REVIEWER-FOR-ES-107-TOPIC-7-8-9
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School
Caraga State University**We aren't endorsed by this school
Course
CEIT GE1
Subject
Industrial Engineering
Date
Dec 17, 2024
Pages
8
Uploaded by CoachHummingbirdMaster379
Organization are designed mainly to produce products orservices. If these organizations must survive and grow, theoperations function must be undertaken in the mosteconomical manner possible. As mot companies areexpected to make profits, any activity, including those foroperations must be managed to contribute to theaccomplishment of such objectives.Production ManagementAccording to Elwood Butta, production is a process bywhich goods or services are created. Production involvesthe step-by-step conversion of one form of material intoanother through chemical or mechanical process with aview to enhance the utility of the product or service.According to Elwood S. Butta, Production managementdeals with decision making related to production processesso that the resulting goods or services are producedaccording to specifications, in the amount and by theschedule demanded and out of minimum cost.Products (or services) management includes a widerange of management activities, ranging from the time thatthere’s a new idea for a new product to eventuallyproviding ongoing support to customer who havepurchased the new product. Every organization conductsmanagement, whether it’s done intentionallyor unintentionally.He also emphasized that production is a process by whichgoods or services are created. Production involves the step-by-step conversion of one form of material into anotherthrough chemical or mechanical process with a view toenhance the utility of the product or service.Objectives of Production Management1.Right QualityThe quality of product is established based upon thecustomers’ needs. The right quality is not necessarily thebest quality. It is determined by the cost of the product andthe technical characteristics as suited to the specificrequirements.2.Right QuantityThe manufacturing organization should produce theproducts in right number. If they produced in excess ofdemand, the capital would block up in the form of inventoryand if the quantity is produced in short of demand, leads toshortage of products.3.Right timeTimeliness of delivery is one of the important parameters tojudge the effectiveness of production department. So, theproduction department has to make the optimal utilizationof input resources to achieve its objective.4.Right manufacturing costManufacturing costs are established before the product isactually manufactured. Hence, all attempts should be madeto produce the products at pre-established cost, so as toreduce the variation between actual and the standard (pre-established) cost.Meaning, the objective of the production management is toproduce goods and services of right quality and quantity atthe right time and right manufacturing cost.The Schematic Diagram For ProductionProcess/SystemThe Schematic Diagram For ProductionProcess/System (Manufacturing)Production SystemThe production system of an organization is thatpart, which produces products of an organization. It is thatactivity whereby resources, flowing within a defined system,are combined and transformed in a controlled manner toadd value in accordance with the policies communicated bymanagement.Characteristics of Production System1)Production is an organized activity, so everyproduction system has an objective.2)The system transforms the various inputs into usefuloutputs.3)It does not operate in isolation from theother organization system.4)There exists a feedback about the activities, which isessential to control and improve system performance.Service OperationsOperations refer to “any process that acceptsinputs and uses resources to change those inputs in usefulways.” The transformation process converts theinputfinalgoodsor services. A service operation is an openLECTURE 7: MANAGING PRODUCTS AND SERVICE OPERATIONSCONTINUOUSProductsServicesINPUTSLandLaborCapitalMaterialsInformationEntrepreneurshipTRANSFORMATIONPROCESSProduct DesignProcess PlanningEquipmentProceduresTechnologyProduction ControlMaintenanceOUTPUTSProductsServicesFeedback InformationEnvironment
