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Industrial Management

Engineering Economy

By:- Tewodros A

Wollo University

Kombolcha Institute of Technology (KIO

T) Electrical &

Computer Engineering Department

What is Management?

The verb manage comes from the Italian maneggiare
(to handle especially a horse)
Which in turn derives from the Latin manus (hand)
The French word mesnagement (later mnagement)
influenced the development in meaning of the
English word management in the 15th and 16th

Definition of management

Management is the art of getting things done

through people
Management is the process of getting activities
completed efficiently and effectively with and
through other people

What is this little lad doing?
Do you know where he is going?
Can you see where he is going?
Do you know what could happen if he
falls in the water?
Can you really see what the
consequences are going to be?
Have you got the big picture in mind?
With anything that one does in life you
start with the end in mind. You decide
what you want to achieve and then you
decide how you will work towards
achieving it. This is what management

manage the creative tension between current reality and
Future reality

NOW Reality Vision FUTURE


So That You and Your Followers
Can Reach Our Vision

Put Stepping Stones in


Chart the Path

In general "management" identifies aspecial group
of people whose job is to direct the effort and
activities of other people toward common objectives.

Simply, management gets things done through other

people by planning, coordinating and directingthe
activities of an organization
The decisions and judgments made are normally
oriented to the needs of the organization

Why Management?

The Industrial Revolution brought about the

emergence of large-scale business and its need for
professional managers
Management became more important as the
developments and complexities of technology and
human relationships get more challenging to those
who perform managerial functions

Shorter life-cycles for innovative technologies

Water Stea Electricity Petrochemical Digital

Textiles m
Rail Chemicals s
Electronics networks
Iron Steel Internal- Aviation New media

1st Wave 2nd Wave 3rd Wave 4th Wave 5th Wave

1785 1845 1900 1950 1990 1999 2020

60 yrs 55 yrs 50 yrs 40 yrs 30 yrs

Source: The Economist, February 20, 1999

What managements strives for?
'Management strives involving a group of people work
together in the most effective and efficient manner to
achieve stated goals in the best and most
economical way'.

Functions of management
The subject of management can be considered a
process involving certain functions that a manager
1. Decision making
2. Planning
3. Organizing
4. Staffing
5. Directing

1. Decision making

Decision can be defined as an act involving mental

process at a conscious level inchoosing a course of
action from available alternatives for the purpose of
attaining a desired result

Five steps of Decision making
1. Fact gathering process to lay a solid foundation for
understanding the situation
2. Recognition of the right problem
3. Generate as many alternatives as possible
4. Select the best alternative
5. Communicate the decision to others

2. Planning

Planning involves the predetermining of the course

of action to be taken in relation to the known event. It
also includes anticipating the possibilities of future
problems that might appear
Failing to plan means planning to fail.

It is a systematic activity which determines
when, how and who is going to perform a
specific job. It is rightly said Well plan is half

The increased importance of planning in a business
enterprise results from various changes in the environment

changes in

government policy,

economic activity,

the nature of competition and

social norms and attitudes.


There are different planning executed in

different level of an organization

Strategic planning

Tactic planning

Operational planning


In general, the planning process may

systematically be composed of five elements:
1. Setting Primary & Intermediate Goals

2. Search for Opportunities

3. Formulation of Plans

4. Target Setting

5. Follow-up of Plans

3. Organizing
Organizing may be defined as the structure and
process by which a group allocates its tasks among
its members, identifies relationships and integrates
its activities toward common objectives

The organizing function of management brings together
human and physical resources in an orderly manner and
arranges them in coordinated pattern to accomplishplanned
Each organizational resource (human, material, finance etc.)
represent an investment from which the management system
must get the return. Therefore, these resources should be
organized properly for efficient and effective use of the same.

