eBizPad.blogspot.com

Lost opportunity for Ford to Satisfy Focus demand due to Equipment Problems

2011-07-29T11:18:00.001+08:00

If the demand for Ford Focus is really that good and promising, Ford should solve their equipment problems related to the production of dashboards fast as this is going to be really a lot of lost opportunity to make sales. Although such shortages (dashboard parts in this case) of supplies and unexpected equipment problems come as a surprise sometimes, Ford should also look into where its equipment maintenance system failed. [read more of the news]

Suzuki Motors Corporation Invest in Motorcycle Production in the Philippines

2011-07-07T12:04:00.001+08:00

It looks like more Filipinos are getting attracted to the idea of riding a motorcycle! What could be the reason for this? Motorcycle Marketing? Lower motorcycle prices? Growing need for faster transportation due to the inability of our current roads to expand as traffic grows? Whatever it is Suzuki Motors has taken advantage of the fact.

Now, I am thinking, is motorcycle dealership a good business to start this year? Or maybe some motorcycle related services like parts trading, repair, driver training, and even motorcycle wash centers? ;)

Suzuki Motors is investing in its assembly operation at the Carmelray Industrial Park and the plant is expected to open on July 2012.

Prepare to Build a Sari-sari Store!

2011-06-30T19:16:00.001+08:00

The sari-sari store is the “just about anything” micro-store in the Philippines. Even sari-sari stores built beside large retailer stores survive because these stores provide the convenience of “just about anytime” buying. The luckier sari-sari stores are those that are situated near bus or PUV stops, schools, hospitals and densely populated subdivisions. If real estate is still forecasted to boom in Cebu, then watch out for where these condominiums and subdivisions are to be built because near them are the next best places to start your sari-sari store!

“Frederick Go, president of the Philippine Retailers Association, gave this advice yesterday to retailers during the 5th Cebu Regional Retail Conference held at the Radisson Blu Hotel.” - Inquirer

Yerkes-Dodson's Inverted U

2011-06-29T18:14:00.002+08:00

It is good to keep in mind this simple and easy to remember relationship between individual Performance and the pressure an individual is exposed to. A concept every manager or supervisor must be keen to remember and consider. See http://www.mindtools.com/pages/article/inverted-u.htm#np for more details! Enjoy reading!

Total Ban on Exportation of Shells and Related Products!

2011-06-21T07:34:00.000+08:00

Cebu Gift, Toys and Housewares Foundation Inc (Cebu-GTH) should be lauded for fighting for a fare legislation regarding the proposed ban on the exportation of shells, corals and related products. Obviously the shell export industry will be hurt with this proposed ban --- with all the businessman, investors,workers and families... ! Looking at the possible benefit of protecting and preserving our reservoir of marine resources specifically corals and shells, this proposal by Senator Miguel Zubiri might look really commendably "green" indeed; but, is a total ban really a good interim (or long term solution)?

Philippine Exporters Confederation Inc. (Philexport) Cebu said “the total ban on the export of shells, corals and other shell products would simply do more harm than good as a total ban would be too sweeping an option to take as it will result in a major economic loss in the form of export revenues as well as the loss of vital livelihood for the poorer sector of our society.”

Are we yet in a dilemma to choose between businesses or livelihood and the environment? If yes, the environment should be prioritized first for generations to come. If no, let us think of a win-win solution .... take care of the shell and coral industry as well as the environment both at the same time!

Price Ceiling on Drugs

2009-07-21T12:23:00.002+08:00

The government is planning to impose a price ceiling on certain essential drugs according to a news article from GMANews.
Another news article quoted Robert So, the DOH National Drug Policy Program Manager stating the possibility that instead of
the Pharmaceutical Industry being adversely affected by this price reduction proposal, more demand due to lower prices may
offset the effects of the price reduction.

What are the possible consequences of a price ceiling on consumers?

One obvious answer is savings or an increase in purchasing power and an increase in demand. However, for a price ceiling to
be effective it must be set below the market equilibrium price. This warns us of a dreaded shortage because the suppliers would be
less willing to supply at the current quantity demanded because of the lower price. Going in to extreme possibilities, what good
is a purchasing power with nothing to purchase due to very low supply?

What are the possible consequences of a price ceiling on suppliers or the pharmaceutical industries?

This means that they have to sell more in order to cover up for the losses due to the price reduction.
Will the supposedly expected increase in demand offset the losses due to price reduction? The Pharmaceutical
Industry's financial analysts will have to sit down and make calculations carefully before they give in
to the government. If they are losing, the government should know...for sure, the goverment would not
want a declining pharmaceutical industry for who would supply the medicines to the consumers!

A win-win solution for the consumers and the pharmaceutical industries must be realized. Hopefully, corruption
will not get in the way for the consumers to lose in the end...

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Kalamansi Farm?

2009-07-13T10:00:00.000+08:00

If this claim is true...

"Industry research indicates that the Philippines is the sole commercial producer exporter of kalamansi in the world, exporting its kalamansi juice to the United States, Japan, Canada and Hong Kong." [read more]

...then, I am starting to consider building my own kalamansi farm!

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What do you think?

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web site or your consumer experience !

paradox of savings

2009-06-23T17:06:00.001+08:00

Based on the the expenditures approach in calculating GDP, an increase in spending should improve GDP. However, common people intution tells them to spend less because we are in an "economic crisis" situation and savings increases the feeling of financial security for the immediate future.

How should a common citizen or common businessman react to such government requests to spend more?

GDP is the whole picture.

Individually, each citizen may or may not do the "spending" depending on his current situation and his forecast of his future financial condition.

For example, if you are one of those unlucky unemployed now due to company downsizing brought about by the economic crisis, you surely would have to spend less to ensure survival until the time you can replace your lost source of income!

Some lucky individuals may have maintained their good financial condition during the recession, and may have very little chance of losing their current source of income in the immediate future. Then, they can continue spending and even perhaps spend more !

Government actions plan therefore, which are related to consumer spending are meant for the big picture. How can they ensure that more people will spend rather than save during the recession?

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web site or your consumer experience !

bank lending and inflation

2009-06-15T09:46:00.001+08:00

What are the possible consequences if banks lend more during a recession ?

An increase in the supply of money would stimulate economic activity because there

will be funds to finance business operations and there will be also money to buy

the products of these business operations.

The law of supply tells us that if the price of this money goes up, only then would banks,

the supplier of money, lend more. The price of this money is the interest rate. If banks

lend more than they are currerntly doing, interest rates should go up. Would borrowers

be willing to borrow this high priced money?

What if a businessman borrows money at this higher interest rate? This would mean

higher costs of business operations which may translate to higher prices for their

output.

What does it mean a rebound of the economy?

I think this means a reversal of the direction of economic change...from recession to growth.

Why would there be an expected inflationary pressure when the economy rebounds?

One of the ways that businesses will recover is through increased lending from banks.

Increased lending is expected to happen only at higher interest rates. Higher

interest rates may mean higher prices. Also, to recover or pay for the losses due

to the economic recession, businesses may charge higher prices too! So,

inflation is expected in an economic rebound.

How would the government and the Central Bank control inflation?

In theory, this depends on the 3 types of inflation. The demand-pull, cost push

and monetary inflation.