transformation process that includes service yields anintangible output (a deed, a performance, an effort)through the appropriate application of resources (material,labor, information, and the consumer as well).Examples of final goods and services are as follows:1)Industrial chemicals like methylene chloride, boraxpowder, phosphoric acid, etc., which are produced bychemical manufacturing firms.2)Services like those for the construction of ports, high-rise buildings, roads, bridges, etc., which are producedby constructions firms.3)Electricalproductsliketransformers, circuitbreakers, switch gears, powercapacitors., whichare produced by electrical manufacturing firms.4)Electronic products like oscilloscope, microwave testsystems, transistors, cable tester, etc., which areproduced by electronics manufacturing firms.5)Mechanical devices like forklifts, trucks, loaders, etc.,which are produced by manufacturing firms.6)Engineering consultancy services like those forconstruction management and supervision, projectmanagement services, etc., which are produced byengineering consultancy firms.Operation ManagementAn operation is an activity that needs to bemanaged by competent persons. Aldag and Stearnsaccurately defined operations management as “the processofplanning,organizing,andcontrolling operations toreach objectives efficiently and effectively.”As the terms “planning”, “organizing”, and “controlling”have already been discussed in the previous chapters,elaborations on the terms “efficiency” and “effectiveness”will be made.Efficiencyis related to “the cost of doing something, or theresource utilization involved.” When a person performs ajob at lesser cost than when another person performs thesame job, he is more efficient than the other person.Effectivenessrefers to goal accomplishment. When one isable to reach his objective, say produced 10,000 units inone month, he is said to be effective.Operations And The EngineerThe engineer manager is expected to producesome outputs at whatever management level he is. If he isassigned as the manufacturing engineer, his function is “todetermine and define the equipment, tools, and processrequired to convert the design product into reality in anefficient manner”.The engineer in charge of operations in aconstruction firms is responsible for the actual constructionof whatever bridge or road his company has agreed to putup. He is required to do it using the least-expensive andeasiest methods. The engineer, as operations manager,must find ways to contribute to the production of qualitygoods or services and the reduction of costs in hisdepartment.Transformation ProcessThe engineer manager must have some knowledgeof the various types of transformation process. They are asfollows:1. Service ProcessesService processes are those that refer tothe provision of services to persons by handwith machinery.Service factory. A service factory offers alimited mix of services which results tosome economies of scale operations. This isalso affording the company to compete interms of price and speed producing theservice.Ex: Jollibee and McDonaldService Shop. A service shop provides mixof services. The layout are those for jobshops or fixedposition and adaptable tovarious requirements. Examples areServitek and Megashell. Among the servicesprovided by these shops are car enginetune-up, wheel balancing, wheel alignment,change oil, etc.Mass Service. A mass service companyprovides services to a large number ofpeoplesimultaneously. A uniqueprocessing method is, therefore, necessaryto satisfy requirement. To be able toserve many people, mass servicecompanies offer limited mix of services.Professional Services. These arecompanies that provide specialized servicesto other firms or individuals. Examples ofsuch firms are as follows:Engineering or managementconsulting servicesAdvertising agenciesAccounting servicesLegal servicesHealth services2. Manufacturing ProcessesManufacturing process are those that referto the making of products by hand or withmachinery.Job Shop Production. Job shopproduction are characterized bymanufacturing of one or fewquantity of products designed andproduced as per the specification ofcustomers within prefixed time and cost.The distinguishing feature of this is lowvolume and high variety of products. A jobshop comprises of general-purposemachines arranged into differentdepartments. Each job demands uniquetechnological requirements, demandsprocessing on machines in a certainsequence.Batch Production. Batch production isdefined by American Production andInventory Control Society (APICS) “as aform of manufacturing in which the jobpasses through the functional departmentsin lots or batches and each lot may have adifferent routing.” It is characterized by themanufacture of limited number of productsproduced at regular intervals and stockedawaiting sales.Mass Production. Manufacture of discreteparts or assemblies using a continuousprocess are called mass production. Thisproduction system is justified by very largevolume of production. The machines arearranged in a line or product layout.Product and process standardization exists,and all outputs follow the same path.
