Industrial Management

and
Engineering Economy
BY. Esubalew Y
Content
Chapter 1 :
Introduction to industrial management and engineering economy
Chapter 2:
Plant layout design
Chapter 3
Forecasting
Chapter 4
Materials management
Chapter 5
Project management and resource allocation
Chapter 6
Financial and economic evaluation
 The verb manage comes from the Italian
maneggiare (to handle — especially a horse)
 Which in turn derives from the Latin manus (hand)
 The French word mesnagement (later ménagement)
influenced the development in meaning of the
English word management in the 15th and 16th
centuries
3
What is this little lad doing?
Do you know where he is going?
Can you see where he is going?
Do you know what could happen if he falls
in the water?
Can you really see what the consequences
are going to be?
Have you got the big picture in mind?
With anything that one does in life you start
with the end in mind. You decide what you
want to achieve and then you decide how
you will work towards achieving it. This is
4
Management is managing the creative tension between
current reality and Future reality

NOW Reality Greatness Vision FUTURE

Courage

The manager’s primary challenges is to solve problems creatively

5
Definition of management
Management is the art of getting things done through
people
Management is the process of getting activities
completed efficiently and effectively with and through
other people
Its is neither science nor art
It is both of them put together
Its is not sector specific
Every activity need management
In general "management" identifies a special group of
people whose job is to direct the effort and activities of
other people toward common objectives.
Simply, management gets things done through other
people by planning, coordinating and directing the
activities of an organization
The decisions and judgments made are normally
oriented to the needs of the organization
7
Efficiency and effectiveness
Efficiency:- getting the most output
from the least amount of input
Concerned with means
Achieving objective in time
Effectiveness:-completing
activities to attain organizational
goal
Concerned with end
Achieving objective on time
Other definition of management
Characteristics of management
Is a distinct process
Is organized activity
Aim at accomplishment of predetermined
activity
Is both science and art
Is a group activity
Its principle is universal in nature
It integrate human and other resource
Industrial management
The term “Levels of Management’ refers to a line of
demarcation between various managerial positions in an
organization.
The level of management determines a chain of
command, the amount of authority & status enjoyed by
any managerial position.
The levels of management can be classified in three
broad categories:
Top level / Administrative level
Middle level / Executory
Low level / Supervisory / Operative / First-line managers
Level of Management
Top Level of Management
It consists of board of directors, chief executive
or managing director.
Ultimate source of authority and it manages
goals and policies for an enterprise.
It devotes more time on planning and
coordinating functions
Middle Level of Management

They are responsible to the top management for the functioning of their
department.
They devote more time to organizational and directional functions.
Their role can be emphasized as –
execute the plans of the organization in accordance with the policies and
directives of the top management.
They make plans for the sub-units of the organization.
They participate in employment & training of lower-level management.
They interpret and explain policies from top level management to lower level.
They are responsible for coordinating the activities within the division or
department.
They evaluate performance of junior managers.
They are also responsible for inspiring lower-level managers towards better
performance.
Lower Level of Management
Lower level is also known as supervisory / operative level of management.
It consists of supervisors, foreman, section officers, superintendent etc.
Assigning of jobs and tasks to various workers.
They guide and instruct workers for day-to-day activities.
They are responsible for the quality as well as quantity of production.
They communicate workers problems, suggestions, and recommendatory appeals
etc to the higher level and higher level goals and objectives to the workers.
They help to solve the grievances of the workers.
They supervise & guide the sub-ordinates.
They are responsible for providing training to the workers.
They arrange necessary materials, machines, tools etc for getting the things
done.
They prepare periodical reports about the performance of the workers.
They ensure discipline in the enterprise.
 Functions of management
 The subject of management can be considered a process
involving certain functions that a manager performs
1. Planning
2. Organizing
3. Leading(directing)
4. Controlling(Monitoring)
5. Staffing
6. Coordinating
7. Motivating and organizational culture 17
Function management
Planning
Planning involves the predetermining of the course of action to be taken in relation to the
known event. It also includes anticipating the possibilities of future problems that might appear
Failing to plan means planning to fail
It is a systematic activity which determines when, how and who is going to perform a specific
job. It is rightly said “Well plan is half done”.
There are different planning executed in different level of an organization

