2. decision making and professional ethics

(i). Decision Making

(ii). Professional Ethics and

Economic Decisions

Dr. Mohsin Siddique

Assistant Professor

[email protected]

1Date: 15/09/2014

Engineering Economics

University of SharjahDept. of Civil and Env. Engg.

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Part I

(i). Decision Making

Outcome of Today’s Lecture

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� After completing this lecture…

� The students should be able to:

� Distinguish between simple and complex problems

� Describe the role and purpose of engineering economic analysis

� Describe and give examples of the nine steps in the economic decision making process

� Select appropriate economic criteria for use with different type of problems

� Describe common ethical issues in engineering economic decision making

Engineering Economics

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� Engineering economy involves formulating,estimating and evaluating the expected outcomes ofalternatives designed to accomplish a definedpurpose.

� Mathematical techniques are used to simplify economic evaluation of alternative and these techniques are equally good for individual, business or government projects.

� Thus this course may also offer you an economic analysis toolfor making decisions such as car purchase, house purchase,and major purchase on credit card etc

Decision Making

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� Decision Making is broad topic.

� It’s is a major aspect of every human existence.

� We are surrounded by sea of problems which may be classified depending on difficulty level as given below;

� 1. Simple Problems

� 2. Intermediate Problems

� 3. Complex Problems

Decision Making: Problem classification

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� 1. Simple Problems

� These are simple and hence does not require time or effort

� i. Should I pay cash or use my credit card?

� ii. Do I buy a semester parking pass or use the parking meters?

� iii. Shall we replace a burned out motor?

� iv. If we use three crates of item a week, how many crates should we buy at a time?

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� 2. Intermediate Problems

� These primarily present economic problems

� i. Should I buy or lease my next car?

� ii. Which equipment should be selected for a new assembly line?

� iii. Which materials should be used for new building?

� iv. What size of air condition should be economical?

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� _______________________________________________

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� 3. Complex Problems

� These are mixture of economic, political and humanistic elements.

� i. The decision of Mercedez Benz to build an automobile assembly plant in Tuscaloosa Alabama illustrates a complex problem?

� ii. Allocation of annual budget of a corporation/government ministry?

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� _______________________________________________

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� Engineering Economic analysis is most suitable for intermediate and economic aspect of complex problems

Decision Making: Role of Engineering

Economics

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� Decisions are made routinely to choose alternative over another by individuals everyday life

� By engineers on the job

� By managers who supervise activities

� By corporate president who operates a business and

� By government officials who work for public good

� (and also worth to mention you guys who make decisions in you studies, social life etc…..)

� Most decisions involve MONEY, called CAPITAL or CAPITAL FUND, which is usually limited.

� Therefore, in order to make decision where and how to invest CAPITAL with a goal of ADDING VALUE in future, several alternatives are analyzed to anticipate the outcome of project.


Economics

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� Engineers play a ital role in capital investment decisions based on their ability and experience to design, analyze, and synthesize.

� Decision are based on two factors

� Economic and non-economic

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� _______________________________________

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� Engineering economic thus deals with Economic Factors


Economics

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� Engineering economic analysis is suitable for intermediate and complex problems which have following three qualities

� 1. The problem is important enough to justify our giving it serious thought and effort

� 2. The problem cannot be worked in one head – that is, a careful analysis requires that we organize the problem and all the various consequences, and this is just too much to be done all at one

� 3. The problem has economic aspects important in reaching a decision

Examples of Engineering economic

Analysis

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� Engineering economic analysis focuses on costs, revenues and benefits that occur at different times.

� For example, when a civil engineer designs a road, a dam or a building, the construction cost occurs in the near future while the benefits to users begin only when construction is finished and then continue for long time.

� Moreover, Engineering Economic Analysis is used to answer many different questions

� Which engineering projects are worthwhile?

� Which engineering projects should have high priority?

� How should the engineering projects be designed?

� It can also answer questions that are personally important

� How to achieve long term financial benefits

� How to compare different ways to finance purchase etc

Engineering Economics is for future

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� Engineering economic analysis is primarily about � Future..

� What is expected to occur.

� The estimates and decisions usually involve four elements� 1. Cash flow

� 2. Time of occurrence

� 3. Interest rate for time value of money

� 4. Measure of economic worth for selecting an alternative

� Since variations in future are unknown due to changingcircumstances and unplanned events, so SensitivityAnalysis is also utilized in decision making.

Example 1.1 (Engineering Economy by Blank & Tarquin)

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� An engineer is performing an analysis of warranty costs for drive train repairs within the first five years of ownership of luxury cars purchased in the US. He found the average cost to be $570 per repair from the data taken over a 5 years period.

