The engineer and the MBA

Over the past year I’ve had several opportunities to spend some time working with MBA students at two local business schools.  Judged a business plan competition at Daniels (Denver University), and then led a market assessment and am also a mentor for Leeds (University of Colorado Boulder).  Got to hang with MBA students and hobnob with professors.  All  heady stuff, with a dose of irony since my business degree is from the school of hard knocks and managing real P&Ls.  So I learned quite a bit myself, and hopefully gave back a wee bit too.

What engineers can learn from MBAs:

1. Every decision should include a financial aspect.  Spec a part; look at the cost.  Design a process; look at the cost.  It’s not good enough just to say “hey this part functions best.”

2. Look at everything from a total cost of ownership point of view. It’s not just piece part cost, it’s yield, it’s field returns, it’s overhead, it’s inventory tied up on the water.

3. Understand cash flow.  This probably should be number one, but it’s tough.  If you buy a part in China, have it sit in WIP in a factory for a month then two months on the water, that makes a difference.

4. Learn to calculate IRR.  Use it to make financial decisions (1), calculate total cost of ownership (2), and to do an IRR calculation you gotta understand cash flow (3).  Hint: IRR = Internal Rate of Return, an ROI type calculation, but better suited for development type projects with uneven cash inlays and outlays.  It’s the inverse function of NPV = Net Present Value.  And it’s in Excel, although it can be tricky to use (it’s an iterative calculation so sometimes it needs a seed…).

What MBAs can learn from engineers:

1. What a BOM is (Bill of Materials); what an ECN is (Engineering Change Notice); what EOL is (End of Life).

2. Understanding the age old engineering adage: On time. On budget. Works. Pick Two.  Engineering is about compromise. And Murphy was an engineer.

3. What a product development schedule really entails, and how to budget and schedule for the real world.  Engineers know what it really takes to get a product out the door; they know that real product development involves iterations; and that novel products and technologies take a lot of efforts.  Yes DFMEAs and validation testing cost money up front, but they decrease the total cost of ownership. See above.

4. That engineering is very often about good enough; that no product will be perfect; that compromises are in order. And that saving money does no good if the dang product doesn’t  function properly

Of course there is always the option for engineers to just plain enroll in a b-school, but not all of us have the luxury of the time and money to do so.  But that doesn’t mean we engineers shouldn’t learn the key points.  And maybe teach an MBA a key point or three about engineering as well.

Chuck

 

1 Comment

  • Mark Zetter

    ‘On time. On budget. Works. Pick Two.’

    Could not agree more, Chuck!

    Also, a wise fellow once said, ‘everything in life is a balance between quality and productivity’.

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