Strategic planning

Tactic planning

Operational planning
20
Strategic planning

Strategic plans are all about why things need to

happen,”
It starts at the highest level with defining a
mission and casting a vision.”
Strategic planning includes a high-level
overview of the entire business.
It’s the foundational basis of the organization
and will dictate long-term decisions
Tactic planning
“Tactical plans are about what is going to happen,”
“Basically at the tactical level, there are many focused, specific, and
short-term plans, where the actual work is being done, that support
the high-level strategic plans.”
Tactical planning supports strategic planning. It includes tactics that
the organization plans to use to achieve what’s outlined in the
strategic plan.
Tactical planning is different from operational planning in that
tactical plans ask specific questions about what needs to happen to
accomplish a strategic goal;
Operational plans ask how the organization will generally do
something to accomplish the company’s mission.
Operational planning

“Operational plans are about how things need to happen,”

The day-to-day running of the company.
Operational plans are often described as single use plans or
ongoing plans.
Single use plans are created for events and activities with a
single occurrence (such as a single marketing campaign).
Ongoing plans include policies for approaching problems,
rules for specific regulations and procedures for a step-by-
step process for accomplishing particular objectives.
Organizing
 Organizing may be defined as the structure and process by which a group
allocates its tasks among its members, identifies relationships and integrates
its activities toward common objectives
 The organizing function of management brings together human and physical
resources in an orderly manner and arranges them in coordinated pattern to
accomplish planned objectives.
 Each organizational resource (human, material, finance etc.) represent an
investment from which the management system must get the return.
 Therefore, these resources should be organized properly for efficient and
effective use of the same. 25
 Cont’d…
In general, the planning process may systematically
be composed of five elements:
I. Setting Primary & Intermediate Goals
II.Search for Opportunities
III.Formulation of Plans
IV.Target Setting
V. Follow-up of Plans

26
 Cont’d…
There are some principles of organization which are guide
lines for thought to operating managers and researchers in
an organization
1. Unity of Command
2. Exception Principle
3. Span of Control
4. Scalar Principle
5. Departmentalization
6. Decentralization 27
 Cont’d…
the steps that are important when organizing
an enterprise
 Reflection on plans and objectives,
 Establishing major tasks,
 Dividing major tasks into subtasks,
 Allocating resources and directives for subtasks,
and
 Evaluating the result of implemented organizing
strategy.
28
 Cont’d…
Reflecting
on plans
and
objectives

Evaluating
Establishin
results for
g major
organizing
tasks
strategy

Allocating
Dividing
resources
major tasks
and
into
directives
subtasks
for subtasks

29
Directing/leading
 For the same idea, different organizations use different terms such as Leading, Executing,
Supervising, Ordering and Guiding

 What ever terms are assigned to it, the idea of directing is to put into effect the decisions,
plans and programs that have been worked out.
 Types of leadership style
 Democratic Leadership
 Autocratic Leadership
 Laissez-Faire Leadership
 Bureaucratic Leadership
 Strategic Leadership
 Transformational Leadership
 Transactional Leadership
 Coach-Style Leadership 30
Democratic leader
the leader makes decisions based on the input of each team member.
Although he or she makes the final call, each employee has an equal say
on a project's direction.
Democratic leadership is one of the most effective leadership styles
because it allows lower-level employees to exercise authority they'll need
to use wisely in future positions they might hold.
It also resembles how decisions can be made in company board meetings.
For example, in a company board meeting, a democratic leader might
give the team a few decision-related options.
They could then open a discussion about each option. After a discussion,
this leader might take the board's thoughts and feedback into
consideration, or they might open this decision up to a vote .
Autocratic Leadership
Autocratic leadership is the inverse of democratic leadership.
In this leadership style, the leader makes decisions without taking input from
anyone who reports to them.
Employees are neither considered nor consulted prior to a direction, and are
expected to adhere to the decision at a time and pace stipulated by the leader.
An example of this could be when a manager changes the hours of work shifts
for multiple employees without consulting anyone -- especially the effected
employees.
Most organizations today can't sustain such a hegemonic culture without losing
employees.
It's best to keep leadership more open to the intellect and perspective of the rest
of the team.
laissez faire
laissez faire" literally translates to "let them do," and leaders who embrace it afford nearly all authority to their
employees.

