LECTURE 3

Prof. Chester WatsonA 203 ERC – 491-8313 A207 I Engr – 491-7722

Engineering Your Futureby Walesh (2000)

• Chapter 8, p. 209 – 276

Session DateTextbook

ReferencesTopic

1 27-Aug #1 - pp 1-5 Introduction2 29 #1 - pp 5-6 Self Determination; Leadership, Management, Production3 3-Sep Engineering Economids 1- Dr. Watson4 5 8,10 Engineering Economids 2- Dr. Watson NO LAB5 10-Sep Engineering Economids 3 - Dr. Watson6 12 #2 - pp 55-63 Dr Gessler. Professional Registration/FE Exam, NO LAB7 17-Sep Engineering Economids 4- Dr. Watson 8 19 Engineering Economids 5 - Dr. Watson9 24-Sep #2 - pp 15-55 Management of Self

10 26 Engineering Economids 6- Dr. Watson11 1-Oct #3 - pp 65-73 Communicating to Make Things Happen12 3 Engineering Economids 7 - Dr. Watson13 8-Oct #4 - pp 95-132 Management of of Relationships with Others14 10 Engineering Economids 8 - Dr. Watson15 15-Oct #13 - pp 391- Role and Selection of Consultants16 17 Engineering Economids 9 - Dr. Watson, LAB - Introduction of Projects17 22-Oct Engineering Economids 10 - Dr. Watson18 24 Engineering Economics Exam , LAB - Self Study for FE Exam

Saturday 26 October FE Examination19 29-Oct Project/Advisor Assignments20 31 #3 - pp 73-82 Proposal Preparation - Overview, TOC, Technical Approach, Scheduling21 5-Nov Project Management and Budget22 7 Meet with Advisor to Review Project Proposal Status and Presentation23 12-Nov #3 - pp 82-93 Preparing a Presentation24 14 Preparing Your Resume, Dr. Abt25 19-Nov Qualifications and Experience26 21 Proposal Status Check w/ Instructor, (Schedule a time)

Thanks- 26-Nov No Classgiving 28 No Class

27 3-Dec TBD28 5 No Class, Finish up Proposal and Presentation29 10-Dec Turn in Project Proposal30 12 Proposal Presentations

LAR out of town

CE 408 - Senior Design ICourse Schedule(Room A405 - Clark)

Engineering Your Futureby Walesh (2000)

• Chapter 8, p. 209 – 276 – Decision Economics– Resources are limited and should be invested

wisely– The technical work is not an end, and is one

input to the decision-making process

Why are we interested inDecision Economics?

• To pass this portion of CE 408

• To pass the FE exam

• Because the stuff is useful and will make you a better engineer

Steps in the Decision Economics Process

• What is the goal of the project?

• Select feasible alternatives

• Step 1: Determine Physical & Economic Life of Project Components

• Step 2: Diagram Expenditures

• Step 3: Select Interest Rates

Steps in the Decision Economics Process

• Step 4: Put Costs and Benefits on a Comparable Basis & Calculate B:C or Least Cost

• Step 5: Consider Intangible Benefits & Costs

• Step 6: Recommend Best Alternative

Steps in the Decision Economics Process

• Step 1: Determine Physical & Economic Life of Project Components

• Physical life– the time over which a component could perform the

intended function

• Economic life– the time over which the incremental benefits of a

component are greater than the incremental costs

Did the power saw affect the economic life of the hand saw?

What is the physical life of the hand saw, with proper care?

For example, tanks, pipes, and other components in a wastewater treatment plant may have physical lives of up to 50 years, but given the rate of change of treatment technology, significant improvements are likely to occur in the time span of much less than 50 years.

Physical life is important in determining salvage value, because salvage value can become an important component aspect of economic analysis.

We will cover salvage value later.

Steps in the Decision Economics Process

• Step 2: Diagram Expenditures

Fig. 8-2

Fig 8-3

Fig 8-4

Fig 8-5

Steps in the Decision Economics Process

• Step 3: Select Interest Rates

Interest – money paid for the use of money

Rate of interest – The ratio between the interest payable at the end of a period of time, and the money owed at the beginning of that period (principle).

You borrow $10,000 and pay it off at the end of the year for $10,900. You pay $900 for the use of

the $10,000.

You borrow $10,000 and pay it off at the end of the year for $10,900. You pay $900 for the use of

the $10,000.

PrincipleInterestInterest rate

Unless otherwise stated, the interest rate used in problems is for one year, not months, weeks, days, etc.

How would you select the interest rate?

Use the rate that the owner (client, sponsor) has to pay to borrow the money, or perhaps investment such as government bonds.

Method Interest Paid Present Value Future Value

9% + Balloon $9,000.00 $10,000.00 $19,000.00

9% + $1000 $4,950.00 $10,000.00 $14,950.00

$1,558.20 $5,582.01 $10,000.00 $15,582.01

Balloon $13,673.64 $10,000.00 $23,673.64

Which is the best deal??Which is the best deal??