Engineering Management

ENGINEERING MANAGEMENT (HU701)

Ramakrishna B., Humanities Department, N M A M Institute of Technology, Nitte – 574 110.

“Education is the transformation of the information i nformation for the formation of the people”.

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Late. Mrs. Indira Indira Gandhi., Former Prime Prime Minister of India

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Contents Unit I Management: Meaning – Functions of Management 01 Hour Planning – Nature Nature and Importance Importance of Planning Planning,, Types Types of Plans, Plans, Planning Planning Process, Process, Planning Premises and Planning Horizon. Objectives – Meaning, Characteristics/Qualities of Sound Objective, Management By Objectives (MBO). 01 Hours Forecasting – Meaning, Methods of Forecasting (Qualitative methods and Quantitative meth method odss – simp simple le mo movi ving ng aver averag agee meth method od,, weig weight hted ed mo movi ving ng aver averag agee meth method od,, exponential smoothing method, simple regression model) 03 Hours Decision Making – Meaning, Types of Decisions, Tools for Decision Making (Decision Making under Certainty – linear programming graphical solution, Decision Making under Risk – Expected Expected Value calculation, calculation, Decision Tree, Tree, Risk as Variance, Variance, Decision Making Making under under Uncert Uncertai ainty nty – calcul calculati ation on of Maxima Maximax, x, Maximi Maximin, n, Minima Minimax x regret regret,, Hurwic Hurwiczz approach, Equally Likely method) 03 Hours

Unit II Organizing: Meaning, Legal Forms of Organisation – Sole Proprietorship, Partnership, Corporation/Company, Co-operatives – Meaning and Features only) 02 Hours Span of Control – Meaning, Significance, Factors Determining the Span of Control, Types of Spans, Current Trends in Span of Control, Line and Staff Relationship. 02 Hours Author Authority ity and Power Power   – Source Sourcess of Power Power,, Delegation – Reasons for Delegation, Barriers to Delegation. 01 Hours Human Aspects of Management-Manpower Management-Manpower Planning, Employing People (Recruitment, Selection Process, Making Job Offer, the Induction Process, Cost of Employing New Staff, Termination of Employment), Training and Development – Conducting Training and Methods of Training, Job Design and Payment System. 02 Hours Performance Appraisal – aims and formal schemes/methods of appraisal, performance appraisal and pay review. 01 Hours

Unit III Motivation and Leadership: Motivation – Meaning, Theories of motivation (the Carrot and the Stick, Maslow’s Need Hierarchy theory, Herzberg’s Motivation-Hygiene theory, McClelland’s Trio of Needs, Self-Motivation, General Motivational Techniques.` 04 Hours Leadership – Meaning, Ingredients/Trait Ingredients/Traitss of leadership, styles of leadership, Managerial Grid, Leading Technical Professional. 03 Hours Controlling – Meaning, Meaning, Controllin Controlling g Process, Process, Three Perspec Perspectiv tives es on the Timing Timing of Control, Types of Control, Characteristics of Effective Control System. 02 Hours

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Contents Unit I Management: Meaning – Functions of Management 01 Hour Planning – Nature Nature and Importance Importance of Planning Planning,, Types Types of Plans, Plans, Planning Planning Process, Process, Planning Premises and Planning Horizon. Objectives – Meaning, Characteristics/Qualities of Sound Objective, Management By Objectives (MBO). 01 Hours Forecasting – Meaning, Methods of Forecasting (Qualitative methods and Quantitative meth method odss – simp simple le mo movi ving ng aver averag agee meth method od,, weig weight hted ed mo movi ving ng aver averag agee meth method od,, exponential smoothing method, simple regression model) 03 Hours Decision Making – Meaning, Types of Decisions, Tools for Decision Making (Decision Making under Certainty – linear programming graphical solution, Decision Making under Risk – Expected Expected Value calculation, calculation, Decision Tree, Tree, Risk as Variance, Variance, Decision Making Making under under Uncert Uncertai ainty nty – calcul calculati ation on of Maxima Maximax, x, Maximi Maximin, n, Minima Minimax x regret regret,, Hurwic Hurwiczz approach, Equally Likely method) 03 Hours

Unit II Organizing: Meaning, Legal Forms of Organisation – Sole Proprietorship, Partnership, Corporation/Company, Co-operatives – Meaning and Features only) 02 Hours Span of Control – Meaning, Significance, Factors Determining the Span of Control, Types of Spans, Current Trends in Span of Control, Line and Staff Relationship. 02 Hours Author Authority ity and Power Power   – Source Sourcess of Power Power,, Delegation – Reasons for Delegation, Barriers to Delegation. 01 Hours Human Aspects of Management-Manpower Management-Manpower Planning, Employing People (Recruitment, Selection Process, Making Job Offer, the Induction Process, Cost of Employing New Staff, Termination of Employment), Training and Development – Conducting Training and Methods of Training, Job Design and Payment System. 02 Hours Performance Appraisal – aims and formal schemes/methods of appraisal, performance appraisal and pay review. 01 Hours

Unit III Motivation and Leadership: Motivation – Meaning, Theories of motivation (the Carrot and the Stick, Maslow’s Need Hierarchy theory, Herzberg’s Motivation-Hygiene theory, McClelland’s Trio of Needs, Self-Motivation, General Motivational Techniques.` 04 Hours Leadership – Meaning, Ingredients/Trait Ingredients/Traitss of leadership, styles of leadership, Managerial Grid, Leading Technical Professional. 03 Hours Controlling – Meaning, Meaning, Controllin Controlling g Process, Process, Three Perspec Perspectiv tives es on the Timing Timing of Control, Types of Control, Characteristics of Effective Control System. 02 Hours

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Unit IV Managing Research Function: Meaning, Product and Technology Life Cycle, Selection of R&D Projects, Project Evaluation Techniques – Interest Rate Calculations, Payback Time, Present Worth, Future Worth, Annual Worth Calculations. 05 Hours Creativity – Creative Process, Characteristics of Creative People, Protection of Ideas –  Patents, Copyrights, Trade Marks, Trade Secrecy Laws. 01 Hours Planni Planning ng Produc Productio tion n Activi Activity ty – Plan Plantt Loca Locati tion on,, Plan Plantt Desi Design gn,, Plan Plantt Layo Layout ut,, Quantitat Quantitative ive Tools Tools in Productio Production n Plannin Planning g – Inventor Inventory y Control Control – Economi Economicc Order Order Quantity (EOQ), Break Even Analysis, Learning Curves. 03 Hours

Unit V Project Planning and Acquisition: Project Planning Tools – Statement of Work, Milestone Schedule, Work Breakdown Structure, Gantt (Bar) Charts, Network Analysis –  PERT and CPM – Crashing the Project completion duration using network analysis. 04 Hours Depreciation – Reasons for Depreciation, Types of Depreciation, Methods of Computing Depreciation – solutions to problems. 03 Hours

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Unit I Management: Meaning – Functions of Management

01 Hour

Planning – Nature and Importance of Planning, Types of Plans, Planning Process, Planning Premises and Planning Horizon. Objectives – Meaning, Characteristics/Qualities of Sound Objective, Management By Objectives (MBO). 01 Hours Forecasting – Meaning, Methods of Forecasting (Qualitative methods and Quantitative methods – simple moving average method, weighted moving average method, exponential smoothing method, simple regression model) 03 Hours Decision Making – Meaning, Types of Decisions, Tools for Decision Making (Decision Making under Certainty – linear programming graphical solution, Decision Making under Risk – Expected Value calculation, Decision Tree, Risk as Variance, Decision Making under Uncertainty – calculation of Maximax, Maximin, Minimax regret, Hurwicz approach, Equally Likely method) 03 Hours

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Planning: Planning is a primary and an important function of modern management. The basic functions of management are commonly identified as   planning, organizing, staffing, leading (directing, guiding, and motivating), and controlling. Of these, planning is said to have primacy – to come first. Organizing, staffing, leading and controlling have little purpose unless they are focused on achieving desired objectives. Definitions: Planning being a central function of management refers t o the determination of a course of action to achieve a desired result. Planning concentrates in advance – what to do, how to do it, when to do it and who is to do it. It bridges the gap between – ‘from where we are to where we want to go’ and planning is actually the foundation of management. Planning is very much essential because an organization has to cope with the problems like scarce resources and uncertain environments with a fierce competition for these resources. Peter Drucker has defined planning as “a continuous process of making present entrepreneur decisions systematically and with best possible knowledge of their futurity, organizing systematically the efforts needed to carry-out these decisions and measuring the results of these decisions against the expectations through organized and systematic feedback”. Koontz and O’Donnel defined planning as “an intellectual process, the conscious determination of courses of action, based on decisions on purposes, acts and considered estimates”. An effective planning programme incorporates the effects of both external as well as internal factors. Importance: While planning does not guarantee success in organizational objectives; there is evidence that companies engaged in formal planning, constantly performed better than those with none or limited formal planning; and improved their own performance over a period of time. It is very rare for an organization to succeed solely by luck or circumstances. Some of the reasons as to why planning is considered a vital managerial function are given below: 1. Planning as a Goal Oriented process – planning is very closely associated with the goals or objectives of the organization. The goals may be expressed or implied and well defined goals lead to efficiency in planning. 2. Planning as a tool of Forecasting  – planning mainly concerned with looking ahead and reduces the elements of risks and uncertainties; since accurate forecast of the future is an integral part of effective planning. 3. Planning as a Governing factor of survival, growth and prosperity - the growing complexity of the modern business with rapid technological changes, dynamic changes in consumer preference and growing tough-competition

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necessitates orderly operation; not only in the current environment but also in the future environment. Planning offsets future uncertainty and changes. Planning is essential in modern business. 4. Planning as a tool of making choice – ‘choosing is the root of planning’ i.e., planning involves picking-out with care and caution, the best from a number of alternative given. Without planning, a business would be a rolling stone; and it cannot have much chance of succeeding in any field. 5. Planning affects performance – it is evident that the organizations with formal planning consistently performed better than those with no formal planning. 6. Planning anticipates problems and uncertainties of future – a significant aspect of any formal planning process is collection of relevant information for the purpose of forecasting the future as accurately as possible. This would minimize the chances of haphazard decisions. Since, the future needs of the organization are anticipated in advanced, the proper acquisition and allocation of resources can be planned; thus minimizing wastage and ensuring optimal use of these scare resources. 7. Planning offers effective coordination – planning helps the management in the coordination process also. As Koontz and O’Donnel say, “plans are selected courses along which the management desires to coordinate group actions”. It avoids duplication of work and inter-department conflicts also. 8. Planning leads to economy of operation –  i.e., the benefits of large scale production such as market economy, labour economy, technical economy, etc. Planning is the only way to realize the business objectives at cheapest and the best. It provides for the proper utilization of company resources. 9. Planning encourages innovation and creativity – planning is basically the deciding function of management; it promotes innovative and creative thinking among the managers, because many new ideas come to the minds of a manager when he/she is planning. 10. Planning helps in the process of decision making – since planning specifies the actions and steps to be taken in order to accomplish organizational objectives, it serves as the basis for the decision making about future activities. It also helps the managers to make routine decision about current activities as the objectives, plan, policies, schedules, etc., are clearly laid down. 11. Planning facilitates and provides itself as an effective tool of controlling – it is always pre-requisite for controlling. No control can be exercised without planning. Planning, is forward looking and control as a backward looking. Well developed plans can aid the process of control by way: a) Establishing a system of advance warning of possible deviations from the expected performances and the deviation may come to light during periodic investigations; and hence immediate action can be taken before any harm is done. b) As a contribution to controlling process planning provides quantitative data which would make it easier to compare the actual performance in quantitative terms.

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Planning Premises: An essential for effective planning is establishment of the premises, or assumptions, on which planning is to be based. Weihrich and Koontz define planning premises as “the anticipated environment in which plans are expected to operate. They include assumptions or forecasts of the future and known conditions that will affect the operation of plans”. Examples of planning premises include assumptions about future economic conditions, government decisions (regulation, tax law, and trade policy, etc.), the nature of competition, and future markets. In managing technology it is essential to establish planning premises about the future of technology and competition. Where there are uncertainties about critical premises, prudent managers develop contingency plans that can be implemented if indicators show a change in the environmental conditions from those on which mainstream planning is based. Modest changes in current plans may be needed to add flexibility so that a switch to a contingency plan can be made quickly if needed. Planning Horizon: The planning horizon asks – how far into the future one should plan. This varies greatly, depending on the nature of the business and the plan. The planning period needed to look far enough ahead to encompass a return on company’s long-term investment. Koontz and Weihrich summarize the ‘Commitment Principle’ – i.e., logical planning encompasses a future period of time necessary to fulfill, through a series of actions, the commitments involved in decisions made today. The high technology products may have short effective lives, and, therefore, a short planning horizon. Objectives: Objectives feature in all branches of management and are one of the most basic and fundamentally important tools of management and they are constantly in use with in organizations. Objectives are defined as, “ the important ends toward which organizational and individual activities are directed ”. In the words of Koontz and O’Donnel, “objective is a term commonly used to indicate the end-point of a management programme ”. Objectives decide where we want to go, what we want to achieve, and what is our destination, etc. An organization cannot take intelligent planning without clear objectives. The Need for Objectives: There are two powerful influences that cause the need for objectives in engineering management. a) The practical limits in communication; which results in misunderstanding in delegation of tasks and authority in management hierarchy. The organizations need objectives (which are clear and precise) to eliminate misunderstanding from the delegation process. b) Objectives are also a desirable way to be managed from a personal point of view since they allow room or scope to do things (work) the way people want. People

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are not forced into methods that they do not necessarily approve of and they have the opportunity to bring their own ideas to manage the problem at work. Thus, the need for an objective is to be an unambiguous answer to the question –  what exactly the management expects from the subordinates at work or employees? And, another reason to have objectives is to fulfill a deeply rooted part of employees’ motivational psychology. Thus, the two basic reasons (needs) for having objectives in an organization are as above: • To provide unambiguous delegation of work and authority; and • To serve a fundamental drive of humans – i.e., the need to achieve or accomplish. By working towards objectives as end-results, these two things are also simultaneously realized by the people at work. Attributes/Features/Characteristics of Good Objectives: Objectives are clear and unambiguous statements of desired outcomes or endresults. Objectives are used by people who delegate or by individuals who are managing their time. They may be corporate objectives applying to many people or they may be departmental objectives, applying to only a few. Whichever the form of objectives, in all cases, there are various important characteristics of a well-specified objective that prevent ambiguity and foster accurate interpretation. There are many popular tests of attributes or characteristics that well-written objectives should exhibit. The major features or attributes of sound objectives are shown as below: a) Quantifiable: Objectives must be quantified, numerically, if possible. If a given objective cannot be quantified then one can never know whether it will be achieved or not. However, the quantification must also be appropriate. b) Achievable (Attainable ): An objective must be achievable, because it aimed at two things: • It is motivating to the employees, if the given an objective is exciting and although tough, still achievable. • Achievable objectives make planning possible; and thereby optimize the use of resources and predict overall lead times. If any of the benefits of planning are to be realized, there must be a known likelihood that each of the tasks will be achieved. c) Compatible: This attribute is related to feasibility, but is distinct from it. Compatibility relates to a collection of objectives and describes the need for them to fit together as a whole. Therefore, objective-setting always starts with one, central, goal that is supported by others that follow from it. Such a progressive sub-division ensures that conflicting objectives do not occur. d) Time-bound (Time-based): An objective which is not having any time-limit to accomplish or achieve it has no use what so ever. Every result that is desired has some appropriate deadline (time-limit) to accomplish or achieve. Open-ended objectives result in wastage of resources; and if there is no particular time by which an objective is achieved; then it never be achieved so easily. e) Measurable: This is related to the attribute – being quantified. However, for an objective measurable, people have to have access to an appropriate measuring

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system. If people cannot measure the changes they are making, they cannot know if they are having the desired effect. These major characteristics of a sound objective may be presented in the form of a chart as below: Quantifiable Time-bound (Time-based) Measurable Achievable (Attainable) Feasible Reliable and Compatible Simple and Flexible

Characteristics (features) of Sound/well written objectives

In addition, the sound (well-written) objectives must also fulfill the following attributes: • The objectives must be pre-determined and clearly defined. • The objectives must be reduced (stated) in Black and White, i.e., they must be clearly written. • The objectives must be realistic and attainable. • The objectives must have social-sanction (approval by the society or general acceptability). • All objectives must be interconnected and mutually supportive; so as to avoid conflict of objectives. • The objectives must be arranged in a hierarchy i.e., overall (organizational), major, divisional, departmental, individual, etc. • The objectives must also be flexible to changes, and replaceable with new ones; etc. To make it more specific a sound objective must be SMART - Simple, Measurable, Attainable, Realistic, Time-bounded – in every respect.

Management by Objectives : Management guru Peter Drucker  is credited with being the first to introduce the concept – “Management By Objectives” (MB0) as an approach for increasing organizational effectiveness in his work – “ The Practice of Management”(1954). He stressed that, “business performance requires that each job be directed towards the objectives of the whole business”. MBO is a technique where the manager and subordinates together agree upon the targets, the type of activities, and the time schedule for using as a criterion for evaluating the performance of subordinates. He observes that every manager and employee, from the highest to the lowest levels in the organization, should have clear objectives to pursue. According to George Odiorne , who has done an extensive research on MBO states, “the system of MBO can be described as a process where by the superior and subordinate managers of an organization jointly identify its common goals, define each individuals major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members”. 9

The important areas where objectives are to be set according to Peter Drucker are: • Market standing, • Innovation and invention, • Productivity • Physical and financial resources, • Profitability of the firm, • Managerial performance and development, • Worker’s performance; and • Attitudes and public responsibility. Thus, MBO is a result-centred, non-specialist, operational managerial process for the effective utilization of material, physical, and human resources of the organization by integrating the individual with the organization and organization with the environment. The total management process revolves round the objectives set jointly by the superior and subordinate. Objectives in MBO provide guidelines for appropriate systems and procedures. Resource allocation, delegation of authority, etc., are determined on the basis of objectives. Similarly, reward and punishment system is attached with the achievement of the objectives. MBO has been widely adopted to translate broad organizational goals and objectives like those discussed above into specific individual objectives. MBO can be employed between superior and subordinate at every level. As a process, MBO begins at the top of the organization with the establishment of specific organizational objectives. Subsequently, objectives at the various other levels down the hierarchy are decided by mutual discussions and consultations by both the superiors and the subordinates. Then, the process of MBO involves the steps like:

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Establishing the long-term organizational objectives,

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Setting-up of specific short-term organizational objectives,

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Identification of Key Result Areas (KRA’s) or the priority areas of work,

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Establishment of subordinates agreed objectives with in the framework provided by the superior,

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Superior’s recommendations on subordinates objectives,

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Matching resources and taking action-plans toward the achievement of organizational objectives,

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Joint review (both by the superior and the subordinates) of progress at regular intervals in the light of predetermined objectives; and

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Taking corrective measures, if necessary, as revealed by the review and using feed-back mechanism towards this end.

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The process of MBO may be depicted in the form of a chart as below: Establish long-term objectives and plans

Establish specific short-term organizational objectives

Identification of Key Result Areas (KRA’s)

Superiors recommendations

Establish Action Plans and Matching Resources

F E E D B A C K

Subordinates agreed objectives and performance

Appraise Results

Take corrective Actions

Figure: Management By Objectives. MBO is a system for achieving organizational objectives, enhancement of employee commitment and participation. Therefore, its process should facilitate translation of basic concepts into managerial practice. The MBO process is characterized by the emphasis on the rigorous analysis, the clarity and balance of objectives, and participation of managers with accountability for results. The MBO process is not as simple as it appears to be. Managers need training and experience for developing the required skills. In the whole process of MBO, setting of goals for the subordinate position is the crucial step and the goals are set in a democratic way of functioning through consensus reached between the superiors and subordinates. Superiors act as facilitators and create a favorable climate where subordinates freely express their opinions, viewpoints and perceptions about what they believe could be achieved. As a result, there is ample possibility for the subordinates to feel that they are working for their own goals and not for somebody else’s. Consequently, they strive hard to achieve goals and get motivated to achieve them and such achievement of goals contributes for the satisfaction of their egoistic needs also. Thus, MBO serves as a motivational technique. Therefore, MBO has also been referred to as, “ Management By Results” and “Goal Management ”.

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Thus, to put it in nutshell, the MBO process begins with an understanding between the superior and subordinates regarding the goals and objectives of the overall organization and those of the superior’s group. Then the superior and subordinate then meet to establish objectives for the subordinate’s attention over the next six months or year that consistent with group objectives. These objectives should require some effort to attain, yet not be beyond reach. The relative amount of input from superior and subordinate in negotiating these objectives may vary, but the result should be mutual agreement. Objectives should not be confined to tasks for the sole benefit of the superior, but should also include developmental objectives designed to strengthen the subordinate’s capabilities. Then, the subordinate proceeds over the ensuing period –  typically, six months or a year – to carry out his or her job with an emphasis on achieving these objectives. Naturally, if problems occur or priorities change, superior and subordinate can meet at anytime and may modify the objectives, but they should not be changed without such agreement. At the end of the period, superior and subordinate meet again to evaluate the subordinate’s success in meeting assigned goals. This should be a constructive process, not an excuse for placing blame. This review session should end by mutually establishing a new set of objective for the following period, of which some may be extensions of earlier objectives, some may be new objectives, and some earlier objectives may be deemphasized. Advantages of MBO: The advantages of MBO may include: 1. a greater commitment and satisfaction on the part of subordinates, 2. enforced planning and prioritizing of future activities on the part of superior and subordinates, and 3. a more rational method of performance evaluation based on contribution to organizational objectives, etc. Disadvantages of MBO: The disadvantages may be in the form of: 1. an extensive time and paperwork involved, 2. possible misuse of freedom and authority when superior simply assign objectives, 3. the subordinates may try to negotiate for easy goals. 4. there may also be a tendency for subordinates to focus on the relatively a few, verifiable, MBO objectives negotiated to the detriment of the many other objectives, both qualitative and quantitative, that a professional must also keep in balance. 5. the MBO will not be a success unless it has the initiating and continuing support of higher management.

Forecasting: Henri Fayol identified the first management function as  prevoyance , a French word meaning to “foresee” and “prepare for” action. An essential preliminary to effective planning is therefore foreseeing or forecasting what the future will be like. The

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engineer manager must be concerned with both future market and future technology, and must, therefore, understand both sales and technological forecasting. The most important premise or assumption in planning and decision making is the level of future sales (or, for nonprofit activities, of future operations). Almost everything for which we plan is based on this assumption: • the production level (which determines how many people we must hire and train or, if production declined, lay off), • the need for new facilities and equipment, • the size of the sales force and advertising budget; and • new funding for purchases and for investment in inventory and accounts receivable. The following are the common ways or methods of Forecasting and are classified into two broad categories: 1. Qualitative Methods; and 2. Quantitative Methods. 1. Qualitative Methods: The qualitative methods of sales forecasting of a firm generally involve the following methods: a) Jury of Executive Opinion: This is the simplest method, in that the executives of the organization (typically, the vice presidents or managers of the various divisions) each provide an estimate (educated guess) of future volume, and the president provides a considered average of these estimates. This method is inexpensive and quick and may be entirely acceptable if the future conforms to the assumptions the executives have used in estimating. b) Sales Force Composite: In this commonly used method, members of the sales force estimate sales in their own territory. Regional sales managers adjust these estimates for their opinion of the optimism or pessimism of individual salespeople, and the general sales manager “massages” the figures to account for new products or factors of which individual salesmen are unaware. Since the field sales force is closest to the customer, this method has much to recommend it. However, if there is any suggestion that the estimate a salesperson provides will next appear as a minimum goal they must achieve, the sales force may find it in their own best interest to “play games” with the figures. c) Users’ Expectation: When a company sells most of its product to a few customers, the simplest method is to ask the customers to project their needs for the future period. The customers depend for their own success on reliable sources of supply, and so communication is in the best interest of both parties. This might be done by market testing or market surveys. For consumers goods, though, not only is such information expensive to obtain, but customers often do not know what they will purchase in the future.

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2. Quantitative Methods: Some of the quantitative methods of sales forecasting are: a) Simple Moving Average: Where the values of a parameter show no clear trend with time, a forecast Fn+1 for the next period can be taken as the simple average of some number ‘n’ of the most recent actual values At. Then; 1

n

∑ At  n t =1 b) Weighted Moving Average: The Simple Moving Average method has the disadvantage the an earlier value (the value in past to that what is given in the list for estimation) has no influence at all, but a value ‘ n’ years in the past (the value of extreme past as given in the list for estimation) is weighted as heavily as the most recent value (recent past as given in the list for estimation). We can improve on the simple average model by assigning a set of weights ‘ wt’ that total unity (1.0) to the previous values. Then: Fn+1 =

n

Fn+1 = ∑ wt  At  t =1

n

Where

∑wt  =1.0 t =1

c) Exponential Smoothing: The Weighted Moving Average techniques have the disadvantage that one must record and remember ‘ n’ previous values and ‘n’ weights for each parameter being forecast, which can be burdensome if ‘ n’ is large. The simple exponential smoothing method continuously reduces the weight of a value as it becomes older, yet minimizes the data that must be retained in memory. In this technique the forecast value for the next time period Fn+1 is taken as the sum of: i. The forecasted value Fn for the current period, plus ii. Some fraction α of the difference between that actual ( An) and forecasted (Fn) values for the current period: Fn+1 =  F n + α  ( An − F n ) = α   An + (1 − α  ) F n In this equation the weight put on past values continues to decrease but never becomes zero. d) Regression Models: Regression models are a major class of explanatory forecasting models, which attempt to develop logical relationships that not only provide useful forecasts, but also identify the causes and factors leading to the forecast value. Regression models assume that a linear relationship exists between a variable designated the dependent (unknown) variable and one or more other independent (known) variables . i. Simple Regression Model: The simple regression model assumes that the independent variable (y) depends on a single dependent variable (x), i.e., y = a + bx ii. Multiple Regression: In multiple regression, the dependent variable (y) is assumed to be a function of more than one independent variable (x  j), such as:

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y = co

c  x  j

+ t 

+

c2

 x 2

c3 x 2 3

+

.......... ......

