Module 1: Engineering Economics Flashcards
Quizzes, module notes (43 cards)
What is the SIMPLE definition of Engineering Economics?
EE is about economic evaluation of engineering projects
What are the 3 phases of analysis in EE?
- Feasibility studies
- Operational
- Replacement
What does the Phase 1: Feasibility studies entail?
its the step where you stop and think before doing something. you kinda think “should we even do this?”.
- Mainly about concept and economics.
What does Phase 2: Operational entail?
kinda like asking, “can this system be operated, supported, and accepted under real-world conditions, with real people, over time?’.
- Mainly about practicality and human factors
What does Phase 3: Replacement entail?
kinda like asking, “is it time to replace, upgrade, or decommission an existing system?”.
- Mainly about the worth of building/will it sustain long enough to be profitable
What are the 3 types of problems in EE?
- Simple problems
- Intermediate problems
- Complex problems
What do the SIMPLE EE PROBLEMS require?
minimum calculations to make optimal decisions.
How might SIMPLE PROBLEMS be framed as questions within each of the three feasibility phases?
Phase 1 Example:
- should my simple project of a new oil pump be financed by myself or do I need other sources of financing?
Phase 2 Example:
- what is the value of my equipment after two years of operation? What are its maintenance costs?
Phase 3 Example:
- What are the costs of operating a piece of equipment for one more year?
What do INTERMEDIATE PROBLEMS include?
detailed financial calculations to help choose the best option based on the current economic situation
How might INTERMEDIATE PROBLEMS be framed as questions within each of the three feasibility phases?
Phase 1 Example:
- What is the net present worth of my engineering design if implemented?
Phase 2 Example:
- Is my technology/business making profit and how much taxes should I pay?
Phase 3 Example:
- What is the optimal lifespan of my equipment/tech, and when should I replace it?
What do COMPLEX PROBLEMS represent?
a mixture of economic, political, social, and ethical elements.
What is a general conclusion regarding the tools and methods of EE (problem types)?
they help us address simple/intermediate problems and only some elements of complex problems.
Any engineering decision should be evaluated in terms of…
costs and benefits
All resources in this world including time and money are scarce, and therefore…
every project must also be compared to what else could be done with those same resources.
what are benefits?
they’re what a consumer is willing to pay for the product produced from the engineering project
costs and benefits should be _____, and they should reflect the ____ ____ _____ between them.
comparable; real trade-off
What is the RATIONAL CHOICE algorithm (9 steps)?
- Recognize the problem
- Define the goal or objective
- Collect relevant data
- Identify feasible alternatives
- Select the right criterion/criteria
- Construct a model
- Predict consequences of each feasible alternative
- Choose the best alternative
- Check the results
RDCISCCC
Money is…
the medium of exchange
the price of money is also equal to…
what you give up by not using it in its most profitable alternative use
Same amount of money in different periods of time has _____ _____
different value
TVM stands for
Time value of money
Why is TVM an important concept to investors?
Because a dollar today could be worth more than a dollar promised in the future (due to inflation/taxes)
to resolve uncertainty, engineers apply….
sensitivity analysis
what is the more in depth definition of EE?
EE is a science which deals with techniques of quantitative analysis to select a preferable alternative from several technically viable ones
