Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
  1. Home
  2. Search

Refine search

Refine search

Access:
Content type:
Publication date:
Apply   From and To filters
Subject: Show more
Journals Show more
Publishers: Show more
Societies Show more
Series: Show more
Collections: Show more

Actions for selected content:

Select all | Deselect all
  • View selected items
  • Export citations
  • Download PDF (zip)
  • Save to Kindle
  • Save to Dropbox
  • Save to Google Drive

Save Search

You can save your searches here and later view and run them again in "My saved searches".

Please provide a title, maximum of 40 characters.
Cancel
×

32 results

Page 1 of 2

  • Preface

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp xix-xx

  • Summary

    ABOUT ENGINEERING ECONOMICS WITH APPLICATIONS

    Engineers are required to provide economically feasible solutions to existing problems. To achieve this, engineers must possess knowledge of economy to evaluate the monetary consequences of the products, projects and processes that they design. Engineering design solutions do not exist in a vacuum but within the context of a business opportunity. Since almost every problem has multiple solutions, so the issue is: how does one rationally select a design with the most favorable economic result? The answer to this question is provided by engineering economy. Engineering economy, the analysis of the economic consequences of engineering decisions, is said to have originated in A. M. Wellington's The Economic Theory of Railway Location, published in 1887. Engineering economy is now considered a part of the education of every engineer, as it provides a systematic framework for evaluating the economic aspects of competing design solutions. Just as engineers model the effect of temperature on cutting tools or the thermodynamic response of an air compressor, they must also model the economic impact of their recommendations. What is ‘engineering economy’ and why is it so important? The initial reaction of many engineering students to this question is, ‘money matters will be handled by someone else and I need not worry about these matters’. In reality, any engineering project must be, not only physically realizable but also economically affordable. Understanding and applying economic principles to engineering have never been more important. Engineering is more than a problem-solving activity focusing on the development of products, systems, and processes to satisfy a need or demand. Beyond function and performance, solutions must also be economically viable. Design decisions affect limited resources such as time, material, labor, capital and natural resources, not only initially i.e. during conceptual design but also through the remaining phases of the life cycle i.e. during detailed design, manufacture and distribution, service, retirement and disposal. Engineers should realize that the solution provided by them does not make sense and will not be acceptable, if it is not profitable.

  • 5 - Methods for Making Economy Studies

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 185-211

  • Summary

    INTRODUCTION

    Engineering or business projects require huge capital investments. Economy studies are necessary to be conducted to establish whether a proposed capital investment and its associated expenditures can be recovered over time in addition to a return on the capital that is attractive in view of risks involved and opportunity costs of the limited funds. The concepts of interest and money-time relationships of Chapter 4 are quite useful in arriving at the investment decision.

    Since different projects involve different patterns of capital investment, revenue or savings cash flows and expenditure or disbursement cash flows, no single method is perfect for making economy studies of all types of projects. As a result, several methods for making economy studies are commonly used in practice. All methods will produce equally satisfactory results and will lead to the same decision, provided the inherent assumptions of each method are enforced.

    This chapter explains the working mechanism of six basic methods for making economy studies and also describes the assumptions and interrelationships of these methods. In making economy studies of the proposed project, the appropriate interest rate to be used for discounting purpose is taken to be equal to the minimum attractive rate of return (M.A.R.R.) expected by the fund provider. The value of M.A.R.R. is established in view of the opportunity cost of capital which reflects the return forgone as it is invested in one particular project.

    BASIC METHODS

    The following six methods are commonly used for making economy studies:

    Equivalent worth:

  • 1. Present worth (P.W.)

  • 2. Future worth (F.W.)

  • 3. Annual worth (A.W.)

    • Rate of return:

  • 1. Internal rate of return (I.R.R.)

  • 2. External rate of return (E.R.R.)

  • 3. Explicit reinvestment rate of return (E.R.R.R.)

    • PRESENT WORTH(P.W.) METHOD

    In this method, equivalent worth of all cash flows relative to some point in time called present worth i.e. P.W. is computed. All cash inflows and outflows are discounted to the present point in time at an interest rate that is generally M.A.R.R. using appropriate interest factor. The following steps are used to calculate P.W.:

    Step 1: Draw the cash flow diagram for the given problem.

    Step 2: Determine the P.W. of the given series of cash receipts by discounting these future amounts to the present at an interest rate i equal to M.A.R.R.