+

The dependent variable can

be assumed to be proportional directly or inversely proportional to a power or a root, or proportional in some other way to the independent variables, as is suggested in the equation above. Past values of dependent and independent variables are then used in regression analysis to reduce the independent variables to the most important ones and to find the values for the constants ci that give the best fit. For example, a manufacturer of replacement automobile tires might find that the demand for tires varied with the cost of gasoline, the current unemployment rate, sales of automobiles two years before, and the weight of the automobiles.

Questions: 1. Why is planning said to have “primacy” among the managerial functions? 2. Develop a model of steps in planning. 3. Write a note on Mission Statement. Select a company whose mission or purpose has changed over its history and describe the change. 4. Explain the concept of Strategic Management of technology and why is it important for a company? Describe some of the base, key, and  pacing technologies that are important for the strategic management of technology. 5. What are the key result areas as identified by Peter Drucker in deciding about the objectives of the company? 6. Define MBO and explain basic steps of MBO. For what types of employees or positions do you think management by objectives (MBO) should prove particularly effective and ineffective ? 7. What length of planning horizon would you recommend for planning –  a) the forest resources of a large paper company; b) construction of a new automobile plant; c) creation of a new housing development of 15 homes? 8. Create an extended list of the plans and decisions for a large manufacturing company that will depend on the sales forecast for the next year. 9. Sales of a particular product (in thousand of dollars) for the years 1997 through 2000 have been 48, 64, 67, and 83, respectively. (a) What sales would you predict for 2001 using a simple four-year moving average? (b) What sales would you predict for 2001 using a weighted moving average with weights of 0.50 for the immediate preceding year and 0.3, 0.15, and 0.05 for the three years before that? 10. Using exponential smoothing with a weight α  of 0.6 on actual values: a) If sales are $ 45,000 and $ 50,000 for 1998 and 1999, what would you forecast for 2000? (The first forecast is equal to the actual value of the preceding year). b) Given this forecast and actual 2000 sales of $ 53,000, what would you then forecast for 2001?

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11. In question – 9, taking actual 1997 sales of $ 48,000 as the forecast for 1998, what sales would you forecast for 1999, 2000, and 2001 using exponential smoothing and a weight α  on actual values of (a) 0.4: and (b) 0.8? 12. In question – 9, what sales would you forecast for 2001 using the simple regression (least squares) method? 13. Describe an entrepreneur you either know or have read about. What personal characteristics led to or limited his or her success?

Decision Making: Managerial decision making is the process of making a conscious choice between two or more rational alternatives in order to select the one that will produce the most desirable consequences (benefits) relative to unwanted consequences (costs). If there is only one alternative, there is nothing to decide. The overall planning/decision-making process has already been described at the beginning of the chapter – Planning. If planning is truly “deciding in advance what to do, how to do it, when to do it, and who is to do it”, then decision making is an essential part of planning. Decision making is also required in designing and staffing an organization, developing methods of motivating subordinates, and identifying corrective actions in the control process. However, it is conventionally studied as part of the planning function, and we will do so here. Occasions for Decision: As stated by Chester I Barnard, the occasions for decision originate in three distinct fields: 1. from authoritative communications from superiors, 2. from cases referred for decision by subordinates; and 3. from cases originating in the initiative of the executive concerned. Barnard points out that occasion for decisions stemming from the “requirements of superior authority …………..cannot be avoided”, although portions of it may be delegated further to subordinates. Barnard concludes that “occasions of decision arising from the initiative of the executive are the most important test of the executive”. These are the occasions where no one has asked for a decision, and the executive usually cannot be criticized for not making one. The effective executive takes the initiative to think through the problems and opportunities’ facing the organization, conceives programmes to make the necessary changes, and implements them. Only in this way does the executive fulfill the obligation to make a difference because he or she is in that chair rather than someone else. Types of Decisions: 1. Routine and non-routine decisions – Pringle et al classify decisions on a continuum ranging from routine to non-routine, depending on the extent to which they are structured. They describe routine decisions as focusing on well-structured situations that recur frequently, involve standard decision procedures, and entail a minimum of uncertainty. Common examples include payroll processing, reordering standard

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inventory items, paying suppliers, and so on. The decision maker can usually rely on policies, rules, past procedures, standardized methods of processing, or computational techniques. Probably 90% of the management decisions are largely routine. The routine decisions usually can be delegated to lower levels to be made within established policy limits, and increasingly they can be programmed for computer ‘decision’, if they can be structured simply enough. The non-routine decisions, on the other hand, “deals with unstructured situations of a novel, nonrecurring nature”, often involving incomplete knowledge, high uncertainty, and the use of subjective judgement or even intuition, where “no alternative can be proved to be the best possible solution to the particular problem”. The nonroutine decisions are common at higher levels of management activity and the longer the future period influenced by the decision. Since, engineers depend on “textbook solutions”, often find themselves unable to rise in management unless they can develop the “tolerance for ambiguity” that is needed to tackle unstructured problems. 2. Objective versus bounded rationality – Simon defines a decision as being “objectively rational if in fact it is the correct behaviour for maximizing given values in a given situation”. Such rational decisions are made by : a) viewing the behaviour alternatives prior to decision in panoramic (exhaustive) fashion, b) considering the whole complex of consequences that would follow on each choice, and c) with the system of values as criterion singling out one from the whole set of alternatives. Rational decision making, therefore, consists of optimizing or maximizing the outcome by choosing the single best alternative from among all possible ones, which is the approach suggested in the planning/decision-making model. Simon believes that actual behaviour falls short, in at least three ways, of objective rationality : a) Rationality requires a complete knowledge and anticipation of the consequences that will follow on each choice. In fact, knowledge of consequences is always fragmentatary. b) Since these consequences lie in the future, imagination must supply the lack of experienced feeling in attaching value to them. But values can be only imperfectly anticipated. c) Rationality requires a choice among all possible alternative behaviours. In actual behaviour, only a few of these possible alternatives ever come to mind. Managers, under pressure to reach a decision, have neither the time nor other resources to consider all alternatives or all the facts about any alternative. A manager “must operate under conditions of  bounded rationality , taking into account only those few factors of which he or she is aware, understands, and regards as relevant  ”.

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3. Level of Certainty – Decisions may also be classified as being made under conditions of certainty, risk, or uncertainty depending on the degree with which the future environment determining the outcome of these decisions is known. Tools For Decision Making: Categories of Decision Making: Decision making can be discussed conventionally in three categories decision making under certainty, under risk, and under uncertainty.

Decision Making Under Certainty: Decision making under certainty implies that we are certain of the future state of nature (or assume that we are). Although this may seem like a trivial exercise, there are many problems that are so complex that sophisticated mathematical techniques are needed to find the best solution. This includes the following techniques:

Linear Programming: One common technique for decision making under certainty is called “ linear  programming”. In this method, a desired benefit (such as profit) can be expressed as a mathematical function (the value model or objective function ) of several variables. The solutions is the set of values for the independent variables that serves to maximize the benefit (or, in many problems, to minimize the cost) subject to certain limits (constraints).

 Example: Consider a factory producing two products, product X and product Y. The

problem is: if you can realize $10 profit per unit of product X and $14 per unit of product Y, what is the production level of x units of product X and y units of product Y that maximizes the profit?

18

Then,

maximize P = 10x + 14y  y

Units of 60 Product-y 50 40 30

P = 700

20

P= 350 P = 620

10  x

10

20

30

40

50

60

70

80

90

Units of product-x Figure - 1: Linear Programme example: Isoprofit lines (P = 10x + 14y) As illustrated in the figure above, you can get a profit of  $350 by selling 35 units of X or 25 units of Y  $620 by selling 62 units of X or 44.3 units of Y  $700 by selling 70 units of X or 50 units of Y or any other combinations of X and Y on the Isoprofit  line connecting these two points. Your production, and therefore your profit, is subject to resource limitations, or constraints . Assume in this example that you employ five workers: three machinists and two assemblers, and that each works only 40 hours a week. Products X and/or Y can be produced by these workers subject to the following constraints :

• •

Product X requires three hours of machining and one hour of assembly per unit. Product Y requires two hours of machining and two hours of assembly per unit.

These constraints are expressed mathematically as follows: 1. 3x + 2y 2. x + 2y

≤ ≤

120 (hours machining time) 80 (hours assembly time)

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Since there are only two products, these limitations can be shown on a twodimensional graph, as below:  y

Units of 60 Product-y 50

Constraint 1 (3x + 2y ≤ 120)

40

Maximum profit point with constraints

30 Constraint 2 (x + 2y ≤ 80)

20 10

 x

10

20

30

40

50

60

70

80

Units of product-x Figure -2: Linear Programme example – Constraints and solution. Since all relationships are linear, the solution to our problem will fall at one of the corners. To find the solution, begin at some feasible solution (satisfying the given constraints) such as (x, y) = (0, 0), and proceed in the direction of “steepest ascent” of the profit function (in this case, by increasing production of Y at $14 profit per unit) until some constraint is reached. Since assembly hours are limited to 80, no more than

×

80 or 2

40, units Y can be made, earning 40 $14 , or $560 profit. Then proceed along the steepest allowable ascent from there (along the assembly constraint line) until another constraint (machining hours) is reached. At that point (x, y) = (20, 30) and profit = (20 ×$10 ) + ( 30 ×$14 ) , or $620. Since there is no remaining edge along which profit increases, this is the optimum solution. The $620 isoprofit line from previous figure – 1, has been repeated in figure-2, to illustrate that the maximum profit solution has been reached. In this particular case the optimum solution is at the point the constraints intersect (where we take all constraints as equalities), but this is not always the case. For example, if the unit profit for Y increased from $14 to $21, you would maximize profit (P = 10x + 21y) by making 40 units Y and none of X.  Note: For mathematical analysis see the class notes…… Computer solutions: About fifty years ago George Danzig of Stanford University developed the simplex method, which expresses the foregoing technique in a mathematical algorithm that permits computer solution of linear programming problems with many variables (dimensions), not just the two as in the linear programming

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technique. It also includes sophistication to get solutions to the problems – maximization and minimization, transportations problems, and the like.

Decision Making under Risk: Nature of Risk: In decision making under risk one assumes that there exist a number of possible future states of nature  N  j. As we saw in table given under section “Categories of Decision Making” (The Pay off table or decision matrix). Each  N  j has as known (or assumed) probability  P j of occurring, and there may not be one future state that results in the best outcome for all alternatives  Ai. Expected Value: Given the future states of nature and their probabilities, the solution in decision making under risk is the alternative  Ai that provides the highest expected value  E j, which is defined as the sum of the products of each outcome Oij times the probability  P j that the associated state of nature  N  j occurs: n

 E i =

∑( P j Oij )  j =1

Example - 1: consider the simple pay off table with only two alternative decisions and two possible states of nature.

A1 A2

N1 P1 = 0.999 $ -200 0

N2 P2 = 0.001 $ -200 $ -100,000

Alternative A1 has a constant cost of $200, and A 2 a cost of $100,000 if future N 2 takes place (and none otherwise). At first glance alternative A1 looks like the clear winner, but consider the situation when probability (P 1) of the first state of nature (N 1) is 0.999 and the probability (P 2) of the second state of nature (N 2) is only 0.001. the expected value of choosing alternative A 2 is only E(A2) = 0.999 ($0) – 0.001 ($100,000) = $100 Note that this outcome $-100 is not possible – the outcome if alternative A 2 is chosen will be a loss either $0 or $100,000, not $100. However, if you have many decisions of this type over time and you choose alternative that maximize expected value E2 of $-100 to E1 of $-200, we should choose A 2, other things being equal. But first, let us use these figures in a specific application. Assume that you own a $100,000 house and are offered fire insurance on it for $200 a year. This is twice the “expected value” of your fire loss (as it has to be to pay insurance company overhead and

21

agent costs). However, if you are like most people, you will probably probably buy the insurance because, quite reasonably, your attitude toward risk is such that you are not willing to accept loss of your house! The insurance company has a different perspective, since they have many houses to insure and can profit from maximizing expected value in the long run, as long as they don’t insure too many properties in the path of the same hurricane or earthquake. Example – 2: Consider that you own rights to a plot of land under which there may or may not be oil. You are considering three alternatives: • doing nothing (don’t drill), • drilling at your own expense of $500,000, and • farming out the opportunity to someone who will drill and give you part of the profit if the well is successful. You may also see three possible state of nature: • a dry hole, • a mildly interesting small well, and • a very profitable gusher (big well). You estimate the probabilities of the three state of nature Pj and the outcome Oij as shown in table below: Alternative

A1: Don’t Drill A2: Drill Alone A3: Farm out

State of nature/Probability N1: Dry Hole N2: Small Well P1 = 0.6 P2 = 0.3 $0 $0 $ -500,000 $ 300,000 $0 $ 125,000

N3: Big Well P3 = 0.1 $0 $ 9,300,000 $ 1,250,000

Expected value (E)* (E)* $0 $720,000* $162,000*

The first thing you can do is eliminate alternative A 1, since alternative A 3 is at least as attractive for all states of nature and is more attractive for at least one state of nature. A3 is therefore said to dominate A1. Next, you can calculate the expected values for the surviving alternatives A 2 and A3: E2 = 0.6 (-500,000) + 0.3 (300,000) + 0.1 (9,300,000) = $720,000* $720,000* E3 = 0.6 (0) + 0.3 (125,000) + 0.1 (1,250,000) = $162,500* $162,500* And, you choose alternative A 2 if (and only if) you are willing and able to risk loosing $500,000. Decision Trees: The Decision Trees provide another technique used in finding expected value. value. They begin begin with with a single single decision node (normally represented by a square or rectangle), from which a number of decision decision alternatives radiate. Each alternative ends in a chance node , normally represented represented by a circle. From each chance node node radiate several several possible possible futures, futures, each with a probabilit probability y of occurrin occurring g and an outcome outcome value. value. The

22

expected value for each alternative is the sum of the products of outcomes and related probabilities, just as calculated previously in Example -2. -2.

Figure given below illustrates the use of a decision tree in our simple insurance example.

Decision Chance Expected Value Node Ai node N --------------------

(Outcome)

×

No fire fire Insure

Don’t Insure

(P (Probability)

(Oij) (Pj) = Ei -------------------------------------------------------- ---(-200) (-200) X (0.99 (0.999) 9) = -199. -199.8 8 + = $-200

Fire

(-200)

X

(0.001)

=

No fire

(0)

X

(0.999)

=

Fire

(-100,000) X

(0.001)

=

-0.2

0 + = $-100 -1 -100

The conclusion reached is identical mathematically to that obtained from the table values in Example 1. 1. Decision tree provides a very visible solution procedure, especially when a sequence of decisions, chance nodes, new decisions, and new chance nodes exist.

Risk as Variance: Another common meaning of risk is variability of outcome, measured by the varianc variancee or (more (more often) its square root, root, the standard standard deviation. deviation. Conside Considerr two investment projects X and Y, having the discrete probability distribution of expected cash flows in each of the next several years shown in the table below: Table: Data for Risk as Variance Example Project X Project Y Probability Cash Flow Probability 0.10 $3000 0.10 0.20 3500 0.25 0.40 4000 0.30 0.20 4500 0.25 0.10 5000 0.10

Cash Flow $2000 3000 4000 5000 6000

Then, the expected cash flows are calculated the same as expected value: E(X) = 0.10 (3000) + 0.20 (3500) + 0.40 (4000) + 0.20 (4500) + 0.10 (5000)

23

= $4000. $4000. E(Y) = 0.10 (2000) + 0.25 (3000) + 0.30 (4000) + 0.25 (5000) + 0.10 (6000) = $4000. Although both projects have the same mean (expected) cash flows, the expected values of the variances (squares of the deviations from the mean) differ as follows: y Probability

X

 X  =

$0

$2000

Y

Y  

$4000

$6000

x

Figure: Projects with the same expected value but different variances. The variance may be calculation as below: VX = 0.10 (3000 – 4000) 2 + 0.20 (3500 – 4000) 2 + 0.20 (4500 – 4000) 2 + 0.10 (5000 – 4000) 2 = $300,000. $300,000. VX = 0.10 (2000 – 4000) 2 + 0.25 (3000 – 4000) 2 + 0.30 (4000 – 4000) 2 + 0.10 (6000 – 4000) 2 = $1,300,000. $1,300,000. The Standard deviations are the square roots of these values:  x =$548 ,

σ   

y

σ   

=$1140

Since project Y has the greater variability (whether measured in variance or in standard deviation) it must be considered to offer risk than does project X. Decision Making Under Uncertainty: Uncertainty occurs when there exist several (i.e., more than one) future states of nature  N  j, but the probabilities  P j of each of these these states states occurr occurring ing are not not known. known. A different kind of logic is used here, based on attitude towards risk.

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Methods Used: Method – 1: The optimistic decision maker may choose the alternative that offers the highest possible outcome (the “maximax” solution); Method – 2: the pessimist may choose the alternative whose worst outcome is “least bad” (the “maximin” solution); Method –3: a third decision maker may choose a position somewhere between optimism and pessimism (i.e., “Hurwicz” approach); Method – 4: a fourth may simply assume that all states of nature are equally likely (the so – called “principle of insufficient reason”), set all  P j values equal to 1.0/n, and maximize expected value based on that assumption; and Method –5: fifth decision maker may choose the alternative that has smallest difference between the best and worst outcomes (the “minimax regret” solution). Let us consider the example of well – drilling problem as discussed earlier, if the probabilities P j for the three future states of nature  N  j cannot be estimated. Alternative

A1: Don’t Drill A2: Drill Alone A3: Farm out

State of nature/Probability N1: Dry Hole N2: Small Well P1 = 0.6 P2 = 0.3 $0 $0 $ -500,000 $ 300,000 $0 $ 125,000

N3: Big Well P3 = 0.1 $0 $ 9,300,000 $ 1,250,000

Expected value (E)* $0 $720,000* $162,000*

Using the values given in the table above let us calculate the “maximax” solution, “maximin” solution, and “Hurwicz” approach and “equally likely” and “maximax regret”. Method – 1: the “maximax” solution. Alternative A2 A3

Maximax (Maximum) $9,300,000* 1,250,000

Method – 2: the “maximin” solution. Alternative A2 A3

Maximin (Minimum) $-500,000 0*

Method – 3: the “maximin” solution. The “Hurwicz” approach uses the equation: Maximize [ α   (best outcome) + (1- α  ) (worst outcome)] Then; E(A2) = [0.2 (9,300,000) + (1- 0.2) (-500,000)] = $1,460,000

25

E(A3) = [0.2 (1,250,000) + (1-0.2) (0)] = $250,000 Alternative Maximin (Minimum) A2 $1,460,000* A3 250,000 Method – 4: the “Equally Likely” solution. If decision makers believe that the future states are “equally likely”, they will seek the higher expected value and choose A 2 on that basis. In this method set all  P j values equal to 1.0/n, and maximize expected value based on that assumption. Then, E(A2) =

E(A3) =

500 ,000

−

300 ,000

+

9,300 ,000

+

3

0 +125 ,000

1,250 ,000

+

3

= $3,033,333

= $458,333

Equally Likely Alternative A2 A3

$3,033,333* 458,333

Method – 5: In this method we may choose the alternative that has smallest difference between the best and worst outcomes (the “minimax regret” solution). Then; State of nature ( N  j) Alternative

N1: Dry Hole

N2: Small Well

N3: Big Well

A1: Don’t Drill

$0

(300,000 – 0) = $300,000 0 (300,000 -125,000) = $ 175,000

( $9,300,000 – 0) = $9,300,000 0 (9,300,000 – ,250,000) = $ 8,050,000

A2: Drill Alone A3: Farm out

$ -500,000 $0

Then the result is: Alternative A1 A2 A3

Equally Likely $9,300,000 500,000* 8,050,000

Let us now arrange the results of all the methods together in a table as below: 26

Minimax Regret

$9,300,000 $500,000* $8,050,000

Alternative Maximum

Minimum

Hurwicz

Equally

Mimimax

(Maximax) A1 -A2 $9,300,000* A3 1,250,000 * Preferred solutions.

(Minimax) -$-500,000 0*

( α  = 0.2) -$1,460,000* 250,000

Likely -$3,033,333* 458,333

Regret $9,300,000 $500,000* $8,050,000

Game Theory: A related approach is game theory, where the future states of nature and their probabilities are replaced by the decisions of a competitor. Gegley and Grant explains: “In essence, game theory provides the model of a contest. The contest can be a war or an election, an auction or a children’s game, as long as it requires strategy, bargaining, threat and reward”. In other situations, game theory leads to selecting a mixture of two or more strategies, alternated randomly with some specified probability. Computer Based Information System: Integrated Data Bases: Until recent years, each part of an organization maintained separate files and developed separate information for its specific purposes, often requiring the same information to be entered again and again. Not only expensive, but when the same information is recorded separately in several places it becomes difficult to keep current and reliable. The computer revolution has made it possible to enter information only once in a shared data base – where it can be updated in a single act, yet still be available for all to use. CAD/CAM revolution in design and manufacture provides a much more sophisticated example. Designs are now created on the computer, and this same record is used by others to analyze strength, heat transfer, and other design conditions, then it is transformed into instructions to manufacture the item on numerically controlled machines, and to test the item for conformance to design. Management Information/Decision Support Systems: Traditionally, the top managers have relied primarily on oral and visual sources of information which includes – scheduled committee meetings, telephone calls, business luncheons, and strolls through the workplace, supplemented by the often condensed and delayed information in written reports and periodicals. Quite recently, the existence of computer networks, centralized data bases, and user-friendly software has provided a new source of prompt, accurate data to the manager. A recent survey showed that 93% of senior executives used a personal computer, 60% of them for planning and decision support. Contemporary authors distinguish two classes of application of computer based management system:

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1.  Management Information Systems (MIS) focus on generating better solutions for structured problems, as well as improving efficiency in dealing with structured tasks. 2.  Decision Support System (DSS) is interactive and provides the user with easy access to decision models and data in order to support semi-structured and unstructured decision-making tasks. It improves effectiveness in making decisions where a manager’s judgement is still essential. As one rises from front-line supervisor through middle management to top management, the nature of decisions and the information needed to make them changes. The higher the management level the fewer decisions may be in number, but he greater is the cost of error. A carefully constructed master data base should be capable of providing the detailed current data needed for operational decisions as well as the longer-range strategic data for top management decisions.

Questions: 1. Distinguish between routine and non-routine decisions. 2. You operate a small wooden toy company making two products: alphabet blocks and wooden trucks. Your profit is $30 per box of blocks and $40 per box of trucks. Producing a box of blocks requires one hour of woodworking and two hours of painting; producing a box of trucks takes three hours of woodworking but only one hour of painting. You employ three woodworkers and two painters, each working 40 hours a week. How many boxes of blocks (B) and trucks (T) should you make each week to maximize profit? Solve graphically as a linear program and confirm analytically. 3. A Commercial orchard grows, picks, and packs apples and pears. A peck (quarter bushel) of apples takes 4 minutes to pick and 5 minutes to pack; a peck of pears takes 5 minutes to pick and 4 minutes to pack. Only one picker and one packer are available. How many pecks each of applies and pears should be picked and packed every hour (60 minutes) if the profit is $3/peck for apples and $2/peck for pears? Solve graphically as a linear program and confirm analytically. 4. You must decide whether to buy new machinery to produce product X or to modify existing machinery. You believe the probability of a prosperous economy next year is 0.6 and of a recession is 0.4. Prepare a decision tree and use it to recommend the best course of action. The applicable payoff table of profits (+) and losses (-) is N1 (Prosperity) N2 (recession) A1 (buy new) $+950,000 $-200,000 A2 (modify) +700,000 +300,000 5. If you have no idea of the economic probabilities  P j in the previous question, what would be your decision based on uncertainty using a. maximax, b. maximin, c. equally likely, and

28

d. minimax regret assumptions? 6. You are considering three investment alternatives for some spare cash: Old Reliable Corporation stock (A1), Fly-By-Nite Air Cargo Company stock (A2), and a federally insured savings certificate (A3). You expect the economy will either “boom” (N1) or “bust” (N2), and you estimate that a boom is more likely (P1 = 0.6) than a bust (P2 = 0.4). Outcomes for the three alternatives are expected to be (1) $2000 in boom or $500 in bust for ORC; (2) $6000 in boom but $5000 (loss) in but for FBN; and (3) $1200 for the certificate in either case. Set up a payoff table (decision matrix) for this problem and show which alternative maximizes expected value. 7. If you have no idea of the economic probabilities Pj in question no. 9, what would be your decision based on uncertainty using a. maximax, b. maximin, c. equally likely, and d. minimax regret assumptions? 8. Your company has proposed to produce a component for an automobile plant, but it will not have a decision from that plant for six months. You estimate the possible future states and their probabilities as: receive full contract (N 1, with probability P 1 = 0.3); receive partial contract (N 2, P 2 = 0.2); and lose award (no contract) (N 3, P3 = 0.5). Any tooling you use on the contract must be ordered now. If your alternatives and their outcomes (in thousands of dollars) are as shown in the following table, what should be your decision?