Year Avg. cost, $/repair

2006 525

2007 430

2008 619

2009 650

2010 625

300

350

400

450

500

550

600

650

700

2005 2006 2007 2008 2009 2010 2011

Avg. C

ost

, $

year

Avg. cost, $/repair

Example 1.1

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� For five years

� Avg. cost/repair for five year is $ 570

� Range: $430 - $650

� Range: -25%+15% of 570

300

350

400

450

500

550

600

650

700

2005.5 2006 2006.5 2007 2007.5 2008 2008.5 2009 2009.5 2010 2010.5A

vg. C

ost

, $

year

Avg. cost, $/repair

However data trends for last three years is different than the first two years of ownership !!

� For last three years

� Avg. cost/repair year is $ 630

� Range: $619 - $650

� Range: -5%+5% of 630

� Since the data should be more inclusive of historic data thus a range of, say +15% to -25% of $570 is recommended.

The Decision Making Process

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� 1. Irrational Decision making

� 2. Rational Decision making

� Irrational Decision Making

� Yes or No with no obvious reasons

� Blind eye decision

� Examples:

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� ____________________________________________

� ____________________________________________

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� Rational Decision Making

� It is complex process that contains nine essential elements as shown in figure.

Reading assignment: read page 4- 13 of text book


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� 1. Recognize Problem:

� It’s the starting point in rational decision making

� Example:

� 1. Discovery of substantial amount of mercury in several species of ocean fish

� 2. Auto accidents,

� 3. Burned motor, exhausted supply of parts


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� 2. Goal or Objectives:

� Can be overall goal or objective of a company or person

� Example:

� A personal goal could be to lead a pleasant and comfortable life

� To pay off loan by the end of this year

� And firm’s goal can be to run profitably

� The plant must produce 300 golf cart in two weeks


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� 3. Assemble Relevant Data

� Good data/information=good decision

� Sources

� Published data and information

� Survey

� Knowledge and Experience

In engineering decision making, an important source of data is a firm’s own accounting system (cash flow, cost and benefit in company’s operation).

Accounting data focuses on past information and engineering judgment must often be applied to estimate present or future values.


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� 4. Identify alternative

� A good alternative is always desirable and produce optimal results

� A good listing of alternative will produce both practicable or impracticable alternatives

� Only the feasible alternatives are retained for analysis


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� 5. Select the Criterion to Determine the BestAlternative

� For decision making there must be a criterion to judge which is best alternative.

� Judgment results are typical, worst, bad, fair, good, better or best

� It’s relative rather than absolute.

� e.g. 3 days jail or $200 fine for traffic violation.


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� 5. Select the Criterion to Determine the Best Alternative

� Several possible criterions are

� 1. Create least disturbance to environment

� 2. Improve the distribution of wealth among people

� 3. Minimize the expenditure of money

� 4.Ensures that the benefits to those who gain from the decision are greater than losses

� 5. Minimize the time to accomplish the goal or objective

� 6. Minimize um-employment

� 7. Maximize profit

Maximum profit in one normally used in engineering decision making


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� 5. Select the Criterion to Determine the Best Alternative

� When using Maximize Profit all problems fall into three categories

� 1. Neither input nor output fixed

� e.g., a firm having more work than it can handle

� 2.Fixed input

� e.g., a project engineer having budget of $35000 to complete a project

� 3. Fixed output

� e.g., a job of surveying a tract of land


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� 6. Constructing a model

� Constructing the interrelationbetween the decision makingelements is frequently calledmodel building or constructingthe model

� Output = f(data, information etc)

� In economic decision making the model is mathematical.


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� 7. Predicting the Outcome of each Alternative

� A model and data are used to predict out come of each model.

� Each model might have variety of outcome

� e.g., Selecting motor cycle rather than bicycle may make fuel supplier happy but may make neighbors unhappy.


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� 7. Predicting the outcome of each Alternative

� To choose the best alternativeway the outcomes for eachalternative must be stated in acomparable way which are usuallyin the form of cost and benefit(monetary consequences).

� However, the project may have also non monetary consequences.


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� 7. Predicting the outcome of each Alternative

� Consequences can be categorized as

� 1. Market consequences. These have established market price.

� 2. Extra-market consequences. These are not directly priced in market.

� 3. Intangible consequences. These cannot be numerically determined. e.g., loss of worker’s job due to automation or landscaping around office.


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� 8. Choosing the best alternative

� The alternative to be chosen is the one that meets the choice criterion after considering both the

� (1) numerical consequences

� and (2) consequences not included in the monetary analysis (Intangible consequences)


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� 9. Audit of results

� An audit of results is the comparison of what happened against the predictions.

� Did the results of decision making analysis agree with its projections?

� If so then economic analysis is accurate and if not then find what was over looked ?

