Process of product development, its management Manufacturing, its organization, planning & control,

management, arrangement of whole operation in a profitable & effective way.

Quality and its standards, TQM, quality management tools and techniques, factors involved in shaping use of quality in engineering organizations, cost of implementing quality system.

Engineers in project groups, as team members or managers, project management, techniques of planning and monitoring, project costs, case studies.

Personnel management and personal organization.

Issues discussed by Engineering Management

EngineeringDefinition of engineering stated by The

Accreditation Board For Engineering & Technology is:

“A profession in which the knowledge of mathematical & natural sciences gained by study, experience & practice is applied with judgement to develop ways to utilize, economically, the materials & forces of nature for benefit of mankind.”

Engineers:

Engineers are processors of information, which they gather From a wide range of sources. If they are to be competent

And enjoy the challenge of creative engineering, they must be good at gathering information & disseminating it.

It is not possible to be successful in any areas if one is not Able to communicate. Therefore balance of technical &

Managerial skills is necessary to be practiced by engineers.

It is impossible to be a professional engineer without the knowledge of management.

Nature of Organizations It often seems that org. exist simply to make money, but in

reality this is rarely the case, although money plays an important role.

The optimum activities to be undertaken by the business org. employees are determined and derived from a clear statement of aims and objectives of the whole org.

Once the org. has a purpose and undertakes activities to achieve those aims, it surely require a legal identity. Because the law regulates existence of trading organizations for protecting the rights of all involved individuals/stakeholders.

No org. can trade legally without conforming to the requirements of law, therefore there are few forms of business recognized by law because few legislative and other factors affect the business transactions.

Once the orgs. exist with an aim & legal identity they naturally try to survive, for that they have to acquire such strategies through which they can provide something according to customer demand.

The qualified engineers work in engineering industry in: Manufacturing companies Design consultancies Public organizations.Many people qualify as engineers but while following their career

path they usually move away from engineering although still using their numerical & managerial skills in the fields of finance, computing, management & admin.

Nature of Organizations

Orgs. Vary enormously from 1, 2 or 3-person design consultancy (where everyone is a partner) to a multinational conglomerate where an engineer could be working in a division with 200-300 other engineers.

It is necessary for an engineer to understand the overall organizational aims as he has to manage a project, finance or HR effectively. And this qualifies the requirement of management knowledge.

The way an org. has been formed actually constrains its operations e.g. methods of raising the capital for expansion is greatly affected by its legal form.

Although engineers don’t often involve directly in fund-raising processes but for the sake of understanding the legal implications, they need to have know-how while choosing one method over the other.

The Mission Statement Purpose of the company affects its management. The company

needs to decide once & for all, exactly what it is trying to achieve because one cannot steer a course without knowing the direction.

“It is a statement that sets the direction & thrust of the organization.”

The statement is an objective & has the same properties.Example: A small pump manufacturer having 30 employees.

What is the purpose of the business? Does it exist to push back the frontiers of pump design?Does it exist to provide wealth for the employees?Does it exists to make money?All these are unlikely reasons for originating the company. Because

many companies produce less profit than would be provided by investing the assets elsewhere but still they trade.

There could be number of reasons & number of strategies for them behind the existence of a company e.g. take the same case:

1. If pump manufacturer exists to lead the world in pump technology then much R & D would be appropriate.

2. If the company purpose is long-term survival then perhaps moderate R & D coupled with establishment of alternative business lines would be best.

3. If the aim is to meet all pump needs of a particular market sector then forging special links with that market & excluding competitors from it would be best.

Example of American Railways CompaniesTheir Mission Statement was:

To provide a quarter of all the railway miles sold in USA over the next decade.

It seems a perfectly sensible goal because org is engaged in making money from sale of rail journeys. It cant be told from the statement whether it is realistic target for any particular company but it does certainly sounds a worthy objective.

In fact, many companies at time used exactly such mission statement & ultimately went out of business because none of these ever thought any invention of the type invented by Wright brothers which replaced them. Now How is the invention of airplane related to these MS?

