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38520 results in Cambridge Textbooks

Page 1167 of 1926

  • 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.

Page 1167 of 1926