Faculty of Engineering

MECH4410
Engineering and Technology Management

Review

Dr. Match Wai Lun Ko

Department of Mechanical Engineering
The University
The University of Hong Kong - of Hong Kong
Faculty of Engineering
matchko@hku.hk 1
 2. SWOT analysis (example): McDonald’s restaurant
Internal
Strengths
• Rank very high on the Fortune Magazine’s most
admired list
• Community oriented
• Global operations all over the world
• Cultural diversity in the foods
• Excellent location
• Assembly line operations
• Use of top quality products
Opportunities
• Opening more joint ventures
• Being more responsive to healthier options
• Advertising wifi services in the branches
• Expanding ads on being socially responsible
• Expansions of business into newly developed parts
of the world
• Open products up to allergen free options such as
peanut free
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External
Weaknesses
• Failing pizza test market thus limiting the ability to
compete with pizza providers
• High training costs due to high turnover
• Minimal concentration on organic foods
• Not much variation in seasonal products
• Quality concerns due to franchised operations
• Focus on burgers / fried foods not on healthier
options for their customers
Threats
• Marketing strategies from children to adults
• Lawsuits for offering unhealthy foods
• Contamination risks that include the threat of e-coli
containments
• The vast amount of fast food restaurants that are
open as competition
• Focus on healthier dieting by consumers
• Down turn in economy, people eat less
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 2. Forecasting Methods
– Time series forecasts
• Trend - long-term movement in data
• Seasonality - short-term regular variations in data
• Cycle – wavelike variations of more than one year’s duration
• Irregular variations - caused by unusual circumstances
• Random variations - caused by chance

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 2. Forecasting Methods
– Uses for Naïve Forecasts
• Stable time series data
– F(t) = A(t-1)
• Seasonal variations
– F(t) = A(t-n)
• Data with trends
– F(t) = A(t-1) + (A(t-1) – A(t-2))
– Techniques for averaging
• Simple moving average
• Weighted moving average
• Exponential smoothing

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 2. Forecasting Methods
– Simple moving average
• Assumes an average is a good estimator of future behavior
– Used if little or no trend
– Used for smoothing

A t + A t -1 + A t - 2 + ... + A t - n 1
Ft 1 =
n

Ft+1 = Forecast for the upcoming period, t+1

n = Number of periods to be averaged
At = Actual occurrence in period t

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 2. Forecasting Methods
– Weighted moving average
• Gives more emphasis to recent data

Ft 1 = w1A t + w 2 A t -1 + w 3A t -2 + ... + w n A t -n 1
• Weights
– Decrease for older data
Simple moving
– Sum to 1.0
average models
weight all previous
periods equally

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 3. Decision Criteria
– Decision making under uncertainty
– Typical decision rules with no knowledge of future
probabilities:
– 1. Criterion of Optimism or MaxiMax
– 2. Criterion of Pessimism or MaxiMin
– 3. Hurwicz Criterion
– 4. MiniMax Regret Criterion (Regret payoff)
– 5. Laplace Criterion (Equally Likelihood)

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 7. Cash Flow
• Cash flow is time dependent, thus representation
of cash flow and the time is best presented using a
cash flow diagram

Time scale is in equal intervals. Each

interval can be in year, quarter, month, day
Source: L. Blank & A. Tarquin, Basics of Engineering Economy, McGraw-Hill, 2008

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 7. Engineering Economics Equations
• Single payment formulas (F/P and P/F)

• Uniform Series formulas (P/A and A/P)

• Uniform Series formulas (F/A and A/F)

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 7. Present Worth Analysis
• For an interest rates greater than zero
• A future sum of money converted to its equivalent value at
present worth (PW) will always be less
• Therefore, if a projection that $1000 is earned one year later, it
will be less than $1000 earned at present
• In order to compare ‘alternatives’ which may be earnings in
the future, it is necessary to convert the amount of earnings
into the present worth (PW) before a fair comparison can
be made
• The future worth (FW) may also be used as an alternate
comparison option.

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 7. Annual Worth Analysis
• It is a common method for comparing alternatives
• All cash flows are converted to an equivalent uniform
annual amount over one life cycle
• AW is the sum of two distinct components:
– Capital recovery (CR) – equivalent annual cost of owning the asset plus
the return of initial investment
CR = -P(A/P,i,n) + S(A/F,i,n)
– Equivalent value of the annual operating cost (AOC)

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 7. Annual Worth Analysis
• AW looks for
– Lowest equivalent annual cost, OR
– Highest equivalent income
• For financially viable, AW ≥ 0
• To compare two alternatives, choose the one
with the lower cost or with the higher income

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 This table will be given in
the examination.

