1
KENDRIYA VIDYALAYA SANGATHAN
GURGAON REGION
STUDY MATERIAL – BUSINESS STUDIES
FOR
CLASS – XII
(2014-15)
PATRON
MR. C. MANI
DEPUTY COMMISSIONER (GR)
ADVISOR
MR. B.L. MORODIA (GR)
MR. C. S. AZAD (GR)
COORDINATOR
MR. RAJENDRA SINGH
PRINCIPAL KV SEC-5
DWARKA NEW DELHI
RESOURCE PERSONS
1. MRS. MANJU SHARMA (PGT COMM. K V GURGAON)
2. MRS. MAYA RATHI (PGT COMM. K V RAJOKARI)
3. MRS. KAVITA SOOD (PGT COMM. K V GURGAON)
4. MRS. PRASHILA SHOKEEN (K V SEC-5 DWARKA)
PREFACE
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Dear Students,
Unprecedented popularity of study material of Business studies has proved its utility. Clear
and easily understable handy presentation of concepts and content has been found
immensely useful for teachers and students for preparation of CBSE Examination. KVS
authorities and all the persons associated with it deserve great appreciation.
Now, this year we have revised and updated study material as per new curriculum.
Students will definitely find it greatly useful for their examination due to its unique features
like: Simple and understandable way of presentation of terms and concepts.
 Simplified illustration and diagrams to create picture-impact in the mind of learners.
 Addition of HOTS and VALUE BASED QUESTIONS.
 Sufficient practice material in a readymade style for all topics.
Thanks to all teachers for their invaluable efforts.
Dear students we believe that the study material will be highly beneficial and fruitful to
enrich you. And it will be a great help to score higher and better in the examination.
Best of Luck
GUIDELINES FOR STUDENTS
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Cracking an examination is a skill that can be acquired. As with studding
scoring good marks too is a combination of managing one’s time well
and applying the right method. Here are some guidelines that ones can
follow while attempting or write an exam.
 Answer the question as it is asked.
Read the question at least twice before answering. Be at guard for
either/or questions. Make sure to tackle all sub-sections of a question.
 Use the marks as a guide.
The examination paper mention the marks each question carry. Use
these mark as rough guide as to how long their answers ought to be. Do
not expand an answer relevant. This will save a lot of time which can be
used while writing a long –answer question.
 Avoid writing irrelevant points
While writing an answer, focus on the nature of question asked to
maintain focus. Answering something that is irrelevant to the question,
no matter how good a description will not only waste time but also be
given low marks.
 Budget your time
Don’t dwell too much on particular question as remaining question
may get little or no time if. Despite how much one writes, one can only
score the maximum marks allocated to that question. If facing difficulty
in answering, move on to other question and return to the former later.
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 Check and double-check
Always keep some time for revision while budgeting time.in the rush to
complete the paper, some basic spelling mistake or forgotten, halfattempted question may spoil all effort.
 Believe in yourself. Set a goal for yourself.
 Accordingly set a timetable for yourself.
 Identify a limited number of direct questions which usually come in
the exams & prepare them well.
 Apply FRT (fast reading technique) i.e. to revise more in less time.
 Presentation: Be particular about how you write the answers. It
should always points with a heading and brief explanation.
 Do not leave out any questions.
 Also be careful not to spend too on 1 question at the cost of other
questions.
 Wherever any process is asked to be explained, write all the steps
involved, irrespective if the marks allotted to that question.
 Draw a flowchart/diagram in support of your answer, whenever
possible.
 Answer those question first, which you know very well.
 Underline all the sub-headings.
 Draw small cartoons/diagrams with small captions wherever fits
suitable.
 Attempt ‘HOTS’ question at last.
 Utilize the QP paper reading time to plan writing strategies instead
of trying to write answers in advance.
 While trying to understand ‘HOTS’ question keeps in mind chapterwise allotment of marks for each chapter. Sometimes this helps to
guess the chapter from which the hots question is given.
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 Especially in case of application oriented question (HOTS), read
Hindi medium version also, it may give you some clue. It also
removes the vagueness in English language.
 Maintain a separate small hand-book to write only sub-headings for
all the concepts in the subject. It helps as a ready- reckoner.
 Read summaries given at the end of each chapter to get a
comprehensive idea about the given chapter. Hots can be given
from summaries also.
 Refer latest CBSE sample question papers along with previous year
board question papers.
 Refer ‘high scoring students’ answer sheets available in the CBSE
web site.
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BUSINESS STUDIES (054)
CLASS–XII (2014-15)
COURSE STRUCTURE
One Paper
3 Hours
100 Marks
Units
Periods
Marks
Part A: Principles and Functions of Management
1.
Nature and Significance of Management
2.
Principles of Management
3.
Business Environment
}
4.
5.
Planning
Organizing
}
14
18
6.
Staffing
7.
Directing
8.
Controlling
}
16
14
14
16
12
18
14
20
14
120
50
Part B:Business Finance and Marketing
9.
Financial Management
10. Financial Markets
11. Marketing Management
}
}
12. Consumer Protection
Part C: Project Work
22
20
32
16
15
15
30
20
120
50
Part A: Principles and Functions of Management
Unit 1: Nature and Significance of Management
N
Management- concept, objectives and importance.
N
Management as Science, Art and Profession.
N
Levels of Management
N
Management functions- planning, organising, staffing, directing and controlling.
N
Coordination- concept and importance.
14 Periods
Concept includes meaning and characteristics/features. Objectives organizational, social and personal.
Management as art- Features of art and the existence of these features in management.
Management as science- Features of science and the existence of these features in management. Management as profession- features of
profession and the existence of these features in management.
Levels of management-Functions of management at top, middle and supervisory levels with names of job positions.
7
Unit 2: Principles of Management
N
Principles of Management- concept and significance.
N
Fayol's principles of management.
N
Taylor's Scientific management- principles and techniques.
14 Periods
Meaning of principles of management. Nature of principles of management by stating their basic characteristics.
Significance or need of principles of management. Principles of Scientific. Management given by Taylor-Science, not rule of thumb;
Harmony, not discord; Cooperation, not individualism;
Development of each and every person to his or her greatest efficiency and prosperity. Taylor's techniques of Scientific management:
Functional Foremanship; Standardisation and Simplification;
Work study: Method study, Motion study, Time study, Fatigue study. Differential piece wage system. Basis of his thought
Mental Revolution.
Unit 3: Management and Business Environment
12 Periods
N
Business Environment- concept and importance.
N
Dimensions of Business Environment- Economic, Social, Technological, Political and Legal.
N
Impact of Government policy changes on business with special reference to liberalization, privatization and
globalization in India.
Dimensions of Business Environment- meaning and components only.
Unit 4: Planning
N
Concept, importance and limitations.
N
Planning process
N
14 Periods
Single use and standing plans. Objectives, Strategy, Policy, Procedure, Method, Rule, Budget and
Programme.
Limitations- internal and external. Meaning of single use and standing plans.
Unit 5: Organising
N
18 Periods
Concept and importance.
Organising Process.
N
Structure of organisation- functional and divisional- concept. Formal and informal organisation-concept.
Delegation: concept, elements and importance.
N
Decentralization: concept and importance.
N
Structure of organisation- functional and divisional- merits and limitations.
Formal and informal - merits and limitations.
Unit 6: Staffing
N
Concept and importance of staffing.
N
Staffing as a part of Human Resource Management- concept.
N
Staffing process
16 Periods
8
N
Recruitment- sources
N
Selection -process
N
Training and Development- Concept and importance. Methods of training- on the job and off the jobInduction training, vestibule training, apprenticeship training and internship training.
Recruitment Sources- Internal-promotion, transfer; External - Direct recruitment, Casual callers, Advertisements-(newspapers,
journals, television), Employment Exchange, Placement Agencies and Management Consultants, Campus Recruitment, Web
Publishing, Labour Contractors, Recommendations of employees .
Methods of on-the-job training and off-the job training-meaning.
Unit 7: Directing
N
Concept and importance
N
Elements of Directing
18 Periods
-
Supervision- concept, functions of a supervisor.
-
Motivation- concept, Maslow's hierarchy of needs, Financial and non-financial incentives.
-
Leadership- concept, styles- authoritative, democratic and laissez faire.
-
Communication-concept, formal and informal communication; barriers to effective communication,
how to overcome the barriers.
Motivation- Financial incentives-meaning, types- Pay and Allowances, Productivity linked wage incentive, bonus, Profit sharing, copartnership/stock option, Retirement benefits, Perquisites; Non- financial incentives- meaning, types-Status, Career advancement
opportunity, Job enrichment, Job security, Employee recognition programmes, Job enrichment, Employee participation, Employee
empowerment.
Formal and informal communication- concept; barriers to effective communication- semantic barriers ( badly expressed message,
symbols with different meanings, faulty translations, unclarified assumptions, technical jargon), psychological barriers (premature
evaluation, lack of attention, distrust), organisational barriers (organisational policy, rules and regulations, complexity in
organisational structure, organisational facilities), personal barriers ( fear of challenge to authority, lack of confidence of superior on his
subordinates, unwillingness to communicate, lack of proper incentives). How to overcome barriers: Communicate according to the needs
of the receiver, clarify the ideas before communication, be aware of the language, tone and content of the message, communicate for
present as well for the future, ensure proper feedback and be a good listener.
Unit 8: Controlling
N
Concept and importance.
N
Relationship between planning and controlling
N
Steps in the process of control
14 Periods
Self explanatory.
PART B: BUSINESS FINANCE AND MARKETING
Unit 9: Financial Management
22 Periods
N
Concept and objective of Financial Management.
N
Financial Decisions: investment, financing and dividend- Meaning and factors affecting.
N
Financial Planning- concept and importance.
9
N
Capital Structure - Concept.
N
Fixed and Working Capital - Concept and factors affecting their requirements.
Factors affecting capital budgeting decisions- cash flows of the project, the rate of return, investment criteria involved. Factors affecting
financing decision-cash flow position of the company, cost, risk, floatation costs, fixed operating costs, control considerations, state of the
capital market, Return on investment, tax rate, flexibility, regulatory framework . Factors affecting dividend decision- amount of
earnings, stability of earnings, stability of dividends, growth opportunities, cash flow position, shareholder's preference, taxation policy,
stock market reaction, access to capital market, legal constraints, contractual constraints.
Factors affecting fixed capital requirement- Nature of business, scale of operations, choice of technique, technology upgradation, growth
prospects, diversification, financing alternatives, level of collaboration. Working capital- concept of operating cycle, factors affecting
working capital requirement- Nature of business, scale of operations, business cycle, seasonal factors, production cycle, credit allowed,
credit availed, availability of raw material.
