943
$46,739
$44,638
$47,692
$41,300
$47,200
$50,000
$15,000
$25,000
$90,000
What’s your hourly charge rate?
–
–
–
–
From above, $45 per hour.
Typical, is $75-150 per hour.
2000 Man hours in a year!
Typical engineer costs $150-300K per year.
You need to be productive enough to justify your
existence to you employer!
July 12, 2016 Slide 13
Sample Budget
• Personnel costs
• Clerical support
• Fringe benefits (UTK
28%)
• Equipment
• Travel
• Other direct costs
–
–
–
–
–
Supplies
Computer
Consulting services
Publications
Shipping
• Facilities and
Administration (F&A)
(UTK 45%)!
July 12, 2016 Slide 14
What will your project
this semester cost?
• Hardware costs?
– Parts total $1630
• Design costs?
– Four (4) senior engineering
students
– Five (5) man-hours per week per
engineer
– 15 weeks
– Total 300 man-hours!
– $50 per hour charge rate (great
deal for an engineer’s time)
– Design cost: $15K
• Labor costs?
July 12, 2016 Slide 15
Outline
•
•
•
•
Economic Revolutions, a Bit of History
Project Management
Cost of an Engineer
Value Added
July 12, 2016 Slide 16
What is value added?
• The customer is willing to
pay for this activity.
• It must be done right the
first time.
• The action must somehow
change the product or
service in some manner.
• Consider in-car computer
development company.
July 12, 2016 Slide 17
Cost of a Widget
•
Component Costs (15-33%)
•
Direct Costs (add 25-40%) Recurring Costs:
Labor, Purchasing, Scrap, Warranty…
•
Gross Margin (add 82-186%) Non-recurring Average
Selling
Costs:
Price
Research and Development, Marketing,
Sales, Equipment Maintenance, Rental
(temporary), Financing Costs, Pretax
Profits, Taxes…
•
•
Average Discount => List Price (add 3366%)
What does each company “sell” and value
they add?
– Dell
– REI
July 12, 2016 Slide 18
List
Price
Average
Discount
25-40%
Gross
Margin
34-39%
Direct Costs
Component
Costs
6-8%
15-33%
Summary
• Economic Revolutions and a Bit of History
were discussed
• Project Management is an important aspect in
project planning
• An Engineer should justify his existence to a
company
• Value added by an engineer should add or
change a product to a substantial amount
July 12, 2016 Slide 19
Homework
• None
July 12, 2016 Slide 20