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1 ISSN 2046-1305 MANUFACTURING MANAGEMENT The International Journal of The Institute of Manufacturing Volume 2 No. 2 October 2015 The Institute of Manufacturing PO Box 93 www.instituteofmanufacturing.org.uk Moreton-in-Marsh GL56 9WG [email protected] United Kingdom The Institute of Manufacturing is a trading name of Industrial Management Specialists (IMS) Ltd. Registered in England No: 990098 Registered Office: Highdown House, 11 Highdown Road, Sydenham, Leamington Spa, Warwickshire, CV31 1XT, England

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Page 1: Manufacturing Management Vol 2 No 2

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ISSN 2046-1305

MANUFACTURING MANAGEMENT

The International Journal of The Institute of Manufacturing

Volume 2 No. 2 October 2015

The Institute of Manufacturing PO Box 93 www.instituteofmanufacturing.org.uk Moreton-in-Marsh GL56 9WG [email protected] United Kingdom

The Institute of Manufacturing is a trading name of Industrial Management Specialists (IMS) Ltd. Registered in England No: 990098

Registered Office: Highdown House, 11 Highdown Road, Sydenham, Leamington Spa, Warwickshire, CV31 1XT, England

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THE JOURNAL OF THE INSTITUTE OF MANUFACTURING

VOLUME 2 NUMBER 2 OCTOBER 2015

CONTENTS Editorial 2

Message from the President 3 Member Profile: Mr Hon Chi Kwong FIManf 4

Heathrow Expansion 5 Certificate in Negotiation 7 Consultancy – The Secrets of Success 8Tools of the Trade Series – No 6 by David Benjamin London Business & Vocational College 9 Maintaining Good Client Relationships in Contemporary Investments 10

by Prof Samuel Lartey Cost of Quality for Construction Projects: A Fresh Look by Dr Ron Basu 12 Course Options 16 Executive Diploma in Manufacturing 17 The New Regulation on CCTV and Surveillance Camera Technology in the UK 18

by Andreas Nickolaos Akratas Certified Manufacturing Practitioner 21 Making Quantitative Analysis and Modelling Payoff 22

by Dr Forster Kum-Ankama Sarpong IMS Professional Diploma in Project Management Development 23 HP-Autonomy Acquisition Scandal by Professor Dr Rabbi Abe Abrahami 24 The Institute of Management Specialists’ Specialised Manager Award 27

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Editorial As part of our continuing restructure of the Institute we are introducing a new postal system and all postal mail should now be addressed to:

THE INSTITUTE OF MANUFACTURING PO BOX 93

MORETON-IN-MARSH GL56 9WG

UNITED KINGDOM We offer our congratulations to Mr Hon Chi Kwong, Life Fellow of IManf, for his success in qualifying for the Certified Manufacturing Practitioner by the writing of his thesis “Lean Concept and Techniques in Manufacturing”. Please see Mr Hon’s profile on Page 4 of this journal. News of a course in Negotiation was previously announced and we are pleased to advise that it has now been completed and is ready for members to study. The Certificate in Negotiation is a short course of flexible duration, tutored by our President, David Benjamin. Candidates must answer a series of questions as they work through the course notes and enhance their learning by

selecting one or more books from the suggested reading list to study, and are finally examined by the writing of a mini-thesis. Upon successful completion of the course, graduates will be entitled to use the designation ‘Certified Industrial Negotiator’ and the post-nominals Cert.Neg. (IManf). We would appreciate articles from members and readers for the next edition of this E-Journal to be published in April 2016; please submit articles by mid-March at the latest for inclusion.

Dr Lynne P Sykes Executive Administrator

The Institute of Manufacturing

Join our Group Institute of Manufacturing http://www.linkedin.com/groups?home=&gid=4902778&trk=anet_ug_hm

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A Message from your President

We are approaching the end of yet another year and I am delighted to report that our Institute is going from strength to strength. As you are aware, my aim is to place our Institute in centre place on the world stage. All British professional bodies

are prestigious and are the envy of the world, but in my view this is simply not enough. We have the determination to be the very best by offering our students and members preferential services which others, as yet, can only seek to achieve. To date we offer such services as speech writing and consultancy, and more services are already in the pipeline, for my vision is not only to offer the very best but to demand the very best. By so doing, our Institute can rightly take its place as a world leader in the field of professional competence and dedication. Achievement in this respect is my aim – and achieve we shall! Each individual member, whether Student or Fellow, has his part to play. Your Institute can only achieve with your help. We have joined together as a group of professionals dedicated to the cause of furthering our interests and as such it behoves us to offer our dedication and loyalty to the furtherance of our cause. In other words, become involved! If you feel you could assist perhaps by writing an article for our journal, or possibly by mentoring a

student or even advertising our professional body to your colleagues, you would be doing your Institute a valuable service. As the late President Kennedy once remarked “Ask not what America can do for you but what you can do for America”. The same can be applied to our Institute. Your Institute is of course there to support you in your professional career: have you considered how you might be able to support it? Your comments and suggestions would be welcomed, for our strength lies not only in our dedication to the cause of professionalism but in our members, whatever their grade. Each individual member forms an integral part of the backbone of our very being, and this is something which we must never forget. I should like to take this opportunity of congratulating Mr Hon Chi Kwong upon his recent examination success in qualifying for the Certified Manufacturing Practitioner award. Our Institute offers its members the opportunity to advance not only in their careers but in their degree of professional awareness and competence. Let us therefore work together to advance the cause of professional dedication: by so doing we shall become a force to be reckoned with.

David Benjamin President

The Institute of Manufacturing [email protected]

Submit your academic paper on Management for publication in the Institute of Management Specialists Management E-Library

Authors should write a

summary of their work for The Management Specialist

E-Journal [email protected]

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Institute of Manufacturing Member Profile

Mr Hon Chi Kwong FIManf

The Institute of Manufacturing is delighted to congratulate Mr Hon Chi Kwong, Life Fellow of IManf, for his success in qualifying for the Certified Manufacturing Practitioner by the writing of his thesis “Lean Concept and Techniques in Manufacturing”. Mr Hon’s

thesis discusses the use of lean in a typical manufacturing company consisting of molding process, assembly process and packing process. Mr Hon has twenty years’ work experience in the manufacture of injection molded parts, spray painted parts, toys, electrical appliances, electronic premium and metal parts. He is currently QA Manager with Electa Industrial Company Limited in Hong Kong, and has held previous positions of QA Engineer, Quality Manager and Factory Manager. Mr Hon’s academic qualifications are: Diploma in Mechanical Engineering

(Awarded by Kwai Chung Technical Institute in 1987)

National Diploma in Engineering (Awarded by BTEC in 1987)

Higher Diploma in Manufacturing Engineering (Awarded by Hong Kong Polytechnic in 1990)

Parts 1, 2 and 3 Certificate for Telecommunication Technician (Awarded by C&G 1991–1993)

Certificate for Quality Assurance (Awarded by C&G in 1994)

Full Technological Certificate for Telecommunication Technician (Awarded by C&G in 1996)

Bachelor Degree in Business Administration (Awarded by OLI of Hong Kong in 1996)

Master Degree in Marketing (Awarded by University of Leicester in 2000)

Master Degree in Total Quality Management (Awarded by Sheffield Hallam University in 2003)

Executive Diploma in Six Sigma Black Belt (Awarded by HKU SPACE & SSI in 2010)

He also holds the following professional qualifications: Fellow Member of The Institute of

Manufacturing Senior Member of American Society for

Quality Vocational Qualification Certificate on

Calibration ASQ Certified Quality Engineer ASQ Certified Six Sigma Black Belt CAQ Certified Quality Manager Certified Plastic Engineer Member of Chartered Quality Institute HKQMA Registered Quality Manager

The  Institute of Manufacturing  is now  listed  in  the  Institutes Directory United Kingdom of  the University Directory  (UD) (http://www.university‐directory.eu),  together with  our  courses,  the Associate Diploma in Manufacturing and the and Executive Diploma in Manufacturing.  

http://www.university‐directory.eu/United‐Kingdom/The‐Institute‐of‐Manufacturing‐IManf.html The University Directory  is  an  international  online  information  system  available  to  and  involving  academic  institutions, allowing academics worldwide the opportunity to seek out Higher Education institutions and their courses or job offers in a simple and direct way. Currently  the UD  lists more  than 50,000 academic  institutions  (universities,  institutes,  colleges, etc.), about 250,000  job offers and about 550,000  subjects,  courses, programs and degrees. Approximately 25,000 academics  visit  the UD daily, viewing circa 100,000 pages.  Since the beginning of the 2011  interested parties have had the opportunity to research courses, degrees, programs and job vacancies at the UD if the institution has published the relevant details. 