Unit 10: Financial Markets
•
Financial Markets: Concept and types.
•
Money market and its instruments.
•
Capital market and its types (primary and secondary)
•
Stock Exchange- Functions and trading procedure.
•
Securities and Exchange Board of India (SEBI)- objectives and functions.
20 Periods
Types of financial market- money market and capital market- meaning.
Money market instruments- Treasury bill, commercial paper, call money, certificate of deposit, commercial bill.
Capital market -Types- primary and secondary market- concept.
Unit 11: Marketing Management
•
Selling, Marketing and Societal Marketing management- Concept.
•
Marketing management- Concept.
•
Marketing Functions.
•
Marketing management philosophies.
•
Marketing Mix - Concept & elements
32 Periods
-
Product-Concept, branding, labelling and packaging.
-
Price- Factors determining price.
-
Physical Distribution- concept, channels of distribution: types, choice of channels.
-
Promotion- Concept and elements; advertising-concept, role, objections against advertising, personal
selling-concept and qualities of a good salesman, sales promotion- concept and techniques, public
relations- concept and role.
Marketing mix elements- Product, price, place, promotion
Branding, labelling, packaging- concept and functions .Choice of channels of distribution- factors affecting choice of channel- product
related factors, company characteristics, competitive factors, market factors, environmental factors.
10
Unit 12: Consumer Protection
•
Concept and importance of consumer protection.
•
Consumer Protection Act 1986
•
-
Meaning of consumer and consumer protection
-
Rights and responsibilities of consumers
-
Who can file a complaint and against whom?
-
Redressal machinery.
-
Remedies available.
Consumer awareness-Role of consumer organizations and NGOs
16 Periods
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CORE VALUES OF A BUSINESS
Accountability – responsibility of our actions that influence the lives of
our customers and fellow workers.
Balance – maintaining healthy life and work balance for workers.
Collaboration – collaborating within and outside the company to give the
best
Commitment – commitment to roll great product, service and other
initiatives that impact lives both within and outside the organization
Community – a sense of responsibility and contribution to society that
define our existence.
Consistency- be consistent in offering the best of the composition.
Diversity- respecting the diversity and giving the best of the composition
.
Efficiency- being efficient and effective in our approach to give best
solution each time.
Empowerment-empowering the employees to take initiative and gives
the best.
Fun-having fun and celebrating small successes in our journey to
achieve big.
Imagination- to come out with new creative ideas that have the potential
to change the world.
Integrity-to act with honesty and integrity without compromising the truth.
Leadership-the courage to lead from front and shape future.
Ownership-taking ownership of the company and customer success.
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Passion-putting the heart and mind in the work to get the best.
Quality-giving the best and unmatched results for all round satisfaction.
Respect-giving due respect to self and others and maintain the
environment of team work and growth.
Risk taking-encouraging self and others to take risk for a bright future.
Safety-ensuring the safety of people and making sure to give them
trouble free experience.
Service excellence-giving the best and world class service and
achieving excellence each passing day.
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CHAPTER-1
NATURE AND SIGNIFICANCE OF MANAGEMENT
CONCEPT SUMMARY
1. MEANING / CONCEPT OF MANAGEMENT:
Management is the process of getting things done with the aim of achieving goals
effectively and efficiently.
Process: refers to the primary function like planning, organizing, staffing, directing
and controlling performed by the management
to get the things done.
Effectiveness: means completing the right task to achieve the deputed goal within
the time frame.
Efficiency: means completion of task using minimum resources.
2. DEFINITON OF MANAGEMENT
“Management is the process of working with and through others to effectively
achieve the organizational objectives by efficiently using limited resources in the
changing environment.”
3. FUNCTIONS OF MANAGEMENT
(i) PLANNING- Setting objectives and targets and formulating an action plan of
what is to be done, how to be done and when to do it.
(ii) ORGANISING- Assignment of duties, tasks, establishment of authority and
responsibility relationships, allocating the resources required to perform the
planned task.
(iii) STAFFING- Finding and placing the right person at the right job at the right
time.
(iv) DIRECTING- Leading, influencing, motivating the staff chosen to perform the
assigned task efficiently and effectively.
(v) CONTROLLING- Ensuring/Monitoring the activities in an organization are
performed as per the plan.
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4. NATURE OF MANAGEMENT: As an art, As a science and As a profession.
5. MANAGEMENT OBJECTIVES-ORGANISATIONAL OBJECTIVES:
SURVIVAL: Ensure that the organization survives and exists in the future.
PROFITABILITY: Earning adequate profit in order to survive and grow.
GROWTH: Growth indicates how well it exploits the potential opportunities.
SOCIAL OBJECTIVES:
 Producing quality products at reasonable rates,
 Generating employment opportunities,
 Community progress and development by providing schools and crèches to
employees. In fact most of the firms have taken upon themselves the concept
of social responsibility as one of the most basic elements of business
objectives.
 Environmental friendly method of production.
PERSONAL OBJECTIVES:
 Meeting the Financial needs like competitive salaries and perks.
 Social and safety needs of the employee like peer recognition, self-respect
and respect for colleagues.
 Higher level needs like implementation and monitoring of policies for personal
growth and survival.
 Reconcile and personal goals with organizational objectives for harmony in the
organization.
6. IMPORTANCE OF MANAGEMENT
 Aids in achievement of individual and organizational goals.
 Increases efficiency.
 Enhances optimum utilization of resources.
 Creates a dynamic organization.
 Promotes development of society.
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7. LEVELS OF MANAGEMENT
TOP LEVEL: DESIGNATIONS AND FUNCTIONS
 Comprises of CEO, Board of directors , MD, GM, VP.
 Conceptualizing of organizational goal, policy and strategy formulation.
 Organizing , Controlling and Monitoring activities and resource.
 Controlling the Work performance.
 Approving Budgets.
MIDDLE LEVEL: DESIGNATIONS AND FUNCTIONS
 Comprises of departmental, Sub Departmental and Divisional Heads.
 Execution of plans, policies framed by top level management
 Preparing organizational set up & appointing employees.
 Issuing instructions and motivating employees.
 Ensuring interdepartmental co-operation
LOWER LEVEL: DESIGNATIONS AND FUNCTIONS
 Forwarding suggestions and feedback to the top level.
 Comprise of Supervisors, Foreman and Inspectors.
 Maintain moral, safety and discipline amongst the work force.
 Oversee the work of the workers
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 Assist the management in selection, training, placement and promotion of
workers.
NATURE OF MANAGEMENT AS AN ART
 Existence of theoretical knowledge.
 Developed through practical and creative process.
 Personalized application and skill
AS A PROFESSION





Well defined body of knowledge.
Existence of code of conduct
Professional association (AIMA)
Restricted entry
Fees as remuneration for their services
As a science:
 Arranged, organized systematic body of knowledge
 Universal validity
 Principals arrived at after experimentation
Conditions of a profession nor fulfilled by management




Restricted entry
Affiliation with a professional association(AIMA)
Not Legally enforceable code of conduct
Service motive
Coordination meaning
It is the synchronization of various activities and efforts in an organization
Providing the required amount of quality, timing and sequence; thus ensuring the
achievement of the planned goal with minimum content.
Features of coordination:
 Integrates group efforts: It is an orderly arrangement of group effort and not
individual effort
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 Ensures unity of action: It is a binding force between departments and
ensures that all efforts are focused towards achieving the organizational goal
 It remains the function and repossibility of every manager: the top level
coordinates the overall plan, middle level coordinates the efforts of the
different sections and subsections and lower level management coordinates
the activities of the workers.
 A deliberate function It does not occur spontaneously nor is it achieved by
force it is a deliberate action taken.
 All pervasive function it is needed in all departments and at all levels. Lack
of coordination can lead to overlapping of activities.
Need for coordination
The reasons that bring out the importance or the necessity for coordination
are
 Growth in the size of the organization results in the increase in varied quality
of manpower too with varied individual aspirations. Coordination seeks to
match the individual goal with the organizational goal.
 Functional Differentiation arising out of departmentalization and division
brings forth a motive for achievement of individual objectives, in isolation from
other objectives leading to departmental clashes. Coordination seeks to iron
out these variations.
 Specialization can give rise to feeling of superiority and prioritizing of their
zone of activities. Coordination seeks to sequence and integrate all the
specialists of activities into wholesome efforts.
Importance of coordination




Ensures unity of action
Erases interdepartmental conflicts
Promotes harmonious implementation of plans
Helps in maintaining a high degree of morale amongst employees
Coordination is the essence of management
Coordination is the management function of correlating and integrating the diverse
goals and activities in the organizational process. It is the essence of management
because:
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It is needed at all management functions
Planning- coordination between the master plan and departmental plan.
Organizing- Required between authority, responsibility and accountability.
Staffing- Achieve balance between hob requirement and qualities of personnel
Directing- Required between supervision, motivation and leadership.
Controlling- Ensured actual result conform to expected result.
Needed at all levels of management functionTop level- needs coordination to integrate activities of the organization for
accomplishing the organizational goal
Middle level- coordination of the efforts of different sections and sub-sections
Lower level -coordination in the activities of workers to ensure work progresses as
per plans.
VERY SHORT ANSWERS
Q.1. What is meant by management?
Ans. Management is the process of designing and maintaining an environment in
which individuals working together in groups efficiently accomplish
selected aims.
Management is planning, organizing,
controlling the activities of an organization.
staffing,
directing
and
Q.2. ‘Management Is multi-dimensional’. Enumerate any two dimensions of
management.
Ans. Any two objectives from the following:
i) Management of work
ii) Management of people
iii) Management of operations
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Q.3. Why is “Management called a group activity”?
Ans. Management is called a group activity because it requires team work and /or
coordination of individual efforts.
Q.4. Name that intangible force which operates productive relationships
among resources of an organization.
Ans. Management
Q.5. “Management increases efficiency “How?
Ans. Management increases efficiency by reducing costs and increasing
productivity or Management increases efficiency by optimum utilization of
available resources.
Q.6.Why it is said that “Management is all pervasive”?
Ans. It is said management is all pervasive because it can be applied to all types /
levels of organizations.
Q.7. What is main objective of organization?
Ans. Main objective of any organization is optimum utilization of resources.
Q.8. List any two social objectives of management.
Ans. Social objectives of management (any two).
1. To use environmental friendly methods of production.
2. To give employment opportunities to the disadvantaged sections of the
society.
3. To provide basic amenities like school and crèches.
Q.9. In order to achieve target production of 5,000 units per month, a
Production Manager has to operate on double shifts. Due to power
failure most of the time, the manager is able to achieve 5,000 units, but at
a higher production cost .In your point of view, what is lacking in
management?
Ans. Efficiency.
