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Chapter One

Basics Of Management
 Topics to be covered
 Introduction to management
 Functions of management
 Planning
 Organizing
 Directing
 Controlling
 Managerial roles and skills
 Basics of Productivity
Principle of management
Organizational structure 1
Introduction to Management
What is Management?
A set of activities (including planning and
decision making, organising, leading and control)
directed at an organisation‟s resources (human,
financial, physical and informational) with the aim
of achieving organisational goals in an efficient
and effective manner.
 The creation of conditions that allow the effective
use of resources (human, financial, material,
equipment, technical and etc.) to achieve a specified
 Organizational resources (5M): Men (human
beings), Money, Machines, Materials and Methods.
Major Premises
 Technology and business savvy (know-how) represents
a very powerful combination of great demand in society.

 Market environment is rapidly evolving (changing

marketplace complexities, web-based technologies,

 Leaders with understanding of technology and

management perspectives are needed.

 Engineers with proper management and leadership

training have great opportunities to add value. 3
Management Challenges
 Market place changes rapidly (Web-based
technologies, globalization, customer demand)
affecting how progressive companies will be
 Engineering managers to lead by supervising
complex teams, innovating with vision for the
future, designing global products, and
organizing supply chains.
Management Challenges

Inside Outside

Present Future

Local Global
Challenges - Inside
 Implement projects/programs;
 Manage people, technologies, and resources to add
 Develop new product features to enhance company
 Define, control and reduce costs to improve
 Initiate technology projects to sustain company

Challenges - Outside
 Keep abreast (in touch) of emerging
technologies and apply them to strengthen
company‟s core competencies;
 Apply web-based tools to enhance operations
and foster customer relations;
 Identify best practices to improve engineering
operations and surpass them;
Create supply chain networks to derive speed,
quality and cost benefits.

Challenges - Present
 Do things right to keep company operating smoothly;
 Use Balanced Scorecard to monitor non-financial and
financial performance;
 Control costs and eliminate wastes to attain profitability in
the short-run.

 Challenges - Future
 Seek transformation opportunities to create company
profitability in the long-run;
 Introduce new generation products timely;
 Create vision for the future related to technologies;
 Define what should be done for technology-based success in
the future. 8
Challenges - Local
 Utilize resources to best achieve company‟s objectives;
 Take ethical and lawful actions while taking into account
local conditions;
 Maintain and nurture local professional networks;
Challenges - Global
Apply location-based resources to realize global
economies of scale and scope for achieving cost and
technology advantages;
 Develop global professional networks;
 Acquire a global mindset;
 Exercise leadership roles in international settings.

Management concerns
 Efficiency: is getting the most output from the least
amount of inputs in order to minimize resource costs.
 “Doing things right”
 Effectiveness: is completing activities so that
organizational goals are attained.
 “Doing the right things”

Functions of Management

 Planning is determining the objectives and formulating
the methods to achieve them.
 Forecasting, setting objectives, action planning,
administering policies, establishing procedure.
 A job well planned is half done.
 During planning one needs to ask oneself the following:
What am I trying to accomplish i.e. what is my objective?
What resources do I have?
What are the methods and means to achieve the
Is this the optimal path or method?
Steps in Planning
1. Determining the goals or objectives for
the entire organization.. 12
Steps in Planning
2. Making assumptions on various elements of the
3. Decide the planning period.
4. Examine alternative courses of actions.
5. Evaluating the alternatives.
6. Make derivative plans.
Selecting organizational structure, delegating,
establishing working relationship.
 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.
 Decide how to Achieve Coordination.
 Selecting and training individuals for specific job
functions, and charging them with the associated
 Determining the number of employed personnel in an
organization or program, Also called workforce.

 A function that includes motivating employees,
directing others, selecting the most effective
communication channel, and resolving conflict.
 Ability to command people.
 Attracting people to the organization.
 Marshaling and allocation of resources
 Creating good working conditions
Controlling is 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
Measuring: determining through formal and informal
reports the degree to which progress toward objectives is
being made.
Evaluating: determining cause of and possible ways to act
on significant deviations from planned performance.
Correcting: taking control action to correct an unfavorable
trend or to take advantage of an unusually favorable trend.
Steps in Controlling
1. Establish Standards of Performance.
2. Measure Actual Performance.
3. Compare Performance to Standards.
4. Take Corrective Action.
Levels of Manager’s
 First-line Managers: often called supervisors stand at the
base of the managerial hierarchy.
 Middle Managers: heads of various departments and
organize human and other resources to achieve
organizational goals.
 Top Managers: set organizational goals, strategies to
implement them and make decisions.

