LESSON 1: THE FIELD OF ENGINEERING 5.

Manufacturing-where the engineer is

MANAGEMENT directly in charge of production personnel or
assumes responsibility for the product.
6. Construction - this is where the
Engineers are expected to perform a construction engineer (a civil engineer) is either
directly in charge of the construction personnel
variety of tasks depending on their
7. Sales - where the engineer assists the
specialization and job level.
company's customers to meet their needs,
THE FUNCTIONS OF THE ENGINEER especially those that require technical
expertise.
 Since prehistoric times, mankind has 8. Consulting - where the engineer works as
benefited from the various tools, consultant of any individual or organization
equipment, and projects developed by requiring his services.
engineers. Among these are the 5. Government-
following: where the engineer may find
1. the stone bladed axe which was a very employment in the government
useful tool; and the irrigation system performing any of the various tasks in
used to promote crop growing 6000 to regulating, monitoring, and controlling
3000 B.C.; the activities of various institutions,
2. the pyramids of Egypt 3000 to 600 B.C.;
public or private.
3. road building by the Romans-600 B.C.
to A.D. 400; 6. Teaching -
4. the production of paper and gunpowder where the engineer gets
by the Chinese 100 A.D. to 1600 A.D.; employment in a school and is assigned
5. the production of steam engine and the as a teacher of engineering courses.
spinning and weaving machinery 1601
A.D. to 1799 A.D.; and 7. Management -
6. the manufacture of cars and household where the engineer is assigned to
appliances modern times. manage groups of people performing
new or improvements of old ones, are very specific tasks.
much needed in the following specific
problem concerns:
THE ENGINEER IN VARIOUS TYPES OF

1. the production of more food for a 1. Level One -

fast-growing world population; those with minimal engineering
2. the elimination of air and water jobs like retailing firms.
pollution; 2. Level Two -
3. solid waste disposal and materials those with a moderate degree of
recycling; engineering jobs like transportation
4. the reduction of noise in various
companies.
forms;
5. supplying the increasing demand for 3. Level Three -
energy; those with a high degree of
6. supplying the increasing demand for engineering jobs like construction firms.
mobility;
7. preventing and solving crimes; and
8. meeting the increasing demand for
Types of Organization anf the Management
communication facilities.
THE FUNCTIONS OF ENGINEERING Skills Required of Engineers

1. Research- where the engineer is engaged

in the or
2. process of learning about nature and
codifying this knowledge into usable theories.
3. Design and development - where the
engineer undertakes the activity of turning a
product concept to a finished physical item.
4. Testing where the engineer works in a
unit where new products or parts are tested
for work- ability.
Management Skills Required at Various management must seek to find out the
Levels objectives of the organization, think of ways on
how to achieve them, decide on the ways to be
level one - head a small engineering
adapted and the material resources to be used,
unit of the firm,
deter- mine the human requirements of the
level two firms - head the engineering total job, assign specific tasks to specific
division. persons, motivate them, and provide means to
make sure that the activities are in the right
Level three firms- provide the biggest direction.
opportunity for an engineer to become the
president or general manager. In this case, the
engineer manager cannot function effectively
REQUIREMENTS FOR THE ENGINEER
without adequate management skill
MANAGER'S JOB
ENGINEERING MANAGEMENT
1. a bachelor's degree in engineering
*The activity combining “technical from a reputable school
knowledge with the ability to organize and 2. a few years experience in a pure
coordinate worker power, materials, engineering job;
machinery, and money” 3. training in supervision;

* His main responsibility is to lead his 4. special training in engineering

group into producing a certain output management.
consistent with the required specifications.
* the higher he goes up, the less
technical activities he performs, and the more
management task he accepts.

HOW ONE MAY BECOME A SUCCESSFUL

ENGINEER MANAGER
3 general preconditions for achieving lasting
success as a manager.
MANAGEMENT DEFINED
1. Ability
Managerial ability refers to the capacity
engineer manager is presumed to be of an engineer manager to achieve
technically competent in his specialization. organizational objectives effectively and
efficiently.
* Effectiveness - refers to a description of
MANAGEMENT defined as the "creative "whether objectives are accomplished"
problem solving-process of planning,
organizing, leading, and controlling an *Efficiency - description of the relative amount
organization's resources to achieve its mission of resources used in obtaining effectiveness."
and objectives."
- is a process consisting of planning, 2. Motivation to Manage, and
organizing, directing (or leading), and John B. Miner, developed a
controlling. psychometric instrument to measure
objectively an individual's motivation to
manage. The test is anchored to the following
THE PROCESS OF MANAGEMENT dimensions:
1. Favorable attitude toward those in
positions of authority, such as superiors.
 2. Desire to engage in games or sports
competition with peers.
3. Desire to engage in occupational
4. Desire to assert oneself and take
charge.
5. Desire to exercise power and
authority over others.
6.Desire to behave in a distinctive way
7. Sense of responsibility

3. Opportunity.
The opportunity for successful management
has two requirements:
1. Obtaining a suitable managerial job,
and
2. Finding a supportive climate once on
the job.

A supportive climate is characterized by

the recognition of managerial talent through
financial and non financial rewards.

SUMMARY

Management is concerned with

planning, organizing, leading, and controlling
an organization's resources to achieve its
mission and objectives.
One may become a successful engineer
manager if the preconditions of ability,
motivation to manage, and opportunity to
manage are met.

LESSON 2 : DECISION MAKING

Managers of all kinds and types, including the
engineer manager, are primarily tasked to
provide leadership in the quest for the
attainment of the organization's objectives. If
he is to become effective, he must learn the What is a Problem? A problem exists
intricacies of decision-making. when there is a difference between an actual
situation and a desired situation.
The engineer manager's decision-
making skills will be very crucial to his success
as a professional.
Analyze the Environment
Good decisions, on the other hand, will
The identification of constraints, which
provide the right environment for continuous
may be spelled out as either internal or
growth and success of any organized effort.
external limitations.

DECISION-MAKING AS A MANAGEMENT
Example of internal limitations are as follows:
RESPONSIBILITY
1. Limited funds available for the
. The higher the management level is,
purchase of equipment.
the bigger and the more complicated decision-
making becomes. 2. Limited training on the part of
employees. 3. Ill-designed facilities.
The production manager must now
make a decision. His choice, however, must 3. Strict enforcement of local zoning
be based on sound arguments for he will be regulations.
held responsible, later on, if he had made the
wrong choice.
Examples of external limitations are as follows:
1. Patents are controlled by other
DECISION-MAKING
organizations.
defined as "the process of identifying 2. Avery limited market for the
and choosing alternative courses of action in a company's products and services exists.
manner appropriate to the demands of the
3. Strict enforcement of local zoning
situation."
regulations.

DECISION-MAKING PROCESS
Components of the Environment. The
according to David H. Holt, is a process environment consists of two major concerns:
involving the following steps:
1. internal
1. diagnose. problem The internal environment refers to
organizational activities within a firm that
2. analyze environment surrounds decision-making."
3. articulate problem or opportunity 2. external.
4. develop viable alternatives The external environment refers to
5. evaluate alternatives variables that are outside the organization and
not typically within the short-run control of top
6. make a choice management.
7. implement decision
8. evaluate and adapt decision results Develop Viable Alternatives
The best among the alternative
Diagnose Problem solutions must be considered by management.
This is made possible by using a procedure
An expert once said. "identification of with the following steps:
the problem is tantamount to having the
problem half-solved."
1. Prepare a list of alternative solutions.
 2. Determine the viability of each
solutions.
Make a Choice
3. Revise the list by striking out those
Choice-making refers to the process of
which are not viable.
selecting among alternatives representing
potential solutions to a problem. At this point,
Webber advises that"... particular effort should
be made to identify all significant
consequences of each choice."

Implement Decision
Implementation refers to carrying out the
decision so that the objectives sought will be
achieved. To make implementation effective, a
plan must be devised.

Evaluate and Adapt Decision Results

important for the manager to use control
and feedback mechanisms to ensure results
and to provide information for future decisions.
Feedback
refers to the process which
The list of solutions prepared by the requires checking at each stage of the
engineering manager shows the following process to assure that the alternatives
alternative courses of generated, the criteria used in
action: evaluation, and the solution selected for
implementation are in keep- ing with the
1. improve the capacity of the firm by goals and objectives
hiring more workers and building additional
facilities;
2. secure the services of subcontractors; Control

3. buy the needed additional output from refers to actions made to ensure
another firm; that activi- ties performed match the
desired activities or goals, that have
4. stop serving some of the company's been set.
customers; and
5. delay servicing some clients.
APPROACHES IN SOLVING PROBLEMS

following approaches:
Evaluate Alternatives
1. qualitative evaluation, and
Proper evaluation makes choosing the
right solution less difficult. 2. quantitative evaluation.

How the alternatives will be evaluated

will depend on the nature of the problem, the 1. Qualitative Evaluation.
objectives of the firm, and the nature of evaluation of alternatives using intuition
alternatives presented. Souder suggests that and subjective judgment. Stevenson states
"each alternative must be analyzed and that managers tend to use the qualitative
evaluated in terms of its value, cost, and risk approach when:
characteristics."
1. The problem is fairly simple.
 2. The problem is familiar. at one time to minimize the total yearly
cost of placing orders and carrying the
3. The costs involved are not
items in inventory.17
great. / low cost 4. Immediate
decisions are needed.
1.2. Production order quantity model
-
2. Quantitative Evaluation.
Refers to the evaluation of alternatives this is an economic order quantity
using any technique in a group classified as technique applied to production orders.
rational and analytical.

1.3. Back order inventory model

this is an inventory model used
for planned shortages. 4. Quantity
discount model - an inventory model
used to minimize the total cost when
quantity discounts are offered by
suppliers.

2. Queuing Theory
one that describes how to determine
the number of service units that will minimize
both customer waiting time and cost of service

QUANTITATIVE MODELS FOR DECISION

3. Network Models
MAKING where large complex tasks are broken
into smaller segments that can be managed
independently.
The types of quantitative techniques
which may be useful in decision-making are as The two most prominent network models are:
follows: 3.1. The Program Evaluation Review
1. inventory models Technique (PERT)
2. queuing theory - a technique which enables
engineer managers to schedule,
3. network models monitor, and control large and complex
4. forecasting projects by employing three time
estimates for each activity.
5. regression analysis
6. simulation
3.2. The Critical Path Method (CPM)-
7.linear programming this is a net- work technique
using only one time factor per activity
8. sampling theory
that enables engineer managers to
9. statistical decision theory schedule, monitor, and control large and
complex projects.

4. Forecasting
Forecasting may be defined as "the
collection of past and current information to
make predictions about the future.
1. Inventory Models
1.1 Economic order quantity model
-this one is used to calculate the
5. Regression Analysis
number of items that should be ordered
 is a forecasting method that examines probabilities to the various events, the
the association between two or more variables. use of probabilistic decision rule,
It uses data from previous periods to predict
SUMMARY
future events
simple regression -
Decision-making is a very important
When one independent variable
function of the engineer manager. His
is involved.
organization will rise or fall depending on the
multiple regression outcomes of his decisions. It is, therefore,
necessary for the engineer manager to develop
when two or more independent
some skills in decision-making.
variables are involved.

6. Simulation
constructed to represent reality, on
which conclusions about real-life problems can
be used. It is a highly sophisticated tool by
means of which the decision maker develops a
mathematical model of the system under
consideration.
it can evaluate the alternatives fed into
the process by the decision-maker.

7.Linear Programming
a quantitative technique that is used to
produce an optimum solution within the bounds
imposed by constraints upon the decision.

8.Sampling Theory
technique where samples of populations
are statistically determined to be used for a
number of processes, such as quality control
and marketing research.
Sampling, in effect, saves time and
money.

9.Statistical Decision-Theory
Decision theory refers to the "rational
way to conceptualize, analyze, and solve
problems in situations involving limited, or
partial information about the decision
environment."
The purpose of Bayesian analysis is to
revise and update the initial assessments of
the event probabilities generated by the
alternative solutions. This is achieved by the
use of additional information.
Bayes criterion- When the
decision-maker is able to assign
LESSON 3: PLANNING TECHNICAL Strategic Planning
ACTIVITIES
* refers to the process of determining
the major goals of the organization and the
policies and strategies for obtaining and using
THE NATURE OF PLANNING
resources to achieve those goals. The top
management of any firm is involved in this type
of planning.
A plan, which is the output of planning,
provides a methodical way of achieving desired * its objectives and current resources.
results. In the implementation of activities, the
*"the decision about long-range goals
plan serves as a useful guide.
and the course of action to achieve these
goals."
PLANNING DEFINED
Planning, according to Nickels and Intermediate Planning
others, refers to "the management function that
refers to "the process of deter- mining
involves anticipating future trends and
the contributions that sub units can make with
determining the best strategies and tactics to
allocated resources."
achieve organizational objectives."
Aldag and Stearns,
planning as "the selection and
sequential ordering of tasks required to
achieve an organizational goal." This
definition centers on the activity required
to accomplish the goals.

