Chapter 7

MOTIVATING

What is Motivation?
Factors Contributing to Motivation
Theories of Motivation
Techniques of Motivation
 Productivity
Productivity has always been a serious concern of the
management of firms. If it improves , it means greater chances
for the company to grow and be more stable. One reason why the
Philippines economy cannot move steadily forward is our record
of low productivity for so many years.

Higher productivity is not a result of chance. It happens

because of harder, more efficient, and more intelligent work made
by the employees.
 What is Motivation?

Motivation - refers to the process of activating behavior ,

sustaining it, and directing it toward a particular goal.

Motivating - refers to the act of giving employees reasons or

incentives to work to achieve organizational objectives.
 Factors Contributing to Motivation
• Willingness to do a job. People who like what they are
doing are highly motivated to produce the expected
output.
 Factors Contributing to Motivation
• Self-confidence in carrying out a task. When employees
feel that they have the required skill and training to
perform a task, the more motivated they become.
 Factors Contributing to Motivation

• Needs satisfaction. People will do their jobs well if they

feel that by doing so, their needs will be satisfied.
THEORIES
OF
MOTIVATIO
N
THEORIES OF
MOTIVATION
• Maslow’s Need Of Hierarchy Theory
• Herzberg’s Two Factor Theory
• Expectancy Theory
• Goal Setting Theory
Maslow’s Need of Hierarchy Theory

PROCESS OF
MOTIVATION plus

NEED MOTIVATION

Leads to readiness to Leads to

the next need

NEED ACTION OR
SATISFACTIO GOAL-DIRECTED
N BEHAVIOR
Results to
Maslow’s Need of Hierarchy Theory
Abraham Maslow theorized that human
beings have 5 basic need;
Relevance of Maslow’s Need of Hierarchy Theory to
Engineering Management.

A fulfilled need no longer motivates an individual.

Every subordinate can be in this situation. Maslow’s
theory will serve as the engineer manager’s guide. He
must identify an unfulfilled need and work out a scheme
so that the subordinate will be motivated to work in
order to satisfy the unfulfilled need.
HERZBERG’S TWO-FACTOR
THEORY
• Frederick Herzberg developed this theory that indicates a
satisfied employee is motivated to work harder and that
the dissatisfied employee is not self-motivated.

• He identified two classes of factors associated with

employee satisfaction and dissatisfaction.
 HERZBERG’S TWO-FACTOR
THEORY
• According to his research, there are factors responsible for
job satisfaction and dissatisfaction.
SATISFIERS /MOTIVATION FACTORS
o Achievement
o Recognition
o Work (itself)
o Responsibility
o Advancement
o Growth
DISSATISFIERS /HYGEINE FACTORS

o Company policy & Administration

o Supervision
o Relation w/ supervisors
o Work condition
o Salary
o Relation w/ peers
o Personal life
o Relationship w/ subordinates
o Status
o Security
EXPECTANCY
THEORY
A motivation model based on the assumption that an individual will
work depending on his perception of the probability of his expectation
to happen

Poses the idea that motivation is determined by expectancies and

valences

EXPECTANCIES – belief about the likelihood or probability that a

particular behavioral act will lead to a particular outcome
VALENCES – value an individual outcomes or rewards
 EXPECTANCY
THEORY
Based on the following assumptions:
1. A combination of forces within the individual and in the
environment determines behavior.
2. People make decisions about their own behavior and that of
organizations .
3. People have different types of needs, goals and desires.
4. People make choices among alternative behavior based on the
extent to which they think a certain behavior will lead to desired
outcome.
EXPECTANCY
MODEL
GOAL SETTING
THEORY
Refers to the process of “improving performance with
objectives, deadlines or quality standard “

COMPONENTS OF GOAL SETTING

MODEL
1. Goal Content
2. Goal Commitment
3. Work Behavior
4. Feedback Aspects
GOAL SETTING
THEORY
GOAL CONTENT
The goal must be challenging, attainable, specific and measurable,
time-limited, and relevant.

GOAL COMMITMENT
When individuals or group are committed to the goals they are
supposed to achieved, there is a chance that they will be able to achieve
them.
GOAL SETTING
THEORY
WORK BEHAVIOR
Goals influence behavior in terms of direction, effort , persistence ,
and planning.

FEEDBACK ASPECTS
Feedback provide the individuals with a way of knowing how far
they have gone in achieving objectives . It also facilitates the
introduction of corrective measures whenever they are found to be
necessary.
TECHNIQUES OF
MOTIVATION

21
Individuals may be motivated
to perform through the use of
various techniques. These
techniques may be classified 1 motivation through job design
as follows:
2 motivation through rewards

motivation through employee

3 participation

4 other motivation techniques

for the diverse work force
 MOTIVATION THROUGH JOB DESIGN

JOB DESIGN – SPECIFYING THE TASK THAT CONSTITUTE

A JOB FOR AN INDIVIDUAL OR A GROUP

23
 MOTIVATION THROUGH JOB DESIGN

1 2

Fitting people to jobs Fitting jobs to people

•Realistic job reviews •Job enlargement
•Job rotation •Job enrichment
•Limited exposure

24
 MOTIVATION THROUGH REWARDS

•Extrinsic •Intrinsic

25
 MANAGEMENT OF EXTRINSIC REWARD

1. IT MUST SATISFY INDIVIDUAL NEEDS

2. THE EMPLOYEE MUST BELIEVE EFFORT WILL LEAD TO REWARDS
3. REWARDS MUST BE EQUITABLE
4. REWARDS MUST BE LINKED TO PERFORMANCE

26
MOTIVATION
TECHNIQUES
 MOTIVATION THROUGH
EMPLOYEE’S
PARTICIPATION

-When employees participate in

deciding various aspects of their jobs ,
the personal involvement, oftentimes
is carried up to the point where the
task is completed.
SETTING GOALS

MAKING DECISIONS

SOLVING PROBLEMS

DESIGNING AND IMPLEMENTING

ORGANIZATIONAL CHANGES
Quality Control Circles - a method of direct
employee participation is the quality control
circle (QCC). The objective of the QCC is to
increase productivity and quality of output.

Self-managed Teams – Also known as

autonomous work groups or high
performance teams, self managed teams “take
on traditional managerial tasks as part of
their normal work routine”.
Requisites to Successful Employee Participation
Program
A profit sharing or gain-sharing plan.

A long-term employment with good job security.

A concerned effort to build and maintain group

cohesiveness.

Protection of the individual employee’s rights.

