1. Chapter 1 Engineering Economic Decisions
Rational Decision-Making Process
Economic Decisions
Predicting Future
Role of Engineers in Business
Large-scale engineering projects
Types of strategic engineering economic decisions
(c) 2001 Contemporary Engineering Economics

2. Rational Decision-Making Process
Recognize a decision problem
Define the goals or objectives
Collect all the relevant information
Identify a set of feasible decision alternatives
Select the decision criterion to use
Select the best alternative
(c) 2001 Contemporary Engineering Economics

3. (c) 2001 Contemporary Engineering Economics
Which Car to Lease?
Recognize a decision problem
Define the goals or objectives
Collect all the relevant information
Identify a set of feasible decision alternatives
Select the decision criterion to use
Select the best alternative
Need a new car
Want mechanical security, low payment
Gather technical as well as financial data
Choose between Saturn and Honda
Want minimum total cash spending
Select Honda
(c) 2001 Contemporary Engineering Economics

4. Engineering Economic Decisions
Manufacturing
Profit
Planning
Investment
Marketing
(c) 2001 Contemporary Engineering Economics

5. (c) 2001 Contemporary Engineering Economics
Predicting the Future
Required investment
Forecasting product demand (sales)
Estimating selling price of the product
Estimating manufacturing cost
Estimating product life
(c) 2001 Contemporary Engineering Economics

6. Role of Engineers in Business
Participate in a variety of decision-making processes, ranging from manufacturing, through marketing, to financing decisions
Plan for the acquisition (purchase) of equipment (capital)
Design products from the concept to shipping
(c) 2001 Contemporary Engineering Economics

7. 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
(c) 2001 Contemporary Engineering Economics

8. Types of Strategic Engineering Economic Decisions
Once project ideas identified, they are classified as
Equipment and Process Selection
Equipment Replacement
New Product and Product Expansion
Cost Reduction
Service Improvement
(c) 2001 Contemporary Engineering Economics

9. Equipment & Process Selection
How do you choose between Plastic SMC and Steel sheet stock for the auto body panel? (example 1.1)
The choice of material will dictate the manufacturing process for the body panel as well as manufacturing costs.
(c) 2001 Contemporary Engineering Economics

10. Which Material to Choose?
(c) 2001 Contemporary Engineering Economics

11. Equipment Replacement
Now is the time to replace the old machine?
If not, when is the right time to replace the old equipment?
(c) 2001 Contemporary Engineering Economics

12. New Product and Product Expansion
Shall we build or acquire a new facility to meet the increased demand?
Is it worth spending money to market a new product?
Gillette’s MACH3
Project
(c) 2001 Contemporary Engineering Economics

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Cost Reduction
Should a company buy equipment to perform an operation now done manually?
Should spend money now in order to save more money later?
(example 1.4)
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Service Improvement
How many more jeans would Levi need to sell to justify the cost of additional robotic tailors? (example 1.5)
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15. (c) 2001 Contemporary Engineering Economics
Summary
The term engineering economic decision refers to all investment decisions relating to engineering projects.
The five main types of engineering economic decisions are (1) equipment and process selection, (2) equipment replacement, (3) new product and product expansion, (4) cost reduction, and (5) service improvement.
The factors of time and uncertainty are the defining aspects of any investment project.
(c) 2001 Contemporary Engineering Economics