KENDRIYA VIDYALAYA SANGATHAN

HYDERABAD REGION
STUDY /SUPPORT MATERIAL
BUSINESS STUDIES FOR CLASS XII
CHIEF PATRON
SRI AVINASH DIKSHIT
COMMISSIONER, KVS
PATRON
SH. S.M. SALEEM
DEPUTY COMMISSIONER, KVS, HYDERBAD REGION
MAIN COPY FOR THE YEAR 2011-12 WAS
PREPARED UNDER THE GUIDANCE OF
SRI K. SAI RAENDRA KUMAR
PRINCIPAL KV AFS BEGUMPET
AND
REVISED UNDER THE GUIDANCE OF SH. B.A.RANGASRI
ASSISTANT COMMISSIONER, KVS, HYDERABAD REGION
MEMBERS PARTICIPATED IN THE REVISION AND UPDATION OF
STUDY MATERIAL 2012-1!
1. N.BALAI, PGT COMMERCE, K.V. NO. 1, TIRUPATI,
CONVENOR
2. G. ELANCHERAN PGT COMMERCE, KV TRIMULAGIRI,
HYDERABAD
!. C. LALITHA, PGT COMMERCE, KV PICKET, HYDERABAD
". MAMTA SHARMA, PGT COMMERCE, KV BEGUMPET,
HYDERABAD
TIPS FOR SCORING GOOD MARKS
Cracking an examination is a skill that can be acquired. As with
studying, scoring
good marks too is a combination of managing ones time well and
applying the right method.
Here are some guidelines that one can follow while attempting to write an
exam.
# A$%&'( )*' +,'%)-.$ /% -) -% /%0'1.
Read the question at least twice before answering. e at guard for
either!or questions. Also make sure to tackle all sub"sections of a
question.
# U%' )*' 2/(0% /% / 3,-1'
#he examination paper mentions the marks each question carry. $se
these mark as a rough guide as to how long their answers ought to be. %o
not expand an answer more than is rele&ant. #his will sa&e a lot of time
which can be used while writing a 'ong"Answer question.
# A4.-1 &(-)-$3 -(('5'4/$) 6.-$)%
(hile writing an answer, focus on the nature of the question asked to
maintain focus. Answering something that is irrele&ant to the question, no
matter how good a description it is, will not only waste time but also be
gi&en low marks.
# B,13') 7.,( )-2'
%ont dwell too much on a particular question as remaining questions may
get little or no time if. %espite how much one writes, one can only score
the maximum marks allocated to that question. )f facing di*culty in
answering a question, mo&e on to other questions and return to the
former later.
# C*'80 /$1 1.,95'-8*'80
Always keep some time for re&ision while budgeting time. )n the rush to
complete the paper, some basic spelling mistakes or forgotten, half"
attempted questions may spoil all the e+ort.
elie&e in yourself. ,et a goal for yourself.
Accordingly set a timetable for yourself.
)dentify a limited number of direct questions which usually come in
the exams - prepare them well.
Apply .R# /.ast reading technique0 i.e. to re&ise more in less time.
1resentation2 e particular about how you write the answers. )t
should always be in points with a heading and a brief explanation.
%o not lea&e out any 3uestions.
Also be careful not to spend too much time on 4 question at the cost
of other questions.
(here&er any process is asked to be explained, write all the steps
in&ol&ed, irrespecti&e if the marks allotted to that question.
%raw a 5owchart!diagram in support of your answer, where&er
possible.
Answer those questions 6rst, which you know &ery well.
$nderline all the sub"headings.
%raw small cartoons !diagrams with small captions where&er 6ts
suitable.
Attempt 7H8#, questions at the last.
$tili9e the 31 paper reading time to plan writing strategies instead
of trying to write answers in ad&ance.
(hile trying to understand 7H8#, questions keep in mind chapter"
wise allotment of marks for each chapter. ,ometimes this helps to
guess the chapter from which the hots question is gi&en.
:specially in case of Application 8riented 3uestions /H8#,0, read
Hindi medium &ersion also, it may gi&e you some clue. )t also
remo&es the &agueness in the :nglish language.
;aintain a separate small hand < book to write only sub"headings
for all the concepts in the sub=ect. )t helps as a ready" reckoner.
Read summaries gi&en at the end of each chapter to get a
comprehensi&e idea about the gi&en chapter. Hots can be gi&en
from summaries also.
Refer latest C,: sample question papers along with pre&ious year
oard 3uestion 1apers.
Refer 7High scoring students answer sheets a&ailable in the C,:
web site.
XII BUSINESS STUDIES SYLLABUS CHANGES FOR THE BOARD EXAM
201!
R':'( CBSE S'$-.( S8*..5 C,((-8,5/2 201!
U$-)
N..
T.6-8% 1'5')'1 97
)*' CBSE
T.6-8% /11'1 97 CBSE O51
2/(0%
N'&
2/(0%
4 >o Change >o Change ?@ ?A
B >o Change >o Change ?@ ?C
D :conomic
:n&ironment in )ndia
>o Change ?A ?A
E .eatures of planning .,ingle use and standing
plan
?@ ?C
A >o Change >o Change 4? ?F
C >o Change .8n"the"=ob and o+"the"
=ob training /)nduction
training, Gestibule
training, Apprenticeship
training And )nternship
training0
?F ?C
@ Role 8f super&isor
3ualities of good
leader
..unctions of a
super&isor
.'eadership styles
.How to o&ercome the
barriers of e+ecti&e
communication
4? ?F
F #echniques of
controlling2
udgetary control
.>ature of controlling ?C ?C
H )mportance of
.inancial
management
.>8 Change 4B 4B
4? %istinction
etween Capital
;arket and
money ;arket
>,:) and 8#C:)
.%epositary ser&ice and
%mat account
?F ?F
44 Role of marketing
;arketing and
selling
>ature and
classi6cation of
product
.unction of
.3ualities of a good
salesmen
.1ublic relations
4E 4E
channel of
distribution
'imitation of
ad&ertising
importance of
personal selling
;erits and
limitations of
sales promotion
publicity
4B >8 change >8 change ?C ?C
4D >8 change .1ro=ect work ?? 4?
#otal marks 4?? 4??
SYLLABUS
A$$';,('-<M<
$,)>:,, ,#$%):,
CLASS XII
O$' P/6'( ! H.,(% =0 M/(0%
U$-) &-%' W'-3*)/3'
U$-)
%
P'(-.
1% M/(0%
P/() A > P(-$8-65'% /$1 F,$8)-.$% .: M/$/3'2'$)
4.
)ntroduction to
;anagement 4B A
B.
1rinciples of
;anagement 4B C
D. usiness :n&ironment 4? A
E. 1lanning 4B C
A. 8rgani9ing 4C F
C. ,ta*ng 4E C
@. %irecting 4C F
F. Controlling 4E C
10" ?0
P/() B> B,%-$'%% F-$/$8' /$1 M/(0')-$3
H.
.inancial
;anagement BB 4B
4?. .inancial ;arkets B? F
44.
;arketing
;anagement D? 4E
4B. Consumer 1rotection 4C C
"0
=0
N.)'> #he 3uestion 1aper will include &alue based question/s0 to the extent of E
marks from any of the units.
P/() A> P(-$8-65'% /$1 F,$8)-.$% .: M/$/3'2'$)
U$-) I> N/),(' /$1 %-3$-@8/$8' .: M/$/3'2'$) AP'(-.1% 12B
;anagement " concept, ob=ecti&es and importance
;anagement as ,cience, Art and 1rofession.
'e&els of management
;anagement functions " planning, organi9ing, sta*ng,
directing and controlling.
Coordination " concept, characteristics and importance.
U$-) 2> P(-$8-65'% .: M/$/3'2'$)
AP'(-.1% 12B
1rinciples of ;anagement " concept, nature and signi6cance
.ayols principles of management
#aylors ,cienti6c ;anagement " principles and techniques
U$-) !> M/$/3'2'$) /$1 B,%-$'%% E$4-(.$2'$)
AP'(-.1% 10B
usiness :n&ironment " concept and importance
%imensions of usiness :n&ironment " :conomic, ,ocial,
#echnological, 1olitical and 'egal
)mpact of Io&ernment policy changes on business with special
reference to liberali9ation, pri&ati9ation and globali9ation in
)ndia.
U$-) "> P5/$$-$3 AP'(-.1%
12B
Concept, importance and limitations
1lanning process
,ingle use and ,tanding 1lans " 8b=ecti&es, ,trategy, 1olicy,
1rocedure, ;ethod, Rule, udget and 1rogramme.
U$-) ?> O(3/$-C-$3 AP'(-.1%
1DB
Concept and importance.
8rgani9ing 1rocess.
,tructure of organi9ation " functional and di&isional.
.ormal and informal organi9ation.
%elegation2 concept, elements and importance.
%ecentrali9ation2 concept and importance.
U$-) D> S)/E$3 AP'(-.1%
1"B
Concept and importance of sta*ng
,ta*ng as a part of Human Resource ;anagement
,ta*ng process 2
Recruitment " sources
,election " process
#raining and %e&elopment " Concept and importance. ;ethods of
training" on the =ob and o+ the =ob" )nduction training, &estibule
training, apprenticeship training and internship training.
U$-) F> D-('8)-$3 AP'(-.1% 1DB
Concept and importance
:lements of %irecting
- ,uper&ision " concept, functions of a super&isor.
- ;oti&ation " concept, ;aslows hierarchy of needsJ .inancial
and non"6nancial incenti&es.
- 'eadership " concept, styles " authoritati&e, democratic and
laisse9 faire.
- Communication " concept, formal and informal
communicationJ barriers to e+ecti&e communication, how to
o&ercome the barriers.
U$-) G> C.$)(.55-$3 AP'(-.1%
1"B
Concept, nature and importance
Relationship between planning and controlling
,teps in the process of control
P/() B> B,%-$'%% F-$/$8' /$1 M/(0')-$3
U$-) => F-$/$8-/5 M/$/3'2'$) AP'(-.1%
22B
Concept and ob=ecti&es of 6nancial management.
.inancial decisions2 in&estment, 6nancing and di&idend and factors
a+ecting.
.inancial planning " concept and importance.
Capital ,tructure " concept and factors a+ecting.
.ixed and (orking Capital " concept and factors a+ecting their
requirements.
U$-) 10> F-$/$8-/5 M/(0')% AP'(-.1%
20B
.inancial ;arkets2 concept and types.
;oney market and its instruments.
Capital market and its types /primary and secondary0.
,tock :xchange " functions and training procedure. %epository
,er&ices and %Kmat Account.
,ecurities and :xchange oard of )ndia /,:)0 " ob=ecti&es and
functions.
U$-) 11> M/(0')-$3 M/$/3'2'$) AP'(-.1%
!0B
;arketing " concept and functions.
;arketing management philosophies.
;arketing ;ix " concept
- 1roduct " concept, branding, labeling and packaging.
- 1rice " factors determining price.
- 1hysical distribution" concept, channels of distribution2
types, choice of channels.
- 1romotion "concept and elementsJ ad&ertising" concept,
role, ob=ections against ad&ertising, personal selling "
concept and qualities of a good salesman, sales promotion "
concept and techniques, public relations " concept and role.
U$-) 12> C.$%,2'( P(.)'8)-.$ AP'(-.1%
1DB
Concept and importance of consumer protection.
Consumer 1rotection Act 4HFC
- ;eaning of consumer and consumer protection.
- Rights and responsibilities of consumers
- (ho can 6le a complaint and against whomL
- Redressal machinery.
- Remedies a&ailable.
Consumer awareness " Role of consumer organi9ations and >I8Ks
U$-) 1!> P(.H'8) W.(0 AP'(-.1%
1DB
DESIGN OF IUESTION PAPER
BUSINESS STUDIES A0?"B
CLASS-XII 2012-1!
T-2'-! H(%. M/;. M/(0% J
=0
T*' &'-3*)/3' ). C.$)'$)/S,9H'8) ,$-)%
S.N.. C.$)'$) U$-) M/(0%
P/() A > P(-$8-65'% /$1 F,$8)-.$ .: M/$/3'2'$)
4. >ature and ,igni6cance of ;anagement A
B. 1rinciples of ;anagement C
D. usiness :n&ironment A
E. 1lanning C
A. 8rgani9ing F
C. ,ta*ng C
@. %irecting F
F. Controlling C
#otal /A0 A?
P/() B > B,%-$'%% F-$/$8' /$1 M/(0')-$3
H. .inancial ;anagement 4B
4?. .inancial ;arkets F
44. ;arketing 4E
4B. Consumer 1rotection C
#otal /0 E?
Irand #otal /AM0 H?
B. W'-3*)/3' ). :.(2% .: I,'%)-.$%
,.>o. .orms of 3uestions ;arks for each >o. of question #otal ;arks
question
4.
Gery short
answer 4 4B 4B
type /G,A0
B.
,hort answer
type ) D C 4F
/,A)0
D.
,hort answer type
)) E E 4C
/,A))0
E.
'ong answer type
) A E B?
/'A )0
A.
'ong answer type
)) C E BE
/'A ))0
C. #otal D? H?
C. S8*'2' .: O6)-.$%
#here will be no o&erall choice. Howe&er, there is an internal choice in
e&ery question of C marks
D. W'-3*)/3' ). 1-E8,5)7 5'4'5 .: +,'%)-.$%
S.N.
E%)-2/)'1 1-E8,5)7 5'4'5 .:
+,'%)-.$% P'(8'$)/3'
4. :asy D?N
B. A&erage A?N
D. %i*cult B?N
E. T76.5.37 .: I,'%)-.$%
)n order to assess di+erent abilities related to the sub=ect, the question
paper is like to include questions based on higher order skills, such as
open"ended question based on case"study, diagrams, and cartoons gi&en
in the text book.
SAMPLE IUESTION PAPER
BUSINESS STUDIES
CLASS XII A2012-1!B
B5,' P(-$)
$nits Gery ,hort ,hort Answer 'ong Answer #8#A'
Answer /40 3uestion/D,E0 ) - ))/A,C0
$nit"4/A0 " " A/40 A/40
$nit"B/C0 " D/B0 " C/B0
$nit"D/A0 " " A/40 A/40
$nit"E/C0 " D/B0 " C/B0
$nit"A/F0 " E/B0 " F/B0
$nit"C/C0 4/40 " A/40 C/B0
$nit"@/F0 4/B0 " C/40 F/D0
$nit"F/C0 4/40 " A/40 C/B0
$nit"H/4B0 4/B0 E/40 C/40 4B/E0
$nit"4?/F0 4/B0 " C/40 F/D0
$nit"44/4E0 4/B0 D/B0 C/40 4E/A0
$nit"4B/C0 4/B0 E/40 " C/D0
4B/4B0 DE/4?0 EE/F0 H?/D?0
T*'(' &-55 9' 4/5,' 9/%'1 +,'%)-.$A%B 8/((7-$3 :.,( 2/(0% :(.2
/$7 .: )*' ,$-)%.
SAMPLE IUESTION PAPERBUSINESS STUDIES
BUSINESS STUDIES
C5/%% J XII A2012-1!B
M/;. M/(0% J =0
T-2' - ! H(%.
G'$'(/5 I$%)(,8)-.$%> -
1. A$%&'(% ). +,'%)-.$% 8/((7-$3 1 2/(0 2/7 9' :(.2 .$' &.(1
). .$' %'$)'$8'.
2. A$%&'( ). +,'%)-.$% 8/((7-$3 ! 2/(0% 2/7 9' :(.2 ?0 ). F?
&.(1%.
!. A$%&'( ). +,'%)-.$% 8/((7-$3 "-? 2/(0% 2/7 9' /9.,) 1?0
&.(1%
". A$%&'( ). +,'%)-.$% 8/((7-$3 D 2/(0% 2/7 9' /9.,) 200
&.(1%.
?. A))'26) /55 6/()% .: / +,'%)-.$ ).3')*'(.
34. (hat is meant by 7)nduction #rainingL /40
3B. Ii&e the meaning of 7%emocratic ,tyle of 'eadership. /40
3D.
Ra=at a ,ales ;anager, achie&ed his sales target one
month in
ad&ance.
#his
achie&ement was displayed on the notice board and the C:8 of the
Company
awarded a certi6cate for the best performance to him. >ame the
incenti&e
pro&ided to Ra=at. /40
3E.
(hich two steps in the process of control are concerned with compelling e&ents
to
con6rm to the planL /40
3A. %e6ne 7.inancial ;anagement. /40
3C. ,tate the primary ob=ecti&e of 6nancial management. /40
3@. 'ist any two characteristics of secondary market. /40
3F. (hat is meant by 6nancial marketL /40
3H. :numerate any two qualities of a good ,alesman.
34?. (hat is meant by 71romotion ;ixL /40
344. (hat is meant by 7Consumer 1rotectionL
/40
34B. (hen can a consumer make an appeal in the ,upreme Court under
7#he Consumer
1rotection Act 4HFCL
/4
0
34D. ,tate any three characteristics of principles of
management. /D0
34E
. :xplain the following principles of ,cienti6c ;anagement2"
a0 ,cience not rule of thumb
b0 Co"operation not )ndi&idualism /D0
34A
. ,tate the steps in&ol&ed in the planning process. /D0
34C
. :xplain the meaning of 78b=ecti&es as a type of plan. /D0
34@
. ,tate any three features of a good brand name. /D0
34F
. :xplain the following two functions of ;arketing 2"
i0 1roduct %esigning and %e&elopment
ii0 ;arketing 1lanning /D0
34H
.
#he :mployees of ;anik 'td. , a software company, ha&e formed a
dramatic
group for their recreation. >ame the type of organisation so formed
and state its
three features. /E0
3B?
.
%istinguish between .unctional and %i&isional organisational structure
on the
following basis2
i. .ormation
ii. ;anagerial de&elopment
iii. Responsibility
i&. ,uitability /E0
3B4. ,tate any four factors which help in determining the working Capital
requirements of a Company. /E0
3BB. Oayco '#%. is manufacturing detergents. #hey decide to launch a new
range of herbal products. As they are in a hurry, they ha&e tested
products on animals only.
#he necessary information is missing on the package. #he management
also plans to launch a new factory in a tribal area where the required
products are easily a&ailable and the labour"men, women and children
are a&ailable for work at low wages in the absence of de&elopment
opportunities and schools.
a0 (hich &alues do you 6nd disturbing in the abo&e paraL
b0 (ill the decision to install a new unit in a tribal area help societyL
Highlight the social &alues in&ol&ed in his decision.
/E0
3BD. P,uccess of an organi9ation largely depends upon its managementQ
:xplain any
6&e reasons to =ustify the statement. /A0
3BE
.
:xplain with the help of one example each how do 71olitical
:n&ironment and
7'egal :n&ironment a+ect the functioning of a business
enterprise. /A0
3BA
.
%espite internal sources of recruitment being economical why do
companies not
always use this sourceL ,tate any 6&e reasons. /A0
3BC
.
Rou are a management expert. Rou ha&e been asked by a business 6rm
to make
its managers understand the importance of controlling function of
management.
How will you explain this to the managerL /A0
3B@
.
Communication originally drafted in :nglish has been &ery poorly
translated in
Hindi. >ame the type of barrier to e+ecti&e communication and explain
any other
6&e barriers of this type.
8R
)dentify the function of management which refers to the process of
instructing, guiding, counselling, moti&ating and leading people in the
organisation to achie&e ob=ecti&es. :xplain the importance of this function of
management. /C0
3BF. Rou are the 6nancial manager of a company. #he oard of %irectors has
asked you to design the capital structure of the company. ,tate any six
factors that you would consider while doing so.
8R
:&ery manager has to take three ma=or decisions while performing the
6nance function. ,tate these decisions.
/C0
3BH. :xplain the steps in the 7#rading 1rocedure of ,tock :xchange
:xplain any four methods of 5oatation of new issues in the 1rimary
;arket. /C0
3D?. )dentify the method of sales"promotion in the following cases2
/i0
A mobile company o+ers a discount of Rs. 4??? to clear
o+ excess
in&entory.
/ii0
A customer gets Rs.A o+ on return of an empty wrapper while
making a
new purchase of the same product.
/iii0
A Company o+ers a pack of S kg. of sugar with the purchase of a
A kg. bag
of wheat 5our
/i&0
A company o+ers E?N of extra sha&ing cream in a pack of A??
gms.
/&0
,cratch a card and get a gold coin with the purchase of a cold
drink.
/&i0
1urchase goods worth Rs. A?,??? and get a holiday package
worth Rs.
4?,??? free.
8R
7Garious tools of communication are used by the marketers to promote
their products.
Answer the following questions2
a0 (hy do companies use all tools at the same timeL
b0 >ame and explain the most commonly used non"personal tool of
promotion which is paid for by the marketer.
c0 (hich tool of promotion will primarily be used for the following2
i0#o promote or protect a companys image or its indi&idual
products.
ii0 An existing product meant for mass usage by literate people.
iii0 #o introduce a new product to a particular class of
people through
door"to"door &isits. /C0
M/(0-$3 S8*'2'
1. )nduction #raining refers to the process of introducing the selected
employees to other employees and familiari9ing him with the rules and
policies of the
organisation. /40
B. %emocratic ,tyle of 'eadership is leadership in which, a leader
consults with his subordinates on proposed actions and decisions and
encourages them to
participate in decision making. /40
D. #he )ncenti&e pro&ided to Ra=at is " 7Recognition /40
E.
/i0 Comparison of actual performance with
standards.
/ii0 #aking correcti&e action. /S x B T 40
A. .inancial ;anagement is concerned with management of 5ow of funds
and in&ol&es decisions relating to procurement of funds, in&estment of
funds in long term and short term assets and distribution of earnings to
the owners.
8R
.inancial ;anagement may be de6ned as planning, organising, directing
and controlling the 6nancial acti&ities of an organisation.
/40
C. (ealth ;aximisation is the 1rimary 8b=ecti&e of .inancial ;anagement
which means maximising the market &alue of in&estment in the shares of
the company. /40
@. Characteristics of ,econdary ;arket /any two02
/i0)t is a ;arket for purchase and sale of existing securities
/ii0 oth uying and ,elling of ,ecurities can take place here.
/iii0 )t is located at speci6ed places
/i&0#he price of securities is determined by demand and supply for the
securities.
/S MST40
F.A 6nancial market is a market for the creation and exchange of 6nancial
assets. /40
H.3ualities of a good salesman are2 /i0. 1hysical AttributesJ /ii0. ,ocial
AttributesJ /iii0. ;ental Attributes and /i&0 Gocational Attributes. /any
two0
8R
3ualities of a good salesman2 /any
two0
/i0. A good personalityJ /ii0. ,ound health and staminaJ /iii0.1resence of mindJ
/i&0. )maginationJ /&0. 3uick obser&ation and =udgementJ /&i0. ,elf Con6denceJ
/&ii0. )nitiati&eJ /&iii0. ,harp memory and intelligenceJ /ix0. Con&incing
con&ersationalistJ
/x0.Honest and of sound characterJ/xi0. Cooperati&e and helpfulJ /xii0.#actfulJ
/xiii0.)nborn aptitude and talentJ /xi&0. AmbitiousJ /x&0 :nthusiasticJ/x&i0.
:nergeticJ
/x&ii0. %isciplined and loyal. / S M
ST4 0
4?. 1romotion mix refers to combination of promotion tools used by an
organisation to
achie&e its ob=ecti&es. /40
44 .Consumer 1rotection refers to the act of pro&iding adequate protection to
consumers against the unscrupulous, exploitati&e and unfair trade
practices of manufacturers and ser&ice pro&iders.
/40
4B. An order passed by the >ational Commission in a matter of its original
Uurisdiction is appealable before the ,upreme Court.
/4 0
4D. Characteristics of 1rinciples of ;anagement /any three0 "
1. #he 1rinciples of ;anagement ha&e ,$-4'(%/5 /665-8/9-5-)7 in all
types of organisations, business as well as non"business, small as well
as large, public sector as well as pri&ate sector, manufacturing as well
as the ser&ice sectors.
2. #hey are 3'$'(/5 3,-1'5-$'% to action but do not pro&ide readymade
strait=acket solutions to all managerial problems.
!. #hey are formed by practice, ';6'(-'$8', collecti&e wisdom of
managers and ';6'(-2'$)/)-.$.
". #hey are K';-95' and can be modi6ed by the manager when the
situation demands.
?. #hey are aimed at -$K,'$8-$3 *,2/$ 9'*/4-.,( to enable a better
understanding of human and material resources in accomplishing
organisational purposes.
D. #hey intend to establish 8/,%' /$1 'L'8) ('5/)-.$%*-6 so that they
can be used in similar situations in a large number of cases.
F. #he application of the principles is 8.$)-$3'$) or dependent upon the
pre&ailing situation at a particular point of time. /4xDTD0
1". A-B S8-'$8', $.) R,5' .: T*,29>
#aylor belie&ed that there was one best method of maximising e*ciency.
#his method could be de&eloped through study and analysis. #he ;ethod
so de&eloped should substitute the PRule of #humbQ through the
organisation. ,cienti6c method in&ol&es in&estigation of traditional
methods through work study, unifying the best practices and de&eloping a
standard method which would follow throughout the organisation. #his
can result in tremendous sa&ing of time and materials. )n the present
context the use of internet has brought about dramatic impro&ement in
internal e*ciencies and consumer satisfaction.
A--B C..6'(/)-.$, $.) I$1-4-1,/5-%2
#here should be complete cooperation between employees and
management instead of indi&idualisation. )t is an extension of 1rinciple
of harmony not %iscord. ;anagement should not close its ears to
constructi&e suggestion by employees but should reward their
suggestions which result in substantial reduction in costs. (orkers
should be a part of management and a part of all important decisions.
(orkers on the other hand should desist making unreasonable demands.
(hen there is open communication system and goodwill there will be no
need for trade unions. #here should be almost equal di&ision of work and
responsibility between employees and management. ;anagement
should help, encourage and smooth the way for employees.
/4 S M 4 STD0
4A. #he steps in&ol&ed in the process of planning are2
i. %e6ning organi9ational ob=ecti&es for the entire organisation and each
department or unit within the organisation.
ii. %e&eloping planning premises or assumptions about the future, which
are the base material upon which plans are to be drawn.
iii. 'isting the alternati&e ways of reaching ob=ecti&es, which may be
either routine or inno&ati&e.
i&. :&aluating the pros and cons of each alternati&e in the light of the
ob=ecti&e to be achie&ed to choose the best alternati&e.
&. .ormulating deri&ati&e plans to support the main plan.
&i. 1utting the plans into action i.e., doing what is required and their
follow"up to ensure that ob=ecti&es are achie&ed. /S mark
for each stepT C x S T D0
4C. V 8b=ecti&es are the desired future position that the management
would like to reach.
* #hey ser&e as the guide for o&erall planning and are usually set
by the top management.
V #hey need to be expressed in speci6c terms. /D0
4@. .eature of a good brand name2 /Any three0
/i0 )t should be short, easy to pronounce, spell, recognise and
remember.
/ii0 )t should suggest the products bene6ts and qualities.
/iii0 )t should be distincti&e.
/i&0 )t should be adaptable to packaging or labelling requirement.
/&0 )t should be su*ciently &ersatile to accommodate new products
which are added to the product line.
/&i0 )t should be capable of being registered and protected legally.
/&ii0 )t should not get out of date &ery soon. /D0
4F.
A-B P(.1,8) D'%-3$-$3 /$1 D'4'5.62'$)
#he decision of the product contributes to making the product attracti&e to
the target customers. A good design can impro&e performance of a product
and also gi&e it a competiti&e ad&antage in the market. .or example, when
we plan to buy any product say a motorbike, we not only see its features like
cost, mileage etc. but also the design aspects like shape, style etc
A--B M/(0')-$3 P5/$$-$3
8ne important area of work of a marketeer is to de&elop appropriate
marketing plans so that the marketing ob=ecti&es of the organisation can be
achie&ed. .or example, a marketeer of colour #G ha&ing 4?N of the current
market share aims at enhancing his market share to B?N in the next three
years. He will ha&e to de&elop a complete marketing plan co&ering &arious
important aspects including the plan for increasing the le&el of production,
promotion of products etc. and specify the action programmes to achie&e
these ob=ecti&es. /4 S xBTD0
4H. #he type of organisation formed by employees of ;anik 'td. is
informalorganisation
F'/),('% .: I$:.(2/5 O(3/$-%/)-.$ A/$7 )*(''B
/4M4xDTE0

/a0 An informal organisation originates from within the formal organisation
as a result of personal interaction among employees.
/b0 #he standards of beha&iour e&ol&e from group norms rather than
o*cially laid down rules.
/c0 )ndependent channels of communication without speci6ed
direction of 5ow of information are de&eloped by group members.
/d0 )t emerges spontaneously and is not deliberately created by the
management
B?. D-%)-$8)-.$ 9')&''$ F,$8)-.$/5 /$1 D-4-%-.$/5 %)(,8),('%
,>8 asis .unctional %i&isional
4 .ormation
)t is based upon
.unctions )t is based upon product lines
and is supported by functions
B ;anagerial
%i*cult, as each
functional
:asier Autonomy as well as
the
%e&elopment manager has to report to chance to perform multiple
manager functions help in managerial
de&elopment
D Responsibility %i*cult to 6x on any one :asy to 6x responsibility for
department performance
E ,uitability
,uitable for medium
si9ed
,uitable for large 6rms
ha&ing
6rms ha&ing a single multiple product with distinct
product or small number
of Characteristics.
related products
/4xET
E
B4. .actors which help in determining the working capital requirements of
a company are 2 /Any four0
/4xETE0
/i0 >ature of usiness in5uences the working capital required. :g2 A
trading 6rm requires a smaller working capital as compared to a
manufacturing 6rm.
/ii0 An organisation operating on a higher scale of operation requires a
large amount of working capital as compared to the organisation
which operates on a lower scale.
/iii0 %i+erent phases of business cycle a+ect the requirement of
working capital by a 6rm. )n case of boom, larger amount of
working capital is required as compared to depression.
/i&0 ,easonal factors a+ect the le&el of acti&ity and working capital
requirement of a business. )n peak season, larger amount of
working capital is required as compared to lean season.
/&0 #he duration and the length of the production cycle a+ect the
amount of funds required for material and expenses and
consequently a+ect the working capital requirement of a 6rm.
.irms with longer processing cycles lead to higher working capital
requirement of a business.
/&i0 Credit Allowed a+ects the amount of debtors and consequently
the working capital requirement of a 6rm.
/&ii0 #o the extent the 6rm a&ails credit on purchases, the working
capital requirement is reduced.
/&iii0 8perating :*ciency of a 6rm may reduce the le&el of raw
materials, 6nished goods and debtors resulting in lower
requirement of working capital.
/ix0 %i*culty in a&ailability of raw material and larger lead time will
make the 6rm store larger quantity of material and larger shall be
the amount of working capital required.
/or any other correct factor0
BB./A0 T*' 1-%),(9-$3 4/5,' -$ )*' /9.4' 6/(/ /('> /$7 )&.
/SxBT40
)'%)-$3 .$ /$-2/5% -% 9/$$'1.
$. -$:.(2/)-.$ /9.,) )*' 6(.1,8)% .$ 6/80/3' -% 4-.5/)-.$
.: R-3*) ). I$:.(2/)-.$.
Y'%, )*' 1'8-%-.$ .: -$%)/55-$3 / $'& ,$-) -$ )(-9/5 /('/ &-55
1'@$-)'57 *'56 -$ )*' ,65-:)2'$) /$1 1'4'5.62'$) .:
)(-9/5 %.8-')7 A1 2/(0B
T*' )(-9/5 5/9.,(, 2'$ /$1 &.2'$ &-55 3') '+,/5 2-$-2,2
&/3'% ). '/($ )*'-( 5-4'5-*..1.
C*-51 5/9.,( -% 9/$$'1 %. %8*..5% %*.,51 9' .6'$'1 :.(
)*'2.
S8*..5 /$1 .)*'( %,66.()-4' /8)-4-)-'% &-55 *'56 -$
8.22,$-)7-1'4'5.62'$).
E+,/5 .66.(),$-)7 ). 3(.&.
P(.6'( ,)-5-%/)-.$ .: $/),(/5 ('%.,(8'%. Any two
/4xBTB0
BD. ,uccess of an organisation largely depends upon its management.
#his can be =usti6ed with the following reasons2
i. )t helps in achie&ing group goals.
ii. )t increases e*ciency.
iii. )t creates a dynamic organisation
i&. )t helps in the de&elopment of society
&. )t helps in achie&ing indi&idual goals.
&i. )t helps in optimum utilisation of resources.
&ii.)t pro&ides &ision and foresight.
/or any other correct reason0 /4!B mark for reason M4!B mark for
explanationT4 mark0
/4xATA0
BE. 1olitical :n&ironment includes political conditions like
,tability
1eace
Attitude of elected go&ernment representati&es that impact the
business entrepreneurs.
:xample of 1olitical :n&ironment a+ecting the functioning of a business
enterprise is "
:&en after opening up of the )ndian :conomy in 4HH4, foreign companies
found it extremely di*cult to cut through the bureaucratic red tape to get
permits for doing business in )ndia, which discouraged them from
in&esting in our country.
'egal :n&ironment includes &arious
'egislations
Administrati&e orders
Court =udgement
%ecisions rendered by &arious agencies at e&ery le&el of
go&ernment /centre, state or local0
:&ery ;anagement is required to obey the 5/& .: )*' 5/$1.
E;/265' .: L'3/5 E$4-(.$2'$) a+ecting the functioning of a business
enterprise is"
Ad&ertisements for packets of cigarettes must carry the S)/),).(7
W/($-$3, PCigarette ,moking is )n=urious to Health.Q //4 M4 S0M/4 M4
S0TA0
BA. #he Companies do not always use internal ,ources of recruitment
despite of them being economical because of the following reasons2
/any 6&e0
/i0 )t is an incomplete source as no organisation can 6ll all its
&acancies from internal sources.
/ii0 #he employees may become lethargic if they are sure of time
bound promotions.
/iii0 ,pirit of competition among the employees may be hampered.
/i&0 .requent transfers of employees may often reduce the
producti&ity of the organisation.
/&0 Complete reliance on internal recruitment in&ol&es danger of
7inbreeding by stopping 7infusion of new blood into the
organisation.
/&i0 A new enterprise cannot use internal source of recruitment.
/&ii0 #here is limited choice of candidates when the &acancies are to
be 6lled from
internal source of recruitment. /or any other correct reason0
/4xATA0
BC. As a management expert the importance of controlling will be
explained to the managers as follows2
/i0 Accomplishing organi9ational goals.
/ii0 :nables managers to =udge the accuracy of standards.
/iii0 :nsures e*cient use of resources.
/i&0 )mpro&ing employees moti&ation.
/&0 :nsures order and discipline.
/4!B mark for the heading M4!B mark for the explanationT4mark0
/4xATA0
B@. ,emantic arriers /.aulty #ranslations0.
/4mark0
8ther ,emantic arriers"
/i0 adly :xpressed ;essages
/ii0 ,ymbols with di+erent ;eanings.
/iii0 $nclari6ed Assumptions
/i&0 #echnical Uargon
/&0 ody 'anguage - gesture decoding
/4!B mark for the heading M4!B mark for the
explanationT4mark0
/4M4xAT
C0
8R
%irectin
g /4 mark0
I26.()/$8'
4. )nitiates action.
B. )ntegrates employees e+orts
D. Iuides employees
E. .acilitates introduction of changes
A. rings stability and balance
/4!B mark for the heading M4!B mark for the explanationT4mark0
/4M4xATC0
BF. .actors a+ecting capital structure /any six0 are2
/i0 #he si9e of the pro=ected cash 5ows must be considered before
deciding the capital structure of the 6rm.
/ii0 Higher the )nterest co&erage ratio which is calculated as follows2
:)#! )nterest, lower shall be the risk of the company failing to
meet its interest payment obligations.
/iii0 A higher %ebt ser&ice co&erage ratio, in which the cash pro6ts
generated by the operations are compared with the total cash
required for the ser&ice of debt and the preference share capital,
the better will the ability of the 6rm to increase debt component in
the capital structure.
/i&0 )f return on in&estment of the company is higher, the company can
choose to use trading on equity to increase its :1,, i.e., its ability
to use debt is greater.
/&0 ;ore debt can be used if cost of %ebt is low.
/&i0 A higher tax rate makes debt relati&ely cheaper and increases its
attraction as compared to equity.
/&ii0 )f debt is used beyond a point, cost of equity may go up sharply
and share price may decrease inspite of increased :1,.
/&iii0#he 5oatation cost may a+ect the choice between debt and equity
and hence the capital structure
/ix0 #he total risk of business depends upon both the business risk and
6nancial risk. )f a 6rms business risk is lower, its capacity to use
debt is higher and &ice"&ersa.
/x0 #o maintain 5exibility the company must maintain some borrowing
power to take care of unforeseen circumstances
/xi0 /or any other correct factor0
/4xC T C0
8R
#hree ma=or decisions are2
/i0 )n&estment %ecision which relates to how the 6rms funds are
in&ested in di+erent assets in the long term and the short term.
/ii0 .inancing %ecision which relates to the quantum of 6nance to be
raised from &arious long term sources. )t determines the o&erall
cost of capital and 6nancial risk of the enterprise.
/iii0 %i&idend %ecision relates to how much of the pro6t earned by the
company /after paying tax0 is to be distributed to shareholders and
how much of it
should be retained in the business. /B x D T C0
2=. T(/1-$3 P(.8'1,(' .: / S).80 M/(0')
%epository is an institution!organisation which holds securities
eg2 shares, debentures, bonds, mutual funds etc in electronic form,
in which trading is done.
%1, are agents < ,tock brokers /R"#rading0
1. S'5'8)-.$ .: / B(.0'(
TRADING PROCEDURE ON A STOCK EXCHANGE
/4xDMDTC0
#he procedure for purchase and sale of securities in a stock exchange
in&ol&es the following steps2
1. S'5'8)-.$ .: 9(.0'(
#he 6rst step is to select a broker who will buy!sell securities on
behalf of the in&estor. #his is necessary because trading of securities
can only be done through ,:) registered brokers who are the
members of a stock exchange. rokers may be indi&idual,
partnership 6rms or corporate books. #he broker charges
brokerage ! commission for his ser&ices.
