6. Determining how many sub-organizations have to be closed or merged before a profit can be made.
The Principles of Engineering Economy.
The foundation for engineering economy is a set of principles, or fundamental concepts, that provide a sound basis for development of the methodology. There are seven principles as following:.
Principle 1 - Develop the alternatives: The choice (decision) is among alternatives. The alternatives need to be identified and then defined for subsequent analysis.
A decision situation involves making a choice among two or more alternatives. Developing and defining the alternatives for detailed evaluation is important because of the resulting impact on the quality of the decision. Engineers and managers should place a high priority on this responsibility. Creativity and innovation are essential to the process.
One alternative that may be feasible in a decision situation is making no change to the current operation or set of conditions (i.e., doing nothing). If you judge this option feasible, make sure it is considered in the analysis. However, do not focus on the status quo to the detriment of innovative or necessary change.
Principle 2 - Focus on the differences: Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision.
If all prospective outcomes of the feasible alternatives were exactly the same, there would be no basis or need for comparison. We would be indifferent among the alternatives and could make a decision using a random selection.
Obviously, it is only differences in the future outcomes of the alternatives that are important.
Those outcomes common to all alternatives can be disregarded in the comparison and decision. For example, if your feasible housing alternatives were two residences with the same purchase (or rental) price, this consideration would be inconsequential to your final choice.