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ELEC3702 Study Notes

Week 1: Introduction
Stakeholders are fundamental components of a business that are required for it to succeed
o Include; customers, suppliers, employees, financiers, community
As Engineers, we need to learn how to
o Get people to help us bring our ideas into being
o Achieve a quality that will encourage people to purchase our services and products
o Overcome competition so that people come to us rather than to our competitors
Engineering is a science whilst management is an art
Preparation for senior roles
o Continually enhance technical skills
o Be aware of new technologies
o Observe society
o Study emerging management theories and techniques
Management functions
o PLAN
Forecast, set objectives, establish procedures
o ORGANISE
Setting structure, delegating, relationships
o LEADING
Deciding, communicating, motivating, developing people
o CONTROLLING
Setting standard, evaluating, correcting performance
o Only constant in the industry is change. Systems and tools to navigate this minefield
is necessary to be a leader in the field

OODA Loop

Management tool example


o A mental model useful in understanding the environment
o Developed by John Boyd a pilot in the Korean War.
o Developed to focus on the process for winning a dog fight in battle
OODA stands for; OBSERVE, ORIENT, DECIDE, ACT
o Useful in dealing with uncertainty or ambiguity and a strategy for winning
OBSERVE
o Grab as much information from the situation that you are given
o Observations however can be inaccurate and or incomplete
Sometimes too much information can inundate an individual
o Also be aware of conformational bias
Often we believe what we want to believe
ORIENT
o Process for developing an accurate mental model of the situation based on the
observations
o Your response to a set of observations depends on the mental model you create
o E.g. KODAK expected things to stay the same despite creating the digital camera
DECIDE
o Decide upon the best hypothesis and develop a strategy
ACT
o Implement strategy
o Observe outcomes and restart loop
Examples of OODA Loop implementation
o QANTAS A380 flight from Changi airport
Engine broke apart 4 minutes after take off
Took 50 minutes to attend all alarms and warnings
Circled for 2 hours
o The Comet
First major production of passenger plane
Broke up mid-air on 2 occasions meaning future models were not purchased

Strategic Planning
Planning

Strategic
o Long term goals
o Requires creative insight
Operational
o Short term
o Implement projects with known objectives
In strategic planning there are 3 questions that require attention
o Where are we now? == SITUATION ANALYSIS
o Where do we want to be? == VISION AND MISSION
o How are we going to get there? == STRATEGY
There are multiple tools to help us understand our current situation
o SWOT = Strengths, Weaknesses, Opportunities, Threats
Strengths > advantages over others
Weaknesses > disadvantage relative to others
Opportunities > elements to exploit
Threats > elements which could cause trouble
i.e. US car industry built big cars Japanese built small cars
i.e. NOKIA phones were beaten out of the industry
o always easy to see in hindsight
o Not always to convince people/managers of a perceived risk
o Production Life Cycle
5 stages
1. Product development
2. Introduction
3. Growth
4. Maturity
5. Decline
i.e iPad
1. introduction = what do we need this for?
2. Growth = everyone wants one
3. Maturity = Everyone has one competition reliable
4. Decline = Sales are dropping but APPLE is trying to improve
o Sensitivity Analysis Scenario Planning
Base case
o What will happen if things continue how they are
Best case
o What will happen if positive expectations are fulfilled
Worst Case
o What will happen if negative expectations are fulfilled
Good in situations where scenarios are unexpected
o Market Research
Who and what do the customers want?
What are the critical factors that affect the customers choice?
How many/much are the customers likely to want?
What price are the customers prepared to pay?
o Politicians use market research to find out what people want
o Forecasting
Must be capable to adapt depending on changes in:
o Technology Products Market Competition Economy
Supply Chains Manpower Finances
Continuous incremental advances punctuated by dramatic break throughs
i.e. computers
o we know that computers are getting quicker but how do we utilise
this trend
Performance Measurement

