Republic of the Philippines NUEVA VIZCAYA STATE UNIVERSITY Bayombong, Nueva Vizcaya INSTRUCTIONAL MODULE IM No.: ENG ECON -1STSEM-2021-2022 COLLEGE OF ENGINEERING Bayombong Campus DEGREE PROGRAM SPECIALIZATION YEAR LEVEL BSCE SE/CEM/TEWRE 2nd Year COURSE NO. COURSE TITLE TIME FRAME 6 ENG ECON ENGINEERING ECONOMICS WK NO. 1 IM NO. 1 I. UNIT TITLE/CHAPTER TITLE 1. Introduction To Engineering Economics II. LESSON TITLE 1.1. Engineering Economy Defined 1.2. Important Uses of Engineering Economy 1.3. Engineering Economy Techniques II. LESSON OVERVIEW IV. DESIRED LEARNING OUTCOMES At the end of the topic, the students should be able to: 1. Understand basic engineering economy concepts 2. Understand the Important Uses of Engineering Economy 3. Provide an application on Engineering Economy Techniques V. LESSON CONTENT 1. INTRODUCTION TO ENGINEERING ECONOMICS 1.1. ENGINEERING ECONOMY/ECONOMICS DEFINED • As defined by Arreola Engineering economy is that branch of economics which involve the application of definite laws of economics, theories of investment and business practices to engineering problems involving cost. It is also defined to be the study of economic theories and their application to engineering problems with concept of obtaining the maximum benefit at the least cost as a basis for decision. It also involves the study of cost features and other financial data and their application in the field of engineering as a basis for decision. • As defined by Kasner Engineering economics is equated with practicality and economic feasibility. It is also the search for the recognition of alternatives which are then compared and evaluated in order to come up with the most practical design and creation. • As defined by Sullivan, et al. Engineering economy is the systematic evaluation of the economic merits of proposed solutions to engineering problems. 1.2. IMPORTANT USES OF ENGINEERING ECONOMIC “In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for educational purposes only and not for commercial distribution,” NVSU-FR-ICD-05-00 (081220) Page 1 of 4 Republic of the Philippines NUEVA VIZCAYA STATE UNIVERSITY Bayombong, Nueva Vizcaya INSTRUCTIONAL MODULE 1. 2. 3. 4. 5. Seeking new objectives for the application of engineering – An important use of engineering economics is to seek new objectives for engineering application. Engineers are constantly seeking new and wider application of their technical knowledge for the benefit of mankind and in line with this, engineering economics provides basic principles and laws. Discovery of factors limiting the success of a venture or enterprise – upon knowing the objectives, next is to determine ways and means to attain such objectives. With Engineering Economic the so-called limiting factors which may hinder the success of a project are being discovered. Comparison of alternatives as a basis for decision – The principles of engineering economic helps to point out the analysis of choosing the best alternatives on a quantitative basis. Analysis of possible investment of capital – Engineering economics enables engineers to consider all aspects of investment from both the technical and financial viewpoints. It provides several patterns of analysis to determine rate of return, annual costs and pay out periods, which all serves as bases for decision. Determination of bases for decision – Engineers‟ main concern is on future actions, that is on what to do and not on what has been accomplished. Decisions on future actions are more valid and accurate if the principles of engineering economics are correctly applied. Origins of engineering economics. A civil engineer named Arthur Wellington in the later part of the 19th century made use of engineering economic analysis in building railroads in the U. S. In 1930, Eugene Grant published his book, Principles of Engineering Economics, which emphasized on techniques that depended on financial and actuarial mathematics. Principles of engineering economics? Principle 1. Develop the alternatives. The choice is among alternatives. Principle 2. Focus on the differences. Only the difference in expected outcomes is considered. Principle 3. Use a consistent viewpoint. Prospective outcomes of the alternatives, economic, etc. should be considered. Principle 4. Use a common unit of measure. Using a common unit of measurement of the possible outcomes in comparing alternatives. Principle 5. Consider all relevant criteria. Consider both monetary and other unit of measure in measurement of outcomes. Principle 6. Make uncertainty explicit. Uncertainty is inherent in projecting future outcomes and should considered in their analysis and comparison. Principle 7. Revisit your decisions. Projected results and decisions should be compared with actual results to improve the decision process. Engineering Economic Analysis The techniques and computations