ENGINEERING ECONOMICS AND MANAGEMENT

Q1. Define Management and explain the Principles of Management.

A. Management is defined as the process of achieving the objectives of the business organization by bringing together human,
physical, and financial resources in an optimum combination and making the best decision for the organization while taking into
consideration its operating environment.
There are 14 Principles of Management described by Henri Fayol.
1. Division of Labour
a. There is stress on the specialization of jobs.
b. Work of all kinds must be divided & subdivided and allotted to various persons according to their expertise
in a particular area.
c. Subdivision of work makes it simpler and results in efficiency.
d. It also helps the individual in acquiring speed, accuracy in his performance.
e. Specialization leads to efficiency & economy in spheres of business.
2. Party of Authority & Responsibility
a. Authority & responsibility are co-existing.
b. If authority is given to a person, he should also be made responsible.
c. In a same way, if anyone is made responsible for any job, he should also have concerned authority.
d. Authority refers to the right of superiors to get exactness from their sub-ordinates whereas responsibility
means obligation for the performance of the job assigned.
e. There should be a balance between the two i.e. they must go hand in hand.
f. Authority without responsibility leads to irresponsible behavior whereas responsibility without authority
makes the person ineffective.
3. Principle of One Boss
a. A sub-ordinate should receive orders and be accountable to one and only one boss at a time.
b. In other words, a sub-ordinate should not receive instructions from more than one person because -
1.It undermines authority 2.Weakens discipline 3. Divides loyalty 4.Creates confusion 5.Delays and chaos
6.Escaping responsibilities 7.Duplication of work 8.Overlapping of efforts
c. Therefore, dual sub-ordination should be avoided unless and until it is absolutely essential.
d. Unity of command provides the enterprise a disciplined, stable & orderly existence.
e. It creates harmonious relationship between superiors and sub-ordinates.
4. Unity of Direction
a. Fayol advocates one head one plan which means that there should be one plan for a group of activities having
similar objectives.
b. Related activities should be grouped together. There should be one plan of action for them and they should be
under the charge of a particular manager.
c. According to this principle, efforts of all the members of the organization should be directed towards
common goal.
d. Without unity of direction, unity of action cannot be achieved.
e. In fact, unity of command is not possible without unity of direction.
1. Equity
a. Equity means combination of fairness, kindness & justice.
b. The employees should be treated with kindness & equity if devotion is expected of them.
c. It implies that managers should be fair and impartial while dealing with the subordinates.
d. They should give similar treatment to people of similar position.
e. They should not discriminate with respect to age, caste, sex, religion, relation etc.
f. Equity is essential to create and maintain cordial relations between the managers and sub-ordinate.
g. But equity does not mean total absence of harshness.
h. Fayol was of opinion that, “at times force and harshness might become necessary for the sake of equity”.
2. Order
a. This principle is concerned with proper & systematic arrangement of things and people.
b. Arrangement of things is called material order and placement of people is called social order.
c. Material order- There should be safe, appropriate and specific place for every article and every place to be

