Lecture notes on some of the business features of engineering practice

Front matter

LECTURE m

ON SOME OF THE

BUSINESS FEATURES

Preface To First Edition

In this department the students are first required to read the ''Reprints of Lectures and Papers" which were gathered together for the purpose of cultivating in them a more sympathetic attitude of mind towards the specific instruction which is in part covered in these lecture notes.

In writing these notes and in putting them together I have made no attempt to avoid repetition, but my aim has been rather to consider the same proposition from several points of view in the hope that I might so better remove the difficulties that have developed in the work of the classroom.

Experience with three senior classes has convinced me that this repeating and paraphrasing is required to enable me to give inexperienced students a firm grasp of the essentials included in my course, unable as I am, by reason of insufficient time, to afford them the advantages of extended practice in examples.

The actual repetition is far greater than is here indicated, for, in my lectures as delivered, I give many additional examples from my own experiences, selected to meet the difficulties of the students as these difficulties become apparent.

I do not hestitate to include commonplaces. My hope is that especially where these have to do with the ethics of our noble profession the members of my classes will, through a cultivated receptivity, come to accept these commonplaces as active and controlling truths.

These pages are placed in the hands of the students so that they need not be obliged to rely solely upon my spoken words, but may have something to study outside of the classroom in preparation for examinations.

Notwithstanding the fact that I have not been able so far to cover by written notes all of the matter included in my course, I feel that the students should be able to prepare on all I present because much that is most difficult to comprehend is here given in permanent form and the remainder I give them full opportunity to discuss with me in class.

vi PREFACE TO FIRST EDITION

The notes on the Law of Contracts were prepared at my request by my friend and counsel, Howard E. White, Esq., of the New York Bar, to whom I wish now to repeat my grateful acknowledgments.

The commencement address to the Class of 1904, delivered by Walter C. Kerr, Esq., would have been included more appropriately in the "Reprints of Lectures and Papers," but as this was not feasible I have reprinted it here that Mr. Kerr's sound advice, so admirably presented, may be preserved for future classes.

I hope that I may be able to develop from these and supplementary notes a text-book on the business features of engineering practice, based upon my experiences in the fields of Engineering and Business as to the matter, and upon my experiences in the classroom as to the most efficient methods to be employed in presenting this matter to engineer-students already pressed for time in which to perform their assigned tasks.

Alexander C. Humphreys.

The Stevens Institute of Technology, Hoboken, N. J.

Preface To Second Edition

In preparing the second edition of my Lecture Notes certain additions have been suggested by the experience of the classroom and by changes, almost revolutionary, which have taken place in the industrial field.

As explained in the introduction to the first edition, the lectures and papers contained in Reprints were collected originally for the purpose of cultivating in the students a sympathetic attitude of mind toward the more specific instruction to follow. Experience in the classroom has shown that these papers can also be usefully employed as suggestive material for experience talks. Therefore, with the added addresses, they have been included in this volume as Part I.

In Part II I have brought together my own lecture notes which appeared originally in the first edition of these Notes and its several supplements. Much of this material has been rearranged to bring it into better sequence; and portions have been rewritten wholly or in part.

Considerable new material has been added, particularly on the all-important subject of depreciation.

The necessity for a correct understanding of the many questions involved in the complex subject of depreciation has been growing in importance more and more each year since my Notes were put into print. Then the subject had received far too little attention and less real study. Therefore, I was concerned chiefly to impress upon our students the necessity for making systematic provision on the books of account for the estimated accruing liability due to depreciation. While I pointed out that estimates of accruing depreciation should be checked and corrected whenever opportunity was found to determine the actual accrued depreciation, the determination of actual depreciation was not discussed specifically.

To apprehend the difference between estimated accruing depreciation, to be included as one of the annual charges against income, and actual depreciation, as found in the appraisal of existing plants, has become, in the last few years, a matter of supreme viii PREFACE TO SECOND EDITION

importance in connection with the appraisal of plants for ratemaking cases.

Particularly this distinction is of vital importance at the present time because many theorists and "Experts," who have had little or no practical experience but yet have exercised, and are exercising, a strong influence upon public opinion and, still worse, upon members of Commissions and Courts, insist upon confusing estimated accruing depreciation and actual depreciation and therefore insist that an existing plant should be depreciated on the basis of estimated average life of plant and actual age irrespective of the facts as to physical decay, obsolescence and inadequacy determinable through competent inspection.

The theorists who fail to thus differentiate between the two classes of depreciation also fail to differentiate between actual depreciation which may occur most irregularly throughout the life of plant, and the scheme of accounting which aims to spread uniformly over the years benefited the total depreciation of the period.

Recognizing how increasingly important it is that our engineers should take the lead in the solution of these questions, I have treated separately these two classes of depreciation.

Also, I have considered more at length than in the first edition some of the many questions involved in the practice of compensating for depreciation by investing the depreciation fund in betterments and extensions.

In Part III I have gathered together a number of special lectures, some of which have been delivered to our senior classes and some of which have been written especially for this volume. All of these are intended for use with future classes, following the instruction based upon the contents of Part II.

Mr. Howard E. White's notes on The Law of Contracts and The Law of Agency have been used by him for a number of years in lecturing to our senior classes and were included in the first edition of these Notes.