OTHER MOTIVATION TECHNIQUES

❑ Flexible Work Schedules

❑ Family Support Services

❑ 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.
• Sabbaticals – A sabbatical leave is one
given to an employee after a certain number
of years of Service.
Chapter 8:

LEADERSHIP
LEADERSHIP
VS.
MANAGEMENT
“There is a profound difference
between management and leadership, and
both are important. To manage means to
bring about, to accomplish, to have
charge of or responsibility for, to
conduct. Leading is influencing,
guiding in a direction, course, action, opinion.
The distinction is crucial.”
Warren Bennis
 How Leaders Influence Others

Bases of Power
1. Legitimate Power
2. Reward Power
3. Coercive Power
4. Referent Power
5. Expert Power
GREAT LEADERSHIP COMES DOWN
TO ONLY TWO RULES
- Peter Anderton

1. IT IS ABOUT THE PEOPLE

“To be a great leader, you need
to give control not take control
- David Marquet
“A good leader inspires people to
have confidence in the leader; a
great leader inspires people to
have confidence in
themselves.“
- Eleanor Roosevelt
GREAT LEADERSHIP COMES DOWN
TO ONLY TWO RULES
- Peter Anderton

1. IT IS ABOUT THE PEOPLE

2. IT IS ONLY ABOUT YOU

GREAT LEADERSHIP STARTS WITH SELF-
LEADERSHIP
-Lars Sudmann
 GREAT LEADERSHIP STARTS WITH SELF-
LEADERSHIP
-Lars Sudmann

1. Self Awareness

2. Self Reflection

3. Self Regulation
A GOOD LEADER MAKES
YOU FEEL SAFE
- Simon Sinek
SAFE
A LEADER INSPIRES ACTION-
Simon Sinek

WHY

HOW

WHAT
SELL ME THIS PEN
A LEADER INSPIRES ACTION-
Simon Sinek

WHY

HOW

WHAT
THEPEOPLE ARE
NOT THE PROBLEM,
AS A LEADER, YOU OWN
RESPONSIBILITY FOR THE
SYSTEM. IF YOU FIND YOURSELF
BLAMING THE PEOPLE, YOU
SHOULD
LOOK AGAIN
PROBLEMS IN EXECUTION
•People didn’t understand the goal
they were to execute

•People don’t know what to do with the

goal

•Lack of commitment

•Lack of accountability
 DISCIPLINES OF EXECUTION

D1: D2: D3: D4:

Focus on the wildly Act on lead measures Keep a compelling Create a cadence of
important scoreboard accountability
DISCIPLINE 1:
FOCUS ON WILDLY IMPORTANT
•THE DISCIPLINE OF FOCUS

•THE MORE YOU DO, THE LESS YOU

ACTUALLY ACCOMPLISH

•HUMAN BEINGS ARE HARDWIRE TO DO

ONE THING AT A TIME WITH
EXCELLENCE

•TRYING TOO MUCH CAUSES THE BRAIN

TO SLOW DOWN
DISCIPLINE 2:
ACT ON THE LEAD MEASURES
•THE DISCIPLINE OF LEVERAGE

•ALL ACTIONS ARE NOT CREATED

EQUAL, SOME ACTIONS HAVE
MORE IMPACT THAN OTHERS
WHEN REACHING FOR A GOAL

KINDS OF MEASURES:
•LAG MEASURE

•LEAD MEASURES
DISCIPLINE 3:
KEEP A COMPELLING SCOREBOARD

•THE DISCIPLINE OF ENGAGEMENT

•PEOPLE ARE PLAYING DIFFERENTLY

WHEN THEY’RE KEEPING SCORES

•THE FUNDAMENTAL PURPOSE OF THE

SCOREBOARD IS TO MOTIVATE THE

PLAYERS TO WIN
DISCIPLINE 4:
CREATE A CADENCE OF ACCOUNTABILITY

•THE DISCIPLINE OF
ACCOUNTABILITY
•WHERE EXECUTION ACTUALLY
HAPPENS

•ACCOUNTABILITY ON A TEAM IS
SHARED
 INSTALLING 4DX IN YOUR TEAM
STAGES OF CHANGE

GETTING ADOPTION HABITS

CLEAR

LAUNCH OPTIMIZATION
STAGE 1: GETTING CLEAR
•BE A MODEL OF FOCUS
•IDENTIFY LEAD MEASURES
•CREATE PLAYER SCOREBOARD
•SCHEDULE WIG SESSION
STAGE 4: OPTIMIZATION
•ENCOURAGE AND RECOGNIZE IDEAS
•CELEBRATE SUCCESSES
•ENCOURAGE MEMBERS TO CLEAR PATH FOR
STAGE 2: LAUNCH EACH OTHER
•RECOGNIZE WHEN POTENTIALS PERFORM
•REQUIRES FOCUS AND ENERGY
•TRUST THE PROCESS LIKE MODELS
•IDENTIFY YOUR MODELS, POTENTIALS, AND
RESISTERS

STAGE 5: HABITS
•CELEBRATE ACCOMPLISHMENTS OF THE WIGs

STAGE 3: ADOPTION •MOVE IMMEDIATELY TO NEW GOALS

•HELP INDIVIDUAL TEAM MEMBERS BECOME
•FOCUS ON PROCESS BEFORE RESULTS HIGH PERFORMERS
•MAKE COMMITMENTS AND HOLD EACH OTHER
ACCOUNTABLE
•INVEST IN POTENTIALS
•CLEAR PATH FOR RESISTERS
THE NATURE OF
LEADERSHIP
 LEADERSHIP

“the process of influencing and

supporting others to work
enthusiastically toward achieving
objectives”
 TRAITS OF EFFECTIVE LEADERS
1. a high level of personal drive

2. the desire to lead

3. personal integrity

4. self-confidence

5. analytical ability or judgment

6. knowledge of the company, industry, or technology

7. charisma

8. creativity

9. flexibility
 TRAITS OF EFFECTIVE LEADERS

PERSONAL DRIVE
Persons with drive are those identified as
willing to accept responsibility, possess vigor,
initiative, persistence, and health.
Drive is a very important leadership trait
because of the possibility of failure in every
attempt to achieve certain goals.
 TRAITS OF EFFECTIVE LEADERS

THE DESIRE TO LEAD

Leaders with a desire to lead

will always have a reservoir of extra
efforts which can be used whenever
needed.
 TRAITS OF EFFECTIVE LEADERS

PERSONAL INTEGRITY

According to V.K.Saraf, integrity

means and includes “honesty, honour,
incorruptibility, rectitude,
righteousness, uprightness, and
similar virtues.”
 TRAITS OF EFFECTIVE LEADERS