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 effectively used for specific activity and commodity.
d. Social order- Selection and appointment of most suitable person on the suitable job. There should be a
specific place for every one and everyone should have a specific place so that they can easily be contacted
whenever need arises.
3. Discipline
a. According to Fayol, “Discipline means sincerity, obedience, respect of authority & observance of rules and
regulations of the enterprise”.
b. This principle applies that subordinate should respect their superiors and obey their order.
c. It is an important requisite for smooth running of the enterprise.
d. Discipline is not only required on path of subordinates but also on the part of management.
e. Discipline can be enforced if -
- There are good superiors at all levels.
- There are clear & fair agreements with workers.
- Sanctions (punishments) are judiciously applied.
4. Initiative
a. Workers should be encouraged to take initiative in the work assigned to them.
b. It means eagerness to initiate actions without being asked to do so.
c. Fayol advised that management should provide opportunity to its employees to suggest ideas, experiences&
new method of work.
d. It helps in developing an atmosphere of trust and understanding.
e. People then enjoy working in the organization because it adds to their zeal and energy.
f. To suggest improvement in formulation & implementation of place.
g. They can be encouraged with the help of monetary & non-monetary incentives.
5. Fair Remuneration
a. The quantum and method of remuneration to be paid to the workers should be fair, reasonable, satisfactory &
rewarding of the efforts.
b. As far as possible it should accord satisfaction to both employer and the employees.
c. Wages should be determined on the basis of cost of living, work assigned, financial position of the business,
wage rate prevailing etc.
d. Logical & appropriate wage rates and methods of their payment reduce tension & differences between
workers & management creates harmonious relationship and pleasing atmosphere of work.
e. Fayol also recommended provision of other benefits such as free education, medical & residential facilities to
workers.
6. Stability of Tenure
a. Fayol emphasized that employees should not be moved frequently from one job position to another i.e. the
period of service in a job should be fixed.
b. Therefore employees should be appointed after keeping in view principles of recruitment & selection but
once they are appointed their services should be served.
c. According to Fayol. “Time is required for an employee to get used to a new work & succeed to doing it well
but if he is removed before that he will not be able to render worthwhile services”.
d. As a result, the time, effort and money spent on training the worker will go waste.
e. Stability of job creates team spirit and a sense of belongingness among workers which ultimately increase the
quality as well as quantity of work.
7. Scalar Chain
a. Fayol defines scalar chain as “the chain of superiors ranging from the ultimate authority to the lowest”.
b. Every orders, instructions, messages, requests, explanation etc. has to pass through Scalar chain.
c. But, for the sake of convenience & urgency, this path can be cut shirt and this short cut is known as Gang
Plank.
d. A Gang Plank is a temporary arrangement between two different points to facilitate quick & easy
communication as explained below:

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 In the figure given, if D has to communicate with G he will first send the communication upwards with the
help of C, B to A and then downwards with the help of E and F to G which will take quite some time and by
that time, it may not be worth therefore a gang plank has been developed between the two.
e. Gang Plank clarifies that management principles are not rigid rather they are very flexible. They can be
moulded and modified as per the requirements of situations
8. Sub-Ordination of Individual Interest to General Interest
a. An organization is much bigger than the individual it constitutes therefore interest of the undertaking should
prevail in all circumstances.
b. As far as possible, reconciliation should be achieved between individual and group interests.
c. But in case of conflict, individual must sacrifice for bigger interests.
9. Espirit De’ Corps (can be achieved through unity of command)
a. It refers to team spirit i.e. harmony in the work groups and mutual understanding among the members.
b. Spirit De’ Corps inspires workers to work harder.
c. Fayol cautioned the managers against dividing the employees into competing groups because it might
damage the moral of the workers and interest of the undertaking in the long run.
d. To inculcate Espirit De’ Corps following steps should be undertaken -
1.There should be proper co-ordination of work at all levels
2.Subordinates should be encouraged to develop informal relations among themselves.
3.Efforts should be made to create enthusiasm and keenness among subordinates so that they can work to the
maximum ability.
4.Efficient employees should be rewarded and those who are not up to the mark should be given a chance to
improve their performance.
5.Subordinates should be made conscious of that whatever they are doing is of great importance to the
business & society.

10. Centralization & De-Centralization

a. Centralization means concentration of authority at the top level. In other words, centralization is a situation in
which top management retains most of the decision making authority.
b. Decentralization means disposal of decision making authority to all the levels of the organization. In other
words, sharing authority downwards is decentralization.
c. According to Fayol, “Degree of centralization or decentralization depends on no. of factors like size of
business, experience of superiors, dependability & ability of subordinates etc.
d. Anything which increases the role of subordinate is decentralization & anything which decreases it is
centralization.
e. Fayol suggested that absolute centralization or decentralization is not feasible. An organization should strike
to achieve a lot between the two.

Q2. Trace the historic evaluation of management theory and practice.