Continuous Production. Productionfacilities are arranged as per the sequenceof production operations from the firstoperations to the finished product. Theitems are made to flow through thesequence of operations through materialhandling devices such as conveyors,transfer devices, etc.Functions Of Production And Operations ManagementProduction and operations management that areconcerned with the conversion of inputs into outputs, usingphysical resources, so as to provide the desired utilities tothe customer while meeting the other organizationalobjectives of effectiveness, efficiency and adoptability.It distinguishes itself from other functions such aspersonnel, marketing, finance, etc., by its primary concernfor conversion by using physical resources.Following are the activities which are listed underproduction and operations management functions:1)Location of facilitiesLocation of facilities for operations is a long-termcapacity decision which involves a long termcommitment about the geographically static factorsthat affect a business organization. It is animportant strategic level decision-making for anorganization. It deals with the questions such aswhere our main operations should be based?2)Plant layouts and materials managementPlant layout refers to the physical arrangement offacilities. It is the configuration of departments,work centers and equipment in the conversionprocess. The overall objective of the plant layout isto design a physical arrangement that meets therequired output quality and quantity mosteconomically.Materials management refers to approach thatseeks efficiency of the operation throughintegration of all material acquisition, movement,and storage activities in the firm.3)Product designProduct design deals with conversion of ideas intoreality.4)Process designProcess design is a macroscopic decision-making ofan overall process route for converting the rawmaterial into finished goods. These decisionsencompass the selection of a process, choice oftechnology, process flow analysis and layout of thefacilities.5)Production and planning controlProduction planning and control can be defined asthe process of planning the production in advance,setting the exact route of each item, fixing thestarting and finishing dates for each item, to giveproduction orders to shops and to follow up theprogress of products according to orders.Main functions of production planning and control:►Planningis deciding in advance what to do, howto do it, when to do it and who is todo it.►Routingmay be defined as the selection ofpath which each part of the product will follow,which being transformed from raw material tofinished products.►Schedulingis defined as the fixation of time anddate for each operation as well as it determinesthe sequence of operations to be followed.►Dispatchingis release of orders and instructionfor the starting of production for any item inacceptance with the route sheet and schedulecharts.►Follow-upis to report daily the progress of workin each shop in a prescribed performance and toinvestigate the causes of deviations from theplanned performance.6)Quality controlQuality Control (QC) may be defined as a systemthat is used to maintain a desired level of quality ina product or service.7)Materials ManagementMaterials management is that aspect ofmanagement function which is primarily concernedwith the acquisition, control and use of materialsneeded and flow of goods and services connectedwith the production process havingsome predetermined objectives in view.8)Maintenance ManagementThe main objectives of maintenance managementare:1. To achieve minimum breakdown and tokeep the plant in good working condition at thelowest possible cost.2. To keep the machines and other facilitiesin such a condition that permits them to be used attheir optimal capacity without interruption.3. To ensure the availability of themachines, buildings and services required by othersections of the factory for the performance of theirfunctions at optimal return on investment.Factors Of Product/Service ProductionFollowing are the activities which are listed underproduction and operations management functions:1.Product/Service Distribution*Direct distribution methodsinclude yourproviding your products and services directly toyour customer. Direct methods are, for example,direct mail, retail, catalogs, or even over theInternet.*Indirect methodsinclude having a middleman.Indirect methods include, for example, usingwholesalers and distributors, or retailers (themiddleman is a large chain of retail stores).2.Advertising and PromotionAdvertising and promotion of products and servicesare often some of the most under-rated activitiesby new business owners. Many people stronglybelieve that if they build it, buyers will come. Inthis increasingly expanding and competitivemarketplace, you must ensure your products andservices are prominently in the minds of yourcustomers and clients. This requires ongoingadvertising and promotion.3.SalesEven if your products and services are prominentlyin the minds of your customers and clients, youneed to facilitate the process of their buying yourproduct and services. This often requires cultivatingan ongoing relationship with customers and clientsto understand their needs, explain how yourproducts and services can meet those needs, and
