Ethiopian institute of Architecture, Building

Construction and City Development, EiABC

Addis Ababa University

Introduction to Management

By- Biniyam B.
 Chapter one:
Management Overview

• DEFINITION: What is Management?

- No single and universal definition for the term
management.

- F.W.Taylor:
Management is the art of knowing what you want to do and
doing it in the best and cheapest way.

- Stanly:
Management is the process of decision making and control
over the action of human being for purpose of attaining the
predetermined goals.
 Cont…
- H. Fayol:
Management is a process of planning,
organizing, commanding, coordinating, and
controlling.

- Boone and Kurtz:

Management is the use of people and other
resources to accomplish organizational
objectives.
• A common view of the term management is
that management is getting things done
through others.

• Yet another view, quite apart from the

traditional view, asserts that the job of
management is to support employee's efforts
to be fully productive members of the
organizations and citizens of the community.
• Management is a set of activities (including planning
and decision making, organizing, leading, and
controlling) directed at an organization’s resources
(human, financial, physical, and information) with the
aim of achieving organizational goals in an efficient
and effective manner.
• Discussion Question

• What do you think of the terms efficiency and

effectiveness?
 Organizational Performance
• Organizational Performance: measures how efficiently and effectively
managers use resources to satisfy customers and achieve goals.

• Efficiency: A measure of how well resources are used to achieve a goal.

– Maximizing the organization’s productivity by wise utilization of scarce resources.

– It is spending less & acquiring more by minimizing cost

– it is concerned with cost reduction

– it is doing things right

– Usually, managers must try to minimize the input of resources to attain the same

goal.
• Effectiveness: A measure of the appropriateness of the goals chosen (are these the right
goals?) and the degree to which they are achieved.

– it is providing the right product for the right person or customer

– it is doing the right things

– Determine the success of the organization b/c it is doing the

right things
– Organizations are more effective when managers choose the
correct goals and then achieve them.
• Organization: A group of people working together in a structured
and coordinated fashion to achieve a set of goals.

• Goal: A desired future condition that the organization seeks to

achieve.

• Management: The process of using organizational resources to

achieve the organization’s goals by...
– Planning, Organizing, Leading, and Controlling
 Characteristics of management
 It is goal oriented
 It is a group activity
 It is a social process
 It is a dynamic function
 It is a system of authority
 It is a profession
 Significance of management

• It help to identify companies goals or objectives.

• It facilitate accomplishment of goals by planning resources and by directing and

controlling activities.

• It establish sound organizational structure by clearly defining authority and responsibility.

• To formulate and implement organizational policies.

• To motivate employees by providing financial and non-financial incentives that increase

the willingness and efficiency of the employees.
• Management brings optimum use of the available resources together

• Management reduces the wastage of human, material and financial resources.

• Management improves relations between individuals, groups, departments

and between different levels of management.
•

• Management improves life of workers by providing conducive working

environment and conditions.
 Managerial Functions
1. Planning

• The five managerial functions are

5.Controlling 2.Organizing

4. Leading 3. Staffing
 Planning
1. Planning
• The first function of all managers

• Planning requires ability to foresee, visualize, and to look ahead purposefully.

• It is concerned with determining the objectives of an organization and the means of achieving
them.

• It is a function that determine in advance

. What should be done.

. How it should be done.

. When it is to be done.
 G.Manager

Finance
Head
Production
Head
Organizing
Marketing
Head

2. Organizing
• It is the function in which the managers develop

the organization structure that

allows working together and

achieve organizational goals.

• It involves grouping similar activities in one department .

• It also involves clearly stating authority and responsibility.

 Staffing
3. Staffing
• It deals with filling the position in the
organizational structure.

• It involves
. Recruiting and selecting
. Transferring employees
. Promotion
. Lay off
 Leading
4. Leading/Directing

• It is the process of influencing, motivating, and directing of employees to achieve organizational

goals.

• Managers need to understand

. Individual and group behavior

. Techniques of communication

. Techniques of motivation

. Effective style of leadership

• The outcome of the leading function is high level

of motivation and commitment by the employees.

 Controlling
5. Controlling
• It is the process of comparing actual performance with the stated
standard.

• The aim of controlling is to take corrective action if the performance

is lower than the plan.

• The outcome of the controlling function is the accurate

measurement of performance.
 Managerial Roles
• All managers must play some role and must
have some skills to be effective.