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A. Following is a general description of each of these management theories together with observations on the environment in
which these theories were applied and the successes that they achieved.
Frederick Taylor - Scientific Management
Description
Frederick Taylor, with his theories of Scientific Management, started the era of modern management. In the late nineteenth
and early twentieth century’s, Frederick Taylor was decrying the “awkward, inefficient, or ill-directed movements of men" as a
national loss. He advocated a change from the old system of personal management to a new system of scientific management.
Under personal management, a captain of industry was expected to be personally brilliant. Taylor claimed that a group of
ordinary men, following a scientific method would outperform the older "personally brilliant" captains of industry.
Taylor consistently sought to overthrow management "by rule of thumb" and replace it with actual timed observations leading
to "the one best" practice. Following this philosophy he also advocated the systematic training of workers in "the one best
practice" rather than allowing them personal discretion in their tasks. He believed that " a spirit of hearty cooperation" would
develop between workers and management and that cooperation would ensure that the workers would follow the "one best
practice." Under these philosophies Taylor further believed that the workload would be evenly shared between the workers
and management with management performing the science and instruction and the workers performing the labor, each group
doing "the work for which it was best suited."
Taylor's strongest positive legacy was the concept of breaking a complex task down in to a number of small subtasks, and
optimizing the performance of the subtasks. This positive legacy leads to the stop-watch measured time trials which in turn lead
to Taylor's strongest negative legacy. Many critics, both historical and contemporary have pointed out that Taylor's theories tend
to "dehumanize" the workers. To modern readers, he stands convicted by his own words:
“… in almost all of the mechanic arts, the science which underlies each act of each workman is so great and amounts to so much
that the workman who is best suited to actually doing the work is incapable of fully understanding this science, without the
guidance and help of those who are working with him or over him, either through lack of education or through insufficient mental
capacity."
And:
"To work according to scientific laws, the management must takeover and perform much of the work which is now left to the
men; almost every act of the workman should be preceded by one or more preparatory acts of the management which enable him
to do his work better and quicker than he otherwise could."
Environment
Taylor's work was strongly influenced by his social/historical period. His lifetime (1856-1915) was during the Industrial
Revolution. The overall industrial environment of this period is well documented by the Dickens’s classic Hard Times or
Sinclar’s The Jungle. Autocratic management was the norm. The manufacturing community had the idea of interchangeable parts
for almost a century. The sciences of physics and chemistry were bringing forth new miracles on a monthly basis.
One can see Taylor turning to "science" as a solution to the inefficiencies and injustices of the period. His idea of breaking a
complex task into a sequence of simple subtasks closely mirrors the interchangeable parts ideas pioneered by Eli Whitney earlier
in the century. Furthermore, the concepts of training the workers and developing "a hearty cooperation" represented a significant
improvement over the feudal human relations of the time.
Successes
Scientific management met with significant success. Taylor's personal work included papers on the science of cutting metal, coal
shovel design, worker incentive schemes and a piece rate system for shop management. Scientific management's organizational
influences can be seen in the development of the fields of industrial engineering, personnel, and quality control.
From an economic standpoint, Taylorism was an extreme success. Application of his methods yielded significant improvements
in productivity. Improvements such as Taylor's shovel work at Bethlehem Steel Works (reducing the workers needed to shovel
from 500 to 140) were typical.
Human Relations Movement - Hawthorne Works Experiments
Description
If Taylor believed that science dictated that the highest productivity was found in "the one best way" and that way could be
obtained by controlled experiment, Elton Mayo's experiences in the Hawthorne Works Experiments disproved those beliefs
to the same extent that Michelson's experiments in 1926 disproved the existence of "ether." (And with results as startling as
Rutherford's.)
The Hawthorne Studies started in the early 1920's as an attempt to determine the effects of lighting on worker productivity. When
those experiments showed no clear correlation between light level and productivity the experiments then started looking at other
factors. Working with a group of women, the experimenters made a number of changes, rest breaks, no rest breaks, free meals,

