FUNDAMENTALS OF ENGINEERING MANAGEMENT

1.1 INTRODUCTION TO MANAGEMENT

In most aspect of our lives we are member of one organization or another a college, a sport
team, a musical, religions or theatre groups, a branch of the armed forces, professional-body,
social club or even a business concern. These organizations differ from one another. The army
or business groups may be well organized whereas a basket ball team of club may be casually
structured. However, all organizations have several basics things in common.

Perhaps, the most obvious common element our organization will have is goal or purpose.
Again, the goals will differ – to win a league championship, win a war, to entertain the
audience, to sell a product. Hence, no organization can exist without a goal. Our organizations
will also have some programmed or method for achieving their goal – to manufacture and
make profit, to advertise a product, to win a certain number of times to be the leader in
businesses all the time.

Finally, our organization will have leaders or managers responsible for the organization to
achieve their goals. There is no human endeavor that does not require proper functioning. All
types of organizations, business enterprises, hospital, cooperatives, churches, mosques,
whether profit making or non-profit making, require good management to function effectively.

Managing is one of the most important human activities that permeate all organizations.
Whenever people work together for attainment of a predetermined objective, there is a need
for management that is charged with the responsibility of ensuring that aims and objectives of
the organizations are realized. It is the management’s responsibility to ensure that every
member of the groups contributes his best. To get people put in their best efforts, the manager
has to understand peoples, their emotional, physical and intellectual needs. He has to
appreciate that each member of the groups has his own personal needs and aspirations and
that these are influenced by such factors as the ethnic, social, political, economic and the
technological environment of which he is a part.

1.2 DEFINING MANAGEMENT

Different meanings have been attributed to the word “Management”. Some people see it as
referring to a group of people. They think of a management team or groups of individuals in an
organization. Management is also seen as a process demands the performance of a specific
function. Here management is a profession. To a student, management is an academic
discipline. In this instance, people study the art of managing or management science. Here are
some of the definitions given by authority in management science:

‘To manage is to forecast and plan, to organize, to command, to coordinate and to control.’
H. FAYOL (1916)

‘Management is used to designate either a group of functions or the personnel who carry them
out; to described either an organizations official hierarchy or the activities of men who
compose it to provide autonomy labor or ownership.’
AMERICAN INSTITUTE OF MANAGEMENT (1957)

‘Management is a social process… the process consist of… planning, control, coordination and
motivation.’
E.F.L BRECH (1957)

‘Managing is an operational process initially best dissected by analyzing the managerial

functions… The five essential managerial functions are: planning, organizing, staffing, directing
and leading, and controlling.’
KOONT’Z AND O’DONNELL (1984)

‘Five areas of management constitute the essence of proactive performance in our chaotic
world: (1) an obsession with responsiveness to customers, (2) constant innovation in all areas of
the firm, (3) partnership – the wholesale participation of and gain sharing with all people
connected with organization, (4) leadership that loves change (instead of fighting it) and instills
and shares an inspiring vision, and (5) control by means of simple support systems aimed at
measuring the “right stuff” for today’s environment.’
T. PETERS (1988)

‘Management is the art of getting things done through people.’

C.C. NWACHUKWU (1988)
It can be more scientifically defined as the coordination of all the resources of an organization
through the process of planning, organizing, directing, and controlling in order to attain
organizational objectives. Management is the guidance or direction of people towards
organization goals or objective. It can also be seen as the supervising, controlling and
coordinating of activity to attain optimum results with organizational resources.

As will be used most commonly in this course, management is the process of reaching
organizational goals by working with and through people and other organizational resources. A
comparison of this definition with the definitions offered by several contemporary
management thinkers shows that there is broad agreement has the following three main
characteristics:

i) It is a process or series of continuing and related activities.

ii) It involves and concentrates on reaching organizational goals.
iii) It reaches these goals by working with and through people and other organizational
resources.

The need for management arises when a group of people tackle tasks that are too large or
complex for any one individually to cope with. When faced with such situations people soon
discover that they need to define tasks and allocates roles in order to develop a solution. The
process of breaking tasks or problems down into key elements has traditionally involved the
classic management practices of Planning, Organizing, Staffing, Directing, Coordinating,
Reporting and Budgeting. These activities make-up the essential elements of most traditional
management roles and can be defined as the classic functions of management. The four basic
management functions as follows:

1.2.1 PLANNING

Planning involves choosing tasks that must be performed to attain organizational goals, outline
how the task must be performed and indicating when they should be performed. Planning
activities focuses on attaining goals. Through their plans, managers outlined exactly what
organizations must do to be successful. Planning is concerned with organizational success in the
near future (long term). Planning is intended to provide a strong focus for any project or task. It
comprises the following elements:

i) Establishing objectives: Establishing the outputs or results that have to be achieved.

