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Lessons Learned: What is scientific management?

As part of the ongoing, let’s ensure the basics are in line, here is an overview from [tag]wikipedia[/tag] on Scientific Management:

[tag]Scientific management[/tag], also called [tag]Taylorism[/tag] or the [tag]Classical Perspective[/tag], is a method in management theory that determines changes to improve labour [tag]productivity[/tag]. The idea was first coined by Frederick Winslow Taylor in The Principles of Scientific Management. Taylor believed that decisions based upon tradition and rules of thumb should be replaced by precise procedures developed after careful study of an individual at work.

In management literature today, the greatest use of the concept of Taylorism is as a contrast to a new, improved way of doing business.

General approach

  • Select workers with appropriate abilities for each job.
  • Training for standard task.
  • Planning work and eliminating interruptions.
  • Wage incentive for increase output
  • Standard method for performing each job.

Contributions

  • Scientific approach to [tag]business management[/tag] and [tag]process improvement[/tag]
  • Importance of compensation for performance
  • Began the careful study of tasks and jobs
  • Importance of selection and training

Elements

  • Labour is defined and authority/responsibility is legitimised/official
  • Positions placed in hierarchy and under authority of higher level
  • Selection is based upon technical competence, training or experience
  • Actions and decisions are recorded to allow continuity and memory
  • Management is different from ownership of the organization
  • Managers follow rules/procedures to enable reliable/predictable behaviour
October 21, 2007 by
(6)

Lessons Learned: Net Present Value

So a concept which is seldom put into most models and business plans is NPV. NPV is the concept/construct for evaluating long term projects and investments. Every company does it slightly differently in respect to the defining the acceptable discounting values to use in a NPV analysis. Why is [tag]NPV[/tag] beneficial?

It provided a barometer for a given investment which then allows you to overlay the opportunity costs to provide a holistic view of an investment. Here is the general formula (wiki) and overview from [tag]excel[/tag]:

\mbox{NPV} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}} - {C_0}

Where

t – the time of the cash flow
n – the total time of the project
r – the discount rate
Ct – the net cash flow (the amount of cash) at time t.
C0 – the capital outlay at the beginning of the investment time ( t = 0 )

But [tag]microsoft[/tag] has made it simple for us:

NPV(rate,value1,value2, …)

Rate is the rate of discount over the length of one period.

Value1, value2, … are 1 to 29 arguments representing the payments and income.

Value1, value2, … must be equally spaced in time and occur at the end of each period.
NPV uses the order of value1, value2, … to interpret the order of cash flows. Be sure to enter your payment and income values in the correct sequence.
Arguments that are numbers, empty cells, logical values, or text representations of numbers are counted; arguments that are error values or text that cannot be translated into numbers are ignored.
If an argument is an array or reference, only numbers in that array or reference are counted. Empty cells, logical values, text, or error values in the array or reference are ignored.
Remarks

The NPV investment begins one period before the date of the value1 cash flow and ends with the last cash flow in the list. The NPV calculation is based on future cash flows. If your first cash flow occurs at the beginning of the first period, the first value must be added to the NPV result, not included in the values arguments.

Value of NPV from Wikipedia

What NPV tells

NPV is an indicator of how much value an investment or project adds to the value of the firm. With a particular project, if Ct is a positive value, the project is in the status of discounted cash inflow in the time of t. If Ct is a negative value, the project is in the status of discounted cash outflow in the time of t. Appropriately risked projects with a positive NPV may be accepted. This does not necessarily mean that they should be undertaken since NPV at the cost of capital may not account for opportunity cost, i.e. comparison with other available investments. In [tag]financial theory[/tag], if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected.

I’m not sure I agree with the general construct of decision making, as sometimes projects are just required and other project valuation methodologies from [tag]Net Present Value[/tag] analysis might be best, like the general payback period approach or cost-benefit – cost benefit is great for internal projects which aren’t revenue centric.

Multiple views of any project may help better understand the shape of the project and if each produce favorable metrics then even better.

