Performance measurement and management for engineers Michele Arnaboldi, Giovanni Azzone, Marco Giorgino

This book introduces key concepts in finance, accounting, and management to project managers who have engineering backgrounds. It focuses these basic concepts on issues of measuring and managing enterprise value. After defining enterprise value, the book explains the ways and means of measurement. It then takes up financial measurement, describing and analyzing the typologies of financial indicators while illustrating their advantages and disadvantages. After focusing on measuring enterprise value, the second section takes up managing that value. Like the first, it pursues a double view: using indicators for internal control while employing them to analyze other companies. Coverage includes: how to assess the financial needs of companies in relation to their financial goals and mechanisms (e.g., equity, debt, and hybrid); key information and indicators for assessing the ability of enterprises to create value; and the profitability sources of different business units.

Front Cover; Performance Measurement and Management for Engineers; Copyright Page; Contents; Acknowledgments; 1 Introduction; 1.1 What is Enterprise Value?; 1.2 How to Manage Enterprise Value: Enlarging the Performance Measurement Toolkit; 1.3 Why to Manage Enterprise Value: A Multistakeholder Perspective; 1.3.1 Enterprise Stakeholders; 1.3.1.1 Shareholders; 1.3.1.2 Debtholders; 1.3.1.3 Other Stakeholders; 1.3.1.4 Financial Analysts; 1.3.2 External Accountability; 1.3.2.1 Disclosure; 1.3.2.2 Corporate Governance; 1.3.3 Internal Accountability; 1.3.3.1 Decision Making and Indicators. 1.3.3.2 Motivation1.4 Concluding Remarks; 2 Value-Based Management Indicators; 2.1 Value-Based Indicators; 2.1.1 Direct Measurement of Economic Value; 2.1.1.1 Strategic Perspective; 2.1.1.2 Financial Analysis; 2.1.1.2.1 Cost of Capital; 2.1.1.2.1.1 The Equity Cost of Capital; 2.1.1.2.1.2 The Firm Cost of Capital; 2.1.1.2.2 Net Cash Flow Estimation; 2.1.1.2.3 Terminal Value and Real Options; 2.1.1.3 Present Value Computation: Enterprise and Equity Value; 2.1.2 Relative Valuation; 2.1.2.1 Defining Comparable Companies; 2.1.2.2 Defining Possible Multiples; 2.1.2.2.1 Enterprise Value Multiples. 2.1.2.2.2 Equity Multiples2.1.2.3 From Multiples to Value; 2.1.2.4 How to Adapt Relative Valuation to Estimate Terminal Value; 2.1.3 VB Proxies; 2.1.4 Risk Value Indicators; 2.1.5 Characteristics of VB Indicators; 3 Accounting-Based Measures; 3.1 Traditional Accounting Ratios: ROE and ROI; 3.1.1 ROI and Its Subcomponents; 3.1.2 Operating Activity: Further Indicators; 3.1.3 Characteristics of Ratio Indicators; 3.2 Residual Income and EVA; 4 Value Drivers; 4.1 Nonfinancial Performance Indicators; 4.1.1 Time Indicators; 4.1.2 Quality Indicators; 4.1.3 Productivity Indicators. 4.1.4 Flexibility Indicators4.1.5 Environmental and Social Responsibility Driver; 4.2 Nonfinancial Resource State Indicators; 4.3 Characteristics of Nonfinancial Performance and Resource Indicators; 4.4 Risk Drivers: Key Risk Indicators; 4.4.1 Characteristics of KRI Indicators; 5 Scorecards; 5.1 Balanced Scorecard; 5.1.1 Choosing Indicators: Second-Generation BSC; 5.1.2 Other Types of Scorecards; 6 Target Setting: Budgeting and Risk Management; 6.1 Budgeting; 6.1.1 Defining Targets: Explicit and Implicit Systems; 6.1.2 Integrating Targets Among Organizational Units. 6.1.2.1 The Integrated Approach: Master Budget6.1.2.1.1 Sales Budget; 6.1.2.1.2 Production Budget and Budgeted Inventory Level; 6.1.2.1.3 Cost of Sales Budget; 6.1.2.1.4 Period Cost Budget; 6.1.2.1.5 Capital Budget; 6.1.2.1.6 Cash Budget; 6.1.2.1.7 Budgeted Cash Flow Statement; 6.1.2.1.8 Detailed Cash Budget; 6.1.2.1.9 Budgeted Financial Statements; 6.1.2.2 The Adaptive Approach; 6.2 Enterprise-Wide Risk Management; 6.2.1 Origin of ERM; 6.2.2 ERM Framework and Components; 6.3 Budgeting and ERM: Organizational Configurations; 7 Long- and Short-Term Decision Making.