FUNCTIONS OF MANAGEMENT DIRECTING:

Management is a process of the quality of both physical as well as human resources to
seek objectives. The elements or activities which are performed in this process are known as
functions of management. Various authors have classified these functions differently.
Thus, the functions of management may be classified in to five categories: Planning,
Organizing, Staffing, Directing (leadership, motivation, communication, coordination) and
Controlling.
PLANNING:
It is the basic function of management. A plan is a future course of actions. It is an
exercise in problem solving & decision making. According to Koontz, “Planning is deciding
in advance – what to do, when to do & how to do. It bridges the gap from where we are &
where we want to be”. Planning is determination of courses of action to achieve desired
goals. Thus, planning is a systematic thinking about ways & means for accomplishment of
pre-determined goals. Planning is necessary to ensure proper utilization of human & non-
human resources. Planning involves the following steps:
1. Determination of objectives;
2. Forecasting;
3. Formulation of policies and programmes;
4. Preparation of schedules.
ORGANIZING:
It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals.
To organize a business involves determining & providing human and non-human resources
to the organizational structure. Organizing as a process involves:
1. Identification of activities;
2. Classification and grouping of activities;
3. Assignment of duties;
4. Delegation of authority and responsibility;
5. Coordinating authority;
6. Responsibility relationships.
STAFFING:
It is the function of manning the organization structure and keeping it manned.
Staffing has assumed greater importance in the recent years due to advancement of
technology, increase in size of business, complexity of human behavior etc. The main
purpose of staffing is to put right man on right job i.e. square pegs in square holes and round
pegs in round holes. Staffing involves:
 Manpower Planning;
 Recruitment; Selection & placement;
 Training & development;
 Remuneration, Performance Appraisal;
 Promotions & Transfer.
It is that part of managerial function which actuates the organizational methods to
work efficiently for achievement of organizational purposes. It is considered life- spark of the
enterprise which sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work. Direction is that inert-personnel aspect
of management which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals. Direction has following elements:
1. Supervision: implies overseeing the work of subordinates by their superiors. It is the
act of watching & directing work & workers.
2. Motivation: means inspiring, stimulating or encouraging the sub-ordinates with zeal
to work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.
3. Leadership: may be defined as a process by which manager guides and
influences the work of subordinates in desired direction.
4. Communications: is the process of passing information, experience, opinion etc
from one person to another. It is a bridge of understanding.
CONTROLLING:
It implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals. The purpose of controlling is
to ensure that everything occurs in conformities with the standards. Controlling is the
measurement & correction of performance activities of subordinates in order to make sure
that the enterprise objectives and plans desired to obtain them as being accomplished.
Therefore controlling has following steps:
1. Establishment of standard performance;
2. Measurement of actual performance;
3. Comparison of actual performance with the standards;
4. Corrective action.
EVALUATION OF MANAGEMENT THOUGHT
From the start of the 19th century until the 20th century, managers and scholars have
formed a theoretical framework to explain what they believe to be good practices of
management. Their efforts led to five different classes of perspectives on management,
namely, the classical perspective, behavioral perspective, quantitative perspective, systems
perspective and contemporary perspective. Each perspective is based on different
assumptions towards the objectives of the organization and human behavior.

We can classify the schools of management thought as follows:
1. Classical Perspective: This perspective existed in the 19th century and early 20th
century. It focuses on the rational and scientific approaches to the study of
management and on finding ways to mould an organisation to become more efficient.
The classical thought can be studied under three streams, namely;
i. Scientific management
ii. Administrative management
iii. Bureaucracy management
2. Neo-Classical or Human Perspective: The neo-classical writers tried to remove the
deficiencies of the classical school and suggested improvements for good human
relations in the organization. It emphasizes the importance of understanding human
behaviour, employee’s needs, the attitude of employees in a working environment
besides social interaction and group processes. Their propositions are based on
'human relations studies' and motivational theories such as Hawthorne Experiments,
Maslow theory, etc.
3. Quantitative Management or Behavioral Sciences Perspective: This approach
emerged as a result of the contributions of psychologists, sociologists and
anthropologists to the field of management. The, behavioral science perspective
believes that it is difficult to understand the sociology of a group separate from the
psychology of the individuals comprising it and the anthropology of the culture within
which it exists.
4. Contemporary or Modern Perspective: The modem management thinkers define
organization as a system and also consider the impact of environment on the
effectiveness of the organization. The organization is viewed as adaptive systems
which must in order to survive adjust to environmental changes. As a result, two
approaches have gained prominence after 1960s, which are as follows:
(a) Systems approach, and
(b) Contingency approach.
THEORIES OF MOTIVATION
I. MASLOW’S THEORY OF HUMAN NEEDS
A.H.Maslow, a famous social scientist or psychologist, has given a framework that
helps to explain the strength of certain needs. He identified human needs in the form of a
hierarchy, ascending from the lowest to highest. If his basic needs are not met, efforts to
satisfy the higher needs should be postponed. The hierarchy of needs is identified as follows:
1. Physiological needs: The Physiological needs are at the top of hierarchy because they
tend to have the highest strength until they are reasonably satisfied. It includes the
need for food, sleep, shelter, etc. these are the basic needs and if these are not
satisfied, one does not think of needs at higher level.
2. Safety or Security Needs: Once physiological needs are satisfied to a reasonable
level, the next level in the hierarchy is safety. Safety means being free of physical
danger or self-preservation. It covers protection, job security, safety of property, food
or shelter, etc.
3. Affiliation or Acceptance or Social needs: After the first two needs are satisfied,
social needs become important in the need hierarchy. Man wants to live in the society
as a member of society. He wants to love and be loved by others. It includes desire to
seek or show affection and recognition, need for companionship, identification with a
group, etc.
Unit-1: Introduction to Management 1.10
4. Esteem needs: These needs are concerned with self respect, self confidence, a feeling
of personal worth, feeling of being unique and recognition. Satisfaction of these needs
produces feelings of self confidence, prestige, power and control.
5. Self actualization needs: These needs indicate the strong desire to achieve
something, particularly in view of potential one has. This includes competence which
implies control over environmental factors both physical and social and achievement.
Conclusion:
Maslow suggest that the various levels are interdependent and overlapping, each
higher level need emerging before the lower level need has been completely satisfied.
II. DOUGLAS MCGREGOR’S THEORY X AND THEORY Y:
McGregor's work was based on Maslow's hierarchy of needs. He grouped Maslow's
hierarchy into "lower order" (Theory X) needs and "higher order" (Theory Y) needs. He
suggested that management could use either set of needs to motivate employees.
Theory X and Y are theories of human motivation created and developed by
McGregor in 1960 and that have been used in Human resource management, organizational
behaviour and organizational communication.
Theory - X: It assumed that –
1. Employees are inherently lazy.
2. They require constant guidance and support.
3. They require even coercion and control.
4. Given an opportunity, they would like to avoid responsibility.
5. They do not show up any ambition but seek security.
Theory - Y: It states that –
1. Some employees consider work as natural as play or rest.
2. These employees are capable of directing and controlling performance on their own.
3. Higher rewards make these employees more committed to organization.
4. Given an opportunity, they not only accept responsibility but also look for
opportunities to outperform others.
5. Most of them are highly imaginative and creative.
Theory X and Theory Y combined:
For McGregor, Theory X and Y are not different ends of the same continuum. Rather
they are two different continua in themselves. Thus, if a manager needs to apply Theory Y
principles, that does not preclude him from being a part of Theory X & Y.
III. HERZBERG’S TWO FACTOR THEORY OF MOTIVATION:
Frederick Hertzberg conducted a structured interview programme to analyse the
experience and feelings of 200 engineers and accountants in nine different companies in
Pittsburg area, U.S.A. During the structured interview, they were asked to describe a few
previous job experiences in which they felt ‘exceptionally good’ or exceptionally bad about
their jobs.
In his analysis, he found that there are some job conditions which operate primarily to
dissatisfy employees when the conditions are absent, however their presence does not
motivate them. It is referred as Hygiene or Maintenance Factors.
Another set of job conditions operates primarily to build strong motivation and high
job satisfaction, but their absence rarely proves strongly dissatisfying. It is referred as
motivational factors.
 Unit-1: Introduction to Management 1.11
1. Hygiene Factors: According to Hertzberg, there are 10 maintenance factors. These
maintenance factors are necessary to maintain at a reasonable level of satisfaction in
employees. Any increase beyond this level will not produce any satisfaction to the
employees. However, any cut below this level will dissatisfy them. These are:
1. company policy and administration,
2. technical supervision,
3. salary,
4. job security,
5. personal life,
6. status,
7. working conditions,
8. interpersonal relationship with superiors,
9. interpersonal relationship with peers and
10. interpersonal relationship with subordinates.
2. Motivational Factors: These factors are capable of having a positive effect on job
satisfaction often resulting in an increase in ones total output. Most of the factors are
related with job contents. An increase in these factors will satisfy the employees.
However, any decrease in these factors will not affect their level of satisfaction.
Hertzberg includes six factors that motivate employees. These are:
1. achievement,
2. recognition,
3. advancement;
4. work itself,
5. possibility of growth and
6. responsibility.
IV. MAYO’S HAWTHORNE EXPERIMENTS
The human relations approach was born out of a reaction to classical approach. For
the first time an intensive and systematic analysis of human factor in organisations was made
in the form of Hawthorne experiments.
To investigate the relationship between productivity and physical working conditions,
a team of four members George Elton mayo, White head, Roethlisberger and William
Dickson was introduced by the company in Hawthorne plant. These experiments are often
referred to as the Hawthorne experiments or Hawthorne studies as they took place at the
Western Electric Company in Chicago. They conducted various researches in four phases:
1. Experiments to determine the effects of changes in illuminations on productivity.
Illumination experiments (1924-27).
2. Experiments to determine the effects of changes in hours and other working
conditions on productivity. (Relay assembly test room experiments 1927-28).
3. Mass interviewing programme (1928-1930).
4. Determination and analysis of social organization at work (Bank wiring observation
room experiments 1931-32).
Experiment Results:
After analysing the results from the Hawthorne experiments Mayo concluded that
workers were motivated by more than self interest and the following had an impact too:
1. Psychological Contract: There is an unwritten understanding between the worker
and employer regarding what is expected from them; Mayo called this the
psychological contract.
Unit-1: Introduction to Management 1.12
2. Interest in Workers: A worker’s motivation can be increased by showing an interest
in them. Mayo classified studying the workers (through the experiments) as showing
an interest in the workers.
3. Work is a Group Activity: Work is a group activity, team work can increase a
worker’s motivation as it allows people to form strong working relationships and
increases trust between the workers. Work groups are created formally by the
employer but also occur informally.
4. Social Aspect of Work: Workers are motivated by the social aspect of work, as
demonstrated by the female workers socialising during and outside work and the
subsequent increase in motivation.
5. Recognise Workers: Workers are motivated by recognition, security and a sense of
belonging.
6. Communication: The communication between workers and management influences
workers’ morale and productivity. Workers are motivated through a good working
relationship with management.
Conclusion:
The traditional view of how to motivate employees is that you offer monetary rewards
(pay increases, bonuses etc) for work completion. However the Hawthorne experiments may
suggest that motivation is more complicated than that. Advocates of the "Hawthorne Effect"
will state that the Hawthorne experiment results show that motivation can be improved
through improving working relationships and social interaction.
DECISION MAKING
Decision-making is an essential aspect of modern management. Decision-making is
the key part of manager's activities. Decisions are important as they determine both
managerial and organizational actions. A decision may be defined as "a course of action
which is consciously chosen from among a set of alternatives to achieve a desired result."
Decision is a choice from among a set of alternatives.
According to Trewatha & Newport, "Decision-making involves the selection of a
course of action from among two or more possible alternatives in order to arrive at a solution
for a given problem".
Decision Making Process:
Decision-making involves a number of steps which need to be taken in a logical
manner. Decision-making process prescribes some rules and guidelines as to how a decision
should be taken/made. This involves many steps logically arranged. Drucker recommended
the scientific method of decision-making which, according to him, involves the following six
steps as shown below:
1. Identify/Define the Problem: Identification of the real problem before a business
enterprise is the first step in the process of decision-making. It is rightly said that a
problem well-defined is a problem half-solved. Information relevant to the problem
should be gathered so that critical analysis of the problem is possible. In brief, the
manager should search the 'critical factor' at work. It is the point at which the choice
applies.
2. Analyzing the Problem: After defining the problem, the next step in the decision-
making process is to analyze the problem in depth. This is necessary to classify the
problem in order to know who must take the decision and who must be informed
about the decision taken.
 Unit-1: Introduction to Management 1.13
Identify/Define the Problem
Analyzing the Problem
Developing Alternative Solutions
Selecting the Best Solution
Implementation of Decision
Feedback & Follow up Action
3. Developing Alternative Solutions: After defining the problem and analyzing its
nature, the next step is to obtain the relevant information/ data about it. Using this
data the manager has to determine available alternative courses of action that could be
used to solve the problem at hand. If necessary, group participation techniques may be
used while developing alternative solutions as depending on one solution is
undesirable.
4. Selecting the Best Solution: After preparing alternative solutions, the next step in the
decision-making process is to select an alternative that seems to be most rational for
solving the problem. The alternative thus selected must be communicated to those
who are likely to be affected by it. Acceptance of the decision by group members is
always desirable and useful for its effective implementation.
5. Implementation of Decision: After the selection of the best decision, the next step is
to convert the selected decision into an effective action. Without such action, the
decision will remain merely a declaration of good intentions. Here, the manager has to
convert 'his decision into 'their decision' through his leadership.
6. Ensuring Feedback: Feedback is the last step in the decision-making process. Here,
the manager has to make built-in arrangements to ensure feedback for continuously
testing actual developments against the expectations. It is like checking the
effectiveness of follow-up measures.
DESIGNING ORGANIZATION STRUCTURE
An organization is identified group of people contributing their efforts towards
attainment of certain common objectives. It is mainly used in two ways:
(a) Organization is a structure of relationships between various positions of business. It
has the features like: two or more persons, common objectives, division of work,
cooperative efforts, rules and regulations.
(b) Organization is a process which involves: determining and grouping the activities;
assigning the duties to various individuals; allocating necessary authority and
responsibility; coordinating the activities, decision making and motivation.
Organizations are divided in to two categories: Formal Organisation and Informal
Organisation.
Unit-1: Introduction to Management 1.14
Formal Organization:
A formal organization is deliberately designed to achieve some particular objectives.
It refers to the structure of well defined jobs, each bearing a definite measure of authority,
responsibility and accountability. The structure is consciously designed to enable the
organizational members to work together for accomplishing common objectives. It tells him
to do certain things in a specified manner, to obey orders from designated individuals and to
cooperate with others.
The basic characteristics of formal organization are as follows:
1. Organization structure is laid down by the top management to achieve organizational
goals.
2. Organization structure is based on division of labor and specialization to achieve
efficiency in operations.
3. Organization structure concentrates on the jobs to be performed and not the
individuals who are to perform jobs.
4. The organization does not take into consideration the sentiments of organizational
members.
5. The authority and responsibility relationships created by the organization structure are
to be honored by everyone.
Informal Organization:
Informal organization refers to the relationship between people in the organization
based on personal attitudes, emotions, prejudices, likes, dislikes, etc. These relations are not
developed according to procedures and regulations laid down in the formal organization
structure; generally, large formal groups give rise to small informal or social groups. These
groups may be based on same taste, language, culture or some other factor. These groups are
not preplanned, but they develop automatically within the organization according to its
environment.
The salient features of informal organization are as follows:
1. Informal relations are unplanned. They arise spontaneously.
2. Formation of informal organizations is a natural process.
3. Informal organization reflects human relationships.
4. Informal organizations are based on common taste, problem, language, religion,
culture, etc.
ORGANIZATIONAL STRUCTURE
A clearly defined organizational structure and well depicted organization chart
minimizes the uncertainty. It speeds up decision making. It brings out coordination. If an
organizational chart is not clearly defined, it may lead to politics and frustration.
The organisational chart can be defined as follows:
1. The chart identifies lines of authority and responsibility, flow of work between
individuals and span of control.
2. It illustrates the superior-subordinate relationship that is, who reports to whom.
3. It shows whether the functions are grouped together in a logical order or not.
4. It illustrates how the activities of entire organization are coordinated in to one unit.
5. It focuses what kind of managerial relationship is prevalent in the organization.
 Unit-1: Introduction to Management 1.15 Unit-1: Introduction to Management 1.16

TYPES OF ORGANISATION STRUCTURE

Vice Chancellor
1. LINE ORGANISATION STRUCTURE:
It is also known as scalar or military or vertical organization and perhaps is the
Rector oldest form. In this form of organization managers have direct responsibility for the
results; line organization can be designed in two ways.
a) Pure Line Organisation: Under this form, similar activities are performed at a
Registrar particular level. Each group of activities is self – contained unit and is able to perform
the assigned activities without the assistance of others.

Production Manager
Principal Principal Principal
College of Engg. College of Engg. College of Engg.
Kakinada Hyderabad Ananthapur
Foreman-A Foreman-B Foreman-C
Organization chart of a University
Worker Worker Worker
PRINCIPLES OF ORGANIZATION
The cardinal principles of a sound organization are: b) Departmental Line Organisation: Under this form, entire activities are divided into
1. Align departmental objectives to corporate goals: It is to be ensures that the different departments on the basis of similarity of activities. The basic objective of
objectives of different departments in the organization are unified and aligned to the this form is to have uniform control, authority and responsibility.
corporate goals.
2. Cost effective operations: An organization is said to be efficient if it can achieve the
goals at the lowest costs and with minimum undesirable consequences. Production Manager
3. Define Authority: The authority and responsibility relationships underlying each
position in the organization have to be defined clearly to avoid confusion or
misinterpretation. Foreman-A Foreman-B Foreman-C
4. Optimum number of subordinates: In each managerial position, there is a limit to (Body Moulding) (Seating) (Finishing)
the number of persons an individual can effectively manage.
5. Specialisation: Similar activities are group together to ensure better performance of Worker Worker Worker
the work and efficiency and so on.
6. Flow of authority: This refers to the line of authority from the top management in an Suitability:
enterprise to other levels. If this is clear, then the terms of responsibility can be It is suitable to small scale organizations where the number of subordinates is quite small.
understood. Merits:
7. Define responsibility: A superior is responsible for the omissions and commissions 1. Simplicity: Line organization is very simple to establish and can be easily understand
of his subordinates and at the same time the subordinates must be held responsible to by the employees
their superiors for the performance of the work assigned. 2. Discipline: Since each position is subject to control by its immediate superior position,
8. Ensure flexibility: The more the flexile structures, the better is the scope to be often the maintenance of discipline is easy unity of command and unity of direction
successful. Where the organisation procedures are rigid, it is necessary to develop an foster discipline among the people in the organization.
in-built mechanism to forecast any type of constraint. 3. Co-ordination: The hierarchy in management helps in achieving effective
9. Provide for continuity: The organisation structure should provide for the coordination.
continuation of activities. There cannot be any breakdown in activities for any reasons 4. Effective communication: There will be a direct link between superior and his
in the organisation. subordinate; both can communicate properly among himself or herself.
10. Ensure one employee, one superior: Each subordinate should have only one 5. Economical: Line organization is easy to operate and less expensive
superior. There should not be any room for conflict of command. 6. Unity of command: In this every person is under the command of one boss only.
11. One head and one plan: Every group of activities with common objective should be 7. Prompt decision: Only one person is in charge of one division or department. This
handled by one person and one plan. If handled by different persons, the organisation enables manager to take quick decisions.
may lose direction. 8. Over all development of the managers: The departmental head has to look after all
12. Attain Balance: Every organisation needs to be a balanced one. There are several the activities of his department; therefore, it encourages the development of all round
factors such as de-centralisation and delegation of authority, Departmentation, span of managers at the higher level of authority.
control and others that have to be balanced to ensure the overall effectiveness.
 Unit-1: Introduction to Management 1.17 Unit-1: Introduction to Management 1.18

Demerits:
1. Ability of Manager: The success of the enterprise depends upon the caliber and
ability of few departmental heads, loss of one or two capable men may put the
organization in difficulties.
2. Personnel limitations: In this type of organization an individual executive is suppose
to discharge different types of duties. He cannot do justice to all different activities
because he cannot be specialized in all the trades.
3. Overload of work: Departmental heads are overloaded with various routine jobs
hence they cannot spare time for managerial functions like planning, budgeting, etc.
4. Dictatorial way: In line organization, too much authorities centre on line executive.
Hence it encourages dictatorial way of working.
5. Duplication of work: Conflicting policies of different departments result in
duplication of work.
6. Unsuitable for large concerns: It is limited to small concerns
7. General interest of enterprise may be over looked: Departments may work for their
self-interest and may sacrifice the general interest of the enterprise.
8. Scope of favourism: As the departmental heads has the supreme authority, there is
chance of favourism.
2. LINE AND STAFF ORGANISATION:
It refers to a pattern in which staff specialists advise line managers to perform
their duties. When the work of an executive increases its performance requires the
services of specialists which he himself cannot provide because of his limited capabilities
on these matters. Such advice is provided to line managers by staffs personal who are
generally specialists in their fields. The staff people have the right to recommend, but
have no authority to enforce their preference on other departments.
Demerits:
1. Chances of Misinterpretation: Although the expert advice is available, yet it reaches
the workers through line supervisors. The line officers may fail to understand the
meaning of advice and there is always a risk of misunderstanding and
misinterpretation.
2. Chances of friction: There are bound to be occasions when the line and staff may
differ in opinion may resent in conflict of interests and prevents harmonious relations
between the two.
3. Ineffective Staff in the absence of authority: The staff has no authority to execute
their own advice. Their advice is not a binding on the line officers. Therefore the
advice given by specialist may be ignored by line heads.
4. Expensive: The overhead cost of the product increases because of high salaried
specialized staff.
5. Loss of initiative by line executives: If they start depending too much on staff may
lose their initiative drive and ingenuity.
3. FUNCTIONAL ORGANISATION STRUCTURE:
It is the most widely used organization structure in the medium and large scale
organizations having limited number of products. This structure emerges from the idea
that the organization must perform certain functions in order to carry on its operations.
Functional structure is created by grouping the activities on the basis of functions
required for the achievement of organizational objectives. For this purpose, all the
functions required are classified into basic, secondary and supporting functions according
to their nature & importance.
General Manager

Suitability: Marketing Finance Personnel Production

It can be followed in large organizations where specialization of activities is required, Manager Manager Manager Manager
because it offers ample opportunities for specialization.
Merits:
1. Planned specialization: The line and staff structure is based upon the principle of
specialization. The line managers are responsible for operations contributing directly to
the achievement of organizational objectives where as staff people are there to provide
expert advice on the matters of their concerns. Branch Manager Office Manager Factory Manager
2. Quality decisions: Decisions come after careful consideration and thought each expert
gives his advise in the area of his specialization which is reflected in the decisions. Line of authority
3. Prospect for personal growth: Prospect for efficient personal to grow in the Functional authority
organization not only that, it also offers opportunity for concentrating in a particular
area, thereby increasing personal efficiency
4. Less wastage: There will be less wastage of material.
5. Training ground for personnel: It provides training ground to the personnel in two
ways. First, since everybody is expected to concentrate on one field, one’s training
needs can easily be identified. Second, the staff with expert knowledge provides
opportunities to the line managers for adopting rational multidimensional approach
towards a problem
 Unit-1: Introduction to Management 1.19 Unit-1: Introduction to Management 1.20

Suitability: General Manager

It is suitable for large scale organizations.
Merits:
1. Separation of work: In functional organization, work has been separated from
routine work. The specialist has been given the authority and responsibility for
supervision and administration pertaining to their field of specialization unnecessary Production Personnel Finance Marketing
over loading of responsibilities is thus avoided.
2. Specialization: Specialization and skilled supervisory attention is given to workers Project A
W W W W
the result is increase in rate of production and improved quality of work. Manager
3. Narrow range with high depth: The narrow range of activities enable the functional
expert to developing in depth understanding in his particular area of activity Project B W
W W W
4. Ease in selection and training: Functional organization is based upon expert Manager
knowledge. The availability of guidance through experts makes it possible to train the
workers properly in comparatively short span of time. Project C
W W W W
5. Reduction in prime cost: Since for every operation expert guidance is there, wastage Manager
of material is reduced and thus helps to reduce prime cost. Merits:
6. Scope of growth and development of business: This type of organization presents 1. It offers operational freedom & flexibility
ample scope for the growth and development of business. 2. It focuses on end results.
Demerits: 3. It maintenance professional Identity.
1. Indiscipline: Since the workers receive instructions from number of specialist it leads 4. It holds an employee responsible for management of resources.
to confusion to whom they should follow. Therefore, it is difficult to maintain Demerits:
discipline 1. It calls for greater degree of coordination,
2. Shifting of responsibility: It is difficult for the top management to locate 2. It violates unity of command.
responsibility for the unsatisfactory work everybody tries to shift responsibility on 3. Difficult to define authority & responsibility.
others for the faults and failure. 4. Employee may be de motivated.
3. Overlapping of authority: The sphere of authority tends to overlap and gives rise to
friction between the persons of equal rank. 5. COMMITTEE ORGANISATION:
4. Kills the initiative of workers: As the specialized guidance is available to the A committee does not represent a separate type of organization like line and staff,
workers the workers will not be using their talents and skills therefore their initiative or functional. It is rather a device which is used as supplementary to or in addition to any
cannot be utilized. of the above types of organizations.
5. Lack of co-ordination between functions: except the function in which he is A committee may be defined as a group of people performing some aspects of
specialized he is absolutely indifferent to other functions. Therefore, there is a lack of Managerial functions. Thus, a committee is a body of persons appointed or elected for the
coordination of function and efforts. Consideration of specific matters brought before it

4. MATRIX ORGANISATION:
It is also called project organization. It is a combination of all relationships in the Suitability:
organization, vertical, horizontal and diagonal. It is a mostly used in complex projects. It is suitable for educational organizations and universities.
The main objective of Matrix organization is to secure a higher degree of co-ordination
than what is possible from the conventional, organizational structures such as line and Merits:
staff. 1. It offers operational freedom & flexibility
In matrix organization structure, a project manager is appointed to co-ordinate the 2. It focuses on end results.
activities of the project. Under this system a subordinate will get instructions from two or 3. It maintenance professional Identity.
more bosses, Viz., administrative head and his project manager. 4. It holds an employee responsible for management of resources.

