CHAPTER 10: MANAGEMENT PRODUCTION AND SERVICE OPERATIONS

Organizations are designed mainly to produce products or services. If these

organizations must survive and grow, the operations function must be undertaken in the
most economical manner possible. As most companies are expected to make profits, any
activity, including those for operations must be managed to contribute to the
accomplishment of such objectives.
Operations refers to “any process that accepts inputs and uses resources to change
those inputs in useful ways.” The transformation process converts the inputs into final goods
and services.
Examples of final goods and services are as follows:
1. Industrial chemicals like methylene chloride, borax powder, phosphoric acid, etc.,
which are produced by chemical manufacturing firms;
2. Services like those for the construction of ports, high rise buildings, roads, bridges,
etc., which are produced by construction firms;
3. Electrical products like transformers, circuit breakers, switch gears, power
capacitors, etc., which are produced by electrical manufacturing firms;
4. Electronic products like oscilloscope, microwave tests systems, transistors, cable
testers, etc., which are produced by electronics manufacturing firms;
5. Mechanical devices like forklifts, trucks, loaders, etc., which are produced by
manufacturing firms;
6. Engineering consultancy services like those for construction management and
supervision, project management services, etc., which are produced by
engineering consultancy firms.
Operations is an activity that needs to be managed by competent persons. Aldag and
Stearns accurately defined operations management as “the process of planning, organizing,
and controlling operations to reach objectives efficiently and effectively.” As the terms
“planning”, “organizing”, and “controlling” have already been discussed in the previous
chapters, elaborations on the terms “efficiency” and “effectiveness” will be made.
Efficiency is related to “the cost of doing something, or the resource utilization
involved.” When a person performs a job at lesser cost than when another person performs
the same job, he is more efficient than the other person.
Effectiveness refers to goal accomplishment. When one is able to reach his objectives,
say produce 10,000 units in one month, he is said to be effective.
Operations management must be performed in coordination with the other functions
like those for marketing and finance. Although the specific activities of the operations
divisions of firms slightly differ from one another, the basic function remains the same, i.e.,
to produce products or services.

Operations and the Engineer Manager

The engineer manager is expected to produce some output at whatever management
level he is. If he is assigned as the manufacturing engineer, his function is “to determine and
define the equipment, tools, and processes required to convert the design of the desired
product into reality in an efficient manner.”
The engineer in charge of operations in a construction firm is responsible for the
actual construction of whatever bridge or road his company has agreed to put up. He is
required to do it using the least-expensive and the easiest methods.
The engineer, as operations manager, must find ways to contribute to the production
of quality goods or services and the reduction of costs in his department.
 The typical operations manager is one with several years of experience in the
operations division and possesses an academic background in engineering.

Types of Transformation Process

1. Manufacturing Processes
a. Job shop
b. Batch flow
c. Worker-paced line flow
d. Machine-paced line flow
e. Batch/continuous flow hybrid
f. Continuous flow
2. Service Processes
a. Service factory
b. Service shop
c. Mass service
d. Professional service