You cant manage what you dont measure

Customer Related Delivery times


Product defect rate
Complaints
Process Related Production Cost
Development time
Financial Gross Margin
Profitability
Rate of return on investment
Employee-related Turnover rate
Industrial disputation
Competition-related Market Share
Growth rate
Business Plans
Contents of a business plan include
o Introduction executive summary mission and strategies
current status product/service description current status
target market and forecast demand R&D and Technology
manufacturing/operational plans risk financial plans
We use SMART for our objectives
o Specific Measurable Achievable Realistic Time Based
Mission Statement
o A specific sentence that gives a focused and clear direction for the purpose of the
company. It must be realistic, attainable, reflect distinctive competencies of the
company and flexible to changes in products or markets
Facilitates the co-ordination of activities within an organisation
Current Status
o Gives performance of company to date
o Business partners
o Summary of SWOT analysis
Product/ Services
o What are key technologies that are innovative and benefit the customer
Market
o Must be fully aware of the size of the market, its competitors, estimated sales,
advertising opportunities, primary targets and alternatives
o Markets are segmented differently for different people
i.e. in the Silicon Valley there is a higher density of wealthy people.
Upmarket car manufactures are largely represented in this area
R&D and Technology
o Knowing full well the technologies involved and if there are any requirements for
new technologies
Rupert Murdock has been able to adjust to change from newspaper to
entertainment to satellite to cable and now internet streaming
Risk Management
o Risk is a function of consequence and likelihood
o Example of risk management is in the aviation industry
Redundancy two ignition systems and two pilots
Training regular reviews
Inspection pilots subjected to medical examinations every year
Financial Plans
o Needs to show sensitivity to variations in underlying assumptions
o Consider best case, base case and worse case
Week 2: Micro-Economics
Market and Competition
The market
o Buyer and sellers of a particular good or service
Buyers
o Consumers of a particular good or service who establish a demand
Sellers
o Providers of a particular good or service who establish the supply

Equilibrium
Demand = supply in the market

Competitive Market
A market is truly competitive when there are so many buyers and sellers so that each
individual has negligible impact on the market price
This is seldom achieved in practice as it is the nature of BUYERS and SELLERS to band
together to minimise competition

Competition
Characteristic Pure Monopolistic Oligopoly Monopoly

Competition Competition

No of Many Few to many Few No competition


competitors

Ease of entry Easy Not easy Difficult Very difficult or

government regulated

Similarity Similar Different Similar or No competing products


different

Price control None Some Some Considerable*

Pure competition;
o Coffee shops anyone can open. No license or training required
Monopolistic Competition
o World wide automobile companies
Oligopoly
o Coles/woolworths/, virgin/Qantas, big four banks in aus
Monopoly
o Pertamina oil company in Indonesia
o DeBeers diamond dealers
Easy of entry into the market
o Coca cola find it easy because of their enourmous distribution network which it can
use for other products
o Taxi (cab charge) thought it had a monopoly until UBER arrived
Impediments to Competition
Supply limited by the government
o Taxi plates issued by government now uber
Supply limited by industry grouping
o Unions in the building industry
o AMA setting doctor charges
Barrier to entry qualification & training
o Tradesman plumbers and electricians
o Lawers
Supply limited by monopoly assets
o Transmission network
o History of Telstra
o NBN

Shift in Demand Curve


Demand changes due to;
o Consumer income shifting
o Prices of competition products
o Tastes and trends in the market
o Number of buyers
I summer icre cream increases
At sporting venues no competition prices increase

Consumer Income
As consumer income increases
o Demand for superior good will increases
o Demand for inferior goods will decrease
Consider a car the more money you have the better the car

Elasticity of Demand
Ability of a product to change its price based on demand
and price sold
o Inelastic demand petrol, milk, break and basic
foods
o Elastic demand luxuries and tobacco

All else being equal, the quantity supplied of goods rises when the price of the good rises

All else being equal, the quantity demanded of a good falls when the price of the good rises

Supply changes due to shortage of material and/or quotas being met

Equilibrium

Price where the quantity supplied equals the quantity demanded



If price is too high, manufacturers will not produce
There will be a tendency to self-correct
Different people will be prepared to pay different prices for the same thing

Changes in Supply Demand


Changes in;
o Price of other commondities income technology
demographics government policy force of nature
Price of steak goes up increases demand for hamburgers or sausages
Increased income better products, more consumption
Technology smart phones replaced simple phones and land lines
Aging population changes the demand for things like education, household
Government policy environmental pressures safety
Force of nature Natural disasters floods, fires. Can reduce demand in some areas and
increase it in other areas. Outbreak of disease - Flu