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no free meals, more hours in the work-day / work-week, fewer hours in the work-day / work-week. Their productivity went up at
each change. Finally the women were put back to their original hours and conditions, and they set a productivity record.
This strongly disproved Taylor's beliefs in three ways. First, the experimenters determined that the women had become a team
and that the social dynamics of the team were a stronger force on productivity than doing things "the one best way." Second,
the women would vary their work methods to avoid boredom without harming overall productivity. Finally the group was not
strongly supervised by management, but instead had a great deal of freedom.
These results made it clear that the group dynamics and social makeup of an organization were an extremely important force
either for or against higher productivity. This caused the call for greater participation for the workers, greater trust and openness
in the working environment and a greater attention to teams and groups in the work place.
Environment
The human relations movement that stemmed from Mayo's Hawthorne Works Experiments was borne in a time of significant
change. The Newtonian science that supported "the one best way" of doing things was being strongly challenged by the "new
physics" results of Michelson, Rutherford and Einstein. Suddenly, even in the realm of "hard science" uncertainty and variation
had found a place. In the work place there were strong pressures for shorter hours and employee stock ownership. As the effects
of the 1929 stock market crash and following depression were felt, employee unions started to form.
Successes
While Taylor's impacts were the establishment of the industrial engineering, quality control and personnel departments, the
human relations movement's greatest impact came in what the organization's leadership and personnel department were doing.
The seemingly new concepts of "group dynamics", "teamwork" and organizational "social systems" all stem from Mayo's work
in the mid-1920.
Max Weber - Bureaucracy
Description
At roughly the same time, Max Weber was attempting to do for sociology what Taylor had done for industrial operations. Weber
postulated that western civilization was shifting from "wert rational" (or value oriented) thinking, affective action (action derived
from emotions), and traditional action (action derived from past precedent to "zweckational" (or technocratic) thinking. He
believed that civilization was changing to seek technically optimal results at the expense of emotional or humanistic content.
Viewing the growth of large-scale organizations of all types during the late nineteenth and early twentieth century, Weber
developed a set of principles for an "ideal" bureaucracy. These principles included: fixed and official jurisdictional areas, a
firmly ordered hierarchy of super and subordination, management based on written records, thorough and expert training, official
activity taking priority over other activities and that management of a given organization follows stable, knowable rules. The
bureaucracy was envisioned as a large machine for attaining its goals in the most efficient manner possible.
Weber did not advocate bureaucracy; indeed, his writings show a strong caution for its excesses:
"…the more fully realized, the more bureaucracy "depersonalizes" itself, i.e., the more completely it succeeds in achieving the
exclusion of love, hatred, and every purely personal, especially irrational and incalculable, feeling from the execution of official
tasks"
Or:
"By it the performance of each individual worker is mathematically measured, each man becomes a little cog in the machine and
aware of this, his one preoccupation is whether he can become a bigger cog."
Environment
Weber, as an economist and social historian, saw his environment transitioning from older emotion and tradition driven values to
technological ones. It is unclear if he saw the tremendous growth in government, military and industrial size and complexity as a
result of the efficiencies of bureaucracy, or their growth driving those organizations to bureaucracy.
Successes
While Weber was fundamentally an observer rather than a designer, it is clear that his predictions have come true. His principles
of an ideal bureaucracy still ring true today and many of the evils of today's bureaucracies come from their deviating from those
ideal principles. Unfortunately, Weber was also successful in predicting that bureaucracies would have extreme difficulties
dealing with individual cases.
It would have been fascinating to see how Weber would have integrated Mayo's results into his theories. It is probable that he
would have seen the "group dynamics" as "noise" in the system, limiting the bureaucracy's potential for both efficiency and
inhumanity.
Henri Fayol - Administration
Description