Manufacturing Processes
Manufacturing processes are those that refer to the making of products by hand or
with machinery.
Job shop is one whose production is “based on sales orders for a variety of small lots.”
Job shops are very useful components of the entire production effort, since they manufacture
products in small lots that are needed by, but cannot be produced economically by many
companies. Depending upon the costumer’s needs, a job shop may produce a lot consisting
of 20 to 200 or more similar parts.
Batch flow process is where lots of generally own designed products are
manufactured. It is further characterized by the following:
1. There is flexibility to produce either low or high volumes.
2. Not all procedures are performed on all products.
3. The type of equipment used are mostly for general purpose.
4. The process lay out is used.
5. The operation is labor intensive, although there is less machine idleness.
6. The size of operation is generally medium-sized.
Examples of factoring using the large batch flow are wineries, scrap-metal reduction
plants, and road-repair contractors.
Worker-Paced Assembly Line refers to a production layout arranged in a sequence
to accommodate processing of large volumes of standardized products or services.
Examples of worker-paced assembly lines are food marts like McDonalds and
Shakeys.
The worker-paced assembly line is characterized by the following:
1. The products manufactured are mostly standardized.
2. There is a clear process pattern.
3. Specialized equipment is used.
4. The size of operation is variable.
5. The process is worker-paced.
6. The type of layout used is the line flow.
7. Labor is still a big cost item.
 Machine-Paced Assembly Line this type of production process produces mostly
standard products with machines playing a significant role. Among its other features are as
follows:
1. The process is of clear, rigid pattern.
2. Specialized type of equipment is used.
3. The line flow layout is used.
4. Capital equipment is a bigger cost item than labor.
5. Operation is large
6. The process is machine-paced
Examples of machine-paced assembly line are automobile manufacturers like General
Motors and Ford Motors.
Continuous Flow processing is characterized by “the rapid rate at which items move
through the system.” This processing method is very appropriate for producing highly
standardized products like calculators, typewriters, automobiles, televisions, cellular
phones, etc.,
Its other characteristics are as follows:
1. There is economy of scale in production, resulting to low per unit cost of
production.
2. The process is clear and very rigid.
3. Specialized equipment are used.
4. The line flow layout is used.
5. Operations are highly capital intensive.
6. The size of operations is very large.
7. Processing is fast.
Batch/Continuous Flow Hybrid this method of processing is a combination of the
batch and the continuous flow. Two distinct layouts are used, one for batch and one for the
continuous flow. The typical size of operation is also very large giving opportunities for
economies of scale.
Examples of companies using the batch/continuous flow hybrid are breweries,
gelatin producers, and tobacco manufacturers.

Service Processes
Service processes are those that refer to the provision of services to persons by hand
or with machinery.
Service Factor
A service factory offers a limited mix of services which result to some economies of
scale in operation. This also affords the company to complete in terms of price and producing
the service.
Service Shop
A service shop provides a diverse mix of services. The layout used are those for job
shops or fixed position and are adaptable to various requirements.
Mass Service
A mass service company provide s service to a large number of people
simultaneously. A unique processing method is, therefore, necessary to satisfy this
requirement. To be able to serve many people, mass service companies offer limited mix of
services.
Professional Services
These are companies that provide specialized services to other firms or individuals.
Example of such firms are as follow:
1. Engineering or management consulting services which help in improving the plant
layout or the efficiency of a company.
2. Design services which supply designs for a physical plant, products, and promotion
materials.
3. Advertising agencies which help promote a firm’s products.
4. Accounting services.
5. Legal services.
6. Data processing services.
7. Health services.
Professional service firms offer a diverse mix of services. There is a lower utilization
of capital equipment compared to the service factory and the service shop. The process
pattern used is very loose. The process layout used is identical to the job shop.
Professional service firms are, oftentimes, faced with delivery problems brought
about by non-uniform demand. Strategies that may be used depending on the situation are
as follows:
1. The use of staggered work-shift schedules.
2. The hiring of part-time staff.
3. Providing the customer with opportunity to select the level of service.
4. Installing auxiliary capacity of hiring subcontractors.
5. Using multi-skilled floating staff.
6. Installing customer self-service.

IMPORTANT PARTS OF PRODUCTIVE SYSTEM

Productive systems consist of six important activities as follows:
1. Productive design
2. Production planning and scheduling
3. Purchasing and materials management
4. Inventory control
5. Work flow layout
6. Quality control

Product Design
Customers expect that the products they buy would perform according to assigned
functions. A good product design assures that this will be so. Customers avoid buying
products with poor product design.
Product design refers to “the process of creating a set of product specifications
appropriate to the demands of situation.

