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INDUSTRIAL MANAGEMENT MODULE

CODE: 539/S05
SECTION 1: INTRODUCTION
DEFINITIONS
1. INDUSTRY
Can be defined as a branch of trade, a way of classifying business that has something in
common. Firms are included or excluded from an industry class on the degree of similarities in
the product they make or sell and types of customers they service and market place in which they
compete. E.g. steel, shipping, wood, automotive industries.
2. ORGANISATION
Chester Bernard sees an organisation as an arrangement of inter-dependent parts each having a
special function to the whole. The organisation is viewed as a set of stable relations deliberately
created to serve a purpose. A social institution with character consciously created.
3. MANAGEMENT
A process consisting of activities undertaken by one or more persons to coordinate the work of
other persons to achieve results not achievable by any one person as an individual. It is a process
of integrating resources (human & material) and tasks towards achievement of stated targets. It is
working with and through people to achieve goals.
4. GOALS
Goals are desired states of affairs or preferred results that organisations attempt to achieve. Goals
should reflect a desired end result of organizational actions. Goals, objectives, and purposes
could be considered interchangeably. However some scholars consider objectives as means of
achieving goals. Objectives are short term aims of the organisation. They are per week or per
month. Goals are ultimate long term results one wants to achieve. Goals are influenced by the
operations of the key managers of the organisation. The aspirations of managers help to form the
concept of what they should do. It is the vision or dream of management which enable
achievement or attainment of goals set.
i.

IMPORTANCE OF GOALS

.they guide and direct efforts of individuals and groups in an organisation

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.they affect how organization plans and organize its activities.


.they motivate individuals to perform efficiently and effectively
.they form the basis for evaluating and controlling the activities of the organisation goals like
plans and motivated workers, work towards the achievement of some end result. Evaluation and
control indicate attempts to reach a target.
ii.

CRITERIA FOR GOOD GOALS

.clarity and specific


Goals should be clear and specific concerning desired outcome. Clear and specific goals are
known to all workers while non specific goals create confusion and conflict amongst workers.
.timing
A particular time or date of anticipated achievement or goal achievement is required.
.consistency
Goals must be logically consistent with respect to external environment and internal resources
because they indicate whether the organisation has taken the right path.
.difficulty and achievability
It is important for goals to be difficult enough to stimulate added effort by workers, but not so
difficult that they create frustration. Easily achievable goals may not only be quickly forgotten by
workers but may lead to complacency and neglect.
iii.

TYPES OF GOALS

Profitability
The ratio of profits to sales, profits to total assets, profit to capital (net worth). Usually expressed
as a net income earnings per share and other similar ratios.
Productivity
Measured using ratios of output to input. Other factors being equal the higher the ratio, the more
efficient is the use of inputs. The ratio of value added to sales and to profit.

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Marketing
Measure performance relating to products, markets, and distribution and customer service
objectives. Well managed firms measure performance relating to market share of existing
products, sales volume, number of outlets carrying the product and number of new products
developed.
Physical and Financial
Reflect the firms capacity to acquire resources sufficient to achieve its objectives. Liquidity
measures such as current ratio, working capital turnover, acid test ratio, debt equity ratio,
accounts achievable and inventory turnover.
Innovative and Employee attitude and Social responsibility
Creativity and discovery however not so predictable or identifiable or measurable.
5. MANAGEMENT BY OBJECTIVES
The Underlying Premises
Odiorne's concept of management by objective is based on an underlying premise that any
system of management is better than no system at all.
A secondary premise states that to be workable, any management system must bridge the ga+p
between the theoretical and the practical.
A third important premise establishes that the appraisal of managerial performance is not an
activity autonomous from other activities of the firm. In other words, it regards the appraisal
process as only one of several sub-systems operating within the confines of a goal-oriented
management system.
Before proceeding into a discussion of the basic elements of the management-by objective
system several statements of condition seem warranted. Each of the following statements

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relates to the environmental conditions with which managers are confronted and establishes the
setting for later determining the practical relevance of the management-by objective system:
A. Because the economic environment within which agribusiness firms operate has changed
so drastically in recent years, a whole new set of requirements has been placed on
companies and their managers.
B. The preliminary step in the management-by-objective system dictates that managers
identify, in some manner, organizational goals designed to meet the new requirements
noted in A, above.
C.

Immediately following the identification of company goals, management must have


available to it an orderly procedure for distributing or allocating responsibilities which
are directed toward achieving those goals.

D. In the practical world of agribusiness management, managerial behavior must become


predominant over managerial personality. Furthermore, in the final analysis, results of
the behavior (measured against established goals) become the basic criteria for good
performance evaluation.
E. Total management staff participation in goal-setting and decision-making is recognized
for its social and political value even though its impact on production levels may be
negligible.
F.

There exists no one best system of management. Moreover, since managerial activity is
dependent, to a large degree, on each manager's view of specific goals and the total
economic system, his actions must be discriminatory.

By now you should note that each of the above conditions appears consistent with basic human
intuition. For example, the notion that management activity should be directed towards the
accomplishment of pre-established goals has considerable intuitive appeal. None of the
conditions are at variance with acceptable manager conduct from either a social, legal, or
common sense standpoint. Perhaps herein lies the secret to the success of Odiorne's concept.
Nevertheless, we have not yet progressed beyond some general philosophical considerations. To
do so, consider the basic elements of the proposed management system.
The Basic Elements

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In its briefest form, decision making system of management by objective contains the following
basic elements:
(1) Establish an objective before you begin;
(2) Collect and organize all of the pertinent facts;
(3) identify the problem and its causes;
(4) Work out a solution and some options;
(5) Screen options through some decision criteria;
(6) Establish some security actions to enhance the probable success of the solution;
(7) Gain acceptance of the decision;
(8) Implement the decision; and
(9) Measure the results.
Each of the nine elements shall now be considered in more detail.
Step 1: Setting objectives: the first step in sound decision-making and systematic problemsolving is to define an objective. Why? In support of this first step, I would offer the following
evidence. In my contacts with the agribusiness industry I meet with many disgruntled managers
who feel they are not being properly rewarded for their efforts.
Cooperative managers, for example, claim their Board of Directors does not truly appreciate
managerial performance. In many such cases, the manager, himself, is most to blame because of
his failure to set an objective prior to taking action. Lacking the existence of an objective, the
Board of Directors has no basis upon which to judge a manager's effectiveness as good or bad.
Objectives are statements of expected outputs; they should be defined before inputs are released,
and they should be used by management to determine what inputs are to be used. Once
established, an objective becomes a convenient measuring stick for judging (and then rewarding)
managerial proficiency. Superior performance should no longer go without reward.
a modest taxonomy on this initial step by classifying and rating objectives con be as follows
(1) Regular or routine,

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(2)Problem-solving, and
(3) Innovative or improvement.
The regular or routine objectives are those described as relating to day-to-day chores which are
necessary for the firm's survival and stability. In the agribusiness industry, for example, a regular
or routine objective may be to obtain a monthly inventory report, file a yearly tax statement, or
conduct weekly maintenance checks on all plant equipment. The end result of achieving the
regular objective is that the firm maintains the status quo, i.e., no expansion or improvement in
the modus operandi results.
Problem-solving objectives are granted a somewhat higher rating. These are related to those
problems which arise as a result of the natural tendency for matters to get worse if left alone. For
example, a food processor may discover an increasing incidence of product contamination or
defectiveness. Management's objective in this case may be to uncover the reason for the
contamination or reduce defects to a specified level. Such objectives call for managerial
problem-solving skills of a higher order than routine objectives.
Innovative or improvement objectives are awarded top priority in our hierarchy.
These are the objectives which make things happen and rest on the assumption that the perfect
completion of routine activities and the rapid solution of unexpected problems just isn't good
enough. Innovative objectives specify quantum changes rather than rely on maintenance or
restoration. Examples of such objectives within the agribusiness industry might include:
Capture 25 percent of the total market by 1972;
Convert to computer processing of all customer accounts by next spring; or
Initiate and conduct a management training program.
In short, this third category differs from the first two in that innovative objectives connote action
decisions rather than reaction decisions.

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To summarize this first step in the management-by-objective system, therefore, the superior
manager is one who does all of his regular duties, solves his operational problems, and, in
addition, adds new ideas through the establishment of innovative objectives.
Step 2: Gather the facts: Facts should be verifiable and agreed-upon data. They should be
supported by some hard evidence to which all management staff should agree. A common
management deficiency is the inability to separate facts from opinions. This distinction is made
most difficult because of a characteristic of human nature, i.e., we all tend to attach to a fact our
own personal biases or hunches. For example, this headline appeared in the newspaper, Master
Sergeant Charged with Treason. Immediately upon reading this headline, several biased
assumptions began to develop in my own mind.
First, I assumed the sergeant was spying for a communist nation.
Second, I assumed the military was, no doubt, totally infiltrated by spies who will never be
uncovered. Yet, upon closer reading of the headline, I discovered only two facts:
(1) The person charged was a master sergeant; and
(2) The sergeant has only been charged with treason and not yet found to be guilty or innocent.
This illustration is really not as absurd as it may first appear. Every working day, managers
confuse facts with opinions, facts with personalities, facts with wishful fantasies, and facts with
fear of the unknown. The end result of this inability to separate fact from fiction is a system
whereby management by emotion precludes any system of management by objective.
Step 3: Identify the problem: The difference between that which currently exists and that which
you hoped would exist now or in the future comprises a problem. Assuming all of the routine
functions of your firm are being accomplished, the only remaining managerial function for
maintaining operations at a given level is to recognize problems when they arise and implement
the appropriate solutions.
Problems, however, do not always arise as a result of something gone wrong. They are
sometimes created in the mind of a decision maker, e.g., the manager may express an inward
restlessness with present levels of operations. In such situations the manager conceives a gap
between that which now exists and that which he wished would exist. This gap represents a
problem which is often overlooked in the agribusiness industry. Managers find themselves totally

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occupied by the so-called brush-fire problems arising from daily operational failures. Acting as
firemen, the managers have no time and little desire to be concerned about innovative problems.
Innovative problems arise as a result of management's attempt to alter (not maintain) a static
environment or compete in a dynamic one.
They often grow out of competition wherein the need for long-run survival places a premium on
new products, procedures, markets, and ideas. They may also result from technological
obsolescence, e.g., many managers are so busy solving equipment failure problems, and they fail
to notice a technological improvement which renders their current line of equipment obsolete.
People, like machines, also become obsolete. Most top managers display the ability to properly
identify problems associated with human obsolescence. But, others feel that as long as the
employee completes his task as well as he did twenty years ago, he is considered no problem.
Only top managers will realize that a problem does exist if the employees' performance over the
twenty years has failed to improve in response to training, experience, etc.
Step 4: Develop a solution and options: Before selecting what the manager believes to be the
optimum solution to a problem, he must develop several alternative solutions. First, management
should make a hard specification of the problem. The difference between a hard and soft
specification may best be defined as the difference between a tangible, measurable problem and
one which is vaguely identified, dubiously labeled, and poorly confined. In business, as in our
personal lives, we display more skill at soft specification of problems, e.g., it's a social problem
or a moral problem or a political problem. While such verbalizations place problems in
acceptable categories, they become detrimental to the development of workable solutions. To
eliminate the possibility of soft specifications, each alternative solution should be accompanied
by a statement of charge, i.e., a declaration as to exactly what the solution is supposed to rectify
and how. As a second step to solution development, management should describe the problem
being confronted in terms of end results desired, intervening variables (extenuating
circumstances), and root causes. Third, an attempt should be made to separate those root causes
which are fixed (unalterable) from those which are conditional (subject to management action).
This third step is particularly crucial to the agribusiness industry where, for example, a
processing problem may be caused by defective equipment (fixed) as well as by variations in the
quality of the raw product (conditional).Closely related to the third step, the fourth step calls for

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the separation of the vital from the trivial causes. The final step in solution development calls for
management to follow innovative processes in option generation. In short, this asks managers to
use their imaginations and not be constrained by standard solutions developed a decade ago and
used religiously ever since. Optimal solutions are rarely standardized -- no more so than are
problems in this dynamic economy.
Step 5: Screening option: In the simplified view of management, decision-making refers to the
singular, heroic action of choosing one alternative out of all those available. Choosing the
optimal solution from amongst several alternatives is no easy task and requires that each
alternative be properly screened prior to selection. The development of screening criteria
assumes that each alternative solution will be subjected to a standardized test of preferred
outcome. To simplify the development process, managers may wish to use the following
guidelines. Each option should be confronted with five questions. The answers to these questions
should assist management in selecting the optimal solution.
The questions are:
(1) What will each option contribute toward the attainment of the objective selected at the time
the system was installed?
(2) What about the cost of each option relative to its likely effectiveness?
(3) What is each option's feasibility?
(4) How much time will be required to implement each option?
(5) Are there any undesirable side effects associated with each option?
Step 6: Establish security action: When you are embarking for an afternoon drive in the
country you do not anticipate having a flat tire. Yet to guard against the consequences of the
unexpected, you do carry a spare. Similarly, when you are about to implement your choice of
alternative solutions, you do not anticipate failure. Yet it would seem wise to try and protect
yourself from the unexpected. These protective policies are often referred to as security actions.
Security actions are not uncommon to the agribusiness industry. Returning to the processing
illustration used earlier, management may decide that the optimal solution to the problem of
inadequate capacity is the replacement of the old plant equipment with more efficient versions.

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Yet, to protect himself against the consequences of an unprepared-for breakdown in the new
equipment, the older machines are retained and held in reserve. Many similar examples could be
found in other sectors of the industry. So long as security actions are not relied on too heavily,
they become highly complementary to sound decision-making.
Step 7: Gain acceptance: The ideal solution is one which best combines the needs of two sets of
requirements -- logic and acceptance. On this point, management experts divide into two
factions. One faction insists that the quality of a solution is dependent solely on its logical base,
i.e., its mathematical accuracy, its rigor, or its quantum efficiency. The other faction, which this
author supports, proposes that while logic is important, the ultimate success of a solution also
depends on its acceptance by those persons who have the ability to make even the most logical
solution fail. Acceptance, therefore, must become a vital component of management by
objective. Without it, even the best solutions will be poorly implemented and the objective never
attained. The methods of gaining acceptance are many and varied. There exists an increasing
amount of research evidence to indicate that people who participate in solution decisions that
affect them will accept and execute the solution more effectively than if it had been dictated.
Hence, the secret to acceptance appears to be the open involvement of all those who are to be
affected by the solution and its accompanying attainment of the objective.
Step8: Implement the decision: Now that the optimal solution has been selected and accepted,
the obvious next step is that it be implemented. Implementation, of course, becomes the real
action stage of the management-by-objective system. Three important factors have an impact on
the implementation process: the manager, the subordinates, and the discipline situation. The
manager, himself, represents an important ingredient because, at this point, the degree of
autocracy exercised may determine success or chaos. Generally speaking, the manager's actions
should be consistent with the amount of control he can exert. Implementation failures are often
attributable to the manager who, having little control over his firm or his behavior, attempts to
become an overly dominant leader. The degree of dependence which exists amongst subordinates
and between the manager and his subordinates will also affect implementation. A high degree of
dependence indicates that implementation is likely to be a team effort. A low degree of
dependence suggests that strong leadership will be a necessary prerequisite to implementation

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success. If the situation is one in which tight discipline has been historically present, then the
time required for successful implementation may be relatively short. If, however, management
has been somewhat more permissive, implementation will be more time consuming and likely to
require some highly creative managerial behavior.
Step 9: Measure the results: As a logical last step in the management-by-objective system, the
decision maker should analyze the results of his actions. Had all the preceding steps been
perfectly executed, there would be little need for the review process. But, in real life, we all
know that perfect execution rarely, if ever, occurs. The optimal solution is confronted with
unforeseen obstacles, the market takes an unexpected turnabout, or managers, as human beings,
are found to be fallible. Hence, because of execution imperfections, a final control stage must
exist whereby management observes the results of its action in the hope that later decisions will
be improved. This final stage in the management-by-objective system should include two
important elements:
(1) It should provide for a judgment as to the similarity between the end result and that which
was desired (your objective), and
(2) It should permit corrective action to restore firm performance to that described in the
objective.
Summary
Successful management consists of setting good objectives and making the right choices towards
their achievement. Those who fail these two basic tasks, fail as managers. Management by
objective is a generalized procedure which lends itself well to that portion of management
capable of being systematized. The remaining portion of management evades both theory and
systems.

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SECTION 2: THEORIES OF MANAGEMENT


A. SCIENTIFIC/CLASSICAL MANAGEMENT
Principles and development of Scientific Management
Following the results of Taylors experiments, he drafted the following four principles of
scientific management:

Managers must carry out scientific studies of all tasks they managed, to ensure
that workers were performing as efficiently as possible.

Using this knowledge, managers should scientifically select the best workers for
the job, and should actively train and develop each worker to achieve maximum
performance

Managers should cooperate with the workers in ensuring that the best scientific
methods are being used.

The workload should be divided between managers and workers, with managers
using scientific management to plan the work and make the workers roles as
simple and productive as possible.

Many factories and industries adopted scientific management, most notably Henry Ford, who
applied the principles to his car factories, massively increasing productivity. However, Ford
expanded the principles even further. Rather than have one worker perform each task, Ford split
up the workload so that each worker simply performed a single action as the car moved down a
conveyor belt. This Fordist approach to production became the model for modern mass
production techniques.
However, whilst Taylors original principles held that management should use the principles of
scientific management to improve productivity and reward workers who performed well, Fords
development of the principles tended to reduce the level of skills required. In addition, many
factory owners did not follow the principle of cooperating with workers; they simply used the
first two principles to increase the productivity of workers, and decrease the skill levels needed
to perform a task. As such, scientific management was often used by factory owners to reduce

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their workforce, as well as reduce the wages they paid to workers given that the scientifically
planned jobs required much less skill that previous roles. Thus, the rise of Taylorism and
Fordism can be seen as a contributor to the labour process theory argument that managers sole
aim is to deskill workers and hence increase managers control over the labour process and the
workers. Despite this controversy, scientific management has fundamentally changed the process
of working and planning, and continues to be used in some forms today. For example, the
McDonalds system of cooking, packaging and serving burgers and other fast food can be seen to
follow some scientific management principles.

Contributions of scientific management theory


1. The modern assembly line pours out finished products faster than Taylor could ever imagine.
2. This production Miracle is just one legacy of scientific management.
3. In addition its efficiency techniques have been applied to many tasks in non industrial
organizations ranging from fat food service to the training of surgeons.
Limitations of scientific management theory
1. Although Taylor's method led to dramatic increase in productivity and higher pay in number of
instance. Workers and unions began to oppose his approach because they feared that working
harder or faster would exhaust whatever work was available causing layoffs.
2. Moreover, Taylors system clearly meant that time was of the essence. Labour viewed
management as a threat to their freedom and success.
3. His critics objected to the speed up condition that placed undue pressure on employees to
perform at faster and faster levels. The system failed to incorporate aspects of psychological and
social dimension found at work.

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4. The emphasis on productivity and by extension profitability led some managers to exploit both
the workers and customers. Workers were treated as machines and were compelled to do more.
5. As a result more workers joined unions and thus reinforced a pattern of suspicious and
mistrust that shaded labor relations for decades. Wages were determined by top management
raising unionism.
6. Too beaurocratic. Rules and procedures laid down become everyday norms and values to be
followed.
i.

MAX WEBER (1864-1920) Bureaucratic Theory of Management

Max Weber developed a structural model of organization that was most efficient means by which
organizations could achieve organization's goals and objectives. Max Weber, a German
sociologist, defines bureaucracy in terms certain features of organizational design. Weber viewed
bureaucracy as the most efficient organizational design if it has the following characteristics:
(i) A continuous organization of official functions bound by rules.
(ii) A specified sphere of competence. This involves
(a) Sphere of obligations to perform functions which have been marked of as part of a
systematic division of labor;
(b) The provision of incumbent with necessary authority to carry out these functions;
(c) That the necessary means of compulsion are clearly defined and their use is subject to
definite conditions. A unit exercise authority which is organized in this way will be called an
"administrative organ". There are administrative organ in this sense in large scale private
organizations, in parties and armies, as well as in the state and church.
(iii) The organization of office follows the principle of hierarchy.
(iv) The rules which regulate the conduct of an office may be technical rules or norms. In both
cases, if their application is to be fully rational, specialized training is necessary. It is thus

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normally true that only a person who has demonstrated an adequate technical training is qualified
to be a member of the administrative of such an organized group, and hence only such persons
are eligible for appointment to official positions. The administrative staff of a rational corporate
group thus typically consists of officials; whether the organization be devoted to political,
religious economics-in particular capitalist-or other ends.
(v) In the rational type it is a matter of principle that the members of administrative staff should
be completely separated from ownership of the means of production or administration. There
exists, furthermore, in principle complete separation of the property belonging to the
International Research Journal of Finance and Economics - Issue 41 (2010) 63 organization,
which is controlled within the sphere of the official, which is available for his own private uses.
(vi) In the rational type cases, there is also a complete absence of appropriation of his official
position by the incumbent.
(vii) Administrative acts, decisions, and rules are formulated and recorded in writing, even in
cases where oral discussion is the rule or is even mandatory.
(viii) Legal authority can exercises in a wide variety of different forms.
(ix) They are remunerated by fix salaries in money, for the most part with the right to pension.
(x) It constitutes a career.
Bureaucracy, as an organizational concept, has contributed to a better understanding of the
working mechanism of organization. For Weber bureaucracy was a blueprint for dividing
responsibility, authority, and accountability.
Stephen P. Robbins feels and asserts that bureaucracy is characterized by highly routine
operating tasks through specialization, much formalized rules and regulations, tasks that are
grouped into functional departments, centralized authority, narrow spans of control, and decision
making that follows the chain of command. He further observes that the primary strength of
bureaucracy lies in its ability to perform standardized activities in a highly efficient manner. In

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addition, bureaucracies can get along well with less talented and less costly middle and lower
level managers.
ii.

F.W TAYLOR (1856-1915)

Fredrick w Taylor (1986-1915) rested his philosophy on four basic principles.