Suitability: Demerits:
It can be applicable where there is a pressure for dual focus, pressure for high 1. It calls for greater degree of coordination,
information processing, and pressure for shred resources. Ex: Aerospace, chemicals, 2. It violates unity of command.
Banking, Brokerage, Advertising etc. 3. Difficult to define authority & responsibility.
4. Employee may be de motivated.
 Unit-1: Introduction to Management 1.21 Unit-1: Introduction to Management 1.22

6. PROJECT ORGANIZATION: IMPORTANT QUESTIONS

A project organization is a special case where common service like finance, purchase
etc. are organized at the functional level. But project resources are allocated to the project 1. Explain the nature and functions of management?
manager. Since the business responsibility rests with the project manager, necessary authority 2. Explain how scientific management paved way for changes in the traditional mindset.
is given to him with the requisite resources. This type of organization structure helps in 3. “Management is regarded as an art by some, science by others”. In the light of this
making decisions for project control in terms of cost, resource and time. statement, Explain the exact nature of management
Merits: 4. What is the contribution of Henry Fayol to management thought? Explain 14
1. This calls for quick divisions principles of management thought.
2. Organizing all functional 5. Write short notes on:
3. Proper coordination of work of different departments a. Maslow theory of Hierarchy of Human Needs
b. Frederick Herzberg two factor theory of motivation.
Demerits:
c. Theory X and Theory Y (Douglas Mc. Gregor)
1. It tends to increase the problems of control for top management
6. Write a note on and merits and demerits:
2. It is special case of product organization
a. Functional organization
3. The organization may get disintegrated with increasing focus on departments
b. Lean and flat organization
c. Committee organization
7. FLAT AND TALL ORGANISATION:
7. Explain the principles of a sound organization.
Flat Organizations are those, which have few or even one level of management.
8. What type of organization suggested by F.W. Taylor? Explain it with merits &
For example, a service organization with equal partners and 30 employees. Flat
demerits.
organizations are known by their wider span of management of control. Each manager
9. What do you mean by formal and informal organization? Evaluate its importance.
controls more number of employees at a given point of time.
10. Write brief notes and merits and demerits of the following.
Managing Director a. Line & staff organization
b. Line organization
c. Matrix organization
Sales Manager Production Manager Personnel Manager Finance Manager

Tall organizations may have many levels of management. It focus on vertical

communication through the levels of grades. It involves narrow span of management.
Generally the greater the height of organisational chart, the smaller is the span of control,
vice versa.
Managing Director

General Manager

Sales Manager Production Manager Personnel Manager Finance Manager

 Unit-2: Operations Management 2.1
UNIT - II
OPERATIONS MANAGEMENT
TYPES OF MANAGEMENT
Management is an activity just like playing, studying, teaching etc. As an activity
management has been defined as the art of getting things done through the efforts of other
people. Management is a group activity wherein managers do to achieve the objectives of the
group. The field of management is very wide.
The operational areas of business management may be classified as:
1. Production Management: Production management implies planning, organizing,
directing and controlling the production function so as to produce the right goods, in
right quantity, at the right time and at the right cost. It includes the following
activities:
a. designing the product
b. location and layout of plant and building
c. planning and control of factory operations
d. operation of purchase and storage of materials
e. repairs and maintenance
f. inventory cost and quality control
g. research and development, etc.
2. Marketing Management: Marketing management refers to the identification of
consumer’s needs and supplying them the goods and services which can satisfy these
wants. It involves the following activities:
a. marketing research to determine the needs and expectation of consumers
b. planning and developing suitable products
c. setting appropriate prices
d. selecting the right channel of distribution, and
e. promotional activities like advertising and salesmanship to communicate with
the customers.
3. Financial Management: Financial management seeks to ensure the right amount and
type of funds to business at the right time and at reasonable cost. It comprises the
following activities:
a. estimating the volume of funds required for both long-term and short-term
needs of business
b. selecting the appropriate source of funds
c. raising the required funds at the right time
d. ensuring proper utilization and allocation of raised funds
e. administration of earnings
4. Personnel Management: Personnel management involves planning, organizing and
controlling the procurement, development, compensation, maintenance and
integration of human resources of an organisation. It consists of the following
activities:
a. manpower planning; recruitments, selection,
b. training, appraisal, promotions and transfers,
c. compensation,
d. employee welfare services, and
e. personnel records and research, etc.
Unit-2: Operations Management 2.2
Types of Management Styles:
1. Democratic management: In a democratic style, management will make decisions
which are agreed upon by the majority of employees, therefore the workers feel
involved and important to the organization. By involving the employees,
management will be better informed to make the right decisions and harvest new
ideas from the people who are involved in the day to day business of the company.
2. Autocratic Management: An autocratic manager cuts an imposing and
knowledgeable figure; decisions are made quickly and forcefully without
involvement from anyone else. Other people’s judgments and suggestions are
usually neither listened to nor considered.
3. Laissez-faire management: The Laissez-faire management will take a back seat
role in the company, providing guidance when needed, the employees are allowed to
let their own ideas and creativity flourish in their specific areas. The manager is
looked upon as more of a mentor than a leader.
4. Paternalistic Management: A paternalistic type of management encourages
feedback from the workers to the leaders, essentially to maintain good morale and
loyalty. It is the manager who will make the final decision, but the leader will listen
to ideas and suggestions from the workers.
WORK STUDY
Work study is a generic term for those techniques, method study and work
measurement which are used in the examination of human work in all its contexts. According
to British standard (BS 3138), work study refers to the method study and work measurement,
which are used to examine human work in all its contexts by systematically investigating into
all factors affecting its efficiency and economy to bring forth the desired improvement.
Work study is a means of enhancing the production efficiency (productivity) of the
firm by elimination of waste and unnecessary operations. Method study and work
measurement is part of work study. Part of method study is motion study; work measurement
is also called by the name ‘Time study’.
The objectives of work study are to achieve:
1. To bring improvement of work processes and procedures.
2. To improve usage of materials, machines & man power.
3. To economize human efforts and reduce un-necessary fatigue.
4. To develop better physical working condition & environment.
METHOD STUDY:
It is the systematic recording and critical examination of the existing and proposed
ways of doing work, as a means of developing and applying easier and more effective
methods, reducing cost and increasing efficiency. It is used in order to affect solutions to a
variety of production problems.
Ex: Work space layout, Equipment design, Product design, etc.
 Unit-2: Operations Management 2.3 Unit-2: Operations Management 2.4

According to British Standards Institution (BS 3138), “Method study is the systematic Delay (Temporary storage):
recording and critical examination or existing and proposed ways or doing work as a means It occurs to an object when conditions do not permit the
or developing and applying easier and more effective methods and reducing cost.” D performance of next job.
Basic procedure: Ex: Machinery breakdown, waiting for next stage, etc.
The process of method study involves the following procedure: Inspection:
To check whether the Quality and quantity of the product is
good or not.
Method Study
Operation cum Inspection:
Inspection is taking place during the production process.
Aim: To develop better working methods

Operation cum Transportation:

PROCEDURE Assembling is taking place while spares are transported.
SELECT the task to be studied.
RECORD all related facts about current or proposed methods.
EXAMINE the facts critically considering the purpose,
sequence, place and resources. 3. Examine: This is the most important phase of method study. After an activity has been
DEVELOP the best possible method. suitably recorded by means of any method, the recorded events are to be critically
DEFINE the best possible method. examined. The analysis may be based on primary questions like purpose, place,
EVALUATE different alternatives to develop new method. sequence, person etc.
INSTALL the new improved method. 4. Develop: Based on the recorded data, the alternative methods of doing the same job
MAINTAIN verify the installed method. more effectively are to be identified and evaluated. From these alternatives, the best one
is selected and developed to suit the requirements.
5. Evaluate: The different alternatives to developing a new improved method comparing
RESULT the cost-effectiveness of the selected new method with the current method with the
Increased Efficiency, Cost Effectiveness and current method of performance.
productivity through 6. Install: The new method so developed is to be installed in a phased manner. As part of
a) Improved workplace layout installation, adequate planning of schedules and deployment of resources should be
b) Improved equipment design taken care of. Once the method is adopted, the workers have to be retrained, the
c) Reduction in worker fatigue equipment has to be provided, and the method has to be tested in order to seek
d) Improved product/process design improvement.
7. Maintain: It should be ensured that the method is used in the manner intended.
1. Select: The task or work to which the method study principles are to be applied is to be Complaints and improvements in productivity should be registered. Once the new
identified and the objectives such as saving costs, increasing productivity, eliminating method starts yielding the desired result, it is necessary to maintain the new method
unnecessary emotions by works, etc are to be specified. without any change for some time.
2. Record: The current process of doing job has to be recorded. While doing so, every
detail, however small it may be, has to be identified. Where the process is too long, WORK MEASUREMENT:
involving many stages of production, inspection, the present process of doing the job is Work measurement is also called by the name ‘Time Study’. Work measurement is
recorded sufficiently, together with all the relevant information, by using the process absolutely essential for both the planning and control of operations. Without measurement
chart symbols. data, we cannot determine the capacity of facilities or it is not possible to quote delivery dates
Symbol Meaning or costs. We are not in a position to determine the rate of production and also labour
Operation (doing something): utilisation and efficiency. It may not be possible to introduce incentive schemes and standard
It involves change in the condition of a product costs for budget control.
Ex: Assembly of spare parts According to British Standard Institute time study has been defined as “The
Transport (Moving something from one location to another): application of techniques designed to establish the time for a qualified worker to carry out a
Ex: Assembled PC is moved to inspection section. specified job at a defined level of performance”. The objectives of work measurement are to
Storage (Permanent): provide a sound basis for:
It occurs when object is kept and protected against 1. Comparing alternative methods.
unauthorized removal. 2. Manpower requirement planning.
Ex: When PC is put into store after inspection. 3. Planning and control.
4. Realistic costing.
 Unit-2: Operations Management 2.5 Unit-2: Operations Management 2.6

5. Financial incentive schemes. 2. Acceptance sampling: Acceptance sampling is a technique of deciding whether to
6. Cost reduction and cost control. accept the whole lot or not based on the number of defectives from a random drawn
7. Identifying substandard workers. sample. It is widely use in buying food products, such as rice, wheat etc. If the quality
8. Training new employees. of sample drawn looks good or free from defects then according to the requirement
the entire bag or part of it can be brought.
Procedure:
The essential pre-requisite to carry out work measurement is to describe the3 me6thid Confidence and Control limits:
underlying the job. The following is the process involved. 1. Confidence limit: It indicates the range of confidence level. A confidence level refers
1. Break the job into elements which can be identified as distinct parts of an operation, to the probability that the value of measurement or parameter, such as length of screw,
capable of being observed, measured and analyzed. is correct.
2. Measure time taken to perform each element (30 seconds). Example: If a component is required with measurement of 50 mm. across, then the
3. Add the time taken to do all the elements and arrive at the basic time (Normal time) buyer accepts all components measuring between 48 mm and 52 mm across,
required to do the entire job. considering a five percent confidence level.
The process of work measurement involves the following procedure: 2. Control limit: Control limits are found in the control charts. There are two control
Work Measurement limits 1) Upper control limit (UCL) and 2) Lower control limit (LCL). These are
determined based on the principles of normal distribution.
Example: In a pilot investigation of the length of the nails produced in the shop floor,
Aim: To develop Time Standard
it is found that the mean length X is cm, the S.D 3σ, the measure of variability of the
nails produced 0.2 cm. How do you construct the control chart for this data.
PROCEDURE
DESCRIBE the given work for measurement. PROCESS CONTROL CHARTS:
BREAK the job into elements. It is a technique of ensuring the quality of the products during the manufacturing
MEASURE the performance of operator. process itself. It aims to control and maintain the quality of products in manufacturing
DETERMINE the basic time. process. It is carried out through control charts. A control chart compares graphically the
PROVIDE time allowance for fatigue etc. process performance data to compute statistical control limits. It is of two types:
DETERMINE standard time.

RESULT
Increased Efficiency and Higher productivity through
a) Scientific basis to develop incentive systems
b) Maintain reasonable levels of employment
c) Reliable means of planning and control

1. Variable charts: A variable is one whose quality measurement changes from unit to
STATISTICAL QUALITY CONTROL (SQC):
The process of applying statistical principles to solve the problem of controlling the
quality control of a product of service is called Statistical Quality control. W.A.Shewart in
1931 introduced, the control charts on basis of statistical principles. These are used to ensure
quality. Quality is of two types:
a) Quality of design: It refers to product features such as performance, reliability,
durability, use, service, etc., in comparing two products.
b) Quality of conformance: It means whether the product meets the given quality
specifications or not.
Elements of SQC: The techniques are divided into two parts:
1. Process Control: Process control is a technique of ensuring the quality of the
products during the manufacturing process itself. If a process consistently produces
items with acceptable or tolerable range of specification, it is said to be statically
under control. Process control is achieved through control charts.
unit. The quality of these variables is measured in terms of hardness, thickness,
length, etc. These are drawn using principles of normal distribution. It is meant for
variable type of data i.e. X-Bar chart and R charts.
X – Charts:
In control charts for variables, to construct a chart, only the mean or the
average value of dimensions in the samples in plotted on it. Procedure for
construction X-Chart:
a) Compute average of averages X.
b) Calculate average of Range (R).
c) Multiply the average range by the conversion factor (A2). This gives A2R.
d) Calculate the upper control and lower control limits
Upper control limit (UCL) = X+A2R
Lower control limit (LCL) = X+A2R
Where, A2 are conversion factors from table of constants.
 Unit-2: Operations Management 2.7 Unit-2: Operations Management 2.8

R – Charts: ACCEPTANCE SAMPLING

In control charts for variables, to construct a chart, only the mean or the Acceptance sampling is a technique of deciding whether to accept the whole lot or not
average value of dimensions in the samples in plotted on it. Procedure for based on the number of defectives from a random drawn sample. It is widely use in buying
construction R-Chart: food products, such as rice, wheat etc. Before buying the random samples drawn from the
a) Compute average of averages X and R for each of the samples obtained. bags of say rice are tested. If the quality of sample drawn looks good or free from defects
b) Calculate average of Range (R). then according to the requirement the entire bag or part of it can be brought.
c) Multiply the average range by the conversion factor (D4 or D3). The process of acceptance sampling through operating characteristic curve (OCC):
d) Calculate the upper control and lower control limits
Operating characteristic curve (OCC):
Upper control limit (UCL) = D4R The graphical relationship between percentage defective in the lots being submitted
Lower control limit (LCL) = D4R for inspection and the probability acceptance is termed as “operating characteristic of a
particular sampling plan”.
Where, D4 or D3 are conversion factors from table of constants.
R is average of sample ranges
Table of constants for X and R charts
n A2 D3 D4
2 1.880 0 3.268
3 1.023 0 2.574
4 0.729 0 2.282
5 0.577 0 2.114
6 0.483 0 2.004
7 0.419 0.076 1.924
8 0.373 0.136 1.864
9 0.337 0.184 1.816 It gives a clear picture about the probability of acceptance of lot for various values of
10 0.308 0.223 1.777 percent defectives in the lot. The probability of acceptance of a lot is high for low values of
actual percentage decrease and it is low for high values of actual percentage defectives.
1. Attribute charts: The quality of attributes can be determined on basis of yes or no. It
is meant for attribute type of data i.e. C-chart and P-chart. Construction of OC curve:
C – Chart: To develop a sampling plan for acceptance sampling, an appropriate O.C curve must
It is used where there are a number of defects per unit. Here the sample size be selected to construct an OC curve an agreement has to be reached between the producer
should be a constant. It is used when there are several independent defects that occur and the consumer on the following four points.
in ever unit produced. It is calculated as: 1. Acceptable quality level (AQL): This is the maximum proportion of defectives that
will make the lot definitely acceptable.
Upper control limit (UCL) = c + 3√c 2. Lot tolerance percentage defective (LTPD): This is the maximum proportion of
Lower control limit (LCL) = c + 3√c defectives that will make the lot definitely unacceptable.
3. Producers risk (α): This is the risk, the producer is willing to take that lots of the
Where, quality level AQL will be rejected, even though, they are acceptable usually α = 5%
Total No. of defects in all samples 4. Consumer risk (β): This is the risk, the consumer is willing to take that lots of the
c = ------------------------------------------- quality level LTPD will be accepted, even though, they are actually unacceptable
Total No. of samples inspected usually β = 10%.
P – Chart:
It is used where there is data about the number of defectives per sample. It is
also known as fraction defective or percentage defective chart. It is classified on ‘go
or nogo’ basis i.e. good or bad defective. It is calculated as:
Upper control limit (UCL) = p + 3[√ p (1 – p)] / n
Lower control limit (LCL) = p + 3[√ p (1 – p)] / n
where,
Total No. of defectives found
average defective (p) = --------------------------------------
Total No. of pieces inspected
n = No. of pieces inspected.
 Unit-2: Operations Management 2.9 Unit-2: Operations Management 2.10

ILLUSTRATIONS 2. From the following data prepare C - chart:

1. Construct x and R charts from the following information and state whether the process is
in control for each of the following x has been computed from a sample of 5 units drawn
at an interval of half an hour from an ongoing manufacturing process.

Solution:
The mean of means =

Range is calculated as =
Solution:

X Chart: X chart UCL and LCL compute at sample size 5 in A2 table value is 0.58

R Chart: R chart UCL and LCL compute at sample size 5 in D4 table value is 2.11
and D3 table value is 0

3. For each of the 14 days a number of magnets used in electric relays are inspected and the
number of defectives is recorded. The total number of magnets tested is 14,000. The
following are the particular of the number of defectives found every day.
 Unit-2: Operations Management 2.11 Unit-2: Operations Management 2.12

Solution: Objectives of Materials Management:

The objectives of integrated materials management can be classified in two categories:
1. Primary Objectives: Following may be identified as primary objectives which are to be
achieved:
i) To purchase the required materials at minimum possible prices by following the
prescribed purchase policies and encouraging healthy competition.
ii) To achieve high inventory turnover.
iii) To incur minimum possible expenditure on administrative and other activities.
iv) To ensure that continuity of supply of materials.
v) To supply materials of consistent quality.
vi) To maintain good relationship with the suppliers of materials.
vii) To ensure training and development of employees.
2. Secondary Objectives: The secondary objectives are:
a) To assist technical/design department in developing new materials and products.
b) To make economic 'make or buy' decisions.
c) To ensure standardization of materials.
d) To contribute in the product improvement.
e) To contribute in the development of inter departmental harmony.
f) To follow scientific methods of forecasting prices and future consumption.

NEED FOR INVENTORY CONTROL

It is defined as the scientific method of providing the right type of material at right
time in right quantities and at right price. It is concerned with minimizing investments and
maximizing the service levels of the customers.
The objectives are as follows:
1. To support the production department with materials of right quantity, at right time,
right place and from right suppliers.
2. To minimize investments in the materials.
3. To avoid accumulation of work in process.
4. To ensure economy of costs by processing economic order quantities.
5. To contribute directly to overall profitability of the enterprise.

ECONOMIC ORDER QUANTITY (EOQ)

It is defined as that quantity of material, which can be ordered at one time to minimize
the cost of ordering and carrying the stocks. It refers to the size of each order that keeps the
total cost low. The framework used to determine this order quantity is also known as Wilson
MATERIALS MANAGEMENT EOQ Model or Wilson Formula. It depends on two types of costs:

Materials management plays a significant role in controlling the costs and reducing
the wastage in a manufacturing industry. Most oftenly, 70% of the price of goods are towards
cost of materials and rest on wages, salaries, overheads and profits. It means material cost
form a significant portion of total cost.
For running any industry or business, we need a number of resources. These resources
are popularly known as 5 M's of any Industrial activity i.e. Men, Machines, Materials, Money
and Management.
Definition:
Materials refer to inputs into the production process, most of which are embodied in
the finished goods being manufactured. It may be raw materials, work in progress, finished
goods, spare parts, etc.
 Unit-2: Operations Management 2.13 Unit-2: Operations Management 2.14

1. Inventory Ordering Costs: The cost refer to the cost incurred to procure the materials Algebraic Method:
particularly in large organizations, these cost are significant. This is also called as Step-1:
procurement cost. Total ordering cost per year = No. of order placed per year x ordering costs per order
Definition: It is the cost of placing an order from a vendor. This includes all costs =A/SxO
incurred from calling for quotation to the point at which the item is taken into stock. Step-2:
Ex: Receiving quotations, processing purchase requisition, Receiving materials and Total carrying cost per year = Average inventory level x carrying cost per year
then inspecting it, Follow up and expediting purchase order, processing sellers =S/2xC
invoice. Where, A = Annual Demand
S = Size of each order (units per order)
O = ordering cost per order
C = carrying cost per unit
Step-3:
EOQ = TOC = TCC
=A/SxO =S/2xc
2AO = S2C
S2 = 2AO / C
S = 2AO / C
√
EOQ =
2. Inventory carrying cost: Carrying cost which are also known as holding costs are the
costs incurred in maintaining the stores in the firm. They are based on average inventory. Where,
Ex: Storage cost includes: Rent for storage facilities, Salary of person and related storage EOQ is the size of economic order quantity
expenses, Cost of insurance, Cost of capital. A is the annual demand in units
O is the ordering costs per order
C is the carrying cost per unit

ILLUSTRATIONS
1. A biscuit manufacturing company buys lot bags of 10,000 bags wheat per annum. The
cost per bag is Rs.500 and ordering cost is Rs.400. The inventory carrying cost is
estimated at 10% of the price of the wheat determine EOQ and number of orders required
per year.
Solution:
Annual demand (A) = 10,000 bags
Ordering cost per order (O) = Rs.400
Determining EOQ: Carrying cost per unit (C) = 10% of Cost price
(a) Graphical Method: = 0.10 x 500 = Rs.50/-
Total cost = ordering costs + carrying costs
EOQ = quantity at which total cost is minimum

EOQ = 400 bags

In the above case, the company has to place 25 orders to optimize its ordering and
carrying costs.
 Unit-2: Operations Management 2.15 Unit-2: Operations Management 2.16

2. An oil engine manufacturer purchases lubricants at the rate of Rs.42 per piece from a Total annual cost = 1125 + 180
vendor. The requirements of these lubricants are 1800 per year. What should be the = Rs. 1305
ordering quantity per order, if the cost per placement of an order is Rs.16 and inventory Hence, the company should purchase 300 parts at time interval of 1/30 year instead of
carrying charges per rupee per year is 20 paise. ordering 750 parts each month. The net saving of the company will be
Solution: = Rs. 1305 – Rs. 900
Given data are: = Rs. 405 per year.
Number of lubricants to be purchased, A = 1800 per year
Procurement cost, O = Rs. 16 per order 4. The XYZ Ltd. carries a wide assortment of items for its customers. One of its popular
Inventory carrying cost, C = Rs. 42 × Re. 0.20 = Rs. 8.40 per year items has annual demand of 8000 units. Ordering cost per order is found to be Rs.12.5.
Then, optimal quantity (EOQ), The carrying cost of average inventory is 20% per year and the cost per unit is Re. 1.00.
√
Determine the optimal economic quantity and make your recommendations.
EOQ = Solution:
√ x 1800 x
16
= .
= 82.8 or 83 lubricants (approx).