Cole and Hamilton

is "deciding what will be done,
who will do it, where, when and how it
will be done, and the standards to which
it will be done."

planning as selecting the best course

of action so that the desired result may be
achieved. It must be stressed that the desired
result takes first priority and the course of
action chosen is the means to realize the goal. Operational Planning
refers to "the process of determining
how specific tasks can best be accomplished
PLANNING AT VARIOUS MANAGEMENT
on time with available resources." This type of
LEVELS
planning is a responsibility of lower
Planning activities undertaken at various levels management
are as follows:

THE PLANNING PROCESS

1. Top management level strategic
planning involves the following:
planning
2. Middle management level - 1. setting organizational, divisional, or unit
intermediate planning goals
2. developing strategies or tactics to
3. Lower management level-
reach those goals
operational planning.
3. determining resources needed and
 4. setting standards. analyzes financial needs, and
recommends a direction for financial
activities
Setting Organizational, Divisional, or Unit
Goals
Plans With Time Horizon
Goals
1. Short-range plans
"precise statement of results these are plans intended to
sought, quantified in time and cover a period of less than one year.
magnitude, where possible." First-line supervisors are mostly
concerned with these plans.

Developing Strategies or Tactics to Reach

Goals. 2. Long-range plans
strategies these are plans covering a time
span of more than one year. These are
*The ways to realize the goals mostly undertaken by middle and top
are called management.
*Defined as "a course of action
aimed at ensuring that the organization
will achieve its objectives." Plans According to Frequency of Use

tactic 1. Standing Plans

These are plans that are used again and
is a short-term action taken by again, and they focus on managerial situations
management to adjust to negative that recur repeatedly.
internal or external influences.
Determining Resources Needed
Standing plans may be further classified as
Setting Standards follows:
Standard 1.1. Policies
they are broad guidelines to aid
defined as "a quantitative or
managers at every level in making
qualitative measuring device designed
decisions about recurring situations or
to help monitor the performances of
function.
people, capital goods, or processes."
1.2. Procedures
TYPES OF PLANS
they are plans that describe the
Functional Area Plans exact series of actions to be taken in a
given situation.
1. Marketing plan-
this is the written document or
blueprint for implementing and
1.3. Rules
controlling an organization's
they are statements that either
marketing activities related to a
require or forbid a certain action.
particular marketing strategy.
2. Single-use Plans.
These plans are specifically deve- loped
2. Production plan
to implement courses of action that are
this is a written document that
relatively unique and are unlikely to be
states the quantity of output a company
repeated.
must produce in broad terms and by
product family

Single-use plans may be further classified as

follows:
3. Financial plan
it is a document that summarizes 2.1. Budgets
the current financial situation of the firm, Weston and Brigham
 is "a plan which sets forth 5. A set of pro forma (or projected)
the projected expenditure for a financial statements
certain activity and explains
6. The external financing plan
where the required funds. will
come from
2.2. Programs Contents of the Human Resources Plan
is a single-use plan designed to
coordinate a large set of activities. The human resources plan must contain the
following:
2.3.Projects.
single-use plan that is usually
more limited in scope than a program and 1.personnel requirements of the
is sometimes prepared to support a program. company

PARTS OF THE VARIOUS FUNCTIONAL 2. plans for recruitment and selection

AREA PLANS 3.training plan
The Contents of the Marketing Plan 4. retirement plan
William Cohen maintains that the
following must be included in the marketing
plan: PARTS OF THE STRATEGIC PLAN

1. The Executive Summary

which presents an overall view of The strategic plan must contain the following:
the marketing project and its
potential. 1. Company or corporate mission.

2. Table of Contents 2. Objectives or goals

3. Situational Analysis and Target 3.Strategies

Market
4. Marketing Objectives and Goals
Company of corporate mission refers to
5. Marketing Strategies the "strategic statement that identifies why an
organization exists, its philosophy of
6. Marketing Tactics management, and its purpose as distinguished
7. Schedules and Budgets from other similar organizations in terms of
products, services, and markets."
8. Financial Data and Control
The Contents of the Production Plan
MAKING PLANNING EFFECTIVE
1.the amount of capacity the company
must have
2. how many employees are required Planning is done so that some desired
results may be achieved. At times, however,
3.how much material must be failure in planning occurs.
purchased
The Contents of the Financial Plan
Planning may be made successful if the
The components of the financial plan following are observed:
1. An analysis of the firm's current 1. recognize the planning barriers
financial condition as indicated by an analysis
of the most recent statements 2. use of aids to planning

2. A sales forecast
3. The capital budget The planning barriers, according to Plunkett
and Attner, are as follows:
4. The cash budget
1. manager's inability to plan
 2. improper planning process
3. lack of commitment to the planning
process
4. improper information
5. focusing on the present at the
expense of the future
6. too much reliance on the planning
department
7. concentrating on only the controllable
variables

Among the aids to planning that may be used

are:

1.Gather as much information as

possible
2. Develop multiple sources of
information 3. Involve others in the planning
process
SUMMARY
Technical activities, like other activities,
require effective planning, i.e., if objectives and
goals are to be realized.

A plan is a methodological way of

achieving results. Planning is undertaken at
various management levels.
 the grouping of related jobs,
activities, or processes into major
organizational sub units.
LESSON 4: ORGANIZING TECHNICAL
4. Span of control
ACTIVITIES the number of people who report
REASONS FOR ORGANIZING directly to a given manager.

In turn, these will help facilitate the

assignment of authority, responsibility, and 5. Coordination
accountability for certain functions and tasks. the linking of activities in the
ORGANIZING DEFINED organization that serves to achieve a
common goal or objective.
Organizing
THE FORMAL ORGANIZATION
is a management function which refers
to "the structuring of resources and activities to The formal organization is "the structure
accomplish objectives in an efficient and that details lines of responsibilities, authority,
effective manner." and position.

Structure Formal organizations require the

formation of formal groups which will be
The arrangement or relationship of assigned to perform specific tasks aimed at
positions within an organization achieving organizational objectives. The formal
The result of the organizing process is group is a part of the organization structure.
the structure. The formal structure is described by
THE PURPOSE OF THE STRUCTURE management through:

The structure serves some very useful 1. Organization Chart

purposes. They are the following: is a diagram of the organization's
official positions and formal lines of
1. It defines the relationships between tasks authority.
and authority for individuals and
departments. 2. Organizational Manual
2. It defines formal reporting provides written descriptions of
relationships, the number of levels in the authority relationships, details the
hierarchy of the organization, and the span of functions of major organizational units,
control. and describes job procedures.

3. It defines the groupings of individuals 3. Policy Manuals.

into departments and departments into describes personnel activities
organization. and company policies.
4.It defines the system to effect INFORMAL GROUPS
coordination of effort in both vertical (authority)
and horizontal (tasks) directions." Informal Organization
useful as it is, is "vulnerable to
expediency, manipulation, and opportunism,"
When structuring an organization, the according to Valentine.
engineer manager must be concerned with
the following: TYPES OF ORGANIZATIONAL
STRUCTURES
1. Division of labor-
determining the scope of work Organizations may be classified into three
and how it is combined in a job. types. They are the following:

2. Delegation of authority- 1. Functional organization

the process of assigning various
this is a form of
degrees of decision-making authority to
departmentalization in which everyone
subordinates.
engaged in one functional activity, such
3. Departmentation
 as engineering or marketing, is grouped organization, produce routine, nonmotivating
into one unit. employee tasks.
3. Product or market organization 4. It is difficult to identify which section
this refers to the organization of a or group is responsible for certain problems.
company by divisions that brings
together all those involved with a certain 5. There is limited view of organizational
type of product or customer. goals by employees.
6. There is limited general management
training for employees.
4. Matrix organization
an organizational structure in
which each employee reports to both a Product or Market Organization
functional or division manager and to a
project or group manager. is "appropriate for a large corporation
with many product lines in several related
industries.
Functional Organization
are very effective in smaller firms, The advantages of a product or market
especially "single-business firms where key organization are as follows:
activities revolve around well-defined skills and
areas of specialization."
Functional organizations have certain 1. The organization is flexible and
advantages. They are the following: responsive to change.

1. The grouping of employees who 2. The organization provides a high

perform a common task permit economies of concern for customer's needs.
scale and efficient 3. The organization provides excellent
resource use. coordina- tion across functional departments.

1. Since the chain of command 4. There is easy pinpointing of

converges at the top of the responsibility for product problems.
organization, decision-making is
5. There is emphasis on overall product
centralized, providing a unified
and division goals.
direction from the top.
2. Communication and coordination 6. The opportunity for the development
among employees within each of general management skills is provided.
department are excellent.
4. The structure promotes high-quality
technical problem-solving.
The disadvantages of the product or market
5. The organization is provided with in organi- zation are as follows:
depth skill specialization and development.
6. Employees are provided with career
1. There is a high possibility of
progress within functional departments."
duplication of resources across divisions.
2. There is less technical depth and
The disadvantages of the functional specialization in divisions.
organization are the following:
3. There is poor coordination across
1. Communication and coordination divisions.
between the departments are often poor.
4. There is less top management
2. Decisions involving more than one control.
department pile up at the top management
5. There is competition for corporate
level and are often delayed.
resources.
3. Work specialization and division of
Matrix Organization
labor, which are stressed in a functional
 Thompson and Strickland, ongoing basis. An example is the
grievance committee set up to handle
Matrix org. "is a structure with two (or
initially complaints from employees of
more) channels of command, two lines of
the organization.
budget authority, and two sources of
performance and reward.
Higgins
declared that "the matrix structure was
designed to keep employees in a central pool
and to allocate them to various projects in the
firm according to the length of time they were
needed.
TYPES OF AUTHORITY
1. Line authority
a manager's right to tell subordinates
what to do and then see that they do it.
2. Staff authority
a staff specialist's right to give advice to
a superior.
Staff officers may be classified into the
following:
2.1. Personal staff
those individuals assigned-to a
specific manager to provide needed
staff services.

2.2. Specialized staff

those individuals providing
needed staff services for the whole
organization.
3. Functional authority
a specialist's right to oversee lower
level personnel involved in that specialty,
regardless of where the personnel are in the
organization.
THE PURPOSE OF COMMITTEES
committee
Is a formal group of persons formed for
a specific purpose. For instance, the product
planning committee,
Committees may be classified as follows:
1. Ad hoc committee-
one created for a short-term
purpose and have a limited life. An
example is the committee created to
manage the anniversary festivities of a
certain firm.
2. Standing committee
it is a relatively permanent
committee that deals with issues on an
 a system of regression
equations estimated from past
time-series data and used to
show the effect of various
independent variables on various
dependent variables.
LESSON 5: STAFFING THE ENGINEERING c) leading indicators - refers to
ORGANIZATION time series that anticipate business
WHAT IS STAFFING? cycle turns.

Staffing 3. Monitoring methods

may be defined as "the management are those that provide early

function that determines human resource warning signals of significant changes in
needs, recruits, selects, trains, and develops established patterns and relationships
human resources for jobs created by an so that the engineer manager can
organization. assess the likely impact and plan
responses if required.
THE STAFFING PROCEDURE
2.Recruitment
The staffing process consists of the following
series of steps: refers to attracting qualified persons to
apply for vacant positions in the company so
1. Human Resource Planning that those who are best suited to serve the
- Human resource planning may involve three company may be selected.
activities, as follows:
Source of Applicants
1.1 Forecasting-
When management wants to fill up certain
which is an assessment of vacancies, the following sources may be
future human resource needs in tapped:
relation to the current capabilities
of the organization. 1. The organization's current employees.
2. Newspaper advertising.
1.2 Programming 3. Schools.
which means translating 4. Referrals from employees.
the forecasted human resource 5. Recruitment firms.
needs to personnel objectives
and goals. 6. Competitors

1.3 Evaluation and control - 3. Selection

which refers to monitoring refers to the act of choosing from those

human resource action plans and that are available the individuals most likely to
evaluating their success. succeed on the job

Methods of Forecasting. The purpose of selection is to evaluate

each candidate and to pick the most suited for
1. Time series methods the position available.
which use historical data to
develop forecasts of the future. Ways of Determining the Qualifications of a
Job Candidate
2. Explanatory, or causal models
which are attempts to identify the 1. Application blanks.
major variables that are related to or 2. References.
have caused particular past conditions 3. Interviews.
and then use current measures of these 4. Testing.
variables to predict future conditions. TYPES OF TESTS
The three major types of 1. Psychological tests -
explanatory models are as follows: which is "an objective, standard
measure of a sample behavior". It is classified
a) regression models
b) econometric models- into:
 a) aptitude test one used to measure a
per- son's capacity or potential ability to
learn.

