16
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MechChem Africa
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February 2017
A
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.
q
Mario on maintenance