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Published: November 2004
Pages: 335
Author: P.J. Louis
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Millions are spent on equipment, products, and services, but so little
time and effort is spent on educating the technical team about good financial
management practices and the implications of projects and operations
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Overview
There are many good telecommunications and
information technology engineers, network planners, product managers, business
development managers (etc.) that are just not good at finances. Many have not
had experience with financial assessment, business case assessment and analysis.
Fewer still have actually developed a business case from scratch. Even fewer
understand the implications of their project implementations and operations from
a cost accounting, financial accounting, and economic analysis perspective.
This publication provides information and tools necessary to help technical
people understand the finances of telecom and IT as well as practical information
from real-world examples from an author with over 25 years of experience.
It is not intended to be a "MBA in a Box". The Handbook instead
focuses on the aspects that are most important to make the technical person's
life easier when dealing with financial issues. .
Target Audience
- Engineers and technologists
- Planners and project managers
- Technical managers and upper level management
- Anyone responsible or involved with telecom and/or IT financial issues
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Table of Contents
Dedications
Acknowledgments
Preface
Introduction
Chapter 1: The Engineer's Financial Role
The Telecom and Dot-Com Implosion: Why Understanding Economics Is Important
What Are The Cost Elements of the Network?
Fiscal Understanding: Engineering Economics as a Decision Tool
Examples: The Need for Economic Study
ASSETS
Plant and Other Equipment
Total Plant
Current Assets
Total Current Assets
Interest on Funded Debt
Net Income
The Objectives of the Economic Analysis/Engineering Economic Study
The Engineering Economic Study Processes
Chapter 2: Basic Telecom Accounting
Accounting Concepts
Telecom Accounting Classifications
Assets
Liabilities and Owner's Equity
Balance Sheet
Operating Revenues
Operating Expenses
Income
Income Statement
Relationship of the Balance Sheet and the Income Statement
After Income: Earnings and Profit
Chapter 3: Capital Expenditures and the Nature of Costs
Capital Expenditure Policies
Capital Expenditure Policy Structure
Capital Expenditure Policy: Rules and Objectives
Revenue
Gross Profit
Break- Even
Fixed Capital Investment
Working Capital
Income Tax Rate
Depreciation
Interest
Net Profit/Operating Profit
Rate of Return on Investment
Payout/Payback Period
Discounted Rate of Return
Minimum Return Rate
Capital Expenditure Policy: Summary
Cost Expenditures: The Nature of Costs - When Can You or Should You Spend Capital?
The Nature of First Costs
Material
Installation
Miscellaneous Loading
Engineering
Charges Occurring During Construction Which are Added to the Plant/Equipment Investment Accounts
The Nature of Continuing Costs
Maintenance Expenses
Depreciation Expenses
Advertising
Travel
Commercial
Employee Payroll, Pensions, and Benefits
Rents
Accounts Payable and Accounts Receivable
General Administration
Cost Expenditure Policies and Capital Expenditure Policies -Harmonization
Chapter 4: Business Planning and Organizational Theory
Business Plan
Components of the Business Plan
Strategy
Strategic Planning
Strategic Planning - Market Segment & Size
Strategic Planning - Value: The Story
Strategic Planning - Distribution
Scope and Scale of Execution
Tactics
Tactical Planning - Value: The Product's or Service's Intrinsic Value
Tactical Planning - Value: The Value Proposition
Tactical Planning - Distribution: Sales
Tactical Planning - Distribution: Marketing The Product
Tactical Planning - Distribution: Warehousing and Delivering the Product
Tactical Planning - Other Aspects
Vision - Binding Strategy and Tactics
Where Do Vision, Strategy, and Tactics Lead The Company?