Production Planning and Scheduling

Production planning may be defined as “forecasting the future sales of a given
product, translating this forecast into the demand it generates for various production
facilities and arranging for the procurement of these facilities.”
Production planning is a very important activity because it helps management to
make decisions regarding capacity. When the right decisions are made, there will be less
opportunities for wastages.
Purchasing and Materials Management
Firms need to purchase supplies and materials required in the various production
activities. The management of purchasing and materials must be undertaken with high
degree of efficiency and effectiveness especially in firms engaged in high volume of
production. The wider variety of supplies and materials needed add to the necessity of
proper managing and purchasing of materials.
Materials management refers to “the approach that seeks efficiency of operation
through integration of all the material acquisition, movement, and storage activities in the
firm.”

Inventory Control
Inventory control is the process of establishing and maintaining appropriate levels of
reserve stocks of goods. As supplies and materials are required by firms in the production
process, these must be kept available when they are needed. Too much reserves of stocks
will penalize the firm in terms of high storage cost and other related risks like obsolescence
and theft. To little reserves, on the other hand, may mean lost off income production
activities are hampered. A balanced the two extremes must be determined.

Work-Flow Layout
Work-flow layout is the process of determining the physical arrangement of the
production system. In the transformation process, the flow of work may be done either
haphazardly or orderly. A good work-flow layout will have the following benefits.
1. Minimize investment in equipment.
2. Minimize overall production time.
3. Use existing space most effectively.
4. Provide for employee convenience, safety and comfort.
5. Maintain flexibility of arrangement and operation.
6. Minimize material handling cost.
7. Minimize variation in types of material-handling equipment.
8. Facilitate the manufacturing (or service) process.
9. Facilitate the organizational structure.

Quality Control
Quality control refers to the measurement of products or services against standard
set by the company. Certain standard requirements are maintained by the management to
facilitate production and to keep customers satisfied.
Poor quality control breeds customers complaints, returned merchandise, expensive
lawsuits, and huge promotional expenditures.
 CHAPTER 11: MANAGING THE MARKETING FUNCTION

MANAGING THE MARKETING FUNCTION

Engineer managers are engaged in the production of tangible and intangible goods.
Some of these engineer managers are directly responsible for marketing the company’s
products or services. If he is promoted as general manager, both the production and the
marketing functions become his overall concern.
At whatever management level the engineer manager works, he must be concerned
with convincing others to patronize his outputs. If he is the general manager of a construction
firm, he must convince people with construction needs to avail of the services of the
company. If he is the staff officer of the top executive, he must convince his boss to
continuously rely on him regarding the staff services he provides.

WHAT IS THE MARKETING CONCEPT?

Marketing is a group of activities designed to facilitate and expedite the selling of
goods and services.
The marketing concept states that the engineer must try to satisfy he needs of his
clients by means of a set of coordinated activities. When clients are satisfied with what the
company offers, they continually provide business.

THE ENGINEER AND THE FOUR P’S OF MARKETING

The engineering organization will be able to meet the requirements of its clients (or
customers) depending on how it uses the four P’s of marketing which are as follows:
1. The product (or service)
2. The price
3. The place, and
4. The promotion.

The Product
In the marketing sense, the term “product” includes the tangible (or intangible) item
and its capacity to satisfy a specific need.
The services provided by the engineer manager will be evaluated by the client on the
basis of whether or not his or her exact needs are met. When a competitor comes in the
picture and sells the same type of service, the pressure to improve the quality of services
sold will be felt. When improvement is not possible, “extras” or “bonuses” are given to clients.
An example is the construction company that provides “free estimates” on whatever
inquiries on construction are received.

The Price
Price refers to “the money or other considerations exchanged for the purchase or use
of the product, idea, or service.” Some companies use price as competitive tool or as a means
to convince the customer to buy. When products are similar in quality and other
characteristics, price will be strong factor on whether or not a sale will be made. This does
not hold true, however in the selling of services and ideas. This is because of the uniqueness
of every service rendered or every idea generated.
 When a type of service becomes standardized, price can be a strong competitive tool.
When a construction firm, for instance, charges a flat 10 percent service fee for all of its
construction services, a competitor may charge a lower rate. Such action, however, will be
subject to whether or not the industry will allow such practice.