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Q.10. ‘In an organization employees are happy and satisfied, there is no
chaos and the effect of management is noticeable’. Which
characteristics of management is highlighted by this statement?
Ans. Management is an intangible force.
Q.11. MC Donald’s ,the fast food giant made major changes in its menu to be
able to survive in the Indian market .Which characteristics of
management is is referred to ?
Ans. Management is a dynamic function.
Q.12. Your grandfather has retired as the director of a manufacturing
company. At what level of management was he working?
OR
Your grandfather has retired as the director of a manufacturing company. At
which level of management was he working?
Different types of functions are performed at this level. State any one
function.
Ans. Top level management. Functions of the top level of management are : (Any
one)
1. To co-ordinate the activities of different departments.
2. To be responsible for welfare and survival of organization.
3. To analyses the business environment and its implications for the survival of
the firm.
4. To formulate overall organizational goals and strategies for their achievement.
5. They are responsible for all the activities of the business and for its impact on
the society.
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Q.13. Your grandfather has retired from an organization in which he is
responsible for implementing the plans developed by the top
management .At which level of management was he working. State any
one function performed at this level.
Ans. Middle level Management.
Functions performed by the middle level managers: (Any One)
1. To interpret policies framed by the top management.
2. To ensure that their department has necessary personnel.
3. To assign necessary duties and responsibilities to the employees of their
respective departments to achieve desired goals.
4. To motivate employees of their respective departments to achieve the
desired objectives.
5. To co-operate with other department for smooth functioning of organization.
Q.14.
At which level of management are the managers responsible for
maintaining the quality of output and the safety standards?
Ans. Lower level/ Supervisory level/Operational Level.
Q.15. Name the level of management at which the managers are responsible
for implementing and controlling the plans and strategies of the
organization.
Ans. Middle level management.
Q.16. Why is management called inexact science?
Ans.Management relates to human behavior, whose cause effort is not certain,
that’s why it is called an inexact science.
Q.17. Karan Enterprise Limited is facing a lot of problems .It manufactures
pens. It is suffering losses due to surplus production of pens. The
production department produces more of pens than required and sales
department is not able to sell those many pens. What quality of
management do you think the company is lacking?
Ans. Co-ordination.
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SHORT ANSWERS
Q.1. ‘Managers are not born they are made’ Comment.
Ans.
 Earlier people believe that effective manger were born and not made.
 However, It has now been more established that inborn talent alone is not
enough to make competent managers.
 They need knowledge and training as well to succeed as managers.
 Hence it has been rightly observed that mangers are not born they are
made.
Q.2. ‘Success of an organization largely depends upon its management’.
Explain to justify the above statements.
Ans. Success of an organization largely depends upon its management .This can
be justified with the following reasons:
i)
ii)
iii)
iv)
v)
vi)
It helps in achieving group goals.
It increases efficiency.
It creates dynamic organization.
It helps in the development of society.
It helps in achieving personal objectives.
It helps in optimum utilization of resources.
Q.3. ‘Management is a set of functions ’. Explain
Ans. Management is a set of functions that aim at effective and efficient
utilization of resources to achieve common organizational goals of an
organization .Various functions such as planning, Organizing, staffing,
directing, controlling are necessary for desired results. These may be
acronymed as – POSDC.
Where,
P stands for planning i.e. deciding on desired goals and action plans for
same.
O stands for organizing i.e. collecting resources and creating necessary
structures of jobs.
23
S stands for staffing viz filling job positions with right number and types of
persons at the right time.
D stands for directing viz instructing, guiding and influencing subordinates to
do their jobs in such a way as will lead to expected results.
C stands for controlling .i.e. comparing actual performance with plans;
identifying gaps if any taking necessary corrective and /or preventive action.
Q.4. Is management a full fledged profession? Give any three reasons in
support of your answer.
Ans. No, management is not a full-fledged profession because of the following
reasons (Any three):
(i) Restricted entry
The entry to a profession is restricted through a prescribed qualification.
But there are no restrictions on anyone being appointed as a manager in
any business enterprise.
So, presently this feature of profession is not present in management.
(ii) Professional association
All professions are affiliated to a professional association which regulates
entry, grants certificate of practice and formulates and enforces a code
conduct. There are several associations of practicing managers in India ,
like the AIMA that has laid down a code of conduct to regulate the
activities of their members. There is ,however, no compulsion for managers
to be members of such an association.
So, presently this feature of profession is not present in management.
(iii)
Ethical code of conduct
All professions are bound by a code of conduct which guides the behavior
of its members. AIMA has devised a code of conduct for Indian mangers
but there is no statutory backing for this code.
So, presently this feature of profession is not present in management.
24
Service motive
The motive of a profession is to serve their client’s interest by rendering
dedicated and committed service. The basic purpose of management is
to help the organization achieve its stated goal. If an organization has a
good management team that is efficient and effective it automatically serves
society by providing good quality products at reasonable prices.
So, presently this feature of profession is not fully present in management.
Q.5. Define coordination .Enumerate the features of coordination.
Ans. Coordination is an orderly arrangement of group efforts to maintain harmony
among individuals ‘effort towards the accomplishment of common goals of
an organization.
Features of coordination
(i)
(ii)
(iii)
(iv)
(v)
(vi)
It integrates group efforts.
It unifies the action.
It is a continuous process.
It is an all pervasive function.
It is the responsibility of all managers.
It is a deliberate function.
LONG ANSWERS.
1 Explain any 5 features of management.
ANS. 1. Management is a group activity:- management consists of a number of
persons who work as a group .their efforts are directed towards the
common goals . Members initiate, communicate, coordinate and join their
hands for the achievement of organizational objectives.
2. Management is a goal-oriented process- management aims at common
goals through a process of series of continues viz planning, organizing,
direction, staffing and controlling. These composite functions of
management are separately performed all managers all the time.
Simultaneously to realize organizational goals.
25
3. Management is all pervasive: - whether it is a commercial organization or
non commercial organization, big or small all require management to
handle their operation effectively and efficiently.
4. Management is a continues process: - the environment in which a
business exists keeps on changing. Thus, in order to be successful,
management must change its goal, plans and policies according to the
needs of its environment.
2. Give the meaning of management and explain how it creates a dynamic
organization and helps in the development of the society.
ANS.
Management is a process of working with and through others to
effectively achieve organizational objective by efficiently using limited
resources in the changing environment.
 Management creates a dynamic organization by helping the organization
to adapt itself to the changes taking place in the environment.
 Management helps in the development of society by providing good quality
products and services, creating employment, adopting new technology,
etc.
3. Explain management is an art.
OR
IS MANAGEMENT AN ART? GIVE ANY THREE REASONS IN SUPPORT
YOUR ANSWER.
ANS. An art requires application of personal skills and knowledge to achieve the
desired goals. It has the following features.
1. Existence of theoretical knowledge:- art involves existence of certain
theoretical knowledge . Experts have derived certain principles of say
public speaking in the form of abundant literature.
2. Personalized application: - the use of knowledge is a personalize concept
and varies from individual to individual. For e.g. 2 different speakers after
reading the same literature on “public speaking” will always differ in their
demonstration.
3. Based on practice and creativity: - art demands the creative practice of
theoretical knowledge, for e.g. regular practice of public speaking, develop
26
requisite skills. Shiv khera a leader in public speaking is an example of
practice and creativity of arts.
LET’S NOW LOOK AT MANAGEMENT.
1. The various areas of management like marketing, sales, finance, human
resources, etc. involves a lot of literature.
2. A manger skillfully applies the acquired knowledge according to the
situation in his own unique way.
3. A good manager works through a combination of continue practice,
creativity and innovation. Over a period of time he gains a lot of
experience and formulates his own theories for use in a given situation.
Thus, above feature like existence of theoretical knowledge, personalized
application and practice and creativity strength the view that management
is an art.
Q4 Raman is working as “plant superintendent” in Tifco ltd. Name the
managerial level at which he is working? State any 4 functions he will
perform as “start plant superintendent” in this company. ANS. He is
working at the middle level. Function that he will perform as the plant
superintendent
1. Linking the top level and the lower level of management by transmitting
orders and instructions downwards and problems and suggestions upwards.
2. Implementing the plan and strategies developed by top management.
3. Preparing the organizational setup in their environment.
4. Coordination and activities of various divisions or units within the same
department.
5. Ensuring that their department has the necessary personnel.
6. Assigning necessary duties and responsibilities to subordinate their
department
7. Motivating the subordinates to achieve desired objectives.
8. Co-operating with other departments for smooth functioning of the
organization.
27
HOTS
1. In which two functions do manager at the top level spend more time than
managers at lower level of the organization?
Ans. planning and Organization.
VALUE BASED
Q.1 Nishita is the marketing manager of a company selling laptops she has 6
subordinated working under her. On the last day of every month she
rewarded the efficient employees to motivate them.
Name the values which an organization inculcates among its employees
when it promotes efficiency
ANS.




Accomplishment of individual objectives
Sense of achievement
Loyalty
Belongingness.
Q2 Kushal ltd is a leading automobile company in which the various
departments are setting up their own objectives without paying any
interest to the organizational objectives name the values which are
ignored by the departmental heads and the impact of it on the
organization.
ANS.
 Mutual cooperation
 Coordination
 Unity of action
 Achievement of organizational objectives.
 Optimum utilization of resources.
28
Q.3 A cloth manufacture distributes its defective product at free of cost after
getting them repaired from nari niketan at lower cost to an orphanage which
values are being attested in this solution.
ANS.
 Fulfillment of social responsibilities
 Help to needy class of society.
 Employment to members of nari niketan.
 Full utilisation of defective products after improvement.
29
CHAPTER-2
PRINCIPLES OF MANAGEMENT
CONCEPT SUMMARY
1. MEANING:- The principles are broad statement of fundamental truth which
provide guide lines for management decision and action. These guidelines are
derived through experimentation and observation
2. NATURE OF PRINCIPLES OF MANAGEMENT
i) Universal application- can be applied to all kind of organizations, irrespective
of their size and nature.
ii) General guidelines- the formulated guidelines to action which need to be
adjusted and used as per the demands of the situation.
iii) Formed by practice and experimentation- derived through experimentation
and observation.
iv) Flexible- principles are not rigid like science but are modified according to the
business environment needs.
v) Behavioral- the principles aim to influence the unpredictable, complex and
dynamic human behavior.
vi) Causes and effect relation- they aid in predicting the outcome of management
actions.
vii)Contingent- the management principles are dependent upon the prevailing
conditions/situations at that particular time hence amended accordingly.