that you will learn and use throughout this text utilize the cash fl ow estimates, time value of money, and a selected measure of worth. The result of the analysis will be one or more numerical values; this can be in one of several terms, such as money, an interest rate, number of years, or a probability. In the end, a selected measure of worth mentioned in the previous section will be used to select the best alternative. Before an economic analysis technique is applied to the cash flows, some decisions about what to include in the analysis must be made. Two important possibilities are taxes and inflation. Federal, state or provincial, county, and city taxes will impact the costs of every alternative. An aftertax analysis includes some additional estimates and methods compared to a before-tax a nalysis. If taxes and infl ation are expected to impact all alternatives equally, they may be disregarded in the analysis. However, if the size of these projected costs is important, taxes and infl ation should be considered. “In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for educational purposes only and not for commercial distribution,” NVSU-FR-ICD-05-00 (081220) Page 2 of 4 Republic of the Philippines NUEVA VIZCAYA STATE UNIVERSITY Bayombong, Nueva Vizcaya INSTRUCTIONAL MODULE The Engineering Economic Analysis Procedure Steps: 1. Problem recognition, definition, and evaluation. 2. Development of the feasible alternatives. 3. Development of the cash flows for each alternative. 4. Selection of a criterion (or criteria). 5. Analysis and comparison of the alternative. 6. Performance monitoring and post evaluation results. IMPORTANT OF ENGINEERING ECONOMY IN ENGINEERING PRACTICE A. The principles and methodology of engineering economy have wide application in engineering design and technical and general management. B. In the operation of an organization, Eng’rs and managers use eng’g economy to assist with decision making in situations such as; *C. In reality, any eng’g project must be not only physically realizable but also economically affordable. *D. Understanding and applying economic principles to eng’g has never been more important. Eng’g is more than a problem-solving activity focusing on the development of products, systems, and processes to satisfy a need or demand. VI. LEARNING ACTIVITIES VII. EVALUATION (Note: Not to be included in the student’s copy of the IM) VIII. ASSIGNMENT PS NO. 1: Introduction To Engineering Economics (Handwritten and use coupon bond) 1. In which of the following situations would engineering economics analysis play a strong role, and why? (a) Buying new equipment (b) Changing design specifications for a product (c) Deciding on the paint colour for the factory floor (d) Hiring a new engineer (e) Deciding when to replace old equipment with new equipment of the same type (f) Extending the cafeteria business hours (g) Deciding which invoice forms to use (h) Changing the 8-hour work shift to a 12-hour one (i) Deciding how much to budget for research and development programs (j) Deciding how much to donate for the town’s new library (k) Building a new factory (l) Downsizing the company 2. How will you apply Engineering Economy in engineering practices? 3. Choose two principles of Engineering Economics and explain the significances of these principles in engineering practices? “In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for educational purposes only and not for commercial distribution,” NVSU-FR-ICD-05-00 (081220) Page 3 of 4 Republic of the Philippines NUEVA VIZCAYA STATE UNIVERSITY Bayombong, Nueva Vizcaya INSTRUCTIONAL MODULE IX. REFERENCES ARREOLA, M. Engineering Economy. Second Edition. Manila: KEN, Inc. BESAVILLA, V. I. 1989. Engineering Economics. Cebu City Philippines: VIB Publishers. CUARESMA, F.D. 1995-2000. Handouts in Engineering Economy. CUARESMA, F.D. 2002. Economics of Precision Irrigation Systems. Paper delivered during the Training on Precision Irrigation Systems for High Productivity and Efficient Water Management, 4-6 Sept. 2002. SULLIVAN, William G., Bontadelli James A, and Wicks, Elin M.. 2000. Engineering Economy. 11 th Edition. McMillan Pub. Co., New York: (recommended text book) KASNER, E. Essentials of Engineering Economy. New York: Mc. Graw-Hill Book Co. RIGGS, J.L., D.D. BEDWORTH., and S.U. RANDHAWA, S.U.1998. 4th Ed. Engineering Economics . New York: Mc Graw-Hill. STA. MARIA, H. Engineering Economy Reviewer. Third Edition. THUESEN, G.J. and W.J. FABRICKY, W. J. Engineering Economy. New Jersey: Prentice Hall, Inc. 1989. Websites: www.toolkit.cch.com/text/P06_6500.asp CCH Business Owner's Toolkit http://www.investopedia.com/terms/ www.eng.auburn.edu/~park/cee.html “In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for educational purposes only and not for commercial distribution,” NVSU-FR-ICD-05-00 (081220) Page 4 of 4
