ARBAMINCH UNIVERSITY

INSTITUTE OF TECHNOLOGY
FACULTY OF MECHANICAL &
PRODUCTION ENGINEERING
Degree program: Bsc in Mechanical Engineering

Course Title: Industrial Management

and
Engineering Economy
 I. Course Objectives
The course enables students to know basic principles/
concepts of:
Industrial management and organization
Industrial plant design
Effective material management
Management and resource allocation
Engineering economy
 II. Course Content
Chapter one: Basic Management Concepts and Industrial
Organization
Chapter two: Forecasting:
Chapter three: Plant Design
Chapter four: Materials Management
Chapter five: Project Management and Resource
Allocation
Chapter six: Investment Evaluation
Chapter seven: Basic Accounting Principles & Budgeting
Fundamentals
 one:
Chapter one:

Basic Management Concepts

and
Industrial Organization
 Organization
1.1.What is Organization?
A group of two or more people working together in
structured fashion to attain a set of goals.
Are social units /institutions deliberately constructed and
reconstructed to seek a set of specific goals (Skinner &
Ivancevich, 1992)
Have several factors in common. Perhaps, the most
common element is a goal or purpose
 Definition of management
1.2.What is Management?
Is the art of getting things done through people (Parker Follett in
Stoner and Freeman, 1992).
Is the process of achieving results through efficient utilization of
human and material resources (Bedeian, 1993).
In general "management" identifies a special group of people whose
job is to direct the effort and activities of other people toward
common objectives. Simply, management defined as a process of
planning, organizing, leading, and controlling the work of
organization members and of using all available resources to
reach stated organizational goals.
1.3.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

1.4. 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'.
1.4.Characteristics of Management
Management Is Goal Oriented

Management Integrates Human, Physical& Financial Recourses

Management Is Continuous

Management Is Time Oriented

Management Is all Pervasive

Management Is a Group Activity

Management Is Linked With other Fields of Study

 1.4.1.Management Is Goal Oriented
Management is highly goal oriented activity.

Success is measured in terms of the achievements of predetermined

goals or objectives.

Example: If an organization decides to provide better quality products

to their consumers, then management directs the required manpower
and resources in the proper direction to get the expected results.
1.4.2. Management Integrates Human, Physical & Financial
Resources
In any organization the different resources used are humans, machines,
materials, financial assets ,buildings etc.

Humans have to work with non human resources to perform their jobs.

Management Integrates human efforts to those non human resources. It

brings harmony among available resources.
1.4.3.Management Is Continuous
Management involves continuous handling of problems and issues.

It is an ongoing process.

It includes the problem identification and finding out the solution by

taking appropriate steps.

Management is not only concerned with a particular department like

production or human resources, it even involves marketing,
advertisement and so on
1.4.4.Management Is Time Oriented
Management has to always ensure that the production schedules are
met and the targets are achieved.

All targets are always set in accordance with the time and the results
are also measured in terms of time.

The management has to ensure that it manages particular features

properly and is always relates it to the other features of management.
1.4.5.Management Is all Pervasive/present everywhere:
Management is required in all types of organizations including
political, social, cultural or business as it assist and directs
various efforts towards a definite goal.

Thus colleges, hospitals, business firms, clubs, government

organizations require management.

Irrespective of the size or type of organization where more than

one person is involved needs management.
 1.4.6.Management Is a Group Activity
Management is concerned with the group activity rather than an
individual’s performance.

The efforts are measured in terms of groups to achieve

predetermined goal or objectives.

To accomplish the objectives of an organization every individual

from the organization needs to work in the team
2. Functions of management
The subject of management can be considered a process
involving certain functions that a manager performs:
Decision making
Planning
Organizing
Staffing
Directing
 2.1.Decision making
Decision can be defined as an act involving mental process at a
conscious level in choosing a route 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
2.2. Planning
Planning involves the predetermining of the course of
action to be taken in relation to the known event. It also
includes anticipating or exepecting 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 done”.
Cont.
The increased importance of planning in a business enterprise results
from various changes in the environment like :

Changes in technology,

Government policy,

Overall economic activity,

In the nature of competition and

In social norms and attitudes.

