Author: indiafreenotes

Data communications (DC) is the process of using computing and communication technologies to transfer data from one place to another, and vice versa. It enables the movement of electronic or digital data between two or more nodes, regardless of geographical location, technological medium or data contents.

Data communications incorporates several techniques and technologies with the primary objective of enabling any form of electronic communication. These technologies include telecommunications, computer networking and radio/satellite communication. Data communication usually requires existence of a transportation or communication medium between the nodes wanting to communicate with each other, such as copper wire, fiber optic cables or wireless signals.

For example, a common example of data communications is a computer connected to the Internet via a Wi-Fi connection, which uses a wireless medium to send and receive data from one or more remote servers.

Some devices/technologies used in data communications are known as data communication equipment (DCE) and data terminal equipment (DTE). DCE is used at the sending node, and DTE is used at the receiving node.

Components of Data Communication System

A Communication system has following components:

1. Message

It is the information or data to be communicated. It can consist of text, numbers, pictures, sound or video or any combination of these.

2. Sender

It is the device/computer that generates and sends that message.

3. Receiver

It is the device or computer that receives the message. The location of receiver computer is generally different from the sender computer. The distance between sender and receiver depends upon the types of network used in between.

4. Medium

It is the channel or physical path through which the message is carried from sender to the receiver. The medium can be wired like twisted pair wire, coaxial cable, fiber-optic cable or wireless like laser, radio waves, and microwaves.

5. Protocol

It is a set of rules that govern the communication between the devices. Both sender and receiver follow same protocols to communicate with each other.

The effectiveness depends on four fundamental characteristics of data communications

• Delivery: The data must be deliver in correct order with correct destination.
• Accuracy: The data must be deliver accurately.
• Timeliness: The data must be deliver in a timely manner.late delivered Data useless.
• Jitter: It is the uneven delay in the packet arrival time that cause uneven quality.

A protocol performs the following functions:

1. Data sequencing

It refers to breaking a long message into smaller packets of fixed size. Data sequencing rules define the method of numbering packets to detect loss or duplication of packets, and to correctly identify packets, which belong to same message.

2. Data routing

Data routing defines the most efficient path between the source and destination.

3. Data formatting

Data formatting rules define which group of bits or characters within packet constitute data, control, addressing, or other information.

4. Flow control

A communication protocol also prevents a fast sender from overwhelming a slow receiver. It ensures resource sharing and protection against traffic congestion by regulating the flow of data on communication lines.

5. Error control

These rules are designed to detect errors in messages and to ensure transmission of correct messages. The most common method is to retransmit erroneous message block. In such a case, a block having error is discarded by the receiver and is retransmitted by the sender.

6. Precedence and order of transmission

These rules ensure that all the nodes get a chance to use the communication lines and other resources of the network based on the priorities assigned to them.

7. Connection establishment and termination

These rules define how connections are established, maintained and terminated when two nodes of a network want to communicate with each other.

8. Data security

Providing data security and privacy is also built into most communication software packages. It prevents access of data by unauthorized users.

9. Log information

Several communication software are designed to develop log information, which consists of all jobs and data communications tasks that have taken place. Such information may be used for charging the users of the network based on their usage of the network resources.

We all know the invaluable worth of computers in our daily lives and our work. But did you know computers are also essential to an organization’s decision making? There are computer software and systems that help businesses analyze data in a scientific way to ease the decision-making process.

Like MIS, Accounting Information System (AIS) is also a computer-based system, which an organization uses to take important financial decisions. An AIS will collect, process, analyze and store financial data of a company. And when called upon it will retrieve and report such data to its users, namely accountants, consultants, financial officers CFO, auditors, government tax authorities etc.

There are three basic objectives of an AIS, which are:

• It helps an organization fulfill its statutory obligations of preparing and publishing certain accounting statements and information
• It analyses financial data and provides reliable and accurate financial information to the users of the AIS
• Protects a firms accounting data from breach or theft (which can be a significant problem)

Components of Accounting Information System

An AIS, like most computer systems, consists of six basic components.

• People: These are the users of the AIS. Internal users include accountants and other financial officers o the company. Then there are also users outside the organization, that can be given access to the AIS. Some such external users are auditors, consultants, tax authorities etc.
• Procedures: These are the procedures the system follows to collect and process data. The database for such a process can be internal (like employee names, sales figures) or external databases (like customer orders, tax slabs etc). The feeding of the data can be both manual as well as automated.
• Data: An AIS mainly deals with all kinds of financial and commercial data. Any data that is pertinent to the accounting of the firm will be input data for an AIS. Care must be taken that the data entered is accurate and complete. Examples of such data include invoices, orders, payroll, bills etc.
• Software: AIS software performs all the functions of storing, processing, analyzing, retrieving financial data of a company. The software can be generalized software that is available in the market (Tally, Oracle etc) or can be specialized software created specifically for a particular company and it’s accounting needs. Some of this software has an inbuilt internal control and audit options. They even help in tax management.
• Hardware: Like any other information system, AIS will also require some hardware components. these can include computers, laptops, servers, printers, scanners, secondary storage hardware etc.