  • 13 - Value Engineering

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 375-387

  • Summary

    INTRODUCTION

    To thrive in today's competitive markets, organizations are looking for smart ways of doing business and work. They cannot afford extensive time delays and increased costs. Value Engineering (VE) is a methodology developed to assist individuals as well as enterprises that will allow them to make changes to augment their processes or services. Several establishments discovered that the methods being followed in the past were insufficient and, therefore, it was essential for them to bring changes to their working style. Using the VE practices, small changes along with hard work and common sense can improve things for organization.

    CONCEPT OF VALUE ENGINEERING

    Larry Miles, a procurement engineer for General Electric, introduced the VE methodology during World War II. The problem he was facing was that he was not able to obtain material to manufacture the turbo-supercharger for the B-17 and P-47 airplanes. He developed a technique which did not solve the problem of procuring the material, but addressed the functionality of each material. The group determined the functionality of every component in the turbo-supercharger. Then they established the more economical constituents to attain the desired function.

    VE can be defined as a systematized or methodical tactic, focused on analyzing the functionality of systems, apparatus, amenities, services and supplies with the objective of realizing their necessary functionality at the lowermost life-cycle cost, without affecting requisite capability, consistency, eminence and safety. Since more than seven decades, many organizations have been using, analyzing and refining the VE procedures. The basic aspect of VE is that it makes you acquire the ability to think in different ways. The basic features of VE are shown in Fig. 13.1.

    Value is the goal, not the cost. Sometimes the highest price items have the best value. Delivering value to the customer is the aim of the organization. Some people think that making things better means reducing the cost of the product and, in that process, sometimes the functionality of the item is reduced, which reduces the value. However, this is incorrect. VE is not against reducing cost, but not at the cost of reducing the functionality or value of the product. VE also emphasizes on cost reduction, but without reducing the functionality.

    Generally, VE is achieved with the help of multidisciplinary teams. Earlier, organizations succeeded by giving a problem or a question to an individual.

  • 9 - Economic Evaluation of Public Sector Projects

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 266-275

  • Summary

    INTRODUCTION

    The projects that are owned, used and financed by the government (and hence the citizens) are classified as public sector projects. The primary purpose of such projects is to provide services to the people at no profit. Examples of projects related to public sector include hospitals and clinics, educational institutions, transportation, police and fire service, public housing, postal services, etc. It has been observed that such projects often require large initial investments, possibly distributed over several years. Public sector projects do not yield direct profit, but they require huge investments that are paid by the appropriate government unit. The successful implementation of the public sector projects provides benefits to the citizens. It is found that certain undesirable consequences, for example impact on environment, are often associated with the public sector projects. Therefore, the economic analysis of such projects must not only consider these negative consequences but also should quantify them with great accuracy. To perform an economic analysis of public sector projects, the costs (initial and annual), the benefits, and the disbenefits, if considered, must be estimated as accurately as possible in monetary units.

    Costs refer to the estimated expenditures to the government body for construction, operation and maintenance of the project, less any expected salvage value.

    Benefits refer to the advantages expected by the owners, i.e., the public.

    Disbenefits refer to any expected undesirable consequences to the owners if the project is implemented.

    Economic analysis of public sector projects is different from those of private sector projects. For public sector projects, the initial costs are usually large, the expected life is long and the sources for capital are usually a combination of taxes levied on the citizens, user fees, bond issues and private lenders. It is very difficult to make accurate estimates of benefits and disbenefits for a public sector project. The interest rates for the public sector are lower than those for private sector. The methods that are used to perform economic analysis of public sector projects are discussed in the following sections.

    BENEFIT/COST ANALYSIS OF A SINGLE PROJECT

    The benefit/cost (B/C) ratio is a fundamental analysis method for public sector projects. In this method, all costs and benefits estimates are converted to a common equivalent monetary unit (P.W., A.W., or F.W.) at the given interest rate.

Principles of Engineering Economics with Applications
  • 2nd edition
  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi
  • Published online:
    12 December 2018
    Print publication:
    31 July 2018
  • Covering detailed discussion of fundamental concepts of economics, the textbook commences with comprehensive explanation of theory of consumer behavior, utility maximization and optimal choice, profit function, cost minimization and cost function. The textbook covers methods including present worth method, future worth method, annual worth method, internal rate of return method, explicit re-investment rate of return method and payout method useful for studying economic studies. A chapter on value engineering discusses important topics such as function analysis systems techniques, the value index, value measurement techniques, innovative phase and constraints analysis in depth. It facilitates the understanding of the concepts through illustrations and solved problems. This text is the ideal resource for Indian undergraduate engineering students in the fields of mechanical engineering, computer science and engineering and electronics engineering for a course on engineering economics/engineering economy.