Deman Pull - demand must shift left. Government can decrease expenditures and raise taxes

to decrease disposable income thus reduding aggregate demand.

Cost Push - government can directly intervene to control income and prices.

Monetary inflation - more money means higher demand and therefore higher prices.

To decrease money supply interest rates may be raised.

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consumer experience !

Scanning the news --- June 8, 2009 Monday

2009-06-08T10:32:00.001+08:00

Scanning the news....

Investment opportunity!

SM Investments Corporation is offering retail bonds at 8.25% for 5 year bonds

and 9.1% for 7 year bonds. This will be offered today, June 8 up to June 18 and

will be issued on June 25, 2009.

Liquified Petroleum Gas Marketers Association raises the price of cooking gas by

1 php per kg.

Fuel prices rise again!

The approval of House Resolution 1109 last June 2 --- seeking to for a Constituent Assembly

that will amend the constitution...

The rise of RF Dollar Reserves due to higher Gold prices...

RP shares closed good last Friday, June 5.

Consumer Prices said to be in a downward trend as of May.

Inflation was reported to slowed down as of May.

Renewed fiscal crisis is coming as predicted by IBON.

The murder of Rene Penas, an influential farmer-leader from Bukidnon.... tsk tsk tsk...

will this justice for farmers ever be attained...?

GSIS is filing a 100 m php damage suit against IBM. A database crash

for a government agency???? What a mess! Hope SSS won't go next!

Currency Rate: 47.37 php = 1 USD

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The Manager

2009-06-03T21:04:00.002+08:00

Functions of a Manager
Planning
Organizing (includes staffing)
Leading
Control
Roles of a Manager
Interpersonal
Informational
Decision Making
Skills of a Manager
Technical
Skills
Conceptual

Human Resources Management 1

2009-06-02T15:44:00.005+08:00

HRM Involves

1. Job Analysis and Design

Job Description - a list of tasks
Job Specification - characteristics needed to perform the job

Methods:
Position Analysis Questionnaire
Task Analysis Inventory
Fleishman Job Analysis Systems - taxonomoy of abilities

Job Design Approaches
1. Mechanistic - focus on efficiency
2. Biological - ergonomics
3. Motivational
4. Perceptual Motor - intellectual capabilities

2. Planning

Gaining control over the demand and supply of labor.

Reducing Expected Labor Surplus:
Downsizing
Pay reductions
Demotions
Transfers
Work sharing
Hiring freeze
Natural attrition
Early retirement
Retraining

Avoiding Expected Labor Shortage:
Overtime
Temporary employees
Outsourcing
Retrained transfers
Turnover reductions
New external hires
Outsourcing
Technological innovation

3. Recruitment

- identify and attract possible employees
- affects: number of applicants, quality of applicants, probability of acceptance of job offers

Three areas that influence recruitment:

a. personnel policies
internal vs. external
lead-the-market pay strategies
employment-at-will policies
image advertising

b. recruitment sources
internal vs. external
direct applicants and referrals
ads
agencies
universities
electronic

c. characteristics and behaviors of the recruiter
- functional area, trait, realism, impact

4. Selection

Standards for Selection Method:
reliability, validity, generalizability, utility and legality

Selection Methods:
interviews, references and biographical data, physical ability tests, cognitive ability tests, personality inventories, work samples, honesty and drug tests

5. Training and Development

Learning Organization - continuous learning and application
Key Features of a Learning Organization

*Continuous learning
*Knowledge generation and sharing
*Critical systematic thinking
*Learning culture
*Encouragement of flexibility and experimentation
*Valuing of employees

Components of Instructional Design

1. Assessing needs

Organizational Analysis - business appropriateness
Persons Analysis - readiness, identification of trainees
Task Analysi - what needs to be emphasized in the training

2. Ensuring employees’ readiness for training

motivation
self-efficacy - belief that they can successfully learn the content of a program

3. Creating a learning environment

programs, feedback, practice, objectives

4. Ensuring transfer of learning

self-management strategies, peer and management support

5. Selecting training methods

6. Evaluating training programs

Identification of training outcomes and evaluation design: cognitive, skill-based, affective, and reaction outcomes; pretests and posttests
Cost-benefit analysis: determine costs, benefits and making the analysis

KASHEV MODEL

*Knowledge
*Attitude
*Skills
*Knowledge
*Exprience
*Values

6. Compensation

7. Performance Management

Performance Management
Performance Appraisal
Performance Feedback

Purposes of Performance Management:

Strategic
Administrative
Developmental

Performance Measures Criteria: (SVRAS)

Strategic Congruence
Validity
Reliability
Acceptability
Specificity

Approaches to Measuring Performance
CABRQ
Comparative: ranking and forced distribution
Attributive: graphic rating scales and mixed standard scales
Behavioral: critical incidents, behaviorally anchored rating scales, behavioral observation scales, organizational behavior modification, assessment centers
Results: MBO, PROMeS Productivity Measurement and Evaluation System
Quality: SPC and the Tools of Quality; check sheets, histogram, run charts, pareto etc.

Sources of Performance Information

Rater's Erros: halo and horns, leniency, central tendency, contrast

Performance Feedback
Feedback should be given frequently, not once a year
Create the right context for the discussion
Ask the employee to rate his/her performance before the session
Encourage subordinate to participate
Recognize effective performance through praise
Focus on solving problems
Focus feedback on behavior or results, not on the person
Minimize criticism
Agree to specific goals and set a date to review progress

8. Organizational Development
Training - current need
Development - future need

4 Approaches to Employee Development (FAJI)
1. formal education
2. assessment
Myers-Briggs Type Indicator
assessment centers
benchmarks
performance appraisals and 360 degree feedback systems
3. job experience
Job enlargement
Job rotation
Transfer, promotions, and demotions
Externships and Sabbatical
4. internal relationships
mentoring
coaching

Steps and Responsibilities in the Career Management Process

Self-assessment

Reality check

Goal Setting

Action Planning

9. Employee Relations

salary
overtimes
labor unions - bargaining effectiveness
Alternatives to Strike
1. mediation
2. arbitration
3. fact finding

Steps in Grievance Procedure

More Tools and Concepts in Operations Management

2009-06-02T15:40:00.004+08:00

Reliability Calculation Methods
Decision Theory
Linear Programming
Learning Curves
Transportation Model
Acceptance Sampling
Waiting Lines
Simulations

Project Management

2009-06-02T15:34:00.003+08:00

Scope Time Cost Quality

Project Life Cycle

PERT and CPM
Work Breakdown Structure

Network Diagrams
Network Precedence Diagram
Activity on Arrow
Activity on Node

Project Duration
Slack
Critical Path
Early Start
Early Finish
Late Start
Late Finish

Risk Management

ebizPad Search Results

2009-06-02T14:05:00.011+08:00

Supply Chain Management

2009-06-02T13:40:00.001+08:00

Supply Chains or Value Chains

Functions
·Forecasting
·Purchasing
·Inventory management
·Information management
·Quality assurance
·Scheduling
·Production and delivery
·Customer service

Bull whip Effect
- decreasing inventory from Tier 2 Suppliers to Producers to Distributors then retailers...