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Heathrow expansion to create 95,000 new UK manufacturing jobs Posted in The Manufacturer on 7 Oct 2015 by Victoria Fitzgerald

Government plans for the

Northern Powerhouse will

be boosted by up to 26,400

new manufacturing jobs if

Heathrow is allowed to expand, according to

new research out today. With the Conservative Party Conference currently underway in Manchester, Heathrow is calling on Government to make a decision for all of Britain by giving the green light to the airport’s new plans for expansion and creating almost 95,000 new manufacturing jobs across the country. Heathrow highlights: Industry unite with Heathrow in calling on

Government to deliver almost 95,000 new manufacturing jobs for Britain

85% will be generated outside London and the South East

New research reveals Northern Powerhouse has most to gain from Heathrow expansion, benefiting from up to 1 in 4 of the new manufacturing jobs created

The research, undertaken by consultancy Quod, shows that up to 1 in 4 (28%) of the new

manufacturing jobs generated by Heathrow expansion would be based in the Northern Powerhouse. More broadly, 85% will be created outside London and the South East. In keeping with the geographical spread of new jobs anticipated in the manufacturing sector, 60% of the total economic benefit predicted by the Airports Commission as a result of expanding Heathrow will be generated outside of London and the South East. The manufacturing sector would be one of the greatest benefactors of new jobs fuelled by a third runway at Heathrow, accounting for more than 50% of the 179,800 total predicted by the Airports Commission. As a trade-intensive industry, the sector is expected to benefit significantly from new and improved trade links, as well as from the ripple effect of Heathrow related growth across other sectors. Additionally, manufacturing is a key part of the aviation supply chain, and is likely to benefit directly as the sector increases purchasing.

Table 1: Distribution of additional UK manufacturing jobs generated by Heathrow expansion in 2050, Quod October 2015 Range of net additional jobs

in manufacturing in 2050 Proportion of total net

additional manufacturing jobs in 2050 (%)

Northern Powerhouse 26,200 – 26,400 28% Midlands 21,300 – 21,600 23% – 23% London and South East England 13,300 – 14,100 14% – 15% The South West 8,700 – 10,600 9% – 11% The East of England 8,400 – 8,700 9% Scotland 5,600 – 6,900 6% – 7% Wales 5,600 – 6,000 6% Northern Ireland 3,000 – 3,400 3% – 4% TOTAL 94,900 100%

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An expanded Heathrow is claimed to be a significant boost for the industry, which is responsible for over half of all British exports. Last week, figures released by the Office for National Statistics (ONS) revealed that manufacturing output in the UK remains 5.5% below its level on the eve of the 2008 economic recession. Recent research by BIS and the Government Office for Science predicts that manufacturing in 2050 will look very different from today, and will be virtually unrecognisable from that of 30 years ago.

Rolls-Royce’s new Heathrow Service Centre

It identifies the following key characteristics of future manufacturing: Manufacturing will be more responsive and

closer to customers – including a greater reliance on global markets. Patterns of global trade and investment will determine the relative importance of the countries to which the UK exports and from which it imports;

High-tech is likely to remain an area of UK advantage – currently at 4.7%, the UK’s share of global high technology manufacturing exports is relatively strong. Current high-tech sectoral strengths include pharmaceuticals, aerospace, chemicals, and the automotive sector;

There will be a greater reliance on higher-skilled workers as the sector moves away from elementary, process and heavy

manufacturing and towards smaller more complex models.

CEO of Heathrow Airport, John Holland-Kaye commented: “Expanding Heathrow will supercharge Government plans for the Northern Powerhouse. “Today, airlines operating from the UK’s hub are forced to make a false choice between developing new routes to cities like Chengdu and Mexico City and maintaining domestic services. “That means exporters in areas like Merseyside, Humberside and Teesside are locked out of Heathrow, Britain’s biggest port by value. Every day we delay is a day we’re restricting the growth of British business. “It is time for Government to heed the unanimous and unambiguous recommendation of the Airports Commission. It’s time to expand Heathrow for the whole of the UK.” Terry Scuoler, CEO of EEF, added: “Heathrow is a global freight hub and a crucial gateway for Britain’s manufacturing exporters, making its expansion the right choice for industry and the country. “With the opportunity for growth and new jobs identified in this report, it reaffirms that it is important for the Government to make a clear choice and to press ahead with delivering this much-needed improvement to our national infrastructure.” See more at: http://www.themanufacturer.com/articles/heathrow-expansion-to-create-95000-new-uk-manufacturing-jobs/#sthash.tj0cPQB0.dpuf

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The Institute of Manufacturing www.instituteofmanufacturing.org.uk  

Certificate in Negotiation

Tutored by David Benjamin, President of The Institute of Manufacturing, drawing on his own experiences of negotiation and arbitration over many years, concentrating on the practical aspects of the skilled negotiator. Upon successful completion of the course, graduates will be entitled to use the

designation ‘Certified Industrial Negotiator’ and the post-nominals Cert.Neg. (IManf).

Method of Study: Distance Learning

Expected Duration: 6 months

Fee: GBP 50 for Members of IManf; GBP 120 for Non-Members (Course Materials included)

Course Contents:

Negotiation: the definition and purpose of effective discourse; Types of negotiation in industry and commerce;

The trade union movement: early history and political influence;

The shop steward: duties and representation in industry; The decline of the trade union in modern times;

The closed shop and its consequences; A critical analysis of your opponent;

Preparatory considerations prior to negotiation; The effective skills and their purpose;

Professionalism and dedication to the cause; The professional techniques of negotiation

Respect and courtesy during the negotiating process; Evaluation of strengths and weaknesses;

Knowledge, skill and experience; The meeting; Introduction of personalities involved; Strategic assessments;

Observation and assessment of the major issues; The importance of being a good and patient listener;

How to use the strength of your opponent against him/her; How to raise an effective issue;

How to avoid a potentially unpleasant issue; Sociological and educational reforms in industry;

The consequences of industrial action; The health and safety of employees;

Progression: corporate opportunities for advancement; The art of maintaining a contented workforce;

Involvement: the art of ensuring that a workforce member never feels underestimated;

The importance of teamwork

Contact: [email protected]

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Consultancy – the Secrets of Success by