1. The development of a true science of management so that the best method for performing each
task could be determined.
2. The Scientific selection of workers so that the each worker would be given responsibility for
the task for which he or she was best suited.
3. The scientific education and development of workers.
4. Intimate friendly cooperation between management and labor.
Rather than quarrel over profits both side should increase production, by so doing, he believed
profits would rise to such an extent that labor have to fight over them.
In short Taylor believed that management and labor had common interest in increasing
productivity.
1. Taylor based his management system on production line time studies. Instead of relying on
traditional work methods, he analyzed and timed steel workers movements on a series of jobs.
2. Using time study he broke each job down into its components and designed the quickest and
best method of performing each component. In this way he established.

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How much workers to do with the equipment and materials in hand. He also encourage
employers to pay more productive workers higher rate than others. Using a scientifically correct
rate that would benefit both the company and workers.
Thus the workers were urged to surpass their previous performance standards to earn more
pay .Taylor called his plane the differential rate system.
Frederick Taylor is often viewed as one of the earliest management theorists, with his work on
what he termed scientific management, having impacts throughout the twentieth century.
Before Taylor, the majority of work was carried out by skilled craftsmen and operators who
learned how to perform their jobs through apprenticeships and on the job training. As a result,
most workers were more knowledgeable than the managers who controlled them, and hence the
workers tended to make most of the decisions about how their job should be performed, how
long it would take, and what materials were needed.
Taylor viewed this as being an absurd situation, with many managers unable to control their own
workers due to their lack of knowledge around the job itself. As such, the main principle of
scientific management was that managers should hold all the knowledge around how a job
should be performed. This implied that managers should be able to determine the time and
resources required for the job, as well as the best methods to train and manage their work
force. Ultimately, Taylor believed that through a series of time and motion studies, managers
should work out the most efficient way of performing any one task, and hence require all
workers to perform the task in that way.
Taylors initial observations around some of the working practices imposed by skilled workers
came from his observations of productivity at the Bethlehem Steel Works in the United States.
He believed that workers deliberately operated below their maximum capacity and efficiency,
something Taylor referred to as soldiering due to a three main factors:

Firstly, workers believed that if they worked more efficiently, the task could be
completed with fewer workers and hence jobs would be lost.

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Secondly, the majority of pay systems meant that workers would be paid the same
no matter how much they produced, hence providing an incentive for workers to
convince managers that their maximum pace for a job was much lower than it
actually was. Even if employees were paid according to their productivity, they
believed that if they increased their overall output, managers would set new
standards and decrease the productivity bonus.

Finally, Taylor believed that most workers used whatever method they had grown
accustomed to, rather than using the most optimal method of work, which could
be determined by scientific time and motion studies of the work.

Taylor believed that all these issues could be overcome if management would take responsibility
for improving the productivity of workers, through a scientific study of the individual actions
associated with each task, and how these actions could be most efficiently organised. He held
that this was a much better method of planning working that attempting to incentivise workers,
as incentives placed the responsibility on the worker to increase productivity, and hence the
manager had no input. Taylor thus carried out a series of time and motion studies to determine
the time taken for each action, and how the action could be performed more efficiently, or even
eliminated from the task altogether.
Taylors studies
One of Taylors first studies concerned the amount of raw pig iron that workers could move each
day. He found that, on average, workers at the yard managed to move around 12.5 tons of iron
each day. By conducting time and motion studies of the workers moving the pig iron, Taylor
found that, if the amount lifted, lifting method, rest periods, paths taken across the yard and other
factors were optimized, workers could move 47.5 tons each day. As such, Taylor introduced a
specific system for lifting and carrying the iron, and specific rest periods, to maximise the
productivity of the workers.
During the course of this study, Taylor found that not all workers could reach the 47.5 tons a day
target, and that only around 12% of the workers in the yard were physically capable of achieving
this. As such, he also argued that not only should a job be scientifically planned and managed,
but that workers should be scientifically selected depending on their capabilities and how well
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they performed on a particular job. Taylor referred to these workers as high priced workers, and
claimed that they should be paid a much higher wage due to their particular capabilities,
provided they were willing to carry out their job in the scientifically best way.
Taylor also studied the shovels used by workers to move material around the yard. Prior to his
study, workers used their own shovel, with some being large and others small. Taylor held that
there was a tradeoff between a smaller shovel, which allowed faster movement around the yard,
and a larger shovel which carried more but slowed the worker down. As such, he carried out a
study which demonstrated that the optimal weight for a shovel to hold was 21 pounds, and this
allowed workers to carry the most of any material across the yard of the steel works. As such, the
company provided the workers with a variety of shovels which would each hold 21 pounds of a
specific material. Workers using these shovels were able to vastly increase their productivity, and
were similarly dubbed high price workers, and paid significantly higher wages.
iii.

THE GILBRETHS

Brought in the motion study and job simplification. Gave an analysis of the sequence and path of
basic movements in the workshop and advocated for economic use of human energy and
technical improvements.
Inspired by Taylors experiments, Gilbreth performed an analysis of bricklaying, which
demonstrated that most bricklayers tended to use more than ten motions to lay a single brick;
when in fact only four were needed. By cutting down the number of motions to four, bricklayers
were able to vastly increase their productivity, and hence compete with other more productive
industries such as concrete pouring.
iv.

H.L GANTT

Henry L.Gantt (1861-1919) worked with Taylor on several projects but when he went out on his
own as a consulting industrial engineer, Gantt began to reconsider tailors insensitive systems.
Developed the principle of work scheduling. He developed charts showing relationships between
planned work and completed work against time elapsed. He believes that wage system provides a
fair remuneration. He devised a task-and bonus system in which a workman received a bonus on

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completion of assigned work. Also identified that non-monetary factors like job security are
powerful incentives.
Abandoning the differential rate system as having too little motivational impact Gannet came
up with new idea.
Every worker who finished days assigned work load win 50 percent bonus.
Then he added a second motivation the supervisor would earn a bonus for each worker who
reached the daily standard.
Plus an extra bonus if all the workers reached it.
This Gantt reasoned would spur super wiser to train their workers to do a better job.
Every workers progress was rated publicly and recorded an individual bar charts
I black on days the worker made the standard in red when he or she fell below it.
Going beyond this Gantt originated a charting system for production was translated into eight
languages and used throughout the world.
1. In planning, managing and controlling complex organization the critical path method (cpm)
originated by dupont and program evaluation and review Technique (pert), developed by navy.
2. Lotus 1-2-3 is also a creative application of the giant chart.
v.

H EMERSON (1910)

He defined principle of efficiency where resources use was to be accomplished. The managers
has to use scientific, objective and factually based analysis, should define the aims of the
undertaking, should relate each part to the whole, should provide standardized procedures and
methods and reward individuals for successful execution of work.
vi.

HENRY FAYOL (1841-1925)

Henry Fayol (1841-1925) is generally hailed as the founder of the classical management school
not because he was the first to investigate managerial behavior but because he was the first to
systematize it.
Fayols 14 principle of management
1. Division of labor/work

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The most people specialize the more efficiency they can perform their work. This principle is
epitomized by the modern assembly line.
-reduces the span of attention or effort for any one person or group.
-it develops practice and familiarity.
2. Authority
Managers must give orders so that they can get things done while this format give them a right
to command managers will not always compel obedience unless they have
Personal authority (such as relevant) expert as well
3. Discipline members in an organization
-Need to respect the rules and agreement that govern the organization.
To Fayol, discipline leadership at all levels of the organization fair agreements and judiciously
enforced penalties for infractions. Management Science I Prof. M.Thenmozhi
Indian Institute of Technology Madras
4. Unity of command
Each employee must receive instruction from one person, fayol believe that if employee
reported to more than one manager conflict in instruction and confusion in authority would
result.
5. Unity of direction
Those operation within the same organization that has the same objective should be directed by
only one manager using one plan.
For example the personnel department in the company should not have a woo directors each
with a different hiring policy.
6. Subordinate of individual interest to common good
In any undertaking the interest of employees should not take the precedence over the interest of
organization as a whole
7. Remuneration

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Compensation of work done should be common to both employees and employers.nce I Prof.
M.Thenmozhin Institute of Technology Madras
8. Centralization
Decreasing the role of subordinates in decision making is centralization, increasing their role is
decentralization.
Fayol believed that the managers should retain the final responsibility, but should at the same
time give their subordinate enough authority to do the jobs properly.
The problem is finding the proper degree of centralization in each case.
9. The hierarchy/ scalar chain
The line of authority in an organization should represent in the neat box and the line of chart
runs in order of rank from top management and lowest levels of enterprise.
10. Order
Materials and the order should be in the right place at the right time.
People in particular should be in job or position they are most suited to.
11. Equity
Managers should be fair and friendly to their subordinate.
Management Science I Prof. M.Thenmozhiian Institute of Technology Madras
12. Stability of staff
A high employee turnover rate undermines the efficient functioning of an organization.
13. Initiative
Subordinate should be given the freedom to conceive and carry out their plans even though
some mistake may result.
14. Esprit de crops
Promoting team spirit will give the organization a sense of unity.
To Fayol even the small factor help to develop the spirit.

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He suggested for example the use of verbal communication instead of formal, written
communication whenever possible
vii.

JAMES MOONEY

Viewed management as the technique or art of directing and inspiring other people. Hence gave
his management duties as;
-coordination as the reason for organizing
-scaling tasks to be performed
-delegating authority and defining tasks
-Leadership-personification of authority
-specialization
viii.

L F URWICK

Said management process has 3 functions which are planning, organizing, and controlling. These
functions have guides which are forecasting, coordination and command. Planning is guided by
forecasting. Organizing which has sub-functions of scaling, delegating and defining tasks was
guided by coordination of authority, leadership and specialisation. Controlling is staffing,
selecting and placing and disciplining falls under command by centralization, remuneration or
equity. A consolidated list of management principles according to L F Urwick
1. The principle of the objective
2. The principle of specialization
3. The principle of coordination
4. The principle of authority
5. The principle of responsibility
6. The principle of definition
7. The principle of correspondence
8. The span of control
9. The principle of balance
10. The principle of continuity
ix.
CHESTER BERNARD (1841-1925)-BEHAVIOURAL SCIENCE
Believed that the basic functions of the executive is to give the basis for cooperative effort,
formulation of objectives and the acquisition of resources and effort required to meet the stated
goals.
The degree of employee cooperation depends on the balance between inducements and
contributions. Inducements are a sum of financial and non-financial rewards which accrue to
individuals in exchange for their effort.

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Recognized that communication is the active system to implement authority, orders flows
downwards as superiors seek certain behavior from workers. He stated that the existence of the
forward structures is no guarantee that subordinates will in fact follow orders.
Challenged the wisdom of solely relying on the authority structure to achieve compliance, so he
stated apposition that has become known as acceptance theory of authority. The theory
postitulates that workers determine whether the order is legitimate to accept or reject it. They
will accept the order only if they can understand it and are able to comply with it, or they will
accept it only if the required behaviour is consistent with their view of purpose of the
organisation and their own personal interests.
Chester viewed the scientific management approach as too harsh to workers, hence should be
selective according to circumstances. Chester advocated for recognition of workers as
psychologically social beings through cooperative system.
Sort that a good manager has a good insight of working situations, job, and worker as
individuals.
B. MOTIVATION AND HUMAN RELATIONS MANAGEMENT
i.
MARY PARK FOLLET (1868-1933)-HUMAN RELATIONS
Brought about the recognition of individuals in determining the success or failure of an
organisation. It concentrated on the social environment surrounding the job.
Believed that conferences and cooperation solve conflicts hence contribute to achieve
productivity and efficiency. The system brought about integration, unity, debates, coordination of
tasks and human relationships. Some of its proponents are;
Division of labour
Take cognisance of social isolation, sense or feeling of anonymity resulting from insignificant
jobs or lack of feeling of tasks completion. Assumes that as the division of labour increased, the
need arose for motivating and coordinating activities.
Functional process
Human problems result through imperfections in the manner in which the functionalisation
process is handled. For example too much or not enough delegation results or discourages
management action.
ii.

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Human relations theory is largely seen to have been born as a result of the Hawthorne
experiments which Elton Mayo conducted at the Western Electrical Company. However, the so
called Hawthorne Effect was not foreseen by the study. Instead, the Western Electrical
Company wished to show that a greater level of illumination in a working area improved
productivity, hence encouraging employers to spend more money on electricity from the
company. As such, they carried out a study of how productivity varied with illumination levels.
However, the results of the study showed that any changes in light levels tended to increase
productivity levels, and the productivity level also increased significantly within the control
group. This was completely the opposite of what Mayo expected, and created an entirely new
branch of management theory. The core aspect of Human Relations Theory is that, when workers
were being observed and included in the research, they felt more important and valued by the
company. As a result, their productivity levels went up significantly. This represented a
significant departure from many of the classical theories, particularly Fordism, as it went against
the notion that management needed to control workers, and remove their autonomy at every step.
Instead, it showed that by engaging with workers and considering their requirements and needs,
companys could benefit from increased productivity.
Another important part of human relations theory came from the other one of Mayos
experiments: the bank wiring experiment. This experiment involved monitoring the production
of a group of workers who were working as a group to produce electrical components. This
investigation showed that, as believed by Taylor and Ford, the group as a whole decided on the
level of production, purposely failing to produce their maximum output in spite of the potential
bonus which was offered by management. This indicated that factors such as peer pressure, and
the desire for harmony within the group, overrode any economic considerations which the
workers held. This study also first drew management theorists focus to the informal aspect of
the organisation, and the important role that it played in productivity. However, Mayo argued that
managers needed to encourage good communication with workers and develop a connection with
their employees, which runs counter to Taylor and Fords claims that managers needed to focus
on organisational goals and completely control the workers. Mayo argued that Taylor and Fords
techniques would boost productivity, but only to a certain level. In order to go above this level,
workers needed to feel that they were valued more than simply on a monetary basis.

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The concept that managers need to become involved with workers at a more individual level is at
the core of human relations theory, and is what differentiates it from scientific management
theory. Indeed, the vast majority of management literature since these competing theories
emerged has been dominated by two points of view. The first is that workers will not support
management attempts to get them to be more productive, and hence management needs to take
control of the working process itself, hence leading to scientific management approaches. The
second is that productivity is largely determined by social and group norms, and by tapping into
these norms and fulfilling their workers needs, managers can encourage employees to motivate
themselves to work harder and be more productive.
iii.

DOUGLAS McGregor (theory X and Y)

In response to the two sides of the debate around employee motivation and the best ways to
boost productivity, Douglas McGregor argued that managers would tend to pursue the approach
which was most in line with their view of their employees. He claimed that managers who
viewed their employees as lazy would be more likely to follow an approach based on control,
whilst managers who believed the workers could be motivated and wanted to develop themselves
would be more likely to attempt to create positive working environments and opportunities for
advancement. McGregor referred to these theories as theory X and theory Y.
It is important to note that, in contrast to popular opinion, McGregor did not state the theory Y
was preferable to theory X, rather he held that both views had merit, and managers should not
have too narrow a view of motivation. As such, he believed that scientific management
approaches could benefit from focusing on the need to motivate workers, whilst motivational
approaches could also benefit from greater managerial control. As such, he argued that theory X
and theory Y simply represented different ends of a continuum of approaches to improving
productivity, and managers should not fix themselves to one end of the continuum.
Both theory X and theory Y state that managers are responsible for assembling and organising
the various factors of production, including their employees, with the goal being to produce
maximum economic benefit for the shareholders. However, they take different views around the
drivers of employee behaviour.
Theory X
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According to theory X, the average employee is lazy, does not like to work, and will attempt to
avoid having to work as much as possible. They also have no ambition or responsibility, and do
not care about the performance of the organisation. As such, they will tend to resist any
organisational change, and not be particularly innovative or intelligent, only working because
they have to in order to have money and security. However, it also holds that they are quite
gullible and easy to manipulate. As a result, managers who follow a theory X approach can try to
take a hard, controlling approach or a soft persuasive approach.
The hard approach depends on tight managerial controls and close supervision, such as proposed
by scientific management, whilst also using coercion and implicit threats to prevent any
soldiering. In contrast, the soft approach looks to manipulate employees with money and low
levels of supervision, in an attempt to acquire employee cooperation and reasonable levels of
productivity. Unfortunately, the hard approach will tend to generate hostility and resistance,
whilst the soft approach will lead to workers requesting greater levels of rewards whilst working
as little as possible. McGregor felt that most firms tried to use some aspect of both of these
approaches, but neither were very successful
The reason for this is that McGregor claimed that theory X would only ever focus on low level
needs such as security. As such, whilst the threat of removing security, in the form of pay cuts or
potential sackings, would only motivate an employee to a certain level. As such, whilst following
a Theory X approach would be better than following no approach, it will never satisfy high level
needs, and employees will not be motivated by their work. Instead, they will look for more
money and rewards to compensate, thus allowing them to fulfil their social and esteem needs
outside of work. Therefore, employees will never satisfy their high level needs through work,
and thus will never work to their maximum productivity.
In addition, McGregor argued that modern developed societies, with their abundant and cheap
food, high tax rates and social safety nets, already satisfied most of the physiological and
security needs of people. This meant that providing monetary rewards and punishments would
not motivate staff as their discomfort at being controlled would outweigh the monetary benefits.
As such, employees under theory X will tend to dislike their work and take no interest in the
goals of the organisation, thus fulfilling the assumptions made under the theory. As such,

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McGregor argued that theory X was a self fulfilling prophecy, and that managers who followed it
would end up demotivating even the most intrinsically motivated workforce.
Theory Y
In contrast to theory X, theory Y assumes that working can be made as natural to people as play
and rest. As such, people will motivate themselves to fulfil their work objectives, provided they
commit to them, and they feel they will fulfil higher needs by achieving them. In addition, if
these conditions can be fulfilled, people will seek additional challenges and responsibility, and
will handle them well because humans are naturally creative and innovative: their talents just
need to be encouraged in their work.
The most important aspect of theory Y is that it focused on the cycle of managers providing
interesting work, which motivates employees to achieve, which allows managers to provide them
with more interesting and challenging work, thus fulfilling the higher level esteem needs, and
allowing people to approach self actualisation in their work. As self actualisation is a continually
evolving need, it will thus continue to motivate employees throughout their working lives.
This allows managers to align employees personal goals with the goals of the organisation, by
allowing the employee to fulfil their needs as the organisation succeeds. For example, a firm can
decentralise its control structure, providing employees with more responsibility and harnessing
more of their skills to drive success. Companies can also consult employees as part of the
planning and decision making processes, giving the employees input into the organisations
success whilst benefitting from the employees creativity. Participative performance appraisals
are also often used in theory Y, as when employees participate in setting and monitoring their
objectives, they are more likely to strive to reach them.
If such a system can be properly implemented, it would result in very high levels of motivation,
with employees working ever harder as their personal needs develop and their job develops to
satisfy them. However, Theory Y management cannot be seen as a soft approach as it is easy for
employees to manipulate the system by pretending to be demotivated and hiding their true
motivations. Indeed, McGregor argued that some employees may not have developed sufficient
emotional maturity to embrace a Theory Y style of management, and may believe the managers
are trying to manipulate them or are being weak. As such, managers may need to develop an
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initial system of control for employees, and relax that system as the employee matures and
develops.
iv.

ABRAHAM MUSLOWS HIERARCHY OF NEEDS

Abraham Maslow looked to expand on Human Relations Theory. His argument was that if
motivation could be driven by managers filling their employees needs, then managers should
look to understand which of these needs are the most important.
Man is a wanting animal whose needs depend on what he already has. Only needs not yet
satisfied can influence behaviour, so a satisfied need is not a motivator.
Through examinations of people who Maslow believed to be exemplary, such as Albert Einstein
and Eleanor Roosevelt, Maslow claimed that people would only be motivated to perform to their
fullest extent if their higher order needs would be fulfilled by said performance. In other words,
it is not enough for a manager to simply pay their employees more, as pay eventually ceases to
become a motivator once people have enough money. Instead, managers must find other needs
that their employees possess, and look link performance to the satisfaction of these needs.
Mans needs are arranged in a hierarchy of importance. Once one need is satisfied, another one
emerges and demand satisfaction. Maslow argues that there were five main categories of needs;

Self-actualisation
Esteem
Social
Security
V

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The first needs to be fulfilled were physiological needs, followed by security needs, social needs,
esteem needs and finally the need for self-actualization. Maslow states that if all of a persons
needs are not satisfied at a particular point, satisfaction of the most predominant needs will be
more pressing than others. Those needs which come first must be satisfied before a higher level n
eed comes into play and only when they are sufficiently satisfied are the next ones in line
become significant.
Physiological needs are the most basic requirements of human existence, such as food, water, sex
and rest. Maslow argued that if these needs were not fulfilled, then people would devote all their
needs to fulfilling them, and no extent of social interactions or esteem felt by people would
compensate.
Once the physiological needs were met, people would next consider their security, and the extent
to which they were safe from any harm. As such, people will look to live in a safe area, visit the
doctor, look for a secure job, and build up savings so they would not risk being poor. As this is
above physiological needs in the hierarchy, Maslow claimed that people who were hungry would
put themselves at risk to obtain food. This explains why people in war torn regions will still
attempt to plant crops in former minefields: the food is a more pressing need than their own
safety.
Once people feel safe, secure and physiologically satisfied, they will begin to prioritise their
social needs. This involves having meaningful social interactions with others, manifested as a
need for friends, a need to belong to a social group, and a need to both give and receive love.
Once a person has fulfilled these social needs, they begin to desire esteem needs. Esteem needs
are defined as those related to someones psychological image of themselves. As such, they can
be external, such as receiving praise, recognition and promotion; or internal, such as knowing
that a job has been done well, and having a high level of self respect.
Finally, the need for self-actualisation represents the highest level Maslows hierarchy of needs
and Maslow argued that it represented the pinnacle of the human condition, only being reached
by the most exemplary people. In addition, Maslow argued that the nature of this need is such
that it can never be fully satisfied, as people can always strive to better themselves and reach a

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higher level of achievement. This explains why notable people such as Einstein continued to
work throughout their lives, after achieving fame, fortune and recognition.
Implications for managers and limitations
Maslows theory implies that managers cannot simply pursue a single all encompassing theory of
management, such as scientific management or human relations theory, if they wish to maximise
the performance of their workers. Instead, they must look to fulfil all their employees needs
through their management style and the design of the job and financial rewards.
For physiological needs, managers need to provide employees with the opportunity to rest and
eat, as well as wages to purchase food and drink. To fill security needs, workers need a
safe working environment with job security, together with a wage that is enough to afford their
desired lifestyle, house and quality of life. Social needs require managers to focus on team work
and social events, as well as giving employees a chance to socialise outside of work, and esteem
needs are fulfilled through recognition of achievements, rewards for good performance and a
merit based promotion system. Finally, self-actualisation can only be achieved by allowing
employees to reach what they feel is their full career potential, and allowing them to continue to
develop as they do.
The main limitation of Maslows theory is that different people will place different weightings on
their needs, and will have different relationships between motivating factors and their needs. For
example, some people may see money as merely fulfilling a security need, and will be happy to
work to a certain level of wages and achievement. In contrast, some people may see their earning
power as a key part of their self esteem, and will work harder and harder if they are given the
opportunity for increasing financial rewards. It is also difficult for a manager to determine what
need is driving an employee at any one time, particularly as employees needs will often be
affected by external factors such as their family life and social life outside of work.
In addition, there is no empirical evidence to support Maslows hierarchy as applying to all
people, and there is evidence to support a different order of needs in many circumstances. For
example, people such as Ghandi and Mother Teresa sacrificed some of their security to help
others, hence achieving esteem and self actualisation without fulfilling their security needs. Also,
many artists and actors will struggle by on minimum wages, with only minimum food and
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security, in the pursuit of recognition and achievement within their chosen career. There is also
little evidence to support the argument that people focus on one need at once, and will often
consider many needs when making a decision.
v.