 Cont.
There are different planning carry out in different level of an
organization:
Strategic planning
Tactic planning
Operational planning
In general, the planning process may systematically be composed of
five elements:
I. Setting Primary & Intermediate Goals
II. Search for Opportunities
III. Formulation of Plans
IV. Target Setting
V. Follow-up of Plans
2.3.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 accomplish planned objectives.
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.
 Cont.
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, and
Evaluating the result of implemented organizing
strategy.
Cont.
 2.4.Staffing
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
2.5.Controlling
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.

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 materials.
2.6.Communication
It serves as a linkage by which the other functions explained are tied
together.

There are three types of communications in an organization

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
 2.7.Directing
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

Dictatorial leader :maintains a highly critical and negative attitude in

his relation with subordinates and advocates the accomplishment of
tasks through fear of penalties

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.
 Cont.
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.

Laissez - faire: 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.
3.Types of Organizational Structure
There are four different types of organizations, namely
I. Line Organizational Structure
II. Functional Organizational Structure
III. line and staff Organizational Structure, and

IV. matrix organization Organizational Structure

I. Line Organizational Structure
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.
 Cont.
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.
II. Functional Organizational Structure
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, they are free to the concentrate on their
particular functions that produce many benefits for the enterprise.
Cont.
However, this form of organization makes control difficult as
there are no clear lines of authority and it is similarly difficult to
establish responsibility when things do not go right.
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
MANAGING DIRECTOR
primary functions. DIRECTOR

L WORKS L SALES L ACCOUNTS S PERSONNEL

MANAGER MANAGER MANAGER MANAGER

L L
L SECTION SECTION MANAGERS SECTION
MANAGERS SUPERVISORS & MANAGERS
SUPERVISORS & SALESMEN SUPERVISORS &
OPERATORS CLERKS
S EMPLOYMENT S TRAINING
OFFICER OFFICER
L – Line relationship: S – staff relationship
Responsibility and authority shown by
.
SUPERVISORS SUPERVISOR
Staff. Advisory relationship shown by ------------
& CLERKS S
& CLERKS
---
 4. 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
 Cont.
value of output
Productivi ty =
value of input

An increase in production does not necessarily by itself indicate an

increase in productivity.
If the input of resources goes up in direct proportion to the
increase in output the productivity remains the same

If input increases by a greater percentage than output, higher

products will be achieved at the expense of reduction in
productivity
 Cont.
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 resources

The outputs may be products or services and the inputs or

resources may be land, materials, plant machineries, tools
and a series of man.
Systems Concept
 Productivity Improvement
Productivity Improvement (PI) is the result of managing and
intervening in transformation or work processes.

PI will occur if:

 Cont.
The outputs may be products or services and the inputs or
resources may be land, materials, plant machineries, tools and a
series of man

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.
 Cont.
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
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
Factor affected 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
climate
incentives and information
 Cont.
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;

Cont.
inappropriate choice of design, tools, material and equipment
undefined standardization and quality policies
inadequate plant layout and materials handling systems
poor planning, controlling and communication systems
unsafe and unhealthy working environment
Productivity Growth Rate
Can be used to compare a process’ productivity at a given time (P2) to the
same process’ productivity at an earlier time (P1)

P 2 − P1
Growth Rate =
P1
Example:
Last week a company produced 150 units using 200
hours of labor. This week, the same company produced
180 units using 250 hours of labor. What is GR?
Solution:

150 units
P1 = = 0.75 units / hour
200 hours
180 units
P2 = = 0.72 units / hour
250 hours
P2 − P1 0.72 − 0.75
Growth Rate = = = −0.04
P1 0.75
or a negative 4% growth rate
 Productivity and Production
The concept of productivity and production are totally different.

Production refers to the absolute output while productivity is a

relative wherein output is always expressed in terms of input

Production is an organized activity of transforming raw materials

into finished products which have higher value.
Example:
50 persons employed in an industry may be producing the
same volume of goods over the same period as 75 persons
working in another similar industry.
Productions of these two industries are equal, but
productivity of the former is higher than that of the later.