CHAPTER ONE

Basics Of Management And Industrial

Organizations

By: Fetene G.

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 Topics to be covered
v Introduction to management
v Functions of management
v Managerial roles and skills
v Organization
v Basics of Productivity

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 Introduction to Management
q Management is the process of bringing human and nonhuman
resources together and coordinating them to accomplish
organizational goals.
q it’s the creation of conditions that allow the effective use of resources
(human, financial, material, equipment, technical and etc.) to achieve a
specified goal.
Management concerns
q Efficiency
q Efficiency is getting the most output from the least amount of inputs in
order to minimize resource costs.
v “Doing things right”
v The level of output that is achieved with a given level of inputs.

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Management concerns
q Effectiveness
q Effectiveness is completing activities for attaining high
organizational goals.
q “Doing the right things”

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 Characteristics of Management
q Management is Goal Oriented q Management is Concerned with
Activity. Group Efforts/Activity.
q Management is relationship qManagement is Dynamic.
building within and outside the qManagement has its own tools and
organization. techniques.
q Management is an environment q Management is leadership
oriented activity. responsibility, not just an activity.
q Management is an Art of Getting
Things Done.

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 Reasons of Studying Management

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 Industrial management
§ Is a structured approach to manage the operational activities of an

organization.

§ Since it deals creation and management systems that integrating

the people and materials and energy in a productive way(to

improve productivity by utilizing the existing resources).

v Where as engineering economics helps to make informed financial

evaluation, decision and financial report of engineering projects,

lease/buy decisions.

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Functions of Management

1.Planning:- is the process of setting objectives for the future and

developing courses of action to accomplish them.
During planning one needs to ask oneself the following:
Ø What am I trying to accomplish i.e. what is my objective?
Ø What resources do I have?
Ø What are the methods and means to achieve the objectives?
Ø Is this the optimal path?

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 Steps in Planning
1. Determining the goals or objectives for the entire
organization.
2. Making assumptions on various elements of the environment.
3. Decide the planning period.
4. Examine alternative courses of actions.
5. Evaluating the alternatives.
6. Real point of decision making.
7. Make derivative plans.

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2.Organizing:-is the process of arranging people and physical
resources to carry out plans and accomplish organizational objectives.
 Determine what is to be done/ Division of Work.
 Assign Tasks: Departmentalization
 Link Departments: Hierarchy Development
 Decide how much Authority to Designate/ Authority, Responsibility
and Delegation.
 Decide the Levels at which Decisions are to be made / Centralization
vs. Decentralization
 Decide how to Achieve Coordination.

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3.Leading:-is the act of inspiring,motivating or causing people to
perform certain tasks intended to achieve specific objectives..

ü Provides proper motivation of personnel.

ü Ability to command people.
ü Attracting people to the organization.
ü Marshaling and allocation of resources
ü Creating good working conditions

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 4.Controlling:- is the process by which managers determine
whether organizational objectives are achieved and whether
actual operations are consistent with plans.
 It’s a three-step process of measuring progress toward an
objective, evaluating what remains to be done, and taking the
necessary corrective action to achieve or exceed the objectives.

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 Steps in Controlling
 Establish Standards of Performance.
 Measure Actual Performance.
 Compare Performance to Standards.
 Take Corrective Action.

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 Types of Managerial level (Hierarchy)
A manager is a person responsible for supervising and motivating
employees and, for directing the progress of an organization.
The three level of managers are:-
v First-line Managers: often called supervisors stand at the base of the
managerial hierarchy.
v Middle Managers: heads of various departments and organize
human and other resources to achieve organizational goals.
v Top level Managers: set organizational goals, strategies to
implement them and make decisions.

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 Managerial Skills
ü Since a manager is skilled in knowing how to analyze and
improve the ability of an organization to survive and grow in a
complex and changing world.
ü A set of tools that enable them to grasp the complexity of the
organization's environment.

vTechnical skills
vHuman skills
vConceptual skills

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 Technical Skills
 Technical skill involves understanding and demonstrating
proficiency in a particular workplace activity.
 Are the specialized knowledge and abilities that can be applied
to specific tasks.
 Most important at lower level of management.
For eg: Engineer, accountant, data entry operator, lawyer,
doctor etc.

