DIRE DAWA UNIVERSITY

SCHOOL OF ELECTRICAL & COMPUTER ENGINEERING

Industrial Management & Engineering Economy

(IEng 5382)

Lidiya Asfaw

BSc. in Industrial Engineering

 Outline of Presentation
Chapter 1: Management Concepts in Industrial
Organization
 Introduction to management;

 Functions of management;

 Organizational Structure;

 Basics of Productivity;

Efficiency and Effectiveness

 Introduction
 Management has been viewed by scholars as:
 a process ,
a displine,
a human activity and a career
 Management is essential not only for business concerns
but also for banks, schools, colleges, hospitals, hotels, religious
bodies etc.
 Management - Definition
 Peter F. Drucker defines, “management is an
organ; organs can be described and defined
only through their functions”.

 Terry, “management is not a people; it is an

activity like walking, reading, swimming or
running”.

 Henry Fayol, defined as “to manage is to forecast

and plan, to organize, to compound, to
coordinate, and to control”.
 Management- Definition
 Management is the process of getting things done ,
effectively and efficiently through and with other
people.

 “Management is a process of designing and maintaining

an environment in which individuals work together
in groups to effectively and efficiently accomplish
selected aims”.

 Management is an art of getting work done through

others/people. (Koontz)
 Management - Definition
 Management is the process of coordinating all resources

through the five major functions of Planning,

Organizing, Staffing, directing/leading and
Controlling to achieving organazional goals.
 Management is a set of activities directed at an
organization's resources with the aim of achieving
organizational goals in an efficient and effective
manner.
 Take a Minute!!!
• What is this little lad doing?
• Do you know where he is going?
• Can you see where he is going?
• 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 what Management is.
 CONT’D
manage the creative tension between current reality and Future
reality

Greatness
NOW Reality Vision FUTURE

Courage
 CONT’D

So That You and Your Followers

Can Reach your Vision

Put Stepping Stones in Place

Chart the Path

 WHY MANAGEMENT?

 The Industrial Revolution brought about the emergence of large-scale

business and its need for professional managers

 Management became more important as the developments and

complexities of technology and human relationships get more challenging
to those who perform managerial functions
 WHAT MANAGEMENTS STRIVES FOR?

 'Management strives involving a group of people work together

in the most effective and efficient manner to achieve stated

goals in the best and most economical way'.
 Management - Characteristics
 Management is a distinct activity having the following salient features:
1. Economic Resource:
 Like land, labor, machine and capital, management is also one of the factors of
production.
2. Goal Oriented:
 Management is a purposeful activity that coordinate the efforts of workers to
achieve the goals of the organization.
3. Distinct Process: consists of such functions as planning, organizing, staffing,
directing/leading and controlling.
4. Universal Application: it is universal in character meaning that, its principles and
techniques are equally applicable in the fields of business, education, military,
government and hospital.
5. Multidisciplinary subject:
 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.
 There is enough disagreement among management writers on the
classification of 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 course of
action for achieving those goals.
 It is deciding the present about the future objectives and actions
for achievement.
 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.
 Focuses with ‘what’, ‘how’ and ‘when’ of performance.
 Steps in Planning
 Following steps are taken by the manager for the purpose of planning.
 Recognition of the need for planning (Importance)
o Changes in technology, government policy, overall economic activity, in the nature of
competition and in social norms and attitudes.
 Establishing objectives
 Building the premises or principles for planning (developing
strategies to be followed)
 Identifying alternative course of action
 Selecting a best course of action
“Failing to plan means planning to fail”
“Well plan is half done”
 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 of required activities
2. Grouping of activities in to jobs necessary to attain objectives
3. Assignment of these jobs and activities to a departments and
individuals
4. Delegation of responsibility and authority for performance and
5. Provision for vertical and horizontal coordination of activities.
Guidelines for Good Organization
 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 Organization:
1. Line or scalar organization
2. Functional organization
3. Line and staff organization
 Staffing
 After objectives are set, policies formulated etc, the next logical step is

in the management process is to recruit suitable personnel for manning

the jobs.

