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ROBERTO G. MEDINA

ers.

TABLE OF CONTENTS
Chapter

Page

The Field of Engineering Management.....

Decision Making...........................................

20

Planning Technical Activities......................

43

Organizing Technical Activities ...... ............

66

Staffing the Engineering Organization......

89

Communicating.............................................

109

Motivating ...................... ... ............................

133

Leading..........................................................

158

Controlling ....................................................

184

10

Managing .Production and Service


Operations ................... ............................

209

11

Managing the Marketing Function ............

237

12

Managing the Finance Function ................

257

INDEX

.................................................................... 284

b:

LIST OF CASES
P~e

CMe
1
2
3
4

6
7
8

10
11

12

Alma Electronics: 111 Dream of You ..........

18

R. E. Construction: It's Now or Never ......

41

Motorbus Company: Que Sera Sera ..........


64
Bits and Pieces International Corp.:
Little Things Mean a Lot ......................
84
Kundiman Communications Corporation:
Mr. Lonely ............................................... 107
Northern Container Corporation: Time
to Cry ....................................................... 130
Batangas Polytechnic CoUege; The
Morning After ......................................... 166
Buenavista Electric Cooperative, Inc.:
Masquerade ............................................. 181
Oood Music Broadcasting Corporation:
Ebb Tide .................................................. 207
Pretty Dove Development Corporation:
I'll Follow the Boys ................................ 235
Bugtog Chemical Corporation: Help .......... 255
Four Aces Construction and Hardware
Supply: Here, There, and Everywhere

111 THE FIELD OF ENGINEERING

L.!J

MANAGEMENT

The Functions of the Engineer

iJ

The Engineer in Various Types of Organization


Management Skills Required at Various Levels

What Is Engineering Management?

Management Defined

The Process of Management

Requirements for the Engineer Manager's Job

How One May Become a Successfu l Engineer


Manager

282

Chapter 1

TilE FIELD OF

E~<;L\EEIU:\(;

,\ L\ ~ , \<;E.\ I E:\T
Engineers are expected to perform a variety of tasks
depending on their specialization and job level. It is
important to the engineer that he knows what is expected
of him so that he may be able to perform his job effectively
and efficiently. His next concern will be to identify the
skills required but which he does not have. As engineers
are not trained to directly deal with people, it is expected
that their weakness will most often be on people-based
skills. This difficulty will be more apparent once they are
assigned to occupy management positions. It follows that
if the engineer manager would want to do his job well,
some exposure to engineering management activities
becomes necessary.

THE FUNCTIONS OF THE ENGINEER

5.

the production of steam engine and the spinning


and weaving machinery - 1601 A.D. to 1799
A.D.; and

6.

the manufacture of cars and household appliances - modem times.

A listing of all useful tools, equipment, and projects


developed and produced by engineers will be sufficient to
produce volumes of books. These contributions indicate
that engineers have become an indispensable segment of
tb&world's professions. This expectation will continue for
a long time.

Even as engineers are currently producing solutions


to many of the difficulties faced by mankind, much is stiU
expected of them. Their outputs, new or improvements
of old ones, are very much needed in the following specific
problem concerns:
1.

the production of more food for a fast growing


world population;

2.

the elimination of air and water pollution;

3.

solid waste disposal and materials recycling;

Since prehistoric times, mankind has benefited from


the various tools, equipment, and projects developed by
engineers.' Among these are the following:

4.

the reduction of noise in various forms;

5.

supplying the increasing demand for energy;

the stone bladed axe which was a very useful tool;


and the irrigation system used to promote crop
growing - 6000 to 3000 B.C.;

6.

supplying the increasing demand for mobility;

1.

2.

the pyramids of Egypt - 3000 to 600 B.C.;

3.

roadbuilding by the IRomans - 600 B.C. to A.D.


400;

4.

the production of paper and gunpowder by the


Chinese - 100 A.D. to 1600 A.D.;

Oeo~ C. Beckl~yand

othtrt. Ett~ nnltf. An lntrodud101t too Cntaliw:

l'ru(wil)(l. flllh Edition !New York MocMIIIan Publiahinc Co., 11186) pp. 321.

7. preventing aml
8.

~olving

c:rime&; llnd

meeting the increasing demand for communication facilities.

Specifically, the functions of engineering encompass


the following areas:3
1.

Research - where the engineer is engaged i.n the

'Op. <i~. pp. 29-53.


'tJf>hn Ou.atl.n Kemper. lntt'Od&U:tuvt to tlut 61f6111Mnlfll ,..,.,~.,-. (New

York: Holl, llloclwt and WonaiOn, 19801 pp. 22-31.

2.

3.

4.

5.

6.

7.

8.

process of learning about nature and codifying


this knowledge into usable theories.
Design and development - where the engineer
undertakes the activity of turning a product
concept to a finished physical item. Design for
manufacturabili.ty and IXJlue engineering teatn8
(a feature of some companies) are charged with
improvement of designs and specificat ions at the
research, development, design, and production
stages of product development.
Thsting - where the engineer works in a unit
where new products or parts are tested for workubility.
Manufacturing- where the engineer is directly
in charge of production personnel or assumes
responsibility for the product.
Cons~ruction - this is where the construction
engineer (a civil engineer) is either directly in
charge of the construction personnel or may have
responsibility for the quality of the construction
process.
Sales- where the engineer assists the company's
customers to meet their needs, especially those
that require technical expertise.
Consulting - where t he engineer works as
consultant of any individual or organization
requiring his services.
Government- wher e the engineer may find employment in the government performing any of
the various tasks in regulating, monitoring, and
cop trolling the activities of various institutions,
public or private.

9. Teaching - where the engineer gete employment in a school and is assigned as a teacher of
engineering courses. Some of them later become
deans, vice presidents, and presidente.
10. Management - where the engineer is assigned
to manage groups of people performing specific
tasks.

THE ENGINEER IN VARIOUS TYPES OF


ORGANIZATION
Fr om tl)e viewpoint of the engineer, organizations
may be classified according to the degree of engineering
jobs performed:
L Level One- those with minimal engineering jobs
like retailing firms.
2.

Level 'IWo - those with a moderate degree of


engineering jobs like transportation companies.

3. Level Three - those with a high degree of


engineering jobs like con struction firms.
Figure 1.1 Types of Organization and the Management Skills
Required of Engineers
general

management
skills
required

Ill~; =-~~~""~)~~,_,, 'l'lw.l Editioo(H - .


Jay Heizer and Barry Render. ProdiJdion o.nd O~I'Oli.Oit$ Mono,g~fMitt
a!ld &eon. 1993l p. 254.

<&c16: Allyn

The fir01's Quantity of Engineering jobs


6

Management Skills Require d at Various Levels


Among the types of organizations, the engineer will
have a slim chance of becoming the general manager or
president of level one, unless of course, he owns the firm.
The engineer manager may be assigned to head a small
engineering unit of the firm, but there will not be too many
finns which will have this unit.

Figure 1.2 A Typical Advertisement for a Pure l!nglneer lng


Job (without management responslbllltlea)

GE
THE NMtE '11IE WORLD TRUSTS HAS PLACED ITS
TRU8riN US
FUJI-HAYA ELECTRIC
An offiliaw of Fuji Electric Co., Lt.d., of Japan

In level two firms, the engineer may be assigned to


head the engineering division. The need for management
skills will now be felt by the engineer manager.
Level three firms provide the biggest opportunity for
an engineer to become the president or general manager.
In this case, the engineer manager cannot function
effectively without adequate management skills.

WHAT IS ENGINEERING MANAGEMENT?


Engineering management refel1! to the activity combining "technical knowledge with the ability to organize
and coordinate worker power, materials, machinery, and
money.""
When the engineer is assigned to supervise the work
of even a few people, he is already engaged in the first
phase of engineering management. His main responsibility ia to lead his group into producing a certain output
consistent with the required specifications.

The top position an epgin~oer manager may hope to


occup y is the general managership or presidency of
any firm, large or small. As he scales the management
ladder, he finds that the higher be goes up, the less
technical activities he performs, and the more management tasks he accepts. In this case, it is but proper that
the managment functions taught in pure management
courses be well understood by the engineer manager.

For immediate hiring


LICENSED ELECTRICAL ENGINEERS

Technical Services Group


(CanlubnngboS<ld)
Design Englnee111 (2)

Tho suowssful candidate will handle project design and coordinotion


for awitchgtars manufacharing and substation inatoll&tion.
Application Engineers (2)

Tho ....,...rut cnndulates will jmpare la,y-out dr$w1np ofowitchceero


diotnbutionlhghting panel boards, etc., and bill ofcomponenu. HI>'She
wiU tt'antact with eu.stomera regarding nvi.siona and approvals.
Qualificntona for Engineering Pos.ition.o:

Wath at Jnut one year work experience; ovettea experience


will be an advanto>ge

Wilh adequate underoto>nding of nnd acturu operating akills


in CAD and windows soft.wnre

Wlth offootive English communication ek~lls ~nd in.terJ}()I'aonol skills to efficiently handle trruuu.\CtiOI\8 an vnnous
lovols
Prcf<-rnbly with .a driver's license

AppUcanU nro requ ..ted to apply in perMO with !heir comprehen.oive


rMUmee, 1 x 1 photo, and college tran.ocripta ot lhe 2nd Fir. Mat.rino
Bide. 2178 PMOng Tamo St., Makoti City. For inqwrt.., pleue caU
Odeti. Panpniban at 892$86. Interview will be bold from 8:00
A.M.-12:00 NN, Monday to Saturday. Deadline for application ia
Satunli\Y, 02 March 1996.
From on advertisement, Philippine Daily lnquirw, February 26,

1996, p . 8 I.

Ftgure 1.3 A Typical Advertisement for an Enginftr Manager

Figure 1.4 A Typical Advertl14t1T141r11 fonn Ertg"- Managu

as a Middle Level Exec~ttlve

as a Lower Level Executive (Supervisor)

ONE OF THE COUNTRY'S LEADING STRUCTURE


SPECIALISTS NEEDS THE FOLLOWING FOR ITS
EXPANSION
FABRICATION SUPERVISOR (1)

Male, BSCEIBSME graduate, not more than 35 years old


At lenot 5 years experience in

st~l

fabrication

Willing to work on shifting schedule


STRUCTURAL DETAILERS (6)

M/F, 8 S. in Engineering, below 35 years old


Knowledge in st(ol connection standard and stool fab
rication (shop drawings)
PROJECT ENGINEERS

Male, licensed Civil Engineer, with at least 5 years


cxpcrlnce on ott-el erection and willing to be nssigoed
outside Metro Manila

A PROGRESSIVE INDUSTRIAL COMPANY IS LOOK


lNG FOR TALENTED AND DYNAMIC INDMDUALS
WHO ARE WlLLING TO FILL UP THE FOLLOWING
POSITIONS:
PRODUCTION MANAGER

Malo, 35-45 years of age


Mechanical Elll(inoering/Industrial Elll(ineering graduate
or any related course
With 4 to 6 yMr& working experience in handling
production preferably in a steel industry
Extensive experience in maintenance program
eoswutt:ing oriented penon.
Interested parties, please apply in person with bio-dats and
resume, x 2 picture and other tredcntials at:

8/F GEDISCO TOWER


WELDING FOREMAN

Male, at least high school graduate and with at least 5


years experience os Welding Foreman

534 Asuncion St., Binondo, Manila


Tel. 241-92-51
From an advertisement, Manila Bulletin, February 25,

Apply at:

1900, p. F-18.

STEEL CENTRE PHILS., INC.

Amnng Rodriguez Ave., Bo. Manggahan, Pasig City

Or send comprehensive resume to:


P.O. BOX 3702, MAN1LA

From on advertisement, Manila Bulletin, February 25.


1900, p. ~24.

Figure 1.6 An Actvet11Mment for an Englnurlug Manege~'

FOR IMMEDIATE lURING


ENGINEERING MANAGER
II

I ttl I~

IIIII

Mtt'luul tlf ltuha~:ttrful or M~-Lanel.,

.
c-..u
I "
'>0glOCOnnc

Ill tIW' ft6.llf, .t Ju tlu~ liultl of general management

We are looking for a licensed Meeh~ieal Engineer, preferably


with an MBA or graduate wchool degree.

1l 1 nrlnt, ..l
plu hi In ~'l"k n und written English

llw '""lifu4l l1f.Jpht:ltnt will ~ive an tUtrac:tiv

u, It..... hi

ecompensationJ)Rckage

~h '' tNt npplieaots mEcy 8t'nd the'


lo

.
I ho I'ERSONNEL OEPARnUl~~~~ With a ln.....,~ photo
193
C/0 MANILA BULLET!N
- MAIN '96

' ~'rom nn advertisclneot, Moniln Oullatin April 28 199,


1

This person wiU be responsible for the effective management


of the engineering ,and mainwnnnce department.

OJ

p,

E5,

GENERAL MANAGER

Avery progresseve
chemicol rnanufncturin com
and bichly qualified candida to
g
pany -u a moture
atJ.aume the above poet.
-

He must carry with him at least five years experience in the


operation, trouble shooting and preventive maintenance
eystem of all mechanical, refrigeration and air-conditioning
equipment pTeferably gained frcm a food business industry or
in a mru>ufacturing finn in a managerial capacity.

We offer a very competitive compensation package and a ur


plan to the qualified candidaw.
Interested parties, may send their comprehensive resume,
application letter and ll passport sized m to:
SOX NO. 153 CUBAO '96
cto MANILA BULLETIN

Diroc:t.ly reporting to the Viee Preaident, the ideal candida~ must be

Male, 35-45 year$ old

of
ChenJiea.l
En"'
.
.
\miveri$ity
enoonng n a prestdgious college or
Grndua~

1\ggrcsaive nlld msult oriontOO

*From an advertisement, Manila J3ulletin,Augus~ 25, 1996,


p. 03.

With lendership and management skills

Excellent communication skiiJa


We offer aacompetitive aalo ry an d. ezceII ent be.uefit.s. lntereted
appUcenta
re requested to oend ~., ffilume with a recent photo to:
THE HAD DEPARTMENT

BOX 192 - ~WN ' 96


do MANILA BULLETIN

From an advertiaemon~. llloniln Hullctin J April 28I 19961 P Ej,~,

10

11

MANAGEMENT DEFINED

in engineering or busi n ess management is


required;

Since the engineer manager is pr esumed to be


technically competent in hie specialization, one m&.Y now

p roceed to describe more t h oroughly the r emaining


portion of hie job, which is management.

2.
3.

a few years experience in a pure engineering job;

4.

special training in engineering management.

training in supervision;

Man8fement m&.Y be defined as the creative problem


sol vingprocees of planning, organi:ting, leading, and

These qualifications will be of great help to. the

controlling an organization's resources to achieve ita

engineer manager in the performance of the var1ous

mi88ion and objectives.07

management functions.

THE PROCESS OF MANAGEMENT

HOW ONE MAY BECOME A SUCCESSFUL


ENGINEER MANAGER

Management is a process consisting of planning,


organizing, directing (or leading), and controlling.
Explained in a simple manner, management must
seek to fmd out the objectives of the organization, think
of W&.Y& on how to achieve them, decide on the ways to
be adapted and the material ~sources to be used, determine the human requirements of the total job, assign
specific tasks to specific persons, motivate them, and
provide means to make sure that the activities are in Jhe
right d~tion.
The specific activities in th e management process are
discussed more thoroughly in the succeeding chapters.

Successful engineer managers do not happen as a


matter of chance, although luck is a contributory factor.
It is very important for the engineer manager to know
the various factors leading to successful management.
Kreitner indicates at least three general preconditions
for achieving lasting success as a manager. They are as
follows:
1.

2.
3.

ability
motivation to manage, and
opportunity.

Ability

REQUIREMENTS FOR THE ENGINEER


MANAGER'S JOB
Depending on the type of products or services a fum
produces, the engineer manager must have the following
Qualifications:
1.

a bachelor's de~ in engineering from a ~pu


table school; In some eases, a master's degree

'Jam. AI. Hia~J>s. T11o M~ Cloa/kJvlc (N- York: II~<MlD*D

PubiUhf-. Co., 1991)"' G-10.

12

Managerial ability refers to the capacity of an


engineer manager to achieve organizational objectives
effectively and efficiently.
Effectiveness, according to Higgins, refers to a
description of "whether objectives are accomplished",
while efficiency is a description of the relative amount of
resources used in obtaining effectiveness...
----;-Robttl Kn1t.net. MOIIOlftMtnt. Fifth Bdition (&.ton. HOIJChtoo Mamm
eo.. 1m1 p. 20.
"HiQlM. p 0 5.

13

To illustrate:
If a civil engineer was asked by his superiors
to finish a 100-kilometer road cementing project
within eight months, he is said to be effective if he
finished the job within the required period. On the
other hand, his efficiency is measured by the inputs
(labor and materials) he poured into the project in
relation to the actual output(the 100 kilometer road).
If the same output is made with less inputs, the more
efficient the civil engineer becomes.

7. Sense of responsibility in carrying out the routine duties associated with managerial work.
High scores in the foregoing dimensions are associated with high motivation to manage.
Opportunity
Successful managers become possible only if those
having the ability a~d motivation are given the opportunity
to manage. The opportunity for successful management
has two requirements:

Motivation to Manage

1.

Obtaining a suitable managerial job, and

Many people have the desire to work and finish


specific tasks assigned by superiors, but not many are
motivated to manage other people so that they may conffibute to the realization of the organization's objectives.

2.

Finding a supportive climate once on the job.

A management researcher, John B. Miner, developed


a psychometric instrument to measure objectively an
individual's motivation to manage. The test is anchored
to the following dimensions: 10
1.

Favorable attitude toward those in positions of


authority, such as superiors.

2.

Desire to engage in games or sporta competition


with peers.

3.

Desire to engage in occupational or work-related


competition with peers.

4. Desire to assert oneself and take charge.


5. Desire to exercise power and authority over
others.
6.

Desire to behave in a distinctive way, which


includes standing out from the crowd.

John 8 .Miner, dltid in Krtimer, MOJ14gtfiiVIt, pp. 21-22.

14

Newspaper advertisements abound with neede for


engineer managers. It is a little difficult to detennine i(
the firms requiring their services provide a supportive
climate for effective and efficient management. A supportive climate is characterized by the recognition of
managerial talent through financial and nonfinancial
rewarda.

SUMMARY

Engineers are known for tbei.r great contributions


to the development of the world' civilization. There are
many areas where their -presence is necessary like
research, design and development, testing, manufac
turing, construction, sales, consulting, government,
teaching, and management.
Engineers may be found contributing their share in
the various levels of organization.
Engineering activities need to be managed and
engineers are sometimes placed in positions where they
have to learn management skills.
Management is concerned with planning, organizing,
16

leading, and controlling a~ or~anitation'a resources to


achieve its mission and objectives.

QUESTIONS FOR REVIEW AND DISCUSSION

There are certain qualifications required of the


engineer manager.

1. Why are engineers considered an important segment

One may become a successful engineer manager if


the preconditions of ability, motivation to manage, and
opportunity to manage are met.

2. What are expected of engineers in general?

of the society?

3. In what current concerns are engineering outputs


needed?

4. In what areas are engineers currently involved?


5. How may organizations be classified according to the
engineering jobs performed?
6. Which organization level requires the highest management skills for engineer managers?
7. What is engineering management?
8. How may one define management?
9 What qualifications must an engineer manager have?
10. How may one become a successful engineer manager?
S UGGESTED ITEM FOR RESEARCH

1. Prepare a list often engineers who became president


or general manager of a large company.

16

17

Case 1. ALMA ELECTRONICS: I'll Dream of You

Mr. Andy Mallari opened a small shop selling tran


sis tor radios in 1979. His store was located at one corner
(General Luna St.) of the entire stretch of Burgos Avenue,
the main thoroughfare of Cabanatuan City.
The demand for electronic parts made him carry a
wide a33ortment of parts that are used in the assembly
and maintenance of radios, !ape recorders, amplifiers, and
various related appliances.
By 1990, Mr. Mallari was able to save enough money
for the purchnse of a 300 square meter lot along Del Pilar
Street. He constructed a 10 meters x 15 meters two-storey
building on the lot. The ground floor is used as his store
where sales are made to customers which grew in number
month after month. The second floor is used as hie
residence.

Chans business picked up until he was able to establish


his own factory.
Mr. Mallari thinks that he can follow the footsteps
of his friend. As he is already 47 years old and his oldest
child is about ready to enter college, he thinka this is the
best time for him to consider sending his son to an
engineering school. His decision will center on w~ch ~chool
and which engineering course. He feels that his children
are keenly interested in whatever career he will ask them
to take.
Mr. Mnllari has three sons, all belonging to the top
ten in their respective classes. He thinks nil three have
the potential to help him realize his dream of establishing
his own assembly plant. His immediate concern now is
to identify the right college courses for his children.

Mr. Mallari thinks that he can duplicate his feat in


the other big towns of San Jose City, Gapan, and GUimba.
He has already started operating his stores in those towns
and sales are already picking up. His current operations
cover sales and repair. There are five salesladies in
Cabanatuan nttending to the various needs of the
customers. Those who bring their appliances for repair
are served by one of the six technicians. The parts used
come from the stocks maintained at the store.

Those who purchase parts from the store consist of


technicians from the various towns of Nueva Ecija.
Sometimes, the technicians send $Omebody to do the
purchasing of parts.
Mr. Mallari's perspective has changed drastically
atl.er he met his former classmate Estelito Chan in a
class reunion at Araullo University. Mr. Chan has a
well-established appliance assembly plant in Manila.
He indicated that he did net start big but rather as a
subcontractor for a large assembly plant. Slowly, Mr.
18

19

Chapter 2

(!]

DECISION-MAKING

Decision Making as Management Responsibility

What Ia Declalon Making?

f..

The Declalon Making Process

Approaches In Sotvrng Problems

c...

Quantitative Models lor Decision Making

Managers of all kinds and types, includ ing the


engineer manager, are primarily tasked to provide lead
ershlp in the quest for the attalnmentofthe organization's
o~ectives. Ifhe is to become effective, he must learn the
intricacies of decision-making. Many times, be will be
confronted by situations where he wiU have to choose from
among vanous options. Whatever his choice, it will have
effects, immediate or otherwise, in the operations of this
organization.
The engineer manager's decision-making skills will
be very crucial to his success as a professional. A ml\ior
blunder in decision-making may be sufficient to cause
the destruction of any organization. Good decisions, on
the other hand, will provide the right environment for
continuous growth and success of any organized effort.

DECISION-MAKING AS A MANAGEMENT
RESPONSIBILITY
Decisions must be made at various levels in the
workplace. They are also made at the vari(lllS stages in
the management process. If certain resources must be
used, someone must make a decision authorizing certain
persons to appropriate such resources.
Decision-making is a responsjbility of the engineer
manager. It is understandable for managers to make
wrong decisions at times. The wise manager will correct
them as soon as they are identified. The bigger issue
i$ the manager who canhot or do not want to make decisions. Delaney concludes that this type of manager4 arc
20

21

dangerous and "should be removed from their position as


soon as possible."'
Management must strive to choose a decisoon option
as correctly as possible. Since they have that power, they
are responsible for whatever outcome their decisions
bring. The higher the management level is, the bigger and
the more complicated decision-making becomes.

and controlling). Decision-making, according to Nickels


and others, "is the heart ofall the management functions...

THE DECISION-MAKING PROCESS


Rational decision-making, according to David H.
Holt, is a process involving the following steps:
1. diagnose. problem

An example may be provided as follows:

The production manager of a certain company


has received a written request from a section head
regarding the purchase of an airconditioning unit.
Almost simultaneously, another request from another
section was forwarded to him requiring the purchase
of a forklift. The production manager was informed
by his superior that he can only buy one of the two
requested items due to budgetary constraints.
The production manager must now make a
decision. His choice, however, must be based on sound
arguments for he will be held responsible, later on,
if he had made the wrong choice.

WHAT IS DECISION-MAKING?
Decision-making may be defined as "the process of
identifying and choosing alternative courses of action in
a manner appropriate to the demands of the situation."
The definition indicates that the engineer manager
must adapt a certain procedure designed to detarmine the
best option available to solve certain problems.
Decisions are made at various management levels
(i.e., top, middle, and lower levels) and at various man
agement functions (i.e., planning, organizing, directing,
*Willi.a.m A. De.la.M:y. TM 30 MOSJ Common Problm~ m Mo.~m~nt ond
How "' Solve Th<m IN- Yoril: AMACOM, 19821 p SS

'l<nluw.

22

analyze environment

3.

articulate problem or opportunity

4.
5.

develop viable alternatives


evaluate alternatives

6.
7.

make a choice
implement decision

8.

evaluate and adapt deciaion results

Diagnose Problem
If a manager wants to make an intelligent decision,
his first move must be to identify the problem. If the
manager fails in this aspect, it is almost impossible to
succeed in the subsequent steps. An expert once said
"identification of the problem is tantamount to having
the problem half-solved."

What is a Problem? A problem exists when there is


a difference between an actual situation and a desired
situation.& For instance, the management of a construction
company entered into a contract with another party for
the construction of a 25-storey building on a certain site.
'Willian> 0 Nickol> and othoro. Un4<ntomli"'l BlUUWU, s-od &<fitloa
(ll..,_ood, llbno~ Irwin, 1987) p. 24$.
'O.vid H Hoi~ M~t i'nn<ipln ond
(~ltwood Cliffo
New JetM,r. Prt:atMliHaU, Jne., 1987) p. 79.

John ft. Schtno.uhoro,Jr.,M~mcnl{orProdwtwll~,s.cond Editioo

p,.,,...

(New

0-3.

2.

York: John Wl~y and SoM, 1986) p. &80

23

The actual situation of the finn is that it has not yet constructed the building. The desired situation is the finished
25-storey building. In this case, the actual situation is
different from the desired situation. The company, therefore, has a problem and that is, the construction of th e
25-storey building.
Analyze the Environment
The.environment where the organization is situated
plays a very significant role in the success or failute of
such an organization. It is, therefore, very important that
an analysis of the environment be undertaken.
The objective of environmental analysis is the identification of constraint11, which may be spelled out as
either internal err external limitations. Example of intern al limitations are as fo11<>ws:
1. Limited funds available for the purchase of
equipment.
2. Limited training on the part of employees.
3.

Jll-designed facilities.

Examples of external limitations are as follows:


1.

Patents are controlled by other organizations.

2.

A very limited market for the company's products


and service'! elCist.f>.

3.

Strict enforcement of local zoning regulations.

When decisions are to be made, the internal and


external limitations must be considered. It may be costly,
llater on, to alter a decision because of a constraint that
has not been previously identified.
An illustration of failure to analyze the environment
is as follows:

The president of a new chemical manufact\Uing

company made a decision to looate his factory in a


pl ace adjacent to a thickly populated area. Construction of the building was made with precision and
was finished in a short period. When the clearance
for the commencement of operation was sought from
l<>eal authorities, this could not be given. It turned
out that the residents opposed tbe operation of the
firm and m11de sure that no clearance is given.
The president decided t<> relocate the factory but
not after much time and money has been lost. This
is a clear example of the cost associated with management disregarding the environment when
decisions are made. In this ease, the president did
not consider what the residents could do.

Components of the Environment. The environment


consists of two major concerns:

1. internal and
2.

external.

The internal environment refers to organizational


activities within a firm that surrounds decision-making.~
Shown in Figure 2.1 are the important aspects of the
internal environment.

The external environment refers to variables tbat


are ou~side the organization and not typically within the
ahortrun control of top management.' Figure 2.2 show~
the forces comprising the external environment of the firm.
Develop Viable Alternatives
Oftentimes, problem11 may be solved by any of the
solutions offered. The best among the alternative solutions
fC.W. Park and ~ra1d ~lt.m.ao, Morketi-tllf lfOJtCJ~WMnt (Chicago: 1'b~
Dryden p,...., 1987) p. 638.
'Thomaa L. Whtt)leo and J. David Hunger. Strot~ Mon.aaemmt and

811$iMss Pcliey CNew Yok: Addison-Wosley l'ubtiahi.og Co., 1992) p. 12.

25

must be considered by management. This is made possible by using a procedure with the following steps:
1.

2.
3.

Figure 2.2 The Engl.--lng Firm end Ita External


Environment

Prepare a list of alternative solutions.


Determine the viability of each solutions.
Revise the Jist by striking out those which are
not viable.

To illustrate:
An engineering firm has a problem of increasing its output by 30%. This is the result of a new
agreement between t h e firm and one of its clients.
Figure 2.1 The Engineering Firm and the Internal
Environment In Decision-Making

Government

Engineers

Competitors

Organizational Aspects
like org. structure, policies,
procedures, rules, ability of
management, etc.
Marketing Aspects
like product strategy,
promotion strategy, etc.

EXTERNAL
ENVIRONMENT

ENGINEERING
FIRM

Clients

THE ENGINEERING FIRM


INTERNAL ENVIRONMENT

Labor Unions

Banks

Public

Personnel Aspects
like recruitment practices,
incentive systems, etc.

")
v

EXTERNAL
ENVIRONMENT

Production Aspects
like plant faCility layout,
inventory control, etc.
Financial Aspects
like liquidity, profitability,
etc.

26

~--Suppliers

27

costs (like the opportunity to earn interest of ~2 million


per ye.ar if money is invested elsewhere), and follow-on
costs (like ~3 million per year for maintenance of facilities
constructed).

The list of solutions prepared by the engineering


manager shows the following alternative courses of
action:
1. improve the capacity of the finn by hiring more
workers and build:ng additional facilities;
2. secure the serviras of subcontractors;
3. buy the needed additional output from another
finn;
4. stop serving some of the company's customers;

The risk characteristics refer to the likelihood of


achieving the goals of the alternatives. If the probability
of a n&t profit of ~10 million is only 10 percent, then the
decision-maker may opt to consider an alternative with
a 1'"5 million profit but with an SO percent probability of
success.

and
5.

Another example of an evaluation of alternatives is


shown below:

delay servicing some clients.

An engineer manager is faced with a problem


of choosing between three applicants to fill up a lone
vacancy for a junior engineer. He will have to set up
certain criteria for evaluating the applicants. If the
evaluation is not done by a professional human
resources officer, then the engineer manager will be
forced to use a predetermined criteria.

The list was revised and only the first three were
deemed to be viable. The last two were deleted because
of adverse effects in the long-run profitability of the firm.

Evaluate Alternatives
After determining the viability of the alternatives
and a revised list has been made, an evaluation of the
remaining alternatives is necessa.ry. This is important
because the next step involves making a choice. Proper
evaluation makes choosing the right solution less difficult.
How the alternatives will be evaluated will depend
on the nature of the problem, the objectives of the firm,
and the nature of alternatives presented. Souder suggests that "each alternative must be analyzed and evaluated in terms ofits value, cost, and risk characteristiC!!.""
The value of the alternatives refers to benefits that
can be expected. An example may be described as follows:
a net profit of ~10 million per year if the alternative is
chosen.
The cost ofthe alternative refers to out-of-pocket costs
(like~ 100 million for construction of facilities), opportunity

A typical evaluation of job applicants will appear


as follows:
EVALUATION SHEET

Title of Vacant Position: JUNIOR ENGINEER


Date of Evaluation: December 28, 1996
Applicnnt

Education '!raining Experience Aile Total Points

Jose Si bayan, Jr.

40

35

10

89

2. Menandro Rillon

40

36

90

40

38

91

I.

3.

Dan~

delo Crut

Evaluat<>r:
Edgardo J. Vilona

Manager

"Wm E St>udtt,A/olltlf<m.uuD<cisil>o MtrltaU/orM._.,.o(li~

ood Rtwon:h !New York Von Nostrad !Wnhold Co, 1980) p. 20.

28

Engineering

29

Oivi~ion

III

Make a Choice
After the alternatives have been evaluated, the
decision-maker must now be ready to make a choice. This
is the point where he must be convinced that all the
previous steps were correctly undertaken.
Choice-making refers to the process of selecting
among alternatives representing potential solutions to a
problem. At this point, Webber advises that ... particular
effort should be made to identify all significant conse
quences of each choice."'~
To make the selection process easier, the alternatives
can be ranked from best to worst on the basis of some
factors like benefit, cost, or risk.
Implement Decision
After a decision bas been made, implementation
follows. This is necessary, or decision-making will be an
exercise in futility.
Implementation refers to carrying out the decision
so that the objectives sought will be achieved. To make
implementation effective, a plan must be devised.
At this stage, the r esources must be made avail
able so that the decision may be properly implemented.
Those who will be involved in implementation, accord
ing to Aldag and Stearns, must understand and accept
the solution.""
Evaluate and Adapt Decision Res ults
In implementing the decision, the results expected
may or may not happen. I t is, therefore, important for the
'Sche-rm~rbom.

Jr., p. 63.

"Ro.A. W-r. 7b&oMaJOaB.&.AIW.o(Mo"'fm'"l(HoJMWOOCI,

nuno..

R;cb.az<l o. lrwil>. loe., 1981) p. 111.


"RIJDoo J.Aldacood n - h ) l MSteUOI,IttOM/WMl (Ca"""""'li: South
w....,. Pllbliohl"' eo.. 1981) p. 677.

manager to use control and feedback mechanisms to


ensure results and to provide information for future
decisions.
Feedback refers to the process which requires
checking at each stage of the process to assure that the
alternatives generated, the criteria used in evaluation
~nd t~e solution selected for implementation are in keep:
mg w1th the goals and obje(tives originally specified. 12
Control refers to actions 111ad e to ensure that activities performed match the desired activities or goals, that
have been set.
. In this last stag.e of the decision-making process, the
engmeer manager will find out whether or not the desired
result is achieved. If the desired result is achieved, one
may assume that the decision made was good. If it was
not achieved, Ferrell and Hirt suggest that further analysis
is necessary. 11 Figure 2.3 presents an elaboration of this
last step.

APPROACHES IN SOLVING PROBLEMS


In decision-making, the engineer manager is faced
with problems which may either be simple or complex.
'lb provide him with some guide, he must be familiar with
the following approaches:
1.

qualitative evaluation, and

2.

quantitative evaluation.

Qualitatiue Eualuation. This term refers to evaluation


of alternatives using intuition and subjective judgment.
Stevenson states that managers tend to use the qualitative
;~pproach when:
''Wi l l~m . Ptoney and J)rooa.Jdl:J, Me-WtJli&ml, Mo~m~nt &~""An
/11trodutt.on to Q"41ttdotu.>t~/or M~mMt (NewYork H&J'l)U aod
Hnw, 19821 p. 5
1
'<>-C. Ferrel and C.Ofrey Hirt, 8UilM"# (Bolwn Houchton Msmm Co.
0

lllij9) p 198.