3. SIGNIFICANCE/IMPORTANCE OF MANAGEMENT PRINCIPLES
i) Provides managers with useful insights into reality- through improved
knowledge, ability, understanding and improved guidance to the managers.
ii) Optimum utilization of resources- and effective administration through
coordinated use of physical, financial and human resources.
iii) Scientific decision- they lend to be more realistic, thoughtful, justifiable and
free from personal bias.
iv) Meet the changing environmental requirements- by providing effective and
dynamic leadership in implementing changes.
30
v) Fulfills social responsibility- guides the manager in fulfilling the social
responsibility.
vi) Management training, education and research – the principles help in
increasing knowledge which is used as the basis for management training
and research.
4. FAYOL’S PRINCIPLES OF MANAGEMENT
i) Division of labour – work could be divided into small specialized task and
performed by a trained specialist
ii) Authority and responsibility – there must be a right balance between
authority (right to give orders) and responsibility (obligation to perform the
assigned task).
iii) Discipline- obedience to organization rules and employment agreement.
iv) Unity of command – receive orders from one boss.
v) Unity of direction – all the units of the organization should aim and mover
towards achieving the organizational interest.
vi) Subordination of individual interest to general interest – the organization
interest to be prioritized over individual interest.
vii) Remuneration – pay should be fair and satisfying to both employees and
the organization.
viii) Centralization and decentralization – there should be a proper balance
between centralization (concentration of decision making powers with top
management) and decentralization (dispersal of decision making power
among more than one person).
ix) Scalar chain – orders of communication should pass from top to bottom and
follow the official line of command.
x) Orders – A place for everything/everyone and every one in its place
xi) Equality – kindness, empathy and justice in the behaviour of manager
towards workers.
xii) Stability of tenure - frequent displacement of employee from their
position should be avoided. They should be given sufficient time to show their
results
xiii) Initiative - employees to be encouraged to develop and carry out their
improvement plans
xiv) Espirit de corps – need for team work, spirit and harmony.
31
5. SCIENTIFIC MANAGEMENT
Meaning: conduct of business activities according to standardized tools, methods
and trained personal so as to have increased output through effective and optimum
utilization of resources. Hence it stresses that there is always one best way of doing
things.
PRINCIPLES OF SCIENTIFIC MANAGEMENT
1. Science not rule of thumbThere should be scientific study and analysis of each element of job rather than
adopting old rule of the thumb approach or a hit and Miss Methods. Encourage
“thinking before doing”.
2. Harmony not discordThere should be complete harmony and proper understanding between management
and workers in achieving the organization goals.
3. Cooperation not individualismTaylor emphasized on the importance of cooperative group effort between the
management and workers in achieving the organization’s goals and not individualism.
4. Development of workers to their greatest efficiency and prosperity:
The management should scientifically select the workers; assign job as per their
physical, mental and intellectual capability and potential; and train them as per the job
requirement.
32
Techniques of scientific management
(a) Functional foremanship
 Supervision is to be divided into several specialized functions and each
function to be entrusted to a special foreman.
 Each worker will have to take orders from eight foremen in the related process
of function of production
 Stress on separating planning function from executive function.
(b) Standardization and simplification of work
 Process of setting standards for every business activity to maximize output.
 Simplification is eliminating unnecessary varieties, sizes and grades of product
manufactured in the organization.
(c) Method study
 Making a thorough analysis of various motions being performed by a worker
while doing a particular task.
 Identifying and determining the ideal productive movement.
 Eliminate the unproductive movement and equipment’s
(d) Motion study
 Making a thorough analysis of various motions being performed by a worker
while doing a particular task.
 Identifying and determining the ideal productive movement.
 Eliminate the unproductive movements and equipment’s.
(e) Time study
 It is the technique used to determine the standard time taken by the workman
with reasonable skill and ability to perform a particular task.
 Here the job is divided into series of elements and the time required to
complete each element idealistically is recorded using a stop watch.
33
(f) Fatigue study
 Determines the amount and frequency of rest intervals required in completing a
task.
(g) Differential piece wage system
 Evolve a system wherein the efficient and inefficient workers are paid at
different rates, as financial incentives act as motivators.
 First a standard task is established with the aid of time and motion study, then
two rates are established. Higher when standard outputs is produced and lower
when the standard is not met
VERY SHORT ANSWERS
Q1. What is meant by ‘principles of management’?
Principle of management is broad and general guidelines for managerial
decision making and behavior of managers.
Q.2 How have the management principles been derived?
Through observations and experimentation of experiences and collective
wisdom of managers.
Q.3. Give any one difference between principle and technique.
Principles are guidelines to take decisions whereas techniques are methods to
take action.
Q.4. State how the management principles are flexible?
Management principles are flexible because these can be modified according
to the demand/needs of the situation.
34
Q.5. Why it is said that management principles are universal in application.
Management principles are said to be universal because these are applicable
to all kinds of organizations, irrespective of the type or size.
Q.6 What is meant by ‘contingency’ in case of management principles?
Principles of management are contingent as their application is dependent
upon the prevailing situation at a particular point of time.
Q.7. The principles of management are different from those of pure science
.state any one difference.
Management principles are different from those of pure science because.
1. Management principles are not as rigid as principles of pure science.
2. Management principles deals with human behavior and canno0t be tested
in laboratories like principles of pure science.
3. Principle of management is general guidelines whereas the principles of
pure science are specific.
Q.8. The principles of management aren’t rigid and can be modified when the
situation demands .which nature of principles is being discussed here?
ANS. Flexibility.
Q.9. Define scientific management?
Ans. Scientific management means knowing exactly what you want men to do and
seeing that they do it in the best and cheapest way.
35
Q.10. Factory owners or managers relied on personal judgment in attending
to the problems they confronted in the course of managing their work.
Which principle of Taylor is it referring to?
Ans. Rule of thumb.
Q.11. What is required to ensure harmony among workers and managers?
Ans.Mental revolution.
Q.12. Why does Taylor insist on having specialized foremen.
Ans.Because all required qualities (intelligence, education, tact, etc) cannot be
there in one person.
Q.13 Why does Fayol introduced the concept of ‘gang plank’ in the principle
of scalar-chain.
Ans.The concept of gang plank was developed to avoid delay in communication in
case of emergency between two peoples working at the same level but in
different departments.
Q.14. Which principle does functional foremenship violate?
Ans.Unity of command.
Q.15. Which technique of scientific management is an extension of principle
of division of work and specialization on the shop floor.?
Ans. Functional foremanship.
36
Q.16. Enlist any two objectives of standardization.
Ans. 1. To establish inter changeability of manufactured parts or products.
2. To establish standards of performance for men and machines.
Q.17. What do you mean by the term simplification?
Ans.It means eliminating needless diversity of products.
Q.18 Which technique of scientific management helps in finding one best
method doing the job?
Ans. Method study.
Q.19. what is the aim of doing motion study?
Ans.The aim of doing motion study is to eliminate unnecessary movements so as to
ensure timely completion of work.
Q.20. State the objectives of ‘fatigue study’
Ans.The main objective of fatigue study is to determine the amount and frequency
of rest intervals in completing a task.
Q.21. Name the technique of Taylor which is the strongest motivation for a
worker to reach standard performance.
Ans. Differential piece wage system.
37
SHORT ANSWERS.
Q.1. Explain the how principles of management:
i) Help the manager in taking scientific decision, and
ii) Provide the managers with useful insight into real world situation.
Ans.
 Principles of management help in taking scientific decisions because the
decisions based on principals are free from bias and are based on the
objective assessment of the situation.
 Principals of management provide useful insight into reality by enabling
managers to learn from past mistakes and conserve time by solving recurring
problems quickly.
Q.2. Explain how principles of management:
i) Help in optimum utilization of resources and effective administration
and
ii) Help in thoughtful decision making.
Ans.
I)


Principles of management help in optimum utilization of resource by
equipping managers to foresee the cause and effect relationships there by
reducing the wastage associated with trial and error approach.
Principles of management help in effective administration by limiting the
boundaries of managerial discretion so that decisions are free from
personal prejudices.
ii)

Principles of management help in thoughtful decision making because the
decision based on principles are free from bias and are based on the
objective assessment of the situation.
38
Q.3. Name and explain the principle of management according to which a
manager should replace ‘we’ in all his conversations with the workers.
OR
State the principles of ‘ESPRIT DE CORPS’. Give two positive effects of
the principle of ‘esprit de corps’.
Ans.
 ESPRIT DE CORPS
 Esprit de corps refer to team spirit i.e. harmony in group and mutual
understanding among workers.
 It helps to develop an atmosphere of mutual trust and understanding. It also
concentrates on the famous saying viz ‘union is strength’.
In case of sports, all team members and in case of armed forces , all personnel
play / work for their respective teams .They should not have a thinking that if they
win it is be the Captain /Commander alone who will be rewarded . They must work
for the team. Similar feelings should be developed among all members of the
organization so that the desired goals of the organization can be achieved with
greater effectiveness and efficiency.
LONG QUESTION/ANSWERS.
Q.1. Explain `differential piece rate and “functional foremenship" as
techniques of scientific management.
● Differential piece wage system is a technique which differentiates between
efficient and less efficient workers. It rewards the efficient workers and
motivates the less efficient ones to improve their efficiency.
● In this, plan there are two piece rates- one for those workers who produced
the standard output or more, and the other for those who produces less
than standard output e.g.
Standard output (per workers 1 day) = 10 units
Wage rate I= Rs 2 per unit (for output <10 units)
39
Wage rate II = Rs 3 per unit (for output > = 10 units)
Difference in units produced = 2
Difference in wages = 15
Functional foremanship
● Functional foremanship is a technique which aims to improve the quality of
supervision at shop floor by putting a worker under 8 specialist foremen.
● In this technique , planning is separated from execution .Taylor suggested
four foremen for planning ,namely, route clerk, instruction card clerk , time
and cost clerk and disciplinarian and four foremen for execution , namely
,gang boss, speed boss, repair boss and inspector.
Q.2. Explain any two principles of Taylor’s scientific management.
1. Science, not rule of thumb advocates that there is only one best method to
maximize efficiency and this
method should substitute 'rule of thumb'
throughout the organization.
2. Harmony, not discord advocates that there should be completely harmony
between management and the workers
3. Co-operation not, individualism states that competition should be replaced
by co-operation.
40
Q.3. (i) Name and explain the principles of management which requires
judicious application of penalties by management.
(ii) Name and explain the techniques of scientific management which
helps in establishing interchangeability of manufactured parts and
products.
(I) The principle of management is 'discipline'. Discipline is the obedience to
organizational rules and employment agreement which are necessary for
the working of the organization. Discipline requires good superiors at all
levels, clear and fair agreements and judicious application of penalties.
(ii) The technique is 'Standardization'. It refers to the process of setting
standards for every business activity process, raw material, time,
products, machinery, methods or working conditions. Etc.