A1 (full tooling) A2 (minimum tooling) A3 (modify)

N1 +800 +500 -400

29

N2 +400 +150 -100

N3 -400 -100 0

Unit II Organizing: Meaning, Legal Forms of Organisation – Sole Proprietorship, Partnership, Corporation/Company, Co-operatives – Meaning and Features only) 02 Hours Span of Control – Meaning, Significance, Factors Determining the Span of Control, Types of Spans, Current Trends in Span of Control, Line and Staff Relationship. 02 Hours Authority and Power   – Sources of Power, Delegation – Reasons for Delegation, Barriers to Delegation. 01 Hours Human Aspects of Management-Manpower Planning, Employing People (Recruitment, Selection Process, Making Job Offer, the Induction Process, Cost of Employing New Staff, Termination of Employment), Training and Development – Conducting Training and Methods of Training, Job Design and Payment System. 02 Hours Performance Appraisal – aims and formal schemes/methods of appraisal, performance appraisal and pay review. 01 Hours

Organizing: The nature of organizing includes the following aspects in our discussion:

30

Organizing - Definition: Weihrich and Koontz belied that people “will work together most effectively if they know the parts they are to play in any team operation and how their roles relate to one another………Designing and maintaining these systems of roles is basically the managerial function of organizing”. For an Organizational Role to exist and be meaningful to people, it must incorporate: a) Verifiable objectives, which ….are a major part of planning; b) A clear idea of the major duties or activities involved; and c) An understood area of discretion or authority, so that the person filling the role knows what he or she can do to accomplish goals. In addition, to make role work out effectively, provision should be made for supplying needed information and other tools necessary for performance in that role. In this sense, the Process of Organizing (Steps in Organizing Process) involves: 1. the identification and classification of required activities, 2. the grouping of activities necessary to attain objectives, 3. the assignment of each grouping to a manager with the authority (delegation) necessary to supervise it; and 4. the provision for coordination horizontally (on the same or similar organizational level) and vertically (for example, corporate headquarters, division, and department) in the organization structure. Legal Forms of Organisation: As background to the study of organization, let us first compare the legal forms in which a business firm can be organized and their salient features. The major forms generally considered are: 1. The Sole Proprietorship or Sole Tradership, 2. The Partnership, 3. The Corporations (The Joint – Stock Companies or Companies); and 4. The Cooperatives. 1. The Sole Proprietorship (Sole Tradership): This form of business is known by other names such as – ‘ individual  proprietorship’ , ‘ sole-ownership’ and ‘individual enterprise’ . It is owned and controlled by a single individual. The proprietor or the sole trader invests his own capital, skill and intelligence and he receives all the profits and assumes all the risks of ownership. When the activities of the industry increase, he can take the assistance of employees or his own family members. This form of organization is the oldest and most natural form of ownership. The industrialist carries out the functions of the industry exclusively by and for himself. The sole trader has unlimited freedom in selecting the type of industry depending upon his likes and dislikes. This form of organization is well suited in the circumstances like: i. ii.

When the size of the industry is small, When the capital to be invested is small,

31

iii.

When the business requires the personal attention of owner to his customers and employees, iv. When the risk involved is less; and so on. The sole trader, for example, may be in the form of small shops, newsagents, electrician, plumbers and small consultants and builders, etc. Features (characteristics) of Sole trader (Proprietorship): As far as sole trader or proprietorship is concerned, the business has no separate legal identity from the owner, which means that all debts, liabilities, and profits belong to the owner. Operating, as sole trader does not mean that the owner has to work on his own, he can even employ other people. Some of the major features (characteristics) of sole trader or proprietorship are: a)  Individual ownership. b)  No separate entity of business c) Unlimited liability – i.e., in case the business incur loss and runs in debts, then the sole trader is liable to pay it not only from his company assets but also liable to his personal property to pay the debts to an unlimited levels. Thus, liability for debts is unlimited. d) Centralized management and control – i.e., the owner (sole trader) makes all decisions, and therefore has the total control of the business. It provides for a quick and prompt decisions on issues related to the areas like credit policy, sales promotion, production programmes, inventory control and management, labour policy, etc. A sole trader being a supreme judge and master of his business makes prompt and quick decisions and thereby takes advantage of favourable situations. e) Sole enjoyer of profit  – i.e., since the sole trader invests his capital (either personal or borrowed at personal liability), skills and intelligence and being the whole and sole owner of the business, the sole trader is the sole enjoyer of the business profit also. f)  Free from too much government regulations – i.e., as a sole trader he is in an eminent position to keep the business affairs to himself and also to maintain the utmost secrets of the business. The sole trader need not bound to furnish particulars of the business or to publish it for others. The accounts do not have to be disclosed publicly, and are therefore not available to the competitors. This enables the sole trader to maintain utmost secrecy in al matters relating to his business and sustain the competitive strength. g) A sole trader can offer a personal service , which may be valued more highly by some customers. h) It can be a high cost enterprise because the sole trader rarely benefits from economies of scale.

2. The Partnership: Partnerships exist when there are a number of people involved who are part owners of the business. This form of organization eliminates some of the disadvantages

32

of the sole trader form of business, such as limited capital, absence of specialization, and limited managerial ability, etc. Section of 4 of the Indian Partnership Act 1932 defines a partnership as, “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. According to Henry a partnership is, “the relation between persons competent to make contracts, who agree to carry on a lawful business in common with a view to private gain”. As defined by Uniform Partnership Act , the partnership is an “association of two or more partners to carry on as co-owners of a business for profit”. The persons who enter into partnership are voluntarily known as partners and collectively as a firm. The name under which the partnership business is carried on is known as the firm name. Features (characteristics) of Partnerships: The major features of a business operating as a partnership form of organization are: a) Plurality of persons   – i.e., the minimum number of persons to partnership business is TWO. The maximum is restricted to TEN in the case of partnership organization carrying on banking business and TWENTY in the case of a trading and manufacturing business. But in certain professional partnership where companies are not allowed to be formed by law, such as solicitors and accountants, there may be more than twenty partners. b)  Mutual agreement  – where a partnership form of business is established by a contractual agreement entered into by all the partners. Therefore, any person who cannot qualify to enter into a contract cannot join a partnership organization. A partnership business can be set up without any formality but it is usually advisable to draw up a deed of partnership, which covers things such as the way in which the profit will be split between the partners. c)  Lawful business – i.e., the contractual business entered into by the partners must be for a lawful business. In other words, the business generally accepted by the society and law as especially viable one. d) Sharing of profits – It is immaterial whether a partner takes an active part in the business or not; but sharing of profit must be the criterion to call a person as partner. e) Collective management  – Unlike proprietorship or sole trader form of business, the partnership form of business is managed collectively by most of the partners if not by all of them. The liability and decision-making are shared. This can be the advantage when the skills and experience of the partners complement each other and the management of the business is carried out effectively. f)  Non-transferability of interest (ownership rights) – A partner in a partnership business cannot transfer his interest or ownership rights to anyone (either to any of his family members or to a third party) unless the other partners give consent to it. However, if a partner does not like to continue with the partnership organization, he can retire or withdraw on his own and thus get back his capital share from the firm. 33

g) Unlimited liability  – The liability of the partners (except the minor partners and secret/hiding out partners) of the business organization is unlimited as in the case of sole trader (proprietorship) form of business; where the partners to the business are expected to go for forced disposal of their personal property and the possessions to pay the debts over and above the organization’s assets in case the debt burden is so heavy to pay-off from the organization’s assets. Thus, the partners are liable to debts to an unlimited level. h)  Durability of role – The partner in a partnership form of organization plays two roles as – ‘ principal ’ (one of the owners) as regards to the outsiders and assume the role of an ‘ agent ’ as between the partners themselves. i) Utmost goal faith – The partnership if formed on the basis of faith and trust, which each partner reposes in others.  j)  Easy to form – There is less formality and expense than is involved in forming a company form of business. It does not involve any legal formalities to be fulfilled. Registration of the firm or organization is also not compulsory and even if desired it is very simple. k)   Maintenance of business secrets – Since the accounts of the business in a partnership form of organization need not be publicly disclosed for the reference of the public and to the competitors, it is easy to maintain utmost business secrecy and sustain the competitive strength. Types of Partnership: The major types of partnerships are classified and identified on basis of: • Liability - as general partnership [which involves the classifications like general, sleeping (dormant or silent), active, special or nominal, and secret or hiding-out partners] and limited partnership. • Age of the partners – as major and minor partners. • Duration of the firm – partnership at will (where business is carried out on an indefinite period) and particular partnership (where partnership is formed for a definite period and purpose only). The general partners are liable to an unlimited level to the debts of the organization. The sleeping partners take no active participation in business but entitled to share of profit. Special or nominal and secret partners are insignificant part of partners and have no direct involvement in managing of business. Limited partnership is a registered form of partnership and is to be registered under law. In the case of minor partner the liability is limited. The partnership at will carried on for an indefinite period, where as the particular partnership only for a specific purpose and particular period.

3. The Corporations: Company form of organization was evolved with a view to overcome some of the disadvantages and handicaps of the partnership business such as lack of continuity,

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unlimited liability, etc., and to meet the requirements of the modern business such as large capitals, professional managers carrying on business on a large scale and the like. According to Indian Company Act, 1913 a joint-stock company is “ an artificial   person created by law having a separate entity, with a perpetual succession and a common seal”. Chief Justice Marshall of USA has defined a corporation (company) as “ a person artificial, invisible, intangible and existing only in the eyes of law ”. A company may be defined as an artificial person recognized by law with a distinct name, common seal, and a common capital comprising of transferable shares of fixed value carrying limited liability and having a perpetual succession. Features (characteristics) of Company form of Organization: The main features of a business organization operating as a company are: a) Separate legal entity – A company has a separate legal entity from its owners and managers. It is considered to be quite distinct from its members, and in the eyes of law it is a separate entity with corporate status. Thus, it can sue others and be sued by others. It cannot be seen or touched but its existence can be felt. Therefore, it is an artificial person with a separate legal entity. b) Voluntary association of person – A joint-stock company is a voluntary association of many persons, who contribute money (capital) to common stock and employ it for common purpose of producing goods and services on a large scale. They create it on their own and there is no kind of compulsion by the law of the government to from it. c)  Legal sanction – A joint-stock company has to incorporate with due process of law. In Indian Companies Act of 1956 lays down the procedure and basic conditions, which have to be fulfilled to start a company. Once all the conditions are satisfied the company must be registered under the act i.e., the Registrar of   joink-stock companies does registration of the company. All large-scale enterprises of the country are coming under the Companies Act of 1956. d) Perpetual succession (continued existence) – The perpetual succession and stable existence is one of the distinct features of the company form of organization. It means the life of the company is independent of the life of its shareholders (stock/stake holders). Being a legal person it will not die like a natural person with physical existence. It goes on forever until law winds it up. Shareholders may come and go, and may change hand any number of times but the company goes on forever. A company is brought into existence by law and its life can be put to an end only by law. e) Profit motive - A company is established only on to carry out a business to earn profit. f)  Limited liability-The liability of shareholders is limited to the extent of amount remaining unpaid on shares held by the shareholders. This means once the shareholders pay the whole amount on shares they cannot be asked to bring further amount from his private property to meet losses and to pay off debts; in other words, in a company form organization, the liability of owners (i.e., share/stake holders) limited to the amount of capital they invest in business 35

individually. g) Common seal – A company is as an artificial person, it cannot speak or sign documents on its own to facilitate entering contract with outsiders, the company’s common seal is affixed on all documents and serve the purpose of evidence, two directors of company will sign such documents on behalf of the company. Moreover, the common seal of the company should be kept in a safe custody to avoid its possible access to others and misuse. h)  Management and control by elected representatives – A company being an artificial person cannot manage its business by itself. Therefore, Therefore, a Board of Directors consisting a group group of representatives representatives of shareholders shareholders manage manage it. These members members are known as the promoters of the company and such members in Board of Directors are generall generally y the men of reputati reputation on in busines businesss and industrial industrial circles. circles. Though Though the shareholders are the owners of the company, they do not take direct part in the manag manageme ement nt of the compan company. y. Thus Thus,, the the manag manageme ement nt and and the the owners ownershi hip p are are separate from one another. i) Transferability Transferability of shares  – The shareholders of public limited company are free to tran transf sfer er shar shares es to any one one who who is willin willing g to buy them them.. By this this proc proces ess, s, shareholders shareholders can get back the value of his share when he is in financial financial need. Extra capital can be raised raised in public companies companies by issuing more more shares. Shares in public public companies can be freely transferred without consulting other shareholders.   j) Number of members– The minimum number of members required to form a private limited company is TWO and SEVEN in a public limited company whereas the maximum number of members are fixed at FIFTY for a private limited company and there is no limit to the maximum number for public limited company. k) The acco accoun unts ts and and audi audits ts are are to be main mainta tain ined ed   Accounts Accounts and Audits Audits – The compulsorily in all companies. The accounts re to be prepared according to the requirem requirements ents of Compa Companies nies Act Act and audited audited by an an auditor auditor of the the company. company. The accounts have to be disclosed publicly, and therefore, it is possible to closely monitor what is happening happening in a competing competing company. company. The company’s company’s objectives objectives are limited limited by the object clause. clause. The company company is more closely closely controlled controlled and regulat regulated ed by outs outsid ider erss than than in the the case case of sole sole trad trader erss and and part partne ners rshi hip p form form of busi busine ness ss organizations. l)   Excessive Government control - The companies are subjected to excessive government control. They must also furnish various particulars and documents to the government and other government agencies from time to time.

4. The Cooperatives: The  ILO (International defines a cooperat cooperative ive (International Labour Organization) Organization) defines organi organiza zatio tion n as, as, “an “an asso associa ciati tion on of perso persons, ns, usual usually ly of limite limited d means means,, who have have voluntarily joined together, together, to achieve a common economic end through the formation of

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a democratically controlled business organization, making equitable contributions to the capital required and accepting a fair share of risks and benefits of such undertaking”. The main objective of a cooperative organization is to promote ‘self-help’ and ‘mutual-help’ among men of moderate means and incomes having needs and interest in common. Formation of Cooperatives (Cooperative Societies): To setup a cooperative society, an application is to be submitted to the registrar of societies. It may be formed by a minimum of of 10 members and should should be registered registered with the registrar of cooperative cooperative societies. societies. The officials of this department department will attend the first first general body meeting in which the bylaws are formed to govern the society and the directors are elected elected by the shareholders. shareholders. If the officials are satisfied with the the soundness, a license is issued by the registrar and cooperative society will be legally formed. The board of directors meets at least once in 3 months. Features (Characteristics) of Cooperatives: The main characteristics or features of cooperatives are: a)  It is a voluntary organization – There is open and voluntary membership for all who work in the organization. organization. A member can continue continue his membership membership as long as he desire, and can can withdraw his membership membership after giving giving a notice. No distinction is made between caste, creed, sex, and religion of the persons while admitting to the membership of the cooperative society. b)  No upper limit to membership – There must be minimum 10 members and maximum no limits to membership. c)  Lower face value of shares – The face value of the share is generally kept in between Re. 1 to Rs. 25 to enable poor people also to become cooperative society’s members. d) The The manag manageme ement nt is is base based d on democratic line of equality – Every member can cast only one vote irrespective of the number of share he/she may hold. e) Service motive - The main objective is to serve and not make profit; and also promot promoted ed the the princ principa ipall of self-h self-help elp and mutua mutuall coope cooperat ration ion among among the members of the community i.e., the idea of “each for all and all for each”. Thus, service is the motto of the society. f)   Fulfi The coop cooper erat ativ ives es are are aime aimed d at the the Fulfill llmen mentt of common common intere interest  st  – The fulfil fulfillme lment nt of common common inter interest est such such as econo economic mic activi activitie tiess like like trade trade,, commerce, finance, agriculture and related activities. g)   Mutual Mutual faith, faith, coopera cooperation tion and honest  honest  – as the guiding principle of the cooperatives in functioning. It gives a due emphasis on morality of business. h) The provision of cash-sale – i.e., cash and carry system to avoid the risk of loss due to bad debt. i)  A separate legal status – Since a cooperative society has to be registered under the cooperative society act, gets a separate legal status.  j) Social responsibilities The busi busine ness ss mu must st be soci social ally ly awar awaree and and act act responsibilities – The responsi responsibly bly towards towards other other busines businesses, ses, customers customers,, supplier supplierss and the local local community; they are not necessarily profit-making.

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Disposal of surplus surplus – i.e. k)   Disposal i.e.,, the the surp surplu luss amou amount nt of reve revenu nuee is not not full fully y distribut distributed ed as profit profit to the members of the society. society. It transfers transfers 25% of its revenue to general reserve fund of the cooperative organization and 10% of the revenue for the general welfare of the locality where the cooperative society is functioning. The balance is distributed as profit to its members. l) State control – i.e., a cooperative form of organization is governed by the coopera cooperative tive societies societies act, 1912, 1912, and besides besides that that is also governed governed by the coop cooper erat ativ ivee soci societ etie iess act act enac enacte ted d from from time time to time time for for vari variou ouss stat statee governments. m) Tax exemption exemption – The cooperatives are exempted from paying tax to the government so as to encourage the formation of the large number of societies. n)   Accounts cooper erat ativ ivee form form of orga organi niza zati tion on has has to Accounts and auditing auditing – A coop compulsorily maintain its accounts and they are to be audited by the auditor of cooperative societies.

The cooperative form of the business organizations may be of various types such as: • Cooperative credit societies, • Producers (industrial) cooperatives, • Consumers’ cooperative societies (distributive cooperatives), • Cooperative marketing societies, • Housing cooperatives, • Farming (agricultural) cooperatives, and so on. While sole proprietorships proprietorships are the most common form of business organization organization in sheer numbers, most large organizations are corporations.

Span of Control: As soon as a new organisatin grows to a significant size, subordinate managers must appointe appointed d to help the top management management.. The question question is not whether whether immediate immediate managers are needed, but how many? It must be decided decided,, in every organiza organization tion,, how many subordi subordinates nates a superior superior can can manage. manage. The   span of management and control is defined as “ the number of subordinates under a manager ” or “the number of people refers to the numbers numbers of reporting to a particular particular person or superior ”. In other words, it refers positions that can be coordinated by a single executive. Significance of Span of Control: The span of control may be ‘narrow’ with a few individuals reporting to a superior or manager and may be ‘ wide’ with a large number of individuals individuals are under the supervision supervision of the same manager or superior. It is advisable to have no more than 4 or 6 subordinates subordinates working working under one executive executive or superior. superior. The narrow and wide span of control may be depicted in the form of chart as below: Managing Director Section Manager

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P1

P2

S1

S2

W1 W2

P3

S1

W1 W2 W1 W2

S2

W1

S1

W2

W1

P4

S2

W2

S1

W1 W2

W1

W2

S2

W1 W2

Figure: Organization with ‘narrow span of control’ Managing Director

Section Manager

P1

S1

P2

S2

P3

S3

P4

S4

P5

S5

P6

S6

S7

P7

P8

S8

S9

Figure: Organization structure with ‘wide span of control’

Factors Determining Effective Spans: What, then, does determine a desirable span? Graicunas, a Lithuanian engineer and a Paris-based management consultant stated that this depended on the number of relationships that existed between managers and subordinated individually and in various combination, and among the subordinates themselves. He calculated the number of relationships for a manager with ‘n’ subordinates as n[2 ( n−1) + n −1]

so that every subordinate added more than doubled the number of relationships the manager had to be concerned with and, Graicunas assumed, the difficulty of the job. However, effective span of control depends on many factors other than the simple number of subordinates and studies of effective spans have identified the following conditions or factors as affecting the number of people a manager can effectively supervise: 1. The level of Training of the Subordinates as per the job requirements. 2. The Nature of the Job supervises – whether simple or complex. 3. The Rate of Change of Activities and Personnel. 4. The Clarity of instruction and delegation of power and authority. 5. The Staff assistance required to a manager in discharging his responsibilities. 6. Similarity of function in which subordinates are involved. 7. Complexity of functions; making too many subordinates difficult to manage and supervise. 8. Geographical closeness of employees at work place. 9. Degree of direction and coordination required. 39

10. Capabilities of subordinates. 11. Use of objective standards. 12. Effective communication and meetings with subordinates and personal contact with subordinates. 13. Maturity level of the subordinates and their support to the manager or leader. 14. The philosophy of centralization and decentralization in decision-making; 15. Finally, the skill and experience of the manager does, of course, have an effect on the number of people that he or she can supervise. Thus, the span of control has a crucial influence on a manager’s effectiveness and also determines the level of coordination of resources for a proper utilization to accomplish organizational goal or task. Current Trends in Spans: The current trend in spans of control is definitely to increase the “spans of control”, which ultimately decreases the number of organizational (hierarchical) levels within a given organization or company. This shift to large span of controls is due in part to the Information Revolution. With more automated systems, databases, and everincreasing methods of communication, decisions can be made efficiently. Line workers and technicians no longer have a small role in a particular process but have the ability to manage, in large part, the particular process that they are partly responsible for with the latest in technology. These results in large spans generally are around 20 to 30 subordinates per span, and the organization should consist of no more than five organizational levels in hierarchy. The major key points (advantages or benefits or reasons) that will result in wider or large span of control are: 1. Significant reduction in administration costs. 2. More effective and efficient organization communication. 3. Faster decisions and closer interaction between organizational levels. 4. Requirement that all levels of personnel become better trained, informed and educated; and 5. Better leadership at all levels. The progress in information technology and its application resulting in large span of control benefit the entire organization as a whole, requiring better educated, involved, and trained workers and forcing better leadership, decision making, and involvement from managers. Line and Staff Relationships: Traditionally, the “line functions” in an organisation were thaought to include production, sales, and finance in the typical manufacturing organisation. “Staff functions”, on the other hand, were those that helped the line to accomplish these objectives by providing some sort of advice or service. A useful distinction may be made between  personal staff , such as the “assistant to” who does troubleshooting or special assignments for a single manager; and   personal staff , who serve the entire organisation in an area of special competence. Examples of specialized staff organisations include personnel, procurement, legl counsel, and market research. In todays more complex knowledge-based organisations, the activities of “staff specialists” may be as essential to the ultimate

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success of the organisation as “line workers”, and these distinctions have almost become insignificant and blurred. The major relationship between line and staff structure better explained as below. a) Line Structure - It is the simplest and oldest form of organisation; where everyone has a well defined manager and there is cler definition of the routes of authority and communication. This is also known as ‘scalar’ type of organisation structure. In this form the line of authority runs in the order of rank, through the successive layers fo managers and supervisors, from top management to lower level of workers. In other words, line relatinships are superior – subordinate relationships and can be traced in a “chain of command” from the organisation president (or the CEO) through a succession of levels of managers to the lowest worker. This may be shown as below:

Managing Director

Manager – 1

P1

P2

P3

P4

Manager – 2

P5

P1

P2

P3

P4

P5

Manager - 3

P6

P1

P2

P3

P4

P5

Figure: Line Organisation Structure. b) Staff Structure - It is also known as ‘matrix organisation’, where in this type of structure there are no line-managers. They work as consultants to more than one organisation and is the greater disadvantage of this form of organisation structure. It also requires people in the organisation to be fairly good in time management and diplomacy. Staff  relationships are advisory in nature. Four types of staff relationships, arranged in order of increasing levels of influence, and are: i. Providing advice only on request, ii. Recommending where the staff office deems appropriate, iii. “consulting authority”, in which line managers must consult (but need not obey) staff in their area; and iv. “concurring authority”, in which the staff specialist has a veto authority over the line manager. d) Line and Staff Structure - The most generally followed and common organisation structure is a combination of line and staff, with the level of compromise being appropriate to the organisaton involved. This type of organisation consists of the addition of staff specialists to the simple line organisation.  Harrington Emerson was the first man to introduce this type of organisation. The term ‘staff’ in this type of organisation refers to helpers or specialists who enable the line officers to work more effectively. They are supporters who provide service and advice to the line-officers. This can be shown in a chart as below in figure(a) and figure(b): e) Engineering Director

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Production Manager

P1

P2

Test Manager

T1

T2

Engineering Manager

T3

Engineer 1

Engineer 2

Figure(a): Line and Staff Organisation Structure.

And, Board of Directors Legal Advisor Production Engineer Supervisor

General Manager (CEO) Production Manager Foreman

Chief Accountant Quality Control Inspector Tool Expert

Workers

Figure(b): Line and Staff Organisation Structure. d) Functional (specialized) authority – it is a special type of staff authority over other who are not their line subordinates. It is as binding as line authority, but does not carry the right to discipline for violation. Usually, it controls “how to” accomplish some action falling in the area of responsibility of the staff office, and it is delegated to staff because of the need for uniformity or special expertise. Examples include specification of budget formats by the financial officer and of criteria for documenting research findings or for reducing product liability by the legal counsel. e) Service relationships – these are “facilitative activities” that are centralized for economy of scale, uniformity, or special capability, but are only supportive of the main mission. Examples include custodial, security, and medical services. A manager may, at different times, exhibit all of these relationships. For example, a personnel (HR) manager will exert line authority over direct subordinates in his or her office, provide staff advice to the chief executive on the need for instituting an affirmative action program, exercise functional authority by defining how job descriptions must be filled out, and provide a service to the entire organization by maintaining employee records. Friction between line and staff personnel occurs for many reasons. Staff specialists, hired because of their college training in a needed new discipline, may have 42

little understanding of the problems and realities of the line organization. Line managers, on the other hand, are often older and have longer tenure in the organization but may be less educated and have little understanding of the expertise of the staff specialist and the need the organization has for it. Each side needs to listen to the other with courtesy and mutual respect for the good of the total organization. Corporate restructuring in the 1990s is reducing the size of specialist staff organizations at the corporate and divisional levels. Instead, individual specialists become members of working teams that, as a group, are empowered to get the work of the organization accomplished with much less need for approvals “up the chain of command”. As a result, specialists can integrate their knowledge into work as it is being done, avoiding much of the friction, misunderstanding, and wastage, and repeated efforts of the past.

