lecture 6 - ENGINEERING ECONOMY ENGINNERING AND SOCIETY...

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ENGINEERING ECONOMY ENGINNERING AND SOCIETY Fall 2006 – 2007 Prof Ramsey Hamade Ghosn Bldg, 406 [email protected]
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COST BENEFIT ANALYSIS Overview What is Cost Benefit Analysis? “Measure a hundred times but cut only once” Turkish proverb
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COST BENEFIT ANALYSIS WHAT? •A technique to evaluate the worth of an idea or project •A comparison of alternatives •An aid to decision making •A means of looking back to evaluate choices that have been made
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COST BENEFIT ANALYSIS WHERE? •Public Sector Decisions Should Lebanon build a new public transit train system? •Private Sector Decisions Should I buy a Mackintosh or Dell work station for the Engineering division? •Personal Decisions Should I go to graduate school right after college or work for a couple of years first?
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COST BENEFIT ANALYSIS WHY? •To make a business case Justify a proposal: do benefits outweigh costs? •To present a funding plan Commit capital and/or solicit external funding •To sell an idea Return on investment •To choose amongst alternatives •To evaluate decisions
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TYPES OF COSTS •Fixed, variable and incremental costs •Direct, indirect and overhead costs •Sunk cost (Costs incurred in the past and cannot be recovered) •Opportunity cost
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TYPES OF COSTS Fixed Costs Costs that remain constant over a specific range of operating conditions Examples: Examples: Insurance on facilities Insurance on facilities License fees License fees Administrative salaries Administrative salaries
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TYPES OF COSTS Variable Costs Costs varying with quantity of output produced Examples: Examples: Raw material Raw material Labor Labor
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TYPES OF COSTS Sunk Costs Costs incurred in the past, which cannot be recovered by any action taken from now on. Examples: Examples: • Binding contractual agreement to purchase a specialized Binding contractual agreement to purchase a specialized piece of equipment with no salvage value.
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This note was uploaded on 02/07/2011 for the course MECH 200 taught by Professor Drramseyhamady during the Fall '06 term at American University of Beirut.

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lecture 6 - ENGINEERING ECONOMY ENGINNERING AND SOCIETY...

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