UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

THE FOUNDATION OF BUSINESS

An Introduction: Facts about Business

• Our daily lives are affected by business.
• A country is affected by business activities.
• The future of a nation is affected by business activities.

What is Business?
• Business is a general term, which includes all profit-seeking activities of enterprises that provide
goods and services necessary to an economic system.
• Some business firms produce tangible goods (pencils, watches, devices)
• Intangible produce (services, medical care, entertainment, others)

What is Profit?
• Profit is the money that remains after a firm deducts its expenses related to producing and
marketing goods and services from its revenues.
• The firm receives money arising out of sales, commissions, and the like.
• Production costs (spent for direct materials, labor, and overhead) plus marketing costs (i.e.
advertising, salesmen’s commissions, and supplier’s commission) constitute the expense that will
be used to calculate profit.

Sample Application

Total Construction Cost (Materials) 4,237,357.75

Labor (Workforce) 2,109,111.00
Professional Fee 600,000.00
Mark Up (Profit) 125,000.00
GRAND TOTAL 7,071, 468.75

The table presented above is an example of the total construction cost for a commercial building. This is
usually presented as a summary of a building design and construction quotation. The table shows that
apart from the Labor and Material and the professional fee of the involved technical person, a mark-up is
also shown to compensate the designer’s service fee.

The Private Enterprise System

• It is a feature of our market economy.
• Individuals are vested with the right to operate enterprise for private gain.
• The institution of private property bestows on owners of property the right to use, exchange, or
exploit their properties. This mechanism makes possible to operation of private enterprise.
• Another distinct feature of our economic system is the right of inheritance. In the event of the
death of the enterprise owner, whatever financial gains accruing to the firm automatically
transfers to the heirs, including the enterprise itself.
• Hence, the entrepreneurial efforts of the previous owner will not be wasted.
• This system made possible to a large extent the growth of output and incomes in industrialized
countries (United States, Great Britain, Japan.)
• If utilized fully, the economic growth can be easily achieved.

The Private Enterprise System and the Entrepreneur

• The entrepreneur is the one assigned to perform the lead role in making the private enterprise
system work.

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

• It is inevitable that there will be shortages in some types of goods and services (e.g. shortage in
sugar supply), which in turn results to some unsatisfied need.
• Our economic system is designed to allow the entrepreneur to pitch in by filling the need and
making profits in the process.
• When an unsatisfied economic need is recognized, the entrepreneur devises a plan and designs
an organization that will facilitate the achievement of his profit objectives.
• Entrepreneurs may establish either new companies or reorganize existing ones.

The Entrepreneur and Alternative Economic Systems

Three distinct economic systems:
1. Capitalism
2. Communism
3. Socialism

Capitalism
• Refers to that economic system in which the means of production, consisting of land and tangible
goods, are owned privately.
• Capitalism has the following characteristics:
1. Private enterprise and freedom of choice;
2. Freedom to compete;
3. Limited role of government
4. Prices set by the interaction of the economic forces of supply and demand; and
5. Profit motive
• Private enterprise refers to the ownership of property by a private individual for use in his own
business.
• Freedom of choice refers to the owner’s right to own, use, or dispose of his property as he sees
fit.
• The freedom to compete provide businesspersons the right to either engage or withdraw from
a competitive situation with other businesspersons.

The Economic Systems and Entrepreneurship Concern

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

Economic System State Support to

Entrepreneurship
Communism None
Socialism Limited
Capitalism Full

•The limited participation of government in actual business pursuits allows business to flourish
(Open discussion)
• The prices of commodities and resources under capitalism go up and down depending on supply
and demand.
• If there is less supply than demand for a certain product, the price of that product tends to go up,
and if there is more supply than demand, the price tends to go down.
• The profit motive is also a feature of capitalism, Private individuals will produce goods and services
to satisfy consumer wants but with belief that the economy will allow them to make a profit out
of exercise.
Communism
• The direct opposite of capitalism.
• Production are owned by the society as a whole.
• Communism is an economic system characterized by the following:
1. State ownership of economic resources;
2. Social and economic equality;
3. Central planning for economic and social activities; and
4. No freedom of competition
• All economic resources are owned by the state, hence, ownership, control, use, and disposition
remain as prerogatives of the state.
• No individual may use economic resources for his own benefit, for profit, or for the advancement
of his own economic well-being.
• In communist states, social classes and economic inequality are theoretically non-existent. Every
individual is regarded as the equal of another.
• In contrast with individual exploitation of economic resources under capitalism, the communist
state adheres to central planning for economic and social activities.
• The initiative of exploring economic opportunities is passed on from the individual to the state.
• Competition is deprived.

