Engineering Management Flashcards
List types of Trading Mechanisms
Sole Trader
Partnership
Limited Cmpany
Public Limited Company
Unincorporated Association
Describe a sole trader’s management
few formalities
trader can make contracts and employ people
trader owns all assets and liabilities
profits are personal income liable to income tax
Describe a partnership’s management
Two or more sole traders
Governed by a partnership agreement
Jointly own assets and liabilites
Profits are income of partners
can create limited partnerships
Describe a limited company’s management
A seperate legal person under law
shares distributed to directors
legal formalities must be observed
Liability is limited, some to banks/lenders
Describe a public limited company’s management
A separate legal person
Shares distributed or traded to public
Legal formalities must be observed
Liability is limited
Profit are income of company shared between shareholders
Describe an unincorporated association
Formed by a group of people like sports clubs, charities, etc
No formal legal requirements because it is not a legal body, meaning committee is liable for debts and cannot borrow money
Management holds turst of members
What does a profit and loss report tell you?
A graph of company cash against time
If the business is heading in the right direction
If your generating cash
where costs are
What your tax bill will be
Where you are in profit cycle
Gross Profit/Loss equation
Sales + Cost of Sales = Gross Profit or Margin or loss
Net Profit and loss report equation
Sales - Cost of Sales - Overhead - Depreciation = Net Profit or loss before tax
What costs do overhead cover?
Rent/leasing
Interest on equipment
Admin costs
Bills
Permanent IT and maintenance
Fixed and Current Assets and Liabilities
Assets - Liabilitiies = Capital
Assets
Current: Within 1 year, like short term debtors, stock, prepayments
Fixed: Over 1 year, Plant, machinery, buildings
Liabilities
Current : Creditors Within 1 year, like short term creditors, bank charges
Fixed : Creditors Over 1 year, like Long term loans
Costs of sales vs units made graph curves
Linear: Material costs, labor, power bil, overtime
Stepwise: set-up, extra shifts, extra equipment rental
log: raw material bulk purchase, worker experience
Account Adjustments
Balance sheet should be objective assement of business
Subjective elements include: Opinion of accountant, manipulation of accounts
Adjustments include: Accurals (allowance for something with no paper work yet), provisions and prepayments
What are certain types of stock worth?
Sale price - sell price of stock
Cash Price - what was paid for it?
Zero - cant be sold
Negative - would cost to sell
Cash forecast
very important document when starting company
buffers between ins and outs
closing cash = opening cash + payments - reciepts
Cash vs Profit
Cash is fact, profit is opinion
Sales and purcahses may be on credit
Some costs are charged in advance
Accurals and provisions do nothing for cash reserves
Sources of cash outflow
purchase of fixed assets, stock, etc
Paying off creditors
Repaying loans
Overheads
Sources of cash inflow
Direct sales
Share capitals
Grants
Loans
Overdrafts
Asset sales
Last periods profits
What do accounting ratios provide and not provide?
Provide a quick calculation, numbers used for industry comparisons
Do not provide: Absolute numbers
What aspects of the business does an accounting ratio give a view of?
Profitability - does business gives good return rate?
Cash flow health/Liquidity
Efficiency of the business
Would a capital investment improve the business
Profitability ratio: Gross Profit to sales percentage calc
( Gross Profit / Sales )*100
Gives average mark up, but ignores overheads and depreciation
Profitability ratio: Net profit to sales percentage calc
( Net profit / Sales )*100
Takes into account overheads and depreciation
Return on Investment / Return of Capital employed percentage calculation
ROI = ( Net profit / Capital employed ) *100
measure of how much you are making using assets
Cash flow ratio: Current ratio
Current ratio = current assets / current liabilities
cushion for short term creditors, usually 2:1
Cash flow ratio: Liquidity ratio
Liquidity ratio = ( Cash + Debtors ) / Current Liabilites
Measure of liquidity
Over 1:1 means insufficient credit control, under utilised cash
Under 1:1 means difficulty in meeting current liabilites
What do efficiency ratios tell you about your company/business?
Companies can be profitable but not efficient
Inefficiencies include not chasing debtors, paying creditors too early, not fully utilising its assets
Ratios include: average collection period, credit period, stock turnover and Sales to fixed asset
Efficiency Ratio: Average collection period
Average collection period: ( Avergae Debtors / Sales ) *365
Extended periods lead to impacts on cash flow, caused by not chaing debtors
Efficiency Ratio: Credit period
Average Credit period = ( Average Credit / Sales ) *365
Low Credit Period means credit facility not being exploited
High credit period impacts cash flow, poor credit rating
Efficiency Ratio: Stock turnover
Rate of stock turnover = Sales / Average Stocks
High value good for flexibility, reduction of wastage, manufactoring just in time
low means cash is tied up in stock, stock could be damaged or lose value. Stock costs to store
Efficiency Ratio: Sales to fixed assets
Sales / Fixed assets
Measure of utilisation
Low value shows under utilisation, consider selling fixed assets
Efficiency Ratio: Sales per employee
Sales / No. of Employees
Considers employees as assets, business could be under/overstaffed
What is Capital Investment?