Q.4. Explain the ‘principle of scalar chain’ with an example.



In an organization the formal lines of authority from highest to lowest level
of all superiors and subordinates are known as scalar chain.
The principle of scalar chain suggests that there should be clear line of
authority from top to bottom, linking superiors and subordinates at all
levels.
The scalar chain serves as a chain of command as well as communication
.in normal circumstances, the formal communication is required to be
made by following this chain.
Example: - The above figure shows the scalar chain linking managers at
lower levels with the top management. If D has to communicate with H ,
the message should ordinarily move up through C and B to A, and then
down from A to F, F and G and then G to H.
Above mentioned chain has following disadvantages:
1. It causes delay in reaching communication to the required level.
2. It creates the possibility of distortion of information flows as various
levels are involved.
41
Scalar chain
HOTS
Q5
Fayol insists that good sense and experienced are needed to ensure
fairness to all employees who should be treated as fairly as possible
Identify the principle of management?
Ans . The principle of ‘equity’.
Q6. Aditi, a manager, expects her subordinates to adapt to the new
environment s and working conditions without giving them time to settle
down. Which principle of management is being overlooked?
Ans. Stability of personnel.
Q7. Following this principle of management will minimize the need for using
penalties, but not following it may result in a loss of coordination. Identify
the principle.
Ans. Espirit de corps.
42
VALUE BASED QUESTIONS.
Q.1.
An organization employees more male workers than female workers
because they can work overtime in case of excess work . in this
organization ,Mandy and Varsha are working at the same post but
being male employee, Mandy has more rights than Varsha . Which
values are being affected here?




Gender biasness
Conservatism
Effect of male dominating society.
Inequality of rights for same work.
Q.2. An organization proposes that the use of CFLs and leds which consumes
less electricity than normal bulbs for its lighting arrangements .which
value is being attained by the organization.
 Save electricity
 Reduction in cost.
 Protection of environment.
43
CHAPTER -3
BUSINESS ENVIRONMENT
CONCEPT SUMMARY
1. MEANING:
It is the sum total of all individuals or institutions comprising of consumers,
competitors, suppliers government, courts, media and also the forces like
economic, social, political, legal and technological that are outside the ambit and
control of business enterprise but that which can affect its performance.
2. FEATURES OF BUSINESS ENVIRONMENT:
(i) Constitutes totally of external forces – it comprises of the sum total of all
forces that are external to the business firm which it must deal with.
(ii) Specific and general forces- the forces present outside can be divided into
two parts specific – these affect the firms of an industry separately e.g
customers, suppliers, competitive firms etc.
General – these forces affect all the firms of an industry equally e.g social,
political.
(iii) Inter-related – the different factors are co-related e.g change in the import –
export policy is a political change that gives rise to economic change that
gives rise to economic change as well
(iv) Uncertainty-business environment are susceptible to rapid changes, no one
can predict with certainty the changes in the factors.e.g change in
technology and fashion.
(v) Dynamic – business environment keeps on changing.
(vi) Complex – it is difficult to know the extent of impact of the changes that the
factors can bring in.
(vii) Relative – business environment is a relative concept as it differs from
country to country, region to region.
44
3. IMPORTANCE OF BUSINESS ENVIRONMENT:
(i) Identify the opportunities and getting the first mover advantage – by
being aware of the changes in business environment, enterprises can identify
opportunity and strategize ways to capitalize on them.
(ii) Identify threats and early warning signals – environment scanning helps in
detecting possible threats in future.
(iii) Basis for planning and policy for formulation – identification of threats
and opportunity serves as basis for deciding the future course of action.
(iv) Tapping use full resources – the resources are required to carry on a
successful business enterprise. These have to be procured from the business
environment.
(v) Helps in coping with rapid changes – turbulent markets, less brand loyalty,
divisions and sub-divisions (fragmentation) of markets, more demanding
customers, rapid changes in technology and intense global competition
combined with complex business environment calls for a flexible planning to
cope with the changes.
(vi) Improvement in organization performance- continuous and constant
monitoring and adapting suitable business practices result in improved
business performance.
45
4. DIMENSIONS OF BUSINESS ENVIRONMENT:
The various dimensions of business environment in terms of general
environment are:
Economic Environment:
Refers to all those forces that have economic impact on the business activity
components of economic environment are GDP, Inflation rate, interest rate, Rupee
value, stock exchange index, tax rate
Political environment: includes political conditions such as political leadership,
political stability, and practices of the ruling party, nature and extent of government
interference, international relations.
Legal environment : refers to the framework of laws and various legislations within
which the business activities take place
46
Components of legal Environment are Government legislation, court judgments,
Decision of various commissions.
Social Environment: represents the customs and traditions, values, culture, social
trends, beliefs, norms and ethics of a society in which business enterprises operate.
Components of social Environment are customs traditions, social expectations,
lifestyles, values, literacy level
Technological Environment: refers to the influence of the changes in the
technology on the business environment.
Components of Technological Environment: new methods and techniques of
business operations, scientific improvements and innovations,
As a part of economic reforms the Government of India announced New industrial
policy in July 1991 which emphasized on three major elements which were:
 Liberalization – from the clutches of licensing policy. Therefore, removal of
entry and growth restrictions on the private sector enterprises.
 Globalization – encouragement of foreign private participation in industrial
development. This step mainly intended at integrating the national economy with
the world economy through the removal of barriers on international trade and
capital movements.
 Privatization - drastic reduction in the role of public sector. Future it aimed at
transfer of ownership, management and control of the public sector enterprise to
the private sector.
The new industrial policy aimed at created a more competent environment in the
economy so as to strengthen the process of industrialization. Its features are as
follows
 Delicensing of all projects except six industries
 Decreased role of public sector to merely 4 industries
 Disinvestment: selling of a part or whole of the shares of the public sector
undertaking
 Liberalization of Foreign capital
 Setting up of foreign Investment board (FIPB)
 Liberal policy for technical collaborations
47
IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY:







Increase in competition
Demanding customers
Technical changes and increased investment in R and D
Necessity of change
Development of human resource
Market orientation
Loss of budgetary support to the public sector.
VERY SHORT ANSWERS
Que1. Business environment keeps on changing whether in terms of
technological improvements shift in consumer preferences etc.
identify the characteristic of business environment.
Ans. Dynamic nature.
Que2. Business environment consists of numerous interrelated and dynamic
conditions which arise from different source and hence it becomes
difficult to judge as to what constitutes a business environment.
Identify the characteristic of business environment.
Ans. Complexity.
Que3. India food is popular in India as compared to china japan etc. identify
the characteristic of business environment.
Ans. Relativity.
Que4. In fashion industries, it is difficult predict what is going to happen in
future. Identify the characteristic of business environment.
Ans. Uncertainty.
48
Que5. What do you mean by first mover advantages?
Ans .Early identification of opportunities.
Que6. How can environment awareness help managers?
Ans. various threats are identified in time.
Que7. How can political stability be beneficial to the economy?
Ans. confidence among the business people is built up to invest and take up new
ventures.
Que8.which policy moved India to globalization pattern?
Ans. Industrial policy 1991.
Que9. Govt. of India is seriously thinking to allow oil marketing public sector
understanding to fix their own price for petrol and diesel. Which
economic reform is the reason of this change in government ‘policy?
Ans. The reason for this change in the government’s policy is “liberalization’.
Que10. Just after declaration of LokSabha elections 2009 results, the Bombay
stock exchange‘s price index (Sensex) rose by 2100 points in a day.
Identifies the environment factor which leads to this size.
Ans. Political environment.
49
SHORT ANSWERS.
Q.1. Briefly explain the following.
1. Liberalization
2. Privatization
3. Globalization.
ANS. Liberalization- “freeing the Indian business and industry from all unnecessary
government controls and restrictions”
Privatization- “ giving greater role to the private sector in the nation building
process and drastically reducing the role of the public sector”.
Globalization- it means the integration of our economy to the world economy.
LONG QUESTION ANSWERS
Que 1 State any five features of Business Environment.
OR
Describe any five features of Business Environment.
Ans. Following are the main features of the business environment
(i)
Totality of External forces: Business environment is the sum total of all
the external factors that influence the functioning of the business. Hence
it can be called as the comprehensive mega force consisting of all
external inputs.
(ii) Specific and general forces: Business environment is made up of both
specific and general force. Specific forces directly affect the working of
the business. Customers, investors etc come under specific forces while
social conditions etc. belong to general forces.
(iii) Inter- relatedness: Various element of environment are very closely
related to each other . For example arrival of large number of health
product in Indian market have influenced our lifestyles.
50
Que2. Why understanding of ‘Business Environment important for managers?
State any five points.
OR
How does understanding of ‘Business Environment help managers? Explain
with the help of any five points.
Ans. The benefits of understanding business environment are as under:
(i) Identification of opportunities and getting the first mover advantage
Environment understanding help the business firm to take advantage of
early opportunities. Such business firm likely to stay ahead of their
competitors.
(ii) Warning signal or Rader effect.
(iii) Environment awareness helps to recognize and make Use of qualitative
information.This in turn can make a business enterprise take necessary
proactive measures well in time
(iv) Planning and policy formulation
Environmental awareness provides intellectual stimulation to planners in
their decision making. They can make changes in their plans efficiently
and effectively.
(v) image building
Environmental understanding generates a feeling among public that
business is sensitive and responsive to its environmental.
(vi) Coping with rapid changes
It helps management become more sensitive to ever changing needs of
customers. As a result, they are able to respond to such changes
effectively.
(vii) Improving performance
Environmental awareness provides a continuing, broad based education
for management. Objective qualitative information generated by such
understanding provides a strong basis for strategic thinking. The
enterprises that monitor their environment closely can adopt suitable
51
business practices to not only their performance but also become leader
in the industry
Q3.
What do you understand by economic environment? List the main
aspects of economic environment.
Ans- Economic environment consist s of factors like’s inflation rates, interest rates,
consumers, incomes, economic policies, and market conditions etc. which
affect the performance of a business firm.
Following are the main aspects of economic environment:
1 The role of public and private sector in the existing structure of the
economy.
2 The rate of increase in GNP and per capita income both at current and
constant prices.
3 Quantum of exports and imports of different products.
4 Increase in transportation and communication facilities.
5 Trends in agricultural and industrial productions.
6 Amount of savings and investment.
Q4
Explain the changes imitated by the government of India since 1991?
Ans- Following changes have been observed since 1991
1. New industrial policy
a. Government has begun disinvesting in public sector undertaking
b. There are new schemes to attract foreign direct investment (FDI).
c. There is promoting clearance of foreign investment proposals.
d. Tax concession is given to units in special economic zones (sezs).
e. There is broadband facility in telecom sector
f. Abolition of industrial registrations scheme.