• Henery Mintzberg identified Ten Managerial

Roles by closely observing the day to day
activities of a group of CEOs and divided them
in to three.
 Interpersonal Role Managerial
Informational Role Roles
Decisional Role

• Figurehead Role • Monitor Role • Entrepreneurial Role

• Leadership Role • Disseminator Role • Disturbance Handler

• Spokesperson Role Role
• Liaison Role
• Resource allocator
• Negotiator Role
 I. INTERPERSONAL ROLE

Interpersonal role involves dealing with other people and it arise from
managers formal authority.

1.1. Figurehead role

- Managers act as representatives of the
organization.

- Managers represent the

organization at ceremonial
and symbolic functions like
making speech, signing
documents, attending
ribbon cutting ceremonies.

0
 Cont…
1.2. Leadership Role
- Managers influence behavior and activities of
their followers in order to accomplish
organizational objectives.

- Leadership role involves

guiding, training,
motivating…
 Cont…
1.3. Liaison Role
- An official go-between for organizations to communicate and coordinate activities of
the external and internal

- It refers to dealing with

people outside like
customers, government
officials, and suppliers.

- It also includes dealing

with people inside the
organization like people
in different departments.

- Coordinating activities.
 II. INFORMATIONAL ROLE

• It involves processing of information.

• It is concerned about receiving and communicating information.

2.1. Monitor Role

- Involves gathering and
screening information.

- Monitoring what goes

on in the organization,
receiving information both
internal and external
2.2. Disseminator Role

- Involves distributing
the screened information.

- Passing on information of
both a factual and value
kind.
 Cont…
2.3. Spokes-person role

- It is when managers transmit

the information to outside of
the organization or to outside
of the unit.
 III. DECISIONAL ROLE
- One of the most crucial part of managerial activities.

- It is managerial role where managers are responsible for making calculated and timely
decisions

3.1. Entrepreneurial Role

- Managers initiate changes to
improve organizational performance.

- Managers mostly use this

role at the time when they
- initiate new project
- test a new market
- test a new business
3.2. Disturbance handler role

- Managers play this role when

they deal with problems like…

- Conflict between workers

- Breaking contract
- Labor strikes
- bankruptcy
3.3. Resource Allocator

- Managers play this role

when they distribute
resources like

• Human Resource
• Finance
• Time…
3.4. Negotiator Role

- A manager has to negotiate

with others and in the process
be able to make decisions.

- When managers debate or

deal with other organization
or with in, they are playing
negotiator role.
 Levels of Management

- One of the best ways to study the activities of

management is classifying them into different
levels.

- Organizations’ level of management varies with

the size of the organization.

- Management level commonly classified in to

three.
LevelsTopof
Levelmanagement
Managers

Middle Level Managers

Low Level/Operating
Level/First Line managers
 Cont…
Top Level Managers
- Manage the overall activity of the organization.
- Establish policies, strategies, long term plans, and
make major decisions.
- Represent the organization (deal with external
bodies)
- They are few in number.
- Their title includes Board of Directors, Executive
Committee, Chief Executive, President, and General
Manager.
 Cont…
Middle Level Managers
- They are specialists (their activity limited to a
particular area of operation)
- They act as intermediary between top and
operating level managers.
- Develop medium range plans
- They supervise first line managers.
- Their title includes Department Managers,
Division Managers, and Operation Manager.
 Cont…
Operating Level Management
- Plan daily and weekly activities (short range
plans)
- They manage only non managers.

- Their typical title includes Section Chief, Office

Manager, Foreman, and Supervisor.
• Managers can also be classified based on the scope
of activities they mange.
- Functional Managers
- General Managers
1. Functional Managers have specialized skills in single
area of operation such as accounting, marketing,
and production.
2. General Managers are responsible for overall
operation. They coordinate two or more
departments.
 Managerial Skills

• Managerial Skills and their Relative Importance

- Skill is an ability to perform a particular task. As
the job of managers is complex it needs multi-
dimensional skills.
- The three managerial skills are
1. Technical Skills
2. Human Relation/ Interpersonal Skills
3. Conceptual skills
 Cont…

1. Technical Skills
- It is the ability to use specific knowledge,
technique, methods or resources in specialized
field.
- It is acquired through education
- Formal
- Informal
- It is very important for first line managers
 Cont…
2. Human Relation/ Interpersonal Skills
- It is the manager’s ability to work with other
people and to work effectively as a group member.
- It includes the managers ability to
- Resolve Conflict
- Communicate effectively
- Motivate
- Facilitate
- Coordinate
 Cont…
3. Conceptual skills
• Managers need the mental capacity to understand the overall working condition
of the organization.
• The managerial activities that require conceptual skill includes decision making,
planning, and organizing.
• Conceptual skill is more important for the top level managers.