SELF-CONFIDENCE
McKinsey and company found in a study
they conducted that leaders of mid-
sized, high growth companies were
“almost inevitably consummate salesmen
who radiate enormous contagious self
confidence.”
 TRAITS OF EFFECTIVE LEADERS

SELF-CONFIDENCE
Wess Roberts was very precise when he declared
the following as one of the traits of a good
leader:

“A chieftain cannot win if he loses his nerve. He

should be self confident and self-reliant and
even if he does not win, he will know he has done
his best.”
 TRAITS OF EFFECTIVE LEADERS

ANALYTICAL ABILITY

The ability to analyze is one

desirable trait that a leader can use
to tide him over many challenging
aspects of leadership.
 TRAITS OF EFFECTIVE LEADERS

KNOWLEDGE OF THE COMPANY, INDUSTRY OR

TECHNOLOGY

A leader who is well-informed about his

company, the industry where the company
belongs, and the technology utilized by
the industry, will be in a better position
to provide directions to his unit.
 TRAITS OF EFFECTIVE LEADERS

CHARISMA

When a person has sufficient

personal magnetism that leads
people to follow his directives, this
person is said to have good charisma.
 TRAITS OF EFFECTIVE LEADERS

CREATIVITY
Ronnie Millevo defines creativity as “the ability
to combine existing data, experience, and
preconditions from various sources in such a way
that the results will be subjectively regarded as
new, valuable, and innovative, and as a direct
solution to an identified problem situation.”
 TRAITS OF EFFECTIVE LEADERS

FLEXIBILITY
There is wisdom in being flexible.
It allows the other means of
achieving goals when the
prescribed manner is not
appropriate.
 LEADERSHIP SKILLS
Leaders need to have various skills to be effective.
They are:
1. technical skills,
2.human skills, and
3.conceptual skills
 TECHNICAL SKILLS
Technical skill is a specialized knowledge needed to
perform a job.
 HUMAN SKILLS
These skills refer to the ability of a leader to deal with people,
both inside and outside the organization. Good leaders must know how to
get along with people, motivate them, and inspire them.

Apart from motivating, human skills include coaching,

communicating, morale building, training and development, help and
supportiveness, and delegating.
 CONCEPTUAL SKILLS

These skills refer to “the ability to think in abstract

terms, to see how parts fit together to form the whole.”

A very basic requirement for effective implementation is

a clear and well-expressed presentation of what must be done.
 WAYS LEADERS APPROACH PEOPLE TO MOTIVATE THEM

POSITIVE LEADERSHIP
- emphasizing rewards and giving recognitions
 WAYS LEADERS APPROACH PEOPLE TO MOTIVATE THEM

NEGATIVE LEADERSHIP
- punishment is emphasized
 WAYS LEADERS USES POWER

AUTOCRATIC LEADERS
-leaders who do not consult his subordinates
ADVANTAGE
-effective in emergencies
-absolute followership

DISADVANTAGE
-receives little information and ideas from his people as inputs to his
decision making
 WAYS LEADERS USES POWER

PARTICIPATIVE LEADERS
-openly invites his subordinates to participate and share in decisions,
policy-making and operation methods.
ADVANTAGE
-generates a lot of good ideas
-increases supports for decisions

DISADVANTAGE
-time consuming
 WAYS LEADERS USES POWER

FREE-REIN LEADERS
-leaders who set objectives and allow subordinates relative freedom
to achieve the goals.
-most applicable to a certain professional organization.
-its weaknesses are very little managerial control and high degree of
risk
 LEADERS ORIENTATION TOWARDS TASKS AND PEOPLE

EMPLOYEE ORIENTED LEADERS

-considers employees as human beings of intrinsic importance and
with individual and personal need to satisfy.
 LEADERS ORIENTATION TOWARDS TASKS AND PEOPLE

TASK ORIENTED LEADERS

-employees are viewed as the means of getting the work done.
Contingency
Approaches to
Leadership Style
What is Contingency?

 A future event or circumstance which is possible but cannot be predicted

with certainty.
 The contingency approach is a management theory that suggests the
most appropriate style of management is dependent on the context of the
situation and that adopting a single, rigid style is inefficient in the long
term.
 It is an effort to determine through research which managerial practices
and techniques are appropriate in specific situations.
Contingency Approaches

 Fiedler’s Contingency Model

 Hersey and Blanchard’s Situational Leadership Model
 Path- Goal Model of Leadership
 Vroom’s Decision Making Model
 Fiedler’s Contingency Model

 “Leadership is effective when the leader’s style is appropriate to the situation” – Fred Fiedler
 Important Factors: Leadership Style and Situational Favorableness

Leadership Style
 Leased Preferred Coworker (LPC).
 Describing the coworker with whom you least prefer to work.
o High LPC = Relationship-oriented leader.
o Low LPC = Task-oriented leader
❖ Task-oriented leaders - good at organizing teams and projects and getting things done.
❖ Relationship-oriented leaders - good at building good relationships and managing conflict to get
things done.
 Negative Score Positive

Unpleasant 1234 5678 Pleasant

Rejecting 1234 5678 Accepting

Tense 1234 5678 Relaxed

Cold 1234 5678 Warm

Boring 1234 5678 Interesting

Backbiting 1234 5678 Loyal

Uncooperative 1234 5678 Cooperative

 Hostile 1234 5678 Supportive

Guarded 1234 5678 Open

Insincere 1234 5678 Sincere

Unkind 1234 5678 Kind

Inconsiderate 1234 5678 Considerate

Untrustworthy 1234 5678 Trustworthy

Gloomy 1234 5678 Cheerful

Quarrelsome 1234 5678 Harmonious

Situational Favorableness

 Determined by how much control over the situation you have as a leader
(situational control).
 Leader-Member Relations - measures how much your team trusts you.
Greater trust increases the favorableness of the situation and less trust
reduces it.
 Task Structure - measures the tasks that need to be performed.
 Position Power - determined by your authority, meaning the power you
have to reward or punish your subordinates.
 Advantages and Disadvantages

Advantages
 It provides a simple rule of thumb for identifying which leaders are best for which situations.
 It takes the situation into account in determining the effectiveness of a leader.
 Both the LPC and the situational factors are easy to measure.