Impact of the Information Revolution: Modern computer and telecommunication (Information Technology) technologies are rapidly changing the organizations in ways that we do not yet fully understand. Lund and Hansen believe that the time horizons between design and production are collapsing because the design data base, once created, is available for design analysis and evaluation, creating prototypes, control of ultimate production and even planning and control of quality inspection. It reduces the resources tied up in inprocess and finished goods inventory. Product life cycles will be shortened in many industries. The successful firms will be those evidencing the flexibility, adaptability, and quick response that computer based technologies can provide. Lund and Hansen also observed “a diminishing of the size and importance of centralized corporate headquarters” as operating decisions are pushed to lower levels (and even simpler once are automated). As computer-based automation replaces conventional processes, it will sharply reduce the number of workers needed per unit of output. Factory workers will be monitoring the production process rather than forming part of it and they will need at least the following skills: 1. Visualization (ability to manipulate mental patterns) 2. Conceptual thinking (or abstract reasoning) 3. Understanding of process phenomena (machine fundamentals and machine/material interactions) 4. Statistical inference (appreciation of trends, limits, and the meaning of data) 5. Oral and visual communication 6. Attentiveness 7. Individual responsibility. Peter Drucker observed four special problems for management as particularly critical in the new information-based organization:

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1. Developing rewards, recognition, and career opportunities for specialists (since opportunities for promotion into the management hierarchy will drastically decrease). 2. Creating unified vision in an organization of specialist. 3. Devising the management structure for an organization of task forces. 4. Ensuring the supply, preparation, and testing of top management people (since the progression of middle management levels that provided this training in the past have diminished). A special Business Week report on “Rethinking Work” discusses some of the salient aspects: 1. Virtual disappearance of job security, replaced by shared responsibility. 2. Increasing demand for well-paid professional and technical workers; decreasing demand for operators, labourers, craftsmen, clerical staff, and farm workers. 3. Reduced real wages and increasing the need for the two-income family. 4. Continuing “downsizing” of staff, with the surviving personnel working longer hours under higher stress. 5. Increases in part-time, contract, and self-employed workers who are paid only when needed without the fringe benefits that often add 40% to payroll cost. Therefore, each individual must take personal responsibility for their own career, to assure they continue to acquire the new knowledge and skills they will need.

Authority and Power: Other important human considerations in organizations, once they have been properly staffed, include the nature of authority and power and their effective delegation. Nature of Authority: Formal Authority: The traditional view of authority is “legitimate power”, the right, based on one’s position in an organization, to direct the work activities of subordinates. Acceptance Theory of Authority: Chester I Barnard , on the other hand, believed that authority originates when subordinates choose to accept the directives of superiors. According to Barnard:  If a directive communication is accepted by one to whom it is addressed, its authority for him is confirmed or established. It is admitted as the basis for action.  Disobedience of such a communication is a denial of authority for him. Therefore, under this definition the decisions as to whether an order has authority or not lies with the  person to whom it is addressed, and does not reside in “persons of authority” or those who issue orders”. Despite this, we know that the overwhelming majority of requests or directives from superiors are, indeed, complied with. When a person enters employment with an organization, he or she is tacitly agreeing to accept any directives toward which the

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employee feels no strong objection. Therefore, Barnard modifies his “acceptance theory” by postulating a “zone of indifference”, which he explains as follows:  If all the orders for action reasonably practical be arranged in the order of  their acceptability to the person affected, it my be conceived that there are a number which are completely unacceptable, that is, which certainly will not be obeyed; there is another group somewhat more or less on the neutral line, that is, either barely acceptable or barely unacceptable; and a third group unquestionably acceptable. This last group lies within the “zone of indifference”. The person affected will accept orders lying within this zone and is relatively indifferent as to what the order is so far as the question of authority is concerned.

Sources of Power: French and Raven have divided the sources of power and influence into five types: 1. Legitimate or Position power (authority) – stemming from one’s appointment or election as leader. 2. Reward Power – the power to reward others for cooperation. 3. Coercive or punishment power – stemming from fear of punishment. 4. Expert power – stemming from a person’s capability and reputation. 5. Referent power – based on an attraction to or identification with another individual (or the program or cause that person is leading) that makes the follower want to behave or believe as the other does; it is similar to what is commonly called charisma , a special personal gift for inspiring others that is easier to give examples of than to define. Thamhain bases his System – I style of engineering programme management n the first three of these five “bases of influence” ( legitimate, reward, and coercive power ) which derive primarily from one’s formal position. And his System – II  style, which is a combination of expert  and referent powers primarily from one’s personal capabilities and reputation, are necessary for effective leadership. Even when System-I power is ample, the addition of System-II influence makes the manager even more effective. Pringle et al list some additional sources of power that have been suggested by others: 6. Power through access to important individuals, 7. Power obtained through ingratiation or praise, 8. Manipulative power, 9. Power of persistence or assertiveness; and 10. Power gained through forming coalitions. Engineers may feel that they should automatically be granted enough power to get the job done and may find the “office politics” involved in acquiring power distasteful. Humpherey takes a more pragmatic approach: “While power is the ability t cause action, politics is the art of obtaining power.  Power and politics are important management concerns because they form the basis for all dealing between managers ”.

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Delegation: Authority is delegated when a superior gives a subordinate discretion to make decisions. Three interrelated concepts of importance are the assignment of duties, delegation of authority, and exaction of accountability, as shown in the figure below. Manager Assigns Duties to

Delegates Authority to

Exacts Accountability from

Subordinates Figure: Assignment, delegation, and accountability. The Process of Delegation involves the following major steps: 1. determining the result expected from a position (subordinate), 2. assigning tasks to a position, 3. delegating authority for accomplishing these tasks; and 4. holding the person in that position responsible for the accomplishment of the tasks. Managers use their authority to assign duties to subordinates, making them responsible for carrying out the specified activities. This assignment proceeds in stages from top management down. Once a subordinate has been assigned tasks to perform, it is important to provide him or her with the resources needed to carry out the assignment. This is called delegation of authority and includes authority over people who will be needed to carry out the assignment as well as financial authority to acquire the equipment, perform the travel, or make other commitments of resources needed. Like assignment of duties, delegations of authority proceeds in stages from top management down. It is essential management precept that “authority should be commensurate with responsibility”, so that a subordinates has enough authority to carryout assignment effectively”. When the manager has assigned duties to a subordinate and delegated authority to carry them out, he or she is still not though. The manager must exact (insist on or require) accountability from the subordinates by making the subordinate responsible to the manager for carrying out the duties and reporting progress periodically. The manager has now made the subordinate “responsible for” the task and “responsible to” report progress, but the manager is still accountable (responsible) to the next higher level of executive to assure that the task is effectively carried out – hence the saying “you can’t delegate responsibility”. Reasons for Delegation: Delegation relieves the manager of work the subordinate is capable of doing, substituting the need to assure that the work is actually done. The subordinate, on the other hand, is given a chance to develop his or her skills by being delegated more and 46

more responsible problems. While some subordinates prefer the security associated with very detailed supervision, those with the most future potential will respond favourably to the delegation of increasing responsibility and initiative. Further, delegation tends to locate decision making closer to the work being performed, and this often results in more practical and prompt decisions. Barriers to Delegation for Engineers: The engineers has been trained in a rigorous discipline and has been held responsible for every calculation and every decimal place through four or more years of college and subsequent years of engineering practice. When an engineer becomes a manager, however, he or she must now be responsible for the work of other people, and this can be especially threatening to the engineers. The engineer-manager has the responsibility to train new subordinates carefully (often with the help of his or her more experienced subordinates) and to assign jobs within the capability of the subordinate. Insecure managers load themselves with their subordinates’ problems through inadequate delegation. The superior in the line of management fails in delegation of authority successfully because of the reasons like – lack of confidence and trust with the subordinates, fear of failure, fear of the loss of control on the subordinates, and so on. Therefore, Oncken and Wass suggest five degrees of initiative for the subordinates to work on: 1. wait until told (lowest initiative), 2. ask what to do, 3. recommend, then take resulting action, 4. act, but advise at once; and 5. act on own, then routinely report (highest initiative). Managers need to eliminate levels 1 and 2 as early as possible, requiring the “completed staff work” of level 3 (bringing a suggested solution with each problem), and progressing to levels 4 and 5 in most problems as soon as the experience of the subordinate justifies this. Guidelines for Effective Delegation: Some of the major guidelines to facilitate successful delegation of authority are: 1. Define assignments & delegate authority in the light of results expected. 2. Select the person in the light of the job to be done. 3. Maintain open lines of communication. 4. Establish and use proper controls. 5. Reward effective delegation and successful assumption of authority.

Human Aspects of Management - Man Power Planning: The management function of staffing involves finding, attracting, and keeping personnel of the quality and quantity needed to meet the organization’s goals. Staffing is included in some management textbooks as part of the organization function and in others as a

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separate function, but the same steps are required. Effective staffing requires first identifying the nature and number of people needed, planning how to get them, selecting the best applicants, orienting and training them, evaluating their performance, and providing adequate compensation. Hiring a labourers when jobs are scarce may involve just a call to the nearest union hall, but hiring quantities of engineers and other professionals, whether new colleges graduates or experienced professionals with specific skills, requires planning ahead from six months to more than a year. Planning for the overall personnel (or human resource) needs of a large high-technology firm can therefore be quite complex. Following is the process used in hiring technical professionals: 1. Document the number of technical personnel of each classification presently on hand. 2. Estimate the number of professionals of each type needed in the near future (six months to a year) to meet firm contracts and likely potential business. 3. Estimate the expected attrition in the current staff including –  a. resignations as a function of the national demand for scientists and engineers and the relationship between salary scale and the employees strength of competition. b. Transfers out to other divisions and promotion to higher positions; and c. Retirements, deaths, and leaves of absence. 4. Establish the need for increased personnel as  Increase (4) = need (2) – personnel on hand (1) + attrition (3) Subdivide this increase (4) into (5) new college hires, (6) experienced professionals, (7) technical support, and (8) other sources. 5. Hiring from the colleges and technical institutes. 6. Develop a hiring plan to acquire experienced personnel using national and local hiring, employment agencies and “headhunters” career centres, and employees -referrals. 7. Develop a plan to acquire needed technicians and technologists from two and four  – year technical institutes; B.A. and B.S. graduates in physics, and mathematics, discharged military technicians, advertisements, state and commercial employment services, and employee-referral. 8. Needs that cannot be bet by sours (5), (6), and (7), especially those of to short a duration to justify permanent hiring, can be met by scheduling overtime, hiring contract (temporary) engineers, borrowing engineers from other company divisions, and contracting work to other company divisions or to other companies. Job requisition/description: A manager wishing to fill a professional position normally must fill out a form known variously as a job description or job requisition, which then is approved by higher management and given to the personnel department as guidance in their search for candidates that might be considered for the position. A typical jobrequisition consists of: 1. Title of the position and grade 2. Educational requirements 3. Experience

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4. Personal specifications – physical and psychological 5. Description of the duties – to whom to report, authority of the employee, responsibilities and tasks involved in the job, types of machinery and materials to be handled, working conditions, etc., and 6. Emoluments and pay packages – salary range, etc. The job-description contents that clearly communicates to the workers as to what they are required to do and this reduces confusion and misunderstanding. A clause my also be incorporated which provides the employer with a degree of flexibility when asking the  job holder to carry-out specific tasks. Selection: Selecting those applicants who will be offered jobs from among the many contracted in the search described in human resource planning is essentially a filtering process. Resumes and applications are reviewed, potential candidates are screened in campus or telephonic interviews, references are checked, and applicants who pass through these screens are invited to the company for interviews (and sometimes testing) before job offers are made. The selection process includes: • Resume and cover letter • Employment application • Campus interview • Reference checks • Site (plant) visit • Starting salary; and • Job offer. Resume and Cover Letter: For the most engineering professionals the first impression is normally made by the resume, which is submitted with a cover letter in response to an advertisement or as an initial inquiry. The cover letter should be addressed to the appropriate individual by name. Normally the cover letter begins by identifying the position or type of work you are applying for and if appropriate, where you heard of the opening. The second paragraph can state why that company and position interest you, and describe concisely (a sentence or two) the education, experience, and other abilities that have prepared you for the position you seek. A closing paragraph can be referred to the attached resume, thank the recipient for his/her time to inquire about a possible interview. The cover letter must be impeccable in appearance, grammar, and spelling. A quality cover letter should encourage the recipient to give your resume fair consideration; with a poor one, your resume may not be read. The resume generally includes all or most of the following details: 1. Name, address, and telephone number(s). 2. Current job position and/or status (such as ‘graduating senior’) 3. Current and longer term employment objectives. 4. Summary of education (formal degrees and continuing education) 5. Employment experience, with the most recent employment firs, emphasizing accomplishment (the longer you are out of college, the more likely this is to precede education in a resume). 6. Publications, significant presentations, and patents.

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7. Professional affiliations. 8. Significant honours and awards. 9. References available on request (not a requirement on the initial resume). Writing an effective resume is an important skill that many engineers do not master easily. An effective resume normally should not exceed two pages (except for academic positions, since publications and presentations are listed there in detail). The resume should be well organized concise, faultless in grammar and spelling, and attractively printed on quality paper. Employment Application: If the resume leads to further interest from a potential employer, the applicant will normally have to fill out (neatly, of course) much of the same information on an employment application, arranged in a standard form familiar to interviewers from that organization. Campus Interview: The newly graduating engineer typically makes the first contact with the potential employers in the campus interview. Interview outcomes are a complex dynamic of the attributes of the applicant, of the interviewer, and of the situation. Engineers need to learn to conduct interviews as well, since they may find themselves interviewing candidates at their plant or back on campus after a few years experience. Reference Checks: Before inviting an applicant for a site visit, a prospective employer commonly checks the references given in an application or requests them if they have not already been provided. References for new graduate include professors and supervisors from part-time jobs; for the experienced engineers they will be primarily the past and current supervisors and co-workers. An increasing problem with references is the fear of liability if a bad reference is given. Site (plant) visit: When a company has a strong interest in an engineer or other professional, he or she will normally be invited for a visit to a chosen company location at company expense. At the end of an interview and plant visit it is perfectly proper for the applicant to inquire – “when to you expect to make a hiring decision” or “If I haven’t heard from you by (date), may I call you?” A prompt letter thanking the interviewer for courtesies extended and expressing continuing interest in the company is generally appropriate. Starting Salary: If an employer is interested in an applicant, sooner or later he or she will ask – “What salary do you expect?” Often this will occur toward the end of a site visit, and the applicant should be prepared. Remember, everything is not set in stone. A candidate who replies “whatever is your going rate”, will probably be offered the bottom of the range. Since future salary adjustments in most companies are typically small percentage adjustments to current salary, inequities in starting salary can be adjusted only slowly. Kennedy suggests: The answer should be “ I understand that market in this area for entry-level (your specialty) engineering jobs is X to Y dollars. I’m told I should expect to be paid at 

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market rate”. This is both accurate and polite. The irony of the whole salary negotiation game is that if you hold out for market, the company thinks you are better and brighter then someone who actually hand them a bargain.

Experienced engineers will measure their expectations based on the years since their bachelor’s degree, graduate degrees if any, the quality of their experience, local cost of living, and other factors. Job Offer: The employment offer is a standard format letter offering a specific position and identifying salary, reporting date, position and title, the person to whom the candidate will report to, and often provisions for moving expenses. A candidate should acknowledge the offer immediately. However, the candidate with other interesting offers in hand may ask for a reasonable delay and if rejecting the offer should also reply about the rejection of the offer in a polite way. Striking a balance between demanding too much and selling oneself too cheaply requires the candidate to have a clear understanding of his or her true worth in the current job market. Orientation and Training: When a new employee reports to work, the employing organization needs to help the newcomer become part of the organization by introducing him or her to the policies and values of the organizations as a whole and specific requirements of the person’s new department and job. The personnel department generally deals with these responsibilities in modern organizations. Orientation also involves the process of inculcating the values of the organization, such as attitudes toward quality, safety, and customers, etc. The management also needs to arrange for the appropriate training sources and methods to impart the skills and expertise required to work on specific areas in organizational activities. In a more comprehensive sense, orientation and training can be considered to include the total socialization of the new employee to the environment and culture of his or her new organization. Training and Development is the process of developing knowledge, skills, and behaviour in people that will enable them to perform better their current and future jobs, and to discharge the responsibility effectively. It is, however, important to distinguish between Training and Development before we procede with further discussions on the topic. Training presuposes that the desire skill is already with in the capacity of the individual and that they only need to be shown how to apply the skills and knowledge to perform the job. Development, however, involves preparation for tasks or behaviours that currently beyond the individual’s range of responses.

There are two prerequisites for successful training: • Intellectual capability; and • The desire to learn. It should be realised that there are limits to how much a person may change as a resuld of training. Training cannot affect the basic psychological attributes.

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However, there are several factors have contributed to the increased adoption of ‘training and development’ schemes in modern organisations, such as: 1. need for skilled labourers, 2. growth and development of new technologies, and techniques of operation, 3. persistent obsolescence of manpower, 4. the policy of the government relating to employing of socially and economically backward classes; and 5. realisaion on the part of employees the need of training to improve the productive efficiency, etc. Conducting (organisation of) Training Programme: The following  phases to be considered while conducting ororganising a training programme: 1. Identify the Needs: It is the process of assessing the training needs in the orgaisation; using organisation’s objectives and a summery of the given individual’s abilities as starting points, generate a list of training needs for each individual in the form of objectives. 2. Select and apply the appropriate and best method of training : There are many techniques with which people may be trained and each method and type of training is suited to particular circumstances and types of training are generally include: • individual instructions, • group instructions, • lecture method, • demonstrational method, • written instructions method, • written instructions method, • conferences (may even include video and audio conferences,etc. also); and • meetings, etc. [various methods of training are discussed in preceding paragraphs with title –  methods of training] Therefore, most appropriate technique should be selected and applied. 3. Monitoring the Effectiveness: It involves the process of examining the trainees’   job, to correct mistakes and deviations, if any; till he gets competence. Therefore, the following steps should be given due consieration, such as: • Preparation of training programme – this step is crucial, since the organisation has to arrange all training materials, etc., to take-up training programme. • Conducting training – it involves the steps like:  Fixation of time-table of training,  All levels of job should be taken into account for training; and  Training stipend is to be paid to the trainee workers, etc.

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At this stage of ‘monitoring the effectiveness’, the manager assesses the response of the group to the training. This could be measured both by how the employees are performing and by discussing it with the trainers. The manager will wish to know whether any further training is required, whether the individuals are now able to produce the required skills, and whether value for money has been realised. The appraisal forms an excellent means to the manager to examine the success of training; as it has generally been identified the training for improvement in the agenda of the performance appraisal. Methods of Training and Developing Personnel: Training and developing being one of the methods or ways to enhance the employees performance followed in organisations. There are various ‘methods’ of training selected on the basis of its suitability in organisations; and the major methods of training and development of personnel are classified into two broad catergories as sources of training: 1. Internal Training Methods; and 2. External Training Methods. 1. Internal Training Methods: In this method, the training is imparted with in the organisation and it includes the following important methods of training: a) Induction and Orientation Training : This type of training is imparted or offered to the newly appointed employees inorder o familiarise with all departments and nature of jobs to be carried-out by them, so as to make work without assistance and with confidence. b) On-the-Job Experience : This is the simple, extremely relevant, cheapest and widely used method of training. This type of trining takes-place all through the working day. In this type the worker is trained on the job under the close supervision of a trainer or trained instructor; who is anyone else involved in the daily running of the department and is usually more senior and experienced. Sometimes, on-the-job training is very structured. This training continues till the supervisor or the trainer is satisfied that the employee can adequately perform the  job without supervision. In this type, inorder to train the employees in variety of  jobs, the employees are moved to variety of jobs by the trainer at different levels of management; where the employee get trained in variety of skills. This is called  – “job-rotation” and it will helps the organisation to have a pool of multi-job trained workers to work in the situations like absenses, vacations, or resignations of some workers at different levels. c) Coaching : It is generally used to instil particular skills, often of physical nature. It involves a coach who will take the students through the learning process so as to acquire the desired skills. Coaching is very effective at instilling skills and is of particular relevance when personal safety or credibility are threatened. d) Role-play : In role-play the trainees use their ability to see things from another’s point of view and learn from the experience of playing another person’s role. e) Apprentice training : This method is offered to learners who cannot be trained effectively through ‘on-the-job’ training programmes, because of the extended period of time required to learn the job. The Apprentice Training lasts for various periods from 2 years to 7 years and during th;is period the trainees are paid a fixed

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amount – ‘stipend’ as remuneration. Usually, an agreement in writing; where in the employee guarantees to work for a certain period after acquiring apprentice training for the company. In India, the Indian Apprentice Act was enacted and amended in 1977, and under this act 1,31,127 apprentices were provided training as on june 1985. f) Off-the-Job (Vestibule) training : This is one in which a class-room is setup with a regular production area as an attempt to stimulate an actual production situation. This method of training is adopted when a large number of workers are to be trained in similar skills, uniformly and quickly. However, these types of training programmes are costly as it requires special arrangements and highly paid instructors. g) Refresher training : It is the method of training to refresh the workers in methods which might have been forgotten in passage of time; and to train on the new techniques in the place of out-dated techniques. It is an opportunity to the employees to improve their knowledge. h) Promotional training : The training under this method is imparted on to the workers who moves into higher positions on promotion and who needs to handle greater responsibilities. i) Training by Skilled, Experienced and Senior Workers : In this method a new employee is attached to an old (senior and experienced) employee; where the new employee watchthe processes of doing work by the experienced worker and do the same type of work by himself. This form of training is common in small business enterprises.  j) Training by Helper System : This is also known as ‘understuduy system’ of training. This method pressumes that a worker will learn by helping another worker to do his/her job. The ‘understudy’ or the ‘trainee’ is taught by the employer actually working on the job, to whom the trainee is understudy or helper. k) Study : It is especially appropriate to the personal acquisition of factual knowledge. It is not, however, efficient for the acquisition of practical skills. The formal study, if it is with in the structured syllabus only and the study is only aimed at getting formal qualifications. l) Retraining : It is mostly imparted to the existing employees for the following reasons: • to keep the all-round skills of employees as a reserve in case of need, • when retrenched or dismissed workers are called by after lay-off period owing to several reasons, • when new technology demands new methods of promotion, • when a worker is not in a position to his normal alloted work due to illness, accidents, or incapacity due to age, but who can take-up jobs which are within such employee’s reach. 2. External Training Methods: External training methods as a source of training resorted to in such circumstances where facility of internal sources of training are not available. Special training institutes have come into existence, which are either owned privately or by the public and

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governement. The employees are deputed in such institutions for a specific duration and made to learn the required skills and abilities. For example, the institutions like –  National Productivity Council (NPC), Small Scale Service Institutes, the Industrial Training Institutes, Small-scale Industries Associations, the Government Tool Room and Training Centres, etc. However, the selection of a training method, depends on the factors like: • nature of the problem, • trainee’s level in management hierarchy, • interest of the trainees, • availability of trainers, finance, time and other resources available with the company, and so on. Thus, ‘Training and Development of Personnel’ plays very improtant role in staffing function of management (organisation), so as to enable the workers to gain the necessary skills to achieve professional efficiency or proficiency in their job. Appraising Performance: There are several reasons for requiring formal appraisal of an employee’s performance. It needs to decide upon the compensation package (pay and bonus and other benefits), to decide upon the training and development needs of the employees, need for counseling, need for promotions, and also need for staff planning and also to make retention/discharge decisions. University of Missouri system developed a method of rating the employees in five steps from “outstanding” to “inadequate” in each of: a) Knowledge of the work, b) Quality of the work, c) Quantity of the work, d) Attendance and punctuality (timeliness), e) Initiative behaviour of the employee, f) Communication skills, g) Carrying out instructions, and h) Overall appraisal. There are various methods of performance appraisal as given and explained by the specialists; however, most forms used for the appraisal of professionals in large organizations involve combinations of methods. Generally, the performance appraisal methods may include: • Appraisal forms, • Appraisal interviews, • Ranking or forced distribution methods, and so on. The primary emphasis in appraisal today, therefore, is on the contribution made toward achieving organizational objectives, which is the reason that personnel are employed to begin with. And with the increased emphasis on teamwork, there is greater emphasis on

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rewarding team members for team (or even total organization) performance rather than  just individual performance. The Implication of an Appraisal System: The implementatation of an appraisal scheme needs financial as well as personnel planning. It also nvolve time and cost. However, the benefits of performance appraisal are largely intangible and it is difficult to produce a numerical cost justification. The advantages of appraisal for employees are: • it allows an objective assessment of an individual’s performance to be made, • it provides a database of information concerning the personned, their skills, and abilities, on which the company can draw. From this, it can lead to better and more effective use of staff by means of transfer, training and planned projects, • it can identify difficulties and potential problems so that they can be dealt with before they become major problems, • it can improve the performance of personnel through the use of objective setting and increased motivation, and • It is an ideal too for use with in a management system that relies on objectivesetting to control and motivate the work-force. However, the appraisal schemes also suffer from certain limitations and disadvantages for which they creiticised. Linking Appraisal to Pay-review: Many organisations link the appraisal interviews to pay-review. It provide a fair base on which to divide the salary budget by awarding merit points for performance and giving salary increments on the basis of points achieved. Hence, who contribute (perform) better get the best reward. Moreover, it helps in increasing employer motivation to reach company objectives. However, there are disadvantages to linking appraisal and pay-review, and these are oftendeemed to outweigh the advantages; such as: • It will increase the amount of defensive behaviour and reluctance to admit faults on the part of the appraisee, • It can cause people to use the appraisal as an opportunity to justify why their salary should increase; and • It can lead to conflict between the appraiser and appraisee, damaging the personal relationship and understanding the purpose of the appraisal. Questions: 1. You have begun a small but growing business. What advantages and disadvantages should you consider before changing it form a sole proprietorship to a corporation? 2. Define Span of Control. Explain the types and factors determining the span of control. 3. Distinguish between functional (specialized) staff authority and traditional line authority. 4. What changes in organization structure might you expect as a result of the information revolution? 56

5. If the development of the information-based organization continues to have the effect on management predicted by Drucker, what will be the impact on career expectations of engineers and other specialised professionals? 6. Choose an enterprise with which you are familiar that has undergone significant recent reorganization. Compare the new and old organizations with regard to a. size and influence of specialized staff, b. management levels, c. typical spans of control, d. responsibility delegated to nonmanagerial professionals. What other changes occurred in the organization? 7. Discuss the strategy you propose to use in your personal career to assure you will remain in demand in a changing, competitive world. 8. Outline the steps a large high-technology organization goes through to identify its plan for personnel acquisition for the next year. Identify the uncertainties that apply to each step. 9. Prepare a resume of you qualifications meeting the criteria described. What might (if anything) might you like to add or delete from this resume format? Why? 10. Write a note on campus interview. 11. Describe a performance appraisal technique or form with which you are familiar and assess its strengths and weakness. 12. Explain briefly Barnard’s acceptance theory of authority, and give an example. 13. What are some conditions under which a formal or System I style of leadership would be most effective, where would you rely on System II style? 14. Explain the various sources of power and authority. 15. Define Delegation. Explain the relationship between delegation, assignment and accountability. 16. Explain the major reasons and barriers to effective delegation of authority for engineers.

