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Engineering

Economic
Analysis
7 principles of Engineering
Economy
Objectives
To be able to apply the 7 principles of Engineering Economy
not only in the engineering field but also in mans day to day
living.
To develop ones logical decision-making skill.
Sample Problem
While studying for the Engineering Economy final exam, you
and two friends find yourselves craving for a fresh pizza. You
cant spare the time to pick up the pizza and must have it
delivered. Pick-Up-Sticks offers a 1-1/4 thick (including
toppings), 20 square pizza with your choice of two toppings
for $15 plus 5% sales tax and a $1.50 delivery charge (no
sales tax on delivery charge). Freds offers the round, deep-
dish Sasquatch which is 20 inches in diameter. It is 1-3/4
thick, which includes two toppings, and costs $17.25 plus 5%
sales tax and free delivery.
Engineering Economic Analysis Procedure
PROBLEM DEFINITION
Where should they order a pizza?
Engineering Economic Analysis Procedure
DEVELOPMENT OF ALTERNATIVES
A. Develop alternatives
i. Order a pizza from Pick-Up-Sticks.
ii. Order a pizza from Freds.
iii. Find another place to order a pizza *
iv. Do not order a pizza *
* Not to be considered
Engineering Economic Analysis Procedure
DEVELOPMENT OF PROSPECTIVE OUTCOMES
B. Focus on the differences
i. Delivery time
ii. Quality
iii. Cost
Engineering Economic Analysis Procedure
SELECTION OF A DECISION CRITERION
C. Use a consistent viewpoint
Look from the point of view of a customer (i.e. you and two
friends)
Engineering Economic Analysis Procedure
SELECTION OF A DECISION CRITERION
D. Use a common unit of measure
Cost (In dollars)

The main criterion will be the value for money


Engineering Economic Analysis Procedure
SELECTION OF A DECISION CRITERION
E. Consider all relevant criteria
Overall cost
Quality of Ingredients and preparation
Variety of flavours (i.e. toppings, Deep-dish Sasquatch)
Delivery time
Reputation of the pizza restaurant
Others (allergies, dislikes, group dynamics etc.)
Engineering Economic Analysis Procedure
ANALYSIS AND COMPARISON OF ALTERNATIVES
Using value for money (dollars/in3) as the main criterion:

Pick-Up Sticks Freds


Engineering Economic Analysis Procedure
0.04

0.03
0.03

0.03

Dollar/cubic inches 0.03

0.03 0.03

0.03

0.03
Lower is better
Pick-Up Sticks Fred's
Engineering Economic Analysis Procedure
SELECTION OF PREFERRED ALTERNATIVE
F. Make uncertainty explicit
Delivery time, quality, price, value for money
Since value for money is the main criterion. Therefore, they
must choose Freds.
Engineering Economic Analysis Procedure
PERFORMANCE MONITORING AND POST EVALUATION OF
RESULTS
G. Revisit your decisions
Was the quality of pizza good?
How long did it took them to deliver it?
Are you satisfied with your decision?
THANK YOU!
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