Purchase of land, machinery, plant, etc
Typically large cost, long term return
What does it mean to appraise risk, and list some examples of appraised risk
The higher the risk, the greater the expected return
Risks include:
Machine may not work as efficiently, sale of product may not be as high, shorter product life, hgiher labour cosr
What is the equation for Accounting rate of return, ARR, and what considerations does it look and not look at?
( Average annual profit / Average investment to earn profit ) *100
doesnt consider fluctuations in profit, assumes linear depreciation, ignores timing and impact on cash flow
Investment Payback period
The time taken for the net savings from an investment take to sum up to the cost of the investment
Net present value
NPV is sum of of each year’s PV
PV of cash flow in year n = ( Cash flow in year n ) / (1+r)^n
where r is the opportunity rate
takes into account inflation and other investment possibilities
If NPV > 0, good investment
Internal Rate of Return
Variation of NPV
Opportunity rate which returns a zero NPV
Calculated iteratively by guessing rate of return, IRR is closest NPV to zero
Higher IRR is best investment
Sources of Finance
Cash Reserves/reinvesment of profit
Share distribution
Bank Loan
Investment Grant
Finance Source: Cash reserves/reinvestment of profits
No interest, no bank charges
If cash reserve is large, business may be ran too conservatively
Finance Source: Share distribution
Shares held by company sold to others to raise cash
Transfers part of ownvership
Finance Source: Bank Loan
Total Clost of Loan A:
A = A0*(1+r)^n
yearly interest payments: d = A-A0 / n
yearly payment: y = A0/n + d
where A is total amount, A0 is orignal loan amount, r is the interest rate and n is the number of years over which the loan is to be repaid
Sinking fund depreciation
How much needs to be saved to buy a replacement
F = A0(1+r)^n
Reliable when inflation is high
Cost of ownership
A way of estimating optimum lifetime of equipment
Value depreciated, maintenance increases
Ownership cost = Operating cost + Asset Value
Marketing Plan - the 4 P’s
Product: What, to who, and how is it being sold?
Price: Compared to similar products, gross profit magin?
Place: How does product get to customer
Promotion: awareness of product, media channels
SWOT analysis
Strengths, weakness, opportunities, Threats
Be honest but optimistic
Pure Project Organisation
Adv: Efficient for large projects, resources available as needed, broad range of specialists, short comm lines
Dis: Expensive for small projects, specialists have limited technological depth, tend to form strong attachment to project
functional project organisation
Adv: Clear line of command, autonomy, quick decision making, easy supervision
dis: Slow lines of comm outside department, Project not given high priority, difficult management control
Matrix project organisation
Adv: resources are flexible and used in a efficient mannor, breadth of skills, good comm flow
Dis: Divided Loyalties, balance of authority, horizontal vs vertical conflicts
Describe a Work Breakdown Schedule
A hierarchical decomposition of all work to be carried out by a project team.
WBS has projects main objectives at the top and breaks them down at lower levels
Represented by a graphical chart
Desribe a RACI matrix
Responible/Accountable/Consultable/Informed
A project management tool used to communicate the responibilities of individuals or teams in completing tasks within a project
Better communication tool than a WBS
Risk Management: FMEA
Failure Modes and Effects Analysis
A tool used to manage risks.
Uses severity, occurence and detection to calculate Risk Priority and Criticality
What is risk management?
Risk can be thought of as opportunites or threats. Risk Management is the process of identifying,
quantifying and managing the risks that a business faces
Why is quality control management important?
Getting it right in first iterations reduces costs and rework
Improves reputation, team morale
Reduces risk
What is the ISO 9000?
A set of quality management designed to help organisations ensure they meet needs of customers and stakeholders while meeting statutory and regulatory requirements
What are the four components to project quality management
Quality Planning
Quality Assurance
Quality Control
Continuous Improvement
How to create a AOA model
Activity on Arrow:
Arrows length doesnt determine duration
Branching or converging activites set as same distance
Earliest time is largest value of all paths to node, L to R
Latest value is smallest of all paths to node, R to L
Float = (latest end - earliest start) - duration
Critical path is where ET and LT are the same
Total Cost just sum normal cost coloum
How to you find which activities can be crashed for a AOA model?
Remember crash cost is additional to normal cost
Make table of activites, time saved, added cost and crit path
Initially crash those on crit path with lowest cost per week
If weeks aren’t reduced at expected, crash new crit path too
What sort of property can be protected by a patent?
New ideas in an innovative subject that isn’t obvious to those with knowledge of subject
Has to be capable of being produced
Cannot be a method, a scientific discovery, biological or illegal/amoral
How is a patent defended if you think it is being infringed upon
Civil matter, take legal action against company infringing patent, can be expensive
What intellectual property is defended by copyright?
Protection for “expression of an idea in material form”, eg art, images, video games/software
Can be sold, given, or given up
What intellectual properties are defended by a trademark?
Any design associated with a brand / product
registered like a patent
More linked to marketing
Can be shapes, logos, pictures, etc
