IEng 5241-Industrial Management & Engineering

Economy

Dr. K.Balasundaram
Industrial System Design & Operational Management Chair
School of Mechanical and Industrial Engineering
Dire Dawa Institute of Technology
Dire Dawa University
 Out line of presentation
Chapter-I
Basic Management Concepts and Industrial Organization:
 Introduction to management;

 Functions of management;

 Organizational structure;

 Basics of productivity.
Management- Definition

Management is the process of achieving goals and

1
objectives effectively and efficiently through and
with the people.

"Management is a process of designing and

2
maintaining an environment in which individuals
work together in groups to effectively and
efficiently accomplish selected aims“.
 Management- Definition

Management is the process of achieving

organizational goals and objectives
3
effectively and efficiently by using
management functions i.e. Planning –
Organizing – Staffing – Controlling

Management is a set of activities directed at an

organization's resources with the aim of
4
achieving organizational goals in an efficient
and effective manner.
These definitions when expanded have these implications:
 Management is thus a continuous effort aimed at shaping an organization and

contributing to its overall growth.

 The functions of managers include planning, organizing, staffing, leading and

controlling.
 These functions are essential to any kind of organization.

 It applies to managers at all hierarchical levels.

 The aim of managers is to increase productivity, effectiveness and efficiency.

Elements of definition
 Process - represents ongoing functions or
primary activities engaged in by managers

 Efficiency - getting the most output from the

least amount of inputs. “doing things right” •
concerned with means • Achieving the objectives
in time.

 Effectiveness - completing activities so that

organizational goals are attained • “doing the
right things” • concerned with ends • Achieving
the objectives on time
Efficiency and Effectiveness in Management
Management: Science or Art?
Management Science:
 Science is a collection of systematic knowledge, collection of truths and inferences after
continuous study and experiments. It has fundamental principles discovered.
Management Art :
 Art uses the known rules and principles and uses the skill, expertise, wisdom, experience
to achieve the desired result.
Management Science & Art :
 Management is both art and science. Management has got two faces like a coin; on one side
it is art and on the other it is science. Management has got scientific principles which
constitute the elements of Science and Skills and talent which are attributes of Art.
Fayol’s Principles of Management
Henri Fayol (1841-1925)
 He has proposed that there are six primary
functions of management and 14 principles of
management, Forecasting, Planning, Organizing,
Commanding, Coordinating, controlling There are
14 Principles of Management described by Henri
Fayol.
14 Principles of Henri Fayol
1. Division of Labor
Work of all kinds must be divided & subdivided and
allotted to various persons according to their expertise in
a particular area.
2. Authority & Responsibility
Authority refers to the right of superiors to get exactness
from their sub-ordinates. Responsibility means obligation
for the performance of the job assigned. Note that
responsibility arises wherever authority is exercised
3. Unity of Command
A sub-ordinate should receive orders and be accountable
to one and only one boss at a time. He should not receive
instructions from more than one person
14 Principles of Henri Fayol
4. Unity of Direction
People engaged in the same kind of business or same kind
of activities must have the same objectives in a single plan.
Without unity of direction, unity of action cannot be
achieved.
5. Equity
Equity means combination of fairness, kindness & justice.
The employees should be treated with kindness & equity if
devotion is expected of them.
6. Order
This principle is concerned with proper & systematic
arrangement of things and people. Arrangement of things
is called material order and placement of people is called
social order.
14 Principles of Henri Fayol
7. Discipline
Discipline means sincerity, obedience, respect of authority
& observance of rules and regulations of the enterprise.
Subordinate should respect their superiors and obey their
order
8. Initiative
Initiative means eagerness to initiate actions without being
asked to do so. Management should provide opportunity to
its employees to suggest ideas, experiences& new method
of work.
9. Remuneration
Remuneration to be paid to the workers should be fair,
reasonable, satisfactory & rewarding of the efforts. It
should accord satisfaction to both employer and the
employees
14 Principles of Henri Fayol
10. Stability of Tenure
Employees should not be moved frequently from one job
position to another i.e. the period of service in a job should
be fixed.
11. Scalar Chain
Scalar chain is the chain of superiors ranging from the
ultimate authority to the lowest. Communications should
follow this chain. However, if following the chain creates
delays, cross-communications can be allowed if agreed to by
all parties and superiors are kept informed.
12. Sub-ordination of Individual Interest to common goal
An organization is much bigger than the individual it
constitutes therefore interest of the undertaking should
prevail in all circumstances. The interests of any one
employee or group of employees should not take
precedence over the interests of the organization as a
whole.
14 Principles of Henri Fayol
13. Espirit De‟ Corps
It refers to team spirit i.e. harmony in the work
groups and mutual understanding among the
members. Espirit De‟ Corps inspires workers to work
harder.
14. Centralization
Centralization refers to the degree to which
subordinates are involved in decision making. Whether
decision making is centralized (to management) or
decentralized (to subordinates) is a question of proper
proportion. The task is to find the optimum degree of
centralization for each situation.
Levels of management
1.Top Level:
Top management sets the mission and goals, develops policies, evaluates the overall performance of
various departments, responsible for the business as a whole and is concerned mainly with long-
term planning
2. Middle Level:
Middle level management develops departmental goals, executes the policies, plans and strategies
determined by top management, develops medium- term plans and supervises and coordinate
lower-level managers‟ activities
3. Lower (Supervisory, frontline) Level:
Lower level management takes charge of day-to-day operations, is involved in preparing detailed
short-range plans, is responsible for smaller segments of the business, executes plans of middle
management, guides staff in their own subsections and keep close control over their activities
Levels of management
Why Study Management?