Benefits of Supply Chain Management
·Lower inventories
·Higher productivity
·Greater agility
·Shorter lead times
·Higher profits
·Greater customer loyalty

Elements of Supply Chain Management
customers
forecasting
design
processing
inventory
purchasing
suppliers
location
logistics

Distribution Requirements Planning (DRP)

Electronic Data Interchange (EDI)

Collaborative Planning, Forecasting and Replenishment
- information sharing among trading partners

Inventory Velocity
Information Velocity

Purchasing

Supplier Selection
Vendor Analysis
Supplier Partnerships

Scheduling

2009-06-02T13:31:00.002+08:00

Gannt Charts, Gantt Load Charts
Loading: Infinit, Finite, Vertical, Horizontal,
Scheduling: Forward, Backward

Sequencing
Workstations
Priority Rules
Job Time

Johnson's Rule

Service Scheduling:
*appointments
*reservations
*Cyclical Scheduling

JIT, LEAN Operations and Maintenance

2009-06-02T12:23:00.002+08:00

Just-In-Time
- system wher goods move as they are needed
- pull(kanban-visible record)-push system
- lean operation; "little fat"
- aims for a balanced system and waste elimination

Big JIT
- bigger perspective

Traditional Supplier Network
Tiered Supplier Network - JIT

JIT II
- supplier rep works withing the company's plant

Benefits of JIT System
·Reduced inventory levels
·High quality
·Flexibility
·Reduced lead times
·Increased productivity
·Increased equipment utilization
·Reduced scrap and rework
·Reduced space requirements
·Pressure for good vendor relationships
·Reduced need for indirect labor

Elements of JIT
·Poka-yoke – fail safe tools and methods
·Preventative maintenance
·Good housekeeping
·Set-up time reduction
·Cross-trained employees
·A pull system
·Smooth flow of work (the ultimate goal)
·Elimination of waste
·Continuous improvement
·Eliminating anything that does not add value
·Simple systems that are easy to manage
·Use of product layouts to minimize moving materials and parts
·Quality at the source

Maintenance
Breakdown/Reactive Maintenance
Preventive Maintenance

When the cost of Preventive Maintenance increases the breakdown maintenance cost decreases.
This means that there is a mimimum to to the total maintenance cost --- that is the optimum level of maintenance.

Maintenance Reasons
cost
quality
safety
efficiency

Predictive Maintenance
Total Productive Maintenance - JIT approach to maintenance

Breakdown Programs

MRP and ERP

2009-06-02T11:59:00.004+08:00

Material Requirements Planning
- computerized information system for the scheduling and reporting of orders and inventories
- inputs: master sked, BOM, inventory records
- outputs: planned orders, order releases, changes, performance reports, planning reports

Master Schedule
Cumulative Lead Times
Planning Horizon
Bill of Materials
Product Structure Tree
Assembly Time Chart - a Precedence Diagram with a horizontal time line

Updating the System
1. Regenerative - periodic update
2. Net-Change - continuous update

Other Considerations:
*Safety Stock
*Lot Sizing - EOQ,, EPQ, Fixed Order etc.

MRP II and ERP
- integration perspective ; interaction with other enterprise functions: marketing, finance, human resources

Strategic Management Framework: Outline Form

2009-06-02T10:13:00.012+08:00

a. CORPORATE CORE PURPOSE - VISION - MISSION - GOALS - OBJECTIVES
here, Management by Objectives (MBO) comes to mind...

b. SITUATION ANALYSIS

b.1 External Analysis (Opportunities and Threats)

b.1.1 MacroEnvironmental Forces
b.1.1.1 Political
b.1.1.2 Economic
b.1.1.3 Sociocultural
b.1.1.4 Technological
b.1.1.5 Legal, Environmental, Ethics, Corporate Social Responsibility

b.1.2 Industry Forces
b.1.2.1 Buyers
b.1.2.1.1 Value Chain Analysis
b.1.2.2 Suppliers
b.1.2.2.1 Value Chain Analysis
b.1.2.3 Potential Entrants
b.1.2.3.1 Entry Barriers
b.1.2.4 Substitutes
b.1.2.5 Rivalry or Competition
b.1.2.4.1 Competitive Value Prioritization and Analysis

b.2 Internal Analysis (Strengths and Weaknesses)

b.3 Open Systems Planning / Stakeholder's Analysis

b.4 BCG Portfolio Market Share-Growth Matrix
Stars, Cash Cows, Question Marks, Dogs

b.5 Risk Analysis

b.6 Stream Analysis Model by Jerry Porras (OPST)

Organizaing, Physical, Social, Technological

c. STRATEGY FORMULATION

c.1 Corporate Strategy
c.1.1 Growth: Internal Growth, Horizontal Integration, Horizontal Related Diversification, Horizaontal Unrelated Diversification, Vertical Related Integration, Vertical Unrelated Integration, Mergers and Strategic Alliances
c.1.2 Stability
c.1.3 Retrenchment: Turnaround, Divestment and Liquidation
c.2 Business Unit Strategy
c.2.1 Cost
c.2.2 Differentiation
c.2.3 Focus
c.3 Functional Strategies
c.3.1 Marketing Strategy
c.3.2 Operations Strategy
c.3.3 Human Resources Strategy
c.3.4 Finance Strategy

d. STRATEGY IMPLEMENTATION

d.1 Organizational Structure
d.1.1 Span
d.1.2 Centralization
d.1.3 Formality
d.1.4 Functional, Matrix, Geographic, Product

d.2 Organizational Behavior Considerations (CLMC - SCC)

Models of Organizational Behavior: Autocratic, Custodial, Collegial, Supportive, System

d.2.1 Culture
d.2.2 Leadership

Behavioral Approach:
Blake & Mouton's Concern for People vs. Production
Consultative
Participative
Autocratic
Positive
Negative
Contingency Approach:
Fiedler's: Effectiviness is due to interaction of employee orientation to Leader Member Releations, task structure and leader power
Hersey and Blanchard's Situation Leadership: Directing, Coaching, Supporting and Delegation
Path Goal Model
VRoom's Decision Making Model

d.2.3 Motivation

Content Theories:
Maslow's Physioloigcal, Safety & Security, Social, Self Esteem and Self Actualization
Herzberg's Mainetnance and Motivation
Alderfer's Existence, Relatedness Growth
Process Theories:
OB MOD - Law of Effect
VRoom's Expectancy
Goal
Equity

d.2.4 Communication
3 Ego States: Parent, Adult, Child

d.2.5 Stress

d.2.6 Conlict

d.2.7 Change
Stages: Unfreeze, Change, Freeze
Needs Transformational Leadership

e. STRATEGY CONTROL

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MARKETING STRATEGY
OPERATIONS STRATEGY
HUMAN RESOURCES STRATEGY
FINANCE STRATEGY

Aggregate Planning: Meeting Intermediate Demand Levels

2009-06-01T18:02:00.005+08:00

Aggregate Planning
- big picture approach to planning
- intermediate range capacity planning

Demand and Capacity Options
- how to meet certain demand levels

Chase Approach
Level Approach

Some Techniques:
*Linear Programming
*Linear Decision Rule
*Simulation

Master Schedule
- disggreagation
- inputs: sales forecasts, capacity, beginning inventory
- outputs: sked, purchase plans
Rough Cut Capacity Planning
- validation of aggregate plan