Disadvantages
 It’s not flexible at all.
 The LPC scale is subjective.
 If in the middle of the LPC scale, then there is no guidance as to which kind of leader you
might be.
 Hersey-Blanchard Model

 The most important factor affecting the selection of a leader’s style is the development (or
maturity) level of subordinate.
Leadership Styles Appropriate for the Various Maturity Level of Subordinates:
 Directing – for people who lack competence but are enthusiastic and committed; needs
direction and supervision.
 Coaching – for people who has competence but lacks commitment; needs direction and
supervision, support and praise and involvement in decision-making.
 Supporting - for people who has competence but lacks confidence or motivation; support is
needed.
 Delegating - for people who have both competence and commitment. Needs little supervision
or support.
 Path- Goal Model of Leadership

 Robert J. House and Terence R. Mitchell

 Leadership can be made effective because leaders can influence subordinate’s
perceptions of their work goals, personal goals and paths to goal attainment.
 The goal is to increase your employees' motivation, empowerment, and satisfaction so they
become productive members of the organization.
 Leaders select specific behaviors that are best suited to the employees' needs and the
working environment so that they may best guide the employees through their path in the
obtainment of their daily work activities (goals)
 The leader adjusts her style of behavior to the employee and task characteristics so that the
employee's motivation is to excel at their goal.
Leader identifies
employee
needs
Employees
and
organization
Appropriate
better reach
goals are
their goals
established

Employee
Leader provides becomes Effective
assistance on satisfied and performance
employee path motivated and occurs
towards goals accept the
leader
Leadership Styles

 Directive Leadership – leader focuses on clear task assignments, standards of

successful performance, and work schedules.
 Supportive Leadership – subordinates are treated as equals in friendly manner
while improving their well-being
 Participative Leadership – leader seeks subordinates and consider their
suggestions when making decisions.
 Achievement- Oriented Leadership – leader set challenging goals, expects
them to perform at their highest level, and shows confidence in their ability to
meet this expectation.
Vroom’s Decision Making Model

 Prescribes proper leadership

style for various situations,
focusing on the proper
degrees of delegation of
decision-making authority.
 Decision-Making Style

 Autocratic AI and AII

• make the decision and then tell others what you have decided.
• Autocratic AI – Leader solves the problem alone using information that is readily available to
him/her.
• Autocratic AII – Leader obtains additional information from group members, then makes
decision alone. Group members may or may not be informed.
➢ Consultative CI and CII
• ‘softer’ style of autocratic decision making. You make the decision on your own – but you will first
consult with others to gather opinions and input.
• Consultative CI – Leader shares problem with group members individually, and asks for information
and evaluation. Group members do not meet collectively, and leader makes decision alone.
• Consultative CII – Leader shares problem with group members collectively, but makes decision
alone.
➢ Collaborative GII
• The decision is no longer yours alone at this point – rather, it is a collaborative effort among those
who have been selected to work on the decision
 Quality Requirement (QR): How important is the technical quality of the decision?
 Commitment Requirement (CR): How important is subordinate commitment to the decision?
 Leader’s Information (LI): Do you (the leader) have sufficient information to make a high quality
decision on your own?
 Problem Structure (ST): Is the problem well structured (e.g., defined, clear, organized, lend itself to
solution, time limited, etc.)?
 Commitment Probability (CP): If you were to make the decision by yourself, is it reasonably
certain that your subordinates would be committed to the decision?
 Goal Congruence (GC): Do subordinates share the organizational goals to be attained in solving
the problem?
 Subordinate conflict (CO): Is conflict among subordinates over preferred solutions likely?
 Subordinate information (SI): Do subordinates have sufficient information to make a high quality
decision?
1

CHAPTER 9

▸ CONTROLLING
 Controlling
refers to the process of ascertaining whether

organizational objectives have been achieved; if not,

why not; and determining what activities should then

be taken to achieve objectives better in the future

Importance of Controlling

▸ When controlling is properly implemented, it will help the

organization achieve its goal in the most efficient and
effective manner possible
Steps in the
Control
Process
Establishing Performance Objectives and
Standards

1. Sales target- which are expressed in quantity or monetary

terms
2. Production targets- which are expressed in quantity or quality
3. Worker attendance- which are expressed in terms of rate of
absences
4. Safety record- which is expressed in number of accidents for
given periods
5. Supplies used- which are expressed in quantity or monetary
term for given periods
Measuring Actual Performance

▸ There is a need to measure actual

performance so that when shortcomings occur,
adjustments could be made.
Comparing Actual Performance to Objectives and Standa

▸ Once actual performance has been

determined, this will be compared with what the
organization seeks to achieve
Taking Necessary Action

▸ The purpose of comparing actual performance

with the desired result to provide management
with the opportunity to take corrective action
when necessary.
 ESTABLISH
PERFORMANCE
OBJECTIVES AND
STANDARDS

MEASURE ACTUAL
PERFORMANCE

do nothing

DOES ACTUAL
PERFORMANCE
MATCH THE
STANDARDS Yes

No

TAKE
CORRECTIVE
ACTION
Types of
Control
 Types of Control
1. Feedforward Control
2. Concurrent Control
3. Feedback Control

11
 Feedforward Control
● Undertaken when management anticipates
problems and prevents their occurrence.
● It provides the assurance that
required human or nonhuman
resources are in place before
operations begin.
12
 Making
sure that
the best Place your screenshot here

people are
hired to fill
jobs.

13
 Concurrent Control
● Undertaken when operations are already
ongoing and activities to detect variances are
made.
● When deviations from standard
happens, adjustments are made
to ensure compliance to
requirements.
14
 The manager
of a
construction
firm constantly Place your screenshot here

monitors the
progress of the
company’s
project.

15
 Feedback Control
● Undertaken when information is gathered about
a completed activity, and in order that
evaluation and steps for improvement are
derived.
● Corrective actions aimed at
improving future activities are
features of feedback control.
16
 Continuous
overtime work
for factory
workers lowers
the quality of Place your screenshot here

output. It leads
to some
adjustment in
the overtime
schedue.
17
Components of Organizational
Control Systems
● Strategic Plan
● The Long-Range Financial Plan
● The Operating Budget
● Performance Appraisals
● Statistical Reports
● Policies and Procedures

18
 Strategic Plan
• Provides the basic control mechanism for the
organization.

• Corrective measures are made

possible with the adoption of
strategic plans.
 Long-Range Financial Plan
● It recommends a direction for financial activities

● If the goal does not appear to be

where the firm is headed, the
control mechanism should be
made to work.

20
 Operating Budget
● It indicates the expenditures,
revenues, or profits planned for
some future period regarding
operations.

21
 Performance
Appraisal
● It measures employee performance.
It also provides employees with a
guide on how to do their jobs better
in the future.
● It also function as effective checks on new policies
and programs.
22
 Statistical Reports
Pertain to those that contain data on various
developments within the firm.

1 2 3 4 5 6 7

23
“
Policies refer to “the framework within
which the objectives must be pursued.

A procedure is a plan
that describes the
exact series of actions
to be taken in a given
situation.
24
 Policies and Procedures
It is expected to be followed.

