CR = -P (A/P, i, n) + S (A/F, i, n)
what are the A/P and A/F stands for?
Simply put, NPV is used to determine the profitability of an investment. In the engineering world, this is usually a project of some sort that requires an upfront investment.
The reason why NPV is so important is because it takes into consideration the time value of money, something that is mostly ignored by people not business savvy. Money today is worth more than that same amount in the future. Many people in our industry forget to take into account opportunity cost that the money could be earning in a similar investment.
To account for this, we need to determine a period of time we want our investment to pay off and discount our potential future profits (aka cash flows) back to the current value. This is done using something called the discount rate.
The discount rate is where things get tricky. To make it easier to understand, I like to consider the discount rate as the minimum percentage return our investments needs to be profitable. This can either be the interest rate on the debt used for the project, the return expected by investors you may have in the project, or the return your money could generate if it was used on something with the same amount of risk. Determining risk is also very important and will most likely be a future post in this.
Once you figure out the best discount rate to use for your particular project, you need to estimate the profits you will earn. This will take some time studying the market, going over all your costs plus a safety factor for unexpected events, and contacting potential clients to gauge the demand/need for your product. It is best to be conservative when estimating this especially if you are not an established company with lots of data to use.
Finally, you can start to calculate. This is almost always going to be done in excel or something similar but it is still good to know the math behind it. The formula is as follows:
NPV = Σ[CFt/(1+r)t] from year 0 to the time period you chose. CFt is the cash flow at year t and r is the discount rate.
The year 0 cash flow will be a negative number, it’s the amount you’re investing into the project. therefore, an example could look something like this:
NPV = -100,000 + 12,000/(1+0.10) + 12,000/(1+0.10)2 + ...
The above example would be investing $100,000 into something that you expect to generate $12,000 per year at a 10% discount rate. If the above example we used a time period of 10 years we’d get a a value of approx NEGATIVE $26,000. This means that the project is not profitable and it should not be pursued without finding a way to increase cash flow.
This example shows the importance of using NPV because most untrained people would think that if you’re investing $100k and after 10 years earning $120k back it’s a good deal. In some cases it may be, but with the factors that gave us a 10% discount rate it is not.
The limitations of NPV come from your estimates. It is not meant to be a perfectly accurate number so the value is only as useful as youre background work in your assumptions. The more work you do to find an accurate estimate of profit and discount rate the more confident you can be in your NPV calculation.
I’ve heard a lot of talk in this industry about working hard and doing quality work to advance in this industry. This is definitely true, it will lead to job security and respect at your company. The downside is this leads to a life of grinding weeks away until (if) you retire.
To really reach high levels of pay comes from bringing money to yourself or your firm. You could be the hardest worker in the world but if you’re not bringing in clients somehow you will be capped salary wise. Sure you can bring in work based on your reputation but at the end of the day most clients want the job done at acceptable quality as fast and cheap as possible. You will always be limited based on others in the industry constantly undercutting each other at their own expense.
One way to bring in more money to the firm is to automate every single task you can. The firm will be happy that you can complete jobs faster with less resources and you will be happy with a decreased workload.
Some people get stuck in the trap of doing something the same just because that’s what they always have done. People are scared to learn new skills after a certain point for some reason.
Take time to learn new skills like advanced excel macros or python instead of working yourself to death the old fashioned way. Maybe one day you can even create a program that you can sell to do the job you used to.
It's not a secret that having a strong network is one of the most important factors in becoming a high earner. I also think this is why Reddit skews towards the underpaid said, most people are antisocial and horrible conversationalists.
Most of the advice I see in other subs sounds like BS paraded by LinkedIn “influencers” that use a lot of buzzwords that add up to nothing. I'm going to try to give some useful advice and would encourage people to add on, correct, or clear up what I'm saying in the comments.
First, improve yourself to become a more interesting and likable person.