FREDRICK HERZBERGS TWO FACTOR THEORY

In an effort to better understand the factors which motivated employees, Frederick Herzberg
performed in-depth interviews with employees looking to determine which aspects of their job
they liked, and which caused them displeasure. This study revealed that one set of factors caused
job satisfaction, whilst a different set of factors tended to cause job dissatisfaction. As a result, an
absence of certain factors would demotivate employees, but increasing these factors past a
certain level would not motivate the employees any further. In contrast, some factors would not
demotivate employees if they were absent, but it they were provided they would increase
employee motivation.
These results led Herzberg to terms the factors which could motivate employees motivators
whilst the factors which caused dissatisfaction if they were absent were referred to as hygiene
factors. As such, Herzberg developed that Motivation-Hygiene theory, also known as the Two
Factor theory, to explain how managers could use these factors to motivate their employees.
The following factors were indicated as the most important hygiene factors:

Company policies and administration

Quality of supervision

Employees relationship with their boss

General working conditions

Salary

Employees relationship with their peers

Job security

Status

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Personal life

Whilst the following were the most important motivators:

Potential for achievement

Receiving recognition

The work itself

Being given responsibility

The potential for advancement

The potential for growth

As such, whilst an employee who has bad relationships with their peers will perform worse,
someone with excellent relationships with their peers will not necessarily perform any better than
those with good relationships. Furthermore, someone who has no responsibility will not perform
any worse than someone with a small amount of responsibility, but someone with a good level of
responsibility will perform better than both of them.
Herzberg argued that these results occurred because of the two distinct human needs represented
by the two sets of factors. The hygiene factors represented physiological needs which people
expected to be fulfilled: people will generally feel bad if they are hungry, poor or lonely but
being full and rich does not guarantee happiness. In contrast, the motivation factors represented
psychological needs that were seen as a bonus: people do not have to receive recognition to be
happy, but in general receiving genuine recognition will always boost someones mood and
motivation.
In addition, Herzberg observed that the hygiene factors tended to be external to the work:
policies and salary would be set by the company, whilst relationships did not depend on what job
was being done. As such, Herzberg referred to these factors as KITA factors, which stands for
Kick In The Ass, as he believed that these incentives could only be used as a punishment. As
such, they would only result in limited, short term benefits, as the employee would merely have
to perform to avoid them being taken away. In contrast, the motivation factors were part of the

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work itself, and hence the harder the employee worked, the greater the motivation factors would
become. Therefore these factors will tend to motivate employees to work harder.
Implications for managers and limitations
The motivation-hygiene theory implies that managers must focus their efforts in two areas:
ensuring that hygiene factors are sufficient to avoid any employee dissatisfaction, whilst also
ensuring that the work is rewarding and challenging enough to motivate employees to work
harder. Indeed, Herzberg argued that managers must focus on job enrichment in order to
motivate employees, and this must represent a continuous management process. As such, not
only must the job be challenging and interesting enough to utilise the employees ability, but
employees who have proven themselves must be given more challenging roles and increased
responsibility in order to continue to be motivated. As such, if a job does not fully utilise an
employees abilities, the task should be automated or given to someone with a lower level of
skill, to avoid demotivation.
However, it has been argued that the two-factor result is a natural reaction to asking employees
around the sources of satisfaction and dissatisfaction in their work. This is because people will
tend to claim that their own performance and role provides them with satisfaction, whilst
blaming any dissatisfaction on factors outside their control, such as salary, managers and
colleagues. In addition, there is little evidence to support the argument that factors which provide
job satisfaction will always increase employee motivation.

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SECTION 3: MANAGEMENT IN PRACTICE


A. TYPES OF BUSINESS ORGANISATION
i. Factors to consider when setting up a business venture
When you are thinking of starting a business, it is wise to first ask yourself some questions:

Do I know the product or service field?

Do I have the resources or can I get them?

How will my family cope?

Do I have the qualities needed to succeed?

Here are some basic factors you should consider:


Business idea
First is to decide what type of business you want to start. This is your business idea. Your
business idea includes what your business will produce or what service it will provide, whom
your business will sell to, how it will sell its products or services, and what customer needs the
business will satisfy. Spelling out your business idea in detail at the beginning increases your
chances of success.
Technical skills
Entrepreneurs need the practical abilities to produce the goods or services. If you plan to start a
hairdressing business, for instance, you need to be able to wash, set, and style hair. Without the
necessary technical skills, it is going to be difficult for you to start and run your hairdressing
business.
Family situation
It is important to have your familys support. Starting and running your own business will take a
lot of your time, which might conflict with your family responsibilities. When your family agrees
with your business plan and supports you, you will be able to give enough time to your business.

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Personal entrepreneurial characteristics and skills


You are the most important person in the business, and its success depends on your efforts. Since
you are responsible for managing the business, you need certain entrepreneurial characteristics
and skills:

Motivation: You must be highly motivated by your business idea and enthusiastic about
the prospects of starting and running your own business. Your plan should arise from
your interests and desires, not because you have no other job to do. Motivation increases
the chances that your business will succeed.

Commitment: You must put your business above everything else and be willing to devote
the time, attention, and resources the business needs.

Tolerance for risk: Investing in a business involves risks, including the risk that the
business will fail. You must be willing to take such risks. At the same time, you must
learn to take calculated risks.

Decision making skills: A good entrepreneur must be able to make difficult decisions
affecting the business.

People skills: Good entrepreneurs must be able to deal with customers. They also have
to be able to handle suppliers.

Self-knowledge: Wise entrepreneurs know their managerial strengths and weaknesses.


To compensate for the weaknesses, they can hire consultants or employees with
complementary strengths.

Other key factors


Other factors to take into account when starting a business or preparing a business plan include
understanding the following:
Customers/market potential: Define your potential customers and their needs. It is
important to estimate how much business you will receive from your target market.

Competition: Know your potential competitorsfirms selling similar or substitute


products or services to your target market.

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Resources/capital: Determine the resources you will need, what you have available, how
much they will cost, where you will get them, and how you will pay for them. Some of
the basic resources you need to succeed or start a business include the following:
Human: Employees are the most important resources of a business.
Physical: Land, building, machines, equipment, and natural resources needed to achieve
business objectives; however, these resources come with costs. As a beginner you can
start operating from your home. You can also use the services of communication and
business centers for typing letters or other secretarial services.
Financial: Organizations need cash and credit to operate. Physical and intangible
resources are all obtained through financing. The major sources of finance are friends and
relatives, banks and nonbank financial institutions (e.g., savings and loans companies).
Nearly all successful businesses in Ghana, as in other countries, rely on their own funds
for the first two years.
Marketing: Determine potential customers, which products or services to offer, the
distribution system to get the products or services to the customer, means of promotion to
induce the customer to buy the products, and pricing.
Uniqueness: Your product or service should offer customers something unique that they
cannot get elsewhere. You need an original idea or invention, or your idea may be to
improve on somebody elses product/service. People must need your product or service:
if they do not need it, no marketing effort will make it succeed.
Market saturation: When selecting your business idea, consider whether there are more
providers, suppliers, or service/product than there are customers. You may have a great
idea, but there may not be enough room for you in the industry because too many people
are already providing something similar.
Location: Because of its long-term relationship to profitability, a firms location is key
and deserves thoughtful analysis.
Poor location is a hindrance that is especially destructive when it comes to retail operations. For
retail businesses, the key to profitability is traffic. If your business is located off the main traffic
zone, its survival and prosperity diminishes. A firms growth might force expansion requiring the
business owner to make a decision about expanding at the same location, if possible, or moving

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to another area. Regardless of the reason, the location decision may involve a significant
expenditure, and you will have to live with the decision.

To start a business, you should know the various factors that are important in making your
location decision:
proximity to the target market
proximity to your source of labor
transportation facilities
availability of raw materials
size of population/potential market
Demographic factors (age, sex, distribution) of the population.
Usually, it will have to balance several factors in making a decision. Sometimes one factor may
sway the decision.
ii .Limited companies
Characteristics
Are treated as separate legal entities capable of owning property, employing people, making
contracts, and suing or be sued.
They have continuity of succession as they are not affected by the death of a member or
incapacities of one or more members.

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Has the protection of the limited liability. Members meet the debts up to the limit of the nominal
value of their shares.
Ownership and control are vested in the shareholders and the directors.
Fall into two i.e. public limited companies and private limited companies.
The memorandum of a public limited company should clearly state that it is a public limited
company with its shares available for purchase by the public whilst a private limited company
may or may not offer its share to the public.
Both companies must have at least two members and one director.
Once registered, a private limited company can start trading without further formality, but a
public limited company has to obtain a certificate of trading from the registrar of companies.
Both companies have to fill in the Memorandum of association and the Articles of association
Contents of the MoA
-companys name
-the location of the registered office
-the objects or purpose of the company
-a statement that the liability of members is limited
-the amount of share capital i.e. number and class
-a declaration of association in which members express their desire to form a company and to
take up shares.
Contents of AoA
-give internal affairs of the company and gives details of shareholders, directors, secretary and
auditors.

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Advantages of limited companies


-limited liability
-shares are transferable
-wider share ownership
-annual returns are submitted to the Registrar for inspection
Disadvantages of limited companies
-it may be difficult for small companies to borrow as extensively as desired
-considerable legal procedures involved in setting and publishing various aspects of the company
iii. Sole traders
Characteristics
Simplest form. One person in business on his own.
Owner is fully liable for any debts incurred in running the business
Ownership and control are combined
All profits are subject to income tax rather than corporate tax
There are no formal accounts to be published.
Advantages
-minimal formalities for starting up
-complete autonomy to run the business as the owner wishes
-profits belong to the trader
-various business expenses are allowable against income tax
-no public disclosure of accounts
Disadvantages
-the owner is entirely responsible for the debts of the business
-relies on owner for all aspects like marketing, product development, sales, finance etc.
iv.

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Characteristics
Exists when at least two people but not more than twenty, agree to do business together.
Guided by the Partnerships Act
Members are owners of the business
Partners are not automatically entitled to a salary but to share of the profits of the business
Advantages
-few formalities are required when starting up
-share partners knowledge and skill
-share management of business
-no obligation to publish accounts
-profit or losses are equally shared
Disadvantages
Each partner is liable for debts of the partnership
-risk that partners may not be able to work together at a personal level
-death or bankruptcy of one partner will automatically dissolve the partnership, unless otherwise
provided for in the agreement.
v.

Cooperatives

Characteristics
Formed by small groups of people along democratic line who want to enjoy limited liability
In lieu of MA and AA, they have set rules approved by the Registrar of Societies
Each member must have equal control on the one person one vote principle
Members must benefit as employees as well as investors
Interest on loan or share capital has to be limited
Profit must be shared in proportion to contribution of each member
Membership is open to all who qualify
Must be registered
Advantages

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-gives opportunity for genuine pooling of capital between a group


-encourage active collaboration between all sections of the workforce
-enables decisions to be made democratically
-provides rewards on an equitable basis among those involved
-provides limited liability if registered
Disadvantages
-less likelihood of a level of profitability and growth is achievable
-relationships can deteriorate
-democratic decision making can lead to lengthy discussions before action is taken
-members who are not truly dedicated to democratic ethos may be at odds with communication
and decision making principles.
B. MANAGEMENT FUNCTIONS
1. Planning
Defines a process that involves those activities of a manager which result in a course of action.
Managers should make the best possible forecast of future events that affect the firm and draw up
an operating plan that guide future decisions.
Is a process that involves defining the companys objectives or goals, establishing an overall
strategy for achieving those goals and developing a comprehensive hierarchy of plans to
integrate and coordinate activities.
Is thought to be a cycle not a straight thought process. Plans should be evaluated. Evaluation may
be cost or number based or may use other analytical tools. The analysis may show that the plan
specified may cause unwanted consequences, may cost too much or may simply not work. The
planning cycle will have to cycle back to an earlier stage or the plan may have to be abandoned
altogether.
The function of management of systematically making decisions about the goals to be achieved and
activities or actions needed to achieve those goals that an individual, a group, a work unit, or the
overall organization will pursue in the future.

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Plans are developed for the entire organizational unit and individuals for certain period of time.
Its activities include:
Analyzing current situations.
Anticipating the future.
Determining the organizational objectives.
Deciding the activities to be involved.
Choosing strategies.
Determining resources to achieve organizational goals.
Etc.

It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined
goals. 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. A plan is a future course of
actions. It is an exercise in problem solving & decision making. 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. It is all pervasive, it is an intellectual activity and it
also helps in avoiding confusion, uncertainties, risks, wastages etc.
Purpose of planning
Direction
To give directions to managers and non managers alike. Workers need to know where the
organisation is going and what they must contribute to reach the set targets. A plan coordinates
tasks, ensures cooperation of workers and encourages teamwork.
Reduce uncertainty
Plan force managers to look ahead, anticipate change, consider the impact of change and develop
appropriate responses.
A plan clarifies the quensequences of actions managers might take in response to change.

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Minimize waste
A plan reduces overlapping and wasteful activities. When ways and ends are clear, inefficiencies
become obvious and can be corrected or eliminated.
Standards
A plan establishes objectives or standards that are used in controlling. If people know and are
sure of what to achieve, how to actually achieve it, planning develops objectives, then compare
actual performances against objectives, identify any significant deviation, and take necessary
corrective action.
The planning cycle
Analysis of current position
Identify aim

Explore options

Plan evaluation

Plan implementation

Closure of plan

Feedback

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Analysis of current position


Situation arising given existing environment.
Aims
Profits, service, social satisfactions are set with priority of importance.
Exploring options
Why this idea and not that one? Compare and contrast the ideal alternatives in sequential order of
forces and other parameters binding the aims.
Evaluation
Share ideas, consult and review. Give an achievable forecast. Is the objective workable/. Go back
to optional analysis and pick another alternative if this one fails.
Implementation
The actual doing of the plan. Taking the plan into effect. Put budget plans, policy, rules, and
procedures to attain the intended goals.
Closure of the plan
Give an overall evaluation of the satisfying end plan. The planning exercise is closed by laying
down standards and concrete aims.
Feedback
Give conclusion based forecast. Update the current situation. Give a value analysis, profit
analysis. Is it viable? Should give an assessment of what consumer behave against their
expectations. Is it worthy expanding or remain like that or close. Adjust to technological
advances.

2. Organizing
Includes all activities which result in a structure of tasks and authority. Determines the
appropriate machine, materials, and human mix which are necessary to achieve or accomplish set
objectives
The management function of assembling and coordinating human, financial, physical, information
and other resources needed to achieve organizational goals.

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It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to
Henry Fayol, To organize a business is to provide it with everything useful or its functioning i.e.
raw material, tools, capital and personnels. To organize a business involves determining &
providing human and non-human resources to the organizational structure. Organizing as a
process involves:
Its activities include:
Specifying job responsibilities and identification of activities
Grouping jobs into work units.
Resource allocation.
Classification of grouping of activities.
Assignment of duties.
Delegation of authority and creation of responsibility.
Coordinating authority and responsibility relationships.

3. Leadership/Commanding
Refers to directing the activities of workers or subordinates. Managers should set good examples
and should have direct two-way communication channel with subordinates. Managers should
evaluate, continuously, the organizational structure, and workers and should not hesitate to
change or alter the anomalies if considered faulty.
The management function that involves the manager's efforts to stimulate high performance by
employees and includes directing, motivating and communicating with employees, individually and
in groups.

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

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management which deals directly with influencing, guiding, supervising, motivating sub-ordinate
for the achievement of organizational goals. Direction has the following elements:
Supervision
Motivation
Leadership
Communication
Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.
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.
Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.
Communications- is the process of passing information, experience, opinion etc from one
person to another. It is a bridge of understanding.
Its activities include:
Directing the workforce.
Motivating your subordinates.
Communicating with employees

4. Coordinating
Binding together all individual efforts and direct them towards a common purpose.
Co-ordination is the unification, integration, synchronization of the efforts of group members so
as to provide unity of action in the pursuit of common goals. It is a hidden force which binds all
the other functions of management. According to Mooney and Reelay, Co-ordination is orderly
arrangement of group efforts to provide unity of action in the pursuit of common goals.
According to Charles Worth, Co-ordination is the integration of several parts into an orderly

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hole to achieve the purpose of understanding.


Management seeks to achieve co-ordination through its basic functions of planning, organizing,
staffing, directing and controlling. That is why, co-ordination is not a separate function of
management because achieving of harmony between individuals efforts towards achievement of
group goals is a key to success of management. Co-ordination is the essence of management and
is implicit and inherent in all functions of management.
A manager can be compared to an orchestra conductor since both of them have to create rhythm a.
and unity in the activities of group members. Co-ordination is an integral element or ingredient
of all the managerial functions as discussed below: a. Co-ordination through Planning - Planning facilitates co-ordination by integrating the
various plans through mutual discussion, exchange of ideas. e.g. - co-ordination between finance
budget and purchases budget.
b. Co-ordination through Organizing - Mooney considers co-ordination as the very essence of
organizing. In fact when a manager groups and assigns various activities to subordinates, and
when he creates departments co-ordination uppermost in his mind.
c. Co-ordination through Staffing - A manager should bear in mind that the right no. of
personnel in various positions with right type of education and skills are taken which will ensure
right men on the right job.
d. Co-ordination through Directing - The purpose of giving orders, instructions & guidance to
the subordinates is served only when there is a harmony between superiors & subordinates.
e. Co-ordination through Controlling - Manager ensures that there should be co-ordination
between actual performance & standard performance to achieve organizational goals.
From above discussion, we can very much affirm that co-ordination is the very much essence of
management. It is required in each & every function and at each & every stage & therefore it
cannot be separated.
Co-ordination is an orderly arrangement of efforts to provide unity of action in the fulfillment of

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common objective whereas co-operation denotes collective efforts of persons working in an


enterprise voluntarily for the achievement of a particular purpose. It is the willingness of
individuals to help each other.
Co-ordination is an effort to integrate effectively energies of different groups whereas cooperation is sort to achieve general objectives of business.
Though these two are synonymous but they are different as below:
Differences between Co-ordination and Co-operation
Basis

Co-ordination

Co-operation

Meaning

It is an orderly arrangement of group


efforts in pursuit of common goals.

It means mutual help willingly.

Scope

It is broader than co-operation which


includes as well because it
harmonizes the group efforts.

It is termed as a part of co-ordination.

Process

The function of co-ordination is


performed by top management.

The functions of co-operation are


prepared by persons at any level.

Requirements

Co-ordination is required by
employees and departments at work
irrespective of their work.

Co-operation is emotional in nature


because it depends on the willingness of
people working together.

Relationship

It establishes formal and informal


relationships.

It establishes informal relationship.

Freedom

It is planned and entrusted by the


central authority & it is essential.

It depends upon the sweet will of the


individuals and therefore it is not
necessary.

Support

It seeks wholehearted support from


various people working at various
levels.

Co-operation without co-ordination is


fruitless & therefore it may lead to
unbalanced developments.

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Therefore, existence of co-operation may prove to be effective condition or requisite for coordination. But it does not mean that co-ordination originates automatically from the voluntary
efforts of the group of members. It has to be achieved through conscious & deliberate efforts of
managers, therefore to conclude we can say that co-operation without co-ordination has no fruit
and co-ordination without co-operation has no root.
5. Controlling
Assuring that actual activities are consistent with planned activities.
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. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, Controlling is the
process of checking whether or not proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation. According to Koontz & ODonell
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.
The function of management of monitoring progress and making needed changes to make sure that
the organizational goals are achieved.
Its activities include:
Setting performance standards that indicate progress toward long-term goals.
Monitoring staff performance through performance data evaluation.
Identifying performance problems by comparing performance data against standards and take
corrective actions.

Therefore controlling has following steps:


Establishment of standard performance.
Measurement of actual performance.

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Comparison of actual performance with the standards and finding out deviation if any.
Corrective action.
Management Levels

The term Levels of Management refers to a line of demarcation between various managerial
positions in an organization. The number of levels in management increases when the size of the
business and work force increases and vice versa. The level of management determines a chain of
command, the amount of authority & status enjoyed by any managerial position. The levels of
management can be classified in three broad categories: 1. Top level / Administrative level
2. Middle level / Executors
3. Low level / Supervisory / Operative / First-line managers
Managers at all these levels perform different functions. The role of managers at all the three
levels is discussed below:

LEVELS OF MANAGEMENT
1. Top Level of Management
It consists of board of directors, chief executive or managing director. The top
management is the ultimate source of authority and it manages goals and policies for an
enterprise. It devotes more time on planning and coordinating functions.