Thus, technical skill deals with things, human skill

concerns people, and conceptual skill has to do
with ideas.
 Skills needed by managers

Top

Middle

1st Line

Technical Human Conceptual

• What is Science and what is Art?
• Is management a science or art?
• Science is a systematized knowledge derived from
observation, study, and experimentation carried on
in order to determine the natures and principles of
the subject under study.
• Management is a science because it is based on
principles which are derived from the detailed study
and observation of - Organization
- Authority
- Communication
- Motivation
• Art is the application of knowledge and skills at the
specific time, place and condition tactfully, creatively
and wisely.
Issues can be resolved using instinct and experience.
• Management is an art because managers apply
judgment, decision making, and motivation.

• Science is objective while art is subjective.

– Objective: based on hard facts…
– Subjective: personal perspectives, opinions…
 Universality of management

• Although the problems, other organizational constraints

and nature of different organizations vary widely, the
functions performed by each manager are nearly the same.
(be it in a profit making or non-profit making, government
or private, small or big and multinational)

• Management is important for any organization or entity

regardless of objective(s) for which it is established

• Any person who holds managerial position in an

organization performs the five functions of management.
END OF CHAPTER ONE
 • Group Assignment
The development of management:
• Pre-Classical contributors (Group 1 & 5)
– Robert Owen
– Charles Babbage
– Adam Smith
• Classical approach (Group 2 & 6)
– Scientific Management
– Administrative Management (classical organization theory)
– Bureaucratic Management.
• Behavioral Theory of Management (Group 3 & 7)
– Abraham Maslow,
– Douglas Macgregor
– Elton Mayo
• Modern Theory of Management (Group 4 & 8)
– System Approach,
– Contingency/Situational theory ,
– Quantitative/management science approach
– Your review on their contributions
– Pros and Cons of the theories
Chapter Two: Emergence and development
of management thought

• Management in Antiquity and Pioneer

Contributors
- Management is as old as human civilization.
That is since the day when people first
attempted to accomplish goals by working
together in a group.
- Management thought has been shaped over a
period of centuries by three major factors:
 Cont’d
- Social- refers to those aspects of a culture that guide and influence
relationship among people.
- Economical- pertain to the availability, production and distribution of
resources in a society.
- Political- refers to the influence of legal and political institution on
people and organization.
• From the examples that show management was effectively used in ancient
time
- Egyptian civilization- the pyramid
- Romans(4 area,13 dioces,100 province)
- Greece- uniform method of doing tasks
Early Management Pioneers (Contributors)

• Although the management practice go back several

thousand years, development of management as field
of knowledge is recent; it starts with the industrial
revolution(in the early 1800 s)
PRE-CLASICAL CONTRIBUTORS
1. Robert Owen (1771-1858)
• He was a British industrialist and owner-manager of
cotton mills in Scotland. At that time working and
living conditions for employees were very poor.
Workers were treated as tools and machine.
• From the changes that he made
- Reduced working hrs from 13 to 10 and half
hrs/day.
- Set minimum hiring age 10 years.
- Provided meal, housing, and shopping
facilities for employees.
- Improved working condition in the factory
• For his contribution Robert Owen called “father
of modern personnel”.
2. Charles Babbage (1792-1871)
• He built the first practical mechanical calculator
and a prototype of modern computers because of
this he is called “The father of modern computing”.
• From the contributions of Babbage to
management
- The use of mathematics to efficiently use
facilities and materials.
- Economies of scale in manufacturing.
• Profit sharing system (bonus for suggestion
and part of wage that depends on the
company profit)
• Division of labor (improve the skill of workers
and reduce training costs)
• Importance of good relationship between
management and workers.
3. Adam Smith
• He contributed to the development of
management thought by writing about division of
labor in his book “The wealth of nation”.
• He indicated that specialization could increase
efficiency by
- Minimizing the loss of time
- Increasing speed
- helping invention of machinery
 1. Classical Management Theory

