INDUSTRIAL MANAGEMENT & Click to edit Master subtitle style COSTING

5/17/12

UNIT -I

Business Management

5/17/12

Meaning of Business :-

A business is defined as any of the following, whether carried on by one person or two or more persons together:
A profession or trade; Any other activity carried on for fee, gain or

reward;
The activity of employing one or more

persons to perform duties in connection with another business;

5/17/12 The carrying on of a trust, including a

System Definition:

Recall: What is a System?:-

A group of interrelated components working toward the attainment of a common goal by accepting inputs and producing outputs in an organized transformation process.

Input Processing Output Feedback

5/17/12

Control

Business as a system :A business is an organizational system where economic resources (input) are transformed by various organizational processes (processing) into goods and services (output).

5/17/12

Meaning of business organization is Art of establishing effective coordination, technique of efficient operations, concerned with the study of methods and procedure, purpose of earning profits, covers different functions of business Objective: Efficiency Division of work Delegation .

BUSINESS ORGANIZATION :-

5/17/12

Organizational Chart:-

5/17/12

Forms of Business Organization:-

5/17/12

Sole Proprietorships:Business owned (and usually operated) by

one person

Simplest form of business ownership

Most popular form of business organization

72.2% of all
Retailing Service

Most common in:

Agriculture
5/17/12

sole proprietorship:Advantages of sole proprietorship:

Easy of formation and closure Flexibility of operation Sole beneficiary of profits

Disadvantages of sole proprietorship:

Unlimited liability Limited managerial skill
5/17/12

Limited Life

Partnerships :Two or more owners Least numerous form 7.7% of all businesses Partnership Agreement
Specifies rights and obligations of partners If written, called the Articles of Partnership

(Articles of Co-partnership)

5/17/12

Partnerships :Advantages of partnership

Larger financial resources Sharing of risks Pooling of skill

Disadvantages of partnership
Non-transferability of share Scope of conflicts Unlimited liability
5/17/12

Corporations : Generally larger than other forms

(Except for sole proprietorship -Corporation)

Considered a separate legal entity
Owners called Stockholders or

Shareholders

Ownership evidenced by Stock

Certificate

5/17/12

Corporations :Advantages
Compulsory registration Limited liability & Distinct legal entity Transferability of shares Perpetual successions Artificial person

Disadvantages
Lengthy and expensive legal procedure Excessive government regulations
5/17/12

Delay in decision making

Types of Corporations :Government-Owned Corporation

aka Public Corporation Owned & operated by government Post office, NASA, FDIC

Quasi-Government Corporation
Aka Quasi-Public Corporation Privately owned, government controlled

monopoly

Public utilities, Fannie Mae, Freddie Mac,

Sallie Mae

5/17/12 Private

Corporation

Management and Its Evolution of organizations depends to :The performance

a large extent on how their resources are allocated and their ability to adapt to changing conditions.

Successful organizations know how to

manage people and resources efficiently to accomplish organizational goals and to keep those goals in tune with changes in the external environment.
5/17/12

The Four Management Functions:Planning Organizing

Leading

Controlling

5/17/12

Planning:The management function that assesses the

management environment to set future objectives and map out activities necessary to achieve those objectives. teams, and management should be coordinated to support the firms mission.

To be effective, the objectives of individuals,

5/17/12

Organizing:The management function that

determines how the firms human, financial, physical, informational, and technical resources are arranged and coordinated to perform tasks to achieve desired goals.

The deployment of resources to achieve

strategic goals.
5/17/12

Leading:The management function that energizes

people to contribute their best individually and in cooperation with other people.
Clearly communicating organizational goals Inspiring and motivating employees Providing an example for others to follow Guiding others Creating conditions that encourage

This involves:

management of diversity

5/17/12

Controlling:The management function that

measures performance, compares it to objectives, implements necessary changes, and monitors progress.

Many of these issues involve feedback

or identifying potential problems and taking corrective action.

5/17/12

Taylors Four Principles of Scientific Managementpartperformingand task. Scientifically study each of a task develop the best method of the
1. 1.

Carefully select workers and train them to perform the task by using the scientifically developed method. Cooperate fully with workers to ensure that they use the proper method.

1.

1.

Divide work and responsibility so that 5/17/12 management is responsible for planning work

Fayols 14 Principles of Management 1. Division of work

2. Authority 3. Discipline 4. Unity of command 5. Unity of direction 6. Subordination of individual

interest to the general interest

7. Remuneration
5/17/12

8. Centralization 9. Scalar chain 10.Order 11.Equity 12.Stability and tenure 13.Initiative 14.Esprit de corps

5/17/12

ADMINISTRATION Vs ORGANIZATION ADMINISTRATION ORGANIZATION

Administration can be defined as the universal process of efficiently organizing people and resources so to direct activities toward common goals and objectives. Administration is both an art and a science (if an inexact one), and arguably a craft, as administrators are judged ultimately by their performance. Administration must incorporate both leadership and vision. 5/17/12

Organizing is establishing the internal organizational structure of the business. The focus is on division, coordination, and control of tasks and the flow of information within the organization. Managers distribute responsibility and authority to job holders in this function of management.