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The role of the top management can be summarized as follows a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets, procedures,
schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The top management is also responsible towards the shareholders for the
performance of the enterprise.
2. Middle Level of Management
The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote
more time to organizational and directional functions. In small organization, there is only
one layer of middle level of management but in big enterprises, there may be senior and
junior middle level management. Their role can be emphasized as a. They execute the plans of the organization in accordance with the policies and
directives of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or
department.
f. It also sends important reports and other important data to top level management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower level managers towards better
performance.
3. Lower Level of Management

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Lower level is also known as supervisory / operative level of management. It consists of


supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
Supervisory management refers to those executives whose work has to be largely with
personal oversight and direction of operative employees. In other words, they are
concerned with direction and controlling function of management. Their activities include
a. Assigning of jobs and tasks to various workers.
b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory appeals
etc to the higher level and higher level goals and objectives to the workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct contact
with the workers.
Management skills
Technical skills
Technical skill is the ability to perform a specialized task involving a particular method or
process.
The tasks can be in the areas of engineering, business, computer, etc.

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Conceptual and decision skills


Conceptual and decision skills are about a manager's ability,
To recognize complex and dynamic issues;
To examine the numerous and conflicting factors that influence these issues and problems;
To resolve the problems for the benefit of the organization and its members.
You would use these conceptual and decision skills when you consider,
The overall objectives and strategy of the organization;
The interactions among different parts of the organization;
The role of the business in its external environment.

Interpersonal and communication skills


Interpersonal and communication skills are people skills. They are about the ability to lead,
motivate and communicate effectively with others.
This skill is very important because managers spend most of their time interacting with
people. The ability to get along with many diverse types of people is vital for a successful
management career.

C. MARKETING MANAGEMENT
i. Marketing mix
Marketing Mix - A mixture of several ideas and plans followed by a marketing representative to
promote a particular product or brand is called marketing mix. Several concepts and ideas
combined together to formulate final strategies helpful in making a brand popular amongst the
masses form marketing mix.
Elements of Marketing Mix
The elements of marketing mix are often called the four Ps of marketing.

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1. Product
Goods manufactured by organizations for the end-users are called products.
Products can be of two types - Tangible Product and Intangible Product (Services)
An individual can see, touch and feel tangible products as compared to intangible
products.
A product in a market place is something which a seller sells to the buyers in exchange of
money.
2. Price
The money which a buyer pays for a product is called as price of the product. The price
of a product is indirectly proportional to its availability in the market. Lesser its
availability, more would be its price and vice a versa.
Retail stores which stock unique products (not available at any other store) quote a higher
price from the buyers.
3. Place
Place refers to the location where the products are available and can be sold or purchased.
Buyers can purchase products either from physical markets or from virtual markets. In a
physical market, buyers and sellers can physically meet and interact with each other
whereas in a virtual market buyers and sellers meet through internet.
4. Promotion
Promotion refers to the various strategies and ideas implemented by the marketers to
make the end - users aware of their brand. Promotion includes various techniques
employed to promote and make a brand popular amongst the masses.
Promotion can be through any of the following ways:

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Advertising
Print media, Television, radio are effective ways to entice customers and make
them aware of the brands existence.
Billboards, hoardings, banners installed intelligently at strategic locations like
heavy traffic areas, crossings, railway stations, bus stands attract the passing
individuals towards a particular brand.
Taglines also increase the recall value of the brand amongst the customers.

Word of mouth
One satisfied customer brings ten more customers along with him whereas one
dis-satisfied customer takes away ten more customers. Thats the importance of
word of mouth. Positive word of mouth goes a long way in promoting brands
amongst the customers.

Lately three more Ps have been added to the marketing mix. They are as follows:

People - The individuals involved in the sale and purchase of products or services come
under people.

Process - Process includes the various mechanisms and procedures which help the
product to finally reach its target market

Physical Evidence - With the help of physical evidence, a marketer tries to communicate
the USPs and benefits of a product to the end users

Four Cs of Marketing Mix


Nowadays, organizations treat their customers like kings. In the current scenario, the four Cs has
thus replaced the four Ps of marketing making it a more customer oriented model. Koichi
Shimizu in the year 1973 proposed a four Cs classification.

Commodity - (Replaces Products)

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Cost - (Replaces Price) involves manufacturing cost, buying cost and selling cost

Channel - The various channels which help the product reach the target market.

Communication - (Replaces Promotion)

Robert F. Lauterborn gave a modernized version of the four Cs model in the year 1993.
According to him the four Cs of marketing are:
Consumer
Cost
Convenience
Communication
ii. Marketing research
Marketing Research is the function that links the consumer, customer and public to the marketer
through information-information used to identify and define marketing opportunities and
problems, generate, refine and evaluate marketing actions; monitor marketing performance; and
improve understanding of marketing as a process.
Marketing Research is systematic problem analysis, model building and fact finding for the
purpose of important decision making and control in the marketing of goods and services.
Marketing Research is a well-planned, systematic process which implies that it needs planning at
all the stages. It uses scientific method. It is an objective process as it attempts to provide
accurate authentic information. Marketing Research is sometimes defined as the application of
scientific method in the solution of marketing problems.
Marketing Research plays a very significant role in identifying the needs of customers and
meeting them in best possible way. The main task of Marketing Research is systematic gathering
and analysis of information.
Before we proceed further, it is essential to clarify the relationship and difference between
Marketing Research and Marketing Information System (MIS). Whatever information are

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generated by Marketing Research from internal sources, external sources, marketing intelligence
agencies-consist the part of MIS.
MIS is a set of formalized procedures for generating, analyzing, storing and distributing
information to marketing decision makers on an ongoing basis.
1. While Marketing Research is done with a specific purpose in mind with information
being generated when it is conducted, MIS information is generated continuously.
2. MIS is continuous entity while Marketing Research is a ad-hoc system.
3. While in Marketing Research information is for specific purpose, so it is not rigid; in MIS
information is more rigid and structured.
Marketing Research is essential for strategic market planning and decision making. It helps a
firm in identifying what are the market opportunities and constraints, in developing and
implementing market strategies, and in evaluating the effectiveness of marketing plans.
Marketing Research is a growing and widely used business activity as the sellers need to know
more about their final consumers but are generally widely separated from those consumers.
Marketing Research is a necessary link between marketing decision makers and the markets in
which they operate.
Marketing Research includes various important principles for generating information which is
useful to managers. These principles relate to the timeliness and importance of data, the
significance of defining objectives cautiously and clearly, and the need to avoid conducting
research to support decisions already made.
Marketing Research is of use to the following:1. Producers
a. To know about his product potential in the market vis--vis the total product;
b. New Products;
c. Various brands;
d. Pricing;
e. Market Structures and selection of product strategy, etc.

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2. Business and Government


Marketing Research helps businesses and government in focusing attention on the
complex nature of problems faced by them. For example:
a. Determination of Gross National Product; Price indices, and per capita income;
b. Expenditure levels and budgeting;
c. Agricultural Pricing;
d. The economic policies of Government; and
e. Operational and planning problems of business and industry.
3. Market Research Agencies
Marketing Research is being used extensively by professionals to help conducting
various studies in Marketing Research
4. Managers

iii. Market segmentation


A set up where two or more parties engage in exchange of goods, services and information
is called a market. Ideally a market is a place where two or more parties are involved in buying
and selling.
The two parties involved in a transaction are called seller and buyer.
The seller sells goods and services to the buyer in exchange of money. There has to be more than
one buyer and seller for the market to be competitive.
Monopoly - Monopoly is a condition where there is a single seller and many buyers at the
market place. In such a condition, the seller has a monopoly with no competition from others and
has complete control over the products and services.

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In a monopoly market, the seller decides the price of the product or service and can change it on
his own.
Monopsony - A market form where there are many sellers but a single buyer is called
monopsony. In such a set up, since there is a single buyer against many sellers; the buyer can
exert his control on the sellers. The buyer in such a form has an upper edge over the sellers.
Types of Markets
1. Physical Markets - Physical markets are a set up where buyers can physically meet the
sellers and purchase the desired merchandise from them in exchange of money. Shopping
malls, department stores, retail stores are examples of physical markets.
2. Non Physical Markets/Virtual markets - In such markets, buyers purchase goods and
services through internet. In such a market the buyers and sellers do not meet or interact
physically, instead the transaction is done through internet. Examples - Redcliff shopping,
eBay etc.
3. Auction Market - In an auction market the seller sells his goods to one who is the
highest bidder.
4. Market for Intermediate Goods - Such markets sell raw materials (goods) required for
the final production of other goods.
5. Black Market - A black market is a setup where illegal goods like drugs and weapons are
sold.
6. Knowledge Market - Knowledge market is a set up which deals in the exchange of
information and knowledge based products.
7. Financial Market - Market dealing with the exchange of liquid assets (money) is called
a financial market.
Financial markets are of following types:
1. Stock Market - A form of market where sellers and buyers exchange shares is called a
stock market.
2. Bond Market - A market place where buyers and sellers are engaged in the exchange of
debt securities, usually in the form of bonds is called a bond market. A bond is a contract

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signed by both the parties where one party promises to return money with interest at fixed
intervals.
3. Foreign Exchange Market - In such type of market, parties are involved in trading of
currency. In a foreign exchange market (also called currency market), one party
exchanges one countrys currency with equivalent quantity of another currency.
4. Predictive Markets - Predictive market is a set up where exchange of good or service
takes place for future. The buyer benefits when the market goes up and is at a loss when
the market crashes.
Market Size
The market size is directly proportional to two factors:

Number of sellers and Buyers

Total money involved annually

What is Segmentation?
Segmentation refers to a process of bifurcating or dividing a large unit into various small units
which have more or less similar or related characteristics.
Market Segmentation

Market segmentation is a marketing concept which divides the complete market set up
into smaller subsets comprising of consumers with a similar taste, demand and
preference.

A market segment is a small unit within a large market comprising of like minded
individuals.

One market segment is totally distinct from the other segment.

A market segment comprises of individuals who think on the same lines and have similar
interests.

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The individuals from the same segment respond in a similar way to the fluctuations in the
market.

Basis of Market Segmentation

Gender
The marketers divide the market into smaller segments based on gender. Both men and
women have different interests and preferences, and thus the need for segmentation.
Organizations need to have different marketing strategies for men which would obviously
not work in case of females.
A woman would not purchase a product meant for males and vice a versa.
The segmentation of the market as per the gender is important in many industries like
cosmetics, footwear, jewellery and apparel industries.

Age Group
Division on the basis of age group of the target audience is also one of the ways of
market segmentation.
The products and marketing strategies for teenagers would obviously be different than
kids.
Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams
Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags
Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels
and so on

Income
Marketers divide the consumers into small segments as per their income. Individuals are
classified into segments according to their monthly earnings.

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The three categories are:


High income Group
Mid Income Group
Low Income Group
Stores catering to the higher income group would have different range of products and
strategies as compared to stores which target the lower income group.
Pantaloon, Carrefour, Shoppers stop target the high income group as compared to Vishal
Retail, Reliance Retail or Big bazaar who cater to the individuals belonging to the lower
income segment.

Marital Status
Market segmentation can also be as per the marital status of the individuals. Travel
agencies would not have similar holiday packages for bachelors and married couples.

Occupation
Office goers would have different needs as compared to school / college students.
A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters
specifically to the professionals.

Types of Market Segmentation

Psychographic segmentation
The basis of such segmentation is the lifestyle of the individuals. The individuals
attitude, interest, value help the marketers to classify them into small groups.

Behaviouralistic Segmentation

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The loyalties of the customers towards a particular brand help the marketers to classify
them into smaller groups, each group comprising of individuals loyal towards a particular
brand.

Geographic Segmentation
Geographic segmentation refers to the classification of market into various geographical
areas. A marketer cant have similar strategies for individuals living at different places.
Nestle promotes Nescafe all through the year in cold states of the country as compared to
places which have well defined summer and winter season.
McDonalds in India does not sell beef products as it is strictly against the religious
beliefs of the countrymen, whereas McDonalds in US freely sells and promotes beef
products.
iv. Consumer protection

Consumer protection consists of laws and organizations designed to ensure the rights of
consumers as well as fair trade competition and the free flow of truthful information in the
marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair
practices from gaining an advantage over competitors and may provide additional protection for
the weak and those unable to take care of themselves. Consumer protection laws are a form of
government regulation which aim to protect the rights of consumers. For example, a government
may require businesses to disclose detailed information about productsparticularly in areas
where safety or public health is an issue, such as food. Consumer protection is linked to the idea
of "consumer rights" (that consumers have various rights as consumers), and to the formation of
consumer organizations, which help consumers make better choices in the marketplace and get
help with consumer complaints.
The Consumer Council of Zimbabwe (CCZ) is often inundated with calls and visits from people
complaining about the reluctance by retailers to compensate or replace faulty goods, lack of
guarantees among other problems.
A consumers option, if one has a problem with goods will depend on:

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When the item was bought (time).

Whether or not your rights under consumer protection laws have been breached

Who you bought them from

What outcome you want.

If the agreement you made with the trader has been broken, a consumer is entitled to have
matters put right. It is the person who sold you the goods who is responsible for sorting
your problem out, and not the manufacturer.

If your rights under consumer protection laws (in Zimbabwe, it is the Consumer Contracts
Act of 1994, or the Small Claims Court which are specific to matters we are talking about)
have been reached, you have the option to seek redress and get compensation.

You may be able to reject the goods and get a refund and/or compensation. You may also
be able to ask the trader to replace the goods or repair them. If the trader is not able to
replace or repair the goods, you may be able to get a reduction in the price you paid, or
end the contract you made when you bought the goods.

When you buy goods, they must be:

Of satisfactory quality. This means that the good must be free from faults, including minor
ones

Accurately described

Fit for their purpose

You may only have a legal right to reject your goods and claim a full refund, if they do not
meet one or more of these requirements. There are some types of sale to which these legal
rights do not apply. For example, if you bought the goods from an individual, you only
have a legal right to get your money back if the seller described them wrongly. You are
allowed a short time to examine goods and try them out, but you must tell the trader about
the fault as soon as you discover it.

You will not be able to get a full refund if you have:

Continued to use the goods

Tried to repair the goods in any way

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Kept the goods for too long without telling the trader you want to reject them.

Even if you are not entitled to a full refund, you may still be able to get compensation

Compensation when you cannot get a full refund on goods


o

You may not get a full refund, even if you have all your legal rights. For example,
if you have used the goods for some time before they show signs of being faulty,
the trader may offer you some money as compensation, instead of a full refund.
The trader may suggest a practical solution that you would prefer to accept, for
example, making a claim under a guarantee, but you would still be entitled to ask
for financial compensation.

When the trader refuses a refund on goods

The trader may refuse to refund you, even if you have the legal right to ask for your
money back. They may offer you alternatives such as a repair or an exchange. Some
traders refer you to the manufacturer or say that you should claim on the guarantee.
However, you do not have to accept this. If you want a refund but the trader does not offer
one, you can go to court or use an alternative dispute resolution e.g. come to the
Consumer Council of Zimbabwe to enforce your rights.

Repair or replacement of goods


o

A trader, who agrees to carry out a repair or provide a replacement, must do so


within a reasonable period of time, and without causing you any significant
inconvenience. If you ask the trader for a repair but this turns out to be impractical
or to be too expensive, the trader will not be obliged to repair your goods, but you
can choose to have a replacement instead. In the same way, if you have asked the
trader to replace your goods and this turns out to be impractical or too expensive,
the trader will not be obliged to replace your goods, but you can choose to have a
repair instead. If neither repair nor replacement is practical, you can choose to get
a reduction in price or a full refund.

Consumers should also buy only from reputable shops because they offer back up
services or compensation mechanisms. If you encounter any problems invoke the
law or visit the nearest CCZ offices.

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AVOID buying from shops that have disclaimers clauses like NO RETURNS NO

GUARANTEES.
D. PRODUCTION MANAGEMENT
Production system is the framework within which the production activities of an enterprise take
place. Manufacturing process is the conversion process through which inputs are converted into
outputs. An appropriate designing of production system ensures the coordination of various
production operations. There is no single pattern of production system which is universally
applicable to all types of production system varies from one enterprise to another. Broadly one
can think of three types of production systems which are mentioned here under: (a) Continuous production: - It refers to the production of standardized products with a standard
set of process and operation sequence in anticipation of demand. It is also known as mass flow
production or assembly line production. This system ensures less work in process inventory and
high product quality but involves large investment in machinery and equipment. The system is
suitable in plants involving large volume and small variety of output e.g. oil refineries reform
cement manufacturing etc.
(b) Job or Unit production: - It involves production as per customer's specification each batch or
order consists of a small lot of identical products and is different from other batches. The system
requires comparatively smaller investment in machines and equipment. It is flexible and can be
adapted to changes in product design and order size without much inconvenience. This system is
most suitable where heterogeneous products are produced against specific orders.
(c) Intermittent Production: Under this system the goods are produced partly for inventory and
partly for customer's orders. E.g. components are made for inventory but they are combined
differently for different customers. . Automobile plants, printing presses, electrical goods plant
are examples of this type of manufacturing. The nature of the process of production required by
these three different types of production system are distinct and require different conditions for
their working. Selection of manufacturing process is also a strategic decision as changes in the
same are costly. Therefore the manufacturing process is selected at the stage of planning a

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business venture. It should meet the basic two objectives i.e. to meet the specification of the final
product and to be cost effective.
i. Production planning and control
Once the entrepreneur has taken the decisions regarding the product design and production
processes and system, his next task is to take steps for production planning and control, as this
function is essentially required for efficient and economical production. One of the major
problems of small scale enterprises is that of low productivity small scale industries can utilize
natural resources, which are otherwise lying. Small scale sector can play an important role,
similar to the one played by small scale industries in other developed countries. Planned
production is an important feature of the small industry. The small entrepreneur possessing the
ability to look ahead, organize and coordinate and having plenty of driving force and capacity to
lead and ability to supervise and coordinate work and simulates his associates by means of a
programme of human relation and organization of employees, he would be able to get the best
out of his small industrial unit. Gorden and Carson observe production; planning and control
involve generally the organization and planning of manufacturing process. Especially it consists
of the planning of routing, scheduling, dispatching inspection, and coordination, control of
materials, methods machines, tools and operating times. The ultimate objective is the
organization of the supply and movement of materials and labour, machines utilization and
related activities, in order to bring about the desired manufacturing results in terms of quality,
quantity, time and place. Production planning without production control is like a bank without a
bank manager, planning initiates action while control is an adjusting process, providing
corrective measures for planned development. Production control regulates and stimulates the
orderly how of materials in the manufacturing process from the beginning to the end.
Production planning and control can facilitate the small entrepreneur in the following ways
(1) Optimum Utilization of Capacity:
With the help of Production Planning and Control [PPC] the entrepreneur can schedule his tasks
and production runs and thereby ensure that his productive capacity does not remain idle and

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there is no undue queuing up of tasks via proper allocation of tasks to the production facilities.
No order goes unattended and no machine remains idle.
(2) Inventory control:
Proper PPC will help the entrepreneur to resort to just- in- time systems and thereby reduce the
overall inventory. It will enable him to ensure that the right supplies are available at the right
time.
(3) Economy in production time:
PPC will help the entrepreneur to reduce the cycle time and increase the turnover via proper
scheduling.
(4) Ensure quality:
A good PPC will provide for adherence to the quality standards so that quality of output is
ensured.
To sum up we may say that PPC is of immense value to the entrepreneur in capacity utilization
and inventory control. More importantly it improves his response time and quality. As such
effective PPC contributes to time, quality and cost parameters of entrepreneurial success.
Production Planning and Control (PPC) is a process that comprises the performance of some
critical; functions on either side, viz., planning as well as control
Production planning: Production planning may be defined as the technique of foreseeing every
step in a long series of separate operations, each step to be taken at the right time and in the right
place and each operation to be performed in maximum efficiency. It helps entrepreneur to work
out the quantity of material manpower, machine and money requires for producing
predetermined level of output in given period of time.
Routing: Under this, the operations, their path and sequence are established. To perform these
operations the proper class of machines and personnel required are also worked out. The main

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aim of routing is to determine the best and cheapest sequence of operations and to ensure that
this sequence is strictly followed. In small enterprises, this job is usually done by entrepreneur
himself in a rather adhoc manner. Routing procedure involves following different activities.
(1) An analysis of the article to determine what to make and what to buy.
(2) To determine the quality and type of material
(3) Determining the manufacturing operations and their sequence.
(4) A determination of lot sizes
(5) Determination of scrap factors
(6) An analysis of cost of the article
(7) Organization of production control forms.
Scheduling: It means working out of time that should be required to perform each operation and
also the time necessary to perform the entire series as routed, making allowances for all factors
concerned. It mainly concerns with time element and priorities of a job. The pattern of
scheduling differs from one job to another which is explained as below:
Production schedule: The main aim is to schedule that amount of work which can easily
be handled by plant and equipment without interference. Its not independent decision as it takes
into account following factors.
(1) Physical plant facilities of the type required to process the material being scheduled.
(2) Personnel who possess the desired skills and experience to operate the equipment and
perform the type of work involved.
(3) Necessary materials and purchased parts.
Master Schedule: Scheduling usually starts with preparation of master schedule which is
weekly or monthly break-down of the production requirement for each product for a definite
time period, by having this as a running record of total production requirements the entrepreneur
is in better position to shift the production from one product to another as per the changed
production requirements. This forms a base for all subsequent scheduling acclivities. A master
schedule is followed by operator schedule which fixes total time required to do a piece of work

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with a given machine or which shows the time required to do each detailed operation of a given
job with a given machine or process.
Manufacturing schedule: It is prepared on the basis of type of manufacturing process
involved. It is very useful where single or few products are manufactured repeatedly at regular
intervals. Thus it would show the required quality of each product and sequence in which the
same to be operated
Scheduling of Job order manufacturing: Scheduling acquires greater importance in job
order manufacturing. This will enable the speedy execution of job at each center point.
As far as small scale industry is concerned scheduling is of utmost importance as it brings out
efficiency in the operations and s reduces cost price. The small entrepreneur should maintain four
types of schedules to have a close scrutiny of all stages namely an enquiry schedule, a production
schedule, a shop schedule and an arrears schedule out of above four, a shop schedule is the most
important most suited to the needs of small scale industry as it enables a foreman to see at a
glance.
1. The total load on any section
2. The operational sequence
3. The stage, which any job has reached.
Loading: The next step is the execution of the schedule plan as per the route chalked out
it includes the assignment of the work to the operators at their machines or work places. So
loading determines who will do the work as routing determines where and scheduling determines
when it shall be done. Gantt Charts are most commonly used in small industries in order to
determine the existing load and also to foresee how fast a job can be done. The usefulness of
their technique lies in the fact that they compare what has been done and what ought to have
been done. Most of a small scale enterprise fail due to non-adherence to delivery schedules
therefore they can be successful if they have ability to meet delivery order in time which no
doubt depends upon production of quality goods in right time. It makes all the more important

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for entrepreneur to judge ahead of time what should be done, where and when thus to leave
nothing to chance once the work has begun.
Production control: Production control is the process of planning production in advance
of operations, establishing the extract route of each individual item part or assembly, setting,
starting and finishing for each important item, assembly or the finishing production and releasing
the necessary orders as well as initiating the necessary follow-up to have the smooth function of
the enterprise. The production control is of complicated nature in small industries. The
production planning and control department can function at its best in small scale unit only when
the work manager, the purchase manager, the personnel manager and the financial controller
assist in planning production activities. The production controller directly reports to the works
manager but in small scale unit, all the three functions namely material control, planning and
control are often performed by the entrepreneur himself production control starts with
dispatching and ends up with corrective actions.
Dispatching: Dispatching involves issue of production orders for starting the operations.
Necessary authority and conformation is given for:
1. Movement of materials to different workstations.
2. Movement of tools and fixtures necessary for each operation.
3. Beginning of work on each operation.
4. Recording of time and cost involved in each operation.
5. Movement of work from one operation to another in accordance with the route sheet.
6. Inspecting or supervision of work
Dispatching is an important step as it translates production plans into production.
Follow up: Every production programme involves determination of the progress of work,
removing bottlenecks in the flow of work and ensuring that the productive operations are taking
place in accordance with the plans. It spots delays or deviations from the production plans. It
helps to reveal detects in routing and scheduling, misunderstanding of orders and instruction,
under loading or overloading of work etc. All problems or deviations are investigated and
remedial measures are undertaken to ensure the completion of work by the planned date.

