INDUSTRIAL MANAGEMENT

UNIT 1 (OUTLINE OF BUSINESS)

1. TYPES OF BUSINESS

A business entity is an organization that uses economic resources or inputs to

provide goods or services to customers in exchange for money or other goods and
services.
Business organizations come in different types and different forms of ownership.
There are three major types of businesses:

1. Service Business
A service type of business provides intangible products (products with no physical
form). Service type firms offer professional skills, expertise, advice, and other
similar products.
Examples of service businesses are: salons, repair shops, schools, banks,
accounting firms, and law firms.

2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail
price. They are known as "buy and sell" businesses. They make profit by selling
the products at prices higher than their purchase costs.
A merchandising business sells a product without changing its form. Examples are:
grocery stores, convenience stores, distributors, and other resellers.

3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the
intention of using them as materials in making a new product. Thus, there is a
transformation of the products purchased.
A manufacturing business combines raw materials, labor, and factory overhead in
its production process. The manufactured goods will then be sold to customers.

Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of
business. A restaurant, for example, combines ingredients in making a fine meal
(manufacturing), sells a cold bottle of wine (merchandising), and fills customer
orders (service).
Nonetheless, these companies may be classified according to their major business
interest. In that case, restaurants are more of the service type – they provide dining
services.

2. INDUSTRIAL SECTORS GLOBALIZATION MANAGEMENT

PROCESS

In the first stage (market entry), companies tend to enter new countries using
business models that are very similar to the ones they deploy in their home
markets. To gain access to local customers, however, they often need to establish a
production presence, either because of the nature of their businesses (as in service
industries like food retail or banking) or because of local countries’ regulatory
restrictions (as in the auto industry).

In the second stage (product specialization), companies transfer the full production
process of a particular product to a single, low-cost location and export the goods
to various consumer markets. Under this scenario, different locations begin to
specialize in different products or components and trade in finished goods.

The third stage (value chain disaggregation) represents the next step in the
company’s globalization of the supply-chain infrastructure. In this stage,
companies start to disaggregate the production process and focus each activity in
the most advantageous location. Individual components of a single product might
be manufactured in several different locations and assembled into final products
elsewhere. Examples include the PC industry market and the decision by
companies to offshore some of their business processes and information
technology services.

In the fourth stage (value chain reengineering) companies seek to further increase
their cost savings by reengineering their processes to suit local market conditions,
notably by substituting lower-cost labor for capital. General Electric’s (GE)
medical equipment division, for example, has tailored its manufacturing processes
abroad to take advantage of low labor costs. Not only does it use more labor-
intensive production processes—it also designs and builds the capital equipment
for its plants locally.

Finally, in the fifth stage (the creation of new markets), the focus is on market
expansion. The McKinsey Global Institute estimates that the third and fourth
stages together have the potential to reduce costs by more than 50% in many
industries, which gives companies the opportunity to substantially lower their
sticker prices in both old and new markets and to expand demand. Significantly,
the value of new revenues generated in this last stage is often greater than the value
of cost savings in the other stages.

3. PRINCIPLES OF MANAGEMENT

The Principles of Management are the essential, underlying factors that form the
foundations of successful management. According to Henri Fayol in his
book General and Industrial Management (1916), there are fourteen 'Principles of
Management'.

1. Division of Work - According to this principle the whole work is divided

into small tasks.The specialization of the workforce according to the skills
of a person , creating specific personal and professional development within
the labour force and therefore increasing productivity; leads to
specialization which increases the efficiency of labour.
2. Authority and Responsibility - This is the issue of commands followed by
responsibility for their consequences. Authority means the right of a
superior to give enhance order to his subordinates; responsibility means
obligation for performance.
3. Discipline - It is obedience, proper conduct in relation to others, respect of
authority, etc. It is essential for the smooth functioning of all organizations.
4. Unity of Command - This principle states that each subordinate should
receive orders and be accountable to one and only one superior. If an
employee receives orders from more than one superior, it is likely to create
confusion and conflict.
5. Unity of Direction - All related activities should be put under one group,
there should be one plan of action for them, and they should be under the
control of one manager.
6. Subordination of Individual Interest to Mutual Interest - The
management must put aside personal considerations and put company
objectives firstly. Therefore the interests of goals of the organization must
prevail over the personal interests of individuals.
7. Remuneration - Workers must be paid sufficiently as this is a chief
motivation of employees and therefore greatly influences productivity. The
quantum and methods of remuneration payable should be fair, reasonable
and rewarding of effort.
8. The Degree of Centralization - The amount of power wielded with the
central management depends on company size. Centralization implies the
concentration of decision making authority at the top management.
9. Line of Authority/Scalar Chain - This refers to the chain of superiors
ranging from top management to the lowest rank. The principle suggests
that there should be a clear line of authority from top to bottom linking all
managers at all levels.
10.Order - Social order ensures the fluid operation of a company through
authoritative procedure. Material order ensures safety and efficiency in the
workplace. Order should be acceptable and under the rules of the company.
11.Equity - Employees must be treated kindly, and justice must be enacted to
ensure a just workplace. Managers should be fair and impartial when
dealing with employees, giving equal attention towards all employees.
12.Stability of Tenure of Personnel - Stability of tenure of personnel is a
principle stating that in order for an organization to run smoothly, personnel
(especially managerial personnel) must not frequently enter and exit the
organization.
13.Initiative - Using the initiative of employees can add strength and new
ideas to an organization. Initiative on the part of employees is a source of
strength for organization because it provides new and better ideas.
Employees are likely to take greater interest in the functioning of the
organization.
14.Esprit de Corps/Team Spirit - This refers to the need of managers to
ensure and develop morale in the workplace; individually and communally.
Team spirit helps develop an atmosphere of mutual trust and understanding.
Team spirit helps to finish the task on time.
4. FUNCTIONS OF MANAGEMENT

1.
2. Planning
It is the basic function of management. Planning is deciding in advance -
what to do, when to do & how to do. It bridges the gap from where we are &
where we want to be. A plan is a future course of actions. Planning is
determination of courses of action to achieve desired goals. Thus, planning
is a systematic thinking about ways & means for accomplishment of pre-
determined goals. Planning is necessary to ensure proper utilization of
human & non-human resources. It is all pervasive, it is an intellectual
activity and it also helps in avoiding confusion, uncertainties, risks, wastages
etc.
3. Organizing
It is the process of bringing together physical, financial and human resources
and developing productive relationship amongst them for achievement of
organizational goals. According to Henry Fayol, “To organize a business is
to provide it with everything useful or its functioning i.e. raw material, tools,
capital and personnel’s”. To organize a business involves determining &
providing human and non-human resources to the organizational structure.
Organizing as a process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
4. Staffing
It is the function of manning the organization structure and keeping it
manned. Staffing has assumed greater importance in the recent years due to
advancement of technology, increase in size of business, complexity of
human behavior etc. The main purpose of staffing is to put right man on
right job. According to Kootz & O’Donell, “Managerial function of staffing
involves manning the organization structure through proper and effective
selection, appraisal & development of personnel to fill the roles designed un
the structure”. Staffing involves:
  Manpower Planning (estimating man power in terms of searching,
choose the person and giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
5. Directing
It is that part of managerial function which actuates the organizational
methods to work efficiently for achievement of organizational purposes. It is
considered life-spark of the enterprise which sets it in motion the action of
people because planning, organizing and staffing are the mere preparations
for doing the work. Direction is that inert-personnel aspect of management
which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals. Direction has
following elements:

 Supervision
 Motivation
 Leadership
 Communication

Supervision- implies overseeing the work of subordinates by their superiors.

It is the act of watching & directing work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates
with zeal to work. Positive, negative, monetary, non-monetary incentives
may be used for this purpose.
1. Leadership- may be defined as a process by which manager guides and
influences the work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion
etc from one person to another. It is a bridge of understanding.
2. Controlling

It implies measurement of accomplishment against the standards and

correction of deviation if any to ensure achievement of organizational goals.
The purpose of controlling is to ensure that everything occurs in
conformities with the standards. An efficient system of control helps to
 predict deviations before they actually occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is
being made towards the objectives and goals and acting if necessary, to
correct any deviation”. According to Koontz & O’Donell “Controlling is the
measurement & correction of performance activities of subordinates in order
to make sure that the enterprise objectives and plans desired to obtain them
as being accomplished”.
UNIT 2 (ORGANIZATIONAL MANAGEMENT)

1. TYPES OF ORGANIZATIONS

Type # 1. Line Organisation:

Line organisation is the simplest and oldest form of organisation structure. It is
called as military or departmental or scalar type of organization. Under this system,
authority flows directly and vertically from the top of the managerial hierarchy
‘down to different levels of managers and subordinates and down to the operative
level of workers.

Line organisation clearly identifies authority, responsibility and accountability at

each level. The personnel in Line organization are directly involved in achieving
the objectives of the organization.
ADVANTAGES:

a. The line organization structure is very simple to understand and simple to

operate.

b. Communication is fast and easy and feedback can be acted upon faster.

c. Responsibility is fixed and unified at each level and authority and accountability
are clear-cut, hence each individual knows to whom he is responsible and who is or
in truth responsible to him.

d. Since it is especially useful when the company is small in size, it provides for
greater control and discipline in the organization.

e. It makes rapid decisions and effective coordination possible. So it is economic

and effective.

f. The people in line type of organization get to know each other better and tend to
feel close to each other.

g. The system is capable of adjusting itself to changing conditions for the simple
reason that each executive has sole responsibility in his own sphere.