4. induction and orientation

5. training and development
6. performance appraisal
7. employment decisions (monetary rewards,
transfers, promotions and demotions) and
8. separations.
 the idea to be conveyed must be useful
or of some value.
2. Encode – the next step is to encode the
idea into words, illustrations, figures, or
CHAPTER 6: COMMUNICATING other symbols suitable for transmission.
WHAT IS COMMUNICATION? The method of transmission should be
 Morris Philip Wolf and Shirley Kuiper determined in advance so that the idea
define communication as “a process of may be encoded to conform with the
sharing information through symbols, specific requirements of the identified
including words and message.” method.
 Communication may happen between 3. Transmit – after encoding, the message
superior and subordinate, between is now ready for the transmission
peers, between a manager and a client through the use of an appropriate
or customer, between and employee communication channel (like written,
and a government representative, etc. It television, telephone, radio, etc).
may be close to face-to-face, or through 4. Receive – the next step is the
printed materials, or through an communication process is the actual
electronics device like telephones, etc. receiving of the message by the
 In management, communication must intended receiver. The recruitment is for
be made for a purpose and because it the receiver to be ready to receive at the
has a cost attached to it, it must be used precise moment the message relayed at
effectively. the precise moment, the message
relayed by the sender.
FUNCTIONS OF COMMUNICATION
5. Decode – the next step, decoding
Communication may be used to serve and of means translating the message from the
the ff. functions: sender into a form that will have
1. Information function – information meaning to the recipient. If the receiver
provided through communication may knows the language anf terminology
be used for decision making at various used in the message, successful
work levels in an organization. (e.g.: a decoding may be achieved.
construction worker may be given 6. Accept – the next step is for the
instructions on the proper use of a receiver to accept or reject the
certain equipment. This will later provide message. Sometimes, acceptance (or
him with guide in deciding which rejection) is partial.
equipment to use in particular FACTORS THAT WILL AFFECT THE
circumstances.) ACCEPTANCE AND REJECTION OF A
2. Motivation function – communication is MESSAGE ARE AS FOLLOWS:
also often times used as a means to
 The accuracy of message
motivate employees to commit
themselves to the organization’s  Whether or not the sender has
objectives. the authority to send the
3. Control function – when properly message and/or require action;
communicated, reports, policies, and and
plans define roles, clarify duties,  The behavioral implications for
authorities and responsibilities. Effective the receiver.
control is, then, facilitated. 7. Use – the next step is for the receiver ot
4. Emotive function – when feelings are use the information. If the message
repressed in an organization, provides information of importance to a
employees are affected by anxiety, relevant activity, then the receiver could
which in turn, affects performance. store it and retrieve it when required. If
Whatever types of emotions are the message requires a certain action to
involved, whether satisfaction, be made, then he may do so, otherwise,
dissatisfaction, happiness, or bitterness, he discards it as soon as it is received.
communication provides means to 8. Provide feedback – the last step in the
decrease the internal pressure affecting communication process is for the
the individual. receiver to provide feedback to the
sender. Depending on the perception of
THE COMMUNICATION PROCESS
the receiver, however, this important
The communication process consists of step may not be made. Even if feedback
eight steps, which are as follows: is relayed, it may not reach the original
1. Develop an Idea – the most important sender of the message. This may be
step in effective communication is
developing an idea. It is important that
 attributed to the effects of any of the communicator’s characteristics as a
communication barriers. person, such as emotions, values, poor
listening habits, sex, age, race,
socioeconomic status, religion,
education, etc.

FACTORS THAT WILL AFFECT THE

Physical Barriers
ACCEPTANCE AND REJECTION OF A
MESSAGE ARE AS FOLLOWS: - Refer to interferences to effective
communication occurring in the
 The accuracy of message
environment where the communication
 Whether or not the sender has the
is undertaken.
authority to send the message and/or - Includes distances between people,
require action; and walls, a noisy jukebox near a telephone,
 The behavioral implications for the etc.
receiver. - A communication channel that is
FORMS OF COMMUNICATION overloaded may also prevent important
1. Verbal information to reach the intended user.
2. Nonverbal Another physical barrier to
communication is wrong timing. For
VERBAL COMMUNICATION instance, how may one expect a person
who has just lost a loved one to act on
 are those transmitted through hearing or
an inquiry from a fellow employee?
sight. These modes of transmission
categorize verbal communication into Semantic Barriers
two classes: oral and written. - Semantics is the study of meaning as
Oral communication – mostly involves hearing expressed in symbols. Words, pictures,
the words of the sender. Sometimes, it can be or actions are symbols that suggest
through seeing the sender’s body movements, certain meanings. When the wrong
facial expression, gestures, and eye contact. meaning has been chosen by the
receiver, misunderstanding occurs.
Written communication – the sender seeks to Such error constitutes a barrier to
communicate through the written word. It is communication. (e.g.: the words “wise
sometimes, preferred over the oral and “salvage” will have different
communication because of time and cost meanings to an English-speaking
constraints. foreigner than to an ordinary Filipino.
OVERCOMING BARRIERS TO
NONVERBAL COMMUNICATION COMMUNICATION
Nonverbal communication is a means of - When communication barriers threaten
conveying message through body effective performance, certain measures
language, as well as the use of time, must be instituted to eliminate them. To
space, touch, clothing, appearance, and eliminate problems, the ff. is
aesthetic elements. recommended:
Body language – consists gestures, bodily 1. Use feedback to facilitate
movement, posture, facial expression, and understanding and increase the
mannerisms of all kinds. potential for appropriate action.
2. Repeat messages in order to
provide assurance that they are
THE BARRIERS TO COMMUNICATION
properly received.
Various factors may impede the efficient 3. Use multiple channels so that the
flow of communication. Any, or all, of these accuracy of the of the information
factors may, at any point, derail the process. may be enhanced
Even if the message is transmitted by the 4. Use simplified language that is
channel, the timing and the meaning of the easily understandable and which
message may be affected by the factors. eliminates the possibility of
Classification of Communication Barriers people getting mixed-up with
1. Personal Barriers meanings.
2. Physical Barriers TECHNIQUES FOR COMMUNICATING IN
3. Semantic Barriers ORGANIZATIONS
Personal Barriers - Communication may be classified as to
- Are hindrances to effective the types of flow of the message which
communication arising from a are as follows: downward, upward, or
 horizontal. Each types of message flow  Holley and Jennings define
have its own purposes and techniques. grievance as “any employee’s
concern over a perceived violation of
the labor agreement that is
submitted to the grievance
procedure for eventual resolution”
Grievance represent an open
upward communication channel
Downward Communication whereby employees can offer
suggestions to management.
- Refers to message flows from higher
levels of authority to lower levels. Employee Attitude and Opinion Surveys
Among the purposes of downward - Finding out what employees think about
communications are: the company is very important. The
1. To give instructions exercise, however, requires expertise
2. To provide information about policies and the company may not be prepared
and procedures. to do it. If the organization is large
3. To give feedback about performance enough to justify such activity, then it
4. To indoctrinate or motivate must be done. If the assistance of an
- Techniques used are letters, meetings, outside research firm is considered, a
telephones, manuals, handbooks, and benefit-cost analysis must be used as a
newsletters. deciding factor.
Letters – are appropriate when directives are Suggestion Systems
complex and precise actions are required. - Suggestions for employees are
Manuals – are useful sources of information important sources of cost-saving and
regarding company policy, procedures, and production enhancing ideas. Even if
organizations. majority of the suggestions are not
Handbooks – provide more specific feasible, a simple means of
information about the duties and privileges of acknowledging them contributes to
the individual worker. It has also the advantage employee morale.
of being available whenever needed. Open-Door Policy
Newsletters – provide a mixture of personal, - An open-door policy even on a limited
social, and work-related information. Articles basis, provides the management with an
about new hiring, promotions, birthdays of opportunity to act on difficulties before
employees, questions, and answers about they become full-blown problems.
work related issues are presented. Informal Gripe Sessions
Upward Communication - Can be used positively if management
- There is a need for management to knows how to handle them. When
provide employees with all the employees feel free to talk and they are
necessary material and non-material assured of not being penalized for doing
support it can give. so, then management will be spared
- Refers to messages from persons in with lots of efforts determining the real
lower-level positions to persons in causes of problems in the company.
higher positions. The messages sent Task Forces
usually provide information on work - When a specific problem or issue arises,
progress, problems encountered, a task force may be created and
suggestions for improving output, and assigned to deal with problem or issue.
personal feelings about work and non- Since membership of task forces
work activities. consists of management and
- Techniques used in upward nonmanagement personnel, integration
communication are: formal grievance and teamwork are fostered, creativity is
procedures, employee attitude and enhanced, and interpersonal skills are
opinion surveys, suggestion systems, developed.
open-door policy, informal gripe
sessions, task forces, and exit Exit Interviews
interviews. - When employees leave an organization
Formal Grievance Procedures – for any reason, it is to the advantage of
grievances are part of a normally operating the management to know the real
organization. To effectively deal with them, reason. If there are negative
organizations provide a system for developments in the organization that
employees to air their grievances. the management is not aware of, exit
 interviews may provide some of the
answers.