David Benjamin CompIManf, FAEA, FFPBTM, FSSM Tools of the Trade Series – No 6

As a management consultant, much is expected of you. Client expects you not only to identify and solve existing problems but to conduct yourself as a dedicated professional at all times. To put it simply, he is paying you a considerable fee

for your services and, as such, is entitled to expect the very best. Not only are you expected to eradicate problems – you are expected to ensure to the very best of your ability that such problems do not recur. It is a proven fact that many consultants new to the profession are lacking in three major fields, Knowledge, Skills and Experience. Whilst a university degree is useful – one cannot deny that – the fact of the matter is that without the necessary experience an assignment is often doomed to failure. That is precisely why a new consultant should spend at least five years working alongside and assisting a professional consultant. In the consultancy profession a degree does not guarantee success: theory is all well and good, but knowledge of the practicalities of the profession is absolutely essential. Without such knowledge the assignment would be doomed to failure. Client expects much of you, and expects you to justify your fee by a display of nothing less than dedicated professionalism. A company may decide to call in a consultant for a variety of reasons. Some companies will seek your advice whilst others will be encountering serious problems which you are expected to solve. That is precisely what you are paid to do, and that is exactly what you must do! In the majority of cases, the executives of a potential client company will be looking at the problem from a fixed perspective: in other words they know the iceberg is there but are only able to see the small section which is above the surface. Furthermore it is a fact that many members of senior management are unaware of what exactly happens in their organisation. Like it or not, this

is a fact which has been proven many times over the years. Your job is not only to see the tip of the iceberg but to dive down and examine that part which others either cannot – or in some cases prefer not – to see. Always remember the old adage which states ‘the labourer is worthy of his hire’. Likewise the consultant must prove himself worthy of his fee. It is of the utmost importance that you are able to uphold the professional standards expected of you. The following hints, acquired by virtually a lifetime’s experience, will assist you greatly. Believe in your capabilities at all times. There is no room for doubt in this profession. Always act in a dedicated professional manner: never ever forget that you are a professional doing a professional’s job. Interact with Client: by so doing his confidence and faith in your capabilities will become apparent. Always insist that you have free range: restrictions of whatever nature cannot be permitted. Show respect to those with whom you are dealing, be it a managing director or an operative on the factory floor; this will inspire confidence. Always consider the human element: an employee at whatever level is a human being, not an automaton. In my long experience, many executives – and some personnel managers – seem incapable of understanding the importance of this. And such people wonder why they have serious labour problems! Study your assignment very carefully indeed: there is no room for mistakes, as even the simplest of errors could prejudice the success of an assignment. Indeed, in the hands of inexperienced consultants this has actually happened. Every consultancy project is complex. This is precisely why Client has instructed you, because he has come across something which he himself cannot handle, therefore every project must be treated with the utmost care, consideration and expertise – and only practical experience can provide the level of expertise demanded. No two

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assignments are ever alike: several years ago someone attempted to divide them into classifications and failed miserably. Never ever be afraid to use unorthodox methods if they are called for – and in many cases they are! Undercover infiltration is one such method which has been used with great success over the years. This is one of the reasons why you must insist upon having free range, for if you do not, your assignment could well be doomed to fail. There can be absolutely no restrictions if you wish to undertake an assignment and bring it to a successful conclusion. Believe both in yourself and your capabilities as a professional: this will be ably demonstrated in your body language –

and others will believe in you too. Actions speak louder than words – so act! That is what Client is paying you to do, isn’t it? Take whatever steps you deem necessary: Client expects you to do this: he wants to see action, remember? Finally, if you have the courage of your convictions backed up by a considerable degree of KSE, you will succeed. Dismiss all doubts from your mind, for he who doubts is lost, and that is something which must never happen. Uphold your professional standards at all times, bear in mind the suggestions I have laid down and you will succeed.

LONDON BUSINESS & VOCATIONAL COLLEGE 

 (Formerly Tutorial College of Commerce) 

 

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐  

The College was founded in 1979. It offers various levels of Business Management courses to qualify  for entrance to membership of several professional bodies, including: 

Institute of Professional Financial Managers (IPFM) 

The Association of Multi‐Skills (AMS) 

European Institute of Financial Directors (EIFD) 

The Institute of Management Specialists (IMS) 

Faculty of Professional Business and Technical Management (FPBTM) 

The Academy of Executives & Administrators (AEA) 

Chartered Institute of Sales and Marketing (CISAM)  

The College also offers various vocational courses in Early Childhood Studies including, The Society of  Nursery Nursing Practitioners professional examinations, exemptions and membership.  

 

Further information may be obtained from: The Registrar 

London Business & Vocational College 40 Archdale Road 

East Dulwich, London SE22 9HJ T/F: +44(0)208 693 0555    M: +44 (0)7983 25 46 95 

E: [email protected]          [email protected]   

About the Author: David Benjamin is a retired industrial security management consultant and contractor and has acted as a consultant in the field of human resources management over many years. He is an approved examiner for a professional body and has published several papers on the subject of positivity and self-belief. Additionally he is a skilled negotiator and has considerable experience of resolving problems in industry with professionalism and amicability. He has been honoured by the Commonwealth of Kentucky for services rendered.

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Maintaining Good Client Relationships in Contemporary Investments by

Prof. Samuel Lartey [email protected]

Good relationships have always been important, but in a situation in which the banks are changing and consolidating their operating structures, it may be more difficult to establish and maintain a good relationship based on your

generic reports. Today, the one-to-one relationship of the past between the financial aspirations of the individual or the owner of a business and a bank may no longer be entirely appropriate or easy to achieve through reports by word of mouth but rather more on the cash flows and financial statements of the clients. Therefore, a planned approach to relationships with the bank has to do with understanding cash flows and maintaining a good financial report. The most common communication tool between these actors is the financial statement. A financial statement (or financial report) is a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand. They typically include basic financial statements, in the form of cash flows and usually accompanied by a management discussion and analysis. 1. A balance sheet, also referred to as a

statement of financial position, reports on a company’s assets, liabilities, and ownership equity at a given point in time.

2. An income statement, also known as a statement of comprehensive income, statement of revenue & expense, P&L or profit and loss report, reports on a company’s income, expenses, and profits over a period of time. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period.

3. A statement of changes in equity, also known as equity statement or statement of retained

earnings, reports on the changes in equity of the company during the stated period.

4. A statement of cash flows reports on a company’s cash flow activities, particularly its operating, investing and financing activities.

In some Small Medium including Large Enterprises (SMILEs), these statements may be complex and may include an extensive set of footnotes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization’s financial position. Financial reports are intended to be understandable by readers who have a fair knowledge of business and economic activities and accounting and who are willing to study the information diligently. Financial statements may be used by users for different purposes some of which include: Owners and managers require financial

statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management’s annual report to the stockholders.

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Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labour unions or for individuals in discussing their compensation, promotion and rankings.

Prospective investors make use of financial

statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions.

Financial institutions (banks and other

investment companies) use them to decide

whether to grant a company with fresh working capital or extend debt securities to finance expansion and other significant expenditures.

Personal financial statements may be required

from persons applying for a personal loan or financial aid. Typically, a personal financial statement consists of a single form for reporting personally held assets and liabilities (debts), or personal sources of income and expenses, or both. The form to be filled out is determined by the organization supplying the loan or aid.

The Institute of Manufacturing  Reciprocal Membership Organisations 

 

 United Kingdom 

Institute of Management Specialists Faculty of Professional Business and Technical Management 

Academy of Executives & Administrators Academy of Multi‐Skills 

Institute of Professional Financial Managers Society of British Business  

 Republic of South Africa 

Design, Technology and Management Society International  

Nigeria Chartered Institute of Cost and Management Accountants * 

  

Note * Members will need to demonstrate a minimum of two years’ experience in cost accounting 

About the Author: Prof. Samuel Lartey is a business philosopher. He is an expert in Financial Information and Computer Management Systems. Samuel is familiar with multi-million country-wide financial projects. He is a Motivational Speaker and a Teacher. He holds a Doctor of Letters (D.Litt.) in Financial Information and Computer Management Systems, a PhD in Financial Management, an MBA in Management Information Systems, and a B.A. in Social Science. You can contact him on [email protected] or on [email protected] for mentoring and speaking engagements.