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Unit III Motivation and Leadership: Motivation – Meaning, Theories of motivation (the Carrot and the Stick, Maslow’s Need Hierarchy theory, Herzberg’s Motivation-Hygiene theory, McClelland’s Trio of Needs, Self-Motivation, General Motivational Techniques.` 04 Hours

Leadership – Meaning, Ingredients/Traits of leadership, styles of leadership, Managerial Grid, Leading Technical Professional. 03 Hours

Controlling – Meaning, Controlling Process, Three Perspectives on the Timing of Control, Types of Control, Characteristics of Effective Control System. 02 Hours

Motivation: Introduction – Definitions:

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The term motivation is derived from the word ‘motive’ and is as defined by Berelson and Steiner – “an inner state that energises, activates and that directs or channels behaviour towards goals”. Motivation is a general term applying to the entire class of drives, desires, needs, wishes and such similar forces or factors. When we say that, a manager motivates his subordinate employees, it means that he does those things which, he hopes, will satisfy these factors (drives and desires) and thereby induce subordinates to act in the desired manner. Scot defines motivation as, “a process of stimulating people to action, to accomplish desired goals”. The level of motivatiomn directly related to the level of incentives and disincentives, i.e., Motivation = Incentives – Disincentives. The level of motivation does not only affect employees psychologically, but also their performance level; i.e., Performance = Ability x Motivation. To have an effective technical organization we need to understand the nature of motivation, especially as it applies to technical professionals Berelson and Steiner have defined motive as “an inner state that energizes, activates, or moves (hence ‘motivation’), and that directs or channels behaviour toward goals”. Robbins defines motivation in an organizational sense as “the willingness to exert high levels of effort to reach organizational goals, conditioned by the effort’s ability to satisfy some individual need”. Campbell et al. define motivation in terms of three measures of the resulting behaviour: 1. The direction of an individual’s behaviour (measure by the choice made when several alternatives are available) 2. The strength of that behaviour once a choice is made. 3. The persistence of that behaviour. Shannon concludes that “there is only one way to get people to do what you would like them to do, and that is by making them want  to do it. Motivation flows from within the individual”. Therefore, we need to learn why people want to do things, and how they can be persuaded (or motivated) to do those things that will enhance organizational goals. The Carrot and The Stick Theory: The metaphor ‘the Carrot and the Stick’ related to the use of rewards and penalties respectively in order to induce the desired behaviour of the employees. It comes from the old story that to make a donkey move, one must put a carrot in front of him or jab him with a stick from behind. Despite all the research on motivation techniques, the reward and punishment are still considered as the strong motivators. The Carrot – in the form of reward – represents money, promotion, appreciation and other benefits and the Stick – in the form of punishment – represents loss of job, loss of income, reduction of bonus, demotion or

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some other forms of penalty. Using the carrot and stick approach, there are basically two ways; behaviour is changed by force or by choice through the use of incentives. The ‘stick’ or fear is a good motivator and when used at the correct times can be very helpful. In that context, fear has always been the ‘convenient’ choice of Malaysian managers and organizations. When all else fails, the stick approach is somehow most attractive as it usually produces instantaneous compliance and hence immediate results. Fear is also attractive as in the short term, an employee’s performance may be improved without any need for incentives or financial remuneration. Fear however has its weaknesses in that an organization motivated by fear is prone to mutiny. It can also be stressful for employees. It is extrinsic, which means that the motivation only works while the motivator is present. When the motivator goes, the motivation also usually goes. Fear is also only useful on a short-term basis, as it needs to be applied in ever-increasing doses. In a worst case scenario, fear motivation can backfire and could even lead to cases of sabotage. On the other hand, people contribute or become more productive because they are offered incentives i.e. the carrot approach. The major advantage with this is that it can work very well as long as the incentive is attractive enough. A good illustration of this concept is by using the well-known analogy of a donkey with a carrot dangling in front, and with a cart behind. In this instance the carrot serves as the incentive. However, the carrot will serve as an incentive to motivate only if there a combination of: a) the donkey is hungry enough, b) the carrot is sweet enough; and c) the load is light enough. If any of the above is not satisfied, then the carrot will not serve as an incentive. On the assumption that the conditions are satisfied, there is still the question of letting the donkey take a bite of the carrot from time to time, otherwise it is going to get discouraged. A new scenario will then develop in that if the donkey gets to eat the whole carrot and is now not hungry anymore; putting another carrot in front of it will not serve as an incentive, until it gets hungry again. This is very often seen in organizations where salesmen on meeting their quota, stop working as their motivation is only limited to meeting that target. Once the donkey has eaten the carrot, the next carrot may not be as attractive an incentive as the first. On the other hand changing the incentive to another vegetable may not necessarily motivate unless the donkey perceives it as a better incentive than the carrot. This is another very important element in motivation and that is the reward must be perceived as attractive enough. Otherwise it will not serve its purpose effectively, and may in fact backfire. Here is the question to evaluate critically – “ Is Money the best Carrot ”? Maslow’s Need Hierarchy Theory of Motivation: Maslow’s ‘need hierarchy theory’ is probably one of the earliest and most popular and infulenccial content theory of 60

motivation. Abraham.H.Maslow, a famous psychologist and social scientist, suggested that people have a complex set of exceptionally strong needs and the behaviour of the individuals at a given moment is usually determined by their strongest needs. Maslow’s theory is based upon two assumptions, namely: 1. the human beings have many needs that are different in nature ranging from the biological needs at the lower level which is the level of survival to psychological needs at the upper extreme which is the level of growth; and 2. the needs occur in an order of hierarchy so that lower needs must be satisfied before the higher level needs arise or become motivators. Mahatma Gandhi, therefore, once remarked – “even God cannot talk to a hungry man except in terms of food”. Maslow saw human needs in the form of hierarchy and is arranged in a hierarchy of five successive orders, ascending from the lowest to the highest needs. The physiological needs are the lowest level followed by the security (safety), social, esteem (egoistic), and self-actualisation needs; and he concluded that when one set of needs was satisfied, this kind of need ceased to be the motivators. Maslow’s need hierarchy may be depicted as below:

Security or Social needs Physiological Social needs needs Survival Needs Figure: Maslow’s Need Hierarchy Theory.

Esteem or Egoistic needs

SelfActualization needs

Growth Needs

The first three level needs are known as “ deficiency needs or survival needs ”, because they must be satisfied inorder to ensure the individual’s very existence and security (safety) and make him fundamentally comfortable. The two higher level needs are classified as “ growth needs”, since they are concerned with personal growth , development, and full realisation of one’s potential. 1. Physiological Needs – These needs arise out of the basid physiology of life and the basic needs for sustaining human life itself; such as food, water, warmth, shelter, sleep, rest, etc., and are must be atleast partially satisfied for continued survival as necessaries of life. 2. Security or Safety Needs   – Once the physiological needs are satisfied reasonably, other level needs become important. According to P.F.Drucker , “one’s attitude towards security is an important consideration in choosing a job”. It includes feeling free from physical danger, deprivations, economic threats and protection from arbritrary lay-off, dismissal, disaster, etc., and also stability and the like. Organisation can influence these security needs through pension plan, insurance plan, provident fund facilities, etc.

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3. Social Needs – Since man is a social being, he has needed to belong and to be accepted by others and the people want to love and be loved. It includes the need of belongingness, association, affiliation, etc. 4. Esteem (Egoistic) Needs  – The esteem needs are concerned wih self-respect, self-confidence, a feeling of personal worth, feeling of being unique and recognition, power, prestige, status, control, etc. 5. Self-actualisation Needs – This term coined for the first time by Kurt Goldstein and he stated it as “the tendency to become actualised in one’s own potentiality”. A man with high intensity of achievement needs will be restless unless he can find fulfilment in doing what he is fitted to do. As Maslow states, “this need might be phrased as the desire to become more and more of what one is, to become everything that one is capable of becoming”. Status and role are not material to the drive for self-satisfaction. Maslow suggests that the various levels of needs are interdependent and overlaping, where higher level needs emerge before the lower level needs are fully satisfied. When a need is fully satisfied, that need ceases to be the primary motivator and the next level need then begins to dominate. Maslow’s need hierarchy theory made management aware that people are motivated by a wide variety of needs and that management must provide an opportunity for the employees to satisfy these needs through creating a physical and conceptual work environment so that they will be motivated to do their best to achieve organisational goals.

Motivation – Hygiene Theory ( Herzberg’s Two Factor Theory) of Motivation: In 1950s Fredrick Herzberg, a well known management theorist with his associates conducted intensive study of experiences, feelings, and need satisfaction of 200 engineers and accountants employed in the firms in and around Pittsburg, USA. The purpose of the study was to find out – what people want and what motivates them. He asked the people to explain the situations in which they found their jobs – ‘exceptionally good’, therefore motivating and ‘exceptionally bad’. Herzberg concluded, that there were two categories of needs essentoially indepe de t of each other affecting behaviour in different ways; they are : 1. The Hygiene or Maintenance Factors: These include the need-factors wh;i;ch operate primarily to dissatisfy employees when they are absent and are not effective enough to bring strong motivation when they are present. These factors are TEN in numbers: • Company policy and administration • Technical supervision • Interpersonal relations with superior • Interpersonal relations with peer • Interpersonal relations withsubordinates • Salary • Job security • Personal life • Work conditions; and 62

•

The status. Then, these factors operate as shown below: Hygiene or Maintenance Factors

No dissatisfaction (if they are present)

Dissatisfaction (if they are absent)

These are extrinsic to the job, but they are related to conditions under which a job is performed. These maintenance factors are necessary to maintain a reasonable level of satisfaction in employees and they prevent only losses in workers performance, but produce no growth in productivity. 2. Motivational Factors: Motivational factors or satisfiers are directly related to job content itself, the individual performance or it, its responsibilities and the growth and recognition obtained fronm it; i,e., motivators are intrinsic to the job. Herzberg included six factors under this category such as: • Achievement • Recognition • Advancement through creative and challenging work • The work itself • The possibilities of personal growth; and • The responsibility. These are the job-conditions, if present build high levels of motivation and jobsatisfaction. However, if these conditions are not present, they do not cause dissatisfaction, and then they operate as below:

Motivators

Satisfaction (if they are present)

No satisfaction (if they are absent)

Thus, the employees of an organisation are classified into ‘motivation seekers’(those who work for hygine or maintenance factors) and ‘maintenance seekers’(those who work for the motivators)  A composite of the factors that are involved in causing job satisfaction and job dissatisfaction, (was) drawn from samples of 1,685 employees………..The results indicate that motivators were the primary cause of satisfaction, and hygiene factors the   primary cause of unhappiness on the job. The employees, studied in 12 different  investigations, included lower-level supervisors, professional women, agricultural administrators, men about to retire from management positions, hospital maintenance  personnel, manufacturing supervisors, nurses, food handlers, military officers, engineers,

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scientists, housekeepers, teachers, technicians, female assemblers, accountants, finish foremen, and hungarian engineers.

They were asked what job events has occurred in their work that had led to extreme satisfaction or extreme dissatisfaction on their part …….of all the factors contributing to   job satisfaction, 81% were motivators. And of all the factors contributing to the employees’ dissatisfaction over their work, 69% involved hygiene elements. Maslow’s Theory and Herzberg’s Theory – A Comparison: Herzberg’s hygiene factors correspond well to the lower three of Maslow’s needs (physiological, security/safety, and social), and his motivators with the upper two (esteem/egoistic and self-actualisation/self-fulfillment). Herzberg considered salary as primarily a hygiene factor, and certainly it leads a person to be dissatisfied when their salary is less than think is merited, or when they are given a smaller raise than the employee at the next desk. However, salary is “a way of keeping score”, and a healthy raise can be clear recognition for one’s work and in that sense motivating. Bonuses and profit sharing can be motivating as well.

Self-actualisation needs Esteem/Egoistic needs

Motivators Maslow’s Need Herzberg’s Two-Factor Theory

Hierarchy

Social Needs Relevance (Implications) of the Herzberg Theory: Hygiene/Maintenance Herzberg Security/Safety needs Factors   job enrichment  developed the methodology of to increase the content of motivators in a job. Examples Physiological Needs of job enrichment actions include reducing the number and frequency of controls, making the worker responsible for checking his or her own work, establishing a direct relationship between the worker and the customer or user of that work (whether internal or external), and in other ways increasing authority and autonmy. Job enrichment and the underlying two-factor theroy have attracted many disciples, who have applied it in a wide variety of enviorments. In an extended study at Texas Instruments, Myers found that engineers, manufacturing supervisors, hourly male technicians, and especially scientists tended to be motivation seekers, whereas female assemblers tended to be maintenance seekers. Based on analysis of job-enrichment efforts and attitude surveys involving primarily blue-collar workers, Fein reported that essentially all job-enrichment efforts are initiated by management, not by a desire of workers or their unions to make jobs more meaningful, and concluded:

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 For the most part (blue-collar) workers satisfied with the nature of their work. What they find most discomforting is their pay, their job security, and many of the work  rules with which they must cope.

In the 1980s many American companies, especially the automobile industry, tried to reduce the number of categories of production workers by asking workers to learn several   jobs,so that they could be used more flexibly and labour cost could be reduced. In essence, this amounted to job enrichment for the benefit of corporate profit and, ultimately, the survival of the plants against foreign competition. American union workers fought this attempt bitterly.

McClelland’s Trio of Needs: David McClelland and others have proposed that there are three major motives or needs in work situations. Shortly after World War II, a group of psychologists led by David C McClelland of Harvard University began to experiment with TAT (Thematic Apperception Test) to see if it were sensitive enough to detect changes in motivation that were caused by simple attempts to sway the individual’s attitudes. In order to simplify their task, the group decided to select one particular motive for intensive analysis. For, it was not long before the implications of the achievement motive were recognized that it became the subject of intensive investigation in its own right. McClelland had identified three types of basic motivating needs. He classified these needs as: 1. Need for Achievement (n/ACH ) – this is also called as Achievement Motive. Over the years, behavioural scientists have observed that some people have an intensive desire to achieve. It is the drive or desire to excel, to accomplish something better than has been done in the past. People with a high need for achievement tend to be entrepreneurs, setting moderately difficult goals, taking moderate risks to achieve them, and taking personal responsibility for getting things done. McClelland’s research has led him to believe that the need for achievement is a distinct human motive that can be distinguished from other needs. It can also be isolated and assessed in any group. He identified four basic characteristics of high achievers: a. Ability to accept  Moderate Risks. b. Immediate and precise feedback  about how he is progressing toward goal. c.  Accomplishment  of the task. d.  Preoccupation with the tasks until it is successfully completed. 2. Need for Power (n/PWR) – The ability induce or influence behaviour is power and is also called as Power Motive. It is the desire to control one’s environment, including resources and people. Persons with high need for power are more likely to be promoted to managerial positions and are likely to be successful managers if they master self-control and use their power for the good of the organization rather than solely for personal ends. McClelland and his associates have found that people with high power motive are generally seeking positions of leadership;

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they involve in conversations; they are forceful, outspoken, hard headed, and demanding. 3. Need for Affiliation (n/AFF) – Since people are social animals, most individuals like to interact and be with others in situations where they feel they belong and are accepted. These are the needs of a human for companionship and acceptance. Sometimes, affiliation is equated with social motives or needs. People with a strong need for affiliation want reassurance and approval, are concerned about other people, and perform well as coordinators, integrators, counselors, and in sales positions. McClelland has suggested that people with high need for affiliation usually derive pleasure from being loved and tend to avoid the paid of being rejected. They are concerned with maintaining pleasant social relationships, enjoying a sense of intimacy and understanding, and enjoy consoling and helping others in trouble. Implications of the Theory: The need for affiliation might be compared with Maslow’s third level needs – the social needs, the need for power with his fourth level needs –  Esteem or Egoistic needs, and the need for achievement with the fifth level needs – Self actualization needs. However, McClelland’s point is that different people have different needs, not just the same need in a clear hierarchy of importance. For example, an engineer with a high need for achievement may achieve success in technical assignments in the process of satisfying this need, and he or she might be promoted into a management position as a result. If this need for achievement is combined with a low need for power, the engineer will often peak earlier in his or her career and at a lower level, since the need for achievement can be satisfied by the work itself rather than (as with need for power) requiring continuing promotions. Again, engineering jobs that put a premium on coordination and cooperation, such as today’s team management organization or the matrix organizations common in project management, certainly require a blend of need for achievement and for affiliation. Self Motivation: The Managers or the Managements are responsible for providing an environment conducive to performance. But, individuals themselves are responsible for self motivation. Some of the steps to self motivation: a) Set a goal for yourself and do not lose sight of it. b) Supplement your long – term objectives with short – term goals and specific actions. c) Learn a challenging new task each year. d) Make your job a different one. Set improvement objectives for your position. e) Develop an area of expertise. Build on your strengths or develop your weaknesses into strengths. f) Give yourself feedback and reward yourself. Setting verifiable goals provides you with a standard against which you can measure your performance. General Motivational Techniques (Motivation in Practice): There exist no correact answers to the motivation problem to deal with it effectively. Many engineers and managers who have a very rationalistic approach to work seem to have difficulty with this. There are no universal solutions. What motivates

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one person will not motivate another, therefore the engineer who manages has to be prepared to compromise and develop strategies that form the best overall solution for a number of people, including themselves. Therefore, managers have to try to develop an idea about what their subordinates are really like and expect and also establish what it is that drives them. Since, the motivation is a complex issue, affected and influenced by many factors, it is difficult to evaluate what motivates workers. Yet, managers or leaders need to possess and collect such information; using their knowledge of motivation theories of Maslow’s Need Hierarchy theory, Two Factor Theory or Motivation and Hygiene Theory of Herzberg, and ‘goals’ as motivators as explained by Hunt and others – which will help the managers to understand the psychology of the employees. Inorder to improve the motivation and providing opportunity for improvement it is essential to understand the factors which motivate the subordinate employees of a manager. Job-descriptions and appraisal interviews of employees can both help in improving motivation as they cn be used to set goals, clarify what is expected by the employees of doing a particular job. Moreover, various general and common motivational factors are identified to promote better work conditions and improve productivity both in quality and quantity. The techniques of motivation refers to the job redesign and structuring tasks high level of motivation. It involves alteration of specific aspects of job in a manner, that would increase both the quality of the employees’ work experience as well as his productivity. It involves: • Altering the basic relationship between employees and their jobs. • Developing a direct relationship between the job and employee behaviour; so as to make the worker to experience more rewarding work; through wich developing favourable attitudes. • It opens opportunities to initiate changes in other areas such as development of supervisory skills and management development programmes. • It makes an organisation people-oriented rather than machine-oriented. The work activities become more challenging and as a result the workers experience feeling of worth, personal growth and development and aspire for higher needs such as self-esteem and self-actualisation. The practice of motivation and the techniques (motivators) used to motivate the employees in any organisation generally involves: Monetay and economic rewards, o Job-enlargement – which seeks to motivate the employees by enlarging o the scope of the job, Job-enrichment – it implies deliberate upgrading of responsibility, scope o and challenge in work, o Job-rotation – the employees may be shifted from one job to anotherinorder to provide some variety so as to minimise the monotomy and boredom of doing the same routine job,

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o

o o

o

Participation of workers – by using participation of workers in decisionmaking, greater acceptance to change is accomplished, Creation of highly work accomplishment environment, Effective Criticism – it helps in improving an employees behaviour and performance; and Praise – the praise and credit for work done is a good and effective method of motivation and it satisfies ego and esteem needs of employees.

Leadership: Nature of Leadership: Leadership is the process of getting the cooperation of other in accomplishing a desired goal. The modern day leaders all over the world have taken their places in guiding the thoughts and effforts of people to the achievement of the common goals. Coming to the business organisations, people working there need leaders; who could be instrumental in guiding the efforts of group of workers to the achievement of goals and objectives both of the individuals and the organisation. Leadership is intrinsically linked with motivation. Ordway Tead in his “The Art of Leadership” has defined leadership as “ the activity of influencing people to cooperate towards some goal which they come to find desirable ”. In the context of business situation, leadership is one of the means of direction and represent that part of the manager’s activities by which he guides and influences the behaviour of his subordinates and the group towards some specified goals by personally working with them and by understanding their feelings and problems as they engage themselves in doing certain jobs assigned to them. Thus, leadership is defined as, “ the ability to influence people or subordinate toward the accomplishment  of goals ”. Harry Truman explained: “You know what makes leadership? It is the ability to get men to do what they don’t want to do and like it”. In a more subtle vein, Barney Frank said: “The great leader is the one who can show people that their self-interest is different from that which they perceived”. People become leaders by appointment are called as  Formal or titular leaders.  Emergent or informal leaders evolve based on their expertise or referent powers as it is expressed in the process of group activity. Leadership Traits: Early researchers into the nature of leadership tried to identify the   personal characteristics or traits that are made for effective leaders. For example, Peterson and Plowman list the following 18 attributes as being desirable in a leader. 1. Physical qualities – health, vitality, and endurance. 2. Personal attributes – personal magnetism, cooperativeness, enthusiasm, ability to inspire, persuasiveness, forcefulness, and tactfulness. 3. Character attributes – integrity, humanism, self-discipline, stability, and industriousness; and

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4. Intellectual qualities – mental capacity, ability to teach others, and a scientific approach to problems. Styles of Leadership: The styles of leadership adopted by a leader differs and are relative to the attitude and traits of the leader, behaviour of the followers, and expectations of the management and so on. The major styles of leadership described with the following terms: 1. Autocratic (Dictator) leadership - Autocratic leadership is an extreme form of transactional leadership, where leaders have absolute power over their workers or team. Staff and team members have little opportunity to make suggestions, even if these would be in the team's or the organization's best interest. Most people tend to resent being treated like this. Therefore, autocratic leadership often leads to high levels of absenteeism and staff turnover. However, for some routine and unskilled jobs, the style can remain effective because the advantages of control may outweigh the disadvantages. 2. Bureaucratic leadership - Bureaucratic leaders work "by the book." They follow rules rigorously, and ensure that their staff follows procedures precisely. This is a very appropriate style for work involving serious safety risks (such as working with machinery, with toxic substances, or at dangerous heights) or where large sums of money are involved (such as handling cash). 3. Charismatic leadership - A charismatic leadership style can seem similar to transformational leadership, because these leaders inspire lots of enthusiasm in their teams and are very energetic in driving others forward. However, charismatic leaders can tend to believe more in themselves than in their teams, and this creates a risk that a project, or even an entire organization, might collapse if the leader leaves. In the eyes of the followers, success is directly connected to the presence of the charismatic leader. As such, charismatic leadership carries great responsibility, and it needs a long-term commitment from the leader. 4. Democratic leadership or participative leadership – Although democratic leaders make the final decisions, they invite other members of the team to contribute to the decision-making process. This not only increases job satisfaction by involving team members, but it also helps to develop people's skills. Team members feel in control of their own destiny, so they're motivated to work hard by more than just a financial reward. Because participation takes time, this approach can take longer, but often the end result is better. The approach can be most suitable when working as a team is essential, and when quality is more important than speed to market, or productivity. 5. Laissez-faire (Free–rein) leadership - This French phrase means "leave it be," and it's used to describe leaders who leave their team members to work on their own. It can

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be effective if the leader monitors what's being achieved and communicates this back to the team regularly. Most often, laissez-faire leadership is effective when individual team members are very experienced and skilled self-starters. Unfortunately, this type of leadership can also occur when managers don't apply sufficient control. 6. People-oriented leadership or relations-oriented leadership - This is the opposite of task-oriented leadership. With people-oriented leadership, leaders are totally focused on organizing, supporting, and developing the people in their teams. It's a participative style, and it tends to encourage good teamwork and creative collaboration. In practice, most leaders use both task-oriented and people-oriented styles of leadership. 7. Servant leadership - This term, created by Robert Greenleaf in the 1970s, describes a leader who is often not formally recognized as such. When someone, at any level within an organization, leads simply by meeting the needs of the team, he or she is described as a "servant leader." In many ways, servant leadership is a form of democratic leadership, because the whole team tends to be involved in decision making. Supporters of the servant leadership model suggest that it's an important way to move ahead in a world where values are increasingly important, and where servant leaders achieve power on the basis of their values and ideals. Others believe that in competitive leadership situations, people who practice servant leadership can find themselves left behind by leaders using other leadership styles. 8. Task-Oriented leadership - Highly task-oriented leaders focus only on getting the job done, and they can be quite autocratic. They actively define the work and the roles required, put structures in place, plan, organize, and monitor. However, because taskoriented leaders don't tend to think much about the well-being of their teams, this approach can suffer many of the flaws of autocratic leadership, with difficulties in motivating and retaining staff. 9. Transactional leadership - This style of leadership starts with the idea that team members agree to obey their leader totally when they accept a job. The "transaction" is usually the organization paying the team members in return for their effort and compliance. The leader has a right to "punish" team members if their work doesn't meet the pre-determined standard. Team members can do little to improve their job satisfaction under transactional leadership. The leader could give team members some control of their income/reward by using incentives that encourage even higher standards or greater productivity. Alternatively, a transactional leader could practice "management by exception" – rather than rewarding better work, the leader could take corrective action if the required standards are not met.