Source: L. Blank & A. Tarquin, Basics of

Engineering Economy, McGraw-Hill, 2008

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8. Economic Order Quantity (EOQ)

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 8. Reorder Point (ROP)
• When to order???
• Inventory Position
– Inventory on hand + inventory on order but not yet received
• ROP
= (Demand per day) x (Lead time for a new order in days)
=dxL

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 8. Quantity Discount Model
• Lots of supplies provide discount if the ordering
quantity reaches a certain value – Quantity Discount
• A quantity discount schedule may be like the
following

• With quantity discount, the purchase cost is

dependent on the order quantity

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 8. Quantity Discount Model
• Total cost = Material cost + Ordering cost + Carrying
cost

• It is convenient to express the holding or carrying

cost as a percentage of the unit cost

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 8. Quantity Discount Model
• To evaluate the effect of the quantity discount, the
following procedure is followed

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 9. Linear programming
• Find the ‘feasible region’
– Overlap the two lines (regions) on the same diagram
– Determine the region where both inequalities are satisfied

Feasible region

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 9. Solution of maximizing profit
• Isoprofit Line Method
– Make assumptions to the profit, then plot the isoprofit line
– E.g. Profit = $ (70 T + 50 C)
– Assume Profit = $2100
– Plot 2100 = 70 T + 50 C (isoprofit line for profit = $2100)

What is the slope of the profit line?

P = 70T + 50C
Thus,
C= -(70/50)T+(P/50)
Slope
= -7/5

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 9. Solution of maximizing profit
• Plot multiple isoprofit line by increasing the profit
until it reaches a maximum (while the line is still
touching the feasible region)

Maximum Profit

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9. Summary of the Graphical Methods

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 10. Queuing Model (M/M/1)
• Single channel queuing model with Poisson arrival and
exponential service time (M/M/1)
• A few assumptions :
– Arrivals served FIFO
– No balking or reneging, customers always wait in line
– Each arrival is independent, average rate remains constant
– Arrivals estimated by Poisson distribution
– Service times vary among customers and are independent
– Service times follow negative exponential probability distribution
– Average service rate > average arrival rate
(this rule must be satisfied)

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10. Multichannel Queuing Model (M/M/m)

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 12. Critical Path Analysis
Float 0 2 2 6
= LS - ES or LF - EF A F
2 5
4 6 7 11
ES EF D
0 0 0 6 9 11 11 11
6 9
Activity Start B G End

0 0 3 9 9 11 11 11
LS LF 0 4 4 9
C E

0 4 4 9

Activity Float (days)

A 4–0=4
B 3–0 =3
C 0–0=0 • Zero slack on activities C,
E, & G (longest total time)
D 6–2=4
 critical path
E 4–4=0 • Any delay on activities of
F 7–2=5 critical path will delay
project
G 9–9=0

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 12. PERT Analysis
Program Evaluation and Review Technique (PERT)

A weighted average of the 3 time durations is used by PERT.

Expected duration, te, for each activity,

a  4m  b
te 
6
It is assumed that the range from a to b covers 6 standard deviations (s).
Variance of the duration, v, of each activity,

ba
2

vs  2

 6 

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 12. PERT Analysis

Example (based on the same example we use in CPM)

Activity Predecessor m a b te s2
(days) (days) (days) (days) (days)
A - 2 1 4 2.17 0.250
B - 6 5 8 6.17 0.250
C - 4 2 8 4.33 1.000
D A 3 1 5 3.00 0.444
E C 5 4 7 5.17 0.250
F A 4 3 6 4.17 0.250
G B,D,E 2 1 5 2.33 0.444

Given Calculated

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 12. PERT Network
A PERT network is constructed based on te (instead of using m).
Forward-pass and backward-pass procedures similar to the CPM
are performed.
The total duration is found to be 11.83 days.

0 2.17 2.17 6.33

A F
2.17 5.17
4.33 6.5 7.67 11.83
D
0 0 0 6.17 9.5 11.83 11.83 11.83
6.5 9.5
Start B G End

0 0 3.33 9.5 9.5 11.83 11.83 11.83

0 4.33 4.33 9.5
C E

0 4.33 4.33 9.5

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 12. Uncertainty Analysis
• When individual activity times are uncertain, the total project
completion time becomes uncertain.
• It is assumed that the variance in total project completion time can be
computed by adding the variances along the critical path,

V = S2 =  s2 for all activities on the critical path ONLY!

Sample calculation
V = S2 = s2C + s2E + s2G
= 1.000 + 0.250 + 0.444
= 1.694
• The standard deviation,
S= V
Sample calculation
S = 1.694
= 1.302

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 12. Uncertainty Analysis
Sample Calculation 1
Probability of completing the project on or before 13 days,

P(T  13) = 0.5 + P(Z (13 – 11.83) / 1.302)

= 0.5 + P(Z 0.90)
= 0.5 + 0.31594
= 0.81594
Standard deviation
of critical activities
Total duration from
critical path analysis
(as average)

0 0.90 No. of standard

11.83 13 deviations
Days

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 13. Establishing Patent Rights
• Patentability: (1) novelty, (2) usefulness, (3) non-obvious to
someone “skilled in the art”

• In the US, if the first to conceive makes a reasonable, diligent

effort to reduce the invention to practice, he or she will
receive the patent, even if someone else actually reduces it to
practice earlier.

• In almost all other countries, patents are awarded to the first

person to file, rather than the first to conceive.

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