Mr. William R. Baird has for a number of years lectured to our seniors on Patents and Patent Law, but these lectures were first reduced to permanent form for inclusion in this volume.

PREFACE TO SECOND EDITION ix

Mr. Edmund Dwight's lecture, Employers' Liability and Workmen's Compensation, was delivered for the first time to the Class of 1911.

Mr. H. L. Gantt's lecture, Task and Bonus in Management, was delivered a few years ago as a special lecture to our seniors and juniors, and is reprinted from the Stevens Indicator of April, 1908.

Mr. H. P. Gillette's lecture. Gathering Engineering Cost Data, was delivered in 1903, at Columbia University, and is reprinted by permission from the July, 1904, issue of the "School of Mines Quarterly."

Other lectures, written expressly for this volume, are as follows :

Accidents to Employees and Liability Therefor, by Mr. Louis L. Babcock.

Costs, by Mr. J. Newton Gunn.

An Analysis of Work, by Dean Herman Schneider.

I am also permitted to include three addresses on Banking by Mr. Frank A. Vanderlip.

I avail myself of this opportunity to renew the expression of my obligation to those who contributed to the Reprints and the first edition of these Notes and to extend my sincere thanks to those who have contributed additional matter for this edition.

In general, while in revising these Notes I have aimed to make them more complete and more convenient for use in the classroom, I have not attempted to produce a concisely worded text-book. My experience in the classroom has failed to persuade me that all repetition should be eliminated.

I wish to thank most sincerely Dr. F. L. Sevenoak for the assistance he has so ungrudgingly given me in carrying this book through the press.

Alexander C. Humphreys.

Stevens Institute of Technology, Castle Point, Hoboken, N. J. 1912.

PART I Reprints of Special Lectures, Papers, and Addresses Introduction 3

Is a Knowledge of Business Methods of Importance to the Engineer? 5 President Humphreys.

Experience Teaching 16

Henry de B. Parsons, B.Sc, M.E., Consulting Engineer.

George R. Turnbull, Vice-President, Guaranty Trust Company of New York.

The Relation of Money and Banking to Engineering Work .... 29

William Sherrer, Manager, New York Clearing House. Should the Stevens Curriculum Include Instruction in Bookkeeping

and Accounting? 39

President Humphreys.

Business Training for the Engineer 48

President Humphreys.

Factory Depreciation — The Problem of Correct Valuation .... 53 Ewing Matheson, C.E., M.I.C.E., Consulting Engineer.

Walter M. McFarland, Formerly Chief Engineer, U. S. Navy; Vice-President, Westinghouse Electric Co.

Charles F. Scott, A.B., A.M., Professor, Electrical Engineering, Sheffield Scientific School, Yale University.

Walter C. Kerr, B.M.E., President, Westinghouse, Church, Kerr &Co.

Palmer C. Ricketts, C.E., E.D., President, Rensselaer Polytechnic Institute.

John Hays Hammond, M.A., E.D., Mining Engineer.

Paul Morton, President, Equitable Life Assurance Society of New York.

xii CONTENTS

Henr}^ S. Pritchett, Sc.D., LL.D., President, Carnegie Foundation for the Advancement of Teaching.

Julian Kennedy, B.S., A.M., E.D., Consulting Engineer.

Walter M. McFarland, Formerly Chief Engineer, U. S. Navy; Manager, Marine Department, Babcock & Wilcox Co.

Robert M. Thompson, President, U. S. Naval Academy Alumni Association; President, Orford Copper Co., and Chairman, Board International Nickel Co.

PART II Lecture Notes on Some of the Business Features of Engineering Practice

President Humphreys

Accountancy — General Principles 168

Accountancy — Methods •. 183

Accountancy — Classification of Transactions and Grouping of Accounts 203

Accountancy — Advance Payments and Accrued Expenses .... 219

Accountancy — Analysis of a Balance Sheet , 237

•Depreciation — Theoretical or Estimated Accruing Depreciation . . 258

'Depreciation — Actual Depreciation 303

' Depreciation — The Accountancy of Depreciation 318

Specifications, Estimates, Contracts, and Appraisals 359

PART III Special Lectures

Notes on the Law of Contracts 379

Howard E. White, Esq., Member of the New York Bar.

Notes on the Law of Agency 411

Howard E. White, Esq., Member of the New York Bar.

CONTENTS xiii

William Raimond Baird, M.E., LL.B., Specialist in Patent Law.

Employers' Liability and Workmen's Compensation 444

Edmund Dwight, Esq., Resident Manager, The Employers' Liability Assurance Corporation, Ltd.

Accidents to Employees and Liability Therefor 456

Louis L. Babcock, Esq., Member of New York Bar.

Halbert P. Gillette, E.M., Consulting Engineer and Editor.

H. L. Gantt, M.E., Efficiency Engineer.

J. Newton Gunn, Esq., President, Gunn, Richards & Company, Production Engineers.

Herman Schneider, B.S., Dean, College of Engineering, University of Cincinnati.

Frank A. Vanderlip, Esq., President, The National City Bank of New York.

Frank A. Vanderlip, Esq., President, The National City Bank of New York.

Frank A. Vanderlip, Esq., President, The National City Bank of New York.

Part I REPRINTS OF SPECIAL LECTURES, PAPERS AND

ADDRESSES