6.1 Development of System Approach

In the past, the departmental mangers tried to solve their problems by considering them as isolated situations, independent of other activities of the organization. For example, if a certain product manufacturer noticed a sales decline and traced it to the lack of aggressive sales effort, it was treated purely as a sales management problem and action was taken against that particular salesman or the department. The contribution of other departments to this effect, such as the quality control, design, credit policy, or the advertising, were never given much thought. Life study of any object must rely on the method, of analysis involving the simultaneous variations of mutually dependent variables. As early as the 1950s, a new integrated approach which considers the management in its totality has been developed and this is called the system approach.

6.2 What is a System?

We are surrounded by and live in several systems. In fact, man is a system by himself. Some systems are natural like the planetary systems, animal systems, and environmental systems. Others are man-made, like the business systems, production systems, material handling systems, social systems, and total quality management systems. Whichever is the system, it is basically characterized by three components which form the input-process-output system (Fig. 6.1), with,

● a set of two more elements forming the input,

● seeking a common goal operating on certain data or matter or energy, forming the process, and

● yield matter or data in a time frame, forming the output.

6.3 Definition of a System

Originating from the Greek word sustema, the word system has three definitions in the Oxford dictionary as below,

1. Group of things or parts working together, like the digestive system, railway system, or the control system or in computer field, a group of related hardware units, or programs, or both. Its adjective is systemic, meaning related to a system as a whole.

2. A set of ideas, theories or principles, or the social order like a political system or a government system.

3. Orderliness or methodical or an organized manner of working. Its adjective is systematic and the word systematize means arranging things according to a system.

The American Management Association in its AMA Management Handbook explains these three groups of definitions as follows:

1. The first group related systems to living creatures, including human beings, emphasizing the impact of personality and behavioral sciences.

2. The second group emphasized the general meaning of the system as a set of two or more elements like people, things or concepts, which are related or joined together to achieve a common goal, operating on data, matter and energy, to yield a result with a time reference. For example, a system of government, a system of measurement, or a system of classification.

3. The third group of definitions connects systems with specific science techniques like philosophy, mathematics, or biography.

Whatever may be the definition, a system approach is a purposeful and powerful means for accomplishing an objective. It provides the management with analytical framework with which it can identify, describe, and interrelate the process and the components that make up a particular system, as explained and illustrated in the following paragraphs. The study of any object or process must rely on the methods of analysis involving the simultaneous variations of mutually dependent variables.

6.4 Types of Systems

This concept of system approach is universal and can be applied to any situation, whether manufacturing or service provision, or agriculture, or even education. As illustrated below by the following figures:

1. Manufacturing system: A group of men working on machinery and materials with the aid of money and a good management, (5 Ms of input), working per work-methods, schedules, and specifications (process) to yield the specified products and information by the date the customer wants them (output) (Fig. 6.1).

2. Management information system: A group of people with a set of manuals, data processing, and recording equipment (input), working on selecting, storing, processing, and retrieving data (process) to yield the information needed by the managers (output) (Fig. 6.2).

3. Business organization system: A group of people with a vision and mission (input), performing production, design, finance, marketing, etc. functions (process) towards achieving the goal of optimal profit for the business (output) (Fig. 6.3).

4. Agricultural system: A group of people with a set implements, fertilizers, and land (input), performing the farming activity (process) to yield the agricultural produce (output) (Fig. 6.4).

5. Automobile workshop system: A group of people with spares, materials, tools, equipment, and management (input), maintaining and repairing the automobiles (process) to provide the required services to the customer (output) (Fig. 6.5).

6. Educational system: Faculty aided by college infrastructure, textbooks, visual aids, etc. (input) teaching and training the students (process) to provide enlightenment (output) (Fig. 6.6).

6.5 Components of a System

Systems are most often represented in flow charts and block diagrams. The major components of a system are input, process, and output. While Fig. 6.1 indicates the process in its simple form, Fig. 6.7 below illustrates all the other controlling factors.

6.6 Elements of Control in System Approach

Just as goals or objectives are needed in the design of a system, control is required in its operation. The purpose of the control is to maintain the quality and quantity of the output so that it meets the goals of the system. In the ideal case, the control would be self-regulating and hold the output at desired levels without outside intervention. The control has the following elements.