Horizontal Communication
- Refers to messages send to individuals
or groups from another of the same
organizational level or position.
The purposes of horizontal
communication are:
1. To coordinate activities between
departments
2. To persuade others at the same
level of organization.
3. To pass on the information about
activities or feelings.
- Among the techniques appropriate for
the horizontal communication are:
memos, meetings, telephones, picnics,
dinners, and other social affairs.
MANAGEMENT INFORMATION SYSTEM
(MIS)
- Is defined by Boone and Kurtz as “an
organized method of providing past,
present, and projected information on
internal operations and external
intelligence for use in decision-making,
- The MIS currently used by corporate
firms consists of “written and
electronically based systems for sending
reports, memos, bulletins, and the like.”
The system allows managers of the
different departments within the firm to
communicate with each other.
The Purposes of MIS
- The MIS is established for various
reasons. Wheelen and Hunger
enumerate them as follows:
1. To provide a basis for the analysis of
early warning signals that can
originate both externally and
internally.
2. To estimate routine clerical
operations like pay-roll and inventory
reports.
3. To assist managers in making
routine decisions like scheduling
orders assigning orders to machines,
and reordering supplies.
4. To provide the information necessary
for management to make strategic or
nonprogrammed decisions.
 to satisfy their safety needs. These
needs include freedom from harm
coming from the elements or from
other people, financial security which
may be affected by loss of job or the
breadwinner in the family, etc.
 Social Needs – After satisfying his
physiological and security needs, the
employee will now strive to secure
love, affection, and the need to be
accepted by peers.
 Esteem Needs – the fourth level of
CHAPTER 7: MOTIVATING needs is called esteem needs and
MOTIVATING they refer to the need for a positive
self- image and self-respect and the
- Refers to the act of “giving employees
need to be respected by others.
reasons or incentives to work to achieve
organizational objectives.”  Self-Actualization Needs – the fifth
and the topmost level needs in the
MOTIVATION hierarchy are called self-actualization
- refers to the ‘process of activating needs and involve realizing our full
behavior, sustaining it and directing it potential as human beings and
toward a particular goal.’ becoming all that we are able to be.
FACTORS CONTRIBUTING TO MOTIVATION The Relevance of Maslow's Theory to
1. Willingness to do a job – People who Engineering Management
like what they are doing are highly - Even if Maslow's theory has been
motivated to produce the expected largely questioned, one basic premise
output. cannot be discarded: a fulfilled need no
2. Self-confidence in carrying out a task longer motivates an individual. If this. is
– When employees feel that they have the situation the subordinate is in the
the required skill and training to perform engineer manager must identify an
a task, the more motivated they unfulfilled need and work out a scheme
become. so that the subordinate will be motivated
3. Needs satisfaction – People will do to work in order to satisfy the unfulfilled
their jobs well if they feel that by doing need.
so, their needs will be satisfied. Herzberg's Two-Factor Theory
THEORIES OF MOTIVATION - The two-factor theory is one developed
- There are various theories of motivation, by Frederick Herzberg indicating that a
but only the four most influential ones satisfied employee is motivated from
will be discussed. They consist of the within to work harder and that a
following: dissatisfied employee is not self-
1. Maslow's needs hierarchy theory motivated."
2. Herzberg's two-factor theory - Herzberg identified two classes of
3. Expectancy theory factors associated with employee
4. Goal setting theory satisfaction and dissatisfaction.
Maslow's Needs Hierarchy Theory - If Herzberg's theory will be considered
- Abraham Maslow, a psychologist, by the engineer manager in motivating
theorized that human beings have five employees, he must do something to
basic needs which are as follows: eliminate the dissatisfiers and install
physiological, security, social, esteem, satisfiers.
and self- actualization. These needs are
hierarchical, which means, one need will Expectancy Theory
have to be satisfied first before the other - Expectancy theory is a motivation model
need." based on the assumption that an
 Physiological Needs – Those that individual will work depending on his
are concerned with biological needs perception of the probability of his
like food, drink, rest, and sex fall expectations to happen.
under the category of physiological - The theory poses the idea that
needs. These needs take priority motivation is determined by
over other needs. expectancies and valences.
 Security Needs – After satisfying the
physiological needs, people will seek
 - "An expectancy is a belief about the - When individuals or groups are
likelihood or probability that a particular committed to the goals they are
behavioral act (like attending training supposed to achieve, there is a chance
sessions) will lead to a particular that they will be able to achieve them.
outcome (like a promotion). Work Behavior
- Valence is the value an individual place - Goals influence behavior in terms of
on the expected outcomes or rewards. direction, effort, persistence, and
planning. When an individual is provided
Expectancy theory is based on the following with direction, performance is facilitated.
assumptions: In trying to attain goals that are already
1. A combination of forces within the indicated, the individual is provided with
individual and in the environment a direction to exert more effort. The
determines behavior. identification of goals provides a reason
2. People make decisions about for an individual to persist in his efforts
their own behavior. and that of until the goal is attained.
organizations - Once goals are set, the first important
3. People have different types of input to planning is already in place.
needs, goals, and desires. Feedback Aspects
4. People make choices among - Feedback provide the individuals with a
alternative behaviors based on way of knowing how far they have gone
the extent to which they think a in achieving objectives. Feedback also
certain behavior will lead to a facilitate the introduction of corrective
desired outcome. measures whenever they are found to
Goal Setting Theory be necessary.
- Goal setting refers to the process of
"improving performance with objectives, TECHNIQUES OF MOTIVATION
deadlines or quality standard." Individual or groups of individuals may be
- When individuals or groups are motivated to perform through the use of
assigned specific goals, a clear direction various techniques. These techniques may be
is provided and which later motivates classified as follows:
them to achieve these goals.
1. motivation through job design
The goal setting model drawn by Edwin A. 2. motivation through rewards
Locke and his associates consists of the 3. motivation through employee
following components: participation
1. goal content 4. other motivation techniques for the
2. goal commitment diverse workforce
3. work behavior
4. feedback aspects
Motivation Through Job Design
Goal Content
- A person will be highly motivated to
- to be sufficient in content, goals must perform if he is assigned a job he likes.
be challenging, attainable, specific and The first requisite, however, is to design
measurable, time limited, and relevant. jobs that will meet the requirements of
- When goals are challenging, higher the organization and the persons who
performance may be expected. will occupy them.
- goals must be attainable if they are to - Job design may be defined as
be set. If they are not, then workers will "specifying the tasks that constitute a
only be discouraged to perform, if at all. job for an individual or a group.
- Goals must be stated in quantitative - In motivating through the use of job
terms when- ever possible. When exact design, two approaches may be used:
figures to be met are set, understanding fitting people to jobs or fitting jobs to
is facilitated and workers are motivated people.
to perform.
- There must be a time-limit set for goals Fitting People to Jobs – routine and repetitive
to be accomplished. tasks make workers suffer from chronic
- The more relevant the goals are to the dissatisfaction. To avoid this, the following
company's mission, the more support it remedies may be adapted:
can generate from various levels of 1. Realistic job previews where
employment in the organization. management provides honest
Goal Commitment explanations of what a job
actually entails.
 2. Job rotation-where people are allowance employees
moved periodically from one 5. Sick leave15 days a year with
specialized job to another. benefits pay
3. Limited exposure where a
6. Vacation leave15 days a year with
worker's exposure to a highly
benefits pay
fragmented and tedious job is
limited. 7. Pension plan given to permanent
Fitting Jobs to People – instead of changing employees
the person, management may consider 8. Paid vacation given to employees
changing the job. This may be achieved with trip with outstanding
the use of the following: performance
1. Job enlargement – where two or more 9. Health given to permanent
specialized tasks in a work flow insurance employees
sequence is combined into a single job. 10. Accident given to permanent
2. Job enrichment – where efforts are insurance employees
made to make jobs more interesting,
challenging, and rewarding.
Motivation Through Employee Participation
Motivating Through Rewards
- When employees participate in deciding
- Rewards consist of material and various aspects of their jobs, the
psychological benefits to employees for personal involvement, oftentimes, is
performing tasks in the work- place. carried up to the point where the task is
Properly administered reward systems completed.
can improve job performance and
satisfaction. The specific activities identified where
employees may participate are as follows:
Rewards may be classified into two
categories: 1. setting goals
2. making decisions
1. Extrinsic-those which refer to 3. solving problems, and
payoffs granted to the individual 4. designing and implementing
by another party. Examples are organizational changes.
money, employee benefits,
promotions, recognition, status The more popular approaches to participation
symbols, praise, etc. include the following:
2. Intrinsic rewards- those which are 1. quality control circles.
internally experienced payoffs 2. self-managed teams
which are self-granted. Examples Quality Control Circles
are a sense of accomplishment, - A method of direct employee
self- esteem and self- participation is the quality control circle
actualization. (QCC). The objective of the QCC is to
- Extrinsic and intrinsic rewards coincide increase productivity and quality of
with needs spelled out at the beginning output.
of the chapter. - The circle consists of "a group of three
Management of Extrinsic Rewards – to to ten employees. usually doing related
motivate job performance effectively, extrinsic work, who meet at regular intervals
rewards must be properly managed in line with (once a week for an hour, for example)
the following: to identify problems and discuss their
1. it must satisfy individual needs; solutions."
2. the employees must believe effort - The circle includes "a leader such as a
will lead to reward; foreman, but rely on democratic
3. rewards must be equitable; processes.”
4. rewards must be linked to - The members are trained in various
performance. analysis techniques by a coordinator.
- The circle forwards its recommendations
FEATURE
to management, which in turn, makes
1. Monthly pay depends on decisions on its adaption.
qualifications of
Self-managed Teams
employee
- When workers have reached a certain
2. 13th month pay given at mid-year
degree of discipline, they may be ripe
given at yearend
th
for forming self-managed teams.
3. 14 month pay given at yearend - Also known as autonomous work groups
4. Housingm given to permanent or high-performance teams, self-
 managed teams "take on traditional
managerial tasks as part of their normal
work routine."
- The self-managed teams work on their
own, turning out a complete product or
service and receiving minimal
supervision from managers who act
more as facilitators than supervisors.
- When a product or service is produced
by a group of professionals or
specialists, they might as well be formed
as a self-managed team to save on
supervisory costs.
Requisites to Successful Employee
Participation Program
- To succeed, an employee participation
program will require the following:

1. a profit-sharing or gainsharing
plan.
2. a long-term employment
relationship with good job
security.
3. a concerted effort to build and
maintain group cohesiveness.
4. protection of the individual
employee's rights.
Other Motivation Techniques
- The advent of theories on individual
differences and the biological clock of
human beings" put pressure on the
engineer manager to adapt other
motivation techniques whenever
applicable. These refer to the following:
1. flexible work schedules
2. family support services
3. sabbaticals.
Flexible Work Schedules – there is an
arrangement, called flextime, which allows
employees to determine their own arrival and
departure times within specified limits.
Family Support Services – employees are
oftentimes burdened by family obligations like
caring for children. Progressive companies
provide day care facilities for children of
employees.
Sabbaticals – sabbatical leave is one given to
an employee after a certain number of years of
service. (the employee is allowed to go on
leave for two months to one year with pay to
give him time for family, recreations, and
travel)
 punishments, they are said to possess
coercive power.
- Punishment may be in the form of
demotion, dismissal, withholding
promotion, etc.
Referent Power
- When a person can get compliance from
another because the latter would want
to be identified with the former, that
person is said to have referent power.
CHAPTER 8: LEADING

Leading Expert Power

- is a management function which - Experts provide specialized information
“involves influencing others to engage in regarding their specific lines of
work behaviors necessary to reach expertise.
organizational goals” - This influence is possessed by people
Leadership with great skills in technology.
- refers to the process of leading. THE NATURE OF LEADERSHIP
Leadership
HOW LEADERS INFLUENCE OTHERS - May be referred to as “the process of
- Engineer managers are expected to influencing and supporting others to
maintain effective work forces, thus, work enthusiastically toward achieving
they are required to perform leadership objectives”
roles.
- It is expected of any manager in charge
- Leaders are able to influence others due
to the power that they have. of any unit or division.
Power – refers to the ability of a leader to TRAITS OF EFFECTIVE LEADERS
exert force on another. 1. High Level of Personal Drive
2. The Desire to Lead
BASES OF POWER 3. Personal Integrity
1. Legitimate Power 4. Self-Confidence
2. Reward Power 5. Analytical Ability or Judgement
3. Coercive Power 6. Knowledge of the Company,
4. Referent Power Industry, or Technology
5. Expert Power 7. Charisma
Legitimate Power 8. Creativity
- A person who occupies a higher position 9. Flexibility
has legitimate power over persons in High Level of Personal Drive
lower positions within the organization. - People with drive are those identified as
(e.g. a supervisor can issue orders to willing to accept responsibility, possess
workers in his unit. vigor, initiative, persistence, and health.
Reward Power
o Drive- is a very important leadership
- When a person has the ability to give trait because of the possibility of
rewards to anybody who follows orders
failure in every attempt to achieve
or requests, they are said to have
certain goals.
reward power.
TWO FORMS OF REWARD POWER: The Desire to Lead
1. Material Rewards – money or other - There are some persons who have all
tangible benefits the qualifications for leadership, yet
2. Psychic Rewards – rewards that could not become leaders due to the
consist of recognition, praises, etc. lack of one requirement, which is the
desire to lead.
Coercive Power
- Leaders with a desire to lead will always
- When a person compels another to have a reservoir of extra efforts which
comply with others through threats or can be used whenever needed.
Personal Integrity
 - According to V.K. Saraf, personal Flexibility
integrity means and includes “honesty, - People differ in the way they do their
honor, incorruptibility, rectitude, work. One will adapt a different method
righteousness, uprightness, and similar from another person’s method.
virtues.” o A leader who allows this situation as
o A person who is regarded by others long as the required outputs are
as one who has integrity possesses produced, is said to be flexible.
one trait of a leader. LEADERSHIP SKILLS
o One who doesn’t have integrity will 1. Technical Skills
have a hard time convincing his 2. Human Skills
subordinates about the necessity of 3. Conceptual Skills
completing a task.

Self-Confidence
- The activities of leaders require moves
Technical Skills
that will produce the needed output.
- Are skills a leader must possess to
o Self-confidence is necessary to have
enable him to understand and make
a continuous and precise move in
decisions about work processes,
conceptualizing, organizing, and
activities, and technology.
implementing a desired outcome for
a project. - It is the specialized knowledge needed
to perform a job.
Analytical Ability or Judgement
Human Skills
- Leaders are often faced with difficulties
that prevent the completion of assigned - Refers to the ability of a leader to deal
tasks. with people, both inside and outside the
organization.
o The ability to analyze is one
- Good leaders must know how to get
desirable trait that a leader can use
along with people, motivate them, and
to tide them over many challenging
inspire them.
aspects of leadership.
- Includes motivating, coaching,
Knowledge of the Company, Industry, or
communicating, morale building, training
Technology
and development, help and
- A leader who is well-informed about his supportiveness, delegating
company, the industry where the
Conceptual Skills
company belongs, and the technology
utilized by the industry will be in a better - Refers to “the ability to think in abstract
position to provide directions to his unit. terms, to see how arts fit together to
form the whole.
Charisma
- A leader without sufficient conceptual
- When a person has sufficient personal
skills will fail to achieve an effective
magnetism that leads people to follow
implementation of what must be done.
his directives, they are said to have
charisma. LEADERSHIP SKILLS AND THEIR USE AT
VARIOUS MANAGEMENT LEVELS
o This trait will help the leader in
achieving his goals, and with some TOP MANAGEMENT
adjustments, their subordinates may
do their tasks willingly.
HUMAN
Creativity MIDDLE MANAGEMENT SKILLS
CONCEPTUAL
SKILLS
TECHNICAL
SKILLS