• Classical management theory emerged during

the industrial revolution.
• The classical viewpoint is a perspective on
management that emphasize finding ways to
manage work and organizations more
efficiently.
• It is made up of three different approaches:
- Scientific Management
- Administrative Management(classical
organization theory)
- Bureaucratic Management.
1.1. Scientific Management Theory
• This theory emphasize on the scientific study
of work methods in order to improve worker
efficiency.
• The major contributor of scientific
management is Fredric W. Taylor (Father of
scientific management)
• Additional contributors:
- Frank and Lillian Gilbreth
- Henry Gantt
 Frederick W.Taylor (1856-1915)
• Taylor is also known as “the father of
scientific management”
o Taylor was a foreman in Midvale steel company. He
studied the companies problem and found out that
- Management had no clear concept of worker-
management responsibility.
- No effective work standards were applied
- No incentive was used to improve labor’s performance
- Managerial decisions were made based on
intuition, rule of thumb.
 - High level of soldiering (delay in performance)
fearing turnoff and wrong pay system.
• To solve the above mentioned problems Taylor put
as a solution
1. Timed each element of the work and
standardized how much each worker has to
produce given the required resource per day or per
month.
2. Introduced “piece rate pay system” (differential
rate system)
• From the studies Taylor conducted
1. Time and Motion Study
- The objective of this study was to standardize
activities(to determine full days work)
The steps - divide the task into motions
- eliminate unnecessary motion
- select the best way to do the job
- timing each motion (with out allowance for
delay)
- understand how many unit to produce per day.
2. Uniform method of routine task
Objective: to adjust work with worker
-Intended to make uniform the conditions under
which the standards could be set and met.
3. Functional Foremanship study
Objective: To scientifically select the best worker for
a given job based on his skill and potential for
learning.
• Which man for which work??
4. Individual Incentive
Objective: to determine the appropriate wage or
salary
• This study helped him to find a solution for the
problem of soldiering (delay in performance) .
• After conducting the above study he wrote a
book called “ principle of scientific
management”. The principles included are
1. Replace the rule of thumb method by scientific
method
2. Work for maximum output instead of restricted
output
3. Heartily/ excessively cooperate with the workers
4. Scientifically select, train and develop workers
 Frank and Lilian Gilbreths
• Frank Gilbreth (father of motion study)
• Lilian Gilbreths (first lady of management)
• They are contemporaries of Taylor and part of the
original scientific management pioneers
• They work on the elimination of waste and the
discovery of ‘one best way’ of doing work.
• Identified 18 on the job motions and called them
therbligs.
• He decreases the movements from 18 to 5 at the same
time he decrease the production time by 2 and half.
 Henry L. Gantt
• He developed a graphical method of
scheduling work, which helps to increase
workers output.
• The chart called Gant chart.
• The chart helps for planning and controlling
work.
 Contributions of scientific management
theory
• Specialization increase productivity
• The efficiency techniques- Time and motion
study
• Made us to recognize the importance of
scientifically selecting and developing workers.
Weaknesses of scientific management

1. It misread the human element

 It equated people with machine(Time and
motion study)
 It saw no other motivator other than money
2. It was relevant to solve only the problem of
lower level managers (not considered the
whole organization)
3. Its application was not smooth
 1.2. Classical organization(administrative
management) theory
• This theory focused on the management of the entire organization unlike the
scientific management theory which focuses on production.
• Henri Fayol was the first to develop this theory.
• He is the one who identified
1. The major types of activities involved in an industry or a business as:
 Technical
 commercial
 Security
 Financial
 Accounting
 Managerial
2. Management as a separate field of study
3. General management principles
Fayol’s 14 principles of management
1. Division of labor- specialization increase
efficiency
2. Authority and responsibility: Autority = Resp.
3. Discipline-respect rules and regulations of an
organization
4. Unity of command- one superior
5. Unity of direction- one set of objectives
6. Subordination of individual interest to the
general interest- give priority for
organizational goal
7. Centralization- amount of authority
8. Remuneration of staff/personnel: fair compensation to do
good work
9. Scalar chain/chain of command: clear-cut chain of
command from top to bottom.
10. Order- things should exist in the right place at the right
time.
11. Equity-everyone should be treated justly and fair.
12. Stability of tenure of personnel: reduce labour turnover.
13. Initiative- managers should not decide every thing/ allow
the freedom to propose ideas
14. Esprit de corps- In union there is strength.
 Contributions of classical organization
theory
• The position Fayol took in distinguishing
management as a discipline is worth studying
• The 14 basic management principles
• The 5 element of administration, which with
minor modification today are called functions
of management.
Limitations of classical organization theory

• Some of the principles are rigid.