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

defined as filling and keeping filled positions in the organization

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.

 Generally, it is the process of ensuring that the divisional, departmental,

sectional and individual performances are consistent with the

predetermined objectives and goals.
 Coordinating
 It is the function of establishing such relationship among various parts of the

organization that they all together pull in the direction of organizational

objectives.
 It involves the following sub-functions:

 Clearly definition of authority – responsibility relationships

 Unity of Direction

 Unity of Command

 Effective Communication

 Effective Leadership
 Fayol’s Principles of Management
 A body of principles of management has been developed
by Henry Fayol; the father of modern management.

 He has proposed that there are 6 primary functions

of management and 14 principles of management,
Forecasting & Planning, Organizing, Staffing,
Coordinating, Controlling.

 He held that there is a single administrative

science, whose principles can be used in all
management situation no matter what kind of
Henri Fayol (1841-1925)
organization was being managed.
 Henri Fayol - 14 Principles
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 are related:
 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.
 Henri Fayol - 14 Principles
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.
 Henri Fayol - 14 Principles
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
 Henri Fayol - 14 Principles
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 of Command:
• 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.
 Henri Fayol - 14 Principles
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
 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.
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
 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 between 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 & department.

 Assigns tasks and responsibilities associated with individual jobs.

 Coordinates diverse organizational tasks.

 Establishes relationship between individuals, groups and departments.

 Establishes formal lines of authority.

 Allocates organizational resources.

 Clusters jobs into units.

 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 Organization is not suitable for routine and
7. Tall Organisation encourages development of staff.
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.

 Definition 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 figure
below.
Transformation
Input Output
process

Men
Machine
Materials Goods and
Money services
Management
Energy
Production System
 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 input, 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
Total Productivity Total Factor
Productivity
Measures (TPM) Productivity (TFP)
Measures (PPM)

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 • Value added approach
Limitations : company Limitations :
i. Misleading if used alone • Easily related to total cost • No consideration of materials
ii. No consideration of overall Limitations : and energy.
impact • Difficulties to obtaining the data
 Partial Productivity
 The resources of productivity when measured separately are called

partial productivity.
 “Apple to Apple” comparison.
 Total Productivity
 The method of calculating productivity considering all the
resources is called total productivity.
 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.
 Factors Influencing Productivity

Controllable or Internal factors Non-controllable or 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 Employee Based

Product Based
Improvement Techniques

Task Based
 Productivity Improvement Techniques
 Technology Based –
i) Computer Aided Design (CAD), Computer Aided Manufacturing(CAM), and
Computer Integrated Manufacturing Systems(CIMS)

 Employee Based –
i) Financial and non-financial incentives at individual and group level.
ii) Employee promotion.
iii) Job design, job enlargement, job enrichment and job rotation.
iv) Workers participation in decision making.
v) Quality circles(QC), small Group Activities(SGA)
vi) Personal development
 Productivity Improvement Techniques
 Material Based –
i) Material planning and control.
ii) Purchasing, logistics.
iii) Material storage and retrieval.
iv) Source selection and procurement of quality material.
v) Waste elimination.
vi) Material recycling and reuse.

 Process Based –
i. Methods engineering and work simplification.
ii. Job design, job evaluation, job safety.
iii. Human factors engineering.
 Productivity Improvement Techniques
 Product Based –
i. Value analysis and value engineering.
ii. Product diversification.
iii. Standardization and simplification.
iv. Reliability engineering.
v. Product mix and promotion.
 Management Based –
i. Management style.
ii. Communication in the organization
iii. Work culture
iv. Motivation
v. Promoting group activity.
 Contd..
 Efficiency means whatever you produce or perform; it should be
done in a perfect way. (Doing things right)

 Although, Effectiveness has a broader approach, which means the

extent to which the actual results have been achieved to fulfill the
desired outcome i.e. doing accurate things. (Doing the right things)

 Consider a 10th standard student example…

END OF THE CHAPTER!