None except that the rail companies turned blind eye towards this new development. As almost after 30 yrs people replaced their use by airplanes for all kinds of uses and cargo freights to any corner of the world.

Error of American Railways CompaniesThey chose simply a wrong mission statement. Their futures could

have been different if they had chosen a statement like following.“To provide a quarter of all the transport miles sold in USA over the next decade.”

By simply changing only one word & they would have kept a keen eye towards developing new transport technologies & ultimately would have been the 1st to add air transport to its portfolio of products.

A rail company have success in achievement of this goal would have ended up owning the airlines instead of running out of business due to them & all because just one word was incorrectly chosen.

MBO—Mgmt By ObjectivesOnce a MS has been selected & agreed upon, the mgmt of organization must

communicate it to all members within the organization.To arrive at task for all members of the organization that contribute to this

central task clearly involves a great deal of subdivision & is far more than one person, or even a small team, is likely to be able to do. Subordinate tasks can be identified from an examination of the MS implications. And then each of these tasks may have component tasks, further can be subdivided also.

Example from pump manufacturer:MS:- To return a profit of 14% of turnover by supplying centrifugal water pumps to European customers over the calendar year.

Now the senior mgmt can produce supporting tasks by utilizing their technical knowledge and skills. By considering sales price & profit margin for all different models of pumps, target numbers for each model to be sold can be prepared.

MBO—Mgmt By ObjectivesThe org will have to manufacture the pumps & they have to be sold & shipped.

The directors can now start making objectives for each department by using their knowledge of business & company.

Even the very presence of a department is governed by the MS because simply the production dept of pump manufacture exists to meet only the manufacturing needs of the MS, not the other way round.

Objectives (examples):Sales dept: logging fifty orders a month.

Manufacturing: meeting every order within 22 days with an average manufacturing cost of less than 65% of sales price, etc etc.

So all these deptl obj. are chosen to support the MS. If the MS had been different, the deptl obj. would also have been different. Once first level of obj. have been agreed, individuals are made responsible for achieving them. Normally in a company the directors take on objectives at this level.

Divisional objectives

Mission statement

Individual's

objectives

Managers objectives Managers objectivesManagers objectives

Individual's

objectivesIndividual's

objectives

MBO—Mgmt By ObjectivesIn case discussed above manufacturing manager might know that the current

material & labor cost is too high to meet the departmental objective & thus set up the group of engineers to solve the problem.

Similarly the manufacturing department may feel that the amount of sub-contract labor is too high or that commonality of parts between models should be increased. The deptl obj. are used to decide which tasks are actually important & only those which support the dept & then MS are selected.

The size of org helps to decide about the number of times the objectives are subdivided. The progressive subdivision of main task directs the whole organization for achievement of overall goal so that no effort is wasted on undesirable directions & no contradictory programs of activity occur.

APPRAISAL is the tool to find management by objectives extending to every single member of staff in the organization. Because objectives are used to manage the activities of everybody in an org.

People tend to believe that obj don’t change both at corporate & personal level. But such is not the case because Time Do Change & business activities change with them.

MBO—Mgmt By ObjectivesFor this dynamic reason the senior managers of org meet regularly, review

progress towards each of their obj & reassess the value & sensibility of mission statement & consequent obj to it.

Corporate objective are not immovable/static & they need maintenance for appropriation. Sticking doggedly to outdated objectives is not advantageous to the org as it can lead to missing the opportunities.

Conversely there is no benefit in constantly changing objectives in response to every external factor.

The most testing assessment of a management team is how well they maintain their corporate objective to steer their organization between two pitfalls.

Legal Establishment of OrganizationsThere are six ways to establish businesses in private sector:1. Sole traders.2. cooperatives.3. Public companies.4. Private companies.5. Franchising6. Partnerships The legal form & legislation affects them in accordance with the country they

exist in.1) Sole Traders are the establishment of a business with a single owner. It is

the simplest & very common form of business particularly in all streets & easy to dissolve. They are newsagents, run small shops, work as electricians, plumbers, builders & consultants.

Business has no separate legal identity from owner i.e. all debts, liabilities & profit belongs to owner.