Universality of Management
– The reality that management is needed
• in all types and sizes of organizations
• at all organizational levels
• in all organizational areas
• in all organizations, regardless of location
Universal Need for Management
Important of management
A scientific management is most essential as it fulfills the following necessities:
It maintains discipline by keeping proper control
It distributes the work and machine among the workers to get
maximum output
It keeps co-ordinations among the staff
It improves efficiencies
It suggests new idea and improvements
It develops means of marketing and publicity
Important of management
Process designed to achieve an organization’s objectives by
using its resources effectively & efficiently in a changing
environment
Make decisions – utilization of resources – achieve
objectives:
• Planning
• Organizing
• Staffing
• Directing
• Controlling
New Product Development
Areas of Management

• Finance
• Production
• Operations
• Human Resources
• Marketing
• Administration
Areas of Management
Financial Management –
Focus on obtaining money necessary for the
successful operations and using funds to
further organizational goals

Production & Operations Management–

Develop & administer activities to
transform resources into goods, services,
and ideas for the marketplace.
Areas of Management
Human Resources Management –
Handle staffing function and deal with
employees in a formalized manner

Marketing Management –
Responsible for planning, pricing, and
promoting products and making them
available to customers
Manager
 A manager is someone whose primary responsibility is to
carry out the management process within an organization
to achieve the organizational goals.

 Changing nature of organizations and work has blurred the

clear lines of distinction between managers and non-
managerial employees
Managerial skills
Managerial skills
Conceptual skills:
 This refers to the ability to think and conceptualize
abstract situations. These abilities are required for
making complex decisions.
In short it is:
 The mental capacity to develop plans, strategies and
vision Changing nature of organizations and work has
blurred the clear lines of distinction between managers
and non-managerial employees
Managerial skills
Human or interpersonal skills:

This includes the ability to understand other people and

interact effectively with them. The human skills are also
important in creation of an environment in which
people feel secure and free to express their opinions.

In short it is:

The ability to work with other people in teams

Managerial skills
Technical skills:

• These skills include the knowledge, abilities of and

proficiency in activities involving methods, processes
and procedures in the relevant fields as accounting,
engineering, manufacturing etc.

Or in short:

• The ability to use the knowledge or techniques of a

particular discipline to attain ends
Managerial skills
Design skills:

• These skills enable a manager to handle and solve any

kind of unforeseen or actual problems, that may crop
up in the organization. Such problems could arise due
to internal factors or external factors and/or both.

In short it is:

• The problem solving skill

Managerial skills
Communication skills:

• The abilities of exchanging ideas and information

effectively. To understand others and let others
understand comprehensively.

Leadership skills

• The abilities to influence other people to achieve the

common goal.
Roles of manager
Roles of manager
A: Inter-personal Role
Figurehead:
Represents the company on social occasions. Attending the flag hosting ceremony,
receiving visitors or taking visitors for dinner etc.
Leader:
In the role of a leader, the manager motivates, encourages, and builds enthusiasm
among the employees. Training subordinates to work under pressure, forms part of the
responsibilities of a manager.
Liaison:
Consists of relating to others outside the group or organization. Serves as a link
between people, groups or organization. The negotiation of prices with the suppliers
regarding raw materials is an example for the role of liaison.
Roles of manager
B: Decisional Role:
1. Entrepreneur:
Act as an initiator and designer and encourage changes and innovation, identify new
ideas, delegate idea and responsibility to others.
2. Disturbance handler:
Take corrective action during disputes or crises; resolves conflicts among subordinates;
adapt to environmental crisis.
3. Resource allocator:
Decides distribution of resources among various individuals and groups in the
organization.
Roles of manager
Informational role:
1. Monitor:
Emerges as nerve center of internal and external information about Information.
2. Disseminator:
Transmits information received from other employees to members of the
organization.
3. Spokesperson:
Transmits information to the people who are external to the organization, i.e.,
government, media etc. For instance, a manager addresses a press conference
announcing a new product launch or other major deal
functions of management
 For attainment of objectives, every organization has a group of person for managing
its affairs.
 It is concerned with productivity, effectiveness and efficiency by performing various
managerial functions.
 Henry Fayol, the father of principles of management described various functions of
management as :
1. Forecasting and planning
2. Organizing
3. Staffing
4. Controlling and
5. Coordinating.
Planning

 Planning is the process of establishing goals and suitable courese of action for

achieving those goals.