October 2, 2007 by
(0)

Lessons Learned: How to calculate Gross Margin

I seem to have to answer this question 1 or 2 times a month for newbies inside the business or for the same guy which throws away my email every time I give it to him, so I thought I would do a lessons learned on Margin.

Sometimes I’ve heard folks say [tag]contribution margin[/tag], but not right and NOT interchangeable. Here is the formula for determining [tag]Gross Margin[/tag]:

Gross Margin = Revenue – [tag]Cost of Goods Sold[/tag] – This formula produces gross [tag]margin dollars[/tag], but not a ratio or percent which is the generally accepted way to look at it as a % of revenue.

Gross Margin % = (revenue-costs of goods)/Revenue. (FYI – thats the [tag]excel formula[/tag] too)

Costs of Goods Sold is often referred to as [tag]COGS[/tag] and are the direct costs associated with delivery/production.

DON’T CONFUSE MARGIN WITH MARKUP!  Here is a quick and dirty markup overview from Wikipedia:

The formula to convert a Markup to Gross Margin is:

Gross Margin (GM) = 100% – (100% /(100% + [tag]Markup[/tag]))

Examples:

  • Markup = 100%
  • GM = 100% – ( 100% / 200% ) = 50%
  • Markup = 66%
  • GM = 100% – ( 100% / 166% ) = 39.8%
September 16, 2007 by
(4)

How much time can you spend blogging?

While a fairly straight forward question, the reality is more than you think. The other reality is it is more than I thought I would need to as well. So here is yesterday’s inventory of tasks:

1. Look at other blogs: [tag]Ross Mayfield[/tag], [tag]Seth Godin[/tag], [tag]Lisa Stone[/tag], [tag]Doc Searls[/tag], 3 random blogs and 2 [tag]how to blog[/tag]s – 2.5 hours

A. Actually read them – 1 hour

B. understand the [tag]folksnomy[/tag] they use 1 hour

C. Find out how to differentiate .5 hours (still struggling for [tag]differentiation[/tag])

2. Look at the analytics – 1.5 hours

A. Keywords – 30 mins, nothing staggering no matter how I slice the data from [tag]google[/tag]

B. Inbound referrals – 15 mins – not that many since this is a infant blog, but have to look around.

C. [tag]Bounce Rate[/tag] – 1 hour and 15 mins, I have a fairly good bounce rate ~58%, good for me, maybe not for the industry.

3. Read my own blog – 1 hours, I’m happy that it appears I have fairly consistent tagging and content, but give me time it will get tough to find stuff soon.

4. Look at technorati trends 2 hours – People post on the usual suspects, Britney Spears ([tag]Las Vegas[/tag] goof), Noelia (scandal), [tag]iPhone[/tag] and I don’t understand the google or YouTube listings. Odd. The iPhone piece I did on promotion, pricing and market seeding did ok from a traffic perspective.

5. Thinking – 2 hours. This mainly included pacing around the house thinking and trying to identify new content themes or post ideas. My [tag]OCD[/tag] or [tag]ADD[/tag] based approach to thought could easily consume 10 hours, but I force myself to get out of the recursive loop, as soon as I realize I’m in it.

So the net appears that about 8.5 hours is a minimum Saturday investment, although the elapsed time is ~10 hours. This is the classic business issue on [tag]margin[/tag] and [tag]ROI[/tag] – effort vs. duration. Since I have no revenue only effort, it’s a moot point, but if you are in doubt – USE EFFORT, since effort drives capacity.

My big question is: Will an [tag]analytics[/tag] based approach work? I’m starting to think not, but I could be wrong and [tag]Tom Davenport[/tag] could be right in respect to competing on analytics, just need to identify the right analytics to track. I think I just need more data to see if there are patterns which emerge.

The one pattern I have noticed is that old school bloggers are [tag]Typepad[/tag] users in a hosted [tag]SaaS[/tag] environment, does a hosted blog help readership? Curious, will do more work around this. So I’m out there trying to better understand this blog thing, so it could be of more interest to you – the apparently 30-60 regular readers and 10-20 random folk…

Keep you posted….

September 16, 2007 by
(0)