INDUSTRIAL MANAGEMENT AND

ENGINEERING ECONOMICS
Lecture note by Abraham Genetu

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 CHAPTER 1
BASIC MANAGEMENT CONCEPTS AND
INDUSTRIAL ORGANIZATION

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1.1 INTRODUCTION TO MANAGEMENT
Management is a vital aspect of the economic
life of man, which is an organized group activity.
A central directing and controlling agency is
indispensable for a business concern.
Without managers and effective managerial
leadership the resources of production remain
merely resources and never become production.
Under competitive economy and ever-changing
environment the quality and performance of
managers determine both the survival as well as
success of any business enterprise.
Management occupies such an important place in
the modern world that the welfare of the people
and the destiny of the country are very much
influenced by it.
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 Definition
There are many definitions of management but most
perceptive managers are convinced that it is an
organized effort of people whose purpose is to
achieve the objectives and goals of an organization.

Complete definition of management:

“Management is a distinct process consisting of

planning, organizing, staffing, leading and controlling in
order to accomplish predetermined objectives of the
organization”.

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 Contd…
Necessity of Management:
(1) Management is an essential activity of all
organizational level
(Low, middle, and upper level)

(2) Management applies to:

(i) Small and large Organizations.
(ii) Profit and non profit Organization.
(iii) Manufacturing Organization.
(iv) Service rendering Organization.

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Management Levels

Top
Managers

Middle
Managers

First-line
Managers

Non-managerial Employees

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 Contd…
Top-level managers

senior executives responsible for overall

management of an organization
focus on long-term issues
emphasize the survival, growth, and
effectiveness of the firm
concerned with the interaction between
the organization and its external
environment
Titles: CEO, President, GM,
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 Contd…
Middle-level managers (tactical managers)

located between top-level and frontline managers

in the organizational hierarchy
responsible for translating strategic goals and
plans into more specific objectives and activities
traditional role was that of an administrative
controller who bridged the gap between higher and
lower levels
evolving role is that of a developmental coach to
the people who report to them

Titles: Director, Head, Chief, division Head, Manager

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 Contd…
Frontline managers (operational managers)

lower-level managers who supervise the

operational activities of the organization
directly involved with non-management
employees
increasingly being called on to be
innovative and entrepreneurial

Titles: Supervisor, team leader, foreman,

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 Management skills
 skill - specific ability that results from
knowledge, information, and aptitude

There are three skills of managers are

expected to have ability of:
a) Technical skill
b) Human skill
c) Conceptual skill

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 Contd…
a) Technical skill: ability to perform a
specialized task that involves a certain method,
equipment set of procedures or process.
For example, a manager may have technical
skills in accounting, finance, engineering,
manufacturing, or computer science.
b) Human skill: ability to work well with others,
both as a member of a group and as a leader
who gets things done through other.
c) Conceptual skill: ability to visualize the
organization as a whole, discern
interrelationships among organizational parts,
and understand how the organization fits into
the wider context of the industry, community,
and world. 11
Contd…

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 Management Roles
specific categories of managerial behavior

 Figurehead role
Interpersonal Role  Leader
 liaison

 Monitor
Informational Role  Disseminator
 spokesperson

 Entrepreneur
Decisional Role  Disturbance handler
 Resource allocator
 Negotiator

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 Contd…
Interpersonal role
 Developing and maintaining positive
relationship with others
Figurehead role: Head of organization performs
symbolic or ceremonial duties of social or legal duties
E.g greeting guests, presenting awards, delivering
speech
Leader: involves creating sound relationship with
subordinates also communicate, motivates and train
the employee
Liaison: Build and maintain a network of contact with
outside work unit who provide help or information.
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 Contd…
Informational role
 receiving and transmitting information
from staff members (acquires, processes
and communicate information)
Monitor role: Collection of internal and external
information that affect organization (Scan the
source of information)
Disseminator role: After collecting, they will pass
certain information to peers and subordinates
Spokesperson role: Provide information to external
community such as press, TV, suppliers, government
offices.
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 Contd…
Decisional role
 identify problems and attempt to resolve
them
Entrepreneur role: Acts as an initiator, designer and
encourages change.
E.g Start new projects, enter into new market
Disturbance handler: take corrective action when
organization faces important unexpected difficulties.
E.g Cancellation of order, violation of standards, strikes
Resource allocator: distribute all types of resources
(time, budget, equipment, human) to functional unit.
Negotiator role: represent the organization in major
negotiations. E.g deal with customers, suppliers, Govt.
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1.2 THE FUNCTIONS OF MANAGEMENT

There are five functions of managers:

1. Planning,
2. Organizing,
3. Staffing,
4. Leading, and
5. Controlling.

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 1 Planning
Planning involves selecting missions and objectives and
the action to achieve them (activities, resources,
schedules, procedures..)
It requires decision making, that choosing future
courses of action from among alternatives
Efficiency
Mission Goals plans and
Effectiveness

The fundamental Future target or Measure of

Strategies or goal
reason for the end result an
means to achieve attainment
existence of an organization
goals/objectives
organization wishes to achieve

Efficiency - getting the most output from the least amount of inputs
Effectiveness - completing activities so that organizational goals are attained
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 Types of planning Contd…
Based on the scope three types of plan
1. Strategic planning
 Focus on the broad aspects of the organization.
 Incorporate both external environment & internal
resources.
 Goal affect all aspects of the organization
It is a long term plan (3-5 years)
2.Tactical Plans
Developed to achieve the strategic goal
Translate strategic plan into specific goals for specific parts
of an organization
An intermediate range plan (1-3 years)
3. Operational Plan
Devised to support the implementation of tactical plans
 Translate Tactical plans into specific goals & actions.
A short range plan (less than 12 months) 19
 Plan should be Contd…
SMART

S: Specific- for focus and feedback

M:Measurable- Quantifiable

A: accepted- participants

R: Realistic- technology, budget

T: Time framed- time boundary

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 2 Organizing
Is the management function that focuses on allocating
& arranging human and non human resources.
Also concerns with developing & maintaining working
relationships.
It is the process of establishing organizational
structure.
Process of defining and grouping the activities of an
enterprise.

