Cost Analysis and Estimating for Engineering and Management Chapter 11 The Enterprise Entrepreneurship And “Imaginamachina” © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-1 Overview The Business of New Ideas Entrepreneurship Designing for Profit Top Down Cost Targets Designing for Manufacture Financing the Enterprise Legal and Ethical Issues © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-2 Changes Starting a New Business Big Changes to Existing Business Less Than 1% of New Products Succeed Only 2% of Patented Ideas Develop Competition is Intense Need Good Business Planning and Funding, Along with a Good Idea © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-3 The Enterprise © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-4 Free Enterprise Producers Make What They Want (Or Not) Charge What They Want Compete How They Want Customers Buy What They Want (Or Not) Buy From Whom They Want © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-5 Business Motivated By Profit Players Include Owners Employees Customers Cannot Succeed By Maintaining the “Status Quo” © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-6 Launching a Product © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-7 Marketing Identifies a Demand for a Product Creates a Demand for a New Product New Technologies Emerge and Grow Innovation Growth Standardization Maturity Need Differing Marketing Approaches © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-8 Entrepreneurship Entrepreneurs Supply the Ideas Have a Long Term Vision Are Flexible and Adaptable Successful Companies Must Continually Add New Products Connect Entrepreneurs with Funding © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-9 Design for Profit Top Down Estimate Starts with a Market Price Ends with “Target Costs” Ensures: Product Meets Market Price Production Can Meet Cost Targets Profit Determines Feasibility (Proceed or Kill) © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-10 Entrepreneur’s Challenge Must Understand the Project and Plan Completely Consider and Address Potential Questions Thoroughly Review the Plan Be Able to Answer Any and All Questions © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-24 Funding the Enterprise Personal Resources Existing Company Resources Private Investors Public Funding Stocks Bonds Debt (Loans) Alliances © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-25 Stocks Small Units of Ownership Stock Price Appreciation (Share of Growth) Dividends (Share of Profits) No Guarantees May Loose Investment © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-26 Stock Terms Market Capitalization Share Price x Number of Shares Price Earnings Ratio Stock Price per Share Earnings Preferred Stock Specified Dividend Rate Preference Over Common Stock © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-27 Debt (Loans) Specified Repayment Amounts and Times Requires Interest Payments Credit Rating Affects Interest Rate Interest Is Tax Deductible Expense © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-28 Bonds Stock Is Expensive and Continues Indefinitely Bonds Are Limited Life Borrowing from Investors Fixed Income Stream (Interest) Principal Repaid at End of Term © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-29 Bond Interest Called Coupon Rate Based on U.S Treasury 30-Year Bonds Credit Rating Determines Margin Margin Rate Above Treasury Rate High Interest Rates Makes Capital Expensive © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-30 Bond Terms Face Value (Par) Amount to Be Paid at Maturity Coupon Rate Sets Magnitude of Interest Payments Yield Coupon Rate Price © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-31 Bond Values Sale Price Is Approximately the Par Value Present Value Sum of Remaining Interest Payments Plus the Amount Paid at Maturity All Discounted at a Required Interest Rate P0 I ( P / A, i b , n) M ( P / F , i b , n) © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Eq 11.1 Ch 11-32 Bond Trading Bonds Can Be Traded on the Market Sales Price Depends on Current Interest Rates Original Purchase Price Means Nothing Higher Current Interest Rates Lower the Bond Price © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-33 Alliances Joining with Another Company or Individual Limited Partnership Joint Venture Venture Capital © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-34 Seeking Alliances Offering Develop an Enterprise Plan Present to Interested Parties Assessment and Due Diligence Negotiation and Closing © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-35 Types of Enterprise Sole Proprietorship Partnership Any Partner Can Make Commitments for the Business Corporation Legal Entity Limits Liability to Investment Only © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-36 Ethics and Engineering Expectation of Highest Standards of Honesty and Integrity Dedication to Protecting the Public Maintain Objectivity in Fact Finding and Cost Analysis Maintain Trust and Fairness © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-37 Summary Entrepreneurship and the Enterprise How to Design for Cost and Profit How to Fund the Enterprise Legal Structure of the Enterprise Importance of Ethics © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-38 ... Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-7 Marketing Identifies a Demand for a Product Creates a Demand for a New Product New Technologies Emerge and. .. McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-15 Cost to Buy In Addition to Quoted Price Transportation Costs Purchasing and Order Management Cost Receiving Costs... Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 11-22 Assessment Economic Evaluation Criteria for Enterprise Plans Affordability and total cost Percent profit