The Place
If every factor is equal, customers would prefer to buy from firms easy accessible to
them. If time is of the essence, the nearest firm will be patronized.
It is very important for companies to locate in places where they can be easily reached
by their customers. Not every place is the right location for any company.
When a company cannot be near the customers, it uses other means to eliminate or
minimize the effects of the problem. Some of these means are:
1. Hiring sales agents to cover specific areas;
2. Selling to dealers in particular areas;
3. Establishing branches where customers are located;
4. Establishing franchises in selected areas.
Manufacturing companies can choose or adapt all of the above-mentioned options.
Service companies like construction firms adapt the modified versions. An example is the
engineer manager of a construction firm who gives commissions to whoever could negotiate
a construction contract for the firm.

The Promotion
When engineer managers have products or services to sell, they will have to convince
buyers to buy from them. Before the buyer makes the purchasing decision, however, he must
first be informed, persuaded, and influenced. The activity referred to, in this case, is called
promotion.
McCarthy and Perreault define promotion as “communicating information between
seller and potential buyer to influence attitudes and behaviour.”
There are promotional tools available and the engineer manager must be familiar
with them if he wants to use them effectively. These tools are as follows.
1. Advertising
2. Publicity
3. Personal Selling
4. Sales Promotion

Advertising
Nylen defines advertising as “a paid message that appears in the mass media for the
purpose of informing or persuading people about particular products, services, beliefs, or
action.” The mass media referred to include television, radio, magazines, and newspapers. If
the engineering manager wants to reach a large number of people, he may use any of the
mass media depending on his specific needs and his budget. Each of the public advertising
carriers, i.e., radio, television, magazines, and newspapers, has their own specific audiences
and careful analysis must be made if the engineering manager wants to pick the right one.
Publicity
The promotional tool that publishes news or information about a product, service, or
idea on behalf of a sponsor but is not paid for by the sponsor is called publicity. The mass
media is also the means used for publicity. If the engineer manager knows how to use it,
publicity is a very useful promotional tool. His message may be presented as a news item,
helpful information, or an announcement.

Personal selling
Amore aggressive means of promoting the sales of a product or service is called
personal selling. It refers to the “oral presentation in a conversation with one or more
prospective purchasers for the purpose of making a sale.”
Personal selling may be useful to the marketing efforts of the engineer manager. Of,
for instance, he is the general manager of a firm manufacturing spare parts, he may assign
some employees to personally seek out spare parts dealers and big trucking companies to
carry their product lines.

Sales Promotion
Any paid attempt to communicate with the customers other than advertising,
publicity, and personal selling, may be considered sales promotion. This includes displays,
contest, sweepstakes, coupons, trading stamps, prizes, samples, demonstrations, referral
gifts. Etc.

STRATEGIC MARKETING FOR ENGINEERS

Companies, including those managed by engineer managers, must serve markets that
are best fitted to their capabilities. To achieve this end, a very important activity called
strategic marketing is undertaken.
Under this set-up, the following steps are made:
1. Selecting a target market
2. Developing a marketing mix

Selecting a Target Market

A market consist of individuals or organizations, or both, with the desire and ability
to buy a specific product or service. To minimize sales and profits, a company has the option
of serving entirely or just a portion of its chosen market. Within markets are segments with
common needs and which will respond similarly to a marketing action.
An analysis of the various segments of the chosen market will help the company make
a decision on whether to serve all or some of the segments. The segment or segments chosen
become the target market.
In selecting a target market, the following steps are necessary:
1. Divide the total market into groups of people who have relatively similar product
or service needs.
2. Determine the profit potentials of each segment.
3. Make a decision on which segment or segments will be served by the company.
 A smaller company may find it most profitable to supply only the construction
material needs of the residential segment. A bigger company, however, may find it more
profitable to perform actual construction in addition to selling construction materials.