A sound organization is necessary because it brings many benefits to the
management of an enterprise. Some of the benefits are:
Good communication between the management and employees,
Sound basis to evaluate the performance of individuals and groups,
Well defined areas of works for each employee,
Coordination of activities of various individual, groups, etc.,
Effective delegation and decentralization,
Adequate and effective control,
Difficulty in empire building in any segment of the enterprise, and
Stimulation of independent, creative thinking and initiative on the part of the


There are some principles of organization which are

guide lines for thought to operating managers and
researchers in an organization

1. Unity of Command
2. Exception Principle
3. Span of Control
4. Scalar Principle
5. Departmentalization
6. Decentralization

the steps that are important when
organizing an enterprise
Reflection on plans and objectives,
Establishing major tasks,
Dividing major tasks into subtasks,
Allocating resources and directives for subtasks,
Evaluating the result of implemented organizing


Staffing deals with the workers and is worker-oriented
This function includes the process of placing the right
person in the right organizational position
The process of matching the people and the jobs is done
by careful preparation of specifications necessary for
positions and raising the performance of personnel by
training and retraining of people to fit the needs of the
organizational position


Control is the process that measures current

activities, quantitatively if possible, and guides it
toward some predetermined goal, plan, policy,
standard, norm, decision rule and criterion or
The essence of control lies in checking and
correcting actions against desired results in the
planning process

Controlling includes ensuring that employees perform
the work allocated to them in the ways laid down, and
with no wastage or duplication of time, effort or
That involves much more than simply instructing a
given number of employees to perform work; they
must be supervised and managed so that their efforts
achieve the desired results.
This requires that they are motivated, checked, guided,
taught and encouraged.


There are seven principles of control.

1. Strategic Point Control
2. Feedback
3. Flexible Control
4. Organizational Stability
5. Self-Control
6. Direct Control
7. Human Factor

It serves as a linkage by which the other functions
explained are tied together
There are three types of communications in an
1. Organization charts show the flow of authority and the channels
through which the vertical and downward communication flows
2. Horizontal type whereby, managers on the same level of an
organization coordinate their activities without referring all matters to
their superior
3. The informal type

For the same idea, different organizations use different
terms such as




Ordering and

What ever terms are assigned to it, the idea of directing
is to put into effect the decisions, plans and programs
that have been worked out.

There are four types of leadership styles
The dictatorial leader maintains a highly critical and negative attitude
in his relation with subordinates and advocates the accomplishment
of tasks through fear of penalties
The benevolent - autocratic leader assumes a paternalistic role which
forces the workers to rely on him for satisfaction. This type of leader
must be exceptionally strong and wise individual, so that his
personality generates respect and allegiance. The subordinates
develop dependence on the leader to the extent that they have very
little chance of developing leadership qualities.

The democratic leader suggests better methods and tries to
improve the worker's attitude. Unlike the others, not only he
depends on his capabilities but encourages consultation with
subordinates in planning, decision making and organizing. With
this type of leadership satisfaction is gained through a feeling of
group accomplishments.
The fourth type of leadership style is a laissez - faire type where
the leader assumes the role of just another member of the group
and depends completely on subordinates to establish their own
goals and make their own decision

Characteristics of a Good Manager
The Dual Aspects of any Manager's Job
The modern 'world of industry' is very complex, and this very
complexity has led to what is called specialization and to the
"division of labor by which different people specialize in
performing and become specialists in different types of work.
It follows, therefore, that the technical or "functional, i.e. the
specific work of different managers can and does vary

Nevertheless, all those different types of managers, and all
others, should have considerable knowledge of the
technical aspects of their jobs in addition to being
proficient managers of people.

It is, in any case, not easy to train, supervise and control

the work of others without knowing what they are or should
be doing.

So the duties of any manager or supervisor comprise two
quite different aspects:

1. The technical or functional aspect which is concerned

with the work to be performedby his enterprise or
department or section; and

2. The managerial aspect which is concerned with the

people who are to perform that work in his enterprise or
department or section.

Some estimates show that a managing director may spend
between 80% and 90% of his working hours on managerial
matters and only 10% to 20% of his time on the technical
activities. whilst senior managers may spend approximately 50%
of their work time on managerial activities and 50% on technical
activities; and supervisors and foremenmay spend some 70% to
75% of their time on technical activities and only 25% to 30%of
their time at work on the supervision of their subordinates


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

Ability to Think Clearly and Logically: A manager needs to be

able, as the result of training, to approach each situation and
problem positively and objectively, without prejudgment or being
distracted by irrelevancies. This requires him to think in a
clear, orderly fashion and to marshal and arrange logically in
his mind all the facts and information available to him.

