1.

3
ENGINEERING
ECONOMY AND
THE DESIGN
PROCESS
 ENGINEERING ECONOMY
It is the analysis of the economic
consequences of engineering decisions.

This study is accomplished using a

structured procedure and mathematical
modelling techniques.
ENGINEERING ECONOMIC
ANALYSIS PROCEDURE
A seven-step procedure used to assist
decision making within the engineering
design process
THE GENERAL RELATIONSHIP BETWEEN THE
ENGINEERING ECONOMIC ANALYSIS PROCEDURE
AND THE ENGINEERING DESIGN PROCESS
Engineering Economic Analysis Engineering Design Process
Procedure Activity
Step
1. Problem / need definition
1.Problem recognition, definition, 2. Problem / need formulation and
and evaluation evaluation
2. Development of the feasible 3. Synthesis of possible solutions
alternatives (alternatives)

3. Development of the outcomes 4. Analysis, optimization, and

and cash flows for each alternative evaluation
4. Selection of a criterion (or
criteria)
5. Analysis and comparison of the 5. Specification of preferred
alternatives alternative
6. Communication
6. Selection if the preferred
alternative
7. Performance monitoring and
post-evaluation of results
 DESIGN PROCESS
Activities in the design process contribute
information to related steps in the
economic analysis procedure.

The process may be repeated in phases to

accomplish a total design effort.
1.3.1

PROBLEM
DEFINITION
Recognition of the problem
Definition of the problem
Evaluation of the problem
1.3.2
DEVELOPMENT
OF
ALTERNATIVES
TWO PRIMARY ACTIONS IN THE
DEVELOPMENT OF THE FEASIBLE
ALTERNATIVE
Searching for potential
alternatives
Screening them to select a
smaller group of feasible
alternative
1.3.2.1
SEARCHING FOR
ALTERNATIVES
 WAYS TO INCREASE
EFFICIENCY:
 Concentrate on redefining one problem at a time.
 Develop many redefinitions for the problem.
 Avoid making judgments as new problem definitions created.
 Attempt to redefine a problem in terms that are dramatically
different from the original.
 Make sure that the true problem is well researched and
understood.
1.3.2.2
DEVELOPING
INVESTMENT
ALTERNATIVES
CLASSICAL
BRAINSTORMING
 FOUR RULES FOR SUCCESSFUL BRAINSTORMING
 Criticism is ruled out.
 Freewheeling is welcomed.
 Quantity is wanted.
 Combination and improvement are sought.

 Classical brainstorming session’s basic steps:

 Preparation
 Brainstorming
 Evaluation
NOMINAL GROUP
TECHNIQUE
The basic format of NGT session:
1. Individual silent generation of ideas.
2. Individual round-robin feedback and recording
of ideas.
3. Group clarification of each idea.
4. Individual voting and ranking to prioritize
ideas.
5. Discussion of group consensus results.
1.3.3
DEVELOPMENT OF
PROSPECTIVE
OUTCOMES
 CASH FLOW
 occurs when money is transferred from one organization or individual to
another.
 represents the economic effects of an alternative in terms of money spent and
received.

NET CASH FLOW

• refers to the difference between a
company's cash inflows and outflows in a given period.
NONMONETARY FACTORS
1. Meeting the exceeding customer expectations
2. Safety to employees and to the public
3. Improving employee satisfaction
4. Maintaining production flexibility to meet changing demands
5. Meeting or exceeding all environment requirements
6. Achieving good public relations or being an exemplary member of the
community
1.3.4
SELECTION OF A
DECISION
CRITERION
1.3.5
ANALYSIS AND
COMPARISON OF
ALTERNATIVES
 PRESENT WORTH ANALYSIS

 ANNUAL COST ANALYSIS

 BENEFIT-COST ANALYSIS

 BREAK-EVEN ANALYSIS
1.3.6
SELECTION OF THE
PREFERRED
ALTERNATIVE
Based on the result of the analysis, the best
alternative for the situation should be
recommended.
1.3.7
PERFORMANCE
MONITORING AND
POST-EVALUATION
OF RESULTS
Monitoring project performance
during its operational phase
improves the achievement of
related goals and objectives and
reduces the variability of the
desired results.