Engineering economics and industrial Management course

It is a short note

1. 1
CHAPTER ONE
Basics Of Management And Industrial
Organizations
By: Fetene G.

2. 2
Topics to be covered
vIntroduction to management
vFunctions of management
vManagerial roles and skills
vOrganization
vBasics of Productivity

3. Introduction to Management
3
qManagement is the process of bringing human and nonhuman
resources together and coordinating them to accomplish
organizational goals.
qit’s the creation of conditions that allow the effective use of resources
(human, financial, material, equipment, technical and etc.) to achieve a
specified goal.
Management concerns
qEfficiency
qEfficiency is getting the most output from the least amount of inputs in
order to minimize resource costs.
v“Doing things right”
vThe level of output that is achieved with a given level of inputs.

4. Management concerns
4
qEffectiveness
qEffectiveness is completing activities for attaining high
organizational goals.
q“Doing the right things”

5. Characteristics of Management
5
qManagement is Goal Oriented
Activity.
qManagement is relationship
building within and outside the
organization.
qManagement is an environment
oriented activity.
qManagement is an Art of Getting
Things Done.
qManagement is Concerned with
Group Efforts/Activity.
qManagement is Dynamic.
qManagement has its own tools and
techniques.
qManagement is leadership
responsibility, not just an activity.

6. Reasons of Studying Management
6

7. Industrial management
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§Is a structured approach to manage the operational activities of an
organization.
§Since it deals creation and management systems that integrating
the people and materials and energy in a productive way(to
improve productivity by utilizing the existing resources).
vWhere as engineering economics helps to make informed financial
evaluation, decision and financial report of engineering projects,
lease/buy decisions.

8. Functions of Management
8
1.Planning:- is the process of setting objectives for the future and
developing courses of action to accomplish them.
During planning one needs to ask oneself the following:
ØWhat am I trying to accomplish i.e. what is my objective?
ØWhat resources do I have?
ØWhat are the methods and means to achieve the objectives?
ØIs this the optimal path?

9. Steps in Planning
9
1.Determining the goals or objectives for the entire
organization.
2.Making assumptions on various elements of the environment.
3.Decide the planning period.
4.Examine alternative courses of actions.
5.Evaluating the alternatives.
6.Real point of decision making.
7.Make derivative plans.

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2.Organizing:-is the process of arranging people and physical
resources to carry out plans and accomplish organizational objectives.
Determine what is to be done/ Division of Work.
Assign Tasks: Departmentalization
Link Departments: Hierarchy Development
Decide how much Authority to Designate/ Authority, Responsibility
and Delegation.
Decide the Levels at which Decisions are to be made / Centralization
vs. Decentralization
Decide how to Achieve Coordination.

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3.Leading:-is the act of inspiring,motivating or causing people to
perform certain tasks intended to achieve specific objectives..
üProvides proper motivation of personnel.
üAbility to command people.
üAttracting people to the organization.
üMarshaling and allocation of resources
üCreating good working conditions

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4.Controlling:- is the process by which managers determine
whether organizational objectives are achieved and whether
actual operations are consistent with plans.
It’s a three-step process of measuring progress toward an
objective, evaluating what remains to be done, and taking the
necessary corrective action to achieve or exceed the objectives.

13. Steps in Controlling
13
Establish Standards of Performance.
Measure Actual Performance.
Compare Performance to Standards.
Take Corrective Action.

14. Types of Managerial level (Hierarchy)
14
A manager is a person responsible for supervising and motivating
employees and, for directing the progress of an organization.
The three level of managers are:-
vFirst-line Managers: often called supervisors stand at the base of the
managerial hierarchy.
vMiddle Managers: heads of various departments and organize
human and other resources to achieve organizational goals.
vTop level Managers: set organizational goals, strategies to
implement them and make decisions.