 Planning involves setting the „right‟ goals and then choosing the „right‟ means for

attaining those goals

 Planning is necessary to ensure proper utilization of resources (men, materials,

machine, time, and money) to achieve the objectives.

 Planning is performed by the managers at all levels.

Steps in Planning
Following steps are taken by the planning manager for the purpous of planning.

1. Recognition of the need for planning

2. Establishing objectives

3. Building the premises for planning

4. Identifying alternative course of action

6. Selecting a best course of action

Advantages of Planning
1. Planning gives direction

2. Planning helps of at least changes and uncertainty

3. Planning helps in economic operation

4. Planning focuses attention of important activities

5. Planning helps in controlling

6. Planning helps in growth

Types of Planning

Plan

Standing
Kinds of Enterprise
or Single –use plane Time plans
plane
Repeated use planes
Organizing

 Organising is providing everything essential for proper functioning and combining

the human power with other resources to give desired output

Organising involves the following:

1. Identification and classification or required activities

2. Grouping of activities necessary to attain objectives

3. Assignment of each group to a manager

Guidelines for Good organisation
A good organizing should have the following:

i) Allotment of work

ii) Grant of necessary authority

iii) Distribution of work in different departments

iv) Coordination among different department

v) Able to avoid wastage of labour, money and materials

Types of Organisation
1. Line or scalar organisation 2. Functional organisation 3. Line and staff organisation
Staffing

 Staffing, now-a-days, also termed as human resources management is defined as

filling and keeping filled positions in the organisation structure.

 Staffing function involves recruiting selecting, placing, promoting, appraising,

carrier planning, training etc.

Controlling

Controlling function of management can be defined as :

1. Controlling is a continuous process of measuring actual results in relation to

those planned

2. Controlling is a process which sets standards, measures job performance , and

takes corrective action, if required

3. Controlling , find out the deviation and take corrective actions.

Techniques of management control

1. Budget and budgetary control

2. Cost control and cost accounting

3. Inventory control

4. Quality control

5. Production control

6. Network techniques
 Coordinating
Objectives of coordination:

Following objectives are sough through coordination's:

i) Reconciliation of goals

ii) Economy and efficiency

iii) Good personal relations

iv) Helps in keeping high moral of employees

Techniques of effective coordination

1. Clearly defined goals 2. Clear lines of authority and responsibility
3. cooperation 4. Effective leadership and supervision
The following are the key of functions of management
Selection of injection machine
Functions of management
Organizational structure
 Organizational structure refers to the
way in which a group is formed, its lines of
communication, and its means for channeling
authority and making decisions.

 It clarifies the formal relationships of

individuals in the various positions within the
organization
Why do we need an Organizational Structure ?
 All Organizations have a
management structure that determines
the relationships b/w functions and
positions and subdivides and delegates
roles, responsibilities and authority to
carry out defined tasks.
Organizational structure-Purpose
 Divides work to be done in specific jobs & dept.

 Assigns tasks and responsibilities associated with individual jobs.

 Coordinates diverse organizational tasks.

 Establishes relationship b/w individuals, groups and departments.

 Establishes formal lines of authority.

 Allocates organizational resources.

 Clusters jobs into units.

IMPORTANCE OF ORGANIZATIONAL STRUCTURE

 It enables members to know what their responsibilities

 It frees the manager and the individual workers to concentrate on their respective roles

and responsibilities

 It coordinates all organization activities so there is minimal duplication of effort or

conflict.

 Avoids overlapping of function because it pinpoints responsibilities.

 Shows to whom and for whom they are responsible

ORGANIZATIONAL RELATIONSHIP

ORGANIZATIONAL RELATIONSHIP

FORMAL STRUCTURE INFORMAL STRUCTURE

FORMAL STRUCTURE
 Formal structure, through departmentalization and work division, provides a
framework for defining managerial authority, responsibility and accountability.
FORMAL STRUCTURE
INFORMAL RELATIONS
 Informal structure is generally social,
with blurred or shifting lines of authority and
accountability.

 It also has its own channels of

communication, which may distribute
information more broadly and rapidly than
the formal communication system.
Informal Structure
Types of Organizational Structure

Organizational Structure

Tall Flat
Or or
Centralized Organizational Decentralized Organizational
Structure Structure.
Centralized Organizational Structure
 Large, complex organizations often
require a taller hierarchy.

 In its simplest form, a tall structure results

in one long chain of command similar to the
military.

