ENGINEERING
ECONOMICS IN
CONTEXT
WHEN WE WILL MEET
• Monday, Wednesday and Friday 0935-1025 in G109
• Tutorials: During these times you will complete practice problems
similar to those on midterms and exams. Please attend your
scheduled session (unless you are able to make arrangements with
another student). We are at room capacity for Tuesday and Thursday
sessions. Fridays are available if you miss T/Th
•
Tuesday
1535-1725 HA19
•
Thursdays
1135-1325 HA19
•
Fridays
1135-1325 G109
• Tutorial Sessions will comprise of practicing problems, asking TAs
questions, and working through examples. There will be a small
assignment due at the end of each session.
EVALUATION
Submission Group
Size
Number
Total
Weight
Where/
When
Check in Exercises
(Brightspace)
1
13
13
Tutorial Exercises
1
8 (1 drop)
16
Midterm
1
1
21
2-4
2
20
Weekly on
Brighstpace
Weekly during
designated
session
During
Tutorial times
October
18,20 or 21
One October,
One
November
TBA by
Registrar
Type of Assessment
Design Project
Final Exam
1
30
Total
100
DON’T SHARE YOUR PLAGUE!
• Please stay home if you are
sick.
• Lectures will be recorded using
Panopto for review
• Slides from the tutorials will be
posted.
• There will be makeup dates
available for both the midterm
and final knowing there will be
persons ill
GRADUATE ATTRIBUTES
BEING REPORTED
Attribute
Number
Attribute Description:
Reported from:
9C
Assess risk in relation to users, the
community and the environment.
11A
Conduct engineering economic
analyses using time value of money,
inflation and taxes.
Project 3 Report
Projects and Exam
If you would like to know more about Engineering Attributes and how
they are reported to Engineers Canada or the Washington Accord, please
refer to https://engineerscanada.ca/accreditation/about-accreditation or
ask for details from me
COMMUNICATION
• Brighstpace will be used.
– Announcements, Quizzes, assignments, tutorials, weekly checklists
– Please ensure you have checked you emails, and announcements for an
answer to your question prior to emailing me or the Tas
– If you have questions regarding grading, please contact the lead TA for
the course Alireza Ghahtarani alireza.ghahtarani@dal.ca
• What is engineering all about?
• What is engineering all about?
• What is the first article in the Engineers Canada
Engineering Code of Ethics?
What is the first article in the Engineers Canada
Engineering Code of Ethics?
• “Hold paramount the safety, health, and welfare of
the public and the protection of the environment
and promote health and safety within the
workplace”
Why is this important? Why are ethics so
important in engineering?
ETHICS ARE A
PART OF WHO
WE ARE, NOT
JUST WHAT WE
DO
• Help us decide between right and wrong when making decision
• Help us have a system of believe, defining values and fairness
• Since we are making decisions about projects that could have large impacts
on the economy, environment, society, land, and people in a certain region, we
have a duty to ensure that we have properly consulted the locals as well as
the governments of a region. They have a right to know both the benefits and
risks a project can bring
LET’S ACTUALLY LOOK AT THE
DOCUMENT
• https://engineerscanada.ca/sites/default/files/Yukon/APEY_Code_Of_E
thics.pdf
TO PONDER
If you are an engineer at a firm that
works in many countries, which
country’s standard of safety should you
adhere to?
“BIG PICTURE” – WHY THIS COURSE?
• Engineering Courses in general
– Help us to design products that are technically viable – we learn laws
and rules that help us understand if a product will be able to do what
we would like to do
– if we are unsure if something is possible, these ideas can help us in
the creative process
This course
– Deals with Economic viability – is what we are designing/our plan
practically possible given our current marketplace environment
WHAT DO THESE PROJECTS HAVE IN
COMMON?
https://commons.wikimedia.org/wiki/Fil
e:Humber_Bridge.jpg
https://www.google.ca/search?q=british+
airways+concorde&source=lnms&tbm=isc
h&sa=X&ved=0ahUKEwjm09r00_TUAhW
GoD4KHdeKCoYQ_AUICigB&biw=1204&bi
h=657#imgrc=JQ9Cx1ysCukwjM:
Humber Bridge
Eng design principles, hurst,19
Concorde Airplane
BOTH WERE ECONOMIC
FAILURES!