Factors Used in Selecting a Target Market

A target market must have the ability to satisfy the profit objectives of the company.
In selecting a target market, the following factors must be taken into consideration.
1. The size of the market, and
2. The number of competitors serving the market.
The total demand for the product or service in a given area must be determined first
if the company wants to serve that particular market. If there are existing businesses serving
the market, the net demand must be considered.

Developing a Marketing Mix

After the target market has been identified, a marketing mix must be created and
maintained. The marketing mix consist of four variables: the product, the price, the
promotion, and the place (or distribution).
Given a marketing environment, the engineer manager can manipulate any or all
variables to achieve the company’s goals. As such, the quality of the product maybe
enhanced, or the selling price made a little lower, or the promotion activity made a little more
aggressive, or a wider distribution area may be covered. Any or all of the foregoing may be
undertaken as conditions warrant.
 CHAPTER 12: MANAGING THE FINANCE FUNCTION

Engineering firms need funds to finance their operations. To be assured of continuous

supply of funds, there is a need to manage properly the finance function.
The engineer manager must understand that the finance function is a very important
management concern.

WHAT THE FINANCE FUNCTION IS

The finance function is an important management responsibility that deals with the
“procurement and administration of funds with the view of achieving the objectives of
business”.

THE DETERMINATION OF FUND REQUIREMENTS

Any organization, including the engineering firm will needs funds for the following
specific requirements.
1. To finance daily operations
2. To finance the firm’s credit services
3. To finance the purchase of inventory
4. To finance the purchase of major assets

FINANCING DAILY OPERATIONS

The day-to-day operations of the engineering firm will require funds to take care of
expenses as they come. Money must be made available for the payment of the following.
1. Wages and salaries
2. Rent
3. Taxes
4. Power and light
5. Marketing expenses
6. Administrative expenses

Any delay in the settlement of the foregoing expenses may disrupt the effective flow of
work in the company.

FINANCING THE FIRM’S CREDIT SERVICES

It is oftentimes unavoidable for firms to extend credit to customers. If the engineering
firm manufactures products, sales terms vary from cash to 90-days credit extensions to
costumers. Construction firms will have to finance the construction of the government
project that will be paid many months later.

FINANCING THE PURCHASE OF INVENTORY

The maintenance of adequate inventory is crucial to many firms. Raw materials,
supplies, and parts are needed to be kept in storage so they will be available when needed.
FINANCING THE PURCHASE OF MAJOR ASSET
Companies, at times, need to purchase major assets. When top managements decides
on expansion, there will be a need to make investment in capital assets like land, plant, and
equipment.

THE SOURCES OF FUNDS

1. Cash sales
2. Collection of accounts receivables
3. Loans and credits
4. Sale of assets
5. Ownership contribution
6. Advances from customers

SHORT-TERM SOURCES OF FUNDS

Loans and credit may be classified as short-term, medium-term, or long-term. Short-term
sources of funds are those with repayment schedule of less than one year. Collateral are
sometimes required by short-term creditors.
Advantages of Short-Term Credits. When the engineering firm avails of short-term
credits, the following advantages may be derived:
1. They are easier to obtain
2. Short-term financing is often less costly
3. Short-term financing offers flexibility to the borrower

Disadvantage of Short-Term Credits. Short-term financing has also some

disadvantage. They are as follows:
1. Short-term credits mature more frequently
2. Short-term debts may, at times, be more costly than long-term debts

Supplies of Short-Term Funds. Short-term financing is provided by the following:

1. Trade creditors
2. Commercial banks
3. Commercial paper houses
4. Finance companies
5. Factors, and

LONG-TERM SOURCES OF FUNDS

There are instance when the engineering firm will have to tap the long-term sources
of funds.
Long-term sources of funds are classified as follows:
1. Long-term debts
2. Common stocks, and
3. Retained earnings
THE BEST SOURCE OF FINANCING
As there are various fund sources, the engineer manager, or whoever is in charge,
must, determine which source is the best available for the firm.
To determine the best source, Schall and Haley recommends that the following factors
must be considered:
1. Flexibility
2. Risk
3. Income
4. Control
5. Timing
6. Others factors like collateral values, flotation costs, speed, and exposure.