Financial Management Information Systems (FMIS) support the automation and integration of public financial management processes including budget formulation, execution (e.g. commitment control, cash/debt management, treasury operations), accounting, and reporting. FMIS solutions can significantly improve the efficiency and equity of government operations, and offer a great potential for increasing participation, transparency and accountability. Whenever FMIS and other PFM information systems (for example, e-procurement, payroll, debt management) are linked with a central data warehouse (DW) to record and report all daily financial transactions, offering reliable consolidated platforms can be referred to as integrated FMIS (or IFMIS). The World Bank is a leading provider of financing and technical assistance for FMIS development.

No marketing activity can be carried out in isolation, know when we say it doesn’t work in isolation that means there are various forces could be external or internal, controllable or uncontrollable which are working on it. Thus to know which forces are acting on it and its impact the marketer needs to gathering the data through its own resources which in terms of marketing we can say he is trying to gather the market information or form a marketing information system.

This collection of information is a continuous process that gathers data from a variety of sources synthesizes it and sends it to those responsible for meeting the market places needs. The effectiveness of marketing decision is proved if it has a strong information system offering the firm a Competitive advantage. Marketing Information should not be approached in an infrequent manner. If research is done this way, a firm could face these risks:

• Opportunities may be missed.
• There may be a lack of awareness of environmental changes and competitors’ actions.
• Data collection may be difficult to analyze over several time periods.
• Marketing plans and decisions may not be properly reviewed.
• Data collection may be disjointed.
• Previous studies may not be stored in an easy to use format.
• Time lags may result if a new study is required.
• Actions may be reactionary rather than anticipatory.

The total information needs of the marketing department can be specified and satisfied via need of internal management of marketing intelligence network, which contains three components and advantages.

1. Continuous monitoring is the procedure by which the changing environment is regularly viewed.
2. Marketing research is used to obtain information on particular marketing issues.
3. Data warehousing involves the retention of all types of relevant company records, as well as the information collected through continuous monitoring and marketing research that is kept by the organization.

Depending on a firm’s resources and the complexity of its needs, a marketing intelligence network may or may not be fully computerized. The ingredients for a good MIS are consistency, completeness, and orderliness. Marketing plans should be implemented on the basis of information obtained from the intelligence network.

Marketing Information System offers many advantages

• Organized data collection
• A broad perspective
• The storage of important data
• An avoidance of crises
• Coordinated marketing plans
• Speed in obtaining sufficient information to make decisions
• Data amassed and kept over several time periods
• The ability to do a cost-benefit analysis

The disadvantages of a Marketing information system are high initial time and labor costs and the complexity of setting up an information system. Marketers often complain that they lack enough marketing information or the right kind, or have too much of the wrong kind.

The solution is an effective marketing information system

The information needed by marketing managers comes from three main sources:

1. Internal company information

E.g. sales, orders, customer profiles, stocks, customer service reports etc.

2. Marketing intelligence

This can be information gathered from many sources, including suppliers, customers, and distributors. Marketing intelligence is a catchall term to include all the everyday information about developments in the market that helps a business prepare and adjust its marketing plans. It is possible to buy intelligence information from outside suppliers (e.g. IDC, ORG, MARG) who set up data gathering systems to support commercial intelligence products that can be profitably sold to all players in a market.

3. Market Research

Management cannot always wait for information to arrive in bits and pieces from internal sources. Also, sources of market intelligence cannot always be relied upon to provide relevant or up-to-date information (particularly for smaller or niche market segments). In such circumstances, businesses often need to undertake specific studies to support their marketing strategy this is market research.

Management information system helps production to performs an integrating role with in the production system of any organization. Management of activities/operations in a production system is concerned with decision making related to different components of the system so as to accomplish the desired output.

These decisions can be divided as periodic-decisions viz. selection, design and updating of resources, transformation process and methods, and continual decisions about day-to-day operation and control of various activities/operations in the system. These decisions can also be divided in planning, implementation and control categories.

Production information system is a network to generate necessary information and process it to make various decisions related to some production system. It consists of communication channels and information processing centres collecting information from its sources of origin, storing, updating, collating and processing it and then supplying the processed information to the various users of the system.

A production information system can be viewed as an independent group of sub-systems each related to its successor, each performing a different function though yet united with others for achievement of the overall objective. It interacts with both its internal and external environments.

The components of the system can be described as:

1. Long Term Planning

This implies planning the conversion system specifying the sequence of operations, capacity of the system, plant location and its layout aspects. The decisions derived have long term impact and are difficult to undo once implemented. Information for taking such decisions is compiled periodically for determination of appropriate product mix.

2. Annual Production Plan

These are meant to plan the use of transformation process. These plans are drawn from sales programmes by optimizing inventory-carrying costs, costs on labour with hiring and firing of personnel etc. These plans are revised periodically.

3. Inventory Control

It is generally expressed in terms of money and number of units produced. It deals with preparation of master inventory and production schedules.

4. Production Scheduling

These decisions are to determine: what to make, when to make, how to make, how much time is required to make it, production plan, bill of materials and operations sheets providing the necessary information for the preparation of production schedules.