One has to be careful for not using another company’s trade name. Working alone is not necessary, can employ other people as well.

Features of sole trader business:1. Accounts do not have to be disclosed publicly and are not available to competitors.2. The owner makes all the decisions and has total control of the business.

Advantage: Speedy decisions can be made and implemented.Disadvantage: Owner’s competence as a manager and business person can restrict the business. He can not discuss his ideas with any one as no-one’s interest is vested in the business.

3. A sole trader can offer a personal service which may be valued more highly by some customers.

4. All debts belong to owner. This can result in hardships if business does badly because many sole traders use homes as security for the business. If debts are excessive it can lead to the forced sale of personal possession; liability for debt is unlimited.

5. Extra capital for development or expansion of business not available.6. The owner of the business has to work himself, all administration and book keeping

will be done by him. Taking holidays will be a problem.7. Sole traders rarely benefit from economies of scale therefore it will be a high cost

enterprise. But some retail trade businesses overcome this problem by forming some sort of collective & purchase large quantities from wholesalers & manufactures , thus getting better price.

2) Partnership 2) Partnerships exist when there are a number of people involved as

partners of business. This type of business can be set without any formality. But drawing up of the partnership deed is advised covering matter like percentage or ratio of profit split-up.

A maximum of 20 partners is allowed according to English law. But tow cases are exempted from this limit.

1. Banks, where maximum allowed is 10.2. Certain professional partnerships like Solicitors & accountants where

law does not permit to form companies, so there could be more than 20.

In partnership every partner is jointly liable for any contract made by any other partner, irrespective of prior knowledge. If one partner agrees to supply a piece of equipment in a stipulated time, then it will have a binding on all the partners.

If a partner leaves the business then all contracts have to be informed that the person concerned will not be liable for future contracts, his name will be removed from business stationary

Features of Partnership business:1. Liabilities and decision making are shared. To reach a decisions difficult because it

requires consultation and agreement among all partners. So clear lines of demarcation for various aspects of management & operations of business can alleviate this problem.Advantage: Skills and experience of partners complement each other. Disadvantage: Liability as a partner exist, if the partner did not know or agree to a particular contract.

2. Less formality and expenses are required in comparison to form a company3. Accounts do not have to be disclosed to competitors or to public.4. Initially it would be possible to raise large amounts of capital because of large

number of people having resources will be involved in it. But extra capital if required will be difficult to obtain due to limited additional security because many people use their homes as security for loan.

5. Partnership can be suddenly dissolved if one partner dies or goes bankrupt, unless this event is covered in the deed of partnership.

6. Holidays & illness can be covered by other partners.

3) Cooperatives & their principles:

Cooperatives involve a voluntary association of people, known as members and operate an enterprise collectively. Their aim may not be to make profit.

1. Cooperatives are run on the basis of one member, one vote irrespective of how much each member has invested. The managers are also democratically elected on same basis.

2. Main advantage: cooperative operations give support to the members of the cooperatives. There is little asset stripping (asset stripping means assets are sold off to provide profits).

3. Membership allows good industrial relationships.4. There is open & voluntary membership for all who work in the organization.5. Interest paid on capital is limited.6. Business is conducted for the mutual benefit of the members & all profits are shared.

Particularly people are paid on the basis of what they need rather than on the basis of ‘market rate for the job’.

7. Business must be socially aware & act responsibly towards other businesses, customers, suppliers & local community

8. They don’t necessarily make profits. Liability of members is achieved by registering with Register of Friendly Societies.

4) Companies: A company has a separate legal identity from its owners & continues to operate

even if the owners & managers change. It is owned by shareholders who each have a liability which is limited to the

nominal value of their shares. This nominal value is originally promised in return for the allotment of shares & is usually different from the price of shares being traded on the stock market.

The trading price reflects the value placed on the company by investors In UK both public & private companies are registered with Registrar of Companies,

whereas in Pakistan they are registered with SSECP. Creating a Company: process of company creation is called incorporation &

during it two documents are drawn up:1) Memorandum of Association2) Article of Association.