31

Figure 2.3 Feedback M a Control Meehanlam In the DecisionMaking-Process

The problem is fairly simple.


The problem is familiar.

3. The costs involved are not great. I to\P

Step 1

4.

c.o~

Immediate decisions are needed."

An example of an evaluation using the qualitative


approach is as follows:

A factory operates on three shifts with the


following schedule:
First shift - 6:00 A.M. to 2:00 P.M.
Second shift- 2:00 P.M. to 10:00 P.M.
Third shift - 10:00 P.M. to 6:00 A.M.

1.
2.

Each shift consists of200 workers manning 200


machines. On September 16, 1996, the operations
went smoothly until the factory manager, an indua
triol engineer, was notified at 1:00 P.M. that five of
the workers assigned to the second shift could not
report for work because of i~uries sustained in a
traffic acodent while they were on their way to the
factory.

develop
viable
allematives

5.

Because of time constraints, the manager made


on instant decision on who among the first shift work
ers would work overtime to man the five machines.

6.

Quantitative Evaluation. This term refers to the


evaluation of alternatives using any technique in a group
classified 118 rational and analytical.

resuHs not

achieved

determine

steps where
error was
made

results

achieved

~ adapt decision

QUANTITATIVE MODELS FOR DECISION


MAKING
The types of quantitative techniques which may be
useful in decision-making are aa follows:

results
"William J Stevtnecm. Introduction.~ ltfo.~nwnl &t~n (Homewood,
lllinol.o Irwin, 1989) p 5

32

33

1. inventory models
2. queuing theory
3. network models
4. forecasting
5. regression analysis
6. simulation
7. linear programming
8. sampling theory
9. statistical decision theory
I nventory Models
Inventory models consist of several types all designed
to help the engineer manager make decisions regarding
inventory. They are as follows: 16
1.

Economic order quantity model - this one is used


to calculat& the number of it&ms that should be
ordered at one time to minimize the total yearly
cost of placing orders and carrying the items in
inventory."

2.

Production order quantity model - this is an


economic order quantiy technique applied to
production orders.

3. Back order inventory model - this is an


inventory model used for planned shortages.
4. Quantity discount model -an inventory model
used to minimize the total cost when quantity
discounts are offered by suppliers.
Queuing Theory
The queuing theory is one that describes how to
i-'Hamt. p. 216.
MA mo~ thoroucb di.ecuMioo is prt:te:oted by Heiur and Reoder, pp. 662.-

678.
1

'FMuU and Hirt. P- G-6.

determine the number of service units that will minimize


both customer waiting time and cost of service.
The queuing theory is applicable to companies when!
waiting lines are a common situation. Examples Bnl cars
waiting for service at a ear service center, ships and barges
waitiog at the harbor for loading and unloading by dockworkers, programs to be run in a computer system that

processes jobs, etc.


Network Models
These are models where laTge complex tasks are
broker\ into smaller segments that can be managed
independently.
The two most prominent network models are:
The Program Evaluation Review Technique
<PERT) - a technique which enables engineer
managers to schedule, monitor, and control large
and complex projects by employing three time
estimates for each activity.
2. The Critical Path Method (CPM) - this is a network technique using only one time factor per
activity that enables engineer managers to
schedule, monitor, and control large and complex
projects.
1.

Forecasting
There are instances when engineer managers make
decisions that will have implications in the future. A
manufacturing firm, for example, must put up a capacity
which is sufficient to produce the demand requirements
of customers within the next 12 months. As such, manpower and facilities must be procured befonl the start of
operations. 'lb make decisions on capacity more effective,
the engineer manager must be provided with data on
demand requirements for the next 12 months. This type
of information may be derived through forecasting.
36

Fon'Casting may be defined as "the collection of past


and current information to make predictions about the
future:

programming is very useful as a decision-making tool when


supply and demand limitations at plants, warehouse, or
marke t areas ar e constraints upon the system.

Regression Analysis

Sampling Theory
Samphng theory is a quantitative technique where
samples of populations are statistically determined to be
used for a number of processes, such as quality control
and marketing research.

The regression model is a forecasting method that


examines the association between two or more variables.
It uses data from previous periods to pr edict future
events.
Regression analysis m ay be simple or multiple depending on the number of independent variables present.
When one independent variable is involved, it is called
simple regression; wllen two or more independent variables are involved, it is called multiple regression.""
Simulation
Simulation is a model constructed to represent reality,
on which conclusions about real-life problems ~an be
used." It is a highly sophisticated tool by mean~ of which
t he decision maker develops a mathematical model of the
system under consideration.
Simulation does not guarantee an optimum solution,
but it can evaluate the alternatives fed into the process
by the decision-maker.
linear Programming
Linear programming is a quantitative technique
that is used to produce an optimum solution within the
bounds imposed by constraints upon the dl'ciMion."" Linear
"Aldoc """ s~....... p. G-s.

1'Parlt

and Zaltm.on, p 639.


..,Ptullp KoUer,MorltdingJI~mml. Sfovnth Ed1110n 1-:n,:lf.wood Clflt.

When data gathering is expensive, sampling provides


an alternative. Sampling, in effect, saves time and money.
Statistical DecisionTh eory
Decision theory refers to the wrational way to concept-
uali:r.e, a nalyze, and solve problems in situations involving limited, or partial information about the decision
environment ..,....
A more elaborate explanation of decision theory is
the decision mt:~king process pres ented at the beginning
of this chapter. What bas not been included in the discus
sion on the evaluation of alterna,tives, but is very impor
tant, is subjecting t he alternatives to Bayesi11n analysis.
The purpose of Bayesian analysis is to revise and
updat.e the initial assessments of the event probabilities
gener a ted by the alternative solu tions. This is achieved
by t he use of additional information.
When the decision-maker is able to assign probabilities to t he various events, the use of probabilistic deci
sion rule, called the Bayescriteri()n, becomes possible. The
Bayes criterion selects the decision alternative having
the maximum expected payoff, or the minimum expected
lo~s if he is worki ng with a loss table...

Nf!W Jtrtoey. Pft'oi~Ha.lllD<'., 199li p. 118

11 8Mtoa E. Cup.Pnnt:ipkso{Ft.~ Mona#l'(ftWIIt, &cond td.ihoofN'ew


York Jolm Wiley and Sona, 193'71 p . 656.
12
JohnJ Coyle and othe,._ Tht ~fOif.CtiJtM~nt c(Bu:tuau. L(lft11tra. Fourth
E<lttton !Now York Wett PllblialliJle C... 1988) p 476

UOiua.aoppa A FerJioone, Qcaalll~tatiw l>on A/oi "' (Bt.lmoot,


Calofomt"' Wadaworth l'llbbslung Co., 1986) p. 881.
uMtduul 0. Aode...oo a.ad R. J. Lievano. Qu.olttrataw MONJ.rr"'41tt. All

36

37

lntrodutiU>n IS..14a KAnt Publishioe C.... 1988) P 417

SUMMARY

Decision-making is a very important function of the


engineer manager. His organization will rise or fall
depending on the outcomes ofhis decisions. It is, therefore,
necessary for the engineer manager to develop some skills
in decision-making.
The process of ident ifying and choosing alternative
courses of action in a manner appropriate to the demands
of the situation is called decision-making. It is done at
various management levels and functions.
The decision-making process consists of various
steps, namely: diagnose problem, analyze environment,
articulate problem or opportunity, develop viable alternatives, evaluate alternatives, make a choice, implement
decision, and evaluate and adapt decision results.
There are two approa~bes in solving problems,
namely: qualitative evaluation and quantitative evaluation. Qualitative evaluation is used for solving fairly simple problems, while quantitative evaluation is applied to
complex ones.

QUESTIONS FOR REVIEW AND DISCUSSION

Con the engineer manager avoid making management decision? Why or why not?
2 When a problem becomes apparent and the engineer
manager chooses to ignore it, is he making a decision?
Explain your answer.

3. Why is proper diagnosis of the problem important?


4. What are the components of the environment from

the point of view of the decision-maker? What do they


consist of?
5. How may one develop viable alternatives in problem
solving?

6. How may alternative solutions be evaluated?


7. Why is it important for those who will be involved

in implementation to understand and accept the


solution to the problem?
8. What are the approaches in solving problems?

9. What quantitative techniques are useful in decisionmaking?


10. What is the purpose of Bayesian analysis?

SUGGESTED ITEM FOR RESEARCH


1. Provide an illustration of how Bayesian analysis is
used.

38

39

C.. 2. R. E. CONSTRUCTION: tt'a Now or He. :

When Engineer Romeo Estabillo finished his Civil


Engineering course at Mapua Institute of Technology, he
took the board examination and passed it in 1981. Wanting
to start independently, he went back to his hometown
(Santiago City) to organize his own construction finn. In
his first few years of operation, he accepted contracts for
the construction of residential houses. As he gained
experience, his clients grew in number, and even the most
prominent persons in the province of Isabela availed of
his services.
At the start, he hired two assistants to help him in
his daily routine as a contractor. One of the two assistants,
Mr. Silvino Santiago, wa s a third year civil engineering
student who had stopped schooling due to finan cial
difficulties. His main task was as draftsman. His duty
was to produce all documents relating to the physical
requirements of the various contracts entered into by his
boss. Among these documents are the building plan,
specifications, bill of materials, building permit, etc. His
additional duty was to assist Engineer Estabillo in
supervising the foremen and workers at the various
construction sites.

foremen and laborers working at the various projects were


contractual.
By June 1996, Engineer Estabillo felt that business
was continuously growing, so be will have to secure _the
services of four additional civil engineers on a full-time
basis. As be was directly supervising all operations~ be
now feels that he may not be able to perform his functions
effectively if he wiU push through with the ~I an. He w~nUI
to make a decision, but he is apprehensive. He thmks
operations ore now more complex that decision-making
must be a little scientific. With this thoughts, he pondered
on how he will go about solving the problem.

The second assistan t, Mr. Romulo Mamaril, was


assigned to coordinate purchasing, bookkeopi ng, and other
related administrative acctivities.
At the third year of operations, Engineer Estabillo
was already directing operations in his newly constructed
office inside his residential compound. By this time, two
more female employees were hired to assist in the various
tasks performed in the office.
By 1994, Engineer Estabillo reviewed his company's
payroll. It indicated that he has in his employ six fulltime civil engineers, two draftsmen, ten administrative
personnel, one messenger and one security guard. The
41

Chapter 3

PLANNING TECHNICAL
ACI1Vl'I'IES

The Nature of Planning

;1

Planning Defined

Planning at Various Management Levela

The Planning Process

.D

Types

of Plans

Making

Planning Effedive

If managing jUl organization is to be pursued vigoruuHly, plnnnmg will constitute the most important activity.
1\tunagers who plan are afforded w ith the opportunity to
'"' ufully analyze situations which directly contribute to
.. ttoctive decision-making.
rhe en1,oi neer manager, regardless of his manage
uunt level, will have to devote some of his time to planntnJt. The higher the management level the engineer
uo.nuger is in, the more sophisticat.ed his planning activity
I '"mes. Why and how this is so shall be discussed in
lin. chapter.

THE NATURE OF PLANNING


There are many instances when managers are
uvorwhelmed by various activities which at times be' lund his judgment. This must be expected since anyloouly who is confronted by several situations happening
ouuultaneously will loose sight of the more important
, oncerns. To minimize mistakes in decision-making,
1lunni ng is undertaken.
A plan, which is the output of planning, provides a
nlf'lhodical way of achieving desired results. In the
Implementation of activities, the plan serves as a useful
l{uode. Without the plan, some minor tasks may be afforded
rnRJOr attention which may, later on, hinder the accomlhhment of objectives.
An example of the difficulty of not having a plan is

Illustrated below.
C2

43

The management of an engineering firm was


able to identify the need to hire additional three em
ployees. The manager proceeded to invite applicants,
screen them, and finally hired three of them. When
the hiring expense report was analyzed, it involved
more than double the amount spent by other firms
in hiring the same number of people.

When an inquiry was made, it was found out that


the manager committed some errors of judgment.
For instance, he used an expensive advertising
layout in a newspaper when a simple message will
do.
Also, it was found out that the absence of a hiring
plan contributed to the high cost of hiring.

PLANNING DEFINED
Various experts define planning in various ways, all
of which are desigJted to suit specific purposes.
Planning, according to Nickels and others, refers to
"the management function that involves anticipating
future trends and determining the best strategies and
tactics to achieve organizational objectives."' This definition is useful because it relates the future to what could
be decided now.
Aldug and Stearns, on the othor hand, define planning as "the selection a nd sequential ordering of tasks
required to achieve an organizational goal.""' This defini
tion centers on the activity required to accomplish the
goals.
The definition of Cole and Hamilton provides a better
guide on how to effectively perform this vital activity.
Planning, according to them is deciding what will be
1

NteU1a and otbe.ra.

p.

331.

Aldag Md SttAMI, p. G-16.

done, who will do it, where, when and how it will be done,
and the standards to which it will be done.""
For our purpose, it will .suffice to define planning as
~~electing the best course ofaction so that the desired result

may be achieved. It must be stressed that the desired result


takes first priority and the course of action chosen is the
means to realize the goal.

PLANNING AT VARIOUS MANAGEMENT


LEVELS
Si nee engineer managers could be occupying posi
tions in any of the various management levels, it will be
useful for them to know some aspects of planning undertaken at the different management levels.
Planning activities undertaken at various levels are

as follows:
1.

'Ibp management level -

stra~gic planning

2. Middle management level- intermediate planning


3.

Lower management level - operational planning.

Strategic Plann ing

The term strategic planning refers to the process of


clct.ermining the major goals of the organization and the
IMllicies and stra~gies for obtaining and using resources
lu nchieve those goals.' The top management of any firm
involved in this type of planning.
In strategic planning, the whole company is condcred, specifically its objectives and current resources.
'K.N Colli! 1nd Barbara Ba.aUJtoo. OffiAdm,nifti'Otwn o.nd SuPfrCJ~IM
tN..w York.: Pn:ntic.Hall. 1992) p. 6.
1
N1<blo and othen. p. G-14.

46

Figure 3.2 The Organization and Types of Planning


Undertaken

The output of strategic planning is the strate11ic pl<in w hich


spells out "the decision about long-range goals and the
course of action to achieve these goals...
Intermediate Planning
Intermediate planning 'refers to "the process of determtning the contributions tnat subunits can make with
allocated resources."G'J'hig type of planning is undertaken
by middle management .
Under intermediate planning, the goals of a s ubunit
are determined and a pi an is prepared to provide a guide
to the realization of the goals . Tho intermediate plan is
designed to support t he st rategic plan.

Chief
Executive
OffiCer,
/
President,
VICe P residents,
General Manager,
Division Heads

Top
Management

Middle
Management

Lower
Management

responsible IO<

STRATEGIC PLANNING

MAllKETING

PRODUCTION
MANAGER

MANAGER

PI ANNING HOB)ZON

StrategiC planning
(one to ten years)
'

Functional Managers,
Product Line Managers,
Department Heads

Intermediate planning
(six months to two

Unit M anagers
First Une Supervisors

Operational planning
(one week to one

~lfll flMEDIATE
I! 'NNING

responsible
tO<
INTEAA!EOIATE
PLANNING

PERSONNEL
MANAGER

responsible

responsible
lor
INTERMEDIATE
PLANNING

I
INDUSTRIAL
ENGINEERING
MANAGER

'"'

INTERMEDIATE
PLANNING

FACTORY
MANAGER

QUALITY
CONTROL
MANAGER

responsible

responsible

lor

responsible

lor

OPERATIONAL
PLANNING

OPERATIONAL
PLANNING

lor
OPERATIONAL
PLANNING

tWarrtn R. Plunkett and !Uymond F. Attner. IAtrodudlM lo M~ttd,


$ocond Echtioo (Booton: PWS ~t Publish' Co., 1989) p 672
'Krtit.rwr, p.

FINANCE
MANAGER

, .. ~WiSJble

Figure 3.1 Types of Plan ning


MANAGEMENT LEVEL

PRESIDENT/
GENERAL MANAGER

~.

47

Operational Planning
The term operational planning refers to "the process of determining how specific tasks can best be accomplished on time with available resources."' This type
of planning is a responsibility of lower management. It
must be performed in support of the strategic plan and
the intermediate plan.

Figure 3.3 Examples of Goals, By Organizational Level


ORGANIZATIONAL
LEVEL

Buenavista
Construction
Corporation

The process of pbanning consists of various steps


depending on the management level that perfor,ms the
planning task. Generally, however, planning involves the
following:
1. setting organizational, divisional, or unit goals
developing strategies or tactics to reach those
goals

To Increase the number


of projects undertaken

DIVISION

bytheco~ny

PfOII!CI

3. determining resources needed and


4.

To attain a relum
on Investment of 25%

COMPANY

THE PLANNING PROCESS

2.

EXAMPLE OF GOAL

Management

setting standards.

Division

Setting Organizational, Divisional, or Unit Goals


The first task of the engineer manager is to provide
a sense of direction to his firm (if he is the chief executive), to his division (if he heads a division), or to his unit
(if he is a supervisor). The setting of goals provide an
answer to the said concern. If everybody in the firm (or
division or unit, as tbe case may be) is aware of the goals,
there is a big chance that everybody will contribute his
share in the realization of such goals.

To increase the number


of project engineers

UNIT
Personnel

Services
Un"

Goals may be defined as the "precise statement of


results sought, quantified in time and magnitude, where
possible."' Examples of goals are provided in Figure. 3.3.
10p. caL,

p. 151.
gne N St.rkewitt and -oth.en-, Morltdl"'f , 'nurd Edat,on (Homewood,
lllu.wiJ ltwin, 1992) p. 721.

49

Developing Strategies or Tactics to Reach Goals


After determining the goals, the next task is to devise
some meas to realize them. The ways to realize the goals
are called strategies and these will be the concern of top
management. The middle and lower management will
adapt their own tactics to implement their plans.
A strategy may be defined as "a course of action aimed
at ensuring that the organization will achieve its objectives ...

An example of a strategy is as follows:

The decision of a construction firm's management to diversify its_busincss by engaging also in the
trading of construction materials and suppplies.
When the above mentioned strategy is implemented,
it may help the construction firm realize substantiai
savings in the material and supply requirements used
in their construction activities. The firm will also have
greater control in the timing of deliveries of materials
and supplies.
A tactic is a short-term action taken by management
to a<ljust to negative internal or external influences.to They
are formulated and implemented in support of the firm's
strategies. The decision about short-term goals and the
courses of action are indicated in the tactical pta,..
An example of a tactic is tho hiring of contractual
workers to augment the company's current workforce.

Determining Resources Needed


When particular seta of strategies or tactics have
'Samuel C. Ctno and J . Paul-. StNU<go< " ' - " " " ' O.....p14 ond
Appl-"'"' (New Yotll: aa..lom Rouoe. 1988) p. 13
"R4bett A. eo-m.n! and Duma w. Callochan.
'lbt. '!bolt. and C.... f.,. Bu~...Po/oey <Boot.>.. K<nt Pubhhinc Co., 1985)

sr""<JJ"' ,.,._,..AI,

Jl. 89.

been devised, the engineer manager will, then, determine


the human and nonhuman resources required by such
strategies or tactics. Even if the resource requirements
are currently available, they must be specified.
The quality and quantity of resourc~s needed must
be correctly determined. Tho much resources in terms of
either quality or quantity will be wasteful. Tho little will
mean loss of opportunities for maximizing income.

To satisfy strategic requirements, a general state


ment of needed resources will suffice. The specific requirements will be determined by the different units of the
company.
To illustrate:
Suppose the management of a construction firm
has decided, in addition to its current undertakings,
to engage in the trading of construction materials
and supplies.
A general statement of required resources will
be as follows: A new business unit will be organized
to deal with the buying and selling of construction
materials and supplies. The amount of ~50 million
shall be set aside to finance the activity. Qualified
persons shall be recruited for the purpose.

Setting Standuds
The st110dards for measuring performance may be
set at tho planning stage. When actual performance does
not match with the planned performance, corrections
may be made or reinforcements given."
A standard may be defined as a quantitative or qualitative measuring device designed to help monitor the
performances of people, capital goods, or processes."'~
110p.. t.lt P- 208.

"Plunktll aod lltlner, p, 672.

61

An example of a standard is the minimum number


of units that must be produced by a worker per day in
a given work situation.

Plans With Time Horizon


Pions with time horizon consist of the following:

TYPES OF PLANS
Plans are of different types. They may be classified
in terms of functional areas, time horizon, and frequency
of use. 11

1.

Short-range plans - these are pions intended


to cover o period ofless than one yeor. Fil'llt-line
supervisors are mostly concerned with these
pions.

2.

Long-range plans - these are pions covering


a time span of more than one year. These are
mo~tly undertaken by middle and top management.

Functional Area Plans


Pla n'\ may be prepared according to the needs of the
different functional areas. Among the types of functional
area plans are th e following:
1.

Marketing plan- t his is the written document


or blueprint for implementing and controlling
an organization's marketinfl' activities rela~
to a particular marketing strategy."

2. Production plan - this is a written document


that states the quantity ofoutput a company must
produce in broad terms and by product family.,.
3.

Financial plan - it is a document that summarizes the current financial situation of the firm,
analyzes financial needs, and recommends a
direction for financial activities.

Plans According to Frequency of Use


According to frequency of use, plans may be classifi!'d as:
2

smgle-use plans.

Standing plans may be further classified as follows:


L

Policies - they are broad guidelines to aid


managers at every level in making decis ions
about 1-ecurring situations or function."

2. Procedures - they are plans that describe the


exact series of actions to be taken in a given
situation.
3

"Anbur G. Bediau. MOIU>#<mvtt (Chleac" Tbo Oryd.. P..-, 1518Gl


p. 106.

62

Atanding plans and

S tanding Plans. These are plans that are used again


nnd again, and they focus on rna nageriol situations that
r<'cur repeatedly.

4. Human resource management plan - it is a


document that indicates the human resource
needs of a company detailed in terms of quantity
and quality and based on the requirements of the
company's strategic plan.

"Wulwlo lol. Prick ODd O.C. F....U, MorAw., 01-p<o oM. Strot~gia,
Sulth l!dltio<> (lloo1oG: Houcb""' Milllin C.... 18Gt) p 0.10.
"'Rithard J. Schoa.bercer a..od tdward N . Knod, Jr., OperoltOM
Jl0114tmvtt, Tbltd Edition ()>JaM, Touo: Bust- Publlcolioos, loc., 1988)
p. 186.

l.

Rules- they are statements that either require


or forbid a certain action."

"'ilt"dtoian. p. 108.
1

'PiunktU. and Atlner, p. 671.


.. H1a;ua. p. G-l3
"AiflilC and S~arne., p. G--18.

63

Srngle-Use Plans. These plans are spec1fically developed to implement courses of action that arc relatively
unique and are unlikely to be repeated

Figure 3.4 Types of Plans

Single-use plans may be further classified as follows:


1.

2.

TYPES OF PLANS

budgets
programs, and

3. projects.
A budget, according to Weston and Brigham, is "a
plan which sets forth the projected expenditure for a
certain activity and expbins where the required f1.1nds
will come from.w""

I unctional
Area
I'lans

Plans with
Time
Horizon

I-

A program is a single-use plan designed to coordinate


a large set of activities
A proJect is a single-use plan that is usually more
hmited in scope than a program and is soml'tiJnes prepnred to support a program."'

mar1<eting
plan

production
pian

PARTS OF THE VARIOUS FUNCTIONAL


AREA PLANS

The eng1neer manager may be familiar with eng1neering plans, knowing the details from beginning to
end. However, the ever present possibility of moving
from on~ managemeot level to the next and from one functional area to another presses the eng11\Cer manager to
be familiar as well with other functional area plans.
The Con tents of the Marketing Plan
The structure and content of marketing plans vary
depending on the nature of the organizations adapting

range
plan

standing
plan

single-use
plan

human

'--- resource
plan

Ipolicies I Iprocedures I I rules


I
1budget 1

Md Ste.\fns. p. c~ 17.

C"il.

54

lofl9

f1nancoal
pian

e.,.t,o/11

11Aidg

Plans wtth
Varied Fre
quency of Use

short
range
plan

J. Fwd Wston and Eugene. F. Bril;hatn_


r:fMoltOil'fflal FtMM:tt.
Nmt.h Edataon (ChJcago: The Drydtn Preu. 1990) p 362
tlLoc.

56

program

them. William Cohen maintains that the following must


be included in the marketing plan:"'

I lgure 3.5 An Example of a Marketing Pl1n Schedule


Buenavista Manufacturing Company
Marketing Plan Schedule
For the Year Ending December 31 , 1998

1. The Executive Summary - which presents an


overall view of the markctang project and its
potential.
2. Table of Contents

l.llili

3. Situational Analysis and Target Market

l'llOOUCT A

4.

lolnual)'
I 11bruary
Murch

Marketing Objectives and Goals

5. Marketing Strategies
6.

Marketing Tactics

7. Schedules and Budget&


8. Financial Data and Control

lulol1 st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total A

The Contents of the Production Plan


The production plan must contain the following:..

'nuary

2.

how many employees are required

I ubruary
M.>rch

3.

how much material must be purchased

The Contents of the Financial Plan


The components of the financial plan are as follows.""
1.

2.

An analysis of the firm's cutrent financial condition as indicated by an analysis of the most
recent statements

1,000,000

,. 5,066,000

2nd Quarter
3t'd Quarter
4th Quarter

120,000
135,000
95,000
150,000

Total B

500,000

,.

,.

69,900
84,500
92,600
247,000
278,000
195,500
308,500

,. 1,029,000
,. 6,095.000

Total A and B

A sales forecast

b\ViJliam A. Cohen. TM Proclr of Mnrlt't'JtR MonUJltmvtt tNew York.MidioiiM Publialung Co., 19S8) pp. 60-66
-.JamH B. Dilworth. ProdudNl o"d Otwrottut Mo~~mrnt , Third
tditJon (New York Random flouse. 1986) p 1-42
t:\la:e.ne f, Bri(hl.m &nd Lquif C, OaptnUi, Pnon.cl41 Ma.nagcmertt.
Theory and Pmctla, Si.x.\hEdiW>ofNf>wYorlt Th Orydll'n p,_., t99l)p. 921

56

430,500
455,500
481,500

1" 1,367,500
1,317,000
962.500
1,419,000

34,000
41,000
45,000

folnl 1st Quarter

,.

2:70,000
260,000
190,000
280,000

PnOOUCT B

the amount of capacity the company must have

1.

85,000
90,000
95,000

AMOUNT

67

Flgun 3.6 An Example of a Production Plan Schedule

Bue navlsta Manufacturing Company


Detailed P roduction Plan
For the Year Ending December 3 1, 1998

3.

The capital budget

4.

The cash budget

5. A set of pro forma (or projected) financial statements


6. The external financing plan

TOTAL
:REQUIRED :ADO
A0UIREO
FINAL
FOR
INVEWOAY
SALES
OFANISHED
GOODS

:UNITS
:LESS
TO BE
INITIAl
INVEWORY
OF FINISHE[)
GOODS

Conten ts of the Humilll Resources Plan


The human resources plan must contein the following:

PRODUCT A

January
February
March
Total 1st Quarter
2nd Quarter
3td Quarter
4tll Quarter
Toial

85,000
90,000
95,000

225,000
215,000
200,000

310,000
305,000
295.000

240,000
225.000
215,000

70,000
80,000
80.000

270,000
260,000
190.000
280.000

200,000
180,000
220,000
200,000

470,000
440,000
410,000
480,000

240,000
200,000
180,000
220,000

230,000
240,000
230,000

200,000 1,200,000

240,000

1,000,000

Total 1sl Quarter


2nd Quarter
3rd Quarter
4th Quarter
Total

personnel requirements of the company

2.

plans for recruitment and selection

3.

training plan

4.

retirement plan

PARTS OF THE STRATEGIC PLAN


The strategic plan must contain the following:

PRODUCT B

January
February
Ma rch

1.

1.

Company or corporate mission

2.

Objccttves or goals

3.

Strategies

. Company of corporate mission refers to the "stra34,000


41.000
45,000

100,000
95,000
88,000

134,000
136.000
133,000

100,000
100,000
95.000

120.000
135.000
95,000
150,000

88,000
93,000
125,000
120,000

208,000
228,000
220,000
270,000

100,000
88.000
93,000
125,000

500,000

120,000

620,000

100,000

te~:~c s~atement that identifies why an organization exists,


1t.s P~losophy of management, an d its purpose as dis-

tmgUIS hed from other s imilar organizations in terms of


products, services, and markets.""

MAKING PLANNING EFFECTIVE


P~.anning is. done so that some desired results may
be achulVed. At t1mes, however, failure in planning occurs.
Arl.hur A. ThompMU. Jr. and A.J. St:riekl:.nd ttl, Strot~ll~ Monm~nt
onpt ond lAM.. f"ourth Edition (Phmo. 'n!xu: BuslneM P\lbhcatJOn.~ 1 '
l'lll7) pp 22-32
nc.,

C'

"lfolt. p. 792

58

69

Planning may be made successful if the following


are observed:
1. recognize the planning barriers
2.

use of aids to planning

The planning barriers, according to Plunkett and


Attner, ore as follows:'"'
1.

manager's inability ro plan

2.

improper planning process

3.

lack of commitment to the planning process

4.

improper information

5.

focusing on the present at the expense of the


future

6.

too much reliance on the planning department

Plans may be classified in terms of functional areas,


time horizon, and frequency of use.
Plans consist of various parts that the engineer
manager must be familiar with.
Plans can be made effective by recognizing the
planning barriers and making use of aids to planning.

7. concentrating on only the controllable variables


Among the aids to planning that may be used are:
1.

Gather as much information as possible

2.

Develop multiple sources of information

3.

Involve others in the planning process


SUMMARY

Technical activities, like other activities, require


effective planning, i.e., if objectives and goals are to be
realized.
A plan is a methodological way of achieving results.
Planning is undertaken at various management levels.
Various s teps are required in the planning process
depending on the management level.

60

61

QUESTIONS FOR REVIEW AND DISCUSSION


1. W11y is planning an important activity for engineer

managers?
2. How may "planning" be defined?
3. What planning activities are undertaken at various
management levels?
4. What are the steps in the planning process?
5. What are the types of plans? How may they be classified?
6. What is a production plan? What aro its components?
7. What is a budget?
8. What is meant by "company miBBion"?
9. What are the barriers to planning?
10. What may be used as aids in planning?

SUGGESTED ITEM FOR RESEARCH


1. Interview the general manager of a construction

firm.
Inquire about the planning activities undertalken
by the firm.
Prepare a report about the result of the interview.

Case 3. MOTORBUS COMPANY: Que Sera Sera

Engineer Hermogenes Ancheta hall just received his


appointment papers from his new immediate superior,
the Vice President for Operations. he has been promoted
from Assistant Manager to Manager of the Maintenance
Department. After congratulating him, his boBS gave him
a verbal directJve that he should put some order in his
deportment and make it work in the most effective and
efficient manner possible.
Engineer Ancheta has just passed the board examination for Mechanical Engineering when he joined
Motorbus Company in 1993. By June 1995, he informed
his former classmates at the University of Snnto 'lbmas
thnt he was promoted as Assistant Manager for Maintenance.
The former manager of the department, Engineer
Gaudencio Inductivo, joined the company since it started
operations in 1989. A total of ten buses began plying the
Manila-lsabela route. A maintenance unit was put up at
the Manila terminal in Sampaloc.Another unit serves the
!lagan, lsabela terminal. Each unit has a full-time
mechanic and one assistant.
When a company bus comes in for repair, the mechanic diagnoses the various automotive systems in the bus
and later produces a list of parts needing replacement.
The mechanic sends the list to Engineer Inductivo, who,
in turn, forwards the same to the company accountant
for approval of the purchase request. Oftentimes, Engineer lnductivo performs the actual purchasing himself.
Later, he seods the purchased items to the mechanic who
made the request.
The mamtenance units were operating normally
until40 new buses were procured by the company in 1993.
Since then, every maintenance personnel was so busy
that they threatened to quit their jobs unless additional

62

63

mechanics and assistants were recruited. By the end of


1993, each unit has a personnel complement of5 mechanics
and 5 assistants.
Even with current developments, the old method of
purchasing was not improved. Purchase requests started
to pile up. Mechanics and drivers began complaining to
the VP for Operations about delays in the delivery of
needed parts.
The VP for Operations immediately sent a note to
Engineer Inductivo ordering that the problem should
be resolved immediately. Engineer Inductivo was hard
pressed and he could not offer an immediate solution. The
next day, Engineer Inductivo informed the VP for Operations that he is requesting for the approval of his application for retirement as he is already 62 years old.
The VP forwarded the request to the President with
an endorsement justifying the request. On the same
day, the request for retirement was approved. The next
day, Engineer Ancheta received his appointment papers
promoting him to Manager.
One of the first thinga Engineer Ancheta did was to
inspect the storage room for parts. He found out that the
room was full of an uneven supply of parts. Some parts
were of excessive quantities, while some important ones
wore inadequately stocked. A cor~er of the room contains
a big volume of obsolete parts.

ORGANIZING TECHNICAL
ACI'IVfi'IES
A

Reasons for Organizing

Organizing Defined

The Formal Organization

Informal Groups

Types of Organlzatlonal Slnlctures

Types of Authority

The Purpose of Committees

The Purpose of the Structure

At the end of the day, Engineer Ancheta w11sinformed


by the VP that the company will be fielding nn ndditional
50 new buses within 30 days. This will mean that by next
month, about 100 buses will be servicing the various
routes assigned to Motorbus Company.
Engineer Ancheta is now mulling over bow be will
make the operations of his department as efficient and
effective as possible.
64

66

Ch-apter 4

ORGA~IZING

TECIINIC:\L
ACTI\' ITIES
-------J

The engineer manager needs to acquire various


skills in management, including those for organizing
technical activities. In this highly competitive environ
ment, the unskilled manager will not be able to bring his
unit, or his company, as toe case may be, to success.

The value of a superior organizational set-up has been


proven dramatically during the Second World War w hen
a smaller American naval force confronted the formidable
Japanese navy at Midway. Military historians indicated
that the Americans emerged victorious because of the
superior organizational skills of their leaders.

mentation of plans. In effective organizing, steps are


under taken to breakdown the total job into more manageable man-size jobs. Doing these will make it possible
to assign particular tasks to particular persons. In turn,
these will help facilitate the assignment of authority,
responsibility, and a~countability for certain functions
and tasks.

