MODULE 1 Overview of Relevant Concepts of Engineering Management: Engineering Management is the process of designing, operating and continuously improving

man-machine work-system and its environment by integrating engineering and management knowledge, techniques, and skills to achieve desired goals efficiently and effectively. To understand its fundamentals as well as appreciate its role in the business world, we will first review two related concepts from which the proper place and its origin of Engineering Management be traced, these are: Product/Service Development Process and Work-systems Product/Service Development Process: This involves the following stages: Market survey, Product/Service design specification, Product/Service Design, Process Design, Operations Design, Facilities Design (Plant location and Layout), Cost Estimation, Procurement and Installation, Operations and Distribution/Shipment. It is as shown in figure 1 below. Work-systems: Work-system refers to the combination of humans and machines as well as their mutual relationships in the effort to use inputs resources to attain desirable outputs. The main goal of management is to minimise undesirable output (waste) but maximise the desirable outputs (in terms of quality and quantity) of a work-system. The basic work-system input resources are: Manpower (people), Materials, information (knowledge, organised data), energy Finance and Facilities. The outputs are goods (merchandise), services, organised knowledge, infrastructures, minerals and farm produce. . A typical man-machine work-system is as depicted in figure 2 below. Management: It is a set of activities directed at a work-systems resources with the aim of achieving its goals in most efficient and effective manner. The term activities refers to planning, decision making, organising, leading and controlling while organisation resources refers to people, facilities, materials, energy, information and finance.

Engineering: A system is set of components, and their interrelationships towards the achievement of a set of goals or objectives. A system may be natural or man-made. An engineering system is a man-made system which generates, transmits, stores and/or applies one form of energy or the other for the sole benefit of mankind. An engineering system is usually identified by the type of energy it deals with. Some of these are: Electrical system, Mechanical system, Static system, man-machine work-system and Chemical system Engineering Discipline: It is the application of the principles of the physical sciences, mathematics and computing to analyse, design, synthesise, install and control Engineering systems for the sole benefit of mankind. This provides the a basis for defining any engineering discipline as one may simply replace the phrase Engineering system in the definition with the specific system type. (Activity1): Let every student attempt to define his/her engineering discipline.

Engineering Skills: The following are some Engineering skills: holistic view of problems situations, pragmatic approach to problem definition, analytical know-how, synthesising skills, modelling skills, creative thinking skills, technical measurement, systematic problem solving approach and possession of large arsenal of problem solving tools and others. Functions of Engineering Management: Some of these, which also include management processes are: Research and development, innovation management, demand and technological forecasting, inventory planning and control, production scheduling and control, equipment selection and replacement, facilities maintenance, facilities maintenance scheduling, size and location of work-systems, workforce requirement planning, quality management, plant layout, supply chain management, industrial safety and health management portfolio selection and management, methods and work measurement and large scale management Engineering Management Tools/Strategies: the following are some of the operations management tools: Forecasting models including technological forecasting, mathematical programming, simulation models, technological replacement models, inference statistics, Critical Path Method, Project Evaluation Review techniques, sequencing and scheduling algorithms and heuristics, Network flow analysis, statistical quality control models, artificial intelligence including experts systems, assorted computer software and multi-criteria optimisation. The list is in no way exhaustive, indicating the importance of operations management. The body of knowledge on the tools, principles and procedures necessary to successfully carry out the aforementioned functions is the core information in the discipline known as Engineering Management. (Assignment: Read up the History of Engineering Management on page 20 through to 45 in Babcock and Morse (2007)). Management Functions: The traditional management functions are planning, organising, staffing, leading and controlling. Planning refers to the process of selecting missions, objectives, and the courses of actions to achieve them.

MODULE 2

Introduction Management is like a centre for organizational decisions. In a day there may be a large number of situations in which decisions must be made. Some of these may be very important to the organization in the sense that the outcome may mean maximum progress, savings or profits for a high quality decision. It may also mean enormous loss or even a shutdown for very poor decision. In either case, board of directors will hold the top executive responsible. Hence, the top executive ought to have some degree of confidence of a decision before accepting it. Consequently, a quick way of assessing the quality of decision can be very useful. Then, Managerial decision making is the process of making a conscious choice between two or more rational alternatives in order to select the one that will produce the most desirable consequences (benefits) relative to unwanted consequences (cost). If there is only one alternative however, then there is nothing to decide. In decision making, it is of paramount importance to develop and evaluate alternatives before selecting from amongst them the best alternative. Decision making is an essential part of planning as you have to make decisions in the course of planning. Essence of Making Decisions It is required in designing and staffing an organisation It is required in developing and methods of motivation subordinates It is required in identifying corrective actions in control process.

Occasions for Decision Making Authoritative communications from superiors: being ordered/commanded. Cases referred for decision by subordinates Cases originating in the initiative of the executive concerned. Decision Factors There are quite a number of factors which may independently or jointly affect the quality of decisions. These range from problem situation to the methods for selecting alternative courses of action. Problem Definition A decision making situation arises because there is some problem to be solved. Thus, decision making can be viewed as a problem solving process. A good understanding of the problem followed by a clear definition by the decision maker is therefore a very important factor.

A problem which is poorly defined may be unsolved even if the best decision making techniques are used.
Assignment: (Explain the Planning/Decision Making Process diagram given as figure 1 in this module).

Types of Decision Making Depending on the extent to which they are structured, decision making can be (i) Routine (ii) Non routine. (i) Routine decisions focus on well-structured situation that: recur frequently, involve standard decision procedures, and entail a minimum of uncertainty. Examples include payroll processing, reordering standard inventory items, paying suppliers etc. It can be delegated to lower-levels within established policy limits and programmed for computer-decision if structured simply enough. (ii) Non routine decisions, on the other hand deal with unstructured situations of a novel, non recurring nature, often involving incomplete knowledge, high uncertainty and the use of subjective judgement or even intuition, where no alternative can be proved to be the best possible solution to the particular problem. State of Nature The quality of decision may also depend on the ability of the decision maker to identify the conditions of the business environment when the decision is to be implemented. These conditions are known as the state of nature. State of Nature, as the name implies, is not usually controlled by the decision maker. It will occur at the dictate of nature. Consider rainfall, for instance. If your sales (therefore revenue) depends on peace time or war condition, rainfall or sunshine; a particular epidemic, world oil sale, etc, there is little one can do to influence it. Alternative Courses of Action or Strategies The word decision implies choosing between a number of alternative courses of action or strategies. In a given problem the number may be extremely large yet all have to be identified or their experience recognized. Failure to do so one may not be able to select the best alternative which reflects the highest quality of decision. Knowledge of the State of Nature and Decision Situations As discussed in the previous section it should be obvious that all the states of nature in a decision situation may not be known. Because the quality of decision is seriously affected by the

extent to which state of nature is known decision situations are classified by the knowledge of the state of nature. There are three main possible situations: Decision Making Under Certainty Decision Making Under Risk Decision Making Under Uncertainty Decision Making Under Certainty This decision situation arises when we know with certainty which state of nature will occur at the time the decision will be implemented. Where this situation exists, the quality of decision is likely to be better since it is better to deal with a known instead of an unknown situation. An example of decision making under certainty is a production situation in which a contract to buy a particular product has been signed and paid for; all materials and tools are available. It is necessary to decide the best alternative of production which will maximize profit; the delivery date is two years from today. Notice here that the exact quantity to be sold is known come war or peace; rain or shine etc. One common technique for decision making under certainty is the LINEAR PROGRAMMING. In the method, the desired benefit (profit) can be expressed as a mathematical function (the value model or objective function of several variables. The solution is the set of values for the independent variables that serve to maximize the benefit (or, in many problems, to minimize the cost) subject to certain limits (constraints). (Reference to your TIE 312: Operations Research and Example on Pgs. 77-78. Another technique for decision making under certainty is the computer solution (simplex method on 1g. 79). Decision Making Under Risk Suppose, in our example, no contract has been signed so that the exact number to be purchased are not known. Since profitable process of production may depend on the volume to be produced, forecasters may have to project possible conditions that will prevail in two years time and then estimate possible quantities to be sold under the respective conditions. If the chance of occurrence of each possible condition or state of nature can be estimated in terms of numerical probability values, the situation is Decision making under Risk: the probabilities have a value of risk associated with them. For example, suppose the sale of this product depends on flood conditions in the year. History of past floods in each year can then be analysed and then categorized into such appropriate classes as No flood, Moderate Flood, or Heavy Flood. The chance or

probability of each of these states of nature occurring can then be estimated from the historical

data. For the purpose of illustration consider the following hypothetical example with the three possible techniques of production:

State of nature and (chance of occurrence)

Alternative Methods of No flood (.34) Production Technique 1 100,000 Technique 2 140,000 Technique 3 130,000 Moderate flood (.45) 500,000 450,000 370,000 Figure 2: Pay-off Matrix Heavy Flood (.21) 200,000 120,000 140,000

The table shown is known as pay-off matrix: the entries are the possible sales volume which occur in each state of nature when a particular method of production is adopted. When each of these values are known, decision making is fairly easier using the methods of Risk analysis. In Risk analysis the objective function is expected value of the pay-off or utility defined as follows: Expected value of pay-off = (Profitability of the state of Nature x (Value of pay-off in that state of Nature)

For any alternative course of action. Total expected Value of pay-off =

the sum of the expected values in all the states of nature

The decision criterion here is to maximize the total expected value of the pay-off. Considering our example problem. Total expected Value of pay-off = = = Similarly, Total expected value for Technique 2 = 275,300 Total expected value of Technique 3 = 240,700 Since our criterion is to maximize, the decision here is to adopt technique 1 with the maximum expected value of pay-off being 301,000 sales. Decision Making Under Uncertainty When the states of nature are unknown or the probability of occurrence cannot be estimated, then the situation is known as Decision under Uncertainty. This appears rather a (.34) (100,000) + (.45) (500,000) + (.21) (200,000) 34,000 + 225,000 + 42,000 301,000 sales

difficult situation. Nevertheless, decision still has to be made. Indeed, this situation seems most realistic for the top executive who has to make policy decisions or carry out strategic planning for an unknown future. There are about five different rational approaches to decision making under uncertainty: 1. The Subjectivist Approach Here the probability of the state of nature occurring is estimated subjectively and then the decision making carried out as in Decision making under Risk. 2.The Pessimist Approach The pessimist reasons that if anything goes wrong, it is sure to happen to him. He does not see himself as a lucky man; when he buys stock they go down in value; when he sells they go up; when it rains, his umbrella is home and when he has it, it does not rain. Consequently he loves to take decisions by selecting the action corresponding to the maximum of the minimum pay-off value. Consider for instance, our example problem in section with probabilities of the states of nature unknown

State of Nature
Alternative Actions Technique 1 Technique 2 Technique 3 No flood 100,000 140,000 130,000 Moderate flood 500,000 450,000 370,000 Heavy Flood 200,000 120,000 140,000 Minimum Flood 100,000 120,000 130,000

Figure 3: Pay-off matrix with unknown probabilities

Since the maximum of the minimum occurs under technique 3, the best course of action for the Pessimist Approach is technique 3 with pay-off value of 130,000. The decision criterion here is known as MAXIMUM; i.e. take the maximum of the minimum values. 3. The Optimist Approach While the pessimist takes decisions in a manner that suggests for risk, the optimist is a risk lover. The decision criterion for the optimist is to select the course of action with the best of the best.

This decision criterion is known as MAXIMAX. Thus, from our example problem the optimist will select Technique 1 with the maximum pay-off of 500,000. 4. The Inbetweenist Approach You observe that the pessimist is too cautious in the risky game of business. On the other hand the optimist appears too audacious. Most people will like to be inbetween these two extremes. By introducing a weighting index of the pessimist value of decision () a better balanced decision can be made. Thus, for each course of action or strategy,

The weighted value Of pay-off

(worst of pay-off) + (1 - ) (Best of pay-off)

Where lies between 0 and 1. The criterion is the maximization of the weighted payoff. The determination of the value of depends on the inclination of the decision maker. For those inclined towards the pessimist thinking are likely to take values of greater than .5 while those the optimist inclination may choose values less than .5. For illustration we assign .3 to . Using this value for each of the techniques in our example Weighted value of pay-off for technique 1 = (.3) (100,000) + (1 - .3) (500,000) = 30,000 + 350,000 = 380,000 Weighted pay-off for technique 2 = .3 (120,000) + .7 (450,000) = 36,000 + 315,000 = 351,000 Weighted pay-off for technique 3 = .3 (130,000) + .7 (370,000) = 39,000 + 259,000 = 298,000 For the inbetween list decision making process, Technique 1 with the maximum value of 380,000 will be selected. 5. The Regretist Approach

The regretist is often full of regret for the difference between the outcome that he realizes and the maximum he could have realized for the particular state of nature which prevailed. For instance, in our example, if the regretist selects Technique 1 and the state of nature happens to be moderate Flood then the regretist will have no complain, because the pay-off of 500,000 is the maximum possible for that state of nature. However, should he select either Techniques 2 or 3 he will regret for failing to pick Technique 1, the value of regret or loss being 50,000 or 130,000 (the difference between the maximum in the prevailing state of nature and that of the action selected). The decision criterion in the Regretist approach is to minimize maximum Regret of the decision maker. It is known as the MINIMAX criterion. To take a decision based on the MINIMAX criterion, the pay-off matrix is transformed as follows: Replace each entry with the difference between the maximum value of its column and the original value of the entry. Applying this rule to transform our pay-off matrix of figure 3 results in the regret matrix of figure 4:

Alternative Actions Technique 1 Technique 2 Technique 3

No flood 40,000 0 10,000

Moderate flood 0 50,000 130,000

Heavy Flood 0 80,000 60,000

Row Maxima 40,000 80,000 130,000

Figure 4: Regret Matrix

Since maximum regret is to be minimized here, the decision is to select technique with the minimum value of 40,000 maximum regret. Decision Making Under Conflict There are decision situations in which the states of nature may be known but with either an enemy or a competitor also interested in getting the same outcome. This decision situation is known as decision making under conflict while the solution approach is known as Game theory. The author simply wishes to call our attention to its existence; it will not be treated for time limitation.