ECONOMICALLY VIABLE?
If you were in a meeting and someone were to say that a
project was “Economically Viable” – what would that mean?
• That this project “makes money”
▪ That we end up with more $ in the end than the beginning
▪ This is a worth-while investment
▪ There is an acceptable “return on investment”
▪ This could do some good for the surrounding area in some
way
ECONOMICALLY VIABLE?
• So an “Economically Viable” project is a project that makes
us money.
▪ It is a project that is “successful” in our current economic
system
▪ If a project is successful in our system, then it makes sense
to think of it as “good”
▪ If it is not successful, then we may think of it as “bad”, or
perhaps that it needs to modified before tried again
ECONOMICALLY VIABLE?
• But some citizens and groups believe that there are issues
with this way of determining “good” projects (makes
money) or “bad” projects (does not make money)
• What kinds of things are wrong with this way of
determining project success?
▪ It may be a great idea, just didn’t work
▪ It may have worth or benefits that are not easily measurable in terms
of dollars
▪ Biggest issues
• “good projects” can cause a lot of environmental damage
• “good projects” can harm the health of human beings
“EXTERNALITIES”
People may have issues with what is determined to be a
success in our marketplace because there are certain
things that are not measured, or are difficult to measure
We call these things “externalities”
▪ For instance, what is the worth of the greenspace in Halifax
if it is not developed?
▪(Public Gardens, Northern Commons, etc.)
▪ What is the “cost” of an oil spill?
▪ What are the costs of increased health issues?
▪ What is the cost of plant/animal extinction?
▪ What are the costs of resources no longer being renewable?
MODEL OF THE BIOSPHERE
VS ACTUAL
• Economically feasible region vs. sustainable reasible region
http://wwf.panda.org/about_our_earth/all_publications/living_planet_report/
CAN SOMETHING BE “TOO
SAFE”?
• There is always a balance between what is the correct
safety factor on a project, and how much it costs to
achieve that.
• If lives are at stake it is probably better to over design
something, but look at the automobile industry. There are
inherent risks involved, but it is a game of balancing
desired features, safety and cost to users.
ASSUMPTIONS
• Economics - study of our material welfare
• Our system runs on some assumptions:
– Continual Growth is a must; even staying
in same economic position is “bad”
– Most anything can be measured in terms
of $
– All other factors are a subject to the
availability of monetary resources
(finance)
– Economic Viability drives most all
decisions
– other important factors are oft
considered “externalities”
• In the current model, availability of
financial resources is the core
decision-making principle, this is
the backbone of the current
economic system, and purportedly
society and how we treat the
planet
• Human-centric (or at least Human
idea-centric)
Photo: Adbusters Canada, Jan/Feb 2013 Vol 21, Number 1.
◼
◼
Photo: Adbusters Canada, Jan/Feb 2013 Vol 21, Number 1.
One alternate model. In this
model, environmental viability is
the core decision-making
principal. This influences society,
then helps to structure the
economic system, and then what
monetary resources are available
(finance)
Geo-centric (planet-centred idea)
THE COST OF NOT CHANGING OUR
DECISION CRITERIA?
• Engineers should be concerned about “Ecocide”
• https://cop21.endecocide.org/en/examples-of-ecocide-2/
– Most stark example is the “disappearance of the Aral Sea”
– (note examples of Tar Sands, Atlantic Tuna)
– PEI – risk of losing fresh water due to potato farming
• https://www.cbc.ca/news/canada/prince-edward-island/water-for-irrigation1.2674865
– Invasive Species being introduced to different places in shipping bilge
water
• This is what happens if we only use financial methods of determining if
a given project is “good” or not.
