Gondar University

Institute of Technology
Department of Mechanical Engineering for
Undergraduate Program
Industrial Management and Engineering Economy for 5th year
ME students
Course Manager; Belachew M.
BSc. Industrial Engineering
MSc. Production Engineering and Management

Gondar, Ethiopia
June, 2022

By Belachew M. 1
 Chapter one
Basic Management Concepts and
Industrial Organization

By Belachew M. 2
 Outline for Chapter one
Introduction to management
Functions of management
 Planning
 Organizing
 Staffing
 Directing
 Controlling
Managerial roles and skills
Organization
Basics of Productivity

By Belachew M. 3
 Introduction to Management

 What do you understand about management?

 Management is the achievement of organizational goals

in an effective and efficient manner through planning,
organizing, staffing, directing and controlling
organizational resources.

 The creation of conditions that allow the effective use of

resources (human, financial, material, equipment,
technical and etc.) to achieve a specified goal.

By Belachew M. 4
 Con’t

Organizational resources (5M) are; Men (human beings),

Money, Machines, Materials and Methods.

Different Scholars About mgt

 Louis E Boone & David L Kurtz- “The use of people and

other resources to accomplish objectives”.

 William F. Glueck, “Management is effective utilization

of human and material resources to achieve the
enterprise’s objectives ”.

 Frederick Taylor “ Management is the art of knowing

what you want to do in Bythe best
Belachew M. and cheapest way”. 5
 Management concerns

 Efficiency: is getting the most output

from the least amount of inputs in order
to minimize resource costs.

 “Doing things right”

 The level of output that is achieved

with a given level of inputs.

 Effectiveness: is completing activities

so that organizational goals are
attained.

 “Doing the right things” By Belachew M. 6

 Characteristics of Management

 Management is concerned  Management is relationship

with group efforts/activity.
building within and outside the
 Management is dynamic.
 Management is goal organization.
oriented activity.  Management is an environment
 Management is an art of
oriented activity.
getting things done.
 Management is a system of  Management has its own tools and
suthority. techniques.
 Management is leadership
responsibility, not just an activity.
 Management concern with
performance results and
accomplishment.
By Belachew M. 7
 Functions of Management

 Planning

 Organizing

 Staffing

 Directing

 Controlling

By Belachew M. 8
 1) Planning
 Planning is determining the objectives and
formulating the methods to achieve them.
 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 and do I need to
accomplish the same?
 What are the methods and means to achieve the
objectives?
 Is this the optimal path?
By Belachew M. 9
 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.

By Belachew M. 10
 2) Organizing
• 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.

By Belachew M. 11
 Techniques of achieving
Coordination
 Coordination by rules or procedures.
 Coordination by targets or goals.
 Coordination through the hierarchy.
 Coordination through departmentalization.
 Using a staff assistant for coordination.
 Using a liaison for coordination.
 Using a committee for coordination.
 Using independent integrators for coordination.
 Coordination through mutual adjustment.

By Belachew M. 12
 3) 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.

By Belachew M. 13
 4) Directing/Leading

• Provides positive and dynamic leadership.

• Provides proper motivation of personnel.

• Ability to command people.

• Attracting people to the organization.

• Marshaling and allocation of resources

• Creating good working conditions

By Belachew M. 14
 5) 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.

By Belachew M. 15
 Controlling
• Feed Forward Control - Control that attempts to
identify and prevent deviations before they occur is
called feed forward control, sometimes called
preliminary or preventive control.
• Concurrent Control - Control that monitors
ongoing employee activities during their progress,
to ensure they are consistent with quality
standards, is called concurrent control.
• Feedback Control - In this case, the control takes
place after the action. Sometimes called post-action
or output control.

By Belachew M. 16
 Steps in Controlling
• Establish Standards of Performance.
• Measure Actual Performance.
• Compare Performance to Standards.
• Take Corrective Action.

By Belachew M. 17
 Types 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.

