01 Lecture 1 - Engineering Decisions Good engineering...

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Engineering Decisions Good engineering decisions are based on both technical sufficiency to achieve a certain technical result or output, as well as the economic impact of the decision. That is, businesses are interested in the economic efficiency of decisions together with their technical sufficiency. In our market driven economy, customers seek goods and services and pay for them. The producers of these goods and services must cover their costs and provide a suitable return on capital. Engineers who act on behalf of the organization must always be concerned with costs and return on capital to ensure the economic success of the product or service and the economic viability of their firm. An engineer usually follows a series of steps, explicitly or implicitly, in arriving at a decision. An example of these steps is shown below. The goal of our course is to explore the money dimension in engineering decision making. There are a number of steps in engineering decision making. Each relies on the completion of the preceding step. STEPS IN ENGINEERING DECISION MAKING 0. Recognize the need for an economic analysis 1. Formulate the decision problem 2. Establish criteria 3. Generate alternatives 4. Establish technical understanding of alternatives 5. Estimate consequences of alternatives 6. Select the preferred alternative 7. Perform sensitivity analysis 8. Document and Communicate the decision and justification Now let's look at these steps in more detail. 0. Recognize the need for an economic analysis Whether we realize it or not, every action inside a business is tied to economic decisions. Some are explicit and formally documented; many are made on-the-fly as part of a project.
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Consideration of the economic impact should drive every decision to maximize returns to the firm. 1. Formulate the decision problem In step 1, we identify the problem in terms of: o What we are trying to decide, o What we know, and o What is out of the question? 2. Establish criteria In step 2, we establish criteria for estimating and evaluating consequences. Uniform guidelines for estimation and evaluation must be agreed upon. 3. Generate alternatives In step 3, we generate alternatives or viable scenarios to be evaluated. 4. Establish technical understanding of alternatives In step 4, we establish technical understanding of our alternatives. It is critical that each scenario is technically feasible. It is a career limiting move to evaluate a technical scenario that is infeasible. 5. Estimate consequences of alternatives In step 5, we estimate the consequences of alternatives. This includes estimates of the revenues, expenses, and investment for each scenario. Cost and benefit concepts are very important in estimating consequences of alternatives.
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This note was uploaded on 05/12/2010 for the course BUSINESS BS515 taught by Professor Johnson during the Fall '09 term at Drexel.

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01 Lecture 1 - Engineering Decisions Good engineering...

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