ORGANIZING DEFINED
Organizing is a management function which refers
to "the structuring of resources and activities to accomplish
objectives in on efficient and effective manner."'
'l'hll arrangement or relationship of positions withi n
an organization is caUed the structure. The result or'the
organizing process is the structure.

THE PURPOSE QF THE STRUCTURE

Even today, skills in organizing contribute largely to


the accomplishment of the objectives of many organiza
tions, whether they are private businesses or otherwise.
The positive effects of business success becomes more
pronounced when they come as a result of international
operations. International businesses, however, cannot
hope to make huge profits unless they are properly
organized to implement their plana.'

Th~> structure serves some very useful purposes. They


are the following:

The opportunities offered by skillful organizin.g are


too important for the engineer manager to ignore. This
chapter is intended to provide him with some background
and insights in organizing.

3. It defines the groupings of individuals into

REASONS FOR ORGANIZING


Organizing is undertaken to facilitate the imple
1

Vero Tf'rptt.r& aod Ravi Sarai.hy.lntutJGtwnol MorMtll'l(! CCbica.go: 'l"be

l)ryUtn Pr011, 1991) p. 6S2.

1.

It defines the relationships between tasks and


authority for individuals and departments.

2.

It dPfines formal reporting relationships, the

number of levels in the hierarchy of the organization, and the span of control.
departments and departments into organization.
4. It defines the system to effect coordination of
effort in both vertical (authority) and horizontal
<tasks) directions
When structuring an organization, the engineer
manager must be concerned with the following:
FC'mll Al'kl thrt. p. G 13.
4

'HJJJ;JOJ, pp 247248.

66

67

Division oflabor- determining the scope of work


and how it is combined in a job.
'2 Delegation of authority -the process of assign1
ing various degrees of decision-making authority to subordinates.
3. Departmentation - the groupingofrelatedjobs,
activities, or processes into mll,jor organizational
subunits.
4. Span of control - the number of people who
report directly to a given monngor.
6. Coordination - the linking of activities in the
organization that serves to achieve ll common goal
or objective.

1.

THE FORMAL ORGANIZATION


Aft.er a plan is adapted, management will proceed to
form an organization to carry out the activities indicated
in the plan.
The formal organization is "the structure that details
lines of responsibilites, a uthority, and position."' What is
depicted in the organization chart is the formal organization. It is "the planned structure and it "represents the
deliberate attempt to establish patterned relationships
among components that will meet the objectives effectively."~

The formal structure is described by mnnagcment


through:
1.

2.
3.

organization chart
organizational manual and
policy manuals.

and otbtn.. p. G-5.


FI"fmoot t!. Kut and James E Ro.fnPifiJ,

N~ebS.

0'):(1n ualt~n and Man


A Sy:tl~m ond C<mting.tncy ApptOO.CII. tNew York- MeCrawHill Book
1979), p 199.

~m~11l,

Co..

68

The organization chart is a diagram of the organ


1zation':s official positions and formal lines of authority.
The organizational manual provides written des
criptlons of authority relationships, details the func
tions of major organizational units, and describes job
procedures.
The policy manual describes personnel activities
and company PQli<:ies.

INFORMAL GROUPS
Forma l organizatiqns require the formation of formal
groups which will be assigned to perform specific tas~
nimed at achieving organizational objectives. The formal
group is a part of the organization structure.
Th ere are instances when members of an organiza.
tion spontaneously form a group with friendship as a
principal reason for belonging. This group is called an
informal group. It is not a part of the formal organization
and it does not have a formal performance pUl')l06e.
Informal groups are oftentimes verY useful in the
accomplishment of mll,jor tasks, especially if these tasks
conform with the expectations of the members of the
informal group.
The informal organization, useful as it is, is "vulnerable to expediency, manipulat ion, and opportunism,"
iiCcording to Valentine.' Its low visibility, Valentine added,
makes it "difficult for management to detect these
perversions, and considerable harm can be done to the
company."
The engineer manager is, therefore, warned that be
must be on the lookout for the possible difficulties that

oa:ocors

---;RAymoocl F. Valeol.ine,
of the lnlinmal Orpmut-, World'o
Eu<uttw lJ'IfUl. March 1982. p.. 71.

the informal groups may do to the organization. It will


be to his best interestifbe could make the informal groups
work for the organization.

TYPES OF ORGANIZATIONAL
STRUCTURES
Before the commencement of activities, tbc decisionmake.r8 in an organization will have to decide on what
~tructure to adapt. Depending on the size and type of
operations, a certain structural type may best fit the
requirements.
Organizations may be classified into three types. They
are the following:1
1.

2.

3.

Functional organization - this is a form of departmentalization in which everyone engaged


in one functional activity, such os engineering
or marketing, is grouped into one unit.
Product or market organization this refers to
the organization of a company by divisions that
brings together all those involved with a certain
type of product or customer.
Matrix organization- an organizational st ructure in which each employee reports to both a
functional or division manager und to a project
or group manager.

The different types of organizations, with their own


distinct advantages and disadvantages, are briefly presented on the next page.

Figure 4.1 Reasons or Factors for Joining or Forming a


Group

FRIEN DSHIP

'

COMMON INTEREST
like: concern tor environrnent or
love tor classlcal music
PROXIMITY

I
which gives people the
chanoe to share
Ideas, opinions,
and feelings

NEED
SATISFACTION
which are derived
from unions, cunural
societies, fratemtties,
etc.
COLLECTIVE
POWER

FORMj -

!----"

y JOI~ j-

which anract
Individuals like:
consumer society,
sports club, etc.

'J:unMA. F. Stener nnd R Edw:t,rd F~m:\n,Mcuuy:~m('n'. flourth &dtl.ion


(Enclf.woact Cliffs. New JerMr. PnntJceI-IRII, 1989) p 267

70

rl

OR

which 1$ derive<!
from unions.
fratemlties, etc.

IGROUP GOALS

WHICH PROPEL
PEOPLE
TO

71

AN
INFORM
GROUI

Figure 4.2 A Typical Functional Organization Chart of a


Construction Company

PRESIDENT

Vice President

V~ee President

Marketing

Vice President

Coostruction

Finance

Voce President
Human Resoorces

Functional Organization
.
.Functional organization structures are very effectIve m smaller firiDB, especially "single-business firms
where key activities revolve around well-defmed skills
and areas of specialization.""
Functional organizations have certain advantages.
They are the following:
I.

The grouping of employees who perform a common task permit economies of scale and efficient
resource use.

2. Since the chain of command converges at the top


?f the org~~ization, decision-making is central
zed, provoding a unified direction from the top.
3. Communication and coordination among employees within each department are excellent.
4. The structure promotes high-quality technical
problem-solving.
5. The organization is provided with in depth skill
specialization and development.
'Arthur A. ~Oml)tOn, Jr. J\od A.J. St.ricklMd
Strategy PormutM,on
'lbdJr I'J{t.ht Gtntml Mt.Jn~r. Fit't.b Edition (II owood
llllno11: Irwin. l992) p. 223.
om

m.

Otld l~tlplflll(lttall(>ll,

72

6.

Employees are provided with career progress


within functional departments.

The disadvantages of the functional organization


are the following:
I. Communication and coordination between the
departments are often poor.
2. Decisions involving more than one department
pile up a the top manag~ment l~wel and are often
delayed.
3. Work specialization and division of labor, which
are stressed in a functional organization, produce
routine, norunotivating employee tasks.
4.

It is difficult to identify which section or group


is responsible for certain problems.

5. There is limited view of organizational goals by

employee.
6. There is limited general management training
for employees.
Product or Market Organization
The product or market organization, with its feature
of operating by divisions, is "appropriate for a large
corporation with many product lines in several related
induHtries." 10
The advantages of a product or market organization
ore as follows:
1. The organization is flexible and responsive to
change.
2. The organization provides a high concern for
customer's needs.
'Rkh:.rd L. Dan.. M(lll4Jff'JMfll,Second Edition (Ch.icago:Th~ Drydtn Preta,
1991) pp, ~7-259.
~Yheele.n and flubgt!r, p. 129.

73

3.

The organization provides excellent coordina.


tion across functional departments.

Figure 4.3 A Typical Product/Market Organl:tatlon lor a


Construction Company

4. There is easy pinpointing of respo~sibility for


product problems.
PRESIDENT

5. There is emphasis on overall product and division


goals.
6. The opportunity for the development of gen~ral
management skills is provided.
The disadvantages of the product or market organi
zation are as follows:
1. There is a high possibility of duplication of
resources across divisions.

I
VICe President

Presld&nt
vornment
ounts

2. There is less technical depth and specialization


in divisions.
3. There is poor coordination across divisions.

"""4 Marlleting

4. There is less top management control.


5. There is competition for corporate resources.

V1C4l President
Residential
Accounts

Industrial
Accounts

Construction

H Markeling

Construction

Marl<etin

Construe

Matrix Organization
A matrix organization, according to Thompson and
Strickland, "is a structure with two (or more) channels
of command, two lines ofbudget authority, and two sources
of performance and reward. " 11 Higgins declared that "the
matrix structure was deaigned to k~p employees in a cen
tral pool and to allocate t h em to various projects in the
firm according to the length oftime they were needed."li

"""4 Finance

"""4 Finance

"""4 Finance

' - Human

'-

Human

' - Human
Resourc

Resources

The matrix organization is afforded with the follow


ing advantages:
1.

There is more efficient use of resources than the


divisional structure.

''Thompoon aod Strickland. p. 229.


HHicJine, p. 274.

74

76

Resources

2. There is flexibility and adaptability to changing


enVIronment.

Figure 4.4 A Typical Matrix Organization of a Construction


Firm

3. The development of both general and functional


management skills are present.
4. There is interdisciplinary cooperation and any
expertise is available to all divisions.
5. There are enlarged tasks for employees which
motivate them better.
The matrix organization has some disadvantages,
however. They are the following:
1. There is frustration and confusion from dual
chain. of command.

PRESIDENT

J
v.:e President
for
Finance

VICe President

Vice Presdent
for Human
Resources

lor
Construction

2. 1'here is high conflict between divisional and


functional interests.
3. There are many meetings and more di~cussion
than action.

I
Construction
Manager

''rnjects
u 1nager

Purchasing
Manager

Contract
Admintstration
Manager

4. There is a need for human relations training for


key employees and managers.
5. There is a tendenq for power dominance by one
$ide of the matrix.

[ ' rDJOCt X
M nagar

~--e--- Specialist

Purchastng

TYPES OF AUTHORITY
The delegation of authority is a reCI\Iisite for effective organizing. It consists of three types. They are as
follows:"
1.

Line authority- a manager's right to tell subordinates what to do and then see lhat they do it.

2. Staff authority- a staffspecialist's.right to give


advice to a superior.

l''ltl)ect v
Munager

Project Z
Mtnager ~-

-8-__
-8- --

11

l.Aoo C. Mft:tinsoD:and others~B(J$tnnt(l..(oxincton. M"-'MehUMtt.t:0 C.

Ueath Md

c.,_,

19A$) pP. 185-186.

76

77

Contract
Negotiator

Purchasing
Speeiallst t- -

Contract
Negotiator

Purchasing
Specialist t- -

Contract
Negotiator

t-

Functional authority - a specialist's right to


oversee lower level personnel involved in that
specialty, regardless of where the personnel are
in the organization.
Line departments perform tasks that reflect the
organization's primary goal and mission. In a construction
firm, the department that negotiates and secures con
tracts for the firm is a line department. The construction
division is also a line function.
Staff departments include all those that provide
specialized skills in support of line departments. Ex:am
plea of staff departments include those which perform
strategic planning, labor relations, research, accounting,
and personnel.
Staff officers may be classified into the following:
3.

Personal staff- those individuals assigned


to a specific manager to provide needed staff
services.
2. Specialized staff- those individuals providing
needed staff services for the whole organization.

1.

Functional authority is one given to a person or a


work group to make decisions related to their expertise
even if these decisions concern other departments. This
authority is l,,tiven to roost budget officers of organizations, os well as other officers.

THE PURPOSE OF COMMITTEES


When certain formal groups are deemed inappropriate to meet expectations, committees are oftentimes harnessed to achieve organizational goals. Many
organizations, large or small, make use of committees.

Figure 4.5 A Una and Staff Organization

PRESIDENT

porate
11mlng

Legal
Coonsel

I
r of
h and
ment

Director
of
Marlteting

I
Director
of
Manufacturing

I
Industrial
Engineering
Manager

Director
of
Finance

Factory
Manager

Quality
Control
Manager

Second
Shift
Supervisor

Third
Shift
Supervisor

I
First
Shift
Supervisor

A committee is a formal group of persons formed for


a specific purpose. For instance, the product planning
committ~, as described by Millevo, is "often staffed by

78

79

Diroct01
of
Personr>

top !'Xecutives from marketing, production, resaarch,


engineering, and finance, who work part-time to evaluate
and approve product ideas.""
Committees are very useful most especially to engineering and manufacturing firms. When a certain con
cern, like product development, is under consideration,
a committee is usually formed to provide the necessary
lineup of expertise needed to achieve certain objectives.

The formal organization is the structure that will


carry out the plan. It is described through the organiza
tion chart, the organization manual, and the policy
manual.

Tnformal groups oftentimes find their way to exist


side by s1de with formal organizations These groups
may make it easy or make it hard for the organization
to achieve its otsjectives.

Committees may be classified aa follows:


1.

Ad hoc committee - one created for a short-term


purpose and have a limited life. An example is
the committee created to manage the anniversary festivities of a certain finn.

2. Standing committee - it is a relatively per


maneot committee that deals with issues on an
ongoing basis. An example is the grievance
committee set up to handle initially complaints
from employees of the organization.

(2)

Organizations may be classified into: (1) functional,


product or market, or (3) matrix.

Authority delegated to the members of the organization muy be classified into: (1) line authority, (2) staff
autl\ority, and (3) functional authority.
Committees are used as a supplement to the existing
formal organization. Committee11 are formed to perform
specific tasks. Committees are classified into: (1) ad hoc,
and (2) stondmg.

Committees may not work properly, however, if they


are not correctly managed. Delaney suggests that "it might
be useful to set up some procedures to make the committee
a more effective tool to accomplish our goals." 16
SUMMARY

The proper management of engineering activities,


whether at the unit, department, or firm level, requires
effective organizing. The organizing function is undertaken
to facilitate the implementation of plans.
Organizing refers to. the structuring of resources and
activities to accomplish objectives. The structure serves
as a way to reach the organization's goals.
Uftonnae M Mallevo, Handboo.i 011 Pl'odu~t Dtt.IIJlfl and l>twl<1pnwnt
(MIUIJI&; NAtional Book SID,.., 1995) p. 76,
UJ)eJa.ney, p. 24.

80

81

QUESTIONS FOR REVIEW AND DISCUSSION

1. Why is it important for the engineer manager to


acquire skills in organizing?
2. How may organizing be defined?
3. What purpose do organizational structures serve?
4. What must be the eoneern of the engineer manager
when structuring the organization?
5. What is the purpose of the formal organization?
6. What are informal groups? Why are they formed?
7. What are the types of organizational structures? How
may they be distinguished?
8. What is meant by "1ine authority"? by staff authority"?
9. Distinguish personal staff" from specialized staff".
10. What are committees? How may they be classified?

Case 4. BITS A ND PIECES INTERNATION AL CORPORATION:


Little Things Mean a Lot

The Bits and Pieces International Corporation <BPIC)


is one company that appears to be succeeding and growth
has become a part of its agenda for the next few years.
This is quite unusual for a company whose certificate of
incorporation has only been approved by the Securities
and Ex{!hange Commission four years ago.
BPIC is maintaining an office at Makoti Avenue in
Makoti nnd a plant at Sta. Rosa, Laguna. Tho company
is prod'llcing various injection molded plastic products
classified ns consumer and industrial.
The key officers of tbe company are as follows:
President and Chairman of the Board: Engineer
Rodrigo Reyes
Vice President and General Manager: Engineer Jesus
Ualat
Corporate Secretary: Mrs. Mildred Salazar
Treasurer: Ms. Purita Toquilar

SUGGESTED ITEM FOR RESEARCH

1. Prepare an organization chart of a large engineering


firm $bowing line and staff relationships.

Auditor: Ms. Elsa Marzo


Engineering Manager: Engineer Silvino Santiago
Production Manager: Engineer Severo Lagayan
Th~

01gunization chart of BPIC is shown in Exhibit


1.

The company, classified as a manufacturing corporation, operates on two activities.


1. production of stocks to be sold to the local market
2. production as a subcontractor
BPIC does not maintain a sales force. The general
manager acts as marketing e.xecutive and directly transacts business with customers.
82

83

The company's average sales per month are as follows:


Proclyct

Average Sale poe Month

Ball Pen Tips

,. 340,000
900,000
100,000
100,000

Sputum Cups
Grease Cups
Bottle Caps
PVC Fittings
Total

The following constitute the positions proposed:


Qyantlty
Position
Finance Manager

200,000
,.1,640,000

At current output levels, the company was declared


profitable.
The following financial data were provided:
1.

2.

profit margin (net income/sales) = 32%


return on total assets (net income/total assets)
= 72%

annual turnover = 15 times


4. current ratio = 1.1
3.

5.

acid test ratio

The company made provisions for improving its


facilities including land, building, machinery, and equipment. The hiring of additional manpower was also proposed

=1.05

An analysis of the company's market potential convinced the top management to consider expansion. It was
also decided that a new product, the tissue holder, must
be added to ita existing line of products.

Qunhty Control and


Research and Development
Manager
Senior Machinist

Junior Machinist

Helpers

t
1

The president ordered the general manager to"prepare


an organization chart for the new set up. The key officere
of the company were directed to review the proposed setup and present their comments on an executive meeting
scheduled next week. The proposed organization chart is
shown in Exhibit 2.
Engineer Lagayan is now contemplating on what
credible points he is going to raise in the meeting.