15. Managerial Skills
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üSince a manager is skilled in knowing how to analyze and
improve the ability of an organization to survive and grow in a
complex and changing world.
üA set of tools that enable them to grasp the complexity of the
organization's environment.

vTechnical skills
vHuman skills
vConceptual skills

16. Technical Skills
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Technical skill involves understanding and demonstrating
proficiency in a particular workplace activity.
Are the specialized knowledge and abilities that can be applied
to specific tasks.
Most important at lower level of management.
For eg: Engineer, accountant, data entry operator, lawyer,
doctor etc.

17. Human Relation Skills
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An individuals’ ability to cooperate with other members of the
organization and work effectively in teams.
Are the abilities needed to resolve conflict, motivate,
lead, and communicate effectively with other workers.
Equally important at all levels of management.
eg: Interpersonal relationships, solving people’s problem and
acceptance of other employees.

18. Conceptual Skills
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qAbility of an individual to
analyze complex situations
and to rationally process and
interpret available information.
qFor eg: Idea generation and
analytical process of
information.

19. Managerial Roles
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Managerial roles categorized as follow:-
vInterpersonal role :interact with his/her employees
vInformational role: generat and share knowledge
vDecisional role: process of using information to make decision
ØInterpersonal Role
vFigurehead- As a figurehead a manager performs social, ceremonial
and legal responsibilities that his employees expect him to fulfill.
Leader- give direct commands and orders to subordinates and make
decisions.
vLiaison-coordinate between different departments and establish
alliances between different organizations.
-communicates with internal and external members(customer)of
organization.

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vInformational Role
vMonitor - evaluate the performance of employees in different functions.
vDisseminator -communicate to employees,the organization’s vision and
purpose.
vSpokesperson- give a speech to inform the local community about the
organization’s future intentions.
vDecisional Role
vEntrepreneur- commit organization resources to develop innovative
goods and services.
vDisturbance handler- to take corrective action to deal with unexpected
problems facing the organization from the external as well as internal
environment.
vResource allocator- allocate existing resources among different functions
and departments.
vNegotiator- work with suppliers, distributors and labor unions.

21. Manager’s Roles
21

22. Organization
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qIs a stable and formal social structure that takes resources from
the environment and processes them to produce outputs.
qAn organization is the rational co-ordination of the activities or
roles of a number of people for the achievement of some common
explicit purpose or goal, through a hierarchy of authority and
responsibility.

23. Con.t
23
qCharacteristics of organization
(1) each has a distinct purpose(Goal);
(2) each is composed of people; and
(3) each develops some deliberate structure so
members can do their work.

24. Type of organization based on purpose
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vProfit oriented organization (Product/Services)
Ø Return on investment /for making money
vNonprofit-oriented organization
Ø For offering services like;
Ø Educational Institutions
ØHospitals, social welfare agencies like red cross
v Mutual Benefit organizations
Ø To advance members’ interest like;
Ølabor unions, trade associations, Political parties. Etc.

25. Organizational structure
Dejene M., Industrial Engineering Program, EiT_M25
vIs a Formal relationship between people
in various positions in the organization.
vIt shows who supervises whom & how
various jobs & departments are linked
together to make and achieve
coordinated system.
vMain channels of communication:
qDownward
qUpward
qHorizontal
qDiagonal

26. Types of organizational structures
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i. Line organization: the characteristic feature of this type is that line
of authority flows verticality from the top most executive to the lowest
subordinate throughout the entire organizational structure.
üThis type of organization is usually found in the army. The
authority is greatest at the top and reduces through each successive
level down the organizational scale.
Advantages:
üIt is simple and easy to understand by the members of the enterprise.
üQuick decisions can be taken.
üIt provides a clear cut division of authority and responsibility.
üMaintenance of disciple is easy.
Drawbacks:
üNot suitable for complex and large enterprises.
üExecutives become overloaded with too many duties.
üSpecialization cannot be practiced.