5. Dispatching

Time standards are formulated through operation/route sheets supplied by planning and engineering departments. Cost standards are calculated through cost cards and job tickets and the quality standards are prescribed by design & engineering sections.

Characteristics of Production Information System

1. It should always be tailored to the need of a particular organization. It can never be specific or general.
2. The involvement of top management in the formulation of production information system is essential.
3. Data base should be wide.
4. It must be flexible and should be supplied timely.
5. Data should be capable of easy interpretation & presentation.
6. The cost of procuring the information must not over-ride the relative advantage accrued.

In production system most of the information needs are in the area of:

(i) Production, Planning and Control

(ii) Materials management viz. purchase, stores and inventory Control etc. with an objective to optimize production by identifying the variances so that these could be closely monitored.

MacNeice has subdivided these records into three types:-

1. Records of Basic Information

• Blue Prints
• Bill of materials
• Time value of fundamental operations
• Production routing

2. Records showing what is available

• Raw material records
• Work in process
• Semi-processed stock
• Finished goods stock
• Information about tools, jigs, fixtures, gauges and personnel available
• Machinery and equipment details

3. Historical Records

• Records of production
• Records of waste and reject
• Records of machine performance
• Records of sales
• Records of absenteeism

The nature of these records can vary for different type of plants and production systems as well as according to the situation and needs of the management. In a small organization the preparation and maintenance of these records is the job of shop floor.

But it becomes an important function in medium and large scale organizations having separate section for collection and preservation of such records. Usually this Work is done by dispatchers who continually observe the actual implementation and compare it with the programme previously intimated.

Human Resource Information System or HRIS manages the hr policies, processes, and people in an organization. Its powerful set of features work together to tackle the multi-faceted complexities of HR processes. Every HRIS comes with an array of so-called ‘indispensable features’ that are said to cover other vital processes and services.

However, only a few of the HR software features are even marginally useful for SMBs. Most of them are mere marketing tactics. So, it is essential to tread carefully while choosing an HRIS vendor.

Nine core functionalities

1. Centralized Database

With an automated database that collects, stores, and displays up-to-date, consistent information about the personnel, policies, and procedures in an organization, HR leaders can finally break up with spreadsheets and paper files.

A centralized database that is seamlessly integrated with other HR modules will not just facilitate virtualization but also offer great accessibility to all end-users. Any updates or changes made to the master database will reflect immediately across all modules, saving a considerable amount of time and effort human resources department put into matching and duplicating all records manually.

2. Recruitment Automation

This feature offers a complete applicant tracking system with a reporting engine to analyze trends and patterns in recruitment. It also seamlessly integrates with job-portals, internal website, and employment-service providers to reduce the chaos in hiring.

3. Employee Onboarding

With an employee self-service portal that is connected to a cloud-based database removes the necessary evil paperwork out of the onboarding equation. Employees can complete the onboarding process using scanned documents, automated workflow, predefined checklist, and easy-to-use digital forms in 15 minutes.

4. Talent Management

Employees are the most valuable resources in any organization. However, the process of talent management, i.e, attracting, recruiting, engaging, developing, and retaining employees is a complicated process. Also, employee turnover cost is expensive. An HRIS with an exclusive talent management system will help the organization take better care of their employees.

5. Payroll

Several SMBs already use a stand-alone system to manage their payroll process. And, no one is eager to switch it to an HRIS. Also, there may be concerns as to whether the payroll module in an HRIS is efficient enough to handle all the full spectrum of services like a dedicated payroll system.

In addition, an HRIS integrates seamlessly with the accounting module and attendance management system. So, the need for manual reconciliation is eliminated, reducing the room for manual errors and legal/financial compliance issues caused by them.

6. Employee Self-Service

SMBs often find it hard to keep their employee-related data updated. Employee Self-Service (ESS) is an effective way to manage this problem. Giving employees access to view and manage their personal information (profile, time off, benefits, or payroll) can reduce the time HR staff spend on mundane clerical tasks.

Employees don’t have to engage in a mail chase to retrieve their leave balance or payslips. With a self-service portal, every HR process from employee onboarding to reporting will become more efficient. If the HRIS has multi-channel accessibility, employees can view, edit, and retrieve all work-related information right from their mobile phones.

7. Time and Absence Management

Managing employee timesheets, schedules, and tracking attendance manually involves an immense amount of HR labor. Keeping up with leave request emails and tracking employee absence while sketching out a schedule to manage the changing workload is a huge ordeal. On top of that, exporting all attendance data to the payroll system is time-consuming and tedious.

If not handled properly, timesheets and vacation requests have the potential to stir up a lot of trouble. Mishandled time-off requests can leave a bad impression on the quality of life in the organization, and reduce employee satisfaction. So, streamlining the timesheet management and time-off process with an HRIS can control the manual errors and prevent possible disasters.

8. Training

A training module can enable organizations to offer blended training experience to their staff to improve engagement, job satisfaction, and retention. They can also plan, track, and measure the impact of their training program to ensure its effectiveness.

9. Succession Planning

This particular module enables organizations to map talent pipeline and rankings. Once key positions are identified, it would be easy to create employee-specific development plans.