2. O6'$-$3 1'2/) /88.,$)
#he next step is to open a demat account. %emat /%ematerialised0
account refers to an account which an )ndian citi9en must open with
the depository participant /banks, stock, brokers0 to trade in listed
securities in electronic form.
#he securities are held in the electronic form by a depository. At
present, there are two depositories in )ndia NSDL />ational
,ecurities %epository 'td.0 and CDSL /Central %epository ,er&ices
'td.0
%epository interacts with the in&estors through depository
participants. Rour %epository 1articipant will maintain your securities
account balances and intimate to you the status of your holding
from time to time.
!. P5/8-$3 )*' .(1'(
#he next step is to place the order with the broker. #he order can be
communicated to the broker either personally or through telephone,
cell phone, e"mail etc. #he instructions should specify the securities
to be bought or sold and the price range within which the order is to
be executed. 8nly the securities of listed companies can be traded
on the stock exchange.
". E;'8,)-$3 )*' .(1'(
According to the instructions of the in&estor, the broker buys or sells
securities.
#he broker then issues a contract note. A copy of the contract note
is sent to the client. #he contract note contains the name and the
price of the securities, names of the parties, brokerage charged. )t is
signed by the broker.
?. S'))5'2'$)
#his is the last stage in the trading of securities done by the brokers
on behalf of their clients. #he mode of settlement depends upon the
nature of the contract.
:quity spot market follow a #MB rolling settlement. #his means that
any trade taking place on ;onday, gets settled by (ednesday. All
trading on stock exchanges takes place between H2AA am and D2D?
pm. )ndian ,tandard #ime, ;onday to .riday. %eli&ery of shares must
be made in demateriali9ed form, and each exchange has its own
clearing house, which assumes all settlement risk.
8R
#he methods of 5oating new issues in the 1rimary ;arket are 2 /Any E0
1. OL'( T*(.,3* P(.%6'8),%
)t is the ;ethod of .loating new issues by in&iting subscriptions from the
public through issue of 1rospectus. A prospectus makes a direct appeal
to in&estors to raise capital, through ad&ertisement in newspapers and
maga9ines.
2. OL'( F.( S/5'
)t is the method in which the ,ecurities are not )ssued directly to the
1ublic but through intermediaries like )ssuing Houses or ,tock rokers. A
company sells securities en bloc at an agreed price to brokers who, in
turn, resell them to the in&esting public.
!. P(-4/)' P5/8'2'$)
)t refers to the allotment of securities by a company to institutional
in&estors and some selected indi&iduals. ,ome companies cannot a+ord a
public issue and choose to use pri&ate placement.
". R-3*)% I%%,'
)t is the pri&ilege gi&en to existing shareholders to subscribe to new
issue of shares in proportion to the number of shares they already hold.
#he shareholders are o+ered the 7right to buy new shares in proportion
to the number of shares they already possess.
?. E-IPO
)t refers to )ssuing ,ecurities through the online system of ,tock
:xchanges. #he company has to enter into an agreement with the stock
exchange.
/4!B mark for heading M 4 mark for explanationT4 S xETC0
D?. /i0 Rebate
/ii0 Refund
/iii0 1roduct " combination
/i&0 3uantity " gift
/&0 )nstant draws and assigned gift
/&i0 'ucky %raw /4xCTC0
8R
/a0. #he companies use all tools at the same time because of the nature of
market, nature of product, promotion budget and ob=ecti&es of
promotion being di+erent at di+erent times.
/b0. #he most commonly used non"personal tool of promotion which is
paid for by the marketer is ad&ertising. #he explanation should
include2
)t is a paid and non"personal form ha&ing an identi6ed sponsor to
promote an idea.
/c0#he tools of promotion used are
/i0 1ublic Relations
/ii0 Ad&ertisements
/iii0 1ersonal ,elling /BxDTC0
CHAPTER J I
NATURE AND SIGNIFICANCE OF MANAGEMENT
L-$0-$3 .: C5/%% XI %755/9,%>
1. )n sole proprietorship business, the owner him"self manages
his business.
2. )n 1artnership business all partners or any one partner on
behalf of other partners can manage the business.
!. )n H$. 7Oarta manages the business.
". ut in a Uoint ,tock Company, it is managed by professionally
quali6ed managers. ,o in this context, the need for
management arises.
CONCEPT MAPPING
C.$8'6)> ;anagement is the process of planning, organising, staf6ng,
directing and controlling the resources ef6ciently and
effecti&ely for achie&ing the organisational goals.
C*/(/8)'(-%)-8%> /a0 goal oriented process, /b0 per&asi&e, /c0
multidimensional /d0 group acti&ity, /e0 continuous
process, /&i0 dynamic function, /&ii0 intangible force
O9H'8)-4'% > /a0 organisational /b0 social, and /c0 personal
ob=ecti&es
I26.()/$8'> /a0 achie&es group goals /b0 increases ef6ciency /c0
creates dynamic organi9ation /d0 helps achie&e personal goals /e0
de&elopment of society
M/$/3'2'$) /% A()> #heoretical knowledge, personal application,
based on practice, creati&ity
M/$/3'2'$) /% / S8-'$8' > /a0 ,ystematic body of
knowledge /b0 principles based on
application, /c0 uni&ersal &alidity
M/$/3'2'$) /% / P(.:'%%-.$> /a0 well de6ned body of
knowledge /b0. restricted entry /c0
professional association /d0 ethical
code of conduct ;anagement ful6lls some
but not all of these requirements
L'4'5% .: 2/$/3'2'$)> /a0 #op 'e&el management /b0 ;iddle
'e&el management /c0 ,uper&isory or operational or
lower le&el management
F,$8)-.$% .: M/$/3'2'$)> 1lanning, organising, staf6ng, directing
and controlling
C..(1-$/)-.$ > #he process of achie&ing unity of action among
interdependent acti&ities and departments of an
organisation. )t is the essence of management as it is
required in all managerial functions.
KEY CONCEPTS IN NUTSHELL
1. MEANING/CONCEPT OF MANAGEMENT>
;anagement is the process of getting things done with the aim of
achie&ing goals effecti&ely and ef6ciently.
# P(.8'%%> refers to the primary function like planning, organising,
staf6ng, directing and controlling performed by the management
to get things done.
# EL'8)-4'$'%%> means completing the right task to achie&e the
deputed goal within the time frame.
# EE8-'$87> means completion of task using minimum resources
2. DEFINITION OF MANAGEMENT>
P;anagement is the process of working with and through others to
e+ecti&ely achie&e the organisational ob=ecti&es by ef6ciently using
limited resources in the changing en&ironment.Q
Oreitner
!. F,$8)-.$% .: 2/$/3'2'$)>
1. P5/$$-$3 - ,etting ob=ecti&es and targets and formulating an action
plan of what is to be done, how to be done and when to do it
2. O(3/$-%-$3 - Assignment of duties, task, establishment of authority
and responsibility relationships, allocating the resources required to
perform the planned task.
!. S)/E$3 - .inding and placing the right person at the right =ob at the
right time.
". D-('8)-$3 - 'eading, in5uencing, moti&ating the staff chosen to
perform the assigned task e*ciently and effecti&ely.
?. C.$)(.55-$3 " :nsuring!;onitoring the acti&ities in an organisation
are performed as per the plan.
". N/),(' .: M/$/3'2'$)> As an art, As a science and As a profession.
?. MANAGEMENT OBECTIVES- O(3/$-%/)-.$/5 O9H'8)-4'%>
S,(4-4/5>- :nsure that the organisation sur&i&es and exists in the future.
P(.@)/9-5-)7>- :arning adequate pro6t in order to sur&i&e and grow
G(.&)*>- Irowth indicates how well it exploits the potential
opportunities.
S.8-/5 O9H'8)-4'%>
W 1roducing quality products at reasonable rates,
W generating employment opportunities,
W Community progress and de&elopment by pro&iding schools and
crXches to employees )n fact most of the 6rms ha&e taken upon
themsel&es the concept of social responsibility as one of the
basic element of business ob=ecti&es .
W :n&ironmental friendly method of production.
P'(%.$/5 O9H'8)-4'%>
W ;eeting the .inancial needs like competiti&e salaries and perks
W ,ocial and safety needs of the
employee like peer recognition, self
respect and respect for colleagues
W Higher le&el needs like implementation
and monitoring of policies for personal
growth and sur&i&al
W Reconcile personal goals with organisational ob=ecti&es for
harmony in the organisation.
D. IMPORTANCE OF MANAGEMENT
W Aids in achie&ement of indi&idual and organisational goals
W )ncreases e*ciency
W :nhances optimum utilisation of resources
W Creates a dynamic organisation
W 1romotes de&elopment of society
F. LEVELS OF MANAGEMENT
T .6 5'4'5> - D'%-3$/)-.$% /$1 F,$8)-.$%
W Comprises of C:8, oard of %irectors, ;%, I;, G1
W Conceptualising of organisational goal, policy and strategy
formulation
W 8rganising , Controlling and ;onitoring acti&ities and resources
W Controlling the work performance
W Appro&ing udgets
M-115' L'4'5>- - D'%-3$/)-.$% /$1 F,$8)-.$%
W Comprises of %epartmental, ,ub"%epartmental and %i&isional
heads.
W :xecution of plans, policies framed by the top le&el management
W 1reparing organisational set up - appointing employees
W )ssuing instructions and moti&ating employees
W :nsuring interdepartmental cooperation
L.&'( L'4'5>- - D'%-3$/)-.$% /$1 F,$8)-.$%
W .orwarding suggestions and feedback to the top le&el
W Comprise of ,uper&isors, .oremen and inspectors
W ;aintain ;orale, safety and discipline amongst the work force
W 8&ersee the work of the workers
W Assist the management in selection, training, placement -
promotion of workers
G. NATURE OF MANAGEMENT A% /$ /()>
W :xistence of theoretical knowledge.
W %e&eloped through 1ractical and creati&e process.
W 1ersonalised application and skill
A% / P(.:'%%-.$>
W (ell de6ned body of knowledge.
W :xistence of code of conduct
W 1rofessional association /A);A0
W Restricted entry
W .ees as remuneration for their ser&ices
A% / S8-'$8'>
W Arranged, organised systematic body of knowledge
W $ni&ersal &alidity
W 1rinciples arri&ed at after experimentation
=. COORDINATION M'/$-$3.
I) -% )*' %7$8*(.$-%/)-.$ .: 4/(-.,% /8)-4-)-'% /$1 'L.()%
-$ /$ .(3/$-%/)-.$ pro&iding the required amount of quality,
timing and sequenceJ thus ensuring the achie&ement of the
planned goal with minimum content.
10. FEATURES OF COORDINATION>
# I$)'3(/)'% G(.,6 EL.()> )t is an orderly arrangement of
group e+ort and not indi&idual e+ort
# E$%,('% ,$-)7 .: /8)-.$> )t is a binding force between
departments and ensures that all e+orts are focussed
towards achie&ing the organisational goal
# I) -% / C.$)-$,.,% P(.8'%% ne&er ending process as its
needs are felt at all le&els and steps in the organisations. )t
begins at the planning stage and continues till controlling
# I) ('2/-$% )*' :,$8)-.$ /$1 ('%6.$%-9-5-)7 .: '4'(7
2/$/3'(> the top le&el coordinates the o&erall plan, middle
le&el coordinates the efforts of the different sections and
subsections and lower le&el management coordinates the
acti&ities of the workers
# A D'5-9'(/)' :,$8)-.$> )t does not occur spontaneously nor
is it achie&ed by force it is a deliberate action taken.
# A55 6'(4/%-4' :,$8)-.$ it is needed in all departments and
at all le&els. 'ack of coordination can lead to o&erlapping of
acti&ities.
11. NEED FOR COORDINATION>
#he reasons that bring out the importance or the necessity for
coordination are
W Irowth in the ,i9e of the organisation results in the increase
in &aried quality of manpower too with &aried indi&idual
aspirations. Coordination seeks to match the indi&idual goal
with the organisational goal.
W .unctional %i+erentiation arising out of departmentalisation and
di&ision brings forth a moti&e for achie&ement of indi&idual
ob=ecti&es, in isolation from other ob=ecti&es leading to
departmental clashes. Coordination seeks to iron out these
&ariations.
W ,pecialisation can gi&e rise to feeling of superiority and
prioritising of their 9one of acti&ities. Coordination seeks to
sequence and integrate all the specialists of acti&ities into a
wholesome e+ort.
12. IMPORTANCE OF COORDINATION
W :nsures unity of action
W :rases interdepartmental con5icts
W 1romotes harmonious implementation of plans
W Helps in maintaining a high degree of morale amongst
employees
1!. COORDINATION IS THE ESSENCE OF MANAGEMENT.
Coordination is the management function of correlating and
integrating the di&erse goals and acti&ities in the
organisational process. )t is the essence of management
because2
)t is needed at all ;anagement functions
P5/$$-$3 - Coordination between the master plan and
departmental plan.
O(3/$-%-$3 - Required between authority, responsibility
and accountability.
S)/E$3 - Achie&e balance between =ob requirement and
qualities of personnel
D-('8)-$3 - Required between super&ision, moti&ation and
leadership. C.$)(.55-$3 - :nsures actual result conform to
expected results.
>eeded at all le&els of ;anagement"
T.6 5'4'5 - needs coordination to integrate acti&ities of
the organisation for accomplishing the organisational goal
M-115' 5'4'5 - Coordination of the efforts of di+erent sections
and sub"sections
L.&'( 5'4'5 - Coordination in the acti&ities of workers to
ensure work progresses as per plans.
VE R Y SHORT ANSWER TYPE IUESTIONS A1 MARKB
1. MP5/$$-$3, O(/3/$-C-$3, S)/E$3, D-('8)-$3 /$1
8.$)(.55-$3N -% )*' %'+,'$8' .: :,$8)-.$% -$ / 6(.8'%%.
N/2' -).
Ans. ;anagement
2. N/2' )*/) -$)/$3-95' :.(8' &*-8* 8('/)'% 6(.1,8)-4'
('5/)-.$%*-6% /2.$3 ('%.,(8'% .: /$ .(3/$-%/)-.$.
Ans. ;anagement
!. W*/) -% )*' 2/-$ .9H'8)-4' .: /$7 .(3/$-%/)-.$O
Ans. ;ain ob=ecti&e of any organisation is optimum utilisation of
resources
". P(.1,8)-.$ 2/$/3'( )(-'% ). 6(.1,8' 3..1% &-)*
2-$-2,2 8.%)%. N/2' )*' 8.$8'6) &*-8* -% 9'-$3
:.8,%'1 97 2/$/3'2'$)O
Ans. :f6ciency
?. W*/) 1. 7., 2'/$ 97 'L'8)-4'$'%%O
Ans. )t means completing the task or achie&ing the goals within
stipulated time period.
D. PM/$/3'2'$) -% / 3(.,6 /8)-4-)7P. G-4' ('/%.$% :.(
%)/)'2'$).
Ans. An organisation is a collection of di&erse indi&iduals with needs
and purposes but they work towards ful6lling the common
organisational goals.
F. I$ .(1'( ). 9' %,88'%%:,5, /$ .(3/$-C/)-.$ 2,%) 8*/$3' -)%
/88.(1-$3 ). )*' $''1% .: )*' '$4-(.$2'$). W*-8*
8*/(/8)'(-%)-8 .: 2/$/3'2'$) -% *-3*5-3*)'1 -$ )*'
%)/)'2'$)O
Ans. ;anagement is a dynamic function.
G. G-4' .$' 1'%-3$/)-.$ '/8* .: ).6 /$1 2-115' 5'4'5
2/$/3'2'$)O
Ans. #op " C:8, ;iddle " %i&isional ;anager
=. Y.,( G(/$1 F/)*'( */% (')-('1 /% )*' 1-('8).( .: /
2/$,:/8),(-$3 8.26/$7. A) &*/) 5'4'5 .: 2/$/3'2'$) &/%
*' &.(0-$3.
Ans. #op management.
10. W*7 -% 2/$/3'2'$) 8/55'1 -$';/8) %8-'$8'O
Ans. ;anagement relates to human beha&iour, whose cause and effect
is not certain, thats why it is called and inexact science.
SHORT ANSWER TYPE IUESTIONS A! OR " MARKSB
1. E;65/-$ )*' 2'/$-$3 .: 2/$/3'2'$). W*/) 1. 7., 2'/$ 97
2/$/3'(%O
Ans. ;anagement is a process of getting things done with the aim of
achie&ing desired common goals e+ecti&ely and ef6ciently
persons engaged in performing the functions of the
management are known as managers. )n other words, those
managing the organisational resources for releasing its goals are
known as managers.
2. QM/$/3'2'$) -% / 6(.8'%%R E;65/-$O
Ans. ;anagement includes &arious steps such as planning,
organising, sta*ng, directing and controlling. #his process begins
with those at the top of the organi9ation and continues in &arying
degrees at almost e&ery le&el of the organisation. #hese i nt er "
related steps help to achie&e organisational goals in effecti&e
manner. #hat is why management is known as process of
employing and organising resources to accomplish predetermined
ob=ecti&es.
!. QM/$/3'2'$) -% 2,5)--1-2'$%-.$/5R. E;65/-$O
Ans. ;anagement is a complex acti&ity and in&ol&es following three
main dimensions "
-B M/$/3'2'$) .: &.(0%
)n each and e&ery organisation, certain type of work is
to be performed. )n school, o&erall de&elopment of a child is to
be doneJ in hospitals, patients are treated etc. ;anagement
con&erts these works into goals and de&ises the means to
achie&e them.
--B M/$/3'2'$) .: P'.65'.
;anagement is concerned with Pgetting things done
through peopleQ, which is a &ery di*cult task. All the employees
ha&e different personalities, needs backgrounds and methods of
work. #hus, it becomes managements =ob to make them work as a
group by gi&ing common direction to their e+orts.
--- B M/$/3'2'$) .: .6'(/)-.$%.
)n order to sur&i&e, each organisation has to pro&ide
certain goods or ser&ices. #his in&ol&es production process
thus, management of operations is inter linked with both the
abo&e dimensions &i9., management of work and the management
of people.
". W*/) /(' )*' 6'(%.$/5 .9H'8)-4'% .: )*' 2/$/3'2'$)O
Ans. 1ersonal o b = e c t i & e s refer to the ob=ecti&es which are related
to the employees of an organisation. #hey are as follows2
i0 .inancial needs like competiti&e salaries, incenti&es and
other monetary bene6ts.
ii0 ,ocial needs like recognition in the organisation.
iii0 Higher le&el need which includes personal growth and
de&elopment.
?. E$,2'(/)' )*' -26.()/$8' .: 2/$/3'2'$).
Ans. .ollowing points are the importance of management.
i0 ;anagement helps in achie&ing group goals.
ii0 ;anagement increase e*ciency
iii0 ;anagement creates a dynamic organisation.
i&0 ;anagement helps in achie&ing personal ob=ecti&es.
&0 ;anagement helps in de&elopment of society.
D. W*/) 1. 7., 2'/$ 97 5'4'5 .: 2/$/3'2'$)O
Ans. 'e&els of management means the hierarchy of organisation
representing the relationships among managers and
subordinates on the basis of their relati&e authority, status and
responsibility. #here are three le&els in the hierarchy of an
organisation &i9. /i0 #op management /ii0 ;iddle management
and /iii0 ,uper&isory or operational management.
F. D'@$' 8.-.(1-$/)-.$. E$,2'(/)' )*' :'/),('% .: 8.-
.(1-$/)-.$O
Ans. Coordination is an orderly arrangement of
group efforts to maintain harmony among
indi&iduals efforts towards the accomplishment of common goals
of an organisation.
F'/),('% .: 8.-.(1-$/)-.$
i0 )t integrates group e+orts.
ii0 )t uni6es the action.
iii0 )t is a continuous process.
i&0 )t is an all per&asi&e function
&0 )t is the responsibility of all managers.
&i0 )t is a deliberate function.
LONG ANSWER TYPE IUESTIONS A? OR D MARKSB
1. E;65/-$ /$7 @4' :'/),('% .: 2/$/3'2'$)O
Ans. .ollowing are the features of management2
A-B M/$/3'2'$) -% / 3(.,6 /8)-4-)7
;anagement consists of a number of persons who work as a
group. #heir e+orts are directed towards the common goals.
;embers initiate, communicate, coordinate and =oin their hands for
the achie&ement of organisational ob=ecti&es.
A--B M/$/3'2'$) -% / 3./5-.(-'$)'1 6(.8'%%
;anagement aims at common goals through a process of
series of continuous functions &i9 planning, organi9ing, directing,
staf6ng and controlling. #hese composite functions of
management are separately performed by all managers all the
time simultaneously to reali9e organi9ational goals
A---B M/$/3'2'$) -% /55 6'(4/%-4'
(hether it is a commercial organisation or non commercial
organisation, big or small all require management to handle their
operations e+ecti&ely and ef6ciently.
A-4B M/$/3'2'$) -% / 8.$)-$,.,% 6(.8'%%
;anagement is a continuous process consisting of a series
of functions &i9., planning, organising, directing and controlling. All
the managers perform these functions regularly.
A4B M/$/3'2'$) -% / 17$/2-8 :,$8)-.$
#he en&ironment in which a business exists keeps on changing.
#hus in order to be successful, management must change its
goals, plans and politics according to the needs of its en&ironment.
2. E;65/-$ )*' .(3/$-%/)-.$/5 .9H'8)-4'% .: 2/$/3'2'$).
Ans. #he organisational ob=ecti&es of management refer to the main
ob=ecti&es required to ful6ll the economic goals of the business
organisation. #he main ob=ecti&e of management is to utili9e the
human and material resources in such a manner that it should gi&e
maximum ad&antage to the organi9ation. :&ery management
group stri&es to accomplish these ob=ecti&es for its organisation.
#hese ob=ecti&es of e&ery organisation are sur&i&al, pro6t and
growth.
A/B S,(4-4/5 > #he basic ob=ecti&e of e&ery business is to sur&i&e
for a longer period in the market. #he management must ensure
sur&i&al of the organisation by earning enough re&enue to co&er
its costs.
A9B P(.@) > 8nly sur&i&al is not su*cient for business. 1ro6t earning
is essential for meeting the expenses and for the successful
operation of the busK #hus management must ensure earning of
suf6cient pro6t.
A8B G(.&)* > #he next important ob=ecti&e of the management is
to ensure future growth and de&elopment of the business.
!. E;65/-$ )*' <%.8-/5 .9H'8)-4'%< .: 2/$/3'2'$).
Ans. :ach organisation is a part of society and thus it has certain social
obligations to ful6ll.
,ome of them are
as follows2
/i0 #o supply quality goods and ser&ices
/ii0 1ro&iding basic amenities to the employees like schools and
creches for their children, medical facilities etc.
/iii0 #o generate employment opportunities especially for the
backward classes.
/i&0 #o pro&ide en&ironment friendly methods of production.
/&0 #o pro&ide 6nancial support to society by donating for noble
causes.
/&i0 #o organi9e educational, health and &ocational training
programmes.
/&ii0 #o participate in social ser&ice pro=ects of Io&ernment and
>on < Io&ernmental 8rganisations />I8s0.
". D. 7., 2'/$ 97< P'(%.$/5 O9H'8)-4'%< .: 2/$/3'2'$)O
E$,2'(/)' 6'(%.$/5 .9H'8)-4'% .: 2/$/3'2'$).
Ans. 1ersonal 8b=ecti&es refer to the ob=ecti&es which are related to the
indi&idual needs of the employees of an organisation. All
organisations are made up of people with different &alues,
experiences and ob=ecti&es. 1eople =oin an organisation to satisfy
their different needs. #hese are as follows2
i0 .inancial needs like competiti&e salaries, incenti&es and
other monetary bene6ts.
ii0 ,ocial needs like recognition in the organisation.
iii0 Higher le&el need which includes personal growth and
de&elopment.
?. E;65/-$ @4' :,$8)-.$% .: ).6-2/$/3'2'$).
Ans. #op management performs the following functi ons.
-B D'4'5. 6 % 5.$3-)'(2 .9H'8)-4'% > #op"le&el managers de&elop
the long " term ob=ecti&es like expansion of business, manpower
planning etc.
--B F(/2-$3 .: 6.5-8-'% > #hey lay down guidelines for
departmental head i.e., policies relating to production,
marketing, personnel, 6nance public relation etc.
---B O(3/$-C-$3 > #op management organi9es the business into
&arious sections and departments to achie&e the desired
organisational ob=ecti&es.
-4B K'7 /66.-$)2'$ ) % > #op"le&el authorities appoint the
departmental heads and some other key persons to de&elop the
organisational structure for pro6table growth of the enterprises.
4B C.$)(.55-$3 > #op"le&el managers periodically re&iew the work
of executi&es at different le&els to ensure that their performance
is as per predetermined plans.
IUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1.
Ans.
G-4' /$7 .$' %.8-/5 .9H'8)-4' .:
2/$/3'2'$).
:ither one of the following2
- 1
M/(0
i0 %esired quality of products at reasonable
price.
ii0 $sing en&ironment friendly methods of
production
iii0 Ieneration of employment opportunities.
2.
Ans.
N/2' /$7 )&. 1'%-3$/)-.$% 3-4'$ ). @(%) 5-$'
2/$/3'(%.
.oremen and super&isors.
- 1
M/(0
!.
Ans.
W*-8* :.(8' 9-$1% /55 .)*'( :,$8)-.$% .:
2/$/3'2'$)O
Coordination
- 1
M/(0
". W*/) 1. 7., 2'/$ 97 M/$/3'2'$) H-'(/(8*7O
- 1 M/(0
Ans. #he chain of authority " responsibility relationships from top to
bottom is called as management hierarchy.
?. H.& -% 2/$/3'2'$) /55 6'(4/%-4'O - ! .( "
M/(0
Ans. Acti&ities in&ol&ed in management are applicable to e&ery type of
organisation whether economic, social or economic, social or
political. .or example, a cricket team needs to be managed as
much as a club or a hospital. #he acti&ities of managers in )ndia
are similar to their acti&ities in say $.O. or $,A. #hus it can be said
that management is all per&asi&e.
D. QM/$/3'2'$) 6(.4-1'% H,13'2'$) /$1 4-%-.$R. E;65/-$O - !
.( " M/(0
Ans. ;anagement keeps ad=usting to the complex and e&er"changing
external en&ironment. )t helps in decision making. As it &isuali9es
the future and the right course of action for same, sound
decisions become possible. #hus, its foresight pro&ides =udgment
and &ision.
F. W*7 -% 2/$/3'2'$) 8.$%-1'('1 /% / 1-%8-65-$'O
- ! .( " M/(0
Ans. %iscipline refers to a sub=ect, the study of which can be organi9ed
and taught. ;anagement is considered as a discipline because it
is being continuously researched and studied. Also, it emphasis
on knowledge, di&ersi6cation, theory and practice, =ust like any
other discipline.
G. M(. K,$/5 -% &.(0-$3 /% )*' F-$/$8' M/$/3'( .: XYS
L)1. A) &*/) 5'4'5 .: 2/$/3'2'$) -% *' &.(0-$3O S)/)'
/$7 )&. :,$8)-.$% 9'-$3 6'(:.(2'1 97 *-2O
- ! .( " M/(0
Ans. He is working as a middle le&el manager.
His functions are as follows.
i0 %eciding &arious sources from which required funds can be
raised.
ii0 >egotiating with banks, brokers, under"writers etc. for raising
6nance.
=. QC..(1-$/)-.$ -% / 8.$)-$,.,% /8)-4-)7R. E;65/-$O
- ! .( " M/(0
Ans. Coordination is a continuous acti&ity carried out by all mangers at
all times. )t starts at the planning stage and continues with the
other functions of management. )t is a ne&er"ending process. )t
integrates all the acti&ities and ensures the orderly arrangement
of indi&idual and group efforts to ensure unity of action in the
reali9ation of common ob=ecti&es.
10. W*/) -% 2'/$ 97 C.-.(1-$/)-.$O E;65/-$ *.& 1.'%
8..(1-$/)-.$ R-$)'3(/)'% 3(.,6 'L.()%R /$1 Q'$%,('% ,$-)7
.: /8)-.$R. A89%' 2012B
Ans2 ;eaning of Coordination and :xplanation of rele&ant features.
11. I1'$)-:7 )*' $/),(' .: 2/$/3'2'$) &*'$ -) -% 6(/8)-8'1 /%
6'(%.$/5 /665-8/)-.$ .: ';-%)-$3 0$.&5'13' ). /8*-'4'
1'%-('1 ('%,5)%. A89%' 2012B
Ans2 ;anagement as an art.
CHAPTER - 2
PRINCIPLES OF MANAGEMENT
CONCEPT MAPPING
C.$8'6) > 1rinciples of management are general guidelines which
can be used under certain situations.
N/),(' > /a0 uni&ersal applicability /b0 formed by practice /c0
5exible /d0 mainly beha&ioural /e0 cause and effect relationships /f0
general guidelines contingent
I26.()/$8'> /a0 useful insights into reality /b0 optimum utilisation of
resources /c0 scienti6c decisions /d0 meeting changing
en&ironment /e0 management training and research /f0
ful6lling social responsibility
P(-$8-65'% .: S8-'$)-@8 M/$/3'2'$) > /a0 science not rule of
thumb /b0 harmony not discord /c0 cooperation not
indi&idualism /d0 maximum not restricted output /e0
de&elopment of each person to greatest ef6ciency.
T'8*$-+,'% .: S8-'$)-@8 M/$/3'2'$)> /a0 functional foremanship /b0
differential piece rate system /c0 work study " time study,
motion study, fatigue study, method study /d0
standardisation and simpli6cation of work.
F/7.5<% P(-$8-65'% > /a0 di&ision of work /b0 authority and
responsibility /c0 discipline /d0 unity of command /e0 unity
of direction /f0 subordination of indi&idual interest to
common interest /g0 remuneration /h0 centralisation and
decentralisation /i0 scalar chain /=0 order /k0 equity /)0
stability of tenure /m0 initiati&e /n0 esprit de corps
T/75.( 4%. F/7.5 > #heir contributions are complementary in nature
despite se&eral differences.
KEY CONCEPTS IN A NUTSHELL>
1. MEANING> - T*' 6(-$8-65'% are broad statement of
fundamental truth which pro&ide guide lines for management
decision and action. #hese guidelines are deri&ed through
experimentation and obser&ation
2. NATURE OF PRINCIPLES OF MANAGEMENT
1. U$-4'(%/5 /665-8/)-.$ - can be applied to all kind of
organisations, irrespecti&e of their si9e and nature.
2. G'$'(/5 3,-1'5-$'% - the formulated guidelines to action
which need to be ad=usted and used as per the demands of the
situation.
!. F.(2'1 97 6(/8)-8' /$1 ';6'(-2'$)/)-.$ - deri&ed
through experimentation and 8bser&ation.
". F5';-95' - principles are not rigid like science but are modi6ed
according to the business en&ironment needs.
?. B'*/4-.,(/5 - the principles aim to in5uence the
unpredictable, complex and dynamic human beha&iour.
D. C/,%' /$1 'L'8) ('5/)-.$ - they aid in predicting the outcome
of management actions.
F. C.$)-$3'$) - the management principles are dependent upon
the pre&ailing Conditions!situations at that particular time hence
amended accordingly.
!. SIGNIFICANCE/ IMPORTANCE OF MANAGEMENT PRINCIPLES
-. P(.4-1'% 2/$/3'(% &-)* ,%':,5 -$%-3*)% -$). ('/5-)7 -
through impro&ed knowledge, ability, understanding and
impro&ed guidance to the managers.
--. O6)-2,2 ,)-5-%/)-.$ .: ('%.,(8'% - and effecti&e
administration through coordinated use of physical, 6nancial
and human resources.
---. S8-'$)-@8 1'8-%-.$ - they lend to be more realistic,
thoughtful, =usti6able and free from personal bias.
-4. M'') )*' 8*/$3-$3 '$4-(.$2'$)/5 ('+,-('2'$)% - by
pro&iding effecti&e and dynamic leadership in implementing
changes.
4. F,5@5% %.8-/5 ('%6.$%-9-5-)7 - guides the manager in ful6lling
the social responsibility.
4-. M/$/3'2'$) )(/-$-$3, '1,8/)-.$ /$1 ('%'/(8* - the
principles help in increasing knowledge which is used as the
basis for management training and research.
". FAYOLRS PRINCIPLES OF MANAGEMENT
1. D-4-%-.$ .: 5/9.,( - work could be di&ided into small
specialised task and performed by a trained specialist
2. A,)*.(-)7 /$1 ('%6.$%-9-5-)7 - there must be a right balance
between authority /right to gi&e orders0 and responsibility
/obligation to perform the assigned task0.
!. D-%8-65-$' - obedience to organisation rules and employment
agreement.
". U$-)7 .: 8.22/$1 - recei&e orders from one boss.
?. U$-)7 .: D-('8)-.$ - all the units of the organisation should
aim and mo&e towards achie&ing the organisational goal.
D. S,9.(1-$/)-.$ .: -$1-4-1,/5 -$)'('%) ). 3'$'(/5 -$)'('%) -
the organisation interest to be prioritised o&er indi&idual
interest.
F. R'2,$'(/)-.$ - pay should be fair and satisfying to both
employee and the organisation.
G. C'$)(/5-%/)-.$ /$1 1'8'$)(/5-%/)-.$ - there should be a
proper balance between centralisation /concentration of
decision making powers with top management0 and
decentralisation /dispersal of decision making power among
more than one person0.
=. S8/5/( 8*/-$ - orders or communication should pass from top
to bottom and follow the of6cial line of command.
10. O(1'(% - A place for e&erything! e&eryone and e&ery one in its
place
11. E+,/5-)7 - kindness, empathy and =ustice in the beha&iour of
manager towards workers.
12. T'$,(' %)/9-5-)7 - frequent displacement of employee from
their position should be a&oided. #hey should be gi&en
suf6cient time to show their results
1!. I$-)-/)-4' - :mployees to be encouraged to de&elop and carry
out their impro&ement plans
1". E%6-(-) 1' 8.(6% - need for team work, spirit and harmony.
?.SCIENTIFIC MANAGEMENT>
M'/$-$3>Conduct of business acti&ities according to standardised
tools, methods and trained personal so as to ha&e increased
output through effecti&e and optimum utilisation of resources.
Hence it stresses that there is always one best way of doing things.
P(-$8-65'% .: S8-'$)-@8 M/$/3'2'$)
1. S8-'$8' $.) (,5' .: )*,29 -
#here should be scienti6c study and analysis of each element of
=ob rather than adopting old rule of the thumb approach on a hit
and miss method. :ncourage Pthinking before doingQ.
2. H/(2.$7 $.) 1-%8.(1 -
#here should be complete harmony and proper understanding
between management and workers in achie&ing the
organisation goals.
!. C..6'(/)-.$ $.) -$1-4-1,/5-%2 -
#aylor emphasised on the importance of cooperati&e group
effort between the management and workers in achie&ing the
organisations goals and not indi&idualism.
". D'4'5.62'$) .: &.(0'(% ). )*'-( 3('/)'%) 'E8-'$87 /$1
6(.%6'(-)7>
#he management should scienti6cally select the workersJ
assign =ob as per their physical, mental and intellectual
capability and potentialJ and train them as per the =ob
requirement.
T'8*$-+,'% .: %8-'$)-@8
2/$/3'2'$) /B
F,$8)- .$/5
:.('2/$%*-6
W ,uper&ision is to be di&ided into se&eral speciali9ed functions
and each function to be entrusted to a special foreman.
W :ach worker will ha&e to take orders from eight foremen in
the related process of function of production.
W ,tress on separating planning function from executi&e function.
9B S)/$1/(1-%/)-.$ /$1 %-265-@8/)-.$ .: &.(0
W 1rocess of setting standards for e&ery business acti&ity to
maximise output.
W ,impli6cation is eliminating unnecessary &arieties, si9es and
grades of product manufactured in the organisation.
8B M')*.1 %),17
W .inding one best way of doing a =ob.
W Critical analysis is made for plant layout, product design,
material handling and work processes using techniques like
process charts, operations research etc.
1B M.)-.$ %),17
W ;aking a thorough analysis of &arious motions being
performed by a worker while doing a particular task.
W )dentifying and determining the ideal producti&e mo&ement.
W :liminate the unproducti&e mo&ements and equipments.
'B T-2' %),17
W )t is the technique used to determine the standard time taken
by the workman with reasonable skill and ability to perform a
particular task.
W Here the =ob is di&ided into series of elements and the time
required to complete each element idealistically is recorded
using a stop watch.
:B F/)-3,' S),17
W %etermines the amount and frequency of rest inter&als required
in completing a task.
3B D-L'('$)-/5 P-'8' &/3' %7%)'2
W :&ol&e a system wherein the ef6cient and inef6cient workers are
paid at different rates, as 6nancial incenti&es act as moti&ators.
W .irst a standard task is established with the aid of time and
motion study, then two rates are established. Higher when
standard outputs is produced and lower when the standard is
not met
TAYLOR V/S FAYOL
B/%-% H'$(7 F/7.5 F.W T/75.(
4. asis of
formation
1ersonal :xperience 8bser&ations and
experimentation
B. .ocus )mpro&ement in the
o&erall
Concentrates on
impro&ing the
D. Applicability $ni&ersally applicable Applicable only to
specialised situations
E. 1erspecti&e #op le&el management 'ower le&el " shop 5oor le&el
A. 1ersonality ,cientist and known as
father of scienti6c
management
1ractitioner and known as
the father of Ieneral
management
C. Human
element
;ore importance
attached to increasing
the production than to
the human element
;ore importance gi&en to
human elementJ e.g.
principle of equity,
stability of tenure
@. :mphasis Ireater emphasis on
tools and standardisation
of work i.e. Ieneral
#heory of Administration
:mphasis on principles and
theory of general
administration i.e.
,cienti6c ;anagement
F. $nity of
Command
,taunch proponent that
orders should be recei&ed
from one boss.