By Belachew M. 18
 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. This means that managers have a set of
tools that enable them to grasp the complexity of
the organization's environment.
Technical skills
Human skills
Conceptual skills

By Belachew M. 19
 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 eg: Engineer, accountant, data entry operator,

lawyer, doctor etc.

By Belachew M. 20
 Human Skills

• An individuals’ ability to cooperate with other

members of the organization and work effectively in
teams.
• Communication.
• For eg: Interpersonal relationships, solving people’s
problem and acceptance of other employees.

By Belachew M. 21
 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.

By Belachew M. 22
 Manager’s Roles
 Someone who coordinates and oversees the work of other
people so that organizational goals can be accomplished.
 Interpersonal role
 Informational role
 Decisional role
 Interpersonal Role
 Figurehead- ethical guidelines and the principles of
behavior employees are to follow in their dealings with
customers and suppliers.
 Leader- give direct commands and orders to
subordinates and make decisions.
 Liaison-coordinate between different departments and
establish alliances between different organizations.
By Belachew M. 23
Informational Role
 Monitor- evaluate the performance of employees in
different functions.
 Disseminator-communicate to employees the
organization’s vision and purpose.
 Spokesperson- give a speech to inform the local
community about the organization’s future intentions.
Decisional Role
 Entrepreneur- commit organization resources to develop
innovative goods and services.
 Disturbance handler- to take corrective action to deal with
unexpected problems facing the organization from the
external as well as internal environment.
 Resource allocator- allocate existing resources among
different functions and departments.
 Negotiator- work with suppliers, distributors and labor
unions. By Belachew M. 24
Manager’s Roles

By Belachew M. 25
 Organization
 An organization is a collection of people working together in a
coordinated and structured fashion to achieve one or more
goals.
 In other words the process of organization implies the
arrangement of human & nonhuman resources to make a
meaningful whole that accomplishes organizational objectives.
 Characteristics: (1) each has a distinct purpose; (2) each is
composed of people; and (3) each develops some deliberate
structure so members can do their work.

By Belachew M. 26
Organization

By Belachew M. 27
 Organizational structure

 Formal relationship between

people in various positions in
the organization.
 They show who supervises
whom & how various jobs &
departments are linked
together to make and achieve
coordinated system.
 Main channels of
communication:
 Downward
 Upward
 Horizontal
 Diagonal
By Belachew M. 28
 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.

Outputs
Productivity =
Inputs
 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
By Belachew M. 29
 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.

By Belachew M. 30
 Measures of Productivity
Example 1 Which productivity
measures can be
7040 Units Produced calculated?

Sold for $1.10/unit What is the

multifactor
Cost of labor : $1,000 productivity?

Cost of materials: $520 MFP = Output

Labor + Materials + Overhead
Cost of overhead: $2000
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000

= 2.20

By Belachew M. 31
 Measures of Productivity
Example 2
 5,500 units/500 hours = 11
 5,500 Units Produced units/hour
 Sold for $35/unit Or we can arrive at a unitless
 500 labor hours are used figure:
 Cost of labor: $25/hr  (5,500 units*$35/unit)/(500
hours * $25/hr) =15.4
 Cost of raw material: $5,000
 Cost of overhead: 2 x labor cost MFP = (5,500 units)*($35)
What is the labor productivity? (500hrs.)*$25/hr. +
($5000) + 2*(500hrs.)*$25/hr.
What is the multifactor
productivity? MFP = 4.52

By Belachew M. 32
 Measures of Productivity
Example 3
 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.
 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.

By Belachew M. 33
Factors affecting productivity
 Standardization  Methods
 Technology  Design of the workspace
 Incentive plans that
 Searching for lost or
reward productivity
misplaced items
 Capacity utilization
 Scrap rates  Location
 Labor turnover,  Layout
layoffs, new  Inventory
workers  Scheduling
 Safety  Equipment breakdowns
 Bottlenecks  Part and material shortages
 Inadequate investment in
training & education of the
employees

By Belachew M. 34
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
 Invest on labor force by training and education

By Belachew M. 35
 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.

By Belachew M. 36
 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
By Belachew M. 37
 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?

By Belachew M. 38
By Belachew M. 39