3. A manufacturing company purchase 9000 parts of a machine for its annual requirements
ordering for month usage at a time, each part costs Rs. 20. The ordering cost per order is
Rs. 15 and carrying charges are 15% of the average inventory per year. You have been
assigned to suggest a more economical purchase policy for the company. What advice
you offer and how much would it save the company per year?
Solution:
Given data are:
Number of lubricants to be purchased, A = 9000 parts per year
Cost of the part = Rs. 20
Procurement cost, O = Rs. 15 per order
Inventory carrying cost, C = 15% of cost of the part
= Rs. 20 × 0.15 = Rs. 3 per each part per year
Then, optimal quantity (EOQ),
Q
= √x 9
√ 000 x 56
=
= 300 units
And, Optimum order interval, (to) = Q/D in years
= 1/30
300 /years
9000 The table and the graph indicates that an order size of 1000 units will gives the
= lowest total cost among the different alternatives. It also shows that minimum total
Minimum average cost = √2.A.C.O cost occurs when carrying cost is equal to ordering cost.

= √2 x 9000 x 15 x 3
= Rs.900 ABC ANALYSIS
If the company follows the policy of ordering every month, then the annual ordering cost is It is a technique of controlling inventories based on their value and quantities. It is
= Rs 12 × 15 remembered as “Always Better Control”. In this analysis, the classification of existing
= Rs. 180 inventory is based on annual consumption and the annual value of the items. Hence we obtain
Lot size of inventory each month = 9000/12 the quantity of inventory item consumed during the year and multiply it by unit cost to obtain
= 750 annual usage cost. The items are then arranged in the descending order of such annual usage
Average inventory at any time = Q / 2 cost.
= 750/2 The analysis is carried out by drawing a graph based on the cumulative number of
= 375 items and cumulative usage of consumption cost.
Therefore, storage cost at any time = 375 × C
= 375 × 3
= Rs. 1125
 Unit-2: Operations Management 2.17 Unit-2: Operations Management 2.18

Classification is done as follows:

Category Value (%) Volume (%) Degree of Control ABC Analysis of 10 Items
A 70 10 Strict Item no. % of no. of Annual Unit cost Annual $ % of annual Combined Class
items volume ($) volume Dollar volume %
B 20 20 Moderate stocked (Units) = (3) ×
C 10 70 Low (1) (3) (4) (4)
1 20% 1000 90.00 90,000 38.8% 72% A
A – Category:
2 500 154.00 77,000 33.2% A
It comprises of inventory which are costly and valuable. Normally 70% of funds are
3 30% 1550 17.00 26,350 11.3% 23% B
tied up in costly stocks, which would be 10% of total volume of stock and these require strict
monitoring on a day to day basis. 4 350 42.86 15,001 6.4% B
B – Category: 5 1000 12.50 12,500 5.4% B
It comprises of inventory which is less costly. 20% of funds are tied up in such stocks 6 50% 600 14.17 8,502 3.7% 5% C
which are 20% of total of stocks. These require monitoring on a weekly or fortnightly basis. 7 2000 0.60 1,200 0.5 % C
C – Category:
8 100 8.50 850 0.4 % C
It consists of least cost inventory. 10% of funds are tied up in such stocks which are
70% of total volume. It can be monitored on a monthly or bi-monthly basis. 9 1200 0.42 504 0.2 % C
For effective inventory control, combination of the techniques of ABC with VED or ABC 10 250 0.60 150 0.1 % C
with HML or VED with HML analysis is practically used. 8550 $232,057 100%

100

90 C
Volume of Inventory (Rs.)
70

0 10 30 100 Note that C type items are not necessarily unimportant; incurring a stock-out of C
Volume of inventory (units) items such as the nuts and bolts used to assemble manufactured goods can result in a costly
Advantages of ABC Analysis: shutdown of an assembly line. However, due to the low annual dollar volume of C items,
a. Exercise selective control is possible. there may not be much additional cost incurred by ordering larger quantities of some items,
b. Focus high attention on high value items is possible. or ordering them a bit earlier.
c. It helps to reduce the clerical efforts and costs.
d. It facilitates better planning and improved inventory turnover.
e. It facilitates goods storekeeping and effective materials handling. TYPES OF ABC ANALYSIS
1. HML analysis: In this analysis, the classification of existing inventory is based on
Illustration: unit price of the items. It refers to:
A computer hardware company has organized its 10 items on an annual dollar- H – High price items, unit value of > Rs.1000
volume basis. Details like item numbers, their annual demand, unit cost, annual dollar M – Medium price items, unit value of Rs.100 to Rs.1000
volume, and percentage of the total represented by each item are shown in Table. L – Low price items, unit value of < Rs.100
The main objectives are:
Solution:
a) To know how many times in a month or week stock verification takes place.
The items are classified as A, B, and C in the Table and the same is shown b) To keep control over the consumption at the department level.
graphically in the accompanied figure. c) To keep a track on storage and security requirements.
 Unit-2: Operations Management 2.19
2. VED analysis: In this analysis, the classification of existing inventory is based on
criticality of the items. It is mainly used in spare parts inventory. It refers to:
V – Vital spare part:
If there is shortage in this category production would come to a halt. So large
stock should be maintained
E – Essential spare part:
Stock costs of these parts are very high. Here production will not stop but the
efficiency of production will be affected.
D – Desirable parts:
Not so essential. These are readily available.
3. FSN analysis: In this analysis, the materials are classified based on their movement
from inventory for a specified period. Items are classified on basis of their
consumption. Higher the stay of an item in the inventory, the slower would be the
movement of the material. This analysis helps to avoid investments on non-moving
items. It refers to:
F – Fast moving materials.
S – Slow moving materials.
N – Non-moving materials.
4. SDE analysis: This analysis is mainly used in procurement of raw materials. It states
whether the particular raw material is easy or difficult to procure. It refers to:
S – Secure:
Raw materials that are scarce in the manufacturing place and have to imported
from other locations. Supply of this type of raw material is very less.
D – Difficult:
Raw materials that are available indigenously but are difficult to procure.
E – Easily available:
Raw materials that are easily available to the nearby markets and are easy to
procure.
IMPORTANT QUESTIONS
1. What is SQC? Explain the various techniques of SQC and throw light on their
limitations?
2. What are the different types of charts and diagrams used in work s t u d y
investigations?
3. What are the symbols used in “process charts”. How are process charts prepared?
4. What is work study? State its objectives and state the tools of work study.
5. The demand for a product is 30000 units per annum. Cost per unit: Rs 4, procurement
cost: Rs60 per order and carrying cost is 20% of inventory value. Determine EOQ.
6. Graphically represent “economic order quantity” and explain the type of costs that go
into them.
7. Discuss the procedure of classifying inventory into A,B,C categories.
Unit-3: Functional Management 3.1
UNIT – III
FUNCTIONAL MANAGEMENT
CONCEPT OF HRM
Human Resource Management (HRM) is a relatively new approach to managing
people in any organisation. People are considered the key resource in this approach. Human
Resource Management is a process, which consists of four main activities, namely,
acquisition, development, motivation, as well as maintenance of human resources. Human
Resource Management is responsible for maintaining good human relations in the
organisation. It is also concerned with development of individuals and achieving integration
of goals of the organisation and those of the individuals.
Definition:
1. Scott, Clothier and Spriegel – “Human Resource Management as that branch of
management which is responsible on a staff basis for concentrating on those aspects
of operations which are primarily concerned with the relationship of management to
employees’ and employees to employees and with the development of the individual
and the group.”
2. Edwin B. Flippo – “Human resource management is the planning, organising,
directing and controlling of the procurement, development, resources to the end that
individual and societal objectives are accomplished.”
PERSONNEL MANAGEMENT AND INDUSTRIAL RELATIONS (PMIR):
It is the process of acquiring, developing, employing, appraising, remunerating and
retaining people, so that right type of people available at right position and at right time in the
organization. A personal manager is primarily concerned with taking care of human
relationships in the organization.
Definition:
According to Edwin B. Flippo – “Personal Management is defined as the planning,
organizing, directing and controlling of procurement, development, compensation, integration
and maintenance of people for the purpose of contributing to the organizational goals.”
Functions of PMIR:
1. Recruitment and maintenance of labour force: This function includes attracting,
screening, testing, hiring and inducting men on the job.
2. Training: Training is a must to prepare the worker to meet the challenges of the new
jobs or techniques and to maintain and to improve the quality of work so that the
employees may earn more for them and contribute more to the unit.
3. Job analysis and Job description: It involves the studies of job requirements of the
enterprise and assignment of well-defined functions to jobs so that qualified
employees may be hired. It forms the basis of wage determination
4. Compensation: It includes, determining wage rates, incentive systems, rating of
employees and performance standards.
5. Keeping personnel records: It includes collection of bio-data of all employees
pertaining to their work, i.e., training, job performance, aptitude, payment records
etc...
6. Welfare: It includes health and safety program, sanitary facilities, recreational
facilities, educational activities etc.
 Unit-3: Functional Management 3.2 Unit-3: Functional Management 3.3

HRM vs. PMIR 15. Standardization High Low

Personnel Management refers to the activities of a specialist responsible for devising 16. Prized Negotiation Facilitation
and executing the personnel policies and strategies in the organization. Recently it is being management skills
referred as HRM. According to ‘Storey’, there are 27 differences between HRM and PMIR 17. Selection Separate, managerial task Integrated, key task
under 4 heads: 18. Pay Job evaluation, fixed grades Performance related
1. Beliefs and Assumptions: 19. Conditions Separately negotiated Harmonization
In PMIR, the terms and conditions are clearly defined with each of the 20. Labour Collective bargaining Towards individual contract
employee. It is defined as to what the employee has to do and also what the employees managemen contracts
have to do. The rules, norms and customs set precedence for human behaviour. 21. Thrust of relations Regularized through Marginalized with
In HRM, the aim is to go beyond the contract. The people do not like to be with stewards facilities and training bargaining
controlled by rules. The actions of management are justified by business needs. People 22. Job categories and Many Few
tend to do all that is required to achieve the mission. grades
2. Strategic Aspects: 23. Communication Restricted flow Increased flow
In PMIR, the key issue is the labour management relation i.e., look for further flow
instructions at every critical stage. 24. Job Design Division of labour Team work
In HRM, the focus is on customer, the initiatives are integrated. It makes the 25. Conflict Handling Temporary truce Manage climate and culture
decision making process faster. 26. Training and Controlled access to courses Learning companies
3. Line Management: Development
In PMIR, the management role is restricted to each transaction. The initiatives 27. Foci of attention Personnel procedures Wide ranging cultural,
of line managers make a lot of difference and degree of standardization of any issue is for interventions structural and personnel
high. strategy
In HRM, the role of leadership is more chain oriented. The communication is
direct and standardization is low. The differences between line and staff managers are
reducing. BASIC FUNCTIONS OF HR / PERSONNEL MANAGER
4. Key Levels: 1. MANPOWER PLANNING:
It offers a solution to the given problem, such as deployment of human resources, Manpower planning is also known as human resource planning (HRP). It may be
evaluation and rewarding of performance, etc. these are the most critical and central defined as a rational method of accessing the requirements of human resources at
issues of difference between HRM and PMIR. different level in organization. It ends with proposals of recruitment, retention or
dismissal.
Difference between HRM and PMIR:
Dimension PMIR HRM Definition:
1. Contract Careful of written contracts Aim to go beyond contract “HRP includes the estimation of how many qualified people are necessary to carry
out the assigned activities, how many people will be available, and what, if anything,
2. Rules Importance of devising clear ‘Can do’ outlook,
must be done to ensure that personnel supply equals personnel demand at the appropriate
rules impatience with rules
point in the future” - Leap and Crino.
3. Guide to Procedures Business needs
managemen
Importance of Manpower planning:
t action
1. It directly contributes to achieve the corporate objectives.
4. Behaviour referent Norms or customs and Values or mission
2. It enables to secure the right kind of quantity of human resources at different levels.
practice
3. It helps decision makers in search for optimum strategy.
5. Managerial task monitoring Nurturing 4. It helps the line managers to highlight the existing problems in managing the HR
6. Nature of relations Pluralist Unitarist under their control.
7. Conflict Institutionalized De-emphasized 5. It provides an adequate basis to take meaningful decisions.
8. Key Relations Labour management Customer
9. Initiatives Piecemeal Interpreted Manpower Planning Process:
10. Corporate plan Marginal Central It includes the development of policies, systems and procedures that will
11. Speed of Decision Slow Fast increase the chances of effective control. The manpower plans should be related to all
12. Management Role Transactional Transformational leadership functional areas of business such as production, marketing, finance, etc.
13. Key managers Personal or IR specialists General or line managers
14. Communication Indirect Direct
 Unit-3: Functional Management 3.4 Unit-3: Functional Management 3.5

3. SELECTION:
Corporate Goals and Resources The process of identifying the most suitable persons for the organization is called
---------------------------------------------------------------------------------------------------------------- selection. It is also called Negative function because here applications are screened and
Departmental targets and resources shortlisted on the basis of selection criteria. The main purpose is to choose right person
Department
for right job.
Level Identify and analyse workload The selection procedure, depending upon the cadre, involves different stages. The
organizations are free to formulate their own selection procedures, as there is no standard
Access manpower requirements practice. Normally a selection process involves:
1. Initial screening or short listing
2. Comprehensive application or bio-data screening
Succession plan Employee Turnover Employee Development 3. Aptitude or written tests
4. Group discussions
Shortage or Surplus of Staff 5. Personal interview
---------------------------------------------------------------------------------------------------------------- 6. Medical examination
Formulate strategies for 7. Employment offer
Succession, Recruitment, Redundancy, Employee Development
4. TRAINING AND DEVELOPMENT:
Top Management Review Training and Development are essential for achieving organizational goals. It
Company leads to human development i.e. better skills, motivation and personality development.
Level Financial Clearance Training is a short-term process of utilizing systematic and organized procedures by
which the staff acquires technical knowledge and functional skills for a definite purpose.
Management Approval The following situations indicate the training needs:
--------------------------------------------------------------------------------------------------------------- 1. High turnover among new recruits
Action Plans 2. Increase in wastage of materials
3. Increase in accident rate
Evaluation and Control 4. Increase in number of rejected units of production
5. Increase in number of customer complaints
The manpower planning starts with identifying the corporate goals and resources. 6. Reduced productivity levels
1. Each department has to identify their targets and resources allocated. 7. Increase in machine break down
2. Analyse their work load and access manpower requirements. The training methods are differed into two categories:
3. They have to formulate succession plan, training programs for employee 1. On-the-job training methods: It is designed to make employees immediately
development and employee turnover. productive. It is learning by physically doing the work. These methods include:
4. In case of additional staff required, plan for recruitment and in case of surplus, Job instruction training, Experimental learning, Demonstration, Apprentice
discharge them. learning.
5. Accordingly the proposals are made to top management. They review the 2. Off-the-job training Methods: It is meant for developing an understanding of
proposal. general principles, providing background knowledge, generating an awareness of
6. After getting clearance, the departments evaluate the financial terms. comparative ideas and practice. It includes: Lectures or talks and class room
7. After approval, they formulate action plans to implement the decisions. instructions, Conferences, Seminars, Team discussions, Case study, Role
8. Action plans are evaluated and controlled in terms of department requirements planning, Programmed instructions.
and financial constraints.
5. PLACEMENT:
2. RECRUITMENT: After training the employee is placed in his position under the charge of a
When the manpower plan reveals the need for additional people in organization, manager. The new recruit is allowed to exercise full authority and is held responsible for
the manager has to initiate the search for employees and see that they apply for jobs in the the results.
organization. Recruitment is often called Positive function. At this stage the applications
are invited for further scrutiny and short-listing. 6. PROMOTION:
The sources of recruitment includes internet, executive search agencies, It refers to the advancement of an employee to a job with a higher authority and
employment exchanges, university and college campus, Ads in TV and Radio, responsibility. It may also carry better compensation package. It is viewed as a means of
recommendation of existing employees, etc. filling up vacancies in the organization from time to time. The basis of promotion could
be merit or seniority depending upon the nature and level of job.
 Unit-3: Functional Management 3.6
7. TRANSFER:
It is a lateral shift that moves an individual employee from one position to another
i.e. it may be in same department or to a different department or location. To optimize the
human resources at different locations or departments, employees are transferred from
one location to another.
It is also viewed as a tool for punishing the employee in case of misconduct or
misbehavior. It does not involve any change in salary, duties and responsibilities.
8. SEPARATION:
It refers to termination of employment i.e. the employee is separated from his job.
It is also called as dismissal. In case of misconduct or misbehavior or where the employee
is not in a position to improve his performance, he is terminated.
SALARY AND WAGE ADMINISTRATION
It is a process of fixing wage or salary for different jobs in the organization through
negotiations with unions, job evaluation, etc. When the wage is paid on time spent in the
organization it is called Time Wage System. In production or sales department the staff can
be paid on units produced or sold known as Piece Wage System.
The salary constitutes of the Basic Salary, Dearness Allowance (DA), House Rent
Allowance (HRA) and other allowances. Some other benefits include profit sharing, bonus,
leave travel concessions, medical reimbursement, provident fund, gratuity, group insurance
schemes, pension, accident compensation, leave with pay, educational allowance, etc.
It consists of the following:
1. Fair compensation package
2. Wage differentials
3. A balanced compensation package
4. Wage negotiations and agreements
WAGE PAYMENT PLANS
The various wage payment plans are:
1. Time wage system
2. Piece rate system
3. Premium and bonus plan
1. Time Wage System: In this method, payment on the basis of time spent in the factory
irrespective of amount of amount of work done. The worker is paid at an hourly, daily,
weekly or monthly rate.
Ex: suppose a worker is paid at the rate of Rs.10/- per hour and he spent 220 hours
during a particular month, his wage will be Rs.2200.
There are five types in this system:
1. Flat Time Rate or time rate at ordinary level: It is the oldest method of wage
payment. Under this method, workers are paid at a flat rate on the basis of time they
are employed.
2. High Day Rate or time rate at high wage level: The rare of wages is fixed by hour
or day but the rate fixed is relatively higher. Higher rate is given to attract the efficient
workers.
Unit-3: Functional Management 3.7
3. Measured Day Rate: Workers under this method are given a specified work to be
performed and the rate is fixed in accordance with the level of performance specified
by the employer.
4. Graduated Time Rate: Under this method, the rates of wages are linked up with the
cost of living index. The rate per hour or day fixed goes on changing with the cost of
living index.
5. Differential Time Rate: Under this method, different rates of wages are fixed for
different workers in the same group according to the differences in their personal
abilities and skill.
2. Piece Rate System: In this method, payment on the basis of the work done irrespective of
time taken by the worker. A fixed rate is paid for each unit produced, job completed or an
operation performed.
Ex: A worker is paid at the rate of Rs.5/- per unit and produces 50 units during the
day, he will get Rs.250/-.
There are four variants of this system:
1. Straight Piece Rate System: In this method of payment in which payment is made
according to the number of units produced at fixed rate per unit.
2. Taylor’s Differential Piece Rate System: This system was introduced by
F.W.Taylor, the father of scientific management. His view was to give a large reward
to those who could complete the work within or less than the standard time and less
wage to those who would complete the job within standard time.
3. Merrick’s Multiple Piece Rate System: Under this method, three piece rates are
applied for workers with different levels of performance as follows:
a. Wages are paid at ordinary piece rate to those workers whose performance is
less than 83% of standard output.
b. 110% of ordinary piece rate is given to workers whose level of performance is
between 83% and 100% of standard output.
c. 120% of the ordinary piece rate is given to workers who produce more than
100% of standard output.
4. Gant’s Task and Bonus Plan: A standard time is fixed for doing a particular task,
worker’s actual performance is compared with the standard time and his efficiency is
determined. It is also known as Progressive Rate System”.
a. If a worker’s performance is 100% or more than 100%, he is given a piece
wage plus bonus at 20% of piece wages.
b. If his efficiency is below 100%, he is given the wage for the time taken to
perform the task.
3. Premium and Bonus Plan: It is also known as Incentive plan. Under this plan, a
standard time is fixed to complete a job and the worker is paid for time taken to complete
the job at an hourly rare plus wages for time saved on the standard by way of bonus.
Some of the important premium plans are:
1. Halsey Premium Plan: Under this method, standard time for doing each job is fixed
and the worker is given wages for the actual time he takes to complete the job at an
agree rate per hour plus a bonus equal to one-half of the wages of the time saved.
T x R + % (S – T) R
Where, T is the time taken
R is the labor rate per hour
S is the standard time
% is the percentage of wages of time saved7
 Unit-3: Functional Management 3.8 Unit-3: Functional Management 3.9