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Part II

(ii). Professional Ethics and Economic Decisions(Ref. Engineering Economy by Blank & Tarquin)

Date: 17/09/2014

Outcome of Today’s Lecture

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� After completing this lecture…

� The students should be able to:

� Distinguish between morals and ethics

� Understand the role of Code of ethics

� Describe common ethical issues in engineering economic decision making

Professional Ethics and Economic Decisions

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� The terms morals and ethics are commonly used interchangeably, yet they have slightly different interpretations.

� Morals

� personal rules of right and wrong behavior

� e.g. derived from a person’s upbringing, religious beliefs

� Ethics

� a code or system of rules defining moral behavior for a particular society


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� 1. Universal or common morals:

� 2. Individual or personal morals:

� 3. Professional or engineering ethics


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� 1. Universal or common morals :These are fundamental moral beliefs held by virtually all people. Most people agree that to steal, murder, lie, or physically harm someone is wrong.

� Example: Consider the World Trade Center buildings in New York

City. After their collapse on September 11, 2001, it was apparent that the design was not sufficient to withstand the heat generated by the fire storm caused by the impact of an aircraft. The structural engineers who worked on the design surely did not have the intent to harm or kill occupants in the buildings. However, their design actions did not foresee this outcome as a measurable possibility.

� Did they violate the common moral belief of not doing harm to others or murdering ?


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� 2. Individual or personal morals: These are the moral beliefs that a person has and maintains over time.

� These usually parallel the common morals in that stealing, lying, murdering, etc. are immoral acts.

� It is quite possible that an individual strongly supports the common morals and has excellent personal morals, but these may conflict from time to time when decisions must be made.


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� Example:

� Consider the engineering student who genuinely believes that cheating is wrong. If he or she does not know how to work some test problems, but must make a certain minimum grade on the final exam to graduate, the decision to cheat or not on the final exam is an exercise in following or violating a personal moral.


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� 3.Professional or Engineering ethics: Professionals in a specificdiscipline are guided in their decision making and performance of work activities by a formal standard or code (called code of ethics).

� The code states the commonly accepted standards of honesty and integrity that each individual is expected to demonstrate in her or his practice.

� Each engineering profession has its own code of ethics, The Code of Ethics for Engineers are published by engineering societies with which the engineers affiliate like ASCE, IEEE, NSPE etc.

What is a Code of Ethics?

� A code of ethics provides a framework for ethical judgment for a professional.

� A code of ethics serves as a starting point for ethical decision making.

� Express the rights, duties and obligations of members of the Profession

� Do not express new ethical principles, but coherently restate existing standards of responsible engineering practice.

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� Lets take example of Code of Ethics for Engineers published by the National Society of Professional Engineers (NSPE).

� It includes numerous sections that have direct or indirect economic and financial impact upon the designs, actions, and decisions that engineers make. Some examples are given below

� “Engineers, in the fulfillment of their duties, shall hold paramount the safety, health, and welfare of the public .”

� “Engineers shall not accept financial or other considerations , including free engineering designs, from material or equipment suppliers for specifying their product.”

� “Engineers using designs supplied by a client recognize that the designs remain the property of the client and may not be duplicated by the engineer for others without express permission.”


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� Many money-related situations, such as those that follow, can have ethical dimensions.

In the design stage:

� Safety factors are compromised to ensure that a price bid comes in as low as possible.

� Family or personal connections with individuals in a company offer unfair or insider information that allows costs to be cut in strategic areas of a project.

� A potential vendor offers specifications for company-specific equipment, and the design engineer does not have sufficient time to determine if this equipment will meet the needs of the project being designed and costed.


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� Many money-related situations, such as those that follow, can have ethical dimensions.

While the system is operating:

� Delayed or below-standard maintenance can be performed to save money

� Opportunities to purchase cheaper repair parts can save money

� Safety margins are compromised because of cost, personal inconvenience to workers, tight time schedules, etc.

The Accident at Bhopal India

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� A good example of the last item—safety is compromised while operating the system—is the situation that arose in 1984 in Bhopal, India (Martin and Schinzinger 2005, pp. 245–8)

� A Union Carbide plant manufacturing the highly toxic pesticide chemical methyl isocyanate (MIC) experienced a large gas leak from high-pressure tanks.

� Some 500,000 persons were exposed to inhalation of this deadly gas that burns moist parts of the body.

� There were 2500 to 3000 deaths within days,

� and over the following 10-year period, some 12,000 death claims

� and 870,000 personal injury claims were recorded.


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� Causes of accidents:

� Safety practices were clearly violated due to cost-cutting measures, insufficient repair parts, and reduction in personnels to save salary money !!!

� Moreover masks, gloves, and other protective gear were not worn by workers in close proximity to the tanks containing.


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� Many ethical questions arise when corporations operate in international settings where the corporate rules, worker incentives, cultural practices, and costs in the home country differ from those in the host country.