Electricity in Australia
Needs to be constantly balanced to be in equilibrium at all times
Network to interconnect all the generators and all of the users
In Australia
o Generating companies submit bids to supply electricity
o AEMO dispatched generators starting from the cheapest
o As demand increases, higher cost plant is dispatched
o The cost is the cost of the last plant to be dispatched
Week 3: Macro-Economics
Economics is the study of decisions that people, organisations and governments make
relating to the allocation of limited resources
o Study gives us a structure to make decisions
o Controlled economies risk putting resources into the wrong activity Russia in the
COLD war

Microeconomics = supply and demand that determines price levels

Macroeconomics = entire industries and economy as a whole

GDP = market value of all goods and services

Consumer Price Index (CPI) = measures the level of inflation

Unemployment rate = proportion of workers unemployed

Gross Domestic Product

Market value of all final goods and services produced within an economy
o Does not include non-market activities like housework, home maintenance and
volunteer work
Total income of everyone in an economy
Total expenditure on the economys output of goods and services
GDP = C + I + G + X M
o C = consumption expenditure (something that is consumed now food, clothing)
o I = investment expenditure (something that can generate income for a long period)
o G = government expenditure
o X = local expenditure by overseas residents
o M = overseas expenditure by local residents

Flow of Money

Consumer Price Index

CPI measures the changes in the prices of a basket of goods and service which account for
a high proportion of expenditure by the population group
o With basket being the sort of costs that the average person will incur
Calculations are based on household expenditure surveys
o 7000 homes over two weeks each quarter
o Expressed as a percentage change in cost over the quarter
o The annual inflation rate is the change in prices over a year
Australian inflation rate

Major contributors to fluctuations in inflation


o 1973/74 Oil embargo imposed on Syria and Egypt and their allies when they
attacked Israel.
Gasoline shortages have aften caused prices to skyrocket
Inflation of 3% is desired

Labour Force Statistics

Employed = paid employees, self employed and unpaid workers


Unemployed = people not working but have looked for work during the previous 4 weeks
Not in the labour force = everyone else

Australias Unemployment Rate

Unemployment rate typically around 5%


Often links between inflation and unemployment however they do not always hold true
Noticeable trend 1981 there was a wage breakout in expectation of a resources boom
discouraging employment

Philips Curve

Postulates the relationship between inflation and unemployment


Increased demand > unemployment falling > wages rising > increased cost of goods

Relationship broke down in the 1970s


o Stagflation occurred rising employment and rising inflation

Management of the Economy

Monetary policy = control of interest rates and money supply


o Controlled by reserve bank
o In recession RBA lowers interest rates to stimulate money supply
Typical rate = 2-3%
o Current low rates have increased investment, increasing house prices but lowering
investment yields
Fiscal policy = control of government taxes and expenditure to control aggregate demand
o Controlled by the federal government and is policy outlined in the budget
o Changing taxation and government spending impact the aggregate demand
o In a recession, governments can lower taxes and increase expenditure
The government should spend when the private sector doesnt
Week 4: Management Decision Models
Often better to have a wrong decision than a no decision
Challenges of management
o Issues are ill defined
o Data could be insufficient or excessive
o Data could be poor quality
o Involves human behaviour
o Issues change
o Consequences change
o No perfect solution
Power to make decisions comes from
o Formal power
Coercion Reward Legitimacy
o Personal Power
Expertise Referent
Decisions are based depending on the:
o Company policy
o Contractual obligations you have as an employee
o Appropriate level in the organisation based on its hierarchy
o The necessary skill and experience to make the decision
o Has the authority
Criteria for good decisions
o Achieve stated purpose
o Feasible to implement
o Limited adverse consequences
Decision making process
o Define
o Gather facts
o Identify options
o Compare options
o Decide
o Communicate/implement decision

Linear Programming
Maximising or minimisation of a function which are subject to constraints
Have an objective function
o F(x,y) = ax + by
Constaints
o A1x +b1y <= c1
o A2x + b2y <= c2

Example:

We manufacture 2 products - x and y. Both products contain Ingredient A and Ingredient B but in
different proportions. Product x contains 2 kg of Ingredient A and 1 kg of Ingredient B. Product y
contains 2 kg of Ingredient A and 3 kg of Ingredient B. BUT We only have 1000 kg of Ingredient A
and 1500 kg of Ingredient B. How much of each product should we make to produce the MAXIMUM
total number?
Objective function f(x,y) = x + y

Constraints 2x + y 1000

2x + 3y 1500

Aim Find MAXIMUM value of (x + y)

Produce graph

Optimal solution at 375,250. Therefore, optimal level is 325+250=625

Decision Trees
Example

You are planning to place bet $1 on a horse race. If you bet on Alpha winning, you will be paid $2 ($1
profit). If you bet on Beta winning, you will be paid $11 ($10 profit). You believe that Alpha has a
70% chance of winning and Beta has a 10% chance.