%id not feel that it is
important as under
functional foremanship a
worker recei&ed orders from
eight specialists.
VE R Y SHORT ANSWER TYPE IUESTIONS A1 MARKB
1. H.& /(' 2/$/3'2'$) 6(-$8-65'% 1'(-4'1O
Ans. ;anagement principles are deri&ed through obser&ation and
analysis of e&ents.
2. G-4' /$7.$' 1-L'('$8' 9')&''$ P(-$8-65' /$1 T'8*$-+,'.
Ans. 1rinciples are guidelines to take decision whereas techniques are
methods to take action.
!. W*/) -% 2'/$) 97 <U$-4'(%/5-)7 .: 2/$/3'2'$) 6(-$8-65'%<O
O(
W*7 -% -) %/-1 )*/) 2/$/3'2'$) 6(-$8-65'% /(' ,$-4'(%/5O
Ans. #his it means that they are applicable to all kinds of organi9ations.
". T*' 6(-$8-65'% .: 2/$/3'2'$) /('$<) (-3-1 /$1 8/$ 9'
2.1-@'1 &*'$ )*' %-),/)-.$ 1'2/$1%. W*-8* $/),(' .:
6(-$8-65'% -% 9'-$3 1-%8,%%'1 *'('O
Ans. .lexibility.
?. D'@$' %8-'$)-@8 2/$/3'2'$).
Ans. Application of a scienti6c approach to managerial decision making.
D. L-%) /$7 )&. 6(-$8-65' .: <S8-'$)-@8 M/$/3'2'$)< :.(2,5/)'1
97 T/75.( :.( 2/$/3-$3 /$ .(3/$-C/)-.$ %8-'$)-@8/557.
Ans. /i0 ,cience, not Rule of #humb. /ii0 Harmony, not %iscord.
F. F/8).(7 .&$'(% .( 2/$/3'(% ('5-'1 .$ 6'(%.$/5 H,132'$)
-$ /))'$1-$3 ). )*' 6(.95'2% )*'7 8.$:(.$)'1 -$ )*'
8.,(%' .: 2/$/3-$3 )*'-( &.(0. W*-8* 6(-$8-65' .: T/75.( -%
-) (':'((-$3 ). O
Ans. KRule of thumbK
G. W*/) 1. 7., 2'/$ 97 M'$)/5 R'4.5,)-.$O
Ans. ;ental Re&olution means re&olutionary change in the attitude
of both workers and managers from competition to cooperation.
=. P(-$8-65' .: 8..6'(/)-.$, $.) -$1-4-1,/5-%2, -% /$ ';)'$%-.$
.: &*-8* 6(-$8-65' 3-4'$ 97 F/7.5O
Ans. 1rinciple of Harmony, not discord.
10. W*/) -% )*' /-2 .: M')*.1 %),17O
Ans. Aim is to 6nd one best method of doing the =ob.
11. W*/) -% )*' /-2 .: 1.-$3 2.)-.$ %),17O
Ans. #he aim of this study is to eliminate unnecessary mo&ements so
as to ensure timely completion of work.
12. W*/) -% )*' 6,(6.%' .: )-2' %),17O
Ans. #o estimate! determine a fair days work.
1!. N/2' )*' )'8*$-+,'% .: T/75.( &*-8* -% )*' %)(.$3'%)
2.)-4/).( :.( / &.(0'( ). ('/8* %)/$1/(1 6'(:.(2/$8'.
Ans. %i+erential 1iece (age system.
1". T*' 1-('8).(% .: XYS 5-2-)'1, /$ .(3/$-%/)-.$
2/$,:/8),(-$3 8.26,)'(%, &/$) ). 1.,95' )*' %/5'% /$1
*/4' 3-4'$ )*' ('%6.$%-9-5-)7 ). )*' %/5'% 2/$/3'(. T*'
%/5'% 2/$/3'( */% $. /,)*.(-)7 '-)*'( ). -$8('/%' %/5'%
';6'$%' .( /66.-$) $'& %/5'%2'$. H'$8', *' 8.,51 $.)
/8*-'4' )*-% )/(3'). I1'$)-:7 )*' 6(-$8-65' 4-.5/)'1 -$ )*-%
%-),/)-.$.
Ans. 1rinciple of Authority and Responsibility.
1?. A 8.26/$7 2/$,:/8),(-$3 2.).(8785'% /$1 8/(% %*.,51
*/4' %'6/(/)' 1-4-%-.$% :.( 9.)*, *'/1'1 97 %'6/(/)'
1-4-%-.$/5 2/$/3'(%, %'6/(/)' 65/$% /$1 ('%.,(8'%.
I1'$)-:7 )*' 6(-$8-65' &-)* )*' *'56 .: )*-% ';/265'.
Ans. $nity of %irection.
SHORT ANSWER TYPE IUESTIONS A! OR " MARKSB
1. W*/) 1. 7., 2'/$ 97 2/$/3'2'$) 6(-$8-65'%O
Ans. 1rinciples are statements of fundamental truths about some
phenomena and ser&e as a guide for thoughts and actions. #hey
establish cause and e+ect relationship.
;anagement 1rinciples are the fundamental statements of
truth that pro&ide guidelines to the managers for decision making
and actions. #hese enable the managers to manage the
enterprises in YD: wayY &i9 KeconomicallyK, Keffecti&elyK and
Kef6cientlyK. #hese act as guide for managers and sharpen their
skills and competence.
.or example, principle of di&ision of labour increases the
ef6ciency of workers which ultimately leads to economy and
effecti&eness in the organi9ation.
2. H.& /(' 2/$/3'2'$) 6(-$8-65'% 1'(-4'1O
O(
PM/$/3'2'$) 6(-$8-65'% /(' '4.5,)-.$/(7.P E;65/-$.
O(
PD'(-4/)-.$ .: 2/$/3'2'$) 6(-$8-65'% 2/7 9' %/-1 ). 9' /
2/))'( .: %8-'$8'.P E;65/-$.
Ans. ;anagement principles are not made in hea&ensJ they ha&e
emerged gradually, through an e&olutionary process of combining
deep obser&ations and experimental studies.
A-B O9%'(4/)-.$ 2')*.1
$nder this method, practical e&ents are obser&ed and
analy9ed by managerial researchers to deri&e management
principles.
.or example, it was obser&ed that by di&iding the work into
di+erent units, ef6ciency of employees impro&ed. As a result, it led
to formulation of principle of Kdi&ision of labourK.
A--B E;6'(-2'$)/5 2')*.1
$nder this method, experiments are conducted so that
management principles can be deri&ed and their &alidity can be
tested. .or example, two units, one unit in&ol&ing one superior
and one subordinate and other unit in&ol&ing two superiors
and one subordinate, were taken. )t was found that unit ha&ing
one superior and one subordinate performed better. As a result, it
led to formation of principle of Yunity of command.Y
.rom the abo&e it can be concluded that obser&ations and
experiments result in the formulation of management principles
which therefore are e&olutionary. Hence, deri&ation of
management principles can be said to be a matter of ,cience. )t
is worth mentioning here that e&en though deri&ation of
management principles is a matter of science, their application
remains a matter of art. #he success of managers depends upon
how skillfully they put these principles into practice.
!. G-4' )*('' 6.-$)% ('K'8)-$3 )*' $/),(' .: 2/$/3'2'$)
6(-$8-65'%.
Ans. ;anagement principles
are /any three02
/i0 $ni&ersal in
application.
/ii0 Ieneral guidelines.
/iii0 .lexible and can be applied differently under different
conditions.
/i&0 .ormed by practice and experimentation.
/&0 :stablish cause and effect relationships.
". PP(-$8-65'% .: 2/$/3'2'$) /8*-'4' ('%,5)% '8.$.2-8/557.P
E;65/-$O
Ans. ;anagement principles help in setting realistic ob=ecti&es for the
business because the ob=ecti&es are set with the participation of
employees. Hence, the employees work to their full potential and
their commitment le&el increases because ob=ecti&es of
organisation become their own ob=ecti&es.
.or example, the principle of maximum output rather than
restricted one ensures more output. ;ore output lowers cost per
unit and hence pro6t per unit increases.
?. D'@$' %8-'$)-@8 2/$/3'2'$) /$1 $/2' /$7 )*('' .: -)%
6(-$8-65'%.
Ans. According to #aylor, P,cienti6c management means knowing
exactly what you want your men to do and seeing that they do it
in the best and cheapest wayQ.
#hree principles of scienti6c
management are as follows2 /i0
,cience, not rule of thumb
/ii0 Harmony, not discord.
/iii0 Cooperation, not indi&idualism.
D. E;65/-$ )*' .9H'8)-4'% .: %)/$1/(1-C/)-.$.
Ans. ,tandardisation is done for the following reasons2
/i0 #o ensure that a gi&en product range has 6xed types, si9es,
characteristics etc.
/ii0 #o bring about interchangeability, for manufactured parts,
output, de&elopments etc. among &arious branches.
/iii0 #o set uniform standards of performance for men, machines
etc.
F. W*-8* )'8*$-+,' .: T/75.( %,33'%)% )*/) '/8* &.(0'(
%*.,51 9' %,6'(4-%'1 97 %6'8-/5-%)%O G-4' )*' 1'%-3$/)-.$%
.: /$7 :.,( %6'8-/5-%)% %,33'%)'1 97 *-2.
Ans. #he technique of functional foremanship suggests that each worker
should be super&ised by specialists. #hese specialistsK designations
are follow.
/i0 )nstruction Card Clerk
/ii0 Route Clerk
/iii0 #ime and Cost Clerk
/i&0 %isciplinarian
G. QD-%8-65-$' -% 1.,95'-'13'1 )..5R C.22'$).
Ans. %iscipline is a double"edged tool. )t is expected to strike a balance
between enforcing the discipline on one hand and moti&ating
employees on the other. 1ersonnel entrusted with enforcing it are
expected to be competent and capable of achie&ing this
balance. :mployees must honor the commitment made by them
and management must meet its promises to increase wages
declaration of bonus etc. #o achie&e proper discipline, skilled
superiors at all le&els, clear and fair agreements and =udicious
application of penalties etc. are required.
=. E;65/-$ )*' 6(-$8-65' .: ,$-)7 .: 1-('8)-.$.
Ans. #his principle suggests that in an organi9ation there should be one
head and one plan for a group of acti&ities ha&ing the same
ob=ecti&e. #his helps in bringing unity of action and coordination in
an organi9ation. )f a company is manufacturing two di+erent
products then it should ha&e two separate di&isions or departments
for both the products. :ach di&ision or department should ha&e
their separate in"charge, plans and execution resources etc.
10. A$ .(3/$-C/)-.$ :.55.&% )*' 6(-$8-65'% .: 2/$/3'2'$).
W*/) /(' )*' /14'(%' 'L'8)% .: '/8* .: )*' :.55.&-$3
6(-$8-65'% .: 2/$/3'2'$) .$ )*' .(3/$-C/)-.$O
A-B U$-)7 .: C.22/$1
A--
B
O(
1'
(
A---B S)/9-5-)7 .: )'$,(' .: 6'(%.$$'5
Ans. Ad&erse effects of said principles are2
A-B U$-)7 .: C.22/$1> )f this principle is followed, work gets
delayed which results in wastage of time and cost.
A--B O(1'(> )t creates boredom among the employees due to
rigidity pro&ided by this principle.
A---B S)/9-5-)7 .: 6'(%.$$'5> )f employees are not rotated on
different =obs frequently, they can speciali9e only in a small part of
the whole process of production and thus can ne&er become
&ersatile.
44. :xplain how principles of management
A89%' 2012B
i0 Help the managers in taking scienti6c decisions
ii0 1ro&ide the managers with useful insights into real world
situations
Ans. :xplanation of rele&ant sub"headings from signi6cance of principles of
management.
LONG ANSWER TYPE IUESTIONS A? OR D MARKSB
1. E;65/-$ )*' $/),(' .: 2/$/3'2'$) 6(-$8-65'%.
Ans. >ature of management principles can be described as follows2
A-B U$-4'(%/5 A665-8/9-5-)7> #he principles of management are
applicable to all types of organisations irrespecti&e of their si9e
and nature.
A--B G'$'(/5 G,-1'5-$'%> #hey are only guidelines for action and
donKt pro&ide direct or readymade solution for a managerial
problem.
A---B F.(2'1 97 6(/8)-8' /$1 ';6'(-2'$)/)-.$> #he
principles of management ha&e been de&eloped through
experimentation as well as experience and wisdom of managers.
A-4B F5';-95'> #hey are 5exible i.e. they can be modi6ed by the
managers according to a gi&en situation.
A4B M/-$57 9'*/4-.,(/5> #hey are mainly beha&ioural in nature
since they are de&ised to in5uence human beha&iour.
A4-B C/,%' /$1 'L'8) ('5/)-.$%*-6> #he principles of
management establish relationship between cause and e+ect.
#hey guide us as to what would be the effect if a particular
principle were to be applied in a gi&en situation.
A4--B C.$)-$3'$)> #he use of principles of management is
contingent or dependent upon the pre&ailing conditions.
2B E;65/-$ )*' -26.()/$8' .: 2/$/3'2'$) 6(-$8-65'%.
Ans. #he importance of management principles can be understood by
considering the following points2
A-B P(.4-1' ,%':,5 -$%-3*) ). 2/$/3'> 1rinciples of
management help in increasing managerial e*ciency by adding
to their knowledge and ability to understand the &arious situations
more ob=ecti&ely.
A--B O6)-2,2 U)-5-C/)-.$ .: R'%.,(8'% /$1 'L'8)-4'
/12-$-%)(/)-.$> ;anagement principles help in organi9ing
&arious acti&ities in such a way that results in elimination of
unwanted acti&ities and consequent wastage. ;anagement
principles help in managing organi9ations effecti&ely.
.or example, $nity of Command helps to a&oid confusion and
con5icts $nity of %irection ensures unity of actions to facilitate
coordination
A---B S8-'$)-@8 1'8-%-.$%> #hey help the mangers in taking the
decisions based on the ob=ecti&e assessment of a situation. #hus
decisions taken are logical and free from any bias and pre=udice
A-4B M'')-$3 8*/$3-$3 '$4-(.$2'$) ('+,-('2'$)%> #hough
the principles are only guidelines for action yet they can be
modi6ed according to the need of changing situations. #hus
principles of management help in meeting changing requirements
of the en&ironment.
A4B F,5@55-$3 %.8-/5 ('%6.$%-9-5-)-'%> 1rinciples of management
ha&e been de&ised in such a way that they help in ful6lling social
responsibilities.
A4-B M/$/3'2'$) )(/-$-$3, '1,8/)-.$ /$1 ('%'/(8*>
1rinciples of management are the fulcrum of management theory
so that they are used as a basis for management training,
education and research.
!. T/75.(<% 6(-$8-65'% .: %8-'$)-@8 2/$/3'2'$) /$1 F/7.5<%
6(-$8-65'% .: 2/$/3'2'$) /(' 2,),/557 8.265'2'$)/(7.P
D. 7., /3('' &-)* )*-% 4-'&O G-4' /$7 :.,( ('/%.$% -$
%,66.() .: 7.,( /$%&'(.
Ans. Res, #aylorKs principles of scienti6c management and .ayolKs
principles of management are mutually complementary because of
the following reasons2
B/%-% T/75.( F/7.5
4. 1ersonality #aylor was a scientist .ayol was a practitioner
B. 1erspecti&e #aylorKs principles -
techniques are based on
bottom upward approach
.ayolKs principles are
based on top downward
approach
D. ,cope and
Applicability
#aylorKs principles -
techniques are rele&ant
mainly with respect to
production acti&ities
.ayolKs principles ha&e
wider rele&ance in all
functional areas
E. .ocus #aylorKsK principles -
techniques are focused on
workersK ef6ciency and
production.
.ayolKs principles are
focused on impro&ing
o&erall management
ef6ciency.
A.;odi6c
ations
#aylorKs techniques are
more speci6c in nature and
should be applied without
any modi6cation and only
in speci6c conditions
.ayolKs principles are
more
general in nature - can
be applied in most of
the organi9ations with
some modi6cations.
C. :xpression #aylor expressed his
thoughts and &iews under
the theory of scienti6c
management
.ayol expressed his ideas
as the general theory of
management
Basis of Difference Principle of Management Principles of Science
1. Nature They are flexible They are rigid.
IUESTIONS WITH DIFFERENT DIFFICU L TY LEVELS
1. QP(-$8-65'% .: M/$/3'2'$) /(' 1-L'('$) :(.2 )*.%' ,%'1
-$ 6,(' %8-'$8'R. W(-)' /$7 .$' 1-L'('$8'. - 1 M/(0
Ans.
2. W*-8* 6(-$8-65' 1.'% :,$8)-.$/5 :.('2/$%*-6 4-.5/)'O
- 1 M/(0
Ans. $nity of command
!. G-4' /$7 .$' 'L'8) .: 6(-$8-65' .: 1-4-%-.$ .: &.(0O
- 1M/(0
Ans. ,peciali9ation, speed, accuracy.
". A %/5'% 6'(%.$ -% /%0'1 ). @$/5-C' / 1'/5 &-)* 8,%).2'(.
T*' 2/(0')-$3 2/$/3'( /55.&% *-2 ). 3-4' / 1-%8.,$) .: ,6
). 10T 9,) )*' F-$/$8' M/$/3'( /55.&% *-2 ). 3-4'
1-%8.,$) .: ,6). 2?T. W*-8* 6(-$8-65' -% 4-.5/)'1 *'('O -
1 M/(0
Ans. $nity of Command.
?. MW.(0'(% %*.,51 9' '$8.,(/3'1 ). 1'4'5.6 /$1
8/((7 .,) )*'-( 65/$% :.( 1'4'5.62'$).N I1'$)-:7 )*'
6(-$8-65' .: 2/$/3'2'$) :.(2,5/)'1 97 F/7.5.
- 1 M/(0
Ans. 1rinciple of )nitiati&e
D. S)/)' /$7 )*('' ('/%.$% /% ). &*7 6(.6'( ,$1'(%)/$1-$3 .:
2/$/3'2'$) 6(-$8-65'% -% $'8'%%/(7.
- ! .( " M/(0
Ans. 1roper understanding of management principles is necessary
because of the following reasons /any three02
/a0 #hey pro&ide managers with useful insight into reality.
/b0 #hey help in optimal utili9ation of resources and effecti&e
administration. /c0 #hey help in meeting en&ironment
requirements.
/d0 #hey are used as basis for management training, education and
research.
F. H.& 1. 2/$/3'2'$) 6(-$8-65'% '$%,(' .6)-2,2
,)-5-C/)-.$ .: ('%.,(8'% /$1 'L'8)-4' /12-$-%)(/)-.$O - !
.( " M/(0
Ans. )n e&ery organi9ation, resources such as men, machine,
material and money play a &ital role. ;anagement principles are
designed in such a way that maximum bene6ts from t hese
resources can be achi e&ed wi th mi ni mum resource
wastage. Along with this, the principles of management also
help in establishing effecti&e administration by limiting the
boundary of managerial discretion that their
decisions may be free from personal biases.
.or example, while deciding the annual budget for different
departments, a manager is required to follow t he principle of
contribution t o organisational ob=ecti&es and not personal
preferences.
G. E;65/-$ 9(-'K7 )*' )'8*$-+,' .: :/)-3,' %),17O - ! .( "
2/(0%
Ans. .atigue study determines the amount and frequency of
rest inter&als in completing a task. (orkers cannot work at
a stretch. After putting in work for a certain periods of time,
they reel tired which affects their performance. )f they are
allowed rest inter&als, they will re"gain their stamina and
will resume their work with greater ef6ciency.
=. G-4' 6.%-)-4' 'L'8)% .: )*' 6(-$8-65' .: Q1-%8-65-$'R. - !
.( " 2/(0%.
Ans. 1ositi&e effects of the principle of 7discipline are as under2
i0 )mpro&es ef6ciency of the employees.
ii0 ,ystematic work in the organisation.
iii0 :nsuring that penalties are imposed =udicially.
10. E;65/-$ )*' P(-$8-65' .: 8'$)(/5-C/)-.$ /$1 1'8'$)(/5-C/)-.$.
-!.( " 2/(0%.
Ans. Centrali9ation means concentration of
authority in the hands of few
people at the top, whereas decentrali9ation means appropriate
distribution of power at e&ery le&el of management. According
to .ayol, company must be properly balanced i.e. it should
neither be completely centrali9ed nor decentral i 9ed. #here
must be some element of both depending upon the
pro6le of the organi9ation. #he panchayat system in our
country is a &ery good example of decentrali9ation at the national
le&el.
11. M%. R-), /$1 M(. M.*-) /(' D/)/ E$)(7 O6'(/).(% -$ /
8/26/$7 */4-$3 %/2' '1,8/)-.$/5 +,/5-@8/)-.$%.
R-), -% 3'))-$3 R%. ?,000 6'( 2.$)* /$1 M.*-) R%. D,000 6'(
2.$)* /% %/5/(7 :.( )*' %/2' &.(0-$3 *.,(%.
W*-8* 6(-$8-65' .: 2/$/3'2'$) -% 4-.5/)'1 -$ )*' 8/%'O
N/2' /$1 ';65/-$ )*' 6(-$8-65'.
Ans. #he principle of KequityK is &iolated in this case. According to this
principle, employees should be gi&en kind, fair and =ust treatment
and there should not be any discrimination based on caste, creed,
colour, sex etc. Apparently, Ritu is getting less in &iew of bring a
female which is against this principle.
12. E;65/-$ )*' )'8*$-+,' <F,$8)-.$/5 F.('2/$%*-6<. - ? .( D
M/(0%
Ans. .unctional foremanship is the extension of the principle of
speciali9ation. #his technique emphasises on the separation of
planning from execution. #o facilitate it, #aylor suggested setting
up of Yplanning in chargeY and Yproduction in chargeY.
FUNCTIONA L FOREMANSHIP
P5/$$-$3 I$8*/(3'> #he main function of Yplanning in chargeY is
to plan all aspects of a =ob to be performed. )t consists of four
positions2
A-B R.,)' 85'(0> He determines the sequence to perform &arious
mechanical and manual operations.
A--B I$%)(,8)-.$ 8/(1 85'(0> He issues instructions to the workers
to be followed by them.
A---B T-2' /$1 8.%) 85'(0> He is concerned with the framing of
time schedule on the basis of determined route. Also, he keeps the
record of the cost of operations.
A-4B D-%8-65-$/(-/$> He is concerned with the coordination in
each =ob from planning to successful execution. He enforces rules
and regulations and maintains discipline.
P(.1,8)-.$ I$8*/(3'> )t consists of following four specialists who
are concerned with the execution of plans.
A-B S6''1 B.%%> He checks whether work is progressing as per
schedule. He ensures timely and accurate completion of =obs.
A--B G/$3 B.%%> He arranges machines, materials, tools, and
equipments properly so that workers can proceed with their work.
A---B R'6/-( B.%%> He ensures that all machines, tools, equipments
are in perfect working order.
I$%6'8).(> He ensures that the work is done as per the standards
of quality set by planning department.
1!. N/2' /$1 ';65/-$ )*/) 6(-$8-65' .: F/7.5 &*-8* %,33'%)%
)*/) 8.22,$-8/)-.$ :(.2 ).6 ). 9.)).2 %*.,51 :.55.& )*'
.E8-/5 5-$'% .: 8.22/$1. - ? .( D M/(0%
O(
E;65/-$ )*' <P(-$8-65' .: S8/5/( C*/-$< &-)* /$ ';/265'.
Ans. )n an organi9ation, the formal lines of authority, from highest to
lowest le&el of all superiors and subordinates, are known as scalar
chain. #he principle of scalar chain suggests that there should be
a clear line of authority from top to bottom, linking superiors
and subordinates at all le&els. #he scalar chain ser&es as a chain
of command as well as communication. )n normal circumstances,
the formal communication is required to be made by following
this chain.
S8/5/( C*/-$ /$1 G/$3 P5/$0
E;/265'> #he abo&e 6gure shows the scalar chain linking
managers at lower le&els with the top management. )f % has to
communicate with I, #he message should ordinarily mo&e up
through C and to A, and then down from A to :, . and I.
Abo&e mentioned chain has following disad&antages2
A
:
.
I
H

C
%
/i0 )t causes delay in reaching communication to the required
le&el.
/iii0 Creates the possibility of distortion of information 5ow as
&arious le&els are in&ol&ed.
#o a&oid delays and to remo&e hurdles in the exchange of
information, concept of Iang 1lank has been suggested by
.ayol, shown by the dotted line =oining % and I.
CHAPTER - !
BUSINESS ENVIRONMENT
CONCEPT MAPPING
M'/$-$3 > #he totality of all indi&iduals, institutions and other forces
that are outside a business enterprise but that may a+ect
its functioning and performance.
N/),(' > /a0 totality of external forces /b0 speci6c and general
forces
/c0 )nter"relatedness /d0 dynamic /e0 uncertainty /f0
complexity
/g0 Relati&ity
I26.()/$8' > /a0 6rst mo&er ad&antage /b0 early warning signal /c0
tapping useful resources /d0 coping with rapid change /e0
planning and policy formulation /f0 impro&ing
performance
D-2'$%-.$% > /a0 economic /b0 social /c0 technological /d0 political /e0
legal
L-9'(/5-%/)-.$ >'iberating industry from licensing and other regulations.
P(-4/)-%/)-.$ > transferring ownership and management of public
enterprises to pri&ate sector
G5.9/5-%/)-.$ > integrating di+erent economies into a world economy
by remo&ing barriers to free 5ow of goods, ser&ices,
capital, labour, etc. from one country to another.
I26/8) .: P.5-87 C*/$3'%> /a0 increasing competition /b0 more
demanding customers /c0 rapidly changing technology /d0
necessity for change /e0 need to de&elop human resources
/f0 market orientation /g0 loss of budgetary support to
public sector.
KEY CONCEPTS IN NUTSHELL
1. MEANING>
)t is the sum total of all indi&iduals or institutions
comprising of consumers, competitors, suppliers go&ernment,
courts, media and also the forces like economic, social, political,
legal and technological that are outside the ambit and control of
business enterprise but that which can affect its performance.
2. FEATURES OF BUSINESS ENVIRONMENT>
-. C.$%)-),)'% ).)/557 .: ';)'($/5 :.(8'% - it comprises of
the sum total of all forces that are external to the business
6rm which it must deal with.
--. S6'8-@8 /$1 3'$'(/5 :.(8'% - the forces present outside
can be di&ided into two parts ,peci6c" these forces affect the
6rms of an industry separately
e.g. Customers, suppliers, competiti&e 6rms etc.
Ieneral " these forces affect all the 6rms of
an industry equally e.g. ,ocial, political.
i--. I$)'(- ('5/)'1 - the different factors are co"related
e.g. Change in the import" export policy is a political
change that gi&es rise to economic change as well
-4. U$8'()/-$)7 - business en&ironment are susceptible to
rapid changes, no one can predict with certainty the changes
in the factors.
e.g. change in technology and fashion.
4. D7$/2-8 - business en&ironment keeps on changing.
4-. C.265'; - it is di*cult to know the extent of impact of the
changes that the factors can bring in.
4--. R'5/)-4' - business en&ironment is a relati&e concept as it
differs from country to country, region to region.
!. IMPORTANCE OF BUSINESS ENVIRONMENT>
-. I1'$)-:7 )*' .66.(),$-)-'% /$1 3'))-$3 )*' @(%) 2.4'(
/14/$)/3' - by being aware of the changes in business
en&ironment, enterprises can identify opportunity and
strategi9e ways to capitalise on them.
--. I1'$)-:7 )*('/)% /$1 '/(57 &/($-$3 %-3$/5% - en&ironment
scanning helps in detecting possible threats in future.
---. B/%-% :.( 65/$$-$3 /$1 6.5-87 :.( :.(2,5/)-.$ -
identi6cation of threats and opportunity ser&es as basis for
deciding the future course of action.
-4. T/66-$3 ,%':,5 ('%.,(8'% - the resources are required to
carry on a successful business enterprise. #hese ha&e to be
procured from the business en&ironment.
4. H'56% -$ 8.6-$3 &-)* (/6-1 8*/$3'% - turbulent markets,
less brand loyalty, di&isions and sub"di&isions /fragmentation0
of markets, more demanding customers, rapid changes in
technology and intense global competition combined with
complex business en&ironment calls for a 5exible planning to
cope with the changes.
4-. I26(.4'2'$) -$ .(3/$-%/)-.$ 6'(:.(2/$8' - continuous
and constant monitoring and adapting suitable business
practices result in impro&ed business performance.
". DIMENSIONS OF BUSINESS ENVIRONMENT>
#he &arious dimensions of business en&ironment in terms of general
en&ironment are2
E8.$.2-8 E$4-(.$2'$) >
Refers to all those forces that ha&e economic impact on
the business acti&ity
Components of economic en&ironment are I%1, )n5ation rate,
)nterest rate, Rupee &alue, ,tock exchange index, #ax rate
P.5-)-8/5 E$4-(.$2'$)> includes political conditions such as political
leadership, political stability, practices of the ruling party and the nature
of the go&ernment in power and their le&el of interference
Components of political en&ironment are Constitution of the
country, 1olitical ideology of the ruling party, nature and extent of
go&ernment interference, international relations.
L'3/5 E$4-(.$2'$)> refers to the framework of laws and &arious
legislations within which the business acti&ities take place
Components of 'egal :n&ironment are Io&ernment legislations, court
=udgements, %ecisions of &arious commissions.
S.8-/5 E$4-(.$2'$)> represents the customs and traditions, &alues,
culture, social trends, beliefs, norms and ethics of a society in which
business enterprises operate.
Components of ,ocial :n&ironment are customs traditions, social
expectations, lifestyles, &alues, literacy le&el
T'8*$.5.3-8/5 E$4-(.$2'$)> refers to the in5uence of the changes in
the technology on the business en&ironment.
C.26.$'$)% .: T'8*$.5.3-8/5 E$4-(.$2'$)> new methods and
techniques of business operations, ,cienti6c impro&ements and
inno&ations,
As a part of economic reforms the Io&ernment of )ndia announced >ew
)ndustrial 1olicy in Uuly 4HH4 which emphasised on three ma=or elements
which were2
# L-9'(/5-%/)-.$ - from the clutches of licensing policy. #herefore,
remo&al of entry and growth restrictions on the pri&ate sector
enterprises.
# G5.9/5-%/)-.$ - encouragement of foreign pri&ate participation in
industrial de&elopment. #his step mainly intended at integrating the
national economy with the world economy through the remo&al of
barriers on international trade and capital mo&ements.
# P(-4/)-%/)-.$ - drastic reduction in the role of public sector.
.urther it aimed at transfer of ownership ,management and control
of the public sector enterprise to the pri&ate sector.
#he new industrial policy aimed at creating a more competent
en&ironment in the economy so as to strengthen the process of
industrialisation. )ts features are as follows
W %elicensing of all pro=ects except six industries
W %ecreased role of public sector to merely E industries
W %isin&estment2 selling of a part or whole of the shares of the public
sector undertaking
W 'iberalisation of .oreign capital
W ,etting up of .oreign )n&estment board /.)10
W 'iberal policy for technical collaborations
F. IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND
INDUSTRY>
W )ncrease in competition
W %emanding customers
W #echnical change and increased in&estment in R and %
W >ecessity of change
W %e&elopment of human resource
W ;arket orientation
W 'oss of budgetary support to the public sector.
VE R Y SHORT ANSWER TYPE IUESTIONS A1 MARKB
1. W*/) -% B,%-$'%% E$4-(.$2'$)O
Ans. .orces affecting the performance of an organisation but outside its
control are called as usiness :n&ironment.
2. H.& */4' 8,%).2'(% 9'$'@)'1 97 -$8('/%'1 8.26')-)-.$
/:)'( 5-9'(/5-%/)-.$ /$1 35.9/5-%/)-.$O
Ans. (hile purchasing they get a better quality and wider choice of
goods and ser&ices.
!. H.& 8/$ )*' @(2% 8.6' ,6 &-)* 8*/$3-$3 )'8*$.5.3-8/5
'$4-(.$2'$)O
Ans. #hey ha&e to de&elop new ways.
". W*/) 1. 7., 2'/$ 97 G5.9/5-%/)-.$O
Ans. (hen the &arious economies of the world integrate, it is known as
Ilobalisation.
?. W*-8* 6.5-87 .: I$1-/$ G.4'($2'$) */% 2.4'1 I$1-/
).&/(1% 35.9/5-%/)-.$O
Ans. #he )ndustrial 1olicy of 4HH4.
D. W*/) 1. 7., 2'/$ 97 1-%-$4'%)2'$)O
Ans. (hen the pri&ate sector takes o&er public sector, it is called
disin&estment.
F. G-4' .$' 2'/%,(' )/0'$ 97 I$1-/$ G.4'($2'$) ). -$)(.1,8'
5-9'(/5-%/)-.$.
Ans. Abolishing licensing requirements.
G. W*/) 1. 7., 2'/$ 97 @(%) 2.4'( /14/$)/3'O
Ans. :arly identi6cation of opportunities.
=. W*/) /(' V/5,'%O
Ans. Concepts held by a society in high esteem are &alues.
10. W*-8* .: )*' %'8).( &/% 3-4'$ -26.()/$8' /:)'(
-$1'6'$1'$8'O
Ans. 1ublic sector.
11. W*/) &/% )*' ('%6.$%-9-5-)7 3-4'$ ). 6(-4/)' %'8).( /:)'(
-$1'6'$1'$8'O
Ans. %e&eloping consumer goods industry was the responsibility gi&es to
pri&ate sector.
12. W*/) 1. 7., 2'/$ 97 L-9'(/5-%/)-.$O
Ans. )t means reduction in go&ernment controls and restrictions
1!. W*-8* )&. :/8).(% /(' -$85,1'1 -$ T'8*$.5.3-8/5
E$4-(.$2'$)O
Ans. ,cienti6c )mpro&ement and )nno&ations.
1". W*/) -% 2'/$) 97 .66.(),$-)-'%O
Ans. )t refers to the positi&e external trends that help an enterprise to
impro&e its performance.
1?. W*/) 1. 7., 2'/$ 97 I$$.4/)-.$O
Ans. 1roducing goods and ser&ices by new methods is called as
)nno&ation.
1D. N/2' )*' '8.$.2-8 (':.(2% -$)(.1,8'1 ). :('' I$1-/$
9,%-$'%% :(.2 ,$$'8'%%/(7 8.$)(.5% /$1 ('%)(-8)-.$%.
Ans. 'iberalisation.
SHORT ANSWER TYPE IUESTIONS A! OR " MARKSB
1. D'@$' B,%-$'%% E$4-(.$2'$). S)/)' )&. -26.()/$)
8.$8'($% .: 9,%-$'%% '$4-(.$2'$).
Ans. #he sum total of all external factors which are outside the control
of business enterprises is termed as usiness :n&ironment. .actors
may be social, political, economic etc.
2. E;65/-$ )*' %6'8-@8 /$1 3'$'(/5 :.(8'% .: 9,%-$'%%
'$4-(.$2'$) O
Ans. usiness en&ironment comprises of both speci6c and general
forces. ,peci6c forces refer to those forces that are ha&ing direct
e+ect on the day to day working of the business &i9. customers,
competitors, in&estors etc. Ieneral forces refer to social, political,
legal and other forces which are ha&ing an indirect e+ect on the
operations of a business.
!. E$,2'(/)' )*' 9'$'@)% .: ,$1'(%)/$1-$3 9,%-$'%%
'$4-(.$2'$).
Ans. #he bene6ts of understanding business en&ironment are2
/i0 :nabling the identi6cation of opportunities and getting the
6rst mo&er ad&antage.
/ii0 Helping in the identi6cation of threats and early
/iii0 #apping useful resources.
/i&0 Coping with the rapid changes.
/&0 Assisting in planning and policy.
/&i0 )mpro&ement in performance.
". W*/) /(' )*' 2/-$ 1-2'$%-.$% .: 9,%-$'%% '$4-(.$2'$) O
W*/) 1.'% '$4-(.$2'$) 8.$%-%) .:O
Ans. #he main dimensions of business en&ironment are
/i0 :conomic, /ii0 ,ocial, /iii0 #echnological, /i&0 1olitical, /&0 'egal
:conomic en&ironment consists of the factors ha&ing economic
dimensions such as 6scal policy, monetary policy, industrial policy
etc.
?. E;65/-$ )*' (.5' .: 6.5-)-8/5 '$4-(.$2'$) -$ %*/6-$3 )*'
9,%-$'%%.O
Ans. usiness functions within the framework of political en&ironment.
Ienerally, go&ernmentKs policies change with the change of guard
in power. usiness is required to understand and follow such
changes and also respect the orders that =udiciary gi&es from
time to time.
.or example, after globali9ation, Io&ernment of )ndia
allowed many companies to enter the )ndian market for gi&ing
boost to the different industries like food processing industry etc.
#hat pa&ed the way for entry of multinationals in )ndia on a large
scale.
D. E;65/-$ )*' 8.$8'6) .: )'8*$.5.3-8/5 '$4-(.$2'$).
Ans. )t includes new approaches, new procedures, and new equipments
to transform inputs into outputs. )t facilitates an organi9ationKs
ef6ciency and effecti&eness so that it can try to remain at par with
the best in the world. #echnological changes pro&ide opportunities
for some enterprises and become threats for some others.
.or example, digital watches killed the business prospects of
traditional watchesJ #G has ad&ersely affected radio - cinema
industryJ mobile phones ha&e taken o&er the market from landline
phones.
F. W*/) 1. 7., ,$1'(%)/$1 97 5'3/5 '$4-(.$2'$)O G-4' )&.
';/265'% &*-8* 6(.)'8) 8.$%,2'(%< -$)'('%)%.
Ans. 'egal en&ironment consists of rules and regulations, framed by
the 1arliament, under which business must operate. #o exist and
grow, business is required to follow all the rules and regulations
that constitute this en&ironment.
# wo examples protecting consumersK interes ts2
/i0 Ad&ertisement of alcoholic be&erages is prohibited.