Disadvantages of Line Organization:

a. It is a rigid and inflexible form of organization.

b. There is a tendency for line authority to become dictatorial.

c. It overloads the executive with pressing activities so that long-range planning

and policy formulation are often neglected.,

d. There is no provision for specialists and specialization, which is essential for

growth and optimisation.

e. Different departments may be much interested in their self-interests, rather than

overall organizational interests and welfare.

f. It is likely to encourage nepotism.

g. It does not provide any means by which a good worker may be rewarded and a
bad one punished.

Type # 2. Line and Staff Organization:

This type of organization structure is in large enterprises. The functional specialists
are added to the line in line and staff organization. Mere, staff is basically advisory
in nature and usually does not possess any command authority over line managers.
Allen has defined line and staff organization as follows.

“Line functions are those which have direct responsibility for accomplishing the
objectives of the enterprises and staff refers to those elements of the organization
that help the line to work most effectively in accomplishing the primary objectives
of the enterprises.”

In the line and staff organisation, staffs assist the line managers in their duties in
order to achieve the high performance. So, in an organization which has the
production of textiles, the production manger, marketing manager and the finance
manager may be treated as line executives, and the department headed by them
may be called line departments

On the other hand, the personnel manager who deal with the recruitment, training
and placement of workers, the quality control manager who ensure the quality of
products and the public relations manager are the executives who perform staff
functions.

A line and staff organisation chart is given below:

Advantages of Line and Staff Organisation:
a. Line officers can concentrate mainly on the doing function as the work of
planning and investigation is performed by the staff. Specialisation provides for
experts advice and efficiency in management.

b. Since the organisation comprises line and staff ffunctions,

unctions, decisions can be taken
easily.

c. The staff officers supply complete factual data to the line officers covering
activity within and without their own units. This will help to greater co-ordination.
co

d. It provides an adequate opportunity for the aadvancement

dvancement of workers.

e. The staff services provides a training ground for the different positions.

f. Adequate organisation a balance among the various activities can be attained

easily.

g. The system is flexible for new activities may be undertaken by tthe

he staff without
forcing early adjustments of line arrangements.
h. Staff specialists are conceptually oriented towards looking ahead and have the
time to do programme and strategic planning and analyse the possible effects of
expected future events.

Disadvantages of Line and Staff Organisation:

a. Confusion and conflict may arise between line and staff. Because the allocation
of authority and responsibility is not clear and members of the lower levels may be
confused by various line orders and staff advices.

b. Staff generally advise to the lines, but line decides and acts. Therefore the staffs
often feel powerless.

c. Too much reliance on staff officers may not be beneficial to the business
because line officials may lose much of their judgment and imitative.

d. Normally, staff employees have specialised knowledge and expert. Line makes
the final decisions, even though staff give their suggestions. Staff officers,
therefore, may be resented.

e. Staff officers are much educated so their ideas may be more theoretical and
academic rather than practical.

f. Although expert advice is available it reaches the workers through the managers.
Here it is liable to create a greater deal of misunderstanding and misinterpretation.

g. Since staff specialists demand higher payments, it is expensive.

h. The staff are unable to carry out its plan or recommendations because of lack of
authority. So they become ineffective sometimes, it will make them careless and
indifferent towards their jobs.

i. Since the line are performed, with the advise provided by the staff, if things go
right then the staff takes the credit and if things go wrong then the line get the
blame for it.
Type # 3. Functional Organisation:
The functional organisation was evolved by F.W. Taylor while he was working as
a foreman. He suggested eight foremen, four in factory and four in planning
division as under.

Factory Division:
(i) The gang boss,

(ii) The speed boss,

(iii) The inspector, and

(iv) The maintenance or repair boss.

Planning Division:
(i) Route Clerk,

(ii) Instruction card clerk,

(iii) Time and cost clerk, and

(iv) The shop disciplinarian.

He evolved his functional organisation system, which consists in “so dividing the
work of management that each man, from the assistant superintendent down, shall
have as few functions as possible to perform.”

According to Terry, “Functional organisation refers to the organisation which is

divided into a number of functions such as finance, production, sales, personnel,
office and research and development and each of functions are performed by an
expert”. Line authority, staff authority and functional authority as a third type of
authority are in this type of organisation.

Advantages of Functional Organisation:

a. Each manager is an expert in his field. He has to perform a limited number of
functions. So complete specialisation will be in functional organisation.
b. The greater degree of specialisation leads the improvement in the quality of
product.

c. Since the job requirements are definite and tangible, organisation can achieve
the intensive utilisation of the principle of specialisation of labour at the
managerial level.

d. Specialisation will lead for mass production and standardisation.

e. Since experts get sufficient time for creative thinking, planning and supervision
are made efficient.

f. It increases the work satisfaction for specialists who presumably do what they
like to do.

Disadvantages of Functional Organisation:

a. Since there is no direct boss or controller of the workers, co-ordination is hard to
achieve.

b. Since workers are under different bosses, discipline is hard to achieve. As results
there will be low morale on the part of the workers.

c. The non-supervisory employees are uncertain as to whom they should turn for
advice and aid when problem call for analysis.

d. Due to that control is divided, action cannot be taken immediately.

e. Since there will be many foreman of equal rank in the same department, the
conflicts of leadership may arise.

f. It reduces the opportunities for the training of all-round executives to assume

further leadership in the firm.

Type # 4. Project Organisation:

This organisational structure are temporarily formed for specific projects for a
specific period of time, for the project of achieving the goal of developing new
product, the specialists from different functional departments such as production,
engineering, quality control, marketing research etc., will be drawn to work
together. These specialists go back to their respectiv
respectivee duties as soon as the project
is completed.

Really, the project organisation is set

set-up
up with the object of overcoming the major
weakness of the functional organisation, such as absence of unity of command,
delay in decision-making,
making, and lack of coordinatio
coordination.

The project organization chart may be shown as follows:

Advantages of Project Organisation:

a. It is a remarkable illustration of relationship between environment, strategy and
structure.

b. The grouping of activities on the basis of each project resu

results
lts in introduction of
new authority patterns.

c. Since the specialists from different departments is drawn to work together under
the project organisation it helps to coordination.

d. It makes for meaningful control and fixation of individual responsibility.

responsibili

Disadvantages of Project Organisation:

a. The uncertainty may be attributed to the diverse backgrounds of the professional
who are deputed to the project.

b. The project manager finds it difficult to motivate and control the staff in a
traditional way in the absence of well
well-defined
defined areas of responsibility lines of
communication and criteria to judge performance.
c. Delay in completion of the project may occur.

d. Effective project management may also be hindered by the top management who
may not be wholly are of the problems at the project centre.

Type # 5. Matrix Organisation:

According to Stanley Davis and Paul Lawrence matrix organisation is “any
organisation that employs a multiple command system that includes not only the
multiple command structure, but also related support mechanism and an associated
organisational culture and behaviour pattern.”

A matrix organisation, also referred to as the “multiple command system” has two
chains of command. One chain of command is functional in which the flow of
authority is vertical.

The second chain is horizontal depicted by a project team, which is led by the
project, or group manager who is an expert in his team’s assigned area of
specialisation.

Since the matrix structure integrates the efforts of functional and project authority,
the vertical and horizontal lines of authority are combination of the authority flows
both down and across. The matrix form of organisation is given below.
Advantages of Matrix Organisation:
1. Since there is both vertical and horizontal communication it increases the
coordination and this coordination leads to greater and more effective control over
operations.

2. Since the matrix organisation

ation is handling a number of projects, available
resources will be used fully.

3. It focuses the organisational resources on the specified projects, thus enabling

better planning and control.

4. It is highly flexible as regards adherence to rules, procedu

procedures
res etc. Here
experience is the best guide to establishing rules and procedures.

5. As any department or division has to harness its effort towards accomplishment

of a single project, employees are effectively motivated.
Disadvantages of Matrix Organisation:
1. Since, there is more than one supervisor for each worker, it causes confusion and
conflicts and reduce effective control.

2. There is continuous communication both vertically as well horizontally, which

increases paper work and costs.

3. It is difficult to achieve a balance below on the projects technical and

administrative aspects.

2. DEPARTMENTATION

Departmentation is the foundation of organisation structure, that is, organisation

structure depends upon departmentation. Departmentation means division of work
into smaller units and their re-grouping into bigger units (departments) on the basis
of similarity of features.

As the organisation grows in size, the work is divided into units and sub-units.
Departments are created and activities of similar nature are grouped in one unit.
Each department is headed by a person known as departmental manager.

Departmentation, thus, helps in expanding an organisation and also promotes

efficiency by dividing the work on the basis of specialisation of activities and
appointing people in various departments on the basis of their specialised
knowledge.

IMPORTANCE:

1) ORGANIZATION STRUCTURE

Division of work into units and sub-units creates departments. Supervisors and
managers are appointed to manage these departments. People are placed in
different departments according to their specialised skills. The departmental heads
ensure efficient functioning of their departments within the broad principles of
organisation (scalar chain, unity of command, unity of direction etc.).
Thus, organisation structure is facilitated through departmentation. If there are no
departments, it will be difficult to keep track of who is doing what and who is
accountable to whom.

Departmentation creates departments, assigns tasks to people, fixes their

responsibility and accountability to their departmental heads, creates a span of
management so that work can be easily supervised. This network of authority-
responsibility relationships is the basis of designing a sound organisation structure.