• Rest of this course describes the details of working in the
current capitalistic system
– Where economic viability is of key concern
– A project can stand or fall because of perceived/calculated viability
• Social outcomes, environmental outcomes are seen as
“externalities”
• This will not remain the case in the future as sustainability is
becoming a requirement
• Different goals in decision making? Will this project…. Help
our society? Help our planet?
SOME TERMINOLOGY
• Fixed, Variable, Marginal, and Average Costs
•
•
•
•
Fixed: Constant, unchanging costs
Variable: Depends on the level of output or activity
Marginal: Variable cost for one more unit
Average: Total cost divided by the number of units
• Sunk Costs
• Money already spent due to a past decision
• Should be disregarded in engineering economic
analysis
• Fixed, Variable, Marginal, and Average Costs,
cont’d
• Break-even point: The level of activity at which the
total cost of providing the product, good, or service is
equal to the revenue generated
• Profit region: Values of the variable x greater than
the break-even point, where total revenue is greater
than total costs
• Loss region: Values of the variable x less than the
break-even point, where total cost is greater than total
revenue
EXAMPLE
• Problem
• A company operates a summer camp. The following cost
data for a 12-week summer camp is as follows:
• Charge per camper
• Variable cost per camper
• Fixed costs
season Capacity per week
=$400/week
=$220/week
=$240,000 per summer
=200 campers
• Determine the following:
• The total number of campers to breakeven for the season
• The profit if the camp is operated at 90% capacity
• The additional profit that can be made if a discount of
$100 per week is given for another 10 campers
• Solution
a) To break-even, Total costs = Total revenue
• 240,000 + 220 (12)x = 400 (12)x
• x = 240,000/ {(400 – 220)(12)} = 111 campers
b) 90% capacity
• Number of campers = 0.90 (200) = 180
• Profit = 180 (400) 12 – {240,000 + 180(12)(220) =
$188,800
c) Additional profit = 10(12)(400 – 100) – 10(12)(220) =
$9,600
• Opportunity Costs
• The costs associated with a resource being used for an
alternate task
• Sometimes referred to as “forgone opportunity costs”
• “An opportunity cost is the benefit that is forgone by
engaging a business resource in a chosen activity
instead of engaging that same resource in a forgone
activity.”
• Recurring: A cost that reoccurs at regular intervals
• Non-recurring : One-of-a-kind cost recurring at
irregular intervals
• Incremental: Cost differences between
alternatives
• Cash Costs versus Book Costs
• Cash costs: require a cash transaction out of one
person’s pocket into the pocket of someone else
• Book costs are recorded but are not transactions
➢ Do not represent cash flows, thus are not included in
engineering economic analysis
• Life-Cycle Costs
• Designing products, goods, and services with a full
and explicit recognition of the associated costs over
their life cycles
• Two key concepts:
➢ The later a design change is made, the higher the cost
➢ Decisions made early in the life cycle tend to “lock in”
costs that will be incurred later
LIFE CYCLE COST
C O N S I D E R AT I O N S
LIFE CYCLE COSTS
ESTIMATING
BENEFITS
• Illustrates the size,
sign, and timing of
individual cash flows
CASH FLOW DIAGRAMS
• Categories of Cash Flow
• First cost: Expense of building or of buying and
installing
• Operations and maintenance (O&M): Annual
expense, such as electricity, labour, and minor
repairs
• Salvage value: Receipt at project termination for
sale or transfer of the equipment (can be a
salvage cost)
• Revenues: Annual receipts due to sale of
products or services
• Overhaul: Major capital expenditure that occurs
during the life of the asset
SOME
EXAMPLES
The money question is
always a critical
consideration in any
business, but it is not
the only one.
Sometimes we have to
spend a little more for
the good of the world
Having a strong moral
code leads to integrity
and operating with
ethics
It is important for
engineers to
understand the
business side of
projects to keep things
on track, and to
properly manage all
stakeholders in a
project.
SUMMARY