Chapter One

Basics of Management
 Topics to be covered
 Introduction to management
 Functions of management
 Planning
 Organizing
 Directing
 Controlling
 Managerial roles and skills
 Basics of Productivity

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Introduction to Management
What is Management?
 A set of activities (including planning and decision making,
organising, leading and control) directed at an organisation’s
resources (human, financial, physical and informational) with the
aim of achieving organisational goals in an efficient and effective
manner.
 The creation of conditions that allow the effective use of resources
(human, financial, material, equipment, technical and etc.) to
achieve a specified goal.
 Organizational resources (5M): Men (human beings), Money,
Machines, Materials and Methods.

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 Major Premises
 Technology and business savvy (know-how) represents a very
powerful combination of great demand in society.
 Market environment is rapidly evolving (changing marketplace
complexities, web-based technologies, globalization):
 Leaders with understanding of technology and management
perspectives are needed.
 Engineers with proper management and leadership training have great

opportunities to add value.

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Management Challenges
 Market place changes rapidly (Web-based technologies,
globalization, customer demand) affecting how progressive
companies will be.
 Engineering managers to lead by supervising complex teams,
innovating with vision for the future, designing global products, and
organizing supply chains.

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Management Challenges

Inside Outside

Present Future

Local Global

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Challenges - Inside
 Implement projects/programs;

 Manage people, technologies, and resources to add value;

 Develop new product features to enhance company

competitiveness;
 Define, control and reduce costs to improve profitability;

 Initiate technology projects to sustain company position.

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Challenges - Outside
 Keep abreast (in touch) of emerging technologies and apply them

to strengthen company’s core competencies;

 Apply web-based tools to enhance operations and foster customer

relations;
 Identify best practices to improve engineering operations and

surpass them;
 Create supply chain networks to derive speed, quality and cost

benefits.

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 Challenges - Present
 Do things right to keep company operating smoothly;

 Use Balanced Scorecard to monitor non-financial and financial

performance;
 Control costs and eliminate wastes to attain profitability in the
short-run.

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 Challenges - Future
 Seek e-transformation opportunities to create company
profitability in the long-run;
 Introduce new generation products timely;

 Create vision for the future related to technologies;

 Define what should be done for technology-based success in the

future.

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 Challenges - Local
 Utilize resources to best achieve company’s objectives;

 Take ethical and lawful actions while taking into account local
conditions;
 Maintain and nurture local professional networks;

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Challenges - Global
 Apply location-based resources to realize global economies of
scale and scope for achieving cost and technology advantages;
 Develop global professional networks;

 Acquire a global mindset;

 Exercise leadership roles in international settings.

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Management concerns

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Management concerns
 Efficiency: is getting the most output from the least amount of
inputs in order to minimize resource costs.
 “Doing things right”

 Effectiveness: is completing activities so that organizational

goals are attained.
 “Doing the right things”

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Functions of Management

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Planning
 Planning is determining the objectives and formulating the
methods to achieve them.
 Forecasting, setting objectives, action planning, administering
policies, establishing procedure.
 A job well planned is half done.

 During planning one needs to ask oneself the following:

 What am I trying to accomplish i.e. what is my objective?
 What resources do I have?
 What are the methods and means to achieve the objectives?
 Is this the optimal path or method?
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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. Make derivative plans.

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 Organizing
 Arranging and structuring work to accomplish organizational goals.

 Selecting organizational structure, and establishing relationship.

 Division of Work
 Assign Tasks: Departmentalization.
 Link Departments: Hierarchy Development
 Decide how much Authority to Designate.

 Decide the Levels at which Decisions are to be made.

 Decide how to Achieve Coordination.

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Staffing
 Selecting and training individuals for specific job functions,
and charging them with the associated responsibilities.
 Determining the number of employed personnel in an
organization or program, Also called workforce.

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Directing/Leading
 Working with and through people to accomplish goals.

 A function that includes motivating employees, directing others,

selecting the most effective communication channel, and resolving
conflict.
 Ability to command people.
 Attracting people to the organization.

 Marshaling and allocation of resources

 Creating good working conditions

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Controlling
 Controlling is 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.
 Measuring: determining through formal and informal reports the

degree to which progress toward objectives is being made.

 Evaluating: determining cause of and possible ways to act on

significant deviations from planned performance.

 Correcting: taking control action to correct an unfavorable trend or

to take advantage of an unusually favorable trend.

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Steps in Controlling
1. Establish Standards of Performance.
2. Measure Actual Performance.
3. Compare Performance to Standards.
4. Take Corrective Action.

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Levels of Manager’s
 First-line Managers: often called supervisors stand at the base of the
managerial hierarchy.
 Middle Managers: heads of various departments and organize human
and other resources to achieve organizational goals.
 Top Managers: set organizational goals, strategies to implement them
and make decisions.

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Managerial Skills
 A manager is someone skilled in knowing how to analyze and
improve the ability of an organization to survive and grow in a
complex and changing world.
 Management knowledge and skills (operational, strategic,
financial/accounting, interpersonal skills/communications, etc.)
 Technical skills

 Human skills

 Conceptual skills

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Technical Skills
 Technical skill involves understanding and demonstrating
proficiency in a particular workplace activity.
 A persons’ knowledge and ability to make effective use of any
process or technique constitutes his technical skills.
 For e.g. Engineer, accountant, data entry operator, lawyer, doctor
etc.

