Lec%202_Full

Lec%202_Full - IE 343 Engineering Economics Lecture 2:...

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IE 343 Engineering Economics Lecture 2: Chapter 1 - Introduction Instructor: Tian Ni Aug. 24, 2011 IE 343 Fall 2011 1
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What is Engineering Economy? IE 343 Fall 2011
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• The mission of engineering economy is to balance different types of costs and the performance (response time, safety, reliability, etc.) in the most economical manner. 3 IE 343 Fall 2011 What is Engineering Economy?
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• Engineering economy involves the systematic evaluation of the economic merits of proposed solutions to engineering problems. • To be economically acceptable (i.e., affordable), solutions to engineering problems must demonstrate a positive balance of long-term benefits over long- term costs . 4 IE 343 Fall 2011 What is Engineering Economy?
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Seven Principles of Engineering Economy IE 343 Fall 2011
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• Principle 1: Develop the alternatives – The alternatives need to be identified and then defined for subsequent analysis. – Since the choice (decision) is among alternatives, developing and defining the comprehensive list of alternatives for detailed evaluation is important. – Creativity and innovation are essential. 6 IE 343 Fall 2011 Seven Principles of Engineering Economy
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• Principle 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. – Outcomes that are common to all alternatives can be disregarded in the process of comparison and decision. 7 IE 343 Fall 2011 Seven Principles of Engineering Economy
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• Principle 3: Use a consistent viewpoint – The prospective outcomes of the alternatives, selection of the criteria and other, should be consistently developed from a defined viewpoint (perspective). – Usually, the viewpoint of the decision maker would be used. – For example, the perspective of the employees is used for the problem of designing the employee benefit package. 8 IE 343 Fall 2011 Seven Principles of Engineering Economy
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• Principle 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. – For economic outcomes, a monetary unit such as "dollars“ is the common unit of measure. – If the outcomes cannot be quantified, describe these consequences explicitly so that the information is useful to the decision maker in the comparison of the alternatives. 9 IE 343 Fall 2011 Seven Principles of Engineering Economy
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Consider all relevant 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. 10
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Lec%202_Full - IE 343 Engineering Economics Lecture 2:...

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