Managerial Skills
 A manager is someone skilled in knowing how to analyze
and improve the ability of an organization to survive and
grow in a complex and changing world.
 Management knowledge and skills (operational, strategic,
financial/accounting, interpersonal skills/communications,
 Decision making skills/ tools (what-if analysis, risk
analysis, problem solving, root cause analysis, decision tree,
optimization, etc.)
Technical skills
Human skills
Conceptual skills
Technical Skills
 Technical skill involves understanding and
demonstrating proficiency in a particular workplace
 A persons‟ knowledge and ability to make effective use
of any process or technique constitutes his technical skills.
 For e.g. Engineer, accountant, data entry operator, lawyer,
doctor etc.
Human Skills
An individuals‟ ability to cooperate with other members
of the organization and work effectively in teams.
 Communication.
 For e.g. Interpersonal relationships, solving people‟s
problem and acceptance of other employees. 19
Conceptual Skills
 Ability of an individual to analyze complex
situations and to rationally process and interpret
available information.
 For eg: Idea generation and analytical process of

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.
O utputs
Productivity =

Basics of Productivity
 Labor Productivity
Quantity (or value) of output / labor hrs
 Quantity (or value) of output / shift
 Machine Productivity
 Quantity (or value) of output / machine hrs
 Energy Productivity
 Quantity (or value of output) / kwh
 Capital Productivity
 Quantity (or value) of output / value of input

Measures of Productivity

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
The denominator is total $ value of all inputs.
Measures of Productivity
Example 1
7040 Units Produced Which productivity measures can be
Sold for calculated?
$1.10/unit What is the multifactor productivity?
Cost of labor :
Cost of materials:
Cost of overhead:

= 2.20

Measures of Productivity
Example 2
 5,500 Units Produced  5,500 units/500 hours
 Sold for $35/unit = 11 units/hour
 500 labor hours are used Or we can arrive at a
 Cost of labor: $25/hr unitless figure:
 Cost of raw material: $5,000  (5,500
 Cost of overhead: 2 x labor units*$35/unit)/(500
cost hours * $25/hr) =15.4
What is the labor productivity?
What is the multifactor

MFP = 4.52
Measures of Productivity
Example 3
Assume 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.
Which productivity measure should be used?
Answer: Could be classified as a Partial
Measure (labor productivity).
Is productivity increasing or decreasing?
Answer: Last week’s productivity = 480/2000
= 0.24, and this week’s productivity is =
560/2400 = 0.23. So, productivity has
decreased slightly. 26
Factors affecting productivity
Standardization Methods
Technology Design of the workspace
Searching for lost Incentive plans that reward
or misplaced items productivity
Scrap rates Capacity utilization
Labor turnover,
Equipment breakdowns
new workers
Part and material shortages
Inadequate investment in
training & education of the

Key Steps for Improving Productivity
Develop productivity measures for all
 Determine critical (bottleneck) operations
 Develop methods for productivity
 Establish reasonable goals
 Get management support (make it clear that
management supports and encourages
productivity improvements.)
 Measure and publicize improvements

Exercise 1
1. A company that makes shopping carts for supermarkets recently purchased
new equipment, which reduced the labor content needed to produce the carts.
Information concerning the old system (before adding the new equipment) and
the new system (after adding the new machines) includes:
Old System New System
Output/hr 81 90
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50
a) Compute labor productivity for both the Old System and the New System.
b) Compute total factor productivity for both the Old System and the New
c) Suppose production with old equipment was 30 units of cart A at a price of
$100 per cart, and 50 units of cart B at a price of $120. Also suppose that
production with new equipment is 50 units of cart A, at a price of $100 per
cart, and 30 units of cart B at a price of $120. Compare total-factor
productivity for the old and the new systems. 29
Exercise 2
2. A company has introduced a process improvement that reduces
the processing time for each unit and increases output by 25% with
less material but one additional worker.
Under the old process, five workers could produce 60 units per
hour. Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead
is charged at 1.6 times direct labor cost. Finished units sell for $31
each. A, Compute single factor productivity of labor in the old
system. (Compute it in four possible ways.)
B, Compute all factor productivity for both old and new systems.
Factor Old System New System
Output 80 80(1.25) = 100
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31
Exercise 3
3.A milk factory seeks advice from an external consulting company
concerning its business and production processes. The final consulting
report describes several steps to increase productivity including
implementation of cutting-edge processing techniques through more
powerful filtering systems.
Existing System Proposed System
Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170