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Inspection: This is mainly to ensure the quality of goods. It can be required as effective agency
of production control.
Corrective measures: Corrective action may involve any of those activities of adjusting
the route, rescheduling of work changing the workloads, repairs and maintenance of machinery
or equipment, control over inventories of the cause of deviation is the poor performance of the
employees. Certain personnel decisions like training, transfer, demotion etc. may have to be
taken. Alternate methods may be suggested to handle peak loads.
ii. Types of production
The following factors need to be considered before making a choice of manufacturing process.
a) Effect of volume/variety: This is one of the major considerations in selection of manufacturing
process. When the volume is low and variety is high, intermittent process is most suitable and
with increase in volume and reduction in variety continuous process become suitable. The
following figure indicates the choice of process as a function of repetitiveness. Degree of
repetitiveness is determined by dividing volume of goods by variety.
b) Capacity of the plant: Projected sales volume is the key factor to make a choice between batch
and line process. In case of line process, fixed costs are substantially higher than variable costs.
The reverse is true for batch process thus at low volume it would be cheaper to install and
maintain a batch process and line process becomes economical at higher volumes.
c) Lead time: - The continuous process normally yields faster deliveries as compared to batch
process. Therefore lead-time and level of competition certainly influence the choice of
production process.
d) Flexibility and Efficiency: - The manufacturing process needs to be flexible enough to adapt
contemplated changes and volume of production should be large enough to lower costs. Hence it
is very important for entrepreneur to consider all above mentioned factors before taking a

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decision regarding the type of manufacturing process to be adopted as for as SSI are concerned
they usually adopt batch processes due to low investment.
Jobbing
Herein one or few units of the products are produced as per the requirement and specification of
the customer. Production is to meet the delivery schedule and costs are fixed prior to the contract.
Batch
In this, limited quantities of each of the different types of products are manufactured on same set
of machines. Different products are produced separately one after the other.
Mass
Under this, the production run is conducted on a set of machines arranged according to the
sequence of operations. A huge quantity of same product is manufactured at a time and is stocked
for sale. Different product will require different manufacturing lines. Since one line can produce
only one type of product, this process is also called as line flow.
Flow Production
Production flow analysis (PFA) is a structured technique developed for analysing the sequence of
operations (routings) that parts go through during fabrication. Parts that go through common
operations are grouped into part families.

Similarly, the machines used to perform these

common operations may be grouped as a cell. Consequently this technique can be used in
facility layout.
PFA is conducted in the following stages:
Stage 1: Machine classification on the basis of operations that can be performed on them. A
machine type number is assigned to machines capable of performing similar operations
Stage 2: Checking parts list and production route information. For each part information on the
operations to be undertaken and the machines required to perform each of these operations is
checked thoroughly
Stage 3: Factory flow analysis- examination of flow of components through machines

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Stage 4: Machine-component group analysis- manipulating matrix to form cells or develop


analytical approaches to handle large problems systematically.
Group Technology (GT)
Is a philosophy that implies the notion of recognizing and exploiting similarities in three
different ways;
1. By performing like activities together
2. By standardizing similar tasks
3. By efficiently storing and retrieving information about recurring problems
The primary advantage of GT implementation is that a large manufacturing system to produce a
set of parts can be decomposed into smaller subsystems of part families based on similarities in
design attributes and manufacturing features. The decomposition based on similarities in design
attributes and manufacturing features and functions leads to improved productivity in various
functional areas of an organization e.g. in product design, parts are classified and coded on the
basis of their geometric similarities. The emphasis is on families of parts having similarities of
function, shape and size. To implement GT, formal classification and coding system are
incorporated into a computerized design retrieval system. When designing a new part, a design
engineer can find a part in the database that has geometric and functionality features similar to
those of the new part. In some cases, only minimal modifications may be necessary. This results
in reduced time and cost of product development. In manufacturing, productivity and cost
savings are realized by exploiting similarities in machining operations, tooling, setup procedures
and material handling. Parts having similar manufacturing requirements can be processed
together in dedicated work cells, leading to reduced setups, tooling and material handling.
Benefits of Group Technology
Group technology is a management strategy to help eliminate waste caused by duplication of
effort. It affects all areas of a company including engineering, equipment specification, facilities
planning; process planning, production control, quality control, tool design, purchasing and
service.

Some of the well-known tangible and intangible benefits of implementing GT in

companies in these functional areas are:

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1.

Engineering design
Reduction in new parts design
Reduction in the number of drawings through standardization
Reduction of drafting effort in new shop drawings
Reduction of number of similar parts, easy retrieval of similar functional parts and
identification of substitute parts.

2.

Layout planning
Reduction in production floor space required
Reduced material handling effort
Standardization of equipment
Implementation of cellular manufacturing systems
Reduced number of tools, pellets, jigs & fixtures
Significant reduction in up-front cost incurred in the release of new parts for
manufacture

3.

Specification of equipment, tools, jigs and fixtures


Standardization of equipment
Implementation of cellular manufacturing systems
Reduced number of tools, pallets, jigs and fixtures
Significant reduction in up-front cost incurred in the release of new parts for
manufacture

4.

Manufacturing: process planning


Reduction in set up time and production time
Alternative routing leading to improved part routing
Improved machine loading and shortened production cycles
Reduction in number of machining operations and numerical

control (NC)

programming time

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5.

Manufacturing: production control


Reduced work-in-process inventory
Easy identification of bottlenecks
Improved material flow and reduced warehousing cost
Faster response to schedule changes
Improved usage of jigs, fixtures, pallets, tools, material handling, and manufacturing
equipment

6.

Manufacturing: quality control


Reduction in number of defects leading to reduced inspection effort
Reduced scrap generations
Better output quality
Increased accountability of operators and supervisors responsible for quality
production, making it easier to implement total quality control concepts

7.

Purchasing
Coding of purchased parts leading to standardized rules for purchasing
Economies of purchasing possible because of accurate knowledge of raw material
requirements
Reduced number of parts and raw materials
Simplified vendor evaluation procedures leading to just-in-time purchasing.

8.

Customer service
Accurate and faster cost estimates
Efficient spare parts management, leading to better customer service.
iii. Aids to production

Work Study (Time and Motion Study)

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According to the ILO Hand Book, it is a term used to embrace the techniques of method study
and work measurement, which are employed to ensure the best possible use of human and
material resources in carrying out a specified activity. Work study consists of as already
mentioned in the above definition of two steps
Method study (motion study)
Work measurement (time study)
According to the British Standards Institute, work study is a generic term for those techniques,
particularly method study and work measurement, which are used in examination of human work
in all its contexts and which lead systematically to the investigation of all factors which affect the
efficiency and economy of the situation being renewed, in order to effect improvement.
What is Work Study?
Organized common sense
10% technique and 90% psychology
Objectives of Work Study
To assist the management to obtain the optimum use of the human and material resources
available to the organization for the accomplishment of the work for which, it is engaged.
How to Optimize?
Effective use of plant and equipment
Effective use of human effort
Evaluation of human work to make it more convenient
Principles of Work Study
being an instrument of progressive management responsibility for its use, the conviction of its
value and the drive to apply it must come from the top echelons of the management.
as it is bound to affect the jobs of many people in the organization, these people must be made
aware of the objectives and the need of the exercise.
Method study must precede work measurement

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The two steps of work study are very much distinct in spite of being interdependent. Method
study is the process wherein existing and proposed ways of doing a work are systematically
examined so as to develop and apply better methods of doing the same. Work measurement is the
technique of establishment of time standards for a qualified worker to perform a specific job at a
defined level of performance.
Areas of Application of Method study
Improved layout of office, working areas of factories
Improved design of plant and equipments
Improved use of materials, plant, equipments and manpower
Most effective handling of materials
Improved flow of work
Standardization of methods and procedures
Improved safety standards
Better working conditions
Steps in Method Study (SREDIM)
1. Select Select the work to be studied. It involves taking account of economic, technical and
human considerations.
2. Record Record all the relevant facts of the present (or proposed) method by direct
observation.
3. Examine Examine the facts critically in sequence, using special critical examination sheets.
4. Develop Develop the best method, i.e., the most practical, economic and effective method,
under prevailing circumstances.
5. Install Install that method as standard practice.
6. Maintain Maintain that standard practice by regular routine checks.
SELECTING
Economic considerations
Cost

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Worth the effort and capability of paying for itself


Focus of economic considerations
Whether economically sound or not?
Technical considerations
Availability of necessary equipment, facilities and technical knowledge for production
Focus of technical considerations
Production process and infrastructure
Human considerations
Mental and emotional reactions of men and their inherent resistance to change
Focus of human considerations
Worker involvement
RECORDING
It is the phase of data collection. Data is relevant facts pertaining to the existing method which
are collected and recorded to carry out the investigation. The place where this data is entered is
called a record. Recording techniques depend on the type and nature of the data.
The broad techniques are
Charts for process and time records
Diagrams and models for path of movement of men or materials (not mutually exclusive)
Photographic aids
Charts
1. Outline process charts Principal operations and inspections of the processes.
2. Flow process charts Activities of men, material or equipment are analyzed into five events
of operation, inspection, transport, storage and delay.
3. Two handed process charts Movements of two hands or limbs of the operator.
4. Multiple activity charts Simultaneous / interrelated activities of operators and / or machines,
on a common time scale.
5. Simultaneous motion cycle Movement of body parts of the operator, expressed in terms of
micro-motions (therbligs) 18 of them on a common time scale.

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Diagrams and Models


1. Flow diagram Path of men, materials and equipments on a scale model.
2. String diagram Same as above except for the variation that it uses a string to trace the path.
3. Two and three dimensional diagrams, models and templates Planning of layout of work
place or plant.
Photographic Aids
1. Cyclograph Movement of hand obtained by exposing a photographic plate to the light
emitted from small bulbs attached to the operators fingers.
2. Chrono-cyclographs A modification of the cyclograph, where the record is made by using
flash lights.
Symbols for recording
1. Operation Main step in a process, method or procedure.
Usually, the part, material or product is modified or changed during the operation.
2. Inspection Indicates any type of inspection check, measurement, visual scrutiny for quality
and / or quantity.
3. Transport Indicates movement of workers, material or equipment from place to place.
4. Temporary storage or delay Indicates a delay in the sequence of events.
5. Storage Indicates controlled storage in which materials is received into or issued from stores
under some form of authorization or an item is retained for reference purposes.
EXAMINING
What is done?
Critical examination of existing method / proposed method is done.
Purpose?
If unnecessary, eliminate the activity altogether
Combine activities, if feasible
Change sequence of activities so that work or delay is reduced
Simplify the activity to reduce the work content or the time consumed
Principles
Examine facts without any bias

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Avoid hasty judgments / conclusions


Do not consider new method until all undesirable features of existing method have been
exposed by examination
How to be done?
Questions
? Primary (What is to be done?)
? Secondary (What else can be done?)
? Alternatives (What should be done?)
Critical examination sheet
DEVELOPING
Draw a framework of an improved method by arranging in sequence the essential do
operations.
Fill up ancillary work in a way as efficient as possible
Try out mock ups of the new method (make dry runs)
Draw up improved method in process chart form
Submit
INSTALLING
Two phases
Preparation
Plan (Who? How?)
Arrange (check, Training, Advise)
Rehearse
Installation
Note: There should be minimum disruption of normal work.
MAINTAINING
Objective
To make allowances for changes
Why?

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Good reasons
Result of suggestion schemes
Minor innovations introduced by workers / supervisors
Important Terms in Work Measurement
Standard performance Optimum rate of output achieved by a qualified worker as an average
per working day/shift, due allowance being made for the necessary time required for rest.
Qualified worker One who has the necessary physical attributes, intelligence and education,
and has acquired the necessary skill and knowledge to carry out the work in hand to the
satisfactory standards of safety, quantity and quality.
Element A distinctive part of a specialized job selected for convenience by observation,
measurement and analysis. There are eight types of elements repetitive, occasional, constant,
variable, manual, machine, governing and foreign.
Work cycle The sequence of elements which are required to perform a job or yield a unit of
production.
(Observed) Worker Rating The assessment of a workers rate of working relative to the
observers concept of rate corresponding to the standard pace.
Standard rating It is defined as the rate of output which qualified workers will naturally
achieve as an average output for a given period of time. This rating is denoted as 100 or
100%.
Rating factor It is the multiplying unit to the standard rating which gives the observed rating.
For e.g., if the observed rating is 100, rating factor is 1; if observed rating is 90, the rating factor
is 0.9 and so on.
Basic (Normal) time It is defined as the time taken by a qualified worker to do a piece of work
at the standard rate of performance.

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Basic time = observed time * rating factor = observed time * (worker rating / 100)
Relaxation allowance The additional time that is allowed to a worker for a specified work
over and above the basic time, counted as a percentage of basic time and taken into account
several factors depending upon the job.
Work content It consists of work plus allowances for rest, personal needs, and any other
allowance for additional work.
Standard time The total time in which a job should be completed at standard performance.
Standard time = basic time + allowance
Allowed time A time allowed for payment purposes to the factory worker where the standard
time is increased appropriately by a factor representing a bonus and / or policy.
Standard minutes A standard minute (SM) expresses a unit of work in terms of the 100
BS scale. Standard performance is recognized as being 60 SMs an hour. It is different from
standard time, in that the latter includes ineffective and occupied time.
Techniques of Work Measurement
Time Study
A technique for determining as accurately as possible, the time required to carry out a specific
task by a qualified worker at a defined level of performance. It is the most widely used technique
in work measurement.
Constraints
Studies cannot be made in a hurry
Values once estimated cannot be altered unless the work content of the job and the conditions
of work change
Essentials
An accurate specification of when the job begins and when it ends, and the method by which it
is to be carried out including details of materials, equipment, conditions, etc.

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A system of recording the observed (actual) time taken by workers to do the job while under
observation
A clear concept of what is meant by standard rating
A means of assessing the amount of rest which should be associated with the job
Availability of measuring equipments like stop watches, stationeries, time study sheet, etc.
How?
Break the operation into elements, depending upon the nature of the job and the purpose of the
study
Determine number of cycles to be timed
Observe and record time taken
Undertake performance rating
Synthesis
Time study techniques are not suitable where direct observation is not convenient. Under such
circumstances, we may estimate a standard time on the basis of previous experience of similar
jobs. Time standards arrived at this way are called synthesis. Synthesis is a work measurement
technique for building up the time for a job at a defined level of performance by totaling element
times obtained previously from time studies on other jobs containing the elements concerned,
from synthetic data.
Steps in Synthesis
Collect full details of the job (Dimensions, tools, methods, conditions)
Analyze job into constituent elements (Activity grouping to enable synthetic elements to be
applied if relevant)
Select appropriate basic times from synthetic data for all elements
Select and apply synthetics covering contingent factors
Verify detail of elemental analysis for job method and conditions
Total basic times, RA and allowance to establish the standard time for the job
Advantage over time study
Fast
Consistency

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Analytical Estimating
A work measurement technique whereby the time required carrying out elements of a job at a
defined level of performance is established from knowledge and practical experience of the
elements concerned.
Steps
Collect full details of job
Analyze job into constituent elements
Apply synthetic data and estimate basic times for the remaining elements and contingencies
Apply the appropriate RA as a blanket allowance
Verify detail of elemental analysis for job method and conditions
Total basic times, RA and allowance to establish the standard time for the job
PMTS (Predetermined Motion Time System)
A work measurement technique whereby times established for basic human motions (classified
according to the nature of the motion and the conditions under which it is made) are used to build
up the time for a job at a defined level of performance. In this method, the actions involved are
the following
Break down the work into a list of motions
Arrange the list of motions in correct sequence
Enter against each motion, the rated time
The rated time of motions are obtained from a set of tables which have been compiled for
various motions. The sum of the times gives the total time to perform the work. All times are
standardized at normal rating. Allowances are later added. e.g. lift a pencil -> motions like
reach / grasp, move etc. are basic motions
Types
o MTM (Method Time Measurement) -> very accurate
o Work factor synthesis It may be Detailed, Simplified or Abbreviated
o Motion Time System
Activity Sampling

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This type of study consists of taking a number of observations at random intervals, wherein the
state or conditions of the object of study is noted and classified into predefined categories
pertinent to the system. The percentage of observation recorded for a particular activity or delay,
within reasonable limits, is a measure of the percentage of total time during which that activity or
delay occurs.
For e.g., 16 random visits to observe show that machine is idle in 4 visits. Deduction made is that
machine was idle 25% of the time. This method is appropriate when the cycle time happens to be
very long and /or continuous direct observation is not feasible or when data is required at
unexpected times.
Equivalent terms work sampling / ratio delay / snap reading method of observation

E. PERSONNEL MANAGEMENT

Personnel management can be defined as obtaining, using and maintaining a satisfied


workforce. It is a significant part of management concerned with employees at work and with
their relationship within the organization.
According to Flippo, Personnel management is the planning, organizing, compensation,
integration and maintainance of people for the purpose of contributing to organizational,
individual and societal goals.
According to Brech, Personnel Management is that part which is primarily concerned with
human resource of organization.
Nature of Personnel Management
1. Personnel management includes the function of employment, development and
compensation- These functions are performed primarily by the personnel management in
consultation with other departments.

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2. Personnel management is an extension to general management. It is concerned with


promoting and stimulating competent work force to make their fullest contribution to the
concern.
3. Personnel management exists to advice and assists the line managers in personnel
matters. Therefore, personnel department is a staff department of an organization.
4. Personnel management lays emphasize on action rather than making lengthy schedules,
plans, and work methods. The problems and grievances of people at work can be solved
more effectively through rationale personnel policies.
5. It is based on human orientation. It tries to help the workers to develop their potential
fully to the concern.
6. It also motivates the employees through its effective incentive plans so that the
employees provide fullest co-operation.
7. Personnel management deals with human resources of a concern. In context to human
resources, it manages both individual as well as blue- collar workers.
Role of Personnel Manager
Personnel manager is the head of personnel department. He performs both managerial and
operative functions of management. His role can be summarized as :
1. Personnel manager provides assistance to top management- The top management are the
people who decide and frame the primary policies of the concern. All kinds of policies
related to personnel or workforce can be framed out effectively by the personnel
manager.
2. He advices the line manager as a staff specialist- Personnel manager acts like a staff
advisor and assists the line managers in dealing with various personnel matters.
3. As a counselor, - As a counselor, personnel manager attends problems and grievances of
employees and guides them. He tries to solve them in best of his capacity.
4. Personnel manager acts as a mediator- He is a linking pin between management and
workers.

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5. He acts as a spokesman- Since he is in direct contact with the employees, he is required


to act as representative of organization in committees appointed by government. He
represents company in training programmes.

i. The role of personnel


Following are the four functions of Personnel Management:
1. Manpower Planning
Manpower Planning which is also called as Human Resource Planning consists of putting right
number of people, right kind of people at the right place, right time, doing the right things for
which they are suited for the achievement of goals of the organization. Human Resource
Planning has got an important place in the arena of industrialization. Human Resource Planning
has to be a systems approach and is carried out in a set procedure. The procedure is as follows:
i.

Analysing the current manpower inventory

ii.

Making future manpower forecasts

iii.

Developing employment programmes

iv.

Design training programmes

Steps in Manpower Planning


A. Analysing the current manpower inventory- Before a manager makes forecast of
future manpower, the current manpower status has to be analysed. For this the following
things have to be noted

Type of organization

Number of departments

Number and quantity of such departments

Employees in these work units

Once these factors are registered by a manager, he goes for the future forecasting.