Decision Making
Decision
Making a choice from two or more alternatives.

The Decision-Making Process

Identifying a problem and decision criteria and

allocating weights to the criteria.

Developing, analyzing, and selecting an Implementing the selected alternative. Evaluating the decisions effectiveness.
5/17/12 26

alternative that can resolve the problem.

The Six Steps in Decision Making

Identifying the Problem

Following Up

Determining Alternative Courses of Action

Implementing the Decision

Analyzing the Alternatives

Selecting the Best Alternatives

5/17/12

Step 1: Identifying the Problem

Problem
A discrepancy between an existing and desired

state of affairs.

Characteristics of Problems
A problem becomes a problem when a manager

becomes aware of it.

There is pressure to solve the problem. The manager must have the authority,
5/17/12

information, or resources needed to solve the problem.

28

Step 2: Identifying Decision Criteria

required)

Decision criteria are factors that are

important (relevant) to resolving the problem.

Costs that will be incurred (investments Risks likely to be encountered (chance of

failure)

Step 3: Allocating desired (growth of the firm) Outcomes that are Weights to the Criteria

Decision criteria are not of equal importance:

Assigning a weight to each item places the items in the correct priority order of their importance in the decision making process.
29

5/17/12

Step 4: Developing Alternatives Identifying viable alternatives

Alternatives are listed (without evaluation) that

can resolve the problem.

Step 5: Analyzing Alternatives

Appraising each alternatives strengths and weaknesses

An alternatives appraisal is based on its ability to resolve the issues identified in steps 2 and 3.

5/17/12

30

Step 6: Selecting an Alternativealternative Choosing the best

The alternative with the highest total weight is

chosen.

Step 7: Implementing the Decision

Putting the chosen alternative into action.

Conveying the decision to and gaining commitment from those who will carry out the decision.

5/17/12

31

What Determines Organizational Structure? To what degree are tasks subdivided into separate jobs? On what basis will jobs be grouped together? To whom do individuals and 5/17/12 groups report?

What Determines Organizational Structure?

jobs?

To what degree are tasks subdivided into separate On what basis will jobs be grouped together? To whom do individuals and groups report? How many individuals can a manager efficiently

and effectively direct?

Where does decision-making authority lie? To what degree will there be rules and regulations

to

direct employees and managers? 5/17/12

Other Aspects of Organization Structure

Chain of Command
Who reports to whom?

5/17/12

34

Other Aspects of Organization Structure

Span of Control
How many direct reports can a manager manage?
5/17/12

Line organization:Line organization is the most oldest and

simplest method of administrative organization. According to this type of organization, the authority flows from top to bottom in a concern. The line of command is carried out from top to bottom. This is the reason for calling this organization as scalar organization which means scalar chain of command is a part and parcel of this type of administrative organization. In this type of organization, the line of command flows on an even basis without any gaps in communication and co- ordination taking 5/17/12 place.

Features of Line Organization of organization. It is the most simplest form

Line of authority flows from top to bottom. Specialized and supportive services do not

take place in these organization.

Unified control by the line officers can be

maintained since they can independently take decisions in their areas and spheres. bringing efficiency in communication and bringing stability to a concern.

This kind of organization always helps in

5/17/12

Merits of Line Simplest- It is the most simple and oldest Organization

method of administration.
Unity of Command- In these organizations,

superior-subordinate relationship is maintained and scalar chain of command flows from top to bottom.
Better discipline- The control is unified and

concentrates on one person and therefore, he can independently make decisions of his own. Unified control ensures better discipline.

Fixed responsibility- In this type of

organization, every line executive has got 5/17/12 authority, power and fixed responsibility fixed

Flexibility- There is a co-ordination between

the top most authority and bottom line authority. Since the authority relationships are clear, line officials are independent and can flexibly take the decision. This flexibility gives satisfaction of line executives. responsibility and unity of command, the officials can take prompt decision.

Prompt decision- Due to the factors of fixed

5/17/12

Line and staff organization:-

Line and staff organization is a modification of

line organization and it is more complex than line organization. According to this administrative organization, specialized and supportive activities are attached to the line of command by appointing staff supervisors and staff specialists who are attached to the line authority. The power of command always remains with the line executives and staff supervisors guide, advice and council the line executives. Personal Secretary to the Managing Director is a staff official. 5/17/12

Demerits of Line Over reliance- The line executives decisions are Organization
implemented to the bottom. This results in overrelying on the line officials.
Lack of specialization- A line organization flows in

a scalar chain from top to bottom and there is no scope for specialized functions. For example, expert advices whatever decisions are taken by line managers are implemented in the same way.

