Lecture-8 - General Steps for Decision Making Processes 1 2...

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General Steps for Decision Making Processes 1. Identify and understand the problem; identify the objective of the project. 2. Collect relevant, available data and define viable solution alternatives. 3. Make realistic cash flow estimates. 4. Identify an economic measure of worth criterion for decision making. 5. Evaluate each alternative; consider noneconomic factors; use sensitivity analysis as needed. 6. Select the best alternative. 7. Implement the solution and monitor the results.
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Time Value of Money (TVM) The change in the amount of money over a given time period is called the time value of money; it is the most important concept in engineering economy.
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Interest and Interest Rate Interest the demonstration of the time value of money. Fee that one pays to use someone else’s money Difference between an ending amount of money and a beginning amount of money. Interest paid on borrowed funds (a loan) is determined using the original amount, also called the principal.
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