Now with an added $2 insurance


Kepner Tregoe Decision Analysis
Prepare a decision statement with a desired result and required action
Define;
o Strategic requirement must haves
o Operational objectives want to haves
o Restraints
Rank objects into weighting class of 1-10 and E being essential
Eliminate any alternative that does not provide the must haves
For each alternative, rate each want on a scale of 1-10
Multiply the score by the weighting factor to arrive at the weighted score for each want
Total the weighted scores

Option C does not provide must haves of the remainder, Option D would be the preferred
option.

Maslows Hierarchy of Needs


Week 5: Decision Making under Uncertainty
Organisations in the free market economy focus on making a profit by investing resources to
satisfy the needs of their stakeholders
Resources include: money equipment labour
Stakeholders include: customers employees suppliers
community
The goals of stakeholders are not always the same
o Decision must take into account the often competing goals of the various
stakeholders
o Decisions are often made in uncertain times and assumptions must be made
o Wherever possible decisions should be robust and should allow for errors in the
assumptions

Contingency Plans
A planned response to an event that may or may not happen

PLAN B

Identify possible events


Develop possible reasons
As appropriate documents procedures and undertake training

Sensitivity Analysis
The technique to determine how different values of an independent variable impact a
particular dependent variable under a given set of assumptions
Builds confidence in model by studying uncertainties
Can be seen clearly in decision trees where large differences in the outcome based on
small differences in probability result in large sensitivities

Diversification
Manage risk by simultaneously engaging in several projects of varying risks in order to
achieve a reasonably stable overall outcome
Note risks change

True Value of Money


We do not derive any benefit from MONEY we only gain benefit from what we can buy with
it
If we delay spending money, we delay the benefits BUT because of inflation, the delayed
benefits will be LESS
If we lend money to someone else, they get the benefit NOW and they pay us INTEREST to
compensate for us
o The delay in obtaining the benefits that could purchase
o The lesser benefits we will be able to realise at a later time
Banks are middle men or brokers which match LENDERS and BORROWERS

Principle = amount of money borrorwed (or loaned)

Interest = fraction of principle paid by the borrower each period

Nominal Interest Rate = fraction of principle pain by the borrower each year
Compound interest = interest is not paid but added to the principle at the start of the next time
period

Calculation of Compound Interest rates

= (1 + )
P amount invested i effective interest rate

F - future value of investment n number of compounding periods

Net Present Value


Often need to compare projects where the income and expenditures extend over many
years
To be able to compare profitability, it is necessary to convert all income and expenditure to
a common dollar value
It is normal to express all income and expenditure in todays dollar values

Present value can be calculated to be:



=
(1 + )
Example:

You are asked to loan someone $500 with the promise that the borrower will pay you $600 in 2
years. Assuming a 10% interest rate, should you agree?

NPV of $600 in 2 years is

600
= = 496
(1 + 0.1)2
NPV of $500 now, is $500.

NPV for the transaction = NPV ($600 in 2 years) NPV ($500 now)

= $496 $500

= $-4 Not a good deal for the lender

Discount Rate
Set by a company after taking into account
o Interest rate that can be obtained
o The WACC weighted average cost of capital
o A factor to account for the investment risk

Internal Rate of Return


The IRR of a project is the discount rate which will result in a NPV of zero
Week 6: Operations Management
Operations management is the management of the transformation or transfer process
o Transformation of raw materials into saleable products manufacturing
o Transfer or processing of information computer centre
o All organisations are involved in the transformation or transfer of some substance
(tangible or intangible)