2. Flexibility:
In large organisations, one person cannot look after all the managerial functions
(planning, organising etc.) for all the departments. He cannot adapt the
organisation to its internal and external environment. Such an organisation would
become an inflexible organisation. Creating departments and departmental heads
makes an organisation flexible and adaptive to environment. Environmental
changes can be incorporated which strengthen the organisation’s competitiveness
in the market.

4. Sharing of resources:
If there are no departments, organisational resources; physical, financial and
human, will be commonly shared by different work units. Departmentation helps in
sharing resources according to departmental needs. Priorities are set and resources
are allocated according to the need, importance and urgency regarding their use by
different departments.

5. Co-ordination:
“The organisation is a system of integrated parts, and to give undue emphasis to
any functional part at the expense of the entire organisation creates organisational
islands, thus, resulting in inefficiency and significant behavioural problems”.
Creating departments focuses on departmental activities and facilitates co-
ordination.

6. Control:
Managers cannot control organisational activities if they have to be collectively
supervised. Departmentation facilitates control by departmental manager over the
activities of his department only. Activities are divided into smaller segments,
standards of performance can be framed, factors affecting performance can be
identified and control can be more objective in nature.

7. Efficiency:
Flow of work from one level to another and for every department, i.e., vertical and
horizontal flow of work in the organisation increases organisational efficiency.

3. PRINCIPLES OF ORGANIZATION

1. Principle of unity of objectives: Organizational goals, departmental goals, and

individual goals must be clearly defined. All goals and objectives must have
uniformity. When there is contradiction among different level of goals desired
goals can’t be achieved. Therefore, unity of objectives is necessary
2. Principle of specialization: Sound and effective organization believes on
organization. The term specialization is related to work and employees. When an
employee takes special type of knowledge and skill in any area, it is known as
specialization. Modern business organization needs the specialization, skill and
knowledge by this desired sector of economy and thus, efficiency would be
established.
3. Principle of coordination: In an organization many equipment, tools are used.
Coordination can be obtained by group effort that emphasize on unity of action.
Therefore, coordination facilitates in several management concepts
4. Principle of authority: Authority is the kind of right and power through which it
guides and directs the actions of others so that the organizational goals can be
achieved. It is also related with decision making. It is vested in particular position,
not to the person because authority is given by an institution and therefore it is
legal. It generally flows from higher level to lowest level of management. There
should be unbroken line of authority.
5. Principle of responsibility: Authentic body of an organization is top level
management, top level management direct the subordinates. Departmental
managers and other personnel take the direction from top level management to
perform the task. Authority is necessary to perform the work .only authority is not
provided to the people but obligation is also provided. So the obligation to perform
the duties and task is known as responsibility. Responsibility can’t be delegated. It
can’t be avoided.
6. Principle of delegation: Process of transferring authority and creation of
responsibility between superior and subordinates to accomplish a certain task is
called delegation of authority. Authority is only delegated, not responsibilities in
all levels of management. The authority delegated should be equal to responsibility
7. Principle of efficiency: In enterprise different resources are used. Therese
resources must be used in effective manner. When the organization fulfill the
objectives with minimum cost, it is effective. Organization must always
concentrate on efficiency.

8. Principle of unity of command: subordinates should receive orders from single

superior at a time and all subordinates should be accountable to that superior. More
superior leads to confusion, delay and so on.
9. Principle of span of control: unlimited subordinates cant be supervised by
manager, this principle thus helps to determine numerical limit if subordinates to
be supervised by a manager. This improves efficiency.
10. Principle of balance: the functional activities their establishment and other
performances should be balanced properly. Authority, centralization,
decentralization must be balance equally. This is very challenging job but efficient
management must keep it.
11. Principle of communication: Communication is the process of transformation
of information from one person to another of different levels. It involves the
systematic and continuous process of telling, listening and understanding opinions
ideas, feelings, information, views etc, in flow of information. Effective
communication is important
12. Principle of personal ability: for sound organization, human resources is
important. Employees must be capable. Able employees can perform higher.
Mainly training and development programs must be encouraged to develop the
skill in the employees
13. Principle of flexibility: organizational structure must be flexible considering
the environmental dynamism. Sometimes, dramatically change may occur in the
organization and in that condition, organization should be ready to accept the
change
14. Principle of simplicity: this principles emphasizes the simplicity of
organizational structure, the structure if organization should be simple with
minimum number of levels do that its member an understand duties and
authorities.
4. FORMS OF OWNERSHIP

These are the basic forms of business ownership:

1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-up
and is the least costly among all forms of ownership.
The owner faces unlimited liability; meaning, the creditors of the business may go
after the personal assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.

2. Partnership
A partnership is a business owned by two or more persons who contribute
resources into the entity. The partners divide the profits of the business among
themselves.
In general partnerships, all partners have unlimited liability. In limited
partnerships, creditors cannot go after the personal assets of the limited partners.

3. Corporation
A corporation is a business organization that has a separate legal personality from
its owners. Ownership in a stock corporation is represented by shares of stock.
The owners (stockholders) enjoy limited liability but have limited involvement in
the company's operations. The board of directors, an elected group from the
stockholders, controls the activities of the corporation.
In addition to those basic forms of business ownership, these are some other types
of organizations that are common today:

Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that
have characteristics of both a corporation and a partnership. An LLC is not
incorporated; hence, it is not considered a corporation.
Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may
elect to be taxed as a sole proprietorship, a partnership, or a corporation.

Cooperative
A cooperative is a business organization owned by a group of individuals and is
operated for their mutual benefit. The persons making up the group are
called members. Cooperatives may be incorporated or unincorporated.
Some examples of cooperatives are: water and electricity (utility) cooperatives,
cooperative banking, credit unions, and housing cooperatives.
 UNIT 3 (FINANCIAL MANAGEMENT)

1. OBJECTIVES AND FUNCTIONS

OBJECTIVES:-

 Profit maximization happens when marginal cost is equal to marginal revenue.

This is the main objective of Financial Management.
 Wealth maximization means maximization of shareholders' wealth. It is an
advanced goal compared to profit maximization.[2]
 Survival of company is an important consideration when the financial manager
makes any financial decisions. One incorrect decision may lead company to be
bankrupt.
 Maintaining proper cash flow is a short run objective of financial management.
It is necessary for operations to pay the day-to-day expenses e.g. raw material,
electricity bills, wages, rent etc. A good cash flow ensures the survival of
company.
 Minimization on capital cost in financial management can help operations gain
more profit.
 It is vague :- There are several types of profits before interest, depreciation and
taxes, profit before taxes, profit after taxes, cash profit etc

FUNCTIONS:-

1. Estimation of capital requirements: A finance manager has to make

estimation with regards to capital requirements of the company. This will
depend upon expected costs and profits and future programmes and policies
of a concern. Estimations have to be made in an adequate manner which
increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made,
the capital structure have to be decided. This involves short- term and long-
term debt equity analysis. This will depend upon the proportion of equity
capital a company is possessing and additional funds which have to be raised
from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company
has many choices like-
 a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of each source
and period of financing.

4. Investment of funds: The finance manager has to decide to allocate funds

into profitable ventures so that there is safety on investment and regular
returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance
manager. This can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and
other benefits like bonus.
b. Retained profits - The volume has to be decided which will depend
upon expansional, innovational, diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards
to cash management. Cash is required for many purposes like payment of
wages and salaries, payment of electricity and water bills, payment to
creditors, meeting current liabilities, maintainance of enough stock, purchase
of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and
utilize the funds but he also has to exercise control over finances. This can
be done through many techniques like ratio analysis, financial forecasting,
cost and profit control, etc

BUDGETS

A budget forecasts the financial results and financial position of a company for
one or more future periods. A budget is used for planning and performance
measurement purposes, which can involve spending for fixed assets, rolling out
new products, training employees, setting up bonus plans, controlling
operations, and so forth.

At the most minimal level, a budget contains an estimated income statement for
future periods. A more complex budget contains a sales forecast, the cost of
goods sold and expenditures needed to support the projected sales, estimates
of working capital requirements, fixed asset purchases, a cash flow forecast,
and an estimate of financing needs. This should be constructed in a top-down
format, so a master budgetcontains a summary of the entire budget document,
while separate documents containing supporting budgets roll up into the master
budget and provide additional detail to users.

Many budgets are prepared on electronic spreadsheets, though larger businesses

prefer to use budget-specific software that is more structured and so is less
liable to contain computational errors.

TAXATION

Taxation refers to compulsory or coercive money collection by a levying authority,

usually a government. The term "taxation" applies to all types of involuntary
levies, from income to capital gains to estate taxes. Though taxation can be a noun
or verb, it is usually referred to as an act; the resulting revenue is usually called
"taxes."

Taxation is differentiated from other forms of payment, such as market exchanges,

in that taxation does not require consent and is not directly tied to any services
rendered. The government compels taxation through an implicit or explicit threat
of force. Taxation is legally different than extortion or a protection racket because
the imposing institution is a government, not private actors.

Tax systems have varied considerably across jurisdictions and time. In most
modern systems, taxation occurs on both physical assets, such as property, and
specific events, such as a sales transaction. The formulation of tax policies is one
of the most critical and contentious issues in modern politics.

UNIT 4 (MATERIALS MANAGEMENT)

INVENTORY CONCEPT

What is inventory? Inventory refers to those goods which are held for eventual sale
by the business enterprise. In other words, inventories are stocks of the product a
firm is manufacturing for sale and components that make up the product. Thus,
inventories form a link between the production and sale of the product.