1. A well-defined objective

2. An output standard

3. A measuring device

4. A feedback signal

5. A corrective course of action

Unfortunately, in most management situations, not all of the elements of control are present, or are not precisely defined. For example, consider a production process in which the standard of the units of output per hour has been established for a product. However, when the output from the process is monitored, it is found that only 80% of the units are produced per hour. In this situation, there is an objective, an output standard, a measuring device, and a feedback signal, but no corrective action has been specified.

The control system can either be automatic or nonautomatic, as illustrated in the following figures.

6.7 Effect of Environment on the Systems

A system’s environment is composed of all activities outside the system which, if changed, will affect the system or which will be changed by any changes in the system itself. In this context, the general level of economic activity can be considered as environmental for most production activities, because any change in it will affect the production levels.

6.8 Open and Closed Systems

Every system has a boundary which functions to maintain proper relationships between the system and the environment. A closed system has no environment around the system. No outside systems have any effect on this system and the inputs and outputs have definite mathematical relationships like a chemical process inside a hermitically sealed container (Fig. 6.8A).

The open system has an environment with which it relates exchanges and communicatoin, such as human systems or a production system (Fig. 6.8B).

6.9 Systems and Subsystems

Because of the complexity of most real systems, it is extremely difficult to work with or to understand the entire system. In order to overcome this problem, systems are broken into smaller subsystems and still smaller sub-subsystems to comprehend them better. For example, the whole universe is a system, while the solar system is its subsystem. We may still break it down to the earth system, world system, a group of nations, a country system, a social system, man as a system, blood circulation system, etc., as illustrated in Fig. 6.9 shown alongside.

6.10 Relationship Between the Systems and Subsystems

Each system and its subsystems are mutually related, some more and some less, some directly and some indirectly. This relationship is in the context of the whole and is complex. Any change in one part would affect the other to a varying, but a predictable degree. Fig. 6.10 illustrates the relationship between the systems and Fig. 6.11, the different generations of subsystems.

6.11 Combination of Subsystems

Two or more subsystems can be integrated in either series, or in parallel, or in combination, as illustrated in Fig. 6.12.

6.12 The Management Cube

The management activity is influenced by three aspects:

1. The management processes, including the planning, controlling, and execution.

2. The management functions such as design, planning, maintenance, marketing, purchasing, personnel, and finance.

3. The management level, such as operatives, supervisors, engineers, managers, directors, president, and Chairman.

These three activities can be illustrated by Fig. 6.13, which is called the management cube. It shows how the managers of different functions perform the processes at different levels.

6.13 Planning Pyramid

The management cube considers the same number of managers at each level. But in fact, the number of persons in each level becomes less at a higher level because of the span of control. For example, the planning of the vision and mission, or the policy-making is done at the Chairman level, while the day-to-day operational planning is done at the manager level. As one ascends higher in the hierarchy, the level of planning is escalated and simultaneously, the number of individuals responsible narrows down.

Hence, these activities are better represented by a pyramid signifying this aspect and showing what type of planning is done at each level in the organization, as illustrated in Fig. 6.14.

6.14 Summary of the Features of Management as a System

All the points described in the previous paragraphs can be summarized below:

1. Management is a system: Management can be defined as a system, and unlike the biological and mechanical systems, it has the characteristics of a social system. It has subsystems which are integrated as a whole.

2. Management is an open system: It has an environment and with interaction, management takes its resources or inputs, allocates, and combines the resources to produce the desired outputs to the environment.

3. Management is dynamic: The equilibrium of the organization is ever-changing, moving toward the growth and expansion by preserving some of its energy. Thus, the organizational effectiveness is determined by the ratio of energy exchanges.

4. Management is probabilistic: A deterministic model always specifies the use of a situation in a condition with predetermined results. Management being probabilistic, points out only the probability and never the certainty of performance and the consequent results. Nevertheless, for aiding decision-making, the management assumes a certain amount of deterministic models to arrive at some conclusions and then do the analysis in combination with the probabilistic approach.