The target sales for the next threo years are as follows:
Prnducts

Xm.1

,.YnL.2
7M

I" SM

22M

33M
14M
54M
10M

YHL1

Ball Pen Tips


Sputum Cupe
Grease Cups
Bottle Cape
PVC Fittings

,. 6M

24M
48M

131\1
36M
58M

Tissue Holder
Total

48M

58M

70M

I"164M

!"194M

!"249M

12M
12M

84

Exhibit 1. Bits and P~ International Corpor11tlon Cunent


Organization C"-rt

Exhibit 2. Bits and Pieces International Corporation Propoqcl


Organization Chart

Vice PresldenV

Corporate
Secretary

General Manager

Treasurer

Voce President

Cotporate
Secretary

G-ral Manager

Audotor

~~~
Production
Engineering
Manager

Manager
new positiOn

new

position

Warehouseman
new position

Shift
Supervisor

Junior

Machinist
Operator

Utilityman

new position

new position

Shott
Supervisor

Junior
Machinist

Utihtyman

new position

Operator

new posilion
86

87

Chapter 5

c THE

RCA:\IZr\TIO~

~ STAFFING THE ENGINEERING

L.:J

ORGANIZATION

A.

What Is Staffing?

The Staffing Procedure


Human Resource Planning
Recruitment

L'\GI~EERJ:\(;

After settinf up the organizational structure that has


been decided to best serve the interest of a certain finn,
the next move that bas to be made is to fill up the identified
positions with the most qualified persons available.
Engineering organizations are very sensitive to
whatever staffing errors are made. Placing the wrong
person in a highly specialized position like quality control,
for instance, may bring untold damages to the firm. Yet,
this refers to a single error only.
An example of the ill-effects of staffing errors was

Selection
Induction and Orlenta11on
Training and Development
Performance Appraisal
Employment Decisions

Separations

provided by the TV program "Brigada Siete. The disaster


that happened in the Film Center at the Cultural Center
Complex in Manila was higblig~ted in the program. In
November 1981, the whole sixth floor of the Film Center
collapsed while undergoing construction. Many workers
and an engineer died as a result.
When interviewed by the TV program's staff, a former
construction worker said he was hired to do masonry job
when he does not have training in masonry. Some other
examples of staffing errors were provided in the program.
This typo of tragedy underscores the importance of
staffing in any organization, engineering or otherwise.
Effective staffing, on the other hand places the engineering
organization on a competitive stance.

WHAT IS STAFFING?
The engineer manager must be concerned with
I"Bngndt

88

s..to. TV ChMn~l 7 ~. November 23. !996

putting the right persons in various positions within 'his


area of concern. Although some of the important aspects
of staffing may be delegated to the human resour~~ ~ffic_e,
the engineer manager assumes a great responstbthty m
assuring that the right persons are assigned to positions
that fit their qualifications.
Staffing may be defined as "the management function
that determines human resource needs, recruits, selects,
trains, and develops human resources for jobs created by
an organization.2
Staffing is undertaken to match people with jobs so
that the rcalizatioll of the organization's objectives will
be facilitated.

THE STAFFING PROCEDURE


The staffing process consists of the following series
of steps:
1. human resource planning
2.
3.
4.
5.

recruitment
selection
induction and orientation
training and development

6. performance appraisal
7. employment decisions (monetary rewards, trans
fers, promotions and demotions) and
8. separations.
Human Resource Planning
The planned output of any organization will require

a systematic deployment of human resources at various


levels. 1b be able to do this, the engineer manager will
have to involve himself with human resource planning.
This will be done in coqjunction with the effurts of the
human resource officer, i.e., if the company has one.
Human resource planning may involve three activities, as follows:
1.

Forecasting- which is an assessment of future


human resource needs in relation to the current
capabilities of the organization.

2.

Progrommjng - which means translating the


forecpsted human resource needs to personnel
objectives and goals.

3.

Evaluation and control- which refers to moni


toring human resource action plans and
evaluating their success.

Methods of Forecasting. The forecasting of manpower needs may be undertaken using any of the following quantitative methods:
1.

Time series methods- which use historical data


to develop forecasts of the future.

2.

Explanatory, or causal models - which are attempts to identify the mElior variables that are
related to or have caused particular post conditions and then use current measures of these
variables to predict future conditions.
The three major types of explanatory models
are as follows:
a} regression models (presented in Chapter 2}
b) econometric models - a system of regression
equations estimated from past time-series

'IMII< W RIIAI and Lloyd L. Byen, Mo.,.m(lll T'-Y ond App/UXJto<HO.


Fourth Ed1t,.o IRo....,ood, Uliooia: lrlrin. N D.) p. 630.
' PiuokeU.. a.od Attner. pp. 263-ik.

'Kathryn M. BAMI and Dam C. Martin,M"""""""'ot(N"" Yott: MeCnw


lhll. 1991) pp. 297-300

90

91

data and IU!ed to show the effect of various


independent variables on various dependent
variables.~

c)

3.

Representatives of companies may interview


applicants inside campuses.
4.

leading indicators - refers to time series


that anticipate business cycle turns.

Monitoring metho.ds - are those that provide


early warning signals of significant changes in
established patterns and relationships so that the
engineer manager can assess the likely impact
and plan responses if required.

5. Recruitment firms. Some companies are speci-

fically formed to assist client firms in recruiting


qualified persons. Examples of these companies
are the SGV Consulting and John Clements Cons.u ltants, Inc., (See Figure 5.1).
6.

Recruitment
When the different positions have been identified to
be necessary and the decision to fill them up has been
made, the next logical step is recruitment.
~ruitment refers tQ llttracting qualified persons to
apply for vacant positions in the company so that those
who axe best suited to serve the company may be selected.

Referrals from employees. Current employees


sometimes recommend relatives and friends
who may be qualified.

Competitors. These are IU!eful sources of qualified


but underutilized personnel.

For entry-level personnel, the engineer manager


will likely rely on newspaper advertising, schools, and
referrals. When recruiting managers-, the reliable sources are current employees, recruitment firms, and competitors.
Selectiion

Source of Applicants

When management wants to fill up certajn vacancies,


the following sources may be tapped:
1.

The organization's current employees. Some of


the organization's current employees may be
qualified to occupy positions higher than the ones
they are occupying. They should be considered.

2.

Newspaper advertising. There are at least three


major daily newspapers distributed throughout
the Philippines. Readership is higher during
Sundays.

3.

Schools. These al:e good sources of applicants.

.)Rein~

Kohler, Stati.uics for .Busif1C'$.$ twd Economic.s (Glenview, llliools:

Scott, f OfOAjMU Md Company, 1985) p. G6.

Selection refers to the act of choosing from those that


are available the individuals most likely to succeed on the
job. A requisite for effective selection is the preparation
of a list indicating that an adequate pool of candidates
is ava>Iable.
The purpose ofselection is to evaluate each candidate
and to pick the most suited for the position available.
Selection procedures may be simple or complex
depending on the costs of a wrong decision. If the management picks the wrong person and the subsequent
effect to the organization is negligible, then the selection
process is made simple. This is true in the case of construction laborers where a review of their applications is
done. Within a few days or even a {ew hours, the applicants
are informed of the decision.
93

Flgu,. 5.1 An Example of the Services Provided by a


Professional Recruitment Firm
PROFESSIONAL STAFFERS
A DiviBion of John Clement

Conoulton~

Inc.

A multinational firm wh.icb is poi.OO to revolutloniu tho building


materiaa in<luotzy locally and intemationaiiJI, our client is offering

rewarding caner opportunities to highly driven profeuiooab who can


llSSUme the poet.a of:

When the position under consideration involves


1pccial skills, a more elaborate selection process is un
dertaken.
Ways of Determining the Qualifications
of a Job Candidate
Companies use any or all of the following in determining the quali{lcations of a candidate:
1.

Application blanks. The application blank pro


vides information about a person's characteris
tics such as age, marital status, address, edu
cational background, experience, and special
interests. After reading the application blank, the
evaluator will have some basis on whether or not
to proceed further in evaluating the applicant.

2.

References. References are those written by


previous employers, co-workers, teachers, club
officers, etc. Their statements may provide some
vital information on the character of the applicant.

3.

Interviews. Infonnation may be gathered in an


interview by asking a series of relevant ques
tiona to the job candidate.

SALES ENGINEERS
SALES REPRESENTATIVE

in moint.aning and developing dealer aooount.a, tho oppointeeto will be


pect<ld to provide pr..oales and pcl81.-e&lea aupport. to dealen IUld
implement morketing aetivi~. The

background we ~<>ek conai.UO of.

2-3 years of experience in selling conitructionlbuilding


materialt gained from a manufacturing or markctllljl firm;

expo6ure in wood businesa wiU be an advantllge;


aggressivcne6S a.nd good command of the Engliah language;
olrilla;

computer literacy and driving

knowledge of Chinese dialect ie a plua (actor but not a


requirement;

degree in Engineering or An:hitecture ia preferred but poet


ia open to any business coune;

mole or female, 25 t.<> 30 yennt old.

Attroctive t(!mune.ratiQn and

~nefit

pt\ekngcs p1uiJ comml&8iOI)IJ will

4. Testing. This involves an evaluation of the future


behavior or performance of an individual.

be on'ur<d t.o tl>o oucoo11ful candidntes.


Resunu!s coded Solcsforce 96243 should bo forwnrded not lnt.or than
16 November 1996 to the addrell below.

Types of Tests
Tests may be classified as follows:
1.

PROFESSIONAL STAFFERS

4/F Golden Rock Buildilll


168 Snloedo St-, Legaspi Village, Makati City
Tel. nos. 812-69-94/813-43-85

p.

'From ., advertlsement., Manila Bulletin, November 10, 1996,


C-3.

Psychological tests - which is "an objective,


standard measure of a sample behavior". It is
classified into:
a) aptitude test - one used to measure a per
son's capacity or potential ability to learn.

b) performance test - one used to measure a


person's current knowledge of a subject.
c)

personality test - one used to measure


personality traits as dominance, sociability,
and conformity.

dl interest test - one used to measure a


person's interest in various fields of work.
2. Physical examination - a type of test given to
assess the physical health of an applicant. It is
given "to assure that the health of the applicant
is adequate to meet the job requirements."'
Induction and Orientation
AfOOr an applicant is finally selected from among the
various ones and then subsequently is hired, the next steps

undertaken are induction and orientation.


In induction, the new employee is provided with the
necessary information about the company. His dut ies,
responsibilities, and beneiits are relayed to him. Personnel and health forms are filled up, and passes are issued. The company history, its products and services, and
the organization structure are explained to the new employee.
In orientation, the new employee is introduced to
the immediate working environment and co-workers.
Tho following are discussed: location, rules, equipment,
procedures, and training plans. Performance expectstiona are also discussed. The new employee also undergoes the "socialization process" by pairing him with an
experienced employee and having a one-on-one discussion
with the manager.
'Herbert J Cruden and A.rt.bur W Shuman, Jr. Man~"'T Humott
Rnourott. Sev~otb Edition (Cincinnati: SouthWette--rn P\tbllshJn.r Co., 1984)
p. 134

96

fraining and Development


If the newly-hired (or newly-promoted) employee is
to be Jacking the necessary skills required by the
Jnb, training becomes a necessity.
~aessed

Training refers to the "learning that is provided in


nrder to improve performance on the present job."' Trainang programs cons!st of two general types, namely:
1.

training programs for nonmanagers, and

2.

training and educational programs for executives.

Training Program for Nonmanagers


This type of training is directed to nonmanagers for
Mpccific increases in skill and knowledge to perform a
pnrticul.ar job. The four methods under tlus type are:
1.

On-the-job training- where the trainer is placed


in an actual work situation under the direction
of his immediate supervisor, who acts as trainer.
This situa'tion motivates snongly the trainee to
learn.

2.

Vestibule school -where the trainee is placed


in a situation almost exactly the same as the
workplace where machines, materials, and time
constraints are present. ~ the trainer works
full time, the trainee is assured of sufficient

attel\tion from him.


3. Apprenticeship program - where a combination of on-the-job training and experiences with
classroom instruction in particular subjects are
provided to trainees.
Jtrry W GJUey and Steven A. ~. Ph~ipla of llumon RUJOW"C!tf
'"~1-wt !Rood-.. M - - - MdlooaWIoy Publiolunc Co. l.oe.
19flt) p 7

'"Edwu\ 8. Phppe. PtrfiOnrtll Mo~metu. Si.al.b Ed1L1oo (New York:


Mc<:n,.Hillllwk Co., 19$il p. 200,

4. Special courses- are those taken which provide


more emphasis on education rather than training. Examples are those which concern specific
uses of computer like computer-aided design
and bu.ilding procedures.

Figure 5.2 An Example of an Invitation for Enrollment In


Specialized Courses
C IM TECHNOLOGIES, INC.

offers you the most compreh ens-ive

Training Programs for Managers

The training needs of managers may be classified


into four areas: decision-making skills, interpersonal
skills, job knowledge, and organizational knowledge.
Th() decision-malting sltills of the manager may be
enhanced through any of the following methods of training:
1. In-basket- where the trainee is provided with
a set of notes, messages, telephone calls, letters,
and reports, all pertaining to a certain com pany
situation. He is expected to handle the situation
within a given period of 1 or 2 hours.
2.

Management games - is a training method


where "trainees are faced with a simu Ia ted
situation and are required to make an ongoing
series of decisions about that situation."10

3.

Case studies - this method presenta actual


situations in organizations nnd enable one to
examine successful and unsuccessful operations.
It emphasizes "the manager's world, improves
communication skills, offers rewards of solving
a mystery, possesses the quality of illustration,
and establishes concrete reference points for
connecting theory with practice.""

The interpersonal competence of the manager may


be developed through any of the following methods:
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From an advertisement, Manila Bulletin, November 10,


1996, p. 18.

Steam>, p. G-ll.

"Wl1.elen and Hungtr, p. 403.

98

99

1. Role-playing - is a method by which the trainees are assignea roles to play in a given case
incident. They are provided with a script or a
description of a given problem and of the key
persons they are to play. The purpose of this
method is to improve the skill of the trainees in
human relations, supervision, and leadership.
2.

Behavior modeling - this method attempts to


influence the tramee by"showing model persons
behaving effectively in n problem situation.""
The trainee is expected to adapt the behavior of
the model and us'& it effectively in some instances
later on.

3. Sensitivity training- under this method, awareness and sensitivity to behavioral patterns of
oneself and others are developed.

4. 'l.Tansactional analysis - is a training method


intended "to help individuals not only understsnd
themselves and others but also improve their
interpen;onal communication skills.~"
In acquiring knowledge about the actual job the manager is currently holding, the following methods are useful:
1. On-the-job experience - this method provides
valuable opportunities for the trainee to Jearn
various skills while actually engaged in the
performance of a job.
2.

Coaching- this method requires a senior manager to assist a lower-level manager by teaching him the needed skills and generally providing directions, advice, and helpful critici sm.
The senior manager must be skilled himself and

UDoJoYoduandPauiD.Standohv,~/ofo-<MIood/odu.wu>J

have the ability to educate. otherwise the method


wtll be ineffective.
3. Understudy - under this method, a manager
works as assistsnt to a higher-level manager a?d
participates in planning and other managenal
functions until he is ready to a88ume such
position himself. Once in a while, the assistsnt
is allow~ to take over.
In the attempt to increase the trainee's knowledge
of the total organization, exposure to informaUon and
events outside ofhis immediate job is made. In thts regard,
the following methods are useful:
1. Position rotation- under this method, tfbde martnager is given assignments in a varie~y o epa
mente. The purpose is to expose htm to dtfferent functions of the organization.

2.

Multiple management- tbi$ method is premisbed


on the idea that junior executtves must e
provided with means to prepare them. for ~g~er
management positions. To achiev~ ~ts, a JU~or
board of directors is created conststtng of Jumor
executives as members. The board is given t_he
authority to discuss problems that the semor
board could discuss. The members are encouraged
to take a broad business outlook rather than
concentrating on their specialized lines of work.

Performance Appraisal
Performance appraisal is the measurement of employee performance. The purposes for which performance
appraisal is made are as follows:"
1 . To influence, in a positive manner, employlie
performance and development;

lkl4l..onl. Seote.nth Edihort <Bl)Ciewood Cl:iffs, New Juwy Pr'f'ntle;e..H..U loe..


1987) p 274

u&.nol and Martin, p. 421.

"Rue and Bym, p. 488.

100

101

2. Th determine merit pay increases;


3. Th plan for future performance goals;
4. Th determine training and development needs
and
'
5. 'Ib assess the promotional potential of employees.
Ways of Appraising Performance

A:n employee's performance may be measured using


any of the following methods:
1.

Rating scale method -where each trait or


characteristic to be rated is represented by a line
or scale on which the rater indicates the degree
to which the individual possesses the trait or
characteristic.

2. Essay method- where the evaluator composes


statements that best describe the person eva
luated.
3. Management by objectives method - where
specific goals are set collaboratively for the organization as a whole, for various subunits, and
for each individual member. Individuals are,
then, evaluated on the basis of how well they
have achieved the results specified by the goals.
4. Assessment center method - where one is
evaluated by persons other than the immediate
superior. This method is used for evaluating
managers.
5. Checklist method -where the evaluator checks
statements on a list that are deemed to characterize an employee's behavior or performance.
6.

Work standards method -where standards are

"Cruden nod ShermM, pp. 231J.Z46.

102

set for the realistic worker output and later on


used in evaluating the performance of non
managerial employees.
7 . Ranking method - where each evaluthatorbearranges employees in rank order from e st
to the poorest.
a.. Critical-incident method - where the eval.utfltor)
recalls llnd writes down specific (but en 1ca1
incidents that indicate the employee's perform
ance. A critical incident occurs when emplo~ee's
behavior results in an unusual success or fa~ lure
on some parts of the job.
Empl oyment Decisions
After evaluating the performance of employees
(managerial or otherwise), the management Will now ~
ready to make employment decisions. These may oonsast
of the following:
1. Monetary rewards - these are given to effi
ployees whose performance is at par or a 00ve
standard requirements .
2 . Promotion _ this refers to a movemdent bytea
person into a position of higher pay an grea r
responsibilities and which is given as a reward
for competence and ambition.
3. Transfer _ this is the movement of a person tof
a different job at the same or similar 1eve1 o
responsibility in the organization. T.r~&fers are
made to provide growth opportumttes for ~he
person.s involved or to get rid of a poor performmg
employee.
4. Demotion - this is a movement from one posi
tion to another which has less pay or respon
sibility attached to it. Demotion is used as a form
103

of punishment or as a temporary measure to keep


an employee until he is offered a higher position.
Separation
Separation is either a voluntary or involuntary
termination of an employee. When made voluntarily, the
organization's management must find out tho real r-eason. If the presence of a defect in the organization is
determined, corrective Mlion is necessary.
Involuntary separation (or termination) is the last
option that the management exercises when an employee's
performance is poor or when he/she committed on act
violating the company rules and regulations. This is
usually made after training efforts fail to produce positive
results.

The ways of determining the qualifications of job


.-nndidntes consist of application blanks, references,
mterviews, and testing.
Training programs consist of o~e type for nonmanagers and another type for executives.
The various methods of performance appraisal are
rlnssified into the rating scale method, the essay method,
management by ol>jMtives method, assessment center
method, checklist method, ~o~k standards method,
rnnk:ing method, and critical-mc1dent method.
Employment decisions are classifie~ as: monetary
rewards' promotion, transfer, and demotion.
Separations may be classified as voluntary or
involuntary.

SUMMARY
Engineering organizations are not immune to the
difficulties of filling with qualified persons the various
positions identified in the organizing stage. As the outputs
of engineering firms are produced by people under thl!
supervision of engineer managers, errors in the performance of jobs may not b.e easily discernible. As such,
staffing must be treated with serious concern.
Staffing deals with the determination of human
resource needs, recruitment, selection, training, and
development.
The staffing process consists of the following series
of steps: human resource planning, recruitment, selection, induction and orientation, training and development,
performance appraisal, employment decisions, and
separations.
The sources of applicants consist of the organization's
current employees, newspaper advertising, schoola,
referrals from employees, recruitment firms, and competitors.
IGf

106

QUESTIONS FOR REVIEW AND DISCUSSION


1. Why is staffing an important activity?

2. What activities are undertaken in staffing?


3. What is the purpose of human resource planning?
4. How may human resource needs be determined?
6. What are the possible sources of applicants for va cant positions in the firm?
6. What is the implication of the cost of the "wrong
decision in the selection process?
7. How may one determine the qualifications of a job
candidate?
8. How may the types of tests be described?
9. In i nduction, what activities are undertaken?
10. How may the two general types of training be
described?
SUGGESTED ITEM FOR RE-SEARCH

1. Prepare a forecast of the human resource needs of


an engineering firm.

Case 5. KUNOIMAN COMMUNICATIONS CORPORATION:


Mr. Lonely

The Kundiman Communications Corportion (KCC)


a local company with more than 2,000 persons in its
payroll. The company's top management is composed of
the President, the Vice President for Marketing, the Vice
President for Operations, nnd the Vice President for
Administration. .
t8

A member of the staff, Engineer Lorenzo de Guzman,


nn electronics engineering graduate, has just received an
order from his immediate superior, the VP for Operations,
to head the newly built telecommunication facility in
Anti polo, Rizal. So far, he is the only company personnel
identified with the new facility. He was given three months
Lo make the facility operational.
Engineer de Guzman appraised that for the Anti polo
unit to operate, it will require the services of a number
of persons skilled in the various activities that will be
undertaken.
As he has been working with KCC for ten years (five
years in the field and five years in the head office),
Engineer de Guzman is familiar witb many aspects oftbe
firm's operation. Some of the supervisors and three of the
key officers are his friends.
Engineer de Guzman felt that the various trainings
KCC provided him bud really prepared him well for the
technical aspects of his new job. His exposure to the
different units at the head office will also be useful in some
ways to the administrative aspects of his position.
However, his trainings and experiences have not provided
him with the expertise to recruit qualified persons to
occupy the various positions that will be created. Th begin
with, he does not even have information on the number
and noture of the positions to be created.
As he was inspecting the building in Anti polo where

106

107

he will hold office, Engineer de Guzman wondered if he


could convince top management to transfer some of his
acquaintances in the head office to his new assignment.
Engineer de Guzman knows that his next promotion will depend much in the success of the new facility
under his direction. He tbought that if he could only get
the right persons, his job would not be too difficult. With

COMMUNICATING

this in mind, he pondered on what his first move must


be.

What Communication Is

Functions of Communication
The Communication Process

Forms of Communication

(}

The Barriers to Communication

Overcoming Barriers to Communication

Techniques for Communicating In Organizations

E:

108

Management Information Sys1em

109

Ch apter 6

The achievement of the objectives of the engineering organization will depend on the performance of the
human and non-human elements attached to it. The task
of management is to "program these elements correctly
so that each will respond accordingly to their assigned
tasks. Standard programming methoda have already
been adapted by technolot,:ists for most machines and
equipment.

representative, etc. It may be done face-to-face, or through


printed materials, or through an electronice device like
the telephone, etc.
In management, communication must be made for
a purpose and because it has a cost attached to it, it must
be used effectively.

FUNCTIONS OF COMMUNICATION
Communication may be used to serve any of the
following functions:
1.

The programming approach to the human element


is different and must be dealt with using methods espoused
by behavioral scientists. Employees will perform according to the dictates of their minds. If this is really so, then
management must reach them through powerful means
of persuasion under an atmosphere conducive to effective
communication.
The issue now will be "is management using the
communication option effectively?" The answer must be
"yes", for if not, trouble may be forthcoming, if it has not
yet arrived.

Another concern is tbe manager who wants


to make sure that his decision in promoting an
employee to a higher position is correct. Through
communication, the information provided will
minimize if not eliminate the risk.

2.

Motivation function - Communication is also


oftentimes used as a means to motivate employees to commit themselves to the organization's objectives.

3.

Control function - When properly communicated, reports, policies, and plans define roles,
clarify duties, authorities and responsibilities.
Effective control is, then, facilitated.

4.

Emotive function- When feelings are repressed

WHAT COMMUNICATION IS
Morris Philip Wolf and Shirley Kuiper define communication as a process of sharing information through
symbols, including words and message. "1
Communication may happen between superior and
subordinate, between peers, between a manager and a
client or customer, between an employee and a government
'Morna Philip Wolfand Sbirfey Kuiper, B{ft<ltw Commu1Utal~ m

Bu.I~

...,, E&hlh !'.<hllon (Cincinnati: SoulhW.s-.rn Pllblalullf Co, 1987) p. 5.

110

Information function - Information provided


through communication may be used for decision-making at various work levels in the organization. A construction worker, for instance,
may be given instructions on the proper use of
certain equipment. This will later provide him
with a guide in deciding which equipment to use
in particular circumstances.

'William G Scott and Tennee R. Mitchell. Of'IOfUUtf.Oit TltJry: A


8<h4N>Ml ~~,;. CHo......ood, illinoio: I....U., 19'79) p. 8

~f11<1rol

lll

in the organization, employees are affected by


anxiety, which, in turn, affects performance.
Whatever types of emotions are involved, whether satisfaction, dissatisfaction, happiness, or
bitterness, communication provides a means to
decrease the :internal pressure affecting the
individual.

THE COMMUNICATION PROCESS


'l'he communication process consists of eight steps
Figure 6.1 The Commun lcatlon Process

SEND ER

develOps

idea

ThE' most important step in effective communication


1s developmg an idea. It is important that the idea to be
convey!'d must be useful or of some value. An example
of a useful idea is- how to prevent accidents in workplaces.
Encode
The next step is to encode the idea into words,
illustrations, figures, or other symbols suitable for
transmission. The method of transmission should be
determined in advance so that the idea may be encoded
to conform with the specific requirements ofthe identified
method. An example of an encoded message using telefax
tiS a means of transmission is shown in Figure 6.2.

After encoding, the message is now ready for transmission through the use of an appropriate communication channel. Among the various channels used include
tho spoken word, body movements, the written word,
television, telephone, radio, an artist's paint, electronic
mail, etc.
Proper transmission is verY important so the message sent will reach and hold the attention of the receiver.
To achieve this, the communication channel must be free
of barriers, or interference (sometimes referred tons noise).

then
transmits

message
to

RECEIVER

who
receives
message

(deCOdes)

Receive

....L

Develop an Idea

Transmit

(encodes)

which are as follows: develop an idea, encode, transmit,


decode, accept, use, and provide feedback.

ri'CeiVe,

accepts
or
rejects

then

The next step is the communication process is the


11ctual receiving of the message by the intended receiVer.

provides

feedback

to
112

"John W NeWIItrom and Keith Davis, 0f7l011U(It&on()l JI,Aotthr, HuiNll'l


w(l,... Ninth editioo (New York~ MeCrawHill, lnc. 19i3) pp

lkltoCJt()>l' Dl

11196.

113

The requirement is for the re<:eiver to be ready to receive


at the precise moment the message relayed by the sender.

lll'coding may be achieved. E xamples of various terms


ncoded and decoded are shown in Figure 6.3.

Transmission

If the receiver understands the purpose and the


background situation of the sender, decoding will be greatly
1mproved. In legal practice, for instance, the declarations
of a dying person have more weight.

Calao West Chemicals Corporation


Santiago City Branch
Sales Reporl for January 1997

Accept

Figure 6.2 In Example of an Encoded Menage for Telefax

AW

Volume

Amoynt

lio d[umal

I
II
lll
IV

1,000
1,342
2,045
1,089

..1,000,000
1,342,000
2,045,000
1,089,000

2,686

V1

3,450

2,686,000
3,450,000

11,612

11,612,000

Total

The next step is for the receiver to accept or reject


the message. Sometimes, acceptance (or rejection) is
p11rtial. An example is provided as follows:
A newly-lured employee was sent to a supervisor with
note from his superior directing the supervisor to accept
the employee into hls .unit and to provide the necessary
training and guidance.

11

Figure 6.3 Examples of Encoded and Decoded Information

E!!Co<led

Ptc9ded

5110; n/30

Sales on account is allowed

Prepared by:

A five percent discount I!


deducted from total pricE
il settle<! wilhin ten days
Account must be settlec
within 30 days.

Josefmo Datu
Branch Manager

The message may be initially received by a machine

or by A person. In any case, communication stops when


the machine is not turned or tuned on to receive the
message, or the person assigned to receive the message
does not listen or pay attention properly.

I ~IWCharting

"otluction

arrivals --+

Decode

( start )

000 -+I seiVice


I -+departures
facility

alter services
A basic queUiog system
confguratlon indicating

The next step, decoding, means translating the


message from the sender into a form that will h ave
meaning to the recipient. If the receiver knows the language and tent~hlology used in the message, succe.ssful
114

Indicates beginning of
flowcharting activity.

a siogle-channel, sioglephase system.


115

<

All the supervisor feels that he was not consuited in


the hiring process, he thinks that his only obligation is
to aooept the employee in his unit and nothing more.
The factors that will affect the aooeptance or rejection
of a message are as follows:
1. the accuracy of the message;

2. whether or not the sender has the authority to


send the message and/or require action; and

3. the behavioral implications for the receiver.


Use
The next step is forthe receiver to use the infonnation.
If the message provides information of importance to a
relevant activity, then the receiver could store it and
retrieve it when required. If the me,ssage requires a certain
action to be made, then he may do so, otherwise, he
discards it as soon as it is received. All of the abovementioned options will depend on his perception of the
message.
Provide Feedback
The last step in the communication process is for the
receiver to provide feedback to the sender. Depending on
the perception ofthereceiver, however, this important step
may not be made.
Even if feedback is relayed, it may not reach the
original sender of the message. This may be attributed
to the effects of any of the communication barriers.

FORMS OF COMMUNICATION
Communication consists of two ml\ior forms:

Verbal Communication
Verbal communications are those transmitted
through hearing or sight. These modes of transmission
categorizes verbal communication into two classes: oral
and written.
Oral communication mostly involves bearing the
words of the sender, although sometimes, opportunities
are provid~d for seeing the sender's body movements,
facial expression, gestures, and eye contact. Sometimes,
feeling, smelling, tasting, and touching are involved.
An alt~rnntive to oral communication is the written
communication where the sender seeks to communicate
through the written word. The written communication is,
sometimes, preferred over the oral communication because
of time and cost constraints. When a sender, for instance,
cannot meet personally the receiver due to some reason,
a writt-en letter or memo i$ prepared and sent to the
receiver.

The written communication, however, has limitations


and to remedy these, some means are devised. Perfume
advertisers, for instance, lace their written mesaage with
the smell of their products. In the same light, the now
popular musical Christmas card is an attempt to enhance
the effects of the written note.
Nonverbal Communication
Nonverbal communication is a means of conveying
message through body language, as well as the use of
time, space, touch, clothing, appearance, and aesthetic
elements. Body language consists of gestures, bodily
movement, posture, facial expression, and mannerisms of
all kinds.'
Nonverbal expressions convey many shades of

1. verbal and
2.

4f'..,.ranl I N'itrtmbt"rc. The Art a{ Nqlottatutl[

nonverbal.

Wbnt)>. 191>81 p. 101

116

117

(N(IW

York Corn.trs\ol\e

meaning and it is to the advantage of the communicator


to understand what messages are relayed.

THE BARRIERS TO COMMUNICATION


Various factors may impede the efficient flow of
communication. Any, or all, of these factor11 may, at any
point, derail the process. Even if the message is transmitted by the channel, the timing and the meaning of the
message may be affected by the factors.
The barriers to communication may be classified
generally as:
1. personal barriere
2. physical barriere
3. semantic barriers
Per11onal Barriers
Personal barriers are hindrances to effective com
munication arising from a communicator's cbaracteri&
tics as a person, such as emotions, values, poor lilltening
habits, sex, age, race, socioeconomic status, religion,
education, etc.
Emotions cloud the communicator's ability to judge
correctly the real meaning of messages received. People
with different value$ will find it hard to communicate with
each other. Poor listening habits of a receiver frustrate
the communication efforts of a sender.
Physical Barriers
Physical barriers refer to interferences to effective
communication occurring in the environment where the
communication is undertaken. The very loud sound
produced by a passing jet temporarily drowns out the voice
of a guest delivering a speech. Such distraction does not
allow full understanding of the meaning of the entire
message {lnd is an example of a physical barrier.
118

Physical barriers include distances between people,


walls, a noisy jukebox near a telephone, etc. An office that
ia too tidy may sometimes inhibit a person from meeting
the occupant of the office face-to-face. A menacing pet dog
(or secretary) posted near the door may also prevent a
person from directly communicating with the object person
behind the door.

A communication channel that is overloaded may also


prevent important information to reach the intended
user. Another physical barrier to communication is wrong
timing. For instance, how may one expect a person who
bas just lost a loved one to act on an inquiry from a fellow
e.mployee?

Semantic Barriers
Semantics is the study of meaning as expressed in
symbols. Wo~ds, pictures, or actions are symbols tbat
euggest certain meanings. When the wrong meaning has
been choeen by the receiver, misunderstanding occurs.
Such error constitutes a barrier to communication.
A eemantic barrier may be defined as an "interference

with the reception of a message that occurs when the


message is misunderstood even though it is received
exactly as transmitted ...
For example, the words "wise" and "salvage will have
different meanings to an Engl~h speaking foreigner than
to an oTdinary Filipino.

OVERCOMING BARRIERS TO
COMMUNICATION
When communication barriers threaten effective
~Jotl P Bowman and Bemadioe P. Braochaw, 8~1tfH Rf/IOI'f Wn.ttft~
(ChJcqo Tho Oeyd Prwa. 1984) p. 192.
-wa.rren K.Ape aod othue,/ntrodudiOit UJ M<lU Commun~tion, Nmth
Editil>n CSydnoy. lla~ and Row Publi!ber.. 1988) p. A-9

119

performance, certain measures must be instituted to


eliminate them. To eliminate problems due to noise,
selective perception, and distraction, the following are
recommended:
1.

Use feedback to facilitate understanding and


increase tbe potential for appropriate action.

2.

Repeat messages in order to provide assurance


that they are properly received.

3.

Use multiple channels so that the accuracy of the


information may be enhanced.

4.

Use simplified language that is easily understandable and which elimjnates the possibility
of people getting mixed-up with meanings.

TECHNIQUES FOR COMMUNICATING IN


ORGANIZATIONS
Communication may be classified as to tbe types of
flow of the message which are as follows: downward,
upward, or horizontal. Each of the types of message flow
has ita own purposes and techniques.

Downward Communication
Downward communication refers to message flows
from higher levels of authority to lower levels. Among tbe
purposes o( downward communication are:
1.

to give instructions

2.

to provide information about policies and procedures

3.
4.

lo give feedback about performance


to indoctrinate or motivate

Among the techruques used in downward communication are as follows: letters, meetings, telephones,

manuals, handbooks, and

I,etters are appropriate when directives are oomplex

nlprN:ise actions are reqwred. When orders are11imple


lout the result depends largely on employee morale,
"" hniques that provide personal interchange like meet"'1!8 and the telephone, are appropriate. Modem tech
oonlu~ has made it possible for people to hold meetinga
ovon if they are thousands of kilometers apart from each

uthcr
Manuals are useful sources of information regarding
ouonpany policy, procedures, and organization. Unlike
nMing persons as sources of infoi'l!llation, manuals are
;ovnilablc whenever it is needed.
Handbooks provide more specific information about
tho duties and priveleges oftbe ind1vidual worker. It has
nh10 the advantage o being available whenever needed.
Figure 6.4 Message

Flow and Areas of Concern

UPWARD COMMUNICATION
Concems:

DOWNWARD COMMUNICATION
Concems:

problems and excepbons


- implementation ol goals,
strat egies and objecttves
suggestions tor improvement

perfonnance reports
grievances and disputes

- job instructions and rationale

llnanclal and accounting

- procedures and practices


- performance feedback

Information

- indoctrinallon

HORIZONTAL COMMUNICATION
Concem:
interdepartmental coordination

- onlradepartmental prOblem-solving
- staff advoce to the departments

newslett~rs.

120

121

Newsletters provid~ a mixture of personal, social, and


work-related information. Articles about new hirings,
promotions, birthdays of employees, questions and
answers about work related issues are presented.

Depending on the size and nature of the company,


tlu grievance procedure may consist of a single step or
num~r of steps. Companies with a collective bargaining
of.(reement with its union must refer to the grievance
1rocedure spelled out in the law on labor relations.

Upward Communication

Employee Attitude and Opinion Surveys. Finding out


what the employees think about the company is very

There is a need for management to provide employees with all the necessary material and non-material