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B. Making future manpower forecasts- Once the factors affecting the future manpower
forecasts are known, planning can be done for the future manpower requirements in
several work units.
The Manpower forecasting techniques commonly employed by the organizations are as
follows:
i.

Expert Forecasts: This includes informal decisions, formal expert surveys and
Delphi technique.

ii.

Trend Analysis: Manpower needs can be projected through extrapolation


(projecting past trends), indexation (using base year as basis), and statistical
analysis (central tendency measure).

iii.

Work Load Analysis: It is dependent upon the nature of work load in a


department, in a branch or in a division.

iv.

Work Force Analysis: Whenever production and time period has to be analysed,
due allowances have to be made for getting net manpower requirements.

v.

Other methods: Several Mathematical models, with the aid of computers are
used to forecast manpower needs, like budget and planning analysis, regression,
new venture analysis.

C. Developing employment programmes- Once the current inventory is compared with


future forecasts, the employment programmes can be framed and developed accordingly,
which will include recruitment, selection procedures and placement plans.
D. Design training programmes- These will be based upon extent of diversification,
expansion plans, development programmes, etc. Training programmes depend upon the
extent of improvement in technology and advancement to take place. It is also done to
improve upon the skills, capabilities, knowledge of the workers.
Importance of Manpower Planning
i.

Key to managerial functions- The four managerial functions, i.e., planning, organizing,
directing and controlling are based upon the manpower. Human resources help in the

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implementation of all these managerial activities. Therefore, staffing becomes a key to all
managerial functions.
ii.

Efficient utilization- Efficient management of personnels becomes an important function


in the industrialization world of today. Setting of large scale enterprises require
management of large scale manpower. It can be effectively done through staffing
function.

iii.

Motivation- Staffing function not only includes putting right men on right job, but it also
comprises of motivational programmes, i.e., incentive plans to be framed for further
participation and employment of employees in a concern. Therefore, all types of
incentive plans become an integral part of staffing function.

iv.

Better human relations- A concern can stabilize itself if human relations develop and
are strong. Human relations become strong trough effective control, clear
communication, effective supervision and leadership in a concern. Staffing function also
looks after training and development of the work force which leads to co-operation and
better human relations.

v.

Higher productivity- Productivity level increases when resources are utilized in best
possible manner. higher productivity is a result of minimum wastage of time, money,
efforts and energies. This is possible through the staffing and its related activities
( Performance appraisal, training and development, remuneration)

Need of Manpower Planning


Manpower Planning is a two-phased process because manpower planning not only analyses the
current human resources but also makes manpower forecasts and thereby draw employment
programmes. Manpower Planning is advantageous to firm in following manner:
Shortages and surpluses can be identified so that quick action can be taken wherever
required.
All the recruitment and selection programmes are based on manpower planning.
It also helps to reduce the labour cost as excess staff can be identified and thereby
overstaffing can be avoided.

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It also helps to identify the available talents in a concern and accordingly training
programmes can be chalked out to develop those talents.
It helps in growth and diversification of business. Through manpower planning, human
resources can be readily available and they can be utilized in best manner.
It helps the organization to realize the importance of manpower management which
ultimately helps in the stability of a concern.
2. Recruitment
Recruitment is of 2 types
A. Internal Recruitment - is a recruitment which takes place within the concern or
organization. Internal sources of recruitment are readily available to an organization.
Internal sources are primarily three - Transfers, promotions and Re-employment of exemployees. Re-employment of ex-employees is one of the internal sources of recruitment
in which employees can be invited and appointed to fill vacancies in the concern. There
are situations when ex-employees provide unsolicited applications also.
Internal recruitment may lead to increase in employees productivity as their motivation
level increases. It also saves time, money and efforts. But a drawback of internal
recruitment is that it refrains the organization from new blood. Also, not all the
manpower requirements can be met through internal recruitment. Hiring from outside has
to be done.
Internal sources are primarily 3
a. Transfers
b. Promotions (through Internal Job Postings) and
c. Re-employment of ex-employees - Re-employment of ex-employees is one of the
internal sources of recruitment in which employees can be invited and appointed to fill
vacancies in the concern. There are situations when ex-employees provide unsolicited
applications also.
B. External Recruitment - External sources of recruitment have to be solicited from
outside the organization. External sources are external to a concern. But it involves lot of
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time and money. The external sources of recruitment include - Employment at factory
gate, advertisements, employment exchanges, employment agencies, educational
institutes, labour contractors, recommendations etc.
1. Employment at Factory Level - This a source of external recruitment in which
the applications for vacancies are presented on bulletin boards outside the Factory
or at the Gate. This kind of recruitment is applicable generally where factory
workers are to be appointed. There are people who keep on soliciting jobs from
one place to another. These applicants are called as unsolicited applicants. These
types of workers apply on their own for their job. For this kind of recruitment
workers have a tendency to shift from one factory to another and therefore they
are called as badly workers.
2. Advertisement - It is an external source which has got an important place in
recruitment procedure. The biggest advantage of advertisement is that it covers a
wide area of market and scattered applicants can get information from
advertisements. Medium used is Newspapers and Television.
3. Employment Exchanges - There are certain Employment exchanges which are
run by government. Most of the government undertakings and concerns employ
people through such exchanges. Now-a-days recruitment in government agencies
has become compulsory through employment exchange.
4. Employment Agencies - There are certain professional organizations which look
towards recruitment and employment of people, i.e. these private agencies run by
private individuals supply required manpower to needy concerns.
5. Educational Institutions - There are certain professional Institutions which serve
as an external source for recruiting fresh graduates from these institutes. This kind
of recruitment done through such educational institutions is called as Campus
Recruitment. They have special recruitment cells which help in providing jobs to
fresh candidates.
6. Recommendations - There are certain people who have experience in a particular
area. They enjoy goodwill and a stand in the company. There are certain vacancies
which are filled by recommendations of such people. The biggest drawback of

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this source is that the company has to rely totally on such people which can later
on prove to be inefficient.
7. Labour Contractors - These are the specialist people who supply manpower to
the Factory or Manufacturing plants. Through these contractors, workers are
appointed on contract basis, i.e. for a particular time period. Under conditions
when these contractors leave the organization, such people who are appointed
have to also leave the concern.
3. Selection
Employee Selection is the process of putting right men on right job. It is a procedure of
matching organizational requirements with the skills and qualifications of people. Effective
selection can be done only when there is effective matching. By selecting best candidate for
the required job, the organization will get quality performance of employees. Moreover,
organization will face less of absenteeism and employee turnover problems. By selecting
right candidate for the required job, organization will also save time and money. Proper
screening of candidates takes place during selection procedure. All the potential candidates
who apply for the given job are tested.
But selection must be differentiated from recruitment, though these are two phases of
employment process. Recruitment is considered to be a positive process as it motivates more of
candidates to apply for the job. It creates a pool of applicants. It is just sourcing of data. While
selection is a negative process as the inappropriate candidates are rejected here. Recruitment
precedes selection in staffing process. Selection involves choosing the best candidate with best
abilities, skills and knowledge for the required job.
The Employee selection Process takes place in following ordera) Preliminary Interviews- It is used to eliminate those candidates who do not meet the
minimum eligibility criteria laid down by the organization. The skills, academic and
family background, competencies and interests of the candidate are examined during
preliminary interview. Preliminary interviews are less formalized and planned than the
final interviews. The candidates are given a brief up about the company and the job

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profile; and it is also examined how much the candidate knows about the company.
Preliminary interviews are also called screening interviews.
b) Application blanks- The candidates who clear the preliminary interview are required to
fill application blank. It contains data record of the candidates such as details about age,
qualifications, reason for leaving previous job, experience, etc.
c) Written Tests- Various written tests conducted during selection procedure are aptitude
test, intelligence test, reasoning test, personality test, etc. These tests are used to
objectively assess the potential candidate. They should not be biased.
d) Employment Interviews- It is a one to one interaction between the interviewer and the
potential candidate. It is used to find whether the candidate is best suited for the required
job or not. But such interviews consume time and money both. Moreover the
competencies of the candidate cannot be judged. Such interviews may be biased at times.
Such interviews should be conducted properly. No distractions should be there in room.
There should be an honest communication between candidate and interviewer.
e) Medical examination- Medical tests are conducted to ensure physical fitness of the
potential employee. It will decrease chances of employee absenteeism.
f) Appointment Letter- A reference check is made about the candidate selected and then
finally he is appointed by giving a formal appointment letter.
4. Training and Development
Training of employees takes place after orientation takes place. Training is the process of
enhancing the skills, capabilities and knowledge of employees for doing a particular job.
Training process moulds the thinking of employees and leads to quality performance of
employees. It is continuous and never ending in nature.
Importance of Training
Training is crucial for organizational development and success. It is fruitful to both employers
and employees of an organization. An employee will become more efficient and productive if he
is trained well.
Training is given on four basic grounds:

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a) New candidates who join an organization are given training. This training familiarizes
them with the organizational mission, vision, rules and regulations and the working
conditions.
b) The existing employees are trained to refresh and enhance their knowledge.
c) If any updating and amendments take place in technology, training is given to cope up
with those changes. For instance, purchasing new equipment, changes in technique of
production, computer impartment. The employees are trained about use of new
equipments and work methods.
d) When promotion and career growth becomes important. Training is given so that
employees are prepared to share the responsibilities of the higher level job.
The benefits of training can be summed up as:
a) Improves morale of employees- Training helps the employee to get job security and job
satisfaction. The more satisfied the employee is and the greater is his morale, the more he
will contribute to organizational success and the lesser will be employee absenteeism and
turnover.
b) Less supervision- A well trained employee will be well acquainted with the job and will
need less of supervision. Thus, there will be less wastage of time and efforts.
c) Fewer accidents- Errors are likely to occur if the employees lack knowledge and skills
required for doing a particular job. The more trained an employee is, the less are the
chances of committing accidents in job and the more proficient the employee becomes.
d) Chances of promotion- Employees acquire skills and efficiency during training. They
become more eligible for promotion. They become an asset for the organization.
e) Increased productivity- Training improves efficiency and productivity of employees.
Well trained employees show both quantity and quality performance. There is less
wastage of time, money and resources if employees are properly trained.
Ways/Methods of Training
Training is generally imparted in two ways:

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i.

On the job training- On the job training methods are those which are given to the
employees within the everyday working of a concern. It is a simple and cost-effective
training method. The in proficient as well as semi- proficient employees can be well
trained by using such training method. The employees are trained in actual working
scenario. The motto of such training is learning by doing. Instances of such on-job
training methods are job-rotation, coaching, temporary promotions, etc.

ii.

Off the job training- Off the job training methods are those in which training is provided
away from the actual working condition. It is generally used in case of new employees.
Instances of off the job training methods are workshops, seminars, conferences, etc. Such
method is costly and is effective if and only if large number of employees have to be
trained within a short time period. Off the job training is also called as vestibule training,
i.e., the employees are trained in a separate area (may be a hall, entrance, reception area,
etc. known as a vestibule) where the actual working conditions are duplicated.
ii. Employee performance appraisal

Performance Appraisal is the systematic evaluation of the performance of employees and to


understand the abilities of a person for further growth and development. Performance appraisal is
generally done in systematic ways which are as follows:
a) The supervisors measure the pay of employees and compare it with targets and plans.
b) The supervisor analyses the factors behind work performances of employees.
c) The employers are in position to guide the employees for a better performance
Objectives of Performance Appraisal
Performance Appraisal can be done with following objectives in mind:
a) To maintain records in order to determine compensation packages, wage structure,
salaries raises, etc.
b) To identify the strengths and weaknesses of employees to place right men on right job.
c) To maintain and assess the potential present in a person for further growth and
development.

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d) To provide a feedback to employees regarding their performance and related status.


e) To provide a feedback to employees regarding their performance and related status.
f) It serves as a basis for influencing working habits of the employees.
g) To review and retain the promotional and other training programmes.

Advantages of Performance Appraisal


It is said that performance appraisal is an investment for the company which can be justified by
following advantages:
i.

Promotion: Performance Appraisal helps the supervisors to chalk out the promotion
programmes for efficient employees. In this regards, inefficient workers can be dismissed
or demoted in case.

ii.

Compensation: Performance Appraisal helps in chalking out compensation packages for


employees. Merit rating is possible through performance appraisal. Performance Appraisal
tries to give worth to a performance. Compensation packages which include bonus, high
salary rates, extra benefits, allowances and pre-requisites are dependent on performance
appraisal. The criteria should be merit rather than seniority.

iii.

Employees Development: The systematic procedure of performance appraisal helps the


supervisors to frame training policies and programmes. It helps to analyse strengths and
weaknesses of employees so that new jobs can be designed for efficient employees. It also
helps in framing future development programmes.

iv.

Selection Validation: Performance Appraisal helps the supervisors to understand the


validity and importance of the selection procedure. The supervisors come to know the
validity and thereby the strengths and weaknesses of selection procedure. Future changes
in selection methods can be made in this regard.

v.

Communication: For an organization, effective communication between employees and


employers is very important. Through performance appraisal, communication can be
sought for in the following ways:
a. Through performance appraisal, the employers can understand and accept skills of
subordinates.

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b. The subordinates can also understand and create a trust and confidence in
superiors.
c. It also helps in maintaining cordial and congenial labour management relationship.
d. It develops the spirit of work and boosts the morale of employees.
All the above factors ensure effective communication.
vi.

Motivation: Performance appraisal serves as a motivation tool. Through evaluating


performance of employees, a persons efficiency can be determined if the targets are
achieved. This very well motivates a person for better job and helps him to improve his
performance in the future.
iii. Job evaluation

Job evaluation is a process of determining the relative worth of a job. It is a process which is
helpful even for framing compensation plans by the personnel manager. Job evaluation as a
process is advantageous to a company in many ways:
1. Reduction in inequalities in salary structure - It is found that people and their
motivation is dependent upon how well they are being paid. Therefore the main objective
of job evaluation is to have external and internal consistency in salary structure so that
inequalities in salaries are reduced.
2. Specialization - Because of division of labour and thereby specialization, a large number
of enterprises have got hundred jobs and many employees to perform them. Therefore, an
attempt should be made to define a job and thereby fix salaries for it. This is possible
only through job evaluation.
3. Helps in selection of employees - The job evaluation information can be helpful at the
time of selection of candidates. The factors that are determined for job evaluation can be
taken into account while selecting the employees.
4. Harmonious relationship between employees and manager - Through job evaluation,
harmonious and congenial relations can be maintained between employees and
management, so that all kinds of salaries controversies can be minimized.

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5. Standardization - The process of determining the salary differentials for different jobs
become standardized through job evaluation. This helps in bringing uniformity into salary
structure.
6. Relevance of new jobs - Through job evaluation, one can understand the relative value
of new jobs in a concern.

vi. Employee relations


Collective Bargaining
Is a means of settling issues relating to terms and conditions of employment and has little to do
with labour management relations policy formulation. Nevertheless collective bargaining may
reflect - sometimes explicitly and at other times implicitly - labour management relations policy
e.g., on wage guidelines, termination of employment procedures. It can also be a means of
developing policy formulation at the industry level. For instance, arrangements and agreements
resulting from collective bargaining may provide ways in which wages could be adjusted to meet
increases in the cost of living, in which event they will constitute an agreed policy on this issue.
They may link a part of wage increases to productivity increases or provide for productivity gain
sharing in other ways, in which event they represent policy on aspects of productivity. Methods
of dispute settlement would reflect a desire for the peaceful resolution of disputes.
In a more general sense, collective bargaining is a critical element in pluralism because, as
adherents and critics agree, in the pluralist vision, labour and management, as autonomous
interest groups, can and should jointly fix the rules of employment upon terms which represent
an acceptable compromise between their competing interests. But is this process of negotiation
and compromise a good in itself? Pluralists believe that it is, although their rationales vary:
collective bargaining replicates the processes by which conflict is and should always be resolved
in a democracy; it projects democratic values into the workplace; it preserves the autonomy of
social forces as against the pervasive influence of the state; it is faithful to - but makes more
acceptable by its mobilization of countervailing power - the conventional marketplace techniques
of economic ordering in a capitalist economy; it ensures the participation, and thereby the moral
commitment, of those most directly concerned with outcomes; it represents a significant advance
over abusive and oppressive unilateral employer control."

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Collective bargaining, inasmuch as it promotes democracy at the enterprise as well as at the


national and the industry levels (depending at which level collective bargaining takes place), is
an important aspect of a sound industrial relations system.
The ILO Convention No. 98 (1949) relating to the Right to organize and to Bargain Collectively
describes collective bargaining as: "Voluntary negotiation between employers or employers'
organizations and workers' organizations, with a view to the regulation of terms and conditions
of employment by collective agreements."
Essential features of collective bargaining
i.

It is not equivalent to collective agreements because collective bargaining refers to


the process or means, and collective agreements to the possible result, of bargaining.
There may therefore be collective bargaining without a collective agreement.

ii.

It is a method used by trade unions to improve the terms and conditions of


employment of their members, often on the basis of equalizing them across industries.

iii.

It is a method which restores the unequal bargaining position as between employer


and employee.

iv.

Where it leads to an agreement it modifies, rather than replaces, the individual


contract of employment, because it does not create the employer-employee
relationship.

v.

The process is bipartite, but in some developing countries the State plays a role in the
form of a conciliator where disagreements occur, or may intervene more directly (e.g.
by setting wage guidelines) where collective bargaining impinges on government
policy.

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vi.

Employers have in the past used collective bargaining to reduce competitive edge
based on labour costs.

Some Pre-conditions for Successful Collective Bargaining


A pluralistic outlook involves acceptance within a political system of pressure groups (e.g.
religious groups, unions, business associations, political parties and so on) with specific interests
with which a government has dialogue, with a view to effecting compromises by making
concessions. Pluralism implies a process of bargaining between these groups, or between one or
more of them on the one hand and the government on the other. It therefore recognizes these
groups as the checks and balances which guarantee democracy. It is natural that in labour
relations in a pluralist society collective bargaining is recognized as a fundamental tool through
which stability is maintained, while freedom of association is the sine qua non without which the
interest groups in a society would be unable to function effectively. There can therefore be no
meaningful collective bargaining without freedom of association accorded to both employers and
workers. The existence of freedom of association does not necessarily mean that there would
automatically be recognition of unions for bargaining purposes. Especially in systems where
there is a multiplicity of trade unions, there is a need for predetermined objective criteria
operative within the industrial relations system to decide when and how a union should be
recognized for collective bargaining purposes. The obvious way would be to recognize the most
representative union, but the criteria used to decide it and by whom may differ. It is in some
systems determined on the basis of the union needing to have not less than a particular
percentage of the workers in the enterprise in its membership. This may be decided by a
referendum in the workplace, or by an outside certifying authority (such as a labour department
or an independent statutory body), or by reference to "check off". There may be a condition that
once certified as the bargaining agent there cannot be a change of agent for a prescribed period
(e.g. one or two years) in order to ensure the stability of the process. Especially in developing
countries some of which have a multiplicity of unions, there is sometimes a problem of unions
being unable to secure observance of agreements by their members. Where a labour law system
provides for sanctions for breaches of agreements, the labour administration authorities may be
reluctant to impose sanctions on workers. Where there is frequent non-observance of agreements
or understandings reached through the collective bargaining process, the party not in default

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would lose faith in the process. Support of the labour administration authorities is necessary for
successful collective bargaining, and this implies that they will:
i.

provide the necessary climate for it, e.g. provide effective conciliation services
in the event of a breakdown of the process, and provide the necessary legal
framework for it to operate in where necessary;

ii.

Not support a party in breach of agreements concluded in consequence of


collective bargaining;

iii.

as far as is practicable, secure observance of collective bargaining agreements;

iv.

Provide for the settlement of disputes arising from collective bargaining if the
parties themselves have not so provided. It is an obvious condition for
successful collective bargaining that both parties bargain in good faith.
Otherwise the process is unlikely to yield positive and enduring results.
Representative and strong unions are necessary to ensure that there is equality
in the bargaining positions of the parties and to ensure the observance of
agreements. Where the employer is represented by an organization which is
the other party to the process, such organization should be similarly effective.

Both the management and union should keep their managers and members respectively well
informed as a lack of proper communication and information can lead to misunderstandings and
even to strikes. Sometimes managers and supervisors who are ill-informed may inadvertently
mislead the workers who work under them about the current state of negotiations, the
management's objectives and so on. In fact, it is necessary to involve managers in deciding on
objectives and solutions, and such participation is likely to ensure greater acceptance - and
therefore better implementation - by them.
Disadvantages of Collective Bargaining
i.

It is sometimes claimed that in non-industrialized countries settlement of wage issues


through collective bargaining - especially on a national or industry wise basis - can be

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an obstacle to a wage policy to promote specific economic objectives because wage


rates are not necessarily fixed on criteria designed to promote specific economic and
social objectives (other than as compensation for cost of living increases), and that
they often tend to reflect the bargaining strength of the parties or the supply and
demand conditions of labour.
ii.

With some exceptions (such as Japan) wage increases through collective bargaining
in Asia pay little attention to productivity, individual or group performance and to
skills.

iii.

But collective bargaining suffers from the drawback that it seldom deals with how to
enlarge the "cake", as the way of increasing the share of each party without eroding
competitiveness. Collective bargaining agreements sometimes renounce or limit the
settlement of disputes through trade union action or lock out. Therefore collective
bargaining agreements can have the effect of guaranteeing industrial peace for the
duration of the agreements, either generally or more usually on matters covered by
the agreement.

However, collective bargaining has many advantages which have been claimed for it as a means
of resolving differences between management and employees, though it has made little positive
contribution to higher productivity and higher earnings by linking pay to performance and skills.
Advantages of Collective Bargaining
i.

Collective bargaining settles issues through dialogue and consensus rather than through
conflict and confrontation. It differs from arbitration because the latter represents a
solution based on a decision of a third party, while arrangements resulting from collective
bargaining usually represent the choices or compromises of the parties themselves.
Arbitration may invariably displease one party because it usually involves a win/lose
situation, and sometimes it may even displease both parties.

