Lecture # 1
Engineering Economics & Management
MS490
Introduction
Muhammad Ullah
Assistant Professor
School of Management Sciences GIKI
Why to invest?
• Investment increases future consumption possibilities
– By foregoing consumption today and investing the savings, investors expect
to increase their future consumption possibilities by increasing their wealth
If we do not invest, then?
 If we do not invest, we can’t earn anything on cash
 Second, the purchasing power of cash diminishes in inflation
 This means that if savers do not invest their savings, they will not only lose possible
return on their savings, but will also lose value of their money due to inflation
But investment has problems
• Investment has the following three problems:
A. Sacrifice
– While investing, investor delay their current consumption (delaying consumption is kind of
sacrifice)
B.
Inflation - Investment loses value in periods of inflation
C. Risk - giving your money to someone else involves risk
What should be management’s primary objective?
• The primary objective should be shareholder wealth maximization, which
translates to maximizing the fundamental stock price.
– Should firms behave ethically? YES!
– Do firms have any responsibilities to society at large? YES! Shareholders are also members of
society.
Why is this course important?
• To make informed decisions
– Professional
– Personal
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Decision Making
• Decision making is a science
Random
Decisions
Calculated
Management
• Decision making is a science
Random
X
Decisions
Calculated

Decision Making Process
Data
Analyze
Useful
Info
Decision
Why Economics?
• Economics is everywhere…..
• Rational Choices
• Decisions which ‘add value’
What is Economics?
• Economics is a social science that studies “how” individuals, firms,
governments and nations make choices while allocating limited resources
to satisfy their unlimited wants/wishes.
OR
• Economics is a science which studies human behavior as a relationship
between ends and scarce means which have alternative uses.
Why is Economics Important?
• Households, managers, workers, organizations and nations need to take
economic decisions by keeping in mind;
– Limited resources
– Unlimited wants/ends
– Alternative use of these resources
• Economics is a science that helps to make best use of limited resources by
making best choices that satisfy unlimited ends.
Why is Economics Important for Engineers?
• Engineers design and create.
• Designing involves economic decisions.
=> Engineers must be able to incorporate economic analyses into
their creative efforts.
• Often engineers must select and implement from multiple alternatives.
• A proper economic analysis for selection and execution is a fundamental
task of engineering.
Why is Economics Important for Engineers?
• The Accreditation Board for Engineering and Technology (ABET) defines
engineering as
“A profession in which knowledge of the mathematical and natural sciences
gained by study, experience and practice is applied with judgment to develop
ways to utilize economically the material and forces of the nature for the
benefit of mankind”
• A successful engineering decision is one which is sound from;
=> technical perspective
=> economic perspective
• An economic solution is one that makes “efficient” use of resources.
What is Engineering Economics?
Engineering economics involves formulating, estimating and evaluating
expected economic outcomes of alternatives designed to accomplish a
defined objective.
Book to Follow
Engineering Economy (Seventh Edition)
By
Leland Blank, and Anthony Tarquin, McGraw Hill
Publisher
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Course Outline
• Time value of money.
• Present, future, and annual worth.
• Dealing with varying interest rates.
• Projects analysis based on the present,
future, and annual worth.
• Rate of return analysis (single and
multiple alternatives)
• Benefit & costs analysis (single & multiple
alternatives)
• Economic analysis of public sector
projects.
• Environmental impact assessment.
• Project Financing and Noneconomic
Attributes
• Replacement and Retention Decisions
• Independent Projects with Budget
Limitation
• Breakeven and Payback Analysis
• Depreciation Methods
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Assessments
• Assignments
15%
• Quiz
15%
• Midterm
30%
• Final Exam
40%
• Attendance: Minimum 80%
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Success Recipe – In Class Teaching
• Be attentive during lectures and take notes
• Book reading
• There will be no retakes of quizzes.
• Get rid of delays. Late submissions are NOT allowed.
• Use of cell phones NOT allowed during class hours.
• Raise your hand if you have any questions.
• Be on time
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Office Hours
• Brabers Building, G5 Offices
• If possible, please book appointment
• My email is Muhammad.ullah@giki.edu.pk
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Thank You
Any Questions?
Email: Muhammad.ullah@giki.edu.pk
References
• Engineering Economy 7th Edition by Leland Blank, Anthony Tarquin [ISBN-10: 0073376302]
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