How To Be A Successful Engineer?

To succeed, engineers must:

Technically be very competent & be a leader Work and Network with Good Communication Skills Learn to be business oriented Learn to Diagnose and Manage Marketplace changes Beware of Competition Understand the Relevance of Profit Learn the sense of money Understand the "Cost of Doing Business.

Language Of Money Vs. Language Of Things

Senior managers speak the language of money EPS, NPV, ROI, PBT etc. Operating staff speak the language of things quantity, defect rates, downtime etc. Middle level managers must be bi-lingual

Changing Concept of Costing

Old concept: Cost + Profit = Price New concept : Cost = Price (market driven what the traffic will bear) profit (business policy) Cost is only one of the aspect that determines the price Leads to concept of target costing, especially when sourcing custom designed new products (e.g. parts sourced for nano car ; airbags at $ 50/ unit instead of traditional $ 100/ unit)

Costing System
Linking the cost of resources to products is called the costing system
Resources Material Products Product A

Labour

Manufacturing System

Product B

Services

Product C

Ref: The Managing Budgets Pocket Book Research Press, New Delhi. 1997

Elements of Product Cost

Sum of Direct / Variable Cost : directly varies with output e.g. Material , Consumables, Power/ Utilities, cost of defectives, subcontracting cost etc. Variable overheads: varies less than proportionately with output e.g. lighting, bank charges Fixed overhead Salaries, rent, welfare, demand charges for power; remains constant, irrespective of the output

Overhead Costs
What are overhead costs? Running costs of operations such as wages, power, rent, telephones etc., which are not directly related to production/ output Depreciation is a non cash expense added as an overhead cost Overheads can be classified as variable and fixed (see earlier slide for explanation) There is no clear methodology available for distributing overhead costs on the products

Overhead Costs
They are distributed by Allocation, Apportionment or Absorption Each of the above method is arbitrary and not accurate! Activity based costing (ABC) is a rational method of distributing overheads to products

Budget
1. 2. 3. 4. 5. Standard Cost of products Estimates of variable & fixed overheads Total of 1 + 2 gives the ex factory cost Units sold x standard price = Revenue Revenue (4) Cost (3) = Estimated Profit before tax PBT 6. Total actual revenue total actual cost = actual PBT 7. Sales/ Manufacturing review deviations in 4 & 3 8. Top management continuously monitors 6 for evaluating business performance