ENGINEERING ECONOMY
Chapter 1
Introduction
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Today’s Objectives:
By the end of this lecture students will be able to
understand:
1- The Problem Solving Process.
2 - Nonmonetary Considerations.
3 - Present Economy Examples.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
WHAT IS ECONOMICS ?
The study of how limited resources is used to
satisfy unlimited human wants
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
WHAT IS ENGINEERING ECONOMY ?
Engineering economy is the application of economic
analysis techniques In the comparison of engineering
design alternatives.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
The Problem Solving Process
1- Formulating of the problem
2- Analysis of the problem
3- Search for alternatives solutions to the problem
4- Selecting of the preferred solution
5- Specification of the preferred solution
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
The problem solving or engineering
design process begins when a decision
maker is dissatisfied with something, or
recognizes a need, and then decides to do
something about it. The process ends with
plans for correcting the dissatisfaction or
satisfying the need.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
1.The formulation of the problem:
• involves the establishment
boundaries for the problem.
of
the
• cause / effect relationship are not missed.
• Avoid being overly influenced by the
presence of a present solution, because it
produces a incremental improvements
rather than radically new solutions.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
2- The analysis of the problem: consist of
relatively phrasing of the characteristics of
the problem, including restrictions and the
criteria to be used in evaluating
alternatives.( budget, quality, safety,
personnel, environmental, and service level
constrains).
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
3- The search of alternative solutions: involves
the use of the engineer’s creativity in
developing feasible solutions. Use a team.
Gender and racial diversity on the team.
Brainstorming, total quality management,
breakthrough thinking principles by Nadler
and Hibino
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
breakthrough thinking principles by Nadler and
Hibino:
a) Uniqueness: each problem is unique and should be
approached as such.
b) purposes: focus on the underlying purposes to strip
away nonessential and distracting aspects of the
problem.
c) solution after next: recognize that you are designing for
the future, think about the next generation of designs.
d) systems: solutions to problems seldom exist in
isolation, there is a bigger system that will be impacted
by your solution
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
e) limited information collection: there is a time for data
collection, and it is not at the initiation of the problem
solving process.
f) problem design: people will be impacted by the
solutions, then they should be involved in developing
the solution.
g) betterment timeline: one of the worst axioms ever
articulated is “if it isn’t broken, don’t fix it”. If it isn’t
broken break it. Fix it before it breaks. Whether it is
broken or not , improve it.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
4- the selection of preferred solution, consist of
the measurement of the alternatives, using the
Appropriate criteria. The alternatives are
compared with the constraint, and infeasible
alternatives are eliminated.
5- the specification of the preferred solution consist
of a detailed description of the solution to be
implemented. Prediction of the performance
Characteristics of the solution to the problem are
included in the specification.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Example 1.1
As an illustration of the application of the problem
solving approach, consider the case of locally
owned electrical power generating company faced
with an air pollution problem that had to be
solved. The power plant was using low grade coal
with sulfur content of 1.9% by weight, and the air
pollution control board for the state directed the
power plant to comply with newly adopted
standards for air quality.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
A consulting engineer was hired to study the
problem and recommend the best course of
action. A search for alternative solutions to the
problem resulted in a consideration of bunker C
fuel oil, low sulfur furnace fuel oil and natural
gas. Compare the alternatives using benefit cost
analysis.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Example 2.1:
A leading manufacturer of automotive bearings
was faced with the need to expand its
distribution operations. A study team was
formed to analyze the problem and develop a
number of feasible alternative solutions. After
analyzing the problem and projecting future
distribution requirements, the following feasible
alternatives were determined:
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Consolidate all distribution activities and expand
the existing distribution center, located in
Michigan.
Consolidate all distribution activities and construct
a new center, location to be determined.
Decentralize the distribution function and build
several new distribution centers geographically
dispersed in the United States.
The officers of the company directed the study
team to pursue the second alternative.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
The location study resulted in five candidate
locations being selected for final consideration, the
criteria used to make the final selection included:
•
•
•
•
•
•
•
Land cost and availability.
Labor availability and cost.
Proximity to supply and distribution points
Taxes and insurance rates.
Transportation
Community attitudes.
Building costs.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
The officers of the company selected a site in Alabama. Then they
directed the study team to develop design alternatives for the
material handling system.
Four alternatives were obtained:
1- Use of pallet racks, lift trucks and flow racks.
2- Use of automated stacker crane system, lift trucks, conveyors and
flow racks.
3- Use of narrow aisle, guided picking machines, high rise shelving,
conveyors, driverless tractor trains and lift trucks.
4- Use of an automated stacker crane system, a rail guided picking
vehicle system, a sortation and accumulation conveyor system
and a high rise narrow aisle lift trucks.
For a planning of 10 years , the fourth alternative was the most
economical and was recommended to top management.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Nonmonetary considerations:
multiple criteria in the decision process
Managers have multiple criteria to be considered in reaching a final
decision about The alternative to be adopted.
Some of these factors:
Quality – safety – environmental impact – community attitudes –
labor management relationship – cash flow position – risks – system
reliability – system availability – system maintainability - system
operability – system Flexibility – impact on personnel levels –etc.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Present economy examples:
Example 1.5
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Example 1.6
For one product that a company manufactures, the purchased raw
material is 2 inch diameter × 10 feet long extruded aluminum bar
stock. This material costs $1.05/pound. Since the company
purchases an average of 100,000 pound/month, it is considering
manufacturing the raw material , which would require the
purchase of an extrusion machine and a cutoff saw. Raw material
for the extruder can be purchased in 4 inch × 4 inch × 57 inch long
cast aluminum ingots for $ 0.50/pound. The company’s process
engineer estimates the extruding operation would cost
$0.30/pound, and the subsequent cutoff operation would cost
$0.05/pound. The engineer also estimates there would be a 10%
scrap loss of material at the extrusion stage and a 5.7% loss of
material at the cutoff operations.
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
1. If the company manufactures the extruded rod, what are the
estimated annual saving?
2. If the company manufactures the extruded rod, what is the
production cost for each rod?
(aluminum density = 0.1 pound/cubic inch)
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Answer:
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
Example 1.7
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM
ENGINEERING ECONOMY
DR. MAISARA MOHYELDIN GASIM