It provides a better means of

controlling activities.

25
STRATEGIC
CONTROL
SYSTEMS
1.FINANCIAL ANALYSIS
2.FINANCIAL RATIO ANALYSIS
 FINANCIAL
ANALYSIS
– IT IS JUST FITTING THAT CERTAIN MEASUREMENTS OF FINANCIAL
PERFORMANCE BE MADE SO THAT WHATEVER DEVIATIONS FROM STANDARDS
ARE FOUND OUT, CORRECTIVE ACTIONS MAY BE INTRODUCED.

BALANCE SHEET INCOME STATEMENT

-THIS CONTAINS -THIS CONTAINS
INFORMATION ABOUT THE COMPANY’S INFORMATION ABOUT THE COMPANY’S
ASSETS, LIABILITIES, AND CAPITAL GROSS INCOME, EXPENSES, AND
ACCOUNTS. PROFITS.
FINANCIAL RATIO
ANALYSIS
– A MORE ELABORATE
APPROACH USED IN TYPES OF FINANCIAL RATIO
CONTROLLING ACTIVITIES. • LIQUIDITY
– UNDER THIS METHOD, ONE • EFFICIENCY
ACCOUNT APPPEARING IN
• FINANCIAL LEVERAGE
THE FINANCIAL STATEMENT
• PROFITABILITY
IS PAIRED WITH ANOTHER
TO CONSTITUTE A RATIO.
LIQUIDITY RATIOS

– THESE RATIOS ASSESS THE ABILITY OF

THE COMPANY TO MEET ITS CURRENT
OBLIGATIONS.

➢ CURRENT RATIO
➢ ACID-TEST RATIO
LIQUIDITY RATIOS

1. CURRENT RATIO 2. ACID-TEST RATIO

-THIS SHOWS THE EXTENT TO -THIS IS A MEASURE OF THE FIRM’S

WHICH CURRENT ASSETS OF THE ABILITY TO PAY OFF SHORT-TERM
COMPANY CAN COVER ITS OBLIGATIONS WITH THE USE OF
CURRENT LIABLITIES. CURRENT ASSETS AND WITHOUT
RELYING ON THE SALE INVENTORIES.

𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐
𝑨𝒄𝒊𝒅 − 𝒕𝒆𝒔𝒕 𝒓𝒂𝒕𝒊𝒐
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔
= 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔 − 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒊𝒆𝒔
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 =
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
EFFICIENCY RATIOS
– THESE RATIOS SHOW HOW EFFECTIVELY
CERTAIN ASSETS OR LIABILITIES ARE BEING
USED IN THE PRODUCTION OF GOODS AND
SERVICES.

➢ INVENTORY TURNOVER RATIO

➢ FIXED ASSET TURNOVER
EFFICIENCY RATIOS
1. INVENTORY 2. FIXED ASSET
TURNOVER RATIO TURNOVER

-THIS RATIO MEASURES THE -THIS IS USED TO MEASURE

NUMBER OF TIMES AN INVENTORY UTILIZATION OF THE COMPANY’S
IS TURNED OVER EACH YEAR. INVESTMENT IN ITS FIXED ASSETS,
SUCH AS PLANT AND EQUIPMENT.

𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐

𝑭𝒊𝒙𝒆𝒅 𝒂𝒔𝒔𝒆𝒕 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓
𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅
= 𝒏𝒆𝒕 𝒔𝒂𝒍𝒆𝒔
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 =
𝒏𝒆𝒕 𝒇𝒊𝒙𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔
FINANCIAL LEVERAGE RATIOS

– THIS A GROUP OF RATIOS DESIGNED TO

ASSESS THE BALANCE OF FINANCING
OBTAINED THROUGH DEBT AND EQUITY
SOURCES.

➢ DEBT TO TOTAL ASSETS RATIO

➢ TIMES INTEREST EARNED RATIO
FINANCIAL LEVERAGE RATIOS

1. DEBT TO TOTAL 2. TIMES INTEREST EARNED

RATIO
ASSETS RATIO
-THIS RATIO MEASURES THE NUMBER
-THIS RATIO SHOWS HOW MUCH
OF TIMES THAT EARNINGS BEFORE
OF THE FIRM’S ASSETS ARE INTEREST AND TAXES COVER OR
FINANCED BY DEBT. EXCEED THE COMPANY’S INTEREST
EXPENSE.
𝑫𝒆𝒃𝒕 𝒕𝒐 𝒕𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔 𝒓𝒂𝒕𝒊𝒐
𝒕𝒐𝒕𝒂𝒍 𝒅𝒆𝒃𝒕 𝑻𝒊𝒎𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒆𝒂𝒓𝒏𝒆𝒅 𝒓𝒂𝒕𝒊𝒐
= 𝒑𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒕𝒂𝒙 + 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒆𝒙𝒑𝒆𝒏𝒔𝒆
𝒕𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔 =
𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒆𝒙𝒑𝒆𝒏𝒔𝒆
PROFITABILITY RATIO
– THESE RATIOS MEASURE HOW MUCH
OPERATING INCOME OR NET INCOME A
COMPANY IS ABLE TO GENERATE IN
RELATION TO ITS ASSETS, OWNER’S EQUITY
AND SALES.
➢ PROFIT TO MARGIN RATIO
➢ RETURN ON ASSETS RATIO
➢ RETURN ON EQUITY RATIO
 PROFITABILITY RATIOS
1. PROFIT MARGIN 2. RETURN ON ASSETS 3. RETURN ON EQUITY
RATIO RATIO RATIO
-THIS RATIO COMPARES THE NET -THIS RATIO SHOW HOW MUCH -THIS RATIO MEASURES THE
PROFIT TO THE LEVEL OF SALES. INCOME THE COMPANY RETURNS ON THE OWNER’S
PRODUCES FOR EVERY PESO INVESTMENT.
𝑷𝒓𝒐𝒇𝒊𝒕 𝒎𝒂𝒓𝒈𝒊𝒏 𝒓𝒂𝒕𝒊𝒐
INVESTED IN ASSETS.
𝒏𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒆𝒒𝒖𝒊𝒕𝒚 𝒓𝒂𝒕𝒊𝒐
=
𝒏𝒆𝒕 𝒔𝒂𝒍𝒆𝒔 𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒂𝒔𝒔𝒆𝒕𝒔 𝒓𝒂𝒕𝒊𝒐 𝒏𝒆𝒕 𝒊𝒏𝒄𝒐𝒎𝒆
=
𝒏𝒆𝒕 𝒊𝒏𝒄𝒐𝒎𝒆 𝒆𝒒𝒖𝒊𝒕𝒚
=
𝒂𝒔𝒔𝒆𝒕𝒔
IDENTIFYING CONTROL
PROBLEMS
Executive Reality Check
Comprehensive Internal Audit
Symptoms of Inadequate Control
1. An explained decline in revenues and profits
2. A degradation of service
3. Employee dissatisfaction
4. Cash shortages caused by bloated inventories
or delinquent accounts receivable
5. Idle facilities or personnel
6. Disorganized operations
7. Excessive cost
8. Evidence of waste and inefficiency
 Managing Production and
Service Operations
a) Job Shop
b) Batch flow a) Service
c) Worker- paced line Factory
flow b) Service Shop
d) Machine- paced c) Mass Service
line flow d) Professional
e) Continuous flow Service
f) Batch/ continuous
flow hybrid
 small company or business that makes
specific products for one customer at a time
 One whose production is based on sales
orders for a variety of small lots.
 Depending upon the customers’ needs, job
shop may produce a lot consisting of 20 to
200 or more similar parts.
 PRODUCTS: LOW VOLUME
PRODUCED CUSTOM
PRODUCTS