facilitate the “closing” of the sale, that is, wherethey sign “on the dotted line”.4.WarrantiesCustomers are increasingly knowledgeable andintelligent in their buying habits. Depending on thenature of the product or service, a warranty (orpromise of ongoing repair and/or support for someperiod of time) can greatly reassure customerswhen considering the purchase of your products.5.Customer Satisfaction(note that nonprofits might use the term “clients” ratherthan “customers”)Increasing competition (whether for profitor nonprofit) is forcing businesses to pay muchmore attention to satisfy customers. It may helpthe reader to notice the role of the customersatisfaction in the overall context of the product orservice development and management.LECTURE 8: MANAGING THE MARKETINGFUNCTIONUnderstanding Roles: To effectively integrate engineering andmarketing, it's essential to understand their distinct roles. Whileengineering focuses on product developmentand technical aspects,marketing emphasizes customer needsand market trends. Recognizingthese differences fosters better communication and collaboration.Marketingis a group of activities designed to facilitate andexpedite the selling of goods and services.4 P’s of MARKETINGThe 4 P’s of Marketing form a fundamentalframework for developing marketing strategies,encompassing four key elements essential for bringing aproduct or service to market:►Product: The good or service that meets customerneeds and wants. It includes considerations offeatures, quality, design, and branding. It is thefoundation of your marketing strategy. It’s thetangible good or intangible service you’re offering tocustomers, aiming to fulfill their needs and desires.What does “Product” include?•Shape, size, color: Product design should beattractive, recognizable, and suitable for the targetcustomer.•Quality: The product must be of good quality,meeting safety and durability standards.•Features: The product needs unique features thatmeet customer needs and outperform competitors.•Brand: A strong brand creates differentiation andcustomer loyalty.•Packaging: Packaging not only protects the productbut is also an effective marketing tool.•Accompanying services: Additional services likewarranty, maintenance, and customer care are alsoimportant parts of the product.The Role of Product in Marketing Mix•Creating value: Good products create value forcustomers, meeting needs and bringing satisfaction.•Differentiation: Unique products help businessesstand out from competitors.•Building loyalty: High-quality products and goodservice build customer loyalty.•Increasing revenue: Attractive products drawcustomers and increase business revenue.Example of Product in Marketing Mix:A smartphone is not just a communication device but atechnology product with many features, such asphotography, videography, gaming, and internetconnectivity. To succeed, phone manufacturers mustconstantly innovate, create unique features, and meetuser needs.Some questions to consider when working on “Product”•Who is your target customer? What are theirdemographics, psychographics, behaviors, and needs?•What problem does your product solve? How does itfulfill a desire?•What are the core features and benefits of yourproduct? What makes it stand out?•What is the product roadmap? What are the short-term and long-term goals for the product?•How will you measure product success? What keyperformance indicators (KPIs) will you track?►Price:The amount of money customers must payto acquire the product. Pricing strategies take intoaccount production costs, competitor prices, andperceived value. It encompasses various strategiesand considerations, including cost-based pricing,value-based pricing, competitive pricing, andpsychological pricing.What does the pricing strategy include?•Cost-Based Pricing:Setting prices based on theproduct’s production cost, plus a desired profit margin.•Value-Based Pricing:Determining price based on theperceived value of the product to the customer.•Competitive Pricing:Aligning prices with competitorsto match or undercut them.•Psychological Pricing:Using pricing tactics toinfluence customer perception (e.g., odd-even pricing,prestige pricing).•Dynamic Pricing:Adjusting prices based on demand,competition, or other factors (common in e-commerce).The Role of Price in Marketing Mix•Revenue Generation:As the only revenue-generating element, price is vital to a business’sfinancial health.•Customer Perception:Price significantly influenceshow customers perceive a product’s value and quality.A higher price often implies higher quality, while alower price might suggest a budget-friendly option.•Competitive Advantage:Pricing can be a powerfultool to gain a competitive edge. Strategies likepenetration pricing (low initial price) or price skimming(high initial price) can help a business differentiateitself.•Profitability:Price directly impacts a company’s profitmargin. Careful pricing is essential for achievingdesired profit levels.Example of Price in Marketing MixIt’s important to note that Coca-Cola oftencombines these strategies to create a comprehensivepricing approach. For example, they might use value-basedpricing for their core products while employing penetrationpricing for new variants or markets.By carefully considering these pricing strategiesand adapting them to different market conditions, Coca-Cola has successfully maintained its position as a globalbeverage leader.Some questions to consider when working on “Pricing”•What is the perceived value of your product or service?How does it compare to competitors?