The forms of inventories existing in a manufacturing enterprise can be classified

into three categories:
(i) Raw Materials:
These are those goods which have been purchased and stored for future
productions. These are the goods which have not yet been committed to production
at all.

(ii) Work-in-Progress:
These are the goods which have been committed to production but the finished
goods have not yet been produced. In other words, work-in-progress inventories
refer to ‘semi-manufactured products.’

(iii) Finished Goods:

These are the goods after production process is complete. Say, these are final
products of the production process ready for sale. In case of a wholesaler or
retailer, inventories are generally referred to as ‘merchandise inventory’.

Some firms also maintain a fourth kind of inventory, namely, supplies. Examples
of supplies are office and plant cleaning materials, oil, fuel, light bulbs and the
like. These items are necessary for production process. In practice, these supplies
form a small part of total inventory involving small investment. Therefore, a highly
sophisticated technique of inventory management is not needed for these.

The size of above mentioned three types of inventories to be maintained will vary
from one business firm to another depending upon the varying nature of their
businesses. For example, while a manufacturing firm will have all three types of
inventories, a retailer or a wholesaler business, due to its distinct nature of
business, will have only finished goods as its inventories. In case of them, there
will be, therefore, no inventories of raw materials as well as work-in- progress.

Inventory Control
The goal for a business is to invest the least amount in inventory while maintaining
specific operating requirements. Ideally, the inventory control in place allows the
business to supply needs in regards to production or to the customer at the precise
moment needed, at the minimal price. Successful inventory control keeps waste
and surplus at a minimum and efficiently handles storage, production and
distribution of inventory.
Primary Function
The primary function of inventory is to use marketing and production to increase
profitability, to get the maximum amount for the business' investment. There are
other functions of inventory, such as balancing supply and demand, improving
efficiency, establishing a safety stock and geographical specialization. All of those
help to increase a business' profitability.
Balancing Supply and Demand
Balancing supply and demand involves replacing consumed items, and liquidating
seasonal items. For example, when the supermarket stocks up Halloween items for
the October holiday, it ideally wants to liquidate those items by November.
Successfully handling inventory involves supplying demand at the precise time, for
the least amount of money, without a surplus.
Safety Stock
When controlling inventory, one function is maintaining safety stock. This
involves having a buffer stock in case of an unexpected delay in replenishing
inventory or excess sales. For example, if a breakfast restaurant only orders enough
eggs to get it through an average weekend, yet experiences an unexpected spike in
business, it risks losing sales, angering customers and damaging its reputation by
being unable to serve enough eggs.
 Geographical Specialization
Geographical specialization in regards to inventory involves maximizing the assets
of each of the business' locations. Factors to consider include energy costs,
location, labor and transportation. For example, a manufacturing company will
want to locate in an area where it can distribute its product for the least amount of
money. If it uses the railroad, distribution of the inventory near a railroad is wiser
than a remote distribution center 100 miles away.
ABC ANALYSIS
Inventory optimization in supply chain, ABC analysis is an inventory
categorization method which consists in dividing items into three categories, A, B
and C: A being the most valuable items, C being the least valuable ones. This
method aims to draw managers’ attention on the critical few (A-items) and not
on the trivial many (C-items).

Prioritization of the management attention

Inventory optimization is critical in order to keep costs under control within the
supply chain. Yet, in order to get the most from management efforts, it is efficient
to focus on items that cost most to the business.

The Pareto principle states that 80% of the overall consumption value is based on
only 20% of total items. In other words, demand is not evenly distributed between
items: top sellers vastly outperform the rest.

The ABC approach states that, when reviewing inventory, a company should rate
items from A to C, basing its ratings on the following rules:

 A-items are goods which annual consumption value is the highest. The top 70-80%
of the annual consumption value of the company typically accounts for only 10-
20% of total inventory items.
 C-items are, on the contrary, items with the lowest consumption value. The lower
5% of the annual consumption value typically accounts for 50% of total inventory
items.
 B-items are the interclass items, with a medium consumption value. Those 15-25%
of annual consumption value typically accounts for 30% of total inventory items.

The annual consumption value is calculated with the formula: (Annual demand) x
(item cost per unit).

Through this categorization, the supply manager can identify inventory hot spots,
and separate them from the rest of the items, especially those that are numerous but
not that profitable.

Policies based on ABC analysis leverage the sales imbalance outlined by the
Pareto principle. This implies that each item should receive a weighed
treatment corresponding to its class:

 A-items should have tight inventory control, more secured storage areas and better
sales forecasts. Reorders should should be frequent, with weekly or even daily
reorder. Avoiding stock-outs on A-items is a priority.
 Reordering C-items is made less frequently. A typically inventory policy for C-
items consist of having only 1 unit on hand, and of reordering only when an actual
purchase is made. This approach leads to stock-out situation after each
purchase which can be an acceptable situation, as the C-items present both low
demand and higher risk of excessive inventory costs. For C-items, the question is
not so much how many units do we store? but rather do we even keep this item in
store?
 B-items benefit from an intermediate status between A and C. An important aspect
of class B is the monitoring of potential evolution toward class A or, in the
contrary, toward the class C.

Splitting items in A, B and C classes is relatively arbitrary. This grouping only

represents a rather straightforward interpretation of the Pareto principle. In
practice, sales volume is not the only metric that weighs the importance of an item.
Margin but also the impact of a stock-out on the business of the client should also
influence the inventory strategy.
ECONOMIC ORDER QUANTITY CONCEPT

In inventory management, economic order quantity (EOQ) is the order quantity

that minimizes the total holding costs and ordering costs. It is one of the oldest
classical production scheduling models. The model was developed by Ford W.
Harris in 1913, Formula: EOQ = √2AB/C [1] but R. H. Wilson, a consultant who
applied it extensively, and K. Andler are given credit for their in-depth analysis.[2]

EOQ applies only when demand for a product is constant over the year and each
new order is delivered in full when inventory reaches zero. There is a fixed cost for
each order placed, regardless of the number of units ordered. There is also a cost
for each unit held in storage, commonly known as holding cost, sometimes
expressed as a percentage of the purchase cost of the item.
We want to determine the optimal number of units to order so that we minimize the
total cost associated with the purchase, delivery and storage of the product.
The required parameters to the solution are the total demand for the year, the
purchase cost for each item, the fixed cost to place the order and the storage cost
for each item per year. Note that the number of times an order is placed will also
affect the total cost, though this number can be determined from the other
parameters.

DETERMINATION OF EOQ:-
EOQ model is based in Baumol’s cash management model.

How much to buy at a time, or say, how much will be EOQ is to be decided on the
basis of the following two costs:
1. Ordering Costs:
It is the cost concerned with the placing of an order to acquire inventories. Yes, it
may vary from time to time depending upon the number of orders placed and the
number of items ordered in each order. It is also referred to as the ‘cost of
acquiring inventories.’

2. Carrying Costs:
It is cost related to carrying or keeping inventories in a firm, examples of carrying
costs are interest on investment, obsolescence losses, insurance premium, rent,
store-keeping costs, etc. The volume of inventory and carrying costs are positively
associated. Larger the former, more will be latter and vice versa. Carrying cost is
also called as ‘cost of holding inventories.’

The above two costs are inversely associated. If holding inventory cost increases,
ordering cost decreases and vice versa. A balance is, therefore, struck between the
two opposing costs and economic ordering quantity is determined at a level for
which the aggregate of the two costs is the minimum.

1. The Order Formula Approach:

One way to determine EOQ is to use the Order Formula Approach. There are a
number of mathematical formulae to calculate EOQ. Yet, the most frequently used
formula in this connection is as given by Van Home (1976: 497-500):

Q = √2u x p/s

Where:
Q = Economic Ordering Quantity (EOQ)

U = Quantity purchased in a year or month.

P = Cost of placing an order.

S = Annual or monthly cost of storage of one unit known as ‘carrying cost’.

2. Trial and Error Approach:

As the name of the approach itself indicates, the firm cans trial a number of
alternatives to determine its volume of inventory. In case of above example, the
firm may purchase its all 800 units in the beginning of the year in one single lot or
in 12 monthly lots of 67 units each. But, while following any alternative,
implications of both carrying and ordering costs should be studied.

For example, if the firm places only one order of 800 units, the firm may have 800
units as starting inventories in the beginning of the year. In this way, the average
inventory held in the firm during the year will be 400 units (800 x 1/2)’ holding Rs.
40,000 (400 x Rs. 100) in inventories.

In case, the firm places 12 monthly orders, the average inventory held during the
month will be 34 (67 units/2), holding and average value of Rs. 3,400 (34 Units x
Rs. 100). Many other possibilities can be worked out in the same manner to
determine the EOQ as shown in Table 26.2.

3. The Graphic Approach:

The Economic Ordering Quantity can also be found out by drawing a graph. This
is illustrated in Figure 26.1. Taking the same example, all three costs, i.e., total
costs, carrying costs, and ordering costs are plotted on vertical axis and number of
orders on horizontal axis.
We notice, in the Figure 26.1, that carrying cost decreases with number of orders
whereas ordering cost increases as the number of orders increases. Here, the
behaviour of the total cost is noticeable. Firstly, total cost decreases to a certain
point, then it starts increasing when the decrease in average carrying cost is more
than offset by the increase in ordering cost, thus, EOQ takes place at the point
where the total cost is minimum.