For most people that struggle to connect with people, it's because they're coming off as someone who only wants to use people for their benefit. If you come out firing work-related questions and asking for advice all the time people will roll their eyes when they see you. The goal is to build the relationship first without any expectations. If you continually do this you will eventually have a group of people who enjoy you personally and are more likely to go out of their way to help you or recommend you for an opening/client.
The best way to become interesting is to find topics that most people enjoy talking about that make them feel joy or excitement. Good examples include sports, local food/drinks, and music. It really can be anything that you will be able to bring up passionately during conversation. The more interests you have the more likely you'll be able to find something to connect with people at those awkward events. Try things even if you think you won't like it. Worst case you have a story and best case you surprise yourself.
Now that we got over the biggest hurdle for most engineers (and especially the Reddit engineers), let's discuss how you even meet new people in your field.
This is where the cliche is actually correct. You need to join local chapters of societies and become active. Yeah it's not as fun as playing Xbox in your room but if you want to raise your value you need to put in work.
Another way is to meet them through jobs you've worked on together. Try to take a minute at the end of meetings to chat about them and get to know each other. It may be awkward at first but if you meet together often you will both soon look forward to those conversations. Doing it at the end of meetings makes it so they leave with a good memory of you instead of otherwise boring work issues.
With practice this will become effortless and you'll soon start making connections everywhere. Being likeable is important in every aspect of your life.
Once you make the initial connection, the often overlooked next step is to keep it going. Remember what you connected with last time and bring up things they said. If they mention anything coming up in their personal life ask how it went. People love to know that you were actually listening when they were talking.
If you’re a forgetful person, use your notes app to jot stuff down after meeting someone. You shouldn’t be just reciting off a list of things they said but use keywords that will jog your memory.
If you couldn’t find anything that clicked last time try to use clues to find something they’re interested in and ask about it next time. something like “I saw the lakers sticker on your car last night, did you catch the game last night” or similar is all you need. Obviously don’t make this creepy by stalking them to find a little piece of information. You can’t expect to connect with every single person you meet so don’t force it.
Once you get to know each other, you should start offering them favors before asking for any yourself
It doesn’t have to be something huge. Maybe send articles on someting that they were having trouble with or offer to help them out or bring in a candy you know they like next time. Just do anything to prove you’re not talking to them just to gain something.
Add them on LinkedIn and congratulate them for career milestones
You don’t want to act like one of those influence spamming cringe posts all day here. Just set it up so you get notifications for career updstes with your network and act like you normally would. Usually just a simply comment saying “Congradulations,(name)” is all you really need. If you usually joke around together make a (work appropriate) joke. If you do this make sure you have a relationship already and know they are the type of person who enjoys this.
Make sure you also bring it up when you see them in person again. A face-to-face comment is much more powerful than a linkedin or facebook post.
Youll soon realize that you have a large network that all like you and want you to succeed
Networking isn’t supposed to make you a success overnight. You may not even see a benefit for years. But, if you stick with it, the connections you made as low level employees will be extremely valuable once they start getting promotions and opening businesses themselves.
When the time is right, reach out and ask for advice or if they know of anyone hiring for senior roles, or whatever you need. After building a genuine relationship this will be easy and they’ll likely go out of their way to help. You’ll have a group of people working together to all succeed.
Or, you can ignore all this and keep to yourself all day until you’re 50 and post how you’re miserable and that your job sucks in r/engineering.
The main goal of this place will be to open the eyes of young engineers. Too many people are content with taking zero risks and grinding through their days for a middle-class life. Obviously, there is a small group that is paid handsomely but the vast majority went through one of the hardest majors possible to come out making less than the business guys. The goal here is to turn us into the business guys and command high salaries, put pressure on employers by going out on your own, and allow supply and demand to do the rest.
That may be a little too optimistic... but at the very least there is a severe knowledge gap by people in our industry. We should be discussing loan rates, 401k plans, salaries, business ideas, success stories, failures, commodity pricing, broad economic factors, local economic factors, or anything else you can think of.
Oh and also, I won't have any leniency for the "you shouldn't have gone in it for the money" comments. Have some damn respect for yourselves and your profession learn some negotiating skills.