Memorandum relates to the external affairs of the company giving information like Company name Registered office Company purpose Its share capital

Companies:The Articles relate to internal operation of the company & include things as: The rights of the shareholders & The powers of its directorsThe above documents along with others defining the amount of capital &

number of directors are submitted to the Registrar of Companies in UK & to SSECP in Pakistan with a fee. Then they are issued a certificate of incorporation.

After incorporation, the company details are made available for public inspection & then private company can start to trade immediately.

But a public company may not trade until the registration authority is satisfied. & unless the necessary share capital has been allotted.

The regulation of the companies is achieved through Companies Act which states that the company has to regularly prepare & publish information about its activities. Further the companies are allowed to carry out only the activities defined in the OBJECTS CLAUSE of its Memorandum of Association. But this clause can be amended in accordance with the Act.

Closing A Companies:Annual Report: ownership of limited liability companies belongs to the

shareholders & they delegate the operation of the company to directors who ultimately become responsible for producing annual reports & accounts in correct form as required by law.

Annual reports must contain both the balance sheet & the profit & loss accounts. Some large companies also have to include other items of financial & general information such as Chairman’s Review & auditors’ report.

A statement of funds source & the way of their usage is also included besides giving a full record of financial transactions undertaken during accounting period.

A company is closed by court order if it cannot pay its debts after experiencing financial difficulties. This winding up process of a company is called Liquidation & it could be done either on compulsory or voluntary basis.

Voluntary Liquidation occurs when company agrees to sell its assets & pay off debts. Whereas Compulsory Liquidation is there when the company is given no choice, an official receiver is appointed by the court who sell off assets & pay off debts. Sometime in some cases the receiver sell the company as going concern indicating the continuation of trade.

Main Features of Operating Company:1. Shareholders have limited liability & that also only to the nominal

value of their shares.2. Company has legal identity separate from its owners & managers.3. Extra capital can be raised in public companies by issuing more

shares. Shares in public companies can be freely transferred without consulting other shareholders.

4. After formation the company has perpetual succession since company management is separate from its ownership.

5. Accounts are must to be disclosed to public thus facilitating the close monitoring of company performance of the competitors.

6. Company objects are limited by the Objects Clause.7. The company is more closely controlled & regulated by outsiders

than sole traders or partnerships because of the Companies Act.

Public Companies Tend to be larger than public

companies. Can be distinguished from private as

their names end in “plc” (public limited company)

To become public the company must have a minimum defined amt of capital. Must have at least one-quarter of each share actually paid for.

Can offer shares to public & transfer them freely subject to the rulings of the Monopolies Commission.

Share dealing is done through Stock Exchange.

Min. membership is two & max is defined by number of shares.

Must have at least two directors & disclose the accounts publicly.

Private Companies Can be distinguished as their names

must contain the word “Limited”, abbreviated to ‘Ltd’.

Owned by shareholders but unlike the public company they cant offer them to public unless done under the agreement made with Inland Rev. i.e. SECP.

In above discussed case the shares can only be offered to company employees.

They don’t have to disclose as much information in accounts as public companies.

They require only one director but a company secretary is must besides that.

5) Franchising:It is an increasingly popular way of setting up a business. The individual willing to start a business has to pay a sum of money

to another organization for becoming its franchise. Franchise is a license to sell the franchisor’s product or service &

this form of business is very common in service industry.

In exchange for the franchise fee & other on-going payments the business receives support of franchisor like:1) Brand name or label under which they are licensed to trade2) Full support for marketing & training.

In return for this support the franchisee is exclusively bound to the franchisor for the period of franchise.

The franchisee also has to find premises & equipment in house style.

Main Features of Franchising:1. Sole traders, partners and companies can operate as franchises.

2. There is limited outlay & risk due to the support of the franchisor. However problem may arise due to insufficient support.

3. The product produced & sold by them is already tested, marketed & has a well know image. Additionally the franchisor may provide large-scale advertising.

4. The franchisee may not be able to manage the product in the best way for their own business as it is not in the best interest of the franchisor.

QUESTIONS

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