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Cost of Quality for Construction Projects: A Fresh Look by

Dr Ron Basu The Concept of COQ The concept of ‘the cost of quality’ is not new. In fact Juran first discussed the cost of quality analysis as far back as 1951. However it is Feigenbaum who should be credited with the definition of the cost of quality when he identified the four cost categories in 1956. These can be classified as Prevention Costs, Appraisal Costs, Internal Failure Costs and External Failure Costs. Both concept and categories have been followed basically in the same format ever since. Prevention Costs and Appraisal Costs are often defined using one of three terms: as the Cost of Control, the Cost of Conformance or the Cost of Good Quality. Regardless of the label used, this refers to the outlay of setting up and managing a quality management team with clearly defined processes. Similarly, Internal Failure Costs and External Failure Costs are also combined to be known as the Cost of Failure, the Cost of Non-

conformance or the Cost of Poor Quality. These are the expenses of defects and reworks arising from poor quality management. Thus the basic theory is quite simple; however, the challenge lies in defining and measuring each of the sub-components leading to the four major cost categories. As they say, the devil is in the detail. It is a bit like having a baby – easy and pleasing to conceive but rather more painful to deliver! Traditional and Modern Views The traditional view is that as the Cost of Control increases the Cost of Failure decreases until it reaches a point beyond which the total cost of quality increases. In other words, from this point the cost of improving quality becomes larger than the derived benefits. This is sometimes called the ‘optimum point’ of quality effort (see Figure 1).

Figure 1. Traditional cost of quality However with the application of Total Quality Management (TQM) and Six Sigma processes, the traditional view outlined above becomes challenged. Some precision manufacturing operations (and even service operations such as air transport) can accept zero-defect or Six Sigma standards. Furthermore, the traditional model implies that the Cost of Control is high in proportion to the Cost of Failure. Increased

quality is not achieved by more inspectors but instead by a culture of quality assurance underpinned by initial training. As time progresses they may incur some charges for additional training for improved processes; however this will not be at the same rate as for the early stage of a quality programme.

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If we incorporate corrections from the total quality culture then the time-honoured Cost of Quality model would change to the representation as shown in Figure 2. It is true that there may not be enough data to validate the optimum point of the Total Quality Cost. However, the significant

savings generated by project-based Six Sigma or Lean Sigma programmes supports the fundamental argument. This is quite simply that a diminishing total cost of quality is achieved by following a sustainable continuous quality improvement programme (Basu, 2011).

Figure 2. Present cost of quality COQ in the Construction Industry Now we can reason that activities related to COQ are showing favourable results in both the manufacturing and service industries thanks to holistic quality programmes. However the picture is very different in the field of project management. A most significant gap in the project management body of knowledge is the cost of quality (Basu, 2014). The application of Six Sigma in major projects is also limited (Basu, 2012). Nonetheless, one project sector in which the potential of COQ is beginning to be recognised is construction (Love et al 2003). While we appreciate the role of quality in construction projects, we do need to understand much more how we can define and measure the dimensions of the cost of quality. In particular it is vital to gauge the external costs of failure due to poor quality delivery during design and construction. In turn, these external expenses then

affect the operational performance and outlay of assets post-handover. Anecdotal evidence suggests that construction project insurance accounted for 1.5% of project costs. If we conclude that this is caused by a failure in quality then the figure we are looking at amounts to as much as 1.5% of £120 billion (i.e. £1,800 million) annually in the UK alone, an astronomical sum. More reassuringly, there are further nuggets of wisdom to be gleaned that will help us to ameliorate this sort of situation. In order to find them, we need to define and measure by empirical research the key metrics of COQ as applied to construction projects. The COQ Metrics As a start, let us attempt to apply Feigenbaum’s four categories of COQ with some typical examples of the metrics of each category for construction projects. We would develop Table 1 as an outline, as shown below:

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Table 1: Cost of Quality in Construction Projects Cost of Control Cost of Failure Prevention Costs Appraisal Costs Internal Failure Costs External Failure Costs Examples of Metrics - Quality

Management Systems and Procedures

- Quality Related Information System

- ISO Certification - Etc.

Examples of Metrics - Quality

Management Staff - Quality Audits - Quality Training - Review Meetings - Etc.

Examples of Metrics - Non-conformance - Non-conformance

resolution and rework

- Certificates of conformance

- Etc.

Examples of Metrics - Insurance claims - Maintenance - Asset availability - Etc.

The above metrics in each category are shown as examples only and these are extended depending on the nature of the projects and quality specifications. Cost of Control is usually easily measurable at the early stage of the project life cycle. Major construction projects have started measuring and monitoring Internal Failure Costs during the design and construction phases of the project (Basu et al, 2009). However a key area that remains neglected is the assessment of External Failure Costs which occurs after the project handover. It is a crucial omission since arguably this is the aspect needing most attention. The costs after the handover are likely to provide clients, designers and contractors with data in order to focus their efforts to improve the biggest contributors to the cost of quality. The Way Forward In order to make the ‘painful’ delivery process a success let me suggest some fundamental principles of quality and performance management. These include: - Each metric should relate clearly to one of the

specific four categories - The metrics must follow the rigour in

objectives, the rigour in measurement and rigour in use

- Each metric is unique without any duplication or overlapping in the area of measurement

- Each metric should be clearly described with a definition, formula (if applicable), worked example and purpose

- The metrics should be tested in a pilot study before implementation

- Metrics in each category should lead to root cause analysis by identifying whether it is design related, process related or people related

References Basu, R. (2014), ‘Managing Quality in Projects: An empirical study’, International Journal of Project Management, Vol. 52, No 1, pp 178-187. Basu, R (2012), Managing Quality in Projects, Farnham, Gower Publishing. Basu, R. (2011), FIT SIGMA: A Lean Approach to Building Sustainable Quality Beyond Six Sigma, Chichester, John Wiley & Sons. Basu, R., Little, C. and Millard, C. (2009), ‘Case Study: A Fresh Approach of the Balanced Scorecard in the Heathrow Terminal 5 Project’, Managing Business Excellence, Vol.15, No.4, pp 22-33. Feigenbaum, A. V. (1956) “Total Quality Control”, Harvard Business Review, Volume 34, No.6, pp 93-101. Juran, J.M., Quality Control Handbook. 1st ed. 1951, New York, NY: McGraw-Hill. Love, P.E.D. and Irani, Z., (2003), ‘A project management cost of quality information system for the construction industry’, Information & Management, Volume 40, pp 649-661.