Flexibility
Some fund sources impose certain on the activities of the borrowers. An example of a
restrictions is the prohibition on the issuance of additional debt instruments by the
borrower.
As some funds sources are less restrictive, the flexibility factor must be considered.
In general, however, short-term fund sources. This is so because after settling the debt, short-
term borrowers may shift to other types of financing. Long-term borrowers are given this
opportunity only after a longer period of waiting.

Risk
When applied to the determination of fund sources, risk refers to the chance that the
company will be affected adversely when a particular source of financing is chosen.
Generally, short-term debt “subjects the borrowing firm to more risk than does
financing with long-term debt” This happens because of two reasons:
1. Short-term debts may not be renewed with the same terms as the previous one, if
they can be renewed at all.
2. Since repayments are done more often, the risk of defaulting is greater.

Income
The various sources of funds, when availed of, will have their own individual effects
in the net income of the engineering firm. When the firm borrows, it must generate enough
income to cover the cost of borrowing and still be left with sufficient returns for the owners.
It is possible that the owners were enjoying higher rates of return on their investing
before borrowing was made. The reverse may happen, however, at other times.
Nevertheless, the effects on income must be considered in the source of funding to be used.

Control
When new owners are taken in because of the new capital, the current group of
owners can control the firm. If the current owners do not want this to happen, they must
consider other means of financing.
Timing
The financial market has its ups and downs. This means that there are times when
certain means of financing provide better benefits than at other times. The engineer manager
must, therefore, choose the best time for borrowing or selling equity.

Other Factors
There are other factors will consider in determining the best source of funds. They
are as follows:
1. Collateral values: Are there assets available as collateral?
2. Flotation cost: How much will cost to issue bonds or stock?
3. Speed: How fast can the funds required be raised?
4. Exposure: To what extent will the firm be exposed to other parties?

THE FIRM'S FINANCIAL HEALTH

In general, the objectives of engineering firm are as follows;
1. To make profits for the owners;
2. To satisfy creditors with the repayment of loans plus interest;
3. To maintain the viability of the firm so that customers will be assured of a continuous
supply of products or services, employees will be assured of employment, supplies be
assured of a market, etc.
The foregoing objectives have better chances of achievement if engineering firm is financially
healthy and has the capacity to be on a long-term basis.

INDICATORS OF FINANCIAL HEALTH

The financial health of an engineer can be determined with the use of three basic
financial statements. These are as follows:
1. Balance sheet-also called statement of financial position.
2. Income statement also called statement of operations
3. Statement of changes in financial position.

RISK MANAGEMENT AND INSURANCE

The engineer manager, especially those at the top level is entrusted with the function
of making profits for the company. This will happen if they are bought by improper
management of risks are avoided.
Risk is a very important concept that the engineer manager must be familiar with.
Risks confront people every day. Companies are exposed to them. Newspapers report on a
daily basis the destruction of life and property. Companies that could not cope with losses
are forced to shut down, according to reports.
Fortunately, the engineer manager is not entirely helpless. I can use sound risk
management practices to avoid the threat of bankruptcy due to losses.
Risk Defined
Risk refers to the uncertainty concerning loss or injury. The engineering firm is faced
with a long list of exposure to risks, some of which follows as follows:
1. Fire
2. Theft
3. Floods
4. Accidents
5. Nonpayment of bills by customers (bed debts)
6. Disability and death
7. Damage claim from other parties.