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With two exceptions, Henri Fayol’s theories of administration dovetail nicely into the bureaucratic superstructure described by
Weber. Henri Fayol focuses on the personal duties of management at a much more granular level than Weber did. While Weber
laid out principles for an ideal bureaucratic organization Fayol’s work is more directed at the management layer.
Fayol believed that management had five principle roles: to forecast and plan, to organize, to command, to co-ordinate and
to control. Forecasting and planning was the act of anticipating the future and acting accordingly. Organization was the
development of the institution's resources, both material and human. Commanding was keeping the institution’s actions and
processes running. Co-ordination was the alignment and harmonization of the groups’ efforts. Finally, control meant that the
above activities were performed in accordance with appropriate rules and procedures.
Fayol developed fourteen principles of administration to go along with management’s five primary roles. These principles are
enumerated below:
1.Specialization/division of labor
2.Authority with responsibility
3.Discipline
4.Unity of command
5.Unity of direction
6.Subordination of individual interest to the general interest
7.Remuneration of staff
8.Centralization
9.Scalar chain/line of authority
10.Order
11.Equity
12.Stability of tenure
13.Initiative
14.Esprit de corps
The final two principles, initiative and esprit de corps, show a difference between Fayol’s concept of an ideal organization and
Weber’s. Weber predicted a completely impersonal organization with little human level interaction between its members. Fayol
clearly believed personal effort and team dynamics were part of a "ideal" organization.
Environment
Fayol was a successful mining engineer and senior executive prior to publishing his principles of "administrative science."
It is not clear from the literature reviewed if Fayol’s work was precipitated or influenced by Taylor’s. From the timing, 1911
publication of Taylor’s "The Principles of Scientific Management" to Fayol’s work in 1916, it is possible. Fayol was not
primarily a theorist, but rather a successful senior manager who sought to bring order to his personal experiences.
Successes
Fayol’s five principle roles of management are still actively practiced today. The author has found "Plan, Organize, Command,
Co-ordinate and Control" written on one than one manager’s whiteboard during his career. The concept of giving appropriate
authority with responsibility is also widely commented on (if not well practiced.) Unfortunately his principles of "unity of
command" and "unity of direction" are consistently violated in "matrix management" the structure of choice for many of today’s
companies.
Conclusion
It is clear that modern organizations are strongly influenced by the theories of Taylor, Mayo, Weber and Fayol. Their precepts
have become such a strong part of modern management that it is difficult to believe that these concepts were original and new at
some point in history. The modern idea that these concepts are "common sense" is strong tribute to these founders.

Q3. Is Management an Art or a Science – Explain.

A. Management is taking inputs, transforming them into output – either a good or service; the effectiveness of this
transforming the input to output depends on the management – especially when the resources are scarce; it’s a group activity;
motivating others and getting the things done within the stipulated time, without compromising on the quality of the result;
it gives shape and color to the great ideas of the manager; management involves dealing with people who have different
understanding,sensitivity,knowledge,capability,responsibility,maturity.

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Science is a collection of systematic knowledge, collection of truths and inferences after continuous study and experiments. The
relationship between variables and limits are defined and the fundamental principles discovered.
Science has got three specific characters:
1. It is a systematic and organized knowledge and based on scientific methods of observation.
2. Inferences are arrived after continuous observation and experiments.
3. It has logical principles which are well defined and are universally applicable without any limitations.
Management principles have also evolved and it is changing day by day according to the change in the human behavior; In
science keeping one factor as variable and all others as constants the same experiment is repeated many times in order to arrive at
a conclusion; but management involves human element and hence all the factors are wildly varying.
Art uses the known rules and principles and uses the skill, expertise, wisdom, experience to achieve the desired result. The
point is how to get the things done in the desired manner to get the desired result. New methods can be adopted from the past
experiences and incidents what to do and what not to do; Effective management is extracting voluntary cooperation from the
staff. So it is definitely an art and it can be acquired by only practicing the theoretical knowledge skillfully and prudently.
Management has got two faces like a coin; on one side it is art and on other it is science. Management has got scientific
principles which constitute the elements of science and skill and talent which are the attributes of art..
Management skills are acquired by constant practice as in the case of medicine, engineering and accountancy; Mere knowledge
of concepts will not fetch results; Understanding human behavior, tactfulness, vision and pragmatism, creativity, compassion
towards staff, team spirit are all needed by a successful manager for effective management. The art and science are not mutually
exclusive but complementary to each other. Therefore management is both a science and an art.

