Wednesday, April 6, 2016

Total Cost Industrial Engineering - Industrial Engineering of Enterprise Cost


Industrial Engineering is Human Effort Engineering and System Efficiency Engineering - Narayana Rao


Productivity is to be measured in cost terms.


Cost Measurement and Analysis-A Necessary Part of Industrial Engineering Education & Training
AuthorDeo, Balbinder S; Strong, Doug
IIE Annual Conference. Proceedings, 2002

Deo, Balbinder S.,(2001) 'Operation Based Costing Model for Measuring Productivity in Production Systems', PHD Thesis Submitted to The University of Manitoba (Canada), ProQuest Digital Dissertations, AAT NQ57506.

What is Industrial Engineering in practice?


It is the study of resource use to develop planning and control methods and data. Resource use is accounted for in units of resource as well as in money values. The money value of a resource is termed as cost or expense. Planning of resource use is also done in terms of units of resource and money terms. The objective of industrial engineering is resource use efficiency or elimination of waste of resources.


AACE, the Association for the Advancement of Cost Engineering, stated, "Most people would agree that ‘engineers’ and engineering — or, more generally, the ‘application of scientific principles and techniques’ — are most often responsible for creating functional things or strategic assets … "

Cost engineering profession advocates that an engineering professional must determine the activities needed to design and build a product, as well as estimate how long these activities will take and estimate the potential cost.
http://www.iienet2.org/details.aspx?id=21620

Industrial engineers have to justify their system improvement recommending through engineering economic analysis. As majority of the industrial engineering proposals are cost reduction projects, industrial engineers have to estimate costs using the existing method, costs using the proposed method and then calculate the summary profitability measures like NPV or IRR.

"Total cost industrial engineering is a framework that helps industrial engineers to visualize the total enterprise cost in terms of  individual resources, various processes or methods, various systems and products which they analyse to eliminate waste or improve efficiency and drive total cost reduction, waste elimination and improve efficiency."
(The framework can be developed similar to the thesis Towards a conceptual framework for strategic cost management - The concept, objectives, and instruments
http://www.qucosa.de/fileadmin/data/qucosa/documents/5228/data/Title_250706.pdf)

Value chain analysis proposed by Michael Porter in the context of strategic analysis for differentiation and cost advantage can be the starting point of developing the model for visualizing the total enterprise cost in terms of segments meaningful for IE activity.
Value Chain Analysis - A Base for Total Cost Industrial Engineering



_________________

Ideas to be included


Product ideas, product designs,production process plans, layout plans, inspection plans, maintenance plans etc. are part of the planning process. Industrial engineers' main responsibility is to take care of these engineering activities and their management. In this context an interesting paper to be read is

ROLE OF STRATEGIC PLANNING IN,ENGINEERING MANAGEMENT, Kumar Krishen, Ph.D.
NASA Johnson Space Center,  Houston, Texas 77058
http://ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/19960023932_1996053021.pdf

In the abstract of the paper, this interesting statement is made.


The traditional roles of an  engineer  to  design, develop, and streamline (a product and its) a manufacturing process for a product are still valued and relevant.  However, the need for an engineer to participate in the process of identifying the product  to  be  developed,  the schedule and resources required, and the goal of
satisfying the customer, has become paramount to achieving the success of the enterprise. When we
include these endeavors in the functions of an engineer, management of “engineering” takes on a new dimension. In this paper, the ramifications of  the  changing and increased functions. of  an engineer and consequent impacts on engineering management are explored.

System cost industrial engineering

    Supply chain system cost industrial engineering
    Manufacturing system cost industrial engineering
    Information system cost industrial engineering
    Quality system cost industrial engineering
    Maintenance system cost industrial engineering
    Accounting system cost industrial engineering

Accounting for industrial engineering decisions

Cost estimating for engineering economic analysis of method studies, value engineering studies, operation research models, human effort engineering studies

Standard Costing
Standard cost of the product - break up in terms of processes and methods evaluated or to be evaluated by IE department - break up in terms of components to be examined by value engineering methodology.

IE departments have to visualize the total cost of the enterprise in terms of subsystems, processes and methods they improve, select the ones they would like to study and improve and declare the benefits they envisage in the new methods. Thus each IE productivity improvement project has to contribute to the reduction of a planned cost of a period. This sort of visually mapping of the benefit of IE projects would make the contribution of IEs to organizations very clear and also will push the industrial engineering to put in right efforts.