•What pricing strategy aligns best with your businessgoals? (e.g., penetration, skimming, value-based,cost-plus)•How can you differentiate your pricing strategy fromcompetitors?•How does price influence customer perception ofproduct quality?•What is the break even point for your product orservice?►Place:The distribution channels used to deliver theproduct to customers. This includes locations suchas online platforms, physical stores, andintermediaries like wholesalers. In the marketingmix, “Place” refers to all the activities involved ingetting your product or service from the productionline to the final customer. It encompassesdistribution channels, inventory management, andensuring accessibility for your target market.What does the “Place” in the marketing mix include?•Distribution channels:The paths a product takes toreach customers. This includes:•Direct channels:Selling directly to consumers (e.g.,online stores, farmers’ markets).•Indirect channels:Using intermediaries likewholesalers, retailers, or distributors.•Hybrid channels:Combining direct and indirectchannels.•Inventory management:Ensuring the right amountof product is available at the right time.•Logistics and transportation:Efficiently movingproducts from the producer to the consumer.•Physical store location (for brick-and-mortarstores):Selecting optimal locations based oncustomer demographics and accessibility.•Market coverage:Determining the desired level ofmarket penetration.The Role of “Place” in Marketing Mix•Accessibility:Making the product readily available tocustomers.•Efficiency:Optimizing the movement of goods fromthe producer to the consumer.•Customer satisfaction:Meeting customerexpectations regarding product availability and location.•Competitive advantage:Gaining a competitive edgethrough effective distribution channels.Example of “Place” in Marketing Mix•Apple is a prime example of a company that hasmastered the “place” element of the marketing mix.Here are their distribution channels:•Apple Retail Stores: These flagship stores offer apremium shopping experience, product demonstrations,and technical support.•Online Store: Apple’s online platform provides directaccess to its entire product line, offering convenienceand customization options.•Authorized Resellers: Partnerships with authorizedretailers expand Apple’s reach to a wider audience,particularly in regions with limited Apple Storepresence.Some questions to consider when working on “Place”•Which distribution channels align best with your targetmarket and product?•How do your customers prefer to purchase yourproduct? Direct, indirect, or a combination?•What are the costs and benefits of differentdistribution channels?•How can you ensure consistent product availabilityacross channels?•How can you optimize the transportation and storageof your product?►Promotion:The activities and strategies used toraise awareness and persuade customers to buy theproduct. This encompasses advertising, publicrelations, social media marketing, and salespromotions. Promotion is the fourth P in themarketing mix and involves communicating thevalue of a product or service to customers.It’s about creating awareness, generatinginterest, building desire, and ultimately drivingaction. For example, using tools like PicnobInstagram viewer can be part of a social mediamarketing strategy to enhance brand visibility byleveraging Instagram’s vast user base.What does the “Promotion” in the marketing mix include?•Advertising:Paid forms of non-personalcommunication through various media (TV, radio, print,online).•Public Relations (PR):Building positive relationshipswith the media and the public.•Sales Promotions:Short-term incentives toencourage purchase (discounts, coupons, contests).•Personal Selling:Direct communication withcustomers to persuade them to buy.•Direct Marketing:Personalized communication withcustomers (direct mail, email, telemarketing).•Digital Marketing:Online marketing activities (SEO,social media, content marketing, email marketing).The Role of “Promotion” in Marketing Mix•Building Brand Awareness:Introducing the brandand its products to the target audience.•Generating Interest:Creating excitement andcuriosity about the product or service.•Providing Information:Communicating productfeatures, benefits, and unique selling points.•Persuading Customers:Convincing potentialcustomers to make a purchase.•Building Customer Relationships:Fostering loyaltyand repeat business.Example of “Promotion” in Marketing MixNike is a prime example of a company that excels inpromotion.•Advertising:Nike is famous for its inspiring andemotion-driven advertising campaigns featuring world-class athletes.•Public Relations:Nike leverages sponsorships ofmajor sporting events and athletes to generatepositive media coverage.•Sales Promotions:Nike offers discounts, limitededition products, and loyalty programs to incentivizepurchases.•Personal Selling:While primarily focused onwholesale and retail channels, Nike employs a salesforce to manage key accounts.Some questions to consider when working on “Promotion”•What are the specific objectives of your promotion?(e.g., increase brand awareness, generate leads, drivesales, build customer loyalty)•How will you measure the success of your promotion?•What is your target return on investment (ROI) for thepromotion?•Which promotional channels will you use? (e.g.,advertising, public relations, sales promotions,personal selling, direct marketing, digital marketing)•How will you integrate different promotional channelsfor maximum impact?