5. Management is multidimensional: System approach points out complex multilevel and multidirectional characters. At the macro level, management can be applied to the business systems as a whole. At the micro level, it can be applied to an organized unit or any if its elements.

6. Management has multiple variables: There is no simple cause-effect phenomenon like in physics. An event may be a result of so many variables which themselves are interrelated and interdependent.

7. Management is adaptive: The survival and growth of an organization in a dynamic environment demands an adaptive system that continuously adjusts to a changing environment through a feedback mechanism. The feedback mechanism provides information to take corrective action for achieving the desired results.

8. Management is multidisciplinary: Management being a system draws integrated knowledge from several disciplines and schools of thought. In fact, integration of the relevant aspects of various disciplines is the real contribution to the management as a system.

6.15 Decision Theory

While the previous paragraphs illustrate the systems approach to decision-making, the following paragraphs illustrate the aspect of decision-making as relevant to the manager.

The day-to-day administration of the affairs of any business enterprise requires an endless sequence of decisions. Decision-making is an integral part of a team, given the responsibility of meeting and discussing among themselves toward the achievement of a goal. They may either be routine or unusual, demanding the manager’s closest attention and intelligence.

Actually the terms—to decide, to determine, to settle, and to conclude are generally used as synonyms, but we may distinguish between them as follows;

● To decide implies the bringing to an end any doubt, dispute, vacillation, or wavering between choices, by making up one’s mind on what to do, the course of action, etc.

● To determine, in addition to the above, suggests or fixes precisely the form, character, functions, scope, etc.

● To settle stresses finality in decision, often the one arrived at by an arbitrational process and implies the termination of all doubts and controversy.

● To conclude means to decide after careful investigation reasoning.

In the past, when it was mostly a sellers’ market, profit maximization was perhaps the sole motto of an enterprise, and accordingly, all decision-making was simple. But today, the manager is influenced by a hoard of factors.

1. Increased regulation of business activity by the local or national governments.

2. Growing separation of ownership and management in industry resulting in the management becoming more and more professional.

3. Steadily increasing importance given to high-level education for managers.

4. Development of new processes and equipment.

5. Expansion of market areas in view of improved communication and transport logistics.

6. Increased competition from other suppliers.

7. Growth of labor unions and more stringent labor laws.

8. Growing social pressure.

The following paragraphs detail the decision theory with regards to identifying its rationality, uncertainties, and other issues relevant in a given decision, as well as the resulting optimal decision.

6.16 Problem Analysis and Decision-Making

Traditionally, problem analysis must be done first, so that the information gathered in that process may be used towards decision-making. Wikipedia highlights the criteria for problem analysis and effective decision-making as follows.

6.17 Characteristics of Decision-Making

Decision-making involves the following characteristics

● Decision-making is a process of selection and the aim is to select the best alternative.

● A decision is aimed at achieving the objective of an organization if it is made in the organizational context.

● It involves evaluation of available alternatives, because only by this evaluating can one know the best alternative.

● Decision-making is a mental process and the final decision is made after thoughtful consideration.

● A decision involves rationality because by this, one can better one’s happiness.

● Decision-making involves certain commitment. This commitment may be for a short run or long run, depending upon the type of decision.

6.19 Classifications of Decisions

There are several ways of classifying decisions in an organization.

6.20 Different Approaches to Decision-Making

The different approaches adapted for managerial decision-making offer an insight into the theory of decision-making useful in teamwork.

6.20.4 Scientific Decision-Making

Here each problem is analyzed considering each of the alternative solutions. This process of analysis has been adapted in the physical services for centuries. The main four steps are:

● Define the problem,

● develop a hypothesis,

● test the two hypotheses, and

● prove or disprove the hypotheses.

This is better understood by Fig. 6.15.

6.21 Bias in Decision-Making

Wikipedia lists the following instances of bias that creep into to the decision-making process, which should be kept in mind by the decision-makers.

1. Selective search for evidence—Our mind is set for certain conclusions. Subconsciously we tend to gather facts that support these conclusions, but disregard other facts that support different conclusions. This can also be called as Choice-supportive bias.