Example
• Chain of command
• Unity of command

• The 14 principles are applicable in a relatively

stable and predictable environment hence they
have less applicability in the today’s turbulent
environment.
• The principles are too general for today's
complex organization.
 1.3. Bureaucratic theory
• Max Weber introduces most of the concepts in this
theory.
• Taylor and Fayol: concerned for solving practical
managerials problems.
• Max Weber: concerned for the more fundamental issues
of how organizations are designed and structured.
• Bureaucracy is founded on legal or rational authority
which is based on law, procedures, rules, and so on.
• He analysed Bureaucracy as the most logical and rational
structure for large organizations.
 Characteristics of bureaucracy
1. Division of labor
2. Managerial hierarchy/chain of command
3. Clear authority and responsibility.
4. Formal rules and other methods
5. Mgmt separate from ownership
 Benefits of bureaucracy
• Specialization
• Overlapping duties can easily be avoided
• Hiring and promotion are based on merits and
excellence
• Organization continues despite the manager
• Consistent employee behavior
 Weakness of bureaucracy
• There is too much paper work and red tapes/
Unnecessary procedures.
• Resistance to new ideas and change
• Disregards the informal organization or the
social environment
 2. Behavioral management theory
• It is a study of observable and verifiable human
behavior in organizations by using scientific
methods.
• Abraham Maslow, Douglas Macgregor & Elton
Mayo were the well known contributors of this
theory.
• Of these Elton Mayo was the most prominent one.
• Focus on human dimensions of organization.
• Objective: to identify factors that affect
productivity of employees.
 Hawthorne study
• The study had four phases:
Phase one: Illumination experiment
 To study the effect of illumination on out put
 Finding: no strong relationship b/n output and light
Phase two: the relay assembly test room experiment
 To study the effect of rest period on productivity
 Finding: Productivity is not affected by physical
change.
 Cont’d
Phase three: the massive interview program
 To identify factors that affect employees
productivity.
 Over 20,000 employees were involved
 Finding: peers had an effect on individuals
performance
Phase four: the Bank wiring observation room study
 To study the effect of work piece
incentives(economic incentives) on performance
 Finding: incentives are less important in
determining out put.
Findings of Hawthorne experiment
• Physical working condition did not affect productivity
• There are other factors that affect productivity. thus
are social and psychological nature
• Informal groups were important in organizational
work environment.
• Leadership that can understand individual and group
behavior were necessary
• Hawthorne effect: when people know that they are
being watched, they will act differently than when
they are not aware of being observed.
 Contributions of Behavioral management
theory
• Change the management thinking: managers
realize the importance of people and realize
workers as valuable resources.
• Found out that the satisfaction of social and
psychological needs could result in more
performance of workers.
 Limitations of behavioral management
theory
• The complexity of individual behavior makes
the predication of that behavior difficult.
• Their style was unethical as they used human
being as experimental units in laboratory.
3. Modern theory of management
• Different from the classical and behavioral
management theories, the modern
approaches to management considers the
external environment.
3.1. System Approach
• A system is an interrelated and
interdependent set of elements functioning as
a whole to achieve a common goal.
• Organizational system has four major
components
1. Input- resources that help to produce goods
or service.
2. Transformation process- ability to convert
input to output
3. Output- the product or the service.
4. Feedback-information about results and
organizational status.
 CHARACTERISTICS OF A SYSTEM
• A system has boundary
System's boundary is a set of activates with
which the system is distinguished from other
system.
• A system has subsystems
Subsystem refers to set of related parts that
make-up the whole system. A subsystem can
be system and a system can also be subsystem.
• Failure in one subsystem can be considered
as the failure of entire system.
As the subsystems of a system are highly
interdependent failure in one may cause
failure in other subsystems which can result in
total system failure.
– Entropy-Is systems' principle which says that systems will
die out unless they interact with their environment
– Synergy_ Is principle which can be stated as the whole is
greater than the sum of its parts.
 Types of system
• There are two types of systems
 Open system- there is continual interaction with the
environment.
From the characteristics of open system
- Negative Entropy- ability to bring a new energy in the
form of input and feedback.
- Synergy- “the whole is greater than the sum of it’s
parts”.
- Steady state- balanced input and output.
 Closed system- few or no interaction with the environment.
3.2. Contingency/Situational theory
• According to contingency theory, since organization is an open
system, it interacts with several external environment factors.
Because these factors in environment change rapidly, it is not
right to insist on only one way of managing an organization.
• Therefore it supported situational management style.
contingency theory is also known as situational approach because
it focused on the idea that supports all methods of management
could be good based on the situations in external environment.
• This theory states that, there is no single plan, universal principle,
organizational structure, leadership style that will fit all situations.
• Quantitative management: utilizes linear
programming, modeling, simulation
systems.
• Operations management: techniques to
analyze all aspects of the production
system.
• Total Quality Management (TQM):
focuses on improved quality.
• Management Information Systems (MIS):
provides information about the
organization.
END OF CHAPTER TWO
 Chapter Three: Planning

• Planning is the management of the organization's future in an uncertain environment.

• Planning is the process by which managers set objectives, assess the future and develop

courses of action to accomplish these objectives.

• Planning answers six basic questions in regard to any intended activity (objective).