Sales Promotion ToolsConsumer-oriented:samples, coupons,premiums, contests/sweepstakes, refund/rebates,bonus packs, price-off deals, loyalty programs, &event marketingTrade-oriented:contests, dealer incentives, tradeallowances, point-of-purchase displays, trainingprograms, trade shows, cooperative advertisingCommon Promotional Tools:+ Advertising+ Publicity+ Personal Selling+ Sales PromotionStrategic Marketing for EngineersCompanies, including those managed by engineermanagers, must serve markets that are best fitted to theircapabilities. To achieve this end, a very important activitycalled strategic marketing in undertaken.Under this set-up, the following steps are made:1. Selecting a target marketA market consists of individuals ororganizations, or both, wilds the desire and abilityto buy a specific product or service. To maximizesales and profits, a company has the option ofserving entirely or just a portion of its chosenmarket. Within markets are segments withcommon needs and which will respond similarly toa marketing action.In selecting a target market, the following steps arenecessary:1.Divide the total market into groupsof peoplewho have relatively similarproduct or service needs.2.Determine the profit potentialsofeach segment.3.Make a decision on whichsegment orsegmentswill be servedby thecompany.2. Developing a marketing mixAfter the target market has been identified,a marketing mix must be created and maintained.The marketing mix consists of four variables:the product, the price, the promotion, andthe place(or distribution).Given a marketing environment,the engineer manager can manipulate any orall variables to achieve the company’s goals. Assuch, the quality of the product may be enhanced,or the selling price made a little lower, orthe promotion activity made a little moreaggressive, or a wider distribution area may becovered. Any or all of the foregoing may beundertaken as conditions warrant.Establishing strong communication channels between engineering andmarketing is vital. Regular meetings, shared platforms, and cross-functional teams can enhance information flow. This ensures that bothdepartments are aligned on goals, timelines, and customer feedback,leading to more effective project outcomes.Feedback LoopsCreating effective feedback loopsbetweenengineering and marketing can significantly improveproduct offerings. By incorporating customer insights andmarket analysis into the engineering process, teams canadapt quickly to changes and enhance product relevance,ultimately driving customer loyalty.Integrating engineering and marketing is not just beneficial; it'sessential for thriving in today's market. By employing strategies suchas effective communication, feedback loops, and collaborative tools,organizations can enhance their competitive edge and deliver greatervalue to customers.LECTURE 9: MANAGING FINANCIAL FUNCTIONFinancial managementis the strategic planning,organizing, directing, and controlling of an organization’sfinancial activities. It applies general managementprinciples to the business’s financial resources, ensuringfunds are optimally utilized to achieve the company’sobjectives.Financial management is an indispensable aspect ofbusiness operations, influencing all other functional areas.Effective financial management ensures that anorganization can achieve its strategic objectives, maintainfinancial stability, and maximize valuefor its stakeholders.The goal is to ensure that the organization hasadequate funds to operate, grow, and achieve its strategicobjectives while minimizing risks and maximizing returnsfor stakeholders.According to the Financial Experts Guthman andDougal, “Financial Management is the activity concernedwith planning, raising, controlling, and administering offunds in the business.”Importance of Financial ManagementFinancial Management is vital for businesses andorganizations as it lays the right pathway to achievebusiness goals and objectives. Here are some of thereasons why financial management is essential in abusiness:Helps in Financial Planning.Assists in acquiring and managing funds.Helps in funds allocation.Provides insights to make critical financial decisions.Cuts down financial costs.Improves profitability and value of the organization.Makes employees aware of financial savings andinvestments.Helps in planning the future growth of the organization.Helps in achieving economic stability.Objectives of Financial ManagementJust like we all used to save money during ourstudent life and be mindful about it while spending,organizations need to manage the finances effectively toscale and be successful. Here are some crucial objectivesthat organizations need to be kept in mind:►Profit Maximization:Businesses aim to generatemaximum profit while maintaining a healthy balancesheet. Financial management helps achieve this byoptimizing resource allocation and cost control.