_________________


Total Cost Industrial Engineering - Research Papers



Total Cost Industrial Engineering - Research Papers


1. Cost: The ultimate measure of productivity
Deo, Balbinder S; Strong, Doug. Industrial Management42. 3 (May/Jun 2000): 20-23.


2. Cost Measurement and Analysis-A Necessary Part of Industrial Engineering Education & Training
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2002): 1-5.

3.  Operation Based Cost Measurement Model
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2002): 1-7.

4.  Comparative Outcome Of Productivity Measures- A Case Study
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2003): 1-6.


5.  Fixing the Problem of Subjectivity in the Concept of 'Activity' in Activity Based Costing (ABC) - An Engineering Perspective
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2003): 1-7.

6.  MODIFIED MULTIFACTOR PRODUCTIVITY APPROACH TO MEASURE PRODUCTIVITY OF OPERATIONS
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2004): 1-7.

7.  COSTING PRODUCTION SCENARIOS - A SIMULATION MODELING APPROACH
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2004): 1-6.

8.  AN EVALUATION MODEL FOR A SYSTEM DESIGN - AN ECOLOGICAL PERSPECTIVE
Deo, Balbinder S. IIE Annual Conference. Proceedings (2007): 1034-1040.

9.  Communicating cost and performance
Ding, Youmin; Strong, Doug; Deo, Balbinder. Industrial Management51. 4 (Jul/Aug 2009): 22-23,25,5.

10. Developing Generic 'Cost Based MIS Modules' for Process Oriented System
Deo, Balbinder S; Sra, Jaspreet, MSc. IIE Annual Conference. Proceedings (2012): 1-11.

------------------------------------------------------------------------------------

1
 Cost Measurement and Analysis-A Necessary Part of Industrial Engineering Education & Training
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2002): 1-5.

2
 Communicating cost and performance
Ding, Youmin; Strong, Doug; Deo, Balbinder. Industrial Management51. 4 (Jul/Aug 2009): 22-23,25,5.

3
 Cost: The ultimate measure of productivity
Deo, Balbinder S; Strong, Doug. Industrial Management42. 3 (May/Jun 2000): 20-23.

4
 Operation Based Cost Measurement Model
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2002): 1-7.

5
 MODIFIED MULTIFACTOR PRODUCTIVITY APPROACH TO MEASURE PRODUCTIVITY OF OPERATIONS
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2004): 1-7.

6
 COSTING PRODUCTION SCENARIOS - A SIMULATION MODELING APPROACH
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2004): 1-6.


Citation/AbstractFull textFull text - PDF (72 KB)‎
7
 AN EVALUATION MODEL FOR A SYSTEM DESIGN - AN ECOLOGICAL PERSPECTIVE
Deo, Balbinder S. IIE Annual Conference. Proceedings (2007): 1034-1040.

8
 Comparative Outcome Of Productivity Measures- A Case Study
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2003): 1-6.


9.
 Fixing the Problem of Subjectivity in the Concept of 'Activity' in Activity Based Costing (ABC) - An Engineering Perspective
Deo, Balbinder S; Strong, Doug. IIE Annual Conference. Proceedings (2003): 1-7.

10. Developing Generic 'Cost Based MIS Modules' for Process Oriented System
Deo, Balbinder S; Sra, Jaspreet, MSc. IIE Annual Conference. Proceedings (2012): 1-11.











Bibliography - Total Cost Industrial Engineering


Total Cost Industrial Engineering - Bibliography

http://www.aacei.org/educ/cert/cct/cct_primer.pdf

Papers Published by Industrial Engineering Professors in Costing Area

______________________

Comments on the idea


Marshall Spencer

Industrial Engineer at Johnson Controls
Huntsville, Alabama Area

(In linkedin discussions) -
http://www.linkedin.com/groupItem?view=&gid=75670&type=member&item=96855630

In my experience, developing the framework for "total cost engineering" is well worth the investment in resources if they are available (which is mostly the time required by the IE to champion it), and if the results will be utilized as reportable measureables by management. But a lot of cost-engineering information can "fall through the cracks" or be ignored by controllers simply because there may be no place for it in the ledger format used by traditional cost accounting. 

There is usually a large rift between "cost" from an engineering perspective and "cost" as viewed by financial professionals. Therein lies the challenge. 

An innovative IE can "translate" much of the engineering-cost data into something that a controller can use. But the controller must be willing to accept it. 

By becoming proficient in understanding the "language" of financial people, the IE working in cost engineering will have an advantage and may find controllers more willing to accept cost-engineering information and put it into their measurables. 