Reasons for Replacement of Equipment’s:

Equipment are generally considered for replacement for the following reasons:

(i) Deterioration:

It is the decline in performance due to wear and tear or misalignment indicated by;

(i) Increase in maintenance costs.

(ii) Reduction in product quality and rate of production.

(iii) Increase in labour costs, and

(iv) Loss of operating time due to breakdowns.

(ii) Obsolescence:

Technology is progressing fast, newer and better equipment are being developed and produced every year.

The equipment gets obsolete due to advancement in technology and the unwarranted manufacturing costs arising from such obsolete equipment will:

(i) Reduce profits.

(ii) Impair competition.

(iii) Cause loss in value of machinery.

(iii) Inadequacy:

When the existing equipment becomes inadequate to meet the demand or it is not able to increase the production rate to desired level, the question of replacement arises.

(iv) Working Conditions:

It may be thought of replacing the old equipment and machinery which creates unpleasantness i.e. give rise to unsafe conditions for workers and leads to accidents, making the environment noisy and smoky etc.

(v) Economy:

The existing units/equipment have outlived their effective life and it is not economical to continue with them.

Factors Necessary for Replacement of Equipment:

The factors which necessitate the replacement of machinery and equipment can be classified as:

(i) Technical Factors.

(ii) Financial or Cost Factors.

(iii) Tangible Factors.

(i) Technical Factors:

They tend to consider:

(i) Whether the present equipment has become obsolete due to technological developments,

(ii) If the present equipment is inadequate in meeting increased product demand.

(iii) Whether the present equipment has deteriorated due to wear and tear. It may be indicated by increase in maintenance costs, reduction in product quality, rate of output, and increase in labour cost and down time etc.

(iv) Reduced safety as compared to new machine available/developed.

(v) Can the present equipment provide desired surface finish?

(vi) If the present equipment is polluting or spoiling working condition of the industry.

(vii) Possibility of performing additional operations by new machine.

(viii) Does the present equipment make noise and vibrations and thus causing diversion of the workers.

(ix) How often the present equipment requires maintenance and repairs.

(ii) Financial/Cost Factors:

These are:

(i) High repair and maintenance cost of the existing equipment/machinery).

(ii) Possibility of combining some operations and resulting increase in productivity by challenger (new machine).

(iii) The initial cost of challenger.

(iv) Salvage value of existing equipment and challenger at the end of its useful life.

(v) Improvement in productivity and quality by use of challenger.

(vi) Saving in space by use of new machine.

(vii) Reduction in scrap and waste by use of new machine.

(viii) Down time cost of present machine.

(ix) Reduction in cost of jigs and fixtures by using challenger.

(x) Effect on consumption of power by replacing the existing machine by new machine.

(iii) Tangible Factors:

These factors involve sociological and humanitarian considerations with far reaching effects:

(i) Like replacing the existing machine which causes unpleasantness (may be noise and smoke pollution) and unsafe working conditions leading to accidents.

(ii) Replacement may cause displacement of workers.

At the time of replacement a well-designed replacement policy should be adopted, rather than considering only the factors pertaining to the particular equipment involved, should compare thoroughly all the existing equipment with its possible replacement.

For the purpose of sound economic comparison all factors should be converted into cost and possible increase in revenue. Break even analysis can be utilized for the purpose of taking replacement decision or selection of investment alternatives.

Problems in Replacement of Equipment:

The problem of equipment replacement is a routine phenomenon of industrial enterprises. Normally, it is experienced in systems where machines, individuals or the capital assets are the main job performing units. It is the common phenomena that performance or efficiency of an item in a system deteriorates with the passage of time.

The remedy is either to adopt maintenance measures to resort to the requisite level of performance or to replace the item with some new items. Thus it is required to formulate a most economic replacement policy which is in the best interest of the enterprise or system.

The various types of replacement problems can be expressed broadly in the following situations:

(i) Replacement of Equipment/Machine/Item which Deteriorate with Time:

This situation arises when the efficiency is measured as the discounted value of all future costs associated with each alternative. The simplest replacement model in such cases is one where the deterioration rate is predictable in terms of increasing maintenance costs and decreasing salvage value with time.

The maintenance cost of the machine/assets/equipment always increases with time and a stage comes when maintenance cost is so high that it is more economical to replace it by new one.

In such cases the decision may not be to re-palace the equipment if the next year maintenance cost is less than the average cost of the previous year and replace the equipment if the next year’s maintenance expenses is more than the average cost of the previous year.

There are two methods to find the appropriate solution in this case i.e.:

(i) Annual cost method.

(ii) Present worth method.

(ii) Replacements of Items that Fail Completely are Expensive to be Replaced:

In general it is a common characteristic that the probability of failure of any item in a system increases with the period of use or passage of time. A machine or equipment consisting of a number of parts/items may be considered as a system.

The system may be such that the whole system may result in breakdown with the failure of any item. This break down implies loss in production, idle labour, idle inventory and other units of the system.

It is possible that the nature of item which requires replacement may be such that immediate replacement is not available or possible. Thus there is necessity of formulating some appropriate replacement policy in such cases.

There are two possible solutions:

(a) Individual Replacement Policy:

Whenever any item fails, it should be immediately replaced.