Standard steps In purchasing

So what exactly is a purchasing cycle? Well it’s the steps taken to order and pay
for products that a business requires. The purchasing cycle determines the
frequency that products are purchased.

Below you will find the steps for a Standard procurement cycle, and then when it
involves tendering.

I. 11 Steps in a Standard Procurement Cycle

1. The Need
You need to identify that there is a need to update the inventory or stock.
You may also need a business service or ad hoc product.
2. Specify
Now you need to decide how much and when you want the products or
services delivered.
3. Requisition or Order
This is when you write the purchase order or requisition order.
4. Financial Authority
Before the order can be placed, it usually requires some kind of authority for
its purchase. With some purchase orders, this is reasonably automatic. With
a large order that will be put out to tender it could be multi staged.
5. Research Suppliers
Repetitive orders usually have set suppliers, although it does no harm to
review the options sometimes. Other orders will either need to go out to
tender or there will be a choice of suppliers.
6. Choose Supplier
The supplier is now chosen.
 7. Establish Price and Terms
In a large company, many suppliers will be contracted with a Master
Agreement where prices and terms are set for a defined period. For other
orders, now is the time to negotiate terms and prices.
8. Place Order
At this stage in the purchasing cycle, the order is placed and this becomes a
contract between the business and the supplier.
9. Order Received and Inspected
The goods are delivered, checked in the warehouse and entered into
the inventory. Shortages and breakages are reported to the supplier for the
appropriate credits to be supplied.
10.Approval And Payment
Usually within 30 days, the invoices are received and paid.
11.Update Of Records
The purchasing ledger and stock records are updated. This is automatically
done by many purchasing computer systems.

Material Resource Planning

Material requirements planning (MRP) is a production planning, scheduling,

and inventory control system used to managemanufacturing processes. Most MRP
systems are software-based, but it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:

 Ensure materials are available for production and products are available
for delivery to customers.
 Maintain the lowest possible material and product levels in store
 Plan manufacturing activities, delivery schedules and purchasing activities.
A formal computerized approach to inventory planning, manufacturing scheduling,
supplier scheduling, and overall corporate planning. The material requirements
planning (MRP) system provides the user with information about timing (when to
order) and quantity (how much to order), generates new orders, and reschedules
existing orders as necessary to meet the changing requirements of customers and
manufacturing. The system is driven by change and constantly recalculates
material requirements based on actual or forecasted orders. It makes adjustments to
deal with possible problems prior to their occurrence, unlike traditional control
systems, which looked more at historical demand and reacted to existing problems.
Material resource planning (MRP II) evolved from material requirements planning
when it was recognized that most of the major data needed to manage a
manufacturing or distribution firm could be obtained from the material
requirements planning information. The ability of a material resource planning
system to meet the various needs of manufacturing, materials, and marketing
personnel within a changing business environment contributed to its
implementation by manufacturing companies. Enterprise resource planning (ERP)
systems evolved from MRP II systems. ERP enabled companies to integrate
business processes across all functions using one common database. ERP systems
provide users with real-time information and are extensively used in both the
manufacturing and services sectors.

There are three primary functions of an MRP system. First, the system helps ensure
that the appropriate materials are available for production and the necessary
products are available for customers to avoid shortages. Second, MRP reduces
waste by maintaining only the lowest possible materials and product levels in
stock. Lastly, an MRP system helps plan manufacturing functions, delivery
schedules and purchasing. When an MRP system is doing its job, it reduces
material waste while also avoiding product shortages. Data integrity, however, is a
major issue for successful material requirements planning. The data fed into the
system must be accurate; otherwise, serious production and stock errors may occur.

MRP was developed by engineer Joseph Orlicky as a response to the Toyota

Production System, the famous model for lean production. The first computerized
MRP system was tested successfully by Black & Decker in 1964.

Enterprise Resource Planning

Enterprise resource planning (ERP) is a process by which a company (often a

manufacturer) manages and integrates the important parts of its business. An ERP
management information system integrates areas such as planning, purchasing,
inventory, sales, marketing, finance and human resources.

ERP is most frequently used in the context of software. As the methodology has
become more popular, large software applications have been developed to help
companies implement ERP.
Think of ERP as the glue that binds the different computer systems for a large
organization. Typically, each department would have its own system optimized for
that division's particular tasks. With ERP, each department still has its own system,
but it can communicate and share information easier with the rest of the company.

The ERP software functions like some a central nervous system for a business. It
collects information about the activity and state of different divisions of the body
corporate and makes this information available to other parts where it can be used
productively. Information on the ERP is added in real timeby users. Any
authorized user with a valid password and access to the network can access the
system any time.

ERP resembles the human central nervous system. Its capacity transcends the
collective ability of the individual parts to form what is known as consciousness. It
helps a corporation become more self-aware by linking information about
production, finance, distribution and human resources. ERP connects different
technologies used by each individual part of a business, eliminating duplicate and
incompatible technology that is costly to the corporation. This involves
integrating accounts payable, stock-control systems, order-monitoring systems and
customer databases into one system.

The first ERP system to be developed was SAP, a software firm that was
established in 1972 by three software engineers based in Mannheim, Germany.
SAP's goal was to link different parts of a business by sharing information gathered
from those parts to help the company operate more efficiently.

A company could experience cost overruns if its ERP system is not implemented
carefully. An ERP system doesn't always eliminate inefficiencies within the
business. The company needs to rethink the way it is organized, or else it will end
up with incompatible technology.

ERP systems usually fail to achieve the objectives that influenced their installation
because of a company's reluctance to abandon old working processes that are
incompatible with the software. Some companies are reluctant to let go of old
software that worked well in the past. Prevent ERP projects from being split into
many smaller projects, which can result in cost overruns.
 UNIT 5 (QUALITY MANAGEMENT)

Quality Management System

A quality management system (QMS) is a collection of business processes focused

on consistently meeting customer requirements and enhancing their satisfaction. It
is aligned with an organization's purpose and strategic direction (ISO9001:2015). It
is expressed as the organizational goals and aspirations, policies, processes,
documented information and resources needed to implement and maintain it.
Early quality management systems emphasized predictable outcomes of an
industrial product production line, using simple statistics and random sampling. By
the 20th century, labor inputs were typically the most costly inputs in most
industrialized societies, so focus shifted to team cooperation and dynamics,
especially the early signaling of problems via a continual improvement cycle. In
the 21st century, QMS has tended to converge
with sustainabilityand transparency initiatives, as both investor and customer
satisfaction and perceived quality is increasingly tied to these factors. Of QMS
regimes, the ISO 9000 family of standards is probably the most widely
implemented worldwide – the ISO 19011 audit regime applies to both, and deals
with quality and sustainability and their integration.
Other QMS, e.g. Natural Step, focus on sustainability issues and assume that other
quality problems will be reduced as result of the systematic thinking, transparency,
documentation and diagnostic discipline.
The term "Quality Management System" and the acronym "QMS" were invented
in 1991 by Ken Croucher, a British management consultant working on designing
and implementing a generic model of a QMS within the IT industry.

Elements[edit]

1. Quality objectives
2. Quality manual
3. Organizational structure and responsibilities
4. Data management
5. Processes – including purchasing
6. Product quality leading to customer satisfaction
7. Continuous improvement including corrective and preventive action
8. Quality instruments
9. Document control
QMS can help your business to:

 Achieve greater consistency in the activities involved in providing products or

services
 Reduce expensive mistakes
 Increase efficiency by improving use of time and resources
 Improve customer satisfaction
 Market your business more effectively
 Exploit new market sectors and territories
 Manage growth more effectively by making it easier to integrate new
employees
 Constantly improve your products, processes and systems

Quality Control

Quality control is a process through which a business seeks to ensure that product
quality is maintained or improved and manufacturing errors are reduced or
eliminated. Quality control requires the business to create an environment in which
both management and employees strive for perfection. This is done by training
personnel, creating benchmarks for product quality, and testing products to check
for statistically significant variations.

A major aspect of quality control is the establishment of well-defined controls.

These controls help standardize both production and reactions to quality issues.
Limiting room for error by specifying which production activities are to be
completed by which personnel reduces the chance that employees will be involved
in tasks for which they do not have adequate training.

Quality control involves testing of units and determining if they are within the
specifications for the final product. The purpose of the testing is to determine any
needs for corrective actions in the manufacturing process. Good quality control
helps companies meet consumer demands for better products.

Quality testing involves each step of the manufacturing process. Employees often
begin with the testing of raw materials, pull samples from along the manufacturing
line and test the finished product. Testing at the various stages of manufacturing
helps identify where a production problem is occurring and the remedial steps it
requires to prevent it in the future.
Quality Control Measures Depend on the Product

The quality control a business uses is highly dependent on the product. In food and
drug manufacturing, quality control includes ensuring the product does not make a
consumer sick, so the company performs chemical and microbiological testing of
samples from the production line. Because the appearance of prepared food affects
consumer perception, the manufacturers may prepare the product according to its
package directions for visual inspection. In the automobile manufacturing, quality
control focuses on the way that parts fit together and interact and ensuring engines
operate smoothly and efficiently. In electronics, testing might involve using meters
that measure the flow of electricity.

The Role of Quality Control Inspectors

Quality control inspectors protect the consumer from defective products and the
company from damage to its reputation due to inferior manufacturing processes. If
the testing process reveals issues with the product, the inspector has the option of
fixing the problem himself, returning the product for repairs or tagging the product
for rejection. When issues arise, the inspector notifies supervisors and works with
them to correct the problem.