Strategic Leadership
Strategic leaders sit at the intersection between a company's main operations
and its growth opportunities.
He or she accepts the burden of executive interests while ensuring that current
working conditions remain stable for everyone else.
This is a desirable leadership style in many companies because strategic
thinking supports multiple types of employees at once.
However, leaders who operate this way can set a dangerous precedent with
respect to how many people they can support at once, and what the best
direction for the company really is if everyone is getting their way at all times.
The dictatorial leader maintains a highly critical and negative attitude in his
relation with subordinates and advocates the accomplishment of tasks through
fear of penalties

The benevolent - autocratic leader assumes a paternalistic role which forces

the workers to rely on him for satisfaction.
This type of leader must be exceptionally strong and wise individual, so that his
personality generates respect and allegiance.
The subordinates develop dependence on the leader to the extent that they have very little
chance of developing leadership qualities.

34
The democratic leader suggests better methods and tries to improve the worker's
attitude.
Unlike the others, not only he depends on his capabilities but encourages consultation with subordinates in
planning, decision making and organizing.
With this type of leadership satisfaction is gained through a feeling of group accomplish­ments.

The fourth type of leadership style is a laissez - faire type where the
leader assumes the role of just another member of the group and
depends completely on subordinates to establish their own goals and
make their own decision
35
Controlling
 Control is the process that measures current activities, quantitatively if possible, and
guides it toward some predetermined goal, plan, policy, standard, norm, decision rule
and criterion or yardstick.
 The essence of control lies in checking and correcting actions against desired results
in the planning process
 Controlling includes ensuring that employees perform the work allocated to them in
the ways laid down, and with no wastage or duplication of time, effort or materials.
 That involves much more than simply instructing a given number of employees to
perform work; they must be supervised and managed so that their efforts achieve the
desired results.
 This requires that they are motivated, checked, guided, taught and encouraged.
36
 Cont’d…
There are seven principles of control. 
I. Strategic Point Control
II. Feedback
III.Flexible Control
IV.Organizational Stability
V. Self-Control
VI.Direct Control
VII.Human Factor

37
Staffing
Staffing deals with the workers and is worker-oriented
This function includes the process of placing the right
person in the right organiza­tional position
The process of matching the people and the jobs is done by
careful preparation of specifications necessary for positions
and raising the performance of personnel by training and
retraining of people to fit the needs of the organizational
position
38
Characteristics of a Good Manager
The Dual Aspects of any Manager's Job

The modern 'world of industry' is very complex, and this very

complexity has led to what is called “specialization” and to the
"division of labor” by which different people specialize in
performing − and become specialists in − different types of work.

It follows, therefore, that the “technical” or "functional”, i.e. the

specific work of different managers can and does vary enormously.
39
Role of manager

40
Cont..
Personal Qualities Needed for Managerial Success
Some of the more important personality traits of a successful manager are the
following:

Ability to Think Clearly and Logically:

A manager needs to be able, as the result of training, to approach each situation and

problem positively and objectively, without prejudgment or being distracted by

irrelevancies.
This requires him to think in a clear, orderly fashion and to marshal and arrange logically
in his mind all the facts and information available to him.

42
 Cont’d…
The Abilities to Make Decisions and to Act Decisively:
These follow on from the foregoing, and also require a measure of self-confidence;

Defining as accurately as possible the problem which needs to be solved.

Obtaining all relevant information about the problem

Breaking down the problem into parts − very often the solution to one part is obvious and
leads, logically, to the solving of other parts or the whole problem.
Comparing and judging the probability of success of any possible different solutions to the
same problem, and their possible consequences on other areas.
Selecting the most attractive solution − making the decision
43
 Cont’d…
The Ability to Use Initiative:

Ability to Handle Conflict:

 A good manager is calm, able to listen, is positively responsive to criticism and is able to handle conflicts
and differences in a constructive manner.
 In order to handle conflicts well, a manager must be confident, self-assertive, fair and dominant.

Ability to Adapt Change and be Flexible:

Any manager must be able to adapt to changes and, if necessary, to cope with changed
circumstances, and ensure that his subordinates also do so.
Adaptability to different situations and flexibility of mind are also necessary in the
routine, day-to-day running of a section, department or an entire enterprise.
44
 Cont’d…

Ability to Be Emotionally Stable:

 In dealing with different problems and situations, some of which might be irritating, annoying, worrying or
heated − or include emotional displays (e.g. tearful women, angry voices, etc.) by others − a manager must be
sufficiently mature to keep calm and collected.
 He must be able to keep control over his own emotions and his temper whatever may the provocation be, and
be able to concentrate his attention on the matter in hand, thinking clearly, logically, and avoiding hasty
reactions.