Projected Inventory = Inventory from Previous Week - Current Week's Requirements

Inventory Management

2009-06-01T15:20:00.002+08:00

Dependent Demand - certain; parts and components
Independent Demand - uncertain; economic demand

Types of Inventories

raw materials
partially completed goods - work in progress
finished goods inventories
replacement parts
goods in transit

Functions of Inventory

meet demand
smooth production requirements
decouple operations
prevent stock outs
To take advantage of order cycles
To help hedge against price increases
To permit operations
To take advantage of quantity discounts

Objectives of Inventory Control
customer satisfaction
keep costs of ordering and carrying inventory

Effective Inventory Management

tracking system
classification system
reliable forecast of demand
knowledge of lead times
reasonable estimates of holding, ordering and storage costs
a classification system

Inventory Counting Systems
Periodic System
Perpetual Inventory System
Two-Bin System - re-order when the firs bin is empty
Universal Bar Code

Lead Time - time between ordering and receiving the order

ABC Classification System

Economic Order Quantity Models

Economic order quantity model
Economic production model
Quantity discount model

Economic Order Quantity Model
Assumptions:
*1 product
*annual demand requirements are known
*demand is even throughout the year
*lead time does not vary
*order is received in a single delivery
*no quantity discounts
*Total Cost = Annual Carrying Cost + Annual Ordering Cost
= (Q/2)*H + (D/Q)*S
*H is the average annual carrying cost per unit
*Q/2 is the average inventory
*D is demand for the year
*Q is the ordering quantity
*S is the ordering costs and is a constant
*This is a U shaped curve with a minumum where the two costs equal zero -- at the optimum ordering quantity! Q = sqrt(2DS/H)

Economic Production Quantity
*Only one item is involved
*Annual demand is known
*Usage rate is constant
*Usage occurs continually
*Production rate is constant
*Lead time does not vary
*No quantity discounts
- in this case the company produces the supply
- the larger the run size, the fewer the number of runs needed, hence the lower the set up cost
*Total Cost = (Imax/2)H+(D/Q)S
Imax = Max. Inventory
H - carrying cost
S - set-up cost
*Economic Run Quantity is Q=sqrt(2DS/H)*sqrt(p/p-u)
p - production or delivery rate
u - usage rate

Effect of Purchase Discounts
*different price means different curves
*including the purchase cost in the TC formula just raises the curve equally at all points equal to the purchase cost
*we could have break points on the various TC curves to specify the relevant quantity ranges for each price

Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered
Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time.
Service Level - Probability that demand will not exceed supply during lead time.

Reorder Point

Other Methods:
Fixed Order Interval
Single Period

Quality

2009-06-01T14:47:00.003+08:00

Quality - ability of a product or service to consistently meet or exceed customer expectations

Total Quality Management
Continual improvement
Competitive benchmarking
Employee empowerment
Team approach
Decisions based on facts
Knowledge of tools
Supplier quality
Champion
Quality at the source
Suppliers

Quality at the Source - the philosophy of making each worker responsible for the quality of his her work

Six Sigma - Define, Measure, Analyze, Improve and Control
PDCA - Plan, Do, Check, Act

Basic Quality Tools

flow charts
check sheets
histograms
pareto charts - 80% of the problem may be attributed to 20% of the causes
scatter diagrams
control charts - run charts
cause and effect diagrams

Quality Circles
Benchmarking

Inspection
In a cost vs. amount of inspection curve, there is an optimal inspection level.

Statistical Process Control
Type 1 Error - concluding a process is not in control when it actually is
Type 2 Error - concluding that a process is in control when it is not
Measured Data:
Mean Control Chart
Range Control Chart
Counted Data:
p - chart - > proportion of defective in a process
c-chart -> number of defects per unit
Some Decisions:
- where in the process to use
- size of samples
- type of chart

Beware of non random patterns!
- trends, bias, cycles, shifts, too much dispersion

Process Capability
- process variability relative to specification
Process Capability Ratio = specification width/process width
- use only for normally distributed data, centered data and a stable process

Taguchi Loss Function
-> u -shaped plot of cost vs. process specs

Location Planning and Analysis

2009-06-01T14:36:00.001+08:00

Tools

Cost Volume Profit Analysis
Transportation Model
Factor Rating
Center of Gravity Method

Capacity Planning for Products and Services

2009-06-01T14:14:00.003+08:00

Capacity
- upper limit

Design Capacity
- capacity based on design

Effective Capacity
- design capacity minus personal time, maintenance, scrap

Actual Output
- actual; cannot exceed effective capacity

Efficiency = Actual Output/Effective Capacity
Utilization = Actual Output/Design Capacity

Capacity Cushion - extra demand intended to offset uncertainty

Economies of Scale!

SOME TOOLS

You can compare average cost vs. output curves
for different capacity alternatives.

Cost-Volume-Profit Analysis
Assumptions:

1 product
all products can be solved
variable cost is constant regardless of volume
fixed costs do not change
fix price

Step Fixed Costs -- Multiple Break Even Points --> during expansion

Financial Analysis
Capital Budgeting Techniques
1. NPV
2. IRR
3. Payback Period

Design of Work Systems

2009-06-01T13:52:00.002+08:00

Job Design
- involves specifying the content and methods of job

Behavioral Approached to Job Design
1. job enlargment - horizontal loading
2. job rotation
3. job enrichment - vertical loading

Teams
- creates a sense of belongingness

Methods Analysis
- how a job gets done
- safety, efficiency, quality

Analyzing the Job
- process flow chart
- worker-machine chart

Motion Study
- systematic study of the human motions
- motion study principles
- micromotion study
- charts

Working Conditions
- temperature
- humidity
- ventilation
- illumination
- color
- noise
- work breaks
- safety
- causes of accidents

Work Measurment

Compensation
- time based
- output based

Process Selection and Facility Layout

2009-06-01T12:27:00.005+08:00

PROCESS SELECTION

Factors to consider in Process Selection
=> Variety
=> Flexibility
=> Volume
=> Unit Cost

Process Types
1. job shop
2. batch
3. repetitive
4. continuous

Automation
Fixed
Programmable

FACILITIES LAYOUT

Why is their a need for layout decisions?
- high cost
- long term commitments
- safety
- efficiency
- legal requirements
etc.