MODULE 3

PLANNING: CONCEPT, PROCESS, TOOLS AND APPLICATION TO PRODUCTION AND PROJECTS

Preamble Before starting any work, it is necessary to plan properly for best results. Similarly for production, planning in advance is very necessary. Most organizations have their planning units as a separate department and it is this department that decides about each element of the job in anticipation with reference to work to be done, where, how and when it shall be done. Introduction Of all the management functions, e.g. Planning, Organizing/Staffing, Leading, Controlling, etc., Planning have primacy over others and comes first as they have little purpose unless they are focused on achieving desired objectives. Planning is important as it provides a method of identifying objectives and designing a sequence of programs and activities to achieve these objectives. Definition: Planning has simply been defined as deciding in advance on what to do, how to do it, when to do it and who is to do it. Obviously, it must precede doing. Functions of Planning as a Department (i) Investigation about the complete details and requirements of the product to be manufactured. (ii) Pre determination of future achievements. (iii) Planning the design of product to be manufactured. (iv) Planning about the quantity of materials to be consumed. (v) Planning about the standard of quality of products to be manufactured. (vi) Planning about the sequence of operations. (vii) Planning about the capacity of equipment. (viii) Planning about internal transportation. Requirements of the Planning Department (i) (ii) Detailed drawing of the components and their assembly. Complete and up to date information about the equipments, their capacities, specifications, etc. (iii) Complete information about the equipment, their capacities, specifications, etc. (iv) Complete information regarding standard time allowed to workers for the jobs being manufactured. (v) Complete knowledge of market conditions. (vi) Type of workers employed and their salaries.

(The planning process is as discussed under Decision making).

Some Planning Concepts 1. Responsibility for Planning: It is an endless responsibility of every manager. As managers rise, they are bound to spend more time in planning and further foresee into the future (by way of the forecasting tool). Planning unit is usually an independent entity on its own in most large organizations. As a planning staff, one must be able to: Coordinate the overall planning effort. Gather and analyse information on the economy, markets and competition. Perform other assigned tasks.

The ultimate planning responsibility must rest with top and middle management. However, the planning process must be open to all managers, that resulting plans will lead to action, which they will all carry out enthusiastically to achieve a common purpose. 2. Planning Premises: In order to have an effective planning, assumptions on which planning is to be based (premises) must be established. Hence, planning premises can be defined as the anticipated environment in which plans are expected to operate. They include assumptions or forecasts of the future and known conditions that will affect the operation of plans. Examples include: Assumptions about future economic condition, government decisions (regulation, tax, law and trade policy, for example, the nature of competition, and future markets. It is essential to establish planning premises about the future of technology and competition in managing technology. Where there are uncertainties about critical premises, prudent managers develop contingency plans that can be implemented if indicators show a change in the environmental conditions from those on which mainstream planning is based. Modest changes in current plans may be needed to add flexibility so that a switch to a contingency plan can be quickly made if needed.

3.

Planning Horizon: This asks (determines) how far into the future one should plan and varies greatly, depending upon the nature of the business and the plan. A commitment principle has been summarized as follows: Logical planning encompassed a future period of time necessary to fulfill, through a series of actions, the commitments involved in decisions made today. High technology products may have short effective lives, and therefore short planning horizons. (Examples to this are given on page 55 of Daniel & Lucy, Sixth edition). The planning horizon can vary from days to years, depending on the level of the manager.

4.

System of Plans:

Usually, a system of plans is involved. A plan of action can be divided into yearly forecasts biannually, and so on. Complex programs will require a system of plans, each describing a related activity. For example, a complex project might require most or all of the plans listed in the table below:

Table 1: A system of Plans for a Complex Project Project statement of work Production plan Work breakdown structure Tooling plan Project schedule Make-or-buy plan Specifications Facilities plan Management plan Training plan Configuration management plan Logistics support plan Security plan Reliability plan System test plan Transportation plan

A famous Engineering Manager, Henri Fayol in 1916 divided his Plan of Action in a large mining and Metallurgical form into Yearly and Ten-yearly forecasts with the latter redone every 5 years. Current practice is not much different, involving strategic plans of 3 to 15 years futurity and operating plans, usually one year in duration (but sometimes as much as three years in duration).

5.

Policies and Procedures: Policies are the guides for decision making that permit implementation of upper management objectives, with room for interpretation and discretion by subordinates. Rules, in contrast, do not permit discretion: Policies have a hierarchy of levels, just as plans do (see Pg. 56 for example). To be effective, Policies: (1) Should be clear, flexible and communicated throughout the organization. (2) Should involve participation in their development. (3) Should be reviewed regularly. A procedure, on the other hand, is a prescribed sequence of activities to accomplish a desired purpose. Standard operating procedures are examples of procedures used at the operating (working) level.

Forecasting as a Planning Tool A management Guru, Henri identified the first management function as prevoyance, a French word meaning, to foresee and prepare for action. Then, an essential preliminary to

effective planning is foreseeing or forecasting what the future will be like. For our purposes therefore, forecasting can be defined as attempting to predict the future by using qualitative and quantitative means. In an informal way, forecasting is an integral part of all human activity, but from the business point of view, increasing attention is being given to formal forecasting systems which are continually being refined. The engineer manager must be concerned with both future markets and future technology, and must therefore understand both Sales and Technological forecasting. The most important premise or assumption in planning and decision making is the level of future sales (or, for non profit activities of future operations). Attention should be drawn to Pg. 57, paragraph 2, for instances where assumptions are being made with respect to the level of future sales.

Application of Forecasting Production planning Demand forecasts Inventory control Advertising planning Investment cash flows Corporate planning Cost projections Budgeting

Classification of Forecasting Techniques 1. Quantitative Techniques: These are techniques of varying levels of statistical complexity which are based on analysing past data of the item to be forecast e.g. sales figures, stores issues, costs incurred. However sophisticated the technique used, there is the underlying assumption that past patterns will provide some guidance to the future. Examples are seen in material usage, sales existing products, costs etc. Such techniques include: Jury of executive opinion, sales force composite, users expectation, choice of method etc.

2.

Qualitative technique: These are techniques used when data are scarce, e.g. the first introduction of a new product. The techniques use human judgement and experience to turn qualitative information into quantitative estimates. Although qualitative techniques are used for both short and long term purposes, their use become of increasing importance as the time scale of the forecast lengthens. Even when past data are available, so that standard quantitative techniques can be used, longer term forecasts require judgement, intuition, experience, flair etc. that is, qualitative factors to make them more useful. As the timescale lengthens, past patterns become less and

less meaningful. Such techniques include Dephi Method, Market Research and Historical Analogy. Others include: Time Series Analysis (TSA), e.g. simple moving average and weighted moving average; Exponential Smoothing (ES); Regression models, e.g. simple regression model and the multiple (polynomial) regression then Technological Forecasting.

Quantitative Techniques (a) Jury of executive opinion Is the simplest of all whereby top executives, such as the vice presidents of various divisions separately provide an educated guess (estimate) of future volume so that the president provide a considered average of these estimates. The method is not only inexpensive and quick, but may be entirely acceptable if the future conforms to the executives assumptions in estimating. (b) Sales force composite In this method, sales are estimated territorially by sales force members so that the Regional Sales managers adjust the estimates for their opinion of the optimism or pessimism of individual sales people, and the general sales manager sieves the figures to account for new products or factors of which individual salesmen are unaware. (c) Users expectation This is best determined by market testing or market surveys. Since customers depend for their own success on reliable sources of supply, communication then is in the best interest of both parties. However, it is usually difficult for consumers of consumer goods to determine their likely future purchases. (d) Choice of method For this technique, companies with effective planning usually combine a variety of methods to arrive at the best sales forecast. For instance, qualitative estimates from sales force and customer surveys may be compared with more quantitative estimates from the moving average or regression models so that finally, the chief executive, with the assistance of other top officers establishes a sales forecast for future planning.

Qualitative Techniques (a) Dephi Method Is mainly used for longer term forecasting and designed to obtain expert consensus for a particular forecast, without the problem of submitting to pressure to conform to majority view. The procedure is to select a panel of experts to independently answer a sequence of questionnaires in which the responses to one questionnaire are used to produce the next questionnaire. Thus, any available information is passed across to every expert therein and their subsequent judgements are refined as more information and experience become available. (b) Market Research This technique uses opinion surveys, market data analyses, questionnaires and other investigations to gauge the reaction of the market to a particular product, design, price etc. Often, it is very accurate for the relatively short term, but longer term forecasts based purely on surveys are likely to suspects because peoples attitudes and intentions do change. (c) Historical Analogy Where past data on a particular item are not available, especially that for a new product, then data on similar products are analysed to establish the life cycle and

expected sales of the new product. However, great care is needed in using analogies relating to different products in different time periods, but may be useful in forming a broad impression in the medium to long term.

Notes on Qualitative Techniques (i) When past quantitative data are unavailable for the item to be forecast, it then becomes inevitable to involve much more judgement in making forecasts. (ii) Some of the qualitative techniques use advanced statistical techniques e.g. some of the sampling methods used in Market Research. Nevertheless, in situations whereby there lacks appropriate quantitative data relating to the factor being forecast, then any such method may prove to be a relatively poor forecaster.

Notes on Quantitative Techniques (i) Data on past usage or demand is a prerequisite to the use of this technique. (ii) In the use of statistical forecasting technique, the longer the period covered by the data, the more likely that the patterns in the data will be representative of the future. Any extrapolation or forecasts generated from past data by whatever technique should be treated with caution as conditions can and do change quite rapidly so that judgement, experience and wide knowledge of the market place always play part in establishing a reliable forecast.

Elements of a good Forecasting Method The following four elements are suggested for adopting a forecasting method: 1. Accuracy: The previous method must be checked for accuracy by observing that the predictions made in the past are accurate or not. 2. Simplicity: The method must be simple, satisfying and easily understandable. 3. Economy: As for an undertaking, cost is a main factor so the method adopted should be such which is economical. 4. Availability: The technique must be able to produce meaningful results quickly. The technique which takes much time to produce useful information is of no use. Therefore, the results should be timely available.

Procedure for making a Forecast The following points must be taken into consideration before making any forecast: 1. State whether the forecasting is short term or long term, its objectives, it may be only for a single undertaking or for whole industry. 2. Select a good method of forecasting. 3. Select the different variables which might affect the forecasting. 4. Gather the data for the different variables.

5. Determine the best possible relationship by some statistical method between different variables. 6. Make the forecast and interpret the results.

Regression Models

Regression models are a major class of explanatory forecasting models, which attempt to develop logical relationships tat not only provide useful forecasts, but also identify the causes and factors leading to the forecast value. Regression models assume that a linear relationsip exists between a variable designated the dependent (unknown) variable and one or more other independent (known) variables.

Linear Regression Let Yi be the amount of product i and Xi the value of some independent variable called the predictor variable. If a linear relation exists between Yi and Xi, then the following curve holds: Yi = 0 + 1 Xi (1) where 0 is the population intercept value of the curve and 1 the population proportional constant of the relation between Yi and Xi. To estimate these values, let b0 be the sample estimated value of 0 and b1, that of 1. But estimates may have some error associated with them. We define this error term (ei) as follows: ei = Yi - i (2) Where Yi is the ith observed value while i, the corresponding estimated value given by the expression: i = b0 + b1 Xi (3) Substituting into (2) ei = Yi (b0 + b1 Xi) (4) To obtain an estimate with minimum error of the line, it is the square of (4) that is used: thus, ei2 = (Yi b0 - b1 Xi)2 (5) For N points of data or observations, the sum of squares (SS) is given as (6) Applying the least square approach to estimation: (7) Now considering (8) Notice that (7) and (8) are two equations with 2-unknowns, b0 and b1 and Xi and Yi are observed set of data. Hence, with collected sample of data known, b0 and b1 can be solved for. Generally, equations derived from differentiating sum of squares are called normal equations, Thus (7) and (8) make up a set of normal equations.

Example: One refinery discovered that the fuel yield of their refinery depends, to some extent, on the presence of the amount of some gas in the crude oil. The following table indicates the empirical relationship between the fuel yield and the amount of gas present in the crude oil:

Amount of Gas (mm3)

Fuel Yield (Liters x 103)

i 1 20 0.18 2 60 0.37 3 100 0.35 4 140 0.78 5 180 0.56 6 220 0.75 7 260 1.18 8 300 1.36 9 340 1.17 10 380 1.65 Develop a linear model for forecasting the yield of fuel in that refinery.