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 Human Relation Skills
 An individuals’ ability to cooperate with other members of the
organization and work effectively in teams.
 Are the abilities needed to resolve conflict, motivate,
lead, and communicate effectively with other workers.
 Equally important at all levels of management.
eg: Interpersonal relationships, solving people’s problem and
acceptance of other employees.

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 Conceptual Skills
q Ability of an individual to
analyze complex situations
and to rationally process and
interpret available information.
q For eg: Idea generation and
analytical process of
information.

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 Managerial Roles
Managerial roles categorized as follow:-
v Interpersonal role :interact with his/her employees
v Informational role: generat and share knowledge
v Decisional role: process of using information to make decision
Ø Interpersonal Role
v Figurehead- As a figurehead a manager performs social, ceremonial
and legal responsibilities that his employees expect him to fulfill.
Leader- give direct commands and orders to subordinates and make
decisions.
v Liaison-coordinate between different departments and establish
alliances between different organizations.
-communicates with internal and external members(customer)of
organization.

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vInformational Role
v Monitor - evaluate the performance of employees in different functions.
v Disseminator -communicate to employees,the organization’s vision and
purpose.
v Spokesperson- give a speech to inform the local community about the
organization’s future intentions.
vDecisional Role
v Entrepreneur- commit organization resources to develop innovative
goods and services.
v Disturbance handler- to take corrective action to deal with unexpected
problems facing the organization from the external as well as internal
environment.
v Resource allocator- allocate existing resources among different functions
and departments.
v Negotiator- work with suppliers, distributors and labor unions.

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 Manager’s Roles

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 Organization
q Is a stable and formal social structure that takes resources from
the environment and processes them to produce outputs.
q An organization is the rational co-ordination of the activities or
roles of a number of people for the achievement of some common
explicit purpose or goal, through a hierarchy of authority and
responsibility.

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 Con.t
qCharacteristics of organization
(1) each has a distinct purpose(Goal);
(2) each is composed of people; and
(3) each develops some deliberate structure so
members can do their work.

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Type of organization based on purpose
v Profit oriented organization (Product/Services)
Ø Return on investment /for making money
v Nonprofit-oriented organization
Ø For offering services like;
Ø Educational Institutions
Ø Hospitals, social welfare agencies like red cross
v Mutual Benefit organizations
Ø To advance members’ interest like;
Ø labor unions, trade associations, Political parties. Etc.

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 Organizational structure
v Is a Formal relationship between people
in various positions in the organization.
v It shows who supervises whom & how
various jobs & departments are linked
together to make and achieve
coordinated system.
v Main channels of communication:
q Downward
q Upward
q Horizontal
q Diagonal

25 Dejene M., Industrial Engineering Program, EiT_M

Types of organizational structures
i. Line organization: the characteristic feature of this type is that line
of authority flows verticality from the top most executive to the lowest
subordinate throughout the entire organizational structure.
ü This type of organization is usually found in the army. The
authority is greatest at the top and reduces through each successive
level down the organizational scale.
Advantages:
ü It is simple and easy to understand by the members of the enterprise.
ü Quick decisions can be taken.
ü It provides a clear cut division of authority and responsibility.
ü Maintenance of disciple is easy.
Drawbacks:
ü Not suitable for complex and large enterprises.
ü Executives become overloaded with too many duties.
ü
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Specialization cannot be practiced.
v ii. Functional organization: type of activity or function determines
area of responsibility and authority.
ü An expert or specialist is placed in charge of each functions and will
have direct control of that functions wherever its undertaken within
the enterprise.
Advantages:
ü It works on the basis of expert knowledge.
ü Quality of work is better.
ü Expertise at various levels reduces the number of accidents and
wastage of materials, man and machine hours.
ü Narrow range with high depth understanding in his particular area
of activity.
ü Ease in Selection and Training