- Ronnie Millevo defines creativity as “the

ability to combine existing data,
LOWER MANAGEMENT
experience, and preconditions from
various sources in such a way that the
results will be regarded as new, BEHAVIORAL APPROACHES TO
valuable, and innovative, and as a direct LEADERSHIP STYLES
solution to an identified problem Leadership Style
situation.”
 - A pattern of behaviour used by those in • Time consuming
the position of leadership that is unique • Frustrating to those who
and different from other patterns prefer to see a quick
Several Approaches Used In Classifying decision reached
Leadership Styles:
Free-Rein Leaders
1. According to the ways leaders approach
people to motivate them - Leaders who set objectives and allow
2. According to the ways the leader uses employees or subordinates relative
power freedom to do whatever it takes to
3. According to the leader’s orientation accomplish these objectives.
toward task and people - Also referred to as “laissez-faire
leaders”
- Most applicable to organizations
manned by professionals like doctors,
and engineers.
According to The Ways Leaders Approach - If this is used, there is full managerial
People to Motivate Them delegation resulting to a best utilization
Two Ways a Leader May Approach of time and resources.
People to Motivate Them - Its weakness is that there is very little
1. Positive Leadership managerial control, and a high degree of
o When a leader’s approach risk.
emphasizes rewards. According to the Leader’s Orientation Toward
2. NEGATIVE LEADERSHIP Task and People
o When punishment is
- Leaders may be classified according to
emphasized by the leader
how they view tasks and people. A
Ways Leaders Uses Power leader may either be:
- Leadership styles also vary according to 1. Employee Oriented
how power is used as follows:
2. Task Oriented
1. Autocratic
Employee Orientation
2. Participative
- When a leader considers employees as
3. Free-Rein human beings of “intrinsic importance
Autocratic Leaders and with individual and personal need”
- Are leaders who make decisions to satisfy.
themselves, without consulting Task Orientation
subordinates - When a leader places stress on
- Effective in emergencies, and when production and the technical aspects of
absolute followership is needed the job and the employees are viewed
- Disadvantage: the leader receives little as the means of getting the work done.
information and ideas from their people CONTINGENCY APPROACHES TO
as inputs in their decision making LEADERSHIP STYLE
Participative Leaders - The contingency approach is “an effort
- When a leader openly invites their to determine through research which
subordinates to participate or share in managerial practices and techniques
decisions, policy-making, and operation are appropriate in specific situations.
methods. The various contingency approaches
ADVANTAGE: are as follows:
1. Fiedler’s Contingency Model
• Generates lots of good
2. Hersey And Blanchard’s
ideas
Situational Leadership Model
• Increased support for 3. Path-Goal Model of
decisions Leadership
• Reduction of the chance to 4. Vroom’s Decision Making
be unexpectedly Model
undermined Feidler’s Contingency Model
DISADVANTAGES:
 - According to Fred Feidler, “leadership is and supervise
effective when the leader’s style is 2. LOW ABILITY + STYLE 2:
appropriate to the situation.” HIGH COACHING – direct
Three Principal Factors to determine WILLINGNESS and support
Situational Characteristics 3. HIGH ABILITY + STYLE 3:
1. The Relations Between Leaders And LOW WILLINGNESS SUPPORTING –
Followers praise, listen, and
facilitate
2. The Structure of The Task
3. The Power Inherent in The Leader’s 4. HIGH ABILITY + STYLE 4:
Position HIGH DELEGATING – turn
WILLINGNESS over responsibility for
To be effective, the situations must fit the day-to-day decision -
leader, if this is not so, the following may be making
tried:
1. Change the leader’s trait or behaviors
2. Select leaders who have traits or
behaviors fitting the situation
3. Move leaders around in the organization
until they are in positions that fit them
4. Change the situation Path-Goal Model of Leadership
Hersey and Blanchard’s Situational - The Path-Goal Model of Leadership
Leadership Model adopted by Robert J. House and
- This situational model developed by Terrence R. Mitchell, stipulates that the
Hersey and Blanchard, suggests that leadership can be made effective
the most important factor affecting the because leaders can influence
selection of a leader’s style is the subordinate’s perception of their work
development or (maturity) level goals, personal goals, and paths to goal
subordinate. A leader should match their attainment.
style to this maturity level - By using the Path-Goal Model, it is
Two Components of Maturity: assumed that effective leader can
1. Job skills and knowledge enhance subordinate motivations by:
2. Psychological maturity 1. Clarifying the subordinate’s
FOUR TYPES OF STYLES THAT perceptions of work goals
BLANCHARD AND OTHERS ELABORATED: 2. Linking meaningful rewards with
goal; attainments
1. Directing- is for people who lack
3. Explaining how goals and desired
competence but are enthusiastic and
rewards can be achieved
committed
Vroom’s Decision Making Model
2. Coaching- is for people who have some
competence but lack commitment - Vroom’s model of leadership is one that
prescribes the proper leadership style
3. Supporting- is for people who have
for various situations, focusing on the
competence but lack confidence or
appropriate degrees of delegation of
motivation
decision-making authority.
4. Delegating- is for people who have both 1. Five distinct decision-making
competence and commitment, they are styles are identified under the
able and willing to work on a project by Vroom model. Two of them are
themselves with little supervision autocratic, two others are
DEVELOPMENT STAGE OF consultative, and one is group
SUBORDINATES AND RECOMMENDED directed.
LEADERSHIP STYLE: 2. The Vroom’s Model may be
DEVELOPMENT RECOMMENDED useful as a guide for the leaders
STAGE STYLE and it may also be helpful as a
training guide for the leaders
1. LOW ABILITY + STYLE 1:
LOW WILLINGNESS DIRECTING -
structure, control,
 STEPS IN THE CONTROL PROCESS

1. Establishing performance objective and

standards

2. Measuring actual performance

3. Comparing actual performance to

objectives and standards

4. Taking necessary action bused on the

results of the caparisons
Establishing Performance Objectives and
Standard
- In controlling, what has to be achieved
must first be determined.
examples of such objectives are as follows:
1. Sales Targets - which are
expressed in qualify or monetary
terms.
2. Production Targets - which are
CHAPTER 9: CONTROLLING
expressed in quantity and quality.
CONTROLLING
3. Worker Attendance - which are
- Refers to the process of ascertaining express in terms of rate of
weather organizational objective have absences
been achieved if not, why not and
4. Safety Record -which
determining what activities should be
expressed in number of accidents
taken to achieve objectives should then
for given period.
be taken to achieve objectives in the
future. 5. Supplies Used - Which are
- Controlling completes the cycle of expressed I quality or monetary
management functions. Objectives and term for given period.
goals that are set at the planning stage Measuring Actual Performance
are verified as to achievement or - There is a need to measure actual
completion at any given point in the performance so that when shortcoming
organizing and implementing stages. occurs, adjustment could be made the
When expectations are not met at adjustment will depend on the actual
scheduled dates, corrective measures findings.
are usually undertaken. Comparing Actual Performance to
IMPORTANCE OF CONTROLING Objectives and Standards
- When controlling is properly - Once actual performance has been
implemented, it will help the determined this will be compared with
organization achieve its goal in the most what the organization seeks to achieve.
efficient and effective manner possible. Actual performance output, for instance,
- Deviations, mistakes, and shortcomings will be compared with the target output.
happen inevitably. When they occur in Taking Necessary Action Bused on the
the daily operations, they contribute to Results of The Comparisons
unnecessary expenditures which
- The purpose of comparing actual
increase the cost of producing goods
performance with the desired results is
and services. Proper control measures
to provide management with the
minimize the ill effects of such negative
opportunity to take corrective active
occurrence. An effective inventory
when necessary.
control system, for instance, minimizes,
if not totally eliminates losses in
ACTION MAY BE UNDERTAKEN BY:
inventory.
o Hire additional personnel
 o Use more equipment - The planning horizon differ fro company
o Require overtime to company. Most firm will be satisfied
TYPES OF CONTROL with one year. Engineering firms
however, will require longer term
1. Feedforward Control
financial plans. This is because of the
2. Concurrent Control long lead times needed for capital
3. Feedback Control project.
Feedforward Control The Operating Budget
- This type of control measure undertaken - Indicator the expenditures, revenues or
when management anticipates problems profits planned for some future period
and prevent their occurrence. regarding operations. The figure
- It provides the assurance are in place appearing in the budget are used as
before operating or operation begin. standard measurement for performance.
Concurrent Control Performance Appraisals
- When operations are already ongoing - Measures employee performance. As
and activities to detect variances are such it provides employee with a guide
made, concurrent control is said to be on how to do their jobs better in the
undertaken. It’s always possible that future.
deviations from standards will happen in Statistical Reports
the production process. When such
- Pertain to those that contain data on
deviation occurs, adjustment are made
various developments within the firm.
to insure compliance with requirements.
- Information on the adjustments are also Information which may be found in a statistical
necessary inputs in the pre-operation report pertains to the following:
phase. 1. Labor efficiency rates
2. Quality control rejects
3. Account receivable
Feedback Control
4. Accounts receivable
- Feedback control is undertaken when 5. Sales reports
information is gathered about a 6. Accidents reports
completed activity and in order the 7. Power consumption reports
evolution and steps for provident are
Policies and Procedures
derived.
- Corrective action aimed at improving o POLICIES – refers to “the
future activities are featured of feedback framework within which the
control. objective must be pursued”.
- Feedback control validates objectives o PROCEDURES – is “a plan that
and standards. describes the exact series of
action to be taken in a give
COMPONENTS OF ORGANIZATIONAL
situation”.
CONTROL SYSTEM:
STRATEGIC CONTROL SYSTEM
1. Strategic plan
2. The long-range financial plan o Financial analysis
3. The operating budget o Financial ratio analysis
4. Performance appraisals Financial Analysis
5. Statistical reposts - The success of most organization
6. Policies and Procedures depends heavily on its financial
Strategic Plan performance. It is just fitting that certain
- Provides the basic control mechanism measurements of financial performance
for the organization. When where are we de to that whatever deviations from
indications that activities do not facilitate standard are found out corrective action
the accomplishment of strategic goals may be introduced.
are set aside, modified or expand.
These correction measures are made - A review of the financial statement will
possible with the adoption of strategic reveal important details about the
plans. company performance. The balance
The Long-Range Financial Plan sheet contains information about the
 company’s assets, liabilities and capital Cost of goods sols
Inventory Turnover Ratio=
accounts, comparing the current Inventory
balance sheet with previous one may  Fixed Assets Turnover – this ratio is
reveal important changes, which in turn used to measured utilization of the
provides dues to performance. company’s investment in its fixed
assets, such as its plant and equipment.
- The income statement contains Net sales
information about the company’s gross ¿ Asset Ratio= assets ¿
Net ¿
income, expenses, and profits. When
also compared with previous years Financial Leverage Ratios – this group of
income statement, changes in figures ratios designed to assess the balance of
will help management determine if it did financial obtained through debt and equity
well. sources.
Financial Ratio Analysis  Debt to Total Assets Ratios – this ratio
shows how much of the firm’s assets
- is more elaborate approach used in
are financial obtained through debt and
controlling activities under this method,
equity sources.
one account appearing in the financial
statement is paired with a required with Total Debt
Debt ¿ Total Assets Ratios=
another to constitute a ratio. This result Total Assets
will be compared with a required norm  Time Interest Earned Ratio – this ratio
which is usually related to what other measures the number of time that
companies in the industry have earnings before interest and taxes cover
achieved in the past, when deviations or exceed the company’s interest
occurs, explanations are sought in expense.
preparation for whatever action is Profit before tax+ interest ex
Time Interest Earned Ratio=
necessary. Interest Expenses
TYPES OF FINANCIAL RATIO ANALYSIS Profitability Ratio – these ratio measure how
1. Liquidity ratios much operating income or net income a
2. Efficiency leverage ratios company is able to generate in relation to its
3. Financial leverage ratios assets, owner’s equity and sales.
4. Profitability ratios  Profit Margin Ratio – this ratio compares
Liquidity Ratios – these ratios assess the the net profit to the level of sales.
ability of a company to meet its current Net Profit
Profit Margin Ratio=
liabilities. Net Sales
The important indicators of liquidity  Return on Assets Ratio – this ratio
shows how much income the company
• Current Ratio – this shows the extent to
produced for every peso invested in
which current assists of the company
assets.
can cover its current liabilities.
Net Income
Current Assets Returnon Assets Ratio=
Current Ratio= Assets
Current Liabilities
 Return on Equity Ratio – this ratio
• Acid-Test Ratio – this is a measure of measures the returns on the owner is
the firm’s ability to pay off short-term investment.
obligations with the use of current Net Income
assets and without relying on the sale of Returnon Assets Ratio=
Equity
inventories.
Current Assets Inventories
Acid test ratio= IDENTIFING CONTROL PROBLEMS
Current Liabilities
Efficiency Ratio – these ratios shows how 1. Executive reality check
effectively certain assets or liabilities are being 2. Comprehensive internal audit
used in the production of good and services. 3. General checklist of symptoms of
inadequate control
 Inventory Turnover Ratio – This ratio
Executive Reality Check
measures the number of times an
inventory is turned over (or sold) each - Employees at the frontline often
year. complain that management imposes
 certain requirements that are not
realistic.
Comprehensive Internal Audit
- is one under to determine the efficiency
and affectivity of the activities of an
organization
Symptoms of Inadequate Control
- if a comprehensive internal audit cannot
be a checklist for symptoms of
inadequate control may be used.
Kreitner has listed some of the common
symptoms
1. An unexplained decline in revenues and
profits
2. A degradation of service (customer
complaints).
3. Employee dissatisfaction (complains,
grievances, turnover).
4. Cash shortages caused by indicated
inventories or delinquent accounts
receivable.
5. Idle facilities or personnel.
6. Disorganized operation (work flow
bottlenecks, excessive paperwork).
7. Excessive costs
8. Evidence of waste and inefficiency
(scrap, rework)\
 4. Electronic products like oscilloscope,
microwave tests systems,
transistors, cable testers, etc., which
are produced by electronics
manufacturing firms;
5. Mechanical devices like forklifts,
trucks, loaders, etc., which are
produced by manufacturing firms;
6. Engineering consultancy services
like those for construction
management and supervision,
project management services, etc.,
which are produced by engineering
consultancy firms.