For example, increase production sales, profitability by x%. Increase customer
response times by y.
ii) Establishing procedure: Developing and applying standardized methods and
processes for conducting the work. For example, what project management or
process control systems will we use?
 iii) Decision making: Arriving at the right findings, conclusions and recommendations,
and making appropriate decisions in a timely manner.
iv) Forecasting: Estimation of organization future needs and requirements. For
example, markets share, profit and revenue streams, return on investment.
v) Scheduling: Establishing the priorities and sequence of actions to achieve the
objectives. What is the order in which things need to happen?
vi) Budgeting: Allocating the resources necessary – people, equipment and finance- to
achieve the objectives. For example, a financial budget of $1.5 million and a project
team of 10 people supported by 3 contract workers.

1.2.2 ORGANIZING

Organizing can be thought as assigning the tasks developed under the planning function to
various individual or groups within the organization. Organizing, then, creates a mechanism to
put plan into action. People within the organization are given work assignments that contribute
to company’s goals. Tasks are organized so that the output of individuals contributes to the
success of departments, which, in turn contribute to the success of divisions, which ultimately
contributes to the success of the organization. It also includes the selection and training of
people to deliver the necessary results. The function comprises of the following:

i) Selecting people: Identifying the right people with the appropriate skills for the
tasks or roles to be performed.
ii) Delegation: Allocating the necessary levels of responsibity, authority and
accountability to complete work.
iii) Establishing working relationships: Create the right atmosphere and climate for
effective team working and the development of strong and productive working
relationship.

1.2.3 INFLUENCING

Influencing is another basic function within the management process. This function -also
commonly referred to as leading, directing, or actuating- is concerned primarily with people
within organizations. Influencing can be defined as guiding the activities of organization
members in appropriate directions. An appropriate direction is any direction that helps the
organization more toward goal attainment. The ultimate purpose of influencing is to increase
productivity. Human-oriented work situations usually generate high level of production over
the long term than do task-oriented situations, because people find the letter type of situations
distribution. This function involves getting people to take action and comprises the following
elements:

i) Communication: Creating a shared understanding of the goals and objectives

through the use of a range of effective communications channel.
ii) Motivating people: Energizing people and encouraging them to deliver high levels of
performance. Maintaining a strong willingness to deliver at all times regardless of
temporary setbacks and disappointments.
iii) Developing people: Guiding and advising people on how best they can develop skills
and realize their full potential.

1.2.4 CONTROLLING

Controlling is the management function for which managers:

1. Gather information that measures recent performance within the organization.

2. Compare present performance to pre established performance.

3. From the comparison, determine if the organization should be modified to meet pre
established standards.

Controlling is an ongoing process. Managers continually gather information, make their

comparisons, and then try to find new ways of improving production through organizational
modification. This function involves the followings:

i) Establishing performance standard: Establishing the criteria by which work

processes and results will be assessed and measured.
ii) Measuring performance: Recording and reporting on work in progress to see if it
meeting the required quality and performance levels.
iii) Evaluating performance: Evaluating and appraising the work results.
iv) Correcting performance: Taking timely and corrective action to improve working
methods and performance results.
 ORGANIZATIONAL

GOALS

PLANNING

INFUENCING CONTROLLING

ORGANIZING

Figure 1: Interrelations of the Four Functions of Management to Attain Organization

Goals

1.2.5 Staffing
The staffing function of management controls all recruitment and personnel needs of the
organization. The main purpose of staffing is to hire the right people for the right jobs to
achieve the objectives of the organization. Staffing involves more than just recruitment;
staffing also encompasses training and development, performance appraisals, promotions
and transfers. Without the staffing function, the business would fail because the business
would not be properly staffed to meet its goals.

1.2.6 Coordinating
The coordinating function of leadership controls all the organizing, planning and staffing
activities of the company and ensures all activities function together for the good of the
organization. Coordinating typically takes place in meetings and other planning sessions
with the department heads of the company to ensure all departments are on the same
page in terms of objectives and goals. Coordinating involves communication, supervision
and direction by management.

