UCL

							FINANCIAL ASPECTS OF PROJECT
ENGINEERING AND CONTRACTING

           MONEY



        Prof George Solt


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            WHAT IS IT?



It’s the stuff we haven’t got enough of




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            WHAT IS IT?



Engineering is about the efficient use
of scarce resources – labour, power,
materials, time – money is the
common measure


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            GOOD ENGINEERING
An Engineer is a guy who can
do for half a dollar what any
fool can do for a dollar. Anon




                                 “The triumph of the mechanic
                                 over the engineer.”
                                 Ettore Bugatti (1882 – 1947)
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        WHAT IS IT?




Paying with Peacocks
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HISTORY



    Chinese Tael




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                  HISTORY




Austrian Maria Theresa Dollar used in Abyssinia
after withdrawal in Austria
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     HISTORY




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HISTORY


   Gold Sovereign
   1917 value of gold content £1
   2005 value of gold content £50




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               INFLATION
 Paper money originally represented gold
 Around 1930 both Britain and America
  stopped using the gold standard
 No link between money and gold
 No obvious limit to how much money could
  be printed.
 The more money was printed, the less it was
  worth
 Inflation had arrived!
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INFLATION

        By 1971 the copper
        content of the penny
        was worth more than
        the purchasing power
        and they were minted
        at a loss




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             INFLATION
Inflation is good news for borrowers,
 because the real value of their debt
 goes down
Governments, who are the biggest
 borrowers of all, love inflation
Governments aim at the highest rate of
 inflation which won‘t bother too many
 voters – the current Government target
 is 2% p.a.
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MARS BAR ECONOMICS




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          MARS BAR ECONOMICS
In 1975 I bought a house for £80,000, paying £20,000 in cash
and the rest by borrowing £60,000 to be repaid after 15
years, at 6% interest - i.e. £3,600 p.a., which would come to
a total of £54,000 in 15 years.
Inflation between 1975 and 1990 averaged 10%.
In 1975 a kWh cost 1.5 p. Assuming it has constant value, in
1990 it would cost about 6p. The average cost of a kWh
during those 15 years was 3.75p.
£80,000 in 1975 was equivalent to 5333 MWh, assume this
is the true value of the house and it will remain constant.
In 1990 I sold the house for its true value, which at 6p/kWh
brought me £320,000, so the whole deal works out like this:
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         MARS BAR ECONOMICS

                       £       Mwh
MONEY GOING OUT
Cash (1975)           20,000   1,333 @ 1.5p/kWh
Interest (1975-90)    54,000   1,440 @ 3.75p/kWh
Repayment (1990)      60,000   1,000 @ 6.0p/kWh
TOTAL COST           134,000   3,773

MONEY COMING IN
Sold (1990) for      320,000   5,333 @ 6.0p/kWh

PROFIT                         1560 MWh
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              SUMMARY

Engineering is about the efficient use of
 scarce resources
Money is the common measure of
 these resources
Money is an inaccurate and variable
 measure
Inflation devalues money with time


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