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Project managers appear to accept the ‘iron triangle’ of cost, budget and quality but in reality focus more on being on time and budget. Quality in projects is often paid mere lip service and relegated to tick-box compliance. This lack of clarity and focus on quality is often the source of project failures. Ron Basu’s Managing Quality in Projects shines the spotlight on this aspect of project management that can often be overshadowed by the pressure to deliver on time and on budget. His investigation focuses initially on defining the dimensions of quality in project management and identifying sources of measurement for project excellence. Thereafter he expands his focus to discuss which tools can be effectively used in the quest for achieving and sustaining project excellence; and which processes are important in assessing the project maturity. The text also

explores how the successes of operational excellence concepts, such as supply chain management, Lean Thinking and Six Sigma may be gainfully deployed in enhancing project quality and excellence. Finally a structured implantation plan guides those directly involved in project delivery, including suppliers, in how to ‘make it happen’. A shared understanding and implementation of project quality by key project stakeholders will go a long way to ensuring a stable platform for delivering successful projects with longer lasting outcomes. It is also a fundamental building block in any organization’s strategy for improving consistency and achieving sustainable performance. On that basis, Ron Basu’s book is a must-have reference and guide for all project organizations. Dr Ron Basu is the founder of the consulting company, Performance Excellence Limited and a Visiting Professor at SKEMA Business School in France and a Visiting Fellow at Henley Business School, UK. Ron is the author or co-author of ten management books including Managing Project Supply Chains (2011). The unique url for Managing Quality in Projects is: http://www.gowerpublishing.com/isbn/9781409484622

  

IManf members are entitled to a 25% discount on this and any other title on the Gower website.  To obtain this discount, together with the current cost of the publication, please visit their website 

www.gowerpublishing.com and quote this promotional code – G12Goo25 – when ordering.   For any other information, please contact Susan White by either post, telephone or e‐mail: 

  

Gower Marketing, Gower Publishing Limited, Wey Court East,  Union Road, Farnham, GU9 7PT       

 Telephone: 01252 736600 

 E‐mail: [email protected]

 

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Course Options The Institute of Manufacturing has endorsed the following programs. The full list with links to the programs can be found on the Recognised Courses page of the IManf website: http://www.instituteofmanufacturing.org.uk/recogcourses.html. Glyndwr University Aeronautical and Mechanical Manufacturing BEng (Hons). Develop a full understanding of engineering design concepts and the engineering design process. The first part of the course will introduce you to the fundamentals of mechanical and electrical science, the mechanics of solids and machines and computer-aided design. Then you’ll develop more advanced knowledge, looking at aerodynamics, engineering dynamics, design and computer-based manufacturing. Honing your business skills is a key focus throughout the course. This is a three year full-time course which develops a full understanding of engineering design, manufacturing and management. There is also a one-year level-6 full or part-time route, designed for students who have completed a foundation degree in mechanical manufacturing or with equivalent qualifications. University of Greenwich Mechanical and Manufacturing Engineering, MSc. This MSc programme provides its students with an opportunity to extend the technical knowledge acquired on an undergraduate degree programme in mechanical or manufacturing engineering. Though not a specialist Master’s degree, the programme provides a broad subject-specific curriculum that provides an opportunity for students to tailor the programme to meet their personal needs, with specialism pursued through a major project. Many of these projects reflect the key research interests of the Department, such as manufacturing, bulk materials handling and instrumentation. However, projects can be selected from across the discipline from a list provided by the Department. Many projects are derived from our industrial links, and a number

are proposed by students, reflecting their personal interests or experience. Heriot-Watt University Chemical Engineering BEng (Hons) and MEng. The BEng programme forms the core for our advanced MEng programmes allowing us to offer flexibility to students. Programmes share the same first two years, with the more chemistry oriented MEng programmes specialising in chemistry topics in third year. Our programmes aim to provide students with a sound understanding of chemical engineering fundamentals to become professional chartered engineers. In addition to a grounding in science, mathematics and engineering, our students acquire practical abilities that are highly sought after by industry. Robotics, Autonomous and Interactive Systems BEng (Hons) and MEng. Robotic and autonomous systems are playing an increasingly important part in society. Although applied to hazardous environments, such as space and subsea exploration, these systems are now used in areas such as autonomous vehicle guidance, driver assistance, health care, remote surgery, industrial manufacturing, and domestic assistance. You will study in a multi-disciplinary domain that brings together electronics, computer software, and mechanics. In the first three Levels, you will be given a grounding in all three disciplines, which includes opportunities to build integrated systems. In Levels 4 and 5, you can either continue a broad based curriculum, or specialise in particular aspects of contemporary robotics. Lancaster University Natural Sciences BSc (Hons) and Natural Sciences (with study in North America) BSc (Hons). Unlike traditional science degrees, Natural Sciences at Lancaster will allow you to pick from a wide choice of scientific areas and study two or more science subjects throughout your degree course. This is a challenging programme as you will be taught to the same depth of understanding as single honours students in each subject. Although primarily a science degree, it is possible to study up to one quarter of your degree in a non-science subject.

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Executive Diploma in Manufacturing

www.instituteofmanufacturing.org.uk  

 The Executive Diploma in Manufacturing is designed to educate working manufacturing managers at  a  post  graduate  level.  It  has  been  designed  to  develop  the  core  knowledge  a  senior manufacturing manager needs to know.  

This program will enable students to enrol into MBA programs with several universities:  

Aldersgate  College  http://www.aldersgate.edu.ph/,  listed  on  the  International  Association  of Universities UNESCO endorsed World Higher Education Database as a Philippines University, will accept  the  work  students  do  for  their  IManf  Executive  Diploma  as  the  core  work  for  their Professional MBA.  

Abbey College Pre Masters Program http://abbeycollegeinlondon.co.uk/index.php/courses/pre‐masters,  graduates  of  the  IManf  Executive  Diploma  with  a  minimum  of  5  years  verifiable management experience  can enrol  into  this program which  is  recognised  for entry  into 7–8 UK universities’ MBA programs.  

St Clements Private Swiss University http://scusuisse.ch/ProgMBA.htm.  

The programme consists of 7 core subjects and 4 x 5000 word mini thesis projects. 

MODULE 1: Core Subjects 

1. How to develop the best strategy: the value of an enterprise 2. Innovation: the thought behind the product 3. Human Resources: the role of the HR manager in a modern manufacturing environment 4. Financial and Cost Management 5. Risk, Operations and Project Management 6. Sales and Marketing 7. Computerisation and Robotics 

 

MODULE 2: Mini Thesis Projects 

All students must write 4 mini thesis projects of a minimum of 5000 words for each. These theses are  intended  to  ensure  that  the  student  has  understood  the  core  subjects  and  can  apply  the knowledge gained on a practical basis. 

1. Workforce skills: the value of knowledge, skills and experience 2. Expedition and improvement of the manufacturing process 3. The art of good communication and leadership skills at all levels 4. The art of best practice and benchmarking 5. The successful management of a manufacturing supply chain 6. The Health & Safety at Work Act, with particular emphasis on the safe working of 

machinery 7. Workforce skills and negotiation 8. Logistics management 9. The importance of accurate cost accounting 10.  Component sourcing 

 

Cost £1,500 (Special discounted price of £1,200 for Institute of Manufacturing Members) 

Email: [email protected]

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The New Regulation on CCTV and Surveillance Camera Technology in the UK by

Andreas Nickolaos Akratas, B.Sc. (Hons), M.A., F.I.M.S, F.I.Manf., F.Prof.B.T.M., F.I.P.F.M., F.C.A.M.