(b) Group Replacement Policy:

All the items/parts are replaced after a certain period of time T inspite of these being in working condition, with a provision that if any item fails before this time T it can be replaced immediately. This approach decreases the probability of breakdown in the system. This approach is essential if the sudden breakdown of the equipment/machine is hazardous.

Such policy requires two fold considerations namely:

(i) The rate of individual replacement during the period.

(ii) The total cost incurred on individual and group replacements during the selected/chosen period of replacement.

The period for which the total cost is minimum is considered as optimal.

The following information is required to take decision in this procedure in such cases:

(A) Probability of failure at different periods of time

(B) Loss incurred due to these failures

(C) Cost of individual replacement and

(D) Cost of group replacement.

This model is represented by:

• Increasing maintenance cost.
• Decreasing salvage value.

Assumption

• Increased age reduces efficiency

Generally, the criteria for measuring efficiency is the discounted value of all future costs associated with each policy.

Let
C = the capital cost of a certain item, say a machine
S(t) = the selling or scrap value of the item after t years.
F(t) = operating cost of the item at time t
n = optimal replacement period of the time

Now, the annual cost of the machine at time t is given by C – S(t) + F(t) and since the total maintenance cost incurred on the machine during n years is F(t) dt, the total cost T, incurred on the machine during n years is given by:

T = C – S(t) + F(t) dt

Thus, the average annual total cost incurred on the machine per year during n years is given by

TA =

1 —– n

C – S(t) + F(t) dt

To determine the optimal period for replacing the machine, the above function is differentiated with respect to n and equated to zero.

dTA —— dn

=

-1 —– n2

C – S(t)

-1 —– n2

F(t) dt

+

F(n) —— n

 

Equating

dTA —— dn

= 0, we get

 

F(n) =

1 —– n

C – S(t) + F(t) dt

That is, F(n) = TA

Thus, we conclude that an item should be replaced when the average cost to date becomes equal to the current maintenance cost.

The time value of money is generally a principle within a financial theory which states that the people if given a preference, would like to receive the money as sooner as possible. It lays the foundation for many of the theories which mainly determines the discount rate that one should expect during the future cash flows.

Time Value of Money says that the worth of a unit of money is going to be changed in future. Put simply, the value of one rupee today will be decreased in future. The whole concept is about the present value and future value of money. There are two methods used for ascertaining the worth of money at different points of time, namely, compounding and discounting. Compounding method is used to know the future value of present money. Conversely, discounting is a way to compute the present value of future money.

This principle does not calculate the market value of that asset, instead, it calculates the intrinsic value. Intrinsic value is nothing but the total value that is required to own the asset for the entirety of its lifetime. For better understanding, let’s consider an example. Every business to operate requires machinery for its operations.

The machinery is the necessity for every business and thus whenever the machine or in business terms, assets reaches its life, it needs to replace. Now, the machine that we used to replace the current one reaches its life, also requires to be replaced at the end of that asset’s life. And so the process goes on and on till the business is being run.

This replacement of machines results into the outflow of the cash and thus the whole amount can be added to get a depreciation amount. This is called the depreciation value. There are many methods to calculate this depreciation of any machinery. These methods include the write-down value method, the straight-line method, etc.

	Compounding	Discounting
Meaning	The method used to determine the future value of present investment is known as Compounding.	The method used to determine the present value of future cash flows is known as Discounting.
Concept	If we invest some money today, what will be the amount we get at a future date.	What should be the amount we need to invest today, to get a specific amount in future.
Use of	Compound interest rate.	Discount rate
Known	Present Value	Future Value
Factor	Future Value Factor or Compounding Factor	Present Value Factor or Discounting Factor
Formula	FV = PV (1 + r)^n	PV = FV / (1 + r)^n

Assumptions

While talking about the time value of money principle, there are many assumptions that you need to make so that the depreciation can be demonstrated in a simple manner. Some of these assumptions include:

• Each machinery that will be replaced will have the same cost
• The productivity of all the assets remains the same during its lifetime
• The asset and its replacement have the same total lifetime
• There will be no residual value of the asset at the end of its lifetime
• The asset that is used for replacement will have the same productivity
• The assets that are used does not require any repairs or maintenance during its lifetime
• No taxation is involved in the transaction
• The payment done for the asset which is replaced will be upfront
• The replacement of the asset will be immediately done

Present Value and Future Value

While compounding value for the depreciation of the assets, you need to keep in mind two important values: present value and future value. Future value is the value of the asset after a certain time period. While the present value is the value of the asset that we calculate after deducting the residual value.

FV = PV(1 + r)ⁿ

where FV= future value,PV = present value, r = rate of interest, n = equal number of periods.

PV = FV / (1 + r)ⁿ

Compounding

For understanding the concept of compounding, first of all, you need to know about the term future value. The money you invest today, will grow and earn interest on it, after a certain period, which will automatically change its value in future. So the worth of the investment in future is known as its Future Value. Compounding refers to the process of earning interest on both the principal amount, as well as accrued interest by reinvesting the entire amount to generate more interest.

Compounding is the method used in finding out the future value of the present investment. The future value can be computed by applying the compound interest formula which is as under:

Where n = number of years
R = Rate of return on investment.