2. The Abilities to Make Decisions and to Act Decisively:
These follow on from the foregoing, and also require a
measure of self-confidence; a belief in one's own
ability to succeed in solving problems in the right way,
and in one's own ability to deal effectively with different
situations and sets of circumstances.

1. Defining as accurately as possible the problem which needs to
be solved.
2. Obtaining all relevant information about the problem
3. Breaking down the problem into parts very often the solution
to one part is obvious and leads, logically, to the solving of
other parts or the whole problem.
4. Comparing and judging the probability of success of any
possible different solutions to the same problem, and their
possible consequences on other areas.
5. Selecting the most attractive solution making the decision

The Ability to Use Initiative: from time to time a manager is bound
to come across problems or situations which are outside his
range of experience or outside the normal scope of his
responsibly; the latter can, perhaps, arise when a senior is away
or is unavailable for some reason. In such circumstances,
particularly if action is urgently needed, the manager must not
simply leave the matter until his senior is available or wait to be
told what to do, but must initiate - that is, lead the action without
waiting to be prompted.

Ability to Handle Conflict: A good manager is calm, able to listen,
is positively responsive to criticism and is able to handle
conflicts and differences in a constructive manner. In order to
handle conflicts well, a manager must be confident, self-
assertive, fair and dominant. He should be highly tolerant of
stress, as conflicts generally lead to stress and tension. This
would require a sound mind in a sound body.


Ability to Adapt Change and be Flexible: Any manager must be

able to adapt to changes and, if necessary, to cope with changed
circumstances, and ensure that his subordinates also do so.

Adaptability to different situations and flexibility of mind are also

necessary in the routine, day-to-day running of a section,
department or an entire enterprise.

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

Stamina and Concentration : mental fitness to work long and hard
without undue stress or strain.

Besides mental alertness, a manager needs to be able to

concentrate his mind on the matter in hand even under the most
tiring circumstances and/or when he is under pressure; to focus
or keep one's mind intently fixed over a long period can be
tiring, particularly as there will be many different matters
requiring attention and concentration during a manager's
working day.


Drive and Determination: A manager needs the urge and

enthusiasm to stimulate action, not only by himself, but by
other people as well. He also needs the determination to keep
going whatever the difficulties, adapting his actions and
decisions to overcome problems encountered, and pressing
on to a successful conclusion.

Leadership: Leadership is the ability of a person to exert a
positive influence over the thoughts, behavior and actions of
others, and then to direct their thoughts, behavior and actions
towards a common goal or objective.

Organization Structure
planned organizational structure must not be overlooked in
the establishment of a new business.The stages in the
setting up of an effective organizational structure are
The activities which will be necessary to achieve the
objectives of the business must be established.
The various related activities should be grouped together into
departments; the most logical grouping is by 'function', that is,
by type of activity: production, marketing, finance, etc.
The activities of a particular department willbe further divided,
andgrouped together into sections;

An organization chart should be produced to depict the
proposed organization

Based on estimates of the volume of work, which will be

performed by each section, the number of staff required must
be determined. Depending on the type of work to be performed
and on other factors, the numbers of supervisors, junior and
middle managers per section and department must be given

The special knowledge or talents required by departmental
and sectional managers must be laid down. Coupled with this
is the necessity to lay down the extent and the limits of
authority and tile duties of all those who will hold managerial
positions and the authority to delegate must be provided.
The equipment necessary for the proper functioning of each
section and department must be decided upon, and provision
made for its positioning when considering the layout of the
accommodation for each unit.

To ensure effective coordination of all parts of the enterprise,
effective procedures and systems of communication must
be devised and installed.

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

1. line,

2. functional,

3. line and staff, and

4. matrix organization.

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

there is a clear 'line' of responsibility and authority right

through the management structure from the board to the
lowest level of supervision, and below.

Line organization is simple and direct and is easy to
understand. The 'chain of command is direct and so
decisions can usually be made quickly and implemented
rapidly, because of the directness of the control, the
coordination of the activities of all those employed in a
department is simplified.
The position (and status) of all the different people working
in a department can be easily seen, and so the extent of their
responsibilities, authority and duties can, be clearly defined
and understood, making disputes less likely.