 EQUIPMENT: GENERAL PURPOSE

TYPE
 TYPE OF PROCESS LAYOUT
LAYOUT:
Aprocess in where
lots of generally own
designed products
are manufactured.
1. There is flexibility to produce either low or
high volumes.
2. Not all procedures are performed on all
products.
3. The type of equipment used are mostly for
general purpose.
4. The process layout is used.
5. The operation is labor intensive, although
there is less machine idleness.
6. The size of operation is medium- sized.
 An assembly line refers to a
production layout arranged in a
sequence to accommodate
processing of large volumes of
standardized products or services.
 The quantity and quality of output in a
worker- paced assembly line depends
to a great extent to the skill of the
labor utilized.
1. The products manufactured are
mostly standardized.
2. There is a clear process pattern.
3. Specialized equipment is used.
4. The size of operation is variable.
5. The process is worker- paced.
6. The type of layout used is the line
flow.
7. Labor is still a big cost item.
 Type of production process
that produces mostly standard
products with machines
playing a significant role.
1.The process is of clear, rigid
pattern.
2.Specialized type of equipment is
used.
3. The line flow layout is used
4. Capital equipment is a bigger cost
item than labor.
5. Operation is large.
6. The process is machine- paced.
 It is characterized by the rapid
rate at which items move through
the system.

 This processing method is very

appropriate for producing highly
standardized products.
1. There is economy of scale in
production, resulting to low per unit
cost of production.
2. The process is clear and very rigid.
3. Specialized equipment are used.
4. The line flow layout is used.
5. Operations are highly capital
intensive.
6. The size of operations is very large.
7. Processing is fast.
 This method of processing is a
combination of the batch and the
continuous flow.
 Two distinct layouts are used:
One for batch and one for the
continuous flow
 The typical size of operation is also
very large giving opportunities for
economies of scale.
 OPERATIONS refers to “any process
that accepts input and uses resources
to change those inputs in useful ways.”

19
20
 ALDAG AND STEARNS accurately defined
operations management as “the process of
planning, organizing, and controlling
operations to reach objectives efficiently
and effectively.

21
 EFFICIENCY is related to “the
cost of doing something, or
the resource utilization is
involved.”

22
 EFFECTIVENESS refers to goal
accomplishment.

23
 Operations management must be
performed in coordination with other function
like those for marketing and finance. Although
the specific activities of the operations divisions
of firms slightly differ from one another, the
basic functions remains the same, to produce
products or services.

24
 The engineer manager is expected to
produce some output at whatever management
level he is.

25
 The Engineer, as operation manager, must
find ways to contribute to the production of quality
goods or services and the reduction of costs in his
department.

26
27
28
 Service processes are those that refer to the provision
of services to persons by hand or with machinery.
  A service factory offers a limited mix
of services which results to some
economies of scale in operations.
This also affords the company to
compete in terms of price and speed
of producing the service.

The process layout preferred by the service factory is the rigid

pattern of line flow processing.

31
  OTHER USES OF THE TERM

The term “SERVICE FACTORY” has been adopted in two
other business contexts. The first context is when service
industries look to manufacturing to improve productivity and
efficiency in service operations. Although not all
manufacturing processes can be borrowed successfully,
service industries have benefited from considering the
methods employed in manufacturing
  A service shop provides
a diverse mix of services.

The layout used are those for job

shops or fixed position and are
adaptable to various requirements.

33
 Withdrawal of
Parts parts from parts
inventory department

Logging in Road
Diagnosis Work on
Writing up job at Car test by
of car by
job ticket dispatch wait technici
problem technician
tower an
If car fails
test Road
If car fails test by
test manag
ement

Car returned and Papers gathered

customer on car and sent
payment process to cashier

34
 A mass service company provides services to a large
number of people simultaneously. A unique
processing method is, therefore, necessary to satisfy
this requirement. To be able to serve many people,
mass service companies offer limited mix of services.
The process layout used is typically fixed position where
customers move through the layout.
35
 I. MATERIAL RECEIPT
Delivery Checking
Truck Checking of Storing Filing
to the of
Delivery paperwork items paperwork
floor paperwork

Any problem
reports filed
I. SALES TRANSACTIONS
Presenting
Register merchandise to Sale entry on Sale Register closed
opened customer and register made and balanced
closing sale

Credit not
approved
  Engineering and
1 Management Consulting
Services
2  Design Services
 These are companies that
provide specialized services 3  Advertising Agencies
to other firms and
individuals.
4  Accounting Services

5  Legal Services

6  Data Processing Services

 Professional service firms offer a diverse mix of
services. There is a lower utilization of capital
equipment compared to the service factory and a
service shop. The process pattern used is very
loose. The process layout used is identical to the
job shop.
The Power of PowerPoint | thepopp.com 38
 1. The use of  2. The hiring  3. Providing the
staggered of part-time customer with
work-shift staff. opportunity to
select the level of
schedules. 
service.

 4. Installing  6. Installing
auxiliary  5. Using
customer self-
capacity or multi-skilled
service.
hiring floating staff.
subcontractors.