  • 8 - Depreciation

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 254-265

  • Summary

    INTRODUCTION

    Depreciation is defined as decrease in the value of a physical property or asset with the passage of time. A physical asset has value because it provides monetary benefits to its owner. These benefits are in the form of future cash flows resulting from (i) the use of the asset to produce saleable goods or services, or (ii) the ultimate sale of the asset at the end of its useful life. Depreciation, thus, represents decrease in the value due to lessening in the ability to produce these future cash flows, as a result of several causes such as wear and tear and obsolescence.

    Although, depreciation does occur, it is really difficult to determine its magnitude well in advance. Depreciation is not an actual cash flow but it is a tax-allowed deduction included in tax calculations in almost all industrialized countries. Depreciation lowers income tax as per the relation:

    Tax = (income – deductions) (Tax rate)

    DEPRECIATION TERMINOLOGY

    The definitions of the terms that are used in calculation are given below:

    Book Depreciation Book depreciation is used by a corporation or business firm for internal financial accounting. It indicates the reduced investment in an asset based upon the usage pattern and expected useful life of the asset.

    Tax Depreciation This is used in tax calculations as per government regulations. A company subtracts an annual tax of depreciation from its annual income to calculate the amount of taxes due each year. However, the tax depreciation amount must be calculated using a government approved method.

    First Cost or Unadjusted Basis This represents the installed cost of the asset. It includes purchase price, delivery and installation fees, and other depreciable direct costs incurred to prepare the asset for use. The term unadjusted basis, B or simply basis, is used when the asset is new, whereas the term adjusted basis is used after some depreciation has been charged.

    Book value This represents the remaining, un-depreciated capital investment on the books or record of the company after the total amount of depreciation charges to date have been subtracted from the basis. The book value, BVt is usually determined at the end of each year.

    Recovery period This represents the depreciable life n of the asset in years.

  • 11 - Make or Buy Decision

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 286-296

  • Summary

    INTRODUCTION

    Every business organization engaged in the manufacturing of tangible products faces the problem to decide whether it is more advantageous to make a particular item in-house, or to buy it from a supplier. The choice involves aspects which are both qualitative such as quality control, and quantitative such as the relative cost factors. In order to decide whether to make or buy a product, the company generally analyzes the capacity of its facilities and the cost at which the product can be bought. Subsequently, the option that involves the least cost is selected by the company. Buying option often appears to be feasible and beneficial for a company which manufactures low volumes of product. In situations where the total cost of buying a product is more than or equal to the total cost of making it, it is recommended to make the product within the company.

    FEASIBLE ALTERNATIVES FOR LAUNCHING NEW PRODUCTS

    It is a natural tendency of a business organization to thrive and grow in order to earn higher profits. Some of the most efficient ways in which this can be done include (i) backward integration and (ii) forward integration. In both these approaches new product(s) is introduced by the organization. To implement its new preposition, the company may adopt any one of the following strategies:

  • • Products may be manufactured in-house with the existing facility.

  • • Products may be purchased from external suppliers or vendors.

  • • A few components of the products may be made in-house, a few others may be bought from the outside vendors and finally the product may be assembled by the company.

    • Although the alternatives are limited in number and appear simple, but the decision is strategically critical because it has far-reaching effects on the ultimate success or failure of the new preposition. In case the company decides to make the product (entire product or part of it) in-house, it involves the following:

  • • Fresh investments in terms of new machines, construction of new buildings, jigs and fixtures, raw materials, and manpower.

  • • Involvement of more number of work hours of their existing machines, equipment, and manpower that may be critical to the company's existing product line.

  • 12 - Project Management

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 297-374

  • Summary

    INTRODUCTION

    A project consists of a set of activities that are interrelated in a logical sequence and they need to be executed in a certain order for timely completion of the project. Most realistic projects undertaken by organizations such as Infosys, Honda Motors, or the Indian Defense Department, etc., are large and complex. Delhi Development Authority (DDA) building residential houses, for example, must complete thousands of activities costing crores of rupees. Indian Space Research Organization (ISRO) must inspect countless components before it launches a satellite. Almost every industry worries about how to manage similar large scale, complicated projects effectively. It is a difficult problem, and the stakes are high. Crores of rupees in cost overruns have been wasted due to poor planning of projects. Unnecessary delays have occurred due to poor scheduling. How can such problems be solved? The tools and techniques of Project Management (PM) can provide a solution to such problems. PM is concerned with planning, scheduling, monitoring and control of the projects. It aims at timely and cost effective completion of the projects and, to achieve this objective, it performs functions in phases which are discussed in the next section.