SOLUTION
The first step is to prepare the follow table: i X Y XY 1 20 0.18 3.6 2 60 0.37 22.2 3 100 0.35 35 4 140 0.78 109,2 5 180 0.56 100.8 6 220 0.75 165 7 260 1.18 306 8 300 1.36 408 9 340 1.17 379.8 10 380 1.65 627 Total 2000 8.35 2175.4 X2 400 3600 10000 19600 32400 48400 67600 90000 115600 144400 532000

The second step is to form the normal equations: 8.35 Solving for b0 and b1, b0 = 0.069 and b1 = 0.0038

Polynomial (Multiple) Regression For a general m-degree polynomial and single predictor variable: Now, using the same least square approach, the following set of normal equations are derived: . .....................................

EXAMPLE: The crude oil yield of an oil well was found to relate empirically to the amount of some particles present in the water of the well as shown in the following table: count of particles Crude oil Yield per liter of water (Barrels x 106) i 1 0 12.0 2 1 10.5 3 2 10.0 4 3 8.0 5 4 7.0 6 5 8.0 7 6 7.5 8 7 8.5 9 8 9.0 The engineer in-charge suspects a second degree polynomial may form a good curve for predicting the yield of an oil well based on these data. Develop a predictive equation for this purpose.

SOLUTION
As in the case of the linear model, the first step is to formulate the normal equations. The following are based on those of the general polynomial function:

i 1 2 3 4 5 6 7 8 9

X 0 1 2 3 4 5 6 7 8 ?

Y 12.0 10.5 10.0 8.0 7.0 8.0 7.5 8.5 9.0 ?

XY 0.0 10.5 20.0 24.0 28.0 40.0 45.0 59.5 72.0 ?

X2 0 1 4 9 16 25 36 49 64 ?

X2Y 0 10.5 40.0 72.0 112.0 200.0 270.0 416.5 576.0 ?

X3 0 1 8 27 64 125 216 343 512 ?

X4 0 1 16 81 256 625 1296 2401 4096 ?

(The student should fill in the missing information in the table and use it to formulate the 3 normal equations with the numerical values in the same way done for the linear case. Solve for the b0, b1 and b2 values and state the equation; turn in your work in the next class meeting).

Y2

MODULE 4

COSTING AND COST CONTROL Costing Costing has been defined by the Institute of Cost and Works Accountants, England as: The technique and process of ascertaining costs. It is also defined as: the classifying and recording of appropriate allocation of expenditure for the determination of the costs of products or services, and for presentation of suitably arranged data for the purposes of control, and guidance of management.

It is the determination of an actual cost of an article, after adding different expenses incurred in various departments. It may also be defined as the system, which systematically records all the expenditure to determine the cost of manufactured products. It differs from estimating, in that costing is a determination of cost after knowing the expenditure incurred in various departments on the product, while estimating is the pre-determination of cost based on the assumptions and previous experiences.

Aims of Costing The important aims and objectives of costing are: (i) To determine the cost of each article (ii) To determine the cost incurred from each operation, to keep control over workers wages. (iii) To provide information to ascertain the selling process of the product. (iv) To supply information for detection of wastages. (v) It helps in reducing the total cost of manufacture. (vi) It suggests changes in design, when the cost is higher. (vii) To help in formulating the policies for charging the prices of the products.

Methods of Costing 1. Multiple costs 2. Job cost 3. Departmental costing 4. Unit costs 5. Process costs 6. Operating costs Each method is explained briefly as below:

1. Multiple costs: Concern manufacturing a variety of standardised products, having no relation to one another in cost, quality and the types of process etc., such as type-writer, gramophones, cycle etc., uses this costing method.

2. Job costs: This method is also known as order costs or terminal costs. In this method, all the items are charged to a specific order. This method is also adopted by builders, contractors etc., as it helps in sowing the cost of each separate contract or job or order of a work. Daily record of direct material, direct labour and estimated over head cost for each order is recorded in production order or cost sheet and thus the total cost of the job is obtained from the cost sheet. This method is useful when products are produced in distinguishable lots and it is also desirable to keep a separate record of each lot.

3. Departmental costing: This method is adopted in determining the cost of the output of each department separately for the manufacture of the standardised products. For example, in a steel mill there are three separate departments such as blast furnace, open hearth and rolling mill departments. The cost of all the three is determined separately.

4. Unit costs: This method is adopted by the firms, which supply a uniform product rather than a variety of products such as mines, quarries etc.

5. Process costs: This method is applied to industries such as oil refinery, chemical, paint and other similar industries, where the raw material passes through a number of processes or operations before it is converted into a final product. By-products should be taken into account while calculating the cost of each process of manufacture in this method of costing. This method indicates the cost of a product at different stages as it passes through various processes or operations or department and, therefore, a comparison of cost of various processes is also possible. This method is adopted for mass scale production. For example, in garment making, cutting and sewing are two different operations. In this system, the cost of the two operations is determined separately.

6. Operating costs: Firms providing utility services find this method useful. For example, in railways, transport service, water works, electricity boards etc., cost is determined on the basis of operating expenses and charges are made as tonne-km or passenger per km per 1000 litres or kilowatt-hour etc. For easy and accurate calculations, the total cost of a product can be divided into three main Elements. These are:

1. Materials 2. Labour 3. Expenses

1. Materials These can be further classified into: (i) Direct materials, and (ii) Indirect materials

(i)

(ii)

Direct Materials: These are those materials which when operated or processed in the factory shops through various stages form the final useful shape of the main product or component part of the main product. These are also known as Productive Materials. Indirect Materials: These are those materials which are essentially needed in various shops for helping the materials to be converted into the final useful shapes. Difference between direct and indirect forms of materials can be easily understood by the following example: Suppose a person continuously working in Milling Machine Shop is cutting gear teeth on cast iron blanks. Now the cast iron blank, of which the gear is made, will be the direct material while the coolant required for cooling the cutter, grease and lubricating oil needed for lubricating the machine, kerosene oil and cotton waste etc, needed for cleaning the machine are known as Indirect Materials.

2. Labour Labour employed in any factory may be of following two classes: (i) Direct labour and (ii) Indirect labour.

(i)

(ii)

Direct Labour: The workers, who actually work or process different materials manually or with the aid of machines is known as Direct Labour. This is also called productive labour. The nature of their duties is such that their wages can be directly charged to the job, which they are manufacturing. Workers engaged for operating on various production machines in machine shop, welding shop, pattern making shop, electric winding shop and assembly shop etc is known as Direct Labour. Indirect Labour: Any other labour, who helps the productive labour in performing their duties is known as indirect labour. The nature of their duties is such that their wage cannot be charged directly to a particular job but are charged on the total number of products produced in the plant during a particular period. Foreman, supervisors, inspectors, gate-keepers, store-keepers, crane driver and gangmen etc., are classified as indirect labour. Now, again consider the above example of Milling machine shop. The worker who is producing gears continuously on the milling machine is known as Direct Labour, while the foremen, supervising in the milling machine shop, the inspector checking the accuracy of gears and helper, who is bringing blanks and taking away the gear from the worker are examples of Indirect Labour.

3.

Expenses

We have discussed direct material cost and direct labour cost but apart from those, you will find that, in each factory there are several other expenditure, such as cost of advertisement, building, cost of packaging, cost of transportation, salaries and commission to salesmen etc. All these expenditure are known as Expenses. So, we can say that except direct material and direct labour cost, all other expenses, which are incurred in the factory are known as Expenses. The cost of indirect material and indirect labour is also included in the expenses. Expenses may be of two classes: (i) Direct or chargeable expenses, and (ii) Indirect expenses

(i)

(ii)

Direct expenses: These are those expenses, which can be charged directly to a particular job and are incurred for that specific job only. For example, cost of special jigs and fixtures, cost of some special patterns and cost of experimental work on a particular job etc. Indirect expenses: These are also known as overhead charged on cost, burden or indirect charges. These can be further classified as: (a) Factory expenses (b) Administrative expenses (c) Selling expenses and (d) Distribution expenses

(a)

Factory expenses: These overheads include all the expenditure made on the actual operation of the product in the plant, such as indirect material and indirect labour. It is also named as works on cost. (b) Administrative expenses: These overheads include all the expenditure made on the salaries of general office staff and executive staff, telegraph telex, computer and telephone charges, depreciation of office building, equipment etc. This is also known as establishment on-cost or office expenses. (c) Selling expenses: These overheads include all the expenditure made on salaries of persons working in sales department, advertising expenses and agency expenses. (d) Distribution expenses: These overheads include all the expenses made on holding finished stock, despatching them to the customer and packaging cost etc.

Components of Cost The various components of cost are: 1. Prime cost 2. Factory cost 3. Office cost 4. Total cost

1. Prime cost: It consists of direct material cost, direct labour cost and direct expenses. i.e. prime cost = direct material cost + direct labour cost + direct expenses Prime cost is also known as Direct cost. 2. Factory cost: It consists of prime cost and factory expenses. i.e. Factory cost = Prime cost + Factory expenses. Factory cost is also known as Works cost. 3. Office cost: It consists of factory cost and administrative expenses i.e. Office cost = Factory cost + Administrative expenses. Office cost is also named as manufacturing cost or cost of production. 4. Total cost: It includes office cost and selling and distribution expenses. i.e. Total cost = Office cost + selling expenses + distribution expenses

Selling price If the profit is added in the total cost of the product, it is called selling price. The customers get the articles by paying the price which is named as selling price. The relation between the elements of cost and components of cost can be best illustrated by the chart given below:

Selling Price

Total cost

Profit or loss

Office cost

Selling and Distribution expenses

Factory cost

Administrative expenses

Prime cost

Factory expenses

Direct material Cost

Direct labour cost

Direct expenses if any

Figure 1.0: Relation between elements of cost and the Components of cost. Allocation of On-Cost (Overhead-Expenses) Following are the different methods of on-cost allocation: 1. Percentage of Prime cost 2. Percentage on Direct Labour cost 3. Percentage on Direct Material cost 4. Man Hour Rate 5. Machine Hour Rate 6. Combination of Man Hour and Machine Hour Rate 7. Unit Rate Method.

For the sake of time only methods 1, 2 and 3 will be briefly discussed. 1. Percentage on Prime Cost: This is a very simple method hence has gained popularity. This method is suitable, where labour and material both play equal role. In this, prime cost is the basis of allocation of on-cost and total on-cost of the factory is expressed as the percentage of the prime cost and the percentage is charged on each job being manufactured. The required formula will be:

The method of allocation can be best understood by the following solved examples:

Example 1: A factory has total overheads of Rs. 6 lacs, while the prime cost is Rs. 10.0 lacs. Find out the on-cost of the two products by percentage on prime cost method. If first product has Rs. 100 as direct material and Rs. 200 as direct labour cost, while second product has Rs. 150 as direct labour and Rs. 150 as direct material cost.

Solution: Percentage on-cost

1st Product Prime cost

100 + 200 = Rs. 300

2nd Product Prime cost =

150 + 150 = Rs. 300

From the above example, it can be seen that both the products will be charged equally for oncost, while first product has labour cost as Rs. 200 and second product has labour cost Rs. 150. Actually material cost has to do nothing with the overheads and products which require large manufacturing time should have more overheads. This fact has not been considered in this method. Therefore, this method is a faulty one and is only suitable in the following two cases: (a) Where only one type of product is being manufactured (b) Where direct labour and direct material cost are nearly same.

2. Percentage on Direct Labour Cost: In this method, allocation of on-cost depends upon the wages paid to the direct labour. This method is very reasonable and simple in calculation and, therefore, very popular. This is very suitable where production is mainly carried out by hand and is the ratio of the total on-cost to the direct labour cost for a particular period.

This will be clearer by the following solved example:

Example 2: Factory overheads of a certain concern for the year 1970 - 71 were Rs 8.0 lacs and total direct wages paid to the labour during the above period were Rs. 32.0 lacs, find out the percentage on-cost by percentage on direct labour cost method.

Solution: Percentage on-cost

= 25% of the direct labour cost Ans.

3. Percentage on direct material cost In this method, allocation of on-cost depends upon the total direct materials cost. This method is generally used where the major part of the cost is material like foundries and mines etc. It is the percentage ratio of the total on-cost to the direct material cost for a particular period. This is explained by the solved example:

Example 3: A foundry department of a factory producing water meter body had Rs. 5.0 lacs as total overheads while the material cost was Rs. 25.0 lacs, calculate the percentage on-cost.

Solution: Percentage on-cost

= 20% of the direct labour cost Ans.

Some Examples of Allocation of On-Costs There are certain facilities which are used by more than one department. The expenses on such facilities are estimated for whole factory and then allocated to departments as follows. When there is clear cut and exact estimation of cost for each department, it is known as allocation, and if it is only estimation, then it is termed as apportion.