►Growth and Expansion:Financial managementfosters sustainable growth by ensuring sufficientcapital is available for future endeavors. This couldinvolve securing funding for new projects or marketexpansion.►Liquidity and Solvency:Imagine having enoughcash to meet your short-term obligations. Financialmanagement ensures sufficient liquidity whilemaintaining long-term solvency (ability to meet debtobligations).►Risk Management:Financial management helpsidentify, assess, and mitigate financial risks. Thiscould involve diversifying investments, hedging
against market fluctuations, and having adequateinsurance coverage.(profit maximisation, proper mobilisation, highefficiency, reduce risks, business survival, balancedstructure)Elements of Financial Management•Financial PlanningThis is the blueprint, outlining your financial goals(short-term and long-term) and the strategies to achievethem. It involves creating a budget, forecasting futureincome and expenses, and identifying potential risks.►Goal Setting:Do you have well-established,SMART business goals that define your success andguide resource allocation?►Long-Term Vision:What is your long-term brandstrategy for the next 5, 10, or even 20 years?Financial plans need to consider your brand’s futuregrowth and evolution.►Capital Needs:How much capital does yourorganization require to operate and sustain itself inthe long run? This includes factoring in dailyexpenses, potential growth initiatives, andnecessary reserves.►Regulatory Landscape:Are you familiar with thekey policies and regulations (industry-specific, taxlaws, labor laws)? These can impact your financialdecisions and overall business operations.•Financial ControlThink of this as the monitoring system. It ensuresyour spending aligns with your plan. This involvestracking expenses, managing cash flow, andimplementing internal controls to minimize misuse offunds.•Financial Decision-MakingThis is where you leverage the informationgathered through planning and controlling. It involvesanalyzing investment opportunities, making soundchoices about debt and equity, and allocating resourceseffectively.Functions of Financial ManagementThe financial management team in any organizationis led mainly by the Finance Manager or someone from theCore Leadership team. Here are a few functions which theteam generally is responsible for:1)Capital EstimationA finance manager has to estimate thecapital required for the company. This will includeexpected costs, profits, future programs, andexpected losses, if any. The estimate had to bemade in such a way that the earning capability ofthe company increases steadily.2)Deciding Capital StructureOnce the estimate has been made, it is nowtime to form the capital structure. This includesdebt analysis in both the short and long term and isdependent on the capital the firm owns and raisedexternal fundings(if any).3)Choice of FundsWhen significant funds are required, thecapital structure needs to be expanded. Theorganization can take options like Bank Loans andIssues of Share and Debentures. It is essential toevaluate these options considering the interestrates, returns and risk involved. A pro and con listof each of these options will be helpful.4)InvestmentsThe organization cannot just sit on funds orprofits. Growing money is more important thansaving money for sustainable growth. The financeManager needs to allocate funds into profitableventures or make investments that give reasonablereturns with safety on the investment made.5)Profit AllocationProfit allocation plays an important role.Once the business makes profits, it is essential toallot them properly. Various factors to beconsidered here are – employee bonuses, dividends,returns to investors, funds for future growth, andother basic cashflows. It is essential to plan andallocate profits to achieve business objectives.6)Money ManagementThe team is also responsible for money orcash management. Cash is required for variouspurposes such as salaries, electricity and water bills,real