Manufacturing Plan
Five laws
o Law of variability
o Law of bottleneck
o Law of scientific method
o Law of quantity
o Law of factory focus
5 Ps of manufacturing
o Product plant process programs people
Product
o Stages of development
o Value analysis and value of engineering
o Variety control
o Pareto analysis
Pareto Analysis 80% of the effects come from 20% of the causes
o 80% of the Profits come from 20% of the Customers
o 80% of the Complaints come from 20% of the Customers
o 80% of the Sales come from 20% of the Products
o 80% of the Sales are made by 20% of the Sales Staff
Other operation management tasks include plant location
o Degree of integration, availability of suitable labour force and proximity to market
Plant machinery and equipment management focuses on:
o The manufacturing process of a product
o Technological developments within the market
o Operator (employee) skills available and cost of required skills
o Compatibility and efficiency of existing equipment
o Constant maintenance, repair and safety checks of the existing machinery
Operation management also involves understanding of the manufacturing process
o There are various types of manufacturing processes
Batch product is created stage by stage at various stations
Flow parts of a product are added along a line (car manufacturing)
Continuous materials are continuous moving, cannot be developed stage
by stage, usually involving chemical or mechanical systems
Jobbing one off job
Mass large scale production of items - Nike
Flexible manufactured when items are required or depending on market
conditions
Using programs to forecast, plan and control amount of materials in stock and deliver items
on time is essential to operation management
JUST IN TIME (JIT) system
o Primary function is to reduce inventory
o Make or purchase a product with;
The minimum number of parts
In the smallest possible quantity
At the latest possible time
With no defects
Other management tool is Just in Case (JIC)

New Developments in Operation Management


Continuous Improvement always looking for feedback or alternate paths to increase
efficiency and productivity of a company
Business process re-engineering (BPR) ignores continuous improvement and starts over.
Solutions are designed that;
o Are customer focused
o Capitalise on best practice and learning from others
o Are designed for the future
o Produce significant bottom-line improvements
Benchmarking setting targets and goals that must be achieved in order to be satisfied with
the companys progress
Week 7: Marketing

Four Ps of marketing that are essential


o Product lifecycles introduction, growth, maturity, decline
o Pricing Strategies different, break even, premium
o Place distribution strategies with distribution channels
o Promotion strategies why bran, key communications channels

Have a UNIQUE SELLING PROPOSITION

Importance of marketing for an engineer


o Writing proposals to tenders
o Make customer presentations
o Respond to customer queries
o Design or improve a product or service
o Design or improve manufacturing and logistical processes
Marketing is becoming more analytical more than half of the marketing budget is wasted,
we just need to find which half
o We use mathematical models, experimental designs and SQLs to help find
marketing solutions
CASE STUDY: Food Segmentation
o Humans can be classified into distinct groups and your product may be more
successful based on the group you are targeting
o Types of groups
JUST FEED ME (23%) not interested in cooking
HOUSE PROUD (22%) happiest when pantry is well stocked and meal is
home cooked
ZAPPITS (17%) Use easy to prepare foods
OLD FASHIONED COOKS (12%) tradition home cooked meals and strong
brand loyalty
TRENDSETTERS (9%) new foods and flavours, either cooking or dining out
TAKE AWAY (9%) takeaway meals only
ENTERTAINERS (8%) At home or dining out entertainers for highly sociable
people
Week 8: Legal Environment
Separation of powers in Australia
o Parliament makes and amends STATUTE LAW
o Executive implements STATUTE LAW
o Judiciary makes judgement and interprets the LAW
Sources of law
o Common law characterised by case law developed by judges, courts and tribunals
o Statute law written law enacted by a legislative body
o Administrative law law governing the administrative agencies of the government.
Branch of public law
o International law body of rules established by customs or treaty and recognised by
nations
Legal system split into 2:
o Adversarial as used in Australia
o Inquisitorial as used in other countries

Contracts
An agreement between two or more people or organisations
o Role of the law is to give legal effect to such an agreement
Parties must be provided for a consideration
Consideration person seeking to establish rights under the contract must be able to show
that those rights have been bought either by doing some act in return of by giving a
promise to do some act
Exceptions to written contracts;
o Property contracts
o Consumer credit contracts
o Contracts agreed in the purchasers home
Enforceable contracts
o All parties to the contract must have a legal capacity to effect the transaction
o Parties of the contract must not be of a diminished mental capacity
Construct of a contract
o If the court is required to determine the meaning of some of the contract
It is construed in light of the circumstances existing at the time
It seeks to determine what reasonable people would have intended
Breach of contract the law can be used to seek a remedy for breach of a contract
o Only a party to the contract can sue for a breach of contract
Normal remedy is money
Content of a CONTRACT
o Identification of the parties to the contract
o Description of the goods and services provided
o The price (consideration) which will be paid and the terms of payment
o Responsibility of the parties to the contract
o Warrantees liabilities insurance dispute resolution
o Governing law
TORT is a civil wrong that unfairly causes someone else to suffer loss or harm
o Negligence is a tort
Negligence not taking reasonable steps to guard against reasonably foreseeable risk to a
person to which is owed a duty of care
To prove negligence
o The defendant had a duty of care
o The defendant breached that duty
o By reason of the breach the plaintiff suffered injury, loss or damage
o The injury, loss or damage could have been foreseen by a reasonable person in the
position of the defendant.
Steps for resolving contracts or dispute
o Negotiate with party
o Comply with the provisions of the contract
o Consider mediation
o Initiate a court case
Competition and Consumer Act of Australia
o Aims to promote fair trading and provide protection for consumers
o Regulates business to business and business to consumer transactions
Australian Securities and Investment Commission (ASIC)
o Goal is to maintain, facilitate and improve the performance of the financial system
and entities in it
Week 9: Financial Management