Q4. Explain the difference between leader and manager.

A. The differences between managers and leaders as follows:

1.The manager administers; the leader innovates.

2.The manager is a copy; the leader is an original.
3.The manager maintains; the leader develops.
4.The manager focuses on systems and structure; the leader focuses on people.
5.The manager relies on control; the leader inspires trust.
6.The manager accepts reality; the leader investigates it.
7.The manager has a short-range view; the leader has a long-range perspective.
8.The manager asks how and when; the leader asks what and why.
9.The manager has his or her eye always on the bottom line; the leader has his or her eye on the horizon.
10.The manager imitates; the leader originates.
11.The manager accepts the status quo; the leader challenges it.
12.The manager is the classic good soldier; the leader is his or her own person.
13.The manager does things right; the leader does the right thing.

Q5. What are the functions of Management?

A. The most widely accepted functions of management are given by KOONTZ and O’DONNEL i.e. Planning, Organizing,
Staffing, Directing and Controlling.
For theoretical purposes, it may be convenient to separate the function of management but practically these functions
are overlapping in nature i.e. they are highly inseparable. Each function blends into the other & each affects the performance of
others.

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1. Planning
It is the basic function of management. It deals with chalking out a future course of action & deciding in advance
the most appropriate course of actions for achievement of pre-determined goals. According to KOONTZ, “Planning
is deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are & where we
want to be”. A plan is a future course of actions. It is an exercise in problem solving & decision making. Planning
is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human & non-
human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties,
risks, wastages etc.

2. Organizing
It is the process of bringing together physical, financial and human resources and developing productive relationship
amongst them for achievement of organizational goals. According to Henry Fayol, “To organize a business is to
provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a
business involves determining & providing human and non-human resources to the organizational structure. Organizing
as a process involves:
a. Identification of activities.
b. Classification of grouping of activities.
c. Assignment of duties.
d. Delegation of authority and creation of responsibility.
e. Coordinating authority and responsibility relationships.
3. Staffing
It is the function of manning the organization structure and keeping it manned. Staffing has assumed greater importance
in the recent years due to advancement of technology, increase in size of business, complexity of human behavior
etc. The main purpose o staffing is to put right man on right job i.e. square pegs in square holes and round pegs in
round holes. According to Koontz & O’Donnell, “Managerial function of staffing involves manning the organization
structure through proper and effective selection, appraisal & development of personnel to fill the roles designed un the
structure”. Staffing involves:
a. Manpower Planning (estimating man power in terms of searching, choose the person and giving the right
place).
b. Recruitment, selection & placement.
c. Training & development.
d. Remuneration.

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 e. Performance appraisal.
f. Promotions & transfer.
4. Directing
It is that part of managerial function which actuates the organizational methods to work efficiently for achievement of
organizational purposes. It is considered life-spark of the enterprise which sets it in motion the action of people because
planning, organizing and staffing are the mere preparations for doing the work. Direction is that inert-personnel
aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for the
achievement of organizational goals. Direction has following elements:
a. Supervision
b. Motivation
c. Leadership
d. Communication
Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing work
& workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative,
monetary, non-monetary incentives may be used for this purpose.
Leadership- may be defined as a process by which manager guides and influences the work of subordinates in desired
direction.
Communications- is the process of passing information, experience, opinion etc from one person to another. It is a
bridge of understanding.
5. Controlling
It implies measurement of accomplishment against the standards and correction of deviation if any to ensure
achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities with
the standards. An efficient system of control helps to predict deviations before they actually occur. According to Theo
Haimann, “Controlling is the process of checking whether or not proper progress is being made towards the objectives
and goals and acting if necessary, to correct any deviation”. According to Koontz & O’Donnell “Controlling is the
measurement & correction of performance activities of subordinates in order to make sure that the enterprise objectives
and plans desired to obtain them as being accomplished”. Therefore controlling has following steps:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
d. Corrective action.