OPERATION MANAGEMENT
- Operations is an activity that needs to
be managed by competent persons.
- Aldag and Stearns accurately defined
operations management as "the process
of planning, organizing, and controlling
operations to reach objectives efficiently
and effectively. "As the terms "planning",
"organizing", and "controlling" have
already been discussed in the previous
chapters, elaborations on the terms
"efficiency" and "effectiveness" will be
made.
- Efficiency is related to "the cost of doing
something, or the resource utilization
involved." When a person performs a
job at lesser cost than when another
CHAPTER 10: MANAGING PRODUCTION AN person performs the same job, he is
DSERVICE OPERATION more efficient than the other person.
OPERATION - Effectiveness refers to goal
- refers to "any process that accepts accomplishment. When one is able to
inputs and uses resources to change reach his objectives, say produce
those inputs in useful ways." As shown 10,000 units in one month, he is said to
in Figure 10.1, the inputs include land, be effective.
labor, capital, and entrepreneurship. - Operations management must be
The transformation process converts the performed in coordination with the other
inputs into final goods or services. functions like those for marketing and
Examples of final goods and services finance. Although the specific activities
are as follows: of the operations divisions of firms
1. Industrial chemicals like methylene slightly differ from one another, the
chloride, borax powder, phosphoric basic function remains the same, i.e., to
acid, etc., which are produced by produce products or services.
chemical manufacturing firms; OPERATIONS AND THE ENGINEER
2. Services like those for the MANAGER
construction of ports, high-rise - The engineer manager is expected to
buildings, roads, bridges, etc., which produce some output at whatever
are produced by constructions firms; management level he is. If he is
3. Electrical products like transformers, assigned as the manufacturing
circuit breakers, switch gears, power engineer, his function is "to determine
capacitors, etc., which are produced and define the equipment, tools, and
by electrical manufacturing firms; processes required to convert the
 design of the desired product into reality typical size of operation is generally
in an efficient manner." small. Job shops are labor intensive and
- The engineer in charge of operations in machines are frequently idle.
a construction firm is responsible for the Batch Flow
actual construction of what- ever bridge - The batch flow process is where lots of
or road his company has agreed to put generally own designed products are
up. He is required to do it using the manufactured. It is further characterized
least-expensive and the easiest by the following:
methods. 1. There is flexibility to produce
- The engineer, as operations manager, either low or high volumes.
must find ways to contribute to the 2. Not all procedures are performed
production of quality goods or services on all products.
and the reduction of costs in his 3. The type of equipment used are
department. mostly for general purpose.
- The typical operations manager is one 4. The process layout is used.
with several years of experience in the 5. The operation is labor intensive,
operations division and possesses an although there. is less machine
academic background in engineering. idleness.
6. The size of operation is generally
TYPES OF TRANSFORMATION PROCESS medium-sized.
1. Manufacturing processes - Examples of factories using the large
batch flow are wineries, scrap-metal
a. job shop
reduction plants, and road-repair
b. batch flow
contractors.
c. worker-paced line flow
d. machine-paced line flow Worker-Paced Assembly Line.
e. batch/continuous flow hybrid - An assembly line refers to a production
f. continuous flow layout arranged in a sequence to
2. Service processes accommodate processing of large
volumes of standardized products or
a. service factory
services.
b. service shop
- The quality and quantity of output in a
c. mass service
worker-paced assembly line depends to
d. professional service
a great extent to the skill of the labor
utilized. Examples of worker-paced
MANUFACTURING PROCESSES assembly lines are food marts like
- are those that refer to the making of McDonalds and Shakey s.
products by hand or with machinery. The worker-paced assembly line is
Job Shop characterized by the following:
1. The products manufactured are
- a job shop is one whose production is
mostly standardized.
"based on sales orders for a variety of
2. There is a clear process pattern.
small lots." Job shops are very useful
3. Specialized equipment is used.
components of the entire production
4. The size of operation is variable.
effort, since they manufacture products
5. The process is worker-paced.
in small lots that are needed by, but
6. The type of layout used is the line
cannot be produced economically by
flow.
many companies. Depending upon the
7. Labor is still a big cost item.
customer's needs, a job shop may
produce a lot consisting of 20 to 200 or Machine-Paced Assembly Line
more similar parts. - This type of pro- duction process
- Job shops produce custom products, in produces mostly standard products with
general. Products may be manufactured machines playing a significant role.
within a short notice. The equipment - Among its other features are as follows:
used are of the general-purpose type. 1. The process is of clear, rigid
The type of layout used by job shops is pattern.
the process layout, where similar 2. Specialized type of equipment is
machines are grouped together. The used.
 3. The line flow layout is used. Shakeys are also examples of service
4. Capital equipment is a bigger factories
cost item than labor. - Service Shop – provides a diverse mix
5. Operation is large. of services. The layout used are those
6. The process is machine-paced. for job shops or fixed position and are
- Examples of machine-paced assembly adaptable to various requirements.
line are auto- mobile manufacturers like - Service shops abound throughout the
General Motors and Ford Motors Philippines. Examples are Servitek and
Megashell. Among the services
provided by these shops are car engine
Continuous Flow
tune-up, wheel balancing, wheel
- the continuous flow processing is alignment, change oil, etc.
characterized by "the rapid rate at which
Mass Service
items move through the system." This
processing method is very appropriate - A mass service company provides
for producing highly standardized services to a large number of people
products like calculators, typewriters, simultaneously. A unique method, is
automobiles, televisions, cellular therefore, necessary to satisfy this
phones, etc. requirement.
Its other characteristics are as follows: Professional Services
1. There is economy of scale in - These are companies that pro- vide
production, resulting to low per specialized services to other firms or
unit cost of production. individuals.
2. The process is clear and very Examples of such firms are as follows:
rigid. 1. Engineering or management
3. Specialized equipment are used. consulting services which help in
4. The line flow layout is used. improving the plant layout or the
5. Operations are highly capital efficiency of a company.
intensive. 2. 2. Design services which supply
6. The size of operations is very designs for a physical plant,
large. products, and promotion
7. Processing is fast. materials.
Batch/Continuous Flow Hybrid 3. Advertising agencies which help
- This method of processing is a promote a firm's products.
combination of the batch and the 4. Accounting services.
continuous flow. Two distinct layouts are 5. Legal services.
used, one for batch and one for the 6. Data processing services.
continuous flow. The typical size of 7. Health services.
operation is also very large giving - Professional service firms offer a
opportunities for economies of scale. diverse mix of services. There is a lower
- Examples of companies using the utilization of capital equipment
batch/continuous flow hybrid are compared to the service factory and the
breweries, gelatin producers, and service shop. The process pattern used
tobacco manufacturers. is very loose. The process layout used
is identical to the job shop.
Service Processes
- Professional service firms are,
- Service processes are those that refer oftentimes, faced with delivery problems
to the provision of services to persons brought about by nonuniform demand.
by hand or with machinery. Strategies that may be used depending
- Service Factory – a service factory on the situation are as follows:
offers a limited mix of services which 1. The use of staggered work-shift
results to some economies of scale in schedules.
operations. This also affords the 2. The hiring of part-time staff.
company to compete in terms of price 3. Providing the customer with
and speed of producing the service. opportunity to select the level of
- The process layout preferred by the service.
service factory. is the rigid pattern of line 4. Installing auxiliary capacity or
flow processing McDonalds and hiring subcon- tractors.
 5. Using multiskilled floating staff. - Firms need to purchase supplies and
6. Installing customer self-service. materials re- quired in the various
IMPORTANT PARTS OF PRODUCTIVE production activities. The management
SYSTEMS of purchasing and materials must be
undertaken with a high degree of
- Productive systems consist of six
efficiency and effectiveness specially in
important activities as follows:
firms engaged in high volume
1. product design
production. The wider variety of supplies
2. production planning and
and materials needed adds to the
scheduling
necessity of proper managing and
3. purchasing and materials
purchasing of materials.
management
- Materials management refers to "the
4. inventory control
approach that seeks efficiency of
5. work flow layout
operation through integration of all
6. quality control
material acquisition, movement, and
Product Design storage activities in the firm "
- Customers expect that the products they Inventory Control
buy would perform according to
- Inventory control is the process of
assigned functions. A good product
establishing and maintaining appropriate
design assures that this will be so.
levels of reserve stocks of goods. 14 As
Customers avoid buying products with
supplies and materials are required by
poor product design. An example is that
firms in the production process, these
certain brand of ballpen which fails to
must be kept available when they are
write after one or two days of actual use.
needed. Too much reserves of stocks
This happens because of poor product
will penalize the firm in terms of high
design.
storage costs and other related risks like
- Product design refers to "the process of
obsolescence and theft. Too little
creating a set of product specifications
reserves, on the other hand, may mean
appropriate to the demands of the
lost income opportunities if production
situation."
activities are hampered. A balance
- Companies wanting to maintain or
between the two extremes must be
improve its mar- ket share keeps a
determined.
product design team composed of
- There are ways of achieving proper
engineers, manufacturing, and
inventory control. They are as follows:
marketing specialists.
1. determining reorder point and
Production Planning and Scheduling reorder quantity
- Production planning may be defined 2. determining economic order
as "forecasting the future sales of a quantity
given product, translating this fore- cast 3. the use of just-in-time (JIT)
into the demand it generates for various method of inventory control
production facilities, and arranging for 4. the use of the material
the procurement of these facilities." requirement planning (MRP)
- Production planning is a very method of planning and
important activity because it helps controlling inventories.
management to make decisions Work-Flow Layout
regarding capacity. When the right
- Work-flow layout is the process of
decisions are made, there will be less
determining the physical arrangement of
opportunities for wastages.
the production system. In the
- Scheduling is the "phase of production
transformation process, the flow of work
control involved in developing timetables
may be done either haphazardly or
that specify how long each operation in
orderly.
the production process takes." Efficient
- The job of the operations manager is to
scheduling assures the optimization of
assure that a cost-effective work-flow
the use of human and nonhuman
layout is installed.
resources.
- A good work- flow layout will have the
Purchasing and Materials Management following benefits:
 1. Minimize investment in 1. the product (or service)
equipment. 2. the price
2. Minimize overall production time. 3. the place, and
3. Use existing space most 4. the promotion.
effectively. The Product
4. Provide for employee - In the marketing sense, the term
convenience, safety, and comfort. "product" includes the tangible (or
5. Maintain flexibility of arrangement intangible) item and its capacity to
and operation. satisfy a specific need.' When a
6. Minimize material handling cost. customer buys a car, he is actually
7. Minimize variation in types of buying the comfortable ride he
material-handling equipment. anticipates to derive from the car. This is
8. Facilitate the manufacturing (or not to mention th psychological benefits
service) process. attached to the ownership of a car.
9. Facilitate the organizational - The services provided by the engineer
structure. manager will be evaluated by the client
Quality Control on the basis of whether or not his or her
- Quality control refers to the exact needs are met. When a
measurement of products or services competitor comes into the picture and
against standards set by the company. sells the same type of service, the
Certain standard requirements are pressure to improve the quality of
maintained by the management to services sold will be felt. When
facilitate production and to keep improvement is not possible, "extras" or
customers satisfied. "bonuses" are given to clients. An
- Poor quality control breeds customer example is the construction. company
complaints, returned merchandise, that provides "free estimates" on
expensive lawsuits, and huge whatever inquiries on construction are
promotional expenditures. received.
The Price
- Price refers to "the money or other
considerations exchanged for the
purchase or use of the product, idea, or
service." Some companies use price as
a competitive tool or as a means to
convince the customer to buy.
- When products are similar in quality and
other characteristics, price will be a
strong factor on whether or not a sale
CHAPTER 11: MANAGING THE MARKETING
will be made. This does not hold true,
FUNCTION
how- ever, in the selling of services and
THE MARKETING CONCEPT ideas. This is because of the
- Marketing is a group of activities uniqueness of every service rendered or
designed to facilitate and expedite the every idea generated
selling of goods and services. - When a type of service becomes
- The marketing concept states that the standardized, price can be a strong
engineer must try to satisfy the needs of competitive tool. When a construction
his clients by means of a set of firm, for instance, charges a flat 10
coordinated activities. When clients are percent service fee for all of its
satisfied with what the company offers, construction services, a competitor may
they continually provide business charge a lower rate. Such action,
THE ENGINEER AND THE FOUR P'S OF however, will be subject to whether or
MARKETING not the industry will allow such practice.
- The engineering organization will be The Place
able to meet the requirements of its - If every factor is equal, customers would
clients (or customers) depending on prefer to buy from firms easily
how it uses the four P's of marketing accessible to them. If time is of the
which are as follows:
 essence, the nearest firm will be The mass media referred to include
patronized. television, radio, magazines, and news-
- It is very important for companies to papers. If the engineering manager
locate in places where they can be wants to reach a large number of
easily reached by their customers. Not people, he may use any of the mass
every place is the right location for any media depending on his specific needs
company. and his budget. Each of the public
- When a company cannot be near the advertising carriers, i.e., radio,
customers, it uses other means to television, magazines, and newspapers,
eliminate or minimize the effects of the has their own specific audiences and
problem. Some of these means are: careful analysis must be made if the
1. hiring sales agents to cover engineering manager wants to pick the
specific areas; right one.
2. selling to dealers in particular
areas; Publicity – the promotional tool that
3. establishing branches where publishes news or information about a
customers are located; product, service, or idea on behalf of a
4. establishing franchises in sponsor but is not paid for by the
selected areas. sponsor is called publicity. The mass
- Manufacturing companies can choose media is also the means used for
or adapt all of the above-mentioned publicity. If the engineer manager knows
options. Service companies like how to use it, publicity is a very useful
construction firms adapt the modified promotional tool. His message may be
versions. An example is the engineer presented as a news item, helpful
manager of a construction firm who information, or an announcement.
gives commissions to whoever could Personal Selling. A more aggressive
negotiate a construction contract for the means of promoting the sales of a
firm. product or service is called personal
The Promotion selling. It refers to the "oral presentation
- When engineer managers have in a conversation with one or more
products or services to sell, they will prospective purchasers for the purpose
have to convince buyers to buy from of making a sale."
them. Before the buyer makes the Personal selling may be useful to the
purchasing decision, how- ever, he must marketing efforts of the engineer
first be informed, persuaded, and manager. If, for instance, he is the
influenced. The activity referred to, in general manager of a firm
this case, is called promotion. manufacturing spare parts, he may
- McCarthy and Perreault define assign some employees to personally
promotion as "communicating seek out spare parts dealers and big
information between seller and potential trucking companies to carry their
buyer to influence attitudes and product lines.
behavior."
- There are promotional tools available
and the engineer manager must be
familiar with them if he wants to use Sales Promotion.
them effectively. These tools are as - Any paid attempt to communicate with
follows: the customers other than advertising,
1. advertising publicity, and personal selling, may be
2. publicity considered sales promotion. This
3. personal selling includes displays, contests,
4. sales promotion sweepstakes, coupons, trading stamps,
prizes, samples, demonstrations,
Advertising – Nylen defines advertising referral gifts, etc.
as "a paid message that appears in the - Contests and sweepstakes are very
mass media for the purpose of informing popular sales promotion tools
or persuading people about particular STRATEGIC MARKETING FOR ENGINEERS
products, services, beliefs, or action."
 - Companies, including those managed 2. the number of competitors
by engineer managers, must serve serving the market.
markets that are best fitted to their - The total demand for the product or service
capabilities. To achieve this end, a very in a given area must be determined first if
important activity called strategic the company wants to serve that particular
marketing is undertaken. market. If there are existing businesses
- Under this set-up, the following steps serving the market, the net demand must
are made: be considered.
1. selecting a target market Developing a Marketing Mix
2. developing a marketing mix - After the target market has been
Selecting a Target Market identified, a marketing mix must be
- A market consists of individuals or created and maintained. The marketing
organizations, or both, with the desire mix consists of four variables: the
and ability to buy a specific product or product, the price, the promotion, and
service. To maximize sales and profits, the place (or distribution).
a company has the option of serving - Given a marketing environment, the
entirely or just a portion of its chosen engineer man- ager can manipulate any
market. Within markets are segments or all variables to achieve the company's
with common needs and which will goals. As such, the quality of the
respond similarly to a marketing action. product may be enhanced, or the selling
- An analysis of the various segments of price made a little lower, or the
the chosen. market will help the promotion activity made a little more
company make a decision on whether to aggressive, or a wider distribution area
serve all or some of the segments. The may be covered. Any or all of the
segment or segments chosen become foregoing may be
the target market. SUMMARY
- In selecting a target market, the
 To survive, companies must
following steps are necessary:
continuously generate income. To be
1. Divide the total market into
able to do so, they must be able to sell
groups of people who have
enough quantity of their products or
relatively similar product or
services. Engineering firms are no
service needs.
exception.
2. Determine the profit potentials of
 The proper management of the
each segment.
marketing function helps the engineer
3. Make a decision on which
manager convince customers to
segment or segments will be
patronize the firm. Specifically, the
served by the company.
engineer manager must know how to
- As shown in Figure 11.5, a company
use effectively the four P's of marketing
may choose any or all of the residential,
which are the product, the price, the
industrial, and government segments.
place, and the promotion.
This decision will depend, however, on
 An activity called strategic marketing is
the profit potentials of each segment
designed to make sure that the
and the capability of the firm.
marketing objectives of the firm are
- A smaller company may find it most
achieved. Strategic marketing calls for
profitable to supply only the construction
selecting a target market and
material needs of the residential
developing an appropriate marketing
segment. A bigger company, however,
mix. The marketing mix consists of the
may find it more profitable to perform
appropriate levels of product quality,
actual construction in addition to selling
price, promotion, and place.
construction materials.
Factors Used in Selecting a Target Market.
- A target market must have the ability to
satisfy the profit objectives of the
company. In selecting a target market,
the following factors must be taken into
consideration:
1. the size of the market, and
 expected to function properly. When funds are
not enough to finance planned activities, the
risk of failure to achieve objectives becomes
apparent.