Drive and Determination

Leadership

45
Organization Structure

46
Types of Organizational Structure
There are four different types of organizations, namely

I. line,

II. functional,

III.line and staff, and

IV. matrix organization.

48
Line Organization
 sometimes called 'military organization', because it is how the armed forces
are organized. 

 there is a clear 'line' of responsibility and authority right through the

management structure from the board to the lowest level of supervision,

 simple and direct and is easy to understand.

 The 'chain of command‘ is direct and so decisions can usually be made

quickly and implemented rapidly, because of the directness of the control,
the coordination of the activities of all those employed in a department is
simplified.

 The position (and status) of all the different people working in a department
can be easily seen, and so the extent of their responsibilities, authority and
duties can, be clearly defined and understood, making disputes less likely
49
Functional Manager
it is the function (the type of activity), which determines the areas of authority
and responsibility.

An expert or specialist is placed in charge of each function, and will have
direct control of that function wherever it is undertaken within the enterprise.

As the functional specialists are not involved in the day-to-day running of the
enterprise (which is the domain of the line managers) they are free to the
concentrate on their particular functions that produce many benefits for the
enterprise.

However, this form of organization makes control difficult as there are no

clear lines of authority and it is similarly difficult to establish responsibility
when things do not go right.

Furthermore, staff as well as supervisors and junior managers become

confused at being subject to the authority of more than one superior.
50
Line and Staff Organization
MANAGING
DIRECTOR
In such a structure, the line managers DIRECTOR

control the primary functions, such as L WORK

S
L SALES
MANAG
L ACCO
UNTS
S PERSONN
EL
MANA ER MANA MANAGE
marketing and production, which are GER GER R

directly concerned with achieving the

L L
objectives of the business; L SECTION SECTION SECTION
MANAGER MANAGERS MANAGER
S SUPERVISORS S
 whilst the staff managers are generally SUPERVIS
ORS &
& SALESMEN SUPERVIS
ORS &
OPERATOR CLERKS

involved with secondary functions S

S EMPLOYM S TRAINI
ENT NG
OFFICER OFFICE
which assist the smooth and efficient L – Line relationship: S – staff
relationship R
Responsibility and authority SUPERVIS SUPERV
shown by .
running of the primary functions. Staff. Advisory relationship
ORS
& CLERKS
ISORS
& CLERKS
shown by --------------- 51
Matrix Organization (Project Organization)
These are temporary organizational structures
formed for specific projects for a specific period
of time and are dismantled, once the required
goal is achieved.
A typical example for this kind of organizational
structure can be the goal to design
The specialists are selected primarily on the
basis of task-related skills and expertise rather
than decision making experience or planning
ability.

52
• These structures are very useful when:
The project is clearly defined in terms of objectives to be achieved and the target date for
completion of the project.
The project must be separate and unique and not be a part of daily work routine of the
organization.
There must be different types of activities which require skills and specialization and must
be coordinated to achieve the desired goal.
The project must be temporary in nature and not extended into other related projects.

This kind of organization occurs frequently in:

Construction ( e.g. building a bridge)

Aerospace engineering ( i.e. designing and launching weather satellite)

Marketing( e.g. advertising company for new product)

Installation of an electronic data processing system, etc.

53
Productivity
The Basics of Productivity
 In most businesses, competition for the available market, forces the
management of each enterprise to seek competitive advantage
through the use of:
 product improvements
 lower costs
 lower selling prices for the same or better quality and
 better service to customers
 Productivity is defined as the ratio of value of output to the value of
input
 Cont.…
 An increase in production does not necessarily by itself indicate an
increase in productivity.
 If the input of resources goes up in direct proportion to the increase in
output the productivity remains the same
 If input increases by a greater percentage than output, higher products will
be achieved at the expense of reduction in productivity
 In short higher productivity means to produce more with the same
expenditure, or with a minimum increase in expense, or the same amount
is produced at less cost in terms of resources
 The outputs may be products or services and the inputs or resources may
  Land Productivity: Better seed, fertilizer and better method of cultivation
may increase the yield from two quintals to three quintals. Hence land
productivity has increased by 50 percent.