support it can give. The first requirement, however, is
for management to know the specific needs of the employees. This is the primary reason for upward com
munication.
Upward communication refers to messages from
persons in lower-level positions to persons in h igher
positions. The messages sent usually provide information
1?-\\ work progress, problems encountered, suggestions for
i/itproving output, and personal feelings about work and
non-work activities.
Among the techniques used in upward commu
nication are: formal grievance procedures, employee
attitude and opinion surveys, suggestion systems, opendoor policy, informal gripe sessions, task forces, and exit
interviews.
Formal Grievance Procedures. Grievances are part
of a normally operating organization. 'lb effective1y deal
with them, organizations provide a systam for employees
to air their grievances.
Holley and Jennings define grievance as "any employee's concern over a perceived violation of the labor
agreement that is submitted to the grievance procedure
for eventual resolution.,., Grievances represent an open,
upward communication channel whereby employees can
offer suggestions to management.

111\port~nt.

The uercise, however, requires expertise

und the company may not ~ prepared to do it. If the


urganization's operation is large enough to justify such
ul"tivity, then it must~ done. Ifthe assistance of an outside
nRcarch firm is considered, a benefit-cost analysis must
IK used as a deciding factor.
Suggestion Systems. Suggestions from employees
11re important sources of cost-saving and production
onhancing ideas. Even if majority of the suggestions are
not feasible, a simple mearu of acknowledging them
nmtributes to employee morale.
Open-Door Policy. An open-door policy, even on a
lunited basis, provides the management with an opporlunity to act on difficulties before they ~me full-blown
woblems.
ll1{ormal Gripe Sessions. Informal gripe aessions can
ho used positively if management knows how to handle
I hem. When employees feel free to talk and they are
H"9urGd of not being penalized for doing so, then manugement will be spared with lots of efforts determining
I he real causes of problems in the company.
Thsk Forces. When a specific problem or issue arises,

oUisk force may ~ created and assigned to deal with the


problem or issue. Since membership of task forces con"6ts of management and nonmanagement personnel,

'William H. H.U..yand Keane<~> M. Jennoop, TAtf.,obo,fl<loJuxu~.


Fourth Edition !Ntw York: '"lTu! Drydtn ~. 1991) p. ~.

Manuel M Manana.&J.a. TM Lout on: Labor Rfldlionl (ManilA: Natioul


...."'.." l99J) p. 31.

122

123

integration and teamwork are fostered, cr eativity is


enhanced, and interpersonal skills are developed,

url<'rations and external intelligence for use in decisio:>uHiking.""

Exit Interviews. When employees leave an organization for any reason, it is to the advantage of management to koow the real reason. If there are negative
developments in the organization that management is
not aware of, exit interviews may provide some of the

The MIS currently used by corporate firms consists


nf "written and electronically based systems for sending
"'ports, memos, bulletins, and the like. The system
11llows managers of the different departments within the
hrm to communicate with each other.

answers.
f'lgure 6.5 The MIS and Its Relation with the Different
Departments of the Organization

Horizontal Communication
HorizQntol communication refers to messages sent
to-individuals or groups from another of the same organizational level or position.

I Manufacturing

LI_M
_a_rk_e_tl-ng_ _,

The purposes of horizontal communication are:


1.

to coordinate activities between departments

2.

to persuade others at the aame level of organization

3.

to pass on information about activities or feelings

Among the techniques appropriate for horizontal


communication are: memos, meetings, telephones, picnics,
dinners, and other social affairs.

MANAGEMENT INFORMATION SYSTEM


It was mentioned at the beginning of this chapter that
communication may be used to serve the information
function. This means that a way must be devised to allow
the organization to absorb information necessary for
effective decision-making. In this regard, companies of
various sizes have organized aystems to gather information
that will be useful to management.

I tnance

~-

~ MANAGEMENT ~~

INFORMATION ~ -,
Personnel
SYSTEM
' - - - - -...,j

~r--R_e_s_e-ar_c_h--,

F.nglneering

and

Development
l'he Purposes of MlS
The MIS is established for various reasons. Wheelen

und HIUnger enumerate them as follQws:"


1.

To provide a basis for the analysis of early warning signals that can originate both externally
and internally.

2.

To automate routine clerical operations like payroll and inventory reports.

Management information system (Ml$) is defined


by Boone and Kurtz as "an organized method of providing past, present, and projected information on in ternal

"LcH.uJ 8 . BooDe and David L. Kwt2.. Coltt~mpoNJry 8u11n~-. S.COod


&l1t.aon Uhl\ldaM. Jllti)Olt.~ Th~ Dryden PttM. 1979) 9 C...1 .

MN1dc~a. and othtra, p. 380.

124

126

"Wl>t<len atxl llungor, p. 145.

3. To assist managers in making routine decisions


like scheduling orders, assigning orders to
machines, and reordering supplies.
4.

To provide the information necessary for management to make strategic or nonprogrammed


decisions.

SUMMARY

QUESTIONS FOR REVIEW AND DISCUSSION


I. How important is communicating as a function of

engineering management?
2. What is communication? How may it be done?

3 For what purposes may communication be used in


the organization?
What are the steps in the communication process?

Communicating is a vital function of the engineer


manager. Organizations cannot function properly without
effective communication. If the required outputs must be
realized, communication must be managed.

What is a communication channel? How may each


of the channel types be described?

Communication is used to serve the information


function, motivation function, control function, a nd
emotive function.

What is "decoding"? How may it be successfully


achieved?

The communication process consists of various steps,


namely, develop an idea, encode, transmit, receive, decod~.
accept, use, and provide feedback.
The forms of communication are verbal and non
verbal.
The barriers to communication may be classified a
personal, physical, or semantic. These may be elintin u
ted or minimized by using feedback, repenting messageN,
using multiple channels, and using simplified languagl'
Communication flows are either downward, upward
or horizontal.
Management informationsystems are useful mean
of communication.

What is meant by "noise"?

What are the forms of communication? How is one


ditTerent from the other?
How may barriers to communication be cla88ified?
What is the possible effect of emotion in communacation?
How may communication barriers be overcome?
What techniques may be used in communication?
What is a management information system? What
lire its purposes?
SUGGESTED ITEM FOR RESEARCH

StTutinize an existing engineering organization lly


techniques used in communication.

rlos.~ifying

126

127

Case 6. NORTHERN CONTAINER CORPORATION: Time to

Cry

Engineer Godofredo Monsod, Jr., general manager of


Northern Container Corporation (NCC), was taken aback
by a letter-reply from a prospective new customer (see
Exhibitl). His company has been operating for only five
years and is in need of new customers with potentials of
doing business with them in a long-term basis.
NCC is engaged in the manufacture of general and
sanitary tin cans, coolcing oil filling facilities, and moulds
and dies fabrication. Its factory and administrative office
is located at Valenzuela, Metro Manila.
Since its first year of operation, Engineer Monsod
worked hard to make NCC's operation at full capacity. The
company's various departments are manned by a personnel complement of 323, growing by 5 percent annually.
The intreasing numw of employMs is a ~suit of
the growing patronage of the company's products by
customers. Engineer Monsod felt, however, that the
company needs one more good customer and their
operations will be at full capacity. It was in October 1996
that Engineer Monsod came in contact with the general
manager of a newly established company, Mr. GOOofredo
Tapiador. Engineer Monsod was able to convince Mr.
Tapiador to order his tin can requjrementa from NCC.
In January 10. 1997, NCC's production manager
informed Engineer Monsod that unless new production
orders are recejved by his department, he will be forced
to recommend the lay-off of 12 workers in the factory. Five
days later, 12 workers were indeed laid off.

After a while, Engineer Monsod composed himself and


prepared to think hard about what happened and what
ll06Sib1e remedies could be worked out.

Exhlbit 1
RED RIBBON MANUFACTURING CORPORATION
1201 Puting Bato
Taytay, Rizal
27 January 1997
IHE GENERAL MANAGER

Northern Conlalner Corporation


152S Amlhan Sl.
Uakod Pare, Valenzuela
Metro Manila

Dear Str:
1his is rn reply 10 your letter dated January 25. 1997 inqU1r1ng about
whelher

we slill consider ordering tin

Please be ~nformod that s1nce we have placed our order w11h your
111a11<ehng departmenl as early as December 1, 1996 and no reply
w11s sent to us, we deemed it wise to deal with anolher company
111 late as January 15, 1997.
I hank you for your interest and we hope to do business wllh you
undar olher circun'lslances.

Yours lruly,
OODOFREDO TAPIADOR

General Manager

It was in January25 that Engineer Monsod thought


of'making a follow-up of the agreement between him and
Mr. Tapiador. A letter was sent to Mr. Tapiador on the
same day. On January 28, Engineer Monsod read the reply
of Mr. Tapiador.

128

cans from your company.

12&

Chapter 7

[2]

MOTIVATING
What Is Motivation?

Factors Contributing to Motivation

Theories of Motivation
Maslow's Need Hierarchy Theory
Herzberg's Two-Factor Theory

Goal Setting Theory

C..

Techniques of Motivation
Motivation through Job Design

Productivity has always been a serious concern of


th1 management of firms. If it improves, it means grea-

ltr chances for tM company to grow and be more stable.


On~ reason why the P hilippine economy cannot move
ftl.tladily forward is our record of low productivity for so
mnny yeaTs.
ij]ghcr productivity, however, is not a tesult of chance.
It happens because of harder, more efficient, and mor e
111telligent work made by the employees. To be willing
pnrtners, however, the requirement is for them to be
properly motivated. An example ;s the management of
t consLruction fll1ll wanting ito employees to finish proJ-ct.1 on time, with the quality required at the least cost.
lh achieve this, various methods of motivation may be
tpplied.
When the cost of the other factors of production is
the viability of the finn, the remaining
lnrter (i.e., Iaber) may save the company from financial
tlilliculties. However, this will deJl'end on whether or not
lttbor will be motivated to perform their assigned task.
~nously affecting

Mollvatlon through ~ewards


Motivation through Employee Participatio n
Other Motivation Technlqu. .

WHAT IS MOTIVATION?
Motivating refers to the act of "giving employees
rt'IISOns or incentives ... to work to achieve organizational
objectives."' Motivation, on the other hand, refers to t he
process of activating behavior, sustrurung it, and direct.utg it toward a particular goaJ."l This definition is useful because it specifies three stages: activating, sustainPe,...l ood Ulrl, p. IS..
'Mtlin, p. 380.

130

131

ing, and directing actions towards the achievement. of


objectives.

FACTORS CONTRIBUTING TO MOTIVATION


There are certain factors influencing a person's desire
to do his job well. They are the following:3
1.

Willingness to do a job. People who like what they


are doing are highly motivated to produce the
expected output.

2.

Self-confidence in carrying out a task. When


employees feel that they have the required skill
and training to perform a task, the more motivated they become.

3.

Needs satisfaction. People will do their j~bs well


if they feel that by doing so, their needs will be
satisfied.

one need will have to be satisfied first before the other


need.'
Physwlogical Need$. Those that a.r e concerned with
biological needs like food, drink, rest, and sex fall under
the category of physiological needs.s These needs take
priority over other needs.
Security Needs. After satisfying the physiological
needs, people will sook to satisfy their safety needs. These
needs include freedom from hann coming from the elements or from other people, financial security which may
be affected by loss of job or the br&adwinner in the family, etc.
Figure 7.1 The Process of Motivation

plus

MOTJVATJON

NEEDS

THEORIES OF MOTIVATION
There are various theories of motivation, but only
the four most influential ones will be discussed. They
consist of the following:
1. Maslow's needs hierarchy theory
2. Herzberg's two-factor theory

which leads to

leads

readiness for
the next need

to

3. Expectancy theory
4. Goal setting theory
Maslow's Needs H ierarchy T heory
Abraham Maslow, a psychologist, theorized that
human beings have five basic needs which are as follows: physiological, security, social, esteem, and selfactualization. These needs are hierarchical, which means,
'Cole and HallllliDo, p. 146.

132

ACTION OR
GOAL-DIRECTED
BEHAVIOR

NEED
SATISFACTION

whk:h
results

to
Harper W Boyd, Jr. and Orville C. Walker, Jr., Mo.rhl"' Mo~mmt
(Hom.,.ood, llbno1.1; Irwin, l990) p. 12.
g Jerome t.teCarthy and WilliaJD D. P-erreault, Jr., Bone Alo,Adi.lt
!Homewood. Jlllnoil; lnf>n. 1\190) p. 173.

133

Figure 7.2 Maslow's Hierarchy of Needa

SELF-ACTUALIZATION NEEDS

Self-luHmment
ESTEEM NEEDS

Status. respect, prestige


SOCIAL NEEDS

Friendship, belonging, love


SECURITY NEEDS

Freedom from harm, financial security


PHYSIOLOGICAL NEEDS

Food, water, sleep. sex, body elimination


Social Needs. After satisfYing his physiological and
security needs, the employee w;Jl now strive to secure love
affection, and the need to be accepted by peers.
'
Esteem Needs. The fourth level of needs is called
esteem needs and they refer to the need for a positive selfimage and self-respect and the need to be respected by
others.
SelfActualizaticn Needs. The fifl;h and the topmost
level needs in the hierarchy are called self-actualization
needs and involve realiz.ing our full potential as human
beings and becoming all that we are able to be.
Tile Relevance of Maslow's Theory to Engineering
Management. Even if Maslow's theory has been largely
questioned, one basic premise cannot be discarded: a
fulfrlkd need no longer motivates an individual. If this
is the situation the subordinate is in, the engineer manager
must iaentify an unfulliilled need and work out a scheme

"''that the subordinate will be motivated to work in order


t u satisfy the unfulfilled need.

lll'n:berg's Two-Factor Theory


The two-factor theory is one developed by Frederick
llrzberg indicating that a satisfied employee is motivalt~cl from within to work harder and that a dissatisfied
"'nployee is not s'!lf-motivated.7
Herzberg identified two classes of factors associated
w1th employee satisfaction and dissatisfaction. In his
1 ~Hearch, Herzberg found out that satisfied employees
uwntioned the following factors (called aatisfiers or motiv>~tion factors) responsible for job satisfaction: achievettlt'nL, recognition, work itself, responsibility, advancetttnnt, and growth. Dissatisfied employees mentioned
t hu following factors (called dissatisfiers or hygiene
lautors) as responsible for job dissatisfaction: company
IM>hcy and administration, supervision, relationship with
""lll"rvisor, work conditions, salary, relationship with
l'l'llrl, personal life, relationship with subordinates,
~t.1tus, and security.
If Herzberg's theory w;ll be considered by the engiumr munager in motivating employees, he must do
1111\t1thing to eliminate the dissatisfiers and install
nt IHfieTII. All shown in Figure 7.3, even if the dissotisfiers
111" diminated (at point zero), the employee is still not
mu~ivutcd tc work hard.
I ~p~clancy Theory
gxpectancy theory is a motivation model based on
1h nsaumption that an individual will work depending
'"Ina perception of the probability of his expectations to
I I'PI'n

The theory poses the idea that motivation is deter-

_'Orqory Moorhoad and Ridy Crillin, OrgomzatlO!Wl &h4wx, s....ocJ


Houglli<>D Ml1llin Co., 1988) pp 109-110.

Rdaloon (Bool<>n

134

136

Figure 7.3 Herzberg' Two-Factor Theory

LEVEL OF
SATISFACTION

10
9
8
7
6
5
4
3

I lgure 7.4 An Expec:tency Model

EXPECTANCY
perceived
1>robability
of successful
pertormance,
l'llven effort

perceived
probability
of receiving
an outcome,
given performance
Valence+

F1rst-1evel
Outcome
1(compensation)

o level of no satisfactoo and


no dissatisfaction
1
(no reason not to worl<
2
but no motivation to
3
work hard)
4

LEVEL OF
DISSATISFACTION

5
6
7
8

0 ~I

PERFORMANCE

I~ I

OLTTCOMES

Flrst~evel

Outcome
(recogn~ion)

Second level
Outcome

4 (ability to
be with
family)
Valence+
Secondlevel
Outcome
(selfeS1eem)

10

mined by expectancies and valences An expectancy is n


belief about the likelihood or probability that a particular
behavioral act (like attending training sessions) wi llleucl
to a particular outcome (like a promotion). Valence is th~
value an individual places on the expected outcomes or
rewards.

Valence+
Secondlevel
Outcome
(esteem of
others)

Expectancy theory is based on the followi ng assumptions:


'Rith~ M. S~r&, l~ttrclductftNiltJ OrgonizotWnol &hauiM, f"outth Ed&bon
<New York: Ht\tper Collii\IJ PubU1hing, lne.. 1991) J)p. l6J ~ l62 .

p. 438.

136

Second level
Outcome
(ability to
purchase
house & 101)
Valence-

.,1. Valence +

!{

'Hi&iiiUI.

Valence +

137

A combination of forces within the individual


and in the environment determines behavior.

1.

People make decisions about their own behavior


and that of organizations
3. People have different typell of needs, goals, and
desires.
4. People make choi~s among alternative beha
viors based on the extent to which they think a
certain behavior will lead to a desired outcome.

2.

Figure 7.5

How Goals Motivate and Factlltate Performance

GOAL
CONTENT
which is

1. challenging
2.
3
4.
5.

Shown in Figure 7.4 is a model of the expectancy


theory.
Goal Setting Theory
Goal setting refers to the process of "improving per10
forQl&nce with objectives, deadlines or quality standard."
When individuals or groups are assigned s~fic goals.
a clear direction is provided and which later motivates
them to achieve these goals.
The goal setting model drawn by Edwin A. Locke and
his associates consists of the following components:"

attainable
specific and measurable
time limited
relevant

job know1edge
and abiUty

with
1. direction
2. effort
3. persistence
4. planning

1. goal content

Situational
Constraints:

2. goal commitxnent

3. work behavior

1. tools

4. feedback aspects
Goal Content. 'lb be sufficient in content, goa'ls muat
be challenging, attainable, specific and measurable, timo
limited, and relevant.
When goals are challenging, higher performance m Y
be expected. The sales quotas impo&ed by comparuea< tot

2. materials
3. equipment

PERFORMANCE

l(ttitner, p. G-4.
&mt and Martm. p. 164.

138

139

individual members of their sales force indicate reliance


of these companies to the use of challenging goals.
Goals must be attainable if they are to be set. If they
are not, then workers will only be discouraged to perform,
if at all.

TECHNIQUES OF MOTIVATION
Individual or groups ofindividuals may be motivated
to perform tbroug\). the use of various techniques. These
ttochniq ues may be classified as follows: 12

Goals must be stated in qaantitative terms whenever possible. When exact figures to be met are set,
understanding is facilitated and workers are motivated
to perform.

1.

motivation through job design

2.

motivation through rewards

3.

motivatio~ through employee participation

4.

other motivation techniques for the diverse work


force

There must be a time-limit set for goals to be ac


complished.
The more relevant the goals are to the company's
mission, the more support it can generate from various
levels of employment in the organization.
Goal Commitment. When individuals or groups are
committed to the goals they are supposed to achieve, there
is a chance that they will be able to achieve them.
Work Behavior. Goals influence behavior in terms of
direction, effort, persistence, and planning. When an
individual is provided with direction, performance is
facilitated. In trying to attain .g oals that are already
indicated, the individual is provided with a direction to
exert more effort. The identification of goa ls provide a
reason for W1 individual to per~ist in his efforts until the
goal is attained.

Once goals are set, the first important input to


planning is already in place.
Feedback Aspects. Feedback provide the individuals
with a way of knowing how far they have gone in achlev
ing objectives. Feedback also facilitate the introduction
of corrective measures whenever they ~re found to be
necessary.
140

Motivation Through Job Design


A person will be highly motivated to perform if be
assigned a job he likes. The first requisite, however,
" to design jobs that will meet the requirementa of the
organization and the persons who will occupy them. Job
design may be defined as "apeci fying the tasks that
constitute a job for an individual or a group....
IH

In motivating through the use of job design, two


approaches may be used: fitting J*!ple to jobs or fitting
JObs to people.
Fitting People to Jobs. Routine and repetitive tasks
make workers suffer from chronic dissatisfaction. To
avoid this, the following remedies may be adapted:
1.

Rea listic job previews - where managl!ment


provides honest explanations of what a job
actually entails.

2.

Job rotation -where people are moved period


ically from one specialized job to another.

3.

Limited exposure- where a worker's exposure


to a highly fragmented and tedious job is limited.

''l<N-itn pp 393410.
"Hiur aod Rtodtr. p. 426.

141

Figure

7.6

Techniques

of

Motivation

Fitting Job$ to Poople.Instead of changing the person,


monagement may consider changing the job. This may be
achieved with the use of the folJowing:

TECHNIQUES

OF

1. Jobenlargement-wheretwoormorespecialized
tasks in a work flow sequence is combined into
a single job.

MOTIVATION

Motivation

MotivatiOon
thru
Rewards

thru

Job

Fhting

people
to jobs
Wlth
1. realiStic

job

previews

Motivation lhru

Employee's
Participation

Motivating Through Rewards

qualify
contrOl
circles

extrinsic
rewards

seH

intrinsic
rewards

managed

teams

3. limited
exposure
Fltling

Rewards consist of material and psychological


benefits to employe% for performing tasks in the workplace. Properly administered reward systems can im
prove job performance and satisfaction.
Rewards may be classified into two categories:

2. job
rotation

jobs
to

2. Job enrichment- where efforta are made to


make jobs more interesting, challenging, a.n d
rewarding.

Flexible
work

Family

schedules

services

wilh

support

1. Extrinsic- those which refer to payoffs granted


to the individual by another party, Examples are
money, employee benefits, promotions, recog
nition, status symbols, praise, etc.
2. Intrinsic rewards - those which are internally
experienced payoffs which ore self-granted .
Examples are a sense of accomplishment, self
esteem and se.lfactualization.
Extrinsic and intrinsic rewa:rds coincide with needs
spelled out at the beginning of the chapter.
Management of Extrin$ic Rewards. To motivate job
performance effectively, extrinsic rewards must be properly
managed in line with the following:

1. job
enlargement

2. job
enrichment

142

1.

it must satisfy individual needs;

2.

the employe% must believe effort will lead to


reward;
143

Figure 7.7 An Array of Monetary and Other Incentives for


Employees

Type of Benefit

Feature

1. Monthly pay

2. 13th month pay

s.

14th month pay


4. Housing allowance
5. Sick leave benefits
6. Vacation leave benefits
7. Pension plan
8. Paid vacation trip
9. Health insurance
10. Accident insurance

depends on qualifications
of employee
given at mid-year
given at yearend
given to permanent
employees
15 days a year with pay
15 days a year with pay
given to permanent
employees
given to eroployess with
outstanding performance
given to permanent
eJnployees
given to permanent
employees

3. rewards must be equitable;


4. rewards must be linked to performance.
No single type of reward is generally applicable to
all employees. This is so because individual persons
have needs different from other persons. As much as
possible the particular needs of an individual must be
matched with the corresponding reward if motivation is
the objective. The administrative contraints inherent to
such systems, however, will be a hindrance to its adoption. Whenever feasible, however, it must be used.
Employee~ mu$t believe that efforts

144

will lend to

coward. Otherwise, they will not strive to turn in more


ttfforts in their particular job assignments.
Rewards that are not equitable will not produce the
desired motivation.
When employees know that reward is tied up to individual performance, managementmay expect extra efforts
from them. A negative example is the practice in some
government offices where every employee, regardless of
performance, is given a productivity bonus. As a result,
the majority are not motivated to exert extra efforts.

Motivation Through Employee Participation


When employees participate in deciding variolis as
pects ofthei,r jobs, the personal involvoment, oftentimes,
is carried up to the point where the task is completed.
The specific activities identified where employe,!IS
may participate are as follows:
1.

setting goals

2.
3.

making decisions
solving problems, and

4.

designing and implementing organizational


changes.

The more popular approaches to participation in


eludes the following:
1.

2.

quality control circles


self-managed teams

Quality Control Circles. A method of direct employee participation is the quality control circle (QCC). The
objective of the QCC is to increase productivity and quality
of output.
The circle consists of "a group of three to ten employees, usually doing related work1 who meet at regular
146

intervals (once a week for an hour, for example) to identify


problems and discuss their solutions."" The circle includes
a leader such as a foreman, but rely on democratic processes. The members are trained in various analysis
techniques by a coordinator.
The circle forwards its recommendations to management, which in turn, makes decisions on its adaption.

Self-mt.nagtd Teams. When workers have reached a


certain degree of discipline, they may be ripe for forming
self-managed teams. Also known as autonomous work
groups or high performance teams, self-managed teams
"take on traditional managerial tasks as part of their
normal work routine.

brainstorm, gather data,


and establish cause
and effect

oupcrvision from managers who act more as facilitators


than supervisors.
When a product or service is produced by a group
nfprofessionals or specialists, they might as well be formed
nB a self-managed team to save on supervisory costs.

Requisites to Successful Employee Participation


Prog.ram
1b succeed, an employee participation program will
roquire the following:
1.

a profit-sharing or gainsharing plan.

2.

a long-term employment relationship with good


job security.

Quality circte

3.

members prepare
solutions and
recommendations

a concerted effort to build and maintain group


cohesiveness.

4.

protection of the individual employee's rights.

Figure 7.8 The Quality Control Circle Process

Quality circle members

The self-managed teams work on their own, turning


nul a complete product or service and receiving rrununal

Other Motivation Techniques

Results are measured


and feedback,
recogn~lon and
rewards given to
quality control
circle members.

Management
CQnsldllrs
quality circle
recommendations
and makes
decisions.

"'Richard M Stee.r~ a.ad ~ Ai(lNA~tfll Bffttw OtrOntzot~ An


lnrrodu<l""' ll!ooton, M..acb_...; Kont Publiahlnc Co., 19861 p. 266.
RicbatdJ.~.~M._.,.,.,IPI&ne,~

The advent of theories on individual differences and


the biological clock of human beings" put pressure on the
engineer manager to adapt other motivation techniques
whenever applicable. These refer to the following:

1. flexible work schedules


2. family support services
3.

sabbaticals.

Flexible Work ScMdules. There is an arrangement,


called/Zt.ttime, which allows employeea to determine their
own arrival and departure times within specifiect limits.
For example, an engineering firm may allow one group

Pubii<Otw.., Inc., 1981) I' 352.

"Mallin. p. 141.

"Kn!ilner. p. 406.

147

of employees to take the 8:00 AM to 6:00 PM schedule,


another group takes the 9:00 AM to 6:00 PM schedule,
and another takes the 10:00 AM to 7:00 PM schedule.

The factors contributing to motivation consist of:


(l) willingness to do a job, (2) self-confidence in carrying
out a task, and {3) needs satisfaction.

An alternative to this arrangement is the adaption


of the forty-hour work in four days allowing the employee
to choose a day-off'.

There are four theories of motivation that are crucial


to management: These are:

An innovation of a popular bank in Makati is the

hiring of part-time tellen


Monday to Friday.

to work four hours a day from

There are certain benefits that are offered by flexible work schedules, although it is not appropriate for all
situations. Nevertheless, the engineer manager must
decide when it is applicable.

Family Support Services. Employees are oft.entimes


burdened by family obligations like caring for children.
Progreuive companies provide day care facilities for
children of employees. A multinational company in far
flung Davao province has even opened an elementary and
a high school within the plantation site.

1.

Maslow's need hierarchy theory

2.

Herzberg's two-factor theory

3.

Expectancy theory

4.

Goal oetting theory

Various techniques of motivation consist of: a) motivation through job design, 2) motivation through rewards,
3) motivation through employee participation, and 4)other
motivation techniques like flexible work schedules, family
support services, and eabbat.icale.

Sabbaticals. A sabbatical leave is one given to an


employee after a certain number of years of service. Tbe
employee is allowed to go on leave for two months to one
year with pay to give him time for family, recreations, and
travel.
It is expected that when the employee returns for
work, his motivation is improved.
SUMMARY

Motivating is the management action of giving emploY,ees reasons or incentives to work to achieve organizational objectives. Motivation is the process of activating behavior, sustaining it, and directing it towards a
particular goal.
149

QUESTIONS FOR REVIEW AND DISCUSSION


1. Why is motivating relevant to the job of the engineer

manager?
2. Are motivation techniques applicable to engineers?
Cite examples.
3. When Maslow insinuated that needs are hierarchical,
what does he mean ?
4. What factors are associated with employee satisfaction and dissatisfaction?
5. What are expectancies and valences? How do th ey
affect performance?
6. What is meant by goal setting? What are the components of the goal setting model?
7. How may an individual be motivated through job
design?
8. How may rewards be classified?
9. In what specific activities may employees participate?
10. What benefits are made possible under flexible work
schedules?
SUGGESTED ITEM FOR RESEARCH
1. List down the financial and nonfinancial benefits

given to employees by an engineering firm of your


choice.

160

Cese 7. BATANGAS POLYTECHNIC <COLLEGE: The Morning


Alter

Engineer Felicidad Lazaro, a mechanical engineering


ICI'aduate of Adamson University, has been operating in
lhe past five years an auto parts supply in Kumintang
llaya, Batangas City. It is a lucrative business she inhented from her father.
Four years ago, she started teaching on a part-time
basis at the Batangas Polytechnic College. After a year,
ahe became a full-time faculty member of the college of
engineering. She attended to her auto parts business
after her official hours at the school.
Miss Lazaro's dedication to her duties earned her the
chairmanship of the Mechanical Engineering Department. When her boss, the dean, was offered a good paying
JOb abroad, he resigned. Miss Lazaro was named the new
dean of the College of Engineering.
Miss Lazaro feels that even if she is offered a job
anywhere, she cannot accept it because of her concern for
her business. This made her also think that she must take
her new job as dean, seriously.
Miss Lazaro's first concern js to recruit well-qualified
engineers to fill up the slots left by five faculty members
who resigned. An advertisement for the vacancies was
made. All:er a few weeks o!waiti.ng, only ten applica~ions
were forwarded to her. Nine of the applicants were new
graduates and have no job experience of any kind. The
tenth applicant is a newly retired government employee
with no teaching experience.
Miss Lazaro slowly realized that there are good
engineers in the area but they are not attracted by the
prospect of teaching engineering su.bjects. Miss Lazaro is
also aware that even those that are currently employed
by the school are only waiting for a good job offer from
other institutions.
161

Miss Lazaro was mildly shocked when her assistant


showed her the enrollment statistics of the College of
Engineering. In the past five years, a steady 10% increase
in the number of student.s was noted. last year, there was
a 16% increase.
Just yesterday, Engineer Lazaro was approached by
two engineering professors, one a department chairman,
and the other, a senior faculty member. They wer e
requesting for a year's leave of absence. Because nobody
at the moment could tak e their place, Engineer Lazaro
disapproved their requests. Engineer Lazaro was given
the information that the two will take jobs in another
company on a one-year trial basis. If prospects are good,
they will resign from the school.
After having been informed of the disappro nl of
t heir request for leave, the two professors filed t heir
irrevocable resignations the next morning.
Engineer Lazaro is now faced with two serious
problems:
1.

formulating an immediate solution to the shortage of teachers in her area of concern; and

2.

keeping the inc'Ulllbent ones satisfied with their


jobs.

Engineer Lazaro is now contemplating how she will


survive this crisis.

LEADING

What is Leading?
How LeadeB Influence Others
Bases of Power

II.

The Nature of Leaderahip


Traits of Effective Leadtl'f
Leadership Skills

Behavioral Approaches to Leadership Skills


Ways Leaders Approach People
Ways Leaders Use Power
Leaders Orientation Toward Tasks and People

Contingency Approaches to Leadership Style


Fiedler's Contingency Model
Hersey and Blanchard Situational Leadership
Model
Path-Goal Model of Leadership
Vroom's Oecialon-Maklng Model

162

163

Chapter 8

There are times when in spite of great difficuJties,


jobs are needed to be done, projects are needed to be
finished on time, and services are needed to be provided.
Employees in the production lines tend to be irritated by
delays in the arrival of necessary production materials
and supplies. Workers complain when difficult jobs are
assigned to their units. When calamities strike, employees
of public works agencies need more than wages to complete
assigned tasks as quickly as possible. These and other
difficulties found in the workplaces provide sufficient
reMons for poor productivity. The situations cited require
managers with effective leadership.
There are many instances, however, when the ill
effects of whatever shortcomings happen. They seriously
affect the performance of workers. Effective leadership
tends to neutralize such difficulties. Good working conditions, however, cannot overcome the disadvantages of
bad leadership. These are proven by many cases which
occurred in the past and even in modern times.
Successful firms regard the leadership skill requirement as a high priority concern. Big companies like Warner
Lambert Philippines, Shell, Fuji-Xerox, and Daewoo are
seriously involved in training their managers to become
effective leaders.'
Engineer managers, in whatever management level
they happen to be, are not exempted from the problem
of effective leadership. Ifthis is really so, then they must
be concerned with the management function of leading.
'Jel Map.,ysoy, '11lrow Away Thole Rulen. World Btt<:utwc' D;,ut.
o-m~r

WHAT IS LEADING?
Leading is that management function which "involves
influencing others to engage in the work behaviors
n~essary to reach organizational goals... The definition
ondicates that a person or group of persons tasked with
managing a group must assume the role performed by
l~aders.

While leadin'g refers to the function, leadership refers


to the, process.

HOW LEADERS INFLUENCE OTHERS


Engineer managers are expected to mtlintain effective work forces. 'lb be able to do so, they are required to
perform leadership roles. Leade!'1l are said to be able to
influence others because of the power they possess. Power
refers to the ability of a leader to exert force on another.

Bases of Power
The power possessed by leaders may be classified
according to various bases. They are as follows:

1. legitimate power
2. reward power
3. coercive power
4. referent power

5. expert power
ugitimate Power. A person who occupies a higher
position has legitimate power over persons in lower
positions within the organization . A supervisor, for instance, can issue orders to the workers in his unit. Compliance can be expected.

&ward Power. When a person has the ability to give


'Bartol tnd Martin. p. 0.13.

1996, p. 8 .

164

166

rewards to anybody who follows orders or requests, he is


said to have reward power. Rewards may bo classified into
two forms: material and psychic.
Material rewards refer to money or other tangible
benefits like cars, house and lot, etc. Psychic rewards
consist of recognition, praises, etc.

C!X'rcil)e Power. When a person compels another to


comply with orders through threats or punishment, he is
said to possess coercive power. Punishment may take the
form of demotion, dismissal, witholding of promotion, etc.
&ferent Power. When a person can get compliance
from another because the latter would want to be iden
tified with the former, that person is said to have referent
power.
Expert Power. Experts provide specialized information
regarding their specific lines of expertise. This influence,
called expert power, is possessed by people with great skills
in technology.
The expert power exercised by environmetal scientists was enough to foroe governments throughout the
world to pass legislations favorable to environmental
protection.

THE NATURE OF LEADERSHIP


Leadership may be referred to as "the process of
influencing and supporting others to work enthusiastically
toward nchieving objedives."" Leadership is expected of
any manager in charge of any unit or division.
One cannot exped a unit or division to achieve objectives in the absence of effective leadership. Even if a leader
is present, but if he is not functioning properly, no unit
or division objectives can be expected to be achieved.

Traits of Effective Leaders


There are certain leadership traits identified by researchers and which may be useful in developing effective leaders. These traits are as follows:
1.

a high level of personal drive

2. the desire to lead

3. personal integrity
4.

self-confidence

5.

analytical ability or judgment

e.

knowledge of the compan,y, industry or technology

7.

charisma

8. creativity
9.

flexibility

Personal Dril)e. Persons with drive are those identified as willing to accept responsibility, possess vigor,
initiative, persistence, and health. Drive is a very important leadership trait because of the possibility of failure
in every attempt to achieve certsin goals. If a chosen way
t.o reach a goal is not successful, a leader finds another
way to reach it, even if it precedes a succession of failed
attempts. This will, of course, require a high level of
personal drive from the leader.
An example of a person with a high level of personal
drive is Paul Mediarito, plant ditector of the Polo plant
of San Miguel Corporation between 1992 and 1994. He
was instrumental in radically changing the problemriddled Polo plant to a world-class brewery with modern
technology and a work force with a new attitude.' How
he was able t.o prove himself as a leader with enough drive
IS a feat worth emulating.
'Rac:bet SAluar, "1'h6Brewvy'l1w: Woutdo\ the", "'Orld Bxut.utl>f/ltM.
AUJUII 1995. p 14

156

167

The Desire to Lead. There are .eom& persons who have

all the qualifications for leadership, yet they could not


become leaders because they lack one special requirement: the desire to lead.
Even if they are forced to act as leaders, they will
not be effective because their efforts will be half-hearted.
Leaders with a desire to lead will always have a reservoir
of extra eft'orts which can be used whenever ne<~.
Personal Integrity. A person who is well-regarded by

others as one who has integrity possesses one trait of a


leader. One who does not have personal integrity will
have a hard time convincing his subordinates about
the necessity of completing various tasks. If this is the
case, the leader will, then, resort to "exercising his
authority and getting things done entirely by the use or
threat of use of the coercive powers vested in him by
virtue of the rank and position he occupies in the hierarchy."' lf this happens, the economic and emotional costs
will be too high to be maintained for a desirable length
of time. As it is, the better option is to have personal
integrity.
According to V:K Saraf, integrity means and includes
"honesty, honour, incorruptibility, rectitude, righteousness, uprightness, and similar virtues.""
Self-Confidence. The activities of leaders require
moves that will produce the needed outputs. 'l'he steps
of conceptualizing, organizing, and implementing will
be completed if sustained efforts are made. For the moves
to be continuous and precise, self-1:onfidence is necessary.
McKinsey and company found in a study they coQducted that leaders of mid-sized, high growth companies
v.K.. Sara(, H0411 to 80-me: o Good IAa.du, Potllwoy to Pu(utJon
(Sinppow. S.S. Mubanlk and Brotbero Pt. Ltd , 1996) p. 289
'Loc:....

Jli8

were Malmost inevitably consummate salesmen who


rndiate enormous contagious self-confidence."'
Wess Roberts was very preci~ when he declared the