Inadequate communication- The policies and

strategies which are framed by the top authority are carried out in the same way. This leaves no scope for communication from the other end. The complaints and suggestions of lower authority are not communicated back to the top authority. So there is 5/17/12 one way communication.

 Lack of Co-ordination- Whatever decisions

are taken by the line officials, in certain situations wrong decisions, are carried down and implemented in the same way. Therefore, the degree of effective co- ordination is less. tendency to misuse their authority positions. This leads to autocratic leadership and monopoly in the concern.

Authority leadership- The line officials have

5/17/12

Features of Line and Staff Organization

There are two types of staff :
Staff Assistants- P.A. to Managing Director, Secretary to

Marketing Manager. PRO

Staff Supervisor- Operation Control Manager, Quality Controller,

Line and Staff Organization is a compromise of line organization. It is

more complex than line concern. organization.

Division of work and specialization takes place in line and staff The whole organization is divided into different functional areas to

which staff specialists are attached.

Efficiency can be achieved through the features of specialization.

5/17/12 There are two lines of authority which flow at one time in a concern :

Merits of Line and Staff Organization: Relief to line of executives- In a line

and staff organization, the advice and counseling which is provided to the line executives divides the work between the two.The line executive can concentrate on the execution of plans and they get relieved of dividing their attention to many areas.

Expert advice- The line and staff

organization facilitates expert advice to the line executive at the time of need. The planning and investigation which is related 5/17/12 to different matters can be done by the

 Benefit of Specialization- Line and staff through division of whole concern

into two types of authority divides the enterprise into parts and functional areas. This way every officer or official can concentrate in its own area.

Better co-ordination- Line and staff organization through specialization is

able to provide better decision making and concentration remains in few hands. This feature helps in bringing co- ordination in work as every official is concentrating in their own area. specialized staff, the line executives, the line executives get time to execute plans by taking productive decisions which are helpful for a concern. This gives a wide scope to the line executive to bring innovations and go for research work in those areas. This is possible due to the presence of staff specialists. serves as ground for training to line officials. Line executives can give due concentration to their decision making. This in itself is a training ground for them. staff helps in bringing co- ordination. This relationship automatically ends up the line official to take better and balanced decision. effectivity take place when co- ordination is present in the concern. In the line

Benefits of Research and Development- Through the advice of

Training- Due to the presence of staff specialists and their expert advice

Balanced decisions- The factor of specialization which is achieved by line

Unity of action- Unity of action is a result of unified control. Control and its 5/17/12

5/17/12

Delegation:According to F.C. Moore, "Delegation means

assigning work to the others and giving them authority to do so.

According to O. S. Miner, "Delegation takes place

when one person gives another the right to perform work on his behalf and in his name and the second person accepts a corresponding duty or obligation to do that is required of him."
According to Louis Allen, "Delegation is the

dynamics of management, it is the process a manager follows in dividing the work assigned to him so that he performs that part which only he, because of his unique organizational placement, 5/17/12 can perform effectively, and so that he can get

Delegation of authority:Delegation of authority is one vital organizational process. It is inevitable along with the expansion and growth of a business enterprise. Delegation means assigning of certain responsibilities along with the necessary authority by a superior to his subordinate managers. Delegation does not mean surrender of authority by the higher level manager. It only means transfer of certain responsibilities to subordinates and giving them the necessary authority, which is necessary to discharge the responsibility properly. Delegation is quite common in all aspects of life including business.
5/17/12

Objectives of Delegation of Authority:To reduce the excessive burden on the

superiors i.e., executives and managers functioning at different levels. development to junior executives.

To provide opportunities of growth and self To create a team of experienced and matured

managers for the Organisation. It acts as a technique of management and human resource development.
To improve individual as well as overall
5/17/12

efficiency of the Organisation.

Principles of Effective Delegation of Authority:Knowledge of Objectives :

Before delegating authority, the subordinates should be made to understand their duties and responsibilities. In addition, knowledge of objectives and policies of the enterprise should be provided to them. This will enable them to discharge their roles purposefully in the process of delegation
5/17/12

Parity of Authority and Responsibility :

This principle of delegation suggests that

when authority is delegated, it should be commensurate with the responsibility of the subordinate. In fact, the authority and responsibility should be made clear to the subordinate so that he will know what he is expected to do within the powers assigned to them. There should be proper balance/parity or co-existence between the authority and responsibility. A subordinate will not function efficiently, if authority given to him is inadequate. On the other hand, if the excess authority is given, he may misuse the same. For avoiding this, the subordinates who are 5/17/12 assigned duties should be given necessary/

