1. Economics for Engineers Economic Decision Making
-Sayantan Sarkar

2. Economics & Management
Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth.
Management is the study of organizing and allocating a firm’s scarce resources to achieve it’s desired objectives.
What is Engineering Economics?
Engineering economy is a subset of economy for application to engineering projects.

3. Why Engineering Economy is Important?
Engineers seek solutions to problems, and the economic viability of each potential alternative or design is normally considered along with the technical aspects.
Engineering economy involves the evaluation of the costs and benefits of proposed projects.
Engineers play a major role in investment by making decisions based on economic analysis and design considerations.
Thus, decisions often reflect the engineer’s choice of how to best invest funds by choosing the proper alternative out of a set of alternatives.

4. Decision Making - Overview
Pre-planned course of action taken for a specific time period for meeting some specific objectives.
Future course of actions for any economic activity which has a definite outcome in the economy and for the society as well.

5. Role of Engineering Economy in Decision Making Process
Engineers make decisions by using tools and computers that effect what will happen in the future and thus the time frame of engineering economy is the future.
Engineering economy analysis presents the best estimates of what is expected to occur.

6. …Role of Engineering Economy in Decision Making Process
Make or buy decisions
Purchase of assets or taken on leases
Replacement/ maintenance of an asset
Depreciation on the basis of historic cost or current market prices
Time value of cash flows
Effect of inflation on assets and profitability of company
Pay back period of a machine or project
Cash flow pattern of a project
Risk and uncertainty of a project

7. Steps in Decision Making Process
Identify the Problem
Analyse the Problem
Develop Alternatives
Evaluation of Alternatives
Select the best Alternatives
Implementation
Appraisal of results

8. Problems in Economic Decision Making Process
We have unlimited wants and the means to satisfy those wants are limited, with the satisfaction of one want, another arises, and here arises the problem of decision making .
The problem of decision making arises whenever a number of alternatives are available, such as:
What should be the price of the product?
What should be the size of the plant to be installed?
How many workers should be employed?
Therefore, we can say that the problem of decision making arises due to the scarcity of resources.

9. Factors effecting Decision making process:
Certainty
Risk
Uncertainty
Scarcity of Resources

10. Aids / Techniques of Economic Decision Making:
Probability theory
Sensitivity Analysis
Decision Tree
Replacement Analysis
Simulation theory
Network Analysis (PERT/CPM)