Basic Layout Types
1. Product Layouts
2. Process Layouts
3. Fixed-position Layouts
4. Combination

Cellular
U-Shaped
Group
Service Layouts:
Warehouse
Storage
Office

Line Balancing
- process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements
Output Capacity = OT/CT
OT - operating time per day
D - desired output rate
CT - cycle time = OT / D
minimum number of workstations N = D*sum(t)/OT
where sum(t) = sum of task times
Percent Idle Time = Idle Time per Cycle/(N*CT)
Efficiency = 1 - Percent Idle Time

Tips:
1. use a table to organize your task assignment data
2. assign tasks in the order of most following tasks
3. assign tasks in the order of greater positional weight

LINEAR PROGRAMMING
- used for much more complex but linear problems

Product and Service Design

2009-06-01T10:17:00.002+08:00

PRODUCT DESIGN

What are the important considerations in product design?
1. marketing strategy
- customer satisfaction, product features, branding overall business strategy w/c includes ethical, legal and environmental considerations
2. capability of operations
3. cost
4. quality

Other considerations related to those cited above:
1. standardization
2. product life cycle
3. reliability
4. safety
5. range of operating conditions

Standardization
- advantage: efficiency ---> cost, time, quality
- disadvantage: no variety, dampens creativity

Mass Customization
0. Mass customization
1. delayed differentiation - not completing the product not until customer prefernces are known
2. modular design - for easy manufacturiing and repair

Reliability
- ability of a product to perform within prescribed conditions
Improving Reliability: design, production techniques, backup, test, maintenance, user education

Robust Design
- where a product functions over a broad range of conditions

Phases in Product Development
- varies from product to product, comany to company
Some common phases are:
1. specifications identification
2. feasibility analysis
3. prototyping
4. design review
5. tests
6. market introduction
7. evaluation and idea generation for innovation

More Concepts
Reverse Engineering
Research and Development
1. Basic Research - search for knowledge without a near-term application
2. Applied Research - achieves commercial applications
3. Development - converts results of applied research into commercial applications
Computer Aided Design
Design for Manufacuring, Assembly, Recycling, Disasembly
Recycling

SERVICE DESIGN

Service
1. intangibility
2. inseparability
3. perishability
4. variability

Service BluePrinting
- describe and analyze a proposed service
1.Establish boundaries
2.Identify steps involved
3.Prepare a flowchart
4.Identify potential failure points
5.Establish a time frame
6.Analyze profitability

Characteristics of a Well Designed Service System
1. aligned with overall business strategy
2. user friendly
3. robust
4 cost effective
5. quality

Quality Function Deployment
- integrating the voice of the customer into the product and service development process
The House of Quality Contains:
1. customer requirements
2. design requirements
3. correlation matrix
4. relationship matrix
5. competitive assessment for customer requirements
6. target values and assessment with respect to design requirements

The Kano Model
Customer Satisfaction vs. Customer Needs
3 Typical Plots
1. excitement
2. expected
3. must have

Sample Operations Strategy
1. continuous improvement
2. look for mass customization tactics
3. shorten time to market

Forecasting

2009-05-31T23:35:00.005+08:00

Characteristics of Forecasts:
1. causual - future statements depends on past or known data
2. randomness
3. more data, more accurate

Some Types of Forecasts
1. judgemental
2. time series
3. models

Forecast Variations
1. trend
2. seasonality
3. cycle
4. irregular
5. random

Methods
a. Naive - past = present
b. Averaging
b.1 moving average
b.2 weighted moving average
b.3 exponential smoothing
c. Nonlinear Trends
c.1 exponential
c.2 parabolic
d. Linear

Measuring and Controlling Forecast Accuracy
1. mean absoulte deviation
2. mean squared error
3. mean absolute percent error

Control Charts for Errors
Error is in control if there is ony randomness present!
Indicators of Randomness:
1. no patterns
2. within limits

Tracking Signal
- detects bias
- ratio of cumulative error to MAD

Sources of Errors
1. inadequate model
2. irregular variations
3. incorrect use of the technique

Choosing a Forecasting Technique
The two most important considerations are:
1. cost
2. accuracy

Decision Areas in Operations Management

2009-05-31T23:07:00.003+08:00

DESIGN
Product and Service Design
Process Selection and Layout
Design of Work Systems
Capacity Planning
Location Planning and Analysis
OPERATION
Quality
Supply Chain Management
Inventory Management/MRP/ERP/Aggregate Planning
Scheduling
Maintenance/JIT/Lean Operations

Project Management

Product Levels: Customer Value Heirarchy

2009-05-31T21:45:00.002+08:00

Core Product - benefits
Basic Product - basic attributes present
Expected Product - attributes as the buyer expects to see it
Augmented Product - attributes beyond expectations
Potential Product - all possible augmentations and transformations for the future

Products and Services

2009-05-30T22:42:00.002+08:00

Product Classification
consumer:
convenience
shopping
specialty
unsought
industrial:
materials and parts
capital items
supplies and services
Individual Product Decisions
product attributes
branding
packaging
labeling
product support services
Services Marketing
intangibility
inseparability
perishability
variability
New Product Development
idea generation
idea screening
concept development and testing
market strategy
business analysis
product development
test marketing
commercialization

Marketing Research Process

2009-05-30T22:32:00.002+08:00

Follow the scientific method....

Be sure to review related literature every step of the way...

1. Define the Problem
- Develop a hypothesis
- Determine Research Objectives
3. Design a Data Gathering Plan
4. Gather Data
5. Interpret and Analyze Data
6. Conclude and Recommend

...back to step 1

Distribution and Logistics

2009-05-30T21:30:00.003+08:00

Distribution Channel
-wholesaler
- retailer

Distribution: Main Functions
information
promotion
contacts
matching
negotiation
financing
physical distribution
risk taking

Marketing Systems
Vertical
Horizontal
Hybrid

Marketing Logistics
- manage the physical flow of materials, final goods and information
Functions:
Warehousing
Inventory Management
Transportation
Information Management

More Concepts
Integrated Logistic Concept
Retailing
Wholesaling
Merchants - takes title to the merchandise
Agents and Brokers - does not take title to the merchandise; just facilitates

Promotions

2009-05-30T20:08:00.005+08:00

Effective Communication
Target Audience
Communication Objectives
Buyer Readiness Stages
awareness- knowledge - liking - preference - conviction - purchase
Message
attention, interest, desire, action
Source
Media
Feedback

Marketing Communications Mix
Advertising
Direct Marketing
Personal Selling
Public Relations
Sales Promotion

Promotion Tools
Consumer
Trade
Business
Sales Force Management
Plan
Recruit
Train
Compensate
Supervise
Evaluate
Steps in Selling
Prospecting
Pre-approach
Approach
Presentation
Trial Close
Determine Objections
Handling Objections
Trial Close
Close
Follow Up

Pricing

2009-05-30T16:22:00.004+08:00

What are the possible bases for determining price?
1. price from competition
2. demand curve estimates
3. costs
4. sales objectives/profit planning
5. price elasticity
6. laws - celings and floors

Some Pricing Methods
Cost -Plus
Target Return
Value Based
Psychological

Market Skimming Pricing - focus is on the profit margin not market share
Market Penetration Pricing - focus is on market share

Product Mix Pricing Strategies
Product Line Pricing
Optional Product Pricing
Captive Product Pricing
By-product Pricing

Pricing Discounts
quantity
cash
trade
seasonal
promotional

More on Pricing
segmented pricing
psychological pricing
promotional pricing
geographical pricing

Brand Equity

2009-05-30T16:01:00.002+08:00

Brand

- name of symbol to identify the source of a product

Brand Equity

- an intangible asset that depends on associations and perceptions made in the consumers' mind

The marketing mix should be designed to BUILD and PROTECT brand equity.

Marketing Mix

2009-05-30T15:55:00.001+08:00

PRODUCT

PRICE

PLACE/DELIVERING THE VALUE

PROMOTION/COMMUNICATION

Product Life Cycle: Change or Die

2009-05-30T15:48:00.002+08:00

The product life cycle consists of 5 stages: development, introduction, growth, maturity and decline.

The concept of a product life cycle is only applicable to a product with unchanging features.

Most, if not all products chanage over time. So what's the use of this concept?

