MechChem Africa February 2017

MechChem Africa

•

February 2017

s a whole, engineers and other

like-minded technical people are

both very versatile and good at a

great many things. In fact, I think

remarkably versatile compared tomost other

disciplines. But there is one thing that prob-

ably trips upmost engineers, thingsmonetary,

especially writing financial motivations. I

know,becauseItooamanengineerandIregu-

larly encounter and see the frustrations and

consequences of failed capex justifications.

In my opinion, far too many sound engi-

neering projects are trashed simply because

the CFO is not persuaded. But, whether we

like it or not, without his or her blessing our

pet projects will not see the light of day.

If we are prepared to be honest with

ourselves, we have to admit that usually the

problem lies not in theproject or theCFO, but

in the way that we present our case. Simply

put, it isoftennot convincing infinancial terms

in the language of the personwho has to ‘sign

the cheque’ –or thesedays, authorise theEFT.

Now why should that be? Perhaps if we

put the CFO into our position, it would be

obvious that he or she would not even know

what questions to ask about the technical

aspects of the project, let alone understand

and interpret the answers, identify issues

and problems, work out solutions, come up

with designs, manage conflicting parameters,

etc. Why, then, would it not be the same, in

reverse, if we step into the CFOs shoes?

That, I believe, is the nub of the matter.

Neither party understands the language of

the other.

Wemust realise that theCFOcontrols the

purse strings. So, the ball is firmly inour court.

We therefore have no choice but to adapt our

strategy.What thismeans – andmany techni-

cal people seem to baulk at this – is that we

need to learn ‘money speak’. In reality, not only

money, but many other related things that go

with it. Things suchas expected life, quantities

and volumes, risks of many kinds, forecasts

and projections, return on investment, etc.

Why is this a problem for us? I believe we

are uncomfortablewith themsimply because

they are not in the usual technical curriculum.

In our study and training, all concentration

is on gaining technical expertise – and that

is usually more than enough for most of us.

The fact that financial understanding plays

such an important role at certain times in a

In the first Mario on maintenance column for 2017, Martec’s

Mario Kuisis shares advice for helping engineers communicate

effectively with CFOs.

Guidelines to help engineers prepare a financial justification for financial consideration

The proposal:

Details what is to be procured, fromwhom, when and for

what purpose; quantity, manufacturer, supplier, model,

etc; whether new, replacement or upgrade; and the op-

tions considered and reasons for a particular supplier.

Reason:

The rationale and alignment with organisational strategy.

Funding:

The proposed source of capital.

Use of funds:

Whether outright purchase, lease, rental, etc. and why.

Incremental costs:

Impact on depreciation, salaries/wages, consumables,

license fees, maintenance, calibration, training, storage,

safety requirements, etc.

Assumptions:

Relevant assumptions made in the justification.

Revenue and profit:

Evaluates the value of additional sales revenue, gross

margin or other financial benefit that will be realised;

where it will be seen in the accounts and when; payback

period; and explains the link between investment and

return.

Other expense:

Tabulates other operating expenses not already identified

and quantified (fuel, electricity, gas, insurance, tracker

fees, data fees, toll fees, factory space, etc).

Debt capacity:

Applicable if funding requires an increase in company

debt.

Intangible and other benefits:

Public perception, quality, morale, social upliftment, risks

mitigated, etc.

Risks:

Business risks associated with the investment, or not

making the investment, relevant to the proposal.

Benchmarking:

Relevant peer reviews if available.

The engineer’s nemesis

technical career is seldomrecognised as justi-

fying appropriate coursematter in a technical

syllabus. But, if the right words and numbers

are not in the financial motivation, it will

necessarily be rejected because a complete

picture is not conveyed.

The subject of this column ismaintenance.

Unfortunately, this is often amongst themost

difficult of areas forwhich topreparefinancial

motivations. This is because we are usually

dealing with a great many grey areas fraught

with uncertainty, such as unplanned failures,

uncertain asset life, design changes, impaired

performance, safety and environmental is-

sues, etc.

Also, many of the proactive initiatives

previously spoken about in this column

cannot be motivated on the basis of yields

and production achieved, but on the rather

more nebulous concept of failures and con-

sequences prevented. Nebulous because it is

usually difficult to ascribe a value and hence

return on investment to something that may

not necessarily happen.

So what to do?

The only solution is to take the trouble to

learn enough about the financial tick boxes,

the perspectives and language of expression

so thatwe canget ourmessage across. Having

done that, the rest is easy, as our disciplined

approach lends itself to completing thepuzzle

very well. Each business and situation is dif-

ferent and changes with time, but there are

some basics that apply in most situations.

The considerations in the table beloware not

exhaustive but should be helpful to anyone

who is in the starting blocks to prepare a

justification. It assumes approval is required

for purchasing something, but the principle

applies equally well to other forms of invest-

ment in assets or resources.

Most technical people will find the above

perfectly manageable, once they decide it

is worth doing. The most serious challenge

will come from the thing that most engineers

struggle with. How to convey the message

succinctly so that the CFOwill both read and

understand it.

A good target is to make the execu-

tive summary fit onto one page or, if in a

PowerPoint format, on amaximumof 5 slides.

This goal is to create sufficient interest for

theCFOtowant to look further. Thinkyoucan

do it? Sure you can.

Mario on maintenance