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 Con.t
draw backs
Indiscipline
 Since the workers receive instructions from number of specialists
(which may be conflicting) it leads to confusion to whom they should
follow. Therefore, it is difficult to maintain discipline.
Shifting of responsibility.
It is difficult for the top management to locate responsibility for the
unsatisfactory work. Everybody tries to shift responsibilities on
others for the faults and failures.
 Overlapping of Authority.
The spheres of authority tends to overlap and gives rise to friction
between the persons of equal rank.
Kills the initiative of workers.
As the specialized guidance is available to the workers, the workers
will not be using their talents and skill, therefore their initiative
cannot be utilized.
Increase in Cost.
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 Con.t
Line and Staff organization: combination of line and
staff and is most successful type of organizations.
Advantages:
Ø Export advice from specialist staff executive are relieved of some of their loads and
are thus able to devote more attention towards production.
Ø Less wastage of material, man and machine hours.
Ø Quality of product is improved

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Basics of productivity

Productivity is a common measure of how well resources are

being used or a measure of the efficient use of resources usually
expressed as the ratio of output to input.

Productivity, the relative efficiency of economic activity—that is,

the amount of products or services produced compared to the
amount of goods and labor used to produce.
q Labor Productivity
v Quantity (or value) of output /
labor hrs
v Quantity (or value) of output /
shift
q Machine Productivity
v Quantity (or value) of output /
machine hrs
q Energy Productivity
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 Measures of Productivity
Partial Output Output Output Output
measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them
If we produce only one product, the
numerator can be either the total units
of product or total $ value of the
product.
If we produce several products, the
numerator is the total $ value of all products.

Usually, the numerator is the total $ value of

all outputs.
The denominator is total $ value of all inputs.

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 Eg.1
7040 Units Produced

Sold for $1.10/unit

Cost of labor : $1,000

Cost of materials: $520

Cost of overhead: $2000

1. What is the multifactor productivity?

MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000

= 2.20
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 Eg. 2
Ø 5,500 Units Produced
Ø Sold for $35/unit Ø 5,500 units/500 hours = 11 units/hour
Ø 500 labor hours are used Or we can arrive at a unitless figure:
Ø Cost of labor: $25/hr Ø (5,500 units*$35/unit)/(500 hours *
$25/hr) =15.4
Ø Cost of raw material: $5,000
Ø Cost of overhead: 2 x labor cost
What is the labor productivity?
What is the multifactor productivity? MFP = (5,500 units)*($35)
(500hrs.)*$25/hr. + ($5000) +
2*(500hrs.)*$25/hr.

MFP = 4.52

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 Con.t
Example 3
q Assume that you have just determined that your service employees have used
a total of 2400 hours of labor this week to process 560 insurance forms. Last
week the same crew used only 2000 hours of labor to process 480 forms.
q Which productivity measure should be used?
v Answer: Could be classified as a Partial Measure (labor productivity).
q Is productivity increasing or decreasing?
v Answer: Last week’s productivity = 480/2000 = 0.24, and this week’s
productivity is = 560/2400 = 0.23. So, productivity has decreased slightly.

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 Factors affecting productivity
q Standardization q Methods
q Technology q Design of the workspace
q Searching for lost or q Incentive plans that reward
misplaced items productivity
q Capacity utilization
q Scrap rates
q Location
q Labor turnover, layoffs, q Layout
new workers q Inventory
q Safety q Scheduling,eg. Exit exam
q Bottlenecks q Equipment breakdowns
q Part and material shortages
q Inadequate investment in training &
education of the employees

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 Key Steps for Improving Productivity
q Develop productivity measures for all operations
q Determine critical (bottleneck) operations
q Develop methods for productivity improvements
q Establish reasonable goals
q Get management support (make it clear that management supports and
encourages productivity improvements.)
q Measure and publicize improvements
q Invest on labor force by training and education

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