Types of Risk
Risks may be classified as either pure or speculative. Pure risk is one in which "there
is only a chance of loss." This means that there is no way of making gains with pure risks. An
example of pure risk is the exposure to the company's motors car due to theft. Pure risks are
insurable and may be covered by insurance.
Speculative risk is one in which there is a chance of either loss or gain. This type of
risk is insurable. An example of a speculative risk is investment in common stocks. If one
wants to make gains in the common stock market, the nuances and intricacies of investing
must be learned and properly applied. Also, operating the engineering firm is a kind of
speculative risk if profits are expected, then the management techniques must be used.

What is Risk Management?

Risk management is an organized strategy for protecting and conserving assets and
people. The purpose of risk management is "to choose intelligently from among the available
methods of dealing with risk in order to secure the economic survival of the firm"
Risk management is designed to deal with pure risks, while the application of sound manning
practices are directed towards speculative risk that are inherent and they are risky.

Methods of Dealing with Risk

There are several methods of dealing with risks.
1. The risk may be avoided
2. The risk may be retained
3. The hazard may be reduced
4. The losses may be reduced
5. The risk may be shifted

A person who wants to avoid the risk of losing a property like a house can do so by
simply avoiding the ownership of one. There are instances, however, when ownership
cannot be avoided like those for equipment, appliances, and materials used in the production
process. In this case, other methods of handling risk must be considered.
Risk retention is a method of handling risk wherein the management assumes the risk.
A planned risk retention, also called self-insurance, is a conscious and deliverable
assumption of a recognized risk. In this case, you decide to pay out of available funds.
Unplanned risk retention exists when management does not recognize that a risk exists and
unwisely believes that no loss could occur Hazards may be reduced by simply instituting
appropriate measures in a variety of business activities An example is prohibiting
unauthorized persons to enter the cashier's office. This will reduce the hazard of theft.
Another example is prohibiting company drivers from taking alcohol or drugs while on duty,
Newspaper reports on the accidental killing of three persons including Princess Diana is a
well-publicized case of drunken driving.
When losses occur in spite of preventive measures. The severity of the loss may be
limited by way of reducing the concentration of exposures. Examples of efforts on the
reduction are as follows:
1. Physically separating buildings to minimize losses in case of fire;
2. Using fireproof materials on indoor building construction;
3. Storing the store in several locations to minimize losses in cases of fire and theft;
4. Maintaining duplicate records to reduce accounts is in case of fire: construction;
losses in cases of fire and theft receivable losses;
5. Transporting goods in separate vehicles instead of concentrating high values in
single shipments;
6. Prohibiting key employees from traveling together, and
7. Limiting legal liability by forming several separate corporations.
Hedging refers to making commitments on both sides of a transaction so the risks
offset each other.
When a contractor is confronted with a contract larger than his company's capabilities,
it may invite sub-contractors in so that some of the risks may be shifted to them.
In a corporation, to stockholder, to make profits out of your investments, without
individual responsibility for any errors in decisions made by the management. The liability
of the stockholder is linked to his / her capital contribution.
To shift risk to another party, to company bays insurance. When a loss occurs, the
company is reimbursed by the insurer for the loss incurred subject to the term of the
insurance policy.
 Republic of the Philippines
Commission on Higher Education
Don Honorio Ventura Technological State University
College of Engineering and Architecture
Department of Civil Engineering
Bacolor, Pampanga

ENGINEERING MANAGEMENT
(EM 513)

Chapter 10, 11 & 12:

Management Production and Service
Operations,
Managing the Marketing Function,
and
Managing the Finance Function

Group 10:
Biliwang, Sheryl
Liwanag, Charl Resther
Aquino, Ethel Jane
Saron, Jocelyn
Sumang, Phoevee

Engr. Rosemarie Tolentino

Instructor