2. Rowan Plan: Under this method, the worker is guaranteed wages at the ordinary rate Under Merrick’s multiple piece rate system:
for the time taken by him to complete the job. The bonus is a fixed percentage of the Worker-A = for 1300 units @ 0.11 paise
wages of the time saved bears to the standard time allowed. Bonus is calculates as: = 1300 x 0.11 = Rs.143/-
[(S – T) / S] T x R Level of performance = 1300 units x 100 / 1440 units = 90%
Total earnings is calculates as: [T x R + (S – T) / S] x R Where, standard performance = 1440 units
Where, S = Standard time Output per day = 1300 units
R = Rate per hour 100% performance = 1440 units
T = Actual time taken ? = 1300 units
Worker-B= for 1500 units @ .011 paise
ILLUSTRATIONS = 1500 x 0.11 = Rs.165/-
1. Calculate the earnings of workers A and B under Level of performance = 1500 units x 100 / 1440 units = 140%
a. Straight piece rate system Where, standard performance = 1440 units
b. Taylor’s differential piece rate system Output per day = 1500 units
c. Merrick’s multiple piece rate system 100% performance = 1440 units
d. Gant’s Task ? = 1500 units
From the following particulars: Note: The level of performance for worker A & B is 90% and 104% which is between 83%
Normal time per hour Rs.18 and 100%, so they are entitled to get 110% of normal piece rate i.e. [110% of 0.10 paise =
Standard time per unit 20 seconds 0.10 x 110 / 100 = 0.11 paise]
Differentials to be applied:
80% of piece rate below standard JOB EVALUATION
120% of piece rate at or above standard
Worker A produces 1300 units per day and worker B produces 1500 units per day. Job Evaluation is a system wherein a particular job of an enterprise is compared with
Working hours per day are 8 hours. its other jobs. It is a technique of assessing systematically the relative worth of each job. The
fundamental pre-requisite to the establishment of a compensation policy is the determination
Solution: of the comparative values of jobs throughout the hierarchy. These values form the basis to
Standard production per 20 seconds = 1 unit build the pay and the benefits package.
Standard production per minute = 60 min. / 20 sec. = 3 units
Definition:
Standard production per hour = 3 units x 60 min. = 180 units
1. Kimball and Kimball define job evaluation as an effort to determine the relative
Standard production per day of 8 hours = 180 units x 8 hrs. = 1440 units
value of every job in a plant to determine what the fair basic wage for such a job
Normal rate per hour = Rs.18 should be.
Normal piece rate = Rs.18 / 180 units = Rs.0.10 2. According to Wendell French, Job evaluation is a process of determining the
Low piece rate below standard production = (0.10 x 80) / 100 = Rs.0.08 relative worth of the various jobs within the organisation, so that differential wages
High piece rate above or at standard production = 0.10x 120 /100 = Rs.0.12 may be paid to jobs of different worth.
Objectives:
Under Straight piece rate system: 1. To establish correct wage correct wage differentials for all jobs within the factory.
Earnings of worker-A = 1300 units x 0.10 = Rs.130/- 2. To bring new jobs into their proper relatively with jobs previously established.
Earnings of worker-B = 1500 units x 0.10 = Rs.150/- 3. To help clarify lines of authority, responsibility and promotion.
Under Taylor’s differential piece rate system: 4. To accomplish the foregoing by means of the facts and principles, which can be
Worker-A= 1300 units x 0.08 = Rs.104/- readily explained to and accepted by all concerned.
(piece rate per unit = 0.10 x 80/100=0.08) 5. To establish a general wage level for a given factory which will have parity with those
(Note: Low piece rate is applied because his daily production of 1300 units is less of neighboring factories.
than standard production of 1400 units i.e. 80%). Advantages:
Worker-B = 1500 units x 0.12 = Rs.150/- 1. It is simple, inexpensive and expeditions.
(piece rate per unit = 0.10 x 120/100=0.12) 2. It is easily understood and easily administered.
(Note: High piece rate is applied as his daily productionis1500 units which is more 3. It helps setting better rates than the arbitrary rates based purely a judgment and
than standard production of 1440 units i.e. 120%). experience.
4. Same unions prefer it, because it leases more room for bargaining.
 Unit-3: Functional Management 3.10 Unit-3: Functional Management 3.11

Disadvantages: 1. Identify the key jobs

1. Job may be ranked on the basis of incomplete inform action and without the benefits 2. Rank the key job, factor by factor
of well defined standards. 3. Apportion the salary among each factor and rank the key jobs
2. The rank position of different jobs is likely to be influenced by the prevailing wage 4. Compare factor ranking of each job with its monetary ranking
ranks. 5. Develop a monetary comparison scale
3. No one committee number is likely to be familiar with all the jobs. 6. Evaluate non-key jobs based on the monetary comparison scale
Methods of Job Evaluation: 2. Point-Rating method: There are four widely accepted factors used in the point
It is broadly be classified as: Qualitative Method and Quantitative Method rating method, skill, effort, responsibility and job conditions each of these factors
A. Qualitative Method: is divided into sub-factors.
It can broadly be classified as ranking or classifying the job from lowest to highest. Education and training
1. Ranking technique: 1. Skills Experience
The ranking method requires a committee typically composed of both Judgment and initiative
management and employee representatives of job in a simple rank order, from Physica
highest to lowest. Rating specialists review the job analysis information and 2. Efforts
l Mental
thereafter appraise each job subjectively according to its general importance in Materials or product
comparison with other jobs. In other words, an overall judgment is made of the Equipment or process
relative worth of each job, and the job is ranked accordingly. The basis of such 3. Responsibility
Safety of others
arrangement includes: Work of others
 Amount of work involved 4. Job Conditions
 Supervision needed
 Extent of responsibility required
 Difficulties involved in the work MERIT RATING
 Work conditions required
Merit Rating is a process of evaluating the relative merit of the person on a given job.
It is an essential task of the personnel manager to distinguish the meritorious employees from
2. Job Grading or Job Classification Method:
others. The data collected is used for strategic decisions such as increment in pay, promotion,
This method works by assigning each job a grade, level or class that
and transfer on promotion or discharge.
corresponds to a pay grade for instance Grade I, Grade II, Grade III and so forth.
Merit rating is a systematic evaluation of personality and performance of each
These grades or classifications are created by identifying gradations of some
employee by his supervisor or some other qualified persons. A positive evaluation indicates
common denominations, such as job responsibility, skill, knowledge, education
the employee has reached the standards of performance and a negative evaluation shows the
required, and so on. Then, for each job grade so created standard job descriptions
employee could not reach minimum standards of performance.
are determined. Thereafter, such standard description is matched with job
descriptions in the organisation. Major steps for job evaluation: Definition:
 Deciding the number of grades 1. Edward Flippo, “Merit rating is a systematic, periodic and, so far as humanly
 Writing grade descriptions possible, an impartial rating of an employee‘s excellence in matters pertaining to his
 Identifying/listing of the jobs to be evaluated present job to his potentialities for a job.”
 Preparing job descriptions 2. Scot, Clothier and Spriegal, “Merit rating of an employee is the process of evaluating
the employee‘s performance on the job in terms of the requirements of the job.”
B. Quantitative Method: Objects of Merit Rating:
Where point values are assigned to the various demands of a job and relative value The objects of Merit Rating are as follows:
is obtained by summing all such point values. 1. To make a comparative study of the abilities of different employees.
1. Factor comparison method: 2. To provide higher reward to the more efficient employees.
This method is a combination of ranking and point systems. All jobs are 3. To prove the justification of different rat of wages to different employees according to
compared to each other for the purpose of determining their relative importance their abilities.
by selecting four or five major job elements or factors which are more or less 4. To establish harmonious relation between employees and employers.
common to all jobs. These elements are not predetermined. These are chosen on 5. To motivate the employees to do better and more work.
the basis of job analysis. 6. To determine a policy for promotions and transfer.
The few factors which are customarily used are mental requirements; skill; 7. To evaluate the success of training programmes.
physical requirements; responsibilities; working conditions.
Step involved in the factor comparison method:
 Unit-3: Functional Management 3.12 Unit-3: Functional Management 3.13

Methods of Merit Rating: 7. Forced Choice Descriptive Method:

The various methods of merit rating are as follows: In this method some details are collected regarding the performance of an
1. Rating Procedure: employee on the given job. After this, some standards are fixed with the consent of
In this method, the abilities of an employee are compared with that of other evaluations. The performance of an employee is evaluated on the basis of these
employees. Under this method, the employees are divided into efficient and standards and the ability and efficiency of all the employees are evaluated on this
inefficient employee. This method adopts the technique of paired comparison. basis.
Therefore, the pairs of two employees each are made according to the formula of
N(N-1)Z and the more efficient employee in every pair is underlined. The employee Job Evaluation and Merit Rating:
having maximum underline is treated as the most efficient employee having
maximum underline is treated as the most efficient employee whereas the employee Description Job Evaluation Merit Rating
having no underline to his credit is treated least efficient employee. Meaning It is a technique by which Merit Rating is the process by
2. Grading Method: different jobs of an enterprise are which the ability, efficiency and
Here different grades are divided for evaluating the ability of different evaluated. potentiality of an employee are
employees and then the employees are placed in these grades. The grades are— evaluated.
Excellent, Very Good, Good, Average, Bad, and Worst. Every grade may again be
sub-divided into three grades: (i) Highly Satisfactory (ii) Satisfactory (iii) Non- Beginning This process is started after the This process of Merit Rating is
satisfactory. Employees can be placed in any of these groups according to their appointment of employees. started before the appointment of
abilities. employees.

3. Man to Man Comparison Method: Procedure of In the process of job evaluation, In the process of Merit Rating, the
This is the method where, a master scale is used to evaluate the qualities of Evaluation the performance of an employee ability, efficiency and the
different employees. The five scales of performance are determined for every job in is evaluated by comparing it with potentiality of an employee are
the master scale. For example, to measure the efficiency of employees, first of all the the performance of another evaluated.
most efficient employee is selected and after that the most inefficient employees are employee’s of equal rank and
selected who are respectively more efficient than average efficiency and less efficient status.
than average efficiency. These five employees become the base for measuring the
efficiency of the total employees. Every employee of the enterprise is compared with Relation It is related with the relative study It is related with relative study of
these five employees to evaluate their ability and efficiency. of different jobs. different employees.
4. Graphic Rating Method: Basis of In the process of job evaluation, In the process of Merit Rating, the
In this method, the abilities of employees are evaluated through graph. The Determining the remuneration of an employee remuneration of an employee is
abilities of all the employees are represented on a graph paper with the help of scale. Wages and is determined. determined on the basis of his
Following qualities are included to evaluate the ability of employees such as Quantity Salaries efficiency, ability and potentiality.
of Job, Quality of job, Regularity, ability to learn, ability to initiate, dependence upon
other employees and officers, safety aspects, ability to direct, ability to supervise,
behaviour with other employees and officers. Under this method of Merit Rating, a
report is prepared regarding Merit Rating of every employees and it is represented on
a graph paper. It makes evaluation of employees very easy and simple.
5. Checking List Method:
A list of necessary qualities for the performance of a job is prepared under this
method. The qualities of the employees are measured on the basis of the abilities of
such lists. If an employee possesses that quality, the sign (+) is marked in the list. If
that quality is not possessed by an employee the sign (-) is marked in the list. If there
is a doubt regarding it, the sign of (?) is marked in the list. On the basis these sign, the at a profit.”
abilities of an employee are evaluated. 2. J.F.Pyle defines “Marketing is a process of concentrating functions and dispersing
6. Descript Evaluation Method: functions.
In this method supervisor prepares a detailed report of the abilities, efficiency 1. Concentration functions: It aims at bringing the goods together with all the
and potentialities of the employees under his supervision. All the employees are related facilities at the marketing centers. It includes buying, assembling,
evaluated on the basis of these reports. transportation, storing, grading, financing and risk bearing.
2. Dispersing functions: It focuses on sending the goods after sale along with the
related services to the customer. It includes selling, transportation, storing,
grading, financing, etc.
 Unit-3: Functional Management 3.14
Functions of Marketing:
The marketing functions direct and facilitate the flow of goods and services from the
producer to the end user. The marketing process starts and ends with these functions. It
comprises of buying, selling, transportation, storage, standardization, grading, financing, risk
taking and market research. The marketing functions can be broadly categorized into three
categories as: Exchange functions, Physical distribution functions, Facilitating functions.
A. Exchange functions:
1. Buying: Ensuring that product offerings are available in sufficient quantities to meet
customer demands.
2. Selling: Using advertising, personal selling and sales promotion to match goods and
services to customer needs.
B. Physical distribution functions:
1. Transporting: Moving products from their points of production to locations
convenient for purchasers.
2. Storing: Warehousing products until needed for sale.
C. Facilitating functions:
1. Standardizing and grading: Ensuring that product offerings meet established quality
and quantity control standards of size, weight and so on.
2. Financing: Providing credit for channel members or consumers.
3. Risk taking: Dealing with uncertainty about consumer purchases resulting from
creation and marketing of goods and services that consumers may purchase in the
future.
4. Securing marketing information: Collecting information about consumers,
competitors and channel members for use in marketing decision making.
PRODUCT LIFE CYCLE
A product is a physical good or service or combination of both. It is capable of
satisfying the buyer’s needs. It attempts to recognize distinct stages in sales history of the
product. The success or failure of a product life depends on how well it makes adjustments to
ever changing, saturation and decline stages. The length of each stage or product life cycle
varies on product nature and environment conditions.
Stages in product life cycle:
There are six stages a product passes through from time of its introduction to decline
over a period of time:
Sales
Introduction Early growth Rapid growth Maturity Saturation Decline
Time
Unit-3: Functional Management 3.15
1. Introduction: This stage follows just after the launch of the product. The sales are
likely to be very slow. Most of the buyers do not come forward as the product is new
and untested.
2. Early Growth: This is the critical stage. When the usage of product starts flowing
into the market and the results are encouraging more and more buyers come forward
to buy and the unit cost relatively be high, with increased expenses, etc.
3. Rapid Growth: A new product enters the stage of rapid growth when it satisfies the
need of the customers. The sales will increase with repeat purchases and also by
mouth publicity and promotion by manufacturer.
4. Maturity: When the sales growth slows down, it is called maturity stage. At this
stage, the firms tend to attract the customers away from their competitors through
cheaper prices and larger promotional efforts and outlay.
5. Saturation: When the sales slows down to zero. The size of market does not increase
beyond this stage i.e. a new customer is replaced by the old customer who has stopped
buying the product.
6. Decline: When the sales of the product tend to fall. When they do not satisfy the
customer, it is no more preferred. As a result its competing products offering superior
benefits take over the market.
CHANNELS OF DISTRIBUTION
Channels of distribution refer to the ways and means of reaching the customer
through the intermediaries such as wholesalers, retailers and other agencies, if any.
The channel intermediaries involve the transfer of goods from seller at a given place
to the buyer in a different place. Thus, they provide place utility to the marketing process.
They bring the goods to the consumer in a convenient shape, unit, size, style and package
when he wants them. The wholesaler buys the goods from the manufacturer, stores them, if
necessary, and sells to the retailers for onward sale to the ultimate customer. Thus, they add
time utility also.
The factors affecting channels of distribution are:
1. Type, size and nature of consumers demand: If the customer wants small
quantities, long channels are preferred and vice versa.
2. The nature of company’s business: Choose the channel according to the nature of
business activity such as agricultural products, industrial products, services, etc.
3. The type of product sold: The goods may be consumer goods, durable goods or
producer or industrial goods or other goods.
4. The price of the unit of sale: If the price of one unit is as high as that of an
aeroplane, the producer can contact the consumer directly.
5. The profit margins and mark-ups: These, together with the extent of the seller’s
product line play a role in attracting distributors to handle the goods.
6. Degree of competition: If the completion is intense, the manufacture has to arrange
for even door-to-door selling or retail outlets.
Types of Channels of Distribution:
1. Manufacturer to Consumer.
2. Manufacturer – Wholesaler – Consumer.
3. Manufacturer – Retailer – Consumer.
4. Manufacturer – Wholesaler – Retailer - Consumer.
 Unit-3: Functional Management 3.16
1. Manufacturer – consumer:
This is a direct marketing channel where the manufacturer contacts the
customer directly without involving middlemen or intermediaries. The manufacturers
of industrial goods such as aeroplanes, turbo-engines, ships, and other high-value
capital goods mostly follow this route.
However, consumer product manufacturers also through Internet, mail order
operations, and door-to-door selling are following this method. It is common sight to
find the representatives of the manufacturers going from house to house to sell their
products, which are normally used in the households.
Example: Teleshopping, E-Business, Internet and E-Commerce.
2. Manufacturer – wholesaler – consumer:
This channel is primarily used in the case of industrial goods and high-value
consumer durable products. The wholesaler, who may also be called as distributor in
this channel, carries out the functions of retailing to large customers who may in
themselves be the manufacturers also. The wholesalers in this channel buy goods
from many manufacturers, stock, and subsequently, sell them through internet or
directly to the customers in a wider geographical area. An example of the use of this
method can be observed in the computer hardware industry.
Example: Industrial goods or durable products.
3. Manufacturer – retailer – consumer:
Here, the large retailing chains, including supermarkets, use this channel to
buy products in large quantities from manufacturers at a very competitive price and
sell the same to the ultimate consumers. As the retailers enjoy large discounts in this
process, they share this benefit with their customers by keeping their products
competitively priced. The consumers patronage this channel because they can buy in
small quantities from a wide variety at lower prices.
Example: Supermarkets, departmental stores, etc.
4. Manufacturer – wholesaler – retailer – consumer:
This is a chain widely followed for fast moving consumer goods, which are likely
to have mass markets. When the consumers are large in number, widely dispersed
geographically, and products are of low value, this channel is favoured.
Manufacturers would find it prohibitively expensive to set up their own outlets in
such circumstances. For manufacturers of consumer goods such as hosiery, food items,
confectionery, clothes, and readymade garments, cosmetics, and so on, intermediaries are
indispensable in the distribution chain.
Example: Food items, clothes, cosmetics, readymade garments, etc.
IMPORTANT QUESTIONS
1. What are the functions of personnel manager? Explain briefly
2. Explain and evaluate the difference between HRM and Personnel Management?
3. Define job evaluation? Explain the various methods of job evaluation?
4. Compare and contrast job evaluation Vs merit rating.
5. What do you mean by product life cycle and explain its stages.
6. What are different types of channels of distribution? Explain?
7. Write a short note on:
a. Selection Procedure
b. Training Methods
c. Job Analysis
Unit-4: Project Management 4.1
UNIT - IV
PROJECT MANAGEMENT (PERT/CPM)
DEVELOPMENT OF NETWORK
It refers to a number of techniques for planning and control of complex projects. The
basis of network planning is the representation of sequential relationships between activities
by means of network of lines and circles. The idea is to link various activities in such a way
that the overall time spent on the project is kept to a minimum.
The advantages of developing a network are:
1. They provide logical picture of the layout and sequence of a project.
2. They help to identify the activities and events of the project.
3. They provide basis for working out times, costs involved in project.
4. They act as a focus point for action and coordination.
5. They make an enormous contribution to planning of projects.
There are two forms used for network planning:
1. Programme Evaluation and Review Technique (PERT)
2. Critical Path Method (CPM)
Features of Network Analysis:
1. Logical base of planning: Network analysis is highly applicable at several stages of
project management right from early planning stage of selecting right option from
various alternatives to scheduling stage and operational stage.
2. Simple in nature: Net work analysis is straightforward in concept and can be
easily explained to any laymen. Data calculations are simple and for large projects
computers can be used.
3. Improves coordination and communication: The graphs generated out of network
analysis display simply and direct way the complex nature of various sub- divisions
of project may, quickly perceive from the graph.
4. Wider application: The network analysis is applied to many types of projects.
Moreover, they may be applied at several levels within a given project from a single
department working on a sub-system to multi-plant operations within corporation.
Basic Network Terminologies:
1. Activity: This is a task or job of work, which takes time and resources. It is
represented by an arrow. ( ). The head of arrow indicates where the task ends
and tail where the task begins. The arrow points from left to right. It is used to
establish:
(a) The activities involved in the project;
(b) The logical relationship;
(c) An estimate of time, which the activity is expected to take.
2. Event: This is a point in time and indicates the start or finish of an activity. Ex:
building wall completed, electrical connections started and ended. It is represented by
a circle or node ( ). The event from which an arrow comes out is called preceedor
event. The event into which the arrow gets in is called the successor event.
Preceedor Successor
Event Event
3. Dummy Event: This is an activity drawn to show clear and logical dependencies
between activities so as not to violate the rules of drawing networks. It does not
consume resources. It is represented by dotted arrow ( ).
 Unit-4: Project Management 4.2 Unit-4: Project Management 4.3

IDENTIFYING CRITICAL PATH

4. Numbering the Network: Events have to be progressively numbered from left to
right i.e. 1,2,3, etc.
Network:
This is the combination of activities, dummy activities and events in a logical
sequence, according to the rules of drawing a network. The rules of drawing a network:
1. A complete network should have only one point of start and only point of end event.
2. Each activity must have one preceding or tail event and one succeeding or head event.
3. An event is not complete until all activities are complete.
4. All activities must be tied into the network. Events left untied to network are called
danglers.
5. Arrows cannot go backward and loop network should be avoided.
6. An arrow should always be straight, not curved, head from left to right and do not
cross each other.
7. Use dummies only when it is required.
Time Estimates in PERT:
1. Optimistic Time Estimate (to): It refers to minimum time the activity takes,
assuming that there will not be any hindrances like delay, setbacks, etc in completion.
2. Pessimistic Time Estimate (tp): This is the maximum possible time it could take to
complete the job barring the major disturbances like labour strike, etc.
3. Most-Likely time Estimate (tm or ti): It is the time estimate which likes between the
optimistic and pessimistic time estimates.
4. Average Time Estimate (te): according to beta distribution, the average of the 3
estimates is equal to the aggregate of one-sixth of optimistic, two-thirds of most likely
and one-sixth of pessimistic time estimates. This equation is very significant in PERT
analysis:
te = 1/6 to + 2/3 tm + 1/6 tp
or
te = to +4tm + tp / 6

DIFFERENCE BETWEEN PERT AND CPM 5. Range, Standard Deviation and Variance: In beta distribution, the range is equal to
the difference between pessimistic time estimate (tp) and optimistic time estimate (to).
Programme Evaluation and Review Technique (PERT): Range = tp - to
It is a tool to evaluate a given programme and review the progress made in it from
time to time. A programme is also called a project. A project is defined as a set of activities Standard Deviation (σ) is equal to one-sixth of range.
with a specific goal occupying a specific period of time. PERT is concerned with estimating σ = (tp- to) / 6
the time for different stages in a project and find out what the critical path is, i.e. which Variance (σ2) = [(tp- to) / 6]2
consumes the maximum resources.
Critical Path Method (CPM): CRITICAL PATH:
This assumes that the time required to complete an activity can be predicted It is the path which consumes the maximum amount of time or resources. It is that
accurately, and thus the costs can be quantified once the critical path is identified. It involves path which has zero slack. Slack means the time taken to delay a particular event without
determining an optimum duration of the project, i.e. minimum duration which involves affecting the project completion time. If the path has zero slack, it means it is the critical path.
lowest costs. Slack is the difference between latest allowable occurrence time (TL) and the earliest
expected time (TE).
Examples of PERT and CPM: 1. Earliest Expected Time (TE): (Forward pass time): It refers to the time when an
1. Construction of projects like buildings, highways, bridges, etc. event can be expected to be completed at the earliest. It is computed by adding te’s of
2. Preparation of bids and proposals like multipurpose projects. the activity path leading to that event. It is started with the start event and worked out
3. Maintenance and planning of oil refineries, ship repairs, etc. for all events. Where there is more than one path leading to a particular event,
4. Manufacture and assembly of large items like aeroplanes, ships etc. consider the maximum value of the TE’s.
5. Development of new products or services. TE (Successor Event) = maximum value of [TE (preceedor event) + te (activity)]
Difference between PERT and CPM: 2. Latest Allowance Occurrence Time (TL): (Backward pass time): It is the latest
PERT CPM time by which an event must occur to keep the project on schedule. If not the project
1. It is event oriented. It is activity oriented is delayed. Where TE for the end event becomes TL for the end event. We start with
2. It is based on 3 estimates: optimistic, most It is deterministic. the end event and work out latest allowable occurrence time to all other events. Where
likely and pessimistic. there is more than one path, consider the minimum value of TL.
3. It is a technique for evaluating the Here time estimates are based on past data. TL (Preceedor Event) = minimum value of [TL (successor event) + te (activity)]
probability of completing the project.
4. It is not related to costs. Here time is related to costs. 3. Critical Path: Critical path is that path which consumes the maximum amount of
5. It includes network diagram, event, slack, It involves arrow diagram, nodes and float. time or resources. It is that path which has zero slack value.
etc. (TL – TE)
6. It assumes all resources (money, men, It is more realistic. It provides information 4. Slack: Slack means the time taken to delay a particular event without affecting the
materials and machines) are available as about the implications of crashing the project completion time. If a path has zero slack that means it is the critical path.
and when required duration of network and additional costs. Slack = LFT – EFT
 Unit-4: Project Management 4.4 Unit-4: Project Management 4.5