 As an organization grows, the number of

management levels increases and the structure
grows taller. In a tall structure, managers form
many ranks and each has a small area of control
Centralized Organizational Structure
ADVANTAGES: DISADVANTAGES:
1. The quality of performance will improve due to close 1. Tall Organization creates many levels of management.
supervision. 2. There are many delays and distortion in

2. Discipline will improve. communication.

3. Decisions and actions are delayed.
3. Superior - Subordinate relations will improve.
4. It is very costly because there are many managers. The
4. Control and Supervision will become easy and
managers are paid high salaries.
convenient.
5. It is difficult to coordinate the activities of different
5. The manager gets more time to plan and organize the levels.
future activities. 6. There is strict supervision. So the subordinates do not
6. The efforts of subordinates can be easily coordinated. have any freedom.

7. Tall Organisation encourages development of staff. 7. Tall Organization is not suitable for routine and
standardized jobs.
8. There is mutual trust between superior and
8. Here, managers may became more dominating.
subordinates
Decentralized Organizational Structure.
 Flat structures have fewer
management levels, with each level
controlling a broad area or group.
 Flat organizations focus on
empowering employees rather than
adhering to the chain of command.
 By encouraging autonomy and self-
direction, flat structures attempt to tap
into employees‟ creative talents and to
solve problems by collaboration.
Decentralized Organizational Structure.
ADVANTAGES DISADVANTAGES
1. Flat Organization is less costly because it has 1. There are chances of loose control because there are
only few managers. many subordinates under one manager.
2. It creates fewer levels of management. 2. The discipline in the organization may be bad due to loose
3. Quick decisions and actions can be taken control.
because it has only a few levels of 3. The relations between the superiors and subordinates may
management. be bad. Close and informal relations may not be possible.
4. Fast and clear communication is possible 4. There may be problems of team work because there are
among these few levels of management. many subordinates under one manager.
5. Subordinates are free from close and strict 5. Flat organization structure may create problems of
supervision and control. coordination between various subordinates.
6. It is more suitable for routine and standardized 6. Efficient and experienced superiors are required to
activities. manage a large number of subordinates.
7. Superiors may not be too dominating because 7. It may not be suitable for complex activities.
of large numbers of subordinates. 8. The quality of performance may be bad
Productivity -Introduction
 Productivity is the quantitative relation between what we produce and what

we use as a resources to produce them.

Productivity = Output / Input

 Productivity refers to the efficiency of the production systems.

Definitions of productivity: -

“ Productivity is the measures of how well the resources are brought

together in an organization and utilized for accomplishing a set of
objectives”
Production and Productivity
 Production system is an organized process of conversion of raw materials into
useful finished products as shown in fig.

Transformation
Input Output
process

Men
Machine
Materials Production system Goods and
Money services
Management
Energy
Production and Productivity
The concept of production and productivity are totally different:

 Production refers to absolute output

 Productivity is a relative term where in the output is always expressed

in terms of inputs

 If the production is increased for the same output, then there is an

increase in productivity .
Measurement of productivity
 Productivity can be measured,The amount of output per unit of input.

 In a factory, it might be measured based on the number of hours it takes to

produce a good.

 While in service industry, might be measured based on the income generated by an

employee divided by his/her salary.

Productivity Measures
Productivity Measures

Partial Productivity Total Productivity Total Factor

Measures(PPM) Measures (TPM) Productivity (TFP)

Advantages Advantages Advantages

i. Easy to understand and calculate Easy and more accurate Data are obtained easily
ii. A tool to pinpoint improvement representation total picture of company Value added approach
Limitations : Easily related to total cost Limitations :
i. Mis leading if used alone Limitations :  No consideration of
ii. No consideration of overall  Difficulties to obtaining the data materials and energy.
impact
Partial Productivity
 The resources of productivity when measured separately are called partial
productivity.
• “Apple to Apple” comparison.
Partial Productivity
Total Productivity
 The method of calculating productivity considering all the resources is called total
productivity.
 • Innovated by David j. Sumanth.
 • It is systematic and qualitative approach to compete in quality, price and Time.
 Total productivity provides systematic framework and structure to an organization and
increase profitability.
Productivity Benefits
 Increase in income/profitability.

 Lowering running cost/operational costs.

 Maximising the use of all of the company‟s resources such as land,

equipments/machineries, factory, workers, and etc.

 Gaining a greater share of the market.

 More cash flows mean more opportunity for the company to expand and grow.
Factors influencing productivity
Factors influencing productivity

Controllable Non-controllable
Or Or
Internal factors External factors

Product
Plant and equipment Structural adjustment
Technology Natural resources
Materials Government policy
Human factors
Work methods
Productivity improvement Techniques
Technology Based Material Based

Productivity Improvement Employee Based

Product Based
Techniques

Task Based