Socialism
• Midway between capitalism and communism.
• The state owns only the essential industries (e.g. steel, utilities like water and power,
transportation)
• All other types of business are open for exploitation by private persons.
• This provides limited options for the private individual in making profit.

Rewards for Successful Entrepreneurship

• The use of any of the factors of production entitles the owner to receive some form of
compensation.
• The factors, which are used in making a commodity, consists of land, labor, and capital.
• To make them productive, entrepreneurship is necessary.

LAND
• When land is used for production, the compensation paid to owners is called “rent”.
• Rent refers to the price paid per unit of time for the services of a durable good (land and building)
– give examples.
BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

LABOR
• They are paid wages or salaries.
• Wages are determined on a piece-rate basis
• Salaries are based in time-rate
• Interest is the compensation paid to owners of invested capital
• When all the factors of production are properly compensated, whatever is left as profits is
regarded as income, which accrues to the entrepreneur.
• The rate of compensation paid to the factors of production is limited to a large extent by industry
norms or market forces.
• Legislation, however, have modified the rates like those for minimum wage and the mandated
interest rates on capital.
• The profits accruing to the entrepreneur, on the other hand, are limited only by his skill and
industry. He may reap huge amounts of profits, but it is because he may also lose in the process.

Factors of Production Economic Reward Limiting Factor for Rewards

Received
Land Rent Supply and Demand
Capital Interest Industry rates/ government
mandated rates (taxes)
Labor Wage/ Salary Supply and Demand/
Legislation
Entrepreneur Profits Skill of Entrepreneur
• As the landowner earns rent for allowing use of his property, the owner of capital is paid interest
for allowing use of his capital. (Give examples)
• The laborer at work earns wages for his effort, while the entrepreneur earns profits for making
the right business decisions.
• When the entrepreneur succeeds, he is compensated for his vision, originality, and daring.

ORGANIZATION AND MANAGEMENT CONCEPTS

• Business firms are organizations established to achieve certain objectives.

• Theory and practice indicates that for modern business to succeed, effective applications of sound
organization and management practice must be made,
• It, follows, then, that knowledge of organization and management theories must be first be
acquired.

What is Management?
• The systematic process of planning, organizing, staffing, directing, and controlling activities in an
organization to achieve certain objectives.

The Management Principles

1. Division of Labor
• Breaking a job into specialized tasks to increase productivity.
For example:
1. Making of cabinets, furniture, and other carpentry works are assigned for carpenters, while
layering of CHB, plastering, and tile setting are assigned to Masons.
2. Site inspections are assigned to Site architects, while monitoring of working drawings are
monitored by the Architect-of-Record.
BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

3. Similarly, in a design development, it may be broken down into tasks such as space planning, 3D
modeling, research, and others.

2. Authority
• This is the right given to a person in position to give orders plus the power to exact obedience.
For example:
The Architect-of-Record (the architect in charge to produce the blueprint or working drawings),
must have the right to expect from the draftsman or design team the required shop drawings requested
by the contractor.

3. Discipline
• This provides uniform application of behavior to certain activities the outcome of which is readily
practiced.
• If discipline is not practiced, objectives will be very hard to achieve.
For example:
Coming to work on-time helps the company to achieve its objectives for the day.
4. Unity of Command
• This means that each employee must have only one supervisor.
• Reporting to more than one boss creates and reduces productivity.
For example:
A start-up company where a clerical staff may approach the assigned team head and also the CEO
of the company.

5. Unity of Direction
• This means that the efforts of everyone in the organization must be coordinated and focused in
the same direction.
• It will be hard to achieve an organizational objective if some components of the organization are
not moving towards the identified objectives.
For example:
A group of 5 architecture students doing a report in Professional practice during the pandemic. 1
student is struggling to have a good internet connection due to its location. What will be the result?

6. Subordination of the individual interests to the general interests.

• This refers to the goals of the organization that should take precedence over individual goals. Give
example.
• When the reverse happens, it will be difficult for the organization to succeed because its goals will
always be set aside.

7. Remuneration
• Employees should be paid fairly in accordance with their contribution to the organizational effort.
• This must be applied to pay, bonuses, and benefits.
For example:
A carpenter who’s earning a daily wage of P 550.00 must be maximized in doing carpentry works.

8. Centralization
• Power and authority must be centralized as much as possible.
• Decentralization must be instituted, however, when the firm grows to a considerable size.
For example:
A small milk-tea business with 3 other branches within the city should report directly to its main
branch. All standards, financial concerns, etc. are reported to the main branch. This is an example of
centralization.
BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

9. Scalar Chain
• This means that subordinates should observe the official chain of command unless authorized by
their respective superiors to communicate with each other.