2. New trade policy
A. there is liberalization of import policy.
B. deemed exports are entitled to special import license,
52
C.
there
are
greater
concession
to
import
unit(EOU).and unit in export promotion zones(EPZ).
organized
D. credited is now less expensive and many imports are duty free.
E. simplification of procedures related to export promotion.
F. removal of export quotas and reduction in import duties.
3. Fiscal reforms
A. measures have been taken to bring down fiscal deficit
B. tax reforms have been entitled to increase revenue in tax complacence.
C. reduction in direct and indirect taxes.
E. decreases in subsidies.
4. Monetary reforms
A. phased reduction of statutory liquidity ratio(SLR).
B. private sectors banks allowed to set up new branches.
C. banks have now been allowed to access capital market for raising
capital.
d. Permission for disinvestment (up to 49% of total equity).
5. Capital market reforms
a. ceiling on rate of interest on debenture and bonds abolished.
b. FIIs can access capital markets.
c. private sector can set up mutual funds.
d. bonus issues have been made more liberal.
e. security and exchange board of India(SEBI) has been made a statutory
body.
Q5 Enumerate any ten positive impacts of Liberalization and Globalization.
Ans- the positive impacts of liberalization and globalization are as follows:
53
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Opportunities for new entrepreneurs.
Latest technology becoming available.
Opening up of foreign markets.
Easy imports of capital goods.
Direct investment by Indian companies abroad.
Changed attitude of labour unions.
Easy inflow of foreign capital.
Freedom of expand and diversify.
Restricting of industries
Widening of product choices for consumers.
Q6. Explain five positive points of globalization and liberalization.
Ans. Following are the positive effects of globalization and liberalization:
1. Merger and acquisitions
Many business enterprises are consolidating through mergers and
acquisitions.
2. Global market
More and more Indian companies are directing three efforts towards global
markets. Easy flow of foreign capital and easy import of capital goods
catalyze development of global market.
3. Customer is the king
Business enterprises pay their attention to customer needs and their
satisfaction.
4. New technology
Companies are upgrading their technologies. Producers are using world
class technology. This has led to more investment in research and
development (R&D), innovation, product development etc. resulting, cost of
production reduces and efficiency increase.
5. Brand building
Business enterprises are emphasizing more on brand building. They are
becoming more aggressive towards brand building and are spending huge
amounts on brand equity.
54
Q.7. discuss the impact of government policy changes on business and
industry in India.
Ans. 1. More demanding customers.
2. Increased competition.
3. Need to develop human talent.
4. Rapidly changing technological environment.
5. Market orientation.
HOTS
1. It is the process by which government control over the industry, being
loosened. Give the term to which this statement is trying to indicate.
Ans Liberalization.
VALUE BASED QUESTIONS.
Q.1. Bhupesh , a manager of the firm always takes into account the changes
taking place in business enviornment while determing plans he accepts
changes readily and gives useful suggestions to his superiors. he enjoys
coodial relations with his co workers and make plans in consultaions
with his team to achieve organisational goals.which values are exhibited
by bhupesh?
Ans. Value points.
 Adaptability
 Receptive of new ideas.
 Dynamic/futuristic approach.
 Initiative.
 Teamwork/ participative leadership.
Q.2. In recent times the Govt. has increased the prices of diesel and LPG.
Which values is being overlooked here?
ans.
 Fall in standard of living.
 Increase in domestic expenditure.
55
CHAPTER-4
PLANNING
CONCEPT SUMMARY
Meaning – It is the process of setting objectives and targets for a given time period
and formulating an action plan to achieve them effectively and efficiently. It
concerns itself
With both ends and means that is what is to be done and how it is to be done.
Present position
Here we are
Future position
where we want to
reach
Definition “Planning seeks to bridge the gap between where we are and where we want to go.
Planning is a trap to capture the future.
Importance of planning
i) Provides direction – By stating in advance the future course of action of what is
to be done and how it is to be done. By stating in advance it facilitates unity of
direction.
ii) Reduces the risk of uncertainty – By predicting future events and preparing the
organization to anticipate the future and face unexpected events.
iii) Facilitates decision making- planning helps the manager to look into the future
and make a sound judgment or choice from among the various alternatives.
iv) Reduces overlapping and wasteful activities- Through elimination and
minimization of useless and redundant activities facilities clarity.
56
v) Promotes innovative ideas- through better new methods, ideas and procedures
to reach the objectives and goals of the enterprise. It induces the management to
predict the changes in the environment and accordingly plan the strategies for
the same.
vi) Establishes standard for controlling- “control is blind without planning.” It help
provides standard against which the actual performance are compared and
evaluated to estimate the deviations.
Limitations of planning:
a) planning does not work in a dynamic environment- planning also has to work
amidst the influence of external environment which can render even the most
effective plan inoperative.
ii) Planning is a time consuming process as it requires collection of information, its
analysis and interpretation. It becomes a difficult exercise in times of unexpected
emergencies.
iii) It involves huge cost in its formulation. As a lot of money needs to be expended
in the collection, analysis and interpretation of data
iv) It creates rigidity in the mode of functioning. As the employees are required to
function as per the dictates of the predetermined policy.
v) It does not guarantee success, as a wrong or a misconceived plan or a welldrawn plan when not implemented can lead to failure.
vi)
It reduces creativity as the middle level managers and the other decision
makers have to only follow and are not allowed to deviate from the plans.
vii) The human element can give way to errors or mistakes through wrong
assumption.
viii) It is prone to external influence which can reduce its impact like natural
calamity, technology changes, policy changes, competition.
57
Steps in planning process
i) setting up objectives: The process begins with identifying and setting up of
objective.
It determines where to reach. The organizational objectives arrived at should be
measurable, understandable, clear and attainable.
ii) Developing planning premises- premises involve making assumptions relating to
future conditions. It provides relevant facts and information relating to future
conditions. Hence sound estimates or forecast need to be made.
iii) Identifying alternative course of action: The planner now arrives at the various
alternatives for performance of a task and evaluates the probable consequence of
each option.
iv) Evaluating the alternative course – The positive and negative impact each
option in light of cost, risk and benefits is worked out.
58
v) Selecting the best alternative – this is actually the stage of decision making where
the most suitable course of action is selected. The selected alternative is obviously
the one which is most feasible, profitable and has least negative impact.
vi) Implementing the plan: The plan is transformed into action by activating the other
managerial function involving organizing various resources and securing
cooperation and participation of other members of the organization.
vii) Follow up plan:This final culminating step involves reviewing the existing plan for
its relevance and effectiveness.
Types of plans:
(A) Standing or Repeatedly used plans: As their name indicates that these plans are
formulated once and they are repeatedly used. These plans continuously guide
the managers. That is why it is said that a standing plan is a standing guide to
recurring problems. These plans include:
1. Objectives
2. Strategies
3. Policies
4. Procedures
59
5. Methods and
6. Rules
(B) Single – use special or Adhoc plans: These plans are connected with some
special problem. These plans end the moment the problems are solved. After
having been used once there is no importance of these plans and in future,
whenever they are needed they are re-created. These plans include
1. Budget and
2. Programme.
Differences between standing and single- use plans
Basis
Standing plans
Single –use plans
1. period
These plans are formulated
for a long period
2.object
These plans are formulated to
bring uniformity in
decisions
They are of six type’s i.
objectives ii. Strategies iii.
Policies iv. Procedures v.
methods and vi. Rules
They guide the managers in
particular matters like price
policy and sales policy
They are based on the main
objectives of the
organization
These plans for a short
Period and are repeatedly
formulated in case of need.
These plans are designed to
run
successfully
some
particular activities
They are of two type’s i.
Budgets and ii.Programmes
3.Types
4.scope
5.Basis
These plans guide in
Matters of daily routine.
They are based on the standing
plans of the organization.
ment seeks to achieve by its operation.
 Represent the end point of management.
 Set by top management.
 Defines the future state of affairs.
 Guides the overall business planning.
 Can be expressed in specific terms. They can be measured.
1) Ob
jec
tiv
es
–
Ar
e
the
en
ds
wh
ich
the
ma
na
ge
60
2) Strategy – provides broad shape of organization’s business, refers to the future
objective, adoption of a particular course of action and allocation of resources.
3) Policies – are general statements which guide thinking in decision making.
 They are based on objectives.
 They guide managerial action and decisions.
 They exist at all levels and departments of the organization.
4) Procedures- Are a chronological sequence of routine steps on how to carry an
activity.
They detail the exact manner in which the work is to be performed.
 It is meant for the insiders to follow.
 Policies and procedures are interlinked.
5) Rules – Are specific statements that inform what is to be done.
 Reflects managerial decision.
 Simplest plan.
 They are to be enforced rigidly.
6) Methods – Are standardized ways or manners in which a task has to be performed
considering the objectives.
7) Programmes – detailed statements which are combination of goals, policies,
procedures, rules tasks, human and physical resources required and the budget to
implement any course of action. All these plans together form a Programme.
8) Budget – Is a statement of expected results expressed in numerical terms for a
definite period of time in the future.
 It quantifies future facts and figures.
 Serves as a standard for measuring actual performance.
 It is prepared for various groups of activities.
VERY SHORT QUESTION ANSWER
Que1. Name the feature of planning which says planning is a forward looking
function
61
Ans. planning is futuristic.
62
Que2. State how planning is a mental exercise .
Ans. Planning is an intellectual activity of thinking rather than doing because
planning determines the action to be taken.
Que3. How does planning create rigidity?
Ans. Planning creates rigidity by putting adverse effect on initiative taken by the
managers and not giving them any flexibility to be able with the rapidly
changing circumstances and sticking to pre-determined plans.
Que4. State the features of planning which help managers know whether they
have actually been able to attain goals and correct the deviations.
Ans. Planning establishes standard for controlling.
Que5. ‘Planning eliminates change/uncertainties’. Do you agree? Give reason
in support of yours answer.
Ans. No, I don not agree because planning only anticipates not eliminates change
/uncertainties.
Que6. Does planning work in a dynamic environment? Give reasons.
Ans. No. As it becomes very difficult to forecast the business environment.
Que7.Give any one external limitation of planning function.
Ans. natural calamites’ are beyond the control of planners.
Que8. What is meant by “follow-up action “as the step involved in the
planning process?
Ans. Follow up action means checking weather the plans are being implemented
and activities are performed according the schedule.
Que9. What is to be done for evaluating different project of a financial plan?
Ans. Risk –return tradeoff is to be considered.
Que10. What is the purpose of doing follow up action in planning process?
Ans.To ensures proper implementation of plans.
