Lecture no52 economic analysis in the service sector
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Economic Analysis in the Service Sector
Lecture No. 52
Chapter 16
Contemporary Engineering Economics
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Contemporary Engineering Economics, 6 edition
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Chapter Opening Story
Motor vehicle crashes cost $871 billion in
economic loss and social harm.
To reduce road accidents caused by
mechanical defects, many states
implement various car inspection
program.
The State of Pennsylvania’s $25 million
motor vehicle inspection program would
reduce the fatal crashes by 127–169 per
year.
Is it worth undertaking?
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Contribution of the Service Sector to the U.S. Gross Domestic Product (GDP)
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What Is Service Sector?
Commercial Transportation
Logistics and Distribution
Healthcare Delivery
Financial Engineering
Electronic Markets and Auctions
After-Sale Equipment Monitoring, Maintenance and Repair
Retailing, Hotel, and Restaurant
Hospitality and Entertainment
Customer Call/Contact Centers
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Some Unique Characteristics of Service Sector
Source: National Science Foundation, 2002
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Property 1
o Services are generally intangible.
They have sometimes been defined as anything of economic value that cannot
be held or touched.
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Property 2
o It is usually impossible to build inventories of services.
o Either the demand for the service must be backlogged or enough resources
need to be provided to meet an acceptable fraction of the demand as it arises.
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Property 3
o Services are more dynamic and demand-responsive than manufactured
products.
o This means variability and risk are more central issues in service industries.
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Property 4
o Many services (examples are medical treatment and equipment repair) require
a diagnostic step to design the service (co-production) as part of its delivery.
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Property 5
o Service products are usually less standardized and less subject to design
specifications than manufactured goods because the outputs are tailored to
customer needs as they are delivered.
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Property 6
o The dimensions of service quality are more subtle and subjective than with
physical products.
o Not only are the parameters of services more difficult to express, but customer
perceptions play a much greater role in deciding what is satisfactory or
valuable.
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Property 7
o Most service operations are more labor-intensive than manufacturing
industries.
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Property 8
o Compared to goods industries, a much greater fraction of the service economy
is operated by governments and institutions.
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Property 9
o Information technology is central in service industries. Often it is the only
significant equipment available to multiply human output.
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