/ii0 1ackets of cigarettes should mention the statutory warning
KCigarette smoking is )n=urious to healthK.
G. L-%) )*' 4/(-.,% 8*/$3'% -$-)-/)'1 97 )*' G.4'($2'$) .:
I$1-/ %-$8' 1==1.
Ans. Garious changes initiated by the Io&ernment of )ndia since
4HH4 are as follows2
/i0 >ew industrial policy
/ii0 >ew trade policy
/iii0 .iscal reforms
/i&0 ;onetary policy
/&0 Capital market reforms
/&i0 1hasing out of ,ubsidies and 1rice controls
=. L-%) %.2' -26.()/$) :/8).(% )*/) -$K,'$8' )*' &.(0-$3 .: /
9,%-$'%% '$)'(6(-%'%O
Ans. .ollowing are the important factors that in5uence the working of a
business enterprise2" /i0 Changes in economic policies. /ii0 1olitical
uncertainty in the country. /iii0 )ncrease in the rate of competition.
/i&0 Changes in fashion.
LONG ANSWER TYPE IUESTIONS A ? OR D MARKSB
1. W*/) 1. 7., 2'/$ 97 9,%-$'%% '$4-(.$2'$)O E;65/-$ )*'
0'7 8.26.$'$)% .: 9,%-$'%% '$4-(.$2'$).
Ans. usiness en&ironment is the sum total of all external factors that
in5uence the functioning of a business enterprise.
#he components of general en&ironment are2
A-B E8.$.2-8 '$4-(.$2'$)>
:conomic en&ironment consists of factors ha&ing economic
dimensions such as 6scal policy, monetary policy, industrial policy
etc.
I26/8)> anking sector reforms ha&e led to attracti&e deposit
a&enues and easier credit policy. 'ikewise reforms in leasing -
6nancial institutions are also cataly9ing companyKs economic
growth.
A--B S.8-/5 '$4-(.$2'$)> )t discriminates characteristics of the
society in which an enterprise exists. )t consists of literary rates,
educational le&els, customs and demographic distribution etc.
I26/8) 2 :qual pay for equal work for both male and female
workers, reser&ation of =obs for minorities etc.
A---B P.5-)-8/5 '$4-(.$2'$)
)t consists of the political forces responsible for the management of
public affairs and their in5uence on business.
I26/8) 2 Io&ernment allowed 1epsi to enter )ndian market again
for gi&ing boost to the food processing industry.
A-4B T'8*$.5.3-8/5 '$4-(.$2'$)
)t comprises of the &arious processes, techniques,
approaches etc. by which an organi9ation transforms inputs into
output.
I26/8) 2 %igital watches ha&e pushed out
traditional watches.
A4B L'3/5 E$4-(.$2'$) 2 )t characterises &arious go&ernmental
rules, regulations and legislations etc. that all members of
business community must follow.
I26/8) 2 Remo&al of control on foreign exchange and
liberali9ation of foreign direct in&estments.
2. W*/) 1. 7., ,$1'(%)/$1 97 '8.$.2-8 '$4-(.$2'$)O L-%)
)*' 2/-$ /%6'8)% .: '8.$.2-8 '$4-(.$2'$).
Ans. :conomic en&ironment consists of factors likes in5ation rates,
interest rates, consumers incomes, economic policies, market
conditions etc. which affect the performance of a business 6rm.
.ollowing are the main aspects of economic en&ironment2
/i0 #he role of public and pri&ate sector in the existing structure of
the economy.
/ii0 #he rate of increase in I>1 and per capita income both at
current and constant prices. /iii0 3uantum of exports and imports
of different products.
/i&0 )ncrease in transportation and
communication facilities. /&0 #rends in
agricultural and industrial productions.
/&i0 Amount of sa&ings and in&estments.
!. S.8-/5 '$4-(.$2'$) .: 9,%-$'%% -% -26.()/$) :.( / 9,%-$'%%
'$)'(6(-%'P. E;65/-$ O
Ans. A business is a part of the society in which it operates. #he
buying and consumption habits of the people, their languages,
customs, preferences, tastes etc. are the factors that in5uence
the business. usinessmen should be alert enough to &isuali9e the
factors that directly or indirectly affect their organi9ation.
Cooperation between business and society will see business boom
and will help growth of professional managers. #he failure of any
business organi9ation in adapting to changes in the social
en&ironment will lead to dissatisfaction amongst its customers and
re=ection of its products. #his shift of demand can e&en endanger
the &ery sur&i&al of a business.
.or example, equal pay for male and female workers,
demand for reser&ation in =obs for minorities and women etc.
". E$,2'(/)' $'3/)-4' -26/8)% .: 5-9'(/5-C/)-.$ /$1
35.9/5-%/)-.$.
Ans. #he negati&e impacts of liberali9ation and globali9ation are as
followsJ
/i0 #hreats from ;ultinational Companies /;>Cs0.
/ii0 Corporate &ulnerability.
/iii0 )ncreased competition.
/i&0 .ast changing technology.
/&i0 High obsolescence of material resources.
/&ii0 High labour turno&er.
/&ii0 #hreat to indigenous culture and &alues.
?. E$,2'(/)' /$7 )'$ P.%-)-4' -26/8)% .: 5-9'(/5-C/)-.$ /$1
35.9/5-C/)-.$.
Ans. #he positi&e impacts of liberali9ation and globali9ation are as
follow2
/i0 8pportunities for new entrepreneurs.
/ii0 'atest technology becoming a&ailable.
/iii0 8pening up of foreign markets.
/i&0 :asy imports of capital goods.
/&0 %irect in&estment by )ndian companies abroad.
/&i0 Changed attitude of labor unions,
/&iii0 :asy in5ow of foreign capital.
/ix0 .reedom to expand and di&ersify.
/x0 Restructuring of industries.
/x0 (idening of product choices for consumers.
D. E;65/-$ /$7 @4' $'3/)-4' -26/8)% .: 5-9'(/5-C/)-.$ /$1
35.9/5-C/)-.$.
Ans. .ollowing are the negati&e e+ects of liberali9ation and globali9ation.
A-B T*('/)% :(.2 2,5)-$/)-.$/5 8.26/$-'% AMNC%B
(ith the arri&al of multinationals it is becoming di*cult for
small and medium business units to e&en sur&i&e. #he massi&e
entry and consolidation to multinationals in the )ndian markets is
a challenge that has already forced some business enterprises to
take the exit route.
A--B D'%)/9-5-C/)-.$ .: 6(.)'8)'1 '$4-(.$2'$)
(ith easier entry of multi"national companies, )ndian
business en&ironment is fast losing its protecti&e shield. #he new
entrepreneurial freedom is creating problems for the existing
players. :&en manufacturers of ;aruti car could not retain their
market share and had to remodel their products and announce
hea&ily price reductions from time to time.
A---B D'85-$' -$ 6,95-8 %'8).(
1ublic sector is losing markets and their capacity utili9ation
has declined, hampering thereby pace of countryKs technological
and economic growth.
A-4B S'55'(%< 2/(0') ),($'1 -$). 9,7'(%< 2/(0')
(ith the entry of foreign goods .and ser&ices, shortage of
goods, which is boon for the sellers, has now turned into surplus.
Resultantly, sales!margin to many sellers ha&e come down
substantially. uyers are now free to buy any product of their
choice at a price they can a+ord.
A4B F/55 -$ )*' 4/5,' .: (,6''
)ndian rupee has been de&aluing against %8''AR, :$R8 and
many other foreign currencies. #his phenomenon has forced e&en
some established exporters to encash their stake partly!fully.
IUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1. W*7 -% 9,%-$'%% '$4-(.$2'$)
,$8'()/-$O

- 1 M/(0
Ans. .uture happenings are &ery dif6cult to
predict.
2. W*/) -% 2'/$) 97 M/(0') O(-'$)/)-.$O
- 1 M/(0
Ans. #he 6rms produce goods after analysing the market needs.
!. H.& 8/$ '$4-(.$2'$) /&/('$'%% *'56
2/$/3'(%O
-
1 M/(0
Ans. Garious threats are identi6ed in time.
". H.& 8/$ 6.5-)-8/5 %)/9-5-)7 9' 9'$'@8-/5 ). )*' '8.$.27O
- 1 M/(0
Ans. Con6dence among the business people is built up to in&est and
take up new &entures.
?. W*/) &/% )*' -22'1-/)' 8/,%' .: '8.$.2-8 (':.(2% -$
1==1O - 1
M/(0
Ans2 High Io&ernment de6cit.
D. W*/) -% 2'/$) 97 )*('/)%O-
1 M/(0
Ans. )t refers to those en&ironmental trends which hinder the
performance of an enterprise
F. G-4' .$' .: )*' 2.%) -26.()/$) .9H'8)-4'% .: I$1-/$
1'4'5.62'$) 6(.3(/22'% /) )*' )-2' .: -$1'6'$1'$8'.-
1 M/(0
Ans. Rapid :conomic Irowth
G. <E$4-(.$2'$) 6(.4-1'% 9.)* 8.$%)(/-$)% /$1 .66.(),$-)-'%.P
C.22'$).
Ans. usiness en&ironment pro&ides both constraints and opportunities.
,ome of the constraints are economic conditions, customs,
go&ernment regulations, a&ailability of natural resources etc.
)nspite of many initiati&es, .%) is not picking up in )ndia due to
political and bureaucratic hurdles.
8n the other hand, en&ironment also o+ers &arious
opportunities which include changing needs of customers,
technological ad&ances etc. .or example, the growing demand
for A.C. has attracted many new players, domestic /Iodre=,
Oirloskar0 as well as multinationals /'I :lectronics0 to this
industry. ! .( "
M/(0%
=. B,%-$'%% '$4-(.$2'$) .( E$4-(.$2'$)/5 S8/$$-$3 *'56% -$
)*' -1'$)-@8/)-.$ .: )*('/)% /$1 '/(57 &/($-$3 %-3$/5%.P
E;65/-$O-!.(" M/(0%
Ans. :n&ironmental scanning helps an enterpriseto
recogni9e qualitati&e information in ad&ance, which can be
used to prepare it for facing likely challenges. .or
example, if any new multinational company is entering
the )ndian market, the manager of an )ndian 6rm
dealing with same product, as that of the multinational
company, should take it as a warning signal. He should take
measures like impro&ing the quality of his product, hea&y
ad&ertisement etc. to face the challenge.
10. W*/) -% 2'/$) 97 5-9'(/5-C/)-.$O L-%) )*' -26/8) .: 8*/$3'%
-$ 3.4'($2'$) 6.5-87 O$ 9,%-$'%% /$1 -$1,%)(7. - !
.( " M/(0%
Ans. )ndian economy has gradually become more liberal and
global since 4HH4. 'iberali9ation refers to the remo&al of &arious
outdated rules, regulations etc. and pro&iding more helpful norms for
the business to grow, particularly in the 6elds of exports and
imports.
,ome of the impacts of changes in go&ernment policy on business
and industry are as under2
/i0 )ncreasing competition.
/ii0 ;ore demanding Customers
/iii0 Rapidly changing technological en&ironment
/i&0 >ecessity for change.
/&0 >eed for de&eloping human resource.
/&i0 ;arket orientation.
/&ii0 'oss of budgetary support to the public sector.
11. E;65/-$ )*' 2'/$-$3 .: )*' )'(2 P(-4/)-%/)-.$O L-%) /$7
)&. (':.(2% 2/1' ,$1'( P(-4/)-%/)-.$.
- ! .( " M/(0%
Ans. 1ri&atisation refers to reducing the role of public sector and
increasing the role of pri&ate sector for rapid de&elopment of the
nation.
T&. (':.(2% 2/1' ,$1'( P(-4/)-%/)-.$>
/i0 'oss making or sick public sector enterprises were either
closed or handed o&er to oard of )ndustrial and .inancial
Reconstruction.
/ii0 %isin&estment of public sector enterprises.
12. E$,2'(/)' )*' 4/(-.,% &/7% -$ &*-8* 2/$/3'(% ('%6.$1 ).
8*/$3'% -$ 9,%-$'%% '$4-(.$2'$).
- ! .( " M/(0%
Ans. .ollowing are the ways in which managers respond to changes in
business en&ironment2
/i0 ,trategic alliances, mergers and acquisitions of businesses.
/ii0 %i&ersi6cation.
/iii0 Collaboration with multinationals.
/i&0 rand building.
/&0 Restructuring of business acti&ities.
/&i0 Capital restructures.
/&ii0 Customer focus.
/&iii0 'atest technology.
/ix0 Compensation le&els and incenti&e schemes.
1!. M'$)-.$ :.,( ';/265'% .: /8+,-%-)-.$% /$1 2'(3'(%. - ! .( "
M/(0%
Ans. .our examples of mergers and acquisitions are2
/i0 ,R. buy CeatKs Rayon #yre Cord.
/ii0 1arleKs take"o&er by Coke.
/iii0 Iodre= has bought o&er Ioodnight.
/i&0 Hutch by Godafone.
1". E;65/-$ )*' 8*/$3'% -$-)-/)'1 97 )*' G.4'($2'$) .: I$1-/
%-$8' 1==1.
- ? .( D
M/(0%
Ans. .ollowing changes ha&e been obser&ed since 4HH42
A-B N'& I$1,%)(-/5 P.5-87>
W Io&ernment has begun disin&esting in public sector
undertakings.
W #here are new schemes to attract .oreign %irect )n&estment
/.%)0.
W #here is prompt clearance of foreign in&estment proposals.
W #ax concessions are gi&en to units in ,pecial :conomic Zones
/,:Zs0.
W #here is broadband facility in telecom sector.
W Abolition of industrial registration schemes.
A--B N'& T (/1' P.5-87>
W #here is liberali9ation of import policy.
W %eemed exporters are entitled to special import licenses.
W #here are greater concessions to :xport 8riented $nits /:8$0
and units in :xport 1romotion Zones /:1Z0.
W Credit is now less expensi&e and many imports are duty free.
W ,impli6cation of procedures related to export promotion.
W Remo&al of export quotas - reduction in import duties.
A---B F-%8/5 R':.(2%
W ;easures ha&e been taken to bring down 6scal de6cit.
W #ax reforms ha&e been initiated to increase re&enue and tax
compliance.
W Reduction in direct and indirect taxes.
W %ecrease in subsidies.
A-4B M.$' ) /(7 R':.(2%
W 1hased reduction of statutory liquidity ratio /,'R0.
W 1ri&ate sector banks allowed to set up new branches.
W anks ha&e now been allowed to access capital market for
raising capital.
W 1ermission for disin&estment /up to EHN of total equity0.
A4B C/6- ) /5 M/(0') R':.(2%
W Ceiling on rate of interest on debentures and bonds abolished.
.))s can access capital markets.
W 1ri&ate sector can set up mutual funds.
W onus issues ha&e been made more liberal.
W ,ecurity and :xchange oard of )ndia /,:)0 has been made a
statutory body
1?. <E;65/-$ <@%8/5 (':.(2%< /$1 <2.$')/(7 (':.(2%< /% 6'(
'8.$.2-8 8*/$3' -$-)-/)'1 97 G.4'($2'$) .: I$1-/ %-$8'
1==1. - ? .( D M/(0%
Ans. A-B F-%8/5 R':.(2%
W ;easures ha&e been taken to bring down 6scal de6cit.
W #ax reforms ha&e been initiated to increase re&enue and tax
compliance
W Reduction in direct and indirect taxes.
W %ecrease in subsidies.
A--B M.$' ) /(7 R':.(2%
W 1hased reduction of statutory liquidity ratio /,'R0.
W 1ri&ate sector banks allowed to set up new branches.
W anks ha&e now been allowed to access capital market for
raising capital.
W 1ermission for disin&estment /up to EHN of total equity0.
1D. E;65/-$ /$7 @4' &/7% -$ &*-8* 2/$/3'(% */4' ('%6.$1'1
). 8*/$3'% -$ 9,%-$'%% '$4-(.$2'$).
- ? .( D M/(0%
Ans. .ollowing are the ways in which managers ha&e responded to
changes in businessmen en&ironment2
-B S)(/)'3-8 /55-/$8', 2'(3'(% /$1 8.$%.5-1/)-.$ .:
9,%-$'%%'%
#o achie&e the ob=ecti&es of market dominance, market entry,
product ranges etc., the )ndian business enterprises are also
indulging in mergers, acquisitions, amalgamations and takeo&ers.
)nitiati&e for same has naturally come from managers of such
enterprises.
--B D-4'(%-@8/)-.$ %6(''> ;anagers are leading di&ersi6cation of
their companies into &arious 6elds.
.or example, Reliance is now also in the business of
communications, retail chains etc. 'ikewise, they are bold enough
to di&ersify into other nations too if need be.
---B C.$%.5-1/)-.$ .: 2,5)-$/)-.$/5%> ;any multinational
companies ha&e entered )ndia through new =oint &entures. .or
example, Ieneral ;otorsK entry through a =oint &enture with
Hindustan ;otors.
-4B B(/$1 B,-51-$3> Companies are becoming more aggressi&e
towards brand building. #heir managers are spending huge
amounts on same. .ocus is on securing prime positions for their
brands, through creati&e media"mix, in the minds of consumers.
4B L/9.,( > ;anagers are changing their beha&iour towards
labour. 'abour is also bene6tted through higher wages and other
facilities like training to upgrade their skills and =ob enrichment.
CHAPTER - "
PLANNING
CONCEPT MAPPING
Concept 2 %eciding in ad&ance what to do and how to do it. )t
in&ol&es setting ob=ecti&es and de&eloping an
appropriate course of action to achie&e these
ob=ecti&es.
)mportance 2 /a0 pro&ides direction /b0 reduces risks of
uncertainty /c0 reduces o&erlapping and wasteful
acti&ities /d0 promotes inno&ation /e0 facilitates
decision making /f0 pro&ides standards for controlling
'imitations 2 /a0 rigidity /b0 reduces creati&ity /c0 huge costs /d0
time consuming /e0 does not guarantee success /f0
may not work in dynamic en&ironment
1rocess 2 /a0 setting ob=ecti&es /b0 de&eloping premises /c0
identifying alternati&es /d0 e&aluating al t er nat i &es
/e0 selecting an alternati&e /f0 implement the plan /g0
follow up action
#ypes 2 /a0 ob=ecti&es /b0 strategy /c0 policy /d0 procedure /e0
method
/f0 rule /g0 programme /h0 budget
KEY CONCEPTS IN NUTSHELL
M'/$-$3 - )t is the process of setting ob=ecti&es and targets for a
gi&en time period and formulating an action plan to achie&e
them effecti&ely and ef6ciently. )t concerns itself
with both ends and means that is what is to be done and how it is
to be done.
1resent
1osition
Here
we
1lanning
ridges this gap
.uture
position
where we
want to
reach
D'@$-)-.$ -
P1lanning seeks to bridge the gap between where we are and
where we want to go. 1lanning is a trap to capture the future.
I26.( ) /$8' .: 65/$$-$3.
-B P(.4-1'% 1-('8)-.$- y stating in ad&ance the future course of
action of what is to be done and how it is to be done. y stating in
ad&ance it facilitates unity of direction.
--B R'1,8'% )*' (-%0 .: ,$8'()/-$)7- y predicting future e&ents
and preparing the organi9ation to anticipate the future and face
unexpected e&ents.
---B F/8-5-)/)'% 1'8-%-.$ 2/0-$3-planning helps the manager to look
into the future and make a sound =udgment or choice from among
the &arious alternati&es.
-4B R'1,8'% .4'(5/66-$3 /$1 &/%)':,5 /8)-4-)-'%"#hrough
elimination and minimi9ation of useless and redundant acti&ities
facilitating clarity.
4B P(.2.)'% -$$.4/)-4' -1'/%- #hrough better new methods, ideas
and procedures to reach the ob=ecti&es and goals of the enterprise. )t
induces the management to predict the changes in the en&ironment
and accordingly plan the strategies for the same .
4-. E%)/95 - %*'% %)/$1/(1 :.( 8.$)(.55-$3- Pcontrol is blind
without planningQ. )t helps pro&ide standard against which the
actual performance are compared and e&aluated to estimate the
de&iations.
L-2- ) /)-.$% .: 65/$$-$3>
-. P5/$$-$3 1.'% $.) &.(0 -$ / 17$/2-8 '$4-(.$2'$) - 1lanning
also has to work amidst the in5uence of external en&ironment which
can render e&en the most effecti&e plan inoperati&e.
--. P5/$$-$3 -% / )-2' 8.$%,2-$3 6(.8'%% as it requires collection
of information, its analysis and interpretation. )t becomes a
dif6cult exercise in times of unexpected emergencies.
---. I ) -$4.54'% *,3' 8.%) -$ -)% :.(2,5/)-.$. As a lot of money
needs to be expended in the collection, analysis and interpretation
of data
-4. I ) 8('/)'% (-3-1-)7 -$ )*' 2.1' .: :,$8)-.$-$3. As the
employees are required to function as per the dictates of the
predetermined policy.
4. I) 1.'% $.) 3,/(/$)'' %,88'%%, as a wrong or a misconcei&ed
plan or a well drawn plan when not implemented can lead to failure.
4-. I) ('1,8'% 8('/)-4-)7 /% )*' 2-115' 5'4'5 2/$/3'(% and the
other decision makers ha&e to only follow and are not allowed to
de&iate from the plans.
4--. T*' *,2/$ '5'2'$) 8/$ 3-4' &/7 ). errors or mistakes through
wrong assumptions.
4---. I) -% 6(.$' ). ';)'($/5 -$K,'$8'% which can reduce its impact
like natural calamity, technology changes, policy changes,
competition.
S )' 6 % -$ 65/$$-$3 6(.8'%%
-. S'))-$3 ,6 .9H'8)-4'%> #he process begins with identifying and
setting up of ob=ecti&es.
)t determines where to reach. #he organi9ational ob=ecti&es
arri&ed at should be measurable, understandable, clear and
attainable.
--. D'4'5.6-$3 65/$$-$3 6('2-%'% - 1remises in&ol&e making
assumptions relating to future conditions. )t pro&ides rele&ant facts
and information relating to future conditions. Hence sound estimates
or forecast need to be made.
---. I1'$)-:7-$3 /5)'($/)-4' 8.,(%' .: /8)-.$ > #he planner now
arri&es at the &arious alternati&es for performance of a task and
e&aluate the probable consequence of each option.
-4. E4/5,/)-$3 )*' /5)'($/)-4' 8.,(%' - #he positi&e and negati&e
impact of each option in light of cost, risk and bene6ts is worked
out.
4. S'5'8)-$3 )*' 9'%) /5)'($/)-4' - #his is actually the stage of
decision making where the most suitable course of action is
selected .#he selected alternati&e is ob&iously the one which is
most feasible, pro6table and has least negati&e impact.
4-. I265'2'$)-$3 )*' 65/$ > #he plan is transformed into action by
acti&ating the other managerial function in&ol&ing organi9ing &arious
resources and securing cooperation and participation of other
members of the organi9ation.
4--. F.55.& ,6 65/$ > #his 6nal culminating step in&ol&es re&iewing
the existing plan for its rele&ance and e+ecti&eness.
T 76'% .: 65/$%>
AAB ,tanding or Repeatedly used 1lans2 As their name indicates that
these plans are formulated once and they are repeatedly used.
#hese plans continuously guide the managers. #hat is why it is
said that a standing plan is a standing guide to recurring problems.
#hese plans include 2
4. 8b=ecti&es
B. ,trategies
D. 1olicies
E. 1rocedures
A. ;ethods and
C. Rules
ABB ,ingle <use or ,pecial or Adhoc 1lans2 #hese plans are connected
with some special problem. #hese plans end the moment the
problems are sol&ed. After ha&ing been used once there is no
importance of these plans and in future, whene&er they are needed
they are re"created. #hese plans include
4. udget and
B. 1rogramme.
D-L'('$8'% 9')&''$ S)/$1-$3 /$1 S-$35'-,%' P5/$%
B/%-% S)/$1-$3 P5/$% S-$35'-,%' P5/$%
4. 1eriod
#hese plans are formulated for
a long period
#hese plans are for a short
period and are repeatedly
formulated in case of need.
B. 8b=ect
#hese plans are formulated to
bring uniformity in decisions
#hese plans are designed to
run successfully some
particular acti&ities
D.#ypes #hey are of six types i.
8b=ecti&es ii. ,trategies iii.
1olicies i&. 1rocedures &.
#hey are of two types i.
udgets and ii. 1rogrammes
;ethods and &i. Rules
E.,cope
#hey guide the managers in
particular matters like price
policy and sales policy
#hese plans guide in matters
of daily routine.
A. asis
#hey are based on the main
ob=ecti&es of the organisaton
#hey are based on the
standing plans of the
oorganisation.
1B O9H'8)-4'% - Are the ends which the management seeks to achie&e by
its operation.
W Represent the end point of management.
W ,et by top management.
W %e6nes the future state of a+airs.
W Iuides the o&erall business planning.
W Can be expressed in speci6c terms. #hey can be measured .
2B S)(/)'37 - 1ro&ides broad shape of organi9ations business, refers to
the future decisions de6ning the organi9ations directions and scope
in the long run.
W )t in&ol&es a comprehensi&e plan which co&ers the determination of
long term ob=ecti&es, adoption of a particular course of action and
allocation of resources.
!B P.5-8-'% - are general statements which guide thinking in decision
making.
W #hey are based on ob=ecti&es.
W #hey guide managerial action and decisions.
W #hey exist at all le&els and departments of the organi9ation.
"B P(.8'1,('% - Are a chronological sequence of routine steps on how to
carry an acti&ity.
#hey detail the exact manner in which the work is to be performed.
W )t is meant for the insiders to follow.
W 1olicies and procedures are interlinked.
?B R,5'% - A(' speci6c statements that inform what is to be done.
W Re5ects managerial decision.
W ,implest plan.
W #hey are to be enforced rigidly.
DB M')*.1% - Are standardi9ed ways or manners in which a task has to
be performed considering the ob=ecti&es.
W ,election of a proper method sa&es time, money and effort.
FB P(.3(/22'% - %etailed statements which are combination of goals,
policies, procedures, rules tasks, human and physical resources
required and the budget to implement any course of action.. All these
plans together form a programme.
GB B,13') - )s a statement of expected results expressed in numerical
terms for a de6nite period of time in the future.
W )t quanti6es future facts and 6gures.
W ,er&es as a standard for measuring actual performance.
W )t is prepared for &arious groups of acti&ities.
VE R Y SHORT ANSWER TYPE IUESTIONS A1 MARKB
1. W*/) -% 65/$$-$3O
Ans. 1lanning is deciding in ad&ance as to what needs to be done in future.
2. W*-8* :,$8)-.$ .: 2/$/3'2'$) 9(-13'% )*' 3/6 9')&''$ &*'('
&' /(' /$1 &*'(' &' &/$) ). 3. ).O
Ans. 1lanning.
!. N/2' )*' 6(-2/(7 :,$8)-.$ .: 2/$/3'2'$).
Ans. 1lanning.
E. O$' .: )*' :,$8)-.$% .: M/$/3'2'$) -% 8.$%-1'('1 /% 9/%'< :.(
/55 .)*'( :,$8)-.$%.
N/2' )*/) :,$8)-.$.
Ans. 1lanning
?. W*/) /55 +,/5-)-'% /(' ('+,-('1 :.( 1.-$3 65/$$-$3O
Ans. )ntelligence, )magination, .oresight, ,ound Uudgment.
D. N/2' )*' :'/),(' .: 65/$$-$3 &*-8* %/7% 65/$$-$3 -% / :.(&/(1
5..0-$3 :,$8)-.$O
Ans. 1lanning is futuristic.
F. H.& 1.'% 65/$$-$3 8('/)' (-3-1-)7O
Ans. 1lanning creates rigidity by putting ad&erse effect on initiati&e taken by
the managers.
G. W*/) -% )*' 9/%-% :.( 8('/)-$3 :,),(' 8.,(%' .: /8)-.$O
Ans. .orecasts.
=. G-4' .$' 5-2-)/)-.$ .: 65/$$-$3 :,$8)-.$.
Ans. 1lanning does not guarantee success.
10. W*-8* -% )*' 2.%) 8(,8-/5 %)'6 -$ 65/$$-$3 6(.8'%%O
Ans. ,etting ob=ecti&es.
11. D'@$' <O9H'8)-4'<O
Ans. 8b=ecti&es are desired future position that the management would like
to reach.
12. D'@$' <S)(/)'37<.
A$%. A strategy refers to future decision action, de6ning the organisationKs
direction and scope in the long run.
1!. D'@$' <P.5-87<.
Ans. 1olicy is a general statement which guides decision making in a gi&en
set of situations
1". D'@$' <R,5'%<.
Ans. Rules are speci6c guidelines for beha&ior and action.
1?. G-4' /$7.$' ';/265' .: <9,13')<.
Ans. Cash budget.
SHORT ANSWER TYPE IUESTIONS A! OR " MARKB
1. W*/) 1. 7., 2'/$ 97 65/$$-$3O
Ans. 1lanning is deciding in ad&ance about work to be done in future. )t is
that function of management which lays down the ob=ecti&es and
&arious actions to be taken for the achie&ement of those ob=ecti&es.
According to Ooont9 and 8K%onnel Y1lanning is an intellectual
process, the conscious determination of courses of action, the basing of
decision on purpose, facts and considered estimatedY.
2. W*/) 1. 7., 2'/$ 97 / 65/$O
Ans. A plan is a formulation of certain steps and actions which are
essential for achie&ing certain speci6c results. 1lans can be classi6ed
on the basis of what they focus to achie&e and the methods adopted
&i9. ob=ecti&es, strategy, policy etc.
.or example, if the planned output for a week is 4,??? units and
actual output is AF? units only, the planners ha&e to critically re&iew
their plans and modify2 them, if need be, so as to achie&e the planned
output.
!. E$,2'(/)' %-; 6.-$)% .: -26.()/$8' .: 65/$$-$3.
Ans. )mportance of planning is as under2
/i0 )t pro&ides direction for action.
/ii0 )t reduces the risk of uncertainty
/iii0 )t facilitates decision making.
/i&0 )t establishes standards for controlling.
/&0 )t promotes inno&ati&e ideas.
/&i0 )t reduces o&erlapping and wasteful acti&ities.
?. H.& -% 65/$$-$3 / 6'(4/%-4' :,$8)-.$ .: 2/$/3'2'$)O
Ans. 1lanning is not the function of top management or any particular
department only. )t is required at all the le&els of management and in
all departments of an organisation. Howe&er the scope and nature of
planning is different at different le&els and in different departments. .or
example the top management lays down the plans for the organisation
as a whole. ;iddle le&el management has to make plans for each
department and the plans regarding the daily operations of an
organisation are laid down by operational management.
D. H.& -% 65/$$-$3 :.(&/(1 5..0-$3O
OR
P5/$$-$3 -% :,),(-%)-8<
';65/-$O
Ans. 1lanning is always for the future and ne&er for the past. )t in&ol&es
peeping in to future, analy9ing and preparing plans accordingly. #hus,
planning is futuristic as it helps in meeting likely future e&ents
effecti&ely and ef6ciently to best ad&antage of the organisation.
.or example, on the basis of sales forecasts, annual plans for
production and sales are drawn.
F. P5/$$-$3 -$4.54'% 1'8-%-.$ 2/0-$3P. E;65/-$.
Ans. 1lanning is essentially a process of making choice from among &arious
alternati&es. #here will be no need for planning, if there is only one
course of action, because there will be no choice. Hence need for
planning depends on the a&ailability of alternati&es. A manager, after
examining and e&aluating the &arious alternati&es, chooses the most
appropriate one.
G. <P5/$$-$3 ('1,8'% 8('/)-4-)7<. H.&O
Ans. $sually in an organisation, planning function is performed by the top
management and the rest of the members are required to implement
these plans. As a result, middle management and other members are
neither allowed to de&iate from plans nor are they granted authority to
act on their own. Hence most of the initiati&e and creati&ity in them
gets reduced.
=. <P5/$$-$3 1.'% $.) 3,/(/$)'' %,88'%%<. C.22'$).
Ans. An organisation is successful only when the plans are effecti&ely drawn
and implemented.
A plan must be con&erted into action otherwise it becomes
meaningless. Ienerally, it is seen that managers are in the habit of
depending on pre&iously tried and tested successful plans. ut this
practice sometimes does not work and may actually lead to failure
instead of success.
10. E$,2'(/)' )*' %)'6% -$4.54'1 -$ )*' 65/$$-$3 6(.8'%%.
Ans. ,teps of planning are as follows2
/i0 ,etting up of ob=ecti&es
/ii0 %e&eloping premises.
/iii0 )dentifying alternati&e courses of action.
/i&0 :&aluating alternati&e courses
/&0 ,electing an alternati&e.
/&i0 )mplementation of plan.
/&ii0 .ollow up
11. W*/) 1. 7., 2'/$ 97 .9H'8)-4'%O
Ans. 8b=ecti&e can be de6ned as a position where the management wants
to reach in the future. #hese are the ends which an organisation wants
to achie&e through its operations. #hey are measurable in quantitati&e
terms.
.or example, one ob=ecti&e of an organisation may be to increase
sales by B?N and return on in&estment by 4?N in the forthcoming
year.
12. E;65/-$ )*' 2'/$-$3 .: 6.5-8-'%.
Ans. A policy can be de6ned as a general statement that pro&ides guidelines
for constructi&e thinking. #hey act as a guide to managerial actions
and decisions in implementing the strategy. A well de6ned policy helps
in sol&ing the complex problems easily.
.or example, an organisation may ha&e a credit policy, pricing
policy etc. on the basis of which ob=ecti&es are decided and decisions
are made.
1!. W*/) -% 2'/$) 97 6(.8'1,('%O
Ans. 1rocedures are routine steps framed to carry out acti&ities. #hese are
plans that determine the order of any work performance. 1rocedures
are generally meant for insiders and de6ne the chronological sequence
of doing any work for attaining predetermined ob=ecti&es.
1". W*/) 1. 7., 2'/$ 97 2')*.1%O
Ans. ;ethods are standard ways of doing planned =obs for attaining the
ob=ecti&es. #hey are more detailed than procedures. ;ethods are helpful
in simpli6cation, standardi9ation and systemati9ation of work. .or doing
di+erent =obs, different methods can be adopted.
.or example, for imparting training to employees at different le&els,
di+erent methods of training can be used &i9 for higher le&el lectures or
seminars and for super&isory le&el on the =ob training can be used.
1?. W*/) 1. 7., 2'/$ 97 (,5'%O
Ans. Rules can be de6ned as statements that tell us what is to be done and
what is not to be done. %e&iations from rules are not permitted unless
a policy decision is taken. #hey enforce rigidity and there is 6ne or
penalty if they are not followed.
.or example, prohibition on sale of tobacco within certain radius of
an educational institution is a rule to be followed by all.
1D. W*/) 1. 7., 2'/$ 97 6(.3(/22'%O
Ans. 1rogrammes are a solid combination of goals, policies, procedures,
rules, tasks, assignments, steps to be taken, resources to be employed
and other elements necessary to carry out a gi&en course of action.
1rogrammes interlink the ob=ecti&es, policies and procedures. #hey
work out e&en the minutest detail within broad policy framework of the
organisation.
1F. W*/) -% 2'/$) 97 9,13')O
Ans. udget is a plan in numerical terms which quanti6es desired facts
and 6gures. )t is a statement of expected results expressed in
quantitati&e terms. .or example, a sales budget helps in forecasting the
sales of a particular product in di+erent areas during a particular
month. ,imilarly, a budget may be prepared to show the number of
workers required in factory at the time of packing the products.
LONG ANSWER TYPE IUESTIONS A? OR D MARKSB
1. D'@$-$3 <.(3/$-C/)-.$/5 .9H'8)-4'%< -% )*' @(%) %)'6 -$ )*'
6(.8'%% .: 65/$$-$3.
E;65/-$, -$ 9(-':, )*' .)*'( %)'6% .: )*-% 6(.8'%%.
O(
E;65/-$ )*' %)'6% -$4.54'1 -$ )*' 6(.8'%% .: 65/$$-$3.
Ans. )t has been rightly said that de6ning organi9ational ob=ecti&es is the 6rst
step in the process of planning. 8ther steps in the process of planning a
as follows2
A-B E%)/95-%* 65/$$-$3 6('2-%'%
#his step in&ol&es the establishment of planning premises in
which plans are, expected to operate. 1lanning premises are
assumptions relating to future conditions and e&ents which are likely to
ha&e an effect on achie&ement of goals
A--B I1'$)-:7-$3 /5)'($/)-4' 8.,(%'% .: /8)-.$
$nder this step, &arious possible alternati&es for reaching ob=ecti&es
should be identi6ed by managers.
A---B E4/5,/)-$3 A5)'($/)-4' C.,(%'%
#his step in&ol&es deep e&aluation of &arious alternati&e courses
of action in light of the &arious ob=ecti&es to be achie&ed. #he positi&e
and negati&e aspect of each alternati&e is e&aluated.
A-4B S'5'8)-$3 /$ /5)'($/)-4'
#his step in&ol&es the selection of the most optimum and realistic
plan with least negati&e results.
A4B I265'2'$) )*' 65/$
$nder this step the best selected plan is put in to action.
A4-B F.55.& ,6
$nder this step, it is monitored whether the plans are being
implement and whether the acti&ities are being performed according to
the schedule.
2. D-L'('$)-/)' 9')&''$ 6(.8'1,('% /$1 (,5'%.
Ans.
DIFFERENCE BETWEEN PROCEDURES AND RULES
B/%-% P(.8'1,('% R,5'%
4.
;eaning
1rocedure is a guide for
action in a gi&en situation.
Rule is a code of
conduct go&erning or
restricting 5exibility
or discretion
B. >ature 1rocedures are speci6ed
in chronological order.
Rules do not place
acti&ities in chronological
order
D. 1urpose #he purpose of procedure is to
facilitate and simplify the
operation and eliminate
#he purpose of rule
is to s maintain
discipline in an
E. ,cope #he scope of procedures is
wide because it has )ts own
rules and regulations.
A rule has no procedure.