following as one of the traits of a good leader:
A chieftain cannot win if he loses his nerve. He should
lw sel{-confulent and self-reliant and even if he does not
won, he will know he has done his best."

Analytical Ability. Leaders are, oftentimes, faced with


difficulties that prevent the completion of assigned tasks.
A aubordinate, for instance, may !have a record of continually failing to produce the needed output. A leader
with sufficient skill to determine the root cause of the problem may be able to help the subordinate to improve his
Jlroduction.

The ability to analyze is one desirable trait that a


IP.ader can use to tide him over many challenging aspecta
uf leadership.
Knowldege of the Company. Industry or Tech110logy.
A leader who is well-informed about his company, the
mdustry where the company belongs, and the technology
utilized by the industry, will be in a better poeition to
11rovide directions to his unit.

A company, for example, may be the industry leader


bocause it satisfies the need of its particular market, i.e.,
tii'Oviding quality products at affordable prices. When a
I'Ompeting firm is fast eatching up with the leader, and
I ho leader's managers know this, they will better serve
lho interest of their company.
Chcrisma. When a person has sufficient personal
magnetism that leads people to follow his directives, this
l"'rson is said to have charisma. Great personalities in
'A IAY>I<.Jr andJ Albertine, "l'h<Suc:cosofulllal,.~oou~APt-..LIY
11tvfl)(o, Wall StJWt JCJUT:rtQ/, Au,cuat 29. 1983, p. 12.
"WIIIM Robtru. Ltad~nltlp Snt~ ()( AIIUa tlt.t Hun (Ntw- York WA.rDU
l~.,q,

1967) p 101

169

history like Napoleon Bonaparte, Julius Caesar, .Adolf


Hitler, George Washington, Elvis Presley and others are
said to possess charisma. This characteristic was greatly
responsible for whatever accomplishments they achieved.
When used properly, cbarisma will help the leader
in achieving his goals. With some adjustments, subor
dinates may be expected to do their tasks willingly.

Creativity. Ronnie Millevo defines creativity as "the


ability to combine existing data, experience, and precon
ditions from various sources in such a way that the resultB
will be subjectively regarded as new, valuable, and inno
votive, and as a direct solution to an identified problem
situation.""
.As lenders are tasked to provide solutions to problems
besetting their particular units or divisions, creativity will
be a very useful trait. Problems, are oft.entimes, complex
and challenging, and if they are, the leader will need all
the creative abilities he has.
Flexibility. People differ in the way they do their work.
One will adapt a different method from another person's
method. A leader who allows this situation as long as the
required outputs are produced, is said to be flexible.

There is wisdom in being flexible. It allows the other


means of achieving goals when the pres~ribed manner is
not appropriate.
Leadership Skills
Leaders need to have various skills to be effective.
They are:
1. technical skills
2. human skills, and
3. conceptual skills.
RonnJe- MiUevo. Hon.dboolt of Produc.t

National 6ook Stmt. 1996) p. lr.l.

160

l>ftl.lfll

and Dtwlopnwnl CManila

These skills are used in varying degrees at different


management levels (Figure 8.1).
Figure 8.1 Leadership Skills and Their Use at Various
Management Levels

Top
Manage

ment
HUMAN

CONCEPTUAL
TECHNICAL

SKILLS

SKILLS

Middle
Manage

SKILLS

mont

l ower
Manage

ment
DEGREE OF SKILLS NEEDED

Teclmicol Skills. These are skills a leader must


po,,sess to enable him to understand and make decisions
nbout work processes, activities, and technology. Technical
~kill is the specialized knowledge needed to perform a job.
When a leader has the technical sltill related to his area
of responsibility, he will be more confident in performing
his functions. The e~gineer manager, for instance, must
I' able to perform engineeringjobs, ifhe wants tomainta.i n
motivated work force.
TI1e engineer manager of a construction finn must
lutvo s ufficient tecbnical skills to undertake construction
works. The manager of an electrical engineering firin
must po.'ISess the skill to install and maintain electrical
ludlities and equipment.
161

Human Skills. These skills refer to the ability of a


leader to deal with people, both inside and outside the
organization. Good leaders must know how to get aloog
with people, motivate them, and inspire them.

Hgure 8.2 Behavioral Approachea to Leaderahlp Stylea

according
to ways
leaders
approach
people to
f)'IOtivate
them

Apart from motivating, human skills include .coach


ing, communicating, morale building, training and
development, help and supportiveness, and delegating.

Conceptual Skills. These skills refer to "the ability


to think in abstract terms, to see bow parts fit together
to form the whole." 10 A very basic requirement for effective implementation is a clear and well-expressed pre
sentation of what must be done. A leader without suffi
cient conceptual skills will fail to achieve this.

BEHAVIORAL APPROACHES TO
LEADERSHIP STYLES
Those in positions of leadership exhibit a pattefii of

CH
aocordng
to the
way lhe
leader uses
power

behavior that is unique and different from other patterns.


This total pattern of behavior is called leadership style.
There are several approaches used in classifying
leadership styles. They are as follows:"
1.

According to the ways leaders approach people

to motivate them.
2.

According to the way the leader uses power.

3. According to tho loader's orientation towards task


and people.

Ways Leaders Approach People


There are two ways, a leader may approach people
to motivate them. They are: (1) positive leadership and
(2) negative leadership.
"F<tftll and llorl, p. 193.
11Newatrom and DAvll. pp 226--238

162

according
to the
leader's
orientation
toward tasks
and people

--i
_,

positive
leadership
negative
leadership

rl autocratic I
: participative I
Lj free-rein

employee
orientation

task
orientation

When the leader's approach emphasizes rewards,


the style used is positive leadership. The reward may be
t>conomic, like an increase in monthly salary, or it may
be noneconomic like membership in an advisory com
mittee.
When punishment is emphasiud by the leader, the
Htyle is said to be negative leadership. The punishment
may teke the form of reprimand, suspension, or dismissal.
Leaders, sometimes,

alterna~ly

163

use positive and

negative leadership depending on the characteristics of


the individual subordinates.
Ways Leaders Uses Powet

Leadership styles also vary according to how power


is used. They are as follows: (1) autocratic, (2) participative, and (3) free-rein.

Autocratic Leaders. Leaders who make decisions


themselves, without consulting subordinates are called
autocratic leaders. Motivation takes the form of threats,
punishment, and intimidation of all lcinds.
The autocratic style is effective in emergencies and
when absolute followership is needed.An example is a civil
engineer in charge pfconstructing a tern porary bridge over
one that has been currently damaged.
The disadvantages of autocratic leadership is t hat the
leader -receives little, if any, information and ideas from
his people as inputs-into his decision-malcing.~
Participative Leaders. When a leader openly invite
his s ubordinates to participate or share in decision$,
policy-making and operation methods, he is said to be 11
participative leader.

The advantage of participative leadership is that it


generates a lot of good ideas. Another advantage is th~
increased support for decisions and the reduction of th<
chance that they will be unexpect:<ldly undermined.
The disadvantage of participative leadership is that
it is time~onsuming and frustrating to people who prefer
to see a quick 4ecision reached.
Free-Rci11 Leaders. Leaders who set objectives and

allow employees or subordinates relative freedom to do


whatever it takes to acoomphsh these obJectives, are called
L',James Own,, Five .8Mic St.ylea 1md Their Usc$.. Wqr/d E:xect~tiu.~ Dti{('M,
Much 1982, p. 11

IM

free-rein leaders. They are also referred to as laissez-faire


leaders. This leadership style is most applicable to cer
t.nin organizations manned by professionals like doctors
md engineers. An example is the engineering department of a university which is headed by the dean.
If free-rein leadership fits the situation, there is full
managerial delegation resulting to optimum utilization
of timo and resources. This happens because many
poople are motiv~ted to full effort only if given this kind
of free-rein.
The weakness of free-rein leadership is that there is
very I ittie managerial control and n high degree of risk.
If the leader does not know well the competence and
mtegnty of his people and their ability to handle this kind
of freedom, the result could be disastrous.
Leaders Orientation Toward Tasks and People
Leaders may be classified according to how they view
tasks and people. Consequently, a leader may either be
(1) employee oriented or (2) task orient:<ld.
Employee Oric11tatwn. A leader is said to be employee

oriented when he considers employees as human beings


of"intrinsic importance and with individual and person11l
need"" to satisfy.
Thsk Ori.enlatiM. A leader is said to be task-oriented
if he places stress on production :and the technical aspects
of the JOb and the employees are viewed as the means of
getting the work done.

CONTINGENCY APPROACHES TO
LEADERSHIP STYLE
The contingency approach is an effort to determine
"Hifl'ino. p. 506.

165

t~rough research which managerial practiocs,and t.eehruqu_es are appropriate in specific situations."" The various
contmgency approaches are as follows:
1.

Fiedler's Contingency Model

2.

Hersey and Blanchard's Situational Leadershi


P
Model

3. Path-Goal Model of Leadership


4 Vroom's Decision Making Model

Maturity bae two components:


1. job skills and knowledge, and

2.

Fiedler's Contingency M odel


h Accord"mg to Fred Fiedler, "leadership is effective
; en _the l~ader's style is appropriate to the situation.""
.e ~ltuatJonal characteristics is determined b th
pnnCJpal factors:
Y ree
1.

Hersey and Blanchard Situational Leadership


Model
The situational leaderShip model developed by Hersey
and Blanchard suggests that the most important factor
affecting the selection of a leader's style is the development (or maturity) level ofsubordinate." The leader should
match his or her style to this maturity level.

the relations between leaders and followers

2 the structure of the task, and

psychological maturity.

Blanchard and others elaborated on the leaderehip


styles appropriate fl>r the various maturity level of subor
diates. They are as follows'18
Style 1: Directing - is for people who lack competence but are enthusiastic and committed. They need
direction and supervision to get them started.

Style 2: Coaching - is for people who have some


C'Ompetence but lack commitment. They need direction
nnd supervision because they're.- still relatively inexperil'nced. They also need support and praise to build their
Aelf-esteem, and involvement in decision-making to res-tOre their commitment.
Style 3: Supporting-is for people who have competence but lack of confidence or motivation. They do not
naed much direction because of their skills, but support
11 necessary to bolster their confidence and motivation.

3. Move Iea~ers a~'<>Und in the organization until


they are m pos1tions that fit them.
4. Change the situation.

Style 4: Delegating - is for people who have both


competence and commitment. Titey are able and willing
to work on a project by themselves with little supervision
.,r support.

3. the power inherent in the leader's position.


The situ~tional characteristics vary from organiu
IOn
.
1 d
. 10. be effiective, t h e Situation
must
fit thto orgaruzation
tried:! ea er. If this IS not so, the following may be

1. Change the leader's trait or behaviors.

2. Select leaders who have traits or behaviors fittin


the situation.

"N
" ewetrom aod Oavi$,. pp. 2:J0..236.
~.....,, p. 0.2.
MAJda, and Stearu, p. 610.

l66

11 Ntrom and Oavil. p. 232.


KenMth Blanchard &Ad ~Lt.oi.kraAipoAd til~ One Muutc Mt:tltlllf!U
!Now York. Bbndwd Managoll><1lt Corperatioo, 1985) pp. 5$-67.

167

Figure 8.3 Development Stage of Subordinates and Rec ommended Leadersh ip Style

DEVELOPMENT STAGE

1. Low ability + low


willingness

RECOMMENDED STYLE
Style 1 - DIRECTING - structure.
control. and supervise

Low ability + high


willingness

Style 2 - COACHING - direct and


support

3. High ability + low

Style 3 - SUPPORTING - praise,


listen, and facilitate

2.

willingness

4. High ability + high


willingness

Figure 8.4 The Path-Goat Process

Leader Identifies

emplOyee needS

-1.
appropria)e goals
are established

Leader connects
rewards with goals

Style 4 - DELEGATING - turn over


responsibility for day-today
decision-making

Path Goal Model of Leadership


The path-goal model ofleadership espoused by Robert
J . House and Terence R. Mitchell, stipulates that leadership can be made effective oocause leaders can influence
subordinate's perceptions of their work goals, personal
goals, and paths to goal attainment.

By using the path-goal model, it is assumed that effective leaders can enhance subordinate motivation by:'"

Leader pro111des
assistance on
employee path
toward goals

empk>yee beCOmes
satisfied and
motivated and
they accept the
leader

1. clarifying the subordinate's perception of work


goals,
2.

linking meaningful rewards with goal attai nment, and

3. explaining how goals and desired rewards can


be achieved.

bOth employees
and organization
better reach
their goals

elfectlve
performance

occurs

The path-goal process is shown in Figure 8.4.

168

169

Leadership Styles. The leadership styles which may


be used by path-goal proponents are as follows:
1.

2.

Directive leadership - where the leader focuses


on clear task assignments, standarda of successful performance, and work schedules.
Supportive leadership - where subordinates
are treated as equals in ft friendly manner while
striving to improve their well-being.

Figure 8.5 Altematlve Decision Making Style In the Vroom


Model

SYMBOl.

4.

Achievement-oriented leadership - where the


leader set challenging goals, emphasize excellence, and seek oontinuous improvement while
maintaining a high degree of confidence that
subordinates will meet difficult challenges in a
respoOllible manner.

A 1

Leader solves the problem or makes


the decision hlmsen using available
lnlormation.

None

A2

Leader obtains necessary information


from subordinates, then decides.

Low

CONSULTATiVE LEAPER

C1

Leader approaches subordinates


individually getting their ideas then
makes decision.

Moderate

C-2

Leader shares the problem with


subordinates as a group, obtaining
their collective ideas and suggest
Ions. then decides.

Moderate

Vroom's Decision-Making Model


Vroom's model of leadership is one that prescribes
the proper leadership style for various situations, focusing on the 11ppropriate degrees of delegation of decisionmaking authority.
Five distinct decision-making styles are identified
under the Vroom model. Two of them are autocratic, two
others are consultative, and one is group directed.

DEGREE OF
SUBORDINATE
PARTICIPATION

Al!IOCRAI!C LEADER

3. Participative leadership - where the leader


consults with subordinates to seek their suggestions and then seriously considers those
suggestions when making decisions.

DECISION-MAKING
STYLE

GROUP DIRECTED

G2

Leader shares the problem with

subordinates as a group. Lets the


group generate and evaluate ~Iter
native solutions, and then collectively
decides.

The Vroom model, shown in Figure 8.5, may be useful


as a guide for the leader. It may also be helpful as a training guide.
170

171

High

SUMMARY

Managers are expected to provide the required outputs by utilizing the various inputs including labor. Those
who provide labor, however, will perform when proper ly
led. As such, engineer managers are required to possess
leadership skills.
The management function which involves influencing others to engage in the work behaviors necessary to
reach organizational goals is referred to as leading.
Leaders influence others be~auae of the power they
possess. Power may be classified as (1) legitimate, (2)
reward, (3) coercive, (4) referent, and (5) expert.
In developing effective leaders, certain leadership
traits have been identified by researchers.
Leaders need to have technical, human, and conceptual skills to be effedive.
Leadership style may be classified in terms of
behavior as follows: (1) according to the ways leaders
approach people to motivate them, (2) according to the
way the leader uses power, and (3) according to the leader's
orientation towards task and people.
Leadership style may also be classified in terms of
contingency as follows: Fiedler's contingency mode l,
Hersey and Blanchard's situational leadership model,
Path-Goal model ot leadership, and Voom's decisionmaking model.

QUESTION FOR REVIEW AND DISCUSSION

1. What is leading? Why is it important to the engineer


manager?
2. How do leaders influence others?
3. What is meant by referent power? Give an example
of a person with. referent power.
4. Why is it important for a leader to have "the desire

to lead"? What happens if the said desire is not


presen t?
5. What is meant by "charisma"? Is it a necessary
ingredient for leadership?
6. What is meant by "human skills"? How may these
skills help the leader?
7. How is positive leild~hip different from negative
leadership?
8. What are free-rein leaders? When is free-rein leadership appropriate?
9. When the situation does not fit the leader, what
options do management have?
10. What leadership styles may be used by path-goal

proponents?
SUGGESTED ITEM FOR RESEARCH
1. Ident ify an engineer of your choice. Describe his
leadership style. Are there important changes that

have to be made in his style? What are those? List


down the proposed character change applicable.

112

173

Cate 8. BUENAVISTA ELECTRIC COOPERATIVE, INC.,: Mas-

querade
Right after Engineer Oscar Pascua finished his electrical engineering course at FEAT! University in 1985,
he was hired as an employee of the National Electrification Administration (NEA). He was assigned to bandle
jobs in the various units of NEA until his promotion to
Chief Planning Officer in 1994. His main function was
to supervise the planning activities of his unit. Three
engineers and two other employees reported directly to
him. His performance was rated very satisfactory.
Engineer Pascua attended training sessions of various kinds including those for management. He firushed
his M.B.A. course in 1995.
When the position of general manager of the Buenavista Electric Cooperative, Inc. (BECI) became vacant
in January 1996, he was nominated by NEA. He got the
post in March 1996. Aware of the many problems besetting the cooperative, he immediately went to work.

1.

the dismissal from the service of employees not


regularly reporting for work;

2.

salary increases of up to 20 percent for every


employee on the payroll;

3.

the hiring of eight additional employees; and

4.

the formation of a team to investigate and recommend measures to miniMize system loss.

AU his recommendations were approved by the


board, after which Engineer Pascu a signed all the necessary memora,nda to implement his programs. He made
regular inspections of the activities of the various units
of the cooperative.
During the first week of March 1997, he convened
the key offioers for an evaluation of the past year's activities. The following points were made clear to him:
1.

No reduction in the price of electricity could be


extended to BECfs customers because no reduction in the overall cost of doing business was
achieved.

When Engineer Pascua called the key officers of the


cooperative to a meeting, he was appraised of the following:
1.

that the price of electricity charged to BECfs


customers is the fifth highest in the country;

2.

Instead of reducing the 25 percent system Joss,


it even went up to 26 percent.

2.

that 25 percent of the electricity service provided


by BECJ is lost every month and cannot be
accounted for;

3.

There was no improvement in the requisition of


supplies and materials. Delays still reach three
months.

3.

requisitions for supplies and materials are s.erved


after delays of as long as three months;

4.

There is a new set of employees who do not report


regularly for work.

4.

some employees of the cooperative do not report


regularly for work;

5.

The amount of uncollected accounts increased


from ~3.8 million to ~4.2 million.

5.

the increasing amount of uncollected accounts.

Three days after the meeting, he recommended to


the board of directors the following:

174

Engineer Pascua concluded that in spite of the


granting of salary increases requested by the rank a.n d
file, no subsequent improvement in services was
registe:red. He is now considering more drastic measures
176

but be is not sure if it is the right thing to do. In addition,


he is also aware that there are some employees who are
qualified and dedicated to their jobs.

CONTROLIJNG
What Is Controlling?
Importance of Controlling

Steps In the Control Process

(.

Types of Control

Components of Organizational Control Systems

['

Strategic Control Systems

Identifying Control Problems

Chapter 9

of products and services. These could not have happened


if only adequate controls were instituted.

WHAT IS CONTROLLING?
The long-tenn existence of many companies, most
often, is placed in jeopardy when some aspects of their
activities go out of control. Consider the following examples:
1.

A news report indicated that the fire which


destroyed the ~800 million Superferry 7 luxury
ship on March 26, 1997 was caused by illega1
connections made on its electrical system.' If this
is true, the losses could be attributed to inadequate management control.

2. The tragedy that happened at the Ozone Disco


in March 18, 19962 clearly manifested manage
ment's lack of control over the day-to-day opera
tiona of the finn. Even the failure to detect earlier
the violations in the Building Code spells lack
of effective government control.
3. The management of a telephone company could
not stop the unauthorized use of lines assigned
to many of its subscribers. Customers become
angry when they are billed for calls they never

made.
The examples presented constitute a very small
percentage of unwanted occurrences that happen everyday
in the business world. Apart from the destruction of lives
and property, nonnal business operations are hampered
causing discontinuities in employment and the provision
Dooa Z. PAUJbu;p.D..

-c,.w Blamed for Meca F,re. PltlPP'M DoJJy

Controlling refers to the "process of ascertaining


whether organizational objectives have been achieved; if
not, wh y not; and determining what activities should then
be tabn to achie(lil objectives betU!r in the future ..... Controlling completes the cycle of management functions.
Objectives and goals that are set!. at the planning stage
are verified as to achievement or completion at a,ny given
point in the organizing and implementing stages. When
expectations are not met at scheduled dates, corrective
measures are usually undertaken .

IMPORTANCE OF CONTROLLING
When controlling is properly implemented, it will
help the organization achieve its goal in the most efficient
and effective manner possible.
Deviations, mistakes, and shortcomings happen
inevitably. When they occur in the daily operations, they
contribute to unnecessary expenditures which increase
the cost of producing goods and services. Proper control
measures minimize the ill effects of such negative occurrences. An effective inventor y control system, for
instance, minimizes, if not totally eliminate& losses in
inventory.
The importance of controlling may be illustrated as
it is applied in a typical factory. If the required standard
daily output for individual workers is 100 pieces, all
workers who do not produce the rjuirement are given
sufficient time to improve; if no improvements are forthcoming, they are asked to resign. This action will help the
company keep its overhead and other costs at expected

Inqu.t.l'ft; Apri) 2, 1997. p. 22.

'RueI S. da Vera, '"Otone Spirita Worried About 1'heir Loved 0 Det:l''

PIUJippiM O.Uiy l~quirtr, Ap~il 8, 1997. p. 1'1.

178

1711

levels If no such control is made, the company will be


faced with escalating production costs, which will place
I ho viab11ity of the firm in jeopardy.

STEPS IN THE CONTROL PROCESS


The control process consists of four steps, namely:
1.
2

establishing performance objectives and standards

Aft.er the performance objectives and standards are


established, the methods for measuring performance
must be designed. Every standard established muat be
provided with its own method for measurement.
Flgur. 9.1 Steps In the Control Process

measuring actual performance

3. comparing actual performance tQ objectives and


standards, and
4.

project completion dates are useful standards.ln chemical


manu facturing firms, certain pollution measures form
the basis for standard requirements.

taking necessary action based on the results of


the comparisons.

ESTABLISH PERFORMANCE
OBJECTIVES AND
STANDARDS

Establishing Performance Objectives and


Standards
In controlling, what has to be achieved must first be
dt>termined. Examples of such objectives and standards
are as follows:
1. Sales targets- which are expressed in quantity
or monetary terms;
2.

Production targets quantity or quality;

which are expressed in

3. Worker attendance - which aro expressed in

do nolhlng

DOES ACTUAL
PERFORMANCE
MATCH THE
STANDARDS?

Yes

terms of rate of absences;


4.

Safety record -which is expressed in number


of accidents for given periods;

No

5. Supplies used- which are expre~ed in quantity


or monetary terms for given periods.
Once objectives and standards are established. the
measurement of performance will be facilitated. Standards
differ among various organizations. In construction firms,
180

181

Measuring Actual Performance


There is a need to measure actual performance so
that when shortcomings occur, a<ljustments could be made.
The a<ljustments will depend on the actual findings.
The measuring tools will differ from organization to
organization, as each have their own unique objectives.
Some flnlls, for instrulce, will use annual growth rate
as standard basis, while other firms will use some other
tools like the market share approach and position in the
industry.

2. use more equipment; or


3. require overtime.

TYPES OF CONTROL
Control consists of three distinct types, namely:
1.

feedforward control

2. concurrent control, and


3. feedback control.
Figure 9.2 Types of Control and Their Relation to Operation

Comp aring Actual Performance to Objectives and


Standards
Once actual performance has been determined, this
will be compared with what the organization seeks to
achieve. Actual production output, for instance, will be
compared with the target output. This may be illustrated
as follows:

PRE<>PERATIONS ~---- FeedfoiWard


PHASE
"
Control

----...--~~ ....... .......

.......

',

.......

'

'-------...,

_ _ _' ,
_ CoocurTent

A construction firm entered into a contract with the


government to construct a 100 kilometer road within ten
months. It would be, then, reasonable for management
to expect at least 10 kilometers to be constructed every
month. As such, this must be verified every montb, or if
possible, every week.

Control

_ _

Taking Necessary Action

Feedback
Control

II
1

I
I
I
I

1- _j

The purpose of comparing actual pe.r formance with


the desired result is to provide management with the
opportunity to take corrective action when necessary.

Feedfotward Control

If in the illustration cited above, the management of


the construction firm found out that only 15 kilometen
were finished after two months, then, any of the followiujr
actions may be undertaken:

When management anticipates problems and prevents their occurrence, the type of control measure
undertaken is called feedforward control. This type of
control provides the assurance that the required human
and nonhuman resources are in place before operations
begin. An example is provided as follows:

1.

hire additonal personnel;

Ilia

183

Tbemanagerofacbemicalmanufaetwingfirmmakes
sure that the best people are selected and hired to fill jobs.
Materials required in the production process are carefully
checked to detect defects. The foregoing control measures
are designed to prevent wasting valuable resources. If
these measures are not undertaken, the likelihood that
problems will occur is always present.

Concurrent Control
W11en operations are already ongoing and activities
to detect variances are made, concurrent control is said
to be undertaken. It is always possible that deviations from
standards will happen in the production process. When
such deviations occur, adjustments are made to ensure
compliance with reqUirements. Information on the adjustments are also necessary inputs in the pre-operation phase.
Ex11mples of activities using concurrent control are
as follows:
The manager of a construction firm constantly
monitors the progress of the company's projects. When
construction is behind schedule, corrective measures like
the hiring of additional manpower are made.
In a firm engaged in the production nnd distribution
of wnter, the chemical composition of the water procured
from various sources is checked thoroughly before they
are distributed to 't he cOnsumers.
The production manager of an electronics manufacturing firm inspects regularly the outputs consisting of various electronics :products coming out of the production line.
Feedback Control
When information is gathered about a completed
activity, and in order that evaluation and steps for im-

...

provement are derived, feedback control is undertaken.


Corrective actions aimed at improving future activitiee
are features of feedback control.
Feedback control validates objectives and standards.
If accomplishments consist o.n ly of a percentage of standard requirements, the standard may be too high or

inappropriate.
An example ~f feedback control is the supervisor
who discovers that continuous overtime work for factory
workers lowers the quality of output. The feedback information obtai~ed leads to some adj ustment in the overtime schedule.

COMPONENTS OF ORGANIZATIONAL
CONTROL SYSTEMS
Organizational control systems consists of the
following:
1.

strategic plan

2.

the long-range financial plan

3.

tbe operating budget

4.

performance appraisals

5.

statistical reports

6.

policies and procedures

Strategic Plans
A strategic plan (discussed in Chapter 3) provides
the basic control mechanism for the organization. When
there are indications that activities do not facilitate the
accomplishment of strategic goals, these activities are
either set aside, modified or expanded. These corrective
measures are made possible with the adoption of strategic
plans.

The Long-Range Financial Plan


The planning horil!!On differs from company to
company. Most firms will be ~atisfied with one year.
Engineering firms, however, will require longer term
financial plans. This is because of the long lead times
needed for capital projects. An example is the engineering
firm assigned to construct the Light Rail Transit (LRT)
within Uu-ee yeau.Allsuch, the ~year fintmcial plan
will be very useful.
As presented in Chapter 3, the financial plan recommends a direction for financial activities. If the goal does
not appear to be where the firm is beaded, the control
mechanism should be made to work.

1.
3.

labor efficiency rates


quality control rejects
accounts receivable

4.

accounts payable

2.

5. sales reports
6.
7.

accident reporte
power consumption report

Figure 9.3 shows a sample statistical report.


Policies and ProcediUeS

The Operating Budget


~

information which may be found in a statistical report


pertains to the following:

An operating budget indicates the expenditures,

revenues, or profits planned for some future pertod


regarding operations. The figures appearing in the budget
are used as standard measurements for performance.5

Performance Appraisals
Performance appraisal measures employee performance. As such, it provides employees with a guide on
bow to do their jobs better in the future. Performance
appraisals also function as effective checka on new policies
and programs. For exampl e, if a new equipment has been
acquired for the use of an employee, it would be useful
to find out if it had a positive effect on his performance.

Statistical Reports
Statistical reporte pertain to those that contain data
on v11rious developments within the firm. Among the
Jam8 C. Van Home. FiMM~ol Mon.o,gtm.tnJ Cllld Po/it;y, Eicht Editioo.
CEnclew-' Cbllio, N.,. Jtrwr. I'Ntn~... Hall, 1989) p. 790.
Jicot"e A. F. St.one.r, Mo,.tliJftM.ttt (!o,ct.wood Clif&, New Je.TM)': PrenU.C.
IWJ, In<. 1978) p. 593

188

Policies refer to "the framework within which the


objectives must be pursued."' A procedure is a plan that
describes the exact series of actions to be taken in a given
situatioo."'
An example of policy ie as follows:

"Whenever two or more activities compete for


the company's attention, the client takes priority."
An example of a procedure is as follows:

"Procedure in the purchase of equipment:


1.

the concerned manager forwards a request for


purchase to the purchasing officer;

2.

the purchasing officer forwards the request to top


management for approval;

3.

when approved, the purchasing officer makes


a canvass of the requested item; if disapproved,
the purchasing officer returns the form to the
requesting manager;

'Rue and B,.,., p. 133.


~. p. O.IS.

187

4.

the purchasing officer negotiates with the lowest complying bidder.

Figure 9.3 A Sample S1atistical Report


MORNING STAR CH EMICAL CORPORATION
Power Consumption Repon
For the Fir$t Ouaner 1997

By Department
(in KWH)
Oepanment

January

February

March

Total

1,000
900

1,100
1,400

1,200
1,010

3.300
3.310

1,180

1,650

1,200

4,030

500

1,100

600

2,200

600

-455
-

632

1,687

4,642

,14,527

Total

4,180

5,705

Prepared by:
CECILIA AGPALASIN
Chief
Accounting OMsion

It is expected that policies and procedures laid down


by management will be followed. When they are breached
once in a while, management is provided with a way to
directly inquire on the deviations. Aa such, polities and
procedures provide a better means of controlling activities.

STRATEGIC CONTROL SYSTEMS


'lb be able to assure the accomplishment of the strategic objectives of the company, strategic control systems
become necessary. These systems consist of the following:
1.

financial analysis

2.

financial ratio analysis


188

Fina.n cial Analysis


The success of most organizations depends heavily
on its financial performance. It is just fitting that certain
measurements of financial performance be made so that
whatever deviations from standards are found out,
corrective actions may be introduced.
A review of the financial statements will reveal
important details 'about the company's performance. The
balance sheet contains information about the company's
assets, liabilities, and capital accounts. Comparing the
current balance sheet with previous ones may reveal
important changes, which, in turn, provide clues to performance.

The income statement contains information about


the company's gross income, expenses, and profits. When
also compared with previous years' income statements,
ebanges in figures will help management determine if it
did well.
Figures 9.4 and 9.5 show samples of financial
statements.
Financial

Ratio

Analysis

Financial ratio analysis is a more elaborate approach


used in controlling activities. Under this method, one
account appearing in the financial statement is paired with
another to constitute a ratio. The result will bo compared
with a required norm which is usually related to what
other companies in the industry have achieved, or what
the company has achieved in the past. When deviations
occur, explanations are sought in preparation for whatever
action is necessary.
Financial ratios may be categorized into the following types:
1

Oup, p. 318.

189

Figure 9 .5 A Sample Income Sl8tement

P1gure 9.4 A Sample Blllance ShMt Statement


MORNING STAR CHEMICAL CORPORATION

MORNING STAR CHEMICAL CORPORATION

Balance Sheet Slatement


As ol Deoember 31. 1997

lnoome Statement
For the Year Ending December 31, 1997
(1"000)

(1"000)

Current assets
Cash
Marl<etable securities
Accounts receivable
Inventory
Prepaid expenses
Total currenl

,.

415

1.000
3.062
1,980
123
,. 6.580

N9ncurrent assets
Gross plant and equipmeRt
Accumulated deprecia1ion
Other assets and intangibles
Total assets
Current liabilities
Accounts payable
Notes payable
Accrued salaries and wages
Acrrued taxes
Current portion of longtenn debt
Total current
Noncurrent liabilities
Bank term loan
Mortgage
Deferred income tax
Total noncurrent

1"11.500
(2,550)
50

1"15,580
,. 1,594
2.210
63
174
220
,. 4.261

500
1783
,. 3,638
4,000

1,513
2.168

,. 7,681
1"15,580

prof~

Common

1.
2.
3.
4.

dividends

,.

8,820
3,430

673
653
600
1,504
350
1,154

462
692
429

liquidity
efficiency
financial leverage
profitability

Liquidity Ratios. These ratios assess the ability of


a company to meet its current obligations. The following
ratioa are important indicators of liqu.idity:
1.

Current ratio- This shows the extent to which


current assets of the company can cover its
current liabilities. The formula for computing
current ratio is as follows:
Current ratio = current assets/current

liabilities
190

,. 12,250

,.
,.

Taxes
Net

1,355

StockhOlders equity
Common stock (par value is 1"1.00)
Pain-in surplus
Retained earnings
Total stockholders
Total liabildles and stockholders' equity

Net sales
Cost of good sold
Gross profit
OperMing Expenses
Selling
Administrative
Depreciation and amortization
Operating profict
Interest expense
Prof~ before taxes

191

2. Acid-test ratio- This is a measure of the firm's


ability to pay off short-term obligations with the
use of current assets and without relying on the
sale of inventories. The formula is as follows:

Debt to total assets ratio = total debt/total


assets
2.

Acid-test ratio = current assets - inventories/current liabilities


Efficumcy Ratios. These ratios show how effectively
certain assets or liabilities are being used in the production of goods and services. Among the more common
efficiency ratios are:
1.

2.

Inventory turnover ratio - This ratio mea&


ures the number of times an inventory is turned
over (or sold) each year. This is computed ae
follows:
Inventory turnover ratio cost of goode
sold/inventory
Fixed asseUurnover- This ratio is usee} to measure utilization of the company's investment in
its fixed assets, such as its plant and equipment.,.
The formula used is as follows:

Times intereel _ profit before tax + intereet expense


earned ratio moores expense
Profitability Ratios. These ratios measure how much
operating income or net income a company is able to generate in relation to its assets, owner's equity, and sales.
Among the more notable profitability ratios are ae follows:
1.

1.

Debt to total assets ratio - This ratio shows how


much of the firm's assets are financed by debt.
It may be computed by using the following formula:

'J PrtdW-ond8-I'.Brlclwn.Bu<llll4ho(.ll"""'tnol'-

(~

Tho Drydto l'rMo, 1990) p. 281

"Tony S. M.,..,Jntrodlf<fiDR to~ l'n4n (Now York: Me()..,..


Hill 9ool< Company. 1988) p. 41.

1112

Profit margin ratio - This ratio compll1'tls the


net profit to the level of sales. The formula used
is as follows:
Profit margin ratio

2.

Fixed asset turnover ,. net sa\eslnet fixed


assets
Financial Leuerage Ratios. This is a group of ratios
designed to assess the balance of financing obtained
through debt and equity sources. Some of the more
important leverage ratios are as follows:

Times interest earned ratio - This ratio measures the number of times that earnings before
interest and tsxes cover or exceed the company's
interest expense. It may be computed by using
the following formula:

3.

net profit/net ealee

Return on assets ratio - This ratio shows how


much income the company produces for every
peso investe<l in assets. The formula used is as
follows:
Return on assets ratio ~ net income/assets
Return on equity ratio - This ratio measures
the returns on the owner's investment. It may
be arrived at by using the following formula:
Return on equity ratio = net income/equity

IDENTIFYING CONTROL PROBLEMS


Recognizing the need for control is one thing, actually
Implementing it is another. When operations become
complex, the engineer manager must consider useful steps
1n controlling Kreitner mentions three approaches:"
"!Cr.lt.oor, p. 629

1. executive reality check


2. comprehensive internal audit
3. general checklist of symptoms of inadequate
control

efficiency and effectivity ofthe activities of an organizatiCin.


&no~g the many as~f:S of operations within the orgamza_tlon, a small acttvtty that is not done right may
continue to be unnoticed until it snowballs into a full blown
problem.
_An example is the resignation of an employee after

Executive Reality Check

serv~ng the company for 15 years. Mer one week, another

Employees at the frontline often complain ~hat


management imposes certain requirements that are not
realistic. In a certain state college, for instance, requests
for purchse of classroom materials and supplies take last
priority. This is irregular because requests of such kind
must be of the highest priority considering that the
organization is an educational institution. Ironically,
because certain officers of the nonacademic staff have
direct access to the president, their purchase requests
almost always get top priority. Later on, when the president made an inspirational speech on quality teaching,
many members of the faculty just shrugged their shoulders and listened passively.

employee with ten years of service also re$igned. Botb


were from the same department. If after another week
a third employee is resigning, a full investigation is i~
order. Even if the source of the problem is identified, it
may already have caused ~onsiderai,>le losses to the
organization. A comprehensive internal audiL aims to
detect dysfunctions in the organization before they bring
bigger troubles to management.

One school, the Central Luz?n State University,


provides a good example on how the executive reality check
may be exercised. It requires ita executives to handle at
least one subject load each. What the executives will
experience in the classroom will make him more respon.sive
in the preparation of plans and control tools.