2. Incomplete search for evidence—We tend to accept the first alternative that looks like it might work.

3. Inertia—We have a built-in resistance to change from our thought patterns that we have used in the past.

4. Selective perception—Referring to para, our brain has two halves, the right brain which is creative and thinks of all alternatives, while the left brain thinks logically and screens out information that appears illogical, even though the same apparent idea could later be developed into a relevant alternative for effective decision-making.

5. Over-optimism—many a time we tend to want to see things in a positive light and ignore the negative impacts.

6. Recency—We tend to place more attention on more recent information, and either ignore or forget more distant information. This is why exponential smoothing is done for forecasting as explained in Chapter 17.

7. Repetition bias—We tend to believe that what we are told more times or by more people is truer than what we are told occasionally, or by fewer people.

8. Anchoring and adjustment—Decisions are unduly influenced by initial information that shapes our view of subsequent information.

9. Groupthink—Even though this is opposite of what is stated in point 4 above and sometimes provides the needed moderation (two heads are better than one), this groupthink sometimes makes groups come into agreement at the cost of critical thinking, that is when most of the group does not want to spend time and energy in analyzing and thinking.

10. Source credibility bias—We reject something if we have a bias against the person and accept a statement by someone we like.

11. Incremental decision-making and escalating commitment—We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This is also called a slippery slope.

12. Attribution asymmetry—We tend to attribute our success to our abilities and talents. But we attribute our failures to bad luck. It is like saying “We won because of me. We lost because of him.”

13. Self-fulfilling decisions—We conform to the decision-making expectations that others have of someone in our position.

14. Underestimating uncertainty—We wrongly presume to have control to minimize potential problems in our decisions.

6.22 Decision Tree

Decision Tree is a pictorial representation of a decision situation, normally found in discussions of decision-making under uncertainty or risk. It shows decision alternatives, states of nature, probabilities attached to the state of nature, and conditional benefits and losses.

Investopedia Financial Dictionary defines decision tree as a management tool to clarify and find an answer to a complex problem. The structure allows users to take a problem with multiple possible solutions and display it in a simple, easy-to-understand format that shows the relationship between different events or decisions. The furthest branches on the tree represent possible end results. The tree approach is most useful in a sequential decision situation and can be illustrated by the logical testing procedure cited in Chapter 8 of the book Maintenance Management—Precepts and Practices (Fig. 6.16).

If a process consisting of a group of units connected in a series as per Fig. 6.16 above fails, then individual units have to be checked for failure since the exact unit which has failed is not known, the decision tree illustrated in Fig. 6.17 would help.

6.23 Systematic Decision-Making

1. Outline your goal and outcome

2. Gather data

3. Develop alternatives (ie, brainstorming)

4. List pros and cons of each alternative

5. Make the decision

6. Immediately take action to implement it

7. Learn from and reflect on the decision

6.24 Proper Management Decision and Proper Engineering Design

The precepts as described in the previous paragraphs have given us new concepts and terminology for distinguishing the managerial and engineering decisions such as proper management decision (PMD) and proper engineering design (PED), which is emphasized more in books on Processional Ethics.

PMD is a decision that should be made by mangers or at least governed by management considerations, because:

● It involves factors relating to the well-being of the organization such as cost, scheduling, marketing, and employee morale and welfare.

● The decision does not force engineers or other professionals to make unacceptable compromises with their own technical practices or ethical standards.

PED is a decision made by the engineers or at least governed by professional engineering practices because it either,

● involves technical matters that require engineering expertise or

● falls within the ethical standards embodied in engineering codes, especially those requiring engineers to protect the health and safety of the public.

6.25 Conclusion

The chief purpose if the systems approach is to provide management with an analytical framework by which it can identify, describe, and interrelate the process and components that make up a particular system. In other words, the systems approach enables a manager to maintain a perspective of the whole process while he analyzes the parts. Again, in the day-to-day administration of the departmental affairs, any manager, especially the planning manager is required to make an endless sequence of decisions. His success depends on his effective decision-making. A clear understanding the precepts and practices of decision theory as detailed in this chapter would help the planning manager. This chapter discussed both of these interrelated precepts.