IUESTIONS WITH DIFFERENT DIFFICU L TY LEVELS
1. H.& 1.'% 65/$$-$3 ('1,8' )*' (-%0 .: ,$8'()/-$)7O -
1 M/(0
Ans. 1lanning reduces the risk of uncertainty by &isuali9ing!assessing future
e&ents and pro&iding remedies! courses of action for such kinds of
e&ents to the extent possible.
2. A 8.26/$7 &/$)% ). -$8('/%' %/5'%U )*' /5)'($/)-4'% 2/7 9'
('1,8-$3 6(-8'% */$3-$3 6/80/3-$3, -26(.4-$3 6/80/3-$3, ')8.
W*-8* %)'6 .: 65/$$-$3 6(.8'%% ('5/)'% &-)* )*' /9.4'
';/265'O - 1 M/(0
Ans. )dentifying alternati&e courses of action.
!. W(-)' /$7.$' 1-L'('$8' 9')&''$ 6.5-8-'% /$1 6(.8'1,('%. -
1 M/(0
Ans. 1rocedures consist of series of steps whereas policies are guidelines for
decision making.
". A 8.26/$7 $''1% / 1')/-5'1 65/$ :.( -)% $'& 6(.H'8)O
QC.$%)(,8)-.$ .: / S*.66-$3
M/55<. W*/) )76' .: 65/$ -% -)O - 1
M/(0
Ans. 1rogramme
?. G-4' /$7.$' 1-L'('$8' 9')&''$ P.5-87 /$1 R,5'. -
1 M/(0
Ans. 1olicy is 5exible whereas rule is rigid.
D. PT*'%' /(' 3'$'(/5 %)/)'2'$)% )*/) 3,-1' )*-$0-$3 /$1
8*/$$'5-%' '$'(3-%' ).&/(1% / 6/()-8,5/( 1-('8)-.$ /$1 *'56 -$
%.54-$3 (.,)-$' 6(.95'2%N. I1'$)-:7 )*' )76' .: 65/$.
- 1M
Ans. 1olicy
F. <P5/$$-$3 6(.2.)'% -$$.4/)-4' -1'/%R. E;65/-$O - ! .( " M/(0%
Ans. 1lanning considered to be the most, challenging function of the
management as it guides all .uture actions and facilitates growth and
prosperity of the business organisation. 1lanning encourages
managers to think creati&ely generate inno&ati&e ideasJ impro&e
methods for (ork execution etc. %ealing with uncertainties of future,
planning is the most challenging function, which pro&ides basis for
growth and 1rosperity of the business enterprise
G. <P5/$$-$3 :.8,%'% .$ /8*-'4-$3 .9H'8)-4'%<. E;65/-$. - ! .( "
M/(0%
Ans. 1lanning is a goal oriented process which helps in de6ning ob=ecti&es,
and preparation of necessary action plans to achie&e goals. #hus,
planning is focused on clarifying what is to be done and how is that to
be done. #he planning holds no purpose if it does not focus on
achie&ement of preset organi9ational or corporate ob=ecti&es.
=. <P5/$$-$3 -% )*' 9/%-8 :,$8)-.$ .$ .: 2/$/3'2'$)<. C.22'$). -
!.(" M/(0%
Ans. :&ery management starts with planning. All other functions like
organi9ing, staf6ng, directing and controlling are based on planning. )t
precedes the execution of all other managerial functions and allows
mangers to organi9ed, staff, direct and control the acti&ities in a
better way so as to achie&e organi9ational goals. All the acti&ities are
created in such a way that plans are easily carried out. #his is also
referred to as primacy of planning.
10. W*7 -% 65/$$-$3 8.$%-1'('1 /% / 2'$)/5 ';'(8-%'O -
! .( " M/(0%
Ans. 1lanning is an intellectual acti&ity requiring application of the mind,
imagination and sound =udgment. )t is a thinking function rather than a
doing function as it determines the actions to be taken. ;oreo&er,
planning requires logical and systematic thinking based on the
analysis of facts and 6gures.
11. G-4' /$ ';/265' '/8* .: /$7 )*('' 5-2-)/)-.$% .: 65/$$-$3 &*-8*
/(' 9'7.$1 )*' 8.$)(.5 .: /$ .(3/$-C/)-.$.
- ! .( " M/(0%
Ans. 'imitations of planning on which the organi9ation does not ha&e a
signi6cant control are as follows2
S.N.. L-2-)/)-.$% E;/265'%
4. 1lanning may not work
in dynamic en&ironment.
.requent changes in the political
or economic en&ironment may
upset in the 6nancial plans.
B 1lanning leads to rigidity .ollowing a pre"decided plan
when circumstances ha&e
changed.
D. 1lanning in&ol&es huge
costs
)ncidental expenses such as
expenses on boardroom meetings
and discussions with professional
experts in&ol&e huge cost.
12. H.& 8/$ A-B P.5-)-8/5 85-2/)' /$1 A--B P.5-8-'% .: 8.26')-).(%
.9%)(,8) 65/$$-$3O
-!.(" M/(0%
Ans. A-B O9%)(,8)-.$ -$ 65/$$-$3 1,' ). 6.5-)-8/5 85-2/)'
(hen the go&ernment regulates the business practices or introduces
new trade
policies, the plans of business enterprises may get upset. Also political
instability affects business plans.
.or example, change in the taxation policy.
A--B O9%)(,8)-.$ -$ 65/$$-$3 1,' ). 6.5-8-'% .: 8.26')-).(%
#he policies of competitors may lead to change in business policies.
.or example, discounting policies of the competitors may
lead to change in pricing policy of a business enterprise.
1!. W*/) 1. 7., 2'/$ 97 65/$$-$3 6('2-%'%O - ! .( "
M/(0%
Ans. 1lanning premises are assumptions relating to future conditions and
e&ents which are likely to ha&e an e+ect on achie&ement of goals.
#hese are the bases upon which the entire structure of planning is
built. :&ery plan is drawn with certain assumptions. #o make planning
effecti&e, it is necessary that the premises should be based on
accurate forecasts, existing plans or any past information about policies
etc.
.or example, demand for a product, cost of raw materials,
interest rates, state of technology, intensity of competition,
go&ernment policies etc.
1". <T*.,3* 65/$$-$3 -% /$ -26.()/$) )..5 .: 2/$/3'2'$), 7') -) -%
$.) / ('2'17 :.( /55 )76'% .: 6(.95'2%P, D. 7., /3('' &-)* )*-%
%)/)'2'$)O G-4' /$7 @4' ('/%.$% -$ %,66.() .: 7.,( /$%&'(.
- ? .( D M/(0%
O(
E;65/-$ )*' 5-2-)/)-.$% .: 65/$$-$3.
O(
W*7 1. 65/$% :/-5 -$ %6-)' .: )*' 9'%) 'L.()% .: 2/$/3'2'$)O
Ans. 'imitations of 1lanning2
A-B P5/$$-$3 8('/)'% (-3-1-)7
)n an organisation, a well de6ned plan is drawn to achie&e some
speci6ed goals within a speci6ed period of time. #hese plans lay down
the future course of action and it is not possible for the managers to
change them. Hence, it is not in the organisational interest to follow a
particular plan when circumstances ha&e changed.
A--B P5/$$-$3 1.'% $.) &.(0 -$ / 17$/2-8 '$4-(.$2'$)
#he &arious forces of business en&ironment like social,
economic, political, technological and legal keep on changing and the
organisations ha&e to adapt themsel&es to these changes. #hus, it
becomes &ery dif6cult to forecast when there is change in
go&ernment policies, natural calamity, political instability in the country
etc.
A---B P5/$$-$3 ('1,8'% 8('/)-4-)7
$sually in an organisation planning function is performed by the
top management and the rest of the members are required to
implement these plans. As a result, middle management and other
members are neither allowed to de&iate from plans nor granted
authority to act on their own. Hence most of the initiati&e and
creati&ity in them gets reduced.
-4B P5/$$-$3 -$4.54'% *,3' 8.%)
Huge cost is in&ol&ed in the formation of plans. #his cost is in
terms of money and time. .or example, a lot of time is in&ol&ed in
scienti6c calculations to certain facts and 6gures and to check the
accuracy of facts while formulating a plan. 'ikewise, a lot of money is
spent on boardroom meetings, discussions with experts and
preliminary in&estigations to 6nd out the effecti&eness of the plans
;oreo&er sometimes the cost incurred in formulating plans is higher
than the bene6ts recei&ed from these plans.
4B P5/$$-$3 -% / )-2' 8.$%,2-$3 6(.8'%%
,ometimes top le&el management consumes a lot of time in
formulating the plans as a result of which &ery less time is left with
them to implement these plans.
4-B P5/$$-$3 1.'% $.) 3,/(/$)'' %,88'%%
An organisation is successful only when the plans are
e+ecti&ely drawn and implemented. ;anagers are in the habit of
depending on pre&iously tried an tested successful plans, but this
practice sometimes does not work and may lead to failure instead of
success.
1?. D-%)-$3,-%* 9')&''$ P.5-8-'% /$1 R,5'%. - ? .( D M/(0%
A$%.
DIFFERENCE BETWEEN PROCEDURES AND RULES
B/%-% P(.8'1,('% R,5'%
4. ;eaning
5exibility or
A policy is a guide for thinking. A rule is a speci6c
statement, which
restricts the
discretion
B. >ature 1olicy lays down the broad
areas of action in an
organisation.
Rule lays down any
speci6c sequence of
actions in an
organisation
D. 8b=ecti&e 1olicy is framed to achie&e
ob=ecti&es of the
organisation.
Rules are used to
maintain discipline and
command in any
organisation.
E. ;anagers
%iscretion
1olicy pro&ides some scope for
the managers discretion in his
course of action
Rules pro&ide no scope for
managers discretion and
they are binding for all.
CHAPTER -?
ORGANISING
C.$8'6) M/66-$3>-
4. Concept and importance.
B. 8rgani9ing 1rocess.
D. ,tructure of organi9ation < functional and di&isional
E. .ormal and informal organi9ation.
A. %elegation2 concept, elements and importance.
C. %ecentrali9ation2 concept and importance.
KEY CONCEPT IN NUTSHELL
8rgani9ing is the process of de6ning and grouping, acti&ities and establishing
authority relationships among them.
1rocess2 the process of organi9ing consists of the following steps2
/a0.)denti6cation and di&ision of work
/b0.%epartmentali9ation
/c0.Assignment of %uties
/d0.:stablishing reporting relationships.
I26.()/$8'> 8rganising is considered important because it leads to di&ision of
work, clarity in reporting relationships, optimum utili9ation of resources,
growth, better administration and greater creati&ity.
O(3/$-%/)-.$/5 %)(,8),(' is the framework within which managerial and
operating tasks are performed. )t can be functional or di&isional.
S6/$ .: 2/$/3'2'$) is the number of subordinates under a superior.
F,$8)-.$/5 %)(,8),(' groups acti&ities on the basis of functions. #he
ad&antages of such a structure are speciali9ation, better control, managerial
e*ciency and ease in training employees. #he disad&antages are functional
empires, con5ict of interest, in5exibility and restriction in managerial
de&elopment.
D-4-%-.$/5 %)(,8),(' groups acti&ities on the basis of 1roduct. #he
ad&antages are integration, product speciali9ation greater accountability,
5exibility, better coordination and more initiati&e .#he disad&antages are
departmental con5icts, costly process, ignoring of organi9ational interests, and
increase in requirements of general managers.
F.(2/5 .(3/$-C/)-.$ is designed by the management to achie&e
organi9ational goals. )ts ad&antages are 6xation of responsibility, clarity of
roles, unity of command and e+ecti&e accomplishment of goals. )ts
disad&antages are procedural delays, inadequate recognition of creati&ity,
limited in scope.
I$:.(2/5 .(3/$-C/)-.$ arises out of interaction among people at work. )ts
ad&antages are speed, ful6llment of social needs, 6lls inadequacies of formal
structure. )ts disad&antages are disrupti&e force, resistance to change and
priority to group interests.
D'5'3/)-.$ is the transfer of authority from superior to subordinate. )t has
three elements2 Authority, Responsibility and Accountability. )mportance of
delegation is that it helps in e+ecti&e management, employee de&elopment,
moti&ation, growth and coordination.
D'8'$)(/5-C/)-.$ is delegation of authority throughout the organi9ation.
)mportance of decentrali9ation is that it helps in de&elopment of managerial
talent, quick decision making burden on top management, de&elopment of
initiati&e, growth and better control.
KEY CONCEPTS IUESTIONS WITH ANSWER,
1B.N/2' )*' .(3/$-C/)-.$ &*-8* -% 1'5-9'(/)'57 8('/)'1O
4;
A2 .ormal 8rganisation
2B.E$,2'(/)' )*' %)'6% -$ )*' 6(.8'%% .: .(3/$-C-$3O
!M
A2 40 )denti6cation and di&ision of work B0 Irouping Uobs and
%epartmentalisation
D0 Assignment of duties E0 :stablishing authority relationship
!B.O(3/$-C-$3 *'56% -$ .6)-2,2 ,)-5-C/)-.$ .: ('%.,(8'%. W*-8* )76' .:
('%.,(8'% 1.'% -) (':'(O
4;
A2 All material, 6nancial and human resources.
"B.G-4' /$7 .$' -26.()/$8' .: .(3/$-C-$3O
4;
A2 %e&elopment of personnel.
?B.D-4-%-.$/5 %)(,8),(' -% 2.(' %,-)/95' :.( )*' @(2% */4-$3 %'4'(/5
6(.1,8)% /$1 '/8* 6(.1,8) */% 1-%)-$8) :'/),('%. D. 7., /3(''O
4;
A2 Res, ) do agree.
DB.D-%)-$3,-%* 9')&''$ :,$8)-.$/5 %)(,8),(' /$1 1-4-%-.$/5 %)(,8),('.
E;
B/%-% F,$8)-.$/5 S)(,8),(' D-4-%-.$/5 S)(,8),('.
.ormation )t is based on functions )t is based on product lines
,pecialisation .unctional ,pecialisation 1roduct ,pecialisation
Responsibility %i*cult to 6x on a
departments
:asy to 6x responsibility
Cost :conomical Costly
Co ordination %i*cult for multi product
company
:asy, because all functions
related to a particular product
are integrated in one
department.
;anagerial
%e&elopment
%i*cult, as each
functional manager has to
report to the top
management
:asier, autonomy as well as
the chance to perform multiple
functions helps in managerial
de&elopment.
FB.W*/) /(' )*' /14/$)/3'% /$1 1-%/14/$)/3'% .: 1-4-%-.$/5
%)(,8),('O ?/D M
AB> A14/$)/3'%>
40.All acti&ities associated with one product. )t can be easily integrated.
B0.%ecision making is faster.
D0.1erformance can be easily assessed remedial action can be taken
E0. )t facilitates expansion and growth as new di&isions can be added.
D-%/14/$)/3'% 2
40.#his gi&es rise to duplication of e+ort among its di&isions.
B0.;anages in each department focus on their own product without thinking
the rest of the organi9ation.
D0.#here may not be full utili9ation of di+erent equipments
E0.Con5ict may arise among di+erent di&ision.
GB N/2' )*' )76' .: .(3/$-C/)-.$ -$ &*-8*>
1M
a. .riendly relationship exists among the members.
b. 8*cial relationship exists among the members.
A2 a0 )nformal 8rganisation b0 .ormal 8rganisation.
=B.D-%)-$3,-%* 9')&''$ :.(2/5 /$1 -$:.(2/5 .(3/$-C/)-.$% .$ )*' 9/%-%
.: ?/DM
/B F.(2/)-.$ 9. P,(6.%' 8. %)(,8),(' 1. B'*/4-.( .:
2'29'(% '. %)/9-5-)7 /$1 :. /1*'('$8' ). (,5'%.
.Ans2
B/%-% F,$8)-.$/5 S)(,8),(' D-4-%-.$/5 S)(,8),('.
.ormation %eliberately 1lanned :merges ,pontaneously
among people
1urpose #o achie&e
organi9ational goals
#o satisfy social and
cultural needs
,tructure (ell de6ned structure %oes not ha&e a clear"cut
structure
eha&ior of members ,tandards of beha&ior ;utual consent among
members
,tability )t is stable >either stable nor
predictable.
Adherence to rules Giolation of rules may
lead to penalties
>o such punishment.
10B. W*-8* )'(2 1'$.)'% MT*' $,29'( .: %,9.(1-$/)'% )*/) 8/$ 9'
'L'8)-4'57 2/$/3'1 97 / %,6'(-.(O
1M
Ans2 ",pan of control.
11B W*/) /(' )*' '5'2'$)% .: 1'5'3/)-.$ .: /,)*.(-)7O
1M
Ans2 Responsibility, Authority, Accountability.
12B D-%)-$3,-%* 9')&''$ /,)*.(-)7 /$1 ('%6.$%-9-5-)7 .$ )*' 9/%-% .:>
!M
/. D-('8)-.$ .: K.& 9. D'5'3/)-.$ 8. O(-3-$
B/%-% A,)*.(-)7 R'%6.$%-9-5-)7
%irection of 5ow Authority 5ows
downwards
Responsibility 5ows
upwards
%elegation Authority can be
delegated
Responsibility is
absolute and cannot be
delegated.
8rigin Arises from law Arises from authority.
1!B MA 2/$/3'( -% .: )*' 4-'& )*/) *' -% $.) ('%6.$%-95' :.( )*' +,/5-)7
.: &.(0 )*/) *' */% 1'5'3/)'1 ). *-% %,9.(1-$/)'N. D. 7., /3('' &-)*
*-% 4-'& 6.-$)%O ,%)-:7 7.,( /$%&'( 97 3-4-$3 /(3,2'$)%.
"M
A2 >o ) do not agree with managers &iew point.
T*' ('/%.$% /(' /% :.55.&%>
i0 1rinciple of delegation by results expected.
ii0 1rinciple of parity of authority and responsibility
iii0 1rinciple of absolute responsibility.
i&0 Authority le&el principle
1"B S8.6' .: 1'8'$)(/5-C/)-.$ .: /,)*.(-)7 -% &-1'( )*/$ 1'5'3/)-.$.
W*7O 1M
A2 %ecentrali9ation implies extension of delegation to the lowest le&el of
management.
1?B D-%)-$3,-%* 9')&''$ Q1'5'3/)-.$R /$1 Q1'8'$)(/5-%/)-.$R .:
/,)*.(-)7 .$ )*' 9/%-% .:
-B 6,(6.%' --B 6/()-'% -$4.54'1 /$1 ---B &-)*1(/&/5 .:
/,)*.(-)7.
Ans2
B/%-% D'5'3/)-.$ D'8'$)(/5-%/)-.$
1urpose )t means getting things
done through subordinates
#o prepare the organi9ation for
handling ma=or expansion of its
acti&ities
1arties
in&ol&ed
)t is con6ned with manager
and his immediate
subordinate
)t indicates relationship between
top management and &arious
other departments
(ithdraw
al of
authority
#he delegated authority
can be withdrawn by the
delegator
(ithdrawal of authority is di*cult
IUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1. N/2' .: )*' :,$8)-.$ .: 2/$/3'2'$) &*-8* 8.-.(1-$/)'% )*'
6*7%-8/5, @$/$8-/5 /$1 *,2/$ ('%.,(8'% /$1 '%)/95-%*'% 6(.1,8)-4'
('5/)-.$% /2.$3 )*'2 :.( /8*-'4'2'$) .: %6'8-@8 3./5%.
1M
A2 8rganising
2. N/2' /$1 ';65/-$ )*' )&. %)'6% -$ )*' 6(.8'%% . .(3/$-C-$3 &*-8*
8.2' /:)'( QI1'$)-@8/)-.$ /$1 1-4-%-.$ .: &.(0R /$1
QD'6/()2'$)/5-C/)-.$R. !M
A2 )denti6cation and di&ision of work2 %i&iding the total work into =obs is
necessary because the entire work cannot be done by indi&idual
/ii0%epartmentalisation2 )n this step combine or group similar =obs into larger
units called departments.
!. O(3/$-%-$3 5'/1% ). / %7%)'2/)-8 /55.8/)-.$ .: H.9% /2.$3%) )*'
&.(0:.(8'. W*-8* -26.()/$8' .: .(3/$-C-$3 -% %)/)'1 *'('O
1 M
A2 ene6ts of specialisation .
". O(3/$-%-$3 85/(-@'% 5-$'% .: 8.22,$-8/)-.$ /$1 %6'8-@'% &*. -% ).
('6.() ). &*.2. M'$)-.$ )*' -26.()/$8' .: .(3/$-C-$3 -$1-8/)'1 *'('.
1 M
A2 Clarity in working relationships.
?. A2/$ L)1. I% 2/$,:/8),(-$3 ).7% /$1 */% 6(.1,8)-.$, %/5'%,
P,(8*/%' /$1 F-$/$8' D'6/()2'$)%. W*-8* )76' .: .(3/$-C/)-.$
%)(,8),(' &.,51 7., %,33'%) ). )*'2O S)/)' /$7 )*('' /14/$)/3'% .:
)*-% .(3/$-C/)-.$ %)(,8),('.
!M
A2 ) would suggest functional structure for Aman 'imited.
Ad&antages of this structure2
i. ,uper&ision is facilitated.
ii. Coordination with in the department is easier.
D. H-$1,%)/$ L)1. , -% 2/$,:/8),(-$3 8.26,)'(%, %./6% /$1 )';)-5'%.
W*-8* )76' .: .(3/$-C/)-.$/5 %)(,8),(' &.,51 %,-) )*' ('+,-('2'$)% .:
%,8* .(3/$-C/)-.$O S)/)' /$7 )*('' /14/$)/3'% .: )*-% .(3/$-C/)-.$
%)(,8),('. " M
A2 %i&isional structure would shoot the requirements of Hindustan limited.
Ad&antages2
i. All acti&ates associated with one product can be easily integrated.
ii. %ecision making is faster and e+ecti&e.
iii. 1erformance of indi&idual product can be easily assessed.
F. I) -% / $')&.(0 .: 6'(%.$/5 /$1 %.8-/5 ('5/)-.$% $.) '%)/95-%*'1 .(
('+,-('1 97 )*' :.(2/5 .(3/$-C/)-.$ 9,) /(-%-$3 %6.$)/$'.,%57 /%
6'.65' /%%.8-/)' &-)* .$' /$.)*'(. N/2' )*-% .(3/$-C/)-.$ /$1 3-4'
-)% )*('' /14/$)/3'%. "M
A2 )nformal organi9ation2
A14/$)/3'%>
4. )t brings feeling of belongingness.
B. )nformal organi9ation satis6es social and cultural needs.
D. )t pro&ides useful channel of communication.
G. I) 2'('57 2'/$% )*' 3(/$)-$3 .: /,)*.(-)7 ). %,9.(1-$/)'% ).
.6'(/)' &-)*-$ 6('%8(-9' 5-2-)%. M'$)-.$ )*' 8.$8'6) (':'(('1 *'('.
1M
A2 %elegation of Authority
=. D'5'3/)-.$ 6(.4-1'% / ('/17 &.(0:.(8' ). )/0' ,6 5'/1-$3 6.%-)-.$%
-$ $'& 4'$),('%. W*-8* -26.()/$8' .: 1'5'3/)-.$ -% %)/)'1 *'('O
A2 .acilitation of growth
4;
10. MA,)*.(-)7 8/$ 9' 1'5'3/)'1 9,) /88.,$)/9-5-)7 8/$$.).N E;65/-$
)*' %)/)'2'$).!M
A2 According to the principle of absolute responsibility, authority can be
delegated but responsibility cannot be delegated by a manager. #he manager
remains responsible to his own superior for the task which he may assign to his
subordinates. :&ery superior is responsible for the acts of this subordinates to
whom he delegates authority for any work.
11. T*' M/(0')-$3 M/$/3'( .: /$ .(3/$-C/)-.$ */% 9''$ /%0'1 ).
/8*-'4' / )/(3') %/5'% .: 100 3'$'(/).(% 6'( 1/7. H' 1'5'3/)'% )*'
)/%0 ). 10 %/5'% 2/$/3'(% &.(0-$3 ,$1'( *-2. T&. .: )*'2 8.,51 $.)
/8*-'4' )*'-( ('%6'8)-4' )/(3')%. I% )*' 2/(0-$3 2/$/3'(
('%6.$%-95'O B(-'K7 ';65/-$ )*' ('5'4/$) 6(-$8-65' -$ %,66.() .: 7.,(
/$%&'(. " M
A2 Res, ;arketing manager is responsible for the non"achie&ement of the target
sales to his
superior.
#he principle related to this statement is absolute responsibility. )t states that
authority can be delegated but responsibility cannot be delegated by manager.
#he manager remains responsible are accountable to this own superior for the
task which he may ha&e assigned to his subordinate.
12. I) (':'(% ). )*' %7%)'2/)-8 1'5'3/)-.$ .: /,)*.(-)7 :(.2 ).6
2/$/3'2'$) ). )*' 5.&'( 5'4'5 2/$/3'(%. M'$)-.$ -).
1M
A2 %ecentrali9ation of authority.
1!. I: &' 1'5'3/)' )*' /,)*.(-)7 &' 2,5)-657 -) 97 )&., I: &'
1'8'$)(/5-C' -), &' 2,5)-657 -) 97 2.$'7.
!M
A2 ,cope of delegation of authority is limited. )t is clear that if we delegate
the authority we multiply it by B that is delegator and his subordinate to whom
authority is delegated.
,cope of decentrali9ation of authority is wider than delegation. )t in&ol&es
many people from to le&el to bottom lower le&el of authority.
CHAPTER -D
STAFFING
D M/(0%
CONCEPT MAPPING>
1. C.$8'6) /$1 -26.()/$8' .: %)/E$3.
2. S)/E$3 /% / 6/() .: H,2/$ R'%.,(8' M/$/3'2'$).
!. S)/E$3 6(.8'%%>
/. R'8(,-)2'$) J %.,(8'%
9. S'5'8)-.$ J 6(.8'%%
". T(/-$-$3 /$1 1'4'5.62'$) J 8.$8'6) /$1 -26.()/$8'.
A. M')*.1% .: )(/-$-$3 J .$ )*' H.9 /$1 .L )*' H.9 J -$1,8)-.$
)(/-$-$3, 4'%)-9,5' )(/-$-$3, /66('$)-8'%*-6 )(/-$-$3 /$1
-$)'($%*-6 )(/-$-$3.
KEY CONCEPT IN NUTSHELL
MEANING OF STAFFING>
,ta*ng has been described as the managerial function of 6lling and keeping
6lled, the positions in an organi9ation structure. ,ta*ng is identifying the
requirement of workforce followed by recruitment, selection, placement,
promotion, appraisal and de&elopment of personnel, to 6ll the roles designed
into the organi9ation structure.
NEED AND IMPORTANCE OF STAFFING>
)n any organi9ation, there is a need for people to perform work. #he sta*ng
function of management ful6lls this requirement and 6nds the right people for
the right =ob. #he sta*ng function has assumed greater importance these days
because of rapid ad&ancement of technology, increasing si9e of organi9ation
and complicated beha&ior of human beings. #he ability of an organi9ation to
achie&e its goals depends upon the quality of its human resources.
S)/E$3 /% / 6/() .: *,2/$ ('%.,(8' 2/$/3'2'$)>
,ta*ng is a function which all managers need to perform. )t is a separate and
speciali9ed function and there are many aspects of human relations to be
considered.
)t is the responsibility of all managers to directly deal and select people to work
for the organi9ation. (hen the manager performs the sta*ng function his role
is slightly limited. )n small organi9ations managers may perform all duties
related to employees salaries, welfare and working conditions.
us as organi9ations grow and number of persons employed increases, a
separate department called the human resource department is formed which
has specialists in the 6eld to manage people. Human resource management
includes many speciali9ed acti&ities and duties which the human resource
personnel must perform.
RECRUITMENT>
Recruitment refers to the process of 6nding possible candidates for a =ob
or function. )t has been de6ned as 7the process of searching for
prospecti&e employees and stimulating them to apply for =obs in an
organisation.
P(.8'%% .: R'8(,-)2'$) >
#he &arious acti&ities in&ol&ed with the process of recruitment includes
/a0 identi6cation of the di+erent sources of labour supply,
/b0 assessment of their &alidity,
/c0 choosing the most suitable source or sources, and
/d0 in&iting applications from the prospecti&e candidates, for the
&acancies
SOURCES OF RECRUITMENT>
40 )nternal ,ources
B0 :xternal ,ources
INTERNAL SOURCES>
T(/$%:'(%> )t in&ol&es shifting of an employee from one =ob to another,
one department to another or from one shift to another, without a
substanti&e change in the responsibilities and status of the employee
P(.2.)-.$%> 1romotion leads to shifting an employee to a higher
position, carrying higher responsibilities, facilities, status and pay.
1romotion is a &ertical shifting of employees
MERITS OF INTERNAL SOURCES>
:mployees are moti&ated to impro&e their performance
,impli6es the process of selection and placement
#ransfer is a tool of training the employees to prepare them for higher
=obs.
,hifting workforce from the surplus departments to those where there is
shortage of sta+
Cheaper as compared to getting candidates from external sources.
L-2-)/)-.$% .: I$)'($/5 S.,(8'%>
(hen &acancies are 6lled through internal promotions, the scope for
induction of fresh talent is reduced.
:mployees may become lethargic if they are sure of time bound
promotions
:nterprise cannot use internal sources of recruitment.
,pirit of competition among the employees may be hampered.
.requent transfers of employees may often reduce the producti&ity of the
organisation
E;)'($/5 S.,(8'%>
D-('8) R'8(,-)2'$)> T*' direct recruitment, a notice is placed on the
notice board. of the enterprise specifying the details of the =obs a&ailable.
Uob seekers assemble outside the premises of the organisation on the
speci6ed date and selection is done on the spot recruitment.
C/%,/5 C/55'(%2 organisations keep a database of unsolicited applicants
in their o*ces. ,uch =obseekers can be a &aluable source of manpower. A
list of such =obseekers can be prepared and can be screened to 6ll the
&acancies as they arise.
A14'()-%'2'$)> T*' ad&antage of ad&ertising &acancies is that more
information about the organisation and =ob can be gi&en in the
ad&ertisement. Ad&ertisement gi&es the management a wider range of
candidates from which to choose. disad&antage is that it may bring in a
5ood of response, and many times, from quite unsuitable candidates.
E265.72'$) E;8*/$3'2 :mployment exchanges run by the Io&ernment
are regarded as a good source of recruitment for unskilled and skilled
operati&e =obs. %isad&antage of it is that is may be uptodate and many of
the candidates referred by them may not be found suitable.
P5/8'2'$) A3'$8-'% /$1 M/$/3'2'$) C.$%,5)/$)%2
#hese pro&ide a nationwide ser&ice. #hese agencies compile biodata of a
large number of candidates and recommend suitable names to their clients.
,uch agencies charge fee for their ser&ices and they are useful.
C/26,% R'8(,-)2'$)2 organisations maintain a close liaison with the
uni&ersities, &ocational schools and management institutes to recruit
quali6ed personnel for &arious =obs.
R'8.22'$1/)-.$% .: E265.7''%2 Applicants introduced by present
employees, or their friends and relati&es may pro&e to be a good source of
recruitment. ,uch applicants are likely to be good employees because their
background is su*ciently known
L/9.,( C.$)(/8).(%> (orkers are recruited through labour contractors
who are themsel&es employees of the organisation. #he disad&antages of
this system are that if the contractor himself decides to lea&e the
organisation, all the workers employed through him will follow suit.
A14'()-%-$3 .$ T'5'4-%-.$2 generally ad&ertised through tele&ision and
newspaper #he detailed requirements of the =ob and the qualities
required to do it are publicised along with the pro6le of the organisation
where &acancy exists.
W'9 P,95-%*-$3> #here are certain websites speci6cally designed and
dedicated for the purpose of pro&iding information about both =ob
seekers and =ob opening.
M'(-)% .: E;)'($/5 S.,(8'>
3uali6ed 1ersonnel
(ider Choice
.resh #alent
Competiti&e ,pirit
L-2-)/)-.$% .: E;)'($/5 S.,(8'%>
%issatisfaction among existing sta+
'engthy process
Costly process
S'5'8)-.$>
,election is the process of identifying and choosing the best person out
of a number of prospecti&e candidates for a =ob. #owards this purpose,
the candidates are required to take a series of employment tests and
inter&iews.
P(.8'%% .: S'5'8)-.$>
1reliminary ,creening2 1reliminary screening helps the manager
eliminate unquali6ed or un6t =ob seekers based on the information
supplied in the application forms.
,election #ests2 An employment test is a mechanism /either a paper and
pencil test or an exercise0 that attempts to measure certain cha"
racteristics of indi&iduals. #hese characteristics range from aptitudes,
such as manual dexterity, to intelligence to personalities.
I26.()/$) T'%)% U%'1 :.( S'5'8)-.$ .: E265.7''%
)ntelligence #ests
Aptitude #est
1ersonality #ests
#rade #est
)nterest #est
E265.72'$) I$)'(4-'&2 #he role of the inter&iewer is to seek
information and that of the inter&iewee is to pro&ide the same. #hough,
in present times, the inter&iewee also seeks information from inter&iewer.
R':'('$8' /$1 B/803(.,$1 C*'80%2 ;any employers request names,
addresses, and telephone numbers of references for the purpose of
&erifying information and, gaining additional information on an applicant.
S'5'8)-.$ D'8-%-.$2 #he 6nal decision has to be made from among the
candidates who pass the tests, inter&iews and reference checks.
M'1-8/5 E;/2-$/)-.$> After the selection decision and before the =ob
o+er is made, the candidate is required to undergo a medical 6tness
test.6t candidates are gi&e the =ob.
.9 OL'(> =ob o+er is made through a letter of appointment!con6rm his
acceptance. ,uch a letter generally contains a date by which the
appointee must report on duty.
asic information that should be included in a written contract of
employment will &ary according to the le&el of the =ob, but the following
checklists sets out the typical headings2 Uob #itle, %uties, Responsibilities,
%ate when continuous employment starts and the basis for calculating
ser&ice, rates of pay, allowances, hours of work, lea&e rules, sickness,
grie&ance procedure, disciplinary procedure, work rules, termination of
employment.
T(/-$-$3 A$1 D'4'5.62'$)>
#raining and %e&elopment is an attempt to impro&e the current or future
employee performance by increasing an employees ability to perform
through learning, usually by changing the employees attitude or increasing
his or her skills and knowledge.
I26.()/$8' .: T(/-$-$3 /$1 D'4'5.62'$) >
#he rapid changes taking place during the last quarter century in our
highly sophisticated and complex society ha&e created increased
pressures for organisations to readapt the products and ser&ices
produced, the manner in which products and ser&ices are produced and
o+ered, the types of =obs required and the types of skills necessary to
complete these =obs.
B'$'@)% ). )*' .(3/$-%/)-.$>
wastage of e+orts and money is minimised.
leading to higher pro6ts.
increases employee morale and reduces absenteeism and employee
turno&er.
)t helps in obtaining e+ecti&e response to fast changing en&ironment.
B'$'@)% ). )*' E265.7''>
)mpro&ed skills and knowledge
)ncreased performance and help in earning more money.
#raining makes the employee more e*cient.
#raining increases the satisfaction and morale of employees.
T(/-$-$3, D'4'5.62'$) /$1 E1,8/)-.$>
#raining2 is any process by which the aptitudes, skills and abilities of
employees to perform speci6c =obs are increased. )t is a process of
learning new skills and application of knowledge. )t attempts to impro&e
their performance on the current =ob or prepare them for any intended
=ob.
E1,8/)-.$2 is the process of increasing the knowledge and
understanding of employees. )t is the understanding and interpretation of
knowledge. )t does not pro&ide de6nite answers, but rather de&elops a
logical and rational mind that can determine relationships among
pertinent &ariables and thereby understand a phenomenon
D'4'5.62'$)> (':'(% to the learning opportunities designed to help
employees grow. )t co&ers not only those acti&ities which impro&e =ob
performance but also those which bring about growth of the personality,
help indi&iduals in the progress towards maturity and actuali9ation of their
potential capacities so that they become not only good employees but
better men and women
KEY CONCEPTS IUESTIONS WITH ANSWERS
1B MS)/E$3 2/0'% :.( *-3*'( 6'(:.(2/$8' 97 6,))-$3 (-3*) 6'(%.$ .$
)*' (-3*) H.9N. I% )*-% %)/)'2'$) )(,' .( :/5%'O
1M
A0#rue
2BMT*'(' -% $. $''1 .: *,2/$ ('%.,(8' 65/$$-$3 /% %. 2/$7 6'.65'
/(' /4/-5/95' -$ )*' 2/(0') )*'%' 1/7%.N D. 7., /3('' &-)* )*-%
%)/)'2'$)O G-4' ('/%.$%. !M
A0 >o, ) dont agree with this statement. #here is a great need of man power
planning due to the following reasons. 2
4. 8rganisation needs man power planning2 #o meet the demands of
changing =ob
requirements due to change of technology.
B. ;an power requires forecasting2 1ro&ides a basis of recruitment,
transfer and training employees.
!B H,2/$ ('%.,(8' 2/$/3'2'$) -% / 6/() .: %)/E$3. D. 7., /3(''O
1 M
A0 >o.
"B MT*' 6('%'$) 1/7 *,2/$ ('%.,(8' 2/$/3'2'$) -% / 9(./1'(
8.$8'6).N E;65/-$" M
A0 #he present day human resource management includes the following
acti&ites2
a. Helps the organi9ation to achie&e its goals
b .:mployees the skills and knowledge of employees e*ciently and
e+ecti&ely.
C .:nhance =ob satisfaction.
d. ;aintain high morale and good human relations within the
organi9ation.
?B &*7 -% -$1,8)-.$ -% $.) ('+,-('1 -$ )*' -$)'($/5 %.,(8' .:
('8(,-)2'$). 1M
A0 ecause employees are already well familiar with the organi9ation.
DB S)/)' )*' 2'/$-$3 .: 65/8'2'$) /% / %)/E$3 :,$8)-.$.
