What mechanisms are in place to guide the identification, measurement, categorization, and communication of information to stakeholders and users?
MODULE 1
THE BOOK
Financial Decision-Making for
Engineers Author: Colin K. Drummond
Yale University Press
ISBN-10: 0300192185
ISBN-13: 978-0300192186
Everyone has the book?
DID YOU REVIEW CANVAS?
• All the materials for your assignments are found in Canvas
• If you don’t find something, please ask!
• All assignments will be submitted in Canvas > I will not accept any assignments in class!
• I will post announcements when necessary
IMPORTANT MESSAGES
1. Late Assignments will not be accepted
2. Most students who do poorly in the class usually have a poor homework and
assignment grades.
3. I want you to learn – in principle there is no reason you cannot get an “A” if you
work hard! I am here to help you.
Focus and finish!
THE ROAD AHEAD – DECISION MAKING
• Focus on Key Aspects of: ❖ Accounting
❖ Finance
❖ Engineering Economics
• Chapter 1: Decision Making
• Chapter 2: Financials Statements
• Chapter 3: Time Value of Money
• Chapter 4: Applications of Time Value of Money
• Chapter 5: Comparing Alternatives
• Chapter 6: Intellectual Property
• Chapter 7: Concept Maps
• Chapter 8: Risk and Uncertainty
• Chapter 9: Capital Budgeting
• Chapter 10: Leadership
HOW DO YOU MAKE DECISIONS IN BUSINESS?
• Internal Perspective ❖ Management decisions convert assets into
products
❖ Products lead to customers
❖ Transactions to be analyzed, Categorized,
recorded, synthetized and reported
• Business must be: ❖ Profitable (Revenue greater than expenses)
❖ Solvent (pay bills on time)
• Customers want your product and are willing to pay a price
(greater than the cost)
• These activities generate transactions that can be: ❖ Captured
❖ Analyzed
❖ Understood
❖ Communicated
BUSINESS OBJECTIVES
TRANSACTION CONSIDERATIONS
• Long term success
• Magnitude
• Type (pay now or later)
• Value (Market Preference)
❖ Profitable (Revenue greater than expenses)
❖ Solvent (pay bills on time)
• Accounting is the key information system to analyze and
measure
ENGINEERING MANAGEMENT TOOLS
• Accounting has central role in communications with
stakeholders. Provides reports to: ❖ Tax Authorities
❖ All Stakeholders
❖ Management
❖ Regulatory Agencies
SECONDARY MANAGERIAL PERSPECTIVES
• Taxes: ❖ Consider just a simple understanding
❖ Corporate Tax Department
• Regulatory Matters: ❖ Can have a significant impact on a business
❖ Minimized for this course
• Stockholders: ❖ Central to the business but consider as an environmental issue
❖ Case studies have incorporated stockholders direction
EXTERNAL VS INTERNAL COMMUNICATIONS Accounting Roles
Identify, Measure, Communicate
Economic information about an entity
For decisions and informed judgments
Financial Accounting
• External stakeholder
• Focus on financial statements
• Preparation of the Annual report
• CPA licensure
Managerial Accounting
• Internal stakeholder
• Focus on management decisions
• Cost accounting
• Certified Financial Manager
FOCUS ON DECISION MAKING
• Outcomes must be established
• Outcomes must be prioritized
• A set of alternatives must be identified
• Alternatives must be examined against the objectives
• A tentative decision is an alternative that matches the objectives
• Actions are taken to implement
PATENT EXAMPLE
Patent Analysis
• Idea for a Patent Claim
• Search USPTO database for claim
• If a match, restart
• If not a match, proceed with claim
Patent Development
• Avoid patent infringement
• Search similar claims
• Launch new product
• Possible positive or
negative financial impact
• Engineering Manager
evaluates alternatives
HOW TO “LEARN” DECISION MAKING
• It depends…on the complexity and the context
• Academic skills
• College internships to view practice and theory:
❖ Framing the problem
❖ Prioritizing inputs and outputs
❖ Determine actions
• Intuitive
• Experience
ENGINEERING FOCUS
• Operating: ❖ Know how to communicate company results via financial reports
• Investing: ❖ Determine best use of company assets (Human, Capital, Financial)
• Financing: ❖ Typically involves long term considerations and are not managed day-
by- day
Finance -The study of assets and the way in which organizations
manage assets, resources and risks over time to
accomplish organizational objectives.
Engineering Economics – Application of engineering or
mathematical tools in the quantitative analysis of the
economics of engineering alternatives.
Accounting – The process of identifying, measuring, and
communicating economic information to permit informed
judgments and decisions. (Not extensively covered in this
course.)
THREE INTERRELATED COMPONENTS
• Integrity: Honest and forthright in dealings
and communications
• Objectivity: Impartiality and freedom from
conflict of interest.
• Independence: In appearance and “in
fact” to assure results are free of bias
• Competence: Knowledge and
professional skills to perform the work.
ETHICS
SUMMARY
1. Managerial decisions drives the conversion of assets into goods
and services
2. Market interest leads to customer transactions
3. This produces revenue and data to be converted into
information
4. Information is organized and communicated to managers to
support decision making
QUESTIONS?