Quality Circle

What is quality circle? It is a work group of employees who meet regularly to

discuss their quality problems, investigate causes, recommend solutions, and take
corrective actions. Generally, QC is a small group of employees belonging to the
same similar work area.

This is so because the employees doing the similar type of work are well familiar
to problems faced by them. The size of the QC should not be too big so as to
prevent some members from participating meaningfully in its meetings. Generally,
six to eight members are considered the ideal size of the QC.

QC is formed to achieve the following objectives:

1. Improvement in quality of product manufactured by the organisation.
2. Improvement in methods of production.

3. Development of employees participating in QC.

4. Promoting morale of employees.

5. Respect humanity and create a happy work place worthwhile to work.

The main features of QC can be listed as follows:

1. Voluntary Groups:
QC is a voluntary group of employees generally coming from the same work area.
There is no pressure from anywhere on employees to join QC.

2. Small Size:
The size of the QC is generally small consisting of six to eight members.

3. Regular Meeting:
QC meetings are held once a week for about an hour on regular basis. The
members meet during working hours usually at the end of the working day in
consultation with the manager. The time of the meetings is usually fixed in
advance in consultation with the manager and members.

4. Independent Agenda:
Each QC has its own agenda with its own terms of reference. Accordingly, each
QC discusses its own problems and takes corrective actions.

5. Quality Focused:
As per the very nature and intent of QC, it focuses exclusively on quality issues.
This is because the ultimate purpose of QC is improvement in quality of product
and working life.
Developing Quality Circles in Organisations:
Like any other organizational change, QC being a new concept may be opposed by
the employees.

Therefore, QC should be developed and introduced with great concern and

precaution as discussed below:
1. Publicising the Idea:
Introduction of QC is just like an organisational change programme Hence, like an
organisational change programme, the workers need to be convinced about the
need for and significance of QC from the points of view of the workers and the
organisation. Moreover, participation in QC being voluntary, its publicity among
the workers is necessary. To begin with, management can also arrange for initial
training to those workers who want to form a quality circle.

2. Constitution of QC:
Workers doing the same or similar type of work are drawn voluntarily to form
quality circle. The membership of a QC is generally restricted to eight to ten. Once
a QC is formed, they remain as permanent members of the circle unless they leave
that work area.

3. Initial Problem Solving:

The members of QC should discuss the problem at threadbare and, then, prepare a
list of alternative solutions. Thereafter, each alternative solution should be
evaluated and the final solution should be arrived at on the basis of consensus.

4. Presentation and Approval of Suggestions:

The final solution arrived at should be presented to the management either in oral
or in written form. The management may evaluate the solution by constituting a
committee for this purpose. The committee may also meet the members of the
quality circle for clarifications, if required. Presentation of solutions to the
management helps improve the communication between management and workers
and reflects management’s interest to the members of QC.

5. Implementation:
Once the suggestion or solution is approved by the management, the same is being
put into practice in a particular workplace. Quality circles may be organized
gradually for other workplaces or departments also. In this way, following above
outlined process, the entire organisation can have quality circles.

Quality Assurance

Quality assurance (QA) is the process of verifying whether a product meets

required specifications and customer expectations. QA is a process-driven
approach that facilitates and defines goals regarding product design, development
and production. QA's primary goal is tracking and resolving deficiencies prior to
product release.
The QA concept was popularized during World War II.

Techopedia explains Quality Assurance (QA)

Organizations often designate separate QA departments, which increases customer
confidence and credibility and improves efficiency and overall work processes.
Measurability is the key to QA. Products are tested and evaluated to determine
whether they meet required performance specifications. QA may require many
iterations and involve production delays.
An organization's QA approach generally emphasizes management, knowledge,
skills, personal integrity, confidence, quality relationships and infrastructure.
If relevant expertise and skills are not present within an organization, consultants
may be involved when new quality practices are introduced. Contracted experts
employ a combination of procedural documentation with quality function
deployment, capability maturity model integration and Six Sigma, etc.
Various methodologies may be used to improve QA, including:

 Total Quality Management (TQM): If a product does not adhere to quality

standards, the product's quality cannot be guaranteed.
 Failure Testing: A product is tested until the product fails. The product may
be subject to high temperatures or vibrations in an effort to trigger
unanticipated errors.
 Statistical Control: This brings an organization to a Six Sigma quality level.

QA is also a key software development component. ISO 17025, an international

standard, describes testing requirements, which specify 15 management and 10
technical and accredited laboratory duties.

Total Quality Management

Total Quality Management (TQM) is the continuous process of reducing or

eliminating errors in manufacturing, streamlining supply chain management,
improving the customer experience, and ensuring that employees are up-to-speed
with their training. Total quality management aims to hold all parties involved in
the production process accountable for the overall quality of the final product or
service.
TQM was developed by William Deming, a management consultant whose work
had great impact on Japanese manufacturing. While TQM shares much in common
with the Six Sigma improvement process, it is not the same as Six Sigma. TQM
focuses on ensuring that internal guidelines and process standards reduce errors,
while Six Sigma looks to reduce defects.

Total Quality Management (TQM) is a structured approach to overall

organizational management. The focus of the process is to improve the quality of
an organizations outputs, including goods and services, through continual
improvement of internal practices. The standards set as part of the TQM approach
can reflect both internal priorities and any industry standards currently in place.
Industry standards can be defined at multiple levels, and may include adherence to
various laws and regulations governing the operation of the particular business.
Industry standards can also include the production of items to an understood norm,
even if the norm is not backed by official regulations.
Primary Principles of Total Quality Management

TQM is considered a customer-focused process and aims for continual

improvement of business operations. It strives to ensure all associated employees
work toward the common goals of improving product or service quality, as well as
improving the procedures that are in place for production. Special emphasis is put
on fact-based decision making, using performance metrics to monitor progress.
High levels of organizational communication are encouraged, for the purpose of
maintaining employee involvement and morale.

Industries Using Total Quality Management

While TQM originated in the manufacturing sector, its principles can be applied to
a variety of organizations. With focus on long-term change over short-term goals,
it is designed to provide a cohesive vision for systemic change. With this in mind,
TQM is in many industries, including, but not limited to, manufacturing, banking
and finance, and medicine.

The techniques can be applied to all departments within an organization as well.

This helps ensure all employees are working toward the goals set forth for the
company, improving function in each area. Involved departments can include
administration, marketing, production and employee training.

Kaizen

Kaizen is a philosophy and practice that sees improvement in productivity as a

gradual and methodical process. Kaizen is a Japanese term meaning "change for
the better." The concept of kaizen encompasses a wide range of ideas. It involves
making the work environment more efficient and effective by creating a team
atmosphere, improving everyday procedures, ensuring employee satisfaction , and
making a job more fulfilling, less tiring and safer.
Some of the key objectives of the Kaizen philosophy include the elimination of
waste, quality control, just-in-time delivery, standardized work, and the use of
efficient equipment. An example of the Kaizen philosophy in action is the Toyota
production system, in which suggestions for improvement are encouraged and
rewarded, and the production line is stopped when a malfunction occurs.

The overall goal of kaizen is to make small changes over a period of time to create
improvements within a company. That doesn't mean alterations happen slowly, it
just recognizes that small changes now can have huge impacts in the future.
Improvements can come from any employee at any time. The idea is that everyone
has a stake in the company's success and everyone should strive, at all times, to
help make the business model better.

5’S’

5S is the foundation of all improvements and is the key component of establishing

a Visual Workplace. Both are a part of Kaizen — a system of continual
improvement which is a component of lean manufacturing.

A 5 S program focuses on having visual order, organisation, cleanliness and

standardisation. The results you can expect from a Five S program are: improved
profitability, efficiency, service and safety.

The principles underlying a 5S program at first appear to be simple and obvious

common sense. However, when implemented in a disciplined manner the above
benefits will accrue.

Everyone and all types of business benefit from having a well constructed 5S
program. It is usually manufacturing that comes to mind but any type of business
from hospitals to professional services and every area or department within the
organisation will benefit from implementing a 5S program.

So, what exactly does 5S stand for?

1. Sort

(Seiri)

Removing all unnecessary items from the workplace

2. Set In Order

(Seiton)

Creating a specific location for everything

3. Shine

(Seiso)

Clean the work area

4. Standardise

(Seiketsu)

Standardise the best practice within the workplace

5. Sustain

(Shitsuke)

Never slip back into the old ways

Many organisations experience difficulty in moving beyond the third S but 5S is

achievable.

Six Sigma
Six Sigma is a quality-control program developed in 1986 by Motorola that
emphasizes cycle-time improvement and the reduction of manufacturing defects to
a level of no more than 3.4 per million. As of 2016, Six Sigma has evolved into a
more general business-management philosophy focused on
meeting customer requirements, improving customer retention, and improving and
sustaining business products and services. Six Sigma is applicable to all industries,
and a number of vendors, including Motorola itself, offer Six Sigma training;
special certifications include yellow belt, green belt and black belt.
Six Sigma represents an ideology that focuses on statistical improvements to a
business process. Six Sigma advocates for qualitative measurements of success
over qualitative markers. Therefore, practitioners of Six Sigma are those business
people who use statistics, financial analysis and project management to achieve
improved business functionality.

Six Sigma has evolved to define numerous ideas within business and is sometimes
confusing. First, it's a statistical benchmark. Any business process that produces
less than 3.4 defects per 1 million chances is considered efficient; defects are
considered anything that's produced outside of consumer satisfaction. Second, it's a
training program and certification that teaches the core principles of Six Sigma.
Practitioners can achieve Six Sigma belt levels, ranging from white belt to black
belt. Finally, it's a philosophy that promotes the idea that all business processes can
be measured and optimized.

