INDUSTRIAL ENGINEERING AND MANAGEMENT V. Ravi
Industrial Engineering and Management V. RAVI Associate Professor Department of Humanities Indian Institute of Space Science and Technology Government of India, Department of Space Trivandrum Delhi-110092 2015
INDUSTRIAL ENGINEERING AND MANAGEMENT V. Ravi 2015 by PHI Learning Private Limited, Delhi. All rights reserved. No part of this book may be reproduced in any form, by mimeograph or any other means, without permission in writing from the publisher. ISBN-978-81-203-5110-3 The export rights of this book are vested solely with the publisher. Published by Asoke K. Ghosh, PHI Learning Private Limited, Rimjhim House, 111, Patparganj Industrial Estate, Delhi-110092 and Printed by Mohan Makhijani at Rekha Printers Private Limited, New Delhi-110020.
Dedicated to Lord Balaji
Contents Preface Acknowledgements Part 1 Introduction to Industrial Engineering and Management 1. Introduction to Industrial Engineering 3 13 Introduction 3 1.1 History of Industrial Engineering 4 1.1.1 Phase I Pre-industrial Revolution Phase (Upto Early 1800s) 4 1.1.2 Phase II Industrial Revolution Phase (Early 1800s to Late 1800s) 4 1.1.3 Phase III Scientific Management Phase (Late 1800s to 1940) 4 1.1.4 Phase IV Operations Research and Quantitative Techniques Phase (Late 1940s to Early 1980s) 5 1.1.5 Phase V Automation and Computer Integrated Manufacturing Phase (Since Early 1980s) 5 1.2 Primary Activities of Industrial Engineering 8 1.3 Techniques of Industrial Engineering 8 1.4 Applications of Industrial Engineering 9 1.4.1 Applications in Manufacturing Sector 9 1.4.2 Applications in Service Sector 10 1.5 Functions of an Industrial Engineer 10 1.6 Production and Operations Management 10 1.6.1 Objectives of Production Management 11 1.6.2 Framework of Production and Operations Management 11 Review Questions 12 2. Development of Management Thought 14 24 Introduction 14 2.1 Classical Management Approach 14 2.1.1 Frederick Winslow Taylor s Scientific Management 14 2.1.2 Henri Fayol s Administrative Management 16 2.1.3 Max Weber s Bureaucratic Management 17 v xix xxi
vi Contents 2.2 Neo-classical Approach to Management 18 2.2.1 Hawthorne Experiments and Human Relations Approach 18 2.2.2 Behavioural Science Approach to Management 20 2.3 Modern Approaches to Management 21 2.3.1 Social Systems Approach 21 2.3.2 Quantitative Approach to Management 22 2.3.3 Decision Theory Approach to Management 22 2.3.4 Systems Approach to Management 22 2.3.5 Contingency or Situational Approach to Management 23 2.3.6 Contributions of Peter Drucker to Management 23 Review Questions 23 3. Functions of Management 25 35 Introduction 25 3.1 Management Functions 25 3.1.1 Planning 25 3.1.2 Organising 26 3.1.3 Staffing 26 3.1.4 Directing 26 3.1.5 Motivating 27 3.1.6 Controlling 27 3.1.7 Coordination 27 3.1.8 Communication 28 3.2 Roles of Manager 28 3.2.1 Interpersonal Roles 29 3.2.2 Informational Roles 29 3.2.3 Decisional Roles 29 3.3 Management and Administration 30 3.4 Management: A Science or An Art 30 3.4.1 Management as a Science 31 3.4.2 Management as an Art 31 3.5 Managerial Skill 31 3.6 Mission, Vision and Objectives of Organisation 32 3.7 Management by Objectives 32 3.7.1 Process of Management by Objectives 33 3.7.2 Benefits of Management by Objectives 33 3.7.3 Limitations of Management by Objectives 34 3.8 Universality of Management 34 3.8.1 Arguments for Universality 34 3.8.2 Arguments Against Universality 35 Review Questions 35 4. Organisation Structure 36 48 Introduction 36 4.1 Organising 36 4.1.1 Necessity of Organising 36 4.1.2 Essential Features of Good Organisation 37 4.1.3 Process of Organisation 37 4.1.4 Principles of Organisation 38