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Transactional leadership is really a type of management, not a true leadership style, because the focus is on short-term tasks. It has serious limitations for knowledgebased or creative work, however it can be effective in other situations. 10. Transformational leadership - As we discussed earlier, people with this leadership style are true leaders who inspire their teams constantly with a shared vision of the future. While this leader's enthusiasm is often passed onto the team, he or she can need to be supported by "detail people." That's why, in many organizations, both transactional and transformational leadership are needed. The transactional leaders (or managers) ensure that routine work is done reliably, while the transformational leaders look after initiatives that add new value. The authors of management science have tried to characterise leaders in more complex ways. Cribbin has identified 14 types of executives by their behaviour. Eight of these types as he concludes, are “merely successful” (and could be more effective were it not for some serious weaknesses). They are: Table: Leaders who are merely successful. Executive

Motto

Bureaucrat

“We go by the book”

Zealot

“We do things may way, in spite of the organization”

Machiavellian

“We depersonalize and use you”

Missionary

“We love one another”

Climber

Exploiter

“I vault over anyone I can”

“When I bark, they  jump”

Characteristics

Typical Behaviour

Rational, formal, impersonal, politely proper, disciplined, etc. A loner, Impatient, outspoken, overly independent, extremely competent, etc. Self-oriented, shrewd, devious, calculating, amoral, manipulative, excellent insight about people, extremely opportunistic, cold but can be charming, etc. Much too concerned with people and what they think of him or her. Subjective in orientation. Stress on interpersonal skills and insists that conflicts and frictions be smoothed over. Striving, driving, energetic, self-oriented. Often smooth and polished but always aggressive. Usually opportunistic and no loyalty to organization, often quite competent and constantly fronts self. Arrogant, insistent, abusive, demeaning, coercive, vindictive, domineering. Often quite competent, rigid, prejudiced, given to snap

Follows the letter of the law, rules and procedures, etc. Devoted to the good of the organization, as he or she sees it, etc.

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Treats people as things to be exploited and outwitted. Cooperates only when it is to his or her advantage. Want to win at any price and in any way possible. A soft manager who prizes harmony above all else. Low task orientation and emotionally involved. Acts on a personal basis.

High political skills. Excellent at maneuvering into the limelight, predatory toward weaker managers, high task orientation, etc.

Exerts constructive and personal controls. Flogs anyone who is vulnerable. Uses pressure and fear to get things done. Demands

Temporizer

Glad-Hander

  judgements. Exploits others’ subservience. High task weaknesses. orientation. Sees people as minions. Procrastinating, Low task orientation, low compromising, and people concern, reacts to “We bend to the vacillating. Earns contempt. the strongest immediate strongest pressure”. Feels a helpless sense of pressure. Receive, not being put upon. Survival active. Behaviour varies instincts may be superior. with pressure. May be politically aware. Ebullient, superficial, Sells himself or herself effusive, deceptively friendly, very well. Low or modest extroverted. Excellent task orientation. “We well the sizzle, interpretational skills. Lacks Unconcerned with people not the steak” depth, minimally competent. but excellent in dealing May be excellent politician, with them. Gets by on survival instinct superior, “personality”. Always talkative, humorous, lacks seeks to impress and to substance. improve his or her position.

Table: Leaders who are Effective: Executives

Entrepreneur

Corporateur

Developer

Craftsman

Motto

“We do it my way. Only risktaking achievers need apply”

“I call the shots, but we all work together on my team”

“People are our most important resource”

“We do important work as perfectly as we can”

Characteristics Extremely competent, forceful, individualistic, egocentric, dominant, self-confident. Extraordinary achievement drive, innovative, firm-minded, and strong willed. Something of a loner, can be very loyal, protective, and generous to team. Dominant but not domineering. Quite directive but gives people considerable freedom. Consultative but not really participative. Cordial to people but keeps them at arm’s length.

Trustful of subordinates. Intent on helping them to actualize their potential. Excellent human relation skills. Wins personal loyalty, builds a supportive and achieving climate. Fine coach and counselor. Amiable, conservative, extremely conscientious, principled, very knowledgeable, self-reliant, highly task oriented, proud of competence, work and family oriented, and self-contented, honest, straight-

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Typical Behaviour Unable to work well in subordinate position for very long. Offers challenges, opportunities, and great returns on risk taken, gets involved in all aspects of organization, exercises very tight control, motivates by example, rewards, and fear. Concerned about the good of the organization. Wins respect. High task orientation. Polished and professional manger. Makes people feel needed. Delegates and consults but keeps effective control. Supportive but not emotionally involved with subordinates. Very high people orientation. Although productivity is superior, at times people considerations take precedence. People feel needed. Delegate and consults but keeps effective control. Supportive and emotionally involved with subordinates. Like to innovate, build, and tinker with quality products. Motivated by desire for excellence. Selfdemanding but supportive of subordinates. Competes with projects not people. Like to solve problem alone or with small group.

Integrator

Gamesman

“We build consensus and commitment”.

“We win together, but I must win more than you”.

forward, perfectionistic, independent, analytical, and mild-mannered. Egalitarian, supportive, participative. Excellent interpersonal skills. Superior people insight. A team-builder, catalyst, subtle leader, prefers group decision making. Fast-moving, flexible, upwardly mobile. Very knowledgeable and skilled. Autonomous, risktaking, assertive, and intent on winning but not petty or vindictive. Innovative. Takes no pleasure on another’s loss or defeat. Opportunistic, but not unethical, not depressed by defeat.

Shares the leadership. Thinks in terms of associates rather than subordinates. Gives great freedom and authority. Welcome the ideas of others. Geared to win-win interaction. Acts as a synergistic catalyst. Wants to be respected for building winning team, enjoys the game of winning within the organization’s rules. Enjoys competition,   jockeying, and maneuvering. Sharp, skilled, unbiased, and tough manager who challenges and rewards contribution. Impersonally eliminates the weak and non-achievers.

The Leadership Grid: One of the widely known and popular approaches to identify leadership styles of practicing managers is the ‘ Leadership Grid ’ or the ‘ Managerial Grid ’ by Robert Blake and Jane Mouton, which shows that good leadership depends on skillful management of the task and the relationship between group members. The word ‘Grid’ means “an iron grating, a framework of parallel bars”. It is graphical portrayal of two dimensional view of the grid – ‘concern for the people’ along with vertical axis and ‘concern for task or production’ along with horizontal axis, as depicted in the chart.  Robert.R.Blake and  Jane.S.Mouton emphasize that leadership style consists of factors both the ‘task oriented’ and ‘relation oriented’ behaviour in varying degrees. The ‘concern for’ phrase has been used to convey how managers are concerned for people or production, rather than ‘how much’ production getting out of group. ‘ Concern for   production or task’ means the attitudes of superiors (leaders) towards a variety of things, such as – quality of policy decisions, procedures and processes, creativeness of research, quality of staff-services, work-efficiency, and volume of output. ‘ Concern for People ’ includes degree of personal commitment, trust, and satisfying interpersonal relations, etc.

Blake and Mouton identified FIVE basic leadership styles of practicing managers in the grid representing various combinations of the aforesaid two dimensions – ‘concern for people’ and ‘concern for task or production’. It is, however, important to point out these basic styles are a matter of convenience rather than a fact. The figure given represents “managerial grid” or “leadership grid” in a nine-by-nine (9 x 9) matrix outlining eighty one (81) different leadership styles; and Blake and Mouton have described the five basic styles identified in the grid, which represents varying combination of ‘concern for people’ and ‘concern for task’. The chart given represents

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the ‘leadership grid’ of Blake and Mouton, representing different styles of leadership followed by the practicing managers or leaders.  HIGH                              e    l   p   o   e    P   r   o    f   n   r   e   c   n   o    C                           -

9 8

Club Management: 1,91,9 – Country Thoughtful attention to the needs of the people for satisfying relationship leads to a comfortable friendly organization atmosphere and work tempo.

9,9 – Team Management: 9,9 Work accomplishment is from committed people; interdependence through a ‘common stake’ in organization purpose leads to relationships of trust and respect.

7 6 5

5,5 - Middle of the Road Management: Adequate organization performance is possible through balancing the necessity to get work out while maintaining5,5 morale of people at a satisfactory level.

4 3

1,1 – Impoverished Management: Exertion of minimum effort to get required work done is appropriate to sustain organization membership.

 LOW 2

1

9,1 – Authority Compliance (Task) management: Efficiency in operations results from arranging conditions of work in such a way that human elements interfere to a minimum degree.

1,1 9,1 1 2 3 4 5 6 7 8 9 Concern for Results  LOW   HIGH  ------------------(Concern for Task or Production)------------------

The five major basic styles of leadership followed by the practicing managers are discussed as below: The 1,1 - Managerial Style (Impoverished Management): It relates to the exertion of minimum effort to get required work done is appropriate to sustain organizational morale and membership. A manager or leader with this orientation exerts minimum influence on the contact with group members. He exposes little concern for the people and production or task. In this style the subordinates and members of the group are left to find for themselves the ways of doing the job. The 1,9 - Managerial Style (Country Club Management): It relates to “thoughtful attention to needs of people for satisfying relationships leads to a comfortable friendly organization atmosphere and work-groups and worktempo”. Here the boss is more of a big brother than an autocratic leader. The group, not the individual, is the key in the organization. The aim is to achieve friendliness and harmony among the members of the organization. The 9,1 - Managerial Style (Task or Authority Compliance Management): It relates to “the efficiency results in operation from arranging conditions of work in such a way that human elements interfere to a minimum degree; and have little effect”.

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People or members of the group are regarded as the instruments of production under the 9,1 managerial style. It is an autocratic style of leadership; and it places heavy emphasis on task and job requirement. Human relationships and interactions are minimized. Subordinates or the members are expected to carry out orders with an unquestioning obedience; merely as ‘means for doing the tasks assigned to them. The 5,5 – Managerial Style (Middle of the Road Management): It relates to “adequate organization performance is possible through balancing the necessity to carry out work with maintaining morale of people at satisfying/satisfactory level”. In this style, the ‘people-dimension’ is as important as the ‘production or task dimension’ at work. This style seeks to maintain a balance between the two. A basic assumption of this style is that people will work willingly and they are told the reasons for doing so are explained to them. In this style meetings are held to listen to their suggestions and to create a sense of participation in decision-making. The 9,9 – Managerial Style (Team Management): It relates “to work-accomplishment from committed people with interdependence through a common stake in organization purpose, which leads to relationships of trust and respect”. A major difference between 9,9 style and other managerial style is in goal setting and its use as a basic management approach to a large variety of problems. The capability of people to be involved in organizational objective through commitment to objectives is fundamental. In other words, 9,9 –style aims at integrating the ‘people and production’ dimensions of work under conditions of high concern for growth. The key is the involvement and participation of these responsible for planning and execution of work. This brings about a kind of team-spirit that leads to high organizational accomplishment. The ‘leadership-grid’ of Blake and Mouton is widely used as a technique of managerial training and for identifying various combinations of leadership styles. It helps the leaders and the managers to understand why they get the reactions from the subordinates or members. It also suggests some alternative styles available to the leaders with in the

Motivating and Leading Technical Professionals: In the light of the knowledge of the study of general theories of motivation and leadership, let us make an attempt to apply them to the technical professionals. In this attempt we discuss something of the nature of the professional, what motivates scientists and engineers, and finally consider the significance of these factors in the effective leadership of technical professionals. General Nature of the Technical Professional: A number of authors have examined the special characteristics of technical professionals (without distinguishing between scientists and engineers). They are: 1. Having a high need for achievement  – where deriving their motivation primarily from the work itself.

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2. Desiring autonomy (independency) over the conditions, pace, and content of their work. To achieve this, they need to participate in goal setting and decision making as it affects their work. 3. Tending to identify first with their profession and secondarily with their company. As professionals, they look to their peers (whether inside or outside the organization) for recognition, ethical standards, and collegial support and stimulation. 4. Seeking to maintain their expertise , gained through long and arduous study, and stave off obsolescence through continuing education, reading the literature, professional society activity, and especially through work assignments that keep them working at the state of the art.

Leading Technical Professionals: Leading and motivating the technical professionals involve the following aspects: • Dimensions of Technical leadership. • Leading as Orchestration. • Break point leadership. Dimensions of Technical Leadership: Rosenbaum believed that, to facilitate achievement of individual and group goals, successful technical leaders should master “five strategic dimensions ”: 1. Coach for peak performance – “listen, ask, facilitate, integrate, and provide administrative support”; act as a sounding and supportive critic, help the professional manage change. 2. Run organizational interference – obtain resources, act a advocate for the professional and his or her ideas, and minimize the demands of the bureaucracy (time and paperwork) on the professional. 3. Orchestrate professional development – facilitate career development through challenging assignments, foster a business perspective in professionals, find sources where new areas of knowledge are required. 4. Expand individual productivity through teamwork – make sure teams are well oriented regarding goals and roles, and that they get the resources and support they need. 5. Facilitate self-management – assure that technical professionals are empowered to make their own decisions by encouraging free two-way information flow, delegating enough authority, and providing material and psychological support. Leading as Orchestration: McCall has evaluated a number of studies of the relationship between a formal leader and a follower group of professionals, mostly R&D settings. He concludes that in such groups “effective supervisory leadership is more orchestration than direct application of authority. It seems a matter of creating and maintaining (or at least not destroying) conditions that foster scientific productivity”. While the supervisor is not the only factor determining group effectiveness, McCall identifies four general areas where the leader can make a difference: 1. Technical competence.

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2. Controlled freedom. 3. Leader as metronome. 4. Work challenge. Breakpoint leadership: McCall confined himself above largely to direct supervision of a group of technical professionals, especially in R&D. Then he added: “  At some point on the way up in the managerial ladder, a different kind of  leadership demand occurs. When influencing other parts of the organization is as important, or more important, than influencing a subordinate group, leadership is a breakpoint. Effectiveness is no longer measured by the group productivity; but also involves such things as impact on organizational direction, influence across organizational and even hierarchical boundaries, and securing and protecting organizational (and external) resources and support ………….For many professionals the first breakpoint leadership role is that of project manager”.

Controlling: Meaning and Steps in the Control Process: The simplest definition of controlling, attributed to B.E. Goetz, is “compelling events to conform to plans”. As stated by Robert E Shannon, “control techniques and actions are intended to insure, as far as possible, that the organization does what management wants it to do”. Control is a  process that pervades not only management, but technology and our everyday lives. Effective control must begin in planning; as shown in figure below, the planning and control are inseparable.

1. Establishing standards

2. Measuring actual performance 3. Comparing performance with standards

Planning

4. Corrective Actions Controlling

Figure: The Control process. The steps in the Control Process are: 1. Establishing standards of performance – also an essential part of effective planning. Standards should be measurable, verifiable, and tangible to the extent possible. 2. Measurement of the actual level of performance achieved. 3. Comparison of the two – the established target or standard and actual performance, and measurement of the variance (deviation between the two) and communicating this deviation promptly to the entity responsible for control of this performance.

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4. The final step is taking Corrective Action as required to “compel events t conform to plans”. Closed-Loop versus Open-Loop Control: Closed-loop control, also known as automatic or cybernetic control , monitors and manages a process by means of a self-regulating system. The essential feature of this type of control is the strong feedback system. A common home thermostat is a simple example of an automatic control system. Open-loop or noncybernatic control requires an external monitoring system and an external agent to complete the control loop. Frequently, when an automatic device identifies and measures the deviation with warning signals, then the human judgement is required to identify the reason for the variance and to determine corrective action. Even systems that are automated (cybernetic) in the short run are ultimately open loop, because they permit an external agent to adjust the standard. In engineering management the last step in the control process, corrective action, usually requires human judgement. Three Perspectives on the Timing of Control: 1. Feedback Control – Engineers are usually comfortable with idea of feedback systems, in which the output of a system can be measured and the variance between measured and desired output used to adjust the system. 2. Screening or Concurrent Control – Controls may also be applied concurrently with the effort being controlled. In this method corrective actions are sought at regular interval of production process. However, concurrent control can be expensive, stifling of initiative, and lead to inactivity while awaiting the next inspection. 3. Feed-forward (Preliminary or Steering) Control – the essence of this system of control is that it can predict the impact of current actions or events on future outcome, so that current decisions can be adjusted to assure that future goals will be met. Engineers and managers have many applications where controls must be applied in the early phases of a project or program. The PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are the examples of the feed-forward control tools used by the managers in controlling function. Characteristics of Effective Control System: An effective control system should satisfy most of the following criteria: 1. Effective   – Control system should measure what needs to be measured and controlled. 2. Efficient – Control systems should be economical and worth their cost. 3. Timely – Control systems should provide the manager with information in time to take corrective action. 4. Flexible – Control systems should be tools, not straitjackets, and should be adjustable to changing conditions and requirements. 5. Understandable – Control systems should be easy to understand and use, and they should provides information in the format desired by the users.

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6. Tailored – Where possible, control system should deliver to each level of manager the information they need for decisions, at the level of detain appropriate for the level. 7. Highlight deviations – Good control systems will “flag” parameters that deviate from planed values by more than a specified percentage or amount for special management attention. 8. Lead to corrective action – Control systems should either incorporate automatic corrective action or communicate effectively to an agent that will provide effective action; this is why the control system exists.

Types of Controls: The major types of controls are grouped into Financial Controls and Non-financial controls. Financial Controls • Financial Statements • Ratio Analysis • Budgets – Budgeting process • Cost Accounting • Audits of Financial Data Non-financial Controls • Human Resource Controls Management audits  Human resource accounting  Social controls - includes the corporate culture, values, 

•

obligations, norms, procedures, policies, etc.. Other non-financial controls like – inventory control, quality

control, project management controls, and so on

Questions: 1. Define and distinguish between motivation and leadership. 2. Explain McGregor’s Theory X and Theory Y. Bring out its managerial relevance. 3. For what kind of worker, in what type of environment, does McGregor’s Theory X and Theory Y make some sense? 4. Explain Maslow’s Need Hierarchy theory. Discuss its relevance to motivate engineers and technical professionals in modern business enterprises. 5. Explain Herzberg’s theory of motivation and what are its managerial implications? 6. Compare and contrast Maslow’s Need Hierarchy theory and Herzberg’s TwoFactor theory of motivation. 7. Herzberg specifically classed Salary as a hygiene factor, not a motivator. How would you classify it? Discuss.

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8. Job enrichment seeks to make work more meaningful and give employees more control over their work. Discuss the negative response of many blue-collar production workers toward this initiative. Why do you think that workers have this attitude? 9. Explain Managerial Grid (Leadership Grid). 10. What are the 14 types of leadership approaches – leaders who are merely successful and leaders who are effective- as stated by Cribbin. 11. Explain various aspects of motivating and leading technical professionals. 12. Define controlling. Explain the major steps in control process. 13. Explain the Closed loop and Open loop control systems. 14. What are the three Perspectives on the Timing of Control? Explain. 15. Write a not on: a. Feedback control b. Screening or concurrent control. c. Feed forward (preliminary or steering) control. 16. Explain briefly the characteristics of effective control systems.

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Unit IV Managing Research Function: Meaning, Product and Technology Life Cycle, Selection of R&D Projects, Project Evaluation Techniques – Interest Rate Calculations, Payback Time, Present Worth, Future Worth, Annual Worth Calculations. 05 Hours

Creativity – Creative Process, Characteristics of Creative People, Protection of Ideas –  Patents, Copyrights, Trade Marks, Trade Secrecy Laws. 01 Hours

Planning Production Activity – Plant Location, Plant Design, Plant Layout, Quantitative Tools in Production Planning – Inventory Control – Economic Order Quantity (EOQ), Break Even Analysis, Learning Curves. 03 Hours

Managing Research Function : Product and Technology Life Cycle:

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A new product begins as an idea for the solution of a problem or the satisfaction of a need. In nature only a few out of a hundred tadpoles survive to become frogs; in research only a few out of many research ideas will be vigorous enough to survive and will reach the right environment to mature into a successful product. Like the buggy whip, our product will have its day and will then be replaced by newer ideas that satisfy newer needs. This cradle-to-grave sequence is known as the   product life cycle. The product life cycle or the product planning and research involve the basic stages/steps like: 1. Identification of need – i.e., the suggestion of a product opportunity, which might come from researchers, sales-personnel, or customers, from observation of a competitors, or (or military goods) from fear of a potential enemy. The product idea must then be subjected to screening process to select from the many ideas available those that are technically and economically feasible, and to propose a programme for their successful design and development. 2. Product planning function – it involves the marketing analysis, feasibility study, advanced product planning (product selection, specifications and plans, acquisition plan-research, design and production, evaluation plan, product use and logistic support plan); and planning review and proposal. This stage is also called as –    systems engineering phases or engineering stages of new product  development . 3. Product research function – it involves the basic research, applied research (“need” oriented), research methods, results of research, evolution from basic research to product design and development. 4. Product design function – here the management will decide about design requirements, conceptual design, preliminary system design, detailed design, design support, engineering model/prototype development and transition from design to production. 5. Production/construction function – the products that still appear desirable after the design process then go to the production function. It decides about production and construction requirements, industrial engineering and operations analysis (plant engineering, manufacturing engineering, methods engineering, production control), quality control, production operations. 6. Product evaluation function – i.e., evaluation requirements, categories of test and evaluation, test preparation phase (planning, resource requirements, etc.) formal test and evaluation, data collection, analysis, reporting, and corrective actions and retesting are being undertaken. 7. Product use and logistic support function – finally, the products are put into use, and if they are at all complex, they will require continuing technical effort to support their operation and maintenance. It also involves product distribution and operational use; elements of logistic and life cycle maintenance support, product evaluation, modifications, product phase-out, material disposal, reclamation, and or recycling. These steps in production in product life cycle may be presented in the form of a table as follows:

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el c y C

Consumer

Identification of need Product Planning function Product Research function e fi Producer Product Design function L t c Production and/or Construction function u d Product Evaluation function o r P Consumer* Product use and logistic support function *some of the specific supporting function indicated my be accomplished by the producer throughout and/or at various stages in the product life cycle. For a product line (family of products) based on a technology that is developed and improved over a period of years of product manufacture, the model of the technology life cycle portrayed by Betz is more appropriate as shown in the figure below: y Market Volume

x Technology development

Application launch

Application growth

Mature technology

Technology substitution and obsolescence

Time Figure: Technology Life Cycle (from Fredrick Betz)

R&D Defined: Research and development are commonly lumped together under the catchall term “R&D”. To distinguish between them, let us adopt the definitions commonly used by the National Science Foundations:  Research, both basic and applied, is systematic, intensive study directed toward fuller scientific knowledge of the subject studied.  Basic research is ……….research devoted to achieving a fuller knowledge or understanding, rather than a practical application, of the subject under study …….

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[although when founded by commercial firm] may be in fields of present or potential interest to the company.   Applied research is directed toward the   practical application of knowledge, which for industry means the discovery of new scientific knowledge that has specific commercial objectives with respect to either products or processes.  Development  is the systematic use of scientific knowledge directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes.

Selection of R&D Projects: Need for Selection: Any successful technology based manufacturing firm will have many more ideas and needs for research projects than it has resources to invest in them. Booz, Allen and Hamilton, Inc. has suggested approximately the following ratio of raw new product ideas profitable products and are: a) 60 ideas (from researchers, other employees, customers, and suppliers) need to be screened for –  technical feasibility, financial feasibility, and suitability to corporate resources and objectives - quickly down to b) 12 ideas worthy of preliminary technical evaluation and analysis of productivity with respect to  preliminary engineering design, market research and cost/benefit  analysis to produce c) 6 defined potential products worth further design development and analysis , to obtain d) 3 prototypes for detailed physical and market testing, resulting in e) 2 products committed to full-scale production and marketing, or which f) 1 product should be a real market success and as profitable product. Initial Screening: To slash 60 crude ideas into 12 worthy of any significant evaluation requires a method that is quick and inexpensive. A common method is use of a simple checklist, in which proposed product is given a simple judgemental rating (poor/fair/good/excellent or -2/-1/+1/+2, for example) for each of a number of characteristics. Seiler suggests, for example, scoring 10 items: 1. Technical factors (availability of needed skills and facilities; probability of technical success) 2. Research direction and balance (compatibility with research goals and desired research balance) 3. Timing (of R&D and market development relative to the competition. 4. Stability (of the potential market to economic changes and difficulty of substitution). 5. Position factor (relative to other product lines and raw materials) 6. Market growth factors for the product.

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7. Marketability and compatibility with current marketing goals, distribution methods, and customer makeup 8. Producibility with current production facilities and manpower 9. Financial factors (expected investment need and rate of return from it) 10. Patentability and the need for continuing defensive research. Only slightly more sophisticated is the use of a weighted checklis t or  scoring model in which each factor is scored on a scale, often from 0.0 to 1.0. A relative weight  representing the importance of that factor is then used as a multiple, and the weighted scores for all factors are added. The table below provides an example of such a scoring model. Product Concept Evaluation Sheet Criteria Weight Score Weighted Score Technical Factors: Compatibility with research objectives 1 9 9 Compatibility with production facilities and capabilities 2 8 16 Probability of technical success 2 9 18 Marketing Factors: Compatibility with marketing goals, distribution, customers 4 4 16 Probability of marketing success 4 2 8 Potential profitability 2 4 8 Totals 36 75 Table: Example of a Weighted Scoring Model In this example, a potential new product has been given a raw score of 36 (60% of the maximum 60) and a weighted score 75 (only 50% of the maximum 150). The product was  judged very favourably on technical factors and could be developed with some confidence of technical success. However, it was rated poorly on its marketing factors, which had been assigned greater weight in the model, and therefore probably would not be developed. Quantitative Approaches: Once the large number of ideas for research projects has been screened to a more manageable number, the remaining proposals justify more detailed consideration of their technical and financial merits. The technical evaluation can take place in several stages increasing in depth and detail (such conceptual, technical feasibility, development, and commercial validation stages of new product development), with a decision point at the end of each phase. Along with evolution of the technology should come increasingly detailed analysis of costs of producing the proposed product and market estimates of potential sales and profit. Many mathematical models have been proposed for evaluating the financial suitability of proposed projects. Typically they involve estimating the relationship between the investment required and the benefits to be gained.

