Scope of engineering economics

 Definition and Scope of Engineering

·         Economics As stated earlier, efficient functioning of any business organization would enable it to provide goods/services at a lower price. In the process of managing organizations, the managers at different levels should take appropriate economic decisions which will help in minimizing investment, operating and maintenance expenditures besides increasing the revenue, savings and other related gains of the organization.

·         Definition Engineering economics deals with the methods that enable one to take economic decisions towards minimizing costs and/or maximizing benefits to business organizations.

Scope

The issues that are covered in this book are elementary economic analysis, interest formulae, bases for comparing alternatives, present worth method, future worth method, annual equivalent method, rate of return method, replacement analysis, depreciation, evaluation of public alternatives, inflation adjusted investment decisions, make or buy decisions, inventory control, project management, value engineering, and linear programming.

1.Product policy, sales promotion and market strategy

          The scope of managerial economics extends to some of the core managerial aspects of the firm because the decision in this regard play a very significant role in the success of the firm. If the economics aspects of these decision are not taken care of, it may prove to be disastrous. Some of these are , the product policy which explains how and what quality a product should be. The expenditure on sales promotion and its benefits also required to be studied. Market strategy has also to be planned keeping in view the economics aspects.

2. Demand Analysis and Forecasting

          A business firm is the economic unit which operates to transform productive resources into goods and services for sales in a market. Thus the first task in the managerial decision-making is to get accurate estimates of demand for the product of the firm. Until the firm has clear idea of the demand for its product it is not possible to prepare production schedules and employ resources for management, as it hieghlights the factor on which demand for their product depends.

3. Cost Analysis

          The study of the data about costs made available from the firm accounding record yield significant cost estimation for the management’s decision-making. The managerial economics identifies the factors causing cost uncertainty exists because all the factors determine costs are not clearly known.

4.Production analysis

          It is concerned with quantitative aspects of physical inputs. Given the technology and the nature of the product, the managerial economist studies the production function of the firm-the economies and diseconomies of scale, the minimum efficient scale of the plant etc. The behaviour of costs of a firm depends directly on the nature of its production function.

5.Pricing decisions, policies and practices

          Pricing of a product is an important element of the marketing mix of a firm. Besides the knowledge of fixed and variable costs of inputs, a scientific decision about price needs the knowledge of various elasticity of demand and the potential rivals who may enter the market. The price policy of a firm is based on such analysis. The area of study deals with the analysis of market structures, pricing methods, differential pricing, product pricing and pricing forecasting.

6.Profit Management

          Business firms not only want to make profits but also want to make more profits. They want profit maximization or sales revenue maximization.

According to Drucker, profit is the measure of business success in the longrun. However, an important point worth considering is the element of uncertainty existing about profits becauses the variations in costs and revenues. If knowledge about future were perfect, profit analysis would have been a very easy task. Break-even analysis and profit elasticity calculations are of great use in pricing and profit management.

7.Capital management

            Decision about investment are most crucial for a firm because the funds involved are often huge and the behaviour of the capital market is least predictable. A firm can raise funds by issuing shares or debentures and debt instruments. It can also choose to employ its own cash reserves. But the most difficult part is the choice of the investment projects. This is the choice of the top-management because the committed expenditures cannot be recalled