(i)

(ii) (iii) (iv) (v) (vi) (vii) (viii)

(ix) (x)

(xi)

(xii) (xiii) (xiv) (xv)

(xvi)

(xvii)

(xviii)

(xix)

Factory Lighting: It is allocated in proportion to the number of points in each department. If metres are provided separately, then the charges are according to these metre readings. Factory rent: It is allocated in proportion to the floor space occupied by each department. Insurance to factory: Criteria are same as for factory rent. Depreciation and repairs to factory building: Criteria are the same as for factory rent. Fuel and power: These are allocated in proportion to the horse power of machineries installed in the various departments. Works canteen: The expenditure is allocated in proportion to the number of workers benefited. Welfare expenses: The expenditure is allocated in proportion to the number of workers benefited. Any other item: Expenses incurred on any item other than the mentioned above, the criteria can be fixed by the Works Manager/General Manager on the basis of his judgement based on the circumstances. Inspection: If these charges can be identified then it can be charged directly to specific product, otherwise it can be treated as factory overhead. Transport charges: The expenditure incurred on movement of material from stores to production shops, from one shop to another shop, is a part of factory overhead and is distributed in proportion to distance travelled or weight of stores handled. Cost of containers and packaging cases: Where containers are exhausted or sold with the product, it forms a part of production costs. Where containers can be roused and packaging cases which are returnable and capable of alternative use, the expenses form a part of selling and distribution overhead. Insurance of products in transit: These expenses form a part of the distribution and an average is charged to each product. Waste or loss of finished stock: Such losses are written off and loss is taken into profit and loss account. Expenses of costing department: These form a part of administration overhead. Cost of small tools: The cost of small tools, whose account is difficult to maintain cannot be taken as capital expenditure, because the account of depreciation cannot be maintained. Therefore, such expenses are charged to the individual departments of the factory on the basis of actual issues. Bonus: Bonus is paid out of profit of the undertaking. But when minimum bonus is paid (being obligatory), it is charged to production overheads and is apportioned to different departments on the basis of wages of each department. Overtime: The overtime premium is charged: - (a) directly to the job, if the overtime work is done due to pressure of the work; (b) to the department concerned if due to the fault of the department (c) to profit and loss account if the overtime work is done due to the reasons beyond the control, e.g. flood, fire etc. Wages to apprentices: Since the speed of work is less for apprentices than that of skilled workers, and more spoilage of work by them, generally a portion of their wages, say 50% is charged direct to the job and rest to production overhead. Wages paid during the training period: These are charged to production overhead.

(xx)

Wages for the ideal time: Such expenses are treated depending upon the type of ideal time i.e. normal or abnormal; controllable or uncontrollable. (a) Normal and controllable idle time costs: These are allocated to the department concerned and charged to the departmental overhead and absorbed in production cost. (b) Normal and uncontrollable: Charged directly to the job. (c) Abnormal and uncontrollable: These are written off to the profit and loss account. Examples of such ideal time are strikes, lockouts, fire, flood major breakdown etc. (xxi) Allowances paid to the workers: Dearness allowances being part of the wages are included in direct wages, whereas other allowances are considered as part of welfare activities and then apportioned to different departments on some suitable basis. (xxii) Leave with pay: The burden of leave pay is calculated at one place are treated as factory overhead. (xxiii) Re-operation of defective: For small works this is treated as direct wages and charged to good output; but for heavier expenses and large works, such expenses are collected at one place and treated as departmental overhead.

Example: Given the following information for the year 1980:

Expenditure on material Expenditure on direct labour Factory expenses Office and administrative expenses

Rs 250,000 100,000 120,000 47,000

Determine the cost of a product which is likely to require material for Rs. 10,000 and wages for Rs. 5,000

Solution: The product shall have the indirect expenses in the same ratio as that of whole concern. For the concern, it is given that Rs Material 250,000 Direct labour 100,000 Prime cost 350,000

Factory expenses Factory cost Office and administrative expenses Total cost

120,000 470,000 47,000 517,000

Here % ratio of factory expenses to direct labour

Similarly % ratio of office and administrative expenses to factory cost

Hence for the product Material Direct labour Prime cost Factory overhead 120% of labour cost Factory cost Office and admin. Expenses = 10% of factory cost Total cost Rs 10,000 5,000 15,000 6,000 21,000

2,100 23,100

Total cost of the product shall be Rs. 23,100. Ans.

Table 1.0: Some Examples of Overheads Items (i) (ii) (iii) (iv) (v) (vi) (vii) Wages paid to indirect workers e.g. repair gangs; formen; watch and ward staff etc Works canteen and welfare expenses Employees state insurance contribution Factory rent Factory lighting Water, power and fuel (coal gas and furnace oil) Insurance of plant, factory etc

Head to which charged Factory overhead. Factory overhead. Factory overhead. Factory overhead. Factory overhead. Factory overhead. Factory overhead.

(viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx) (xxi) (xxii) (xxiii) (xxiv)

Depreciation of plant, machinery, tools and their repairs Consumable stores in factory such as cotton waste, grease etc Charges for telephones installed in the factory and stationery consumed in the factory Material transportation expenses for bringing materials from stores Cost or idle time of workers which cannot be charged on any product Cost for any material which cannot be directly charged Salaries of General Manager, Finance Manager, Secretary and their staff Office rent (if rented) or Repair and depreciation of office premises Light and power required for office Bank charges Telephone, telegram and postal charges Insurance of office premises and equipments Printing and stationary for office Expenditure incurred on legal section Expenditure incurred on audit

Factory overhead. Factory overhead. Factory overhead. Factory overhead. Factory overhead. Factory overhead. Administrative expenses Administrative expenses Administrative expenses Administrative expenses Administrative expenses Administrative expenses Administrative expenses Administrative expenses Administrative expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses Selling expenses

Salaries of the Sales Manager, his staff, salesmen etc Travelling expenses, commission and other facilities to salesmen (xxv) Advertising expenses (xxvi) Showroom expenses (xxvii) Printing of catalogue price lists etc (xxviii) Packing and carriage charges (xxix) Insurance on finished goods, showrooms good in transit goods in godowns (xxx) Expenses on delivery van including operation, maintenance, running and depreciation and repairs (xxxi) Telephone and postal expenditure of sales (xxxii) Entertainment expenses (xxxiii) Legal charges incurred for recovery for debts etc (xxxiv) Rebate to customers

Some Typical Cases (a) Income tax: Since that is a part of profits, it will be ignored in costing. (b) Construction of playing fields and equipment for them and other welfare activities of permanent nature: The expenditure incurred on these activities is a capital expenditure hence only depreciation should be included in the proportion of number of persons getting benefits from the facility. (c) Pay for holidays: Pay for office staff is a part of office expenses where pay for factory workers (i) for direct workers, the direct wages are taken after inflation of pay taking care of holidays (ii) for indirect workers, it is charged to factory overheads. (d) Shifting an equipment or plant: Since this is not a capital expenditure, but still requires abnormal expenditure, it cannot be charged to any head, but should be debited to profit and loss account. (e) Installing new plant: This is a capital expenditure and hence depreciation is credited every year into it. (f) Dismantling of plant: The final gain or loss on realisation of sale proceeds should be transferred to plant and loss account. (g) Drawing offices costs: Where works related to the drawing office is heavy, the time taken by the draughtsman is booked to the job concerned directly. But where drawing office provides general service to the whole concern, the expenditure is treated as production overhead. Market research: This is an item of selling overhead. Where market research is carried out for a particular product, the expenses are directly charged to product. (i) After sales service: The expenditure of after sales service includes salary of the staff employed for the purpose and expenditure on rectification during the warranty period. The expenses are treated as a part of product cost. However, in some undertakings, after sales service expenses are treated as a part of selling overheads and are proportioned to different products on the basis of sales.

Cost Control Cost control means the procedures and measures by which the cost of carrying out an activity is kept under check. The aim of cost control is two-fold, viz. (i) To see that cost do not exceed beyond a certain level. (ii) Thereafter, as a further step, it must adopt such measures and procedures by which the cost is further reduced. Cost control is a technique which involves the determination of standards in respect of each item of cost and determining the actual cost of those very items, detections of variations of actuals from the standards laid down, analysing these variances in order to find out the real cause and then taking necessary corrective steps for future.

How to Control Costs

As we know that elements of cost are material, labour and expenses, if we make complete systematic check on each and every element, the cost can be kept in control. If a businessman does not have any check and a scientific way of calculating the total cost of the products produced, then he may not earn exact profits, and even be may run into losses. Therefore, to earn good profits, it is essential to keep control over each and every element of costs, such as: (i) Control on prime cost, (ii) Control on overhead, and (iii) Control on indirect materials and tools.

(i) Control on prime cost Prime cost of a product has got great role over the total cost. It consists of direct material cost and direct labour cost. Since direct material cost is the most important item of expenditure, following factors must be considered to keep control on it: (i) To purchase right material at right time at right price. (ii) Efficient system of store-keeping. (iii) To ensure that always right quantities of materials are consumed with less wastage. (iv) Over-stocking must be avoided. (v) As far as possible minimum handling should be there with economy. (vi) Try to utilise waste and scrap for some other works.

Direct labour cost is also a part of the prime cost. In this respect, following steps may be useful: (i) It is necessary to express labour charges in terms of time (ii) Labour rate should be fixed accurately with the help of Time and Motion Studies. (iii) A right system of time recording can be introduced to calculate the time taken by each worker. (iv) Suitable inspection and supervision methods should be introduced. (v) A suitable method of wage payment should be selected and introduced. (vi) Proper tools, jigs and fixtures should be used to reduce production time.

2. Control on Overheads To run the business efficiently, it is very essential to have strict control on the overheads. Prime cost of product does not vary much from industry to industry for the same product; it is the overhead charges which are much responsible. If these are minimised, cost can be controlled to a large extent. For this purpose, following steps must be taken: (i) A set procedure for determining the total overhead charges of different departments should be followed and charges of each department should be compared whether they are in excess or not. (ii) Keep control on the indirect labour force.

(iii) (iv)

Simplification and set procedure for accounts and all administrative work is required to be done. As far as possible, less work should be done during extra hours.

3. Control on Indirect Material and Tools This can be kept under control by allowing a fixed amount for each shop and should be revised at regular intervals according to the needs. As standard cost is a tool to keep control over the total cost, therefore, total cost should always be compared with it and shortcomings and defects are to be found out. To determine the total cost, each of the above head is added. For detailed description, Elements of Cost should be consulted.

How to Control Material Costs Material cost is a main component in the total cost of the product (varying from 25 to 65%). Therefore, in order to control the cost, it is necessary to pay maximum attention for controlling material cost in following ways: (i) Control over abnormal losses: These are avoidable losses and wastages which should be controlled. These arise either due to mischief or inefficiency and may occur due to theft, fire or damage because of careless handling etc. These can be controlled by training the store staff, keeping strict vigil and control, adopting the policy of incentives for efficient and punishment for careless staff.

(ii) Material handling: Material handling is an art and science involving movement, packaging, and storing of materials in any form i.e. by means of gravity, manual effort or by power driven machines. Materials are received from market and stored in stores, moved to processing departments, moved from machine to machine during the process of manufacturing. Semi processed parts are moved from one department to another and then finally to the assembly section, again through the inspection department to dispatch and packing section. Material must be handled through economical means i.e. after examining various methods like using conveyers, gravity feed, cranes, fork-lift trucks, manual labour or other devices, special care must be taken for bulky material and they must be stored, transported and handled in a planned way so as to minimise handling charges. Material handling expenses can be reduced to a great extent if the layout is according to the handling requirement. Layout should be made after considering flow process charts, travel charts etc. (iv) Control over Inventory: Inventory must be kept in a scientific way and only in required quantities. Inventory control is a systematic location, storage, and recording of goods in such a way that desired degree of service can be made to the operating shops at minimum ultimate cost. There is a need for inventory control to maintain a

desired level of stores based on requirements and economical aspects. All possible efforts may be made to avoid inventory build-ups. Inventory build-up starts because either (i) items are purchased in excess of requirements, or (ii) they do not get consumed at the rate at which they are received. As a remedial measure, the position of inventory build-up is renewed at frequent intervals and corrective actions should be taken.

(iv) Reclaimation from defective products: Defective products must be dismantled in the reclaimation room, from where: (i) goods and serviceable parts are sent for use again; while (ii) the defective parts can be made serviceable with some extra efforts, whereas (iii) the parts which are completely spoiled are either used in the foundry or sold as scrap.

(v) Control over consumption: To check whether the consumption of material is justified or not, two steps are taken: (i) to compare with that of the past years record of consumption, (ii) to compare with that of standards set for the purpose.

(vi) Protection of stores: Protection of stores from fire, rust and corrosion, dust, theft, weather, heat, cold and moisture (depending upon the nature of material) is an important aspect. Each type of material such as textiles, rubber goods, leather goods, cement, petroleum products, tools, and metal require its own kind of care. Each category of item should therefore be stored in the conditions where they can be maintained in good conditions without any harm.

(vii) Procurement of material: While purchasing, following parameters should be considered: (a) Purchase at right time Neither too early to avoid inventory build-up, nor too late to avoid loss of production or loss due to emergency purchases. Lead time plays an important role. (b) Right source reliability of supplier, nearness to enable to pursue for timely supply, quality. (c) Right quality quality of material should not be sacrificed to maintain quality of finished product and hence, reputation of the concern. (d) Right quantity concept of Economic ordering Quantity must be kept in view. (e) Right contract while purchasing, proper contract agreement must be signed to avoid future complicacies and delay arising due to them. (f) Right place of Delivery to avoid unnecessary handling.