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a) The Payback Time (or Period) method  – the easiest to calculate is the simple payback time (T  pb ), which is the ratio of required investment I and mean annual gross profit A: T  pb

=

 I   A

Simple payback time is often used to justify investments that need to be recovered quickly because of uncertainties, but it is unsuitable for longer-term investments because it ignores profits expected beyond the point of payback and doesn’t consider the time value of money (the fact that a unit of money returned at some future time has less value than a unit of money available now or today). Many engineers learn these valuable methods of justifying investment in a new project or purchase of new equipment in a course in engineering economy and return to tell their teachers that it was one of the most useful, practical courses they took in college. b) The Engineering Economy (Net Present Worth) method  – Using the standard engineering economy nomenclature; where: P = Present Worth of future cash flow A j = cash flow (revenue less expense) in the j th year i = discount rate (minimum attractive rate of return or cost of capital) n = number of years of future cash flow. Any sum P today, placed at an (annually compounded) interest “i” would compound to A1 = P(1+i) in one year, A 2 = P(1+i)2 in two years, and A j = P(1+i) j in j years. Therefore, the present worth of any future sum A  j can be calculated as  P =

 A j

(1 + i ) j

,

and the present worth of n yeas of such cash flow would be  P =

n

 A j

 j =1

(1 + i )  j

∑

Note: For numerical examples, please refer the class notes

During the calculation if the net present worth is negative, then the proposal may be rejected and if the net present worth is positive, then the proposal may be accepted for investment. And if the present worth is equal to zero, the situation may be considered as position of indifference.

Creativity: Nature of Creativity: Creativity is the ability to produce new and useful ideas through the combination of known principles and components in novel and non-obvious ways. Another definition for creativity given by Lumsdaine is “playing with imagination and possibilities, leading to new and meaningful connections and outcomes while interacting with ideas, people, and the environment”. Creativity exists throughout the population,

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largely independent of age, sex, and education. display creativity completely out of proportion research organization requires understanding acquiring creative people, and maintaining an inhibits creativity.

Yet in any group a few individual will to their number. To have an effective the creative process, identifying and environment that supports rather than

The Creative Process: There are a number of models for problem solving such as – trial and error method, planning/decision-making process – which involves problem definition, identification of alternatives, evaluating them against objectives. Its major thrust is analytical reasoning, although its success is enhanced by some creativity in selection of alternatives to be evaluated. Following are the steps identified in creative process: 1. Preparation – Shannon describes this step as “a period of conscious, direct mental effort devoted to the accumulation of information pertinent to the problem ……….and include the areas like: a) Structure the problem, b) Collect all available information, c) Understand relations and effects, d) Solve sub-problems; and e) Explore all possible solution and combinations that may lead to a satisfactory solution. 2. Frustration and incubation – Failure to solve the problem satisfactorily by the analytical process above lead to frustration and the decision to set if aside and get on with something else. However, the problem, fortified with all the facts gathered about it, “stews” or incubates in the subconscious mind. 3. Inspiration or illumination – A possible solution to the problem may occur as a spontaneous insight, often when the conscious mind is at rest during relaxation or sleep. Many creative individuals are never without a notepad and pen, on their person or beside table, to write down these flashes of insight. 4. Verification – Intuition or insight is not always correct, and the solution revealed in a flash of insight must now be tested and evaluated to assure it is, indeed, a satisfactory solution to the problem. Shannon defends this model as “……………. When applied to problem solving, the human mind has two aspects: 1. a judicial, logical, conscious mind that analyses, compares, and chooses; and 2. an imaginative, creative, sub-conscious mind that visualizes, foresees, and generates ideas from stored knowledge and experience” .

Brainstorming and Other Techniques for Creativity: Dhillon describes eight creativity techniques designed for one, two, or up to a dozen people. Best known is brainstorming, a modern method for “organized ideation”, and he reports that the idea had been used in India for more than 400 years as part of the technique of Hindu teachers under the name “ Prai-Barshana ”, literally “outside yourself-question”. The essence of brainstorming is a creative conference, ideally of 8 to 12 people meeting for less than an hour to develop a long list of 50 or more ideas. Suggestions are listed without criticism on a blackboard or newsprint as they are offered; one visible idea leads to others. At the end of this session participants are asked how the 87

ideas could be combined or improved. Organizing, weeding, and prioritizing the ideas produced is a separate, subsequent step. This description is more unstructured. For more structured brainstorming, the Nominal Group Technique is used. In this case, the problem is presented and participants write down their ideas quietly for a short period of time (5 to 10 minutes). Then each participant in an organized manner with no repetitions presents one idea at a time. When one pass is finished, another is begun until all the ideas are presented. Then the process continuous as with the unstructured brainstorming. The advantage of this process is that everyone participants, and the quiet time often leads to ideas that otherwise would not have been considered. Dhillon next lists two brainstorming techniques that can be used by two people and are: the “tear-down ” approach – where the first person Mr. A, must disagree with • the existing solution to a problem and suggest another approach; next, second person Mr. B, must disagree with both ideas and suggest a third; then Mr. A must suggest yet another solution; this “cycle continues until a useful idea clicks”. • The “and-also ” method – where Mr. A suggests an improvement on the subject under study; Mr. B agrees, but suggests a further improvement; this sequential improvement “continues until a sound solution is reached”. In a somewhat different group technique developed by W.J.Gordon, a “team explores the underlying concept of the problem. For example, if a new can opener is desired the team would first discuss …..the meanings of the word opening and examples of opening in real life things”. The method encourages finding unusual approaches by preventing early closure on the problem. Gordon used a team of six meeting for about a day on a problem. Dhillon describes two approaches in which individuals are given a description of a problem and required to list solutions in advance of group effort. In the simpler form, “each participant has to have a certain number of solution ideas, say 17, to the problem before he is allowed to attend the meeting”. In a more complex version known as the “CNB method ”, each member of a team is given a notebook with a problem statement and supporting material a month in advance. Each day during that month the team member writes one or more ideas in the notebook and at the end of the month selects the best idea along with “fruitful suggestions for further exploration”. A problem coordinator collects and studies notebooks and prepares a detailed summary for distribution; if necessary, all team members then participate in a final meeting. Dhillon finally includes two methods that individuals may use: • “attribute-listing ” approach – where a person lists attributes of an idea or item, then concentrates on one attribute at a time to make improvements in the original idea or item.

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•

“forced-relationship ” approach – this method tries to generate new ideas by creating a “forced relationship” between two or more usually unrelated ideas or items.

Thereafter, “ Mind-mapping ” combines aspects of brainstorming, sketching, and diagramming. A mind-map consists of a central word or concept with 5 to 10 main ideas that relate to that word, similar to creating a spider-web. Tony Busman, a British researcher, invented mind-maps in the 1970s, and they can be applied to a variety of situations including note taking, creative and report writing, studying, meetings, and think tanks. A procedure for drawing a mind-map follows: 1. Start your mind-map (in a team or individually) by writing the main topic in the center of a large piece of blank paper. 2. Think about what main factors, ideas, concepts, or components are directly related to your topic. Write down the most important factors as main branches off the central concept. Connect them to the main topic. 3. Now concentrate on one of these headings or main ideas. Identify the factors or issues related to this particular idea. Additional branches and details can be added if needed. Use key words, not phrases, if at all possible, to keep the map uncluttered. 4. Repeat the process for each of the main ideas. During this process, associations and ides will not always come to mind in an orderly arrangement – soon you will be making extensions all over the mind-map. Continue the process for at least 10 minutes until you can no longer add ideas to the map. 5. Next come the organization and analysis phase of mind-mapping. Connect the related ideas and concepts. Review, annotate, organize, and revise. Edit and redraw the mind-map until you are satisfied with the logic of the relationships among all the ideas. 6. Finally, you are ready to begin writing. The time spent thinking up and organizing the mind-map will make the writing task easier. The result will be a well-organized and well-understood product. Characteristics of Creative People: There have been many studies comparing more creative with less creative people. Characteristics of creative people can be grouped in the following categories: 1. Self-confidence and independence – Creative people seem to be self-confident, self-sufficient, emotionally stable, and able to tolerate ambiguity. They are independent in thought and action and tend to reduce group pressures for conformity and rules and regulations that do not make sense. 2. Curiosity – They have a drive for knowledge about how and why things work, are good observers with good memories, and build a broad knowledge about a wide range of subjects. 3. Approach to problems – Creative people are open-minded and uncritical in the early stages of problem solving, generating many ideas. They enjoy abstract thinking and employ method, precision, and exactness in their work. They concentrate intensively on problems that interest them and resent interruptions to their concentration.

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4. Some personal attributes – Creative people may be more comfortable with things than people, have fewer close friends, and are not “joiners”. They have broad intellectual interests; and enjoy intellectual games, practical jokes, creative writing, and are almost always attracted by complexity. Providing a Creative Environment: Creative people tend to be independent, non-conformist, and to work intensively for long periods but with a disregard for conventional work hours. They are most effective in an organization that will tolerate idiosyncrasies, remove as much routine regulation and reporting as feasible, provide support personnel and equipment as required, and recognize and reward success. People doing routine work and those doing creative work should be separated where possible. Engineer managers, therefore, must be especially careful to withhold criticism until its appropriate place – at the conclusion (verification) of the creative process. Creative people value working on problems of interest to themselves and working on their own schedule. It is important to explain the problem and its importance fully, agree on a timetable, and stay in contact without close supervision as long as reasonable progress is made. Creativity and Innovation: Invention (the creative process) only produces ideas. They are not useful until they are reduced to practice and use, which is the process of innovation. Kiddder provides an excellent study of motivation and creativity in the development of a 32-bit computer at Data General. Roberts and Wainer have identified five kinds of people who are needed for technological innovation: i. Idea generator – the creative individual ii. Entrepreneur – the person who “caries the ball” iii. Gatekeeper – high technical performers iv. Program manager – who manage without inhibiting v. Sponsor or Champion – the person, often in senior management, who  provides financial and moral support 

Protection of Ideas: Strategic planning for competition implies searching for means of capturing a sustainable advantage. R&D is conducted to develop and improve technological products and processes that provide the organization a competitive advantage. If these advantages are readily duplicated by others, then there is an often insufficient reason for expending the initial resources for a short-term advantage. Therefore, the products and services that have high creative value added content, it is vital to the economic well-being of the creative organizations and countries that there be some means for protection of these intellectual properties. Fortunately, there are means for protection of ideas in all industrialized countries of the world.

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There are generally FOUR legal means to protect an organization’s (or an individual’s) ideas and right to benefit from those ideas. They are: 1. Patents, 2. Copyrights, 3. Trade Secrets; and 4. Trade Marks and other marks. This area of law is generally referred to as intellectual property law . Through the efforts of the World Trade Organization, intellectual property law is becoming more uniform across national boundaries, although it is important to recognize that there are still significant differences. However, the discussion followed in this chapter relates much to U.S. intellectual property laws. 1. Patents: A patent is an exclusive property right to an invention issued by the Commissioner of Patents and Trademarks. The rights granted are limited to the “claims” of the patent. There are THREE classifications of patents: a) Utility patent  – a utility patent may be obtained for a process, a machine, and article of manufacture, a composition of material, or any improvement. The life of the utility patent is generally 20 years from the date of application. Utility patents cannot be obtained on laws of nature, scientific principles, or printed matters. b)   Design patent  – design patents are granted on new, original, and ornamental design of an article of manufacture for a term of 14 years from the date the design patent is granted. The design patent is not concerned with how the article of manufacture was made or how it was constituted, but with how it looks. The design must be primarily ornamental rather than primarily functional to be valid. c) Plant patent  – the plant patents are granted for 20 years from date of application for plants when asexually reproduced, with exception of tuber-propagated plants or plants found in the uncultivated state. To be patentable, the invention must fulfill the qualities/characteristics like: a) New or novelistic, b) Useful or have utility; and c) Non-obvious. Establishing Patent Rights: The invention process includes – (1) conception, and (2) reduction to practice. In US, if the first to conceive makes a reasonable, diligent effort to reduce the invention to practice, he or she will receive the patent, even if someone else actually reduces it to practice earlier. Accordingly, it has been essential for the inventor to maintain good records to establish the date of conception and diligence in reduction to practice in case of any later interference. Then, a written disclosure of the invention should be made as soon after conception as possible. The disclosure must be witnessed by at least two persons who fully understand its content. To demonstrate diligence to “reduce to practice”, chronologically written record in a note book with page numbers, written in ink and errors not erased but crossed out for corrections, and all the entries must be made in her or his own handwriting. Each page

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must be signed witnessed in proximity to the entries on all pages. Although it is permissible for an inventor to file his or her own application, it is strongly advised that a patent attorney or agent be used to make and prosecute the application. In almost all other countries, patents are awarded to the first person to file the application, rather than the first to conceive. Just over half of US utility patents have been awarded to Americans in recent years; the first 10 companies awarded the most US patents in 2000 included six Japanese companies. The other four companies included IBM, first; Lucent Technologies Inc., fourth; Micron Technologies, Inc., Seventh; and Motorola Inc., ninth. 2. Trademarks and Other Marks: The Lanham Act defines a mark as “any work, name, symbol, or device, or any combination thereof”. There are FOUR types of marks: a) Trademark  – is “used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured or sold by others”. A trademark differs from trade name, but only trademark attracted to a product is protected by law. b) Service mark – is associated with services rather than goods. c) Certification mark - indicates that the marked goods or services meet standards or services established by the mark’s owner, e.g., good house keeping. d) Collective mark - identifies members of a group such as an organization, a union, or an association. The rights to a mark can be lost, especially if a mark is abandoned or allowed to become a generic word. To avoid losing a mark, vigilance must be exercised even to the point of suing infringers. A non-registered mark has common law rights. Official registration, however, provides distinct advantages. 3. Copyrights: A copyright is a bundle of rights to reproduce, derive, distribute, perform, and display an original creative work in a tangible form for the life of the author, plus 70 more years thereafter. Exceptions to this term include work for hire, where the copyright lasts for 120 years from the date of creation or 95 years from the year of first publication. Copyright owners can sue anyone who infringes their rights to stop illegal reproduction; impound infringing articles; collect lost profits, court costs, and attorney’s fees; and in extreme cases, invoke criminal penalties. Copyrights can be given for literary works; musical works, including any accompanying music; dramatic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works. A copyright protects expressions, not ideas. A potentially patentable idea expressed in a copyrighted text may be used by others. There are number of exceptions to the rights of a copyright. The most notable and highly publicized is the “fair use exception”. One may, without permission, make fair use of a copyrighted work for purposes such as criticism, comment, news-reporting, teaching, scholarship, or research. Fair use is determined by consideration of such factors as the purpose of the use, the nature of the work, the amount and substantiality used, and market effect.

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4. Trade Secrets: Trade Secrets, or confidential technological and commercial information, re the most important assets of many businesses. The law protects trade secrets as alternatives to patents and copyrights. Trade Secrets have no precise definition, but to be protected by the courts, they must be secret, substantial, and valuable. The secret can be almost anything as long as it is not generally known in the trade or industry to which it applies. A trade secret provides its owner with a competitive advantage. The trade secret may be a formula, process, know-how, specifications, pricing information, customer lists, supply sources, merchandising methods, or other business information. It may or may not be protected by other means. Unlike, patents or copyrights, trade secrets have no time limitations, and there is no registration with any government agency. A trade secret, however, has value only while it remains secret. Comparison of Means of Protecting Ideas: A comparison may help the inventor or author to make an intelligent decision on the proper protection needed for each idea. Different options offer very different kinds of protection. Many ideas that are protected as trade secrets cannot be patented. Conversely, a item that is patentable can theoretically be protected as a trade secret. If the idea can be easily discovered through “reverse engineering” however, a patent is the only practical choice for protection. Table: Comparison of Means of Protecting Ideas: Category Idea or Subject matter

Utility patents New or useful processes, machines, articles, compositions

Design patents New ornamental designs

Trademarks Words, names, symbols, and other devices of distinguishing the articles

Sources protection

US Patent and Trademark office patent

US Patent and Trademark office patent

Registration with Patent and Trade-marking Office

of

Registration with the secretary of state

Terms protection

of

20 years from application filing date

14 years from issue date of patent

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Common law protection through courts as long as proper use continues 10 years from registration with federal office,

Copyrights Writings, music, works of art, and the like tangible medium of expression Federal Law protects only a tangible medium of expression

Trade secrets Almost anything that is secret, and valuable

Primarily common law protection through courts

Enforceable only when registered with the copyright office

Life of the author plus additional 70 years

For as long as it remain a secret

Tests for infringement

Making, using, or selling invention described in patent claim

Making, using, or selling design shown in patent claim

renewable for additional 10 years term Likelihood or confusion, mistake, or deception

Copying of protected subject matter

Taking of trade secret by breach of trust of a confidential relationship

The computer software may be protected by copyright as literary work. It may be that a utility patent could be used to protect it. A utility patent protects the idea, whereas, the copyright would protect only the expression. The separation of what constitutes the idea and what constitutes the expression is one that is often decided by the courts. Recent practice has been to seek protection of software by utility patents to ensure the strongest protection. The database that consists of facts is not protectible by copyright. That leaves only the means of trade secret. However, the value of database is in making it available to the public, it cannot be protected. Thus, the knowledge about changing intellectual property rights protection laws is essential to all engineering managers to gain the competitive advantage to sustain and grow in modern market structures.

Planning Production Activity : Plant Location: It deals with making decision about region of the country in which this plant would be located. Many factors, such as transportation, labour supply and attitude, resource availability, and political climate, had to be considered before the division was finally located. Before the plant was built, corporate executives had to decide the community within that state and the specific site within the community that would provide the best location for the plant. Amrine et al. outline “seven basic steps in locating and building every new plant” followed by one large company: 1. Establish the need for a new plant. 2. Determine the best geographical area for the plant on the basis of the company’s business needs. 3. Establish the requirements (i.e., product to be made, equipment and buildings needed, utilities and transportation necessary, number of employees, etc.). 4. Screen many communities for detailed studies. 5. Select the best location. 6. Build the plant. Some of the factors affecting the choice of region, community, and site are as follows: • Transportation (highway, rail, air, water) • Labour (supply, skill level, local wage rates, union membership, and attitudes)

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• • • • •

Geographical location (relative to raw materials, customers, or other company activities) Utilities (supply and cost of water, electric power, and fossil fuels) Business climate (taxes, pollution controls, community attitudes) Amenities (climate, educational facilities, nearby recreation) Plant sites (land availability and cost, zoning, space for expansion).

Plant Design: Once the site is selected, engineers must decide on the nature of the plant and its arrangement on the site. It involves the decision about – multistory or single story construction, parking facilities and provisions, rail-road and truck accessibility, and also appearance. Some large companies have their own corporate engineering staffs for plant design, but most companies will cal on the architect/engineering (A/E) firm for this specialized service. Plant Layout: Plant layout attempts to achieve the most effective arrangements of the physical facilities and personnel for making a product. The three principal methods moving the product through the manufacturing steps are product layout, process layout, and group technology. (In a fourth method, fixed-position layout , the product remains stationary and the processes are brought to it. This method is largely confined to shipbuilding and other massive construction). In   product layout , machines and personnel are arranged in the sequence of product manufacture so that the product can be moved along the production (assembly) line with a minimum of travel between steps. This method is especially useful when large quantities of standardized products are to be produced over a long period of time, and it is the basis for mass production of most automobiles, major household appliance, and the like. In   process layout , all machines or activity of a particular type are located together. Thus, a plant may have separate departments for turning, planning, grinding, milling, drilling, and painting. Individual products are transported from department to department in the sequence needed for their production. This layout is particularly useful for the job-shop environment, in which a large number of different products are to be produced using the same equipment and workers. It provides great flexibility in the use of expensive equipment and skilled personnel at the expense of substantial in-plant transportation. Computer programs have been developed to help in locating departments in relationship with each other so that transportation cost minimized. In   group technology, a set of products requiring similar processing equipment is identified, and a small group of the machines needed to make this set of similar products is placed together. Transportation between steps in the manufacturing process is therefore minimized, inventory accumulating between steps can be almost eliminated, and products are produced much faster.

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Quantitative Tools in Production Planning: There are three basic quantitative tools will be discussed – the economic order quantity (EOQ) approaches to inventory control, break – even – charts, and learning curves. Types of Inventory: Most types of manufacturing processes begin with some type of raw material (sheet steel, lumber, leather) that requires processing. They add purchased parts (valves, switches, hinges), and consume supplies (cutting oils, time cards, drill bits). As work progresses, there will be a considerable investment in work-in-progress, before the finished goods are delivered to the warehouse to await sale, and shipment. Each of these types of inventory represents an investment of capital, requires storage space, and is subject to loss, so it would seem desirable capital, requires storage space, and is subject to loss, so it would seem desirable to make or purchase very small quantities at time. However, ea h time a lot of product is made there is a setup cost, consisting of the clerical cost of processing and tracking the order and the cost of finding tooling and adjusting machines to make the item; these costs are less when lots are larger. Inventory control is the process of identifying and implementing inventory levels that result in a minimum total cost. Economic Order Quantity (EOQ): Consider an inventory item for which the annual requirement is  R units. Storing each unit of the item in inventory will cost  I dollars per year. These storage costs include interest on the working capital invested in the unit, warehouse expense, and threat of deterioration, theft, and obsolescence while the unit is in storage. If, every time the last item is used, you renew the inventory with a batch of Q units, your average inventory will be Q/2 units and you will need  R/Q batches per year. Each such batch involves an ordering or setup cost of S dollars. The total annual cost C T  of that inventory item is, therefore, C T 

  R   Q   =  I       + S       2    Q  

Setting the differential of total cost (with respect to Q ) to zero and solving for Q yields the economic order quantity: EOQ =

2  R S  I 

Determination of the EOQ is shown graphically as below:

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Cost (Dollars)

3000 Annual Total Cost

2000

Annual Inventory Holding cost

1000

Annual Ordering Cost

0

400

800

1200

1600

2000

2400

Order Quantity (Q) Figure: Economic Order Quantity [EOQ] The EOQ has been used as an effective tool (technique) of estimating the inventory cost and inventory management and its minimization. It has widely been used by the companies in America, Japan and many other leading industrial economies of the world. Break Even Charts: Break Even Analysis divides cost into their fixed cost and variable cost (components) to estimate the production levels needed for profitable operation. Fixed cost are those assumed to be independent of production level, at least in the range of production volume of interest. They include lease payments, insurance costs, executive salaries, plant heating and lighting, and the like. Variable Costs are those assumed to vary directly with the levels of production, such as direct labour, direct materials, and power for production equipment. Some semi-variable costs may be divisible into fixed and variable components, i.e., selling costs, may consist of both salary (fixed) and commissions (variable) The relationship between the fixed costs, variable cost and total cost and also total cost with the total revenue (income) determining the Break Even Point may be represented in the chart below. The break even chart represents that at the point of BEP the Total Revenue is equal to the Total Cost (TR=TC). The volume of output and sales below the BEP results in loss; and the volume of output and sales above the BEP results in profit as a difference between the Total Revenue and Total Cost (i.e., the Profit = Total Revenue – Total Cost).

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Total Cost/Total Revenue TR

TR Profit

TC = TR

TR

TVC Loss

TFC TFC 0

QBEP

Qm Volume or Quantity

Figure: Break-Even-Chart At BEP (i.e., at Q BEP) the Total Revenue is equal to Total Cost, earning neither profit nor loss. Any quantity or volume above BEP (Qm) will result in earning profit as a difference between the Total Revenue and Total Cost (i.e., TR>TC) and any volume of output below BEP will result in loss (i.e., TR
=

TFC  SP  per unit 

VC   per unit 

−

Where; SP – VC is also called as contribution margin.

and; for the total values :

BEP

=

1−

TFC  TVC  Total Sales

Learning Curves: The learning curve concept derives from the observation that, in many repetitious human activities, the time required to produce a unit of output is reduced by a constant factor when the number of units produced is doubled. With a 90% learning curve, for example, if the first unit takes 1000 labour hours to produce, the second will take 900 hours, the fourth 810, the eighth 729, and so on, as shown in the figure below:

Labour hours per unit Y 1000

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500

300

100 1

10

100

1000 Number of units produced n

Figure: A 90% learning curve. If it takes Y 1 time periods to make the first unit, the time Y n to produce the nth unit can be found from: Y n ln Y n

Y 1 n

=

b

−

= ln Y  −b ln n 1

The exponent b can be found for any learning curve rate k by setting n = 2: Y 2 =k  =2 −b Y 1 So that, for the 90% learning curve, for which k = 0.9; then the value of exponent b will be: ln (0.9) =−b ln 2 −ln 0 .9 0.152 = b= ln 2

This relationship was developed in the aircraft industry, and its most common use has been there. Other applications are in the automobile industry, electronics assembly, and repetitive construction. Improvements are from a combination of factors, including increased worker skill, better work methods, better tooling and equipment, and organizational improvements, but tasks with greater manual and less mechanical content tend to show a faster reduction in time required (lower percent learning curve). What to be noted here, is that the learning curve applies only for a continuous sequence of activity; if production stops at the end of one batch or lot and resumes later, the time to produce the first unit of the new batch will be greater than that for the last unit of the previous batch, and the learning curve will begin again at that point.