The Minister of State and Crime Prevention announced on September 13, 2012, provisions within the Protection of Freedoms Act 2012. These provisions concern the regulation of surveillance camera systems and, more precisely, the

implementation of a regulatory framework which includes a code of practice and a surveillance camera commissioner (Home Office, 2012a). At the beginning of 2012, the UK Home Office reported the establishment of the National CCTV Strategy Board, which is a new Government Oversight Body “which enables the current National CCTV Strategy Board to become more delivery focused,” while the CCTV Regulator “will be responsible for raising public awareness, defining standards and establish a means to deal with complaints for the public about CCTV” (Controlware Communications Systems, 2013). A period of statutory consultation in relation to the preparation of the code of practice started on February 3, 2012, and concluded on March 21, 2013 (Home Office, 2013a). On June 4, 2013, a written ministerial statement laid in the House of Lords concerning the regulatory framework for surveillance camera systems and the code of practice proposed (Home Office, 2013b). On the one hand, the current Protection of Freedoms Act 2012 is enriched with a code of practice concerning guidance for system operators. This code of practice is ensured to be in accordance with the Data Protection Act 1990 and the Regulation of Investigator Powers Act 2000. The code will be implemented on a voluntary basis from relevant authorities who are specified in the Section 33(5) of the Protection of Freedoms Act 2012 (Home Office, 2012a). On the other hand, the new regulation of CCTV and other Surveillance Camera Technology

defines in Section 34(2) of the Protection of Freedoms Act 2012 the functions of the commissioner. These functions include the following: a) review of the operation of the code of practice, b) provide the Government with suggestions regarding the effectiveness of this code and any potential changes, c) design of a three-year business plan aiming at presenting how the functions will be accomplished, d) come to an agreement with both the Information Commissioner and the Chief Surveillance Commissioner over matters for the operation of gateways, and e) establish an advisory team that has the sufficient skills to support the commissioner in his duties (Home Office, 2012a). Undoubtedly, the surveillance camera technology – CCTV is very effective in tackling crime, given the fact that any activity in the public space is appropriate and transparent. Moreover, the effectiveness of the surveillance camera technology lies in its advantage to provide images and information with regard to an evident occurred, which facilitates the investigation of criminal acts (Home Office, 2012b). It is argued that CCTV can contribute to the reduction of crimes committed and to strengthen people’s feeling of security (Hempel and Töpfer, 2002, p. 22; Waples et al., 2009, p. 208). As a result, the public confidence in general and people’s confidence in the use and the effectiveness of CCTV and surveillance technology is ensured and increased (Home Office, 2012b). Indeed, CCTV is an effective tool, since it can provide a way of checking whether people are complying with specific processes, and whether their behaviour is consistent with certain policies (Gill, 2006, p. 440). In addition, the CCTV system prevents a potential ‘opportunist’ to enter an area without having authority, as it uses many protective measures. This is compatible with the principle of ‘defence in depth’ (Manunta, 1998, p. 32).

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Apart from crime prevention, CCTV and, in general, the surveillance system can help police to arrest offenders and crime processors in the decision-making process. Furthermore, it is supported that through the images that CCTV cameras capture, unwitting victims can be helped and supported, thus CCTV cameras can serve as a means of immortalizing facts (Morgan, 2013). Finally, it should be mentioned that the new regulations are associated with both the use and disposal of forensic data as fingerprints, DNA and biometrics, and CCTV surveillance technology (Reeve, 2012). However, there is an opposite point of view. Despite the fact that CCTV has drawn the attention to its main benefit, namely crime reduction, there are some criticisms regarding its effectiveness. For example, it is supported that CCTV in general cannot be regarded as effective, since CCTV technology varies (in size, usage, and incident of crime); hence, the total outcome also varies. Apart from this, CCTV cameras monitor specific areas, while crimes may occur in others; thus crime prevention and reduction cannot be fully achieved in all areas of crime offences (Parliamentary Office of Science and Technology, 2002). Again the above point of view is subject to criticism. In a relatively recent study examined the spatial displacement of the crimes that occurred and reached the conclusion that the increase of certain types of crime cannot be attributed only to displacement which stems from the implementation of CCTV in the wider area of the displacement (Waples et al. 2009, p. 216). What should be mentioned is that the Act does not apply to the cameras that are privately owned and operate, for example, in pubs, shops, and other quasi-public spaces. On the contrary, the legislation concerns cameras and surveillance systems operating only in areas focusing on the police and local authorities. However, the problem with the CCTV is related to domestic and smaller systems (Reeve, 2012).

In addition, the Camera Commissioner will be responsible for the creation of a framework relating only to the two per cent of publicly owned cameras, whereas it does not include all the publicly owned cameras, as it should (Reeve, 2012). Given the fact that there are 1.85 million cameras in the UK, from which 1.70 are privately owned and only 33,433 are publicly owned and from them 115,000 are cameras on public transportation, it could be easily concluded that there is a lack in this issue that the new regulation does not take into account (Politics.co.uk, 2013). Another issue raised with regard to the disadvantages of the new regulation about CCTV cameras and surveillance technology is the intrusive nature of this technology in the private lives of people, bringing about legal aspects of surveillance. As a result, the issue of invasion of privacy is a real fact, or even a threat, that the new regulation cannot solve (Politics.co.uk, 2013). This can be justified from the statement that “the activities being referred to are those which form part of a much more organized, if simultaneously, conversely irregular, large network of formal technologically-enhanced, yet altogether subtler, surveillance of everyday living” (Morgan, 2013, p. 4). The intrusive nature of CCTV cameras and surveillance technology and its negative impact on the private lives of people rest in the social interaction theory. This theory was developed in order to create a framework for the right to privacy. The reason for which one places so much emphasis on the individual’s privacy is that privacy is important for the facilitation of social interaction (Hughes, 2012, p. 807). Privacy is a state of human experience, related to both anonymity and intimacy, where people operate through certain barriers in order to have this experience. Social interaction, which is based on this theory, states that privacy can be fulfilled through specific behavioural mechanisms, which defile the limits of oneself (Hughes, 2012, p. 809). As such, it can be argued that if these limits and boundaries are not defined by the individuals, this constitutes a violation of privacy. Within this context, CCTV cameras and surveillance technology can lead to a breach of individuality

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and privacy, since they set the limits within which the individuals are able and allowed to live their experiences. Nevertheless, the new regulation was generally positively accepted. Specifically, the Government launched a report about the responses to the consultation during the period 07.02.2013–21.03.2013. The responses show that the majority of the 127 respondents would support the implementation of this code of practice and believe that this code of practice: a) clearly outlines the scope of surveillance camera use while the meaning of ‘surveillance by consent’, b) ensures greater transparency on the part of systems operators, c) contributes towards the protection of the right to respect for both family and private life, d) helps in the increase of the effectiveness of a surveillance camera system in meeting its stated purpose, and e) makes clear the obligations and the implications for various groups of operators. Moreover, the majority believes that the 12 guiding principles that have been reported in the draft code are relevant to the regulation concerning the surveillance camera system (Home Office, 2013c). Altogether, while the new regulation under the Protection of Freedoms Act 2012 seeks to protect civil liberties and contributes towards the prevention and reduction of crime, the disadvantage of this regulation concerns the invasion in the private lives of people. What remains to be proved is whether the issue of individuals’ privacy should and will be taken into account through the implementation of new provisions in the Protection of Freedoms Act 2012. References Controlware Communications Systems, 2013. UK CCTV Regulation [online]. Available at: <http://www.controlware.co.uk/en/knowledge-base/security-articles/uk-cctv-regulation.html> [Accessed 10 June 2013]. Gill, M., 2006. CCTV: ‘Is it effective?’ in Gill, M. (Ed.), The Handbook of Security 438-460, Basingstoke: Palgrave.