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Human Skills
 An individuals’ ability to cooperate with other members of the
organization and work effectively in teams.
 Communication.
 Credibility among colleagues, peers, and subordinates

 Listening and asking questions

 Presentation skills

 For e.g. Interpersonal relationships, solving people’s problem

and acceptance of other employees.

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

 Using information to solve business problems

 Identifying of opportunities for innovation

 Recognizing problem areas and implementing solutions

 Selecting critical information from masses of data

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Managerial Skills

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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 them.

Outputs
Productivity =
Inputs

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Basics of Productivity
 Labor Productivity
 Quantity (or value) of output / labor hrs

 Quantity (or value) of output / shift

 Machine Productivity
 Quantity (or value) of output / machine hrs

 Energy Productivity
 Quantity (or value of output) / kwh

 Capital Productivity
 Quantity (or value) of output / value of input

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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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Measures of Productivity
Example 1  Which productivity measures can be calculated?

7040 Units Produced  What is the multifactor productivity?

Sold for $1.10/unit  Single productivity measures like labor, material and
capital can be determined.
Cost of labor : $1,000  Combination of the inputs can be determined as
multifactor productivity.
Cost of materials: $520
out put
Cost of overhead: $2000 MFP=
laborcost+ materialscost + overhead cost

(7040 units )∗($1.10)

𝐌𝐅𝐏 =
$1000 + $520 + $2000
= 2.20

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Measures of Productivity
 Example 2
 5,500 Units Produced  Labor productivity:
 Sold for $35/unit  5,500 units/500 hours = 11 units/hour
 500 labor hours are used
Or we can arrive at a unitless figure:
 Cost of labor: $25/hr
 Cost of raw material: $5,000  (5,500 units*$35/unit)/(500 hours *
 Cost of overhead: 2 x labor cost $25/hr) =15.4
 What is the labor productivity?
 What is the multifactor productivity?

(5,500 𝑢𝑛𝑖𝑡𝑠)∗($ 35)

𝑀𝐹𝑃 =
(500 h𝑟𝑠 .)∗ $ 25 /h𝑟 .+($ 5000)+ 2∗(500 h𝑟𝑠.)∗ $ 25 /h𝑟 .
MFP = 4.52
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Measures of Productivity
Example 3
 Assume that you have just determined that 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.
 Which productivity measure should be used?
 Answer: Could be classified as a Partial Measure (labor productivity).
 Is productivity increasing or decreasing?
 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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Importance of productivity
 To beat competition
 Guide to management

 Indicator of Progress

 Maximum utilization of scarce resources

 Ways of increasing productivity

 Increasing output and input largely
 Increase output while keeping input the same

 Increase output very much while increase input a little

 Keep the output unchanged while decreasing inputs 3

Factors affecting productivity
 Standardization  Methods

 Technology  Design of the workspace

 Scrap rates  Capacity utilization

 Layout
 Labor turnover, layoffs,
 Scheduling
new workers
 Equipment breakdowns
 Bottlenecks
 Part and material shortages
 Inadequate investment in
training & education of the
employees

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Key Steps for Improving Productivity

 Develop productivity measures for all operations

 Determine critical (bottleneck) operations

 Develop methods for productivity improvements

 Establish reasonable goals

 Get management support (make it clear that management

supports and encourages productivity improvements.)
 Measure and publicize improvements

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Exercise 1
1. A company that makes shopping carts for supermarkets recently
purchased new equipment, which reduced the labor content needed to
produce the carts. Information concerning the old system (before adding the
new equipment) and the new system (after adding the new machines)
includes:
Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50
a) Compute labor productivity for both the Old System and the New System.
b) Compute total factor productivity for both the Old System and the New
System.
c) Suppose production with old equipment was 30 units of cart A at a price
of $100 per cart, and 50 units of cart B at a price of $120. Also suppose
that production with new equipment is 50 units of cart A, at a price of
$100 per cart, and 30 units of cart B at a price of $120. Compare total-
factor productivity for the old and the new systems. 3
 Exercise 2
2. A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less
material but one additional worker.
Under the old process, five workers could produce 60 units per hour.
Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is
charged at 1.6 times direct labor cost. Finished units sell for $31 each.
a) Compute single factor productivity of labor in the old system.
(Compute it in four possible ways.)
b) Compute all factor productivity for both old and new systems.
Factor Old System New System
Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31 3
 Exercise 3
3.A milk factory seeks advice from an external consulting company concerning its
business and production processes. The final consulting report describes several
steps to increase productivity including implementation of cutting-edge processing
techniques through more powerful filtering systems.
Existing System Proposed System
Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170

a) Calculate the labor productivity for the existing as well as the proposed system.
b) Find the Total-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk sold at
$2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons of
Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon.
Compare all-factor productivity for both the existing and the new system.
d) Is the proposed system acceptable? Why? 3