- what

- when

- where

- who

- how and

- how much
 Nature of planning
Corporate plans

• It is goal oriented.
Departmental/
• Primacy/predominance of planning.divisional plans

• Pervasiveness/commonness universality of
planning. Unit plans
• Planning and information are deeply related.
• Planning is a
continuous process.
• Planning is the
means to an end.
• Plans are arranged
in a hierarchy.
 Importance of planning

• It provides direction for an organization by

specifying objectives.
• It helps to accomplish the objective.
• It helps to reduce uncertainty.
• It provides guideline for decision-making.
• It provides basis for controlling or it facilitates
controlling.
• It promote efficiency.
• Discussion question:
What is the definition of the following terms:
• Mission,
• Vision,
• Values
• Goals,
• Objectives, and
• Targets
 Mission, Vision, Goal,
Objectives and Targets
• These words are often the most confusing words in management field. They
are some what similar but not exactly the same in their meanings.

• Mission _ refers to the main reason why the organization is established. or it

indicates purpose for existence of an organization . It relates organization to
external environment.

• Vision is the best way to predict your future . It might be a picture, image, or
description of the preferred future.

• Values are traits or qualities having intrinsic worth, such as courage, respect,
responsibility, caring, truthfulness, self-discipline, and fairness. The values
driving behavior define the organizational culture. A strong value system or
clearly defined culture turns beliefs into standards such as best quality, best
performance, most reliable, most durable, …
• Goal _ is expected (desired) performance to be accomplished but it is not set specifically- is
desired future outcome that an organization strives to achieve generally.

• Goal is an end that the organization strives to attain. However, the supervisor cannot "do" a
goal. Supervisors break down processes, analyze them, set objectives and then drive hard to
achieve them. E.g.to increase profit by specified amount.

• Objective An objective is simply a statement of what is to be done and should be stated in

terms of results. An abbreviated aid to write objectives is SMART (Specific, Measurable,
Attainable, Result-oriented, Time-limited).

• Target _ is expected performance set for specific individual in an organization. It is more

specific in nature than objectives.
 The SMART characteristics of effective
objective:
– Specific- Objectives should state the exact level of performance expected specifically.

– Measurable- as much as possible objectives should be expressed quantitatively,

therefore, it is possible to easily determine whether or not goals have been achieved.
– Appropriate- objectives should be prepared in suitable, acceptable and achievable
manner.
– Realistic and challenging- objectives should be attainable or real rather than fantasy.
It also better to have challenging objectives as far as they could motivate workers if
attained.
– Time bound - objectives should be set with in specific time limits or target dates for
their attainment.
 Planning Technique: Management by
objective (MBO)
• Managers can improve the quality of their planning by applying variety of
planning tools and techniques .The important fanciful of planning is
management by objectives (MBO).
• MBO is the technique in which managers and their subordinates together
set objectives for subordinates, periodically evaluate the performance and
reward effective workers.
Elements of MBO
• Top level goal setting: effective MBO begins with the objective being set
by top managers which is open for discussion by managers and
subordinates to reach up on the common objectives.
• Individual targets- in an effective MBO each manager and subordinate has
clearly defined responsibilities or expected results
• Participation- both managers and subordinates are participating in
objective setting.
• Autonomous of individuals- Once the objective is set, subordinates
have a right to select methods of attaining the objectives.
• Performance review- managers and subordinates periodically meet to
review progress toward the objectives
• Reward- those individuals who meet the objectives in performance
review are rewarded. The rewards may be recognition, praise, pay
increase,…
Benefits of MBO
• MBO uplifts workers motivation
• MBO allows managers and subordinates share experience
Limitation
• It consumes much time
• It is more of paper work
 Types of plan

Factor Type
• Time -Short-range
-Intermediate
-Long-range

• Repetitiveness : -Single use plan (program, project, budget)

(How repeatedly used) -Standing plans (policies, procedure, rules)

• Breadth/Scope - Strategic
- Tactical
- Operational

• Flexibility -variable plans

-alternative plans
-supplementary plans
 I. Time dimension

• Planning can be divided in to three based on the

length of time a plan covers.

1. Long-range plan- covers five year or more.

2. Medium-range/intermediate plan- covers

between one and five years.

3. Short-range plan- covers one year or less.

 II. USE dimension
This classification is based on their usage(how
repeatedly/frequently a given plan is used)

2.1. Single use plans

• Are developed to achieve specific purposes and dissolve
when these have been accomplished.
• They are developed for relatively unique and non-repetitive
situation.
A. Program
B. Project
C. Budget
 cont….
A. Program
• A set of activities with a particular long term aim.
• A program specifies the objectives, major steps necessary to achieve
these objectives, individuals or departments responsible for each
step, the order of the various steps, and resources to be employed.