Cost Saving Areas As we know that cost of products consist of: (i) material cost (ii) labour cost (iii) overheads. Therefore, to reduce the cost, it is necessary to bring down the expenditure on these elements. Following are some of the areas, in which saving can be done as discussed below: (i) Materials (ii) Machinability (iii) Tolerances (vi) Fewer parts (v) Tool design (vi) Make or Buy (vii) Increase productivity (viii) Distribution system

(j) Materials: In order to reduce the cost of the product, materials of lower or different quality which will not affect the utility of the product are selected. Common examples of such substitution of material are use of steel window frames instead of timber frames, use of aluminium instead of copper in electric transmission lines. This process of substation is based on the principle that if a cheaper material can work satisfactorily, then there is no point in using costly material. Sometimes, another alternative is desired to be found e.g. in the radio valve industry, many parts made from expensive nickel can be manufactured with nickel plated mild steel, similarly copper plated mild steel can be used in place of pure copper.

(ii) Machinability: Some materials are easier to machine and allow faster cutting speeds and less tool wear and breakage. Though such material might be slightly costly but can be adopted if saves more in machining and gives overall saving in the cost.

(iii)

Tolerances: When there is the desire for perfection (i.e. very close limits) and although the part required shall be much better but costs more, then a permissible variation (which may not affect the quality of the product) is allowed so that parts will cost less to manufacture. The tolerance is, therefore, kept as fairly close, as to less tolerance would mean unnecessary large number of rejects, frequent machine setting, more inspections, more skilled operators, etc. Hence the tolerance is decided looking to the importance and the place where the part is to be used.

(iv)

Fewer parts: If extra facilities, features or parts can be reduced without affecting the product much but will end up saving lot of money, then we can reduce the parts. This is known as simplification of the product. It is also better to keep minimum possible

components in a product. A large number of components will reduce the reliability of product and there are much chances of failure of the production due to the failure of one or other component.

(v) Tool design: A compromise is made between the use of the new tool and the cost of the element of tool in the total cost of the product. That is, if the new tool is expensive, then the products are manufactured with the help of existing tools and equipments whereas if we find that the purchase of new equipment will reduce the manufacturing cost, then we should definitely use the new tool or equipment. Here it is also pointed out that use of standard tools is better instead of special tools unless extraordinary circumstances arise.

(vi) Make or Buy: If any part of the product is found to be uneconomical to manufacture, it must be purchased from some other manufacturer producing it on large scale. (vii) Increase productivity: Main factor to reduce the process is by increasing the productivity, we must adopt (a) work study techniques (b) Effective production planning and control (c) simplification and standardisation (d) develop good industrial relations etc.

Cost of Delays Generally, we neglect the cost of delays, and we adopt measures for reduction in material cost, labour cost etc. Since time is money, saving in time not only increase productivity but also reduces delays in production schedules, commissioning of projects, availability of equipment for production etc., besides image and reputation of the company. Delays, can however be controlled by adopting technique like PERT/CPM.

Techniques of Cost Control 1. Standard costing 2. Inventory control 3. Quality control 4. Production control 5. Reports and return 6. Work-study 7. Budget and budgetary control

1. Standard costing: Standard costing is the preparation and use of standard costs, their comparison with actual costs and the measurements and analysis of variances to their causes and points of incidence. Standard costs are the costs that are obtained under

efficient operations. They are predetermined costs and represents targets to control costs. The extent of success is measured by comparison of actual performance and standard performance. A standard cost must (a) be able to establish meaningful standard (may be in physical and monetary terms), (b) have a system for measuring actual quantities and costs, and (c) facilitate for corrective action. 2. Inventory control: Inventory control may be defined as the systematic location, storage and recording of goods in such a way that necessity of inventory control is to maintain a reserve (store) of goods that will ensure manufacturing according to a production plan with the lowest possible ultimate cost. For details, topic on Inventory control may be referred. 3. Quality control: In simplest term, quality control is the control of quality during manufacturing. Whereas quality of any product is regarded as the degree to which it fulfils the requirements of the customer. Quality can be determined by some characteristics namely, design, size, material, chemical composition, mechanical functioning, workmanship, finishing and other properties. Quality of a product product depends upon the application of materials, men, machine and manufacturing conditions. Systematic control of all these factors is the quality control. In the words of Alford and Beatly, quality control may be broadly defined as that industrial management technique by means of which products of uniform acceptable quality are manufactured. Quality control is concerned with the making things right rather than discovering and rejecting those made wrong. Now-a-days, statistical quality - control technique is used as a means for quality control in the industries. Statistical quality control involves the statistical analysis of the inspection data obtained from samples. The quality in statistical quality control is usually related to measurements made of the items manufactured. A good quality item is an item which conforms to specified standard, and does not mean having highest standards of manufacture. Most desirable situation represents consistency in quality standards rather than the absolute standards. 4. Production control: Production control is the design and use of a systematic procedure for established plan and controlling all the elements of an activity. Production control can also be defined as the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops, and lastly to follow-up the progress according to the production orders. The aim of production control is to produce the products of right quality, in the right quantity, at the right time, by using the best and least expensive methods. Henri Fayol defines production as, ensuring that all which occurs is in accordance with the rules established and the instructions issued. Production control rests on mechanism by means of which observations of current happenings are recorded and continuously compared with the planned production programme. Production control includes the control of activities, control over material movement, control over time, control of tool availability, control of quantity produced, and control over workers efficiency. For the purpose of effective production control, it is necessary to properly implement, route, schedule, despatch and follow up.

5. Reports and returns: As we know that during the process of production, delays may creep up either in material receipts, work in progress, assembly or erection etc. In order to know the point of delay and time of delay so that the follow-up can be done, certain reporting system should be introduced. The reporting system and returns should be so designed that the manager must not only take corrective action after a delay has occurred, but also anticipate and prevent before it actually develops, as we all know that, prevention is better than cure, and also that, a stitch in time saves nine. A report in the form of tabular statements, charts comparing side by side is always preferred. Columns of the statement, charts and other factors to be reported along with the frequency should be designed considering the purpose for which reports are required. The speed with which information is produced is important where short-term decisions have to be made. The task of monitoring and control is simplified, if suitable formats are designed for each purpose. Principle of designing a format is that, it should be related to time, cost and other resources like manpower, equipment, and material, and should be properly presented so that it can be understood properly and quick decisions can be taken. Generally, the reports are obtained for monitoring and control with following objects: (i) Comparing progress achieved with targets. (ii) Cost incurred on each unit of production is to be compared with that of budget. (iii)To review the targets and time schedules for future, if necessary. (v) Identify the deviations and short falls and determining the causes for initiating corrective action. (vi) Record keeping: Information so received are recorded so as to use them in future, if so required.

6.

Work study: This technique consists of standardisation of method for performing a job on the basis of scientific study after critical evaluation of the existing and proposed methods. Certain standards are then developed and installed to compare the performance.

7. Budget and budgetary control: Budget is a tool of management for planning its future activities including estimate of sales, production, expenditure etc. Budget estimates are based on past experiences, present business conditions and expected future trends. Expected results are projected in financial terms or in numerical terms, like units of products, man hours, machine hours etc. Budget provides predetermined standards of performance for the guidance of the efforts and activities in the business. As budgets provide standards of performance, they become the basis for control. Control used for the execution of budgets in which is called Budgetary controls. Budgetary control means application of control in relation to budgets. This is process of comparing the actual results to corresponding budget data to know the actual as the

process with the corresponding budget data to know the actual as the process which keeps the actual standard as nearly as possible to the predetermined standard by strict supervision and control.

MODULE 5

RESEARCH AND DEVELOPMENT MANAGEMENT

Product and Technology Life Cycles

In research, only a few out of many research ideas will be thorough enough to survive and reach the right environment to mature into a successful product. A new product usually begins as an idea for the solution of a problem or the satisfaction of a need. But then, as time goes on, such product will have its days and will then be replaced by newer ideas that satisfy newer needs. This cradle-to-grave sequence is known as the product life cycle (Fig. 1 below):
Identification of Need Wants or desires for products (because of obvious deficiencies/problems are made evident through basic research results Marketing analysis; feasibility study; advanced product planning (product selection, specification and plans, acquisition planresearch/design/production, evaluation plan, product use and logistic support plan); planning review; proposal. Basic research; applied research ("need" oriented); research methods; results of research; evolution from basic research to product design and development. Design requirements; conceptual design; preliminary system design; detailed design; design support, engineering model/prototype development; transition from design to production. Production and/or construction requirements; industrial engineering and operations analysis (plant engineering, manufacturing engineering, methods engineering; production control); quality control; production operations.

Consumer

Product Planning Function

Product Research Function Producer Product Life Cycle Product Design Function

Production and/or Construction Function

Product Evaluation Function Consumer Product use and logistic support function

Evaluation requirements; categories of test and evaluation; test preparation phase (planning, resource requirements, etc); formal test and evaluation; data collection, analysis, reporting and corrective action; retesting. Product distribution and operational use; elements of logistics and life cycle maintenance support; product evaluation; modifications, product phase-out; material disposal, reclaimation and/or recycling.

Fig. 1: Steps or Functions and typical activities in the product life cycle (Sourced from Babcock and Morse, 2007)

The product life cycle begins with an identification of need or suggestion of a product opportunity coming from researchers, sales people or customers, from observation of a competitor, or (for military goods) from fear of a potential enemy. The product idea then must be subjected to a screening process to select from the many ideas available those that are

technically and economically feasible, and to propose a program for their successful design and development. Proposal products that appear attractive at this point are approved for the product design function, itself a process of several steps. Products that still appear desirable after the design process then go to the production (and/or construction) function. Finally, the products are put into use, and if they are at all complex, they will require continuing technical effort to support their operation and maintenance. The product evaluation function is spread throughout the design, production, and early system use phases and is as discussed under each of these topics. Finally, the product undergoes phase-out, disposal, reclaimation, and/or recycling. The model of the product life cycle shown above fits the construction of buildings, ship or the design and development of an aerospace. For the product line, based on a developed and improved technology over a period of years of product manufacture, the model of the technology life cycle is more appropriate, as shown in fig. 2 below:

Fig. 2: Technology Life Cycle (Sourced from Babcock and Morse, 2007) Following the applications launch is an occurence of a rapid growth in the penetration of technology into markets (or in creating new markets). After sometime, innovation rate slows down such that market will peak. This is the phase commonly called, The phase of technology maturity. Finally, when competing or substituting technologies emerge, the mature technology begins to degrade in competition with the competing technologies. Nature of research and Development Research has been simply defined as a systematic search of yet unknown facts and principles. The National Science Foundation (U.S) defined research, both basic and applied as a systematic extensive study directed towards fuller scientific knowledge of the subject studied. Basic research is the research devoted to achieving a fuller knowledge or understanding, rather than a practical application of the subject under study. Applied research is the research directed toward the practical application of knowledge, which for industry means the discovery of new scientific knowledge that has specific commercial objectives with respect to either products or processes. Assignment: Other types of research include: Product research; Manufacturing research; Material research and Operation research. Read them up and explain the meaning of each type of research. Development in its own case concerns with the most economical and feasible method for applying the facts and principles arrived from research activity. Simply, it has been defined as the systematic use of scientific knowledge directed towards the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes.

Selecting Research & Development Projects 1. Need for Selection

Any successful technology-based manufacturing firm will usually have many more ideas for research projects than it has resources with which to invest in them. For example, as illustrated in the figure 3 below, a typical firm has the following: 60 ideas (from researchers, others employees, customers, etc) need to be screened quickly down to: 12 ideas worthy of preliminary technical evaluation and analysis of profitability to produce: 6 defined potential products worthy of further development, to obtain: 3 prototypes for detailed physical and market testing, resulting in 2 products committed to full-scale production and marketing, of which 1 product should be a real market success.

Figure 3: Screening of research project ideas. (A) Initial Screening: The reduction of 60 raw ideas into 12 worthy of any significant evaluation requires a quick, yet inexpensive method. A common method is the use of simple judgemental rating of: poor / fair / good / excellent or -2 / -1 / +1 / +2, for each of a number of characteristics. Some scoring items include: 1. Technical factors: Availability of needed skills and facilities; probability of technical success. 2. Research direction and balance: Compatibility with research goals and desired research balance. 3. 4. 5. 6. Timing: of R & D and market development relative to the competition. Stability: of the potential market to economic changes and difficulty of substitution. Position factor: relative to other product lines and raw materials. Market: growth factors for the product.

7. Marketability and compatibility: with current marketing goals, distribution methods and customer make up. 8. 9. Produceability: with current production facilities and manpower. Financial factors: expected investment need and rate-of-return from it.

10.

Patentability: and the need for continuing defensive research.

(B) Quantitative Approaches: Having successfully and conveniently screened down large number of research ideas to a more manageable number, the remaining proposals are further justified based on their technical and financial merits. Technical evaluation: usually occurs in several stages with increased details on the conceptual, technical feasibility, development and commercial validation of the new product development. Immediately following these should be the comprehensive analysis of the production cost, market estimates of potential sales and profits of the proposed product. Financial evaluation:

1. Simple pay back time: It is the easiest to calculate as it involves finding the ratio of the required investment I and mean annual gross profit A:

However, a disadvantage of this method is that its use is restricted to investments that need quick recovery because of uncertainties, but it is unsuitable for longer-term investments because it ignores profits expected beyond the payback point and fails to put the time value of money into consideration. A better alternative is the use of engineering economy approach by using the standard engineering economy nomenclature: P = Present worth of future cash flow Aj = Cash flow in the jth year I = Discount rate (minimum attractive rate of return) required by an organisation for the justification of investment. n = number of years of future cash flow Therefore, a sum P today in one year would compound to: A1 = P (1 + i) In two years A2 = P (1 + i)2 in j years Aj = P (1 + i)j So that present worth of any future sum Hence, present worth of n years of such cash flow Example: See pages 198 and 199 in Babcock and Lucy (2007). Activity: 1. Why is there negative sign right from the beginning?