5. Earliest Start Time (EST): It is the earliest possible time at which an activity can PROBLEMS
start, and is calculated by moving from first to last event in the network diagram. 1. A small engineering project consists of 6 activities namely ABCDE & F with duration of
4, 6, 5, 4, 3 and 3 days respectively. Draw the network diagram and calculate EST, LST,
6. Earliest Finish Time (EFT): It is the earliest possible time at which an activity can EFT, LFT and floats. Mark the critical path and find total project duration.
finish. EFT = EST + Duration of activity Activity A B C D E F
7. Latest Start Time (LST): It is the latest possible time by which an activity can start Preceding
without delaying the date of completion of the project. - A B A D C,E
activity
LST = LFT – Duration of the activity
Duration 4 6 5 4 3 3
8. Latest Finish Time (LFT): It is the latest time by which the activity must be
completed. So that the scheduled date for the completion of the project may not be
delayed. It is calculated by moving backwards. Solution:
Network Diagram
FLOAT:
Floats in the network analysis represent the difference between the maximum
time available to finish the activity and the time required to complete it. The basic difference
between slack and float times is a slack is used with reference to event, float is use with
reference to activity.
Floats are three types:
1. Total float: It is the additional time which a non critical activity can consume
without increasing the project duration. However total float may affect the floats in
previous and subsequent activities.
Total float = LST – EST or LFT – EFT
2. Free float: Free float refers to the time by which an activity can expand
without affecting succeeding activities. Critical path = A-B-C-F
Free float = EST of Head Event – EST of Trail Event – Activity duration
Project duration = 18 days
3. Independent float: This the time by which activity may be delayed or extended
without affecting the preceding or succeeding activities in any away.
Independent float = EST of Head event – LFT of Trail event – Activity duration Total Free Independent
Activity Duration EST LST EFT LFT
float float float
PROBABILITY A 4 0 0 4 4 0 0 0
To compute the probability of completing the project within a given time, we use the 6 4 4 10 10 0 0 0
concepts of range, standard deviation and variance. The following steps are involved in
determining probability: B 5 10 10 15 15 0 0 0
1. Find out the range of pessimistic and optimistic time estimates of those activities C 4 4 8 8 12 4 0 0
covered by critical path (tp – to).
2. Determine standard deviation (σ) for each activity. D 3 8 12 11 15 4 4 0
3. Determine the variance (σ2). E 3 15 15 18 18 0 0 0
4. Find the sum of variances of projects Σ σ2 = σ21, σ22 + … + σnn
5. Determine square root2of sum of variances
σ = √ σ , σ2 + … + σn Note: LST = LFT – activity duration
1 2 n
6. Divide the slack (i.e. difference between the scheduled completion time and the latest LFT = EST + activity duration
allowable occurrence time) by SD of entire network. Total float = LST – EST or LFT – EFT
Normal deviate = Z = [TL – TE / σ]
This should be within a range of +-3 σ limits. Free float = EST of Head Event – EST of Trail Event – Activity duration
7. To arrive at % of probability of completing the project within a given time, the value Independent float = EST of Head event – LFT of Trail event – Activity duration
of the normal deviate has to be converted into the value of probability by use normal
distribution function table. The probability of not completing the project with time is
(100 + % of probability of completing the project).
 Unit-4: Project Management 4.6 Unit-4: Project Management 4.7

2. A small engineering project consists of six activities. The three time estimates in number
days for each activity are given below. Activity EST LFT LST EFT Slack
Activity to tm tp
1-2 0 5 0 5 0
1-2 2 5 8
2-3 1 1 1 2-3 5 6 5 6 0
3-5 0 6 18
3-5 6 13 6 13 0
5-6 7 7 7
1-4 3 3 3 5-6 13 20 13 20 0
4-5 2 8 14
1-4 0 5 2 3 2
Find out:
1. Calculate the values of expected time (te), SD, variance of each activity 4-5 3 13 5 11 2
2. Draw the network diagram and mark te on each activity
Probability for completing project in 25 days:
3. Calculate EST and LFT and mark them on the net work diagram
4. Calculate total slack for each activity
5. Identify the critical path and mark on the net work diagram
6. Probability of completing project in 25 days.
Solution:

PROJECT CRASHING
In project crashing, the starting point is the critical path. Once the critical path in a
network is identified, it is necessary to identify the crash activities by calculating cost slope.
The network diagram should be reconstructed at every stage of crashing incorporating the
effect of crashing in the selected sequence.
For reducing the duration, extra expenditure is required to be incurred, but to save
resources; organizations keep this extra expenditure at a minimum. As such, the decision to
crash or expedite should be taken for only those activities which would involve minimum
extra cost.
Y

Total Cost (A + B)
0

(B) Indirect costs

Project cost

(A) Direct costs

Critical path = 1-2-3-5-6 0 CT OT NT

X Project Time Duration
Where, CT = Crash time
Project Duration = 20 days OT = Optimum time
NT = Normal time
 Unit-4: Project Management 4.8 Unit-4: Project Management 4.9

From the above graph, it can be observed that direct cost (A) decrease with an
increase in time. As the project duration increases, the indirect cost (B) increases. The total
cost (A+B) curve is flat U-shaped, which implies that only up to a particular point (0) the
crashing is economical.
The time duration which involves the least total cost is the optimum duration at
optimum cost. Crashing the duration of a project may not be possible and may not be possible
beyond a particular point.
The costs associated with any project can be classified as:
1. Direct costs: The costs which are directly proportional to the number of activities
involved in the project. The more the number of activities, the more is the direct cost. Critical path is 1-2-5-6
Ex: payment of salaries, etc. Project Duration is 28 days
2. Indirect costs: The cost those are determined per day. These are directly proportional Total cost is = Direct cost + Indirect cost
to the number of days of the duration of the project. Ex: Rent, interest on borrowings, = (10+4+6+8+8+6+10) + 0 = Rs.52/-
advertisement, bonus to staff, etc.
3. Normal costs: The costs that is incurred if the project allowed taking its normal 1-2 activity crashing by 4 days:
duration of time, considering the most efficient utilization of the resources.
4. Crash costs: The cost incurred to reduce activity duration to its minimum. Ex: extra
wages, over time, etc.

PROBLEMS
1. Given the following data, work out the minimum duration of the project and
corresponding cost.

Critical path is 1-2-5-6

Project Duration is 24 days
Total cost is = Direct cost + Indirect cost
= (52 + (4 x 50) + 0) = Rs.252/-

5-6 activity crashing by 2 days:

Solution:

Critical path is 1-2-5-6

Project Duration is 22 days
Total cost is = Direct cost + Indirect cost
= (252 + (2 x 100) + 0) = Rs.452/-
 Unit-4: Project Management 4.10 Unit-4: Project Management 4.11

2-5 activity crashing by 2 days:

Critical path is 1-2-5

Project Duration is 9 days
Critical path is 1-2-5-6
Total cost is = Direct cost + Indirect cost
Project Duration is 20 days = 5800 + (2000x9) = Rs.23,800/-
Total cost is = Direct cost + Indirect cost
= (452 + (2 x 130) + 0) = Rs.712/- 1-2 crashing by 1 day:

Optimum cost = 712/-

Optimum Duration = 20 day

3. The following table gives the information relating to a project. By using the given data
calculate the optimum duration of the project. Where indirect cost is estimated Rs.2,000 per
day.

Critical path is 1-2-5

Project Duration is 8 days
Total cost is = Direct cost + Indirect cost
= (5800 + (1x1000)) + (2000x8) = Rs.22,800/-

2-5(a) crashing by 2 days:

Solution:

Critical paths are 1-2-4-5 and 1-3-4-5

Project duration is 7 days only
Total cost = Direct cost + Indirect cost
= (6800 + (2x1500)) + (2000x7) = Rs.23,800/-
 Unit-4: Project Management 4.12 Unit-4: Project Management 4.13

Here project crashed by 2 days and total cost incurred by the firm is 23,800/- but IMPORTANT QUESTIONS:
duration is reduced by only one day. So it is suggested to crash the network by only one day, 1. Bring out the difference between PERT & CPM.
it can help to reduce the cost. So that 2-5 activity crashing by only 1 day. 2. From the following information draw the network and identify the critical path and
project duration.
2-5(b) activity crashing by 1 day only:

Duration is 7 days
Total cost = Direct cost + Indirect cost
= (6800 + (1x1500)) + (2000x7) = 8300 + 14000 = Rs.22,300/- 3. From the following data crash the network and identity the optimum time of the
project where the indirect cost is estimated Rs.2000 per day.
All activities comes under the critical activities, the priority are changed according to
the cost slope 4-5 activity having minimum cost slope. So that it is possible to crash out 4-5
activity by one day only and 2-5 by one day simultaneously.

4-5 activity crashing by 1 day and 2-5 crashing by 1 day only:

4. Write a short note on the following:

a. Critical Path
b. EST, EFT, LST, LFT
c. Float vs Slack
d. Expected Time
e. Cost Slope
5. A small maintenance project small maintenance project consists of the following 12
jobs with duration in days. Find out the critical path, total project duration, float.
JOB DURATION
Duration is 6 days 1-2 2
Total cost = Direct cost + Indirect cost 3-4 3
= (8,300+(1x1500)+(1x200))+(2000x6) 5-8 5
= (8300 + 1700) + (12000) = Rs.22,000/- 7-9 4
2-3 7
This network diagram not possible to crashing further, So that the project duration is 6 3-5 5
days and optimum cost is Rs.22,000/- 6-7 8
Optimum cost = 22,000/- 8-9 1
Optimum Duration = 6 days 2-4 3
4-6 3
6-10 4
9-10 7
 Unit-4: Project Management 4.14 Unit-4: Project Management 4.15

6. A project consists of the following activities and different time estimates (in days). Draw
a network and find the critical path. What is the probability that the project will be 10. The following table gives the schedule of welding activities in an assembly
completed by 27 days? shop:
Activity Optimistic time Most likely time Pessimistic time (a)Find the critical path
1-2 3 6 15 (b)Determine the slack times for each activity.
1-3 2 5 14 Activity No. Duration (days) Activity No. Duration (days)
1-4 6 12 30 0-1 2 0-6 1
2-5 2 5 8 1-2 4 3-7 8
2-3 2 6-7 3
2-6 5 11 17
3-4 5 5-8 3
3-6 3 6 15 2-5 1 7-8 5
4-7 3 9 27 4-5 1
5-7 1 4 7
6-7 2 5 8 11. A project is composed of seven activities whose time estimates are listed in
the following table. Activities are identified by their beginning ‘i’ and ending ‘j’
mode numbers:
7. Given the following details of a project, determine the optimum duration and cost of the
project. Indirect cost is 1300 per week Activity Estimated duration (weeks)
Activity Time (weeks) Cost (rs.) i j optimistic Most likely pessimistic
1 2 1 1 7
Normal Crash Normal Crash
1 3 1 4 7
1-2 6 4 5000 6200 1 4 2 2 8
1-3 4 2 3000 3900 2 5 1 1 1
2-3 7 6 6500 6800 3 5 2 5 14
2-4 3 2 4000 4500 4 6 2 5 0
3-4 5 3 8500 10000 5 6 3 5 15
8. From the following information draw the network and identify the critical path and
project duration. (i)Draw the project network and identify all paths for its completion
(ii)Find the expected duration and variance of the project
(iii)Calculate the early and late occurrence time for each mode. Calculate
expected project length
(iv)Calculate the slack of each activity

9. From the following data crash the network and identity the optimum time of the project
where the indirect cost is estimated Rs.2000 per day.
Unit-4: Project Management 4.16 Unit-5: Strategic Management 5.1

UNIT - V
STRATEGIC MANAGEMENT

VISION
Vision is the starting point for articulating organisations hierarchy of goals and
objectives. A vision statement is a vivid idealized description of a desired outcome that
inspires, energizes and helps a firm to create a mental picture of its target.
It seeks to answer the basic question, “What do we want to become?” Developing and
implementing a vision is one of the leader’s central roles. Top management need to have not
only a vision statement but also a plan to implement it.
Definition:
According to Robinson, “A company vision is sinuous with the company’s mission”.
This means that the alternative name for the company’s mission is vision.
Examples:
1. The Canon – Beat Xerox
2. Motorola – Total customer satisfaction.
3. Disney land – To be the happiest place on the earth.
4. Toyota – To become the most successful and respected car company in each market
around the world.
5. P&G – Be recognized as, the best customer products and service company in the
world.
The vision statement may also contain slogan, a diagram or a picture – whatever grabs
attention. In process of creating vision, top management may have brainstorming session with
staff and board. Vision takes form at the end of group of discussion.
It consists of two major components:
1. Core Ideology: It means the long lasting character of a firm as it passes through the
changing circumstances like competition, technology or management style. Generally
core ideology rests on core values and core purposes. It generally contains treatment
of employees and customer, ethics, innovativeness, emphasis on quality service and
social responsibility.
2. Envisioned Future: It is consistent long term goal and description of what it would
be like to achieve the goal.

Characteristics of Vision:
The characteristics of effective vision statement are:
1. Focused: It is specific enough to provide managers with guidance in decision making
and allocating resources.
2. Directional: It says something about the company’s journey or destination and
signals the kind of business and strategic changes that will be forthcoming.
3. Flexible: Vision about a company’s future path may need to change as events unfold
and circumstances change.
4. Desirable: Appeals to the long-term interests of stake holders particularly
shareholders, employees and customers.
5. Easy to communicate: It is explainable in less than 10 minutes and ideally can be
reduced to a simple slogan.
6. Graphic: Pants a picture of the kind of company that the management is trying to
create and market position of the company is striving to carve itself.
 Unit-5: Strategic Management 5.2
MISSION
This is also called ‘overall objective’ or ‘overall goal’. For long term survival, the
corporate have to gain acceptability in the society and this is achieved through mission. The
mission statement defines the basic reason for the existence of organization and provides the
basic philosophy of what the company is all about.
A mission statement defines why the organization exists. It describes the customer
needs, both present and future. It outlines the corporate philosophy about the overall design,
orientation to quality and work culture.
Definition:
According to Wheelan and Hunger “A mission is the purpose or reason for the
organization’s existence”.
The elements of a mission are:
PURPOSE
What Business Exists?
STRATEGY & VALUE SCOPE
What business and how? What management
believes in?
TANDARDS & BEHAVIOR
Characteristics:
The characteristics of a mission statement are:
1. It must be clear enough to trigger action: A clear statement of mission facilitates
clear understanding among the employees. The mission of a university could be to
provide teaching, research, public service through training and consultancy,
promoting team spirit through sports.
2. It focuses on customer needs and utilities, not products: A mission statement
should define the broad scope of activities within which the company will operate
competitively. It may specify the details of the range of industries, products and their
markets.
3. It should be capable of being measured in terms of specific targets: Organisations
must establish specific targets so that the performance can be exactly measured.
4. It should focus on limited number of goals: The mission statement has to prioritise
its preferences and put forward what it wants to achieve in the year to come.
5. It outlines the major policies and values the company wants to honor: A mission
statement spells out the major policies and values the top management is committed
to i.e. set the direction of quality and work culture.
6. It also identifies the core principles to guide decision making: These principles
serves as mechanism for self control to guide managers at all levels of the
organization.
7. It should be flexible: No mission statement can ever be rigid and hard. It should be
flexible. If the company finds that the mission is achieved or it does not hold
relevance any more, it is free to modify the mission statement.
Unit-5: Strategic Management 5.3
8. It provides a shared vision: A successful organization is one that involves its
executives in developing a mission statement of a company i.e. they involve a shared
vision.
9. It is a facilitator: The statement guides employees, particularly when they are
dispersed over different geographical locations, to work independently or collectively
towards the organizational goals.
GOALS
Goals are the overall objectives of a department. The goal of a manager is to create
surplus for the company. The manager is concerned with the achievement of the goals set by
the top management. At times, a manager may be handling multiple goals of satisfying
customers, maximizing profits and reducing costs.
Goal is defined as what an organization wants to achieve during or by the end of a
given period. Based on the time frame, goals may be classified as long term or short term
goals. Short term goals are those which are to be achieved in less than a year where as the
time frame for long term goals is more than a year. The goals are always set within the scope
of mission.
Here are some common definitions of Objectives;
 Objectives are performance targets which organisations wants as result or outcomes in
the specified periods.
 Objectives achievements are used as benchmark of organisation performance and
success.
 Objectives are formed from visions and mission statement of organisations.
Characteristics of Objectives/Goals:
Objectives characterise business long-term prospective, such as:
1. Facilitate to achieve mission and goals
2. Set the basis for strategic decision making
3. Clear the relationship of organisation with environment
4. Should be understandable by each member of organisation
5. Should be measurable and controllable
6. Should be related to time frame
7. Should be challenging
8. Should be concrete and specific
9. Should be formed within the constraints
10. Should motivate people
Significance:
1. It helps to define the organization in its environment: By stating the goals, the
company can attract people who identify with these goals to work for them. All those
individuals who volunteer to work in this direction join this organization.
2. It helps in coordinating decisions: Goals help the managers to coordinate resources
and the efforts of the employees under their command effectively.
3. Goals are more tangible targets: Goals are capable of being measured. Output goals
can be in terms of quality, variety and type of potential and targeted customers or
clients. The clearer the goal is, the better can be managerial effectiveness.
4. It facilitates performance appraisal: The performance of both the organization and
the individuals in it can be evaluated by considering whether the goals have been
achieved or not.
 Unit-5: Strategic Management 5.4 Unit-5: Strategic Management 5.5

STRATEGY ELEMENTS OF CORPORATE PLANNING PROCESS

Strategy is very popular word used in military related to war, as used means or Corporate planning can be defined as the process of formulating the corporate
methods to defy or defeat enemy. Strategy is now as popular word in business as in military, mission, scanning the business environment, evolving strategies, creating necessary
but in businesses, strategy is related to methods or means adopted to achieve business’s infrastructure and assigning resources to achieve the given mission.
objectives. Corporate planning has a company-wide and comprehensive perspective. Corporate
In business, ‘Strategy’ is considered as: planning is not an easy task. It involves translation of the vision of the chief executive or top
1. a game plan by management to take position, conduct operation, attract customers and management in to achievable targets or goals. They develop mission statements considering
compete successfully; the views of the shareholders and stakeholders. Strategic planning, if done for the entire
2. a comprehensive, unified or integrated plan and actions to achieve the desired organization, can also be called as corporate planning.
business goals and objectives; The elements of Corporate planning process are:
3. a long term plan or blue print to achieve desired image, direction and destination for
organisation; Corporate Mission
4. an analysis, planning and implementation of actions or activities to take successfully
organisation out from any adverse scenario and put organisation in the league of
winners; Formulate strategic objectives
5. and
6. a plan adopted for survival, stability and growth of business.
Appraise Internal and External Environment
Followings are some general characteristics of a ‘Corporate Strategy’:
1. Formulated by Top Management: It is formulated by the top level of management. F
2. Long Term or Long Range: It is meant for long term future growth and profits. e
Develop and Evaluate Alternative Strategies
3. Integrated: Consider all elements of business. e
4. Flexible: Can be modified as per changed Environment. d
5. Action Oriented: It should not be planning only, it should be action oriented b
Select the best strategy
planning. a
6. Goal Oriented: It is for achieving organisation long term objectives of growth, c
profitability and sustainability. k
Fix key targets and allot resources to
7. Purposeful: It is for making organisation ready to cope-up to a competitive and Strategic Business Units (SBUs)
complex business environment successfully.
8. Efficient: it does not include unnecessary activities and elements.
9. Synchronised: All activities of strategy are well coordinated. Develop operating plans
Purpose:
A strategy is an operational tool to achieve the goals, and thus, the corporate mission. Monitor the performance
Strategies do no attempt to outline exactly how the enterprise is to accomplish its objectives.
Thus, strategy provides a framework to guide thinking and action. Strategies are very much
useful in the organization for guiding, planning and control. The recently initiated moves Revise, where necessary
such as globalization, privatization, and liberalization can be described as strategies to attain
a globally competitive economy in Indian context. The elements of corporate planning process can be described as:
1. Identify corporate mission: Identify what the organisation wants to achieve, to start
Policy: with. It is necessary that all concerned parties understand the overall purpose of the
Policy is a broad guideline set by the top management for the purpose of making organisation and the methods of attaining them.
decisions at different levels in the organizations. It reflects the owner’s attitudes to different 2. Formulate Strategic objectives: By preparing statements of mission, policy, strategy
segments such as creditors, employees, customers and society. and goals, the top management establishes the framework within which its divisions
prepare their plans.
Programmes: 3. Appraise Internal and external environment: The appraisal of internal
It refers to the logical sequence of operations to be performed in a given project or environment reveals the strength and weakness of the firm and external environment
job. It tells what to do. A programme is based on a set of goals, policies, procedures, rules reveals the opportunities and threats for the firm.
and task assignments. They usually carry out a given course of action.
 Unit-5: Strategic Management 5.6 Unit-5: Strategic Management 5.7

4. Develop and evaluate alternative strategies: The alternatives like: adding new
products to the existing product line, finding new markets, apart from present
markets, manufacturing within the organisation.
5. Select the best strategy: For the firm to be more successful, it is necessary to focus
its strategies around its strengths and opportunities.
6. Establish strategic business units: It is more strategic to define a business unit in
terms of customer groups, needs, or technology and set up the business unit
accordingly.
7. Fix targets and allot resources to each SBU’s: The purpose of identifying the
company’s strategic business units is to develop separate strategies and assign
appropriate funding.
8. Developing operating plans: The operating or tactical plans explain how the long-
term goals of the organisation can be met.
9. Monitor performance: The results of the operating plans should be well monitored
from time to time.
10. Revise the operating plans, where necessary: It is necessary to revise the
operational plans particularly when the form does not perform as well as expected.
ENVIRONMENTAL SCANNING
It is a vital part of the corporate planning process. Effective planners try to anticipate
what is likely to happen or attempt to influence the environment in favorable directions.
The management must determine the crucial factors in the environment. If it is
ignored by corporate planners, this process remains incomplete and hence cannot be
effective. Environmental scanning is the process by which strategists monitor both:
1. External environment – to determine opportunities & threats.
2. Internal environment – to determine strength & weaknesses.
Corporate Planning
Environmental Scanning
Environmental Analysis:
It refers to the process of analyzing the environment, formulation of objectives,
generation of alternative strategies and other related issues.
Environmental Diagnosis:
It comprises the managerial decisions based on the perceived opportunities and threats
of the firm.
External Environment Analysis:
It has profound impact on the business operations irrespective of the nature of
business. The business has to monitor the key forces both in the micro and macro
environment. The factors affect the business operations both in long and short run are
grouped under 3 parts:
1. General Environment: It is related to macro economic factors. The major causes of
growth, decline and other large scale changes in the firms are the factors in the
external environment.
a. Socio-Economic factors: It encompasses all the factors affecting the
economy, society and the business climate.
b. Technological Sector: It affects the flow and development of alternative raw
materials the life cycles of products and services.
c. Government Sector: It has multiple roles to play in matters like collection of
taxes, R&D, regulating the markets and industries, etc.
2. Industry Environment: It refers to the group of firms carrying on similar activity. It
has 3 sections:
a) Customers: The strategists must identify and analyse the customers for the
organization locate the potential customers and the emerging changes in the
buying patterns.
b) Suppliers: Strategists must determine the availability and costs of supply
conditions including raw materials, energy, technology, money and labour.
c) Competition: The strategists mould his strategy in the light of the
competitor’s strategy.

3. International Environment: The strategy of globalization implies a great source of

Environmental Analysis opportunities and also threats to business firms.
The opportunities include:
a) Expanding market in countries like Europe, India, Brazil, etc.
Environmental Diagnosis b) Availing the lower labour costs by setting up manufacturing firms in different
locations.
The different sources of threats are:
a) Political risks: arising from political and ideological differences, political
External Environment Internal Environment instability and foreign role.
b) Social risks: arising from civil wars, income inequalities break down in law,
etc.
General International Functional Area Profile
c) Economic risks: arising from poor GDP growth rate, rapid increase in costs
Environment Environment of production.
Evaluation d) Financial risks: arising from changing financial policies of the country
Industry resulting in currency exchange rates, reduction in percentage of profits and
Environment Strategic Advantage Profile capital, higher taxes, etc.

