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Business today is more competitive than ever. As a result, successful business leaders often need to make quick decisions with less than complete data. The wrong decision could result in significant losses, layoffs, or worse. This is where quality professionals and other data-savvy specialists can offer some assistance: by making the best analysis possible given the available data. [Read more…]
Return on Investment Analysis (ROIA), sometimes referred to as Capital Equipment Justification, is the process of building and analyzing a financial model for the purpose of determining the net financial contribution of obtaining a major investment like a factory building or piece of production equipment.
ROIA is the link that connect the brilliant ideas of makers–the engineers, designers and builders—to the goals of the managers who hold organization’s purse strings. When thoroughly conducted, ROIA aligns the best estimates of the revenues and expenses related to a potential purchase with the years in which they will occur.
In this age of infinite information at our fingertips, it seems that fewer people are finding reference books and investing in their own libraries. After all, googling whatever’s on your mind is free and easy. But books, especially reference books and textbooks, still have a necessary place in our information age. [Read more…]
A commonly encountered fork in the career road for many successful engineers is to a) continue engineering or b) manage others who engineer. To continue engineering is an obvious choice, and an often desired one. [Read more…]
Depreciation is one of the more poorly understood, yet commonly encountered terms in managerial accounting. In accounting lingo, depreciation is the systematic allocation of the cost of an asset across its useful life. That’s a mouthful. But breaking down the definition into simpler terms helps explain how its used and why it’s important when conducting Return on Investment Analysis. [Read more…]
In the previous three articles, we’ve examined the Break-even Analysis and Pay-back Period methods (Part 1 and Part 2) as means of evaluating capital investments. While these back-of-the-napkin methods are excellent starting points for analyzing investments, they’re both poor ending points. Neither provide a reliable basis for comparing investments side-by-side. And neither tell you how much value an investment is adding to your organization. [Read more…]
The problems with the payback period method as a means of analyzing and comparing potential investments extend beyond its problem with the time value of money. In fact, that problem can be corrected (but rarely is in practice) by using a method called the “Discounted Payback Period”, where the future expected cash flows are “discounted” to align them with the present value of the initial investment. But even with that correction, the Payback Period Method is still lacking as a primary return on investment (ROI) analysis tool. [Read more…]
If you’ve ever participated on a project team considering the purchase of a major piece of equipment, you’ve almost certainly heard of “Payback Period” – the length of time projected to recoup an initial investment through cost savings, increase profits, etc. It’s fairly simple to calculate: [Read more…]
As a teenager, my father was a house painter. He started out as a “brush and roller guy”, climbing ladders and cutting in windows. But as his business grew, he caught the attention of commercial developers with large jobs like grocery store ceilings and outfield fences. These can’t be completed with old school tools; they require a sprayer.
I remember my dad walking me through his logic of whether or not to buy a commercial sprayer. I didn’t recognize it then, but he was explaining to me “Break-Even Analysis”. [Read more…]
The deeper you drill into process capability analysis, the more you realize just how many capability indices are available. The two most common capability indices are Cpk and Ppk, and the closely related Cp, Cpu and Cpl, and Pp, Ppu and Ppl, respectively. Cpm is less commonly used, and has a unique way of accounting for the centeredness of a process within its specification limits. (See my past blog posts for extended discussions about all of these.) [Read more…]
One of the more confusing distinctions for quality professionals, especially those working within one of the quality management standards such as IATF 16949 or ISO 13485, is the difference between a Corrective Action Request (CAR) and a Preventive Action Request (PAR). [Read more…]
Metropolises in 2020, like New York and Shanghai, disconcertingly resembled London in 1831, in that a strange new disease passed through the population leaving in its wake confusion, grief and death. 2020 was beginning of Covid-19; 1831, Cholera. [Read more…]
If you’ve worked around the fields of reliability or quality for any length of time, you’ve certainly encountered and have likely assembled the humble yet mighty histogram. This specialized bar graph is one of the most common starting points for analyzing continuous data. It not only portrays the frequency of numerical data across its range of values, but also provides hints at the data’s underlying probability distribution. [Read more…]
My limited formal training about America’s Industrial Revolution came in tenth grade history class. And my few remaining recollections of my studies from that era include characters like James Watt and Alfred Nobel, and their inventions, the steam engine and dynamite. Oh, and how could I forget Eli Whitney and his cotton gin?
Now 40 years later, my interest in manufacturing has grown far beyond these elementary school lessons, and the Industrial Revolution continues to intrigue me. Yes, this era was rife with its inventors and their inventions. But the enduring gains from this era were the philosophies of manufacturing that transcended the specific inventions. [Read more…]
Consider the following two targets:
Shooter #1 and Shooter #2 both fired 15 rounds into their respective targets. Who is the better marksman? [Read more…]