The engineer manager must understand

that the finance function is very important
management concern. This is true because
without adequate funds it will be difficult, if not
impossible to proceed with the production of
products or services, the distribution of output,
research and development, and others.

WHAT THE FINANCE FUNCTION IS

The finance function is an important

management responsibility that deals with the
“procurement and administration of funds with
the view of achieving the objectives of
business.” If the engineer manager is running
the firm as a whole, he must be concerned with
the determination of the amount of funds
required, when they are needed, how to
procure them, and how to effectively and
efficiently use them.

In the performance if his duties, the

engineer manager, at whatever management
level he is, must do his share in the
achievement of the financial objectives of the
company.

The finance function is one of the three basic

management functions. The other two are
production and marketing.

THE FINANCE FUNCTION: A Process Flow

DETERMINATION OF FUND
REQUIREMENTS
LESSON 12: MANAGING THE FINANCE
1. Short-term
FUNTION 2. Long-term

Engineering firms need funds to finance PROCUREMENT OF FUNDS

their operations. To be assured of continuous 1. Short-term
supply of funds, there is a need to manage 2. Long-term
properly the finance function. When funds are
made available in right amounts at the right
time, the engineering organization may be
EFFECTIVE AND EFFICIENT USE OF the problem. A new problem, however,
FUNDS will be created, i.e., how the credit
arrangement will be financed.
1. Short-term
2. Long-term

Financing the Purchase of Inventory

THE DETERMINATION OF FUND
REQUIREMENTS The maintenance of adequate inventory
is crucial to many firms. Raw materials,
Any organization, including the supplies, and parts are needed to be kept in
engineering firm, will need funds for the storage so they will be available when needed.
following specific requirements. Many firms cannot cope with delays in the
1. To finance daily operation availability of the required material inputs in the
2. To finance the firms credit services production process, so these must be kept
3. To finance the purchase of major ready whenever required.
assets

The purchase of adequate inventory,

Financing Daily Operations
however, will require sufficient funding and this
The day-to-day operations of the must be secured. Sometimes, inventories
engineering firm will require funds to take care unnecessarily tie-up large amount of funds.
of expenses as they come. Money must be The engineer manager must devise some
made available for the payment of the means to make sure this situation does not
following. happen.

1. Wages and salaries

2. Rent
Financing the Purchase of Major Asset
3. Taxes
4. Power and light
5. Marketing expenses like those for
advertising, entertainment, travel Companies, at times, need to purchase
espenses, telephone and telegraph, major assets. When top management decides
stationery and printing, postpage, etc. on expansion, there will be a need to make
6. Administration expenses like those for investments in capital assets like land, plant,
auditing, legal, services, etc. and equipment. It is obvious that the financing
of the purchase of major assets must come
Any delay in the settlement of the from long-term sources.
foregoing expenses may disrupt the
effective flow in the company. It may
also erode the public’s confidence in the THE SOURCES OF FUNDS
ability of the company to operate on a
long-term basis. Cridetors, for instance,
may withhold the extension of credit to To finance its various activities, the
the company. engineering firm will have to make use of its
cash inflows coming from various sources,
Financing the Firm's Credit Services namely:
It is oftentimes unavoidable for 1. Cash sales. Cash is derived when the
firms to extend credit to customers. If firm sells its products or services.
the engineering firm manufactures 2. Collection of Accounts Receivables.
products, sales terms vary from cash to Some engineering firms extend credit to
90-day credit extensions to customers. customers. When these are settled, cash is
Construction firms will have to finance made available.
the construction of government projects 3. Loans and Credits. When other
that will be paid many months later. sources of financing are not enough, the firm
will have to resort to borrowing.
When a new chemical 4. Sale of assets. Cash is sometimes
manufacturing firm finds difficulty in obtained from the sale of the company's
convincing distributors to carry their assets.
products, a credit extension may solve
 5. Ownership contribution. When cash is 1. Short-term financing is often less costly.
not enough, the firm may tap its owners to Since short-term financing is favored by
provide more money. creditors, they make it available at less cost.
6. Advances from customers. 2. Short-term financing offers flexibility to the
Sometimes, custo- mers are required to pay borrower. After the borrower has settled his
cash advances on orders made. This helps the short-term debt, he may consider other means
firm in financing its production activities. of financing, if he still requires it. Long-term
financing, in contrast, eliminates this option. He
is stuck with the long-term funds even if he no
Short-Term Sources of Funds longer requires it.
Loans and credits may be classified as
short-term, medium-term, or long-term. Short- Disadvantages of Short-Term Credits.
term sources of funds are those with Short-term financing has also some
repayment schedules of less than one year. disadvantages. They are as follows:
Col laterals are sometimes required by short-
term creditors.
Advantages of Short-Term Credits. 1. Short-term credits mature more frequently.
When the engineering firm avails of short-term This may place the engineering firm in a tight
credits, the following advantages may be position more often than necessary. When the
frequency of the firm's cash inflows are more
derived:
than twelve months apart, the firm could be in
1. They are easier to obtain. Creditors serious trouble meeting its short-term
maintain the view that the risk involved in obligations.
short-term lending 249 2. Short-term debts may, at times, be more
costly than long-term debts. When short-term
debts are used to finance long-term
expenditures, the fre- quent renewals,
adjustment of terms, and shop- ping for new
sources may prove to be more costly.

Supplies of Short-Term Funds. Short-

term financing is provided by the following: 1.
trade creditors
3. commercial banks
4. commercial paper houses
5. finance companies factors, and
6. insurance companies.

Trade creditors refer to suppliers

extending credit to a buyer for use in
manufacturing, processing, or reselling goods
for profit. The instruments used in trade credit
consist of the following: (1) open-book credit,
(2) trade acceptance, and (3) promissory
notes.

The open-book credit is unsecured and

permits the customer to pay for goods
delivered to him in a specified number of days.
For financially weak engineering firms, the
open-book credit is a very useful source of
financing.

is also short-term. Thus, short-term credits are The trade acceptance is a time draft
made easily available to qualified borrowers. drawn by a seller upon a purchase payable to
the seller as payee, and accepted by the indicate that insurance companies in the
purchaser as evidence that the goods shipped Philippines regularly make investments in
are satisfactory and that the price is due and short-term commercial papers and promissory
payable. Under the terms granted in the trade notes.
acceptance, the seller allows the buyer to pay
within a certain number of days. The
arrangement provides the buyer some relief in Long-Term Sources of Funds
financing his short-term requirements.
There are instances when the
engineering firm will have to tap the long-term
sources of funds. An example is when
A promissory note is an unconditional
expenditures for capital assets become
promise in writing made by one person to
necessary. After the amount required is
another, signed by the maker, engaging to pay,
determined, a decision has to be made on the
on demand or at a fixed or determinable future
type of source to be used.
time, a certain sum of money to, or to the order
of, a specified person or to bearer. Long-term sources of funds are
classified as follows:
1. long-term debts
Commercial banks are institutions which
2.common stocks, and
individuals or firms may tap as source of short-
term financing. Commercial banks grant two 3. retained earnings.
types of short-term loans: (1) those which
Long-term debts are sub-classified into
require collateral, and (2) those which do not
term loans. and bonds
require collateral. Examples of commercial
banks granting short- term loans are City Trust, .
Premier Bank, and Land Bank.
Term Loans. A term loan is a
Commercial paper houses are those "commercial or industrial loan from a
that help business firms in borrowing funds commercial bank, commonly used for plant and
from the money market. Under this scheme, equipment, working capital, or debt
the business firm in need of funds issues a repayment." Term loans have maturities of 2 to
commercial paper, which is a short-term 30 years."
promissory note, generally unsecured, and
issued by large, estabished firms. The
commercial paper is sold to investors through The advantages of term loans as a long-
the commercial paper house. term source of funds are as follows:

Business finance companies are 1. Funds can be generated more

financial institutions that finance inventory and quickly than other long-term sources.
equipment of almost all types and sizes of
business firms. Examples of finance 2. They are flexible, i.e., they can be
companies in the Philippines are Philacor easily tailored to the needs of the
Credit Corporation and Consolidated Orix borrower.
Leasing and Finance Corporation. 3. The cost of issuance is low
compared to other long- term sources.

