CHAPTER 3: TOOLS FOR MAKING EFFECTIVE ENGINEERING AND TECHNOLOGY MANAGEMENT DECISIONS I.

DISCOUNTED CASH FLOW ANALYSIS in many engineering and technology management decision, the time value of money plays an important role. Some fundamentals aspect of engineering economics useful to perform discounted cash flow analysis. a. COMPOUND INTEREST AND PRESENT VALUE at the end of each specified period, the earned interest is added to the original amount or principal. This new principal or amount acts as a principal for the next specified period and the process continues. II. DEPRECIATION ANALYSIS- considering the change in the value of items DEPRECIATION- is decline in value. III. DECISION TREES a schematic diagram of a sequence of alternative decisions and the end conclusion of those decisions. - Used to handle sequential problem OPTIMIZATION TECHNIQUES a. LANGRANGIAN MULTIPLIER METHOD- allows the optimization of functions subject to constraint without the elimination of every variable. b. LINEAR PROGRAMMING METHOD- helped production and operations managers plan and make effective decisions to allocate available resources. V. LEARNING CURVE ANALYSIS- vary form one product to another and from one organization to another - Found to be quite useful in a variety of applications, including strategic evaluation of company and industry performance, internal labor forecasting, establishing costs and budgets, production planning, external purchasing, and subcontracting of items. FAULT TREE ANALYSIS- widely used method in industry to perform reliability analysis of engineering system FORECASTING- useful tool to estimate demand for a certain product, and it may simply be described as the art and science of predicting future events. FORECASTING TYPES AND TIME HORIZONS: i. TECHNOLOGICAL FORECAST- concerned with predicting the rates of technological progress that may lead to the development of new products requiring new plants and equipment. ii. DEMAND FORECAST concerned for projecting demand for an organizations products or services that in turn drive companys production, capacity, and scheduling systems, and serves as input to areas such as marketing, finance, and personnel planning. iii. ECONOMIC FORECAST- concerned with predicting factors such as inflation rates, money supplies, housing starts, and other planning indicators. FORECASTING STEPS, METHODS, AND TECHNIQUES SELECTION FACTORS: Determine the forecast application and objectives Choose with care the items to be forecasted Determine forecast time horizon (long, short, medium) Choose appropriate forecasting model Collect the appropriate data required to make the forecast under consideration Validate the forecasting model with care Make all relevant forecasts Implement the appropriate results

IV.

VI. VII.

2 BROAD CATEGORIES OF FORECASTING METHOD: I. QUALITATIVE METHOD provides forecast that incorporate factors such as the decision makers emotions, personal experiences and intuitions II. QUANTITATIVE METHOD- provides forecast that were obtained by employing various mathematical models that used past data or causal variables to forecast demands.

CHAPTER 4: PROJECT SELECTION AND MANAGEMENT TERMS AND DEFINITIONS: PROJECT this is a plan of work job assignment, or task PROJECT MANAGEMENT- the art of directing and coordinating material and human resources throughout the project life span. PROJECT MANAGER- a person with an assigned direct responsibility for project execution. PROJECT ORGANIZATION- an establishment of people, procedures, responsibilities and authority. PROJECT SELECTION- the process of evaluating projects and then choosing to implement some of them to achieve the goals of the parent organization. PROJECT OBJECTIVES- these are goals, as measured by time parameters, constraints or targets, results, milestones, and control considerations, and usual project sequencing. PROJECT TEAM- this consists of all participants involve in the project PROJECT PARAMETERS- these are factors, specifications, or characteristics of the complete project or of its parts. PROJECT PROPOSAL- this is a summary of a proposed project concerning its managerial, schedule and technical contents. PROJECT CONTROL REPORTS- this is a management report and an operations tool utilized to report manpower or financial related information in a summarized form both by program and organization. TYPES OF INFORMATION REQUIRED FOR EVALUATING A PROJECT 1. Administrative-related and miscellaneous 2. Manpower-related 3. Marketing-related 4. Production-related 5. Finance-related PROJECT SELECTION MODELS I. BENEFIT-COST RATIO MODEL concerned with performing analysis to determine if benefits from a given project outweigh its cost. II. DISMAN MODEL- useful model to determine the maximum amount of money justifiable for a project. III. PACIFICO MODEL- the profitability index of acceptability, or more simply the benefit/cost ratio. IV. MOTTLEY AND NEWTON MODEL- computes an overall score for each project and then selects the project with the highest score for development. V. CALCULATED-RISK MODEL- the simplified version of return on investment approach and, for screening purposes, it is extremely useful for comparing with a predetermined minimum rate. VI. SOBELMAN MODEL- takes into consideration the time value of the money by determining the present value of average profits and costs. VII. MANLEY MODEL- can also be used to evaluate new projects, and its basis is the net profit/sales ratio. VIII. PROFITABILITY INDEX MODEL- the index is based on constant demand. IX. RELATIVE WORTH INDEX MODEL- used to select project and is known as the index of relative worth. X. DEAN-SENGUPTA MODEL- used in selecting projects, and it becomes possible to obtain information on the relative performance of two projects by comparing their respective indexes. XI. NET INCOME PRESENT VALUE MODEL- determine the present value of net income form a project.