Material Productivity: If a skillful worker is able to produce 300

formworks from 400 pieces of 2m  1m sheet metal, while an unskillful
worker can only produce 250 out of the same material, then with the skillful
worker the material was used with 20 percent greater productivity
 Machine Productivity: If a machine tool has been producing 100 pieces per a working
day, and through the use of improved cutting tool and/or proper maintenance procedure its
output in the same period is increased to 120 pieces, the productivity of that machine has
been increased by 20 percent.
Productivity of Man: If a shoe maker has been producing 30 pieces of leather
parts per hour, and if improved methods of work enable him to produce 40
pieces per hour the productivity of that man has increased by 33.3 percent
 To sum up, a low level of productivity implies a low growth of
economy. A low growth of economy meant, low income leading to low
standard of living and a low level of savings, resulting in low level of
investment and low productivity
 Global

Higher Higher Higher International

Quality productivity competitiveness
multinational

Export
 Standard of living

Economic Growth

Productivity Growth + Employment

Growth

TFP Growth + Capital Intensity

Growth
Productivity Improvement
 Productivity is affected by many external and internal factors. Some of the
external factors, influencing productivity to mention are:
 the national and international policies, infrastructure supports, cultural practices
 the availability of technology and natural resources, organizational policies
 Climate, incentives and information
 Examples of internal factors that are identified to as hindering the rise of
productivity are:
 unsuitable personnel policies leading to a low level of satisfaction and involvement;
 poor maintenance system and low level of maintenance awareness;
 improper selection and training of personnel;
 inappropriate choice of design, tools, material and equipment;
 undefined standardization and quality policies;
 inadequate plant layout and materials handling systems;
 poor planning, controlling and communication systems;
 unsafe and unhealthy working environment
Productivity Improvement Strategy
Short term Strategy

The first strategy is improving organizational planning and control, to implement planned
maintenance of machinery and effective production system in plants would show an increase
in machine productivity and reduction in maintenance cost.

The second action is increasing manpower efficiency and effectiveness at all levels.
Effectiveness and efficiency are the main tools of productivity.

Effectiveness is a function of decision making resulting in a setting up of aims, goals,

objectives and plans.

Efficiency is concerned with how well the assigned task, as set out in the objectives, is being
carried out.
 B. Medium Term Strategy
At this stage the firm may require capital to simplify and improve the
products, and reduce variety.
The analysis consists of common sense questions to come up with effective
solutions like substitution of alternative materials, elimination of parts where
special designs have been specified, redesign, etc.
C. Long Term Strategy
Properly selected new machineries, well organized departments and proper
layout will undoubtedly contribute to an increase in productivity.
Furthermore, research and development is the backbone for productivity
increment.
Productivity improvement techniques
Functions of an Industrial Enterprise
 Manufacturing functions
 Engineering Functions
 Control Functions
 Support Functions
Manufacturing Function
 Receiving: responsibility for accepting raw material from the carrier,
presenting for inspection, and getting it to the plant
 Warehousing (or storing): has the responsibility for storing raw material until
needed for production, and storing finished goods until ready to be shipped to
the customers.
 Transportation: has the responsibility for moving all types of materials within
the plant area and from the suppliers.
 Production: has the responsibility for transforming the raw material into an
acceptable and economical finished product.
 Shipping: has the responsibility for packing and delivering the finished goods
to customers
Engineering function

 Product Design: has the responsibility for the development of new

and salable products and preparation of product description,
product drawings and product specifications.
 Process Design: has the responsibility for the development of
efficient processes for the manufacture of the products developed
by the product design unit.
Control Function
Quality control: has the responsibility for establishing and maintaining the
necessary control of quality for raw materials, intermediate products, and
finished goods. It is also responsible for the inspection of raw materials and
finished products for conformity to quality specifications.
Cost Control: has the responsibility for determining and reporting the design
cost, the manufacturing cost and comparing these costs with the amounts
allocated in the budgets
Support Function
 Purchasing: has the responsibility of buying the necessary materials of the
proper quality and quantity at the most favorable price and securing
deliveries on time according to schedules established.
 Sales: has the responsibility for selling the company's product and for liaison
after material has been delivered
 Maintenance: has the responsibility for the execution of preventive
maintenance, repair of old equipment, installation of new equipment and
provision of facilities.
 Personnel: has the responsibility for hiring, administering and training
workers; and for the termination of employments.