63
Que11. Name the type of plans that are used once. Also give two examples of
that plan.
Ans. Single use plans
Example: Method, program, budget etc.
Que12. Name the type of plans that are used again and for for an indefinite
period. Example of that Also gives two plans.
Ans. Standing plans
Example: objective, policy, strategy, procedure, rules.
Que13. Give one difference between policy and procedure.
Ans. Procedure consists of series of step whereas policies are guidelines for
decision making.
Que14. Name the type of plan which tells what is to be done and what is not
to be done.
Ans. Rules.
Que15. Give any one example of ‘budget’.
Ans.Cash budget.
Que16. Jagat Ltd. Decides to advertise its product which are newly launched
on television and radio. What type of plan it is?
Ans. Strategy.
Que17. ‘XYZ’ Ltd. Company select its employees thought written test along
with interview. Identify the plan.
Ans. Procedure.
Q.18. “PLANNING IS PURPOSEFUL.” HOW?
Ans. Planning is purposeful as it focuses on the achievement of organizational
goals.
64
Q.19. GIVE THE FEATURES OF AN IDEAL PLAN.
Ans.The ideal plan is the most feasible, profitable and with least negative
consequences.
Q.20. NAME THE TYPE OF PLAN WHICH IS ALSO A CONTROL DEVICE FROM
WHICH DEVIATION CAN BE TAKEN CARE OF.
Ans. Budget.
Q.21. STATE THE RELATIONSHIP BETWEEN POLICY AND STRATEGY?
Ans. Policies provide a basis for interpreting strategy. They are guides to
managerial action and decisions in the implementation of strategy.
Q.22. NAME THE TYPE OF PLAN THAT DOES NOT ALLOW FOR ANY
FLEXIBILITY OR DISRETION.
Ans. Rule.
SHORT QUESTION ANSWER
Q.1. Define Planning .List any two reasons why planning is essential.
Ans. Planning means setting objectives for a given time period ,formulating various
courses of action to achieve them and then selecting the best possible
alternative from among the various courses of action available.
Planning is essential because it (any two):
i) Provides directions.
ii) Reduces the risk of uncertainty.
65
iii) Reduces overlapping and wasteful activities.
iv) Promotes innovative ideas.
v) Facilitates decision making.
vi) Establishes standards for controlling.
Q. 2. Enumerate the steps involved in the planning process.
Ans. Steps of planning are as follows :
i) Setting up of objectives.
ii) Developing premises.
iii) Identifying alternative courses of action.
iv) Evaluating alternative courses.
v) Selecting an alternative .
vi) Implementation of plan.
vii)Follow up action .
LONG QUESTION ANSWER
Q1. “Though planning is an important tool of management, yet it is not a
remedy for all types of problems”. Do you agree with this statement?
Give any five reasons in support your answer.
OR
In spite of best efforts of managers sometimes planning fails to achieve
desired result due to its limitation. Explain any five limitation of planning.
Ans- Limitations of planning:
1. Planning creates rigidity
a. In an organization, a well defined plan is drawn to achieve some
specified goals within a specified period of time.
b. These plans lay down the future course of action and it is not possible
for the managers to change them.
c. Hence, it is not in the organizational interest to allow a particular plan
when circumstances have changed.
2. Planning does not work in a dynamic environment
66
a. The various forces of business environment like social, political,
technological and legal keep on changing and the organization have to
adapt themselves to these changes.
b. Thus, it becomes very difficult to forecast when there is change in
government policies, natural calamity, political instability in the country
etc.
3. Planning reduces creativity
a. Usually in an organization planning function is performed by the top
management and the rest of the members are required to implement
these plans.
b. As a result, middle management and other members are neither
allowed to deviate from plans nor grants authority to act on their own.
c. Hence most of the initiative and creativity in them gets reduced.
4. Planning involves huge cost
a. Huge cost is involved in the formation of plans.
b. This costs is in terms of money and time. For example, a lot of time is
involved in scientific calculations to ascertain facts and figures and to
check accuracy of facts while formulating a plan.
c. Likewise, a lot of money spent on boardroom meetings, discussion with
experts and preliminary investigation to find out the effectiveness of the
plans.
d. Moreover sometimes are cost incurred in formulating plans is higher
than the benefits received from these plans.
5. Planning is a time consuming process
a. Sometimes top level management consumers a lot of time in
formulating the plans, as a result of which very less time is left with them
to implement these plans.
6. Planning does not guarantee success
a. An organization is successfully when the plans are effectively drawn
and implemented.
b. Managers are in the habit of depending on previously tried and tested
successful plans, but this practise sometimes does not work and may
lead to failure instead of success.
67
68
Q2. Distinguish between objective and policy.
Ans- difference between objective and policy
Basis
meaning
Objective
An objective is the main target to
be achieved.
Nature
Objective determines what is to
be done
Need
Defining objectives is important
for all types of organizations.
purpose
Objectives provide the destination
towards which all organizational
activities are directed.
Level of
Objectives are determined by top
determination level managers
Scope
The scope of the objectives is
wide as other plan like policies,
procedures, rules; methods etc.
are framed on the basis of
objectives.
policy
Policies are an organization
ways for solving problems.
Policy determines how the
work is to be done
Policy formulation is not
mandatory.
Policies provides the route
to reach that destination
Policies are formulated by
all managerial level viz.
Top,middle and operational.
The scope of policy is
limited as it is a guide for
actions
to
achieve
objectives.
Q3. Distinguish between policy and procedure.
Ans- difference between policy and procedure.
Basis
Meaning
Policy
A policy is a guide for thinking.
Level
of Policies are formulated by the
determination top level managers
Nature
Policy
is
derived
from
objectives of business.
Expression
Policy is expressed in the form
of general statement.
Stages
Policies do not involve various
steps.
Managers
Policy provides some scope for
discretion
mangers discretion in his
course of action.
Procedure
Procedure is a guide for
action in a given situation.
Procedures are determined
by the lower level managers.
Procedure is laid down to
implement policy.
Procedure is expressed in
specific terms.
Procedure involves various
steps.
Procedure provides no scope
for managers discretion in
his course of action.
69
70
Q4. . Distinguish between policies and rules.
Ans- difference between policies and rules.
Basis
Meaning
Policies
A policy is a guide
Nature
Policy lays down the broad
areas of action in an
organization.
Policy is framed to achieve
objectives
of
the
organization.
Policy
provides
some
scope for the manager’s
discretions in his course of
action.
Objectives
Managers
discretion
Rule
A rule is a specific statement,
which restricts the flexibility or
discretion.
Rule lays down any specific
sequence of action in an
organization.
Rules are used to maintain
discipline and command in any
organization.
Rules provide no scope for
managers’ discretions and they
are binding for all.
Q5. Distinguish between procedures and rules.
Ans- difference between procedures and rules.
Basis
Meaning
Procedure
Procedure is a guide for
action in a given situation.
Nature
Procedure are specified in
chronological order.
The purpose of procedure is
to facilitate and simplify the
operations and eliminate
duplication.
The scope of procedure is
wide because it has its own
rules and regulations.
Purpose
Scope
Rules
Rule is a code of conduct
governing or restricting
flexibility or discretion.
Rules do not place activities
in chronological order.
The purpose of rule is to
maintain discipline in an
organization.
A rule has no procedure.
Q6. Distinguish between rules and methods.
Ans- Difference between rules and methods.
Basis
Meaning
Rules
Rules are specific
Methods
Methods are standardization
71
Nature
Relation
Purpose
Penalty
Control
Example
statements which inform
what is to be done.
Rules are regarded as
authoritative and
mandatory.
Rules restrict the
behaviour of people.
The purpose of rules is to
ensure discipline.
Breaking g of rules
attracts penalty
Following the rules
increaser the level of
control.
Smoking is prohibited.
ways of performing jobs.
Methods are regarded as logical
or rational and to be followed
for better results.
Methods act as guide for
efficient working.
Methods ensure the efficiently
in action.
Deviation from methods leads to
substandard results.
Methods re not directly related
to control.
On the job training for
supervisors.
Hots
1.”Offering 30% jobs to women.” What type of plan is it?
Ans. Policy.
2. ‘An employee will be selected through a written test’. What type of plan it
is?
Ans. Procedure.
3. Shoguns ltd. decides to sell television sets through exchange of old
television sets. What type of plan is it?
Ans. Strategy.
VALUE BASED QUESTIONS.
Q.1. In a visit to restaurant, some youngsters were found smoking in spite of
sign board indicating “no smoking zone”.
Suggest the values which will help the youth to become responsible
citizens of the nation.
 Obedience
72
 Self-discipline
 Concern of health of other people.
 Respecting the law of the land.
Q1. The CEO of XYZ Ltd. an automobile enterprise dreams of his company
becoming the best player in future, for which he sets the objectives,
forecasts the future and develops various courses of action.
i) Identify the management function which is highlighted here. ii) What
are the various values the CEO is striving to achieve?
i) Planning is the Management function
ii) The values the above mentioned paragraph highlight are:
a) Hard work helps individuals to turn their dreams into reality
b) Initiative, confidence, commitment
Q2. What values does planning emphasize by reducing wasteful activities and
establishing standards?
i) Social responsibility
ii) Empathy, Harmony
iii) Motivation,
iv) Cooperation
3. “Planning is a mental exercise”. What human value is being
Emphasized?
Ans. Adaptability
Team spirit,
Sense of judgement.
4. “Planning reduces creativity”. What value is violated in this statement?
Ans.: Initiative,
Motivation,
73
74
CHAPTER -5
ORGANISING
CONCEPT SUMMARY
Organizing is the process of defining and grouping, activities and establishing authority
relationship among them.
Process: the process of organizing consists of the following steps:
A. IDENTIFICATION AND DIVISION OF WORK– identifying and dividing the total
work to be done into small & manageable activities/job.
B. DEPARTMENTALIZATION –grouping of related jobs into larger units called
department/divisions
C. ASSIGNMENT OF DUTIES- Allocation of work to the members of each department
according to their skills and competencies
D. ESTABLISHING REPORTING RELATIONSHIPS– each individual to know from
whom he has to take orders and to whom be is accountable
IMPORTANCE: organizing is considered important because it leads to division of
work, clarity in reporting relationship, optimum utilization of resources, growth,
better administration and greater creativity.
ORGANIZATIONAL STRUCTURE is the framework within which managerial and
operating tasks are performed. It can be functional or divisional.
SPAN OF MANAGEMENT Is the number of subordinates under a superior.
FUNCTIONAL STRUCTURE groups activities on the basis of functions. The
advantages of such a structure are:
1)
2)
3)
4)
Specialization
Better control
managerial efficiency
Ease in training employees.