II. Functional Manager
it is the function (the type of activity), which determines the
areas of authority and responsibility.

An expert or specialist is placed in charge of each function,

and will have direct control of that function wherever it is
undertaken within the enterprise.

As the functional specialists are not involved in the day-to-day
running of the enterprise (which is the domain of the line
managers) they are free to the concentrate on their particular
functions that produce many benefits for the enterprise.
However, this form of organizationmakes control difficult as
there are no clear lines of authority and it is similarly difficult to
establish responsibility when things do not go right.
Furthermore, staff as well as supervisors and junior managers
become confused at being subject to the authority of more than
one superior.


III. Line and Staff Organization
In such a structure, the line managers control the primary
functions, such as marketing and production, which are
directly concerned with achieving the objectives of the
business; whilst the staff managers are generally involved
with secondary functions which assist the smooth and
efficient running of the primary functions.





L Line relationship: S staff relationship
Responsibility and authority shown by
Staff. Advisory relationship shown by -------- & CLERKS & CLERKS

IV. Matrix Organization (Project Organization)
These are temporary organizational structures formed for
specific projects for a specific period of time and are
dismantled, once the required goal is achieved.
A typical example for this kind of organizational structure
can be the goal to design
The specialists are selected primarily on the basis of task-
related skills and expertise rather than decision making
experience or planning ability.

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

This kind of organization occurs frequently in:

Construction ( e.g. building a bridge)

Aerospace engineering ( i.e. designing and launching

weather satellite)

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

Installation of an electronic data processing system, etc.


In matrix organization, it is possible for the individual
employee to have two managers. However, proponents of
matrix organization believe that it provides an agency with
the flexibility to work on critical projects.

Matrix organization also brings together the specialized

talent that is often necessary to complete a project

Other advantages of matrix organization:
Decision making is decentralized to a level where information
is processed properly and relevant knowledge is applied.
Extensive communications networks help to process large
amount of information.
With decisions delegated to appropriate levels, higher
management levels are not over loaded with operational

Resource utilization is efficient, because key resources
are shared across several important programs or
products at the same time.

Employee learns the collaborative skills needed to

function in an environment characterized by frequent
meeting and more informal interactions.

disadvantages include:

Reporting for two supervisors which creates confusion

The design encourages managers who share subordinate to jockey

for power.

The mistaken belief can arise that matrix management is the same
thing as group decision making in other words every one must be
consulted for every decision.

Too much democracy can lead to not enough action.


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The Basics of Productivity
In most businesses, competition for the available market,
forces the management of each enterprise to seek
competitive advantage through the use of:
product improvements
lower costs
lower selling prices for the same or better quality and
better service to customers

Productivity is defined as the ratio of value of output to the

value of input

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An increase in production does not

necessarily by itself indicate an increase in
If the input of resources goes up in direct
proportion to the increase in output the
productivity remains the same

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If input increases by a greater percentage

than output, higher products will be achieved
at the expense of reduction in productivity

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In short higher productivity means to produce

more with the same expenditure, or with a
minimum increase in expense, or the same
amount is produced at less cost in terms of

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The outputs may be products or services

and the inputs or resources may be land,
materials, plant machineries, tools and a
series of man

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Land Productivity: Better seed, fertilizer and

better method of cultivation may increase
the yield from two quintals to three
quintals. Hence land productivity has
increased by 50 percent.

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Material Productivity: If a skillful worker is able to
produce 300 formworks from 400 pieces of 2m
1m sheet metal, while an unskillful worker
can only produce 250 out of the same material,
then with the skillful worker the material was
used with 20 percent greater productivity

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Machine Productivity: If a machine tool has
been producing 100 pieces per a working day,
and through the use of improved cutting tool
and/or proper maintenance procedure its output
in the same period is increased to 120 pieces,
the productivity of that machine has been
increased by 20 percent.

