MIRPUR UNIVERSITY OF SCIENCE AND TECHNOLOGY
DEPARMENT OF SOFTWARE ENGINEERING
SE-361 Software Engineering Economics 1
Engineering Economic Decisions
(Lecture # 01)
CLO PLO
1 1
Engr. Samina Fazilat
(Junior Lecturer)
SE-361 Software Engineering Economics
Date: 2
Dishonesty, Plagiarism
All parties involved in any kind of cheating in any exam (Quizzes,
Assignments & Projects) will get their respective test cancelled
right away.
SE-361 Software Engineering Economics 3
About Course
• Course Title: Software Engineering Economics
• Course Code: SE-361
• Credit Hours: 03 (03 hours Per Week)
• Grading Criteria
• Quizes 10%(15 marks)
• Assignments 10%(15 marks)
• Mid –Term 30%(45 marks)
• Final 50%(75 marks)
• Total 100%(150 marks)
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Course Learning Outcomes (CLOs)
At the end of the course the students will be able to: Domain PLO
1. Overview economic analysis techniques and their applicability to software
engineering C-2 1
2. Develop software cost estimation skills using industry standards.
C-3 3
3. Critically evaluate and discuss the issues in cost estimation of different
applications in the real world with course participants and learners. C-5 4
SE-361 Software Engineering Economics 5
Engineering Economics Overview
• Rational Decision-Making Process
• Economic Decisions
• Predicting Future
• Role of Engineers in Business
• Large-scale engineering projects
• Types of strategic engineering economic decisions
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Rational Decision-Making Process
1. Recognize a decision problem
2. Define the goals or objectives
3. Collect all the relevant information
4. Identify a set of feasible decision
alternatives
5. Select the decision criterion to use
6. Select the best alternative
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Which Car to Lease? Saturn vs. Honda
1. Recognize a decision • Need a car
problem
2. Define the goals or • Want mechanical
objectives security
3. Collect all the relevant • Gather technical as well
information as financial data
4. Identify a set of feasible • Choose between
decision alternatives Saturn and Honda
5. Select the decision • Want minimum total
criterion to use cash outlay
6. Select the best alternative • Select Honda
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Financial Data Required to Make an Economic Decision
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Engineering Economic Decisions
Manufacturing Profit
Planning Investment
Marketing
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Predicting the Future
• Estimating a Required
investment
• Forecasting a product demand
• Estimating a selling price
• Estimating a manufacturing cost
• Estimating a product life
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Role of Engineers in Business
Create & Design
• Engineering Projects
Analyze Evaluate Evaluate
• Production Methods • Expected • Impact on
• Engineering Safety Profitability Financial Statements
• Environmental Impacts • Timing of • Firm’s Market Value
• Market Assessment Cash Flows • Stock Price
• Degree of
Financial Risk
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Accounting Vs. Engineering Ecom.
Evaluating past performance Evaluating and predicting future events
Accounting Engineering Economy
Past Future
Present
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Two Factors in Engineering Economic Decisions
The factors of time and uncertainty
are the defining aspects of any
engineering economic decisions
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A Large-Scale Engineering Project
• Requires a large sum of investment
• Takes a long time to see the
financial outcomes
• Difficult to predict the revenue and
cost streams
(Remember Cash flow discussed earlier)
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15
Economics
Types of Strategic Engineering Economic Decisions
in Manufacturing Sector
• Service Improvement
• Equipment and Process Selection
• Equipment Replacement
• New Product and Product Expansion
• Cost Reduction
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Service Improvement
How many more jeans would Levi need to sell to justify the cost of additional robotic
tailors?
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17
Economics
Equipment & Process Selection
• How do you choose between the Plastic SMC and the Steel
sheet stock for an auto body panel?
• The choice of material will dictate the manufacturing process for
an automotive body panel as well as manufacturing costs.
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Which Material to Choose?
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Equipment Replacement Problem
• Now is the time to replace the old
machine?
• If not, when is the right time to
replace the old equipment?
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New Product and Product Expansion
• Shall we build or acquire a new
facility to meet the increased
demand?
• Is it worth spending money to
market a new product?
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Example - MACH 3 Project
• R&D investment: $750 million
• Product promotion through
advertising: $300 million Gillette’s MACH3
• Priced to sell at 35% higher Project
than Sensor Excel (about $1.50
extra per shave).
• Question 1: Would consumers
pay $1.50 extra for a shave
with greater smoothness and
less irritation?
• Question 2: What would
happen if the blade
consumption dropped more
than 10% due to the longer
blade life of the new razor?
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Cost Reduction
• Should a company buy equipment
to perform an operation now done
manually?
• Should spend money now in order
to save more money later?
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THANKS
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