estate bills, buying raw materials, storagecosts, etc.7)Financial controlsThe finance manager has to plan and utilizethe funds and needs to have complete control overthe finances considering both short term and longterm. This can be achieved using risk analysis andmitigation tools, financial forecasting, ratio analysis,cost reduction, and profit control.Financial Metrics►Fixed Costs (FC)This is based on time rather than the quantityproduced or sold by your business.Examples of fixed costs are rent and/or lease,salaries, utility bills, insurance, loan repayments.Business licenses and taxes are also included.Since you have to pay fixed costs regardless of howmuch you sell, you should be careful about addingfixed costs to your small business. Fixed cost isoften called overhead.►Variable Costs (VC)Variable costs are costs that change as the volumechanges. In some accounting statements, theVariable costs of production are called the “Cost ofGoods Sold.”Examples of variable costs are raw materials,piece-rate labor, production supplies, commissions,delivery costs, packaging supplies, and credit cardfees.►Benefit-Cost Ratio (BCR)This is as an indicator used to account for the cost.The present value of benefits is divided by thepresent value of expenditures and for a project tobe accepted, the ratio must be greater than 1.0.BCR is a measure of viability that is relative.A cost-benefit ratio, which can be expressed interms of money or quality, encapsulates thegeneral relationship between the relative costs andbenefits of a suggested project in a cost-benefitanalysis.
►Return On Investment (ROI)This is as an indicator when will be the payback.This would account for the percentage of return oninvestment.The aim of the return on investment (ROI) is toevaluate an investment's profit margin about its cost. Arespectable return on investment is defined as one that isat least 7% annually.►Interest Capital (IC)It is the cost of borrowing to acquire or constructa long-term asset and can be computed using theformula below.where:IC= Interest in CapitalFC= Fixed CostIV= Interest Value (%)►Taxes And Insurance (TI)It is the total monthly mortgage payment thathelps to evaluate the affordability of a certain mortgage.where: TI= Taxes and InsuranceFC= Fixed CostTIV= Taxes and Insurance Value (%)►Total Variable Cost (TVC)This method can be used to calculate corporatespending, which varies based on how much a companyproduces or sells.where: OL= Operator’s LaborRM= Repair and MaintenanceB = Battery (Optional)►Repair And Maintenance (RM)It is expenses that cost incurred to ensure that anasset continues to operate and can be computed using thisformula.where: FC= Fixed CostRMV= Repair and Maintenance Value (%)►Cost Of Operation (CO)It is the expenses associated with normal day-to-day business operations and can be computed using thisformula.where: SR= Standard Rate (peso/kw-hr)E= energy Consumption (kw-hr)►Total Operating Cost (TOC)It is the expenses associated with normal day-to-day business operations and can be computed using thisformula.Key financial metrics are essential in evaluating project viability. Byanalyzing these metrics, engineering managers can make data-drivendecisions that align with organizational goals and ensure optimalallocation of resources.Cost Reduction TechniqueImplementing effective cost reduction techniquecan significantly impact project budgets. Strategies likelean management, value engineering; and processoptimization help eliminate waste and enhance efficiency,leading to substantial savings without compromising quality.Identifying the right investment strategies is vital forproject success. Techniques such as diversification, riskassessment, and financial forecasting enable managers toallocate funds wisely, ensuring that projects are not onlyfeasible but also profitable.Utilizing technology in financial management canstreamline processes and improve accuracy. Tools likefinancial software data, analytics, and AI-driven solutionshelp engineering managers optimize financial strategies,making it easier to track performance and adjust plans asnecessary.In conclusion optimizing financial strategies, in engineeringmanagement is essential for achieving long-term success. By focusingon metrics, cost reduction, and technology, managers can enhanceproject outcomes and drive organizational growth. The future holdseven more opportunities for innovation in financial practices.Bonne chance !ദ്(˵ •̀ ᴗ - ˵ )✧