2. b.

What is Maximum Expenditure justified Emj? State its formula and explain each parameter therein?

Protection of Ideas Introduction If one is to remain at the top in the product-market, it is imperative to plan continuously in order to capture the ideal and necessary sustainable advantage. This implies that one must consciously and deliberately plan for the challenges of competition ahead of time. It is the duty of the Research and Development (R & D) as a department or unit in any organisation to develop and improve technological products and processes (invention) (innovation) such that will be able to provide their organization a better competitive advantage. Since the economic-well being of any creative organisation (or country) depends to a large extent on the potentials and skills available in their Research and Development units, it will be advantageous to derive some means of protection of ideas in such settings so that high creative value will have been added to them. If these advantages can be easily duplicated by others, then there is no reason or justification for squandering the initial resources for just a short-term advantage. Hence, there are generally four legal means to protect an organisations (or an individuals) ideas and rights to benefit from those ideas. These include: 1. 2. 3. 4. (1) Patents Trademarks and other marks Copyrights Trade Secrets Patents

A patent is an exclusive property right to an invention issued by the Commissioner of Patents and Trademarks in the Department of Commerce. The rights granted are limited to the patents claims. Patents are classified as (a) Utility patents: Obtainable for a process, a machine, an article of manufacture, a composition of material or any improvement. Its life is usually 20 years from the application date. Utility patents are not obtainable on the laws of nature, scientific principles or printed matters. For inventions to be patentable, they must be: i. ii. iii. New or novel Useful or with utility Non obvious

Any used, sold, known, patented, printed invention before being made by the inventor, a patent may be barred. Also, inventions patented or described in a publication or in public use more than a year before applying for patent would also be barred. Moreover, an applicant is barred if the supposed invention was made before the date of the invention by others not concealing it. Useful inventions must advance the useful arts and benefit the public. (b) Design patents: These are usually granted on new, original, and ornamental design of an article of manufacture for a term of 14 years from the date the design is granted. The design patent focuses ONLY on the looks of the article of manufacture. To be valid, the design must, rather than being primarily functional, be primarily ornamental. (c) Plant patents: These are normally granted for 20 years from application date for plants when asexually reproduced, except for the tuber-propagated plants or plants found in the uncultivated state. Assignment: Summarize the process / art of establishing patent rights. (2) Trademarks and Other marks

Babcock and Lucy (2007) indicated that The Lanham Act defines a mark as any word, name, symbol, or device, or any combination thereof. There are four recognized types of mark in the U.S and these include: i. Trade marks: This is used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured or sold by others. A trade mark differs from a trade name. ii. A Service mark: This is associated with services rather than goods. A certification mark indicates that the marked goods or services meet standards or services established by the marks owner, for example, good house keeping. A collective mark identifies members of a group such as an organization, a union, or an association. Rights to a mark can be lost, especially if a mark is abandoned or allowed to become a generic word. To avoid losing a mark, vigilance must be exercised even to the point of suing infringers. Assignment: 1. 2. State the Trademark Law Revision Act of 1988. Compare this to what has been happening in the past.

(3)

Copyrights

A copyright is a bundle of rights to reproduce, derive, distribute, perform and display an original creative work in a tangible form for the life of the author, plus 70 more years thereafter. Exceptions to this term include work for hire, where the copyright lasts for 120 years from the date of creation or 95 years from the year of first publication. Copyright owners can sue anyone

who infringes their rights to stop illegal reproduction; impound infringing articles; collect lost profits, court costs, and attorneys fees; and in extreme cases, invoke criminal penalties. A copyright protects expressions, not ideas. A potentially patentable idea expressed in a copyrighted text may be used by others. However, there are a number of exceptions to the rights of a copyright, but the most notable and highly publicized is the fair use exception. For instance, one may, without permission, make fair use of a copyrighted work for purposes including criticism, comment, news reporting, teaching scholarship, or research. Fair use is determined by consideration or certain factors which include: The purpose of the use The nature of the work The amount and substantiality used Market effect

(4)

Trade Secrets

Trade secrets or confidential technological and commercial information are the most important assets of many businesses. The law protects trade secrets as alternatives to patents and copyrights. Trade secrets have no precise definition, but for them to be protected by the courts, they must be secret, substantial and valuable. The secret can be almost anything, so long it is not generally known in the trade or industry to which it applies. A trade secret provides its owner with a competitive advantage. It may be a formula, process, know-how, specifications, pricing information, customer lists, supply sources, merchandising methods, or other business information. It may or may not be protected by other means. Unlike patents or copyrights, trade secrets have no time limitations, and there is no registration with any government agency. A trade secret, however, has value only while it remains secret. For instance, a trade secret may lose its privileged status when it is ascertained through reverse engineering or when it is discovered independently. If a trade secret is unlawfully obtained for example, by breach of trust or violation of a confidential relationship, courts could award the trade secrets owner compensation for damages suffered and forbid the infringer use and further disclosure of the trade secret. It should be noted that although trade secrets have no direct cost in obtaining any property right, they are generally expensive to establish adequate protection systems. This would include establishing security systems and confidentiality agreements, identifying confidential information with physical restrictions, limiting plant tours, making covenants not to compete etc. Assignment: 1. 2. Read up creativity as found on pages 201 206 of Babcock and Lucy (2007) Compare and contrast between creativity and invention; and creativity and innovation.

Making Research and Development Organisations Successful: R & D and Business Strategy In a well technologically advanced organisation, a well planned technology strategy must be such that will support the overall strategy of such enterprise. A well layed strategy then should cover: (1) Research (2) Product and Process development (3) Manufacturing Engineering

It then becomes imperative to look at the three broad classes of Technology. Base Technologies: These are the technologies that any interested firm must master to be able to effectively compete in its chosen product-market mix. Despite their necessity, however, they are not sufficient. It is then left for the Research and Development Management to invest only enough to maintain competence in these technologies. Key Technologies: These are the technologies providing the necessary competitive advantage(s). They enable the producer to introduce / apply differentiating features or functions in the product or attain greater efficiencies in the production process. Pacing Technologies: These are the set of technologies that could later in the nearest future become the key technologies. It is not every participant in an industry that can afford to invest in pacing technologies. The critical issue then in technology management is balancing support of key technologies to sustain current competitive position and support of pacing technologies to create future vitality.

Evaluating Research & Development Effectiveness: (A) Organisational effectiveness

The following eleven (11) criteria have been suggested for business enterprise Research & Development: 1. 2. Ratio of research costs to profits Percentage of total earnings due to new products.

3. Share of market due to new products: usually computed as the volume of sales from a firms new products in a specific product market to the total sales available from that market, which comfounds the measure by including marketing proficiency as well. 4. 5. 6. Research costs related to increases in sales. Research costs to ratio of new and old sales. Research costs per employee.

7.

Ratio of research costs to overhead expenses such as administrative and selling costs.

8. Cash flows: continuing evaluation of the pattern of outflows for research expense and actual and projected inflows from resulting revenue. 9. Research audits: which include indicators of administrative and technical objectives such as costs, time, completion dates, probability of technical success, probability of commercial success, expected market share, expected profits, expected return on investment, design and development. 10. Weighted averages of costs and objectives: a measure of the extent the average Research & Development dollar contributed toward objectives with weights on a scale such as 0.0. Equals project badly missed objectives to 3.0 equals project far exceeded objectives. 11. Project profiles: This is a more complex weighted scoring of each project using criteria such as those in the research audits, item 9. Note: Items 1, 4 and 5 are obscured by the lag between research expenditures and the sales and profits that result from them as well as the contribution of both production and marketing to sales and profits. Items 6 and 7 are measures of the Research intensity expenditures, rather than Research effectiveness. Items 9, 10 and 11 are more time consuming and require subjective opinion. However, they may be also effective. (B) Individual effectiveness

Individual researchers can usually be evaluated for their effectiveness the following techniques: 1. Normal techniques of performance appraisal, especially in Management by Objectives (MBO), emphasizing research goals. 2. Quantitative measures, such as the number of patents and publications, and citations by others of those publications, give limited insight into research effectiveness.

Support for Research & Development In order to make the work of highly trained scientist and engineer more efficient (thorough) and productive, quality support services need to be supplied from time-to-time. Typical of such assistance include: 1. Technician support: to carry out repetitive testing as well as other functions not requiring a graduate engineer or scientist. 2. Shop support: of Mechanics, glass blowers and carpenters to produce test and research equipment based on researchers sketches.

3. A technical library: equipped with technical information specialists conversant in the fields of the companys interest and willing and able to suggest sources to researchers and structure and run searches in the appropriate data bases for them. 4. Technical publication support: These include typing, editing, and graphical support to simplify researchers production of reports, technical papers, and presentations. 5. A flexible, responsive system for approving and acquiring equipment as needed by researchers. 6. Ample computer facilities conveniently available to researchers, and programming assistance to provide consultation and programming to those researchers not wishing to do it by themselves.

Research Strategy and Organization New Product Strategies In any given organization, one of the major activities involved in strategic planning is deciding the relative investment a company should make in Research & Development. This is normally based on the concepts of the organizations fundamental mission and objectives. Four alternative new-product strategies have been suggested and these include: 1. First-to-market: In this strategy, major expenditures for research is demanded before there can be any guarantee of a successful product. Also, it demands for heavy development expenditures and perhaps a large marketing effort in introducing an innovative product. Its possibilities of reward from the Research & Development are tremendous. 2. Follow-the-leader: In this strategy, no massive research effort is required but solely strong development engineering. For example, as soon as a competitor records a research success that could lead to a product, any follow-the-leader firm just tries to join the race by introducing a product to market almost as soon as the innovation. 3. Me-too: This strategy differs from follow-the-leader; there is no research or development. In the simplest form, it means copying designs from others, buying or leasing the necessary technology and then concentrating on being the absolute minimum-cost producer. The firm following the strategy must try to maintain the lowest possible overhead expenses. 4. Application engineering: This requires no research and little development as it involves taking an established product and particularly producing it in forms suitable to customers needs. It however requires a good deal of understanding of customers needs and flexibility in production.

Corporate Research Organisations

Recently, three major ways a corporate research laboratory could fail have been identified. They are: 1. Mere producing great science, not minding whether or not it had anything to do with the business was why they were there. A laboratory in any firm / company is bound to fail, if it runs a laboratory for a long period of time but does nothing relevant to the business, because a corporation is not a University. 2. Rampant short-termism: wherein Research & Development fails because there is no enough patience to let them succeed. As financial support for businesses seem to increasingly come from markets and groups regarding a 2 weeks period as an eternity and of a year as the age of the universe, no adequate time has been allowed at all. This eventually results to shorttermism, hence laboratory failure. 3. Break-down: A break-down of the connection between Research & Development and the business automatically jeopardises research efforts so that such eventually fails as a research laboratory. The Research & Development operations may be of assistance to the business laboratory, with useful developments being handed over to them. However, somehow, such developments do not usually get out of the laboratory and into the business. Then it can be said that there is failure of technology transfer. Simplification, Diversification and Standardization In order to prosper and grow, a company has to add new products to the line or add more varieties and sizes of the product. Such additions are termed as diversification. The idea of diversification may generate product of different kinds, styles, colours and shapes. Simplification means making improvement in methods by eliminating unnecessary parts of the job by combining and rearranging other elements of the job and making them easier and safer to perform. It refers to the elimination of unnecessary varieties, size, and etc. In simplification, superflouous and less important varieties and types are cut down. Thus, simplification reduces range of products, their types, sizes, shapes, styles and also reduces the complexity of their manufacturing procedure. Thus, it is helpful in eliminating wastage by avoiding unnecessary variety and unimportant difference in products of daily use. Simplification is the selection of those items which are of greatest demand and elimination of other items. Standardization is to set the standard for that particular simplified item. Simplification that reduces the number of varieties of unfinished products is important to both industry and public. By eliminating less profitable items and concentrating on the manufacture of the better selling items, management can reduce costs and increase sales largely. Standardization is the setting up of standards for quantity, quality, raw material sizes, performance, etc of any product. It is done after considering various scientific procedures and is helpful for checking the quality, performance and value of the product. The standard fixed should give best method, specification and type considering all the factors such as available equipment, materials etc. All tools, equipment, working conditions, materials etc should be standardized. For instance, the standard of a product can only be achieved by standardizing tools, equipment, materials, etc. A machine should be in good condition, to keep the quality of product to be same as was in the beginning; similarly, if the tools are blunt, the

quality of products will not be same and will be impossible to maintain their standard. Therefore, it is most essential to keep the tools and machines in good conditions.