To survive in business, one must relentlessly innovate, which means that a marketing manager never waits for the decline and even the maturity stage to come. In fact marketing managers
prevents a product decline at all by continuously going back to the first stage to develop something new!

Change or Die!

minimum learning

2009-05-30T15:42:00.004+08:00

In studying and applying business concepts, as a minimum a manager should know
1. when to use the concept
2. why use the concept
2. how to use the concept...
then, leave the details to your staff... hire the right people and get things done!

Target Market Strategies or Selection Pattern

2009-05-30T15:25:00.002+08:00

Single Segment
Selective Specialization
Product Specialization
Segment Specialization
Full Market Coverage

See NetMba for a very excellent illustration!

Market Analysis

2009-05-30T14:47:00.002+08:00

1. Can we make money from this market?
2. What are the characteristics of the market that are relevant to my business goals?
- size
- growth rate
- trends
- tendencies
3. How easily can I reach out to this market?

Market Segmentation

2009-05-30T11:26:00.003+08:00

Recognize the diversity of the total population...

MARKET SEGMENTS
- internally homogeneous
- must be: identifiable, reachable, large enough, unique, stable
Can you commnicate to your market segment well, and will their characteristics help your business survive?

SOME BASES FOR SEGMENTATION
- geographic
- demographic
- psychographic
- behavioralistic

Marketing Process

2009-05-30T11:07:00.005+08:00

SITUATION ANALYSIS
External Analysis
Political, Economic, Social, Technological, Legal Factors
Potential Entrants
Substitutes
Buyers
Suppliers
Competitors
Internal Analysis
SWOT
Competitive Value Analysis
Value Chain Analysis
MARKETING STRATEGY
segmentation
targeting
positioning
value proposition
cost
differentiation
focus
corporate social responsibility
stakeholders analysis
risk management
MARKETING MIX DECISIONS
Product
Price
Place
Promotion
IMPLEMENTATION
CONTROL

Change or Die!
Survive and Dominate!

Marketing Concept

2009-05-30T10:47:00.004+08:00

PRODUCTION CONCEPT
Focus:
- capability to produce
- capacity to produce

SALES CONCEPT
Focus:
- saleability
- price

MARKETING CONCEPT
Focus:
- customer

Current Liabilities Management

2009-05-29T23:12:00.005+08:00

The firms goal is to pay as slowly as possible without damaging its credit rating.

If vendors offer cash discounts, the firm must consider the economic of giving up versus taking the discount.

The financial manager must obtain the right quantity and form of current liabilities financing so as to provide the lowest-cost funds with the least risk.

All these strategies should contribute to the maximization of the stock price.

Working Capital and Current Asset Management

2009-05-29T21:22:00.007+08:00

Net Working Capital - Current Assets minus Current Liabilities

The Trade Off between Profitability and Risk
Positive Net Working Capital - low return low risk
Negative Net Working Capital - high return high risk

Goal of Short Term Financial Management
- manage the firm's current assets and liabilities to achieve balance between profitability and risk that contributes positively to overall firm value
The optimal level of current assets and current liabilities is unresolved in the financial literature.

Operating Cycle - time between ordering materials and collecting cash from receivables
Cash Conversion Cycle - time between paying for inventory and collecting cash from the sale of finished product

OC = AAI + ACP
CCC = OC - APP

Inventory + A/R - A/P = Resources committed to support operations
You can reduce this by reducing AAI or ACP or increasing APP!
Goal: Minimize CCC!
So pay as slow as you can, collect A/Rs as fast as you can and sell to reduce inventory as fast
you can.
___________________________________________________________________

Permanent vs. Seasonal Funding Needs
Aggressive vs. Conservative Funding Needs

___________________________________________________________________
INVENTORY MANAGEMENT
ABC System
Economic Order Quantity Model
Reorder Point
Just-In-Time Systems
Manufacturing Requirements Planning
Enterprise Resource Planning

__________________________________________________________________
ACCOUNTS RECEIVABLES MANAGEMENT
Average Collection Period
Five Cs of Credit
1. character
2. capacity
3. capital
4. collateral
5. conditions
Credit Scoring - measure of applicant's credit strength
Credit Terms
***x - discount; y - discount period; z - credit period;
***x/ y net z
***x% discount if you pay within y days and the credit period is z days.
Credit Monitoring
Credit Collection Policy
________________________________________________________________
MANAGEMENT OF RECEIPTS AND DISBURSEMENTS
Float - delays
Collection Float
Disbursement Float
Mail Float
Processing Float
Clearing Float

LockBox System

Controlled Disbursing
Wire Transfers
Automated Clearing House
Zero Balance Accounts

Capital Budgeting Cash Flows

2009-05-29T14:37:00.006+08:00

KEY MOTIVES FOR CAPITAL EXPENDITURES
Capital Budgeting - select and evaluate long-term investments
Key Motives for making Capital Expenditures
1. expansion
2. replacement
3. renewal
4. other purposes - ads, R&D, consulting, new products
___________________________________________________________________
BASIC TERMINOLOGY

Independent Projects - the acceptance of one does not eliminate the others for further consideration
Mutually Exclusive Projects - the acceptance of one eliminates the consideration of other projects
Unlimited Funds - all projects with acceptable rate of returns are accepted
Capital Rationing - limited funds; projects compete for these funds
Accept-Reject vs. Ranking Approach
Conventional (single cash outflow at the start of project) vs. Unconventional Cash Flows (cash outflows occur several times in the project)

___________________________________________________________________

CONVENTIONAL CASH FLOW COMPONENTS
1. initial investment
2. operating cash inflows
3. terminal cash flow (liquidation)
___________________________________________________________________
RELEVANT CASH FLOWS

All Capital budgeting decisions can be viewed as replacement decisions with cash flow from the old asset equal to zero.
Do not include SUNK COSTS - past cash outlays without effect on the project
OPPORTUNITY COSTS - cash outflows; cash flows from the best alternative use of an owned asset

___________________________________________________________________
Foreign Direct Investment - transfer of capital, managerial and technical assets to a foreign country.
___________________________________________________________________
FINDING THE INITIAL INVESTMENT

Initial Investment = Installed Cost of New Asset - After Tax Proceeds from the Sale of Old Asset + Change in Net Working Capital (Current Assets - Current Liabilities)
___________________________________________________________________
FINDING THE OPERATING CASH INFLOWS

incremental after-tax cash inflows

___________________________________________________________________

FINDING THE TERMINAL CASH FLOW

Terminal Cash Flow = After Tax Proceeds from the Sale of New Asset - After Tax Proceeds from the Sale of Old Assets + Change in Net WorkingCapital

___________________________________________________________________

Capital Budgeting Techniques

2009-05-29T14:22:00.005+08:00

CAPITAL BUDGETING TECHNIQUES
___________________________________________________________________
PAYBACK PERIOD
- simple and intuitive
- one weakness is the subjective determination of the maximum payback period allowed
- fails to fully consider the time value of money
___________________________________________________________________
NET PRESENT VALUE
summation of cash flow for each year discounted at a fixed cost of capital/required rate of return
minus the initial cash outflow
NPV > 0 accept the project
NPV < npv =" 0"> cost of capital/required rate of return accept the project
IRR < cost of capital/required rate of return reject the project
IRR = 0 technically indifferent
___________________________________________________________________
CONFLICTS BETWEEN NPV AND IRR METHODS
There is a conflict because of the assumptions that:
1. NPV reinvest intermediate cash inflows at the cost of capital
2. IRR reinvest intermediate cash inflows at the internal rate of return