Often these ethical dilemmas are fundamentally based in the economics that provide cheaper labor, reduced raw material costs, less government oversight, and a host of other cost-reducing factors.


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� In concluding, when an engineering economy study is performed, it is important for the engineer performing the study to consider all ethically related matters to ensure that the cost and revenue estimates reflect what is likely to happen over the project once the project system is operating.

Example1.2 (Engineering Economy by Blank Tarquin)

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� Jamie is an engineer employed by Burris, a United States–based company that develops sub- way and surface transportation systems for medium-sized municipalities in the United States and Canada. He has been a registered professional engineer (PE) for the last 15 years.

� Last year, Carol, an engineer friend from university days who works as an individual consultant, asked Jamie to help her with some cost estimates on a metro train job. Carol offered to pay for his time and talent, but Jamie saw no reason to take money for helping with data commonly used by him in performing his job at Burris.

� The estimates took one weekend to complete, and once Jamie delivered them to Carol, he did not hear from her again; nor did he learn the identity of the company for which Carol was preparing the estimates.


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� Yesterday, Jamie was called into his supervisor’s office and told that Burris had not received the contract award in Sharpstown, where a metro system is to be installed.

� The project estimates were prepared by Jamie and others at Burris over the past several months. This job was greatly needed by Burris, as the country and most municipalities were in a real economic slump, so much so that Burris was considering furloughing several engineers if the Sharpstown bid was not accepted.

� Jamie was told he was to be laid off immediately, not because the bid was rejected, but because he had been secretly working without management approval for a prime consultant of Burris’ main competitor. Jamie was astounded and angry. He knew he had done nothing to warrant fi ring, but the evidence was clearly there.


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� The numbers used by the competitor to win the Sharpstown award were the same numbers that Jamie had prepared for Burris on this bid, and they closely matched the values that he gave Carol when he helped her.

� Jamie was told he was fortunate, because Burris’ president had decided to not legally charge Jamie with unethical behavior and to not request that his PE license be rescinded. As a result, Jamie was escorted out of his office and the building within one hour and told to not ask anyone at Burris for a reference letter if he attempted to get another engineering job.

Discuss the ethical dimensions of this situation for Jamie, Carol, and Burris’ management.


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� Solution: There are several obvious errors and omissions present in the actions of Jamie, Carol and Burris’ management in this situation. Some of these mistakes, oversights and possible code violations are summarized here.

� Jamei,

� Did not learn identity of carol company was working for and whether the company was to be a bidder on the sharpstown project.

� Helped a friend with confidential data, probably innocently, without the knowledge or approval of his employer.

� Assisted a competitor, probably unknowingly, without the knowledge or approval of his employer.

� Likely violated, at least, Code of Ethics for Engineers regarding revealing data, information etc without prior consent of the clients.


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� Carol,

� Did not share the intended use of Jamie work

� Did not seek information from Jamie concerning his employers intention to bid on the same project as her client

� Misled Jamie in that she did not seek approval from Jamie to use and quote his information and assistance.

� Did not inform her client that portions

� Burris,

� Acted too fast in dismissing Jamie; they should have listened to Jamie and conducted an investigation

� Did not put him on administrative leave during a review

� Possibly did not take Jamie’s previous good work record into account

These are not all ethical considerations; some are just plain good business practices for Jamie, Carol, and Burris.

Problem 1.8 (Engineering Economy by Blank & Tarquin)

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� Claude is a fourth year engineering university student who has just been informed by his instructor that he made a very low grade on his Spanish language final test for the year.

� Although he had a passing score prior to final, his final grade was so low that he has now flunked the entire year and will likely have to extend his graduation another semester or two.

� Throughout the year, Claude, who hated the course and his instructor, has copied homework, cheated on tests, and never seriously studied for anything in the course. He did realized during the semester that he was doing something that even he considered wrong morally and ethically. He knew he had done badly on the final.

� The classroom was reconfigured for the final exam in a way the he could not get any answers from his class mates, and cell phones were collected prior to exam, thus removing texting possibilities to friends outside the class room who might help him in the final exam.


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� Claude is now face to face with the instructor in her office. The question to Claude is “what have you been doing throughout this year to make passing scores repeatedly, but demonstrate such a poor command of Spanish on the final exam”

� From ethical point of view what options does Claude have in his answer to this question. Also discuss some of the possible effects that this experience may have upon Claude’s future actions and moral dilemmas.

� Answer:

� ______________________________________________

� ______________________________________________

� ______________________________________________

� ______________________________________________

� ______________________________________________


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� __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________ � __________________________________________

Assignment of the week

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� Find an ethical story and discuss its aspects.

� Submission date: 22. 09. 2014

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Thank You

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[email protected]

Phone: 06 50 50 943