The Five Steps of Six Sigma

True believers and practitioners in the Six Sigma method follow an approach
called DMAIC: define, measure, analyze, improve and control. It is a statistically
driven methodology that users learn through Six Sigma certification or companies
implement as a mental framework for business process improvement.

The ideology behind DMAIC is that a business can solve any seemingly
unsolvable problem. First, a team of people, led by a Six Sigma champion, defines
a faulty process on which to focus, decided through an analysis of company goals
and requirements. This definition outlines the problem, goals and deliverables for
the project. Second, the team measures the initial performance of the process.
These statistical measures make up a list of potential inputs that may be causing
the problem and help the team understand the process's benchmark performance.

Third, the team analyzes the process by isolating each input, or potential reason for
failure, and testing it as the root of the problem. Through analysis, the team
identifies the reason for process error. From there, the team works to improve
system performance. Finally, the team adds controls to the process to ensure that it
doesn't regress and become ineffective once again.

UNIT 6(Industrial Legislation and Industrial Safety)

Safety management

Safety management system (SMS) is a comprehensive management system

designed to manage safety elements in the workplace. It includes policy,
objectives, plans, procedures, organisation, responsibilities and other
measures.[1] The SMS is used in industries that manage significant safety risks,
including aviation, petroleum, chemical, electricity generation and others.

An SMS provides a systematic way to identify hazards and control risks while
maintaining assurance that these risk controls are effective.[2] SMS can be defined
as:
...a businesslike approach to safety. It is a systematic, explicit and comprehensive
process for managing safety risks. As with all management systems, a safety
management system provides for goal setting, planning, and measuring
performance. A safety management system is woven into the fabric of an
organization. It becomes part of the culture, the way people do their jobs.[3]
For the purposes of defining safety management, safety can be defined as:
... the reduction of risk to a level that is as low as is reasonably practicable.
There are three imperatives for adopting a safety management system for a
business – these are ethical, legal and financial.
There is an implied moral obligation placed on an employer to ensure that work
activities and the place of work to be safe, there are legislative requirements
defined in just about every jurisdiction on how this is to be achieved and there is a
substantial body of research which shows that effective safety management (which
is the reduction of risk in the workplace) can reduce the financial exposure of an
organisation by reducing direct and indirect costs associated with accident and
incidents.
To address these three important elements, an effective SMS should:

 Define how the organisation is set up to manage risk.

 Identify workplace risk and implement suitable controls.
 Implement effective communications across all levels of the organisation.
 Implement a process to identify and correct non-conformities.
 Implement a continual improvement process.
A safety management system can be created to fit any business type and/or
industry sector.
Industrial Accidents

The ever increasing mechanisation, electrification, chemicalisation and

sophistication have made industrial jobs more and more complex and intricate.
This has led to increased dangers to human life in industries through accidents and
injuries. In fact, the same underlines the need for and importance of industrial
safety. Let us first understand what industrial accident actually means.

Industrial Accident:
An accident (industrial) is a sudden and unexpected occurrence in the industry
which interrupts the orderly progress of the work. According to the Factories Act,
1948: “It is an occurrence in an industrial establishment causing bodily injury to a
person who makes him unfit to resume his duties in the next 48 hours”.

In other words, accident is an unexpected event in the course of employment which

is neither anticipated nor designed to occur. Thus, an accident is an unplanned and
uncontrolled event in which an action or reaction of an object, a substance, a
person, or a radiation results in personal injury. It is important to note that self-
inflicted injuries cannot be regarded as accidents.

An industrial injury is defined as “a personal injury to an employee which has been

caused by an accident or an occupational disease and which arises out of or in the
course of employment and which could entitle such employee to compensation
under Workers’ Compensation Act, 1923”.
Types of Accidents:
Accidents may be of different types depending upon the severity, durability and
degree of the injury. An accident causing death or permanent or prolonged
disability to the injured employee is called ‘major accident. A cut that does not
render the employee disabled is termed as ‘minor’ accident. When an employee
gets injury with external signs of it, it is external injury.

Injury without showing external signs such as a fractured bone is called an internal
one. When an injury renders an injured employee disabled for a short period, say, a
day or a week, it is a temporary accident. On the contrary, making injured
employee disabled for ever is called permanent accident. Disability caused by
accident may be partial or total, fatal or non-fatal.
No accident occurs automatically. Instead, certain factors cause accidents. It has
been noticed that an accident does not have a single cause but a multiplicity of
causes, which are often closely related. The same is discussed subsequently.

Causes of Accidents:
The industrial safety experts have classified the various causes of accidents into
three broad categories:
1. Unsafe Conditions

2. Unsafe Acts

3. Other Causes?

These are discussed, in brief.

1. Unsafe Conditions (work-related):

Unsafe working conditions are the biggest cause of accidents. These are associated
with detective plants, tools, equipment’s, machines, and materials. Such causes are
known as ‘technical causes’. They arise when there are improper guarded
equipment’s, defective equipment’s, faulty layout and location of plant, inadequate
lighting arrangements and ventilation, unsafe storage, inadequate safety devices,
etc.

Besides, the psychological reasons such as working over time, monotony, fatigue,
tiredness, frustration and anxiety are also some other causes that cause accidents.
Safety experts identify that there are some high danger zones in an industry. These
are, for example, hand lift trucks, wheel-barrows, gears and pulleys, saws and hand
rails, chisels and screw drivers, electric drop lights, etc., where about one-third of
industrial accidents occur.
2. Unsafe Acts:
Industrial accidents occur due to certain acts on the part of workers. These acts
may be the result of lack of knowledge or skill on the part of the worker, certain
bodily defects and wrong attitude.

Examples of these acts are:

(a) Operating without authority.

(b) Failure to use safe attire or personal protective equipment’s,

(c) Careless throwing of material at the work place.

(d) Working at unsafe speed, i.e., too fast or too low.

(e) Using unsafe equipment, or using equipment’s unsafely.

(f) Removing safety devices.

(g) Taking unsafe position under suspended loads.

(h) Distracting, teasing, abusing, quarrelling, day-dreaming, horseplay

(i) One’s own accident prone personality and behaviour.

3. Other Causes:
These causes arise out of unsafe situational and climatic conditions and variations.
These may include excessive noise, very high temperature, humid conditions, bad
working conditions, unhealthy environment, slippery floors, excessive glare, dust
and fume, arrogant behaviour of domineering supervisors, etc.

Of late, industrial accidents have become common happening in our country.

Preventive measures

Some of the steps for preventing industrial accidents are as follows : 1. Proper
safety measures 2. Proper selection 3. Safety conscious 4. Enforcement of
discipline 5. Incentives 6. Safety committees 7. Proper maintenance of machines,
equipment and infrastructural facilities 8. Safety training.

1. Proper safety measures:

The proper safety measures should be adopted to avoid accidents Government also
provides guidelines for enacting measures for checking accidents, these should be
properly followed.

2. Proper selection:
Any wrong selection of workers will create problems later on. Sometime
employees are accident prone, they may not be properly suitable for the particular
jobs. So the selection of employees should be on the basis of properly devised tests
so that their suitability for jobs is determined.

3. Safety conscious:
The employees should be made conscious of various safety measures to be
followed. There should be proper working slogans and advises to the worker for
making them conscious.

4. Enforcement of discipline:
Disciplinary action should be taken against those who flout safety measures. There
may be negative punishments like warnings, lay off, terminations of workers.
5. Incentives:
Workers should be given various incentives for maintaining safety. There may also
be safety contrasts among workers. Those who follow safety instructions properly
should be given monetary and nonmonetary incentives.

6. Safety committees:
Safety measures are in the interest of both employers. There should be committees
consisting of representatives of workers and employees for devising and enforcing
safety programmes.

7. Proper maintenance of machines, equipment and infrastructural facilities:

Accidents may occur on account of the fault in machines or equipment. There
should be proper maintenance of machines. These should be regularly checked and
frequently inspected by engineering

8. Safety training:
The workers should be given training regarding safety measures. They should
know the hazards of the machines, the areas of accident proneness and the good
working possible precautions in case of some accident.