Opportunities & Threats Strengths & Weaknesses

 Unit-5: Strategic Management 5.8 Unit-5: Strategic Management 5.9

Internal Environment Analysis:  To explore the markets in the undeveloped/developing states/places;

Internal Analysis and diagnosis is a process of analyzing and diagnosing the firm’s  To avail of the incentives/concessions declared by Central/State Governments;
internal strengths and weaknesses. By identifying its strengths and weaknesses, the firm can  Diversifications opportunities;
strategically exploit the available opportunities, overcome threats & correct weaknesses.  Mergers/acquisition opportunities;
The internal strengths and weaknesses include:  Good home market available due to boost in the economy;
a) Marketing factors Threats:
b) Research and Development. Some developments in the external environment represent threats. A threat is a
c) Production Management challenge posed by an unfavorable trend; or a development that results in the loss of sales; or
d) Managerial Personnel profit till a defensive marketing action is initiated.The probable threats, which may arise or be
e) Accounting and financial policies and procedures faced by the organisation, are listed out as under:
 Globalisation;
SWOT ANALYSIS  Competition;
 Price cutting war;
SWOT analysis refines this body of information by applying a general framework for
 Free imports;
understanding and managing the environment in which an organisation operates. (The
 Political instability;
acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.) In many
 High and adverse debt equity ratio;
respects, the sophisticated analytical techniques discussed throughout the text are further
 Increase in financing cost;
refinements of basic SWOT analysis.
 Economic slowdown due to international recession impact
SWOT analysis attempts to assess the internal strengths and weaknesses of an
organisation and the opportunities and threats that its external environment presents. SWOT
Internal Environment Analysis:
seeks to isolate the major issues facing an organisation through careful analysis of each of
The internal environment analysis relates to various strengths and weaknesses of an
these four elements. Managers can then formulate strategies to address key issues.
organisation:
The appraisal should give particular attention to the following: Strengths:
1. Study of past accounts and the use of ratios: By looking at trends, or by comparing The business should limit itself to those opportunities where it possesses the required
ratios with those of other firms in a similar industry, it might be possible to identify strengths or should it consider better opportunities where it might have to develop certain
strengths and weaknesses in major areas of the business. strengths. The corporate strengths within or outside the organisation are as:
2. Product position and product-market mix: This very important area is dealt with  Financially very sound;
later.  Good products and product-mix with high demand including future prospects;
3. Cash and financial structure: If a company intends to expand or diversify, it will  Full capacity utilisation, locational advantages;
need cash or sufficient financial standing in order to acquire subsidiaries by issuing  Good infrastructures;
shares.  Good industrial relations;
4. Cost structure: If a company operates with high fixed costs and relatively low  No political interference;
variable costs, it might be in a relatively weak position with regards to production  Incentives from State Government;
capacity. High volumes of production and sale might be required to break even.  Good relation with Government departments;
5. Managerial ability: There may be a problem in attempting to assess this and  Technologically rich and with expertise;
objective measurements should be sought.
Weaknesses:
The SWOT analysis can be broadly enumerated as follows: Sometimes the company may not do well, not because its departments lack the
External Environment Analysis: required motivation but because they do not work together as a team. These may be
The external environment analysis relates to various opportunities and threats of an enumerated as under:
organisation:  Under-utilization of capacity due to economic slump;
 Poor product-mix;
Opportunities:  Lack of managerial strengths;
It is necessary that the company should identify what opportunities are available to it  Technology gap;
to focus upon. The latest technology, deregulated or free markets, liberalized rules and  Demand gap;
regulations, etc make a lot of difference for a business organisation. The opportunities of an  Poor infrastructures;
organisation include:  Raw materials source at a distance;
 Seasonal/climatical demand of products;  Lack of latest information technology;
 Global markets for the company’s products/services;  Competition war.
 Rural markets to explore and to penetrate;
 Unit-5: Strategic Management 5.10 Unit-5: Strategic Management 5.11

STEPS IN STRATEGY FORMULATION AND IMPLEMENTATION GENERIC STRATEGY ALTERNATIVES

Strategy refers to the course of action desired to achieve the objectives of the It refers to the strategy alternatives in broader terms. The strategist seeks to identify the
enterprise. Formulation together with its implementation constitutes an integral part of right alternative like:
managerial activity. Managers use strategies for different purposes to overcome competition, a) Should we get out of this business entirely?
increase sales, increase production, etc. b) Should we try to expand?
The process of formulating the strategy and its implementation includes the following steps: There are four strategic alternatives for any business;
1. Identification of mission and objectives 1. Expansion: It can be adopted in the case of highly competitive and volatile industries,
2. Environmental scanning i.e. if they are in introduction stage of a product or service life cycle.
3. Generic strategy alternatives 2. Stability: It is better choice when the firm is doing well, i.e. less volatile and the
4. Strategy variations product or service has reached the stability or maturity stage of life cycle.
5. Strategic choice 3. Retrenchment: It is the obvious choice when the firm is not doing well in terms of
6. Allocation of resources and formulation of organizational structure sales and revenue or the product or service is in the finishing stage of product life
7. Formulation of plans, policies, programmes and administration cycle.
8. Evaluation and control 4. Combination: It combines all the other strategies. It is best suitable for multiple
strategic business unit (SBU) firms of economic transition and also when changes
An outline of these stages is presented as: occur in product or service life cycle.
It is the best strategy when the firm finds that its product-wise performance is not even, or all
Enterprise strategies Mission and objectives its products differ in their future potential.
Strategic alliances constitute another viable alternative. Companies can develop
General Environment alliances with the members of strategic group and perform more efficiently as:
(a) Product or Service Alliance: Two or more companies may get together to synergize
their operations, seeking alliance for their products and service. Ex: Coca-Cola
Industry and International Environment supports Thums Up.
(b) Promotional Alliance: Two or more companies may come together to promote their
products or service. Ex: Cricket board may permit coca-cola products to be displayed
Internal Factors Feedback during cricket matches.
(c) Logistic Alliance: One company extends logistic support for another company’s
products or services. Ex: outlets of Pizza Hut.
Generic Strategy Alternatives (d) Pricing Collaborations: Companies may join together for special pricing
collaborations. Ex: Hardware and Software companies offer each other with price
discounts.
Strategy Variations
IMPORTANT QUESTIONS
Strategic Choice 1. Identify the factors that are to be diagnosed in external and internal environment of a
business organization.
2. What is the need for corporate planning? Explain the main elements of corporate
Allocate Resources and Develop planning process?
organizational structure 3. Explain the concept of SWOT. How do you use SWOT analysis in decision making?
4. Write short notes on:
a. Vision
Formulation of Plans, Policies, b. Mission
Programmes and Administration c. Goals
d. Strategy
5. Explain the steps in formulation of strategy and its implementation?
Evaluation and Control