WHICH IS A BETTER METHOD?
NPV has theoretical superiority but managers prefer the IRR because of the preference for the rates of return.
__________________________________________________________________
Modified Internal Rate of Return

Cost of Capital

2009-05-29T13:38:00.014+08:00

COST OF CAPITAL
- rate of return that the firm must earn on the projects in which it invests to maintain the market value of its stock

A firm should make only investments for which the expected return is greater than the weighted average cost of capital (WACC).
__________________________________________________________________

COST OF LONG TERM DEBTS

BEFORE TAX COST OF DEBT
Determined using:
1. Quotations - YTM of a similar-risk bond
2. Calculating the IRR on the bond cash flows
3. Approximation

AFTER TAX COST OF DEBT
ki = kd x (1 - T)
where
ki - after tax cost of debt
kd - before tax cost of debt
___________________________________________________________________

COST OF PREFERRED STOCK
ratio of the annual dollar dividend to the net proceeds from the sale of the stock
__________________________________________________________________
COST OF COMMON STOCK
2 Forms of Common Stock Financing
1. Retained Earnings
2. New issues

2 Ways to Estimate the Cost of Common Equity
1. Dividend Valuation/Constant Growth Valuation Model
P = D/(k-g)
P - value of common stock
D- per share dividend expected at the end of the year
k - required return on common stock/cost of common stock equity
g- constant rate of growth in dividends
2. Capital Asset Pricing Model

_______________________________________________________________
COST OF RETAINED EARNINGS
may be equated to the cost of common stock...
__________________________________________________________________
WEIGHTED AVERAGE COST OF CAPITAL
- reflects the expected average future costs of funds over the long run.

WEIGHTING SCHEMES
- book value weights
- market value weights
- historical weights

ECONOMIC VALUE ADDED (EVA)
- Net Operating Profits After Taxes minus ( funds to finance the investment x WACC)
- a measure to determine whether an investment add to owner's wealth
- positive EVA is preferable
___________________________________________________________________
MARGINAL COST AND INVESTMENT DECISIONS

Since WACC increases as financing increases by virtue of the law of supply applied
on rate of return...more financing means higher risks thus, higher returns demanded; also, the issuance of new stocks increases risk...

WMCC is necessary...

Weighted Marginal Cost of Capital
To calculate we need to determine the break points...

Break Points = fund/weight in the capital structure
Break Points - is the point where the cost of other financing sources rises as total new financing is added

WMCC Schedule - WACC vs. Total New Financing Plot;
Ladder appearance due to break points

INVESTMENT OPPORTUNITIES SCHEDULE (IOS)
- investment ranking
- the higher the IRR, the more prioritized is the investment

USING THE IOS and THE WMCC To Make Financing/Investment Decisions
WACC vs. Total New Financing
1. Accept the project if IRR > WMCC
2. IRR goes down while WMCC goes up for each new financing
3. Accept projects only up to a point where IRR = WMCC

MAXIMIZING OWNER'S WEALTH
1. the larger the difference between the IRR and the WACC, the larger the NPV
2. the acceptance of projects beginning with those that have the greatest positive difference between IRR and the WACC , down to the point at which the IRR just equals WACC, results in maximum total NPV for all independent projects accepted --- consistent with wealth maximization

Interest Rates and Bond Valuation

2009-05-29T11:48:00.006+08:00

__________________________________________________________________
Interest Rates = Required Return = Price of Money = regulating device of the flow of money
Nominal Rate of Return/Interest = Risk Free Rate + Risk Premium
Risk Free Rate = Real Rate of Interest + Inflationary Expectations
Time Structure of Interest Rates - Yield Rate of Interest(%) vs. Maturity (years)
__________________________________________________________________
THEORIES OF TERM STRUCTURE OF INTEREST RATES
1. Expectations - yield curve shape reflects investors' expectations
2. Liquidity Preference - long term interest rates are higher
3. Market Segmentation - market segmented on the basis of maturity
__________________________________________________________________
TERMS RELATED TO BONDS
Bonds
principal
maturity date
coupon interest rate
current yield - interest/price
yield to maturity - the rate of return that investors earn if they buy the bond at a specific price and hold it until maturity
yield curve - yield over time
Yield Curves may help decide whether to prefer short-term or long-term financing depending on the shape of the yield curve. The lower is the cost of capital, the better.
__________________________________________________________________
BOND INDENTURE
- document about the rights of the bondholders and duties of the issuing corporation
- standard debt provisions -> provision within the bond indenture; contains procedures
- restrictive debt provisions -> constraints on the borrower
- sinking fund requirements
- collateral
- trustee
__________________________________________________________________
GENERAL FEATURES OF CORPORATE BONDS

Convertible Bonds
- bond holders exercise this feature when the market price of the stock is greater than the conversion price
Call Feature
- issuers exercise this feature when interest rates fall so that they can issue new bonds at the lower interest rate
Stock Purchase Warrants
- chance for bond holders to buy stocks at a specified price for a specified period of time
__________________________________________________________________
BASIC BOND VALUATION
B = discounting the annuity of I at K + discounting the annuity of M at K
I - interest rate of bond = Coupon Interest Rate x Par Value of the Bond
K - required return
M - par value of bond
see Time Value of Money to know more about "discounting"

Risk and Return

2009-05-29T08:41:00.003+08:00

RISK
- chance of failure ---> Finance or Business: Failure means Loss
- expressed in terms of VARIABILITY or UNCERTAINTY
___________________________________________________________________
WHAT MAY CAUSE BUSINESS RISKS
1. interest rates
2. exchange rates
3. ability to liquidate an investment
4. various market factors (Political, Economic, Social...)
5. unexpected events
6. tax
7. inflation
___________________________________________________________________
RETURN
- loss or gain
- return = [ cash received + Price Now - Price Before) ]/Price Before

RISK REDEFINED RELATIVE TO RETURNS
RISK - variability of returns
___________________________________________________________________
VARIABILITY MEASUREMENTS
1. standard deviation
2. coefficient of variation - stdev/mean
___________________________________________________________________
Risk averse investors diversify their portfolio.
RETURN OF A PORTFOLIO
- weighted average of each component of the portfolio
- weight --> proportion (of the investment) of the total dollar value of the investments
___________________________________________________________________
The investor tires to maximize the return by managing the CORRELATION and
INDIVIDUAL RISKS of the investment returns of his portfolio.
___________________________________________________________________
There are systematic risks ( undiversifiable) and unsystematic risks (diversifiable).
The investor's goal is to minimize the unsystematic risks by attaining the best combination of investments.
Holding a lot of stocks minmizes the unsystematic risks.
___________________________________________________________________
CAPITAL ASSET PRICING MODEL
kj = Rf + [ Bj x (km - Rf) ]
kj -required return on asset
Rf = risk free rate
Bj = beta of the asset j = slope of the Asset Return vs. Market Return
km- market return

beta of a portfolio - weighted average of betas for each investment
__________________________________________________________________

Time Value of Money

2009-05-24T13:45:00.004+08:00

A dollar today is worth more than a dollar tomorrow.

