Engineering Economy

Sullivian
W.G, Wicks
E.M and
Koelling
C.P (2012)

Blank, L.T, A.Tarquin (2012) Mohamad Sirin, R (2007)

 Chapter 1

Introduction to
Engineering Economy
1-2
 Engineering economy…

involves the systematic evaluation

of the economic merits of proposed
solutions to engineering
problems.
1.1 Why Engineering Economy is
Important to Engineers?
❖ Engineers design and create …design & build…what type of
design involved?
❖ Designing involves economic decisions…size min or max?
❖ Engineers must be able to incorporate economic analysis into
their creative efforts …Project A, but 20 company submit tender
for this project..

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1.1 Why Engineering Economy is
Important to Engineers? (Con’t)
❖ Often engineers must select and implement from multiple
alternatives..
❖ Understanding and applying time value of money, economic
equivalence, and cost estimation are vital for engineers
❖ A proper economic analysis for selection and execution is a
fundamental task of engineering.. 1 of company submit 3
tender, which are 3BQ...which one the best price??

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 1.2 Role of engineering economic
analysis in decision making
• Choosing the best design for a high-efficiency gas furnace.
• Selecting the most suitable robot for a welding operation on an
automotive assembly line.
• Making a recommendation about whether jet airplanes for an overnight
delivery service should be purchased or leased.
• Determining the optimal staffing plan for a computer help desk.
• Determing labour …pekerja asing or tempatan
• Progress Report..Interim payment, S-Curve
• Bidding (BQ)…the best price to select contractor
• Hire purchase..machineries
1.3 SEVEN (7) fundamental principles
of engineering economy.
1) Develop the alternatives
Carefully define the problem, then the choice (decision) is
among alternatives. The alternatives need to be identified
and then defined for subsequent analysis.

2) Focus on the differences

Only the differences in expected future outcomes among the
alternatives are relevant to their comparison and should be
considered in the decision.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
3) Use a consistent viewpoint
The prospective outcomes of the alternatives, economic
and other, should be consistently developed from a defined
viewpoint (perspective)

4) Use a common unit of measure

Using a common unit of measurement to enumerate as many of
the prospective outcomes as possible will simplify the analysis
of the alternatives.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
5) Consider all relevant criteria
Selection of a preferred alternative (decision making) requires
the use of a criterion (or several criteria). The decision process
should consider both the outcomes enumerated in the monetary
unit and those expressed in some other unit of measurement or
made explicit in a descriptive manner.

6) Make uncertainty explicit

Risk and uncertainty are inherent in estimating the future
outcomes of the alternatives and should be recognized in their
analysis and comparison.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
7) Revisit your decisions
Improved decision making results from an adaptive process;
to the extent practicable, the initial projected outcomes of the
selected alternative should be subsequently compared with
actual results achieved.
No Principle of eng. economy Example issue

1 Develop the alternatives SMART Tunnel

-carefully define the problem, then the
choice (decision) is among
alternatives

Problem
1.Sinkholes 2. Crack

Propose all decision alternative

1.Service & Repair for maintenances purpose only,
2.Redesign, sampling & lab testing for others action approval from
authorities
3.New improvement technologies
No Principle of eng. economy
2 Focus on the differences
only the differences in expected future
outcomes among the alternatives are relevant
to their comparison and should be considered
in the decision.
3 Use a consistent viewpoint
the prospective outcomes of the alternatives,
economic and other, should be consistently
developed from a defined viewpoint
(perspective)
Example issue
Choose expected decision alternative (2) & (3)
2. Redesign, sampling & lab testing for others action approval from
authorities
3. New improvement technologies
2. Redesign, sampling & lab testing for others action approval from authorities
a. melibatkan masa untuk merekabentuk & menyiapkn
laporan serta mendapatkan kelulusan oleh pihak
berkuasa tempatan.
b. melibatkan kos dan pekerja mahir bagi membuat
penyelenggaraan
3. New improvement technologies
a. menggunakan TB Machine jenis Variable Density
bukan jenis Earth Pressure Balance for different soil
condition.
b. menggunakan pekerja mahir yang dilatih khas
c. menggunakan bahan yang mempunyai kekuatan
tinggi
No Principle of eng. economy Example issue
2. Redesign, sampling & lab testing
4 Use a common unit of measure • R/Bentuk semula & kelulusan ambil masa yang lama
using a common unit of measurement to enumerate as • Kos yang tinggi
• pekerja mahir yang terlatih
many of the prospective outcomes as possible will
simplify the analysis of the alternatives. 3. New technologies to prevent Crack – Steel fibre
Constructive:
•Less material cost
•Labor reduction
•Less human error