Organizational Theory
Basic Organizational Functions
Basic Telecom Carrier and Vendor Organizational Functions
Manufacturing and Carrier Organizational Structures
Vertical and Flat Organizational Structures
Organized Product Creation
Departmentation
Product Departmentation
Functional Departmentation
Product Departmentation versus Functional Departmentation
Financial Relationships
Chapter 5: Mathematics of Money
Time is Money and Money is Time
Interest: Income and Penalty
Equivalence
Present Worth and Future Worth
Annuity
Time-Value of Money
Future Worth of a Present Amount
Present Worth of a Future Amount
Equipment and Service Value Over Time - Present and Future
Annuities
Annuities: Present and Future
Future Worth of an Annuity
Annuity for a Future Amount
Present Worth of an Annuity
Annuity From A Present Amount
Rates of Return - Effective and Nominal
Dispersed Retirements
Chapter 6: Cost Analyses
Cost Estimation Methodologies
Order-of-Magnitude Estimation
Historical Data
Cost Indexes
Example: Cost Indexes
Cost Ratios: Cost-Capacity Relation
Semi-Detailed Estimates
Buffer/Contingency Allowance
Detailed Estimates
Cost Estimation - Capital Investment Component
Depreciable Fixed Investment
Non-depreciable Fixed Investment
Expensed or Amortized Investment
Research and Development
Engineering/Supervision
Start-up Costs
Cost Estimation - Operating Cost Component
Direct (Variable) Operating Costs
Indirect (Fixed) Operating Costs
Chapter 7: Break-Even Analysis
Break-Even Analysis
Elements of the Break-Even Analysis
Total Revenue From Sales
Direct Costs
Indirect Costs
Total Costs
Gross Profit
Loss
Break-Even Point
Example:
Break-Even Analysis
Mathematical Analysis
Example:
Graphical Analysis
Effect of Changes
The Linear Cost-Volume Relationship
The Non-Linear Cost-Volume Relationship
Chapter 8: Evaluating Investments and Market Driven Strategies - How?
The Investment Decision Framework and Drivers
Quantitative Decision Framework
Investment Decisions Out of Necessity
Replacement of Worn-Out and Obsolete Equipment
Repairs To Buildings and Facilities
Repairs and Replacements of Equipment, Buildings, and Facilities Due to Natural Disasters
Meeting Government Regulations for Health and Safety
Research and Development
Security
Payback Period (PP)
Payback Period Based on Average Yearly Gross Profit
Payback Period Based on Average Yearly Net Profit
Payback Period Based on Average Yearly Cash Flow.
Example: Payback Period
Return On Investment
Example: Return on Investment
Cost-Benefit Analysis
Example: Cost - Benefit Analysis
What Happens If the Quantitative Framework Fails?
Example: Break-Even Analysis of an Investment Decision Made Out of Necessity
Keeping It Simple
Integrating The Investment Evaluation with the Market Strategy
Business Plans
Components of the Business Plan
Strategy
Tactics
The Investment Evaluation and the Market Strategy - Integration Process
Example:
Integration
Chapter 9: Corporate Planning - The Art Behind Integrating The Engineering Economic Study and the Business Plan
Organization - Personnel
Organizing the Management Thought Processes - Adaptive Planning
Adaptive Planning Plus Organizational Structure Equals Integration
Integrating Engineering Economy Study Results and Corporate Planning
Assessment
Assessment: Environment
Assessment: Strengths and Weaknesses
Assessment: Opportunities and Threats
Strategic Analysis
Decision Making
Setting Objectives
Resource Analysis
The Final Phase - Planning Implementation
Implementation - The Customer View.
Fundamentals versus Experience
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Ordering
Single-use license of the Toolbox is priced at $ 195 US
Company-wide license of the Toolbox is priced at $ 1,995 US
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About the Author
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P.J. Louis has over a quarter of a century's worth of experience in the telecom business. Mr. Louis is currently developing businesses in Asia and in the United States. Prior positions include Managing Director for Telecom Business Recovery in FTI Financial Consulting and PricewaterhouseCoopers, Vice President of Carrier Marketing & Product Management at TruePosition, Inc., a leading provider of wireless location services. Mr. Louis had also served as chief of staff for engineering in NYNEX (today known as Verizon). He has held a number of leadership positions within Bell Communications Research and NextWave Wireless. Mr. Louis is a former officer of the Institute of Electrical and Electronics Engineers (IEEE) Communications Society - New York Section. Mr. Louis has been a senior member of IEEE for 26 years. Mr. Louis' experience includes leading sales and marketing organizations as well as technology organizations. Mr. Louis has been a featured speaker in telecommunications conferences and is the author of four (4) McGraw-Hill books; Telecom Management Crash Course, M-Commerce Crash Course, Broadband Crash Course, and Telecommunications Internetworking. |
PJLouis@MindCommerce.com
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