BASIC PATTERNS OF CASH FLOW

1. single amount

2. annuities

3. mixed stream

Calculate the Future Value - Compunding

Calculate the Present Value - Discounting

Discount Rate - Required Return or the Cost of Capital

Annuities - equally-spaced cash flows of equal size.

Ordinary (Deferred Annuity) Annuity - cash flow at the end of each period

Annuity Due - cash flow at the start of each period

What are the calculations of Future and Present Values involved?

1. Future Value of a Single Amount without Compounding (simple interest)

2. Future Value of a Single Amount with Compounding

3. Future Value of an Ordinary Annuity

4. Future Value of an Annuity Due

5. Present Value of an Ordinary Annuity

6. Present Value of an Annuity Due

7. Present Value of a Perpetuity

8. Future Value with compounding more frequently than annually

9. Continuous Compounding

10. Effective Annual Rates vs. Nominal Rates

Can you tell the formula of each ...?

Cash Flow and Financial Planning

2009-05-19T19:35:00.001+08:00

Operating Cash Flow
Free Cash Flow

Depreciation - systematic charging of the costs of fixed assets against revenues over time.
Depreciation reduces taxable income and therefore increases cash flow.

CASH FLOW PARTS

1. Financing Cash Flows
- equity
- financing
2. Operating Cash Flows
OCF = [EBIT x (1-T) ] + Depreciation
3. Investing Cash Flows
Free Cash Flow FCF = OCF - NFAI - NCAI
NFAI - Net Fixed Asset Investments
NFAI = change in Fixed Assets + Depreciation
NCAI - Net Current Asset Investments
NCAI= change in Current Assets - change in A/P and Accruals

FINANCIAL PLANNING
cash planning
profit planning

CASH PLANNING
cash budgets

General Format of the Cash Budget
Cash Inflows
Less: Cash Outflows
Net Cash Flow
Add: Beginning Cash
Ending Cash Flow
Less: Desired Minimum Cash Balance (This a comparison or "control" portion!)
Required Total Financing or Excess Cash Balance

PROFIT PLANNING
pro forma financial statements

Cash Surpluses must be invested.
Cash Deficits must be funded.

Cash budgets results from:
- strategic planning and marketing
- sales forecasts
- production plan

Coping with Budgeting Uncertainty
- pessimisting, most likely and optimistic cash budgets
- The greater is the variability the more attention is given to cash budget control!

Preparing ProForma (Projected) Financial Statements
1. Starts with Sales Forecasts, Past Financial Statements,
Key Assumptions, Current Outlook of the Economy
2. Choose a method:
a. percent of sales method
b. judgemental method - based on assumptions

Financial Ratios: Tips for Analysis

2009-05-18T22:49:00.000+08:00

Before Analyzing ratios, Watch Out!

1. analyze the ratios not a ratio
2. audited statements are better
3. methods in developing the financial statements must be the same
4. inflation!
5. same point in time --- effects of seasons?

FOUR KEY FINANCIAL STATEMENTS

2009-05-18T22:30:00.001+08:00

FOUR KEY FINANCIAL STATEMENTS
Income Statement; time coverage: period
Balance Sheet; time coverage: point in time
Statement of Retained Earnings; time coverage: point in time
Cash Flows time coverage: period

Introduction to Finance: Keywords

2009-05-18T20:02:00.005+08:00

FINANCE IN THE CORPORATE ORGANIZATION
AND SOME CAREER OPPORTUNITIES IN FINANCE
Treasurer vs. Controller
Under the Treasurer
Cash Manager
Capital Expenditures Manager
Credit Manager
Financial Planning Manager
Foreign Exchange Manager
Under the Controller
Tax Manager
Cost Accounting Manager
Financial Accounting Manager
Corporate Accounting Manager

OTHER LIMITED LIABILITY ORGANIZATIONS

limited partnerships
s-corporations
limited liability corporations
limited liability partnerships

They are differentiated according to:
tax
limited or unlimited liability

MARGINAL COST-BENEFIT ANALYSIS
The primary economic principle used by financial managers.

ACCOUNTING VS. FINANCE

1. Perspective

Accounting - accrual basis
Finance - cash flow

2. Decision Making

Accounting - organize and present financial data
Finance - analyze and interprets the data

PRIMARY ACTIVITIES OF THE FINANCIAL MANAGER

financing decisions
investing decisions

Profit Maximization fails to take into account:

level
timing
risk

of cash flows. That's why the goal of a firm is: wealth maximization!

CORPORATE GOVERNANCE

SARBANES-OXLEY ACT OF 2002
- disclosures
- conflict of interests

ETHICS, CORPORATE SOCIAL RESPONSIBILITY
- StakeHolder's Analysis
- protecting the share price

AGENCY PROBLEM
- managing the managers to achieve the goals
- stock options
- performance plans
External Sources of Funds
1. FINANCIAL INSTITUTIONS
2. FINANCIAL MARKETS
MONEY MARKETS
- short term, marketable securities (T-bills, commercial paper, negotiable certificates of deposit)
CAPITAL MARKETS
- long term
- bonds and stocks (equity, ownership)
3. PRIVATE PLACEMENTS

MAJOR SECURITIES EXCHANGES
Organized Exchanges
Over the Counter Market
Eurobond Market
Foreign Bond Market
International Equity Market

ROLE OF SECURITIES EXCHANGES
- its all about the demand and supply of a security

ON TAXES AND INCOME
- ordinary income vs. capital gains income
- average tax rate vs. marginal tax rate
- debt financing vs. equity financing
where debt financing due to interest expense reduces taxable income thereby increasing EPS or cash flow
- capital gains = purchase price - sell price
- double taxation

Globalization for a Finance Manager

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Due to globalization, a financial manager watches out for:

- currency fluctuations
- changes in economic regulations

3 Most Common Legal Forms of Business Organizations

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SOLE PROPRIETORSHIP

- owned by 1 person
- unlimited liability
- low organizational costs
- limited fund raising power

PARTNERSHIP

- 2 or more owners
- relationships are governed by a contract called "Articles of Ownership"
- unlimited liability
- enhance ability to raise funds compared to sole proprietorships

CORPORATIONS

- "legal entity": artificial being created by law
- limited liability: not losing more money than you have invested
- better access to financing
- easy transferability of ownership through stocks

2 Major Categories: Areas and Opportunities in Finance

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I. FINANCIAL SERVICES

The design and delivery of advice and financial products to individuals, businesses and governments.

e.g. banking, investments, financial planning, insurance

II. MANAGERIAL FINANCE

The management of the financial affairs.

Comparing the Legal Forms of Business Organizations

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The Advantages and Disadvantages of the Legal Forms of Business Organizations are compared
in terms of:

1. profit distribution
2. organizational costs and difficulty
3. taxes
4. protection of Intellectual Property Rights, company informaton and trade secrets
5. ease of dissolution
6. limited or unlimited liability
7. capability to generate funds or capital and consequently ability to grow
8. continuity or perpetuation
9. demand on the owner's time, knowledge and skills
10. transferability of ownership
11. ability to offer long term career opportunities to employees