The Power of PowerPoint | thepopp.com 39

 WORK FLOW
PRODUCT PLANNING LAYOUT
AND SCHEDULING
INVENTORY
PRODUCT CONTROL
DESIGN PURCHASING AND
MATERIALS QUALITY
MANAGEMENT CONTROL
 Process of creating a set
of product specifications
appropriate to the demand
situation
 process of efficient and
effective idea generation
and development with the
goal of creating
new products
 Production planning
- defined as the future sales of a
given product , translating this forecast
into the demand it generates for various
production facilities and arranging for
the procurement of these facilities

 Scheduling
- the phase of production control
involve in developing timetables that
specify how long each operation in the
production process takes
 A firm need to purchase supplies and
materials required in the various
production activities
 The wider variety of supplies and
materials needed adds to the
necessity of proper managing and
purchasing of materials
 Materials management
- refers to the approach that seeks
efficiency of operation through
integration of all material acquisition,
movement and storage activities in the
firm
 Ways on achieving proper
 Process of establishing and
inventory control:
maintaining appropriate levels of
reserve stocks of goods
1. Determining reorder point
and reorder quantity
2. Determining economic order
quantity
3. The use of Just In Time (JIT)
method on inventory control
4. The use of Material
Requirement Planning (MRP)
method of planning and
controlling inventories
 Process of determining 1. Minimize investment in equipment
2. Minimize overall production time
physical arrangement of the
3. Use existing space most effectively
production system
4. Provide for employee convenience,
safety and comfort
 The job of an operation 5. Maintain flexibility of arrangement
manager is to assure that a and operation
cost effective work flow 6. Minimize material handling cost
layout is installed 7. Minimize variation in types of
material handling equipment
8. Facilitate the manufacturing
 A good work flow layout will processes
have the following benefit: 9. Facilitate the organizational structure
 Refers to the measurement of
products or services against standard
set by the company.

 These standards are maintained by the

management to facilitate production
and to keep customers satisfied

 Poor quality breeds customer

complaints, returned merchandise,
expensive lawsuits and huge
promotional expenditures
 CHAPTER 11
MANAGING THE

FUNCTION
 WHAT IS THE MARKETING CONCEPT?

MARKETING MARKETING CONCEPT

❖A group of activities ❖States that the

engineer must try to
designed to facilitate
satisfy the needs of his
and expedite the clients by means of a set
selling of goods and of coordinated
services. activities.
THE ENGINEER AND THE FOUR P’S OF
MARKETING
 THE PRODUCT
In the marketing sense,
the term “product”
includes the tangible (or
intangible) item and its
capacity to satisfy a
specific need.
 THE PRICE
Price refers “the money
or other considerations
exchanged for the
purchase or use of the
product, idea, or
service.”
 T H E P L AC E

Location

One important element to

consider in any business

Not every place is the right

location for any company
THE PLACE
customers would prefer to
❑ If every factory is buy from firms easily
equal accessible to them

the nearest firm will be

❑ If time is of the essence
patronized
 1. Hiring sales agents
to cover specific areas.

4. Establishing 2. Selling to
franchises in selected W H E N A C O M PA N Y dealers in
areas. CANNOT BE NEAR particular
THE CUSTOMERS areas.

3. Establishing
branches where
customers are located
❑ Manufacturing companies can choose or adapt all of the
above-mentioned options.

❑Service companies like construction

firms adapt the modified versions
TIPS

Research different locations

Find out about other businesses in the

area

Research your competitors

Contact local councils

Consider the current and future needs of

your business
 THE
PROMOTION

The activity referred to, in

this case

When engineer Before the buyer

managers have makes the purchasing
products or services decision, however, he
to sell, they will have must first be
to convince buyers to informed, persuaded,
buy from them. and influenced.
THE PROMOTION

“communicating information between

seller and potential buyer to influence
attitudes and behavior.”
McCarthy and
Perreault

❑ The publicization of a product, organization, or

venture so as to increase sales or public awareness.
 1. Advertising

PROMOTI 2. Publicity

ONAL 3. Personal selling

TOOLS
4. Sales promotion
 1. Advertising

PROMOTI 2. Publicity
Nyle defines advertising as “a paid
ONAL message 3.that
Personal selling
appears in the mass media
TOOLS for the purpose of informing or
persuading
4. Salespeople about particular
promotion
products, services, beliefs, or action.”
 1. Advertising

PROMOTI 2. Publicity

ONAL 3. Personal selling

TOOLS The promotional tool that publishes news or
information4.about
Sales apromotion
product, service, or idea on
behalf of a sponsor but is not paid for by the
sponsor is called publicity.
 A more aggressive means of
promoting the sales of a product or
1. Advertising
service.
PROMOTI 2. Publicity

ONAL 3. Personal selling

TOOLS
4. Sales promotion
“oral presentation in a conversation with
one or more prospective purchasers for the
purpose of making a sale”.
 1. Advertising
Any paid attempt to communicate with the
customers other than advertising, publicity,
PROMOTI and personal selling, may be considered
2. Publicity
sales promotion.
ONAL 3. Personal selling
TOOLS displays

4. Sales promotion contest

etc. prizes
sweeptakes
coupons samples
referrals gifts trading stamps demonstration
STRATEGIC MARKETING
FOR ENGINEERS

➢ Selecting a Target Market

➢ Developing a Marketing Mix
❖STRATEGIC
• carefully designed or planned to serve a particular
purpose or advantage

❖MARKETING
• the action or business of promoting and selling
products or services, including MARKET
RESEARCH and advertising
❖Strategic Marketing
• the way a firm effectively differentiates itself from its
competitors by capitalizing on its strengths (both
current and potential) to provide consistently better
value to customers than its competitors.

• Organizations use strategic marketing to create a plan

to better reach and satisfy customers while increasing
profitability and productivity.
 SELECTING A TARGET
MARKET

❖Market
• Individuals or organizations, or
both, with the desire and ability to
buy a specific product or service.
 STEPS
1. Divide the total market into groups of people who have
relatively similar product or service needs.

2. Determine the profit potential of each segment

3. Make a decision on which segment or segments will be

served by the company.
FACTORS USED IN SELECTING A
TARGET MARKET

➢Size of the Market

➢Number of Competitors Serving the Market

 DEVELOPING A
MARKETING MIX

❖PRODUCT

❖PRICE

❖PROMOTION

❖PLACE
WHERE DO THIS FUNDS CAME FROM?
 • Procurement and administration of funds with
the view of achieving the objectives of
business
• One of the three basic management functions
aside from production and marketing

Engineer Manager must be concerned with:

Determination of the amount of funds required, when
they are needed, how to procure them, and how to effectively
and efficiently use them.
 Effective
Determination
Procurement and Efficient
of Fund
of Funds use of
Requirements
Funds

1. Short-term 1. Short-term 1. Short-term

2. Long-term 2. Long-term 2. Long-term
 STEP 1:
The Determination of Fund Requirements

To finance daily
(1)
operations

To finance the
firm’s credit (2)
services

To finance the
(3) purchase of
inventory

To finance the
purchase of (4)
major assets
 (1)
To finance daily operations
Money must be made available for the purchase of the following:

1. Wages and salaries

2. Rent
3. Taxes
4. Power and light
5. Marketing expenses like those for advertising, entertainment, travel
expenses, telephone, and telegraph, stationery and printing,
postage, etc.
6. Administrative expenses like those for auditing, legal, services, etc.