Some of the practices commonly used to achieve accident prevention in the

workplace[1]:

 Workers and supervisors must be informed and be aware of the dangers and
potential hazards (e.g., through education).
 Workers must be motivated to function safely (behaviour modification).
 Workers must be able to function safely. This is accomplished through
certification procedures, training and education.
 The personal working environment should be safe and healthy through the use
of administrative or engineering controls, substitution of less hazardous
materials or conditions, or by the use of personal protective equipment.
 Equipment, machinery and objects must function safely for their intended use,
with operating controls designed to human capabilities.
 Provisions should be made for appropriate emergency response in order to limit
the consequences of accidents, incidents and injuries.
The employer has to pay attention not only to risk assessment, work organisation,
employee consultation, information and training but also to health surveillance.
Health surveillance is an important part of accident prevention. It can reveal
workers’ health problems that can lead to accidents at work.
But this is not enough. To prevent accidents in the workplace and improve
occupational safety and health as a whole employers should establish a safety
management system. Improving safety management systems in large enterprises
requires a careful analysis of the environmental, organisational and job factors, and
human and individual characteristics that influence behaviour at work.
Establishing a safety management system in small and medium-sized enterprises
could be difficult but the management should realize that good occupational safety
and health can play a major role in helping small enterprises to prevent accidents at
work and enhance their business performance[10].
Factory Act

The Factories Act,1948 (Act No. 63 of 1948), as amended by the Factories

(Amendment) Act, 1987 (Act 20 of 1987)), serves to assist in formulating national
policies in India with respect to occupational safety and health in factories and
docks in India. It deals with various problems concerning safety, health, efficiency
and well-being of the persons at work places.
The Act is administered by the Ministry of Labour and Employment in India
through its Directorate General Factory Advice Service & Labour Institutes
(DGFASLI) and by the State Governments through their factory inspectorates.
DGFASLI advices the Central and State Governments on administration of the
Factories Act and coordinating the factory inspection services in the States. [1]
The Act is applicable to any factory whereon ten or more workers are working, or
were working on any day of the preceding twelve months, and in any part of which
a manufacturing process is being carried on with the aid of power, or is ordinarily
so carried on, or whereon twenty or more workers are working, or were working
on any day of the preceding twelve months, and in any part of which a
manufacturing process is being carried on without the aid of power, or is ordinarily
so carried on; but this does not include a mine, or a mobile unit belonging to the
armed forces of the union, a railway running shed or a hotel, restaurant or eating
place.
Air (Prevention and control of pollution Act)
It is also a comprehensive legislation with more than fifty sections. It makes
provisions, interalia, for Central and State Boards, power to declare pollution
control areas, restrictions on certain industrial units, authority of the Boards to
limit emission of air pollutants, power of entry, inspection, taking samples and
analysis, penalties, offences by companies and Government and cognizance of
offences etc..

The Act specifically empowers State Government to designate air pollution areas
and to prescribe the type of fuel to be used in these designated areas. According to
this Act, no person can operate certain types of industries including the asbestos,
cement, fertilizer and petroleum industries without consent of the State Board.

The Board can predicate its consent upon the fulfillment of certain conditions. The
Air Act apparently adopts an industry wide “best available technology”
requirement. As in the Water Act, courts may hear complaints under the Act only
at the instigation of, or with the sanction of, the State Board.

The Government passed this Act in 1981 to clean up our air by controlling
pollution. It states that sources of air pollution such as industry, vehicles, power
plants, etc., are not permitted to release particulate matter, lead, carbon monoxide,
sulfur dioxide, nitrogen oxide, volatile organic compounds (VOCs) or other toxic
substances beyond a prescribed level.

To ensure this, Pollution Control Boards (PCBs) have been set up by Government
to measure pollution levels in the atmosphere and at certain sources by testing the
air. This is measured in parts per million or in milligrams or micrograms per cubic
meter.

The particulate matter and gases that are released by industry and by cars, buses
and two wheelers is measured by using air-sampling equipment. However, the
most important aspect is for people themselves to appreciate the dangers of air
pollution and reduce their own potential as polluters by seeing that their own
vehicles or the industry they work in reduces levels of emissions.

This Act is created to take appropriate steps for the preservation of the natural
resources of the Earth which among other things includes the preservation of high
quality air and ensures controlling the level of air pollution.

The main objectives of the Act are as follows:

(a) To provide for the prevention, control and abatement of air pollution.

(b) To provide for the establishment of central and State Boards with a view to
implement the Act.

(c) To confer on the Boards the powers to implement the provisions of the Act and
assign to the Boards functions relating to pollution.

Air pollution is more acute in heavily industrialized and urbanized areas, which are
also densely populated. The presence of pollution beyond certain Limits due to
various pollutants discharged through industrial emission is monitored by the
PCBs set up in every state.

Powers and Functions of the Boards:

Central Pollution Board:
The main function of the Central Board is to implement legislation created to
improve the quality of air and to prevent and control air pollution in the country.

The-Board advises the Central Government on matters concerning the

improvement of air quality and also coordinates activities, provides technical
assistance and guidance to State Boards and lays down standards for the quality of
air. It collects and disseminates information in respect of matters relating to air
pollution and performs functions as prescribed in the Act.

State Pollution Control Boards:

The State Boards have the power to advise the State Government on any matter
concerning the prevention and control of air pollution. They have the right to
inspect at all reasonable times any control equipment, industrial plant, or
manufacturing process and give orders to take the necessary steps to control
pollution.

They are expected to inspect air pollution control areas at intervals or whenever
necessary. They are empowered to provide standards for emissions to be laid down
for different industrial plants with regard to quantity and composition of emission
of air pollutants into the atmosphere.

A State Board may establish or recognize a laboratory to perform this function.

The State Governments have been given powers to declare air pollution control
areas after consulting with the State Board and also give instructions to ensure
standards of emission from automobiles and restriction on use of certain industrial
plants.

Penalties:
The persons managing industry are to be penalized if they produce emissions of air
pollutants in excess of the standards laid down by the State Board. The Board also
makes applications to the court for restraining persons causing air pollution.

Whoever contravenes any of the provision of the Act or any order or direction
issued is punishable with imprisonment for a term which may extend to three
months or with a fine of Rs. 10,000 or with both, and in case of continuing offence
with an additional fine which may extend to Rs 5,000 for every day during which
such contravention continues after conviction for the first contravention.

Minimum Wages Act

The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labour
law that sets the minimum wages that must be paid to skilled and unskilled labours.
The Indian Constitution has defined a 'living wage' that is the level of income for a
worker which will ensure a basic standard of living including good health, dignity,
comfort, education and provide for any contingency. However, to keep in mind an
industry's capacity to pay the constitution has defined a 'fair wage'.[1]Fair wage is
that level of wage that not just maintains a level of employment, but seeks to
increase it keeping in perspective the industry’s capacity to pay.
India introduced the Minimum Wages Act in 1948,[2] giving both the Central
government and State government jurisdiction in fixing wages. The act is legally
non-binding, but statutory. Payment of wages below the minimum wage rate
amounts to forced labour. Wage boards are set up to review the industry’s capacity
to pay and fix minimum wages such that they at least cover a family of four’s
requirements of calories, shelter, clothing, education, medical assistance, and
entertainment. Under the law, wage rates in scheduled employments differ across
states, sectors, skills, regions and occupations owing to difference in costs of
living, regional industries' capacity to pay, consumption patterns, etc. Hence, there
is no single uniform minimum wage rate across the country and the structure has
become overly complex. The highest minimum wage rate as updated in 2012 is Rs.
322/day in Andaman and Nicobar[3] and the lowest is Rs. 38/day in Tripura.

The Act provides for fixing wage rate (time, piece, guaranteed time, overtime) for
any industry .
1) While fixing hours for a normal working day as per the act should make sure of
the following:

 The number of hours that are to be fixed for a normal working day should have
one or more intervals/breaks included.
 At least one day off from an entire week should be given to the employee for
rest.
 Payment for the day decided to be given for rest should be paid at a rate not less
than the overtime rate.
2) If an employee is involved in work that categorises his service in two or more
scheduled employments, the employee’s wage will include respective wage rate of
all work for the number of hours dedicated at each task.
3) It is mandatory for the employer to maintain records of all employee’s work,
wages and receipts .
4) Appropriate governments will define and assign the task of inspection and
appoint inspectors for the same.

Issues[edit]
42% of all wage earners in India receive wages below the national minimum wage
floor rate.[61] The data used for these statistics includes half of casual labourers and
1/4th of those salaried. Female workers and those in rural areas are more likely to
be paid below a minimum wage. Those who are illiterate or have no mid-level
education are most likely to be paid below a minimum wage. For Salaried workers,
if they are employed in agriculture, it is more likely that they are paid higher than
the minimum wage. Whereas casual workers in construction and unionised
workers in production and manufacturing are likely to receive wages at the
minimum wage rate. In sum, the implementation and enforcement of minimum
wages is dismal and marginalised groups and communities suffer the most. The
government has announced that many amendments are underway to improve
enforcement such as penal action against violations and mandatory revision of
minimum wages every 5 years.
Workmen Compensation Act

The Workmen’s Compensation Act offers compensation to workers and their

dependents in case of injury or accident that may arise out of and in the course of
employment resulting in disability or death. It helps an employer by covering the
legal liability coverage, which may arise when one of its workers meets with an
accident at the job place.

Some of the events covered under the act are:

 Death
 Permanent total disablement
 Permanent partial disablement
  Temporary disablement
 Legal costs incurred if any
This act applies to railway servants and to all people who are employed as per the
Schedule II of the Act, which includes those who are working in mines, factories,
construction sites and various other hazardous occupations.

The objective of the Workmen (now Employee) Compensation Act, 1923, as

defined in the Act is…

“… to provide for the payment of compensation by certain employers to their

employees for injury caused to them by accident while in employment. If an
employee contracts an occupational disease while in employment, it is also treated
under the Act as injury caused by accident.”

The real purpose behind the enactment of such a law can be understood as follows:

 Huge number of the young human resource of the country is employed in

factories, manufacturing units and various menial jobs
 It is the responsibility of the employers of this workforce, to provide a safe
and healthy work environment for these workers
 If a worker is injured or dies on the job due to the hazards related to the
occupation his dependents or the worker him/herself is not in a position to
fight the employer for compensation
 The employer and worker may not reach a reasonable amount when it comes
to compensation in such cases
 The employer’s liability cannot be unlimited, thus to limit the employer’s
liability
Thus, the Act provided a mediator between the employee and the employer for
resolution of employment-related disputes arising due to accidents in the
workplace.