1.3 TYPES OF LEVELS IN MANAGEMENT

One way to grasp the complexity of management is to see that managers can
practices at different levels in an organization and with different ranges of
organizational activities:

1.3.1 MANAGEMENT LEVELS

i) First-Line Managers: Manager who are responsible for the work of
operating employees only and do not supervise other managers, they are
“first” or lowest level of managers in the organizational hierarchy. Examples
of firs-line managers are the foreman or production supervisor in a
manufacturing plant, the technical supervisor in a large office. First-line
managers are often called “supervisor”.
ii) Middle-Manager: Managers in the mid-range of the organizational
hierarchy; they
are responsible for other managers and sometimes for some operating
employees; they also report to more senior managers. Middle managers’
principal responsibilities are to direct the activities that implement
their organizations’
policies and to balance the demands of their managers with the capacities
of their employers.
iii) Top Manager: Managers who are responsible for the overall management
of the organization; they establish operating policies, and guide the
organization’s interaction with its environment. These people “chief
executive”, “president”, and “vice-president”
2.0 Market

A set up where two or more parties engage in exchange of goods, services and
information is called a market. Ideally a market is a place where two or more parties are
involved in buying and selling.

The two parties involved in a transaction are called seller and buyer.

The seller sells goods and services to the buyer in exchange of money. There has to be
more than one buyer and seller for the market to be competitive.

Monopoly - Monopoly is a condition where there is a single seller and many buyers at the
market place. In such a condition, the seller has a monopoly with no competition from
others and has complete control over the products and services.

In a monopoly market, the seller decides the price of the product or service and can
change it on his own.

Monopsony - A market form where there are many sellers but a single buyer is called
monopsony. In such a set up, since there is a single buyer against many sellers; the buyer
can exert his control on the sellers. The buyer in such a form has an upper edge over the
sellers.

2.1 Types of Markets

1. Physical Markets - Physical market is a set up where buyers can physically meet
the sellers and purchase the desired merchandise from them in exchange of
money. Shopping malls, department stores, retail stores are examples of physical
markets.
2. Non Physical Markets/Virtual markets - In such markets, buyers purchase goods
and services through internet. In such a market the buyers and sellers do not meet
or interact physically, instead the transaction is done through internet. Examples -
Rediff shopping, eBay etc.
3. Auction Market - In an auction market the seller sells his goods to one who is the
highest bidder.
4. Market for Intermediate Goods - Such markets sell raw materials (goods) required
for the final production of other goods.
5. Black Market - A black market is a setup where illegal goods like drugs and
weapons are sold.
6. Knowledge Market - Knowledge market is a set up which deals in the exchange of
information and knowledge based products.
7. Financial Market - Market dealing with the exchange of liquid assets (money) is
called a financial market.
Financial markets are of following types:

1. Stock Market - A form of market where sellers and buyers exchange shares is
called a stock market.
2. Bond Market - A market place where buyers and sellers are engaged in the
exchange of debt securities, usually in the form of bonds is called a bond market. A
bond is a contract signed by both the parties where one party promises to return
money with interest at fixed intervals.
3. Foreign Exchange Market - In such type of market, parties are involved in trading
of currency. In a foreign exchange market (also called currency market), one party
exchanges one country’s currency with equivalent quantity of another currency.
4. Predictive Markets - Predictive market is a set up where exchange of good or
service takes place for future. The buyer benefits when the market goes up and is
at a loss when the market crashes.

2.2 Market Size

The market size is directly proportional to two factors:

 Number of sellers and Buyers

 Total money involved annually
3.0 SUPPLY & DEMAND

3.1 The Basic Notion of Supply & Demand

Supply-and-demand is a model for understanding the determination of the price of

quantity of a good sold on the market. The explanation works by looking at two different
groups – buyers and sellers – and asking how they interact.

3.2 Types of Competition

The supply-and-demand model relies on a high degree of competition, meaning that

there are enough buyers and sellers in the market for bidding to take place. Buyers bid
against each other and thereby raise the price, while sellers bid against each other and
thereby lower the price. The equilibrium is a point at which all the bidding has been
done; nobody has an incentive to offer higher prices or accept lower prices.

Perfect competition exists when there are so many buyers and sellers that no single
buyer or seller can unilaterally affect the price on the market. Imperfect competition
exists when a single buyer or seller has the power to influence the price on the market.