Discounting

Discounting is the process of converting the future amount into its Present Value. Now you may wonder what is the present value? The current value of the given future value is known as Present Value. The discounting technique helps to ascertain the present value of future cash flows by applying a discount rate. The following formula is used to know the present value of a future sum:

Where 1,2,3,…..n represents future years
FV = Cash flows generated in different years,
R = Discount Rate

Advantages of Simulation

Simulation offers various advantages. They have applications in every field. But this article covers the advantages of simulation in mechanical design only.

System Behavior Analysis

Simulations are used to analyze the behavior of a system without actually building it. Engineers can work on alternative solutions and simulate various designs. Therefore advantages of simulation include finalizing the best solution for prototyping before actually building it.

Reduces Manufacturing Cost

Simulation offers the advantage of designing products first time right. Therefore manufacturing and testing costs are reduced significantly.

Faster Products to Market

Advantages of Simulation studies include reduced number of design iterations. Therefore Design cycle time reduces significantly. This gives companies advantage of launching products in the market faster.

Design Analysis: Visual Output

Simulation results can be exported in graphical representation. It helps in analyzing system and product performance.

Problem Solving

Simulations are used to analyze a problem at various levels. This leads to faster and effective problem solving.

Value Engineering

Simulation studies helps in reducing manufacturing cost of existing and new products. For example mold-flow analysis is used to reduce injection molding cycle time.

Disadvantages of Simulation studies

Along with so many advantages, simulation studies also have some disadvantages. But the fact is overall simulation studies are good for a design.

Higher Initial Investment

Disadvantages of simulation software involve high initial investment. Such as high software cost and computing power requirements. Therefore small companies can not afford them.

Accurate Boundary conditions and input Data

Simulation results accuracy depends on input data and boundary conditions. System boundary conditions include environmental temperature, pressure and material.

Therefore boundary conditions need to be defined accurately to achieve good results. It requires a lot of experience.

Not 100% Accurate

Simulation softwares are not 100% accurate. You should expect some discrepancies in simulation results and tested products. With time engineers can refine their simulation results.

Main advantages of simulation include:

• Study the behavior of a system without building it.
• Results are accurate in general, compared to analytical model.
• Help to find un-expected phenomenon, behavior of the system.
• Easy to perform “What-If” analysis.

Main disadvantages of simulation include:

• Expensive to build a simulation model.
• Expensive to conduct simulation.
• Sometimes it is difficult to interpret the simulation results.

The simplest model is a duopoly market in which each duopolist attempts to maximise his market share.

Given this goal, whatever a firm gains (by increasing its share of the market) the other firm loses (because of the decrease in its share).

Thus any gain of one rival is offset by the loss of the other, and the net gain sums up to zero. Hence the name ‘zero-sum game’.

The assumptions of the model are:

1. The firms have a given, well-defined goal. In our particular example the goal is maximisation of the market share.
2. Each firm knows the strategies open to it and to its rival, or concentrates on the most important of these strategies.
3. Each firm knows with certainty the payoffs of all combinations of the strategies being considered. This implies that the firm knows its total revenue, total costs and total profit from each combination of strategies.
4. The actions chosen by the duopolists do not affect the total size of the market.
5. Each firm chooses its strategy ‘expecting the worst from its rival’, that is, each firm acts in the most conservative way, expecting that the rival will choose the best possible counter-strategy open to him. This behaviour is defined as ‘rational’.
6. In the zero-sum game there is no incentive for collusion, given assumption 4, since the goals of the firms are diametrically opposed.

In order to find the equilibrium solution we need information on the payoff matrix of the two firms. In our example the payoffs will be shares of the market resulting from the adoption of any two strategies by the rivals. Assume that Firm I has four strategies open to it and Firm II has five strategies. The payoff matrices of the duopolists are shown in tables 19.2 and 19.3.

Clearly the sum of the payoffs in corresponding cells of the two payoff tables adds up to unity, since the numbers in these cells are shares, and the total market is shared between the two firms. In general, in the two-person zero-sum game we need not write both payoff matrices because of the nature of the game: the goals are opposing, and, in our example, the payoff table of Firm I contains indirectly information about the pay­off of Firm II. Still we start by showing both tables, and then we show how the equi­librium solution can be found from only the first payoff matrix.

Choice of strategy by Firm I:

Firm I examines the outcomes of each strategy open to it. That is, Firm I examines each row of its payoff matrix and finds the most favourable outcome of the corres­ponding strategy, because the firm expects the rival to adopt the most advantageous action open to him. This is the behavioural rule implied by assumption 5 of this model.

Thus:

If Firm I adopts strategy A₁, the worst outcome that it may expect is a share of 0.10 (which will be realized if the rival Firm II adopts its most favourable strategy B₁).

If Firm I adopts strategy A₂, the worst outcome will be a share of 0.30 (if the rival adopts the best action for him, B₂).

If Firm I adopts strategy A₃, the worst outcome will be a share of 0.20 (if Firm II chooses the best open alternative, B₃).

If Firm I adopts strategy A₄, the worst outcome will be a share of 0.15 (which would be realised by action B₂ of Firm II).