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ii.

Collective bargaining agreements often institutionalize settlement through dialogue. For


instance, a collective agreement may provide for methods by which disputes between the
parties will be settled. This has the distinct advantage that the parties know beforehand
that if they are in disagreement there is an agreed method by which such disagreement
may be resolved.

iii.

Collective bargaining is a form of participation. Both parties participate in deciding what


proportion of the 'cake' is to be shared by the parties entitled to a share. At the end of an
agreed term labour again insists on participating in deciding what share of the fruits of
their labour should be apportioned to them.

iv.

Collective bargaining is a form of participation also because it involves a sharing of rule


making power between employers and unions, and this has eroded areas which in earlier
times were regarded as management prerogatives e.g. transfers, promotion, redundancy,
discipline, modernization, production norms. However, in some countries such as
Singapore and Malaysia, certain subjects such as promotion, transfer, recruitment,
termination of employment on grounds of redundancy or reorganization, dismissal and
reinstatement, and assignment of duties within the scope of the contract of employment,
are regarded as management prerogatives and outside the scope of collective bargaining.

v.

Collective bargaining is an essential feature in the concept of social partnership towards


which labour relations should strive. Social partnership in this context may be described
as a partnership between organized employer institutions and organized labour
institutions designed to maintain non confrontational processes in the settlement of
disputes which arise between employers and employees.

vi.

Collective bargaining has valuable by-products relevant to the relationship between the
two parties. For instance, a long course of successful and bona fide dealings leads to the
generation of trust. It contributes towards some measure of understanding by establishing
a continuing relationship. Once the relationship of trust and understanding has been

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established, both parties are more likely to attack problems together rather than each
other.
vii.

In societies where there is a multiplicity of unions and shifting union loyalties, collective
bargaining and consequent agreements tend to stabilize union membership. For instance,
where there is a collective agreement employee are less likely than otherwise to change
union affiliations frequently. This is also of value to employers who are faced with
constant changes in union membership and consequent inter-union rivalries, resulting in
more disputes in the workplace than otherwise.

viii.

Collective bargaining agreements which determine wage rates on a national or industry


level, place business competition on a more equal footing as a result of some
standardization of the costs of labour. This is probably a less important advantage today
in the face of technological innovations and productivity drives.

ix.

Perhaps most important of all, collective bargaining usually has the effect of improving
industrial relations. This improvement can be at different levels. The dialogue tends to
improve relations at the workplace level between workers and the union on the one hand
and the employer on the other.

x.

It also establishes a productive relationship between the union and the employers'
organization where the latter is involved in the process. As between the employer on the
one hand and his employees and union on the other, collective bargaining improves
relations for the following reasons or in the following ways:

a. It requires a continuing dialogue which generally results in better understanding of each other's
views.
b. Where collective bargaining institutionalizes methods for the settlement of disputes,
differences or disputes are less likely to result in trade union action.

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c. It could lead to cooperation even in areas not covered by collective bargaining arrangements.
As between unions on the one hand and employers' organizations on the other, collective
bargaining improves the industrial relations climate in the following ways:
a. It acts as a means of exerting influence on the employer or the employee, as the case may be,
where the unreasonable position of one party results in a deadlock. The employers' organization
or the union, as the case may be, has an interest in exerting influence on its respective members;
the maintenance of the relationship between the two parties is seen as important to issues well
beyond the current dispute. Both parties know that the current dispute is only one of many
situations which are likely to arise in the future, and that a good relationship needs to be
maintained for the overall benefit of their respective members.
b. The entry of a union and employers' organization into a dispute facilitates conciliation or
mediation. Sometimes one or both parties are able to divorce themselves from the main conflict
or from their position as representatives of their members, and mediate with a view to narrowing
the differences and finding compromise solutions.
c. Collective bargaining often leads employers' organizations and trade unions to establish links,
and to look for and increase areas of common agreement. This in turn ensures to the benefit of
their respective members.
As between unions and their members, collective bargaining tends to enhance the stability of
union membership. Employees, who perceive that their union is able to secure collective
bargaining agreements, or obtain concessions through collective bargaining, are less likely to
frequently change their union affiliations.
Current Collective Bargaining Trends
In no country can it be said that collective bargaining has been entirely at the industry or
enterprise level, since each system has a mix of both, even though not in equal measure.
However, industrialized market economies have generally practiced bargaining at the industry

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level, except in the USA where there has been more bargaining at the plant or enterprise level.
Industry level bargaining in the USA has mainly been in specific sectors such as coal, steel,
trucking and construction. During the last decade there has been a move towards more enterprise
level bargaining in many countries due to numerous reasons. There has been a decline in union
membership in several countries such as our Zimbabwe.
Increasing unemployment and difficult business conditions have made employers reluctant to
commit to wage policies at the industry or national level.
The emergence of government policy in some industries favorably disposed towards private
enterprise has resulted in allowing market forces to operate, thus weakening negotiations at the
national level. Many employers view centralized bargaining as facilitating a more equal
distribution of incomes (which is one reason why many unions prefer centralized bargaining),
but as depriving employers of the ability to use pay as an instrument for productivity
improvement and to compensate for skills and performance.
Strategic compensation systems are workable only if introduced at the enterprise level to match
the goals sought to be achieved. In Sweden, which has been an extreme case of centralized
bargaining, one of the strategies of the Swedish employers during the last ten years has been to
decentralize collective bargaining. Germany, another country well-known for centralized
bargaining, is displaying a tendency towards decentralized bargaining. The push by employers
for flexibility in the context of increasing global competition has resulted in many flexibility
issues such as new working time arrangements, atypical contracts and pay systems being needed
to be dealt with largely at the enterprise level. Compared with industrialized countries, collective
bargaining in Asia has been minimal.
There has been an increasing tendency towards bargaining on wages and terms and conditions,
which has sometimes resulted in some form of arrangements among governments, employers
and unions which lay down certain guidelines as in Singapore, and the Accords from 1983
onwards in Australia. Asia has had a mixture of industry and enterprise level bargaining, with the
latter predominating. Apart from low unionization rates in several Asian countries which militate

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against industry level bargaining, increased competition and the need for flexibility does not
make industry level bargaining popular in Asia. The Japanese have demonstrated how a
combination of enterprise level bargaining and shop-floor level mechanisms enable enterprises to
adapt to rapidly changing business conditions and also to increase productivity.
In most countries, therefore, the tendency is to see the enterprise as the centre of gravity of
industrial relations. It is likely that some of the main concerns of employers such as productivity,
quality, performance, skills development, the need to be competitive and to make rapid changes
to adapt to the global marketplace, will eventually result in less centralized collective bargaining.
Employer-Employee relations
i.
factors to consider
-Custom and Tradition
-Legislation
-Mutual Interests
-Ethical Consideration
-Social Influences
ii.
duties of an employer
1. Provide his/her workers with well maintained and conditioned equipment, materials and
protective devices according to the nature/class of the business undertaken for purposes
of safeguarding the employees health and safety at workplace.
2.

Establish, provide and maintain occupational health services for workers in accordance
with standards given for his/her class of business. The employer must adopt ISO 18001
standards on health and safety of workers.

3. Record accurately the handling, storage, use and disposal of harmful biological, chemical
and physical agents and these records must be kept, maintained and availed to affected
workers. Whenever any accident occurs in a factory or on premises where work is being
performed or in connection with machinery and such accident causes loss of human life
or injury to an employee or building employee which results in his/her absence from
work for a period of three days or more or injury to any person not employed on the
premises, the employer , shall, as soon as possible thereafter in the manner and in the
form prescribed, notify an inspector in writing of the accident and of the prescribed
particulars.

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4. The authorized persons must paste notices prescribing the use or introduction into the
workplace of such biological, chemical or physical agents.
5. Comply with standards limits for exposure of workers to harmful biological, chemical
and physical agent. Every medical practitioner who attends any patient whom he believes
to be suffering from lead, phosphorus, arsenical or mercurial poisoning or anthrax which
may have been contracted as the result of his employment in a factory shall forthwith
report the matter in writing to an inspector
6. Give permission to work to fully examined, physically fit and X-rayed workers as
prescribed.
7. Give workers instructions in writing or in a manner or language understood by the
majority of workers, working procedures and measures for the protection of the worker
against risks and accidents pertaining health and safety at the workplace. For instance
inspection of machinery by inspectors, all boilers and machinery shall be subject to
examination and inspection by an inspector appointed by the Minister for the purposes of
this Part, and for this purpose an inspector may at any reasonable time enter upon any
factory or premises where boilers or machinery are in use.( PART IV (13) Factories and
Works Act Chapter 14:08)
8. Provide training programs at the workplace during work times.
9. Always supervise, inform and instruct workers to protect the health and safety of
employees.
10. Prepares and regularly updates the company policy written to address the health and
safety problems at the work place and develops and maintains a program to implement
the policy.
11. Establishes a safety committee and render assistance and cooperation necessary for the
committee to function well. A supervisor or health and safety representative must also be
appointed at the workplace whose duties are to provide advice on health and safety in the
workplace.
iii.

duties of an employee

1. Reporting to the employer or supervisor or health and safety representative, the absence
of or defect in any equipment or protective device of which the worker is aware of.

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2. Reporting of any hazard existing in the workplace.


3. Undergo prescribed medical examinations, tests or X-rays when they are due, at such
places as recommended by S.I 68 of 1990.
4. Work in accordance with prescribed compliance with the requirements of the health and
safety regulations for the protection of the health and safety of the worker. Workers have
to always wear or use equipment, protective devices or clothing the employer requires.

Employees shall cooperate with their employer on any actions taken to comply with the
requirements of the Occupational Health and Safety Act, therefore workers shall not,
1. Wilfully or recklessly interfere with or misuse any safety equipment provided for their
use by the employer without proving an adequate temporary replacement.
2. Wilfully put at risk the health and safety of others in their workplace by operating any
equipment, machine, device or thing, or otherwise.
Wilfully take away from workplace protective devices or clothing for purposes not connected
with the protection of the health and safety of the worker at workplace.
Grievance procedures
vii. Legal aspects
The state has an obligation to ensure that any breakdown in labour relations between employer
and employee does not disrupt the economy of the state to the extent that the country and its
people will suffer serious economic harm with irreparable economic quensequences.
a) labour relations act: 28:01
IS an Act to provide for the regulation of the relations between employers and workmen and their
trade unions and the prevention and settlement of any differences or disputes arising from their
relationship and generally to deal with trade disputes and matters arising there from?
It gives effect to the constitution
It regulates the organizations right to trade unions and employers organisations

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It promotes and facilitates collective bargaining at the workplace and at sectorial levels
It regulates the right to strike and recourse to lockouts
It promotes employee participation in decision making at the workplace through workplace
forums.
Provides simple procedures for the resolution of labour disputes through statutory conciliation,
mediation or arbitration
Establishes a labour court
Gives effect to the public international law obligations of Zimbabwe to labour relations.
b) factories and works act
It is generally concerned with the registration and control of factories and their operations with
regards to site plans, building plans and human factors ergonomics such as floor space,
ventilation, lighting, sanitary convenience, cleanliness of premises, heating and cooling, fire
precautions, etc.
It also details the powers of an inspector who can approve or disapproves, for registration and
certification of factory permits.
c) nssa act

Implements safety programs.

Sets health and safety standards

Conducts inspections and approves devices for workplace safety

Investigates problems

Monitors illnesses and injuries

Issues citations, assesses penalties, petitions the courts to take action against unsafe
employers

Provides safety training

Maintains a database of statistics.

Performs research and educational functions.

Conducts or reviews recommendations that often become provisions of their standards.

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The proper accident investigation procedure at the work place.


An accident means an unlooked for mishap or untoward event or process of work arising out
of and in the course of a workers employment, which was not expected or designed by the
worker and which results in injury to him.
In the event that such a mishap occurs, the following procedure may be followed.
1. The victim or the immediate supervisor must report the accident to the health and safety
authorities or management as soon as the accident occurs (within 24 hours). If necessary,
first aid is carried out to save life.
2. The authorities will set up an investigating team that include the supervisor, safety and
health representatives, workers committee members, whose duties are to evaluate the
extend of the damage, to establish how the mishap occurred, and assist the victim to get
compensation if possible.
3. The accident should be documented and recorded for future references and history. The
investigating team must visit the scene of the accident and scrutinize the site.
4. The team should investigate by friendly interrogations or interviews of witnesses using
any evidence that might be available.
5. There should written reports by all interested parties that would be used in the event of
claiming for compensation or when a conflict or refusal of compensation by employer or
any other future testimony.
6. The victim must fill in the workers compensation insurance form for his medical bills to
be paid by the rightful institutions.

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7. The accident must be recorded in the companys accident register and filed for future
reference.
8. The investigating team writes recommendations and suggests possible remedies to such
kinds of mishaps.
d) hazardous substances and articles act
The act offers a hazard analysis or hazard assessment in which individual hazards of the
workplace are identified, assessed and controlled/eliminated as close to source (location of the
hazard) as reasonable and possible.
The act is concerned with the use and storage of infectious or parasitic or toxic, volatile and or
flammable substances that can poison or affect and impair the health and safety of workers at the
workplace and its surroundings. It gives classifications of hazardous substances and formulations
set for specific purposes of display, storage or sale of dangerous substances.
The main aim is to protect workers against the classified hazardous substances. Hazards are
typically categorized into one of six groups:
1. Safety (moving machinery, working at heights, slippery surfaces, mobile equipment, etc.)
2. Ergonomic (material handling, environment, work organization, etc.)
3. Chemical Agents
4. Biological Agents
5. Physical Agents (noise, lighting, radiation, etc.)
6. Psychosocial (stress, violence, etc.)
e) the pneumoconiosis act (chapter 15:08)
Regards testing, use, handling and control of fine (dust) particles in working environments. It
regulates on the minimum permissible volumes of fumigates and dust at the workplace. All
mineral dust, organic dust, inorganic dust or any other occupational dust that cause risk by
exposure at the workplace needs regulation and control.
It also highlights the mode of compensation obtainable in respect of a scheduled disease. The act
serves the purpose of giving guidance on the promotion of a health working environment by

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discussing problems caused by emission of dust and fumes and it give measures for their
suppression, elimination and control.
F. WASTE MANAGEMENT
Waste can be defined as something which the original owner or user no longer values, and has
been discarded or discharged by the original owner or user. It is something you do not want any
more and want to throw away. Waste is therefore an inevitable by-product of any process that
one can think of.
Waste can be categorised differently, but one way of categorising waste is into the following:
Domestic waste
Commercial waste
Industrial waste
Mine waste
Hazardous waste
Health care waste
Agricultural waste
E waste
The management regimes for these different classes of waste are not well defined in some cases,
particularly e-waste. Regardless of the class of waste, its management typically involves 5 stages
which are:
Generation
Storage
Collection
Transportation
Disposal
Waste management is the collection, transportation, processing, recycling or disposal and
monitoring of waste material. The term usually relates to materials produced by human activity
and is generally undertaken to reduce their effect on health and the environment.

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Few methods of waste disposal are used in Zimbabwe. One method is called landfill and it
involves burying the waste. Recycling is another method that is used. This has mainly been used
by small scale entrepreneurs who use waste to produce items like toys and candleholders whilst
on an industrial scale, there are companies involved in recycling glass and paper.
Another method of waste management is composting, and anaerobic digestion. The resulting
material is used as mulch or compost for landscaping purposes.
Related terms
Obsolescent
An item going out of use but not yet completely unusable
Obsolete
An item no longer usable
Surplus
When quantity in stock is more than the reasonable required to provide an adequate service
Causes of waste
Scrap-unusable material whose value is only in terms of its material content which can be
recycled to produce material of utility
Salvaging-condemned, discarded or abandoned material in order to get useful parts thereafter.
Cannibalise-taking out parts from unusable bodies to make others work
Reclamation-bringing back to the original serviceable condition
Review-important to know stock levels from time to time.
Other causes

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Changing method of manufacture


Change in design of equipment
Unforeseen reduction in volume of production
Change of product
Spare parts of existing machinery decided to be phased out
Management decision
Poor workmanship
G. STORES MANAGEMENT
Inventory management is a very important function that determines the health of the
supply chain as well as the impacts the financial health of the balance sheet. Every
organization constantly strives to maintain optimum inventory to be able to meet its requirements
and avoid over or under inventory that can impact the financial figures.
Inventory is always dynamic. Inventory management requires constant and careful evaluation of
external and internal factors and control through planning and review. Most of the organizations
have a separate department or job function called inventory planners who continuously monitor,
control and review inventory and interface with production, procurement and finance
departments.
Defining Inventory
Inventory is an idle stock of physical goods that contain economic value, and are held in various
forms by an organization in its custody awaiting packing, processing, transformation, use or sale
in a future point of time.
Any organization which is into production, trading, sale and service of a product will necessarily
hold stock of various physical resources to aid in future consumption and sale. While inventory
is a necessary evil of any such business, it may be noted that the organizations hold inventories
for various reasons, which include speculative purposes, functional purposes, physical
necessities etc.

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From the above definition the following points stand out with reference to inventory:

All organizations engaged in production or sale of products hold inventory in one form or
other.

Inventory can be in complete state or incomplete state.

Inventory is held to facilitate future consumption, sale or further processing/value


addition.

All inventoried resources have economic value and can be considered as assets of the
organization.

Different Types of Inventory


Inventory of materials occurs at various stages and departments of an organization. A
manufacturing organization holds inventory of raw materials and consumables required for
production. It also holds inventory of semi-finished goods at various stages in the plant with
various departments. Finished goods inventory is held at plant, FG Stores, distribution centers
etc. Further both raw materials and finished goods those that are in transit at various locations
also form a part of inventory depending upon who owns the inventory at the particular juncture.
Finished goods inventory is held by the organization at various stocking points or with dealers
and stockiest until it reaches the market and end customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare parts to
service the products. Defective products, defective parts and scrap also form a part of inventory
as long as these items are inventoried in the books of the company and have economic value.
Types of Inventory by Function
INPUT

PROCESS

OUTPUT

Raw Materials

Work In Process

Finished Goods

Consumables required for


processing. E.g. : Fuel,
Stationary, Bolts & Nuts etc.
required in manufacturing

Semi Finished Production in


various stages, lying with
various departments like
Production, WIP Stores, QC,
Final Assembly, Paint Shop,

Finished Goods at Distribution


Centers throughout Supply
Chain

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Packing, Outbound Store etc.


Maintenance
Items/Consumables

Production Waste and Scrap

Finished Goods in transit

Packing Materials

Rejections and Defectives

Finished Goods with Stockiest


and Dealers

Local purchased Items


required for production

Spare Parts Stocks & Bought


Out items
Defectives, Rejects and Sales
Returns
Repaired Stock and Parts
Sales Promotion & Sample
Stocks

Inventory control
Any inventory of Raw materials, finished goods as well as Intermediate in process inventory has
an economic value and is considered an asset in the books of the company. Accordingly any asset
needs to be managed to ensure it is maintained properly and is stored in secure environment to
avoid pilferage, loss or thefts etc.
Inventory control assumes significance on account of many factors.
First of all inventory of raw materials as well as finished goods can run in thousands of SKU
varieties. Secondly inventory can be in one location or spread over many locations. Thirdly
inventory may be with the company or may be under the custody of a third party logistics
provider. These factors necessitate inventory maintenance mechanisms to be devised to ensure
inventory control.
Inventory control is also required as an operational process requirement. Inventory is has two
different dimensions to it. On one level it is physical and involves physical transactions and
movement of inventory. While on the other hand, inventory is recognizable by the book stock and
the system stocks maintained. This necessitates inventory control mechanism to be implemented

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to ensure the book stocks and the physical stocks match at all times.
Thirdly the inventory always moves through supply chain and goes through various transactions
at various places. The number of transactions and handling that it goes through from the point of
origin to the point of destination is numerous. Therefore it becomes essential to control inventory
and have visibility through the pipeline including transit inventory.
Inventory control is exercised through inventory audits and cycle counts. An inventory audit
essentially comprises of auditing the books stocks and transactions and matching physical stocks
with the book stock.
Cycle counts: Cycle count refers to the process of counting inventory items available in physical
locations. Depending upon the nature of inventory, number of transactions and the value of
items, cycle count can be carried on periodically or perpetually.
1. Daily Cycle Count: Normally where the number of SKUs is very high coupled with high
number of transactions and through put, daily cycle count is initiated, where in a certain
percentage of locations or SKUs are counted on daily basis and physical stock is
compared with system stock. By the end of the month all of the stocks would have been
covered once in cycle count.
Inventory system throws up a count list based on an analysis of the movements of fast
moving SKUs along with other attributes like value etc. In some of the system, inventory
controllers can set up the attributes for each cycle count.
2. Quarterly & Half Yearly Cycle Counts: End of the sales quarter or end of half yearly
sales, finished goods and spare parts are normally covered under inventory audit and a
100% cycle count is carried out.
3. Wall to Wall Cycle Count: End of financial year and closing of books entails doing wall
to wall cycle count of all stocks lying in all locations and tallying with books of account.
This is a mandatory audit requirement and until stock figures are reconciled, certified by
auditors and published, New Year books of accounts cannot be started a fresh.
How the audit process works?

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Except for daily cycle counts, all other cycle counts entail counting hundred percent of all the
stocks by stopping all transactions during the counting period. System transactions are also
frozen until the count is completed.
Inventory system throws up count list with SKU number, description and location number. The
operator goes to the location, checks the SKU, counts the qty available and updates the list,
which is then fed into the system. The system reconciles the physical quantity with system
quantity and throws up discrepancy report, which is further worked upon to tally and adjust
inventory.