    PHASES OF PROJECT MANAGEMENT

    Effective management of a project requires appropriate actions to be taken by the management at different stages of the project, from its planning to completion. Thus, project management involves the following phases:

  • 1. Planning

  • 2. Scheduling

  • 3. Monitoring and Control

    • Planning

    Planning is essential for economical and timely execution of projects. The various stages of the planning process are:

    Pre-planning

    The planning undertaken before the decision has been made to take up the project is called pre-planning. This phase includes formulation of the project, assessment about its necessity, financial and/or economic analysis and decision making about whether or not to take up the project.

    Detailed Planning

    Once the decision has been made to take up the project, detailed planning is carried out, which includes the following phases:

    (a) Preparation of detailed designs and detailed working plans.

    (b) Preparation of specifications, detailed bill of quantities, etc.

    (c) Working out of plan-of-action for carrying out the work. This involves the following:

  • (i) Project breakdown, i.e., breaking up the project into small component jobs.

  • (ii) Establishment of sequence of various operations and their interrelationship.

  • 2 - Fundamentals of Mathematics and Engineering Economics

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 45-82

  • Summary

    INTRODUCTION

    The activities to generate income are termed as economic activities, which are responsible for the origin and development of Economics as a subject. Economics originated as a science of statecraft and the emergence of political economy. Adam Smith (Father of Economics) stated that economics is the science of wealth and Economy is concerned with the production, consumption, distribution and investment of goods and services. We might take our definition of economics from him. He titled his famous book, in 1776, as An Inquiry into the Nature and Causes of the Wealth of Nations. That is not a bad description of the subject matter of economics, but many economists have tried to find a more logical or scientific definition.

    There are various stages and definitions of economics found in literature. The major classifications of the definition of economics are as follows:

  • • Wealth Definition (Adam Smith)

  • • Welfare Definition (Alfred Marshall)

  • • Scarcity Definition (L. Robbins)

  • • Growth Oriented Definition (Paul A. Samuelson)

  • • Need Oriented Definition (Jacob Viner)

    • Wealth Concept Adam Smith, who is generally regarded as the father of economics, defined economics as “a science which enquires into the nature and cause of wealth of a nation.” He emphasized the production and growth of wealth as the subject matter of economics. This definition takes into account only material goods.

    Welfare Concept According to A. Marshall, “Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being”. Thus, it is on one side a study of wealth; and on other; and more important side, a part of the study of man.

    Scarcity Concept According to Lionel Robbins, “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternate uses.”

    Growth and Development Concept According to Paul A. Samuelson, “Economics is the study of how men and society choose, with or without the use of money, to employ the scarce productive resources which have alternative uses, to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society.”

  • 16 - Decision Making

  • Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi, King Saud University, Saudi Arabia
  • Book:
    Principles of Engineering Economics with Applications
    Published online:
    12 December 2018
    Print publication:
    31 July 2018, pp 439-456

  • Summary

    INTRODUCTION

    People make several decisions every day which have an impact on their lives. Decisions such as which academic institution to choose for education, where to invest capital, which doctor to consult for treatment, whether to make or buy a product, whether to rent or use an owned resource and so on are some important decisions for which people would desire to make the correct choice. A decision, in general, may be defined as the selection by the decision maker of an act, considered to be the best according to some pre-designated standard, from among the several available options. Decision making is the process of making a choice for a particular action when several alternative actions are available in a given decision make environment. The purpose of decision making is to select the best alternative action, i.e., the one with the highest expected value.

    TERMINOLOGIES USED IN DECISION MAKING

    Course of action: The decision taken by the decision maker is called a course of action.

    State of nature: Future events that are beyond the control of the decision maker are called state of nature.

    Pay-off: A pay-off is an outcome, expressed in numerical values, that results from each possible combination of alternatives and states of nature.

    STEPS IN DECISION MAKING

    The following steps are involved in decision making:

    Step 1 Determine the various alternative courses of action from which the best one is to be selected.

    Step 2 Identify the possible outcomes, called the states of nature or events for the decision problem.

    Step 3 Construct a pay-off table, i.e., a table representing profit, benefits and so on for each combination of alternative course of action and state of nature.

    If there are m alternative courses of action A1, A2, …, Am and n states of nature S1, S2, …, Sn, then the pay-off matrix will be represented as presented in Table 16.1.

    where xij is the pay-off resulting from the combination of ith state of nature or event and jth action.

    Step 4 Choose the criterion which results in largest pay-off. The criterion may be economic, quantitative or qualitative (for example, market share, profit, taste of a food and so on.)

Page 1 of 2