When investigating a project/investment opportunity there are a few key variables that
need to be investigated to understand its potential financial benefits

Net Present Value (NPV)


Projects with the highest NPV are the most attractive
Details of NPV are found in WEEK 5

Return on Investment

= 100

P = Profit C = Project Cost

Payback Period
The time required to recoup the funds expended in an investment

Example: An investment of $2000 that generates $500 per year will have a payback period of 4
years.

To determine optimal payback period, projected cumulative costs and benefits are used to
find the equilibrium point

Profitability Index (PI)


Also known as profit investment ratio (PIR) or value investment ratio (VIR)

=

Comparison on Analyses
Financial Management Reporting
The provision of information of a financial nature to interested parties to assist them in
making decsions
o Financial accounting geared towards external decision makers
o Management accounting geared towards internal decision makers managers at
various levels

Accounting entity
An accounting entity is a business for which a separate set of accounting records is
maintained
The accounting entity concept is used to establish the ownership of assets and obligations of
liabilities as well as to determine the profitability of a specific set of economic activities
Examples of accounting entities are
o Companies partnerships trusts
Assets = any item of value owned or controlled by an entity
Current assets = assets that are expected to convert to cash or used in operations over the
next 12 months
Non-current assets = assets that are not expected to be converted to cash or used in
operations over the next 12 months
Liability = amount owed by the entity to an external party
Current liability = payment will be required within the next 12 months
Non-current liability = payment will not be required within the next 12 months
Profit = the positive amount remaining after subtracting expenses incurred from revenues
generated during a specific period
Revenues = income generated by selling goods and services
Expenses = outflow of resources resulting from revenue earning activities
Equity = is the ownership of percentage of ownership in a company
Dividends = the distribution of profits to the owner of the entity
Retained earnings = any profits which have not been distributed to the owners

Accrual Accounting
Accrual accounting is the recording of the revenues when they are earned and expense
when they are incurred
Cash accounting is the recording of revenue when the cash is received and expenses when
the cash is paid out
Accrual accounting ensures that the revenues and the related expenses are accounted for in
the same accounting period

Operating Performance
To survive, an entity must;
o Have the ability to meet its financial commitments as they fall and,
o Conduct its operations as to satisfy the purpose for which it was established

Balance Sheet
Presents the assets owned by the entity and the ways these assets have been financed
through liabilities and owners equity
o It shows the state of the entity at one point in time
Financial Position
Set out in a balance sheet are;
o Assets equity liabilities
o Equity = Assets Liabilities

Capital Expenditure
Expenditure to acquire or improve asset which will support the generation of income
beyond the current accounting period

Land Buildings Machinery

The item for depreciation in the balance sheet reflects the value of the asset which was
used up during the accounting period
Building and machinery depreciate in value but, in most cases land appreciates in value

Operating Expenditure
That is the money spent during the accounting period to support the day to day operations

Wages Maintenance Office Supplies

Financial Analysis
Liquidity ability to make payments when due
o Working capital = current assets current liabilities
o Current ratio = current assets / current liabilities
Activity changes in sales and inventory
o Asset turnover = net sales/ total assets
o Inventory turnover = goods sold /inventory
Profitability ability to generate profit
o Return on Sales (ROS) = net income / sales
o Return on equity (ROE) = net income / owners equity
Capitalisation owners equity plus long term loans
o Debt to equity = total liabilities / owners equity
o Interest coverage = EBIT/Interest
Share Market Price perceived value of the company
o Only for publicly traded companies
o Market price set
Yield return to share on investment
o Yield = dividend per share/ market price per share