Questions: 1. What are some of the positions that engineers fill in a large manufacturing plant?

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2. What subjects will be important in the education of the manufacturing engineers for the twenty-first century? 3. Distinguish between (a) product layout, (b) process layout, and (c) group technology. 4. (a) If it costs $2 per unit to store an item for one year, $40 setup cost every time you produce a lot, and you use 1000 units per year, how many lots of what size should be manufactured each year? (b) How would your answer change if the setup cost can be reduced to $10? 5. Set up for a stamping operation required a time-consuming fixture installation and testing that took 4 hours each time a different part was to be produced; typically, 12 hours production was made for inventory of a given stamping before the machine was stopped to permit setup for a new part. After careful process analysis, fixtures and transfer methods were revised to permit setup in 15 minutes. Discus the implications for this change on (a) optimum batch size, (b) order frequency, and (c) machine and labour productivity. 6. A production plant with fixed costs of $300,000 produces a product with variable costs of $40 per unit and sells them at $100 each. What is the break-evenquantity and cost? Illustrate with a break-even chart. 7. A machine tool salesperson offers the plant of the previous question (Q. No. 6) equipment that would increase their fixed cost by $180,000 but reduce their variable cost from $40 to $25. Should the plant accept this suggestion if they can sell their entire plant capacity of 10,000 units per year at $100 each? Illustrate by modifying the break-even chart of question 6. 8. A plant is beginning production of a light alloy product and finds that it takes 400 hours to produce the first item. How many hours should it take to produce each of the following: (a) the second item; (b) the eighth item; (c) the thirty seventh item? Consider 80% learning curve for your calculation. 9. The first two units of a product cost a total of $9000 to produce. If you believe an 80% learning curve applies, how much would you expect the fourth unit to cost? 1. Compare and contrast the application of Blanchard’s product life cycle with that of Betz’s technology life cycle. 2. Would the same kind of leader be suitable throughout Betz’s technology life cycle? If not, what kind of leader would be effective in each portion of it? 3. Explain the various steps in product life cycle and technology life cycle. 4. Write a not on R&D activity of an organization. 5. What are the four alternative new product strategies as analyzed by Ansoff and Stewart. 6. In an industry with which you are familiar, give an example of one or more firms that appear to have chosen each of Ansoff and Stewart’s new product strategies. 7. Explain the major contents of checklist as suggested by Seiler in initial screening of the R&D projects. 8. Why are simple checklists used as a first screening of ideas in research projects by many companies? 9. An engineer proposes to buy a machine for $100,000 today that will save $60,000 in labour costs at the end of the next two years. If the company

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demands a 15% return on investment such as this, what is the net present worth (NPW) of the proposal? Should it be funded? 10. Your company has two alternative opportunities, each requiring your entire capital investment budget $325,000. Alternative A will return $390,000 at the end of one year; alternative B will return $216,000 at the end of each of the first two years. Which (if either) alternative should you recommend on the basis of (A) simple payback time? (b) net present worth? 11. If you have been exposed to capital investment analysis and/or engineering economy, comment on the proposal to invest $1,000,000 in a new product now that is projected to generate $200,000 profit at the end of each year for eight years, assuming that your company requires 15% return on investment before taxes. 12. What are major methods of protection of ideas? Explain. 13. What is a patent right? Explain major types of patent. What are the basic qualities or features required get a patent right. 14. Explain the invention process to establishing patent rights. 15. What are the different types of trademarks? Explain. 16. Write a note on Copyrights. 17. Write a note on Trade Secrets. 18. What are the different types protections of ideas? Make a comparison between the different types of protection of ideas. 19. How do the kinds of ideas best protected by patent differ from those best protected by keeping them a trade secret? 20. Define Creativity. Explain the major steps in creative process. 21. What are some of the steps a manager can take to encourage creativity in his or her technical employees? 22. What is Brainstorming? Explain various approaches to Brainstorming as proposed by Dhillon. 23. Write a note on procedure for drawing a mind-mapping. 24. What are the characteristics of Creative People? Explain. 25. Write a note on Technology Gatekeepers in R&D Organizations. 26. Explain the aspects of making R&D organizations successful. 27. Explain the components of evaluating R&D Effectiveness (Organizational Effectiveness and Individual Effectiveness). 28. What are the supports needed for R&D in an organization. 29. What are some of the support services an organization might provide to make the work of researchers and design engineers more effectively?

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Unit V Project Planning and Acquisition: Project Planning Tools – Statement of Work, Milestone Schedule, Work Breakdown Structure, Gantt (Bar) Charts, Network Analysis –  PERT and CPM – Crashing the Project completion duration using network analysis. 04 Hours

Depreciation – Reasons for Depreciation, Types of Depreciation, Methods of Computing Depreciation – solutions to problems. 03 Hours

Project Planning and Acquisition : Characteristics of a Project:

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A project represents “a collection of tasks aimed toward a single set of objectives, culminating in a definable end point and having a finite life span”. A project is a one-ofa-kind activity, aimed at producing some product or outcome that has never existed before. Responsibility for a project is normally assigned to a single individual, assisted by a close-knit project team. The term ‘programme’ is sometimes used interchangeably with ‘project’, but more often a program is a more comprehensive undertaking, which may in turn consist of a number of projects. Project management methods should be considered: 1) where close interaction of a variety of technologies, divisions, or separate organizations is required; 2) when completion within a tight schedule and budget is necessary; and 3) for activities involving significant technical and/or economic risk to the organization. The three essential considerations in project management (“three-legged stool” of successful project management) are: 1) Time (project schedule), 2) Cost (in dollars and other resources); and 3) Performance (the extent to which objectives are achieved). Since, achieving maximum performance is often possible only at the expense of cost and schedule, difficult trade-off decisions involving compromises are often necessary. The Project Proposal Process: Every type of project should be preceded by a detailed description of what is to be accomplished, together with a proposal or estimate of the time and cost required. The various steps or components of the proposal process are: Proposal Effort: A successful organization generally begins the work long before a request for proposal (RFP) is received from a potential customer. The successful project-driven organization is continuously identifying new business opportunities- areas of technology or types of activity where attractive projects are likely to be funded. The firm estimates the resources and capabilities that will be needed to meet the expected future needs of potential customers, compare them with the resources they have on hand, and then proceeds to develop the needed technical skills and acquire other needed resources or at least identify sources for them in advance. Proposal Preparation: By the time the request for proposal (RFP) arrives, management often has appointed a proposal manager, who has prepared a budget for the proposal process and a letter ready for release calling on functional managers to provide members of the proposal team. The RFP is quickly examined to be sure it holds no surprise, and the tentative decision to prepare a bid is reconfirmed.

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A well prepared “kickoff” meeting for the proposal team launches the proposal process. A representative of senior management may give a short pep talk on the importance of the project to the company and introduce the proposal manager, who will do much or all of the following duties in proposal preparation: a) Give an overview of what the RFP (request for proposal) asks for. b) Provide the best estimate from company intelligence as to what the customer really wants and the factors the customer will use in determining the contract winner. c) Identify the organization, schedule, and labour-hour allocations for the proposal effort. d) Provide handouts giving, in as much as preparation time has permitted, management’s concept of how the project might be carried out, and instructions to the project proposal team. Proposal personnel are usually all experienced people, and so they can work rapidly with minimum guidance. Proposal Contents: The RFP (request for proposal) often specify separate management, technical, and cost proposals and their expected contents. It involves: a) Management Proposal - The management proposal typically discussed the company, its organizations, its relevant experience, its management methods and control systems, and describes the personnel proposed to lead the project. b) The Technical Proposal - The technical proposal outlines the design concept proposed to meet the client’s needs, with special emphasis on the approach planned to resolve the most difficult technical challenges posed by the project. c) The Cost Proposal - The cost not only includes a detailed price breakdown, but often also discusses aspects of inflation, contingencies, and contract change procedures. The proposal package is critically reviewed by company senior management not involved in creation of the proposal, revised, printed, and delivered to the customer.

Project Planning Tools: The project is a set of activities and planning is very extensive and critical to carryout these activities in project. The major planning tools available are: 1. The Statement of Work, 2. The Milestone Schedule, 3. The Work Breakdown structure, 4. The Gantt (Bar) Charts, 5. The Network Scheduling Systems (PERT, CPM , etc.); and 6. Resource Allocation Methods.

1. The Statement of Work: The project award will generally be accompanied by a statement of work (SOW) describing exactly what is to be provided in the project. The SOW will normally begin

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with the general scope of the work, and then itemize the tasks to be performed, the contract end items (products) to be delivered, and the data and reports to be supplied. Sometimes the SOW is that proposed by the contractor in the proposal bid package, and sometimes it has been created or modified by the customer. In any event, it is essential that customer and contractor come to a common understanding of exactly what each paragraph of the SOW means before work has progressed very far. 2. Milestone Schedule: Milestones are the key dates for major project phases or activities. A typical milestone schedule of an aerospace project is given below: Milestone

1

2

3

4

5

6

2005 7 8

9

1 0

1 1

1 2

1

2

3

4

5

6

2006 7 8

9

1 0

1 1

12

Project goahead Complete project plan Preliminary design review 90% design release Prototype complete System Test Complete Final Design Review Production Release

Such a schedule is essential for detailed planning, since reaching a major milestone point typically requires the coordinated effort of a great many people. For example, a major design review may require completion to a specified level of component or subsystem design by dozens of design groups, analyses of reliability, maintainability, producibility, safety, and other aspects of the design, and plans for testing, training operators, production tooling, and logistic support. The milestone schedule is an essential and useful tool in accomplishing these aspects of a project proposal and design and a guideline to meet the major and crucial milestones in a project. 3. Work Breakdown Structure (WBS): A Work Breakdown Structure (WBS) is a product-oriented “family tree” of work effort that provides a level-by-level subdivision of the work to be performed in a contract. The WBS provides a common framework or outline that can be used to: a) Describe the total programme or project effort, b) Plan and schedule effort, c) Estimate costs and budgets, d) Support network schedule construction, e) Assign responsibilities and authorize work; and f) Track time, cost, and performance.

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Every project activity that consumes resources is included in some work package, permitting progress on a particular end item of the work breakdown structure to be evaluated. 4. Gantt (Bar) Chart: Henry L Gantt, one of the pioneers of the scientific management movement, is generally credited with initiating the concept of a class of charts in which the progress of some set or sequence of activities or resources in the vertical dimension is plotted against time in the horizontal dimension. Gantt chart has many managerial applications such as in the job-shop or batch production environment, it is used to schedule the use of production machines, and elsewhere for the planning and control of work crews. In project management, it is tasks or activities that must be charted against time. Three things must be established in the project planning process before Gantt charts can be created: a) The tasks or activities needed o complete the project. b) The precedence relationships of the tasks (which tasks must be completed before other specified tasks can begin). c) The expected duration of each task. [Note: Give a numerical example and chart using example worked out in the class using the class notes on ETM ] 5. Network Scheduling System: About 1958 two similar systems for network-based project scheduling were devised – the Programme Evaluation and Review Technique (PERT) was created by Booz, Allen and Hamilton (management consultants) and Lockheed Aircraft Corporation for the use in development of Polaris ballistic missiles , and the Critical Path Method  (CPM) was developed by DuPont Company for chemical plant construction. In the subsequent years the features of each have been added to the other, but the terminology “PERT” is still used in aerospace and related industry, and “CPM” is preferred in the construction industry. The network can be portrayed using either of the two graphical techniques: a) The Activity-On-Node (AON) network diagram; and b) The Arrow (Activity-On-Arrow) Network diagram. PERT Treatment of Uncertainty: A special feature developed with PERT is treatment of activity duration (and therefore total project duration) as variables rather than constants. To use this feature, estimators are asked to provide three estimates of the duration of any activity that might vary: a) An optimistic time (ta) that would only be improved upon once in 100 attempts, b) A most likely time (tm) that would occur most often if the activity were repeated many times (statistically, the mode); and c) A pessimistic time (tb) that would only be exceeded once in 100 attempts. Then, the expected time (te) or mean value in the beta distribution can be approximated by

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t e

=

t a

+4t m +t b 6

and, the expected length of Critical Path (Te) for the entire project is obtained simply by adding the expected times (te ) for only those activities lying on the critical path. Moreover, the standard deviation σ   T of the total project duration becomes the root  mean square of the standard deviations of activities lying along the critical path: T 

σ   

=

∑

2

σ   

PERT calculations normally consider only the longest (critical) path. If there is a second near-critical path with a duration close to the critical one, ignoring it may lead to an overly optimistic estimate of the probability of completion. [Note:   For the graphical, diagrammatic and numerical examples to write in your  theory answers, please refer to your class notes on ETM ]

Depreciation: No articles remain ever new and immortal. Most of the productive instruments and articles such as building, plant, machinery, equipments and so on become obsolete (outdated) in course of time, losing their economic value and productive efficiency; and such fall in the economic value of assets is referred to as ‘depreciation’. The theory of depreciation contends that the capital sunk on an asset will become valueless after some period of time. This period of time id considered to be the life –  time of the asset. The major aspects to be taken into consideration in depreciation calculation are: a) The first cost or initial cost of the asset. b) The period of time of depreciation assessment since the time of purchase. c) The action of the enterprise resulting in depreciation; and d) Any possible external changes of normal and predictable limits, etc. Types (Kinds) and Causes of Depreciation: A common classification of the types of depreciation includes: 1. Physical Depreciation; and 2. Functional Depreciation. 1. Physical Depreciation – The depreciation resulting in physical impairment of asset is known as ‘physical depreciation’. Physical depreciation manifests itself in such tangible ways as the wearing of particles of an asset. The major causes of physical depreciation are: • Physical decay or deterioration – There are certain items in a factory such as insulation materials, furniture, electric cables, buildings, chemicals, and vessels, etc., which get decay because of climate and atmospheric effect, with the result value of these articles goes on reducing with lapse of time. • Wear and Tear – Continuous use of machines causes the machine and articles to wear-away and tear-out with time. The machines gradually tend to go out of

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adjustment not only as a result of use, and also because of temperature changes, vibration impact, etc. • Ageing – Articles exposed to the atmosphere and weather conditions decay in the operating capacities or in their usefulness. This also contributes to the reduction in the economic value of the articles. • Accident Depreciation – The newly installed machines without careful maintenance; the unexpected accidents result in loss of physical work-efficiency due to heavy damages and also loss if its economic value and such depreciation is called as ‘accidental depreciation’. • Deferred (Bad) Maintenance and Negligence – If the machines and articles are not maintained according to the instruction issued; such as lubricating, decarbonising, etc., and also negligence on the part of user of the machine may also result in lessening work-efficiency and depreciation of machines and assets. It also results in reduction of expected life time of the asset and loss of economic value. 2. Functional Depreciation – This is the result of failure of the machine or plant to function properly; caused by the factors like: • Inadequacy – It means the capacity of a machine becoming less than what is required. Where the equipments are becoming inadequate for handling the load of new products and increased demands. Then these machines need to be either scrapped or replaced. Sometimes, even the healthy machines need to be dismantled and sold for a lesser price than what is really worth expected of it. • Obsolescence or Outdatedness – It is loss of value of machine due to new inventions and new products replacing the old ones altogether. In other words, the existing machines become outdated and inadaptable to the new changes in production techniques, use and to produce the new products introduced into the product-line of the company. • Lack of adaptability – the failure of the existing machines to adapt to the new method of production and use. Methods of Computing Depreciation: There are different depreciation methods applicable on the basis of the type and nature of the industry, pattern of profit earning, growth rate of the enterprise and out put, etc. Major methods of computing the depreciation of assets are: 1. Straight Line Method: This method assumes that the loss of value of machine is directly proportional to its age. In this method the book-value of the asset decreases linearly (a straight line law) with time; because same amount of depreciation charge is made each year. It means one should deduct the scrap or salvage value (S) from the original value and divide the remaining value by the number of years of useful life (n). Then,  D =

Where

(C  −S ) n

C – original cost S - salvage or Scrap value or residual value N – the serviceable life or economic life i.e., the number of years of useful life of the asset.

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D – depreciation amount per year Thus, the depreciation in any year ‘t’ is:  D

(C  −S ) n

t =

depreciation – fund (total amount of depreciation accumulated) at the end of year ‘t’ is:  D f  t  = t 

C  −S   n 

and ; the Book-Value (the value left with the machine) at the end of the year ‘t’ is:  D v t 

=C  −

t 

C  −S   n 

2. Reducing Balance Method: This method is also called as ‘Diminishing or Declining Balance Method’ or ‘Percentage on Book-Value Method’. In this method, depreciation takes place at a fixed rate on the basis of ‘negative compound interest law’. Obviously, the depreciation charge is the largest in the first year and decreases in each succeeding years. Hence, under this method, the book-value of the machine goes on diminishing as its existence continues. Then; the fixed percentage rate of depreciation on Book – Value: 1

 S  n  P =1 −    C  and; depreciation for any year ‘t’ is: t   Dt  =C × P (1 −P )

1

−

the depreciation fund at the end of year ‘t’ is:  D f  t 

C  1 −(1 −P )

=

t 

the book-value for the year ‘t’ is: Bv t 

= C  − C  1 −(1 − P ) t 

=

C (1 − P )

t 

There are two cases to be considered while calculating depreciation by reducing or diminishing balance method: a) Considering not any interest on depreciation fund accumulated; i.e., depreciation fund is not invested on securities or deposited to earn interest. The formulae used are as given above and the calculations are direct. b) Considering the interest earned on depreciation fund. The formula used here to calculate depreciation fund for the year ‘t’ is:

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 D f  t 

=

 P ×C   P +i

[(1 +i )

− (1 − P ) t  ]

t 

1

where;

S   P – fixed percentage rate, i.e.,  P =1 −      C   

n

i - interest charged on depreciation fund. 3. Sinking Fund Method: This method is also known as the ‘Interest Law Method’, or ‘Annuity or Compound Interest Method’. In this method, an identical sum is charged every year as depreciation. The rate of depreciation will be constant throughout the life of the machine. At the end of the useful life of the machine or asset, the total amount in depreciation plus compound interest should become equal to the original cost of the fixed assets. The formulae to calculate depreciation under this method: Depreciation for any year ‘t’ is:

 Dt 

=

=

[ ( C  S ) ( −

 A  F 

, % n, ) ] (  F  P , % t , 1) −

i ( C  − S )

(1 + i ) n −1

Depreciation fund at the end of year ‘t’ is:

[(

 Dt  = C  − S

)(

 A  F 

, % n, ) ] (  F  A , % t ,)

and the Book Value at the year end ‘t’ is: B v t 

=C  −D ft 

i.e., = C -

[ ( C  S ) ( −

 A  F 

, % n, ) ] (  F  A , % t ,)

4. Sum of the Years’ Digits Method: This method is often called as ‘Fixed Base Diminishing Rate Method’. In this method, the depreciation will be greater initially and it will go on decreasing gradually in subsequent years of usefully life of the asset. Therefore, while calculating the depreciation, the net amount (i.e., the total depreciation fund accumulated during the life time is equal to the total first cost minus scrap or salvage value) is spread over the whole life of the asset in a decreasing proportion. The credit of developing and elaborating this method goes to W.M.Cole in similarity with Diminishing Balance Method. By following this method, if ‘n’ is the estimated life of the asset, the rate of depreciation is calculated for each period as a ‘fraction’ in which denominator is always the sum of the series 1, 2, 3, 4, ………t,………..n-1, n and the digits representing all the years from the first year of life to the last year of the life (eg., if a proposal has a life of 4

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years , i.e., n = 4 years, then the sum of the years’ digits is 1+ 2 + 3 + 4 = 10); and the numerator of the fraction is the digit giving the number of the years expressed in the reverse order, starting from the last year to the first year(eg., when n = 4; it begins from the year 4, 3, 2, 1). Let us say, C = First cost of the asset, S = Scrap or Salvage value of the asset, N = useful life (economic life) of the asset. Then, Total Depreciation = ( C  − S ) Where, the denominator of the fraction is: 1 + 2 + 3 + 4 + ..........

( n −1) + n

=

n( n +1) 2

and the numerator of the fraction for depreciation at the end of a particular year ‘t’ is: n +1 − t 

hence, Depreciation for a particular year ‘t’ is:

   n + 1- t   Dt  =   ( C − S ) ( ) + 1 n n   2   and the Depreciation fund accumulated after the year ‘t’ is:

   t   + ⋅ t n 5       2  ( C  − S )  D f  t  =   n ( n + 1)    2 and the Book Value at the en of the year ‘t’ is: B v t 

C  − D f  t 

=

Depletion: The calculation of depreciation of an asset that has a value (i.e., depreciation fund) that can be recovered by a replacement. Depletion is similar to depreciation; however, the depletion is very much applicable in calculations related to natural resources, which cannot be repurchased or replaced with new one like machines, plant, building, etc. Thus, the depletion method is applicable to natural deposits removed from mines, wells, quarries, forests, and so on. There are two methods of depletion: a) Factor or Cost or Unit Depletion; and b) Percentage Depletion.

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Factor Depletion is based on the level of activity or usage, not time, as in the case of depreciation. The depletion factor, therefore, for the year ‘t’ is: Depletion (Dt) = Initial Investment ÷ Resource Capacity

Questions: 1. What would be some of the difficulties faced during the actual proposal preparation process, and how can they be minimized? 2. Write a note on: a) Milestone schedule b) Work breakdown structure c) Statement of Work (SOW) 3. What are the major characteristics of a project? Explain briefly various aspect (steps/phases) in Project Proposal Process. 4. Explain Gantt (Bar) Chart with a suitable example. 5. Write a note on PERT and CPM. 6. Select a project of your choice and establish tasks, times, and precedence relationships and draw (a) a bar chart, (b) a network diagram schedule for it. 7. For the project outlined in the following table, prepare (a) a bar chart, (b) an arrow network diagram, (c) a Circle (AON) network diagram, and (d) What and how long is the critical path? ----------------------------------------------------------------Task Follows Task(s) Weeks Duration ----------------------------------------------------------------A Start 3.0 B Start 7.0 C A 2.0 D B 7.0 E B, C 5.0 F D, E 1.0 -----------------------------------------------------------------

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8. For the project outlined in the following table, prepare (a) a bar chart, (b) an arrow network diagram, (c) a Circle (AON) network diagram, and (d) What and how long is the critical path? ----------------------------------------------------------------------------------Task Follows Task(s) Weeks Duration Manning Level ----------------------------------------------------------------------------------A Start 6.0 3 B

Start

5.0 Start

C

4 5.0

3 D A 3.0 2 E A, B 6.0 5 F D, E, C 1.0 2 ---------------------------------------------------------------------------------9. Tasks X, Y, and Z must be completed in series to complete a project. The three time estimates (a, m, and b) for each task in days are X: 30, 45, and 66 days; Y: 24, 42, and 60 days; and Z: 26, 50, and 68 days. For each task, calculate ( a) the expected time t e and (b) the standard deviation σ   . What is the (c) expected time Te and (d) the standard deviation σ   T for the complete project? 10. If a project has an expected time of completion T e of 45 weeks with a standard deviation σ   T of 7 weeks, what is the probability of completing it ( a) within one year (52 weeks)? (b) Within 38 weeks? 11. Tasks A, B, and C must be completed in series to complete a project. The three time estimates (a, m, and b) for each task in days are A: 8, 11, and 14 days; B: 7, 10, and 19 days; and C: 10, 19, and 22 days. For each task, calculate ( a) the expected time te and (b) the standard deviation σ   . What is the (c) expected time Te and (d) the standard deviation σ   T for the complete project? What is the probability of completing the project in ( e) 40 weeks? (f ) 46 weeks? 12. Describe what types of products or services each of the following contracts would be appropriate for, and give an example for each: ( a) firm fixed price; (b) cost plus fixed-fee; and (c) time and materials. 13. What are the major types of contracts? Explain. 14. Define Depreciation. Explain various method of computing depreciation. 15. Explain the types and causes of depreciation.

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16. A boiler was purchased for Rs.45,000 on 1 st Jan 1946, the erection and installation work cost Rs.7000. The boiler was replaced by a new one on 31 st December 1965. If the scrap value was estimated as Rs.15,000, what should be the rate of depreciation and depreciation fund on 15 th June 1955? If after 12 years of running, same boiler is replaced after repair and the replacement cost is Rs.1500, then what will be the new rate of depreciation? 17. The particulars available for the purchase of an electrical machine – invoice cost Rs.40,000, transportation charges Rs.500, installation cost Rs.1000, accessories Rs.2500, estimated salvage value Rs.5000 and estimated life 20 years. Calculate a) the amount to be recovered by the use of machine b) the annual depreciation cost c) the book-value at the end of 10 years of useful life. 18. A machine was purchased for Rs.32,000. Its life was estimated as 10 years and the scrap value as Rs.8000. Using the reducing balance method, calculate the depreciation rate in percentage and estimate the depreciation fund and book value at the end of two years of useful life. 19. Considering the problem given in question No. 18, if the machine is disposed for Rs. 6000 at the end of 7 years a) What was the estimated equivalent annual cost of capital recovery with return at 10% rate of interest? b) What was the sunk-cost that was caused if sinking fund depreciation was followed? 20. A machine was purchased for Rs. 40,000. The estimated life of the machine is 15 years and scrap-value Rs.15,000. If the rate of interest of the depreciation fund is charged at 5% ; calculate the rate of depreciation by sinking fund method and book value and the depreciation accumulated after 8 years of useful life. 21. A machine was purchased for Rs.10,000 and it has depreciated in its value by Rs.2381 at the end of the second year of its useful life; following the sum of the years’ digits method, calculate the life of the machine assuming zero salvage value.

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