Saturday, October 24, 2009
Blog #3 from Lau
I was spending time to read through the first 2 chapters of Engineering Economics as preparation for assignment for AACE. I come across the mathematical model of revenue/cost relationship with volume (demand) in Chapter 2 to determine the right volume that generates the maximum profit. The analysis was a straight forward model without considering other complicated factors that affecting the relationship between revenue/cost vs. volume (demand). Even though this is just a straight forward analysis in determining the maximum profit vs. volume, it also helps to determine the breakeven-point between cost and revenue, whereby the more (or less) is being produced will result in higher cost and the company will incur losses.
In today’s business world, the revenue and cost vs. volume could be more complicated as compare to the mathematical model in chapter 2, however the fundamental analysis in this mathematical model does tell us that there are likelihood that we will be suffering losses if we are just blindly pushing for volume without optimizing the level of competences we have to maximize our earnings. This could be a trap that some of us may be falling into. Leveraging on core competences that lying in a company, could help to make a different in turning around the company’s financial situation.
This analysis reminded me an educational game/training process which I have come across while I was in Siemens. That was a proprietor educational game created by Siemens to demonstrate value flow within a company to have a high level understanding of value flow from sales to production to delivery until cash collection (that includes purchasing of raw materials, land and buildings, plant equipment cost, account receivable, cash collection, debts and liability, cash in hand, taxes and interest and etc) that generate company’s EVA (economic value added). The simulation showed that any delay in delivery in any department of the company will cause an impact in EVA of the company and this really happened to us in terms of dealing with project managers whom are dealing with project delivery on the ground. Any delay in the planned deliveries will affect the company value at large. For project managers or project implementation managers who are very much technical inclined, as far as I have come across, would have difficulties to understand this. Of course, there are also other factors along the chain which did not perform in time will also affect the EVA of the company.
The fundamental analysis and simulation of company value flow would be helpful if we are dealing with standard product or system that consists of standard product delivery. What if the delivery has to deal with solution that involves product that coming from various third party suppliers which has different company culture and value systems? And also delivery involves ever changing business demand from customer as well as fierce competition from other suppliers? How will the business leaders and what kind of leadership is fit and suitable to deal with and can react with the ever changing demand of the business world, especially in IT and telecommunications industry?
In today’s business world, the revenue and cost vs. volume could be more complicated as compare to the mathematical model in chapter 2, however the fundamental analysis in this mathematical model does tell us that there are likelihood that we will be suffering losses if we are just blindly pushing for volume without optimizing the level of competences we have to maximize our earnings. This could be a trap that some of us may be falling into. Leveraging on core competences that lying in a company, could help to make a different in turning around the company’s financial situation.
This analysis reminded me an educational game/training process which I have come across while I was in Siemens. That was a proprietor educational game created by Siemens to demonstrate value flow within a company to have a high level understanding of value flow from sales to production to delivery until cash collection (that includes purchasing of raw materials, land and buildings, plant equipment cost, account receivable, cash collection, debts and liability, cash in hand, taxes and interest and etc) that generate company’s EVA (economic value added). The simulation showed that any delay in delivery in any department of the company will cause an impact in EVA of the company and this really happened to us in terms of dealing with project managers whom are dealing with project delivery on the ground. Any delay in the planned deliveries will affect the company value at large. For project managers or project implementation managers who are very much technical inclined, as far as I have come across, would have difficulties to understand this. Of course, there are also other factors along the chain which did not perform in time will also affect the EVA of the company.
The fundamental analysis and simulation of company value flow would be helpful if we are dealing with standard product or system that consists of standard product delivery. What if the delivery has to deal with solution that involves product that coming from various third party suppliers which has different company culture and value systems? And also delivery involves ever changing business demand from customer as well as fierce competition from other suppliers? How will the business leaders and what kind of leadership is fit and suitable to deal with and can react with the ever changing demand of the business world, especially in IT and telecommunications industry?
# posted by Lau @ 10/24/2009 04:29:00 PM 
Comments:
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Hi Lau,
You started out nicely, but I don't see any indications where you have transferred the theory from your textbook readings and are able to apply it to your working world.
Next posting, I will be looking for you specifically to bridge the gap between theory and practice in your day to day working world.
BR,
Dr. PDG, GAPPS Workshop #17, University of Maryland, Washington, DC
You started out nicely, but I don't see any indications where you have transferred the theory from your textbook readings and are able to apply it to your working world.
Next posting, I will be looking for you specifically to bridge the gap between theory and practice in your day to day working world.
BR,
Dr. PDG, GAPPS Workshop #17, University of Maryland, Washington, DC
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