Among all these minima (that is, among the above worst outcomes) Firm I chooses the maximum, the ‘best of the worst’. This is called a maximin strategy, because the firm chooses the maximum among the minima. In our example the maximin strategy of Firm I is A₂, that is, the strategy which yields a share of 0.30.

Choice of strategy by Firm II:

Firm II behaves in exactly the same way. The only difference is that Firm II examines the columns of its payoff table, because these columns include the results-payoffs of each of the strategies open to Firm II. For each strategy, that is, for each column, Firm II finds the worst outcome (on the assumption that the rival will choose the best), and among these worst outcomes Firm II chooses the best. Thus, if Firm II uses its own payoff table, its behaviour is a maximin behaviour identical to the behaviour of Firm I.

However, in the zero-sum game only one payoff matrix is adequate for the equilibrium solution. In our example the first payoff table will be used not only by Firm I but also by Firm II. Thus concentrating on the first payoff table we may re­state the decision-making process of Firm II as follows. Firm II examines the columns of the (first) payoff matrix because these columns contain the information about the payoffs of its strategies.

For each column-strategy Firm II finds the maximum payoff (of Firm I) because this is the worst situation the firm (II) will face if it adopts the strategy corresponding to that column. Thus for strategy B_{ the worst outcome (for Firm II) is 0-40; for strategy B₂ the worst outcome is 0-30; for strategy B₃ the worst outcome is 0-50; for strategy fl₄ the worst result is 0-60; for strategy B_s the worst result is 0-50. Among these maxima of each column-strategy Firm II will choose the strategy with minimum value. Thus the strategy of Firm II is a minimax strategy, since it involves the choice of a minimum among the maxima payoffs. (Table 19.4.)

It should be stressed that although different terms are used for the choice of the two firms (maximin behaviour of Firm I, minimax behaviour of Firm II), the behavioural rule for both firms is the same: each firm expects the worst from its rival.

In our example the equilibrium solution is strategy A₂ for Firm I and B₂ for Firm II. This solution yields shares 0 30 for Firm I and 0-70 for Firm II. It is an equilibrium solution because it is the preferred one by both firms. This solution is called the ‘saddle point’, and the preferred strategies A₂ and B₂ are called ‘dominant strategies’.

It should be clear that there exists no such equilibrium (saddle) solution if there is no payoff which is preferred by both firms simultaneously. Under certain mathematical conditions other solutions and strategy choices can be determined. The analysis of the resulting mixed strategies requires a sophisticated exposition of utility theory and random selection which is beyond the scope of this book.

1. Uncertainty Model:

The assumption that each firm knows with certainty the exact value of the payoff of each strategy is unrealistic. The most probable situation in the real business world is that the firm, by adopting a certain strategy, may expect a range of results for each counter-strategy of the rival, each result with an associated probability. Thus the payoff matrix is constructed so as to include the expected value of each payoff.

The expected value is the sum of the products of the possible outcomes of a pair of strategies (adopted by the two firms) each multiplied by its probability:

where g_si = the sth of the n possible outcomes of strategy i of Firm I (given that Firm II has chosen strategy j)

P_S = the probability of the sth outcome of strategy i

For example, assume that Firm I chooses strategy A₁ and Firm II reacts with strategy B₁. This pair of simultaneous strategies may yield the shares for Firm I each with a certain probability, shown in the second column of table 19.5. Thus the expected payoff of the pair of strategies A₁ and B₁ is

E(G_{1 1}) = (0.00)(0.00) + (0.05) (0.05) + (0.15)(0.05) + … + (0.95)(0.02) + (1)(0) = 0.458

In a similar way we find the expected payoff of all combinations of strategies. Given the matrix of expected payoffs, the behavioural pattern of the firms is the same as in the certainty model.

That is:

Firm I adopts the maximin strategy. It finds for each row the minimum expected payoff, and among these minima the firm chooses the one with the highest value (the maximum among the minima).

Firm II adopts the minimax strategy. It finds for each column the maximum expected payoff, and among these maxima Firm II chooses the one with the smallest value (the minimum among the maxima).

Although the uncertainty zero-sum game seems simple, its assumptions are quite stringent:

1. The firms maximise their expected payoffs.
2. The zero-sum game assumes that both firms assign the same probability to each pair of payoffs; they make the same judgement. This implies that the firms must have the same information and the same objective criteria with which to evaluate the probabilities of the different payoffs. Otherwise the probability distribution of the payoffs will not be objective.
3. The firms maximise their total utility, and the utility of each payoff is proportional to the value assumed by the payoff.

The above assumptions are clearly strong and unrealistic. Furthermore, the basic condition of the zero-sum game that the ‘gain’ of one firm is equal to the ‘loss’ of the other, is rarely met in the real business world. Usually the ‘gains’ are not ‘offset’ by equal ‘losses’. Only in the case of a share goal, and in the rare case of extinction tactics, do we have a zero-sum game. In most cases we have a non-zero-sum game.

Pure strategy

A pure strategy is an unconditional, defined choice that a person makes in a situation or game. For example, in the game of Rock-Paper-Scissors,if a player would choose to only play scissors for each and every independent trial, regardless of the other player’s strategy, choosing scissors would be the player’s pure strategy. The probability for choosing scissors equal to 1 and all other options (paper and rock) is chosen with the probability of 0. The set of all options (i.e. rock, paper, and scissors) available in this game is known as the strategy set.