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Productivity of Man: If a shoe maker has been
producing 30 pieces of leather parts per hour, and if
improved methods of work enable him to produce 40
pieces per hour the productivity of that man has
increased by 33.3 percent

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To sum up, a low level of productivity implies a
low growth of economy. A low growth of economy
meant, low income leading to low standard of
living and a low level of savings, resulting in low
level of investment and low productivity

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Higher Higher Higher International

Quality productivity competitiveness


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Standard of living

Economic Growth

Productivity Growth + Employment Growth

TFP Growth + Capital Intensity Growth

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Productivity Improvement
Productivity is affected by many external and internal
factors. Some of the external factors, influencing
productivity to mention are:
the national and international policies
infrastructure supports
cultural practices
the availability of technology and natural resources
organizational policies
incentives and information

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Examples of internal factors that are
identified to as hindering the rise of
productivity are:
unsuitable personnel policies leading to a low level of
satisfaction and involvement;
poor maintenance system and low level of
maintenance awareness;
improper selection and training of personnel;

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inappropriate choice of design,
tools, material and equipment;
undefined standardization and quality policies;
inadequate plant layout and materials handling
poor planning, controlling and communication systems;

unsafe and unhealthy working environment

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

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The second action is increasing manpower

efficiency and effectiveness at all levels.
Effectiveness and efficiency are the main
tools of productivity.

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Effectiveness is a function of decision making

resulting in a setting up of aims, goals,
objectives and plans.

Efficiency is concerned with how well the

assigned task, as set out in the objectives, is
being carried out.

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To be able to increase manpower efficiency

and effectiveness at all levels of an
organization what is required is
motivation, training and education. This
method has proved itself successful in

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The third short term line of attack is

improving operation methods. The
techniques of method study involve
breaking a process into detailed
The study may result in elimination of an
activity, combination of several activities,
change of sequence of activities, shortening
duration of activities etc.

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As Frederik Taylor said "Most of us can do
three or four times as much as we ordinarily
do without lengthening working hours or
even driving ourselves to exhaustion by the
day's end".
In fact, to achieve this, effective
implementation of method engineering is

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2. Medium Term Strategy
At this stage the firm may require capital to
simplify and improve the products, and reduce
variety. The analysis consists of common sense
questions to come up with effective solutions
like substitution of alternative materials,
elimination of parts where special designs have
been specified, redesign, etc.

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3. Long Term Strategy
Properly selected new machineries, well
organized departments and proper layout will
undoubtedly contribute to an increase in
Furthermore, research and development is the
backbone for productivity increment.

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Productivity improvement techniques
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Functions of an Industrial
Manufacturing functions
Engineering Functions
Control Functions

Support Functions

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Manufacturing Function
Receiving: has the responsibility for
accepting raw material from the carrier,
presenting for inspection, and getting it to
the plant
Warehousing (or storing): has the
responsibility for storing raw material until
needed for production, and storing finished
goods until ready to be shipped to the

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Transportation: has the responsibility for moving
all types of materials within the plant area and
from the suppliers.
Production: has the responsibility for
transforming the raw material into an acceptable
and economical finished product.
Shipping: has the responsibility for packing and
delivering the finished goods to customers.

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Engineering Function
Product Design: has the responsibility for the
development of new and salable products and
preparation of product description, product
drawings and product specifications.
Process Design: has the responsibility for the
development of efficient processes for the
manufacture of the products developed by the
product design unit.

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Plant Engineering: has the responsibility for the
design and installation of new facilities and
ensuring that proper working conditions are
Cost Estimation: has the responsibility for
determining costs involved on product
manufacture. This includes design and
development cost of the product prior to

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Control Function
Production Control: has the responsibility for
establishing forecasts, production plans, inventory
levels and product distribution.

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Control Function
Quality control: has the responsibility for
establishing and maintaining the necessary control
of quality for raw materials, intermediate products,
and finished goods. It is also responsible for the
inspection of raw materials and finished products
for conformity to quality specifications.

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Control Function
Cost Control: has the responsibility for determining
and reporting the design cost, the manufacturing
cost and comparing these costs with the amounts
allocated in the budgets.

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Support Function
Purchasing: has the responsibility of buying the
necessary materials of the proper quality and
quantity at the most favorable price and securing
deliveries on time according to schedules
Sales: has the responsibility for selling the
company's product and for liaison after material
has been delivered

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Maintenance: has the responsibility for the
execution of preventive maintenance, repair of
old equipment, installation of new equipment and
provision of facilities.
Personnel: has the responsibility for hiring,
administering and training workers; and for the
termination of employments.

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