ANY DELAY IN THE SETTLEMENT OF THE FOREGOING EXPENSES MAY DISRUPT THE EFFECTIVE
FLOW OF WORK IN THE COMPANY. IT MAY ALSO ERODE THE PUBLIC CONFIDENCE IN THE ABILITY
OF THE COMPANY TO OPERATE ON A LONG-TERM BASIS.

CREDITORS, FOR INSTANCE, MAY WITHHOLD THE EXTENSION OF CREDIT TO THE COMPANY.
(2)
To finance the firm’s credit services

It is oftentimes unavoidable for firms to extend credit

to customers.

HOW THE CREDIT ARRANGEMENT WILL BE FINANCED

(3)
To finance the purchase of Inventory

The maintenance of adequate inventory is crucial to

many firms. Raw materials, supplies, and parts are
needed to be kept in storage so they will be available
when needed.

The purchase of adequate inventory will require

sufficient funding and this must be secured.
(4) To finance the purchase of major assets

Companies, at times, need to purchase major assets.

When top management decides on expansion, there
will be a need to make investments in capital assets like
land, plant, and equipment.
Financing of the purchase of major assets must come
from long-term sources.
 SUPPLIES OF SHORT-TERM FUNDS
SHORT TERM FINANCING IS PROVIDED BY
THE FOLLOWING:

• Trade creditors
• Refer to suppliers extending credit to a buyer for use in
manufacturing, processing or reselling goods for profit.
• Instrument used in trade credit:
• Open book credit
• Trade acceptance
• Promissory notes
• Commercial Banks
• Institutions which individualsor firms may top as source of short
term financing.
• Two types of short term loan:
• Those which require collateral
• Those which do not require collateral

• Commercial Paper Houses

• Are those that help business firms in borrowing funds from money
market.

• Business Finance Companies

• Financial institutions that the finance inventory and equipment of
almost all types and sizes of business firms.
• Factors
• Institution that buy the accounts receivables of firms,, assuming
complete accounting and collection responsibilities.

• Insurance Companies
• These are also possible sources of short term funds.
 LONG-TERM SOURCES OF
FUNDS:

• There are instance when engineering firm will have to top

the long term sources of funds. An example is when
expenditures for capital assets become necessary.
• Long term sources of funds are classified as follows:
• Long terms debts
• Term loans – it is a commercial or industrial loan from a commercial
bank, commonly used for plant and equipment, working capital, or
debt repayment.
• Bonds – it is a certificate of indebtedness issued by a corporation to a
lender
• Common stocks
• It is consist of issuance of common stocks.
• When properly utilized, common stocks can be cheaper and more
stable sources of long term funds.
• Common stocks do not have maturity and repayment dates.

• Retained earnings
• It refer to “corporate earnings not paid out as dividends”
• This simply means that whatever earnings that are due to the stock
holders of a corporation are reinvested.
 THE BEST SOURCE OF
FINANCING:
Factors to be considered to determine the best source (by
schall and Hayley )

• Flexibility
• Some fund sources impose certain restriction on the activities of the
borrowers
• As some fund sources are less restrictive, the flexibility factor must
be considered.

• Risk
• Risk refers to the chance that the company will be
affected adversely when a particular source of financing
is chosen.
• Income
• When the firm borrows, it must generate enough income to cover
the cost of barrowing and still be left with sufficient returns for the
owns.

• Control
• When new owners are taken in because of the need for additional
capital, the current group of owner may lose control of the firm, to
avoid this, they must consider other means of financing.

• Timing
• The engineer must, therefore choose the best time for barrowing or
selling equity.
• Other Factors
• Collateral values
• Flotation cost
• Speed
• Exposure
THE FIRM’S FINANCIAL
HEALTH
Objectives of engineering firms:
1. To make profits for the owners;
2. To satisfy creditors with the repayment of loans plus
interest;
3. To maintain the visibility of the firm so that
customers will be assured of a continuous supply of
products or services, employees will be assured of a
market, etc.
INDICATORS OF FINANCIAL
HEALTH
Three basic financial statements
1. Balance Sheet - also called statement of
financial position
2. Income Statement - also called statement of
operations
3. Statement of changes in financial position
RISK
MANAGEMEN
T AND
INSURANCE
RISK DEFINED

Refers to the uncertainty concerning

loss or injury
RISKS IN ENGINEERING
FIRM

Fire Theft Floods

RISKS IN ENGINEERING
FIRM

Disability
Accidents Bad Debts
& Death
RISKS IN ENGINEERING
FIRM

Damage claim from other parties

 TYPES OF RISK
PURE RISK SPECULATIV
E RISK
is one in which is one in which
“there is only a there is a change of
chance of loss”. This
either loss or gain.
means that there is no
way in making gains This type of risk is
with pure risks. not insurable.

KIKI
WHAT IS RISK
MANAGEMENT?
It is “an organized strategy for protecting and
conserving assets and people.”
The purpose of risk management is “to
choose intelligently from among all the available
methods of dealing with risk in order to secure the
economic survival of the firm”
It is designed to deal with pure risks, while
the application of sound management practices are
directed towards speculative risks that are inherent
and cannot be avoided.
METHODS OF DEALING WITH
RISK
1. The risk may be avoided
2. The risk may be retained
3. The hazard may be reduced
4. The losses may be reduced
5. The risk may be shifted
RISK RETENTION

Is a method of handling risk wherein the

management assumes the risk. A planned risk
retention, also called self – insurance, is a conscious
and deliberate assumption of a recognized risk
THE HAZARD MAY BE
REDUCED
Hazard may be reduced by simply
instituting appropriate measures in a variety
of business activities
REDUCING LOSSES
When losses occur in spite if preventive
measures, the severity of loss may be limited by way of
reducing the concentration exposures. Examples:
1. Physically separating buildings to minimize losses
in case of fire;
2. Using fireproof materials on interior building
construction
3. Storing inventory in several locations to minimize
losses in cases of fire and theft;
4. Maintaining duplicate records to reduce accounts
receivable losses;
5. Transporting goods in separate vehicles instead
of concentrating high values in single shipments;

6. Prohibiting key employees from travelling

together;

7. Limiting legal liability by forming several

separate corporations
SHIFTING RISK
• Hedging – refers to making commitments on both
sides of a transaction so the risks offset each other
• Subcontracting
• Incorporation
• Insurance