Limitations of Ratio Analysis


They measure past performance and that is not always a good indication of future
performance
They can be influenced by differences and changes in accounting methods
They tend to focus on short term
They do not recognise investment in customers, suppliers, employees, processes, technology
and innovation

Balanced Scorecard
Purpose is to translate strategy into measures that uniquely communicate the organisations
vision
o Financial perspective measures the results the business provides to its
shareholders
o Internal perspective performance of internal processes which drive the business
o Customer perspective focus on customer needs and satisfaction
o Employee perspective focus on employees and structure

Specific Performance Metrics


Finance
o Profit and revenue
Marketing
o Market share and loyalty
Production
o Number of items shipped on time and machine set up time
Sales
o Percentage of customers retained in period and percentage increase in sales
Human resources
o Workforce skills and employee skills
Safety
o Number of deaths and number of lost time accidents

Key Performance Indicators


Like the financial performance indicators, the results from the balanced score card are
migrated down and become targets for the relevant responsibility centres
Types of KPI include
o Process; product repair time or days to deliver an order
o Input; dollar spent on research
o Output; revenues and staff turnover
They are well defined and measurable
Must be well communicated and are essential to achieving goals

MAKE YOUR JOB PERFORMANCE A JOB FOR YOURSELF


Have goals, objectives and standards that set you apart from others
in the workplace
Week 10: Regulation and Management Systems
As an engineer, we need to be aware of the following regulations in the industry
o WH&S
o Consumer protection
o Environment protection
o Industrial relations
o The standard relating to your own area of activity

Standards
Documents setting out specifications, procedures and guidelines
o They are designed to ensure that products, services and systems are safe, reliable
and consistent
o Standards are not laws or regulations but when referenced in legislation become
mandatory

Engineering Management Framework


Set policy and guidance which regulate engineering design manufacturing and maintenance
processes
It defines the minimum requirements for all individuals and organisations engaged in
engineering activities
Components of the framework
o Systems performing engineering and or maintenance functions
o Procedures documented, controlled and approved plans and processes
o People nomination of certain technically competent people to undertake specific
tasks
o Data documentation for manufacture, use and maintenance

Quality
Fitness for purpose
Involves
o Establishing a process to design/manufacture/maintain
o Assign competent people to do the work
o Provide the necessary resources to do the work
o Check or audit the execution of the work
Quality systems must be authorised by senior staff and should
o Include an organisation chart
o Nominate key appointments
o Identify designs or types of systems for which the organisation is responsible
o Describe how design and engineering processes are to be delivered
o Be made available to all staff
o Be complied with by all staff and contractors

Compliance Monitoring
Systems must be in place to monitor that all work is done in accordance with the company
procedures compliance auditing
Checking that the correct process is being used greatly reduces the need to check that the
correct product has been produced
Compliance auditing of a quality system can be done internally or by an external auditor
Internal Auditing
Designed to provide insurance that:
o The organisations design and engineering practices comply with internal and
external requirements
o The organisations design and engineering procedures are properly documented in
the quality system
o The quality system is effectively implemented, maintained and followed
o The quality system is regularly audited at least every 2 years
Internal audit report should contain
o Non-conformances
o Corrective actions required
o Opportunities for improvement
Corrective action requests (CAR)
o A request by an auditor to correct a non conformance
o The organisation is obliged to action the CAR
Accreditation
o External auditing can lead to accreditation
The external auditor will audit the company at regular intervals and if the
system is no longer operating successfully, the accreditation will be
cancelled

Judgement of Significance (JOS)


An assessment of the technical risk associated with a design project
Takes into account the probability and consequence of failure
A JOS assessment determines if a design or a design change is significant or non-significant