Feedback
 Unit-6: Management Ethics 6.1
UNIT - VI
MANAGEMENT ETHICS
BUSINESS ETHICS
The word ethics is derived from a word “Ethos” which means character of manners.
Ethics are moral guidelines which govern good behaviour. So behaving ethically is doing
what is morally right. Behaving ethically in business is widely regarded as good business
practice. The concept has come to mean various things to various people, but generally it's
coming to know what it right or wrong in the workplace and doing what's right, this is in
regard to effects of products/services and in relationships with stakeholders.
Business Ethics are:
 Normal principles and standards that define right and wrong behavior in the world of
business.
 What is right and wrong is determined by public interest groups/ business
organizations.
Definition:
According to Rogene A.Buchholz, “Business ethics refers to right or wrong behaviour
in business decisions.
Business Ethics can be defined as the critical, structured examination of how people
& institutions should behave in the world of commerce. In particular, it involves examining
appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions
of individuals or firms affect others.
Two Broad Areas of Business Ethics are:
1. Managerial Mischief: It includes "illegal, unethical, or questionable practices of
individual managers or organizations, as well as the causes of such behaviors and
remedies to eradicate them." There has been a great deal written about managerial
mischief, leading many to believe that business ethics is merely a matter of preaching
the basics of what is right and wrong.
2. Moral Mazes: The other broad area of business ethics is "moral mazes of
management" and includes the numerous ethical problems that managers must deal
with on a daily basis, such as potential conflicts of interest, wrongful use of resources,
mismanagement of contracts and agreements, etc.
Objectives of Business Ethics:
The primary objective of ethics is to define the highest human characters of individual
and set a standard for the same. Ethics also deal with several interrelated and complex
problems which may be of psychological, legal, commercial, philosophical, sociological and
political in nature. However, there are other many objectives of ethics which are as follows:
1. Study of human behavior making evaluative assessment about them as moral or
immoral.
2. Establishing moral standards and norms of behavior.
3. Making judgment upon human behavior based on these standards/norms.
4. Prescribing moral behavior and making recommendations about how to behave or
vice-versa.
5. Expressing an opinion or attitude about human conduct in general.
Unit-6: Management Ethics 6.2
Characteristics of Business Ethics:
1. Ethics can protect society: Where law fails, ethics can succeed, i.e. the things which
are not covered by law can be governed by business ethics.
2. Equality: Equality has a significant place in business ethics. According to this,
everybody should be given equal treatment in business. It means that there should be
no differences on the basis of riches, poverty, caste or religion.
3. Self-Imposed Discipline: The important feature of business ethics is the self-imposed
discipline. In other words, nobody tells us to observe discipline, but the people having
faith in ethics are self-disciplined. Ethics have moral binding.
4. Guiding Force: Business ethics guide the business unit regarding what is to be done
and what is not to be done, what is right and what is wrong.
5. Honesty: Business ethics stress on honesty on the part of businessman. In other
words, business ethics believe that every businessman will behave honesty with all
the parties concerned.
Importance of Business Ethics:
Business ethics is especially important in dealing with customers. Maintaining
integrity in the customer facing side of your business is crucial to building client
relationships, to assisting the overall branding efforts. Likewise, it's an important step in
minimizing returns and protecting business goodwill, which will have a tangible effect on the
success or otherwise of your business. The importance can be illustrated as under:
1. Stop Business Malpractices: Some unscrupulous businessmen do business
malpractices by indulging in unfair trade practices like black-marketing, artificial high
pricing, adulteration, cheating in weights and measures, selling of duplicate and
harmful products, hoarding, etc. These business malpractices are harmful to the
consumers. Business ethics help to stop these business malpractices.
2. Improve Customers' Confidence: Business ethics are needed to improve the
customers' confidence about the quality, quantity, price, etc., of the products. The
customers have more trust and confidence in the businessmen who follow ethical
rules. They feel that such businessmen will not cheat them.
3. Survival of Business: Business ethics are mandatory for the survival of business. The
businessmen who do not follow it will have short-term success, but they will fail in
the long run. This is because they can cheat a consumer only once. After that, the
consumer will not buy goods from that businessman. He will also tell others not to
buy from that businessman.
4. Safeguarding Consumers' Rights: The consumer has many rights such as right to
health and safety, right to be informed, right to choose, right to be heard, right to
redress, etc,. But many businessmen do not respect and protect these rights. Business
ethics are must to safeguard these rights of the consumers.
5. Protecting Employees and Shareholders: Business ethics are required to protect the
interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects
them from exploitation through unfair trade practices.
6. Develops Good Relations: Business ethics are important to develop good and
friendly relations between business and society. This will result in a regular supply of
good quality goods and services at low prices to the society.
7. Creates Good Image: Business ethics create a good image for the business and
businessmen. If the businessmen follow all ethical rules, then they will be fully
accepted and not criticized by the society. The society will always support those
businessmen who follow this necessary code of conduct.
 Unit-6: Management Ethics 6.3
8. Smooth Functioning: If the business follows all the business ethics, then the
employees, shareholders, consumers, dealers and suppliers will all be happy. So they
will give full cooperation to the business. This will result in smooth functioning of the
business. It will have more sales and more profits.
9. Consumer Movement: Business ethics are gaining importance because of the growth
of the consumer movement. Today, the consumers are aware of their rights. Now they
are more organized and hence cannot be cheated easily. Therefore, the only way to
survive in business is to be honest and fair.
10. Consumer Satisfaction: Today, the consumer is the king of the market. Any business
simply cannot survive without the consumers. Therefore, the main aim or objective of
business is consumer satisfaction. If the consumer is not satisfied, then there will be
no sales and thus no profits too.
11. Importance of Labour: Labour, i.e. employees or workers play a very crucial role in
the success of a business. Therefore, business must use business ethics while dealing
with the employees. The business must give them proper wages and salaries and
provide them with better working conditions.
12. Healthy Competition: The business must use business ethics while dealing with the
competitors. They must have healthy competition with the competitors. They must not
do cut-throat competition. Similarly, they must give equal opportunities to small-scale
business.
MANAGEMENT ETHICS
Management ethics are the ethical treatment of employees, stockholders, owners and
the public by the company. When engaging in business management and activities, “Ethics is
placed as top priority. All standard of business on “Ethical standards” are transparent, fair,
logical operations. Ethical management is what the higher authorities i.e. CEO’s and
executives implement when engaging in business activities.
Importance of Ethics in Management:
1. Factors affecting society: In the recent past ruthless exploitation of children and
workers, trust control over the market, termination of employees and other factors had
affected society and a demand role to place a higher value on ethics, fairness and
equal rights resulting in framing of anti-trust laws, establishment of governmental
agencies and recognition of labour unions.
2. Easier change management: Attention to business ethics is also critical during times
of fundamental change. In such situations, often there is no clear moral compass to
guide leaders about what is wrong and right.
3. Strong team work and greater productivity: Ongoing attention and dialogues
regarding ethical values in the workplace builds openness, integrity and a sense of
community which leads to, among the employees, a strong alignment between their
values, strong motivation and better performance.
4. Enhanced employee growth: Attention to ethics in the workplace helps employees to
face the reality, both good and bad in the organization and gain the confidence of
dealing with complex work situations.
5. Detect ethical issues and violations: Ethical programmes help to detect ethical issues
and violations early, so that criminal acts “of omission” may be avoided.
Unit-6: Management Ethics 6.4
ETHICS IN MARKETING
Ethics in marketing means applying standards of fairness, moral rights and wrongs, to
marketing decision making, behaviour and practices in the organization. Peter Drucker has
stated that the purpose of a business is to create a customer. It is the customer who is the
foundation of a business and keeps it in existence. If the purpose of business is to create and
keep a customer, it is imperative that he must be the focal point of all business activities. The
central theme of the marketing concept is to identify, anticipate and satisfy customer needs
and desires. When an organization produces the products and markets these in an ethical
manner, customers develop a positive attitude towards the firm, its products and services.
The common marketing malpractices include:
a) Adulteration
b) Black marketing
c) Hoarding
d) Profiteering
e) Short weighting
f) Unethical advertising
g) Sale of substandard and spurious products
Ethical Norms for Marketers:
1. Do no harm: This means consciously avoiding harmful actions or omissions by
embodying high ethical standards.
2. Foster trust in the marketing system: This means striving for good faith and fair
dealing so as to contribute toward the efficiency of the exchange process.
3. Embrace ethical values: This means building relationships and enhancing consumer
confidence in the integrity of marketing.
Ethical values for Marketers:
1. Honesty: It means to be forthright in dealings with customers and stakeholders.
2. Responsibility: It means to accept the consequences of our marketing decisions and
strategies.
3. Fairness: It means to balance justly the needs of the buyer with the interests of the
seller.
4. Respect: It means to acknowledge the basic human dignity of all stakeholders.
5. Transparency: It means to create a spirit of openness in marketing operations.
6. Citizenship: It means to fulfill the economic, legal and societal responsibilities that
serve stakeholders.
Fair Marketing Practices:
Promotion of highest ethical practices by business and professionals is extremely
important in order to ensure complete satisfaction to consumers and other stakeholders. The
Council for Fair Business Practices (formerly Fair Trade Practices Association) has identified
mine parameters of fair marketing practices. Every member of the CFBP has to self-impose
nine fundamental obligations, viz.,
1. To charge only fair and reasonable prices and take every possible step to ensure that
the prices to be charged to customers are brought to his notice.
2. To take every possible steps to ensure that the agents or dealers appointed by him do
not charge prices higher than fixed.
3. In times of scarcity, not to withhold or suppress stocks of goods with a view to
hoarding and/ or profiteering.
4. Not to produce or trade in spurious goods or goods of standards lower than specified.
 Unit-6: Management Ethics 6.5
5. Not to adulterate goods supplied.
6. Not to publish misleading advertisements.
7. To invoice goods exported or imported at their correct prices.
8. To maintain accuracy in weights and measures of goods offered for sale.
9. Not to deal knowingly in smuggled goods.
Ethics in Advertising:
Business ethics is mainly concerned with the relationship of business goals and
techniques to specifically human ends. As such ethics in advertising relate to the impact of
advertising activities on the good of the individual, the firm, the business community, and the
society as a whole. Indeed, advertising communication is a mix of art and facts based on
ethical principles.
Advertising ethics require that:
1. advertising is truthful,
2. agencies and advertisers provide substantiation of claims made,
3. advertising is in good taste, and the generally accepted standards of public decency
are followed,
4. advertisers refrain from attacking competitors unfairly,
5. guarantees and warranties are explicit,
6. advertisements are not false or misleading,
7. claims are not exaggerated, and that
8. testimonials are genuine.
It is extremely difficult to determine whether an advertisement is ethical or not.
Undoubtedly, the line of demarcation between ethical and unethical advertising is very thin.
It depends upon the values, opinions, perceptions and judgment of the viewer. An
advertisement may be ethical for one, unethical for another.
ETHICS IN HUMAN RESOURCE MANAGEMENT
Human resource management ethics is the affirmative moral obligation of the
employer towards the employees to maintain equality and equal justice. HRM deals with
manpower planning and development related activities in an organization. Arguably it is that
branch of management where ethics really matter, since it concerns human issues specially
those of compensation, development, industrial relations and health and safety issues. Values
and ethics in simple words mean principle or code of conduct that govern transactions; in this
case business transaction. These ethics are meant to analyze problems that come up in day to
day course of business operations. Apart from this it also applies to individuals who work in
organizations, their conduct and to the organizations as a whole.
Definition:
Ethics in HRM can be defined as functioning and performing HRM policies and
practices with some standard norms, managing human resources so that mutual benefits can
be achieved.
Ethical Issues in HRM:
The ethics of HRM revolves around those ethical issues arising out of employer –
employee relationships, such as the rights and duties owed between them. In most of the
countries strict law are imposed on those employees who act against set of principles and
behave an unethical way. There are different schools of thought that differ in their viewpoint
on role of ethics or ethics in human resource management.
Unit-6: Management Ethics 6.6
 One group of thought leaders believe that markets claim profits in the name of
stakeholders and unless we have protocols, standards and procedures the same will
develop into a demon monopolizing markets and crushing human capital; HR ethics
are become mandatory.
 There is another group of ethicists inspired by neo-liberalism who believe that there
are no business ethics apart from realization of higher profits through utilization of
human resources. They argue that by utilizing human resources optimally, there is
more value creation for the shareholders, organization and the society and since
employees are part of the society or organization, they are indirectly benefited.
The important ethical issues related to HR are as follows:
1. Cash and Compensation Plans: There are ethical issues pertaining to the salaries,
executive perquisites and the annual incentive plans etc. The HR manager is often
under pressure to raise the band of base salaries. There is increased pressure upon the
HR function to pay out more incentives to the top management and the justification
for the same is put as the need to retain the latter. While deciding upon the payout
there is pressure on favoring the interests of the top management in comparison to that
of other employees and stakeholders.
2. Discriminating Issues: In many organisations till recently the employees were
differentiated on the basis of their race, gender, origin and their disability. Not
anymore ever since the evolution of laws and a regulatory framework that has
standardised employee behaviours towards each other. In good organisations the only
differentiating factor is performance.
3. Employment Issues: Human resource practitioners face bigger dilemmas in
employee hiring. One dilemma stems from the pressure of hiring someone who has
been recommended by a friend, someone from your family or a top executive. Yet
another dilemma arises when you have already hired someone and he/she is later
found to have presented fake documents. Two cases may arise and both are critical. In
the first case the person has been trained and the position is critical. In the second case
the person has been highly appreciated for his work during his short stint or he/she
has a unique blend of skills with the right kind of attitude. Both the situations are
sufficiently dilemmatic to leave even a seasoned HR campaigner in a fix.
4. Privacy Issues: Any person working with any organisation is an individual and has a
personal side to his existence which he demands should be respected and not intruded.
The employee wants the organisation to protect his/her personal life. This personal
life may encompass things like his religious, political and social beliefs etc. However
certain situations may arise that mandate snooping behaviours on the part of the
employer. For example, mail scanning is one of the activities used to track the
activities of an employee who is believed to be engaged in activities that are not in the
larger benefit of the organisation.
5. Suppression of democratization in work place: Corruption often suppresses the
democratic rights and representation of employees in bodies that would promote the
latter’s collective interest. Tempting and bribing the union leader, breaking the strike
by unethical means, etc.
6. Safety and Health: HRM executives have the responsibility to provide a safe and
conductive environment at the work place. Accident injuries and illness are very
common in the very nature of some jobs. In many cases serious attention is not paid
by the HR person, which is unethical.
7. Performance Appraisals: It is another area which generates unethical practices from
executives. The objective of performance review is not only to offer the top
 Unit-6: Management Ethics 6.7
management an honest and ethical assessment of employee, but also to help the
employee improve their efficiency for developing the organization.
8. Other Issues: Similarly there are ethical issues in HR that pertain to restructuring and
layoffs and employee responsibilities. There is still a debate going on whether such
activities are ethically permitted or not. Layoffs, for example, are no more considered
as unethical as they were thought of in the past.
Ethical Management Programmes:
Ethics Management Programs are designed by an organisation or an employer as an
attempt to have formalised structures for ensuring the organisation is perceived as fair,
honest, responsible and just. Ethical programs globally are designed keeping four things in
mind:
1. Considering oneself and the organisation as part of the larger social framework.
2. Considering the development and welfare of others (internal and external customers)
to the extent possible.
3. Respecting the traditions / rituals (organisational diversity) of others.
4. Evaluating a situation objectively and the consequences thereof.
Many of you may ask why we need ethics management programs when you already
have policies and procedures in place that define behavioural standards. Ethics programs are
designed to ensure that there is no deviation from the standards laid down and also to ensure
that employees are fair and honest in their conduct to the organisation.
ETHICS IN FINANCE
Involvement of finance requires ethical conduct. Wherever there is involvement of
money it requires accountability and transparency. Maintaining fairyism in the business is
maintaining ethics in finance. Nowadays, when financial markets are growing, chances of
occurrence of fraud is also increasing. Growth and misuse often goes parallel. Today’s world
is very competitive and consumers are much aware about the market information. However,
not all the investors are fully aware of all information. This inequality creates space for
brokers, stock analyst and other financial expert or advisor to rule according to their own.
This situation proves fruitful for brokers and agents.
The ethics of financial and accounting practices as prevalent at present need
significant attention. People invest their savings in different sources to get returns. They trust
the sources and think that their money will be safe with them. As finance deals directly with
money, practicing of ethics have become very important aspect.
Professional in the financial sector must bear in mind that most unethical actions are
at the individual level and are of individual choice. The codes of ethics in finance are:
a) Protecting the financial interest of clients.
b) Performing transaction with high transparency.
c) Maintaining confidentiality about the information available.
d) Not recommending the products which are not suitable.
e) Use only that information which is regulated by state and central bodies.
f) Industry should be high regularized to reduce frauds.
Principles of Ethics in Finance:
1. Principle of Integrity: The principle calls upon all the finance professional to adhere
to honesty and straight forwardness while discharging their respective professional
duties.
Unit-6: Management Ethics 6.8
2. Principle of Objectivity: This principle requires the finance professionals to stick to
their decisions and they should communicate information fairly and objectively to the
end user in complete and transparent manner.
3. Principle of Confidentiality: This principle requires practitioners of accounting and
financial management to refrain from disclosing confidential information related to
their work.
4. Principle of Professional Competence: Finance professionals have a need to update
their skills from time to time for the competitive environment.
5. Principle of Professional Behaviour: This principle required the finance
professionals to comply with relevant laws and regulations and avoid such actions
which may result into discrediting the profession.
Financial Markets:
Financial Markets are those markets where activities related with finance are traded
like currencies, commodities and financial instruments such as stock, bonds, future, option,
swap and derivatives etc. Financial markets are in the form of organized market such as:
Stock Exchanges; Bond Market; Currency and Commodity Market; Future and Option
market, etc.
Financial Markets are required to be more transparent as they deal in large with
money of public. Transaction in these markets is generally done face to face between buyer
and seller, through middleman or broker. Fairness is to be the most essential feature of these
markets. These markets run on certain moral rules, ethical procedures and expectation of
moral behaviour. The main element of fairness is prohibition of fraud and manipulative
activities. These fair rules and procedures are framed in such a manner to support fairness in
dealings which is generally expressed as Level Playing Field. This level playing field is often
molded by certain dominant and reinforcing factors like:
 Unfair trade practices like manipulation and fraud,
 Unequal information or asymmetrical information,
 Bargaining powers,
 Resources,
 Unfair conditions or unlevel playing field.
Ethics in Financial Markets:
Some regulatory framework authorities are provided with law for financial markets.
The Securities Act 1933 and The Securities Exchange Act 1934 with their amended rules
proved to be the main regulatory framework for markets in securities. Ethics in financial
markets can be judged through the following points:
1. Equity and Efficiency: Essential feature of market is efficiency. Efficiency can be best
judged when there is maximum output from minimum input. Efficiency creates
confidence and builds trust of participants. Efficiency and fairness in capital markets
ensures maximum participation of people.
2. Fairness in Markets: Fairness is not merely a practice of preventing losses. Playing in
markets means sometimes losses and sometimes gains. Sometimes gain of others is a loss
of another. Fairness is promoted to avoid malpractices but not to avoid losses. Proper
regulation of financial markets through regulatory authorities protect not only individual
investor but also general public in large. Unfairness can be in many ways:
a) Fraud: Generally, fraud occurs during buying and selling of securities through
making false statement of material fact, omitting a fact that can lead decision in
other way or employing any practice which will lead to fraud or malpractice. In
simple words fraud can be defined as willful misrepresentation of material facts.
 Unit-6: Management Ethics 6.9
b) Manipulation: Manipulation means buying or selling of securities with Intention
of creating wrong direction about it so that other investors can get mislead by this
price movement. Such manipulations are very common in capital markets. Not all
the investors are fully aware about all the existing facts of capital markets. This
unawareness creates much space for such manipulative practices.
c) Equal Information: Rules and regulations are meant to be equal for everyone.
Competition is said to be fair and healthy if parties involved are of same level. We
can say that competition participants with unequal information are widely
regarded as unfair. Financial markets are full of asymmetrical information.
Possessing equal information could be a myth in financial markets.
d) Equal Bargaining Power: Bargaining power of both buyers and sellers may be
relatively same or equal. Those agreements which are formed on the arm’s length
bargaining can be said to be fair and irrespective of their actual result or output.
Unequal bargaining power can be due to many reasons:
i. Resources: Large investors or wealthy investors have better opportunities
and options for investment rather than poor investors. Wealthy investors
can make their investments more diversified which make their outcome
higher. They are in good position of bearing risk which results in greater
return. Investors can also earn through arbitrage which is not possible for
small investors.
ii. Processing Ability: Not all the investors are aware of every information of
capital markets. This is the situation of unequal information. But
sometimes after having knowledge about current position of capital
market, individual investor may not be able to process well the acquainted
information. This is because of trader’s processing ability.
iii. Vulnerabilities: Investors as human being posses certain weaknesses and
can be exploited. To save investors from such exploitations, consumer
protection legislations provides investors a ‘cooling off’ period which
gives them a chance to cancel their impulsive trading. Investors must go
through prospectus in details before investing in any particular security.
iv. Efficient Pricing: Efficient prices of securities should reflect the actual
values underlying them. Volatility is a feature of market which results in
mismatch of buyers and sellers in eventually self correcting. Higher degree
of volatility reduces confidence of investors. This results in reduction in
stock prices.
BUSINESS ETHICS AND LAW
The law is a formal set of rules and standards that are associated with significant
legitimate power and authority (to inflict punishment) in society. Ethics on the other hand, is
far less formal - sometimes not even written down set of values, which are to be observed
morally. Simply law is obedience to the enforceable whereas ethics is obedience to
unenforceable. Business is as old as human civilization. Laws came into existence much later.
But code of ethics began to take roots when man began to live in groups. Laws are nothing
but formal codification of ethics of the society.
Law and ethics have the common aim of seeking to define the boundaries of people
and improper behaviour. Law is another area where ethics has a large role to play. However,
the two are not identical. But laws are constrained by the infinite contingencies and
subjectivities of the situations to codify everything. Thus, ethics will continue to be there to
guide the mankind on to the right path.
Unit-6: Management Ethics 6.10
Code of Ethics:
These are statements of behavioural ideals, exhortations, or prohibitions common to a
culture, religion, traditional profession, corporations and trade associations. Codes combine
Philosophical with admonitions to avoid certain illegal actions and espouse certain moral
principles, especially those that elevate personal behaviour.
The Ten Commandments is the most well known code of ethics known worldwide. In
addition, we have all heard of Code of ethics in the form of Hippocratic Oath that all the
Doctors are supposed to take prior to being awarded permission to practise medicine. Poor
ethics can shape business productivity, so follow Ten Commandments of Ethical Business
Behavior:
1. Be honest, truthful, forthright, candid and sincere.
2. Have integrity: Strive to be scrupulous.
3. Keep your word and abide by the spirit as well as the letter of the law.
4. Maintain fidelity: Be faithful and never disclose confidential information.
5. Always be fair: Demonstrate a commitment to justice, with equal treatment of all.
6. Care for others: Be kind.
7. Respect others in every way.
8. Be a responsible citizen. Obey just laws and protest unjust ones.
9. Rigorously pursue excellence. Never be content with mediocrity.
10. Always be accountable: good leaders lead by example.
Ethics of legal profession:
The fundamental aim of legal ethics in the words of chief justice Marshall is to:
a) Maintain the honour and dignity of the law profession;
b) Secure a spirit of friendly cooperation between the bench and bar in promotion of
highest standards of justice;
c) Establish honourable and fair dealings of the counsel with his client opponent and
witnesses;
d) Establish a spirit of brotherhood in the bar itself;
e) Secure that lawyers discharge their responsibilities to the community generally.
Relationship between Law and Ethics:
Ethical values and legal principles are usually closely related, but ethical obligations
typically exceed legal duties. Examples of the application of law to ethics include
employment law, federal regulations, and code of ethics. The relationship between law and
ethics is as follows:
Law Ethics
Law and Ethics
Establishing a set of ethical guidelines for detecting, resolving and forestalling ethical
breaches often prevents a company from getting to subsequence legal conflicts.
Example:
Lying or betraying the confidence of a friend is not illegal, but most people would
consider it unethical. Speeding is illegal, but many people do not have an ethical conflict with
exceeding the speed limit. Law is simply codifying ethical norms.
 Unit-6: Management Ethics 6.11
Business ethical behaviour in law:
Employer’s legal obligations to the employees are:
1. To provide each employee a copy of the service rules and standing orders.
2. To provide each employee a copy of appointment letter or employment contract.
3. To pay the wages or salary on time.
4. To communicate any change in terms of service in writing to the employee.
5. To pay bonuses to eligible employees, under the provisions of Bonus Act 1965.
6. To deposit its contribution to the provident fund and ESI along with the contributions
of the employee.
7. To ensure security of staff and tools while on duty.
Unit-7: Business Communication 7.1
UNIT - VII
BUSINESS COMMUNICATION
REPORT WRITING
A report is an orderly statement of observed facts in a particular context. The term
report is derived from the Latin work “Reportare”, which means to “carry back”. A report,
therefore, is a description of an event carried back to someone who was not present on the
scene. A report presents information or authentic facts and data.
Definition:
According to C.A.Brown, “Report is a communication from someone who has some
information to someone who wants to use the information”.
Steps in Report Writing:
The following are the important steps in writing a report:
1. Defining the purpose and scope: Identification of the purpose and scope of the
report would help the writer to design his approach and arrange for the materials to be
collected.
2. Determining the audience: The write should find out to whom the report is to be
submitted. If it is an individual, the matter is not complicated, but if the audience is
large, the report writer should carefully find out what they know and what they do not
know.
3. Collection of data: The next step is the collection of data relevant to the study. There
are a number of methods and sources for collection of data. They are:
a) Methods of collecting the data:
 Observation method: It is defined as sensible application of sense organs
in understanding less explained or unexplained.
 Interview method: It should be noted that the interview conducted for
employment is different from that of research interviews. It has the
purposes depending upon the scope of the research.
 Questionnaire method: A questionnaire is a sheet or sheets of paper
containing questions relating to certain specific aspect, regarding which
the researcher collects the data.
b) Sources of data: Secondary data refers to the information or facts already
collected.
 Internal secondary data: “Data that originate within the firm for which
the research is being conducted are internal data. If they were collected for
some other purposes, they are internal secondary data.
 External secondary data: The second forms of secondary data are
external sources which are generally published and are available in
different forms and from different sources.
4. Analysis of the data: The mass of data collected shall have to be sorted out in order
to appraise accurately the position and evaluate the subject matter under report.
5. Making the outline: Now the report writer is ready for the next crucial step viz., the
organization of the materials he proposes to include in his report. If he starts
preparing the first draft straightaway, he is likely to be lost in the mass of data and it
will be difficult for him to adhere to sequence of his ideas.
 Unit-7: Business Communication 7.2
Structure / Format of Report writing:
1. Front matter:
a. Cover: The cover gives the first impression and therefore it should not be very
crowded with information. A cover is usually made of white or some soft, neutral-
colored card. It gives the report a neat appearance.
b. Frontispiece: Frontispiece means the logo of the company on the cover page of the
report.
c. Title page: The inner title page may have the following parts:
 Sub-title.
 Name of the author.
 Name of the authority for whom the report was written.
 Contract, project number.
 Approvals.
 Distribution list.
d. Copyright notice: If a report is published, copyright notice is given on the inside of
the title page as, no matter in full or part may be reproduced, except for review or
criticism) without the written permission of the author.
e. Forwarding letter: Forwarding letter is two types:
 Covering letter: The covering letter shows a record of transmission of the
report.
 Introductory letter: The introductory letter performs the function like
preface or introduction. It tells about the scope, contents and purpose of
the report briefly.
f. Preface: It contains almost all information which is given in the introductory type
of letter.
g. Acknowledgments: In this section we acknowledge any help whatsoever we
received from a variety of sources including books, articles in magazines, journals
and also help given by firms and persons.
h. Table of contents: The table of contents provides the outline of the headings and
subheadings of the report. It helps the reader to find quickly any section or part of
the report that specially interests him or her.
i. List of illustrations: If there are a large number of tables and figures then a
separate list of illustrations is given immediately after the table of contents. Its
layout is the same as that of the table of contents and it tells us about the number,
title, page reference of each illustration.
j. Abstract and summary: Reports contain a synopsis which is called as abstract or a
summary. An abstract tells in summary presents the report in a nutshell.
2. Main body:
a. Introduction: This is a good starting point for one who is not familiar with the
subject. It tells us about the subject and purpose of the project, gives t h e
background and points out the limitations or qualifications of the projects.
b. Discussion: The function of this element is to discuss or describe the main business
of the report. It contains almost all the illustrations. The main function of this part
is to present data in an organized form, discuss their significance and analysis and
the results that flow there from.
c. Conclusion: To give a sense of finality and completion to the process of discussion
the investigator makes certain remarks at the end of discussion. To describe
remarks at the end of a piece of writing is termed as conclusion.
Unit-7: Business Communication 7.3
d. Recommendations: Recommendations are clearly derived from the conclusions.
They act as the reasoning for decision-making.
3. Back matter:
a. Appendices: An appendix contains material which is needed to support the main
body of the report. It provides a convenient means of relieving the text and the
reader of any other detailed information.
b. List of references: It is essential to give credit to the works which they have used
or quoted in report. This is done by citing such works in the text and listing them at
the end of the report.
c. Bibliography: It is a serially numbered list of published and unpublished works
which are consulted for preparing a report. In the bibliography the entries are
recorded in alphabetical order whereas the references may be in the sequence in
which they have been cited in the text.
d. Glossary: A glossary explains the list of technical words used in the report.
e. Index: It is used to serve as a quick guide to the material in the report. It enables
the reader to locate easily any topic, sub-topic or important points of contents.
Advantages / Significance of Report writing:
1. Conveyor of information: Reports serve as conveyors of information throughout the
organization. It is by means of reports that the management is able to establish
channels of communication through which ideas, opinions, suggestions, orders and
commands flow in various directions.
2. Help management of review and evaluate office operations: Reports help
management to review and evaluate all office operations continuously. They help in
planning for future operations in a purposive way. Reports help in coordinating the
activities of different departments.
3. Tool for measuring performance: Reports are useful tools for measuring
departmental performance. The operational data from various departments are
presented in a meaningful form. This helps management to assess the performance of
each and every department.
4. Reports help in making desirable changes: Changes in business environment pose a
threat and challenge to business firms. Reports are prepared to analyze the factors
responsible for the changes. This helps in bringing desirable changes in business
policies.
5. Reports help in measuring the effectiveness of the organization: Reports are
prepared to measure the effectiveness of departmental operations, employee and the
management. This is also helpful in measuring the overall effectiveness of the
organisation.
CROSS-CULTURE COMMUNICATION
Cross-culture communication is also frequently referred to as intercultural
communication, is a field of study that looks at how people from differing cultural
backgrounds communicate, in similar and different ways among themselves, and how they
endeavour to communicate across cultures.
Cross-culture communication occurs when people from different cultures share
messages verbally, non-verbally or in writing. Because the individuals do not belong to the
same culture, they often do not share the same language. Their values, beliefs, customs or
 Unit-7: Business Communication 7.4
assumptions about what is and is not proper may also differ. Those differences add
challenges to the process of communications.
Ways to improve intercultural communication:
Following are some of the ways which make an effective cross-cultural communication:
1. Develop a sense of cultural awareness: The one of the important part is the self-
awareness for an effective intercultural communication. For this requirement, the
learner should convey to the people with whom of the speaker are desired to
communicate.
2. Learn to adapt: The communicator should ready to adjust the behaviour and act as a
flexible. It should be perform in such a way that the appropriate culture can be
targeted.
3. Be more tolerant: Different people do different things due to difference in culture,
the people should know the difference in norms. There should be known the different
norms with the different cultures.
4. Use international language: The languages which are going to use should be
international i.e., it can be understand by all people, neither the some of the listeners.
5. Avoid ambiguity: Ambiguous words should be avoid such as words which convey
some denotative meaning, idiomatic expressions etc.
6. Recognize differences: Everything should be done differently, some people may act
differ from other people. So, it does not mean as a negative or insufficient in nature.
7. Be a learner: When you are solving the problem with different culture people,
consider as a learner and act as a good opportunity to identify.
8. Listen carefully and empathize: Just imagine the position of the speaker, and
understand what they are conveying the information and make it understand as
possible. This lead the listener to understand more by communicating effectively by
each other.
9. Experience different cultures regularly: Moving and traveling to other place lead a
best part as an opportunity to learn the new and emphasize culture. Such as visiting
restraints, districts in the different areas, entertain as a great cultural learner.
PROBLEMS AND CHALLENGES
The problems and challenges of cross-cultural communication are:
1. Culture difference: The behaviour of an employee may differ from the other areas, due
to difference in culture. People/employees may behave differently due to impact on cross-
culture.
2. Culture shock: Culture shock involves anxiety and doubt caused by an overload of
unfamiliar expectations and social cues. Because of difference in culture, an employee
posted outside his/her home country will experience confusion disorientation and emotion
upheaval.
3. Managerial response: Managerial responses vary across culture. Specific behaviour
depends upon attitudes managers hold about employees. Managerial responses are
shaped by the culture of land.
4. Decision making across culture: Even people were to follow the same basic steps when
making decision, there exists widespread difference in the way people from various
cultures may go about doing so.
i. There exists culture difference with respect to who is expected to make
decision.
ii. Decision making has to do with the amount of time taken to make a decision.
Unit-7: Business Communication 7.5
Communication problem will arise because of alien language and unfamiliar body
gestures. In international perspective, two issues namely, language and co-ordination are
relevant.
a) Language: Some words are understood differently in different countries.
Ex: General Motors produced a car called the Nova, which did not sell well in Italy
where “nova” means “does not go”. In China, Coco-cola means “bite the head of a
dead tadpole”.
Colours and body language convey quite a different message in one culture
that in another. Thus, managers should be forewarned that they cannot take
everything for granted while dealing with people from another culture. They must
acquire familiarity with verbal and non-verbal languages of that culture.
b) Co-ordination: Communication across countries has another dimension namely,
the need for co-ordination. Ex: when an Indian executive talks to his/her
counterpart in Germany, he must not only contend with differences in language,
but also with a time difference of several hours.
PRSEENTATION SKILLS
Presentation is a form of face-to-face communication which helps to share the
information and guiding the actions within the organizations. A presentation stands out as a
speech made with the help of atleast one teammate on the basis of sufficient
materials/information gathered and processes for a significant business occasion and
delivered with the help of audio visual aids in order to make a positive impact on the
audience.
Definition:
A presentation is defined as, “A formal or set piece occasion with two usual
hallmarks, one, the team work and the second the use of audio visual aids”.
Structure of Presentation:
There are six distinctly demarcated parts of the presentation:
1. Introduction and the statement of the objectives: There are three main aims:
a) Telling the audience about the speaker introduction;
b) Making a clear statement of the objective of the presentation;
c) Creating a rapport with the audience.
2. Introduction of the main themes: Here briefly but clearly mention the main themes
of presentation. This part will provide a well defined plan which will save the time
and the audience will get attuned to what is to follow.
3. Development of the main themes: This is the main part of the presentation. Here the
themes already introduced by the speaker, is developed with the help of examples,
graphics, visuals, arguments, etc.
4. Integration of the themes: Here all the themes that have been developed earlier are
to be pulled together and woven into one composite whole.
5. Summary or conclusion: The main points are highlighted in order to create an
enduring impression.
6. Question answer session: Questions, doubts, objections, ought to be anticipated and
the speaker should ought to be ready with complete and clear response.
 Unit-7: Business Communication 7.6
Guidelines/Characteristics of Effective Presentation:
1. Consider the following suggestions in selection and organizing a speech:
i) Begin by selecting an appropriate topic i.e. one area of specialization.
ii) Organize the message (introduction, body, and conclusion).
iii) Consider an appropriate greeting (friends, ladies and gentlemen).
iv) Design the introduction to introduce the subject or theme.
v) Use indirect order presentation to persuade and direct order for other cases.
vi) Organize like a report divide and subdivide by factors.
vii) Select the most appropriate ending, by summarizing.
2. To improve the speaking, take these steps:
i) Work on the characteristics of a good speaker like confidence, sincerity,
friendliness and thoroughness.
ii) Know the audience before the presentation, analyse them looking at facial
expressions, size them up by looking for characteristics like sex, age and
education.
3. What the listeners see and hear affects the communication:
i) They seek the physical environment, personal appearance, walking, facial
expressions, etc.
ii) They hear the speaker voice, pitch, speed and vocal emphasis.
4. Use visuals whenever they help communicate:
i) Select the types that do the best.
ii) Organize visuals as a part of the message.
iii) Emphasize the visuals by pointing to them.
iv) Talk to the audience, not to the visuals and do not block the visuals.
5. Group presentations have special problems:
i) They require all the skills of individual presentation.
ii) They require extra planning.
iii) Reduce overlap and continuity.
iv) To coordinate questions and answers.
INTERVIEWS
Interview is the most widely used selection tool. The interview is a selection
technique which enables the employer to view the total individual and directly appraise
him/his behaviour.
Definition:
According to L.Brown, “It is a conversation between two people. It is a conversation,
yet, but directed to a purpose other than personal, social satisfaction.”
Thus, interview is an attempt to secure maximum amount of information from the
candidate concerning his suitability for the job under consideration.
Purpose /Objective of Interview:
The following are the basic objectives of interview
1. Job and employment interview to select a suitable candidate according to the
qualifications and requirements.
2. To hold interview for the evaluation of worked in an organization.
3. To gather information, companies conduct the interview.
4. To conduct a meeting with the employees to share the views and information.
5. To acquire the appropriate communication by conducting the question and answers
session.
Unit-7: Business Communication 7.7
Types of Interviews:
1. Competency-Based Interviews: It identifies the skills, abilities and talents required
for on-the-job performance. Here the candidates are interviewed based on what and
how they have done in the past.
2. Panel Interviews: Panel interviews are common for civil services such IAS, IPS or
IFS or even state services. In the panel, there will be subject specialists and
psychologists who will try to understand the candidate from different perspectives.
3. Personal Interviews: These are one-on-one interviews. If necessary, there could be
several rounds of interviews filtering the candidates at every state. The senior
executives conduct the final interview for those who are short-listed to select the best
candidates.
4. Sequential Interviews: This is a combination of earlier methods. It consist of a series
of panel or individual interviews with a purpose to give various individuals a change
to interview and access a candidate.
Interview Process:
Stage-1: Determine what information is required. What do you want to find out?
Stage-2: Decide on the method of data collection and the audience for the interviews.
Stage-3: Draft the interview schedule, considering content, wording, format and structure.
Stage-4: Test the interview schedule with colleagues and revise as necessary.
Stage-5: Conduct the interviews.
Stage-6: Transcribe interviews.
Stage-7: Analyze the transcripts.
Stage-8: Write up, present and use the findings.
VIDEO CONFERENCING:
Video conferencing, also called as teleconferencing, is the use of television video and
sound technology as well as computer networks to enable people indifferent location to see,
hear and talk with one another. It may eliminate the need for some travel for the purpose of
meeting and allow people who cannot ravel to visit face-to-face. It is of two types:
1. Point-to-point: a point-to-point video conferencing system is a two-person system.
Each participant has a video camera, a microphone, and a computer with speakers and
monitor. While they talk to each other, their voices are delivered over the speakers
and their images appear on each other’s monitor.
2. Multipoint: Multipoint video conferencing allows three or more participants
indifferent locations, each equipped with a videophone or what a large monitor along
with video camera, microphone and speakers to interact with one another.
Advantages of Video Conferencing:
1. Quick decision making: Video conferencing helps to share documents and
information at same time which leads to solve problem by making a quick decisions.
2. Interactive: It is very interactive due to face-to-face communication, without the
requirement of presents at a specific place.
3. Encourage collaboration: This technique is useful to communicate with colleagues
and clients, which specifically encourage the collaboration among them.
4. Marketing cost: This technique reduces the marketing cost of a film by making a net
wide marketing presentation.
5. Travel and time: It helps to eradicate the travelling to different place. The use of
online makes the time reduction also.
 Unit-7: Business Communication 7.8 Unit-8: Contemporary Management Practices 8.1

6. Customer satisfaction and retention: It helps the business to satisfy the clients and UNIT - VIII
customers requirements. This is done by fast solving problems and improves the CONTEMPORARY MANAGEMENT PRACTICES
relationship with the client.
MANAGEMENT INFORMATION SYSTEMS (MIS)
IMPORTANT QUESTIONS MIS refers broadly to a computer based system that provides managers with the tools
for organizing, evaluating and efficiently running their departments. It is the responsibility of
1. What is Report writing? Explain its significance and steps involved in writing a
MIS department to develop and assign the reporting formats of various functional
report?
departments such as production, finance, marketing, HR, etc.
2. Explain its significance of report writing and explain the structure in report writing?
Need for MIS:
3. What is cross cultural communication? Explain the ways of effective cross cultural
1. It is a means of communication where data are collected, processed, stored and
communication?
retrieved later for decision making.
4. What are the problems and challenges that are faced by cross cultural communication
2. It is used to transform data into useful information.
in organization?
3. It helps in finding out the requirement of manpower, wages, salaries, training,
5. Explain about presentation skills and its importance in the organization?
promotion, etc.
6. Briefly explain the concept of Interview?
4. It provides information relating to the product, price, promotion, sales, etc., of each
7. What is video conferencing? Explain its advantages?
department.
5. It provides sound information relating to financial health of organization.
Functions of MIS:
MIS is used to collect data, store and process data and present information to the
managers as follows:
Collect Data

Store and Process Data

Present information to managers

1. Collect Data: A database is an integral collection of data stored in one place and
information processing relating to customers, competitors, sales data, accounting data,
personnel records, etc.
2. Store and Process Data: Data are stored on magnetic tape or hard disk for
mainframe computer, floppy disks, CD’s, etc.
3. Present information to Managers: After collection of data, storing and processing,
the next step is to present information to the managers for their use.
Management Process in MIS:
The management process is executed through a variety of decisions taken at each step
of planning, organizing, staffing, directing coordinating and controlling.
Environment

Management

Goal Setting

Planning Organizing Staffing Directing Control Coordinating

Environment

MIS
 Unit-8: Contemporary Management Practices 8.2 Unit-8: Contemporary Management Practices 8.3

The objective of MIS is to provide the information for decision support in the process Pre-requisite inputs for MRP:
of the management. The typical MIS is based on four components: 1. Master Production schedule: It expresses the overall production plans. It is a
(a) Data gathering schedule which shows the number and timing of all items to be produced over a
(b) Data entry planning horizon.
(c) Data transformation 2. Bill of Material: It is a document which process for a given time, the list of materials
(d) Information utilization. required and unit consumption and location code. It contains listing of all raw
materials, parts, sub-assemblies.
MATERIALS REQUIREMENT PLANNING (MRP): 3. Inventory status file: It contains material on hand or on order, planned orders, lot
MRP is software based production planning and inventory control system used to sizes, safety stock levels and suppliers. It provides a computerized list of records of
manage manufacturing possesses. MRP is defined as a scientific method of planning for each material, physically held in the system.
requirement of raw materials, components, parts for meeting demand for finished goods. Advantages of MRP System:
Objectives of MRP System: 1. Customer service is improved
1. To ensure the availability of materials and products for production and delivery to 2. Increase in productivity
customers. 3. Reduction in lead time
2. To maintain the lowest possible level of inventory. 4. Reduction in work-in-process
3. To plan manufacturing activities, delivery schedules and purchasing activities. 5. Reduction in finished goods inventory
Disadvantages of MRP System:
Structure of MRP System: 1. Incorrectness in suppliers lead time
2. Incorrectness in inventory data
Sales 3. Inaccuracy in manufacturing lead time
Forecast 4. In accuracy in Bill of material structure
Customer Service parts
Order Requirements

MRP Output
JUST – IN – TIME (JIT):
Just-in-time production is “Philosophy that focuses attention on eliminating waste by
purchasing or manufacturing just enough of the right items just in time”. JIT is a Japanese
Master Production
production management philosophy of manufacturing based on planned elimination of all
Schedule
waste and continuous improvement of productivity.
Engineering Inventory When the components arrive as and when required in a manufacturing operation, it is
changes Status File called just in time. JIT is a new system of production based on elimination of waste. JIT
begins initially known as “Toyota production system”.
Goals of JIT:
Bill of
Computer

1. Increasing the organization’s ability to compete with rival firms and remain
Program

MRP
MRP

Material competitive over the long run.