Factors are institutions that buy the

accounts receivables of firms, assuming Bonds. A bond is a certificate of
complete accounting and col- ection indebtedness issued by a corporation to a
responsibilities.' Engineering firms which lender. It is a marketable security that the firm
maintain sizable amounts of accounts sells to raise funds. Since the ownership of
receivable may avail of the services of factors bonds can be transferred to another person,
when they are in dire need of cash. investors are attracted to buy them.

Insurance companies are also possible

sources of short-term funds. Industry reports
 The type of bonds are shown in Figure with an inferior claim over other debts
12.3.
convertible into shares of common stock
warrants are options which permit the
Common Stocks. The third source of holder to buy stock of the issuing company at a
long-term funds consists of the issuance of stated price
common stocks. Since common stocks
pays interest only when earned
represent ownership of corporations, many
investors are placing their money in them.

When properly utilized, common stocks

can be cheaper and more stable sources of
long-term funds. Unlike bonds and term loans
which must be repaid at a certain date,
common stocks do not have maturity and
repayment dates.

Retained Earnings. Retained earnings

refer to "corporate earnings not paid out as
dividends." This simply means that whatever
earnings that are due to the stock- holders of a In like manner, the sole owner of an
corporation are reinvested. Because these engineering firm may decide to reinvest
retained earnings can be used by the firm whatever profits he derives from his business.
indefinitely, they become an important source The same decision may be adapted by the
of long-term financing. owners of a partnership.

Figure 12.3 Types of Bonds THE BEST SOURCE OF FINANCING

TYPE OF BOND
As there are various fund sources, the
engineer manager, or whoever is in charge,
1. Debentures must determine which source is the best
available for the firm.
2. Mortgage bond
3. Collateral trust bond
To determine the best source, Schall
4. Guaranteed bond
and Haley recommends that the following
5. Subordinated debentures factors must be considered:"1
6. Convertible bonds 1. flexibility
7. Bonds with warrants 2. risk
8. Income bonds. 3. income
4. control
FEATURE 5. timing
no collateral requirement 6. other factors like collateral values,
flotation costs, speed, and exposure.
secured by real estate
secured by stocks and bonds. owned by
the issuing corporation
payment of interest or principal is
guaranteed by one or more individuals or
corporations
Flexibility the current owners do not want this to happen,
they must consider other means of financing.
Some fund sources impose certain
restrictions on the activities of the borrowers. Timing
An example of a restriction is the prohibition on
The financial market has its ups and
the issuance of additional debt instruments by
downs. This means that there are times when
the borrower.
certain means of financing provide better
benefits than at other times. The engineer
manager must, therefore, choose the best time
As some fund sources are less
for borrowing or selling equity.
restrictive, the flexibility factor must be
considered. In general, however, short-term Other Factors
fund sources offer more flexibility than long-
There are other factors considered in
term sources. This is so because after settling
determining the best source of funds. They are
the debt, short-term borrowers may shift to
as follows:
other types of financing. Long-term borrowers
are given this opportunity only after a longer 1. Collateral values: Are there assets
period of waiting. available as collateral?
2. Flotation cost: How much will it cost
to issue bonds or stocks?
Risk
3. Speed: How fast can the funds
When applied to the determination of
required be raised? 4. Exposure: To what
fund sources, risk refers to the chance that the
extent will the firm' be ex- posed to other
company will be affected adversely when a
parties?
particular source of financing is chosen.
THE FIRM'S FINANCIAL HEALTH
Generally, short-term debt "subjects the
borrowing firm to more risk than does financing In general, the objectives of engineering
with long-term debt." This happens because of firms are as follows:
two reasons:
1. to make profits for the owners;
1.short-term debts may not be renewed
with the same terms as the previous one, if 2. to satisfy creditors with the repayment
they can be renewed at all. of loans plus interest;

2. since repayments are done more 3.to maintain the viability of the firm so
often, the risk of defaulting is greater. that customers will be assured of a continuous
supply of products or services, employees will
Income be assured of employment, suppliers will be
assured of a market, etc.
The various sources of funds, when
availed of, will have their own individual effects
in the net income of the engineering firm.
When the firm borrows, it must gene- rate The foregoing objectives have better
enough income to cover the cost of borrowing chances of achievement if the engineering firm
and still be left with sufficient returns for the is financially healthy and has the capacity to be
owners. so on a long-term basis.

It is possible that the owners were

enjoying higher rates of return on their INDICATORS OF FINANCIAL HEALTH
investments before borrowing was made. The
reverse may happen, however, at other times. The financial health of an engineering
Nevertheless, the effects on income must be firm may be determined with the use of three
considered in determining the source of basic financial statements. These are as
funding to be used. follows:

Control 1. Balance sheet-also called statement

of financial position;
When new owners are taken in because
of the need for additional capital, the current 2. Income statement also called
group of owners may lose control of the firm. If statement of operations;
 3. Statement of changes in financial
position.

To be able to determine the financial

health of a firm, the appropriate financial
analysis must be undertaken. A full discussion
of financial statements and analysis are
indicated In Chapter 9. Examples of balance
sheet and income statements are also
presented in Chapter 9. An example of a
statement of changes in financial positions is
shown in Figure 12.4.

RISK MANAGEMENT AND INSURANCE

The engineer manager, especially those
3. floods.
at the top level, is entrusted with the function of
making profits for the company. This will 4. accidents
happen if losses brought by improper
5. nonpayment of bills by customers (bad
management of risks are avoided.
debts) 6. disability and death
Risk is a very important concept that the
7. damage claim from other parties.
engineer manager must be familiar with. Risks
confront people everyday. Companies are
exposed to them. Newspapers report on a daily
basis the destruction of life and property. Types of Risk
Companies that could not cope with losses are Risks may be classified as either pure or
forced to shut down, according to reports. speculative. Pure risk is one in which "there is
Fortunately, the engineer manager is only a chance of loss."13 This means that
not entirely helpless. He can use sound risk there is no way of making gains with pure risks.
management practices to avoid the threat of An example of pure risk is the exposure to loss
bankruptcy due to losses. of the company's motor car due to theft. Pure
risks are insurable and may be covered by
Risk Defined insurance.
Risk refers to the uncertainty concerning Speculative risk is one in which there is
loss or injury. The engineering firm is faced a chance of either loss or gain. This type of risk
with a long list of exposure to risks, some of is not insurable. An example of a speculative
which are as follows: risk is investment in common stocks. If one
wants to make gains in the common stock
1. fire
market, the nuances and intricacies of
2. theft investments must be learned and properly
applied. Also, operating the engineering firm is
Hid
a kind of speculative risk. If profits are
expected, then proper management techniques
must be used.
Figure 12.4 A Sample Statement of Change in
Financial Position
SILVER LINING ELECTRONICS What is Risk Management
CORPORATION Statement of Change in
Risk management is "an organized
Financial Position for the Year Ended
strategy for protecting and conserving assets
December 31, 1997
and people." The purpose of risk management
(P000) is "to choose intelligently from among all the
available methods of dealing with risk in order
to secure the economic survival of the firm"15
 by way of reducing the concentration of
exposures.18 Examples of efforts on loss
Risk management is designed to deal
reduction are as follows:
with pure risks, while the application of sound
management practices are directed towards 1. physically separating buildings to
speculative risks that are inherent and cannot minimize losses in case of fire;
be avoided.
2. using fireproof materials on interior
building construction;
Methods of Dealing with Risk 3. storing inventory in several locations
to minimize losses in cases of fire and theft;
4. maintaining duplicate records to
There are various methods of dealing
reduce accounts receivable losses;
with risks. They are as follows:16
5. transporting goods in separate
1. the risk may be avoided
vehicles instead of concentrating high values in
2. the risk may be retained
3. the hazard may be reduced single shipments;
4. the losses may be reduced 6. prohibiting key employees from
5. the risk may be shifted traveling together; and
7. limiting legal liability by forming
A person who wants to avoid the risk of several separate corporations.
losing a property like a house can do so by
simply avoiding the ownership of one. There
are instances, however, when ownership
Another method of handling risk is by
cannot be avoided like those for equipment,
shifting it to another party. Examples of risk
appliances, and materials used in the
shifting are hedging, subcontracting,
production process. In this case, other
incorporation, and insurance.
methods of handling risk must be considered.

Hedging refers to making commitments

Risk retention is a method of handling
on both sides of a transaction so the risks
risk wherein the management assumes the
offset each other.
risk. A planned risk retention, also called self-
insurance, is a conscious and deli- berate When a contractor is confronted with a
assumption of a recognized risk. In this case, contract bigger than his company's capabilities,
management decides to pay losses out of he may invite sub- contractors in so that some
currently available funds. Unplanned risk of the risks may be shifted to them.
retention exists when management does not
recognize that a risk exists and unwisely
believes that no loss could occur. In a corporation, a stockholder is able to
make profits out of his investments but without
individual responsibility for whatever errors in
Hazards may be reduced by simply decisions are made by the management. The
instituting appropriate measures in a variety of liability of the stockholder is limited to his
business activities. An example is prohibiting capital contribution.
unauthorized persons to enter the cashier's
office. This will reduce the hazard of theft.
Another example is prohibiting company To shift risk to another party, a company
drivers from taking alcohol or drugs while on buys insurance. When a loss occurs, the
duty. Newspaper re- ports on the accidental company is reimbursed by the insurer for the
killing of three persons including Princess loss incurred subject to the term of the
Diana is a well-publicized case of drunken insurance policy.
driving.

Shown in Figure 12.5 is an example of

When losses occur in spite of preventive insurance products sold by a company.
measures, the severity of loss may be limited
 Personal Accident Cover
Figure 12.5 Examples of Insurance Products
Sold by a Company
• BONDS
All Kinds of Bonds

PEOPLE'S TRANS-EAST ASIA

INSURANCE CORPORATION
Mercantile Insurance Bldg.
Gen. Luna cor. Beaterio Sts.
Intramuros, Manila
Tel. Nos. 49-12-81 to 85
527-7611 to 15
(connecting all departments)

• FIRE
Fire and Allied Perils, Business
Interruption
• MARINE SUMMARY
Hull Insurance, Shipowner's Liability
Insurance Protection and Indemnity
Financing the engineering firm is a very
important management activity. There is a
• CASUALTY need to assure everyone concerned that funds
are available when they are needed.
Motorcar, Property Floater, Personal
Accident, Comprehensive General: Liability,
Money, Security and Payroll, Cash in Transit, The first area of concern is the
Burglary determination of fund requirements. If the
amount needed is already known, the next step
is to determine the appropriate source of
• ENGINEERING financing.
Contractor's All Risk, Machinery Break-
down, Contractor's Plant and Equipment All The various fund sources have their
Risks, Erector's All Risks, Boilers and own individual strengths and limitations. It is
Explosion, Electronic Insurance, Consequential wise to find out through analysis which will
Losses benefit the engineering firm most.

• AVIATION When the internal sources of funds are

not enough to finance operations, external
Hull and Liabilities Insurance, Airport
sources like those granting loans and credits
Operator Liability, may be tapped.
Hangarkeeper's
Liability, Aircraft Refueling
In the determination of the best source
Liability,
of financing, the following factors must be
Pilot's License Insurance, considered: flexibility, risk, income, control,
Pilot/Crew timing, and others.
 To achieve its goals, the engineering
firm must be financially healthy. There are
certain indicators of financial health. They are
broadly classified into the following categories:
liquiZdity, efficiency, financial leverage, and
profitability.

An important aspect of managing the

finance function is risk management. When
assets and human resources are protected and
conserved, the engineering firm is well on its
way to achieve its objectives.

The various ways of handling risks are:

risk avoidance, risk retention, hazard reduction,
loss reduction, and risk shifting.