Contents vii 4.2 Span of Control 39 4.3 Formal and Informal Organisation 39 4.4 Types of Organisation Structures 40 4.4.1 Line, Military or Scalar Organisation 40 4.4.2 Functional Organisation 41 4.4.3 Line and Staff Organisation 43 4.4.4 Project Organisation 44 4.4.5 Matrix Organisation 45 4.4.6 Committee Organisation 46 4.4.7 Departmentation 47 Review Questions 47 5. Types of Business Organisations 49 57 Introduction 49 5.1 Types of Ownership 49 5.1.1 Sole Proprietorship 50 5.1.2 Partnership 51 5.1.3 Joint Stock Company 52 5.1.4 Cooperative Organisations (Societies) 55 5.1.5 Public Sector Organisations 56 Review Questions 57 6. Personnel Management 58 68 Introduction 58 6.1 Meaning of Personnel Management 58 6.1.1 Principles of Personnel Management 59 6.2 Manpower Planning 60 6.3 Recruitment and Selection of Manpower 60 6.3.1 Internal Sources of Recruitment 61 6.3.2 External Sources of Recruitment 61 6.3.3 Method of Scientific Selection of Employees 62 6.4 Induction and Follow Up 63 6.5 Training and Development of Manpower 64 6.6 Various Methods for Training of Workers 65 6.7 Supervisory Training Methods 66 6.8 Executive Training and Developmental Methods 66 6.8.1 On-the-job Training Methods 67 6.8.2 Off-the-job Training Methods 67 Review Questions 68 Part 2 Financial Aspects Related to Business 7. Financial Management 71 81 Introduction 71 7.1 Functions of Financial Management 71 7.1.1 Executive Financial Functions 71 7.1.2 Routine Financial Functions 72
viii Contents 7.2 Capital 73 7.2.1 Fixed Capital 73 7.2.2 Working Capital 73 7.3 Sources of Finance 75 7.4 Shares 75 7.4.1 Preference Shares 75 7.4.2 Equity Shares (Ordinary Shares) 76 7.4.3 Deferred Shares 76 7.5 Debentures 77 7.5.1 Kinds of Debentures 77 7.6 Ploughing Back of Earning (Internal Financing) 78 7.7 Loans from Banks 78 7.7.1 Types of Assistance 78 7.7.2 Security for Providing Assistance 79 7.8 Trade Credit 79 7.9 Public Deposits 79 7.10 Financial Institutions 80 7.10.1 Financial Institutions in India 80 Review Questions 80 8. Management Accounting 82 96 Introduction 82 8.1 Meaning and Uses of Management Accounting 82 8.2 Important Accounting Terminology 82 8.3 Accounts 84 8.3.1 Rules of Debit and Credit 84 8.4 Book-Keeping 84 8.5 Profit and Loss Statement 85 8.6 Balance Sheet 86 8.7 Cash Book 86 8.8 Elements of Cost 87 8.8.1 Cost of Material 87 8.8.2 Cost of Labour 87 8.8.3 Expenses 88 8.9 Estimation of Selling Price of a Product 89 8.10 Financial Ratios and Their Significance 90 8.10.1 Liquidity Ratios 91 8.10.2 Leverage Ratios 91 8.10.3 Operational Ratios 92 8.10.4 Profitability Ratios 92 8.11 Budget and Budgetary Control 93 8.12 Types of Budgets 93 8.12.1 Budget on the Basis of Level of Activity 94 8.12.2 Budget on the Basis of Type of Expenditure 94 8.13 Master Budget 95 Review Questions 95
Contents ix 9. Breakeven Analysis 97 103 Introduction 97 9.1 Breakeven Analysis and Point 97 9.2 Profit/Volume Ratio 97 9.3 Angle of Incidence and Margin of Safety 98 9.4 Breakeven Chart 98 9.4.1 Constructing a Breakeven Chart 98 9.4.2 Managerial Uses of Breakeven Chart 99 9.4.3 Limitations of Breakeven Chart 100 Review Questions 102 10. Depreciation 104 110 Introduction 104 10.1 Meaning and Factors of Depreciation 104 10.2 Classification of Depreciation Problems 104 10.2.1 Depreciation Due to Physical Conditions 105 10.2.2 Depreciation Due to Functional Conditions 105 10.3 Methods of Calculating Depreciation 106 10.3.1 Straight-line or Fixed Installment Method 106 10.3.2 Diminishing Balance Method 106 10.3.3 Sinking Fund Method 107 10.3.4 Annuity Method 107 10.3.5 Insurance Policy Method 108 10.3.6 Machine Hour Basis Method 108 10.3.7 Sum of the Years Digit Method 109 Review Questions 110 11. Equipment Replacement Policy 111 122 Introduction 111 11.1 Equipment Replacement 111 11.1.1 Factors Responsible for the Replacement of Equipment 111 11.2 Replacement Analysis and its Methods 112 11.2.1 Payback Period Method 112 11.2.2 Annual Cost Method 113 11.2.3 Total Life Average Method 113 11.2.4 Present Worth Method 113 11.2.5 Percentage Rate of Return Method 114 11.2.6 Discounted Rate of Return 114 11.2.7 MAPI Method 114 11.3 Replacement Models 118 11.3.1 Replacement of Items that Deteriorate with the Passage of Time 118 11.3.2 Replacement of Items that Fail Completely and are Expensive to be Replaced 119 Review Questions 121
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