'rhe engineer manager of a construction firm could,
once in a while, perform the work of one of his laborers.
In doing so, he will be able to see things that he never
sees inside the confines of his air-conditioned office.
Because the said -action exposes the engineer manager to
certain realities, the term ~executive reality check" is very
appropriate.
Comprehensive Internal Audit

An internal audit is one undertaken to determine the

UN

Symptoms of I nadequate Control


If a comprehensive internal audit cannot be availed
of for some reason, the use of a checklist for symptoms
of inadequate control may be used.
Kreitner has listed some of the common symptoms
as follows:
1.

An unexplained decline in revenues and profits.

2.
3.

A degradation of service (customer complaints).


Employee dissatisfaction (complaints, grievances,
turnover}.

4.

Cash shortages caused by bloated inventories


or delinquent accounts receivable.
Idle facilities or personnel.

5.
6.

Disorganized operations (work flow bottlenecks


. paperwork).
'
excesstve

7.

Excessive costs.

"Kreitner, p. &30.

1116

8. Evidence of waste and inefficiehcy (scrap,


rework).
It must be noted that behind every symptom is a
problem waiting to be solved. Unless this problem is clearly
identified, no effective solution may be derived. Never
theless, problems are easily recognized if adequate con
trol measures are in place.
SUMMARY

Controlling is one of the main functions of management. It comes after planning, organizing, and dir>ecting.
Controlling is aimed at determining whether objectives
were realized or not, and if not, by providing means for
achievement.
Controlling is imJM>rtant because it complements the

other management functions.


Controlling is a process consisting of various steps.
namely: establishing performance objectives and stan
dards, measuring actual performance, comparing actual
performance with objectives and standards, and taking
necessary action based on the results of the comparison
Control/ may be classified either as feed forward,
concurrent, or feedback.
Organizational control systems consist of the strn
tegic plan, the long-range financial plan, the operating
budget, performance appraisals, statistical reports, polici<'R
and procedures.
Strategic control systems consist of financial analy
sis, and financial ratio analysis.
There are means to identify control problems. They
are the executive reality check, the comprehensive inter
nal audit, and the general checklist of symptoms of in
adequate control.

1116

QUESTIONS FOR REVIEW AND DISCUSSION


1.

Why is controlling a very important management


function?

2. What is controlling? Is it. applicable to the day


to-day activities of the engineer manager?
3. Why is the establishment of performance object-

ives and standards an important step in the


control process?
4.

Compare and contrast the three distinct types


of control.

5.

How do strategic plans provide a basis for control?

6. What are policies? In what ways do they facilitate


control?
7. When the engineer manager reviews the finan
cia! statements of the company under his super
vision, what benefits does he derive?
8. What are financial ratios? How may they be
categorized?
9. What is measured in the debt to total assets ratio?
How may it be computed?
10. Do you consider "idle facilities or personnel" as
a symptom of inadequate control? Why or why
not?
SUGGESTED ITEMS FOR RESEARCH
1.

List down the control activities that may be useful


to any of the following:
a) the construction of a bridge
b) the manufacture of microchips
c) the installation of a power plant

d) the manufacture of tricycleA


197

C.ae 9. GOOD MUSIC BROADCASTING CORPORATION :


Ebb Tide

Engineer Frederick Panganiban was reading the


advertising sales report handed to him by his assistant.
The report contains information consolidated from the
ten radio stations owned and operated by Good Musi c
Broadcasting Corporation (GMBC). These stations are
located in the various parts of the country.

operations so that the overall income will increase. He


feels that the sales report is useful, but he believes some
other data may help him make a better decision.
Exhibit A
GOOD MUSIC PROADCASTING CORPORATION
Consolidated Advertising Income
For the Three-Year Period, 1995, 1996 and 1997
(POOO)

GMBC headquarters and sales office are located i.n


Makati. GMBC derives income from advertisements lodged
by companies like San Miguel Corporation,J\yala Life, and
others. The sales office reooives the cassette tapes and
written text containing the advertising messages of the
client companies.
The tapes are meant to be played at regular intervals
in all of the ten radio stations operated by GMBC. The
wn'tten text is an alternate advertising form read by the
radio announcers at regular intervals. An advertising
m essage does not exceed one minute. The advertisers are
billed depending on the frequency of exposure of their
m essages.
Each station is managed by a station manager who
reports directly to Engineer Panganiban, the general
manager. The stations are allowed to accept local advertisements subject to availability of slots a!Wr accommodating the national adverti~ers.
A certain portion of the advertising income is credited
to the account of the individual stations depending on the
assignments sent to them by the GMBC headquarters.
The total advertising income of a station consists of the
credited account from the head office plus whatever income
from local advertisers is derived.

Station

Advertlalng Income
~

.1.!!l!

1.

Dagupan

t- 15,450

.. 16,998

t- 17,038

2.

Santiago

12,338

11,465

10.3f>8

10,440

12,444

14,486

8,988

7,676

6,493

3. Cabanaruan
4.

San Pablo

5.

Naga

11,048

12,121

8,78a

6.

Dumaguete

11,540

10,001

9,494

7.

Tacloban

12,490

12,500

12,606

8.

Cebu

20,465

22,030

24,848

9.

Davao

16,370

17,01 7

18,644

ZarnbOanga

13,466

12,506

11,897

t-132,595

~134,758

t-134,602

10,

Total

Engineer Panganiban is now reviewing the consolidated sales report. He wants some improvement in
188

.w.z

199

Chapter 10

MANAGING PRODUCflON

AND SERVICE OPERATIONS

A.

What Operations I

Whet Operations MaN~gem.nt is

Operations end the Engineer Manager

Types of Transformation Process

MenufKturtng ProceuH

Important Pllfls of Produc11ve Syat.-na

I wu.~ '><fori-

r~o r ._

B~<Iit~<o

II<>-.-..,! v....J s

t..or'pOr-~c

o..

*'-'

Organi~ations are designed mainly to produce


products or services. If these organiutions must survive
and grow, the operations function must be undertaken in
the most economical manner possible. As most companies
are expected to make profits, any activity, including those
for operations must be managed to contribute to the
accomplishment of such objectives.

WHAT OPERATIONS IS
Operations refers to "any process that accepts inputs
and uses resources tocbangethO&einputs in useful ways.~1
As shown in Figure 10.1, the inputs include land, labor,
capital, and entrepreneurship. The transformation process
converts the inputs into final goods or services.
Examples of final goods and services are as follows:
1.

Industrial chemicals like methylene chloride,


borax powder, phosphoric acid, etc., which are
produced by chernical manufacturing firms;

2.

Service~ like those for the construction of ports,


high-rise buildings, roads, bridges, etc., which
are produced by constructions finns;

3.

Electrical products like transformers, circuit


breakers, switch gears, power capacitors, etc.,
which are produced by electrical manufacturing
firms;

r<fP ,.)

a.Hirc

4. Electronic products like oscilloscope, microwave


1Ald81

200

and Stoama. p. 634.

201

tests systems, transistors, cable testers, etc.,


which are produced by electronics manufacturing
finns;
6.

Mechanical devices like forklifts, trucks,loaders,


etc., which are produoed by manufacturing finns;

Figure 10.1 The Production Proceu


INPUTS

Land
Labor
Capital
Entrepreneurship

TRANSFORMATION
PROCESS
Equipment
Procedures

Tecllnology

OUTPUTS

Products
Services

6. Engineering COnsultancy services like those for


construction management and supervision,
project management services, etc., which are
produoed by engineering consultancy finns.

WHAT OPERATIONS MANAGEMENT IS


Operations is an activity that needs to be managed
by competent persons. Aldag and Stearns accurat-ely
defined operations management as "the process of planning, organizing, and controlling operations to re~ch
objectives efficiently and effectively. 000As the terms "planning", "organizing", and "controlling" have already been
discussed in the previous cllapters, elaborations on the
terms "efficiency" and "effectivenass will boe made.
Efficiency is related to "the oost of doing something,
or the resource utilization involved ... When a person

performs a job at lessoer oost than when another person


performs the same job, he is more efficient than the other
person.
Effectiveness refers to goal accompHshment. When
one is able to reach his objectives, say produCjj 10,000 units
in one month, he is said to be effective.
Operations management must be performed In
coordination with the other functions like those for marketing and finance. Although the specific activities of the
operations divisions of firms slightly differ from one
another, the .basic function remains the same, i.e., to
produce products or services. Figures 10.2 and 10.3 show
typical responsibilities of the operations divisions of
two different finns.

OPERATIONS AND THE ENGINEER


MANAGER
The engineer manager is expected to produoe some
output at whatever management level be is. If he ie
a.ssigned as the manufacturing engineer, his function is
"to determine and define the equipment, tools, and processest~equired to convert the design of the desired product
into reality in an efficient manner."
The engineer in charge of operations in a construction
finn is rasponsible for the actual construction of whatever bridge or road his company has agreed to put up.
He is required to do it using the least-expensive and the
easiest methods.
The engineer, as operations manager, must find W&y8
to contribute to the production ofquality goods or servia.
and the reduction of costs in his department.
The typical operations manager is one with several

'Op. dL. p. 0-J$.

y..,.

'Mum 8. Ooucluo and Doru>a N. Ilougl-. Mon,.,_ Your 11m<, 111""<1<


MaNJff< Y..,l'f<f{ (Ne.r York: AMACOM, 19801 p. 19.

w.,4,

<Shorif 0 . 1Wakil.l'rocaM. ..d D..W {Cr AI<UUI{ot:t"''"l (~

Clllft, N- J....,: PnnW:e-Hall. 1989) p. I.

Flgur. 10.2 OrganiDtlon Chart of a Mlonufacturing Firm

Flgunl 10.3 Organization Chart of a Conslructton Arm

PRESIDENT

TOP
MANAGEMENT

PROOLICTION/OPERATIONS
FacWrties
Construction
Maintenance
Production and wantoty control

S<:heduling
Material oontrol
Oualny assurance and control

Procuremen\
Manufacturing

Tooling
!'abrication

FINANCE/ACCOUNTING
OisbursemenWCred~s

Accounts receiYable
Accounts payable
General ledger
Funds management
Money marl<el
International exhange
Cap~ requirements

Stock issue
Bond luue and
recall

Assembly
Engineering/design
Product devetopment and design
Oetaiie<l product specifications
Industrial engoneering
EffiCient use o1 machines, spaa~
and pe<$C)IlMI

VICe President
for
Operations

VICe President
for Finance &
Admonlstration

Manager,
General

Accounting

Cashier

Procass Engineenng

Manager,
Steel
Construction

ment and processes

Sales

Construction

Manager.
Construction
Equipment

Development and Installation


ot production tools, equip

Vice President
for
Marketing

Human
Resources

Advertising

years of experience in the opera tiona division and ~


aee an academic background in engineering.

TYPES OF TRANSFORMATION PROCESS


The engineer manager must have some knowledge
of the various types of transformation process. They are
88 follows:
1.

Manufacturing processes
a) job shop
b) batch flow
c) worker-paced line flow
d) machine-paced tine flow
e) batch/continuous flow hybrid
0 continuous flow

2. Service processes
a)
b)
c)
d)

service factory
service shop
mass service
professional service

companies. Depending upon the customer's nep<ts, a job


shop may produce a lot consisting of 20 to 200 or more
similar parts.
Job shops produce custom products, in general.
Products may be manufactured within a short notice. The
equipment used are of the general purpose type.
The type of layout used by job shops is the process
layout, where similar machines are grouped together. The
typical size of operation is generally small. Job shops are
labor in tensive and machines are frequently idle. Figure
10.4 shows a process flow diagram for a job shop.

Batch Flow. The batch flow process is where lots of


generally own designed products are manufactured. It is
further characterized by the following:
1.

There is flexibility to produce either low or high


volumes.

2.

Not all procedures are performed on all products.

3.

The type ofequipment used are mostly for general


purpose.

Figure 10.4 Process Flow Diagram for a J ob Shop

MANUFACTURING PROCESSES
Inspection

Manufacturing pxwesses t~re those that refer to- the

and

making of products by hand or with machinery.


Job Shop. Ajob shop is one whose production is "based
on sales orders for a variety of small lots."" Job shops are
very useful components of the entire production effort,
Iince they manufacture products in small lots that are
needed by, but cannot be produced economically by many

Shipping

4.

The process layout is used.

5.

The operation is labor intensive, although there


is less machine idleness.

6.

The size of operation is generally medium-sized.

'RocorW. ScluD<noer.Pionlond~Wvt?l><lnonOP<NJ,_.N,_,..,.I,

1blnl l!<lltion <N.-. Yo<k: Medlill Publlalunc Co. 19!11) pp. 241-257.

'EIWakll, p. 3.

207

Examples of factories using the large batch flow are


wineries, scrap-metal reduction plants, and road-repair
contractors.
WorlrerPacedAssembly Lw. An assembly line refers
to a production layout ananged in a sequence to accommodate processing of large volumes of standardized
products or servtces. Shown in Figure 10.6 is a diagram
of the work flow in an assembly line.

The quaUty and quantity ofoutput in a worker-paced


assembly line depends to a great extent to the skill of the
labor utilized. Examples of worker-paced assembly lines
are food marts like McDonalds and Shakeys.

....

The worker-paced assembly line is characterized by


the following:
1.

(/)

c:

g
!::
<

The products manufactured are mostly stan


dardized.

3
~

2. There is a clear process pattern.


3. Specialized equipment is used
4. The size of operation is variable.
5. The process is worker-paced.
6. The type of layout used is the line flow.
7.

Labor is still a big cost item.

Machine-Paced Assembly Line. This type of pro

l
.,..,
"'-

duction process produces mostly standard products with


machines playing a significant role. Among its other
features are as follows:
1. The process is of clear, rigid pattern.

2. Spec1alized type of equipment is used.


3. The line flow layout is used.
4

Capital equipment is a bigger cost item than

labor.

"'
::>
m!!.

a.0

~
-<

Figure 10.7 A Mlchlne-hced AIM!IIbly Line Procttt

Automobile Manufacturing

Figure 10.11 A811 1lbly Line for PnKiuetlon or 8eNice


THE BODY

UNE
aw

maler1&ts

r cuslomef)

S141lon t

Slation 2

Matonals

Materials

-+

and/0<
labor

-+

-+

and/or
labor

Station 3
Materials

and/Of

Slabon 4

-+

labOr

5.

Operation is large.

6.

The process is m achine-paced.

MatonaJs

and/0<
labOr

Example~; of machine-paced assembly line are auto


mobile manufacturers like General Motors and Ford
Motors. Shown in Figure 10.7 is an example of a machine
paced assembly line process.

Continuous Flow. The continuous flow processing is


characterized by !'the rapid rate at which items move
through the system."' This processing method is very
appropriate for producing highly standardized products
like calculators, typewriters, automobiles, televisions,
cellular phones, etc.
Its other characteristics are as follows:
1.

There is economy ofscale in production, resulting


to low per unit cost of production.

2. The process is clear and very rigid.


3.

Body Assembly

floor pan, body


side, roof panel
positioning and
welding
door hanging
engine enclosure
positioning and
welding
front-end assembly
(e.g., tenders,
hood)
metal finishing
Various Trim line
Subassemblies
Hard Trim Line
bumpers and other
chrome
glass
vinyl tops
air oonditionlng
instrument panel
Soft Trim Line
seats
floor and ceiling

1/

Miscellaneous Chassis
Operations
gas tank and fuel lines
brake ltnes assembled
front-end alignment
rear axle mounted
wheel mounting

v
1/

covers

Specialized equipment a re used.


Operations are highly capital intensive.

6. The size of operations is very large.

7.

Processing is fast.

' WiiiW..J. s--,ProdudiM/ o,u.u-.M_,..M,ThlrdEditioa


()1_.-ood, lllloo>io: Ricb&rd D. lrwio, Inc., 1990) pp. 297-298.

210

primer (ELPO bath)


finish coat

1---l

4. The line flow layout is used.


5.

Paint Shop

The Final Chessls Line


f- Fluid mung
under-hood wiring
and hOSe oonnections
testing of car's
oompvter diagnostic
syslem
startup testing
~
Ill

r\

The Motor Cradle line


dressing of basic motor
with various parts, hoses,
and harnesses
transmission, fan
front axles and brakes
mating ol motor with ~s
cradle
exhaust system. rear
wheel brake lines

THE BODY DROP

Wheels, tires, Wheel


balance

-~

if~

a:;;;

Figure 10.8 shows a continuous flow process diagram


of a paper-making factory.
Batch/ Cominuous Flew Hybrid. This method of processing IS a combination of the batch and the continuous
flow. 1\vo distinct layouts are used, one for batch and one
for the continuous flow. The typical size of operation is
also very large giving opportunities for economies ofscale.

~.2 ~...
.,.,
> Ut,Sl

Examples of companies using the batch/continuous


flow hybrid are breweries, gelatin producers, and tobacco
manu facturers. A simplified production process using
the batch/continuous flow hybrid is shown in Figure 10.9.

o4>E
~g.,

a: 0.

Servi ce Processes
Service processes are those that refer to the provision
of services to persons by hand or with machinery.

Se111i Factory. A service factory offers a limited mix


of services which results to some economies of scale in
operations. This also affords the company to compete in
terms of price and speed of producing the service.
The process layout preferred by the service factory
is the rigid pattern of line flow processing. McDonolds and
Shnkeys are also examples of service factories.
Seruice Shop. A service shop provides a diverse mix
of services. The layout used are t hose for job shops or fixed
position and are adaptable to various requirements.
Service shops abound throughout the Philippines.
Examples are Servitek and Megashell. Among the services
provided by these shops are car engine tune-up, wheel
balancing, wheel alignment, change oil, etc.
Shown in Figure 10.10 is a diagram of the process
Oow of a car repair service shop.

Mass Seruice. A mass service company provides


Horvices to a large number of people simultaneously. A
212

213

unique processing method is, therefore, necessary to satisfY


this requirement. 'lb be able to serve many people, mass
service companies offer limited mix of services.
'

The process layout used is typically fixed position


where customers move through the layout. Shown in
Figllnl 10.11 is a diagram of the process flow (or sales
transactions and material receipt in a mass service retailing institution.
Figure 10.9 A Simplified Production Process of a Gelatin
Manufacturing Company Using the Batch/Continuous Flow Hybrid

0.

<i

~E

af

& ~~
~ :]~

j
~

Hide
processing

)I~~~

Grinding
and
mixing

Mixed
batch
aging

a:

M ixing

""-

Drying
(powder)

Gel
blending

Mao
cutting

i..
0

,__

....._ Sugar
and

Water and

acid added

flavoring

..f
d

6.

ii:

Packag1ng

214

216

Professional Serv~s. These are companies that provide s pecializ< services to other firms or individuals.
Examples of such firms are as follows.

Engineering or management tonsulting servi-

ces which help in improving the plant layout or


the efficiency of a company.

2. Design seryicf)s

wbi~h supply de$igns

for

ll

physical plant, products, and promotion materials.

3.

Advertising agencies which help promote a firm's


products.

4.

Accounting services.

5.

Legal services.

6.

Oats processing services.

7. Health serviees.

--

Professional service firms offer a diverse mix of


services. There is a lower utilization of capital equipment
compaNd to the service factory and the service shop. The
process pattern used is very loose. The process layout used
is identical to the job shop.
Professional service firms are, oftentimes, faced with
delivery problems brought about by nonuniform demand.
Strategies that may be used depending on the situation
are as follows:

c:i

li:

iii

1.

The use of staggered work-shift schedules.

..J

2.

The hiring of part-time staff.

a:UJ

3. Providing the customer with opportunity to select


the level of service.

UJ

a:

<

:::E

'}:_J!frome M<(:.arthy nd WiUiam 0 . Perre.Juh. Jr., ~ Mor~l'-"lf


IHomewwd. lllli>oio R.ebanl D. !Jwio. LD<.. 1990) p. 234

Jaroee 8 O.lworth, Produdf.Oit and OpuohOM MllAQRtm<nt CN'ew York:

Mc<lrow.IJill. Inc. 1993! pp 378-383.

216

217

Production Planning and Scheduling


4. Installing auxiliary capacity or hiring subcon
tractors.
5.

Using multiskilled floating staff.

6.

Installing customer self-service.

IMPORTANT PARTS OF PRODUCTIVE

Production planning is a very important activity

because-it helps mahagement to make decisions regarding

SYSTEMS
Productive systems consist of six important activities
as follows:
1. product design
2. production planning and scheduling
3.

purchasing and materials management

4.

inventory control

capacity. When the right decisions are made, there will


be less opportunities for wastages.
Scheduling is the "phase of production control involved in deveioping timetables that specify how long each
operation in the production process takes." 12 Efficient
scheduling assures the optimization of the use of human
and nonhuman resources.

Purchasing and Materials Management

5. work flow layout


6.

Production planning may be defined as "forecasting


the future sales of a given product, translating this forecast into the demand it generates for various production
facilities, and arranging for the procurement of these
facilities.""

quality control

Product Design
Customers expect that the products they buy would
perform according to assigned functions. A good product
design assures that this will be so. Customers avoid buying
products with poor product design. An example is that
certain brand of ball pen w hich fails to write after one or
two days of actual use. This happens because of poor
product design.
Product design refers to "the process of creating a set
of product specifications appropriate to the demands of
the situation.
Companies wanting to maintain or improve ita mar
ket share keeps a product design team composed of
engineers, manufacturing, and marketing s pecialists.

Firms need to purchase supplles and materials re


quired in the various production activities. The management of purchasing and materials must be undertaken
with a high degree of efficiency and effectiveness specially
in firms engaged in high volume production. The wider
variety of s upplies and materials needed adds to the
necessity of proper managing and purchasing of materials.
Materials manage~ent refers to "the approach that
seeks efficiency of operation through integration of all
material acquisition, movement, and storage activities in
the firm" 13
Inventory Control
Inventory control is tbe process of establishing and
"Ror-nd R. Mayer. hodM<tiM Jl~ SocDnd Edtlooo (Now Yortc:
Mlrow-HUJ Book Co. 1968~
IJBoone &Dd Kuru. p O..U.
"Hci&Ct and Render. p. 853.
219

21'8

maintaining appropriate l evels of reserve stocks of goods. "


A3 supplies and materials are required by firms in the
production process, these must be kept available when they
are needed. 1bo much reserves of stocks will penalize the
firm in terms of high storlige costs and other related
risks like obsolescence and theft. 1bo httle reserves, on
the other hand, may mean lost income opportunities if
production activities are h ampered. Abalance between the
two extremes must be determined.
There are ways of achieving proper inventory control.
They ure M follows:
1.

determining reorder point and reorder quantity

2. determining economic order quantity


3. the use ofjust-intime (JIT) method of inventory
control
4.

the use of the material requirement planning


(MRP) method of planning and controlling inventories.

Work-Flow Layou t
Work-flow layout is the process of determining the
physical arrangement of the production system. In the
transformation process, the flow of work may be done
either haphazardly or orderly.
The job of the operations manager is to assure that
a cost-effective work-flow layout is installed. A good workflow layout will have the following benefits:"
1.

Minimize investment in equipment.

2.

Minimize overall production time.

3.

Use existing space most effectively.

Provide for employee convenience, safety, and


comfort.

5. Maintain flexibility of arrangement and operation.


6.

7.

Minimize material handling cost.


Minimize variation in types of material-handling

equipme"nt.
8. Facilitate the manufacturing (or service) process.
9.

Facilitate the organizational structure.

Quality Control
Quality control refers to the measurement of prod
ucts or services against standards set by the company.
Certain standard requirements are maintained by the
management to facilitate production and to keep customers
satisfied.
Poor quality control breeds customer complaints,
return ed merchandise, expensive lawsuits, and huge
promotional expenditures.

SUMMARY
Th e management of operation s is very crucial to the
survival of firms. Operat ions refer to the changing of inputs
into useful outputs. In the effort to manufacture producta
(or service3), operations management must contribute its
share i n the accomplishment of the company's objectives.
The function of the operations manager is to plan,
organize, and control operations in order to achieve
objectives efficiently and effectively. The engineer mana
ger is, oftentimes, assigned to perform the tasks of the
operations manager.
The transformation process may be classified generally as manufacturing or service processes. These lwo

"Krt'lt.ntr, p, 603

' <>!>,l, p

4.

607

220

221

QUESTIONS FOR REVIEW AND DISCUSSION

are subclassified into various types, eacH with built-in


advantages depending on certain conditions.
Production systems consist of various parta that
complement one another in the productiontask. The engineer manager needs to be familiar with these various
parts.

1. What is meant by operations"? Does the term cover


production of farm products?
2. Wby is operations management an important
activity? Who are qualified to become operations
managers?

3. What are the~ of transformation process? In what


ways are they similar and different?
4. What is a job shop? What mak~s it a useful transformation process?
6. Wbat is the batch flow process? What possible
advantages does it offer?
6. What ia the worker-paced ass-embly line? Why is it
called as such?
7. Why is the machine-paced assembly line very popular
among large corporations?
8. What is a service factory? Provide an example.
9. What types of services are offered by professional
service firms? What production problems do these
firms encounter?
10. What are the important parts of productive systems?
Poi:nt out the rehltionships between these parts.
SUGGESTED ITEM FOR RESEARCH
l. Draw the transformation process of an existing

company. Indicate where improvements in the flow


could be introduced.

Caae 10. PRETTY DOVE DEVELOPMENT CORPORATION: I'll

Follow the Boys


It was in December 19, 1990 when Engineer Milagros
Abrera founded her own company, the Pretty Dove Deve
lopment Corporation (PDDC). The company was able to
buy a 51-hectare farmland along the diversion road in
Baliwag, Bulacan. The land was developed into a resi
dentialsubdiviaion with lot sizes ranging from 300 to 450
square meters. Selling began as early as June 1992.
Before founding PDDC, Engineer Abrera accum ula
ted many years of experience working with various companies from construction to real estate development. The
exposure helped her in managing the activities of the
company. As general manager of PDDC, Engineer Abrera
expanded its operatiollS'. Rawlands were acquired in Cabapatuan City and San Jose City in Nueva Ecija, in Bataan
and in Tarlac. The marketing department of the company
was able to sell the developed residential lots as quickly
as they should.

growth may have already reached its peak and r~om


mended that maybe it is time to consider designing a new
product.
After the meeting, Engineer Abrera sank in deep
thought thinking of the relevance of a new product design.
After all, when she considered developing residential
lots, it was as if she had a natural feeling that households
will require them. Years of observing keenly the market
gave her with sufficient insights on demand and product
specifications. Now, she feels so lost in deciding what moves
she should moke.

Engineer Abrera feels contented as the company's


performance was beyond her expectations. As she was
reminiscing her graduation day at the University of the
East in March 1968, she remembers the words of her close
friend:
"Mila, we have already finished our B.S. in Civil

Engineering course. Someday, you and 1 may be successful, but remember, nothing lasts forever. However, there
is something you can do to delay the inevitable."
Engineer Abrera suddenly thought that what her
company is reaping now may not last forever. The demand
for residential lots may decline or there may be an oversupply of lots offered for sale.
In a recent meeting of the key officers of the company,
the marketing manager hinted that the company's aales
226

Chapter 11

MANAGING THE
MARKETING FUNCTION

What Is the Marketing Concept?

...B

The Engineer and the Four P' of Marketing

The Product
The Price

The Place
The Promotion

Streteglc Marketing for Engineers


Seleeting a Target Market
Developing a Marketing Mix

E ngineer m~nagers are engaged in the production


of tangible or intangible goods. Some of these engineer
managers are directly responsible for marketing the
company's products or services. If he is promoted as general manager, both the production and marketing functions
become his overall concern.
At whatever management lev el the engineer manager works, he must be concerned with convincing others
to patronize his outputs. If he is the general manager of
a construction firm, he must convince people with construction needs to avail of the services of the company.
Ifhe is the staff officer of a top executive, he must convince
his boss to continuously rely on h im regarding the staff
services he provides.
If the foregoing statements are true, the engineer
manager has a marketing problem. He needs to understand certain concepts related to the marketing discipline.

WHAT IS THE MARKETING CONCEPT?


Marketing is a group of activities designed to facilitate
and expedite the selling of goods and services.
The marketing concept states that tho engineer must
try to satisfy the needs of his clients by means of a set
of coordinated activities. When clients are satisfied with
what the company offers, they continually provide busi

ness.
226

227

THE ENGINEER AND THE FOUR P'S OF


MARKETING
The engineering organization will be able to meet the
requirements of its clients (or customers) depending on
how it uses the four P's of marketing which are as follows:
tbe
2. the
3. the
4. the
1.

product (or service)


price
place, and
promotion.

The Product

In the marketing sense, the term ~product" includes


the tangible (or intangible) item and its capacity to-satisfy
a specific need.' When a customer buys a car, he is actually
buying the comfortable ride he anticipates to derive from
the car. This is not to mention th psychological benefits
attached to the ownership of a car.
The services provided by the e{lgineer manager will
be evaluated by the client on the basis of whether or not
his or her exact needs are met. When a competitor comes
into the picture and sells the same type of service, the
pressure to improve the quality of services sold will be
felt. When improvement is not possible, "extras" or "bonuses" are given to clients. An example is the construction
company that provides wrree e,s timates" on whatever
inquiries on construction are received.
The Price
Price refers to "the money or other considerations
exchanged for the purchase or use of the product, idea,
or service."' Some companies use price as a competitive
tool or as a means to convince the customer to buy.
tMcOart.h)> o.nd Perri;\AI.IIt., Jr., p. 218.

ErltN. lleJkowittand oth~rs. Marktllf'<l (flomewood.lllinoie; Irwin, 1992)


p. 726.

228

When products are similar in quality and other


characteristics, price will be a strong factor on whether
or not a sale will be made. This does not hold true, however, in the selling of services and ideas. This is because
of the uniqueness of every service rendered or every idea
generated.
Figure 11.1 The Engineer Manager and the Four P's of
Marke\.l ng
OBJECTIVES

VEHICLE

RESULT

The Matketing
Objectives
ol the
Engineer
Manager

Product
Price
Place
Promotion

Success
or
.I
Failure

When a type of service becomes standardized, price


can be a strong competitive tool. When a construction firm,
for instance, charges a flat 10 percent service fee for all
of its construction services, a competitor may charge a
lower r ate. Such action, however, will be subject to whether
or not the industry will allow such practice.
The Place
If every factor is equal, customers would prefer to
buy from firms easily accessible to them . If time is of the
essence, the nearest firm will be patronized.
It is very important for companies to locate in places
where they can be easily reached by their customers. Not
every place is the right location for any company.
When a company cannot be near the customers, it
uses other means to eliminate or minimize the effects of
the pr oblem. Some of these means are:
229

hiring sales agents to cover specific areas;


2. selling to dealers in particular areas;
3. establishing branches where customers are
located;
1.

4.

establishing franchises in selected areas.

Manufacturing companies can choose or adapt aU of


the above-mentioned options. Service companies like
construction nnns adapt the modified versions. An example is the engineer manager of a construction firm who
gives commissions to whoever could negotiate a cons
t.ruction contract for the firm.

The Promotion
When engineer managers have products or services
to sell, they will have to convince buyers to buy from them.
Before the buyer makes the purchasing decision, bowever, he must first be informed, pernuaded, and influenced.
The activity referred to, in this case, is called promotion.
McCarthy and Perreault define promotion as Mcommunicating information between seller and potential buyer
to influence attitudes and behavior."3
There are promotional tools available and the engineer manager must be familiar with them if he wants
to use them effectively. These tools are as follows:
1. advertising
2.

publicity

of informing or persuading people about particular


products, services, beliefs, or action."' The mass media
referred to include television, radio, magazines, and newspapers. Ifthe engineering manager wants to reach a large
number of people, he may use any of the mass media
depending on his specific needs and his budget. Each of
the public advertising carriers, i.e., radio, television,
magazines, and newspapers, has their own specific
audiences and careful analysis must be made if the
engineering manager wants to pick the right one.
An example of an advertising message is shown in
Figure 11.2.

Publicity. The promotional tool that publishes news


or information about a product, service, or idea on behalf.
of a sponsor but is not paid for by the sponsor is called
publicity. The mass media is also the means used for
publicity. If the engineer manager knows how to use it,
publicity is a very useful promotional tool. His message
may be presented as a news item, helpful information,
or an announcement.
An example of a publicity release is shown in Figure
11.3.
Personal Selling. A more aggressive means of pro-

moting the sales of a product or service is called personal


selling. It refers to the "oral presentation in a conversation with one or more prospective purchasers for the
purpose of making a sale."'
Personal selling may be useful to the marketing
efforts of the engineer manager. If, for instance, he is the
general manager of a firm manufacturing spare parts, he
may assign some employees to personally seek out spare

3. personal selling
4. sales promotion

Aduertising. Nylen defines advertising as "a paid


message that appears in the mass media for the purpose
' MeCarthy and Penuult, Jr, p. 361>.
'Richard E. St&nley, l'romotion,

-""'B Publ~ity. p....,.,.l s.tu..,.

SaJu Promolu> Oln,._ CliJ&, New Jerooy: Pren-Hall, Inc., 111821 p. &

*David W. Nylen. AdCJtrtuilllf.. Pkultu.n.& lmplt.mtttlataon, aM C.o~~rrol


<Cmeannau South.Wcwt.frn Publishiog Co.. IN6) p 3
'Stanky, p 8
'Patrick Dunne and others. Rcta.ilin8 (Ciocino\4; SouthWMlern
Publilun Co , 1992) p. 283.

231

Figure 11.2 An Example of an Advertising Message

ALECTO GENERAL TECHNOLOGY


AND
DEVELOPMENT CORPORATION

ENGINEERS DESIGNERS CONTRACTOR SUPPUER


Computer Facilnies
Design and Installation
local Area Network-Cabling
Data Communication and
Telecommunication Works
Electrical Wiring

Figure 11.3 An Example of a Publicity Release

N OKIA PRESENTS THE FIRST PHONE DESIGNED


FOR LOCAL NEEDS
Manila, July 1, 1997 - Nokia Mobile Phones, tile largest
European and world's second largest manufacturer of mobile
phones and a wo~d leader in digital technology, has introduced
to the Philippines the Nokia3810"Big Face, the first mobile phone
designed specifically for the needs of the Asia-Pacific cellular
market.
"This nllw design which was inspired by a regional research
is another step in our aim to strengtllen our market position, Martin
Fernandez, Nokia Mobile Phones Philippine Country Manager said.
The Nokia 3810 is a product of extensive regional research
and feedback. According to the research, there is a demand for
a design that would easily accommodate longer and more detailed

messages Asians, including Filipinos. ale accustomed to. Jagged


as Nokia "Big Face', tile 3810 has a larger screen contained in

Mechanical and CiVil Works

a small and sleek European styled body, making neasierto read

Fiber Optic Cabling Installation and


Termination

messages. With its unique full graphic display, the Nokia 3810
displays large or small text. depending on the length of the message.
Combined with Nokia's state of the art menu systems. it is easier
to find what you are looking for.

Supplier of UTP Fiber Optic and


Coaxial Cable
1495 D. Oilman St., Makati C~y
Tels. 8902571, 8902492
890.3604, 8903607
Fax No. 8902978

From the PLDT YeUow Pages, Luzon Visayas, Mindanao


'Thlephone Direetory, October 1996, p. 160.

Moreover. NOkia 3810 provides a comprehensive range of


features like call mana~Jement, memory functions, short message
services, security/code control, optional controls, data transmission
and has the most complete range of aeeSsorles.
Nokia Mobile Phones is a part of the Nokia Group, a global
telecommunications company headqu\'rtered in Helsinki, Finland.
Nokia employs nearly 34,000 people in 45 countries and has net
sales of US$8.5 billion in 1996. Nokia can be visited on the world
wide web http:/www nokia, com.

*From Manila Bulletin, Speeial Supplement, July 7, 1997,


p. S$.-7.

232

parts dealers and big trucking companies to carry their


product lines.

Sales Promoti~Jn. Any paid attempt to communicate


with the customers other tban advertising, publicity, and
personal selling, may be considered sales promotion.
This includes displays, contests, sweepstakes, coupons,
trading stamps, prizes, samples, demonstrations, refer
ral gifts; etc.
ContestS and sweepstakes are very popular sales
promotion tools. An example is shown in Figure 11.4.

Figure 11.4 An Example of a Company Using Sweepstakes


as a Sales Promotion Tool

GET A BAYANTEL PHONE, CALL LONG DISTANCE, PAY


YOUR MONTHLY BILLS AND GET A CHANCE TO DRIVE
AWAY<A WINNER!

rBA.YAma,

I
L

BMW
5 to drive

----

I
.J

STRATEGIC MARKETING FOR


ENGINEERS

THERE HAS' NEVER BEEN A TELEPHONE PROMO BIGGER


THAN THIS!

Companies, including those managed by engineer


managers, must serve markets that are best fitted to their
capabilities. 1b achieve this end, a very important activity

NOW, BayanTel, the phone company that's helping you com


municate not tomorrow, but today, is giving away not one, not
two, not even three, but FIVE, brand-new BMW 3 Series model
316 tor its telephone subscribers.

called strategic marketing is undertaken.


Under this set-up, the foHowing steps are made:
1.

selecting a target market

2.

developing a marketing mix

Selecting a Target Market


A market consists of individuals or organizations, or
both, with the desire and ability to buy a specific pt:oduct
or service. 1b maximize sales and profits, a company bas
the option of serving entirely or just a portion ofits chosen
market. Within markets are segments with common
nesds and which will respond ~imilarly to a marketing
action. Figure 11.6 shows an example of the various s.egments of a given market.
Barry Ber-n.an andJ~t R. Evans, Rdail MaM~Jeme.ttt, Fifth Edition (New
York; MaeM.illa.n l'l>bli>b.ioc Co. 1992) p. 604.
'Berkowib. aod ot.hera, p . 723.

ITS SO EASY TO GET A CHANCE TO WIN! This promo


is ope111 to BayanTel TELEPHONE SUBSCRIBERS in designated
BayanTet franchise areas (see coverage below) only.
ONE: Get a BayanTel phone and pay your first monthly charges
right away!
Two: Use your BayanTel phone to call anywhere. Better if
international and domestic long distanc;e. Eve!)' ,.200 worth of paid
charges (over and above the basic installation charge and first

month advanced service) entmes you to one raffle ticket.


THREE: Pay your montly bills promptly so you can eam more raffle
tickets right away.
Get a BayanTel phone now. Get a BMW.to drive soon. Just keep
on using that BayanTel phone to call anywhere- more raffle tickets
for long distance!
PROMO ENOS DECEMBER 31 , 1997

*From an advertisement , Philippine Daily I nquirer, July


20, 19!97, p. E-2.

236

I
An analysis of the various segments of; the chosen

Figure 11.5 The Construction Market