Design Procedure
Getting started
o Identify and define needs and develop a project scope for the design
o Define the work packages required and prepare a Gantt chart
Development
o Concept design and cost estimate
Review
o Identify errors and oversights
o Test assumptions
Approval
o Sought once;
Developed in accordance with engineering plan
Compiled with the specific requirements
Compliance has been adequately verified
Adequate documentation and instructions have been developed
All work health and safety hazards have been identified and managed
Defect reporting
o Reported to the original manufacturer designer
Manufacturer may have to make good the defect in accordance with
consumer law
Designer can avoid a similar situation in the future
Documentation
o Project not complete until documentation is complete
Design calculations and drawing
Maintenance and overhaul instructions
Engineering instructions
Illustrated parts catalogue
Specifications
User/operations instructions
Safety management plans
o Routine operations
Induction, training, hazard/incident/accident reporting
Manual handling, slips, trips and falls, hazardous substances and situations
Electrical safety, emergency response
o Special operations
Identifying risks in the working environment
High voltage networks
Railway safe working procedures
Confined spaces
o Project plans
Plan must cover
Induction and safety training
Safe work practices and procedures
Emergency procedures
Incident reporting and investigations
Detailed plans must be prepared for building projects over $250k

Compliance not only must you prepare a safety management plan but you
must make sure all staff comply with the plan
Week 11 & 12: Continuous Improvement
Six Sigma
Set of techniques and tools for process improvement
Developed by Motorola in 1986, adopted by GE in 1995 and has been enhanced by
academics and consultants
Primary purpose is to remove cause of defects and minimise variability
Normal distribution
o 68% of results lie between +/- 1 standard deviation
Six sigma asserts that
o Continuous efforts to achieve stable and predictable process results reduced
variation are a vital importance
o Manufacturing and business processes have characteristics that can be measured,
analysed, controlled and improved
o Achieving sustained quality improvement requires commitment and the entire
organisation particularly from the top-level management
Lean methodology
o Value an activity which is directed to meeting consumer needs
Time on time delivery and prompt response
Cost contarcts on budget and cost saving
Quality improved customer experience and reliable service
o Waste an activity which consumer resources but does not contribute to meeting
customer needs
o Lean focuses on increasing value and reducing waste

CASE: TOYOTA

Initially targeted waste caused by


o Transport unnecessary movement of products
o Inventory components and products not being processed
o Motion unnecessary movement of people
o Waiting for next production step
o Overproduction products manufactured ahead of demand
o Over processing resulting from poor tool or product design or overly close
tolerances
o Defects increased effort in testing and reworking

Six sigma culture


o Avoid blaming people
o Fix processes not people
o Regard problem as opportunities not problems

SIPOC
Summarises input and outputs from one or more processes
o S Suppliers
o I Inputs
o P processes
o O outputs
o C customers
Suppliers and customers may be internal
Input and outputs may be materials, services and information
Focus on inputs and outputs

Example: SIPOC diagram for a call centre

A well-constructed SIPOC diagram


o Defines customer requirements
o Defines inputs to the process
o Identifies resources required to implement the process
o Identifies the sources of the inputs
SIPOC voices
o Customer the needs and desires of the customer
o Process process must meet the customers needs
o Business the business must make a profit

Turnback
Any situation that hinders the flow of the work
o Tooling problems, incorrect paperwork, non availability of materials
Management
o Make a record of all turnbacks
o Do not blame anyone
o Understand the problem
Opportunities not problems

Escapes
Any problem, defect or inefficiency which reaches the customer
o Incorrect number of items dispatched
o Incorrect design
o Incorrect invoicing
Route cause analysis
Define the problem
Collect data
Identify possible causal factors
Identify root cause
Implement solution
5 WHYS?
o Ask why a problem has occurred many times as required to get beyond the
symptoms
Uncover the root cause

Mistake proofing
Minimise human error especially if the process involves deep concentration
o Flow chart the process and identify possible human errors
Mistake identifying
o Warning devices alarms
o Shut down devices
o Colour code components

Waste Reduction
5 Ss
o Sustain maintain established procedures
o Sort distinguish between needed and unneeded
o Straighten have items placed tidily
o Shine keep workplace clean
o Standardise homogenise sort, straighten and shine

Pareto Principle
80/20 80 of effects come from 20% of the causes
o Dont try to solve all the problems look for those which will have maximum impact

Value Stream Mapping


A flow chart used to depict and improve the flow of inventory, processes and information
o Goal it to identify waste in time and resources

LOSA
Existing data was inadequate to support detailed analysis
o Line
o Operations
o Safety
o Audit
LOSA is an example of QCPC (quality clinic process chartss
QCPCs are simple tools for recording over time, the number of turnbacks or escapes that
occur in each step of the process
QCPC analysis drives process improvement opportunities, priorities and strategies

TURNBACKS are anything that delays work or stops it from being done