Hempel, L. and Töpfer, E., 2002. Inception Report, Working Paper No.1. Centre for Technology and Society Technical University Berlin [pdf]. Available at: <http://www.ideels.uni-bremen.de/ue_wp1.pdf> [Accessed 10 June 2013]. Home Office 2013a. Regulation of CCTV and other surveillance camera technology, Minister: James Brokenshire MP [online]. Available at: <https://www.gov.uk/government/speeches/regulation-of-cctv-and-other-surveillance-camera-technology> [Accessed 11 June 2013]. Home Office 2013b. Written statement to Parliament. Regulation of CCTV and other surveillance camera technology, Minister: Lord Taylor of Holbeach CBE [online]. Available at: <https://www.gov.uk/government/speeches/regulation-of-cctv-and-other-surveillance-camera-technology--2> [Accessed 11 June 2013]. Home Office 2013c. Surveillance Camera Code of Practice. Protection of Freedoms Act 2012 – Government response to statutory consultation over the Surveillance Camera Code of Practice [pdf]. Available at: <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/206693/surveillance-camera-code-of-practice-responses-revised-web.pdf> [Accessed 11 June 2013]. Hughes, K., 2012. A Behavioural Understanding of Privacy and its Implications for Privacy Law. The Modern Law Review, 75(5) pp.806-836. Manunta, G., 1998. Security: An Introduction. Shrivenham: Granfield University. Morgan, H.M., 2013. Regulating CCTV?: We Can’t Solve Problems by Using the Same Kind of Thinking We Used When We Created Them. Critical Criminology, 21(1) pp.15-30. Parliamentary Office of Science and Technology, 2002. Postnote: CCTV, April 2002 Number 175 [pdf]. Available at: <http://www.parliament.uk/documents/post/pn175.pdf> [Accessed 10 June 2013].

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Politics.co.uk, 2013. CCTV [online]. Available at <http://www.politics.co.uk/reference/cctv> [Accessed 10 June 2013]. Reeve, T., 2012. CCTV cameras regulated as Protection of Freedoms Act 2012 receives Royal assent [online]. Available at: <http://www.securitynewsdesk.com/2012/05/04/cctv-cameras-regulated-as-protection-of-freedoms-act-2012-receives-royal-assent/> [Accessed 10 June 2013].

Waples, S., Gill, M. and Fisher, P., 2009. Does CCTV displace crime? Criminology and Criminal Justice, 9(2) pp.207-224. One of Andreas’ papers, To What Extent Can Busineses’ Security Measures Respond Effectively to Terrorist Attacks, has been published in the Management E-Library of The Institute of Management Specialists: http://www.instituteofmanagementspecialists.org.uk/elibrary.html

  

About the Author: Andreas Nickolaos Akratas is a Senior Security Consultant from Athens, Greece. He holds a B.Sc (Hons) degree in Criminology (Portsmouth) and a MA degree in Restorative Justice (Hull). He also holds a Postgraduate Certificate in Security Management (Buckinghamshire New University) and the Edexcel Professional Diplomas in Security Management and Private Investigation. Andreas is a Lifetime Fellow Member of IMS, I.Manf, FPBTM, IPFM and CAM. E-mail: [email protected]

Certified Manufacturing Practitioner (CMP)

Requirements: - 10 years practical experience - 5 years if you possess a suitable Diploma

level qualification - 3 years if you possess a suitable Bachelor

level qualification - 2 years if you possess a suitable Master’s level qualification

Applicants need to write and submit a 2,000 word dissertation on either: a) the manufacture of an item of which you have experience

or

b) how a subject area from your Diploma, Bachelor’s Degree or Master’s Degree has helped you in your work as a Manufacturing Practitioner.

Please contact the Institute for an Application Form [email protected]

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Making Quantitative Analysis and Modelling Payoff by

Dr. Forster Kum-Ankama Sarpong

A quantitative analyst or, in financial jargon, a quant is a person who specializes in the application of mathematical and statistical methods such as numerical or quantitative techniques to financial, investment and

risk management problems. Although the original quantitative analysts were “sell side quants” from market maker firms, concerned with derivatives pricing and risk management, the meaning of the term has expanded over time to include those individuals involved in almost any application of mathematics in finance, including the buy side. Examples include statistical arbitrage, quantitative investment management, algorithmic trading, and electronic market making. Quantitative modelling is important for research in the financial, investment and risk management sector. Market competition and recent progress in data collection and data storage techniques have increased the importance of quantitative modelling. Modelling has become an important part of research and development across many fields of study, having evolved from a tool to a discipline in less than two decades. There is the need to give an overview of quantitative analysis methods and models, as quantitative modelling enables banks and investment companies to devise their own specific risk models. It facilitates them to model changing economic and regulatory landscapes quickly and economically. Recently, quantitative modelling has received a lot of attention in the financial sector. Modelling framework and software tools enhance the performance of business. Quantitative models provide diagramming techniques to document business process for growth. Most people are not experts in predicting the outcomes of the systems governed by quantitative modelling.

In financial operations, quantitative models work to determine prices, manage risk, and identify profitable opportunities. Historically this was a distinct activity from trading but the boundary between a desk quantitative analyst and a quantitative trader is increasingly blurred, and it is now difficult to enter trading as a profession without at least some quantitative analysis education. In the field of algorithmic trading it has reached the point where there is little meaningful difference. Front office work favours a higher speed to quality ratio, with a greater emphasis on solutions to specific problems than detailed modeling. Quantitative analysis is used extensively by asset and investment managers. They rely almost exclusively on quantitative strategies while others use a mix of quantitative and fundamental methods. Major firms invest large sums in an attempt to produce standard methods of evaluating prices and risk. Quantitative analysis has grown in importance in recent years, as the credit crisis exposed holes in the mechanisms used to ensure that positions were correctly hedged, though in no bank does the pay in risk approach that in front office. A core technique is value at risk, and this is backed up with various forms of stress test (financial), economic capital analysis and direct analysis of the positions and models used by various bank’s divisions. In the aftermath of the financial crisis, there surfaced the recognition that quantitative valuation methods were generally too narrow in their approach. An agreed upon fix adopted by numerous financial institutions has been to improve collaboration. Because of their backgrounds, quantitative analysts draw from three forms of mathematics: statistics and probability, calculus centered around partial differential equations, and econometrics. Some on the buy side may use

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machine learning. The majority of quantitative analysts have received little formal education in mainstream economics, and often apply a mindset drawn from the physical sciences. Physicists tend to have significantly less focus on statistical techniques, and thus lean on approaches based upon partial differential equations, and solutions to these based upon numerical analysis. A typical problem for a statistically oriented quantitative analyst would be to develop a model for deciding which stocks are relatively expensive and which stocks are relatively cheap. The model might include a company’s book value to price ratio, its trailing earnings to price

ratio, and other accounting factors. An investment manager might implement this analysis by buying the underpriced stocks, selling the overpriced stocks, or both. Statistically oriented quantitative analysts tend to have more of a reliance on statistics and econometrics, and less of a reliance on sophisticated numerical techniques and object-oriented programming. These quantitative analysts tend to be of the psychology that enjoys trying to find the best approach to modeling data, and can accept that there is no right answer until time has passed and we can retrospectively see how the model performed.

About the Author: Dr. Forster Kum-Ankama Sarpong started managing financial and realty projects and teams in 2001. He is the CEO of Design Resources Estates, All Ghana Microfinance and a lecturer in Finance and Quantitative Models. (T): 024 4321960 (E): [email protected]

The Institute of Management Specialists Professional Diploma in Project Management Development 

 Students will master the fundamentals of project management and in the process gain insights into 

the fundamental areas of global project management. The course materials are extensive and detailed, yet user friendly and solution focused. Qualified Tutors and Mentors are available on a daily 

basis to assist students with their study programs, time management, study skills, motivation techniques, and other areas that are important to academic success. 