A program is characterized as:

– A one-time organizational goal.
– May take several years to complete.
– Large in scope and complex in nature
– May use standing plans and other single use plans to be effective.
Example: ‘Education development program’
 Cont…
B. Project
It is a single use plan that is a component of a program or that is on a
smaller scale than a program.

Characteristics of project
– It is a plan for attaining a one-time organizational goal.
– Smaller in scope and complexity than a program; shorter time
duration.
– Often one part of a large program
• Example: renovate offices of a company, setting up a company's
internet,…
 Cont…
C. Budget
• Budgets are statements of financial resources set aside for specific
activities in a given period of time.

Characteristics of a budget
– It is a device to accomplish a program or a project.
– It can be considered as a part in a program or a project
 2.2. Standing Plans

• Standing plans- are plans that provide an ongoing guidance for

performing recurring activities.
• It is formulated to be used again and again.

• Standing plans allow managers to save time.

• Standing plans become valuable under relatively stable situations.

E.g. a bank can more easily approve or reject loan requests if criteria
are established in advance to evaluate credit ratings, collateral
assets, and related applicant information.
TYPES OF STANDING PLANS
A. Policies
B. Procedures
C. Rules

A. Policy
– It is a general guidelines for decision making.
– It provides boundaries or limits within which decisions are
made.
– While organization's goal decide 'what to do' policies deal with
'how to do'.

Example : Construction works policy .

B. Procedure
• Procedures are statements that detail the exact manner in which
certain activities must be accomplished.
• It provides a detailed step by step instruction as to what should be
done.
• Procedure is narrower in scope than policies.

Example:
– Procedure for permission to a new construction site
– Procedure for withdraw money from bank.
– The procedure for handling orders.
– Purchasing procedure in an organization
C. Rule
• Rules specify actions that must be taken or must not be taken
with respect to a situation.
• Rules allow no discretion/diplomacy or judgment.
• Rules are the most explicitly stated(clearly stated) of standing
plans (Do’s and Don’ts)
• Rules demand strict compliance

Example: -No smoking

 Similarities of policy, procedure and Rule

• They are directives to guide people’s behavior to the

desired end.
• All are plans to be followed in the future.

DIFFERENCES OF POLICY, PROCEDURE, AND RULE

– Policy is guide to thinking.
– Procedures and rules are guides to action.
– Policy render freedom to make a judgment.
– Rules and procedures render no freedom.
– Rules guide action without specifying a time sequence.
– Procedures specify a time sequence.
– Although procedures may incorporate rules, rules do not incorporate procedures.
 III. Scope/breadth dimension

• Scope refers to comprehensiveness (detail) of the plan.

• Based on scope plans divided in to three

A. Strategic planning
• It is a process of developing organizational objectives.
• Mostly strategic plans are long range.
• It is expressed in relatively general terms.
• It is top level managers responsibility.
B. Tactical plan
• Tactical plans support implementation of
strategic plan and achievement of strategic
goals.
• Tactical plans have shorter time frame and
narrower in scope.
• Middle level managers are responsible to
develop tactical plans.
C. Operational Plan
• Concerned with the day to day operation of
the organization.
• Made by lower level managers.
• It is detailed plan.
• Have short time frame.
 IV. Flexibility Dimension of Plans

Plans are also classified as

• variable plans,
• alternative plans, and
• supplementary plans,
based on the degree of their flexibility to respond to environmental uncertainties.
•

A. Variable plans – state figures in terms of ranges to allow for the uncertainty of the
environment.
For instance, the time estimated for a phase of a project might be stated as “three months plus
or minus one week.” The advantage of variable plans is that one can easily estimate the
tolerable limits for the organization.

B. Alternative plans – are similar to variable plans in recognizing environmental uncertainties,

except that, in this case, the planner usually sets up two or more entirely separate plans.

C. Supplementary plans – are used to reduce that constraining effects of the original plan by
providing a prearranged appeal channel.
 The planning process

• Planning is not something which is made all once at a time. It can be considered as
a serious of sequential steps. It consists of a logical and orderly series of steps.