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SECTION 4: BASIC ECONOMIC CONCERPTS


Economy
It deals with the concepts and techniques of analysis useful in evaluating the worth of systems,
products, and services in relation to their costs
It is used to answer many different questions
-Which engineering projects are worthwhile?
-Has the mining or petroleum engineer shown that the mineral or oil deposits is worth
developing?
-Which engineering projects should have a higher priority?
-Has the industrial engineer shown which factory improvement projects should be funded with
the available dollars?
-How should the engineering project be designed?
-Has civil or mechanical engineer chosen the best thickness for insulation?
According to (Anthony, 2007):
Accounting is the process of identifying, measuring and communicating economic information
about an entity to permit informed judgments and decisions by users of the information.
The users of economic information about an entity can be classified into two major categories,
that is, internal users and external users. These two user groups have different information needs
because of their different relationships to the entity providing the information. Accordingly, two
major branches of accounting have evolved to meet the different information needs of the
internal users and external users, that is, management accounting and financial accounting,
respectively.
The major differences between financial accounting and management accounting are
summarized in the table below:

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FINANCIAL ACCOUNTING

MANAGEMENT ACCOUNTING

1. Provides economic information to external 1. Provides economic information to internal


users
users
2.Generates
statements

general

purpose

financial 2. Generates specific purpose statements and


reports

3. Reports on financial effects of past events

3. Set up for future oriented reports

4. Must conform to external standards

4. Not subject to external standards

5. Uses objective data

5. Uses subjective data.

The Accounting equation


A fundamental rule in accounting, which flows from the separate entity concept, is that the assets
of a business will always be equal to the sum of its liabilities plus its owners equity. The
accounting equation is expressed as follows:
Assets =Equity + Liabilities
Review Question
Compare and contrast the two major branches of accounting. Which one provides more relevant
economic information about an entity to users?
Cost Estimating Methodologies
Once data has been collected and normalized to constant dollars, methodologies available for
estimating costs:

Expert Opinion,
Analogy,
Parametric

Factors affecting cost estimation

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Choice of methodology is dependent upon


Type of system: Software, hardware, etc
Phase of program: Development, Production, Support
Available data: Historical data points from earlier system versions or similar system;
Technical parameters of system

Expert Opinion

Often called Delphi method.


Useful in assessing differences between past projects and new ones for which no
historical precedent exists.

Pros:
o

Little or no historical data needed.

Suitable for new or unique projects.

Cons:
o Very subjective.
o Experts may introduce bias.
o Larger number of experts will help to reduce bias
o Qualification of experts may be questioned.
Expert Opinion - Steps

Gather a group of experts together,

Describe overall program in enough detail so experts can provide an estimate,

Each member of the expert group then does an independent of the resources needed,

Estimates are gathered anonymously and compared,

If there exists significant divergence among the estimates, the estimates will be returned
to the expert group,

The expert group then discusses the estimates and the divergence and works to resolve
differences, and

The expert group once again submits anonymous, independent estimates which continues
until a stable estimate results.

Analogy
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Estimates costs by comparing proposed programs with similar, previously completed


programs for which historical data is available.

Actual costs of similar existing system are adjusted for complexity, technical, or
physical differences to derive new cost estimates

Analogies are used early in a program cycle when there is insufficient actual cost
data to use as a detailed approach

Compares similarities and differences

Focus is on main cost drivers.

Often use single historical data point.

May have several analogy estimates of sub elements to make up the total cost.

Comparison process is key to success.

May have to add or delete functionality from historical costs to match new
program

Consult technical experts for advice on complexity factors, technical, performance or


physical differences.

(not to be confused with expert opinion method)

Impact of differences on cost is subjective.

Good choice for:

A new system that is derived from an existing subsystem.

Make sure actual cost data is available

A system where technology/programmatic assumptions have advanced beyond


any existing cost estimating relationships (CER).

Secondary methodology/cross check

Provides link between technical assumptions and cost.

Pros:

Inexpensive

Easily changed

Based on actual experience (of the analogous system)

Very Subjective

Large amount of uncertainty

Cons:

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Truly similar projects must exist and can be hard to find

Must have detailed technical knowledge of program and analogous system

Parametric

Utilizes statistical techniques called Cost Estimating Relationships (CER).

Relates a dependent variable (cost) to one or more independent variables

Can be used prior to development.

Typically employed at a higher CES level as details are not known.

Most cases will require in-house development of CER.

Pros:

Can be excellent predictors when implemented correctly

Once created, CERs are fast and simple to use

Easily changed

Useful early on in a program

Objective

Often lack of data on software intensive systems for statistically significant CER

Does not provide access to subtle changes

Top level; lower level may be not visible

Cons:

Need to be properly validated and relevant to system


Basic Management Accounting Concepts
1. NET PRESENT VALUE
A company has an initial capital outlay of $40 000 for a project it is undertaking. A projected
cash flow for 5 years is; $10 000, $12 000, $15 000, $10 000, and $7 000 respectively.
Cost of capital is set at 3%, taxation is also at 3%, and capital allowances are at 10%.
Calculate NPV and advise the company basing on your analysis. Calculate payback period as
well and advice the company if their desired period is at most 3 years.
Year

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Initial cash flows


Cap. Allowance @ 10%
Taxable income
Tax @ 3%
Net income
Discount factor
PV

(40 000)

10 000
(4 000)
6 000
[180]
9 820
0.9709

12 000
(4 000)
8 000
[240]
11 760
0.9426

15 000
(4 000)
11 000
[330]
14 670
0.9151

10 000
(4 000)
6 000
[180]
9 820
0.8885

7 000
(4 000)
3 000
[90]
6 910
0.8626

11085

13425

8725

5961

[40000
]
9820
11760
14670
[30180] [18420] [3750]
Payback = 3 years and (3750/9820) * 12 months

9820
6070

6910

[40 000]
1
[40000
]
9534
NPV = 8730 (positive value so accept project)
Payback
Net income

Thus payback is 3 years and 4.6 months; accept project as it adheres to company payback
stipulation of 3 and a half years
The cost of a machine is $160,000 and its scrap value is $40,000. Estimated useful life is 5 years.
Capital allowance is on straight line basis, tax is at 2%. Cost of capital is set at 5%. Determine
whether management should approve purchase of the machine.
Year
Cap. allowance
Taxable income
Tax @ 2%
Net income
Discount factor
PV

0
(160000)

1
(160 000)

(32000)

(32000)

(32000)

(32000)

0.9524

0.9070

0.8638

0.8227

5
40000
(32000)
8000
(160)
39840
0.7835
31214.64

NPV = - $128785.36, no, the machine should not be purchased as NPV is negative.
Note: tax is applied to income from data provided this machine provides no income, except for
scrap value. Its a good attempt if you decided to use machine value for your computations but in
such an instance tax should not be applied.
2. PAYBACK PERIOD

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A company needs a new milling machine. The company is considering two machines. Machine A
and machine B. Machine A costs $17,000 and will reduce operating cost by $5000 per year.
Machine B costs $14,000 and will reduce operating costs by $4,000 per year. Operating costs are
$2000.
Determine which machine should be purchased according to payback method.
Year
Cash inflow
Cash outflow
Net cash flows
Payback

0
(17000)
(17000)

1
5000
(2000)
3000
(14000)

2
5000
(2000)
3000
(11000)

3
5000
(2000)
3000
(8000)

MACHINE A

Year
Cash inflow
Cash outflow
Net cash flows
Payback

4
5000
(2000)
3000
(5000)

5
5000
(2000)
3000
(2000)

6
5000
(2000)
3000
1000

Pay back = 5 years (12 * 2000/3000)


= 5 years 8 months
0
(14000)
(14000)

1
4000
(2000)
2000
(12000)

MACHINE B

2
4000
(2000)
2000
(10000)

3
4000
(2000)
2000
(8000)

4
4000
(2000)
2000
(6000)

5
4000
(2000)
2000
(4000)

6
4000
(2000)
2000
(2000)

7
4000
(2000)
2000
0

Pay back = 7 years

Machine A should be purchased as it has the shorter pay back. Note however if company policy
is payback set at below 5 years, neither machine would be bought.
3. COST- VOLUME -PROFIT ANALYSIS
Marginal costing
Marginal costing is also known as variable costing, direct costing or contribution approach. It is
an accounting system in which variable costs are charged to cost units and the fixed costs of the
period are written off in full against the aggregate contribution in the period they are incurred. Its
special value is in decision-making.
Cost-volume-profit (CVP) analysis: Short-run planning and decision-making
CVP analysis is both a planning and decision-making tool. It is a short-term planning and
decision-making tool that applies marginal costing principles. A short-run or short-term is

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normally a period of one year or less. CVP analysis is used to provide information to aid
operational decision-making with a planning focus. It explores the relationship among costs,
revenue, output levels and the resulting profit. Specifically, CVP analysis is a study of the
relationship among the following variables:

Price of the product;


Volume or level of activity;
Variable cost per unit;
Total fixed cost;
Sales mix;
Estimated profit.

Assumptions of CVP analysis


In order to avoid errors or incorrect conclusions when using CVP analysis, it is essential to take
into account the underlying assumptions of the analysis:

Volume is the only factor that will cause costs and revenues to change, i.e. other variables

remain constant;
A single product is sold, or there is a constant sales mix;
Fixed costs will remain constant for the period under review;
Profits are calculated on variable costing basis;
The unit variable cost and selling price are constant, i.e. total costs and revenues are

linear functions of output;


The analysis applies to the relevant range only;
Costs can be accurately divided into their fixed and variable elements;
The analysis only applies to a short-term time horizon.

Applications of CVP analysis


CVP analysis is used to address the following issues:

The determination of the break-even point;


The determination of the margin of safety;
The determination of the sales required to achieve a target profit;
The impact of a given reduction or increase in fixed costs on the break-even point;
The impact of various price or cost levels on profit.

Break-even analysis

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Break-even analysis is the process of determining the amount of sales (in units or dollars) that
will result in neither a profit being made, nor a loss being suffered, i.e. the point at which the
total costs equal sales, and profit equals zero.
The break-even point can be determined by using either a formula or a graph. Using formula, the
break-even point can be calculated in units or in dollars as follows:
Break-even point in units = Total fixed cost/Contribution margin per unit
Where: Contribution margin per unit = Selling price per unit Variable cost per unit
Break-even point in dollars

= Total fixed cost/Contribution margin ratio

Where: Contribution margin ratio

= Contribution margin per unit/Selling price per unit


= Total contribution/Total sales

TR
PROFIT
TC

BEP
VC
FC
LOSS

Q
At BEP;
TC = FC + VC

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TR = SP/unit x Volume
PROFIT = TR TC = 0
Margin of safety
The margin of safety is the difference between the planned sales volume and the break-even sales
volume.
Margin of safety = Planned sales volume Break-even sales volume
Sales required to earn target profit
Managers can use CVP analysis to determine the sales volume (in units or in dollars) required to
earn a target profit as follows:
Sales volume in units = (Total fixed cost+ Target profit)/Contribution margin per unit
Sales volume in dollars = (Total fixed cost + Target profit)/Contribution margin ratio.
EXAMPLE
1. From the following details, calculate the breakeven point.
Determine at what price each unit should be sold to obtain a break-even point of 3000 units:
Variable cost per units $4.50
Fixed expenses $10400
Selling price per unit $10
ANSWER:
a)
BEP = fixed costs/ (unit sales price unit variable cost)
BEP = 10400/ (10 4.5) = 1890.91 approx. = 1891 units
b)
At BEP, TR = TC

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Thus TR = FC + VC
3000x = 10400 + 3000(4.50)
3000x = 23900
x = 23900/3000 = 7.966 approx. = 7.97
Thus, each unit should be sold at $7.97 to obtain a BEP of 3000 units
Basic Financial Accounting Concepts
Qualitative Characteristics of Financial Statements
These characteristics are the attributes that make the information in financial statements useful to
investors, creditors, and others. There are four principal qualitative characteristics:

Understandability
Relevance
Reliability
Comparability

Understandability
Information should be presented in a way that is readily understandable by users who have a
reasonable knowledge of business and economic activities and accounting and who are willing to
study the information diligently.
Relevance
Information in financial statements is relevant when it influences the economic decisions of
users. It can do that both by (a) helping them evaluate past, present, or future events relating to
an entity and by (b) confirming or correcting past evaluations they have made.
Timeliness is another component of relevance. To be useful, information must be provided to
users within the time period in which it is most likely to bear on their decisions.
Reliability
Information in financial statements is reliable if it is free from material error and bias and can be
depended upon by users to represent events and transactions faithfully. Information is not reliable
when it is purposely designed to influence users' decisions in a particular direction.
Comparability
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Users must be able to compare the financial statements of an entity over time so that they can
identify trends in its financial position and performance. Users must also be able to compare the
financial statements of different entities. Disclosure of accounting policies is essential for
comparability.
Objective of financial statement analysis
The broad objective of financial statement analysis is to examine an entity s financial position
and performance in relation to risk, with a view to evaluate the future prospects of the firm.
Financial ratio analysis
A financial ratio is a measure which shows the relationship between two financial figures.
It is an index or number that relates two pieces of financial data by dividing one financial figure
by the other. It is the mathematical relationship between the two pieces of financial data.
Financial ratio classification
Financial ratios are usually classified according to the particular aspect of the business financial
health/condition they seek to examine/assess. There is a strong interaction between the
classifications or categories such that some of the individual ratios may belong to more than one
class. The major classifications include the following:

Profitability ratios;
Activity ratios;
Liquidity ratios;
Financial leverage ratios;
Cash flow ratios;
Investor ratios.

One of the reasons for classifying financial ratios in this way is to group together those ratios
which might be of particular interest to a particular type of users of financial statements. The
level of importance attached to each class of ratios will depend on the type of user and the
purpose of the analysis. It is, therefore, important when conducting financial ratio analysis to be
clear for whom and for what purpose the analysis is being undertaken.
Profitability ratios

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Profitability ratios help assess the operating performance of the entity. They are used, among
other things:

To assess whether the business is a worthwhile investment opportunity. Investors require

a fair return on their investment, considering the risk attached to an investment.


To measure the performance of management.
To determine the business performance relative to competitors.

Profitability ratios cover business operations for a period of time and are of two types:

Ratios measuring profitability in relation to sales (a & b)


Ratios showing profitability in relation to investment (c to e)

(a) Gross profit margin (GP %)


Gross profit margin = (Gross profit/Revenue) x 100
(b) Net profit margin (NP %)
Net Profit margin = (Profit before interest and tax/Revenue) x 100
(c) Return on assets (ROA)
Return on assets (ROA) is also known as Return on investment (ROI).
Return on assets = (Profit before interest and tax/Total assets) x 100
(d) Return on capital employed (ROCE)
Return on capital employed = (Profit before interest and tax/Capital employed) x 100
Where: Capital employed = Shareholders equity + Non-current liabilities.
(e) Return on equity (ROE)
Return on Equity = (Profit after tax and preference dividend/Ordinary shareholders equity) x 100
Activity ratios
Activity ratios are also known as efficiency ratios, asset management ratios, or turnover ratios.
They measure the efficiency with which the business utilizes its assets.
The common activity ratios are:

Inventory turnover ratio;

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Inventory holding period;


Trade receivable turnover ratio;
Trade receivables collection period;
Trade payables turnover ratio;
Trade payables payment period;
Cash cycle ratio;
Total asset turnover ratio;
Non-current asset turnover ratio

Liquidity ratios
The Liquidity of an entity is its ability to meet its obligations in the short-term. Liquidity ratios
are ratios which address the entitys liquidity position by focusing on the realisability of current
assets and the timing of repayments of current liabilities.
(a) Current ratio
This ratio is also known as the working capital ratio.
Current ratio = Current assets/Current liabilities
(b) Acid Test Ratio
The ratio is also known as the quick ratio or liquid ratio.
Acid test ratio = (Current assets -Inventory)/Current liabilities.

Financial Leverage ratios


Financial Leverage ratios are also known as debt management ratios, gearing ratios, solvency
and risk ratios, capital structure ratios or financial structure ratios. The relationship between the
amount of fixed-return capital (i.e. preference shares and loans) and ordinary shares in the capital
structure is referred to as capital gearing or leverage.
The common gearing ratios are:

Solvency ratio;
Debt ratio;
Gearing ratio;
Debt/Equity ratio;
Interest coverage ratio;

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(a) Solvency ratio


Solvency ratio = Total assets/Total debt
Where: Total debt = Preference shares + Total liabilities
(b) Debt ratio
Debt ratio = (Total debt/Total assets) x 100.
(c) Gearing ratio
Gearing ratio = [Fixed-return capital/ (Equity + Fixed-return capital)] x 100.
(d) Debt/ equity ratio
Debt/equity ratio = (Fixed-return capital/Ordinary shareholders equity) x 100.
(f) Interest coverage ratio
Interest coverage ratio = Profit before interest and tax/Interest charges.
Cash flow ratios
Cash flow ratios measure the ability of the entity to generate adequate cash flows from its
operating activities. The common cash flow ratios are:

Cash flow-to-total debt;


Repayment period;
Quality of income.

Investor ratios
Investor ratios are also known as shareholder ratios. They measure performance of the ordinary
shareholders investment in the business. They provide measures of return and coverage which
may help in deciding whether to buy, hold or sell shares in a particular entity. Investor ratios are
of two types:
1) Historical performance ratios:
-Earnings per share (EPS);

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-Dividend per share (DPS);


-Dividend cover;
-Dividend payout ratio.
2) Present and future performance ratios:
-Price/earnings ratio (P/E ratio);
-Earnings yield;
-Dividend yield;
Absorption and Marginal Cost statements
The following information was available for February 2012 for the company that produced a
single product:
$
80
15
9
18000
5
900
3

Selling price per unit


Direct materials per unit
Direct Labour per unit
Fixed factory overhead per month
Variable factory overhead per unit
Fixed selling overheads
Variable selling overheads per unit
Production and sales were as follows:
Units sold = 800 and Units produced = 1300.
Prepare absorption and marginal costing statements.
Marginal cost statement
Sales (800 * 80)
Less variable production cost:
Direct material (15* 800)
Direct labour (9 * 800)
Variable factory o/head (5*800)
Contribution margin
Less variable selling overheads (3*800)
Total contribution
Less expenses:

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64000

(23200)
40800
(2400)
38400

32

Fixed factory overhead


Fixed selling overhead

(18000)
(900)
(18900)
19500

Net profit

Absorption cost statement


Sales (800 * 80)
Less cost of goods sold:
(1300 * 51.5)
Less ending inventory (500 * 51.5)
Gross margin
Less selling overheads:
Fixed
Variable (3*800)

64000
66950
(25750)
(41200)
22800
900
2400
(3300)
19500

Net profit
Where 51.5

= (DM + DL + VC + FC) per unit


= 15 + 9 + 5 + 18000/800

(Note: we divide by 800, because fixed costs are driven by demand or budgeted activity.
Budgeted activity data not available, so we use demand = 800. Workings using production data
is still acceptable i.e. cost per unit = 42.84, thus net profit should be $26 428.
Balance sheet statement
Based on the accounting statement that;
Asset = Equity + Liabilities
DR

CR

ASSETS
Current

xxxx

Non-current

xxxx

Total

xxxx

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LIABILITIES
Current

xxxx

Non-current

xxxx

Total

xxxx

EQUITY
Capital stock

xxxx

Shareholders

xxxx

Retained earnings

xxxx

Net profit

xxxx

Total equity & liabilities

xxxx

Current assets
Inventory
Bank
Cash
Debtors
Deposits
Trade receivables
Non-current assets
Equipment
Computers
Vehicles

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Current liabilities
Short term loans
Deferred taxes
Expenses
Creditors
Non-current liabilities
Long term loans
Equity
Capital stock
Retained earnings
Ordinary shares

BUDGETING
A forecast of anticipated income and expenditure for the companys services and programmes.
A list of every item connected with a companys operations for which cash payment may be
made and income may be realized.
A plan showing how resources are to be acquired and to be used to meet short term and long
term companys objectives over a specified period.
Advantages of budgeting
1. Managers think ahead and identify possible solutions

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2. It helps coordinating segments of an organisation


3. It opens lines of communication
4. It sets up criteria against lack of planning
5. It aids attention to certain financial ratios

A. MASTER BUDGETS
A master budget is a comprehensive financial plan for the entity as a whole. Typical, it is for a
one-year period corresponding to the financial year of the entity. It can be divided into two
components, that is, the operating budget and the financial budget.
i.

INCOME

Forecast of receipts of funds into the organisation through a proforma income statement
Implements the income objectives of the firm and serves as the chief integrating means of
activities of various subunits.
Gives a position of sales forecast.
ii.

OPERATING

Gives a list of all services, programmes, objectives to be realized and items to be used and
expenses to be incurred. The operating budget consists of a budgeted statement of income,
accompanied by the following supporting schedules:

Sales budget;
Production budget;
Direct materials purchases budget;
Direct labour budget;
Overhead budget;
Selling and administrative expenses budget;
Ending finished goods inventory budget;

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Cost of sales budget.


iii.
FINANCIAL

Combines sales and operating budgets and consists of proforma cash statements, inventory
budgets, capital additions and balance sheets.
Shows cash inflow and cash outflow of a company.
Gives a summary of cash receipts and disbursements

B. BUDGET CONTROL
While the budget indicates the route that must be followed to achieve a specific goal, budgetary
control is the watch-dog which ensures that there is no deviation from the route and that the goal
is achieved in good time. This is done mainly by measuring, on a continuous basis, the results
attained against the budgeted/target results. It must be determined whether what was planned in
the budget can be carried out in practice. Another important function of budgetary control is to
establish the cause if there is a difference between the planned and actual results, and to take the
action necessary to correct or avert in time.
i.

VARIABLE BUDGETING

Gives possibility that actual output deviates from planned output.


Recognize that certain costs are related to output (variable) while others are not (fixed costs)
If actual output is 20% less than planned, it does not follow that actual profit will be 20% less
than planned. The actual profit will vary on quite complex relationships between cost and output.
Profit varies with output but not proportionately.
Requires adjustments in all supporting budgets for completeness. The production, marketing and
administration budgets must likewise allow for the impact of output variation.
ii.

MOVING BUDGETING

Preparation of budgets for fixed period like a year with periodic updating a t fixed intervals say
monthly.
For instance, a budget is prepared for the next 12 months, after a month the budget is reviewed,
revised and projected for the next fixed interval. The most recent data is included in the process.

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Premises and assumptions are constantly being revised as management learns from experience
They have an advantage of systematic re-examination but are too expensive to maintain.

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