Structural:
•Smaller crack width openings
•Higher durability
•Higher impact and abrasion resistance
•Higher fatigue strength
•Improved fire resistance properties

5 Consider all relevant criteria Review again all criteria

selection of a preferred alternative (decision making) requires
the use of a criterion (or several criteria). The decision
process should consider both the outcomes enumerated in the
monetary unit and those expressed in some other unit of
measurement or made explicit in a descriptive manner.
No Principle of eng. economy
6 Make uncertainty explicit
risk and uncertainty are inherent in estimating
the future outcomes of the alternatives and
should be recognized in their analysis and
comparison.
7 Revisit your decisions
improved decision making results from an adaptive
process; to the extent practicable, the initial
projected outcomes of the selected alternative
should be subsequently compared with actual
results achieved.
Example issue
Advantages
• Minimized cracking and spalling
•Less repair and maintenance needed
•Better aesthetical appearance of the tunnel
•No limitations for M&E to drill
•Higher durability
Disadvantages
• The use of SFRC as tunnel lining is uncommon
• Unlike conventional rebar design, SFRC mix design is more complex.
• No precedence of mix design to follow
• Limited guidelines on the sampling and testing of SFRC samples
• Engage experienced consultants to facilitate:
Choose the best decision ..no (3)
1.4 General Steps for Decision Making
Processes
Define objectives
UNDERSTAND THE PROBLEM

Investigate the COLLECT RELEVANT INFORMATION

issue
DEFINE A SET OF FEASIBLE
List down ALTERNATIVES
potential solution
Discuss criteria/ IDENTIFY DECISION MAKING CRITERIA
requirement for each
EVALUATE THE
alternatives
Conduct analysis ALTERNATIVES

SELECT THE BEST

Choose and decide ALTERNATIVE

Action and monitor IMPLEMENT, MONITOR AND EVALUATE

THE RESULT

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No
EXAMPLE:
Decision Making Processes Example issue
1 Understand the problem (define objectives )
2 Investigate the issue
3 Define the set of feasible
alternatives..discuss any solution
4 Identify the criteria for decision making..list
out
5 Evaluate the alternatives and apply
sensitivity analysis..
6 Select the “best” alternative.. choose
7 Implement the alternative and monitor
results.. action
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broken pile
condong semasa setting piling work
Senaraikan semua kebarangkalian solution..korek semula? biarkan
tanpa cukup bil pile ikut size asal? redesign footing etc.
i. korek semula
ii. ikut saiz asal tanpa cukup bil pile
iii. redesign footing
i. korek semula…akan mengganggu struktur tnh
ii. ikut saiz asal tanpa cukup bil pile…tidak
boleh tanggung load structure..
iii. redesign footing…boleh tanggung load
structure
(iii) redesign
submit drawing for approvals
Problem description
1.5 Steps in an
Objective Statement

Available data Engineering Economy

Alternative for One or more approaches to meet objectives
solutions
Study
Expected life
Cash flows and other estimates Revenues
Costs
Taxes
Measure of worth criterion Project
PW, financing
ROI, B/C etcs.

Engineering economic analysis

Consider:
Best alternative selection • Non-economic factors
• Sensitivity analysis
• Risk analysis
Implementation and monitoring

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Maths application in engineering economy
• Engineering Economy involves
– Formulating .. v=P x L x t
– Estimating, ..slab
– Evaluating …how many mixer lorry want to order???
expected economic outcomes of alternatives
designed to accomplish a defined purpose

• Easy-to-use math techniques simplify the evaluation,

– eg : Teorem Pithagoras

• Estimates of economic outcomes can be deterministic or

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stochastic in nature.
Electronic spreadsheets are a powerful tools in
engineering economic analysis
• Most engineering economy problems can be formulated and
solved using a spreadsheet.
• Large problems can be quickly solved.
• Proper formulation allows key parameters to be changed.
• Graphical output is easily generated.
• Give example of spreadsheets that engineer use in design for
civil engineering???
 Take Home Quiz 1
1.Find one (1) problem economic issues
related on
building/construction/environment/
structure/materials/road & drainage/
others activities.

2. Solve the problem follows the

i. Principle of eng economy
ii. Decision making process.