market will help the company make a decision on whether to serve all or some of the segments. The segment
or segments chosen become the target market.

THE
CONSTRUCTION
MARKET

In selecting a target market, t he following steps a re


necessary:
1.

and Its Segments

Divide the total market into groups of people who


have relatively similar product or service needs.

2. Determine the profit potentials of each segmen t.


3.

Make a decision .on which segment or segments


will be served by the company.

As shown in Figure 11.5, a company may choose any


or all of the residential, industrial, and gover nment segments. This decision will depend, however, on the profit
potentials of each segment and the capability of the firm.

A smaller company may find it most profitable to


supply only the construction material needs of the
residential segment. A bigger company, however, may
find it more profitable to perform actual construction 3n
addition to selling construdion materials.
Factors Used in Selecting a Target Market. A target market
must have the ability to satisfy the profit objectives of the

-company. In selecting a target market, the following factors


must be taken into consideration:

Residential
Segment

Industrial
Segment

Government
Segment

actual
construction
sub-segment

construction
materials
sub-segment

actual
construction
sub-segment

construction
materials
sub-segment

1. the size of the market, and


2.

the number of competitors serving the market.

The total demand for the product or service in a given


area must be determined first if the company wants to
serve that particular market. If there are existing
businesses serving the market, the net de;mand must be
considered. Figure 11.6 illustrates an example of tne
relationship between demand and supply of a particu lar
product. The figures presented indicate that there is s~ll

actual
construction
sub-segment

237

construction
materials
sub-segment

room for another company in the market for telephone


lines in Cabanatuan City.

Figure 11.7 The eomp.,y, The Merttatlng Mix Mel the r..,..
Merbt

Developing a Marketing Mix


After the target market has been identified, a
marketing mix must be created and maintained. The
marketing mix consists of four variables: the product, the
price, the promotion, and the place (or distribution).
Given a marketing environment, the engineer manager can manipulate any or all variables to achieve the
company's goals. As such, the quality of the product may
be enhanced, or the selling price made a little lower, or
the promotion activity made a little more aggressive, or
a wider distribution area may be covered. Any or all of
the foregoing may be undertaken as conditions warrant.

THE COMPANY
Product

~
~

Price

Promotion
Place

As shown in Figure 11.7, aU marketing activities are

~
~

focused on the target market.


Figure 11.6 Total Demand and Net Demand as a Guide for
Determining Target Market

Telephone Unes In Cabanatuan City


Demand and Supply Situation
1997
Total Demand

150,000 lines

SUMMARY

Company A

so.000 lines

Company B

30,000

'IO survive, companies must continuously generate


incom~. 'lb be a~le to do so, they must be able to sell enough
quantity of the~r products or services. Engineering firms
are no exception.

Company C

10,000

Total Supply

90,000 lines

Supply

NET UNSATISFIED DEMAND

60,000 lines

The proper management of t he marketing function


helps the engineer manager convince customers to
patronize the firm. Specifically, the engineer mana,ger
must know how to use effectively tho four P's of marketmg which are the product, the price, the place, and the
promotion.

238
239

An activity called strategic marketing is designed to


make sure that the marketing objectives of the finn are
achieved . Strategic marketing calls for selecting a target
market and developing an appropriate marketing miz.
The marketing~ consists of the appropriate levels
of product quality, price, promotion, and place.

QUESTIONS FOR REVIEW AND DISCUSSION


1. How may the marketing Concept be explained? Is it

applicable to engineering firms?


2. What is meant by the term "product"?

3. How may the engineer manager meet the threat of


a competitot's product?
4. Why is price said to be a strong competitive tool?

5. What are some of the possible measures to make


products easily available to customers?
6. How may the engineer manager convince tho buyer
or client to patronize the firm?
7. What is advertising? What are the types of advertising

media?
8. May the engineer manager use publicity in promoting his firm? Cite an example.
9. In selecting a target market, what must the engineer
manager do?
10. What factors must be used in selecting a target
market?
SUGGESTED ITEM F'Ofl RESEARCH

Choose an engineering firm with an existing marketing unit. Draw the organization chart of the firm showing the marketing unit and its relationship with other
units.

241

Caae 11. BUGTAG CHEMICAL CORPORATION: Help

Samuel Bugarin and Antonio Tagorda were class


mates at the Chemical Engineering Department of De Ia
Salle University. After passing the board examinations
in 1981, Engineer Bugarin applied for a job in a chemical
manufacturing company. He first worked as an assis
tant in the quality control unit. Later, he became chief
of the unit. He handled various jobs in the production
department. Because of his good performance, he was
promoted to production manager in 1993.
Engineer Tagorda got a job in 1982 as production
planner of Reliance Chemical Company. In 1990, he was
assigned as assistant production manager. When the
company's marketing manager resigned in 1991, he waa
transferred to the marketing department and was named
as the new marketing manager. His main function waa
to market the coMpany's product& consisting of synthetic
resins, aluminum paste, adhesives, plasticizers, calcium
sulfate, etc. When he assumed his post as marketing
manager, the company is already serving a group ofloyal
customers. The increasing requirements of these cua
tomers also meant addit ional orders for the company's
products. The company's sales increased even if the
number of its customers did not.
In a class reunion held in April 1997, Samuel and
Antonio met and they conversed for more than three hours.
Samuel mentioned that he had started organizing his
own chemical manufacturing firm and he wanted Antonio
to join him. Antonio agreed and in a subsequent meeting decided to divide the work between the two of them.
Samuel was to take care of production and Antonio would
handle marketing. They decided to invite an experienced
finance officer and a high school classmate, Edgardo
Abuan. He became the company's finance manager.

The company was registered as a stock corporation


242

and the capital contribution of the stockholders were aa


follows:
Name of the Stockholder

Amount of Cap!tal Contribution

1. Samuel Bugarin

1"30,000.000

2. Antonio Tagorda

15,000,000

3. Edgardo Abuan

3,000.000

4. Jesus Ualat

1,000.000

5. Rosario Mariano

1,000,000

6.

1.000,000

Ausberto Taguinod

7. Francisco Bundoc

1.()()().000

8.

Amparo Paragas

1,000,000

9.

Andres Nicolas

1.000.000

Total

1"54,000,000

The three agreed to produce caustic soda liquid,


hydrochloric acid, soda ash, sodium sulphate, sodium
tripolyphospate, and sulfuric acid. The construction of the
company's plant has already begun in Dasmariilas, Cavite.
The compay has been named the Bugtag Chemical Corporation.
Samuel has already started organizing the production department by hiring a production planner. Antonio
is still considering what steps to take in organizing his
department. One of his problems is the lack of information regarding the nature of the market the company must
tap. Also, Antonio is aware of the utmost importance of
providing the production department with a demand foreeast for the company's products.

Chapter 12

:\(; THE FI:\:\:\CE


T :\CTIO:\

MANAGING THE FINANCE

FUNCTION

Engineering firms need funds to finance their opera-

tions. To be assured of continuous supply of funds, there


is a need to manage properly the finance function. When
funds are made available in right amounts at the right
time, the engineering organization may be expected to
function properly. When funds are not enough to finance
planned activities, the risk of failure to achieve objectives
becomes apparent.

What the Finance Function Is

The Determination of Fund Requirements

Sources. of Funds

The Best Source of Financing

The Firm's Financial Health

tndk:ators of Financial HeaHh

The engineer manager must understand that the


finance function is a very important management ooncem.
This is true because without adequate funds it will be
difficult , if not impossible to proceed with the production
of products or services, the distribution ofoutput, research
and development, and others.

Risk Management and insuranoe

WHAT THE FINANCE FUNCTION IS


The finance function is an important management
responsibility that deals with the "procurement and
administration of funds with the view of achieving the
objectives of business."' If t he engineer manager is run-

ning tho firm as a whole, he must be concerned with the


determination ofthe amount of funds required, when they
are needed, how to procure them, and how to effect ively
and efficiently use them.
In the performance of his duties, the engineer manager, at whatever management level he is, must do hls
share in the achievement of the financial objectives of the
oompany.
'&bertoO lofocbna.B,..,..,,Fi......,.(Qu....,Ci&r &. PllbluJunc.l988l
p. 67.

The finance function is one of the three basic management functions. The other two are production and
marketing.

THE DETERMINATION OF FUND


REQUIREMENTS

Figure 12.1 The Finance Function: A Process Flow

Any organization, including the engineering firm, Will


need funds for the following specific req~ements:2

DETERMINATION
OF FUND
REQUIREMENTS

t.
2.

short-term
lOng-term

1.

to finance daily operations

2.

to finance the firm's credit services

8.

to finance the purchase of inventory

4.

to finance the purchase of ml\ior assets

Financ-ing Daily Operations


The day-to-day operations of the engineering firm will
require funds to take care of expenses as they come. Money
must be made available for the payment of the following:

1.

2.

short-term
long-term

1.

wages and salaries

2.
3.
4.
5.

rent
taxes
power and light

6.
~FFECTIVE

AND

EFFICIENT
USE OF
FUNDS

t.
2.

short-term
long-term

marketing expenses like those for advertising,


entertainment, travel expens<!$, telephone. and
telegraph, stationery and printing, postage, etc.
administrative expenses like those for auditing,
legal, setvices, etc.

Any delay in the settlement ofthe foregoing expenses


may disrupt the effective flow of work in the company.
It may also erode the public's confidence in the ability of
the company to operate on a long-term basis. Creditors,
for instance, may withhold the elrtension of credit to the
company.
'Nickels and othen, pp. 612-613,

'Eroet W. Wollct.r and J. WiJlia.nl Petty Jl . ,Finartciol. M4Mgernwt of the


Sm<UI Firm. &>oond Edition (Englewood CliiT8, New Jnl<lY: P..nt:ie&-Hall, 1986)
p. 202.

247

Financing the Firm's Credit Services

THE SOURCES OF FUNDS

It is oftentimes unavoidable for firms to extend credit


to customers. If the engineering firm manufactures
products, sales terms vary from cash tp 90-day creclit
extensions to customers. Construction firms will have to
finance the construction of government projects that will
be paid many months later.

'fu finance its various activities, the engineering firm


will have to make use of its cash inflows coming from
various sources, namely:

When a new chemical manufacturing firm finds


difficulty in convincing distributors to carry their products,
a credit extension may solve the problem. A new problem,
however, will be created, i.e., how the credit arrangement
will be financed.
Financing the Purchase of Inve"tory
The maintenance of adequate inventory is crucial to
many firms. Raw matedals, supplies, and parts are
needed to be kept in storage so they will be available when
needed. Many firms cannot cope with delays in the
availability of the required material inputs in the production proces~, so these must be kept ready whenever
required.
The purchase of adequate inventory, however, will
require sufficient funding and this must be secured.
Sometimes, inventories unnecessarily tie-up large
amount of funds. The engineer manager must devise
some means to make sure this situation does not happen.
Financing the Pu.rchase of Major Asset
Companies, at times, need to purchase major assets.
Whe)'l. top management decides on expansion, there will
be a need to make investments in capital assets like land,
plant, and equipment.
It is obvious that the financing of the purchase of
major assets must come from long-term sources.

1.

Cash sales. Cash is derived when the firm sells


its products or services.

2.

Collection of Accounts ~ceivable!l. Some engineering tinns extend credit to customers. When
these are settled, cash is made available.

3.

Loans and Credits. When other sources of financing-are not enough, the firm will have to resort
to borrowing.

4.

Sale of assets. Cash is sometimes obtained from


the sale of the company's asset.~.

5.

Ownership contribution. When cash is not


enough, the firm may tap its owners to provide
more money.

6.

Advances from customers. Sometimes, customers are required to pay cash advances on
orders made. This helps the firm in financing its
proQ.uction activities.

Short-Term Sources of Funds


Loans and creclits may be classified as short-term,
medium-term, or long-term. Short-term sources of funds
are those with repayment schedules of less than one
year. Collaterals are sometimes required by short-term
creclitors.

Advantages of Slum-Term Credits. When the engineering firm avails of short-term credits, the following
advantages may be derived:
1.

They are easier to obtain. Creditors maintain the


view that the risk involved in short-term lencling
249

Flgul9 12.2 The Firm's Finances and Cash Flow

is also short-term. Thus, short-term credits are


made easily 'available to qualified borrowers.
2.

LONGTERM ASSETS
Production
equipment
Land
Buildings

Short-term financing is often less costly. Since


short-term financing is favored by creditors, they
make it available at less cost.

3. Short-term financing offers flexibility to the


borrower. After the borrower bas settled his
short-term debt, he may consider other means
of financing, if he still requires it. Long-term
financing, in contrast, eliminates this option. He
is stuck with the long-term funds even if he no
longer requires it.

LONGTERM
Long-term debt
Common stock
Retained earnings

Disaduantages of Short Term Credits. Short-term


financing has also some disadvantages . They are as
follows:
1.

Short-term credits mature more frequently. This


may place the engineering firm in a tight position
more often than necessary. When the frequency
of the finn's cash inflows are more than twelve
months apart, the firm could be in serious trouble
meeting its short-term obligations.

2.

Short-term debts may, att times, be more costly


than long-term debts. When short-term debts are
used to finance long-term expenditures, the frequent renewals, adjustment of terms, and shopping for new sources may prove to be more costly.

ACCOUNTS
RECEIVABLE

1~-----1 Mar1<etable
Securities

Supplies
Materlals
Taxes
Salaries

Wages
Rent

Insurance

SHORT-TERM
FUND SOURCES

Supplies of Short-Thrrn Funds. Short-term financing


is provided by the following:

Commercial

banks
Commercial
paper housea

Finance
companies
Factors

Insurance

. companies

1. trade creditors

2. commercial banks
3. commercial paper houses

4. finance companies

5.

factors, and

.1

6.

insurance companies.

'1huk creditors refer to suppliers extending credit to


a buyer for use in manufacturing, processing, or reselling
goods for profit. The instruments used in trade credit
consist of the following: ( 1) open-book credit, (2) trade
acceptance, and (3) promissory notes.

'l'he open-book credit is unsecured and permits the


custotl\er to pay for goods delivered to him in a specified
number of days. For financially weak engineering firms,
the open-book credit is a very useful source of financing.
The trade acceptance is a time draft drawn by a seller
upon a purchase payable to the seller as payee, and
aooepted by the purchaser as evidence that the goods
shipped are satisfactory and that the price is due and
payable. Under the terms granted in the trade acceptance,
the seller allows the buyer to pay within a certain number
of days. The arrangement provides the buyer some relief
in financing his short-term requirements.
A promissory note is an unconditional promise in
writing made by one person to another, signed by the
maker, engaging to pay, on demand or at a fixed or determinable future time, a certain sum of money to, or to the
order of, a specified person or to bearer.
Commercial ba11ks are institutions which individuals
or firms may tapas source of short-term financing. Commercial banks grant two types of short-term loans: (1) those
which require collateral, and (2) those which do not require
collateral. Examples of commercial banks granting shortterm loans are City Trust, Premier Bank, and Land Bank.
Commercial paper MUS are those that help business
!inns in borrowing funds from the money market. Under
this scheme, the business finn in need of funds issues a
Meir Kohn, Money, &mltiflll and Firu:mciol Mor.\et.f(Ch.ieap: The Dryden

Preea. 1991) p. 15.

commercial paper, which 1s a short-term promissory


note, generally unsecured, and issued by large, es tablished firms. The commercial paper is sold to investors
through the commercial paper bouse.
Busi~ess finance companies are financial ins~i~u
tions that finance inventory and equipment of almost all
types and sizes of business firms. Examples of finance
companies in the Pfulippines are Philacor Credit Corporation and Consolidated Orix Leasing and Finance
Corporation.

Factors are. institutions that buy the accounts receivables of :firms, assuming complete accounting and colec~ion responsibilities.7 Engineering firms which main tain sizable amounts of accounts receivable may avail of
the services of factors wh,en they are in dire need of cash.
111sura11ce compa11ies are also possible sources of
short-term funds. Industry reports indicate that insurance companies in the Philippines regularly mal(e investments in short-term commercial papers and promis
sory notes.
Long-Tenn Sources of Funds
There are instances when the engineering firm will
have to tap the long-term sources of funds. An example
is when ex:penditures for capital assets become necessary.
After the amount required is determined, a decision has
to be made on the type of source to be used.
Long-term sources of funds are classified as follows:
1.

long-term debts

hc,er S. RoM a.ndothe-:1'1, FutOnctoi/MUtt~lf()lll CHomewood. llli:aolt.; Itwin.


1&93) p. 760.
'OeorceG. IUulinan, The U.S. F'iMncooiSyllem, Piflh Edition (Englewvod

Cliff, New Jer&ey: Prentice-Hall. 1992) p. 23 .


'P"ul Uo:rvit:t Bnd Riehard A. Ward, Monf lory P(JI~ orad til( Fittunci<JI
Syllcm, Sixth lldition (Englewood Cli!ra, N6w JorJ~ey. PreotiooHnU, Ine.. 1987)
p. 616.

263

2.

common stocks, and

3.

retained earnings.

Long-term debts are sub-classified into term loans


and bonds.
'llmn Loons. A tenn loan is a "commercial or industrial
Joan from a commercial bank, commonly used for plant

and equipment, working capital, or debt repayment."'


Term loans have maturities of 2 to 30 years.

date, common stocks do not have maturity and repayment dates.


Retained Earnings. &tained earnings refer to "corporate earnings not paid out as dividends. This simply
means that whatever earnings that are due to the stockholders of a corporation are reinvested. Because these
retained earnings can be used by the firm indefinitely, they
become an impor~nt source of long-term financing.
Figure 12.3 Types of Bonds

The advantages of term loans as a long-term source


of funds are as follows:
1.

Funds can be generated more quickly than other


long-term sources.

2. They are flexible, i.e., they can be easily tailored


to the need.s of the borrower.
3. The cost of issuance is low compared to other longterm sources.
Bonds. A bond is a certificate of indebtedness issued
by a corporation to a lender. It is a marketable security
that the firm sells to raise funds. Since the ownership of
bonds can be transferred to another person, investors are
attracted to buy them.
The type of bonds are shown in Figure 12.3.

TYPE OF BOND

FEAT\JRE

1. Debentures

no collateral

2. Mortgage bond

secured by real estate

3. Collateral trust bond

secured by stocks and bonds


owned by the issuing
corporation

4 . Guaranteed bond

payment of interest or principal is guaranteed by one


or more individuals or
corporations

s.

with an Inferior claim over other


debts

Subordinated debentures

requirement

6. Convertible bonds

convertible Into shares of common stock

7. Bonds with warrants

When properly utilized, common stocks can be


cheaper and more stable sources oflong-term funds. Unlike
bonds and term loans which must be repaid at a certain

warrants are options which


permit the holder to buy
stock of the issuing com
pany at a stated price

a. Income bonds

pays Interest only when earned

'Gup. p. 656
'tuceoe . Bricbam t.nc1 Lou" C. O.po1\0lri, F"4"<14i M""'''fm<IU, Sixlb
llditloa (N.,. YotL The Drydon P.-, t99t) p. 608.

.MStepbeo A &o.a eod olhttl, Pundamutol# o{ Corporcu Finance


(llo......-1, llbno..; Irwin, 1991) r. 381.

Common Stocks. The third source oflong-tenn funds


consists of the issuance of common stocks. Since common
stocks represent ownership ofcorporations, many investors
are placing their money in them.

In like manner, t.be sole owner of an engineering firm


may decide to reinvest whatever profits he derives from
his business. The same decision may be adapted by the
owners of a partnership.

THE BEST SOURCE OF FINANCING


As there are various fund sources, the engineer
manager, or whoever is in charge, must determine whieh
source is the best available for the firm.
'lb determine the best source, Schall and Haley recommends that the following factors must be considered: 11

flexibility
2. risk
3. income
4. control
1.

5.

Generally, short-term debt "subjects the borrowing


firm to more ris~ than does financing with long-term
debt."'2 This happens because of two reasons:
1.

llhort-term debts may not be renewed with the


same terms as the previous one, if they can be
renewed at all.

2.

since repayments are done more often, the risk


of defaulting is greater.

The various sources of funds, when availed of, will

timing

Flexi bility
Some fund sources impose certnin restrictions on the
activities of the borrowers. An example of a restriction is
the prohibition on the issu ance of additional debt instruments by the borrower.
As some fund sources are Jess restrictive, the flexi bility factor must be considered. In general, however,
short-term fund sources offer more flexibility than longterm sources. Thi.s is so because after settling the debt,
sbort-wrm borrowers may shift to other types of financing. Long-term borrowers are given this opportunity
only after a longer period of waiting.
1Awreoee D SchaU a.n<l Cbu&e. W. Haley.

Wben applied to the determination of fund sources,


risk refers to the chance that the company will be affected adversely when a particular source of financing is
chosen.

Income

6. other factors like collateral values, flowtion costs,


speed, and exposure.

11

Risk

Jnti'OdJhLHI to

have their own individual effects in tlie net income of the


engineering firm. When the firm borrows, it must gene
raw enough income to cover the cost of borrowing and still
be left. with sufficient returns for the owne.rs.
It is possible that the owners were el\ioying higher
rates of return on their investments before borrowing
was made. The reverse may happen, however, at other
times. Nevertheless, the effects on income must be
considered in determining the source of fundinjl" to be
used.
Control
When new owners are tsken in because of the need
for additional capital, the current group of owners may
lose control of the firm_ If the current owners do not want
this to happen, they must consider other means of
financing.

FIJt.OnciGI

MbOI'"''"' SIXth E<bUon (Now Yofk: MeGraw.RJII.Inc. 19911 pp. 412-413.

"W,.IA>o l.nd

Br~~:ham.

P- ~ 13.

267

Timing
The financial market has its ups and downs. This
means that there are times when certain means of
financing provide better benefits than at other' times. The
engineer manager must, therefore, choose the best time
for borrowing or selling equity.
Other factors
There are other factors considered in determining
the best source of funds. They are as follows:
1. Collateral values: Are there assets available as
collateral?
2. Flotation cost: How much will it cost to issue
bonds or stocks?
3. Speed: How fast can the funds required be raised?
~

Exposure: 'lb what extent will the firm be ex


posed to other parties?

THE FIRM'S FINANCIAL HEALTH


In general, the objectives of engineering firms are as
follows:
1. to make profits for the owners;
2.

to satisfy creditors with the repayment of loanfl


plus interest;
3. to maintain the viability ofthe firm so that custof
mers will be assured o! a continuous supply o
products or services, employees will be assured
of employment, suppliers will be assured of "
market, etc.
The foregoing objectives have bette~ chances of
achievement if the engineein.g firm is financally h~lthy
and hllll the capacity to be $0 on a long-term basJs.
258

INDICATORS OF FINANCIAL HEALTH


The fmancial health of an engineering firm may be
determined with the use of three basic financial statements. These are as follows:
1.

Balance sheet-also called statement offinancial


position;

2.

Income statement - also called statement of


operations;
Statement of changes in financial position.

3.

'lb be able to determine the financial health of a firm,


the appropriate financial analysis must be undertaken.
A full discussion of financial statements and analysis are
indicated In Chapter 9. Examples of balance sheet and
income statements are also presented in Chapter 9. An
example of a statement of changes in financial positions
is shown in Figure 12.4.

RISK MANAGEMENT AND INSURANCE


The engineer manager, especially those at the top
level, is entrusted with the function of making profits
for the company. This will happen if losses brought by
improper management of risks are avoided.
Risk is a very important concept that the engineer
manager must be familiar with. Risks confront people
everyday. Companies are exposed to them. Newspapers
report on a daily basis the destruction oflife and property.
Companies that could not cope with losses are forced to
ehut down, according to reports.
Fortunately, the engineer manager is not entirely
hPipless. He can use sound risk management practices
to avoid the threat of bankruptcy due to losses.

Risk Defined
Risk refers to the uncertaintiy concerning loss or
269

injury. The engineering firm is faced with a long list of


exposure to risks, some of which are as follows:
1.

fire

2.

theft

Figure 12.4 A Sample Statement of Change In Financial


Position

3. floods
4.

accidents

5.

nonpayment of bills by customers (bad debts)

6.

disability and death

7. damage claim from other parties.


Types of Risk

SILVER LINING ELECTRONICS CORPORAnON

Statement of Change in Financial Position


for the Year Ended December 31, 1997
(~000)

Beginning cash balance


Sources
Net profrt from operation
,.692
Plus: Depreciation
600
Plus: Increase in deferred
taxes
771
Funds from opecations
Increase in accounts payable
Increase In notes payable
Increase in accrued salaries
and wages
Total Sources
Uses
Increase in gross plant
Dividends
Increase in accounts receivable
Increase in inventory
Increase in prepaid expenses
Decrease in accrued taxes
Decrease in bank term loan
Decrease in m6rtgage
Total Uses

,.934

Risks may be classified as either pure or speculative.


Pure risk is one in which "there is only a chance ofloss." 13
This means that there is no way of making gains with
pure risks. An example of pure risk is the exposure to loss
of the company's motor car due to !heft. Pure risks are
insurable and may be covered by insurance.
Speculative risk is one in which there is a chance of
either loss or gain. This tYJ>e of risk is root insurable. An
example of a speculative risk is investment in common
stocks . If one wants to make gains in the common stock
market, the nuances and intricacies of investments must
be learned and properly applied. Also, operating the
engineering firm is a kind of speculative risk. If profits
are expected, then proper management techniques must
be used.

,.2,063
583
517
8

,.3,171
,.1 ,500
429
1,229
280
23
9
75
145

What is Risk Management


Risk management is "an organized strategy for pro
tecting and conserving assets and people."" The purpose
of risk management is "to choose intelligently from among
all the available methods of dealing with risk in order to
secure the economic survival of the firm""
,.3,690

Sources - uses " ,.3,171 - ,.3,690


Beginning cash (sources- uses) = ending cash

- 1"519
1"415

llJI\Qk R. Kapoor ond oth~ Per&onalFi.twnc~. Sf,cond Edition <Homewood.


11Hnoi.s: Richanl D. Jrwin. rnc., 1991) p. 327.
'Op. cl~. p. 314.
"MarkS. Dorfman, lntroduetiolt. to IMt,tf'O" (En,. .ood CUtt,, Nf'W
Jnor. Plontico-Holl. In<., 1978) p. 43.

260

261

Risk management is designed to deal with pure risks,


while the application of sound management practices are
directed towards speculative risks that are inherent and
cannot be avoided.
Methods of Dealing with Risk
There are various methods of dealing with risks. They
are as follows: $
1.

the risk may be avoided

2.

the risk may be retained

3.

the hazard may be reduced

4.

the losses may be reduced

5.

the risk may be shifted

A person who wants to avoid the risk of losing a

property like a house can do so by simply avoiding the


ownership of one. There are instances, however, when
ownership cannot be avoided like those for equipment,
appliances, and materials used in the production process..
In this case, other methods of handling risk must be
considered.
Risk retention is a method of handling risk wherein
the management assumes the risk. A planned risk reten
tion, also called self-insurance, is a conscious and deUberate assumption of a recognized risk. In this C8lle, management decides to pay losses out of currently available
funds. Unplanned risk retention exists when management does not recognize that a risk exists and unwisely
believes that no loss could occur.
Hazards may be reduced by simply instituting
appropriate measures in a variety of business activities.
An example is prohibiting unauthorized persons to ente;r

the ca:shier's office. This will reduce the hatard of theft.


Another example is prohibiting company drivers from
taking alcohol or drugs. while on duty. Newspaper reports on the accidental killing of three persons including Princess Diana is a well-publicized case of drunken
driving.17
\Vhen losses occur in spite of preventive measures,
the severity ofloss may be limited by way of reducing the
concentration of exposures.18 Examples of efforts on loss
reduction are as follows:
1.

phy.sically separating buildings to minimize


losses in case of fire;

2.

usi..'1g fireproof materials on interior building


co1sLruction;

3.

st<>ring inventory in several locations to n:rinimize


losses in cases of fire and theft.;

4 ..

maintaining duplicate records to reduce accounts


receivable losses;

5.

transporting goods in separate vehicles instead


of concentrating high values in single shipments;

6.

prohibiting key employees from traveling together; and

7.

limiting legal liability by forming several separate


corporations.

Alllother method of handling risk is by shifting it to


another party. Examples of risk shifting are hedging,
subcontracting, incorporation, and insurance.
Hedging refers to making commitments on both sides
of a tr(lnsaction so the risks offset each other.
'~j'a Driver on Drugs During Accident, TAe. PhilijJpiM Star; September

11. 1997, p. 8.

".fttn I. M.thr, Fufl4amwtals 9(lnsura.n.ce, Seoood Edition (Homewood,


llllnob: Irwin, 1986) pp. 30.87.

''Roobef1.9

G~ Medi.oa,

Pri{u:ipltt an</- Pro.cliCfs in Jnsuroncc ( Manila:

National BookatoA, 1987) p. 12.

When a contractor is confron~ with a contract bigger


than his company's capabilities, he may invite subcontractors in so that some of the risks may be shifted
to them.

Figure 12.5

Examples of Insurance Products Sold by a


Company
PEOPLE'S TRANS..EAST ASIA
INSURANCE CORPORATION

In a corporation, a stockholder is able to make profits


out of his investments but Without individual responsibility for whatever errors in decisions are made by the
management. The liabjlity of the stockholder is limited
to his capital contribution.
'lb shift risk to another party, a company buys insurance. When a loss occurs, the company is reimbursed
by the insurer for the loss incurred subject to the term
of the insurance policy.

Shown in Figure 12.5 is an example of insurance


products. sold by a company.

Mercantile Insurance Bldg.


Gen. Luna cor. Beaterio Sts.

lntramuros, Manila
Tel. Nos. 49-12 81 to 85
527-761 1 to 15
(connecting all departments)
FIRE

Fire and Allied Perils, Business Interruption

MARINE

Hull Insurance, Shipowner's Liability


Insurance Protection and Indemnity

CASUALTY

Motorcar, Property Floater, Personal


Accident, Compieh&nsive General
Liability, Money, Security and Payroll,
Cash in Transit, Burglary

ENGINEERING

Contractor's All Risk, Machinery Breakdown, Contractor's Plant and Equip


ment All Risks, Erector"s All Risks,
Boilers and Explosion, Electronic
Insurance, Consequential Losses

AVIATION

Hull and Liabilities Insurance, Airport


0p~rator

liability, Hangarkeeper's

liability, Aircraft Refueling Liability,


Pilot's License Insurance. PiloVC1ew
Personal AccJdent Cover
BONOS

All Kinds of Bonds

FrQm the Philippine Long Distance Telephone Company


19961997 Luzon, Visayas, Mindanao Telephone Directory,
p. 317.

266

SUMMARY

QUESTIONS FOR REVIEW AND DISCUSSION

Financing the engineering firm is a very importa.n t


m anagement activity. There is a need to assure everyon e
concerned that funds are available when they are needed.
The first area ofconcern is the determination of fund
requirements. If the amount needed is already known,
the next step is to determine the appropriate source of
financing.
The various fund sources have their own individual
strengths and limitations. It is wise to find out through
analysis which will benefit the engineering firm most.

1. What is the finance function? How important is it


to the engineering firm?
2. What are the specific fund requiranents of firms?

3. What are the various sources of the finn's cash in-

flow?
4. What is the difference between short-term and longterm sources of funds?
5. What are the suppliers ofshort-term funds? Describe
briefly each.

When the internal sources of funds are not enough


to finance operations, external sources like those granting

6. Describe briefly the long-term sources of funds.

loans and credits may be tapped.

7. How may one determine the best source of financing?

In the determination of the best source of financing,


the following factors must be consider1!d: flexibility, risk,
income, control, timing, and others.

8. How may the financial health of the company be


determined?

To achieve its goals, the engineering firm must be

9. What is meant by "risk?" Why must it be managed


properly?

financially healthy. There are certain indicators of financial health. They are broadly classified into the following
categories: liquidity, efficiency, financial leverage, and
profitability.
An important aspect ofmanaging the finance function
is risk management. When assets and human resources
are protected and conserved, the engineering firm is well
on its way to achieve its objectives.

The various ways of handling risks are: risk avoid anoa, risk retention, hazard reduction, loss reduction, and
risk shifting.

10

Describe briefly the methods of dealing with risks.


SUGGESTED ITEM FOR RESEARCH

ldentify an engineering firm of your choice. Determi no the methods used by the firm in handling risk. Do
yuu con sider these methods adequate? If not, suggest
tho appropriate method that must be used.

267

Caae 12. FOUR ACES CONSTRUCTION AND HARDWARE


SUPPLY: Here, There, and Everywhere

In 1964, four girls who were in their fourth year high


school at St. Mary's in Bayombong, Nueva Vi8caya, made
a pact that they must be together even after college. The
girls consisting of Gloria Thdino, Rosemarie Ginez, Ligaya
Sebastian, and Rosalie Chico were the brightest in the
graduating class. They ported ways in college, however.
Gloria went on to finish a civil engineering course
at the University of San Agustin. Rosemarie got her
industrial engineering course at the University of Manila.
Ligaya was awarded a diploma in sanitary engineering
by National University. Rosalie graduated with a business
management degree at St. Paul College.
In 1973, the four were reunited at the birthday party
of Gloria. All four were already working and have good
paying jobs. Rosemarie mentioned to her friends thalt
maybe they should put up a business. All agreed and with
in a short period, they opened a construction and hardware supply store in Bayombong. A capital contribution
of ,.100,000 each was placed in a common equity fund.
'!'he store carried the name Four Aces Construction and
Hardware Supply (FACHS) and Ligaya was assigned as
store manager. The operation was successful that after
two years, the firm's value was placed at ,.956,000.
A second store was opened in 1976 at nearby Solano
town and was assigned to Gloria. The operation was also
a success. This prompted the four to open another store
in Santiago City under the managership of Rosemarie and
a fourth one in San Jose City under the care of Rosalie.
The company was able to maximize profits by
installing a centralized purchasing system. As a result,
volume discount and credit extensions were granted by
tbe suppliers. The company was able to institute an
effective personnel development progrom.
268

By December 1997, FACHS' assets were valued at


over ,.75 million. The four ladies realized that an opportunity for expansion exists but they also understand their
limitations. They are aware that they are not getting any
younger as all of them are already fifty years old. In
addition, expansion would mean additional funds will be
required. Nevertheless, they thought that it would be nice
to allow the busipess to gro':" even if they are no longer
capable of doing so. As all of them are already married
and have children, the idea was deemed appropriate.
As Gloria, Ligaya, Rosemarie, and Rosalie faced each

other in a meeting, they hoped that options will be brought


up by anybody to help them solve their problem.

IN 0 EX

How leaders intluence others,

Matrix organ.iution, 82
Motivation
Human l'eJ!Our<:es planning,
factors contributing to,
98
140
techniques of, 149, 155
I
theories of, 140
Induction and orientation, 104
what is, 139
Informal groups, 77
Inventory control, 227
N
lnventory models,' 42
Network models, 48

163

Engineer in various types


of organization, 13
Engineer manager, how on e
may become a auccesaful,
21
Engineer manager's job,
requirements for, 20
Environment, components
of the, 33
Expectancy theory, 144

A
Authority, types of, 84

c
Committees, purpose of, 86
Communicating in
organjz.ations,
techniques for, 128
Communication
barriers to, 126
forms of, 124
functions of, 119
overcoming barriers to,

F
Fiedler's contingency model,

129
process, 120
what is, 118
Controlling
importance of, 187
what i.s, 187
Control problems, identifying,
201
Control process, steps in the,

188
Control ll)'lltems, components
of organizational, 193
Control, types of, 191

174
Finance function, what is
the, 253
Financial analysis, 197
Financial health indicators
of, 267
the firm's, 266

Financing, the best source


of, 264
Financial ratio analysis, 197
Forecasting, 143
methods of, 99
Functional organization, 80
Fund requirements, tho
determination of, 255

Funds, sources of, ll57

Decision making as a
management responsibility, G
29
Goal-setting theory, 146
process, 31
Groups, informal, 77
what is, SO

B
E
Employment decisions, 111
Engineer, functions of tho, 10
Engineering management

what i3, 14

Hersey and Blanchard


situational leadership
model, 175
Herzberg's Two-Factor
Theory, 143

2:70

L
Leaden
autocratic, 172
free-rein, 172
participative, 172
traits of effective, 165
Leadership skills, 168
Leadership styles
behavioral approaches
to, 170
Leadership, the nature of,
164
Leading, what is, 163
Linear programming, 44

0
Operations and the engineer
manager, 211
Operations is, what, 209
Operations management is,
what, 210
Organizing defined, 75
Organizing, reasons for, 74
Organizational structures,
types of, 78
Organization, the formal, 76
p

M
Management
defined, 20
process of, 20
M11nog~mont

information

system, 132
Management skills required
at various levels, 14
Market ing concept, what is
the. 235
Marketing mix, developing
a, 246
Marketing, the engineer and
the four P's of, 236
Maslow's need hierarchy
theory, 142

271

Path-goal model of
leadership, 176
Penormance appraisal, 109
Place, the, 237
Plamning at various
manageme.nt levels, 53
Planning defined, 52
Planning process, the, 56
Planning effective, making,
67
Planning, the nature of, 51
Plans, parts of the variout
functional area, 62
types of, 60
Power, bases of, 163
Price, the, 236
Problem, what is a, 31
Product design, 226

Production planning and


scheduhng, 227
Production systems,
important parts of, 226
Product or market
organization, 81
Product, the, 236
Promotion, the, 238
Purchasing and materials
management, 227

Q
Quality contrQI, 229
Quantitative models for
deciMion making, 41
Queuing theory, 42

R:
Recruitment, 100
R.egregsion nnalysis, 44
Risk defined, 267
Risk n1anagcment and
insurance,
267

Riijk management, what is,


269
Risk, methods of dealing
with, 270
Risks, types of, 269

Sampling thoory, 45
Selection, 101

Separation, 112
Simulation, 44
Solving problems, approaches
in, 39
Staffing procedure, 98
Staffing, what is, 97
Statistical decision theoty,
45
Strategic marketing for
engineers, 242
Strategic plan, parte of, 67
Structure, purpose of the,

75
T
Target market, selecting a,
242
'Thsta, types of, 102
Training and development,
105
Training program for
managers, 106
Transformation prote88,
types of, 214

v
Vroom's Ocdsion Making
MQdel, 178

w
Work-flow layout, 228

272