ch 11-1 © 2004 pearson education, inc. pearson prentice hall, pearson education, upper saddle...
TRANSCRIPT
Ch 11-1© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Cost Analysis and Estimatingfor Engineering and Management
Chapter 11
The Enterprise
Entrepreneurship
And “Imaginamachina”
Ch 11-2© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Overview
The Business of New IdeasEntrepreneurship
Designing for ProfitTop Down Cost Targets
Designing for Manufacture Financing the Enterprise Legal and Ethical Issues
Ch 11-3© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Changes
Starting a New Business Big Changes to Existing Business Less Than 1% of New Products Succeed Only 2% of Patented Ideas Develop Competition is Intense Need Good Business Planning and
Funding, Along with a Good Idea
Ch 11-4© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
The Enterprise
Ch 11-5© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Free Enterprise
ProducersMake What They Want (Or Not)Charge What They WantCompete How They Want
CustomersBuy What They Want (Or Not)Buy From Whom They Want
Ch 11-6© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Business
Motivated By Profit Players Include
OwnersEmployeesCustomers
Cannot Succeed By Maintaining the “Status Quo”
Ch 11-7© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Launching a Product
Ch 11-8© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Marketing
Identifies a Demand for a Product Creates a Demand for a New Product New Technologies Emerge and Grow
InnovationGrowthStandardizationMaturity
Need Differing Marketing Approaches
Ch 11-9© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Entrepreneurship
Entrepreneurs Supply the IdeasHave a Long Term VisionAre Flexible and Adaptable
Successful Companies MustContinually Add New ProductsConnect Entrepreneurs with Funding
Ch 11-10© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Design for Profit Top Down Estimate
Starts with a Market PriceEnds with “Target Costs”
Ensures: Product Meets Market PriceProduction Can Meet Cost TargetsProfit
Determines Feasibility (Proceed or Kill)
Ch 11-11© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Example
Ch 11-12© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Design for Manufacture
Smart Designs Reduce Cost Large Topic Area Lots of Guidelines, Checklists, etc. Too Big for This Discussion Develop and Compare Design
Alternatives Satisfies Design and Cost Requirements
Ch 11-13© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Alternative Design Comparison Die casting aluminum
alloy and machiningInvestment casting of
titanium alloyFinish 64 – 125 in. 25 – 64 in
Tolerance 0.002 in. 0.005 in.
Limitations Difficult to fixture, little cost saving with lot sizes
Expensive pattern tooling
Advantages Good for small lot sizes Good accuracy, big cost decrease for lot size, less machining
Reliability 1,500,000 cycles 3,250,000 cycles
Hardness Soft Harder in impact
Ch 11-14© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Example of Alternative CostsLot qty
Machining parts from aluminum
Die casting
aluminum parts
Die casting single
aluminum part
Single part titanium
casting, bigger tolerances, no
machining
10 $212.62 $463.79
100 93.17 59.63 $57.21 $173.73
500 91.32 57.42 45.93 54.66
Ch 11-15© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Make-or-Buy
Find Least Cost Source Suppliers May Have Lower Cost
Better TechnologyMore ExperienceBetter Fit for the Job
Compare on Same Basis Lowest Price Is Not Always Lowest Cost
Ch 11-16© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Cost to Buy
In Addition to Quoted PriceTransportation CostsPurchasing and Order Management CostReceiving CostsIncoming Inspection Cost
Ch 11-17© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Intangibles with Buying
Schedule Control Quality Visibility into Status
Ch 11-18© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Considerations for Make Capability – Does the Company Have:
The TechnologyThe SkillsThe Capacity
CapacityShop Load (Plant Utilization)Affects Cost Determination
Ch 11-19© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Costs Based on Utilization Plant Utilization
Cost items Less than 100%
Greater than 100%
Direct labor Include Include
Direct material Include Include
Variable overhead Include Include
Fixed overhead Omit Include
Marginal cost Include Include
Sunk cost Omit Omit
Profit Omit Management choice
Ch 11-20© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Enterprise Plan
Executive Summary Objectives and Potential Product and Processes Descriptions Keys to Success Market Analysis Income and Cost Analysis Assessment
Ch 11-21© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Example Cost Chart
Ch 11-22© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Example Financial Chart
Ch 11-23© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
AssessmentEconomic Evaluation Criteria for Enterprise Plans
Affordability and total cost
Percent profit on investment
Percent profit on sales
Annual cost of production of the product
Unit cost to produce and sell
Unit cost to produce and sell, including profit and taxes
Payout period and return on investment
Amount and time strategy for liquidation
Other “yield” calculations on investment
Ch 11-24© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Entrepreneur’s Challenge
Must Understand the Project and Plan Completely
Consider and Address Potential Questions
Thoroughly Review the Plan Be Able to Answer Any and All
Questions
Ch 11-25© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Funding the Enterprise Personal Resources Existing Company Resources Private Investors Public Funding
StocksBondsDebt (Loans)Alliances
Ch 11-26© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Stocks
Small Units of Ownership Stock Price Appreciation (Share of
Growth) Dividends (Share of Profits) No Guarantees
May Loose Investment
Ch 11-27© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Stock Terms
Market CapitalizationShare Price x Number of Shares
Price Earnings RatioStock Price per Share Earnings
Preferred StockSpecified Dividend RatePreference Over Common Stock
Ch 11-28© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Debt (Loans)
Specified Repayment Amounts and Times
Requires Interest PaymentsCredit Rating Affects Interest RateInterest Is Tax Deductible Expense
Ch 11-29© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Bonds
Stock Is Expensive and Continues Indefinitely
Bonds Are Limited Life Borrowing from Investors Fixed Income Stream (Interest) Principal Repaid at End of Term
Ch 11-30© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Bond Interest Called Coupon Rate Based on U.S Treasury 30-Year Bonds Credit Rating Determines Margin Margin
Rate Above Treasury Rate High Interest Rates Makes Capital
Expensive
Ch 11-31© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Bond Terms
Face Value (Par)Amount to Be Paid at Maturity
Coupon RateSets Magnitude of Interest Payments
YieldCoupon Rate Price
Ch 11-32© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Bond Values Sale Price Is Approximately the Par
Value Present Value
Sum of Remaining Interest PaymentsPlus the Amount Paid at MaturityAll Discounted at a Required Interest Rate
Eq 11.1 ),,/(),,/(0 niFPMniAPIP bb
Ch 11-33© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Bond Trading
Bonds Can Be Traded on the Market Sales Price Depends on Current Interest
Rates Original Purchase Price Means Nothing Higher Current Interest Rates Lower the
Bond Price
Ch 11-34© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Alliances
Joining with Another Company or Individual
Limited Partnership Joint Venture Venture Capital
Ch 11-35© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Seeking Alliances
OfferingDevelop an Enterprise PlanPresent to Interested PartiesAssessment and Due DiligenceNegotiation and Closing
Ch 11-36© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Types of Enterprise
Sole Proprietorship Partnership
Any Partner Can Make Commitments for the Business
CorporationLegal EntityLimits Liability to Investment Only
Ch 11-37© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Ethics and Engineering
Expectation of Highest Standards of Honesty and Integrity
Dedication to Protecting the Public Maintain Objectivity in Fact Finding
and Cost Analysis Maintain Trust and Fairness
Ch 11-38© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management
Summary
Entrepreneurship and the Enterprise How to Design for Cost and Profit How to Fund the Enterprise Legal Structure of the Enterprise Importance of Ethics