1M
A0 1lacement2 8nce the =ob o+er has been accepted by the selected candidate
he placed on this new =ob. 1roper placement of an employee reduces
absenteeism
1lacement therefore refers to placing the right person on the right =ob.
FB D'%8(-9' 9(-'K7 )*' %)'6% -$4.54'1 -$ )*' 6(.8'%% .: %)/E$3.
?/DM
A0 ;an power 1lanning2 #he organi9ation estimate the total man power
requirement by considering all the departments of the organi9ation.
Recruitment2 #he second step after man power planning is recruitment and
selection. Recruitment aims at attracting =ob applicants preposition in the
organi9ation.
,election2 ,election consists of making choice among applicants.
1lacement and 8rientation2 )t refers to placing the right person on the right
=ob.
)nduction2 it is concerned with the process of introduction of a new employee
to the organi9ation.
#raining and de&elopment2 )t is more accurately considered as a process of
skill formation and beha&ioral change.
1erformance appraisal
1romotion and career planning
Compensation
GB N/2' )&. &'9%-)'% &*-8* /(' 8.22.$57 4-%-)'1 9.)* 97 )*'
6(.%6'8)-4' '265.7''% /$1 )*' .(3/$-C/)-.$% %'/(8*-$3 :.( %,-)/95'
6'.65'. 1M
A0 www.naukari.comJ www.=obstreet.com
=B QI$)'($/5 %.,(8'% .: ('8(,-)2'$) /(' 9'))'( )*/$ ';)'($/5 %.,(8'% .:
('8(,-)2'$).R D. 7., /3('' &-)* )*-% %)/)'2'$)O G-4' /$7 )&.
('/%.$% -$ %,66.() .: 7.,( /$%&'(. !M
A0 Res, ) agree with this statement.
Ad&antages2 4. )t will assist in de&eloping high moral of employees.
B. #he candidates already working in the organi9ation can be e&aluated more
economically as the expenditure is relati&ely less.
10B N/2' )*' 8.$8'6) &*-8* ('5/)'% ). )*' :.55.&-$3>
a0,earching of prospecti&e candidates.
b0 ,treamlining the attributes of a person required for doing a =ob.
A0 a. Recruitment b. ,election.
11BL-%) )*' 1-L'('$) )76'% .: )'%)% ,%'1 -$ %'5'8)-.$ 6(.8'%%.
A0 i. )ntelligence test ii. Aptitude test iii. 1ersonality test. )&.
#rade test
&. )nterest test
12B W*/) -% 2'/$) 97 QS'5'8)-.$RO E;65/-$ /$7 @4' %)'6% -$4.54'1 -$
)*' 6(.8'%% .: %'5'8)-.$ .: '265.7''%.
DM
A0,election is the process of carefully screening the candidates who o+er
themsel&es for appointment so as to choose the most appropriate person for
the =ob.
,teps 2 4. #he preliminary screening 2 A brief screening inter&iew is
conducted as the 6rst step in the selection process.
B. ,election test2 :ach candidate appears for employment test.
D. :mployment )nter&iew2 )nter&iew is a phase of testing on the basis of face to
face interaction between the inter&iewer and the applicant.
E. Reference and background checking2 Iather more information about the
candidates from indirect personal sources.
A. ,election decision2 After candidates process the tests and inter&iew 6nal
decision for selection is made after considering the &iew of concerned
manager.
C. ;edical #est2 #he selection process is not complete without the medical
test.
@. Uob o+er2 'etter of appointment mentioning the date by which a candidate
has to report on duty is handed o&er to the appointee.
F. Contract of employment2 )t includes &arious details such as pay, allowances,
work rules etc.
1!B T(/-$-$3 /$1 D'4'5.62'$) /(' .$' /$1 )*' %/2' )*-$3. D. 7.,
/3(''O
A0 >o they are di+erent
1"B D-%)-$3,-%* 9')&''$ )(/-$-$3 /$1 1'4'5.62'$).
"M
A0
#raining %e&elopment
)t is used to add skills
abilities of the workers
%e&elopment in&ol&es impro&ing
the capacities and capability of
the managerial personnel.
#he term training is
generally used to impart
speci6c skills among
operati&e workers
)t is associated with the o&er all
growth of the executi&es.
it is to enable the
employee to do the =ob
better
)t is to enable the o&erall growth
of the employee
)t is a =ob oriented process )t is a carrier oriented process.
4A0 ,tate the bene6ts of employees training. E;
A0 B'$'@)% ). )*' .(3/$-C/)-.$
a0 :conomic operations2 #rained personal will make economic and
e*cient use of resources.
b0 )ncreases producti&ityJ )t impro&es the quality and quantity of the
production
B'$'@)% ). )*' '265.7''%>
a0 Acquisition of new skills2 A trained employee acquires new skills.
b0 Higher :arnings2 #rained employees can perform better and there by earn
more.
1DB W*/) 1. 7., 2'/$) 97 Q.$ )*' H.9 )(/-$-$3RO E;65/-$ /$7 )*(''
2')*.1% .: Q.L )*' H.9R )(/-$-$3.
?/DM
A0 8n the =ob training2 'earning by doing by the subordinates under the
super&ision of superiors at the actual work place.
0 ;ethods2 i. Apprenticeship 1rogramme2 )t is designed for higher le&els
of skills.
)t ensures on the =ob training and is explained with classroom instruction in a
particular sub=ect.
ii. Coaching2 At lower le&els the coaching may simply consist of trainee
obser&ing his super&isor so as to de&elop the basic skills necessary for
operating machine.
iii. )nternship training2 #echnical institutes and business organi9ations =ointly
impart training to their members.
i&. Uob rotation2 )t is a method of training which ser&es the purpose of
employees de&elopment through pro&ision of di&ersi6ed training.
IUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1. I) -% 1'%8(-9'1 /% )*' 2/$/3'(-/5 :,$8)-.$ .: @55-$3 /$1 0''6-$3
@55'1 )*' 6.%-)-.$% -$ )*' .(3/$-C/)-.$ %)(,8),('. W*-8* :,$8)-.$ .:
2/$/3'2'$) -% (':'(('1 *'('O 4;
A2 ,ta*ng
2. I) -% ('8(,-)2'$), %'5'8)-.$, 1'4'5.62'$), ,)-5-C/)-.$, 8.26'$%/)-.$
/$1 2.)-4/)-.$ .: *,2/$ ('%.,(8'% .: )*' .(3/$-C/)-.$. G-4' )*'
$/2' .: )*' 8.$8'6) 2'$)-.$'1 *'('. 1M
A2 Human Resource ;anagement.
!.I) -265-'% -$)(.1,8-$3 )*' %'5'8)'1 '265.7'' ). .)*'( '265.7''% /$1
:/2-5-/(-C-$3 *-2 &-)* )*' (,5'% /$1 6.5-8-'% .: )*' .(3/$-C/)-.$.
N/2' -). 4;
A2 8rientation.
". W*/) -% )*' $';) %)'6 /:)'( %'5'8)-.$O
1M
A2 1lacement and 8rientation.
?. I) %''0% ). /))(/8) %,-)/95' /665-8/$)% ). /6657 :.( /4/-5/95' H.9%.
G-4' )*' )'(2.1M
A2 Recruitment.
D. T*'%' /(' (,$ 97 )*' G.4'($2'$) /% / %.,(8' .: ('8(,-)2'$) :.(
,$%0-55'1 /$1 %0-55'1 .6'(/)-4' H.9%. W*/) -% 9'-$3 (':'(('1 *'('O
1M
A2 :mployment exchanges.
F. W*-8* )76' .: 6'(%.$$'5 -% ('8(,-)'1 97 2/$/3'2'$) 8.$%,5)/$87
@(2%O
A2 ;anagement consultancy 6rms help the organi9ation to recruit technical,
professional and managerial personnel.
G. H/2-%* -% &.(0-$3 /% / %,6'(4-%.( -$ / 8.26/$7. D,' ). *-% */(1
&.(0 *' -% 6(.2.)'1 ). )*' 6.%) .: P(.1,8)-.$ M/$/3'(. N.& )*' 6.%)
.: %,6'(4-%.( -% 4/8/$) /$1 $. .$' 8/$ 9' )(/$%:'(('1 .( 6(.2.)'1 ).
)*-% 6.%). N/2' )*' %.,(8' .: ('8(,-)2'$) )*' 8.26/$7 &-55 ,%' ). @55
,6 )*-% 6.%). S)/)' /$7 )*('' /14/$)/3'% .: ,%-$3 )*-% %.,(8' .:
('8(,-)2'$). E;
A2 #he Company will use external source of recruitment.
Ad&antages2 i. .resh talent ii. (ider choice iii. 3uali6ed personnel
=.I) -% )*' 6(.8'%% .: -1'$)-:7-$3 /$1 8*..%-$3 )*' 9'%) 6'(%.$ .,) .: /
$,29'( .: 6(.%6'8)-4' 8/$1-1/)'% :.( / H.9. N/2' -).
1 M
A2 ,election.
10. N/2' )*' )'%) &*-8* -% ,%'1 /% / 2'/%,(' .: -$1-4-1,/5R% 6.)'$)-/5
:.( 5'/($-$3 $'& %0-55%.
A2 Aptitude test. 4 ;
11. W*-8* %)'6 -$ )*' 6(.8'%% .: %'5'8)-.$ *'56% )*' 2/$/3'(
'5-2-$/)' ,$+,/5-@'1 .( ,$@) H.9 %''0'(% 9/%'1 .$ )*' -$:.(2/)-.$
%,665-'1 -$ )*' /665-8/)-.$ :.(2%O 1M
A2 1reliminary ,creening
12. &*/) -% :.(2/5, -$-1'6)* 8.$4'(%/)-.$ 8.$1,8)'1 ). '4/5,/)' )*'
/665-8/$)R% %,-)/9-5-)7 :.( H.9 8/55'1.
1M
A2 :mployment inter&iew.
1!. W*7 -% %'5'8)-.$ 8.$%-1'('1 /% $'3/)-4' 6(.8'%%O
1M
A2 ecause it is a process in which a person is selected and the others are
re=ected.
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6.)'$)-/5 :.( 5'/($-$3 $'& %0-55%. M'$)-.$ -)% $/2' /$1 ';65/-$ )&.
.)*'( )'%)% /5%.. 1 M
A2 Aptitude.
8ther #ests2 a0 1ersonality #est2 #hese tests are used =udge the psychological
makeup of a person.
b0 )nterest #est2 #hese tests identify indi&idual likes and dislikes in relation to
work.
1?.I) -% )*' 6(.8'%% .: -$8('/%-$3 )*' 0$.&5'13' /$1 %0-55% .: /$
'265.7'' :.( 1.-$3 / 6/()-8,5/( H.9. W*-8* 6(.8'%% -% (':'(('1 ).
*'('O 1M
A2 #raining
1D.W*-8* .: )76' .: )(/-$-$3 -% / H.-$) 6(.3(/22' .: )(/-$-$3 -$ &*-8*
'1,8/)-.$/5 -$%)-),)-.$% /$1 9,%-$'%% @(2% 8..6'(/)'O
1M
A2 )nternship training
1F. T(/-$'' -% 6,) ,$1'( )*' 3,-1/$8' .: / 2/%)'( &.(0'( ). /8+,-(' /
*-3*'( 5'4'5 .: %0-55, :.( ';/265' ). 9'8.2' 65,29'(, '5'8)(-8-/$, ')8.
W*-8* 2')*.1 .: )(/-$-$3 -% (':'(('1 *'('O
4;
A2 Apprenticeship programme
I,'%)-.$% 9/%'1 .$ V/5,'%>
4. (hile selecting employees, an organi9ation is not gi&ing any priority to
disabled candidates, weaker sections in the society and e&en women.
)dentify the &alues missing in the companys selection process and also
suggest a remedy.
Ans. i. ,ocial ob=ecti&es are not followed.
ii. Iender biased.
iii. )nclusi&e employment policy is &iolated
i&. Companys selection policy is not good.
Company should gi&e equal opportunity to all the prospecti&e candidates.
CHAPTER -F
DIRECTING
CONCEPT MAPPING>
Concept and importance
:lements of %irecting
- ,uper&ision"concept, functions of a super&isor.
- ;oti&ation"concept, ;aslows hierarchy of need2 .inancial and non"
6nancial incenti&es.
- 'eadership"concept, styles"authoritati&e, democratic and laisse9
faire.
- Communication" concept, formal and informal communicationJ
barriers to e+ecti&e communication, how to o&ercome the barriers.
K'7 C.$8'6)% -$ N,)%*'55
M'/$-$3 .: D-('8)-$32 )t refers to instructing, guiding, communicating
and inspiring people in the organisation .
I26.()/$8' .: D-('8)-$32 /40. )t initiates action. /B0.)t integrates
employees e+orts.
/D0)t is the means of moti&ation. /E0)t facilitates implementing changes.
/A0)t creates balance in the organi9ation.
E5'2'$)% .: D-('8)-$32 /40,uper&ision /B0Communication
/D0'eadership /E0;oti&ation
Concept of ,uper&ision2 ,uper&ision refers to monitoring the progress of
work of ones subordinates and guiding them properly.
F,$8)-.$% .: / S,6'(4-%.(2/40.acilitates control /B08ptimum utili9ation
of resources/D0;aintenance of discipline /E0.eedback /A0)mpro&es
communication /C0)mpro&es moti&ation
Motivation - M.)-4/)-.$ process of stimulating people to accomplish
desired goals. )t depends up on satisfying the needs of people.
M/%5.&R% H-'(/(8*7 .: N''1%> " According to ;aslow, man does e&ery
work to satisfy his need. A man has &arious needs and their order can be
determined. #he needs of a human being ser&e as a moti&ation for him.
8n the basis of priority human needs can be di&ided into 6&e parts /i0
1hysiological needs, /ii0 ,afety needs, /iii0.A*liation or social needs, /i&0
:steem needs and /&0 ,elf"actuali9ation needs.
F-$/$8-/5 .( M.$')/(7 I$8'$)-4'%2 .inancial incenti&es are those
incenti&es which are e&aluated in terms of money. #hese are helpful to
satisfy 1hysiological and ,afety >eeds. )t includes the following /i0 1ay
and allowances, /ii0 1roducti&ity"linked wage )ncenti&es, /iii0 onus, /i&0
1ro6t sharing, /&0 Co"partnership /i&0 ,uggestions, /&i0 Retirement
bene6ts, /&ii0 1erquisites.
N.$-@$/$8-/5 .( N.$-2.$')/(7 I$8'$)-4'%2 >on"6nancial incenti&es
are not directly related with money. #hese incenti&es help in the
satisfaction of top hierarchy needs like social, esteem and self"
actuali9ation. )t includes the following /i0.,tatus /ii0 8rgani9ational
climate /iii0 Career ad&ancement opportunity /i&0 Uob enrichment /&0
:mployee recognition programmes /&i0 Uob security /&ii0 :mployee
participation /&iii0 :mployee empowerment.
M'/$-$3 .: L'/1'(%*-6 2 )t refers to in5uence others in a manner to do
what the leaders wants them to do.
L'/1'(%*-6 S)75'%>
I. A,).8(/)-8 L'/1'(%*-6 S)75'>-
/a0.;eaning2 )t refers to that leadership style in which the leader tends to run
the show all by him"self.
/b0.Characteristics2 /i0 Centrali9ed Authority, /ii0 ,ingle <man %ecision, /iii0
(rong elief Regarding :mployee, /i&0 8nly %ownward Communications.
/c0. Ad&antages2 /i0 3uick and Clear %ecisions, /ii0 ,atisfactory (ork, /iii0
>ecessary for 'ess :ducated :mployees.
/d0.%isad&antages2 /i0 'ack of ;oti&ation, /ii0 Agitation by :mployees, /iii0
1ossibility of 1artiality.
II. D'2.8(/)-8 L'/1'(%*-6 S)75' >-
/a0. ;eaning2 )t refers to that leadership style in which the leader consult with
his sub ordinates before making any 6nal decisions.
/b0.Characteristics2 "/i0Cooperati&e Relations,/ii0elief in :mployees, /iii0 8pen
Communication.
/c 0.Ad&antages 2 /i0 High ;orale, /ii0Creations of ;ore :*ciency and
1roducti&ity, /iii0 A&ailability of ,u*cient #ime for Constructi&e (ork.
/d0.%isad&antages2 /i0 Requirement of :ducated ,ubordinates, /ii0 %elay in
%ecisions, /iii0'ack of Responsibility in ;anagers.
III. L/-%%'C-:/-(' .( F(''-('-$ L'/1'(%*-6 S)75'> -
/a0. ;eaning 2 )t refers to that leadership style in which the leader gi&es his sub
ordinates complete freedom to make decisions.
/b0Characteristics /i0.ull faith in subordinates, /ii0 )ndependent %ecision"making
system,/iii0 %ecentralisation of Authority /i&0,elf"%irected ,uper&isory and
Controlled.
/c0. Ad&antages./i0%e&elopment of ,elf"con6dence in ,ub ordinates, /ii0 High"
le&el ;oti&ation,/iii0Helpful in %e&elopment and :xtension of the :nterprise.
/d0. %isad&antages./i0.%i*culty in Cooperation, /ii0'ack of )mportance of
;anagerial 1ost, /iii0 ,uitable only for Highly :ducated :mployees.
C.22,$-8/)-.$> Communication refers to process of exchange of ideas
between or among persons and creates understanding. Communication
process in&ol&es the elements of source, encoding, channel, recei&er, decoding
and feedback.
F.(2/5 C.22,$-8/)-.$% refers to all o*cial communications in the form of
orders, memos, appeal, notes , circular, agenda, minutes etc.
I$:.(2/5 C.22,$-8/)-.$% are usually in the form of rumours, whispers etc.
#hey are uno*cial, spontaneous, unrecorded, spread &ery fast and usually
distorted.
B/((-'(% may exist for e+ecti&e communications. ,ome of these barriers
include"semantic barriers, organi9ational barriers, language barriers,
transmission barriers, psychological barriers and personal barriers.
M/$/3'( should take appropriate measures to o&ercome these barriers and
promote e+ecti&e communication in the organi9ation such as
I26(.4-$3 8.22,$-8/)-.$ 'L'8)-4'$'%%>
i. Clarify the ideas before communication ii. Communicate according to the
needs of recei&er. iii. Consult others before communicating i&. e aware of
language &. Con&ey things of help and &alue to listeners &i. :nsure proper
feedback &ii. Communicate for present as well as future &iii. .ollow up
communications and ix. e a good listener.
KEY CONCEPT IUESTIONS WITH ANSWERS
I1B W*/) -% 2'/$) 97 D-('8)-$3O E;65/-$ )*' -26.()/$8' .: 1-('8)-$3O
DM
Ans2 %irecting is telling people what to do and seeing that they do it to the best
of their ability. )t includes making assignment, explaining procedures, seeing
their mistakes are corrected, pro&iding on the =ob instructions and issuing
orders.
I26.()/$8' .: D-('8)-$3> -
4. )t initiates action
B )t integrates employees e+orts
D. )t is the means of moti&ation
E. )t facilitates implementing changes.
A. )t creates balance in the organi9ation
I2B M'$)-.$ )*' '5'2'$)% .: 1-('8)-$3O
1M
Ans2 40 super&ision B0 moti&ation D0 leadership E0 communication
I!B E;65/-$ *.& 1-('8)-$3 -% / 6'(4/%-4' :,$8)-.$ .: 2/$/3'2'$)
1M
Ans2 %irecting is a per&asi&e function as e&ery manager from top executi&e to
superior performs it.
I"B.QD-('8)-$3 -% )*' 5'/%) -26.()/$) :,$8)-.$ .: 2/$/3'2'$).R D.
7., /3('' &-)* )*-% %)/)'2'$)O G-4' /$7 )&. ('/%.$% -$ %,66.() .:
7.,( /$%&'(. " M
A2 >o, ) dont agree with this statement.
)mportance of direction2 %irection may be regarded as the heart of the
management process.
)t is explained under the following parts2
a0.)nitiates action2 All organi9ational acti&ates are initiated through direction.
b0.)ntegrates employees e+orts2 At all le&els of management the subordinates
under the managers.
;anagers integrate the work of subordinates.
c0.;eans of moti&ation 2 %irecting helps in moti&ating employees towards
organi9ational goals
I?B.MT*' 6.%) .: %,6'(4-%.( %*.,51 9' /9.5-%*'1 -$ )*' *-'(/(8*7 .:
2/$/3'(%N. D. 7., /3(''O G-4' /$7 )*('' ('/%.$% -$ %,66.() .: 7.,(
/$%&'(. DM
A0.>o, ) dont agree, because a super&isor performs the following functions to
achie&e organi9ation goals.
.unctions of the super&isor2
a0.1lanning the work. #he super&isor has to determine work schedule for e&ery
=ob.
b0.)ssuing orders2 ,uper&isor issues orders to the workers for achie&ing
coordination in his work.
c0.1ro&iding guidance and leader ship2 #he super&isor leads the workers of his
department.
d0.:xplains the policies and programmes of the organi9ation to his sub
ordinates and pro&ide guidance
e0.;ake necessary arrangement for supply of materials and ensure they are
e*ciently utili9ed.
f0. %e&iations from the target if any are to be recti6ed at the earliest.
g0. #o help the personnel departments in recruitment and selection of workers.
IDB.W*/) -% 2'/$) 97 QE%)''2 $''1%R /$1 QS'5:-/8),/5-C/)-.$ $''1%R -$
('5/)-.$ ). 2.)-4/)-.$ .: )*' '265.7''%O
"M
A2 i. :steem >eeds2 these needs are needs for self esteem and need for other
esteem ..or :xample2 ,elf"respect, self"con6dence etc.
ii. ,elf"actuali9ation >eeds2 #his is the needs to be what one is capable of
becoming and includes needs for optimal de&elopment.
IFB.I) -% )*(.,3* 2.)-4/)-.$ )*/) 2/$/3'(% 8/$ -$%6-(' )*'-(
%,9.(1-$/)'% ). 3-4' )*'-( 9'%) ). )*' .(3/$-%/)-.$R. I$ )*' 5-3*) .:
)*-% %)/)'2'$), ';65/-$, -$ 9(-':, )*' -26.()/$8' .: 2.)-4/)-.$.
?/DM
A2 )mportance of moti&ation2
i. ;oti&ation sets in motion the action of people2 ;oti&ation builds the will to
work among employees and puts them into action.
ii. ;oti&ation includes the e*ciency of work performance2 1erformance of
employees dependence not only on indi&idual abilities but also on his
willingness.
iii. ;oti&ation ensures achie&ement of organi9ational goals2 )f employees are
not moti&ated, no purpose can be ser&ed by planning organi9ing and sta*ng.
i&. ;oti&ation creates friendly relationships2 ;oti&ation creates friendly and
supporti&e relationships between employer and employees.
G .;oti&ation leads to stability in the employees2 ;oti&ation helps in reducing
absenteeism and turno&er.
&i. ;oti&ation helps to change negati&e ! indi+erent attitudes of an employee
IGB.MA55 2/$/3'(% /(' 5'/1'(%, 9,) /55 5'/1'(% /(' $.) 2/$/3'(%.N D.
7., /3('' &-)* )*-% %)/)'2'$)O G-4' /$7 )*('' ('/%.$% -$ %,66.() .:
7.,( /$%&'(. !/" M
A2 Res, ) agree with this statement.
%i+erence between leadership and management 2
B/%-% L'/1'(%*-6 M/$/3'2'$)
8rigin 'eadership originates out of
indi&idual in5uence
;anagement originates
out of o*cial power
and rights.
.ormal Rights A leader has no formal
rights
A manager has certain
formal rights
.ollower -
subordinates
A leader has followers A manager has
subordinates
I=B E;65/-$ )*' 4/(-.,% 5'/1'(%*-6 %)75'%O
DM
Ans02Autocratic leadership style2 #his style is also known as leader centered
style. #he leader keeps all the authority and employees ha&e to perform the
work exactly as per his order. He does not decentrali9es his authority. #he
responsibility of the success or the failure of the management remains with the
manager.
%emocratic leadership2 #his style is also known as group centered leadership
style. ;anagerial decisions are not taken by the manager in consultation with
employees. #his leadership style is based on decentrali9ation. ;anagers
respect the suggestions made by his sub ordinates.
'aisse9"faire leadership style2 this style as leadership is also known as free
brain leadership or indi&idual centered style. #he manger takes little interest in
managerial functions and the sub ordinates are left on their own. ;anager
explain o&er all ob=ecti&esJ help sub" ordinates in determining their own
ob=ecti&es. #hey pro&ide resources. #hey also ad&ise the employees.
I10B M'$)-.$ )*' 8*/(/8)'(-%)-8% .: /,).8(/)-8 5'/1'(%*-6 %)75'.
!M
Ans0.4.Centrali9ed authority B.,ingle man decisions D.(rong belief regarding
employees E.8nly downward communication.
I11B. E;65/-$ )*('' /14/$)/3'% /$1 )*('' 1-%/14/$)/3'% .: /,).8(/)-8
5'/1'(%*-6 %)75'.
Ans0.Ad&antages2 4.quick and clear decisions B.,atisfactory work D.>ecessary
for less educated employees
%isad&antages2 4.lack of moti&ation B.Agitation by employees D.1ossibilities of
partiality. DM
I12B. E;65/-$ )*('' /14/$)/3'% /$1 )*('' 1-%/14/$)/3'% .:
1'2.8(/)-8 5'/1'(%*-6. DM
40 Ans2 Ad&antages24.%emocratic leadership style
ad&antages,B.;orale,D.Creation of more e*ciency and
producti&bity,E.A&ailability of su*cient time for constructi&e work
B0 %isad&antages24.Requirement of educated sub ordinates B.%elay in
decisions D.'ack of responsibility and managers
I1!B. M'$)-.$ :'/),('% .: 1'2.8(/)-8 5'/1'(%*-6 %)75'O
!M
Ans2 40 co operati&e relations B0.Relief in employees D0.8pen communication
I1"B. M'$)-.$ )*' 8*/(/8)'(-%)-8% .: 5/-%%'C-:/-(' 5'/1'(%*-6 %)75'
!M
Ans2 .ull faith in sub" ordinates 40.)ndependent decision making system
B0.%ecentrali9ation of authority
D0.,elf directed
I1?B. M'$)-.$ )*('' /14/$)/3'% /$1 )*('' 1-%/14/$)/3'% .: 5/-%%'C-
:/-(' DM
Ans2 "4.%e&elopment of self con6dence in sub ordinates, B.High le&el
moti&ation, D.Help in de&elopment of extension and enterprise
%isad&antages2 4.%i*culty in co operation, B.'ack of importance of managerial
post, D.,uitable only for highly educated employees
I1DB. MM/$/3'(-/5 :,$8)-.$% 8/$$.) 9' 8/((-'1 .,) &-)*.,) /$
'E8-'$) %7%)'2 .: 8.22,$-8/)-.$.N D. 7., /3(''O G-4' /$7 )*(''
('/%.$% -$ %,66.() .: 7.,( /$%&'(."M
A2 Res, ) agree with this statement.
Communication is important because of the following reasons.
i. Communication facilitates planning in a number of ways
ii. Communication helps management in arri&ing at &ital decisions
iii .Communication is necessary in creating unity of action of action
I1FB. M'$)-.$ .$' 9/((-'( ). 'L'8)-4' 8.22,$-8/)-.$.
1M
A2 1oor listening skills of people.
I1GB. G-4' /$7 .$' 2'/%,(' ). -26(.4' 8.22,$-8/)-.$.
1M
A2 Communicate according to the needs of recei&er.
I1=B. W*/) 1. 7., 2'/$ 97 3(/6'4-$'O E;65/-$ )&. )76'% .:
3(/6'4-$' /5.$3 &-)* 1-/3(/2.
A2 Irape&ine2 #he network or pathway of informal communication is known as
grade point communication.
#wo types of grape&ine communication
Iossip ,ingle ,trand
I20B. E;65/-$ /$7 )*('' 2'/%,('% ). .4'(8.2' )*' 9/((-'(% ).
-26(.4' 8.22,$-8/)-.$% 'L'8)-4'$'%%.
Ana2 4.Clarify the areas before communication2 efore communicating to
employees a manager should make an analysis of the sub=ect matter.
B. Consult others before communication2 A manager should encourage
participation of subordinates which will ensure their support and cooperation.
D. Communicate according to the needs of recei&er2 #he manager should make
ad=ustments according to the needs of the recei&er.
IUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1B.I) -% 8.$8'($'1 &-)* -$%)(,8)-$3 3,-1-$3 /$1 -$%6-(-$3 6'.65' -$ )*'
.(3/$-C/)-.$ ). /8*-'4' -)% .9H'8)-4'%. N/2' -).
1 M
A2 %irecting
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:,$8)-.$ .: 1-('8)-$3. W*-8* 8*/(/8)'(-%)-8 .: 1-('8)-$3 -% (':'(('1
*'('O 1M
A0 %irecting takes place e&ery le&el of management.
!B I) 2'/$% .4'(%''-$3 )*' %,9.(1-$/)'% /) &.(0. W*-8* '5'2'$) .:
1-('8)-$3 -% (':'(('1 ).O
1M
A2 ,uper&ision.
"B S,6'(4-%.( /8)% /% / 5-$0 9')&''$ &.(0'(% /$1 2/$/3'2'$).
H.&O 1M
A2 ,uper&isor con&eys management ideas to the workers on one hand and
workers problems to the management on the other.
?B I) (':'(% ). )*' &/7 -$ &*-8* ,(3'%, 1(-4'%, 1'%-('%, /%6-(/)-.$%,
%)(-4-$3% .( $''1% 1-('8) 8.$)(.5 /$1 ';65/-$ )*' 9'*/4-.( .: *,2/$
9'-$3%. W*-8* '5'2'$) .: 1-('8)-$3 -% -$1-8/)'1 *'('O
1M
A2 ;oti&ation.
DB M.)-4/)-.$ 8/$ 9' '-)*'( 6.%-)-4' .( $'3/)-4'. G-4' )&.
';/265'% .: $'3/)-4' 2.)-4/)-.$.
1M
A0 a0 ,topping increments b0 #reating
FB.W*-8* $''1 -$ )*' *-'(/(8*7 )*'.(7 .: 2.)-4/)-.$ (':'(% ).
/L'8)-.$, /88'6)/$8' /$1 :(-'$1%*-6O
1M
A2 elonging needs
GB I) -% /$ -$8'$)-4' .L'('1 .4'( /$1 /9.4' )*' &/3'%/%/5/(7 ). )*'
'265.7''%. N/2' )*' )76' .: @$/$8-/5 -$8'$)-4' (':'(('1 *'('.
1M
A0 onus
=B N/2' )*' -$8'$)-4' &*-8* (':'(% ). Q3-4' 2.(' /,).$.27 /$1
6.&'(% ). %,9.(1-$/)'%R /$1 *.& /(' 6'.65' /L'8)'1 97 )*-%
-$8'$)-4'%O 1M
A0 :mployee :mpowerment 2 %ue to this incenti&e people start feeling that
their =obs are important and they contribute positi&ely to use their skills and
talent in the =ob performance.
10B I) -% 1'@$'1 /% / 6(.8'%% .: -$K,'$8-$3 .)*'( 6'.65' ). &.(0
&-55-$357 :.( 3(.,6 .9H'8)-4'%. M'$)-.$ )*-% '5'2'$) .: 1-('8)-$3.
1 M
A0 'eadership
11B I) -% 6(.8'%% 97 &*-8* 6'.65' 8('/)' /$1 %*/(' -$:.(2/)-.$ &-)*
.$' /$.)*'( -$ .(1'( ). ('/8* 8.22.$ ,$1'(%)/$1-$3. W*-8* '5'2'$)
.: 1-('8)-$3 -% (':'(('1 *'('O
1M
A0 Communication.
12B W*-8* '5'2'$) -$ 8.22,$-8/)-.$ 6(.8'%% ('5/)'% ). )*' 6(.8'%%
.: 8.$4'()-$3 '$8.1'1 %729.5% .: )*' %'$1'(O
1M
A0 %ecoding
1!B I$ &*-8* 0-$1 .: 8.22,$-8/)-.$ $')&.(0, / %,9.(1-$/)' -%
/55.&'1 ). 8.22,$-8/)' &*-8* *-% -22'1-/)' %,6'(-.( /% &'55 /% *-%
%,6'(-.(R% %,6'(-.(O 1M
A0 )n&erted G.
1"B A2-) /$1 M-00- /(' &.(0-$3 -$ )*' %/2' .(3/$-C/)-.$ 9,)
1-L'('$) 1'6/()2'$)%. O$' 1/7 /) 5,$8* )-2' M-00- -$:.(2'1 A2-)
)*/) 1,' ). 8.26,)'(-C/)-.$ 2/$7 6'.65' /(' 3.-$3 ). 9' (')('$8*'1
%..$ :(.2 )*' .(3/$-C/)-.$. "M
A0 )t is an example of informal communication.
L-2-)/)-.$% .: -$:.(2/5 8.22,$-8/)-.$>
;essages tend to be distorted.
)t often carries rumors.
)t is unsystematic.
1?B T*'(' /(' %.2' 9/((-'(% -$ 8.22,$-8/)-.$ &*-8* /(' 8.$8'($'1
&-)* )*' %)/)' .: 2-$1 .: 9.)* )*' %'$1'( /$1 )*' ('8'-4'(. S)/)' /$7
)*('' %,8* 9/((-'(%. !/ " M
A0 )t refers to physiological barriers2 i. premature e&aluation ii. 'oss by
transmission and poor retention. )ii .'ack of attention.
CHAPTER J G
CONTROLLING
CONTROLLING D MARKS
CONCEPT MAPPING>
P(.8'%% .: C.$)(.55-$3
K'7 C.$8'6)% -$ $,)%*'55>
1. M'/$-$3 .: 8.$)(.55-$3> Comparing actual performance with standards
and 6nding de&iations if any and taking correcti&e action.
A8),/5 P'(:.(2/$8' V S)/$1/(1% V N. 1'4-/)-.$
F'/),('%/N/),(' .: C.$)(.55-$3>
Controlling is per&asi&e
Controlling is a primary function
Controlling is a continuous process
Controlling is a goal oriented function.
2. P(.8'%% .: C.$)(.55-$3>
1. S'))-$3 6'(:.(2/$8' %)/$1/(1%> ,tandards are the Criteria against which
actual performance would be measured. ,tandards ser&e as bench marks.
#hey can be set in both quantitati&e as well as qualitati&e.
2. M'/%,('2'$) .: /8),/5 6'(:.(2/$8'> 1erformance should be measured
in an ob=ecti&e and reliable manner.
!. C.26/(-$3 /8),/5 6'(:.(2/$8' &-)* %)/$1/(1%>
". A$/57C-$3 1'4-/)-.$%> ;a=or de&iation or minor de&iation and analy9ing
the causes of de&iation.
/B C(-)-8/5 6.-$) 8.$)(.5> .ocus only on Oey Result Areas /ORAs0.
9B M/$/3'2'$) 97 E;8'6)-.$> Concentrate only on ma=or de&iations only.
?. T/0-$3 8.(('8)-4' /8)-.$> (hen de&iations go beyond the acceptable
range, especially in the important areas, it demands immediate managerial
attention so that de&iations do not occur again and standards are
accomplished.
Conclusion2 )n case the de&iation cannot be corrected through managerial
action, the standards may ha&e to be re&ised.
IMPORTANCE OF CONTROLLING
C.$)(.55-$3 '$%,('% .(1'( /$1 1-%8-65-$' 97 @;-$3 %)/$1/(1% -$
/14/$8' &*-8* 5'/1% ). -26(.4'1 '265.7'' 2.)-4/)-.$, -) /5%.
:/8-5-)/)'% 'E8-'$) ,%' .: ('%.,(8'%, H,13-$3 )*' /88,(/87 .:
%)/$1/(1%, :/8-5-)/)'% 8..(1-$/)-.$ -$ /8)-.$ &*-8* &-55 ('%,5) -$).
/88.265-%*2'$) .: .(3/$-C/)-.$/5 3./5%.
LIMITATIONS OF CONTROLLING>
1. D-E8,5)7 -$ %'))-$3 +,/$)-)/)-4' %)/$1/(1%> )t is di*cult to set
standards for all types of acti&ities this makes measurement of performance
and their comparison with standards a di*cult task.
2. L-))5' 8.$)(.5 .$ ';)'($/5 :/8).(%> usiness en&ironment is e&er
changing. #he 6rm has no control on external factors such as go&ernment
policies, technological changes, competition etc.
!. R'%-%)/$8' :(.2 '265.7''%> E265.7''% .66.%' 8.$)(.55-$3
2'/%,('% )/0'$ 97 /$7 .(3/$-%/)-.$.
". C.%)57 /L/-(> I) -% / 8.%)57 /L/-( /% -) -$4.54'% / 5.) .: ';6'$1-),(',
)-2' /$1 'L.(). E%6'8-/557 %2/55 .(3/$-C/)-.$% 8/$$.) /L.(1.
RELATIONSHIP BETWEEN PLANNING AND CONTROLLING>
Planning and controlling are inseparable twins of management. 1lanning
initiates the process of management and controlling completes the
process. 1lans are the basis of control and without control the best laid
plans may go astray.
1lanning is clearly a prerequisite for controlling. )t is utterly foolish to
think that controlling could be accomplished without planning.
1lanning is prescripti&e and controlling is e&aluati&e
)t is often said that planning is looking ahead while controlling is looking
back. Howe&er, the statement is only partially correct. 1lans are
prepared for future and in&ol&e looking ahead. 8n the contrary,
controlling is like a postmortem of past acti&ities to 6nd out de&iations
from the standards. )n that sense controlling is a backward looking
function. Howe&er, it should be understood that planning is guided by
past experiences and the correcti&e action initiated by control function.
I,'%)-.$% A&-)* %.2' *-$)% &*'('4'( $'8'%%/(7B
I26.()/$) +,'%)-.$% /(' %*.&$ &-)* W 2/(0 /$1 )*' M.%) -26.()/$)
+,'%)-.$% /(' %*.&$ &-)* WW 2/(0
W1. G-4' )*' 2'/$-$3 .: C.$)(.55-$3.