1. Establishing objective/setting organizational goals are the driver of planning

processes. It has three steps:
- Assessing the present situation
- Anticipating future conditions
- Setting the objectives

2. Developing premises- investigating the company’s environment: conduct a situation

or SWOT analysis by identifying
- Internal Environment: strengths and weaknesses
- External Environment: opportunities and threats.
3. Determining alternative courses of action
- Roads(actions) to achieve the objective.
- Try to create as many roads as possible

4. Evaluating alternative courses of action: each alternative needs to be

evaluated to determine which one best achieves the objectives
- Evaluating the cost and benefit

5. Selecting a course of action: select alternative that remains better than

others
- Adapting the plan.
6. Implementing the plan: develop an action plan to execute the plan. In this
step method for implementation will be suggested
Implementing involves determining
- what resource will be used
- who will be involved
- how the plan will be conducted

7. Controlling and evaluating the results: monitor the progress being made,
evaluate the reports made based on results and make any necessary
modifications.
 decision making

Meaning

• Decision making is a rational choice or selection of one alternative

from among a set of alternatives.

•Decision-making is the process of selecting an alternative course of

action that will solve a problem.

•Problem solving is the process of taking corrective action in order to

meet objectives.

• All managerial functions involve decision making, but the critical

decision making is during planning.
 Decision making process

These choices are made based on the

following six-step

1. Identifying the problem

2. Identify the limiting or critical factors
3. Develop alternatives
4. Evaluate the alternatives
5. Select the best alternative
6. Implementation
1. IDENTIFYING THE PROBLEM

• Problems are prerequisites for decision: managers need to carefully assess

symptoms of the problems to arrive at real problem
• From the indicators of problems
 Deviations from past performance- a sudden change from the past
performance indicates that a problem has developed.
Example- a decline in sales.
 Deviation from plan- when results do not meet planned objectives.
• Decision makers face three types of problems
 Crisis problem: is a serious difficulty requiring immediate action.
 Non-crisis problem: is a problem that requires a solution but not
immediate.
 Opportunity problem: is a situation that involves new ideas that could
be used rather than difficulties that must be resolved.
 Stages in problem identification

 Scanning stage- monitoring the environmental change.

 Categorization stage- classifying the situation as a problem and no
problem.
 Diagnosis stage- specifying both the nature and the causes of the
problem.
 2. Identify the limiting or critical factors
• Once the problem is defined, the manger
needs to develop the limiting or critical factors
of the problem.
• Limiting factors are those constraints that
rules out certain alternative solutions.
• The supervisor determines what is relevant in
making a decision by isolating the facts
pertinent to the problem.
 3. Developing alternatives

• List as many alternative solutions to the

problem as possible.
• The best approach in determining workable
solutions is to state all possible alternatives,
without evaluating any of the options.
• This helps to ensure that a thorough list of
possibilities is created.
 4. EVALUATING /Analyzing ALTERNATIVE

• Analyze the advantage and disadvantage

of each alternative.
• The strengths and weaknesses of each
alternative are critically analyzed by
comparing the weights assigned and
then eliminating the alternatives that are
not workable.
• All of the alternative solutions are
examined in terms of out come.
 5. CHOOSING AN ALTERNATIVE

• Choosing the alternative with few

disadvantage and more advantage.
• The alternative that rates the highest score
should be the preferred solution.
• The decision can be assisted by the
supervisor's experience, past judgment,
advice from others, …
• Timing impacts the decision.
6. Implementing and monitoring the chosen
solution
• Implementing is putting the selected solution into action.

• Communication is most effective when it precedes action and events. In

this way, events conform to plans and events happen when, and in the
way, they should happen.

• Monitoring is necessary to ensure the problem is solved.

• Evaluation provide feed back on how well the decision is being

implemented, what the positive and negative results are ,and what
adjustments are necessary to get the results that were desired when the
solution has been chosen.
 Decision making conditions

• Based on the information the decision makers

have three decision making conditions.
1. Decision making under certainty
o In this case the decision maker has complete
knowledge (perfect information) of
consequences of every decision choice
(alternative).
o The probability of making poor decision is very
low.
2. Decision making under risk
• The decision maker has less than complete
knowledge.
• The decision maker is in the dilemma of choosing the
best alternative solution.
• There is a probability of making poor decision.

3. Decision making under uncertainty

• The decision maker has no information about the
outcome of each course of actions.
 Types of decisions

1. Programmed decisions
• They are made in routine, repetitive, and well
structured situations through the use of
predetermined decision rules, procedure, and
policies.
• Most of the decisions of first line managers are
programmed decisions.
2. Non programmed decisions
• To solve non routine and novel (strange or new
problems)
• Because of their newness they involve
significant amount of uncertainty.
• Non programmed decisions are mostly made
by top level managers.
Example- acquiring another firm.

Why do managers make poor decision?

• From the causes of poor decision
Failure to define goals clearly.
Using unreliable source of information.
Fear of consequence.
Lack of adequate time.
Reliance on hunch and intuition /without
the use of rational process
END OF CHAPTER THREE