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Engineering is the profession in which knowledge of the mathematical and natural sciences gained by study experience and practice is applied with judgment to develop ways to utilize economically the material and forces of nature for the benefit of mankind.
Engineering Economics is a subject of vital importance to Engineers. This subject helps one understand the need for the knowledge of Economics for being an effective manager and decision-maker.
This subject is composed of different topics as shown below:
CLO2. Evaluate project alternatives by applying engineering economic principles and methods and select the most economically efficient one
MODULE 4: Decisions Under Certainty
MODULE 4: Decisions Under Certainty
This topic is composed of different topics including depreciation.
I learned that depreciation is the decrease in the value of the physical property with the passage of time. Definition of value (in a commercial sense) is the present worth of all future profits that are to be received through ownership of a particular property. In this topic, I was introduced to the turnbacks of different transactions that are made in real-life situations.
Another thing that is reflected in my mind is that depreciation has different methods. These are the straight-line method, sinking fund method, declining balance method, double-declining balance method, and the sum of the year's digit method.
To differentiate, the straight-line method is a method of calculating depreciation and amortization, the process of expensing an asset over a longer period of time than when it was purchased. It is calculated by dividing the difference between an asset's cost and its expected salvage value by the number of years it is expected to be used.
On the other hand, the sinking fund method is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. As depreciation charges are incurred to reflect the asset's falling value, a matching amount of cash is invested. These funds sit in a sinking fund account and generate interest.
Another ideology regarding the declining balance. The declining balance method is an accelerated depreciation system of recording larger depreciation expenses during the earlier years of an asset's useful life and recording smaller depreciation expenses during the asset's later years.
Also, The double declining balance depreciation (DDB) method, also known as the reducing balance method, is one of two common methods a business uses to account for the expense of a long-lived asset. The double-declining balance depreciation method is an accelerated depreciation method that counts as an expense more rapidly (when compared to straight-line depreciation that uses the same amount of depreciation each year over an asset's useful life). Similarly, compared to the standard declining balance method, the double-declining method depreciates assets twice as quickly.
Lastly, the sum of the year's method, Under the SYD method, the depreciation rate percentage for each year is calculated as the number of years in remaining asset life for the same year divided by the sum of remaining asset life every year through the asset's life. As the depreciation rate decreases over time, so does the depreciation charge.
Overall, in this topic, I am reflected with different fundamental principles that incorporate the course itself. I've also learned that decision-makers know exactly what each alternative, strategy, or course of action must be taken. Facts and outcomes are predictable in these circumstances.
As I evaluated my learnings about the 5 methods, I reckon that the best alternative in depreciation would be the straight-line method due to the fact that this method is also the simplest way to calculate depreciation. It results in fewer errors, is the most consistent method, and transitions well from company-prepared statements to tax returns.
It is evident in this topic that I evaluate project alternatives by applying engineering economic principles and methods and select the most economically efficient one.
One problem that was stuck in my mind in these problem sets would be item #4 in the straight Line Method. What makes me retain the question in my mind is the fact that we are talking about the situation of an engineer in an engineering field. I'm not being biased but this made me realize the importance of prices and how it affects the engineers. To be specific, the problem is solved by determining first the value of depreciation in 8 years then it would be subtracted from the initial cost.
INFLATION
Another topic that is discussed in module 4 is inflation.
Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated—for certain goods, such as food, or for services, such as a haircut, for example. Whatever the context, inflation represents how much more expensive the relevant set of goods and/or services has become over a certain period, most commonly a year.
Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year. Considering the effects of inflation, I learned that inflation is an important factor in cost analysis.
Module 5: Decisions Recognizing Risk
Module 5: Decisions Recognizing Risk
Depreciation is the decrease in the value of the physical property with the passage of time. definitions of value (in a commercial sense) - the present worth of all future profits that are to be received through ownership of a particular property. Sdfdsgffsdd anxiety lang
RISK, Uncertainty, and Sensitivity
In this topic, I learned that risk is defined as the deviations of actual outcomes from the predicted outcomes due to chance causes. The economic factors upon which courses of action are based may vary from estimated values because of the effect of random causes which are beyond the control of the decision-maker. Usually, the effects of unforeseen future events will cause the conclusions to be erroneous. On the other hand, uncertainty refers to deviations in actual values caused by various factors, such as errors of analysis, misinterpretation of available data, and changing external economic environment which invalidates past experience. Risk and uncertainty should be considered in economic analysis. These are always present for most project investments in which the analysis is made. It is impossible to give definite answers due to the fact that there is a variety of causes of risk with varying degrees for various projects and firms. Lastly, sensitivity is a measure of the degree changes in the factors or parameters used in the economic analysis will affect an investment decision. If a change in an economic factor used in the analysis does not cause many effects on the decision, then that decision is not sensitive to that particular factor. But if there is a slight change in a certain factor that causes a reversal in the investment decision, then the project is definitely sensitive to that factor.
I also realize the different causes of risk or the uncertainty factors affecting risk and uncertainty such as the Insufficiency Of Available Data, Misinterpretation Of Data, and Change In Economic Condition.
We all know that decisions that recognize risk pertain to all problems that exist in the present. That is why, as part of the topic, we have these present economic problems.
One of my learnings in this problem is the meaning of the discussion itself. To define, Present Economy Problems cases in - Engineering Economy studies where interest is not a factor. This involves selection between Alternative designs, materials on methods. I realized in this that in the simplest situation like deciding the number of workers to fit the required days of completion of a project, you can use formulas that are sufficient for solving.
Overall, I learned here that risk is an important component of business decisions. Risk arises because the outcome is unpredictable. Uncertainty is always with us. Risk is the possibility that an area of uncertainty may negatively affect a decision or course of action.
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