1M
2. D'@$' C.$)(.55-$3.
1M
Ans2 )t is a process of taking steps to bring actual results and desired results
closer together.
!.. W*-8* :,$8)-.$ .: 2/$/3'2'$) '$%,('% )*/) /8),/5 /8)-4-)-'%
8.$@(2 ). 65/$$'1 /8)-4-)-'%O
1M
Ans2 Controlling
".. N/2' )*' :,$8)-.$ .: 2/$/3'2'$) &*-8* ('4-'&% )*' .6'(/)-.$%
-$ / 9,%-$'%% ,$-). 1M
Ans2 Controlling
?.. W*7 -) -% %/-1 )*/) 65/$$-$3 -% 2'/$-$35'%% &-)*.,) 8.$)(.55-$3O
1M
Ans. )n the absence of controlling, actual performance will not be measured
and compared. ,o, how far plans are implemented cannot be known.
D.. W*7 -) -% %/-1 )*/) 8.$)(.55-$3 -% 95-$1 &-)*.,) 65/$$-$3O
1M
Ans. (ithout laid standards actual performance cannot be compared.
WWF. E;65/-$ )*' 5-2-)/)-.$% .: C.$)(.55-$3.
!M
WWG. P5/$$-$3 -% 5..0-$3 /*'/1 &*'('/% 8.$)(.55-$3 -% 5..0-$3 9/80.
D-%8,%%. !M
=. E;65/-$ *.& 8.$)(.55-$3 *'56% -$ Q/8*-'4-$3 9'))'( 8.-.(1-$/)-.$R
/$1 Q9'))'( 65/$$-$3R.
!M
H-$)> R':'( I26.()/$8' .: C.$)(.55-$3.
10. C.$)(.55-$3 -% / 6'(4/%-4' :,$8)-.$. E;65/-$
!M
Ans2 )t is a per&asi&e function, it is required e&ery le&el and in any type of
organisation.
11. D.'% 8.$)(.5 *'56 -$ QH,13-$3 )*' /88,(/87 .: %)/$1/(1%R /$1
Q-26(.4-$3 2.)-4/)-.$ .: )*' '265.7''%RO E;65/-$
!M
H-$)> R':'( -26.()/$8' .: C.$)(.55-$3
WW12. E;65/-$ )*' 1-L'('$8' 9')&''$ P5/$$-$3 /$1 C.$)(.55-$3.
!M
H-$)> R':'( R'5/)-.$%*-6 9')&''$ P5/$$-$3 /$1 C.$)(.55-$3
1!. QP5/$$-$3 /$1 C.$)(.55-$3 /(' 2,),/557 -$)'(('5/)'1 /$1
-$)'(1'6'$1'$) /8)-4-)-'%R H.&O
!M
H-$)> R'5/)-.$%*-6
1". MC.$)(.55-$3 -% :.(&/(1 5..0-$3N E;65/-$
!M
1?.. C.$)(.55-$3 -% 5..0-$3 9/80. E;65/-$
!M
W1D. MI: 7., )(7 ). 8.$)(.55-$3 '4'(7)*-$3 7., 2/7 '$1 ,6 97
8.$)(.55-$3 $.)*-$3N D-%8,%%
!M
H-$)> M/$/3'2'$) 97 ';8'6)-.$.
W1F. MC.$)(.55-$3 -% $.) / 6/$/8'/ :.( '4'(7 6(.95'2 -$ )*'
.(3/$-%/)-.$N D-%8,%% !M
H-$)> L-2-)/)-.$% .: 8.$)(.55-$3.
W1G.. W*/) -% C(-)-8/5 P.-$) C.$)(.5O
!M
Ans2 )t is neither economical nor easy to keep a check on each and e&ery
acti&ity in an organisation. Controlling should focus on key result areas /ORAs0
only which are critical to the success of the orgnisation.
1=. MP5/$$-$3 -% )*' @(%) :,$8)-.$ /$1 8.$)(.5 -% )*' 5/%) :,$8)-.$ .:
2/$/3'(-/5 6(.8'%% M D-%8,%%
!M
20. C.$)(.5 2.4'% :(.2 1.&$&/(1 ). ,6&/(1 &*'('/% 65/$$-$3 2.4'%
:(.2 ).6 ). 9.)).2. D-%8,%%
!M
21.. C.$)(.55-$3 -% / 8.$)-$,.,% /8)-4-)7 -$ /$ .(3/$-%/)-.$.
!M
W22.. W*/) /(' )*' :/8).(% ). 9' 0'6) -$ 2-$1 &*-5' %'))-$3 %)/$1/(1%O
!M
Ans2
i0 ,tandards should be in measurable terms
ii0 ,tandards should be 5exible to change
iii0 #hey may be in qualitati&e or quantitati&e
i&0 #hey should be stated in clear terms without any ambiguity
WW2!. MM'/%,('2'$) .: / 8.26/$7R% 6'(:.(2/$8' 2/7 -$4.54'
8/58,5/)-.$ .: 8'()/-$ (/)-.% 5-0' 3(.%% 6(.@) (/)-.$, $') 6(.@) (/)-.,
('),($ .$ -$4'%)2'$) (/)-.$ ')8.N I1'$)-:7 )*' :,$8)-.$ .:
2/$/3'2'$) -$4.54'1 -$ )*' 3-4'$ %)/)'2'$) /$1 ';65/-$ )*' ('5'4/$)
%)'6.
!M
Hint2 Controlling, ,tep2 ;easurement of actual performance.
2". H.& 1.'% 8.$)(.55-$3 *'56 -$ Q/8*-'4-$3 .9H'8)-4'%R /$1
Q-26(.4-$3 '265.7'' 2.(/5'RO
!M
Hint2 Refer importance of Controlling
2?. C.$)(.55-$3 -% /$ -$1-%6'$%/95' :,$8)-.$ .: 2/$/3'2'$). D. 7.,
/3(''O G-4' :.,( ('/%.$% -$ %,66.() .: 7.,( /$%&'(.
?M
Hint2 )mportance of Controlling
2D.I: 65/$$-$3 -% 1.$' 8/(':,557 /$1 /88.(1-$357 .)*'( :,$8)-.$% .:
2/$/3'2'$) /(' 3.-$3 -$ )*' (-3*) 1-('8)-.$, )*'$ )*'(' -% $''1 .: )*'
8.$)(.55-$3 :,$8)-.$ .: 2/$/3'2'$). D. 7., /3('' &-)* )*'
%)/)'2'$)O G-4' ('/%.$% -$ %,66.() .: 7.,( /$%&'(.
?M
Hint2 )mportance of Controlling
WW2F. MT*'(' -% 85.%' /$1 ('8-6(.8/5 ('5/)-.$%*-6 9')&''$ P5/$$-$3 /$1
C.$)(.55-$3N E;65/-$ )*-% %)/)'2'$) )*(.,3* /$ ';/265'.
?M
2G. T*'(' /(' )&. 2/$/3'(% .: / 8.26/$7 R/*,5 /$1 R.*-). R/*,5 -%
%/7-$3 )*/) QP5/$$-$3 -% 5..0-$3 /*'/1 &*'('/% 8.$)(.55-$3 -% 5..0-$3
9/80R. O$ )*' .)*'( */$1, /88.(1-$3 ). R.*-) 65/$$-$3 -% 5..0-$3 9/80
&*'('/% /% 8.$)(.55-$3 -% 5..0-$3 /*'/1. W*. -% 8.(('8) /$1 &*7O
?M
Hint2 oth are correct.
2=. C.$)(.5 -% 8.$%-1'('1 -26.()/$) :.( 2/$7 ('/%.$%. E;65/-$ /$7
@4' %,8* ('/%.$%. ?M
WW!0. MA 6(.1,8)-.$ -$ 8*/$3' &/% 3-4'$ / %)/$1/(1 ).7 )(/-$. H' &/%
/%0'1 ). 6(.1,8' %-2-5/( .)*'( ).7 )(/-$%. W*/) 8.$)(.5 6(.8'%% &.,51
*' */4' :.55.&'1O ?M
H-$)> P(.8'%% .: C.$)(.55-$3.
WW!1. MA$ -1'/5 8.$)(.5 )'8*$-+,' -% .$' )*/) 8*'80% '4'(7 9-) .:
6'(:.(2/$8'N C.22'$).
?M
Hint2 ;anagement by exception.
WW!2. S,33'%) )*' 8.(('8)-4' /8)-.$% ). 9' )/0'$ :.( )*' :.55.&-$3
8/,%'% .: 1'4-/)-.$.
-B D':'8)-4' 2/)'(-/5
--B D':'8)-4' 2/8*-$'(7
---B O9%.5')' 2/8*-$'(7
-4B D':'8)-4' P(.8'%%
4B D':'8)-4' 6*7%-8/5 8.$1-)-.$% .: &.(0
?M
Ans2
i0 Change the quality speci6cation for the material used.
ii0 Repair the existing machine or replace the machine if it cannot be repaired.
iii0 $ndertake technological up gradation of machinery
i&0 ;odify the existing process
&0 )mpro&e the physical conditions of work
WW!!. E;65/-$ )*' 6(.8'%% .: 8.$)(.55-$3.
DM
WW!". E;65/-$ )*' -26.()/$8' .: 8.$)(.55-$3.
?M
WW!?. E;65/-$ )*' ('5/)-.$%*-6 9')&''$ P5/$$-$3 /$1 C.$)(.55-$3.
?M
!D. E;65/-$ 9(-'K7 )*' 4/(-.,% %)'6% -$4.54'1 -$ )*' 6(.8'%% .:
8.$)(.55-$3. DM
!F. MC.26/(-$3 )*' /8),/5 6'(:.(2/$8' &-)* 5/-1 %)/$1/(1, @$1-$3 .,)
1'4-/)-.$% /$1 )/0-$3 8.(('8)-4' /8)-.$ -% /$ -26.()/$) 6(.8'%% .: /
:,$8)-.$ .: 2/$/3'2'$)N N/2' /$1 ';65/-$ )*' 6(.8'%% .: )*/)
:,$8)-.$. DM
H-$)> P(.8'%% .: C.$)(.55-$3
WW!G. MC.$)(.5 1.'% $.) ('+,-(' /$7 6(.8'%%N C.22'$)
DM
H-$)> T*-% %)/)'2'$) -% &(.$3. C.$)(.55-$3 */% / 6(.8'%% &*-8*
8.$)/-$% @4' %)'6% -$ / 3-4'$ %'(-/5 .(1'(.
!=. MC.$)(.55-$3 -% / %7%)'2/)-8 6(.8'%% -$4.54-$3 / %'(-'% .: %)'6%N
E;65/-$ DM
W"0. E;65/-$ )*' -26.()/$8' .: 2/$/3'(-/5 :,$8)-.$ &*-8* 6(.4-1'%
1-('8)-.$ ). &.(0 'L.() -$ 8.$:.(2-)7 &-)* )*' 65/$%.
DM
H-$)> I26.()/$8' .: C.$)(.55-$3
WW"1. MI$ )*' /9%'$8' .: .: / 2/$/3'(-/5 :,$8)-.$, 65/$$-$3 3.'%
,$8*'80'1 MN/2' )*' :,$8)-.$ /$1 ';65/-$ -)% -26.()/$8'.
DM
Ans.
/i0 A88.265-%*-$3 .(3/$-C/)-.$/5 3./5%> #he controlling function measures
progress towards the organi9ational goals and brings to light the de&iations, if
any, and indicates correcti&e action.
/ii0 ,13-$3 /88,(/87 .: %)/$1/(1%> A good control system enables
management to &erify whether the standards set are accurate and ob=ecti&e.
/iii0 M/0-$3 'E8-'$) ,%' .: ('%.,(8'%> y exercising control, a manager
seeks to reduce wastage and spoilage of resources. :ach acti&ity is performed
in accordance with predetermined standards and norms.
/i&0 I26(.4-$3 '265.7'' 2.)-4/)-.$> A good control system ensures that
employees know well in ad&ance what they are expected to do and what are
the standards of performance on the basis of which they will be appraised. )t,
thus, moti&ates them and helps them to gi&e better performance.
/&0 E$%,(-$3 .(1'( /$1 1-%8-65-$'> Controlling creates an atmosphere of
order and discipline in the organisation. )t helps to minimi9e dishonest
beha&iour on the part of the employees by keeping a close check on their
acti&ities.
/&i0 .acilitating 8..(1-$/)-.$ -$ /8)-.$> Controlling pro&ides direction to all
acti&ities and e+orts for achie&ing organi9ational goals.
WW"!. P5/$$-$3 &-)*.,) 8.$)(.55-$3 -% 95-$1 /$1 4-8'-4'(%/. D-%8,%%.
?M
Ans. 1lanning and controlling are inseparable twins of management. A system
of control presupposes the existence of certain standards. #hese standards of
performance which ser&e as the basis of controlling are pro&ided by planning.
8nce a plan becomes operational, controlling is necessary to monitor the
progress, measure it, disco&er de&iations and initiate correcti&e measures to
ensure that e&ents conform to plans. 1lanning without controlling is
meaningless. ,imilarly, controlling is blind without planning. )f the standards
are not set in ad&ance, managers ha&e nothing to control. (hen there is no
plan, there is no basis of controlling. 1lanning is clearly a prerequisite for
controlling. )t is utterly foolish to think that controlling could be accomplished
without planning. (ithout planning there is no predetermined understanding of
the desired performance.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
FINANCIAL MANAGEMENT 12 MARKS
CONCEPT MAPPING>
K'7 C.$8'6)% -$ $,)%*'55>
M'/$-$3 .: B,%-$'%% F-$/$8'2 ;oney required for carrying out business
acti&ities is called business 6nance.
F-$/$8-/5 M/$/3'2'$)> )t is concerned with optimal procurement as well as
usage of 6nance.
R.5' .: F-$/$8-/5 M/$/3'2'$)> )t cannot be o&er"emphasi9ed, since it has a
direct bearing on the 6nancial health of a business. #he 6nancial statements
such as 1ro6t and 'oss A!C and !, re5ect a 6rms 6nancial position and its
6nancial health.
i0 #he si9e as well as the composition of 6xed assets of the business
ii0 #he quantum of current assets as well as its break"up into cash, in&entories
and recei&ables.
iii0 #he amount of long"term and short"term 6nancing to be used.
i&0 reak" up of long"term 6nancing into debt, equity etc.
&0 All items in the pro6t and loss account e.g., interest, expenses, depreciation
etc.
O9H'8)-4'% .: F-$/$8-/5 M/$/3'2'$)> ;aximisation of owners wealth is
sole ob=ecti&e of 6nancial management. )t means maximi9ation of the market
&alue of equity shares. ;arket price of equity share increases if the bene6ts
from a decision exceed the cost in&ol&ed.
FINANCIAL DECISIONS
I$4'%)2'$) D'8-%-.$> )t relates to how the 6rms funds are in&ested in
di+erent assets . )n&estment decision can be long"term or short"term. A long"
term in&estment decision is also called a Capital udgeting decision.
F/8).(% /L'8)-$3 C/6-)/5 B,13')-$3 D'8-%-.$/I$4'%)2'$) D'8-%-.$>
1. C/%* K.&% .: )*' 6(.H'8)> )f anticipated cash 5ows are more than the cost
in&ol&ed then such pro=ects are considered.
2. T*' (/)' .: ('),($> #he in&estment proposal which ensures highest rate
of return is 6nally selected.
!. T*' -$4'%)2'$) 8(-)'(-/ -$4.54'12 #hrough capital budgeting techniques,
in&estment proposals are selected.
F-$/$8-$3 D'8-%-.$> - )t refers to the quantum of 6nance to be raised from
&arious sources of long"term of 6nance. )t in&ol&es identi6cation of &arious
a&ailable sources. #he main sources of funds for a 6rm are shareholders funds
and borrowed funds. ,hareholders funds refer to equity capital and retained
earnings. orrowed funds refer to 6nance raised as debentures or other forms
of debt.
F/8).(% AL'8)-$3 F-$/$8-$3 D'8-%-.$>-
/B C.%)> #he cost of raising funds through di+erent sources is di+erent. A
prudent 6nancial manager would normally opt for a source which is the
cheapest.
A9B R-%0> #he risk associated with di+erent sources is di+erent.
A8B F5./)/)-.$ C.%)%> Higher the 5oatation cost, less attracti&e the source.
A1B C/%* F5.& P.%-)-.$ .: )*' B,%-$'%%> A stronger cash 5ow position may
make debt 6nancing more &iable than funding through equity.
A'B L'4'5 .: F-;'1 O6'(/)-$3 C.%)%> )f a business has high le&el of 6xed
operating costs /e.g., building rent, )nsurance premium, ,alaries etc.0, )t must
opt for lower 6xed 6nancing costs. Hence, lower debt 6nancing is better.
,imilarly, if 6xed operating cost is less, more
:B C.$)(.5 C.$%-1'(/)-.$%> )ssues of more equity may lead to dilution of
managements control o&er the business. %ebt 6nancing has no such
implication. Companies afraid of a takeo&er bid may consequently prefer debt
to equity.
3B S)/)' .: C/6-)/5 M/(0')%> Health of the capital market may also a+ect the
choice of source of fund. %uring the period when stock market is rising, more
people are ready to in&est in equity. Howe&er, depressed capital market may
make issue of equity shares di*cult for any company.
DIVIDEND DECISION>-#he decision in&ol&ed here is how much of the pro6t
earned by company /after paying tax0 is to be distributed to the shareholders
and how much of it should be retained in the business for meeting the
in&estment requirements.
FACTORS AFFECTING DIVIDEND DECISION>-
/B E/($-$3%> %i&idends are paid out of current and past earning. #herefore,
earnings is a ma=or determinant of the decision about di&idend.
A9B S)/9-5-)7 .: E/($-$3%> 8ther things remaining the same, a company
ha&ing stable earning is in a position to declare higher di&idends. As against
this, a company ha&ing unstable earnings is likely to pay smaller di&idend.
8B S)/9-5-)7 .: D-4-1'$1%> )t has been found that the companies generally
follow a policy of stabilising di&idend per share.
A1B G(.&)* O66.(),$-)-'%> Companies ha&ing good growth opportunities
retain more money out of their earnings so as to 6nance the required
in&estment.
A'B C/%* F5.& P.%-)-.$> %i&idends in&ol&e an out5ow of cash. A company
may be pro6table but short on cash. A&ailability of enough cash in the
company is necessary for declaration of di&idend by it.
A:B S*/('*.51'( P(':'('$8'> (hile declaring di&idends, managements
usually keep in mind the preferences of the shareholders in this regard.
A3B T/;/)-.$ P.5-87> #he choice between payment of di&idends and retaining
the earnings is, to some extent, a+ected by di+erence in the tax treatment of
di&idends and capital gains.
A*B S).80 M/(0') R'/8)-.$> )n&estors, in general, &iew an increase in
di&idend as a good news and stock prices react positi&ely to it. ,imilarly, a
decrease in di&idend may ha&e a negati&e impact on the share prices in the
stock market.
A-B A88'%% ). C/6-)/5 M/(0')> 'arge and reputed companies generally ha&e
easy access to the capital market and therefore may depend less on retained
earnings to 6nance their growth. #hese companies tend to pay higher
di&idends than the smaller companies which ha&e relati&ely low access to the
market.
AHB L'3/5 C.$%)(/-$)%2 Certain pro&isions of the Companys Act place
restrictions on payouts as di&idend. ,uch pro&isions must be adhered to while
declaring the di&idends.
A0B C.$)(/8),/5 C.$%)(/-$)%> (hile granting loans to a company, sometimes
the lender may impose certain restrictions on the payment of di&idends in
future.
FINANCIAL PLANNING
.inancial 1lanning is essentially preparation of 6nancial blueprint of an
organisationss future operations. #he ob=ecti&e of 6nancial planning is to
ensure that enough funds are a&ailable at right time.
OBECTIVES
A/B T. '$%,(' /4/-5/9-5-)7 .: :,$1%&*'$'4'( )*'%' /(' ('+,-('1> #his
include a proper estimation of the funds required for di+erent purposes such as
for the purchase of long"term assets or to meet day" to" day expenses of
business etc.
A9B T. %'' )*/) )*' @(2 1.'% $.) (/-%' ('%.,(8'% ,$$'8'%%/(-57> :xcess
funding is almost as bad as inadequate funding.
IMPORTANCE OFFINANCIAL PLANNING
/i0 )t tries to forecast what may happen in future under di+erent business
situations. y doing so, it helps the 6rms to face the e&entual situation in a
better way. )n other words, it makes the 6rm better prepared to face the future.
/ii0 )t helps in a&oiding business shocks and surprises and helps the company in
preparing for the future.
/iii0 )f helps in co"ordinating &arious business functions e.g., sales and
production functions, by pro&iding clear policies and procedures.
/i&0 %etailed plans of action prepared under 6nancial planning reduce waste,
duplication of e+orts, and gaps in planning.
/&0 )t tries to link the present with the future.
/&i0 )t pro&ides a link between in&estment and 6nancing decisions on a
continuous basis.
/&ii0 y spelling out detailed ob=ecti&es for &arious business segments, it makes
the e&aluation of actual performance easier.
CAPITAL STRUCTURE2 Capital structure refers to the mix between owners and
borrowed funds.
FACTORS AFFECTING THE CHOICE OF CAPITAL STRUCTURE
1. C/%* F5.& P.%-)-.$> ,i9e of pro=ected cash 5ows must be considered
before issuing debt.
2. I$)'('%) C.4'(/3' R/)-. AICRB> #he interest co&erage ratio refers to the
number of times earnings before interest and taxes of a company co&ers the
interest obligation.
!. D'9) S'(4-8' C.4'(/3' R/)-.ADSCRB> %ebt ,er&ice Co&erage Ratio takes
care of the de6ciencies referred to in the )nterest Co&erage Ratio /)CR0.
". R'),($ .$ I$4'%)2'$) AR.IB> )f the Ro) of the company is higher, it can
choose to use trading on equity to increase its :1,, i.e., its ability to use debt is
greater.
?. C.%) .: 1'9)> A 6rms ability to borrow at a lower rate increases its
capacity to employ higher debt. #hus, more debt can be used if debt can be
raised at a lower rate.
D. T/; R/)'> ,ince interest is a deductible expense, cost of debt is a+ected by
the tax rate.
F. C.%) .: E+,-)7> ,tock owners expect a rate of return from the equity which
is commensurate with the risk they are assuming. (hen a company increases
debt, the 6nancial risk faced by the equity holders, increases.
G. F5./)/)-.$ C.%)%> 1rocess of raising resources also in&ol&es some cost.
1ublic issue of shares and debentures requires considerable expenditure.
Ietting a loan from a 6nancial institution may not cost so much.
=. R-%0 C.$%-1'(/)-.$> As discussed earlier, use of debt increases the
6nancial risk of a business.
10. F5';-9-5-)7> )f a 6rm uses its debt potential to the full, it loses 5exibility to
issue further debt.
11. C.$)(.5> %ebt normally does not cause a dilution of control.
12. R'3,5/).(7 F(/2'&.(0> :&ery company operates within a regulatory
framework pro&ided by the law e.g., public issue of shares and debentures has
to be made under ,:) guidelines.
1!. S).80 2/(0') 8.$1-)-.$%> )f the stock markets are bullish, equity shares
are more easily sold e&en at a higher price. Howe&er, during a bearish phase,
a company may 6nd raising of equity capital more di*cult and it may opt for
debt.
1". C/6-)/5 S)(,8),(' .: .)*'( 8.26/$-'%> A useful guideline in the capital
structure planning is the debt"equity rations of other companies in the same
industry. #here are usually some industry norms which may help.
MANAGEMENT OF FIXED CAPITAL
.ixed capital refers to in&estment in long"term assets. ;anagement of
6xed capital in&ol&es around allocation of 6rms capital to di+erent pro=ects or
assets with long"term implications for the business. #hese decisions are called
in&estment decisions or capital budgeting decisions and a+ect the growth,
pro6tability and risk of the business in the long run. #hese long"term assets last
for more than one year.
IMPORTANCE OF CAPITAL BUDGETING DECISIONS
A-B L.$3-)'(2 3(.&)* /$1 'L'8)%> #hese decisions ha&e bearing on the
long"term growth. #he funds in&ested in long"term assets are likely to yield
returns in the future.
A--B L/(3' /2.,$) .: :,$1% -$4.54'12 #hese decisions result in a substantial
portion of capital funds being blocked in long"term pro=ects
A---B R-%0 -$4.54'1> .ixed capital in&ol&es in&estment of huge amounts. )t
a+ects the returns of the 6rm as a whole in the long"term. #herefore,
in&estment decisions in&ol&ing 6xed capital in5uence the o&erall business risk
complexion of the 6rm.
A-4B I(('4'(%-95' 1'8-%-.$% >#hese decisions once taken, are not re&ersible
without incurring hea&y losses.
FACTORS AFFECTING THE REIUIREMENT OF FIXED CAPITAL
1. N/),(' .: B,%-$'%%> #he type of business has a bearing upon the 6xed
capital requirements. .or example, a trading concern needs lower in&estment
in 6xed assets compared with a manufacturing organisation.
2. S8/5' .: O6'(/)-.$%> A larger organisation operating at a higher scale
needs bigger plant, more space etc. and therefore, requires higher in&estment
in 6xed assets when compared with the small organisation.
!. C*.-8' .: T'8*$-+,'> ,ome organisations are capital intensi&e whereas
others are labour intensi&e. A capital"intensi&e organisation requires higher
in&estment in plant and machinery as it relies less on manual labour.
". T'8*$.5.37 U6 3(/1/)-.$> )n certain industries, assets become obsolete
sooner. Consequently, their replacements become due faster. Higher
in&estment in 6xed assets may, therefore, be required in such cases.
?. G(.&)* P(.%6'8)%> Higher growth of an organisation generally requires
higher in&estment in 6xed assets.
D .D-4'(%-@8/)-.$> A 6rm may choose to di&ersify its operations for &arious
reasons, (ith di&ersi6cation, 6xed capital requirements increases.
F. F-$/$8-$3 A5)'($/)-4'%> A de&eloped 6nancial market may pro&ide leasing
facilities as an alternati&e to outright purchase. A&ailability of leasing facilities,
thus, may reduce the funds required to be in&ested in 6xed assets, thereby
reducing the 6xed capital requirements. ,uch a strategy is specially suitable in
high risk lines of business.
G. L'4'5 .: C.55/9.(/)-.$> At times, certain business organisations share
each others facilities. .or example, a bank may use anothers A#; or some of
them may =ointly establish a particular facility. ,uch collaboration reduces the
le&el of in&estment in 6xed assets for each one of the participating
organisations.
WORKING CAPITAL REIUIREMENTS
>et working capital may be de6ned as the excess of current assets o&er
current liabilities.
FACTORS AFFECTING WORKING CAPITAL REIUIREMENTS
1. N/),(' .: B,%-$'%%> #rading 8rganisations < 'ess working capital
;anufacturing 8rganisations < more working capital
2. S8/5' .: O6'(/)-.$%> 'arge scale organi9ations < more working capital
,mall scale organi9ations < less working capital
!. B,%-$'%% C785'> oom period " more working capita
%epression period " less working capital
". S'/%.$/5 :/8).(%> 1eak season < more working capital
'ean season < less working capital
?. P(.1,8)-.$ 8785'> 'onger production cycle < more working capital
,horter production cycle < less working capital
D. C('1-) /55.&'1> Conser&ati&e!strict credit policy < less working capital
'iberal credit policy < more working capital
F. C('1-) /4/-5'1> )f credit is a&ailable easily from suppliers " less working
capital
)f credit is not a&ailable easily from suppliers < more
working capital
G. O6'(/)-$3 'E8-'$87> )f current assets are managed e*ciently < less
working capital
)f current assets are not managed e*ciently < more
working capital
=. A4/-5/9-5-)7 .: R/& M/)'(-/5> :asy and timely a&ailability of raw material
< less working capital
%i*culty and lengthy time period are in&ol&ed in getting raw materials < more
working capital
10. G(.&)* P(.%6'8)%> )f there is possibility of growth potential " more
working capital
)f there is no possibility of growth < less working capital
11. L'4'5 .: C.26')-)-.$> )f there is sti+ and cut"throat competition < more
working capital
'ess competition and monopoly like situation < less
working capital
12. I$K/)-.$ > %uring in5ation < more working capital
%uring recession < less working capital
FINANCIAL LEVERAGE/CAPITAL GEARING/ TRADING ON EIUITY
)t is an assumption that by using 6xed charge bearing securities in the
capital structure of a company, return to the equity shareholders can be
increased. ut this is possible only when the rate of return of the company is
higher than the rate interest which a company pays on its debt capital.
.or example a company has Rs.4? crores capital. 8ption 4 the company
uses only equity capital 8ption B the company uses A?N equity and A?N debt
capital in its capital structure. Rate of interest on debt is 4AN. Rate of
)ncome"tax is D?N . 1ro6t before interest and tax is Rs.B crores.
P/()-8,5/(% O6)-.$ 1 O6)-.$ 2
1ro6t bebore interest and
taxes /1)#0
B,??,??,???
B,??,??,??
?
'ess2 )nterest on debt
"""""""""""""
4A,??,??
?
1ro6t after tax
B,??,??,???
4,FA,??,??
?
'ess2 )ncome < tax [D?N
C?,??,???
AA,A?,??
?
1ro6t after tax and interest
4,E?,??,???
4,BH,A?,??
?
>o. of equity shares / .G
Rs.4? each0
B?,??,??? 4?,??,???
Return to shareholders/:1,0 Rs. @ Rs.4B.HA
I,'%)-.$% A&-)* %.2' *-$)% &*'('4'( $'8'%%/(7B
I26.()/$) +,'%)-.$% /(' %*.&$ &-)* W 2/(0 /$1 )*' M.%) -26.()/$)
+,'%)-.$% /(' %*.&$ &-)* WW 2/(0
W1. N/2' )*' 8*'/6'%) %.,(8' .: @$/$8' ). / 8.26/$7.
1M
Ans. %ebt capital
2. N/2' )*' 1'8-%-.$ ). /8+,-(' / $'& /$1 2.1'($ 65/$) ). ,63(/1'
/$ .51 .$'.
1M
Ans. )n&estment decision
WW!. W*/) -% 2'/$) 97 C/6-)/5 S)(,8),('O
1M
WW". E$,2'(/)' )*('' -26.()/$) 1'8-%-.$% )/0'$ -$ @$/$8-/5
2/$/3'2'$).
1M
?. W*/) -% )*' 5-$0 9')&''$ .6'(/)-$3 8785' /$1 &.(0-$3 8/6-)/5O
1M
WWD. C/$/(/ B/$0 &/$)% ). .6'$ / $'& 9(/$8* .: *-% 9/$0O W*/) -%
)*-% 1'8-%-.$ 8/55'1O
1M
Ans. )n&estment decision
WF. W*/) -% )*' 8.%) .: (/-%-$3 :,$1% 8/55'1O
1M
Ans. .loatation cost
G. W*7 -$4'%).(% &/$) 1-4-1'$1O
1M
=. D'@$' 9,%-$'%% @$/$8'.
1M
10. H.& )*' EPS -% 8.26,)'1O
1M
Ans. :arnings a&ailable for equity shareholders!>o. of equity shares
11. H.& )*' I$)'('%) C.4'(/3' R/)-. -% 8.26,)'1O
1M
Ans. :)#!)nterest
12. H.& )*' R'),($ .$ I$4'%)2'$) -% 8.26,)'1O
1M
Ans. :)#!Capital :mployed \ 4??
W1!. W*-8* -% )*' 2.%) 8.%)57 8/6-)/5 :.( / 8.26/$7O
1M
Ans. :quity share capital
1". N/2' )*' 8.$8'6) &*-8* -$8('/%'% )*' ('),($ .$ '+,-)7 %*/('%
&-)* / 8*/$3' -$ )*' 8/6-)/5 %)(,8),(' .: / 8.26/$7.
1M
Ans. #rading on :quity
WW1?. S)/)' &*7 )*' &.(0-$3 8/6-)/5 $''1% :.( / QS'(4-8'--$1,%)(7R /('
1-L'('$) :(.2 )*/) .: / M/$,:/8),(-$3 -$1,%)(7.
1M
Ans. ,er&ice industries need less working capital because they do not require
any in&entory. #hey do not ha&e any manufacturing process.
WW1D. N/2' /$7 )&. '%%'$)-/5 -$3('1-'$)% .: %.,$1 &.(0-$3 8/6-)/5
2/$/3'2'$).
1M
Ans. )n&entory, debtors
WW1F. QC.%) .: 1'9)R -% 5.&'( )*/$ )*' Q8.%) .: '+,-)7 %*/(' 8/6-)/5R G-4'
('/%.$% &*7 '4'$ )*'$ / 8.26/$7 8/$$.) &.(0 .$57 &-)* )*' 1'9).
1M
Ans. A company cannot exist without equity share capital
W1G. W*/) -% 2'/$) 97 G(.%% &.(0-$3 8/6-)/5O
1M
Ans. #otal in&estment on current assets /Current liabilities should not be
deducted0
1=. N/2' )*/) 6.()-.$ .: 8,(('$) /%%')% &*-8* -% @$/$8'1 97 @;'1
5-/9-5-)-'%.
1M
Ans. >et working capital
20. W*7 -% &.(0-$3 8/6-)/5 $''1'1O G-4' /$7 .$' ('/%.$.
1M
Ans. )t is required to meet day to day expenses.
21. D-%8,%% )&. .9H'8)-4'% .: @$/$8-/5 65/$$-$3.
!M
22. W*/) -% @$/$8-/5 (-%0O W*7 1.'% -) /(-%'O
!M
2!. D'@$' 8,(('$) /%%')% /$1 3-4' :.,( ';/265'%.
!M
2". F-$/$8-/5 2/$/3'2'$) -% 9/%'1 .$ )*('' 9(./1 @$/$8-/5 1'8-%-.$%.
W*/) /(' )*'%'O
!M
WW2?. W*/) -% )*' 2/-$ .9H'8)-4' .: @$/$8-/5 2/$/3'2'$)O
!M
2D. D-%8,%% /9.,) &.(0-$3 8/6-)/5 /L'8)-$3 9.)* 5-+,-1-)7 /% &'55 /%
6(.@)/9-5-)7 .: / 9,%-$'%%.
!M
Hint2 #he working capital should neither be more or less than required. oth
these situations are harmful. )t is considered as a necessary e&il.
2F. H.& 1.'% 8.%) .: 8/6-)/5 /L'8) )*' 8/6-)/5 %)(,8),(' .: / 8.26/$7O
!M
W2G. MS.,$1 F-$/$8-/5 M/$/3'2'$) -% )*' 0'7 ). )*' 6(.%6'(-)7 .:
9,%-$'%%> E;65/-$
!M
Hint2 Role of 6nancial management
W2=. E;65/-$ )*' :/8).(% /L'8)-$3 )*' -$4'%)-$3 1'8-%-.$ .: / 8.26/$7.
!M
!0. S)/)' )*' )&. -26.()/$) .9H'8)-4'% .: @$/$8-/5 65/$$-$3.
!M
Hint2 i0 #o ensure timely a&ailability of 6nance ii0 #o ensure proper balance of
6nance.
!1. E;65/-$ )*' 2'/$-$3 .: F-;'1 C/6-)/5. E;65/-$ /$7 )&. :/8).(% )*/)
1')'(2-$' )*' @;'1 8/6-)/5 .: / 8.26/$7.
!M
!2. W*/) -% )*' (.5' .: QL'/%-$3R -$ 1')'(2-$-$3 )*' ('+,-('2'$) .:
@;'1 8/6-)/5O
!M
!!. QF-;'1 8/6-)/5 1'8-%-.$% -$4.54' 2.(' (-%0R H.&O
!M
!". H.& Q%8/5' .: .6'(/)-.$%R /L'8) )*' ('+,-('2'$) .: @;'1 8/6-)/5O
!M
!?. L'$3)* .: 6(.1,8)-.$ 8785' /L'8)% )*' &.(0-$3 8/6-)/5
('+,-('2'$)% .: /$ .(3/$-%/)-.$. E;65/-$
!M
!D. H.& /(' QG(.&)* P(.%6'8)%R ('5/)'1 &-)* )*' ('+,-('2'$) .:
&.(0-$3 8/6-)/5O
!M
!F. H.& 1.'% QR-%0 8.$%-1'(/)-.$R /L'8) )*' 8/6-)/5 %)(,8),('
1'8-%-.$O
!M
!G. H.& QC/6-)/5 S)(,8),(' .: .)*'( 8.26/$-'%R /L'8)% )*' 8/6-)/5
%)(,8),(' 1'8-%-.$O
!M
!=. W*/) 1. 7., 2'/$ 97 F-$/$8-/5 L'4'(/3'O
!M
Hint2 #rading on equity
"0. E;65/-$ )*' QE/($-$3% B':.(' I$)'('%) /$1 T/;'%R - EBIT
!M
"1. MS*/(' C/6-)/5 -% 9'))'( )*/$ 1'9) 8/6-)/5N I$ )*' :/4.,( .: )*-%
%)/)'2'$) ';65/-$ .$' :/8).( &*-8* /L'8)% )*' 8/6-)/5 %)(,8),('.
!M
Hint2 Cash 5ow position or other rele&ant point which fa&ours equity capital
"2. W*'$ 1'9) 8/6-)/5 -% 8*'/6'( )*/$ )*' '+,-)7 8/6-)/5, &*7 1.$R)
8.26/$-'% 3. :.( 1'9) 8/6-)/5 /5.$'O
!M
Hint2 A public company cannot be incorporated without equity share capital
"!. H.& )*' 8.$)(.5 .: ';-%)-$3 %*/('*.51'(% /L'8)%O H.& )*-%
%-),/)-.$ 8/$ 9' /4.-1'1O
!M
Hint2 #his situation can be a&oided by raising debt capital rather than equity
capital
"". MT/; 9'$'@) -% /4/-5/95' .$57 -$ 8/%' .: 6/72'$) .: -$)'('%) /$1
$.) .$ )*' 6/72'$) .: 6(':'('$8' 1-4-1'$1 MW*7
!M
Hint2 )nterest on debt only tax deductable expense but not preference
di&idend.
