Conference Session

Applications of Engineering Economy

Collection

2008 Annual Conference & Exposition

Authors

John Robertson, Arizona State University; Michael Kozicki, Arizona State University; Slobodan Petrovic, Arizona State University

Tagged Divisions

Engineering Economy

of itsapplications. However, these features are also its greatest weakness. Hardly a weekpasses without some new nano-product or material being touted as the miracle solutionthat will drive the next wave of high-tech development 1. The reality is that few of theseclaims will be realized in the form predicted. Even the developments that eventuallysucceed will have a tortuous and demanding evolution path. How does anyone make abalanced assessment of new technology that captures its novelty and the imagination ofthe innovators but at the same time acknowledges that realistic business criteria will alsobe applied? This paper describes a simple process to derive a measure of the maturity ofnew technologies in many economic as well as technical

Conference Session

Applications of Engineering Economy

Collection

2008 Annual Conference & Exposition

Authors

Donald Merino, Stevens Institute of Technology; Jakob Carnemark, SKANSKA

Tagged Divisions

Engineering Economy

series of data center designs that resulted in various levels of downtimeper year. Thus, a Tier I design was estimated to have 28.8 hours/year of downtime versus Tier IIwith 22 hours/year, Tier III with 1.6 hours/year and Tier 4 with .8 hours/year. Downtimeestimates were based on the Uptime Institute Field Data8.Decision Process for an Optimal SolutionA decision model is required to determine the optimal economics. The most prevalent industryapproach is to use an After Tax Analysis (ATA)1. Appendix I – Figure 2 is a description of atypical ATA decision process. Appendix II is a more detailed description of the 8 major steps inthe Figure 1 decision process1

Conference Session

Engineering Economy -- Outside the Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

Neal Lewis, University of Bridgeport; Ted Eschenbach, TGE Consulting

Tagged Divisions

Engineering Economy

addresses two main questions: 1) areengineering economics instructors familiar with real options analysis, and 2) to what extent arewe teaching real options in US engineering schools.A Real Options ExampleIn previous work6 we analyzed a more typical engineering project, where the value of waiting for Page 13.1023.3more information to make a better decision (real option) is more than offset by the cost of notimmediately deciding (lost revenue). The example is of a drug company awaiting approval for anew drug from the Food and Drug Administration (FDA) with the decision expected in twoyears. The drug will have patent protection for ten years after

Conference Session

Engineering Economy -- Outside the Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

William Peterson, Arizona State University

Tagged Divisions

Engineering Economy

: (1) cost-benefit ratio(under which net benefits, rate of return, and payback period are included) and (2) return oninvestment. The discussion is less than a page and no numerical example is given. Again anengineering text ignores the time value of money and this time seems to endorse ROI, since it iswidely used.A Somewhat Problematic ExampleIn a project management text4 – and one this author has used for years – there is a section onnumerical models used in problem selection in which the authors of the text briefly discuss, in Page 13.1274.3order: (1) payback period, (2) average rates of return, (3) discounted cash flow (net presentworth

Conference Session

Applications of Engineering Economy

Collection

2008 Annual Conference & Exposition

Authors

Benjamin Kelley, Baylor University; Robert Doty, Baylor University; Bill booth, Baylor University; Cynthia Fry, Baylor University

Tagged Divisions

Engineering Economy

that suchknowledge is needed for their graduates to distinguish themselves. The need for theglobalization aspect has been fueled largely by improvements in transportation, communication,and manufacturing.1, 2 These technological advances have influenced and altered how businessand commerce are conducted domestically and globally, and the organizational structuresinternational corporations employ.3 It is interesting that the very innovations developed withinthe technology sector have the competing effects of increasing the need to add technical focusand specificity, while simultaneously increasing humanistic- and business-related content.4Increasingly, the technological knowledge associated with an engineering or computer sciencedegree is not

Conference Session

Engineering Economy -- Outside the Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

Peter Boerger, Engineering Economic Associates, LLC

Tagged Divisions

Engineering Economy

showing the potential for useful interaction in helping economists with theirprimary work, some definitions are needed to place the two fields relative to each other. If weare to understand the relative place of economics and engineering economy, textbook definitionswill not be helpful. What we need is an understanding of the purpose of these two fields.Economics, I suggest, is inherently concerned with public policy decision-making. While truethat much of economics is concerned with understanding the decisions of and interactionsbetween private economic actors, it does so with the ultimate end of understanding how we allcan survive and prosper together in the face of 1) nature, which has no inherent interest infeeding us, and 2) other economic

Conference Session

Engineering Economy -- The Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

Rajkamal Kesharwani, Virginia Polytechnic Institute and State University; Xiaomeng Chang, Virginia Polytechnic Institute and State University; Janis Terpenny, Virginia Polytechnic Institute and State University; william sullivan, Virginia Polytechnic Institute and State University

Tagged Divisions

Engineering Economy

resource of Engineering Economy Page 13.331.3education in the future after contributions are added to the wiki that include teaching materials,example problems, industrial requirements and case studies.User Administration:Using wikidot, a popular website which enables users to make their own wikis, we created thesite for engineering economy9. As shown in Figure 1, the wiki is organized so that visitors canlearn about the Fundamentals of Engineering Economy or they may choose to view exampleproblems and cases in several topics that have been posted by members. Figure 1: Introduction page of the wiki siteAny person can

Conference Session

Engineering Economy -- The Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

Christopher Jablonowski, University of Texas at Austin

Tagged Divisions

Engineering Economy

curricula include chapters ormodules on decision analysis, and decision trees are often introduced and promoted as a decisionmaking tool. The teaching of value of information (VOI) analysis within the decision analysisframe is less prevalent, notwithstanding the variety of potential applications to everydaydecisions in engineering practice. This paper seeks to remedy this gap by providing an accessibledemonstration of how decision trees can be used to teach important VOI concepts, including ananalysis of the role of risk preferences.It is often most efficient to set up and solve VOI problems in a generalized analytical framework,and this is often the approach taken in applied research.1-3 But analytical representations of VOIproblems are not

Conference Session

Engineering Economy -- The Introductory Course

Collection

2008 Annual Conference & Exposition

Authors

Joseph Hartman, University of Florida

Tagged Divisions

Engineering Economy

lingering questionat the end of class and submitting it upon exit or working out a problem in the middle of classwith a neighbor might have been viable. These will be examined in future course offerings.Using Projects and Open-Ended ExamsTeaching engineering economy in a decision-making context lends itself to the study of anumber of real, open-ended problems. To this end, I assign four projects (the first is minorcompared to the other three) throughout the semester: 1. Find and evaluate two loans (from a newspaper or the Web) for the car of your choice and illustrate which is better. (Performed with two randomly selected partners.) 2. Develop an automated spreadsheet that takes user inputs about a project (investment, horizon