The supply-and-demand model applies most accurately when there is perfect

competition. This is an abstraction, because no market is actually perfectly competitive,
but the supply-and-demand framework still provides a good approximation for what is
happening much of the time.

3.3 The Concept of Demand

Used in the vernacular to mean almost any kind of wish or desire or need. But to an
economist, demand refers to both willingness and ability to pay.

Quantity demanded (Qd) is the total amount of a good that buyers would choose
to purchase under given conditions. The given conditions include:
• price of the good
• income and wealth
• prices of substitutes and complements
• population
• preferences (tastes)
• expectations of future prices

We refer to all of these things except the price of the good as determinants of
demand. We could talk about the relationship between quantity demanded and any
one of these things. But when we talk about a demand curve, we are focusing on the
relationship
between quantity demanded and price (while holding all the others fixed).
The Law of Demand states that when the price of a good rises, and everything else remains the
same, the quantity of the good demanded will fall. In short,

↑P → ↓Qd

Note 1: “everything else remains the same” is known as the “ceteris paribus” or “other
things equal” assumption. In this context, it means that income, wealth, prices of other
goods, population, and preferences all remain fixed.

Of course, in the real world other things are rarely equal. Lots of things tend to change
at once. But that’s not a fault of the model; it’s a virtue. The whole point is to try to
discover the effects of something without being confused or distracted by other things.

Note 2: Is the law of demand really a “law”? Well, there may be some exceedingly rare
exceptions. But by and large the law seems to hold.

Note 3: I will use the word “normal” to refer to any good for which the law of demand holds.
Please note that this is different from the book’s definition of normal.

A Demand Curve is a graphical representation of the relationship between price and quantity
demanded (ceteris paribus). It is a curve or line, each point of which is a price- Qd pair. That
point shows the amount of the good buyers would choose to buy at that price.

Changes in demand or shifts in demand occur when one of the determinants of demand other
than price changes. In other words, shifts occur “when the ceteris are not paribus.”

The demand curve’s current position depend on those other things being equal, so when they
change, so does the demand curve’s position.

Examples:
1. The price of a substitute good drops. This implies a leftward shift.
2. The price of a complement good drops. This implies a rightward shift.
3. Incomes increase. This implies a rightward shift (for most goods).
4. Preferences change. This could cause a shift in either direction, depending on how
preferences change.

Demand versus Quantity Demanded. Remember that quantity demanded is a specific amount
associated with a specific price. Demand, on the other hand, is a relationship between price
and quantity demanded, involving quantities demanded for a range of prices. “Change in
quantity demanded” means a movement along the demand curve. “Change in demand” refers
to a shift of the demand curve, caused by something other than a change in price.
3.4 The Concept of Supply

Used in the vernacular to mean a fixed amount, such as the total amount of petroleum in
the world. Again, economists think of it differently. Supply is not just the amount of something
there, but the willingness and ability of potential sellers to produce and sell it.

Quantity supplied (Qs) is the total amount of a good that sellers would choose to produce and
sell under given conditions. The given conditions include:
• price of the good
• prices of factors of production (labor, capital)
• prices of alternative products the firm could produce
• technology
• productive capacity
• expectations of future prices

We refer to all of these, with the exception of the price of the good, as determinants of
supply.

When we talk about Supply, we’re talking about the relationship between quantity
supplied and the price of the good, while holding everything else constant.

The Law of Supply states that “when the price of a good rises, and everything else
remains the same, the quantity of the good supplied will also rise.” In short,
↑P → ↑Qs
A Supply Curve is a graphical representation of the relationship between price and quantity
supplied (ceteris paribus). It is a curve or line, each point of which is a price-Qs pair. That point
shows the amount of the good sellers would choose to sell at that price.

Changes in supply or shifts in supply occur when one of the determinants of supply other than
price changes.

Examples:
1. The price of a factor of production rises. This would cause a leftward shift the supply
curve.
2. A rise in the price of an alternative good that could be provided with the same
resources. This implies a leftward shift of supply.
3. An improvement in technology. This leads to a rightward shift of supply.

Supply versus Quantity Supplied. Analogous to the demand versus quantity demanded
distinction. “Change in quantity supplied” means a movement along the supply curve. “Change
in supply” refers to a shift of the supply curve, caused by something other than a
change in price.