Unity of Command :
everyone should have only one boss. A subordinate should get orders and instructions from one superior and should be made accountable to one superior only. This means 'no subordinate should be held accountable to more than one superior'. When a subordinate is asked to report to more than one boss, it leads to confusion and conflict. Unity of command also removes overlapping and duplication of work. In the absence of unity of command, there will be 5/17/12 confusion and difficulty in fixing
This principle of delegation suggests that

Limits of Authority:The principle Limits of Authority suggests that

while delegating authority to subordinates, they should be made to understand the limits of authority so that they know the area of their operation and the extent of freedom of action available to them. Such clarity guides subordinates while performing their jobs.

5/17/12

Absoluteness of responsibility :- suggests that it is This principle of delegation

5/17/12

only the authority which is delegated and not the responsibility. The responsibility is absolute and remains with the superior. He cannot run away from the same even after delegation. Even when the manager delegates authority to his subordinate, he remains fully accountable to his superiors because responsibility cannot be divided between a superior and his subordinate. No superior can delegate responsibilities for the acts of his subordinates. He is responsible for the acts and omissions of his subordinates.

Advantages / Importance of Delegation of Authority

Relieves manager for more challenging jobs Leads to motivation of subordinates Facilitates efficiency and quick actions Improves employee morale Develops team spirit : Maintains cordial relationships Facilitates management development

5/17/12

Obstacles / Barriers to Effective Delegation of Authority :Unwillingness of the manager to delegate

authority

Fear of competition Lack of confidence in subordinates Lack of ability to direct Absence of controls that warn of coming

troubles troubles

Absence of controls that warn of coming Desire to dominate subordinates

5/17/12

Centralization:Centralization is said to be a process where

the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management.

Under centralization, the important and key

decisions are taken by the top management and the other levels are into implementations as per the directions of top level

5/17/12

Decentralization:Decentralization is a systematic delegation

of authority at all levels of management and in all of the organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management

5/17/12

Direction: Direction:-

Organisation is the sum-total of human and non-human resources. These resources should be handled in a certain way to get the desired results. Through direction, management conveys and motivates individuals in the organisation to function in the desired way to get organisational objectives. Without direction, other managerial activities like planning, organising and staffing become ineffective.
5/17/12

Motivation:Motivation is the process of boosting the morale of employees to encourage them to willingly give their best in accomplishing assigned tasks. 5/17/12

Motivation Theories: Maslows need hierachy theory. Mc Gregors Theory X & Theory

Y .
Herzbergs Motivation- Hajgiene
5/17/12

Theory

Maslows Hierarchy of Needs

Self Esteem

Social Safety Physiological

Prentice Hall, 5/17/12 2001

Chapter 6

6262

Maslows need hierachy theory:-

5/17/12

Mc Gregor's Theory X & Theory Y: McGregor's ideas significantly

relate to modern understanding of the Psychological Contract, which provides many ways to appreciate the unhelpful nature of X-Theory leadership, and the useful constructive beneficial 5/17/12 nature of Y-Theory leadership.

Theory x: The average person dislikes work and will

avoid it he/she can.

Therefore most people must be forced with

the threat of punishment to work towards organisational objectives.

The average person prefers to be directed;

to avoid responsibility; is relatively unambitious, and wants security above all else.

5/17/12

Theory Y :Effort in work is as

natural as work and play. People will apply selfcontrol and selfdirection in the pursuit
5/17/12

Herzbergs MotivationHajgiene Theory:- factors that He argued that there were certain

a business could introduce that would directly motivate employees to work harder (Motivators). However there were also factors that would de-motivate an employee if not present but would not in themselves actually motivate employees to work harder (Hygienefactors)

Herzberg believed that businesses should

motivate employees by adopting a democratic approach to management and by improving the 5/17/12nature and content of the actual job

Herzbergs Two-Factor Theory

Dissatisfaction and demotivation Not dissatisfied but not motivated Positive satisfaction and motivation

Hygiene Factors
Company policies Quality of supervision Relations with others Personal life Rate of pay Job security Working conditions

Motivational Factors
Achievement Career advancement Personal growth Job interest Recognition Responsibility

5/17/12

Control:

Controlling is one of the managerial functions like planning, organizing, staffing and directing. It is an important function because it helps to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in desired manner.

5/17/12

Definitions:According to Henri Fayol,

Control of an undertaking consists of seeing that everything is being carried out in accordance with the plan which has been adopted, the orders which have been given, and the principles which have been laid down. Its object is to point out mistakes in order that they may be rectified and prevented from recurring.
According to EFL Breach,

Control is checking current performance against pre-determined standards contained in the plans, with a view to ensure 5/17/12