10. Order
• This means that human and non-human resources should be in their proper places.
For example:
1. A production manager, must hold office at the production site.
2. A construction manager should diligently manage the operations of the assigned construction
project.

11. Equity
• This is the result of kindliness and justice and is a principle to guide management-employee
relations.

12. Stability of tenure

• High employee turnover is counterproductive. To motivate employees to stay with the company,
effective manpower planning and implementation are necessary.

13. Initiative
• Management should encourage employees to act on their own volition when confronted with an
opportunity to solve a problem.
14. Esprit de corps
• This means that managers should emphasize teamwork by building harmony and a sense of unity
among employees.
• Harmony breeds high morale and is more productive than discord.

The Process of Management

Management Functions

Source: Business Management and Organization: Functions and Principles by R. Alminar-Mutya, DBA

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

Manager Roles

Category Role Activity

Interpersonal Performs ceremonial and
Pertains to the relationship with symbolic duties such as
Figurehead
others and are related to the receiving visitors, signing legal
human skills documents.
Directs and motivates
subordinates; trains, counsels,
Leader
and communicates with
subordinates.
Maintains information links
both inside and outside
Liaison organization; using internet
access, mail, phone calls,
meetings.
Informational Seeks and receives information,
This describes the activities Monitor scan periodicals and report,
used to maintain and develop maintains personal contacts
an information network. Forwards information to other
organization members; sends
Disseminator
memoranda and reports, make
phone calls.
Decisional Transmits information to
Spokesperson outsiders through speeches,
reports, memoranda.
Initiates improvement projects;
Entrepreneur identifies new ideas, delegates
responsibilities to others.
Takes corrective action during
disputes or crises; resolves
Disturbance handler conflicts among subordinates;
adapts to environmental crises.

Distributes resources;
Resource allocator schedules, sets budgets and
priorities.
Represents department or
company during negotiation
Negotiator
contracts, sales purchases,
budget determination.

ORGANIZATION

What is an Organization?
• An entity comprising a group of people, established to accomplish certain goals.
• A mere grouping of people will not qualify as an organization, the group must have some
objectives to achieve and to be able to do so, they must interact, use knowledge and techniques,
and work together in partnered relationships.

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

The Function of Organization

• A fully organized group offers some advantages which can not be derived from an unorganized
grouping of people.
• In wildlife, a pack of lions can hunt its pray easily, compared to a single lion. They do this is an
organized group.

Common Characteristics of Organizations

1. Coordination in effort
When properly directed, persons working in coordination with others will produce better outputs
than they work independently.
2. Common goal and purpose
In order to make the employees work with proper direction, they must be provided with a
common goal or purpose. Organizations that do not make clear their goals or purposes run the risk of
failure.
3. Division of Labor
When the total job is divided into manageable parts, workers will be more familiar with their
assignments making them more proficient.

A manufacturing firm, for instance, will be engaged in various activities like production planning,
materials procurement, manpower acquisition, manning the production line, and the like. When all the
firm’s employees perform all the functions (i.e. no specific assignment for each). They will have less time
to maser any activity. This will result to poor production.
4. Hierarchy of authority
When individuals work collectively, someone must be provided with authority to make sure that the
assigned goals are achieved in the desired manner.

THE ENTREPRENEUR AND THE MANAGER

• The function of the entrepreneur is to create business. Thus, his first concern is the identification
of a business idea, not necessarily a new one.
• If the idea looks promising, he assembles the needed resources (land, labor, capital) and proceed
with the installation of the production process.
• He does whatever is needed to make the business a real going concern.
• After spending money, time, and effort to make the business a viable entity, the entrepreneur will
now attempt to expand so that the funds invested in the organization stage may be recouped.
The stage is then set for efficiency in operations.
• Efficiency, however, will require reutilization of activities (systematic and consistent). This is the
scenario where the entrepreneur will feel uncomfortable. Fortunately, reutilization and efficiency
are the turf (expertise, territory) of the professional manager. This is where he comes in and
continues the task initiated by the entrepreneur.
• The entrepreneur and the manager perform complimentary roles in making the business succeed.
The former puts up a business firm, the latter keeps it going.

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO
UNIVERSITY OF NUEVA CACERES COLLEGE OF ENGINEERING AND ARCHITECTURE

Reference

Business organization and management by Dr. Roberto G. Medina

Coverage of Exams: Prelims to Midterms

Type of Exams: Multiple Choice with emphasis on situational questions.

--- End of Midterms ---

BUSINESS MANAGEMENT AND APPLICATION FOR ARCHITECT V.01 BY: AR. JOHN PAUL B. ARELLANO