MODULE 6

ORGANIZING THE PEOPLE FOR PRODUCTION AND PROJECTS Organizing is that part of management that involves establishing an intentional structure of role for people to fill in an organisation. Organizing is providing every essential thing for proper functioning and combining the human power with other resources to give desired output. Organizing thus entails the following:

Identification and classification of required activities Grouping of activities necessary to attain objectives Assignment of each group to a manager with the authority necessary for its supervision. (iv) Making provision for coordination horizontally and vertically in the organisation structure. Organization is a large group of persons united to achieve any task. It is concerned with the building, developing and maintaining a structure of the working relationship in order to accomplish the objectives of the enterprise. Organisation structure therefore means the systematic arrangement of the people working for the organisation, their positions, and the relationships between them. The structure provides an appropriate authority and responsibility relationships. The organisation structure varies with the organisation and the functions to be performed and depends upon the goals and objectives established the resources available, communications and the working relationships of the individuals, and other motivational factors. Principles of Organization These assist in arriving at the final structure of an organisation. The major common principles are: 1. Consideration of objectives: Objectives decide the functions to be performed in the organisation and have direct bearing on the organisation structure. 2. Responsibility and Authority: In any organisation, both go together, unless a man is given necessary authority to perform certain duties, he cannot be held responsible. Responsibility then may be defined as the obligation of a subordinate for the performance of any job allotted by the superior. 3. Span of Control: Span of control is a number of subordinates which are directly under their supervisors. This number should be reasonable, as too small a number will lead to over loading the superior and this may result in not being able to complete planned activities each day while large number will lead to difficulty in exercising control and avoidable increase in cost of operations as excess staff may be redundant. An ideal number is 4, and the lowest level 12 to 16. Thus, a manager may have 4 deputy managers, and a foreman may have 16 workers. 4. Delegation: Delegation is a process a manager follows in dividing the work assigned to him so that he can perform that part which only he; because of his unique organizational placement, can perform effectively and so he can get others to help him with the remaining. Guidelines for Delegation (i) (ii) (iii) (iv) (v) Establish the goals Define the authority and responsibility Motivate the subordinates Provide proper check and control Chain of command. It has been felt that for efficient working, employee should receive the orders only from his superior boss. If he has more bosses, work may suffer and it make discipline problem to be difficult. Specialization

(i) (ii) (iii)

(vi)

Balance stability and flexibility Discipline Unity of command. This means that employees should get orders and instructions from one boss only. Departmentalism Departmentalism is the process of grouping activities into units for the purpose of administration. This process takes place at all levels in an industry. For example, in an industry, there may be sales department, production department, service department, and so on. Further, the sales department manager may divide his work among market research department, statistics department, advertising department, selling department, servicing department etc. This process of partitioning is generally called departmentalism. Methods of Departmentalism There are large numbers of primary basic methods of departmentalism in an organisation structure, namely: 1. 2. 3. 4. 5. 6. Grouping by products or services Grouping by locations Grouping by time Grouping by customers Grouping by processes Grouping by functions

(vii) (viii) (ix)

1. Grouping by products or services: In this method, the main activities associated with a given product are organized under a single head and are largely used as the basis of departmentalism. For example, the work of the purchasing department may be divided according to different types of products to be served. 2. Grouping by locations: If the factory is a huge one in area then departmentalism can be done by divisional basis with a divisional manager in charge of each division. 3. Grouping by time: This means an organisation may keep more than one shift. In this system, although the operations may be same as in the first shift but additional supervisory staff is required. 4. Grouping by customers: This type of departmentalism can be found in sales activities. For example, a big restaurant can serve regular meals in a big hall and maintain an espresso bar separately. 5. Grouping by processes: Departmentalism on a process basis can be found both in manufacturing and in distribution activities. For example, a Hosiery Mill may have separate departments of knitting, steaming, cutting, sewing, trimming, pressing, inspection, packaging and shipment. This method has the advantage of expertness that comes with concentration on the single process and when the process is performed at one place, the improvement in supervision occurs.

6. Grouping by Functions: Due to much advancement nowadays, there is growing complexity of administration in all types of businesses. In such industries, functional departmentalism has become increasingly popular and the organisation structure may be built by setting up departments by functions, such as sales, accounting, personnel, inspection, purchasing, production etc. Factors of Departmentalism While framing various departments, the following main factors are taken into consideration. 1. 2. 3. 4. 5. 6. Specialization Control Coordination Securing attention Recognition of local conditions Economy

1. Specialization: It means breaking up the work into simple and sub processes. Specialization is a necessity to have economic growth in the industry and to increase the production power of labour. A department should be framed in such a way as to secure the advantage of specialization. 2. Control: This is the most important job of the administration. Control means to assume that performance conforms as nearly as possible to plans. Departmentalism can simplify the managers work of control. As a general rule, one activity intended to serve as a check on another should be under a separate manager. 3. Coordination: Departmentalism is only one of the ways for achieving coordination. Coordination means combining activities into a consistent and harmonious action. Sometimes different activities need to be grouped under a single manager, as the activities need to be closely coordinated. For example, in the manufacturing industry, often raw material inventory control and purchasing are under the same officer, even though the nature of work is quite different. Here, knowledge of stock on hand and quantity of consumption must be related to the ordering of new supplies. 4. Securing attention: If there is a very important activity which requires special attention, then it may be placed in a separate division and also at a higher level in the administrative hierarchy. For example, in a chalk industry, the production foreman himself can do the inspection while in a precision instrument factory, where the quality control is more important, the inspection will be done by separate independent department. Similarly in an aircraft plant, where reliable quality is vital for the success of the enterprise, the inspection should be under the General Manager. 5. Recognition of local condition: Departmentalism should take into consideration the local conditions at the place concerned. Aspects for consideration should cover:

(a) (b) (c)

Adjustment should be made according to the availability of personalities To recognize normal groups and To provide full-time jobs.

6. Economy: Additional expenditure is needed in creating various departments. Each separate department will require executives, separate staff and such other aspects, therefore, proper consideration should be given to this aspect. It is important to note that the least expensive arrangement is not necessarily the best one, as sometimes it becomes ineffective but, by adopting a more elaborate arrangement, additional benefits should clearly exceed the additional expenses.

Authority Authority means the right of one man to require another man to do certain duties and obligations. Unless a man is given necessary authority to perform certain duties and obligations, he cannot be held responsible. Authority means right to act, decide and command. Delegation of Authority: It means giving someone permission to do certain things. For example, the supervisor gives a worker permission to run a machine and to use materials; the sales manager gives a salesman permission to call on customers in a given area and to enter into contracts for the delivery of products. It means the supervisor and the sales manager have authority to take such action and they simply extend such permission to the people working for them. Problem of Delegation of Authority: Delegation takes place even in the smallest of administrative organisations. For example, as soon as the manager of a firm finds that he cannot perform all of the activities of his firm, and hires an assistant, delegation takes place. In a large firm, not only are delegations made from the Board of Directors to Managing Director, but also redelegations are made by the Managing Director to managers, managers to supervisors and so on down to the executive pyramid. Such is a whole series of redelegations down to the point where the duties can be performed by the subordinate without further assistance. Where this occurs, a whole series of assignments and authorizations run down the channel of command, and a corresponding series of responsibilities run up the channel. Relationship created by delegation: The process of delegation has three aspects: (i) (ii) The assignment of duties by an executive to his immediate subordinates. The granting of authority to his immediate subordinate to make commitment, use resources and take other actions necessary to perform the duties.

The creation of responsibility on the part of each subordinate to the executive for the satisfactory performance of the duties. Division of Labour It means division of work into different parts or processes which are performed by one group of workers according to their ability and aptitude. A good example of division of labour is found in mass scale production factory, where workers are classified according to the nature of work performed by them e.g. electrician, welder, blacksmith, carpenter etc. In this system, every worker specializes in a particular type of work, therefore it improves the efficiency and results in productivity. Principles of good organisation The efficiency of an enterprise depends on the organisational structure. A good organization should have the following main principles: (i) Allotment of work (ii) Grant of necessary authority (iii) Flexibility to permit slight alternatives and expansions whenever needed (iv) Distribution of work in different departments (v) Coordination among different departments (vi) Able to avoid wastage of labour, money and materials. Types of Organisation According to different methods of distribution of authorities and responsibilities, the organisational structures are of following types: 1. Line or Scalar Organisation: In this type of organisation, also known as departmental or military type of organisation, the flow of authority moves from top to bottom in vertical lines. 2. Functional Organisation: In this type, specialized people are employed under the production superintendent and everybody is supposed to give his functionalized advice to all other foremen and workers. Every specialized boss will go to individual worker for his related function. 3. Line and Staff Organisation: In a firm of large size, managers cannot give full attention to every function of management, they do not have time to think and plan. They are busy with routine tasks. Hence, some staff are deputed to do their work of investigation, research, recording, planning and advising the managers. Thus, line maintains the discipline and stability, and staff provides expertise and helps to improve the overall efficiency. In other words, staff includes thinkers while line includes doers. A staff man usually controls one function of which he is an expert. Effectiveness in Organizing 1. 2. 3. Proper planning Clarification of relationships Proper authority delegation

(iii)

4. 5. 6. 7.

Avoid confusion of lines of authority and lines of information Sufficient flexibility Avoid conflict by clear instruction Promoting an appropriate organisation culture.

Organisation Chart This is used normally to represent an organisation structure. An organisation structure is designed based on the following steps: (i) (ii) (iii) (v) (v) Understand and formulate the objectives and goals of the organisation Determine necessary functions for achieving the objectives and goals. Functions related to each other are grouped together. Positions for each group are decided. Job descriptions, duties and responsibilities of each position are prepared.

(vi) Relative positions and their relationship are determined so as to form the organisation chart. Since we know that organisation structure means the systematic arrangement of the people working for the organisation, their positions and the relationship between positions. The organisation structure varies with the organisation and the functions to be performed, and depends upon the goals and objectives established, the resources available, the communications and the working relationships of the individual participants, motivation and other factors. A sample organisation chart is drawn here under:

BOARD OF DIRECTORS

Managing Director

Companys Commercial Secretary Manager Manager

Sales Manager

Works

Personnel Manager

Development Manager

1.

COMPANYS SECRETARY

Legal Advisors

Company Affairs

Note: The duties of the companys secretary are: to arrange boards meeting, legal matters and business considerations.

2.

COMMERCIAL MANAGER

(a) (b) (c) (d)

Office Manager Correspondence Typing Maintaining record Other official works

Chief Manager (a) Accounts (b) Sales and Wages (c) Cost accounting

3.

SALES MANAGER

Sales Manager Publicity Manager Service Engineer (a) Enquiries (a) Advertising (a) Repair (b) Quotation & tenders (b) Development of new (b) Spares (c) To attend orders market

Despatch Office (a) Packing (b) Transport

4.

WORKS MANAGER

Purchasing Officer Superintendent

Production Controller

Stores Superintendent

Production

Purchases Dept

Planning

Raw materials Service Dept

Production

Tool design Finished parts Tool room Time & motion study Finished parts Gauge making shops Progress like foundry, Machine loading fitting, Internal transport etc. Service material

Production in diff different Plant repairs machine welding,

Note: Under production superintendent, for each shift, there is someone in charge to look after the work in his shop and materials and maintains the discipline amongst workers under him.

5.

PERSONNEL MANAGER

Employment Officer Officer (a) Selection of persons measures (b) Promotions illness and (c) Compensation accidents

Welfare Officer (a) Education facilities (b) Factory Act Implementation (c) Accommodation to workers (d) Recreation facilities

Medical (a) Prevention (b) Help during

6.

DEVELOPMENT MANAGER

Research Officer (a) Metallurgical Research (b) Chemical Research production (c) Engineering Research

Design Manager (a) Design of new products (b) Re-design of old (c) Design to suit customers order

Activity: Read up and summarize, by way of comparison, between Frederick Taylors Scientific Management theory and Henry Fayols process theory.

Determining the Correct Number of Staff and Teams for a Project Introduction From its definition, it is clear that a project is another name for a set of activities intended to pursue and achieve a set of goals. It may also be stated here that activity is another name for human work with or without machines and tools. Hence, a fundamental question is: given a specific project, what is to be done to determine the required skills, the number of personnel per skill; number of teams and team-size to attain the project goals within the cost, time and quality constraints? This is an attempt to provide answers to this question. Procedure for Determining the Correct Number of Personnel The principle adopted here can be stated as follows: The type of skills required in a project depends on the type of activities to be performed in the project; the number of personnel depends on the volume of activities while the number of teams is approximately proportional to the number of first level outcomes of the project. The steps that follow are based on this principle. Step 1: Identification of Skills (a) Consider each project activity at a time and identify all the required skills to accomplish the activity applying intuition, the counsel of experienced people and review of past project data. For example, by intuition, one knows that to clear a building site, tractor driving is one of the skills while the services of a building technician and labourers are necessary for digging a foundation. To ensure that the list for each activity is complete,

one can now review similar activities of past projects as well as seek counsel of experienced people. Alternatively, such creativity group decision approaches like Nominal Group Technique may be applied to identify needed skills in novel situations. (b) Do the same for all the project activities and then produce a comprehensive list of all the identified skills. Step 2: Identification of Tasks to be performed in a Skill (a) For each skill, identify and collate all the possible tasks usually carried out by personnel with such skills. Every effort must be made to include all such tasks whether or not they will be required for the very project. Again, the analyst has to rely on intuition, review of past situations and counsel of experts. Do the same for all the skills and produce a comprehensive list of tasks per skill.