Generally, Organization means the determination and

assignment of duties to People, and also the
establishment and the maintenance of authority
relationships among these grouped activities.

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Organization process contd…

Determining objective

Determining required activities

Grouping the activities

Assigning responsibility

Providing
Delegation of authority facilities and
resources
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 3 Staffing
Staffing is the process of fullfilling the manpower
needs of an organization

Manpower Recruitment selecting training

Planning

Manpower planning: identification of human requirement

Recruitment: posting notice to selecting applicant
Selection: choosing potential employee
Training: to modify the attitude, knowledge and skill
(culture, environment, ( on or off job))

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Recruitment Process Contd…
CV and Application Personal, educational, work
form and experience, training

To reduce the number of

Short Listingand applicant, screening

Ability, skills, interests,

Testing talent creativity

Behavior, attitudes, opinions,

Interviewing maturity, emotions, confidence

Some job required strong

Medical Examination physical condition

Confirmation with letter

Offering the position Job title, starting date24and salary
Departments etc
4 Leading
Leadership : is the quality that enables a manager to
exert a positive influence over their subordinates
Leader : who advances organizational goals by
influencing the attitude and actions of others
Leadership Style
1. Autocratic or authoritarian leadership
 Leader who make unilateral decisions
 Centralized authority
 Uses legitimate, reward and coercive powers to
influence others
 Maintain high degree of control
 Effective for immediate productivity

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 Contd…
2. Democratic
Involve the group in decision making
Delegate authority
Use expert power to influence others
Based on the assumption everyone can contribute
2. Laissez Faire
 Gives the group complete freedom
 Leaders are there to provide assistant alone
 Uses when workers are knowledgeable, motivated
and independent

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 5 Controlling:
It is the process of regulating organizational activities so
that actual performance confirms to expected
organizational standards and goals.

 control areas
Quality
Budget
Production
Cost etc

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Control process
Determines areas of controla

Establish standard

Measure Performance

Compare
performance
Vs standards

Take action

Recognize Correct Change

performance action standards
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 1.3 ORGANIZATIONAL STRUCTURE
 Organization structure refers the formal framework by
which job tasks are divided, grouped, and coordinated
Organization chart is used to indicate organization
structure.
Departmentation: means dividing and grouping the
activities and employees of an enterprise into various
departments. The different depertementation strategies
are:
1. Departmentation based on function
2. Departmentation based on product
3. Departmentation based on territory/geography
4. Departmentation based on process
5. Departmentation based on customer 29
1. Departmentation based on function
 groups jobs by functions performed
Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

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2. Departmentation based on product

 groups jobs by product line

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 3. Departmentation based on
territory/geography
 groups jobs on the basis of territory or
geography
Vice President
for Sales

Sales Director, Sales Director, Sales Director, Sales Director,

Western Region Southern Region Midwestern Region Eastern Region

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 4. Departmentation based on process
 groups jobs on the basis of product or
customer flow

Plant Superintendent

Sawing Planing and Assembling Lacquering and

Department Milling Department Sanding
Manager Department Manager Department
Manager Manager
Finishing Inspection and
Department Shipping
Manager Department
Manager
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5. Departmentation based on customer
 groups jobs on the basis of common customers

Director
of Sales

Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts

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 1.4 BASICS OF PRODUCTIVITY
 The measure that is most frequently used to indicate
how successful an operation is at doing is
productivity.
 Productivity is the ratio of what is produced by an
operation to what is required to produce it.

Output from the operation

Productivity = ––––––––––––––––––––––––
Input to the operation

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 Example
A company produces 160 kg of plastic moulded parts of
acceptable quality by consuming 200 kg of raw materials for a
particular period. For the next period, the output is doubled
(320 kg) by consuming 420 kg of raw material and for a third
period, the output is increased to 400 kg by consuming 400 kg
of raw material.
Solution:
During the first year, production is 160 kg
Productivity =Output/Input =160/200 = 0.8 or 80%
For the second year, production is increased by 100%
Productivity = Output/Input =320/420= 0.76 or 76% ↓
For the third period, production is increased by 150%
Productivity =Output/Input =400/400= 1.0, i.e., 100% ↑
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 Contd…
Often partial measures of input or output
are used so that comparisons can be made.

Labour productivity
Machine productivity
Energy productivity
Material productivity etc

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 Factors Influencing Productivity:
Factors influencing productivity can be classified
broadly into two categories: (1) controllable (or internal)
factors and (2) un-controllable (or external) factors.

1. Controllable (or internal) factors

A. Product factor
B. Plant and equipment
C. Technology
D. Material and energy
E. Human factors
F. Work methods
G. Management style
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 Contd…
2. Un-controllable (or external) factors

A. Structural adjustments/policy
B. Natural resources
C. Government and infrastructure:

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