Subjects Fundamentals of Project Management      Successful Project Management Ethics and Project Management       Project Estimating and Cost Management Project Management Roles & Responsibilities    Managing Difficult Projects Strategic Planning for Project Managers     Modern Project Management Project Risk Management        Project Management Professional  Contact [email protected]   Details: http://www.instituteofmanagementspecialists.org.uk/PDPDM.html

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HP-Autonomy Acquisition Scandal by

Professor Dr Rabbi Abe Abrahami, DFAMS, CompIMS, Bluewater Academic Institute Introduction and Summary Hewlett-Packard stunned Wall Street by alleging a massive accounting scandal at its British software unit Autonomy and taking an $8.8 billion write-down. This is the latest in a string of reversals that renewed questions about the competence of the storied company’s board and senior managers. HP said it discovered “serious accounting improprieties” and “a wilful effort by Autonomy to mislead shareholders” after a whistle-blower came forward following the May ouster of former Autonomy CEO Mike Lynch. The news sent the company’s shares plunging 12% to a 10-year low of $11.71. HP, which for decades was synonymous with technical excellence and innovation as one of the bedrock companies of Silicon Valley, now has a market value of roughly $20 billion, down from $155 billion in April of 2000. CEO Meg Whitman took the helm at HP a little over a year ago when her predecessor, Leo Apotheker, was fired after less than a year on the job. Apotheker’s one big strategic move during his brief tenure was the $11 billion acquisition of Autonomy, intended to hasten HP’s transformation into Software and Service Company but which was criticised by many analysts as overpriced. “Most of the board was here and voted for this deal, and we feel terribly about that,” Whitman said on a call with analysts. The announcement came just three months after the company took a write-down of almost $11 billion on its EDS services division. HP has for years relied on deal-making, acquiring businesses ranging from EDS to Compaq to Palm, but has largely failed to articulate a clear strategy or establish a strong position in growth

businesses like computer services or mobile computing. “To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,” said ISI Group analyst Brian Marshall. SEC’S Involvement HP said it had referred the alleged accounting wrongdoing at Autonomy to the US Securities and Exchange Commission’s enforcement division and the UK’s Serious Fraud Office for civil and criminal investigation. HP also said it would take legal action to recoup “what we can for our shareholders”. Both agencies declined to comment. Lynch, in an interview with Reuters, “flatly rejected” HP’s allegations and said he was “shocked” but confident he would be absolved of any misdeeds. The Irish-born executive said he had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities. Whitman said the investigation of Autonomy’s finances – both external and internal – will take multiple years as it wends its way through the courts in both countries. She defended the board’s handling of the acquisition and blamed HP’s auditors for failing to detect the problems. “The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,” she said, adding that KPMG was hired to audit Deloitte. “Neither of them saw what we now see after someone came forward to point us in the right direction,” Whitman said.

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A person familiar with the situation told Reuters that the Federal Bureau of Investigation was probing the HP-Autonomy allegations in court with the Securities and Exchange Commission, although the inquiry was at an early stage. HP and Autonomy were not available to comment on the FBI probe, and the FBI declined to comment. The alleged accounting issues also put a spotlight on the investment banks and law firms involved in the acquisition. Autonomy was represented by Frank Quattrone, an investment banker who was the target of widespread criticism – and criminal prosecution – for his activities during the first dot-com boom. After one trial ended in a hung jury and a second ended in a guilty verdict that was overturned on appeal, the charges were ultimately dropped. HP’s lead adviser was Perella Weinberg, a boutique investment bank with little experience in big tech deals. Its attorneys included the blue-chip firms Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board. Autonomy’s Inflated Profit HP disclosed the Autonomy allegations in conjunction with its fourth-quarter earnings, which showed a 6.7% decline in revenues as well as a $6.85 billion loss. It took $8.8 billion in charges in the quarter, with over $5 billion tied to the problems at Autonomy. The rest of the charge related to the “recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance,” HP said without elaborating. HP had embarked on its own internal investigation, including a forensic review of Autonomy’s historical results by PricewaterhouseCoopers and HP general counsel John Schultz.

It accuses Autonomy’s former management of inflating revenue and gross margins to mislead potential buyers. It said Autonomy executives mischaracterised revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought products. It said Autonomy claimed its gross margins were in the 40% to 45% range while realistically they were in the 28% to 30% range. Moreover, Autonomy always represented itself as a software firm but 10% to 15% of its revenue came from money-losing sales of low-end hardware, HP said. The company also claimed that Autonomy was booking licensing revenue upfront before deals closed. As early as 2009, hedge fund manager Jim Chanos had identified Autonomy as a shorting opportunity, according to a source familiar with his views. Chief among his concerns, according to the source, was that Autonomy was claiming a 40% market share against the likes of Microsoft, International Business Machines and EMC in the field of e-discovery. Autonomy’s stated margins of around 50% did not seem to translate proportionately into cash flow; and it was reporting double-digit organic growth in software licence revenue while rivals battled shrinking sales, the person said. During a presentation entitled ‘Faking Reported Income 101’ at the Santangel’s Investor Forum in New York, hedge fund manager John Hempton of Sydney, Australia-based Bronte Capital highlighted items on Autonomy’s balance sheet that raised his concerns. “Is it odd that in a software company you have receivables of 4.5 months? Or that deferred revenue is under half receivables?” asked Hempton, who has a short position on HP.

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Latest Twist According to the Guardian Newspaper: Hewlett-Packard is being sued by MicroTech, a small software reseller it named in a $5bn fraud claim against the founders of the British software group Autonomy. MicroTech’s suit says the company is owed $16.5m by HP for Autonomy software that was never properly delivered. It is the latest twist in the battle between HP and the Autonomy founder, Mike Lynch, and his finance director, Sushovan Hussain. The British executives are fighting accusations by HP that they used “improper” transactions with small software resellers, including MicroTech, to artificially boost their company’s revenues. The claims relate to two separate transactions, in which MicroTech signed contracts with Autonomy to buy its software for eventual use by

two end customers, the Vatican Library and HP itself. In the event, neither the Vatican nor HP bought Autonomy software from MicroTech or from Autonomy. However, HP alleges that MicroTech was in fact paid, with profits, for its purchases of software intended for the Vatican and HP. Its lawyers claim the payments were made using a series of reciprocal deals in which Autonomy bought software and services from MicroTech for a marginally higher value than the software it had agreed to sell to the smaller firm. Summary and Conclusion Mergers & Acquisitions (M & A), in this case, an acquisition only, are very tricky indeed and even several audits and consultant reports can and do miss vital information, as has been evident in this case. An accounting audit is insufficient, as numbers do not tell the whole story.

The following due diligence checks are typically required, briefly: Quantitative audit of the numbers Qualitative audit of the numbers Profit vs. expenses and overheads Gearing or Leverage (ratio of debt to assets) Return on equity ratio (net income/shareholders equity) Return on assets ratio (net income/total assets value) Dividend to profit ratio Other financial ratios Acid test ratio:

Sampling of critical business data and transaction analysis Vendor supply and pricing analysis Sales ratios analysis Profit margin analysis Stock turnover analysis Company’s IT and security analysis Company’s operations analysis Business procedures analysis Note: Professor Dr Abrahami delivers accredited-certified training courses in Solvency II, Sarbanes Oxley, MiFID, IFRS, HIPAA, GLBA, FATCA, Fraud Act, Dodd–Frank Act, Basel III, Bribery Act, Governance, Risk & Compliance (GRC), Anti-Money Laundering and similar topics. These accredited-certified

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professional training courses, lead to a recognized qualification and membership of The Institute of Management Specialists (IMS). These professional training courses are a MUST, and will help you to avoid multi-million dollar penalties, avoid prison and losing your job and livelihood.

Professor Dr Abrahami is the Principal of Abrahami Compliance Associates and Dean of Cambridge Institute of Technology and University of Kilmurry. He may be contacted on: [email protected]

www.AbrahamiCompliance.org

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