ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 1 OUTLINE Introduce Instructor Introduce yourselves Registration for Questionnaire (on line – www. gezabottlik.com) Background Quiz (on line – www. gezabottlik.com) Resume Grades What do you expect to get out of this class? Go over syllabus Sample homework solution How to get a passing or better grade Posting of grades, assignments and lecture notes Use of Excel Go over first assignment (due 5/29)

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 2 Registration Please register on as soon as possible. This allows us to have private information for this class and helps me develop a more comprehensive website to supplement (and eventually replace) the Blackboard website You will also use this site to –Take the questionnaire –Take the background quiz –Obtain solutions to homework –Check grades

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 3 Questionnaire The questionnaire is used by the instructor to get demographic data about all his classes and to assess trends in technology and teaching effectiveness as well as to support accreditation The data are confidential and are summarized to help in preparing relevant and interesting classes You will get to see your class incorporated into these data

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 4 Resume Please provide a one page digital resume that: –Does not have your address or phone number in it –Tells me and your class mates about yourself –Is modeled on a brief resume used to get employment –Contains a 1 by 1 inch picture of you

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 5 Grades Grades vary from class to class. The overall percentages for my undergraduate classes are shown in the pie chart below. This summer class has been better than the general distribution (you can see the GPAs for this class on survey results):

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 6 Grades vs. Learning Grades are important, but relatively temporary Learning is forever –It is an enduring change in knowledge –It is the ability to apply material in a different context

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 7 What do you expect to get out of this class?

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 8 How to get a passing or better grade Everyone has their own way of studying and dealing with a class The following slides have suggestions of methods that could improve your performance in this or any other class

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 9 How to get a passing or better grade (continued) Learn Excel Create an organized three ring binder or similar resource (laptop works for me) Read ahead for every class session - material is provided in the assignment and on the web Come to lecture for the whole session Bring your text, class notes (from the web) and notebook to class Stay awake and participate Ask questions (there are no stupid questions!!) – if something isn’t clear to you, ask right away!! Take notes on the posted class notes

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 10 How to get a passing or better grade (continued) Do homework at leisure and early in the time allotted. If you start early, you can ask questions in class about it. Make sure it is correct. Revisit it at least once. If you have trouble with the homework (in this order): 1.Ask another classmate (be sure you get to know as many people in class as soon as you can) 2. the instructor (do not ask for info that is in the syllabus!!) Compare your returned homework to the provided answers and resolve any differences Reread the material after the class for understanding Do the examples in the book in Excel – very important

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 11 How to get a passing or better grade (concluded) Work hard early in the semester instead of scrambling at the end – there is no final in this class, only weekly quizzes Don’t let either the simplicity or apparent complexity of the material fool you Check the web pages for current information

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 12 Posting of grades, assignments and lecture notes The following items will be available on the website each week: Lecture notes at least up to and including the notes for the current week Assignments up to and including the current assignment Grades will be posted every week. These will include items for the previous two weeks. Please check them for accuracy -- you have two weeks to have corrections made

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 13 Use of Excel Spreadsheets are the mainstay of all financial analysis Excel is the most widely used, and most powerful of the currently available spreadsheets We will use Excel to demonstrate the material in this class and to solve most of the homework problems You will find that Excel is also very useful for all your other classes and will be an invaluable aid on your first job So – learn it as fast as you can. I will assist you with demonstrations and answer your questions about it

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 14 Expectations 1.Ethical behavior. 2.Effort. 3.Contribute to the classroom experience. Participate! 4.Understand the big picture. 5.Stay aware of current events in this field. 6.Develop technical competence.

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 15 THE BIG IDEAS Time value of money / Cash flow equivalence Return on Investment – ROI Knowing what matters – sunk costs and marginal costs Market forces Where do we put our resources?

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 16 Attendance and Preparation –What you get out of class is different than the book or the homework –I expect everyone to be here for most of the sessions, while understanding that there are rare occasions when you do have something urgent to do –Come to class prepared, that is, having read the material that will be covered that session. This material may be included in quizzes

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 17 What are my objectives when I prepare a lesson plan? To make sure that you are sufficiently proficient to enhance, and certainly not to damage the reputation of USC That you learn enough to function in a professional job with material that will be useful to you Help you all get a good grade Make each of the 110 minutes a pleasant experience for all of us

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 18 I have selected a few slides provided with your text to give you an idea how the author thinks of this subject

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 19 Types of Strategic Engineering Economic Decisions Equipment and Process Selection Equipment Replacement New Product and Product Expansion Cost Reduction Service Improvement Public Works Cost Effectiveness

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 20 Chapter 1 Engineering Economic Decisions Rational Decision- making Process Role of Engineers in Business What Makes the Engineering Economic Decision Difficult? Types of Strategic Engineering Economic Decisions Fundamental Principles in Engineering Economics

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 21 Rational Decision-Making Process 1.Recognize a decision problem 2.Define the goals or objectives 3.Collect all the relevant information 4.Identify a set of feasible decision alternatives 5.Select the decision criterion to use 6.Select the best alternative

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 22 Engineering Economic Decisions Planning Investment Marketing Profit Manufacturing

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 23 What Makes the Engineering Economic Decision Difficult? - Predicting the Future Estimating a Required investment Forecasting a product demand Estimating a selling price Estimating a manufacturing cost Estimating a product life

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 24 Create & Design Engineering Projects Evaluate Expected Profitability Timing of Cash Flows Degree of Financial Risk Analyze Production Methods Engineering Safety Environmental Impacts Market Assessment Evaluate Impact on Financial Statements Firm’s Market Value Stock Price Role of Engineers in Business

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 25 Two Factors in Engineering Economic Decisions The factors of time and uncertainty are the defining aspects of any engineering economic decisions

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 26 A Large-Scale Engineering Project Requires a large sum of investment Takes a long time to see the financial outcomes Difficult to predict the revenue and cost streams

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 27 Types of Strategic Engineering Economic Decisions in Service Sector  Commercial Transportation  Logistics and Distribution  Healthcare Industry  Electronic Markets and Auctions  Financial Engineering  Retails  Hospitality and Entertainment  Customer Service and Maintenance

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 28 U.S. Gross Domestic Products (GDP) Manufacturing (14%) Service sector (80%) Healthcare (14%) Agriculture (2%)

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 29 Fundamental Principles of Engineering Economics Principle 1: A nearby dollar is worth more than a distant dollar Principle 2: All that counts is the differences among alternatives Principle 3: Marginal revenue must exceed marginal cost Principle 4: Additional risk is not taken without the expected additional return

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 30 Summary The term engineering economic decision refers to any investment decision related to an engineering project. The five main types of engineering economic decisions are (1) service improvement, (2) equipment and process selection, (3) equipment replacement, (4) new product and product expansion, and (5) cost reduction. The factors of time and uncertainty are the defining aspects of any investment project.

ENGINEERING ECONOMICS ISE460 SESSION 1 INTRODUCTION, May 25, 2016 Geza P. Bottlik Page 31 The Far Side – Gary Larson