Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Economic Analysis in the Service.

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Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Economic Analysis in the Service Sector Lecture No. 52 Chapter 16 Contemporary Engineering Economics Copyright © 2016

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Chapter Opening Story  Motor vehicle crashes cost $871 billion in economic loss and social harm.  To reduce road accidents caused by mechanical defects, many states implement various car inspection program.  The State of Pennsylvania’s $25 million motor vehicle inspection program would reduce the fatal crashes by 127–169 per year.  Is it worth undertaking?

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Contribution of the Service Sector to the U.S. Gross Domestic Product (GDP)

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved What Is Service Sector?  Commercial Transportation  Logistics and Distribution  Healthcare Delivery  Financial Engineering  Electronic Markets and Auctions  After-Sale Equipment Monitoring, Maintenance and Repair  Retailing, Hotel, and Restaurant  Hospitality and Entertainment  Customer Call/Contact Centers

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Source: National Science Foundation, 2002 Some Unique Characteristics of Service Sector

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 1 o Services are generally intangible. They have sometimes been defined as anything of economic value that cannot be held or touched.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 2 o It is usually impossible to build inventories of services. o Either the demand for the service must be backlogged or enough resources need to be provided to meet an acceptable fraction of the demand as it arises.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 3 o Services are more dynamic and demand- responsive than manufactured products. o This means variability and risk are more central issues in service industries.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 4 o Many services (examples are medical treatment and equipment repair) require a diagnostic step to design the service (co- production) as part of its delivery.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 5 o Service products are usually less standardized and less subject to design specifications than manufactured goods because the outputs are tailored to customer needs as they are delivered.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 6 o The dimensions of service quality are more subtle and subjective than with physical products. o Not only are the parameters of services more difficult to express, but customer perceptions play a much greater role in deciding what is satisfactory or valuable.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 7 o Most service operations are more labor- intensive than manufacturing industries.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 8 o Compared to goods industries, a much greater fraction of the service economy is operated by governments and institutions.

Contemporary Engineering Economics, 6 th edition Park Copyright © 2016 by Pearson Education, Inc. All Rights Reserved Property 9 o Information technology is central in service industries. Often it is the only significant equipment available to multiply human output.