Mixed strategy

A mixed strategy is an assignment of probability to all choices in the strategy set. Using the example of Rock-Paper-Scissors, if a person’s probability of employing each pure strategy is equal, then the probability distribution of the strategy set would be 1/3 for each option, or approximately 33%. In other words, a person using a mixed strategy incorporates more than one pure strategy into a game.

The definition of a mixed strategy does not rule out the possibility for an option(s)to never be chosen (eg. p_scissors= 0.5, p_rock = 0.5, p_paper = 0). This means that in a way, a pure strategy can also be considered a mixed strategy at its extreme, with a binary probability assignment (setting one option to 1 and all others equal to 0). For this article, we shall say that pure strategies are not mixed strategies.

In the game of tennis, each point is a zero-sum game with two players (one being the server S, and the other being the returner R). In this scenario, assume each player has two strategies (forehand F, and backhand B). Observe the following hypothetical in the payoff matrix:

The strategies F_S or B_S are observed for the server when the ball is served to the side of the service box closest to the returner’s forehand or backhand, respectively. For the returner, the strategies F_R and B_R are observed when the returner moves to the forehand or backhand side to return the serve, respectively. This gives us the payoffs when the returner receives the serve correctly (F_S,F_R or B_S,B_R), or incorrectly (F_S,B_R or B_S,F_R). The payoffs to each player for every action are given in pure strategy payoffs, as each player is only guaranteed their payoff given the opponent’s strategy is employed 100% of the time. Given these pure strategy payoffs, we can calculate the mixed strategy payoffs by figuring out the probability each strategy is chosen by each player.

So you are Roger. It is apparent to you that a pure strategy would be exploitable. If you serve to the backhand 100% of the time, it would be easy for the opponent to catch on and return from the backhand side more often than the forehand, maximizing his expected payoff. Same goes for the serve to the forehand. But how often should you mix your strategy and serve to each side to minimize your opponent’s chances of winning? Calculating these probabilities would give us our mixed strategy Nash equilibria, or the probabilities that each strategy is used which would minimize the opponent’s expected payoff. In the following article, we will look at how to find mixed strategy Nash equilibria, and how to interpret them.

Pure and Mixed Strategies:

In a pure strategy, players adopt a strategy that provides the best payoffs. In other words, a pure strategy is the one that provides maximum profit or the best outcome to players. Therefore, it is regarded as the best strategy for every player of the game. In the previously cited example (Table-1), the increase in the prices of organizations’ products is the best strategy for both of them.

This is because if both of them increase the prices of their products, they would earn maximum profits. However, if only one of the organization increases the prices of its products, then it would incur losses. In such a case, an increase in prices is regarded as a pure strategy for organizations ABC and XYZ.

On the other hand, in a mixed strategy, players adopt different strategies to get the possible outcome. For example, in cricket a bowler cannot throw the same type of ball every time because it makes the batsman aware about the type of ball. In such a case, the batsman may make more runs.

However, if the bowler throws the ball differently every time, then it may make the batsman puzzled about the type of ball, he would be getting the next time.

Therefore, strategies adopted by the bowler and the batsman would be mixed strategies, which are shown ion Table2:

In Table-2, when the batsman’s expectation and the bowler’s ball type are same, then the percentage of making runs by batsman would be 30%. However, when the expectation of the batsman is different from the type of ball he gets, the percentage of making runs would reduce to 10%. In case, the bowler or the batsman uses a pure strategy, then any one of them may suffer a loss.

Therefore, it is preferred that bowler or batsman should adopt a mixed strategy in this case. For example, the bowler throws a spin ball and fastball with a 50-50 combination and the batsman predicts the 50-50 combination of the spin and fast ball. In such a case, the average hit of runs by batsman would be equal to 20%.

This is because all the four payoffs become 25% and the average of four combinations can be derived as follows:

0.25(30%) + 0.25(10%) + 0.25(30%) + 0.25(10%) = 20%

However, it may be possible that when the bowler is throwing a 50-50 combination of spin ball and fastball, the batsman may not be able to predict the right type of ball every time. This would decrease his average run rate below 20%. Similarly, if the bowler throws the ball with a 60-40 combination of fast and spin ball respectively, and the batsman would expect either a fastball or a spin ball randomly. In such a case, the average of the batsman hits remains 20%.

The probabilities of four outcomes now become:

Anticipated fastball and fastball thrown: 0.50*0.60 = 0.30

Anticipated fastball and spin ball thrown: 0.50*0.40 = 0.20

Anticipated spin ball and spin ball thrown: 0.50*0.60 = 0.30

Anticipated spin ball and fastball thrown: 0.50*0.40 = 0.20

When we multiply the probabilities with the payoffs given in Table-2, we get

0.30(30%) + 0.20(10%) + 0.20(30%) + 0.30(10%) = 20%

This shows that the outcome does not depends on the combination of fastball and spin ball, but it depends on the prediction of the batsman that he can get any type of ball from the bowler.