a) Calculate the labor productivity for the existing as well as the

proposed system.
b) Find the Total-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A
milk sold at $2.40/gallon and 300 gallons of Grade-B milk at
$1.90/gallon. Furthermore, assume that under the proposed
system, processing will include 600 gallons of Grade-A milk at
$2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon.
Compare all-factor productivity for both the existing and the new
system. 31
d) Is the proposed system acceptable? Why?
Henri Fayol’s 14 Principles Of Management
Principles Of Management
1. Division Of Work
Specialization allows the individual to build up
experience, and to continuously improve his skills.
Thereby he can be more productive.
2. Authority
The right to issue commands, along with which must
go the balanced responsibility for its function.
3. Discipline
Employees must obey, but this is two-sided:
employees will only obey orders if management
play their part by providing good leadership.
Principles Of Management
4. Unity Of Command
Each worker should have only one boss with no other
conflicting lines of command.
5. Unity of Direction
People engaged in the same kind of activities must have
the same objectives in a single plan. This is essential to
ensure unity and coordination in the enterprise. Unity of
command does not exist without unity of direction but
does not necessarily flows from it.
6. Subordination of individual interest
Management must see that the goals of the firms are
always paramount.
Principles Of Management
7. Remuneration
Payment is an important motivator although by analyzing
a number of possibilities, Fayol points out that there is
no such thing as a perfect system
8. Centralization (Or Decentralization)
This is a matter of degree depending on the condition of
the business and the quality of its personnel.
9. Scalar chain (Line of Authority)
A hierarchy is necessary for unity of direction. But lateral
communication is also fundamental, as long as
superiors know that such communication is taking
place. Scalar chain refers to the number of levels in the
hierarchy from the ultimate authority to the lowest level
in the organization. It should not be over-stretched and
consist of too-many levels
Principles Of Management
10. Order
Both material order and social order are necessary. The
former minimizes lost time and useless handling of
materials. The latter is achieved through organization
and selection.
11. Equity
In running a business a „combination of kindliness and
justice‟ is needed. Treating employees well is important
to achieve equity
12. Stability of Tenure of Personnel
Employees work better if job security and career progress
are assured to them. An insecure tenure and a high rate
of employee turnover will affect the organization
Principles Of Management
13. Initiative
Allowing all personnel to show their initiative in some
way is a source of strength for the organization.
Even though it may well involve a sacrifice of
„personal vanity‟ on the part of many managers.
14. Esprit de Corps
Management must foster the morale of its employees.
He further suggests that: “real talent is needed to
coordinate effort, encourage keenness, use each
person‟s abilities, and reward each one‟s merit
without arousing possible jealousies and disturbing
harmonious relations.”
Organizational Structure
What Is Organizing?
• Organizing
–Arranging the activities of the enterprise in
such a way that they systematically
contribute to the enterprise‟s goals.

G.Dessler, 2003
Depicting the Organization
• Organization Chart
– A chart that shows the structure of the
organization including the title of each manager‟s
position and, by means of connecting lines, who
is accountable to whom and who has authority for
each area.

Organization Design and Structure
• Organization design
– A process in which managers develop or change their
organization’s structure
• Work specialization
– A component of organization structure that involves
having each discrete step of a job done by a different
individual rather than having one individual do the
whole job

Structure Variables
• Principles • Departmentalization
– Chain of command – Functional
– Span of control – Divisional
– Authority • Product
– Power • Customer
– Responsibility • Geographic
• Process

Organizational Structure: Principle
Chain of command; The management principle that no
person should report to more than one boss
Span of control; The number of subordinates a manager
can direct efficiently and effectively
The rights inherent in a managerial position to give orders and
expect them to be obeyed
Responsibility; An obligation to perform assigned
Power; An individual‟s capacity to influence decisions
Types of Power
Power based on one’s position in the
Legitimate formal hierarchy
Coercive Power based on fear
Power based on the ability to distribute
Reward something that others value
Power based on one’s expertise,
Expert special skill, or knowledge
Power based on identification with a
Referent person who has resources or traits
Departmentalization(Creating Departments)
• Departmentalization
– The process through which an organization‟s activities
are grouped together and assigned to managers; the
organization wide division of work.
 Functional; The grouping of activities by functions performed
 Product; The grouping of activities by product produced
 Customer; The grouping of activities by common customers
 Geographic; The grouping of activities by territory
 Process; The grouping of activities by work or customer flow

Organization Chart
prepare the organization chart of
adigrat university
and submit at the coming week at
this time