In college I completed a very good course in engineering economics of which there was no equivalent in the business curriculum at that school. It was not the same approach to accounting as taught in the accounting classes. I would like to see undergraduate IE curriculums try to bridge that gap. It has the potential to enable IE's and controllers to develop an alliance and work more effectively toward a common goal.

My reply to the comment


You said "In college I completed a very good course in engineering economics"

My thinking also stems from that foundation only. Every industrial engineering recommendation has to be profitable in the engineering economic analysis. If IEs recommend many cost reduction projects, EE analysis requires the cost of existing method and the costs of proposed method. To do EE analysis, IEs require cost data. So cost related industrial engineering analysis has to provide this data to IEs. Shall we call it "Cost industrial engineering" or simply as "Cost engineering". Cost industrial engineering focuses the attention of IEs on pulling data from various existing sources in the company and then manipulating the data to come out with information useful to aid IEs in the work. Total cost industrial engineering does the same thing at enterprise level.

I am happy with your support to the idea.

"In my experience, developing the framework for "total cost engineering" is well worth the investment in resources if they are available (which is mostly the time required by the IE to champion it), and if the results will be utilized as reportable measureables by management."

Details emerge slowly as some IEs think over the issue. If we bring an issue into the open and point out that there is scope, the beginning would be made. I have an advantage in the area to make some speculation, as my research work after PG in IE is in the area of stock markets and then I spent five years in conducting training programs in the modern developments in cost accounting and cost management. Now I am involved in developing and teaching "Introduction to industrial engineering" and "Strategic perspectives of industrial engineering"

I connected engineering economic analysis and cost analysis in my first few paragraphs of my note on TCIE. You also referred to the same background. That is a good coincidence. Thank you for the synergy.

http://www.nraoiekc.blogspot.com/2012/09/total-cost-industrial-engineering.html

Let me see, when can I develop some more detailed version on the topic.

Comment by D. Rajasekhar (23.9.2012)


Dear Narayana Rao,

I would like you to reflect on some of my views on Total cost industrial engineering.
I have read the contents in detail.
How is it different from Lean management ? Request your views.
With all my experience of 33 years in Mfg industry I would like to say cost focus without time element as an integral part is meaningless.
Very often many executives put emphasis on cost.
I have seen many Development Projects in my career did not deliver results due to step motherly treatment given to time over cost.
I have myself experienced Projects resulting in grand success by doing in time even with cost overrun.
In industry COQ ( cost of quality) often goes out of estimates due to poor management of time also.

That is why I always advocate my engineers TIME,QUALITY,COST and RISK.

My reply


In this concept of Total Cost Industrial Engineering, we may not be referring analytically to project cost. As you know, whenever any scientific relation is proposed, the concepts involved are specially defined.

This idea is an offshoot of an idea that the productivity improvement is to be expressed in cost. Productivity improvement is reduction in use of resources, and if at all it occurs, cost has to reduce. So we are having a map of total cost of the organization at a point in time, in terms of industrial engineering segment view of the enterprise and we want to see the contribution of industrial engineering as reduction of cost in some of the segments. It is to plan and do industrial engineering and show its contribution.

Cost, Quality, Time, Flexibility, Risk, Delivery are all important and industrial engineering may not cover all of them. Certainly time was a focus of industrial engineering and even now it is. This refers more to the operation times. We are not talking of trade offs between these dimensions which is an important managerial problem in operations management. The issue raised by you regarding time and cost of a project is a trade off problem and only a manager on the spot can understand the trade off involved. Your view is to be respected by us.  But  improvement in each dimension or relative improvement among dimensions is possible over time with effort.

Is lean management an industrial engineering innovation or operations management innovation? Lean management is a description of the Toyota Production system by Womack of MIT and it certainly became very popular idea. It in essence an industrial engineering initiative - because waste elimination or efficiency improvement is an industrial engineering concern for the last 100 years.  Total Cost Industrial Engineering can become in one sense Cost Stream Mapping that helps industrial engineers to view the total cost in segments useful to them. So, it is imitating Value stream mapping, another idea that became popular. To support lean management, there is lean cost management and accounting. In a similar way, to support industrial engineering (lean management is a branded technique of IE -my view of it), there will be total cost industrial engineering.


_______________________
First published on 21.9.2012

Updated subsequently many times
_______________________


To be updated  7 Apr 2016
Last updated 9.9.2014

No comments:

Post a Comment