"?. QC/6-)/5 %)(,8),(' 1'8-%-.$ -% '%%'$)-/557 .6)-2-C/)-.$ .: (-%0-
('),($ ('5/)-.$%*-6R C.22'$)
"M
"D. A C/6-)/5 9,13')-$3 1'8-%-.$ -% 8/6/95' .: 8*/$3-$3 )*' @$/$8-/5
:.(),$' .: / 9,%-$'%%. D. 7., /3(''O W*7 .( W*7 $.)O
"M
"F. W*/) -% )*' -26.()/$8' .: 8/6-)/5 9,13')-$3 1'8-%-.$%O
"M
WW"G. T. /4.-1 )*' 6(.95'2% .: %*.()/3' /$1 %,(65,% .: :,$1% &*/) -%
('+,-('1 -$ @$/$8-/5 2/$/3'2'$)O N/2' )*' 8.$8'6) /$1 ';65/-$ -)%
/$7 )*('' 6.-$)% .: -26.()/$8'.
"M
Hint2 .inancial 1lanning.
"=. E;65/-$ 9(-'K7 /$7 :.,( 6.-$)% .: )*' (.5' .: @$/$8-/5
2/$/3'2'$).
"M
?0. T. )/805' )*' ,$8'()/-$)7 -$ ('%6'8) .: /4/-5/9-5-)7 /$1 )-2-$3% .:
:,$1% &*/) -% ('+,-('1O N/2' )*' 8.$8'6) -$4.54'1 /$1 ';65/-$ -)%
)*('' 6.-$)% .: -26.()/$8'.
"M
Hint2 .inancial planning
WW?1. N/2' )*' 6(.8'%% &*-8* *'56% -$ 1')'(2-$-$3 )*' .9H'8)-4'%,
6.5-8-'%, 6(.8'1,('%, 6(.3(/22'% /$1 9,13')% ). 1'/5 &-)* )*'
@$/$8-/5 /8)-4-)-'% .: /$ '$)'(6(-%'. E;65/-$ -)% )*('' 6.-$)% .:
-26.()/$8'.
"M
Hint2 .inancial 1lanning
?2. E;65/-$ 97 3-4-$3 /$7 :.,( ('/%.$%, &*7 8/6-)/5 9,13')-$3
1'8-%-.$% /(' -26.()/$).
"M
?!. W*/) -% )*' 2'/$-$3 .: F-$/$8-/5 P5/$$-$3O W*7 -% -) -26.()/$)O
G-4' /$7 )&. ('/%.$%.
"M
WW?". E;65/-$ )*' :/8).(% /L'8)-$3 )*' 1-4-1'$1 1'8-%-.$.
?M
WW??. E;65/-$ )*' )'(2 QT(/1-$3 .$ E+,-)7R. W*7, W*'$ /$1 H.& -) 8/$
9' ,%'1 97 / 9,%-$'%% .(3/$-%/)-.$O
?M
?D. MA %.,$1 @$/$8-/5 65/$ -% )*' 0'7 ). %,88'%% .: %.,$1 @$/$8-/5
2/$/3'2'$) .: )*' 8.26/$7N D-%8,%%
?M
Hint2 )mportance of .inancial 1lanning.
W?F. H.& 8/$ )*' ('),($ .$ '+,-)7 9' -$8('/%'1 97 ,%-$3 1'9) -$ )*'
8/6-)/5 %)(,8),('O I55,%)(/)' &-)* / %,-)/95' ';/265'.
?M
Hint2 #rading on equity.
?G. MF-$/$8-/5 65/$$-$3 1.'% $.) %'(4' /$7 ,%':,5 6,(6.%'N C.22'$)
?M
Hint2 >o, :xplain the importance
WW?=. A 9,%-$'%%2/$ &*. &/$)% ). %)/() / 2/$,:/8),(-$3 8.$8'($
/66(./8*'% 7., ). %,33'%) *-2 &*')*'( )*' :.55.&-$3 2/$,:/8),(-$3
8.$8'($% &.,51 ('+,-(' 5/(3' .( %2/55 &.(0-$3 8/6-)/5>
-B B('/1 --B S,3/( ---B F,($-),(' 2/$,:/8),(-$3 /3/-$%) %6'8-@8 .(1'(
-4B C..5 '(% 4B M.).( C/(
?M
Hint2 i0 read < less ii0 ,ugar < ;ore iii0 .urniture manufacturing against
speci6c order < less i&0 Coolers < ;ore &0 ;otor Car " ;ore.
D0. W*/) -% 2'/$) 97 @$/$8-/5 2/$/3'2'$)O E;65/-$ /$7 )*(''
1'8-%-.$% -$4.54'1 -$ -).
?M
WWD1. E;65/-$ )*' 2'/$-$3 .: @;'1 8/6-)/5. B(-'K7 ';65/-$ /$7 :.,(
:/8).(% )*/) 1')'(2-$' )*' @;'1 8/6-)/5 .: / 8.26/$7.
?M
D2. E;65/-$ /$7 @4' :/8).(% &*-8* /L'8) )*' 1-4-1'$1 6.5-87 .: /
8.26/$7.
?M
D!. MF-$/$8-/5 P5/$$-$3 1.'% $.) %'(4' /$7 ,%':,5 6,(6.%'N C.22'$)
?M
D". H.& /(' %*/('*.51'(% 5-0'57 ). 3/-$ &-)* / 5./$ 8.26.$'$) -$ )*'
8/6-)/5 '265.7'1O B(-'K7 ';65/-$
?M
Hint2 #rading on equity
WWD?. MD')'(2-$-$3 )*' .4'(/55 8.%) .: 8/6-)/5 /$1 )*' @$/$8-/5 (-%0 .:
)*' '$)'(6(-%' 1'6'$1% ,6.$ 4/(-.,% :/8).(%.N E;65/-$ /$7 @4' %,8*
:/8).(%.
?M
Hint2 .actors a+ecting capital structure
WWDD. Y., /(' / F-$/$8' M/$/3'( .: / $'&57 '%)/95-%*'1 8.26/$7. T*'
D-('8).(% */4' /%0'1 7., ). 1')'(2-$' )*' /2.,$) .: F-;'1 C/6-)/5
('+,-('2'$) :.( )*' 8.26/$7. E;65/-$ /$7 :.,( :/8).(% )*/) 7., &-55
8.$%-1'( &*-5' 1')'(2-$-$3 )*' @;'1 8/6-)/5 ('+,-('2'$) :.( )*'
8.26/$7.
DM
WWDF. W*/) -% &.(0-$3 8/6-)/5O H.& -% -) 8/58,5/)'1O D-%8,%% @4'
-26.()/$) 1')'(2-$/$)% .: &.(0-$3 8/6-)/5 ('+,-('2'$)%.
DM
WWDG. E;65/-$ /$7 %-; :/8).(% &*-8* /L'8) )*' 8/6-)/5 %)(,8),(' .: /
8.26/$7.
DM
WWD=. W*/) -% @;'1 8/6-)/5 2/$/3'2'$)O E;65/-$ /$7 @4' :/8).(%
1')'(2-$-$3 )*' /2.,$) .: @;'1 8/6-)/5.
DM
F0. W*/) -% 2'/$) 97 @$/$8-/5 2/$/3'2'$)O E;65/-$ -)% (.5'.
DM
WWF1. E;65/-$ /$7 %-; :/8).(% /L'8)-$3 )*' @$/$8-$3 1'8-%-.$ .: /
8.26/$7.
DM
F2. E;65/-$ /$7 %-; :/8).(% /L'8)-$3 )*' 1-4-1'$1 1'8-%-.$ .: /
8.26/$7.
DM
F!. W*/) 1. 7., 2'/$ 97 @$/$8-/5 65/$$-$3O D-%8,%% )*' -26.()/$8'
.: @$/$8-/5 65/$$-$3 -$ @$/$8-/5 2/$/3'2'$).
DM
F". T*' B./(1 .: D-('8).(% */% /%0'1 7., ). 1'%-3$ )*' 8/6-)/5
%)(,8),(' .: )*' 8.26/$7. E;65/-$ /$7 %-; :/8).(% )*/) 7., &.,51
8.$%-1'( &*-5' 1.-$3 %..
DM
F?. MD')'(2-$/)-.$ .: 8/6-)/5 %)(,8),(' .: / 8.26/$7 -% -$K,'$8'1 97
/ $,29'( .: :/8).(%N E;65/-$ /$7 :.,( %,8* :/8).(%
DM
CHAPTER 10
FINANCIAL MARKETS
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CONCEPT MAPPING>
K'7 C.$8'6)% -$ $,)%*'55>
CONCEPT OF FINANCIAL MARKET>
)t refers to the market which creates and exchanges 6nancial assets.
FUNCTIONS OF FINANICIAL MARKET
1. M.9-5-C/)-.$ .: %/4-$3% /$1 8*/$$'5-$3 )*'2 -$). )*' 2.%)
6(.1,8)-4' ,%'%> A 6nancial market facilitates the transfer of sa&ings from
sa&ers to in&estors /industries0
2.F/8-5-)/)'% 6(-8' 1-%8.4'(7> )n the 6nancial market, the households are
suppliers of funds and business 6rms represent the demand. #he interaction
between them helps to establish a price for the 6nancial asset which is being
traded in that particular market.
!. P(.4-1' 5-+,-1-)7 ). @$/$8-/5 /%%')%> .inancial markets facilitate easy
purchase and sale of 6nancial assets. )n doing so they pro&ide liquidity to
6nancial assets, so that they can be easily con&erted into cash whene&er
required.
". R'1,8' )*' 8.%) .: )(/$%/8)-.$%> .inancial markets pro&ide &aluable
information about securities being traded in the market. )t helps to sa&e time,
e+ort and money.
I$%)(,2'$)%>
1. T('/%,(7 B-55 AT-9-55%B> )t is basically an instrument of short"term borrowing
by the Io&ernment of )ndia maturing in less than one year. #hey are also
known as Zero Coupon onds.
2. C.22'(8-/5 P/6'(> )t is a short"term unsecured promissory note,
negotiable and transferable by endorsement and deli&ery with a 6xed maturity
period. )t is issued by large and creditworthy companies to raise sort"term
funds at lower rates of interest than market rates. )t usually has a maturity
period of 4A days to one year.
!. C/55 M.$'7> )t is a short"term 6nance repayable on demand, with a
maturity period of one day to 6fteen days, used for inter"bank transactions. )t
is a method by which banks borrow from each other to be able to maintain the
cash reser&e ratio.
". C'()-@8/)' .: D'6.%-) ACDB> )t is a unsecured, negotiable short"term
instruments in bearer form, issued by commercial banks and de&elopment
6nancial institutions. )t can be issued to indi&iduals, corporations and
companies.
?. C.22'(8-/5 B-55 AT(/1' B-55B> )t is a short"term , negotiable, self"liquidating
instrument which is used to 6nance the credit sales of 6rms. #he bill can be
discounted with a bank if the seller /drawer0 needs funds before the bill
maturity.
TYPES OF CAPITAL MARKET>
P(-2/(7 M/(0')> )t is also known as the new issues market. )t deals with new
securities being issued for the 6rst time. A company can raise capital through
the primary market in the form of equity shares, preference shares,
debentures, loans and deposits.
S'8.$1/(7 M/(0')> )t is also known as stock market or stock exchange or
second"hand market. )t is a market for the purchase and sale of existing
securities.
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1. P,95-8 -%%,' )*(.,3* 6(.%6'8),%> under this method the company
wanting to raise capital issues a prospectus to inform and attract the
in&esting public. )t in&ites prospecti&e in&estors to apply for the
securities.
2.OL'( :.( %/5'> under this method the sale of securities takes place in
two steps. )n the 6rst step the company sells the entire lot of shares to
the intermediary 6rms of stock brokers at an agreed price .)n the second
step, the intermediary resells these shares to in&estors at a higher price.
!. P(-4/)' 65/8'2'$)> )n pri&ate placement the entire lot of new
securities is purchased by an intermediary at a 6xed price and sold not to
the public but to selected clients at a higher price.
" .R-3*)% -%%,' A:.( ';-%)-$3 8.26/$-'%> #his is the o+er of new
shares /additional shares0 by an existing company to the existing
shareholders. #he shareholder may either accept the o+er for himself or
assign to another. A rights issue to the existing shareholders is a
mandatory requirement.
?. '-IPO%> A company proposing to issue capital to the public through
the on"line system of the stock exchange has to enter into an agreement
with the stock exchange. #his is called an )nitial 1ublic 8+er /)180. #he
issuer company should also appoint a registrar to the issue ha&ing
electronic connecti&ity with the exchange.
STOCK EXCHANGE
;eaning and de6nition of ,tock exchange2 #he stock exchange is a
market in which existing securities are bought and sold.
#he securities contract /regulation0 act, 4HAC de6nes Pa stock
exchange as an association, organi9ation, body of indi&iduals, whether
incorporated or not, established for the purpose of assisting, regulating
and controlling of business in buying, selling and dealing in securitiesQ.
F,$8)-.$% .: %).80 ';8*/$3'
1. P(.4-1-$3 L-+,-1-)7 /$1 M/(0')/9-5-)7 ). E;-%)-$3 S'8,(-)-'%> )t gi&es
in&estors the chance to disin&est and re"in&est. #his pro&ides both liquidity
and easy marketability to already existing securities in the market.
2. P(-8-$3 .: S'8,(-)-'%> ,hare prices on a stock exchange are determined by
the forces of demand and supply. A stock exchange is a mechanism of
constant &aluation through which the prices of securities are determined.
!. S/:')7 .: T(/$%/8)-.$%> #he membership of a stock exchange is well
regulated and its dealings are well de6ned according to the existing legal
frame work. #his ensures that the in&esting public gets a safe and fair deal on
the market.
". C.$)(-9,)'% ). E8.$.2-8 G(.&)*> A stock exchange is a market in which
existing securities are re"sold or traded. #hrough this process of disin&estment
and re"in&estment sa&ings get channeli9ed into their most producti&e
in&estment a&enues. #his leads to capital formation and economic growth.
?. S6('/1-$3 .: E+,-)7 C,5)> #he exchange can play a &ital role in ensuring
wider share ownership by regulating new issues, better trading practices and
taking e+ecti&e steps in educating the public about in&estments.
D. P(.4-1-$3 S8.6' :.( S6'8,5/)-.$> #he stock exchange pro&ides su*cient
scope within in the pro&isions of law for speculati&e acti&ity in a restricted and
controlled manner.
TRADING PROCEDURE2"
#he procedure for purchase and sale of securities in a stock exchange in&ol&es
the following steps2
". S'5'8)-.$ .: 9(.0'(
#he 6rst step is to select a broker who will buy!sell securities on behalf of
the in&estor. #his is necessary because trading of securities can only be
done through ,:) registered brokers who are the members of a stock
exchange. rokers may be indi&idual, partnership 6rms or corporate
books. #he broker charges brokerage ! commission for his ser&ices.
?. O6'$-$3 1'2/) /88.,$)
#he next step is to open a demat account. %emat /%ematerialised0
account refers to an account which an )ndian citi9en must open with the
depository participant /banks, stock, brokers0 to trade in listed securities
in electronic form.
#he securities are held in the electronic form by a depository. At present,
there are two depositories in )ndia NSDL />ational ,ecurities %epository
'td.0 and CDSL /Central %epository ,er&ices 'td.0
%epository interacts with the in&estors through depository participants.
Rour %epository 1articipant will maintain your securities account balances
and intimate to you the status of your holding from time to time.
D. P5/8-$3 )*' .(1'(
#he next step is to place the order with the broker. #he order can be
communicated to the broker either personally or through telephone, cell
phone, e"mail etc.
#he instructions should specify the securities to be bought or sold and
the price range within which the order is to be executed. 8nly the
securities of listed companies can be traded on the stock exchange.
D. E;'8,)-$3 )*' .(1'(
According to the instructions of the in&estor, the broker buys or sells
securities.
#he broker then issues a contract note. A copy of the contract note is
sent to the client. #he contract note contains the name and the price of
the securities, names of the parties, brokerage charged. )t is signed by
the broker.
F. S'))5'2'$)
#his is the last stage in the trading of securities done by the brokers on
behalf of their clients. #he mode of settlement depends upon the nature
of the contract.
:quity spot market follows a #MB rolling settlement. #his means that any
trade taking place on ;onday gets settled by (ednesday. All trading on
stock exchanges takes place between H2AA am and D2D? pm. )ndian
,tandard #ime, ;onday to .riday. %eli&ery of shares must be made in
demateriali9ed form, and each exchange has its own clearing house,
which assumes all settlement risk.
DEPOSITORY SERVICES >-
)t refers to that ser&ice through which the transfer of ownership in shares takes
place by means of book entry without the physical mo&ement of shares.
PARTICIPANTS OF DEPOSITORY SERVICES>
i. DEPOSITORY>-A %epository is an institution which holds the
shares of an in&estor in electronic form. At present , there
are two depository institutions in )ndia 2
4. >,%' < >ational ,ecurities %epository 'imited.
B. C%,' < Central %epository ,er&ices 'imited.
ii. DEPOSITORY PARTICIPANT> A %epository 1articipant /%10
is an agent of the depository. He functions as a mediator
between the issuing company and the in&estors through the
depository.. He opens the accounts and maintains the
securities account balance of the in&estors and con&eys
them the status of their holding from time to time.. As per
,:) guidelines, banks, stock brokers etc can become
depository participants.
iii. INVESTOR> He is a person who wants to deal in shares and
whose name is recorded with a %epository.
i&. ISSUING COMPANY> )t is that organi9ation which issues the
securities. #he issuing company sends a list of the
shareholders to the depositories.
DRMAT/D'2/) ACCOUNT>
%emateriali9ation /popularly known as %;at0 is the process of con&erting a
share certi6cate from its physical form to electronic form and credit the same
number of holdings to the %;at A!c which the in&estor opens with a depository
participant.
%;at Account refers to that account which is opened by the in&estors with
depository participant to facilitate trading in shares.
BENEFITS OF DEPOSITORY SERVICES /$1 DRMAT ACCOUNT>
i0 :xemption of stamp duty for dealing in shares in the electronic form.
ii0 :limination of problems associated with transfer of shares in physical
form.
iii0 )ncreased liquidity through speedy settlement.
i&0 Reduction in paper work.
&0 Attracts foreign in&estors and promoting foreign in&estments
SEBIRS CHAIRMAN MR. U. K. SINHA
)t was set up in 4HFF to regulate the functions of the securities markets
with a &iew to promoting their orderly and healthy de&elopment, to
pro&ide adequate protection to in&estors and thus to create an
en&ironment to facilitate mobili9ation of adequate resources through the
securities market.
4st ;ay, 4HHB ,:) was granted legal status. )t is a body corporate
ha&ing a separate legal existence and perpetual succession
OBECTIVES OF SEBI
4. #o regulate stock exchanges and the securities industry to promote
their orderly functioning.
B. #o protect the rights and interests of in&estors, particularly indi&idual
in&estors and to guide and educate them.
D. #o pre&ent trading malpractices and achie&e a balance between self
regulation by the securities industry and its statutory regulation.
E. #o regulate and de&elop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a &iew to making
them competiti&e and professional.
FUNCTIONS OF SEBI
P(.)'8)-4' F,$8)-.$%>
/i0 ,:) prohibits fraudulent and unfair trade practices in the securities market
such as
/a0 1rice Rigging < ;aking manipulations with the sole ob=ecti&e of in5ating or
depressing the market price of securities.
/b0 ;isleading statements2 ,:) prohibits misleading statements which are
likely to induce the sale or purchase of securities.
/ii0 ,:) 1rohibits insider trading. An insider is a person connected with the
company who is reasonably expected to ha&e access to price sensiti&e
information in respect of securities of a company which is not a&ailable to
public at large. %irectors, promoters etc., are considered as insiders when
they make use of pri&ileged information to make indi&idual pro6ts by buying or
selling of the securities o the company is called insider trading.
/iii0 ,:) undertakes steps to educate in&estors through in&estors, camps, #.G,
>ews papers etc.,
/i&0 ,:) promotes fair practices and code of conduct in securities market such
as
a0 Companies cannot roll o&er the debenture holders, funds unilaterally and
cannot change terms " term.
b0 ,:) is empowered to in&estigate cases of insider trading and has pro&isions
for still 6ne and imprisonment.
c0 ,:) has stopped the practice of making preferential allotment of shares at
lower prices than market price.
/&0 ,:) issues timely guidelines clari6cations to in&estors during stock market
ups and downs.
D'4'5.62'$) F,$8)-.$>
i. ,:) promotes training of intermediaries of the securities market such as
brokers, sub < brokers etc.,
ii. ,:) has permitted internet trading in a limited way through registered stock
brokers.
iii. )n order to reduce the cost of issue, ,:) has made under < writing optional.
i&. ,:) has accepted the system of using the stock exchanges to market )18s
&. All intermediaries including collecting banks here to register with ,:)
&i. Registration of foreign )nstitutional in&estors /.))s0 allowed for the
de&elopment and growth of )ndian markets.
&ii. 1,$ bonds brought under ,:)s pur&iew
&iii. 1ri&ate mutual funds are allowed for the bene6t of small in&estors.
ix. %ebenture trustees to be registered by ,:) etc.
R'3,5/).(7 F,$8)-.$%>
i. ,:) registers and regulates the working of mutual funds.
ii. ,:) regulates takeo&er of companies
iii. ,:) conducts inquires and audit of the stock exchange.
i&. ,:) registers and regulates the working of stock < brokers, ,ub < rokers,
rokers to an issue, and Registrars to an issue, share transfer agents and such
other intermediaries in the stock market.
&. ,:) regulates the business in stock exchanges and securities market.
&i. ,:) has noti6ed rules and regulations and a code of conduct to regulate the
intermediaries in the securities market such as underwriters, merchants,
brokers etc.,
&ii. 'e&ying fee or other charges for carrying out the purposes of the Act.
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THE ORGANISATIONAL STRUCTURE OF SEBI
-B SEBI is working as a corporate sector
--B )ts acti&ities are di&ided into 6&e departments. :ach department is headed
by an executi&e director.
iii0 #he head o*ce of ,:) is at ;umbai and it has branch o*ces at Oolkata,
Chennai and %elhi
i&0 ,:) has formed two ad&isory committees to deal with primary and
secondary markets.
&0 #hese committees consist of market players, in&estors associations and
eminent persons.
O9H'8)-4'% .: )*' )&. C.22-))''% /('>
-B #o ad&ise ,:) to regulate intermediaries
ii0 #o ad&ise on issues related to de&elopment of primary market in )ndia.
iii0 #o ad&ise ,:) on disclosure requirements of companies
i&0 #o ad&ise for changes in the legal framework for simpli6cation and
transparency in the primary market.
&0 #o ad&ise the board on matters relating to regulation and de&elopment of
secondary market in )ndia.
CHAPTER J 11
MARKETING MANAGEMENT
1" M/(0%
LINKING CLASS XI SYLLABUS>
B,%-$'%% YT(/1'YA-1% ). )(/1'YM/(0')-$3/A14'()-%-$3.
CONCEPT MAPPING>
4. ;arket, Consumer, ,eller ! ;arketer < meaning
B. ;arketing < ;eaning, .eatures
D. ;arketing ;anagement 1hilosophies
E. ;arketing .unctions
A. ;arketing ;ix < product, price, place and promotion
C. Ad&ertising < meaning, features, merits and limitations..
@. 8b=ections to ad&ertising
F. ,ales promotion< meaning and &ariety of #ools ! methods used.
H. 1ersonal selling <Concept and qualities of a good salesman
4?. 1ublic Relations < concept and role.
KEY CONCEPTS IN NUTSHELL
MARKET >)t refers to a place where the buyers and sellers meet each other for
sale and purchase of the commodity.
CUSTOMER >Customers refers to the people or organi9ation that seek
satisfaction of their needs and wants.
SELLER OR MARKETEER >#he sellers or marketers o+er a &ariety of entities
to customers.
MARKETING >;arketing makes goods and ser&ices more useful to the society
by creating place, time and possession utilities.
FEATURES OF MARKETING >
a. >eeds and wants
b. Creating a market o+ering
c. Customer &alue
d. :xchange mechanism
DIFFERENCE BETWEEN SELLING CONCEPT AND MARKETING CONCEPT >
1oints ,elling Concept ;arketing Concept
,tarting point .actors ;arket
;ain .ocus Attracting consumers Consumer satisfaction
;eans
Ad&ertising, personal selling
and sales promotion
Garious marketing acti&ities
:nds
1ro6t through maximum
sales
1ro6t through consumer
satisfaction
MARKETING MANAGEMENT> I) deals with planning, organi9ing and
controlling the acti&ities related to the marketing of goods and ser&ices to
satisfy the consumers wants.
NATURE >
4. )t is goal di&erted
B. )t determines the appropriate marketing mix if the 6rm.
D. )t is a functional area of management
E. )t is a speciali9ed =ob
A. )t is the marketing concept in action
OBECTIVES >
a. Creation of demand
b. ;arket share
c. Ioodwill
d. 1ro6table sales &olume through customer satisfaction
e. #o determine marketing mix that will satisfy the needs of the customers
f. #o generate adequate pro6ts for the growth of the business
MARKETING FUNCTIONS>
4. ;arketing research
B. ;arketing planning
D. 1roduct planning de&elopment
E. uying and assembling
A. 1ackaging and labeling
C. randing
@. Customer support ser&ices
F. ,torage and warehousing
H. #ransportation
4?. 1romotion and selling
44. ,tandardisation and grading
4B. 1ricing
4D. .ixing
4E. Risk taking
MARKETING MIX, ELEMENTS >
4. 1roduct ;ix
B. 1rice ;ix
D. 1lace ;ix
E. 1romotion ;ix
MEANING OF MARKETING MIX>
)t refers to the combination of four basic elements, product, price,
promotion and the place known as the four 1s of marketing.
PRODUCT> #otal number of products and items that a particular seller
o+ers to the market is called market mix.
a. randing
b. #rade mark
c. 1ackaging
d. 'abelling
PRICE MIX> )t is the worth of a product or ser&ice in monetary terms 2
.actors considered before 6xing price are
a0 Company ob=ecti&es
b0 Cost
c0 Competition
d0 Customer demand
PLACE MIX > )t refers to a set of decisions that need to be taken in order
to make the product a&ailable to the consumers for purchase and
consumption.
Channels of distribution.
1hysical distribution
Cost and ser&ice trade o+ in 'ogistics
PROMOTION MIX> )t is concerned with acti&ities that are undertaken to
communicate with both customers and participate in the channel of
distribution such that sales goals are reali9ed.
ACTIVITIES INVOLVED IN PHYSICAL DISTRIBUTION OF GOODS
a. #ransportation
b. )n&entory
c. (arehousing
d. 8rder processing
FACTORS TO BE KEPT IN MIND BEFORE PRICING
a. Cost of production
b. %emand for product
c. 1rice if competiti&e 6rms
d. 1urchasing power if customers
e. Io&ernment regulations
f. 8b=ecti&e
CHARACTERISTICS OF GOOD BRAND NAME >
4. ,imple and short
B. :asily pronounceable
D. ,uggesti&e
E. %istincti&e
VARIOUS LEVELS OF CHANNELS OF DISTRIBUTION
4. %irect channel ! Zero le&el channel
B. )ndirect channels
a. 8ne le&el channel < ;anufacturer to Retailer
b. #wo le&el channel < ;anufacturer to (holesaler to Retailer
c. #hree le&el channel < ;anufacturer to Agent < (holesaler <
Retailer " Consumer
FUNCTIONS OF PACKAGING>
a0 1rotection
b0 )denti6cation
c0 Con&enience
FUNCTIONS OF LABELLING>
a0 )denti6cation
b0 Classi6cation
c0 1romotion
ADVANTAGES OF BRANDING>
a0 rand name helps in ad&ertising in easier way
b0 rand name establishes the permanent identify of the product.
c0 rand name promotes repurchasing.
d0 Competition becomes easier with the help of brand loyalty.
ADVERTISING> I) is de6ned as any paid form of non"personal
presentation or promotion of ideas, goods or ser&ices by an identi6ed
sponsor.
M'(-)%> 40 ;ass reach
B0 :nhancing customer satisfaction
D0 :xpressi&eness
E0 :conomical
L-2-)/)-.$%> 40 'ess forceful
B0 'ack of feed back
D0 )n5exibility
E0 'ow e+ecti&eness
F'/),('%> a0 1aid form
b0 )mpersonal presentation
c0 ,peedy and mars communication
d0 )denti6ed sponsor
OBECTIONS TO ADVERTISEMENT
a0 Adds to Costs2 Ad&ertising costs are passed on to the consumers in
the form of high prices.
b0 ,ome Ad&ertisements are in bad taste.
c0 $ndermines social &alues.
d0 Confuses the buyers.
e0 :ncourages the sale of inferior goods.
PERSONAL SELLING> )t in&ol&es face"to"face interaction between the
seller and the prospecti&e buyer.
F'/),('%> 40 1ersonal interaction
B0 #wo way communication
D0 etter response
E0 Relationship
IUALITIES OF A GOOD SALES MAN>
i0 1hysical 3ualities < personality , stamina, health,tolerance
ii0 ;ental 3ualities < mental alertness, sharp memory, initiati&e,
imagination and self con6dence.
iii0 ,ocial 3ualities < ,ocialbilty, tact, sound character, sweet
nature.
i&0 Gocational qualities < Onowledge of product ,knowledge of
competiti&e products, training and aptitude.
S/5'% 6(.2.)-.$> )t refers to short term use of incenti&es or other
promotion acti&ities that seek to stimulate interest.
a0 Rebates
b0 Refunds
c0 %iscounts
d0 3uantity deals
e0 Contents
f0 1ackaged premium
g0 Container premium
h0 1remium Iifts
i0 ,ampling
=0 .ree in mail premiums
PUBLIC RELATIONS
M'/$-$3 > 1ublic relations are the deliberate, planned and sustained e+ort
to establish and maintain understanding between an organi9ation and its
public.
ROLE OF PUBLIC RELATIONS2
i0 ;ore credible.
ii0 :conomical ;edium
iii0 )mage building.
i&0 oosts the sales of the organi9ation.
VARIOUS PUBLIC RELATION TOOLS TO SHAPE THE PUBLIC IMAGE
IF THE ORGANISATION
a0 >ews
b0 ,peeches
c0 :&ents
d0 (ritten ;aterials
e0 1ublic ser&ice acti&ities
IUESTIONS AWITH SOME HINTS WHEREVER NECESSARYB
1. D'@$' 2/(0') -$ 2.1'($ 2/(0')-$3 %'$%'.
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?/DM
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D M
IUESTIONS BASED ON VALUES>
(hile marketing certain brand of cool"drinks, a ;>C is following dual
standards in :urope and Asian Countries. )dentify the &alues missing.
Ans.
i. All customers should be treated equally.
ii. Customers health should be gi&en top priority rather than earining
pro6ts.
iii. Human &alues are missing .

CHAPTER - 12
CONSUMER PROTECTION D M/(0%
C5/%% XI S755/9,% L-$0/3'>
M/$,:/8),('(YW*.5'%/5'(YR')/-5'(YC.$%,2'(YP(.)'8)-.$
CONCEPT MAPPING>
Concept and )mportance of consumer protection
Consumer 1rotection Act 4HFC
;eaning of consumer and consumer protection.
Rights and Responsibilities of consumers.
(ho can 6le a complaint and against whomL
Redressal machinery.
Remedies a&ailable
Consumer awareness " Role of consumer organi9ation and
>I8s
KEY CONCEPTS IN NUTSHELL
M'/$-$3> Consumer protection refers to protecting the consumer against
anti"consumer trade practices by the producers or sellers.
IMPORTANCE OF CONSUMER PROTECTION>
4. usiness is a means of human welfare
B. Irowth with social =ustice
D. ,ingle &s ;ultiple ob=ecti&es
E. ,take holders of society ! moral =usti6cation.
A. 1ower centre ! social responsibility
C. ,elf interest
@. :thical obligations
F. 1ublic support
H. Consumer is the purpose of the business long"term interest of
business
CONSUMER RIGHTS>
4. Right to safety
B. Right to be informed
D. Right to choose
E. Right to be heard
A. Right to seek Redressal
C. Right to Consumer :ducation
CONSUMER PROTECTION ACT 1=GD>
a0 $nder this Act, remedies a&ailable to consumers are as follows 2
4. Remo&al of %efects
B. Replacement of Ioods
D. Refund of 1rice
E. Award of compensation
A. Remo&al of %e6ciency in ser&ice
C. %iscontinuous of unfair ! Restricti&e #rade practice
CONSUMER RESPONSIBILITIES
4. Consumer must exercise his rights2 #hey must be aware of their
rights while buying.
B. Consmers should buy only standard goods like ),)!AI;ARO goods
only.
D. .iling complaint for the redressal of genuine grie&ances.
E. Consumer must be quality conscious ! should not compromise on
quality.
A. Consumers shluld learn the risks associated with products and
ser&ices.
C. %o not forget to get receipt and Iuarantee ! (arranty Card.
@. Consumers should read labels carefully.
F. Consumers should be honest in their dealings. #hey should buy only
legal boods.
H. Consumers should respect en&ironment. A&oid waste, littering and
contributing to pollution.
4?. Consumers should form consumer societies.
W/7% /$1 M'/$% .: C.$%,2'( 6(.)'8)-.$
a0 S'5: ('3,5/)-.$ 97 9,%-$'%%> :&ery 6rm insists to ha&e a strong
consumer base which means that more and still mo&e people should
buy their products. #his is possible only when the consumers are
fully satis6ed with the products of the 6rm.
b0 B,%-$'%% A%%.8-/)-.$%> usiness associations prepare a code of
conduct for businessmen.
c0 C.$%,2'( A&/('$'%% > Consumer should protect himself
d0 C.$%,2'( .(3/$-C/)-.$%> these organi9ations can force business
6rms to a&oid malpractices and exploitation of consumers.
e0 G.4'($2'$)> )nterests of the consumers are protected by the
go&ernment by enacting &arious legislations. Consumer protection
Act 4HFC is an important legislation by the go&ernment to pro&ide
protection to the a+ected consumer.
V/(-.,% ('2'1-'% /4/-5/95' ). )*' 8.$%,2'(% :.( ('1('%%-$3 )*'-(
3(-'4/$8'% ,$1'( )*' 8.$%,2'( 6(.)'8)-.$ A8) 1=GD.
a0 D-%)(-8) :.(,2> According to consumer protection Act state
go&ernment can set up one or more district forum in each district.
40 %istrict forum hears disputes in&ol&ing a sum upto Rs. B? 'acs.
B0 )t can 6le appeal against it with the state commission within D?
days.
b0 S)/)' 8.22-%%-.$>
c0 40 ,tate commission redresses grie&ances in&ol&ing a sum exceeds
Rs. B? lacs and upto Rs. 4 crore.
B0 )t can 6le an appeal before the national commission within D?
days.
1B N/)-.$/5 8.22-%%-.$ >
e0 40 )t is appointed by the Central Io&ernment
B0 )t has the =urisdiction to hear complaints in&ol&ing a sum
exceeding Rs. 4 crore.
D0 )t can 6le an appeal with the ,upreme Court within D? days
ROLE .: C.$%,2'( O(3/$-%/)-.$% /$1 N.$-G.4'($2'$)
O(3/$-%/)-.$% ANGOR%B
4. :ducation Consumers
B. Collecting data on di+erent products and #esting them
D. .iling suit on belief if consumers
E. Helping :ducational institutions
A. 1romoting network of consumer association.
C. :xtending support to Io&ernment
NGO% > >on"Io&ernment 8rganisations are those organi9ations which aim
at promoting the welfare of the people with non"pro6t concept. #hey are
taking up &arious aspects of consumer exploitation.
a0 Consumer co"coordinating councils
b0 Role of the press
c0 Role of $ni&ersities ! ,chools
L'3/5 6(.)'8)-.$ ). 8.$%,2'(%>
a0 #he Consumer 1rotection Act 4HFC
b0 #he Contract Act 4HFB
c0 #he ,ale of Ioods Act 4HD?
d0 #he :ssential Commodities Act 4HAA
e0 #he Agricultural produce /Irading and ;arketing0 Act 4HD@
f0 #he 1re&ention of .ood Adulteration Act 4HAE
g0 #he ,tandards of (eights and ;easures Act 4H@C
h0 #he #rade ;arks Act 4HHH
i0 #he Competition Act B??B
=0 #he ureau of )ndian ,tandards Act 4HFC.
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VALUE BASED IUESTION
1. A$/$7/ -% / 6,(' 4'3')/(-/$. S*' &'$) ). / %$/80% 9/( /$1
/%0'1 :.( MV'3. F('$8* F(-'%N. L/)'( .$, %*' :.,$1 )*/) -) */1
%.2' $.$-4'3')/(-/$ 8.$)'$). N'-)*'( )*' /14'()-%'2'$), $.(
6/80-$3 .: )*' 6(.1,8) %*.&'1 )*/) -) 2/7 */4' $.$-4'3')/(-/$
8.$)'$). I1'$)-:7 )*' 4/5,'% 2-%%-$3 *'(' -$ )*-% 8.$)';).
Ans. #he manufacturer is not honest. ,o the &alue missing here is
PHonestyQ.
#he right to information is &iolated.
2. A 6*/(2/8',)-8/5 8.26/$7 -% 2/(0')-$3 -)% 2'1-8-$'% -$ I$1-/
&*-8* &'(' 9/$$'1 -$ %.2' .)*'( 8.,$)(-'% 1,' ). )*'-( %-1'
'L'8)%. T*' 8.26/$7 1-1 $.) 2'$)-.$ )*-% -$:.(2/)-.$ /$7&*'('.
I1'$)-:7 )*' 4/5,'% 2-%%-$3.
Ans. )0 Right to information is &iolated
ii0 Consumer protection is ignored.
iii0 #he company is not following uniform practices in all the
countries.
i&0 )ndia should ha&e stringent laws to punish such companies.
ALL THE BEST OF LUCK