System
2. Increasing the degree of efficiency within the production process.
3. Reduce the level of waste materials, time and effort involved in the production
Inventory process.
Transaction Components/Elements of JIT:
Data These elements can be grouped together into 3 categories:
Changes to Planning 1. People Involvement: Employees levels in the organisation as well as the following
MRP Output

Planned Orders Reports groups are involved.

Planned Order Performance a. Stakeholders and owners of the company.
Schedule Reports b. All employees and labour unions.
Primary Outputs Exception c. Management.
Reports d. Government.
2. Plant: Numerous changes occur about the plant which includes plant layout, multi
Secondary Outputs function workers, demand, pull production, kanbans and continuous improvement.
3. Systems: Systems within an organisation refer to the technology and process. Two
such systems are MRP (Material Requirement Planning) and MRP II (Manufacturing
Resource Planning). The system designed should allow production smoothing and
standardization of job leads to more uniform output rate.
 Unit-8: Contemporary Management Practices 8.4 Unit-8: Contemporary Management Practices 8.5

Benefits of JIT: SIX-SIGMA

1. Reduced setup time and wastes (defects, scrap, rework).
2. There is a massive reduction in work-in-process which results in lower space
requirements.
3. Stronger and more reliable working relations with suppliers.
4. Employees with multiple skills are used more efficiently.
5. Improved working relations between employees.
6. Fewer inventories of raw materials.
7. Increased flexibility, lower costs and higher productivity.
8. Improved quality and customer satisfaction.
TOTAL QUALITY MANAGEMENT (TQM):
TQM is the process of integration of all activities, functions and processes within an
organization in order to achieve continuous improvement in cost, quality, function and
delivery of goods and services for customer satisfaction.
Definition:
TQM is the quality of features of characteristics of a product or service that bears on
its ability to satisfy customers – American Society for Quality control.
TQM can also be defined as creating an organizational culture committed to the
continuous improvement of skills, teamwork, processes, product, service quality and
customer satisfaction.
Principles of TQM:
1. Prevention: Prevention is better than cure. In the long run, it is cheaper to stop
defects in products than trying to find them.
2. Zero defects: The ultimate aim is no or zero defects or exceptionally low defect
levels if a product or service is complicated.
3. Getting things right first time: Better not to produce at all then produce something
defective.
4. Quality involves everyone: Quality is not just the concern of the production
department. It involves everyone, including marketing, finance and human resources.
5. Continuous improvement: Businesses should always be looking for ways to
improve processes to help quality.
6. Employee involvement: Those involved in production and operations have a vital
role to play in spotting improvement opportunities for quality and in identifying
quality problems.
Six-Sigma is a set of practices developed by Motorola to systematically improve
processes by eliminating defects. A defect is defined as non-conformity of a product or
service to its specifications. Six sigma focus on:
1. Continues efforts to reduce variation in process outputs.
2. Manufacturing and business process can be measured, analyzed, improved and
controlled.
3. Succeeding at achieving sustained quality improvement.
A six-sigma process is one in which 99.99966% of the products manufactured are
statistically expected to be free of defects (3.4 defects per million). It is a registered service
mark and trademark of Motorola.
Approaches of Six-Sigma:
There are two approaches for achieving six-sigma:
1. DMIAC
2. DMADV
1. DMIAC: is used to improve an existing business process. The basic methodology
consists of 5 steps:
a) Define: the process improvement goals that are consistent with customer demands
& enterprise strategy.
b) Measure: the current process and collect relevant data for future comparison.
c) Analyse: to verify relationship and causality of factors.
d) Improve or optimist: The process based on the analysis using techniques like
design & experiments.
e) Control: to ensure that any variances are corrected before they result in defects.
2. DMADV: is used to create new product or process design for predictable, defect-free
performance. It has 5 steps:
a) Define: the goals of the design activity that are consistent with customers
demands & enterprise strategy.
b) Measure: and identify product capabilities, product process capability and risk
assessments.
c) Analysis: to develop and design alternatives, create high-level design and evaluate
design capacity to select best design.
d) Design details: optimize the design and plan for design verification.
e) Verify: the design, implement production process & handover to process owners.

Benefits of TQM: Sigma level DPMO Yield (%) Competitive level

1. Customer satisfaction oriented benefits: One 6,90,000 30.9 Non-competitive
a. Improvement in product quality, design and service Two 3,08,537 69.2 Non-competitive
b. Improvement in market place acceptance Three 66,807 93.3 Industry Average
c. Improvement in production flow Four 6,210 99.4 Industry Average
d. Improvement in employee morale Five 233 99.98 World class
e. Improved quality and productivity
Six 3.4 99.99966 World class
2. Economic improvement oriented benefits:
a. Reduction in operating costs
Six-sigma level indicates that the product produced or service delivered is 99.99966%
b. Reduction operating losses
defect free. This means that only 0.00034% times the product or service delivered is defect
c. Reduction in field service costs
prone. When multiplied by one million it comes to 3.4 defects per million opportunities
(DPMO). Thus, a process is said to be at six sigma level provided the process is not
producing more than 3.4 DPMO.
 Unit-8: Contemporary Management Practices 8.6
CAPABILITY MATURITY MODEL (CMM):
It is a collection of instructions an organization can follow with the purpose to gain
better control over its software development process. Though the CMM comes first from the
field of software development, it is used as a general model to aid in improving
organizational business processes, for example in software engineering, project management,
software maintenance, information technology, etc.
The CMM has been used extensively worldwide in government offices, commerce,
and industry and software development organizations.
Levels of CMM:
There are 5 levels of CMM.
Level 1 – Initial: At maturity level 1, processes are usually adhoc and the organization
usually does not provide a stable environment.
Level 2 – Repeatable: At this maturity level, software development successes are repeatable.
The organization may use some basic project management to tract cost & schedule.
Level 3 – Defined: At this maturity level, processes are well characterized and understood
and are described in standard procedures, tools and methods.
Level 4 – Managed: It can identify ways to adjust and adapt the process to particular projects
without measurable losses of quality or deviations from specifications.
Level 5 – Optimizing: It focus on continually improving process performance through
incremental & innovative technological improvements.
Structure of CMM:
The structure of CMM involves the following aspects:
1. Maturity levels: A 5–level process maturity continuum – where the uppermost 5th
level is a notional level is a notional ideal state where processes would be
systematically managed by a combination of process optimization and continuous
process improvement.
2. Key process areas: It defines a cluster of related activities that, when performed
together, achieve a set of goals considered important.
3. Goals: The goals of a key process are summarize the states that must exist for that
key process area to have been implemented in an effective and lasting way.
4. Common features: They include practices that implement and institutionalize a key
process area like ability to perform, commitment to perform, measurement, analysis
and verifying implementation.
5. Key practices: It describes the elements of infrastructure and practice that contribute
most effectively to the implementation and institutionalization of key practice areas.
SUPPLY CHAIN MANAGEMENT (SCM):
SCM is the process of planning, implementing and controlling the operations of the
supply chain with the purpose of satisfying customer’s requirements as efficiently as
possible. It spans all movement and storage raw materials, work-in-progress inventory and
finished goods from point-of-origin to point-of-consumption.
Definition:
According to Christopher, “SCM is the management of upstream and downstream
relationship with suppliers and customers to deliver superior customer value at less cost to the
supply chain as a whole”.
Unit-8: Contemporary Management Practices 8.7
Objectives of Supply Chain Management:
1. Service orientation: The very basis of supply chains has been to provide superior
customer service. Service is all about the value that the customer gets, which in turn
depends upon his own perception about what constitutes value.
2. Systems orientation: Systems orientation is at the core of the existence of any supply
chain. Synergy due to cooperation and co-ordination is the main gain of a supply
chain.
3. Competitiveness and Efficiency: It provides value to the customer while being
competitive. Competitiveness is essential for it to healthily sustain itself in order to be
able to provide increasing value to its customer.
4. Minimizing the time: Efficient supply chain in an organization reduces the time
required for converting orders into cash. So, there is minimal time lag and increase in
productivity of the organization.
5. Minimizing work-in-progress: Supply chain minimizes total work in process in
supply
Functions /Activities of SCM:
1. Supply management: The goal is to reduce the number of suppliers and get them to
become partners in business in a win relationship.
2. Inventory management: The goal is to shorten the order-ship-bill cycle. When a
majority of partners are electronically linked, information mailed in the past can now
be sent instantly.
3. Distribution management: The goal is to improve documents related to shipping.
Paper work that took days to complete in past can now be sent in moments and
contain accurate data, thus allowing improved resources planning.
4. Channel management: The goal is to quickly disseminate information about
changing operational conditions to trading partners. Electronically linking production
with their distributor and reseller networks eliminates thousands of labour hours per
week in the process.
5. Payment management: The goal is to link the company and the suppliers and
distributors, so that payments can be sent and received electronically.
6. Financial management: The goal is to enable global companies to manage their
money in various foreign exchange accounts. Companies must work with financial
institutions to boost their ability to deal on a global basis.
ENTERPRISE RESOURCE PLANNING (ERP)
The Enterprise Resource Planning, which originally implied systems design to plan
the use of enterprise wide resources. ERP is a way to integrate the data and processes of an
organization into one single system. It is the software for running a business.
Definition:
According to American Production and Inventory Control system - ERP is an accounting
oriented information system for identifying and planning the enterprise wise resources to
make, ship and account for customer orders.
ERP System:
The ERP system delivers a single database that contains all data for the software
modules, which would include:
1. Manufacturing / Production system: It deals with manufacturing and planning of
product. It provides information that helps in execution of the entire operations. It
includes quality control, bills of material, engineering, workflow management, cost
management, etc.
 Unit-8: Contemporary Management Practices 8.8 Unit-8: Contemporary Management Practices 8.9

2. Financial system: The financial module is the basic for all ERP modules Definition:
implemented by an organisation. It collects the information from different According to Armstrong, “Performance management is a means of getting better
departments and generate ledger, train balance, balance sheet and other financial results from the organization, teams and individuals by understanding and managing
reports. performance within an agreed framework of planned goals, standards and competence
3. Human resources planning: Human resource module maintains all the details of requirements”.
employees such as attendance, salary, performance, promotion, and contract Performance management is about enabling managers to perform better in order to
information. succeed. It focuses on the performance of an organization, a department, employee, or even
4. Marketing system: It allows the organizations to utilize marketing resource the processes to build a product or service, as well as other areas.
efficiently. The marketers can use this information to analyse, plan, execute and Purpose of Performance Management:
measure all the activities of the marketing. 1. Informational purpose:
5. Customer relationship management: CRM is a term applied to processes a) To let an employee know his performance compared with job standards.
implemented by a company to handle its contact with its customers. It includes sales b) To identify employees needing performance improvement.
and marketing, service, commissions, customer contact and call center support. c) To assist in identifying special talents and abilities.
6. Project management: It includes costing, billing, time and expense, activity 2. Motivational purpose:
management. a) To provide financial rewards or recognition for well done job.
7. Data warehouse and self service: It includes the interfaces for customers, suppliers b) To work out plans to solve performance problems.
and employees. c) To encourage initiative, creativity among the employees.
3. Developmental purpose:
Managers a) To identify individual employee training needs.
b) To identify individuals for potential development.
c) To help the employee strengthen current performance.
4. Managerial purpose:
a) To translate organizational goals into individual objectives.
Performance Finance b) To communicate management’s expectations regarding employee
Reports performance.
c) To provide feedback to the employees about job performance.
Operations
Functions of Performance Management:
1. Managing the organization: It is about managing the organization. It is a natural
Customer Sales Central process of management, not a system or technique.
Suppliers
Database 2. Meaning within the context of business: It is also about managing within the
context of the business i.e. its internal and external environment.
3. Concerns Everyone: It concerns everyone in the business not just managers. It
Inventory believes that the responsibility is shared between the managers and team members.
Service parts 4. Involves customers: Managers should regard the people who report to them as
Planning
& Repairs customers for the managerial contribution and services they can provide.
HRM 5. Involves managers and their teams: Managers and their teams joints are
accountable for results and are jointly involved in agreeing what they need to do and
they do it, in monitoring performance .

BUSINESS PROCESS OUTSOURCING (BPO)

Employees BPO means handing over the work of the company to an outside company or agency
for completion on contract basis. BPO is a source of outsourcing that involves the contracting
of the operations and responsibilities of specific business functions or processes to a third-
PERFORMANCE MANAGEMENT
party service provider.
Performance management is the process of creating a work environment or setting in
Definition:
which people are enabled to perform to the best of their abilities and talents. It is a managerial
According to Gartner,” BPO is the delegation of one or more IT intensive business
process which consists of planning performance, managing performance and rewarding
processes to an external provider that in turn owns administer and manage the selected
performance.
process based on defined and measurable performance criteria”.
 Unit-8: Contemporary Management Practices 8.10
Types of BPO:
BPO is classified on two basis:
1. Work point:
a. Back office outsourcing: It involves internal business functions such as
billing or purchasing.
b. Front office outsourcing: It includes customer related services such as
marketing or technical support or call centers.
2. Destination point:
a. Offshore outsourcing: The outsourcing is done with a contract made from
foreign companies.
b. Near-shore outsourcing: The outsourcing is done with a contract made from
neighbouring country.
c. On-shore outsourcing: The outsourcing is done with a contract made with
the companies own country.
Functions of BPO:
1. Data processing: BPO transforms the data into readable and understandable form.
Data is easily transformed from one company to another company.
2. Basic data entry: BPO makes only basic data entry. As data is processed, only the
relevant data is entered and irrelevant things are not entered.
3. Provides technical support: BPO provides technical supports to the companies at
low cost. Outsourcing provides services like accounting, production operations, sales,
security, etc at cheaper rates.
4. Provides E-mail support to its customers: Outsourcing is a flexible process for its
customer. The customers can give feedback to the company about their product or
service by sending an e-mail to the company.
5. Setting up of a bank account: A bank account is set-up by an outsourcing company
so that there can be no delay in transferring the funds from one company to another
company.
The functions covered under BPO:
1. Customer Service: Field service, Dispatch, Tele-support, Customer Info system.
2. Information Technology: Maintenance, Training, Application Development,
Consulting, Reengineering.
3. Finance and Accounts: Payroll processing, Purchasing, Transaction processing,
General Accounting.
4. Human Resource: Relocation, Worker’s compensation, Recruitments, HR Info
system.
5. Sales and Marketing: Direct mail, Advertising, Telemarketing, Field sales.
6. Administration: Printing, Reprographics, consulting, Mail room.
Advantages of BPO:
1. Saves cost: Many companies enter into outsourcing process or it reduces cost on
resource, labour, management, etc.
2. Provides quality service: Outsourcing is a specialized process and provides better
quality of service to the customers.
3. Feasibility for customers: If the customer is not satisfied by the seller, outsourcing
helps the customer to change their seller if required.
4. Primary emphasis on core competencies: As primary emphasis is given to the core
competencies better service and products can be bought in the market.
5. Time saving: Outsourcing provides both on-shore and off-shore outsourcing which
results in time saving.
Unit-8: Contemporary Management Practices 8.11
BUSINESS PROCESS RE-ENGINEERING (BPR)
Business process re-engineering is also known as Business Process Redesign (BPR).
BPR is a management approach aiming at improvements by means of elevating efficiency
and effectiveness of the processes that exist within and across organizations.
Definition:
According to Hammer and Champy,” The fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements in critical contemporary
measures of performance such as cost, quality, service and speed”.
BPR derives its existence from different disciplines and four major areas are
identified to change in BPR i.e. organization, technology, strategy and people.
Process of BPR:
Hammer and champy suggested the following steps:
1. Develop business vision and process objectives: The BPR method is driven by a
business vision which implies specific objectives such as cost reduction, time
reduction and output quality management.
2. Identify the business processes to be re-designed: This involves identifying critical
or bottleneck processes and envisioning the steps to avert shortcomings in them.
3. Understand and measure the existing processes: This involves identifying current
problems and setting a base line for future improvements.
4. Identify information technology levels: This involves bringing those involved in the
process to a brainstorming session to identify new approaches.
5. Design and build a prototype of the new process: This includes implementing
organizational and technical aspects.
Advantages of BPR:
1. Satisfaction: The advantage of reengineering is that the work becomes more
satisfying because the workers get a greater sense of completion, closure and
accomplishment from their jobs.
2. Increase Effectiveness: All processes are completely monitored under the strict
control of the management. It helps to improve the efficiency.
3. Reduces Cost: With proper management of processes, improved efficiency and quick
delivery of products to the buyers, the overall product costs are reduced resulting in
cost saving in long run.
4. Growth of Business: Implementation of BPR results in the growth of the present
business thus enabling the emergence of new businesses within the same organization.
BENCHMARKING
Benchmarking means measuring one’s own performance against that of competitors’
performance. Benchmarking is the continuous process of measuring products, services and
practices against the toughest competitors or those companies recognized as industry leaders.
Definition:
According to Pepper, Webster and Jenkins, “Benchmarking is a way of comparing a
product or process against other, with reference to specified standards”.
Process of Benchmarking:
The following are the steps are involved in the benchmarking process:
1. Identify the problem: The first step is to identify the functions or practice areas.
Because benchmarking can be applied to any business process or function, a range of
research techniques may be required.
 Unit-8: Contemporary Management Practices 8.12 Unit-8: Contemporary Management Practices 8.13

2. Identify the targets: In this stage it is important to know which companies can be Framework of Balanced Scorecard:
taken as reference. To look for the very best industry in any industry or country. The balanced scorecard is a combination of financial and non-financial measures
3. Identify measures and best practices in the target company: As the target which are directly connected with the organization’s mission, vision and strategies of the
companies are identified, the next is to identify the reason about which company is organization. It consists of four perspectives:
performing best in the selection regional process, how the process is done, how it is 1. Financial perspective: It encourages the identification of a few relevant high-level
measures, how it is used in the process, etc. financial measures. In particular, designers were encouraged to choose measures that
4. Implementation new and improved practices: This is the final step for the helped inform the answer to the question “How do the firm look to shareholders?”
implementation of the best practices process. After identification, the next is to plan. 2. Customer perspective: It encourages the identification of measures that answer the
The plan is based on how to implement the same in the company and how the question “How do customers see the firm?”
implementation needs to start. 3. Internal Business process perspective: It encourages the identification of measures
that answer the question “How well does the firm manage its operational process?”
Types of Benchmarking: 4. Learning and Growth perspective: It encourages the identification of measures that
The Benchmarking is classified into four categories: answer the question “Can the firm continue to improve and create value?” This
1. Internal Benchmarking: It is performed within one organization by comparing the perspective also examines how an organization learns and grows.
practices and performance of similar business units or business process located at
same or different places.
2. Competitive Benchmarking: It involves the investigation of competitor’s services,
processes, practices, styles and products.
3. Functional Benchmarking: It is the application of process benchmarking that
compares a particular business function in two or more organizations.
4. Best Practice or Generic Benchmarking: This approach initiates great opportunities
for companies to collaborate and exchange information as it can only be advantageous
to both parties.
Advantages or Importance of Benchmarking:
1. Information useful for training of the employees: The information gathered from
benchmarking process is used for training the individual employees of the
organization.
2. Known about competitors: Through benchmarking, the organizations can become
aware about their competitors who are performing more effectively than their own
performance.
3. Understand the strength and weakness of companies: It helps the companies to
know and understand their own strengths and weakness in its processes.
4. Helps in taking corrective measures: Benchmarking not only helps the companies
in identifying performance gaps but also helps them to take up corrective measures.
5. Helps in redesigning: With the help of benchmarking the companies can redesign
their existing products and services and can match or even go beyond the expectations
and desires of their customers. Advantages of Balanced scorecard:
1. Includes short and long run objectives: Balanced scorecard emphasizes on short-
BALANCED SCORECARD run as well as long-run objectives while implementing strategies.
Balanced scorecard is a new approach to strategic management developed in 1990 by 2. As per financial and non-financial perspectives: Balanced scorecard takes into
Robert Kaplan and David Norton. The balanced scorecard is a management technique use to account both financial and non-financial perspectives to measure or evaluate
identify and improve various internal functions and their resulting external outcomes. organizational performance.
Definition: 3. Concentrate on factors to achieve goals: Organizations using balanced scorecard
According to Horngren, Sundem and Stratton,”The balanced scorecard is a framework will concentrate more on the factors like critical success factors which
performance measurement system which creates a balance between financial and operating helps in achieving the goals.
measures, connects performance to rewards and gives explicit recognition to the delivery of 4. Helps in setting individual or organizational goals: Balanced scorecard helps the
stakeholder’s interest”. organization in setting individual and departmental goals that are associated with the
strategy.
5. Implementing organization vision and strategy: Balanced scorecard is a powerful
mechanism used to implement the organization’s vision and strategy into action plans.
 Unit-8: Contemporary Management Practices 8.14

IMPORTANT QUESTIONS
1. What is a supply chain? Explain decision phases of MIS?
2. Explain the purpose of balanced score card?
3. Explain the five levels of CMM?
4. Explain the two methodologies of Six Sigma (DMAIC and DMADV)?
5. Write a short note on the following:
a. Materials Requirement Planning
b. Six Sigma
c. Capability Maturity Model (CMM) Levels
d. Business Process Outsourcing (BPO)
6. Write a short note on the following:
a. Just-in-time system
b. Enterprise resource planning
c. Total quality management
d.