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vii. Functional organization: type of activity or function determines
area of responsibility and authority.
üAn expert or specialist is placed in charge of each functions and will
have direct control of that functions wherever its undertaken within
the enterprise.
Advantages:
üIt works on the basis of expert knowledge.
ü Quality of work is better.
ü Expertise at various levels reduces the number of accidents and
wastage of materials, man and machine hours.
ü Narrow range with high depth understanding in his particular area
of activity.
ü Ease in Selection and Training

28. Con.t
28
draw backs
Indiscipline
 Since the workers receive instructions from number of specialists
(which may be conflicting) it leads to confusion to whom they should
follow. Therefore, it is difficult to maintain discipline.
Shifting of responsibility.
It is difficult for the top management to locate responsibility for the
unsatisfactory work. Everybody tries to shift responsibilities on
others for the faults and failures.
 Overlapping of Authority.
The spheres of authority tends to overlap and gives rise to friction
between the persons of equal rank.
Kills the initiative of workers.
As the specialized guidance is available to the workers, the workers
will not be using their talents and skill, therefore their initiative
cannot be utilized.
Increase in Cost.

29. Con.t
29
Line and Staff organization: combination of line and
staff and is most successful type of organizations.
Advantages:
ØExport advice from specialist staff executive are relieved of some of their loads and
are thus able to devote more attention towards production.
ØLess wastage of material, man and machine hours.
ØQuality of product is improved

30. Basics of productivity
Productivity is a common measure of how well resources are
being used or a measure of the efficient use of resources usually
expressed as the ratio of output to input.
Productivity, the relative efficiency of economic activity—that is,
the amount of products or services produced compared to the
amount of goods and labor used to produce.
30
q Labor Productivity
vQuantity (or value) of output /
labor hrs
v Quantity (or value) of output /
shift
q Machine Productivity
v Quantity (or value) of output /
machine hrs
q Energy Productivity

31. Measures of Productivity
Partial Output Output Output Output
measures Labor Machine Capital Energy
Multifactor Output Output
measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced
measure All inputs used to produce them
If we produce only one product, the
numerator can be either the total units
of product or total $ value of the
product.
If we produce several products, the
numerator is the total $ value of all products.
Usually, the numerator is the total $ value of
all outputs.
The denominator is total $ value of all inputs.
31

32. Eg.1
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7040 Units Produced
Sold for $1.10/unit
Cost of labor : $1,000
Cost of materials: $520
Cost of overhead: $2000
1. What is the multifactor productivity?
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000
= 2.20

33. Eg. 2
33
Ø5,500 Units Produced
ØSold for $35/unit
Ø500 labor hours are used
ØCost of labor: $25/hr
ØCost of raw material: $5,000
ØCost of overhead: 2 x labor cost
What is the labor productivity?
What is the multifactor productivity?
Ø5,500 units/500 hours = 11 units/hour
Or we can arrive at a unitless figure:
Ø(5,500 units*$35/unit)/(500 hours *
$25/hr) =15.4
MFP = (5,500 units)*($35)
(500hrs.)*$25/hr. + ($5000) +
2*(500hrs.)*$25/hr.
MFP =4.52

34. Con.t
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Example 3
qAssume that you have just determined that your service employees have used
a total of 2400 hours of labor this week to process 560 insurance forms. Last
week the same crew used only 2000 hours of labor to process 480 forms.
qWhich productivity measure should be used?
vAnswer: Could be classified as a Partial Measure (labor productivity).
qIs productivity increasing or decreasing?
vAnswer: Last week’s productivity = 480/2000 = 0.24, and this week’s
productivity is = 560/2400 = 0.23. So, productivity has decreased slightly.

35. Factors affecting productivity
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qStandardization
qTechnology
qSearching for lost or
misplaced items
qScrap rates
qLabor turnover, layoffs,
new workers
qSafety
qBottlenecks
qMethods
qDesign of the workspace
qIncentive plans that reward
productivity
qCapacity utilization
qLocation
qLayout
qInventory
qScheduling,eg. Exit exam
qEquipment breakdowns
qPart and material shortages
qInadequate investment in training &
education of the employees

36. Key Steps for Improving Productivity
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qDevelop productivity measures for all operations
qDetermine critical (bottleneck) operations
qDevelop methods for productivity improvements
qEstablish reasonable goals
qGet management support (make it clear that management supports and
encourages productivity improvements.)
qMeasure and publicize improvements
qInvest on labor force by training and education