(b)

Step 3: Estimating Standard Man-Hours For each task estimate the standard man-hours to carry it out. Work study techniques have to be applied here. The only alternative is to critically review past project to ensure standard manhours of similar tasks are correct. Step 4: Estimating Frequency of Performing Task Estimate the number of times each task occurs during the duration of the project. Step 5: Summary of Data For each skill, summarize the data collected in the previous steps using the format presented in figure 6.1. Step 6: Determination of Grand Total Man-Hours Compute the total standard man-hours for each task and enter result in the last column of figure 6.1. This total is column 2 multiplied by column 3. Now sum up for all the tasks of the skill being considered as the grand total man-hours. Step 7: Determining the Number of Personnel per Skill Compute the number of staff personnel per skill using the following formula Where use factor is the proportion of time expected for a staff to actually be on the job for which he is paid. It does not account for times to be used for conversations, lunch, toilet, sleeping, going out, etc. It however provides for sick leave, official meetings, permitted socials, annual leave, official travels etc. Use factor can be determined experimentally for any work situation but where the data is unavailable, values ranging from 75 80% may be used.

Available hours for activity refers to the hours of work within the duration of the activity on the basis of 8 hours per day. Hence, if the duration of an activity is two months of 23 and 24 working days, respectively. Then Available Hours of Work for the Activity = (23 + 24) x 8 = 376 hours.

DEPARTMENT: SKILL: DATE PREPARED: YEAR REQUIRED: ANALYST: AUTHORISED BY: (2) Standard Man-Hours (3) Number of Times during Project duration (4) Total ManHours

S/No

Task Description

Fig. 6.1: format for recording data for determining number of Personnel per skill

DEPARTMENT: SKILL: DATE PREPARED: YEAR REQUIRED: ANALYST: AUTHORISED BY:

XXXX SECRETARIAL ASSISTANT 12/10/90 1991 MR. JIDE KEHINDE KITOLA LILEYA (2) Standard ManHours .01 .06 .08 .10 quarto size .12 .14 .15 .15 .18 .20 .13 .22 .19 .28 .22 .04 .05 (3) Number of Times during Project duration 3104 1489 1559 1572 1675 1233 2198 891 1563 1745 729 451 1674 1322 1173 1342 1213 (4) Total ManHours 31.04 89.34 125.52 157.20 201.00 172.62 329.70 133.65 281.34 349.00 94.77 99.22 318.06 370.16 258.06 53.72 60.65

S/No

Task Description

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Opens and sorts mail Writes quarto size reply to routine memos Write A4 size reply to routing memos Write foolscap size etc Takes and dictation transcribes

Takes and transcribes A4 size dictation Takes and transcribes foolscap size dictation Types quarto size memos, letters, etc Types A4 size memos, letters, etc Types foolscap size memos, letters, etc Records staff personnel information Prepares staff performance records Cuts stencil Operates duplicating machine Operates photocopying machine Keeps record of important visitors Operates desk telephone

GRAND TOTAL STANDARD MAN-HOURS PER YEAR

3125.05

Fig. 6.2: Collected on Secretarial Assistant. Example Problem I: Determination of Number of Secretarial Assistants For the Skill, Secretarial Assistant, it is required to determine how many personnel are needed in a Mass Transit Project whose duration is considered to be one year. After going from step 1 through 6, the information summarized in figure 6.2 was obtained. Notice that the total amount of standard man-hours estimated for the year for the job is 3125.05. Carrying out the computations required in step 7: Use factor = .77 Available working hours per year = Number of working days x 8 For the year of interest,

Number of working days = 250 Number of working Hours = 250 x 8 = 2000 Standard man-hours = 3125.05 Number of staff (positions) required as Secretarial Assistant =

= 2 Secretarial Assistants The Fractional Man Problem When the formula for computing number of staff is used, it may result in some fraction or decimal. Because there is no fraction of staff one may have to approximate it to the nearest whole number. In our example for instance, the computation resulted in 2.03 numbers of staff. One may approximate this to 2 or 3 since there is no fraction of a person. The value of 2 favours management but not workers who will have to do extra work equivalent to that of .24 man-hours per day (0.03 x 8). On the other hand, if the value of 3 is taken, management will have to pay for one extra man whose only available work per day is only .24 man-hours. Realizing that a fair days work for every staff is 8 man-hours, management may also feel cheated. This problem has been traditionally known to be a difficult to resolve between labour and management. For this reason, it is known as FRACTIONAL MAN PROBLEM. The fractional man problem can be resolved by both parties agreeing that whenever a decimal value is less than .5, the next highest whole number should be considered as the number of staff. Considered over many jobs, the overall number of staff will even out for both labour and management.

Number of Personnel for a Project It should be clear to the reader that the number of personnel needed for any given project depends on the number of skills identified for the project. Recall that this quantity depends on the number and types of outcomes or activities. It thus appears safe to say that the number of personnel for a project is the function of its activities. Hence, by judiciously carrying out steps 1 to 7 earlier stated, one determines the number and types of skills and personnel required for executing a project. In some cases, the need may arise for faster completion or duration reduction of a project. In this some of the critical activities are re-examined for the purpose of expediting its completion. If found expeditable, then more personnel or equipment may be added to some of the skills required for some of the tasks. The result some of the critical activities may have shorter duration. In this case, a new critical path is identified in order to determine the associated project duration. This process is known as Project Crashing, meaning addition of more resources to reduce project duration. Team and Team Formation Project-based management style requires work organized and carried out by teams. Hence, it is important to know the basis for team formation, the number of personnel per team and the number of teams required to accomplish a project.

Basis for Team Formation The strongest basis for team formation is planned project outcome. A team is formed for the sole purpose of accomplishing one of the main outcomes of a project. Project Plan is the project outcome for which the first project team is formed. It is usually formed by the project sponsor and the project manager. The members are usually few (three to seven) but made of very experienced individuals. Their main task is to develop a project plan details which includes project definition, scope, specifications, activities, work breakdown structure, duration, personnel, facilities, project schedule, etc. to mention just a few. The subsequent teams are formed to pursue other main project outcomes. Hence, the personnel mix in a single team on the type of activities depends on the type of activities to be carried out in order to realize the outcome for which the team is formed. If the activity requires, for example, such skills as carpentry, welding, plumbing and driving, then the personnel mix will be welders, carpenters, plumbers and drivers. The team size will be the total number of people needed to accomplish the amount of work of the activity needed to achieve the outcome. Thus, while team size depends on the number of main outcomes, a team personnel mix depends on the type of project activity. To determine the actual number of personnel needed for a project, one first determines the Gannt Chart of the project activities. Then the number of teams and the team personnel mix determined. Based on this schedule, the second team members are recruited. They then elect their leader. This team which is deployed for the first task in the schedule commences work on the start date of the activity. Other teams can also be formed and deployed for all the first parallel sets of activities. And the completion of each activity, the associated team is disbanded

and the members used to form other teams whose activity is an immediate proceeding activity to one of those just completed. This implies that, the total number of personnel to be deployed or employed for a project cannot be accurately determined until a final project activity schedule is developed and accepted by the establishment.
MODULE 7

OPERATIONS MANAGEMENT: HOW TO ATTAIN QUANTITY AND QUALITY The operations functions is that of part of an organisation responsible for providing the services or producing the goods that a company sells in the markets. Or Operations management concerns itself with the conversion of inputs into value added output (product/services) using physical resources so as to provide the desired utility to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.

Environment national/world Economy and government Regulations

MODULE 8

Leadership, Motivation and Engineering Ethics Leadership could be viewed simply in terms of an individual or group of individuals in charge of a team and directing the team towards the achievement of some specific objectives. In organisational settings, leaders have both general and specific responsibilities. In general, they have the ultimate responsibility to lead their followers to the achievement of set mission or goals. This is done mainly through the process of leading by example. Specifically the following are done: Determine what goals or mission to pursue.

Determine what resources (human and material) will be needed for accomplishing the goals and how such resources will be procured.

Determine how resources will be allocated among various uses. Determine what role each member of the team will play and how the diverse roles and related activities will be coordinated and channelled towards the attainment of set goals.

Determine how to reward all those involved in the operations. Evaluate performance at intervals, both to know if things are going according to plan and whether any changes are necessary to the overall mode of operation.

Effect any changes which may be necessary at any particular time.

In addition to the above, a leader has other responsibilities like the following: Serving as role model Grooming successors Operating as change agent.

Motivation Engineering Ethics Ethics is derived from the Greek word ethos. Its different synonyms include character, custom or morality, manner or habit. Penslar (1995) defined ethics as the philosophical study of normative behaviour the shoulds and oughts, the rights and wrongs of a persons conduct. Engineers are expected to commit themselves to making the analysis, design, specification, development, testing and maintenance of engineering systems beneficial so as to earn respect for the professions. They should be committed to the health, safety and welfare of the public by adhering to the following eight principles: Public: Engineers shall act consistently with the public interest Client and Employer: Engineers should always act in a manner that is in the best interest of their client and employer and consistent with the public interest. Product: Engineers should ensure that their product (output, design, building, construction etc) meet the highest professional standards possible. Judgement: Engineers should maintain the integrity of their professional judgement. Management: Engineers in leadership or management positions shall subscribe to and promote an ethical approach to design and development. Profession: Engineers shall advance the integrity and reputation of the profession consistent with the public interest. Colleague: Engineers shall be fair to and supportive of their colleagues.

Self: Engineers shall be committed to the lifelong learning and professional development and shall promote an ethical approach to professional practice. There are four major components of ethical moral behaviour which are: (i) Moral Sensitivity, i.e, the ability to recognise an issue as a moral problem (ii) Moral reasoning, i.e., the process of thinking about proper course of action when faced with an ethical challenge (iii) Moral commitment. This is what it takes to choose an ethically sound course of action over unethical one. (iv) Moral perseverance, i.e., having the ego strengths and tenacity to follow through on your decisions. Specific ethics for the engineering profession and various disciplines are spelled out in most engineering professional associations and regulatory bodies such as Council for the Regulation of Engineering in Nigeria (COREN), Nigerian Society of Engineers (NSE) and Accreditation Board for Engineering and Technology (ABET) in America among others.

Introduction Some definitions. To have an effective technical organization we need to understand the nature of motivator, especially as it applies to technical professionals. Different individuals defined the above topic. Such individuals include; Berelson and Sfeiner who defined motive as an inner state that energizes, activates, or moves (hence motivation), and that directs or channels behaviour toward goals. Bobbins defines motivation in an organizational sense as the willingness to exert high levels of effort to reach organizational goals, conditioned by the efforts ability to satisfy some individual need. Campbell et al. define motivation in terms of three measures of the resulting behaviour: 1. The direction of an individuals behaviour (measured by the choice made when several alternatives are available). 2. The strength of that behaviour once a choice is made 3. The persistence of that behaviour. Also, Shannon concludes that there is only one way to get people to do what you would like them to do, and that is by making them want to do it. Motivation flows from within the individual. Therefore, we need to learn why people want to do things, and how they can be persuaded (or motivated) to do those things that will enhance organizational goals.

Dongles McGregors Theory X and Theory Y The way we try to motivate someone depends on our assumption about their basic nature. Donglas McGregor postulated two contrasting sets of assumptions about the average worker, calling them Theory X and Theory Y. In his Theory X, he painted a dismal picture of the nature of the average person and its implications for the task of management by saying that Theory X places exclusive reliance upon external control of human behaviour, while Theory Y relies heavily on self-control and selfdirection. It is worth noting that this difference is the difference between treating people as children and treating them as mature adults.

Assignment: 1. Read up and summarize the following theories

(a) Content theories (b) Process Theories 2. Prepare to speak on 'How Money Motivates Men'.

MODULE 9

Engineering as a career Today, engineers can level mountains to the ground and turn rivers from their courses. The skies and the oceans are avenues for the innumerable activities of engineers. Various categories of transportation and communication systems have turned the world into a global village. Electrical energy has catalyzed civilization and modern living in all their ramifications. No matter the area of human challenge, the engineers are the agents of change through well thought out engineering projects. Engineers have career opportunities in public utilities or the organized private sectors. The public utilities would cover government establishments that operate engineering systems for provision of social services to the populace. These include water supply systems, electricity supply systems, works, housing and urban development, Ports Authority etc. The organized private sector in which there are also considerable engineering activities may be divided into a number of groups. (i) Multinational Companies: Involved mainly in manufacturing and production of goods of various brands: (ii) Construction Companies: Involved in constructions of roads railways, housing and so on. Examples of such companies in Nigeria include Julius Berger Nigeria PLC, Strabag Nigeria PLC, Guffanti Nigeria PLC etc. (iii) Banks: A number of banks have properties and Computer Department which employ engineers. (iv) Allied Financial Institutions including Insurance and Mortgage Companies: These employ engineers to determine risk levels on engineering equipment and projects. (v) (vi) Consulting Engineering Practices Private Telecommunication Companies: MTN Nigeria, Vodaphone Nigeria etc. (vii) Petroleum, Oil and Gas Companies: Shell Petroleum Development Co. Ltd., Chevron Nigeria Ltd., Elf Nigeria Ltd., NLNG Ltd. Etc. (viii) Engineering Products Marketing: Rank Zerok Nigeria, Olivetti Nigeria Ltd. Etc.

(ix)

Small and Medium Scale Companies.

Engineers develop their careers in these industries and establishments. They often improvise for spare parts, employ adaptive technology and backward integration to maintain the machinery and equipment and save costs. These are local challenges and have to be achieved within the limits imposed by the ethics of the profession

MODULE 10

Slide shows of all the topics taught so far will be displayed. Students will be allowed to ask questions from any aspect of the course General challenging Issues: Past, present and the future of an engineering manager will also be touched and addressed.