THE DISADVANTAGES ARE:
1)
2)
3)
4)
Functional empires
Conflict of interest
Inflexibility
Restriction in managerial development
75
DIVISIONAL STRUCTURE groups activities on the basis of product. The advantages
are:
1)
2)
3)
4)
5)
6)
Integration
Product specialization
Greater accountability
Flexibility
Better coordination
More initiative
THE DISADVANTAGES ARE:
1)
2)
3)
4)
Departmental conflicts
Costly process
Ignoring of organizational interests
Increase in requirements of general managers.
FORMAL ORGANIZATION is designed by the management to achieve organizational
goals. Its advantages are fixation of responsibility, clarity of roles, and unity of
command and effective accomplishment of goals. Its disadvantages are procedural
delays, inadequate recognition of creativity, limited in scope.
INFORMAL ORGANIZATION arises out of interaction among people at work. Its are
speed, fulfillment of social needs, fills inadequacies of formal structure. Its
disadvantages are disruptive force, resistance to change and priority to group
interests.
DELEGATION is the transfer of authority from superior to subordinate. It has three
elements: Authority, responsibility and accountability. Importance of delegation is that
it helps in effective management, employee development, motivation, growth and
coordination.
DECENTRALIZATION
is delegation of authority throughout the organization.
Importance of decentralization is that it helps in development of managerial talent,
quick decision making burden on top management, development of initiative, growth
and better control.
76
VERY SHORT QUESTION ANSWERS.
1. What is organization structure?
Ans. frame work within which the managerial operational tasks are performed.
2. Which term denotes “the number of subordinates that can be effectively
managed by superior?”
Ans. Span of management
3. Identify the type of suitable organization structure for a large scale
organization having diversified activities requiring high degree of
specialization in operations.
Ans. Functional structure.
4. Where is the divisional structure most suitable?
Ans. Where a large variety of products are manufactured using efficient
resources.
5. What do you mean by decentralization?
Ans. It refers to systematic effort to delegate to the lower level all authorities
except those which need to exercise at central point only.
6. The director of P&R ltd, an organization manufacturing Electronic items,
have asked Mr. Raj, their marketing manager to achieve a target sale of
Rs.1,00,000 per day. Mr. Raj has delegated the task to Mr. keshav, his
deputy sales manager working under him. Mr. keshav could not achieve
the targets. Is Mr. Raj responsible for the failure of Mr. .keshav ? State
the relevant principal in support of your answer.
Ans. Yes, Mr. Raj responsible. The relevant principal in support of absolute
responsibility’.
77
SHORT QUESTION ANSWERS.
Q.1. Organising is the process of defining and grouping the activities of the
enterprise and establishing the authority of relationship among them. In
the light of this statement explain the steps in the process of organising.
Ans. Steps involved in the process of organising are as follows:
i)
Identification and division of work into manageable activities so that
duplication is avoided.
ii) Departmentalization to group together activities of similar nature to
facilitate specialization.
iii) Assignment of duties to job position for effective performance.
iv) Establishing reporting relationships so that each individuals knows who he
has to take orders from and to whom he is accountable.
Q. 2. State any four points of importance of organising.
Ans. Importance of organising (Any four):
1. It leads to specialization by a systematic allocation of jobs resulting in
reduced workload and enhanced productivity.
2. It leads to clarity in working relationships by specifying who is to report to
whom.
3. It leads to optimum utilization of resources by avoiding duplication of
work and minimizing wastage of resources and efforts.
4. It helps in adaptation to change by allowing the organization structure to
be suitably modified paving the way for a smooth transition.
5. It helps in effective administration by providing a clear description of
jobs and working relationships.
6. It helps in development of personnel by delegation of work to
subordinates.
7. It helps in expansion and growth by allowing an enterprise to add more
jobs positions , departments and product lines.
78
Q. 3. Distinguish between ‘Delegation and Decentralisation’ on the basis of
the following:
a) Purpose;
b) Scope;
c) Status; and
d)Nature,
Ans. Difference between delegation and decentralization:
Basic
(a)
Purpose
Delegation
To lessen the burden of
the manager
(b)
Scope
(c)
Status
(d)
Nature
It has narrow scope as it
is limited to superior and
his immediate
subordinate
It is a process followed to
share tasks
It is compulsory because
no individual can perform
all tasks on his own
Decentralization
To increase the role of the
subordinates in the organization
by giving them more autonomy
It has a wide scope as it implies
extension of delegation to the
lowest level of management
It is the result of the policy
decision of the top management
It is optional because it is done
at the discretion of the top
management.
LONG QUESTION /ANSWERS
1. Difference between functional structure and divisional structure.
Ans.
Basis
1.Formation
Functional structure
It is formed on the basis of
different functions performed
in an organization.
2.Specialisation Emphasis is given to
functional specializing.
3. cost
It is very economical since
duplication of work is
avoided.
4.coordination
There is difficulty in
coordinating the activities if
an enterprise is dealing in
many products.
Divisional structure
It is formed on the basis of
different products produced
in an organization.
Emphasis is given to
product line specializing.
There is duplication of work
in various departments
hence costly
Coordination is easy as all
the functions of a particular
department can easily be
integrated.
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5.Suitability
This type of structure is
suitable for all types of
organizations.
This type of structure is
suitable for multi-product or
diversified firms.
2.what is meant by ‘functional structure’ of an organization? State any five
advantages of this form of organization structure.
Ans. functional structure is an organization structure formed by grouping of jobs
similar nature under function and organizing these major functions as
separate departments like production, finance etc.
Advantages are:
(a) It leads to occupational specializing since emphasis is placed on specific
functions.
(b) It promotes control and coordination within a department because of
similarity in tasks being performed.
(c) It increase managerial and operational efficiency
(d) It lower costs as it reduces duplication of effort.
(e) It ensure that different function get due attention.
3. What is meant by ‘divisional structure’ of an organization? For which type
of business enterprise is this structure most suitable? State any four
advantages of this firm of organizational structure.
Ans. Divisional structure is an organization structure comprising of separate
business units or divisions.
It is suitable those enterprises:
(i) Where two or more products are manufactured.
(ii) When an organization grows and diversifies.
Advantages of divisional structure:
(i) Products specialization helps in development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are
accountable for profits, revenues and costs related to their departments.
(iii) It promotes flexibility, initiative and faster decision making as each
division is an autonomous unit.
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(iv) It facilitates expansion and growth as new divisions can be added without
interrupting the existing operations.
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5. What is meant by ‘formal organization’ state any three advantages and two
limitations of formal organization.
Ans. Formal organization refers to organization structure which is designed by the
management to particular task.
Advantages
(i)
It is easier to fix responsibility since mutual relationships are clearly
defined.
(ii) It avoids duplication of efforts since there is no ambiguity in role that each
member has to play.
(iii) It maintains unity of command through an established chain of command
.
Limitation
(i)
It may lead to procedural delays as the established chain of command
has to be follow which increase the time taken for decision making.
(ii) It is difficult to understand all human relationship in an enterprise as it
places more emphasis on structure and work.
6.
Give the meaning of ‘informal organizations ‘and state any three features
of it.
Ans. Informal organization is a network of personal and social relation not
established by the formal organization but arising spontaneously as people
associate themselves with one another.
Feature of informal organization are:
(i) It originates from within the formal organization .
(ii) It emerges spontaneously and is not deliberately created by the
management.
(iii) The standards of behaviors evolve from group norms.
(iv) It has no definite structure or forms.
(v) Authority arises out of personal qualities.
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HOTS
Q 1 The employees of Manik Ltd., a software company, have formed a
dramatic group for Their recreation .name the type of organization so
formed and state its three feature.
Ans .Informal organization
Following are its main features;
[1] It originates from personal interaction of employees within the
organization.
[2] Flow of communication is independent and without any specified
direction of flow.
[3] It emerges spontaneously when employees frequently meet one another.
Q2. Aman, Avneesh and Amish have decided to start a business of
manufacturing toys. They identified the following main activities and
which they have to perform:
[1] Purchase of raw materials
[2] Purchase of machinery
[3] Arrangement of finance
[4] Production of toys
[5] Sale of toys
[6] identifying the area where they can sell their toys
[7] selection of employees, In order to facilitate the work they thought
that four managers should be appointed to look after
[A] Production [B]Finance [c] personnel
[A] Identify the function of management involved in the above mentioned
Para.
[b] Quote the lines from the above Para which help you in identifying this
function.
[c] State the steps followed in the process of management.
Ans. (a) Organizing
(b) Any one of the following lines:
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(i) “They identified the following main activities which they have to perform”.
OR
(ii) “In order to facilitate the work they thought that four mangers should be
appointed to look after…..
(c) Steps in the process of organizing:
(i) Identifying and dividing the work into manageable activities.
(ii) Departmentalization/ depart mentation where activities of a similar natures
are grouped together.
(iii) Assignment of duties to job positions
(iv) Establishing reporting relationships so that each individual knows who
he has to take orders from and to whom he is accountable.
Value based questions
1. The Informal Organization is used primarily for spreading rumors .Its
existence cannot be removed .What values should be imbibed to make the
Informal Organization effective and useful?
(a) Mutual understanding
(b) Empathy.
(c) Caring..
2. An Organization should allocate work to employees who are best suited for
the job. In practice it is not so, most business organizations are dominated
by fresh engineers, B-school graduates. Experience persons are not given
preference in the present scenario. What values are missing in these kinds
of job allocation? Give suggestions.
(a) Recognition
(b) Respect for seniority..
A manager, no matter how capable he / she is, cannot manage to do every
task on his/her own. Effective delegation reduces his/her workload .Though
work is delegated he/she is still accountable.
What values does accountability bring in?
(a) Responsibility
(b) Answerability.
(c) Cooperation
84
CHAPTER-6
STAFFING
CONCEPT SUMMARY
MEANING OF STAFFING :
Staffing has been described as the managerial function of filling and keeping filled, the
positions in an organization structure. Staffing is identifying the requirement of
workforce followed by recruitment, selection, placement, promotion, appraisal and
development of personnel, to fill the roles designed into the organization structure.
NEED AND IMPORTANCE OF STAFFING:
In any organization, there is a need for people to perform work. The staffing function of
management fulfills this requirement and finds the right people for the right job. The
staffing function has assumed greater importance these days because of rapid
advancement of technology, increasing size of organization and complicated behavior
of human beings. The ability of an organization to achieve its goals depends upon the
quality of its human resources.
STAFFING AS A PART OF HUMAN RESOURCE MANAGEMENT:
Staffing is a function which all managers need to perform. It is a separate and
specialized function and there are many aspects of human relations to be considered.
It is the responsibility of all managers to directly deal and select people to work for the
organization. When the manager performs the staffing function his role is slightly
limited. In small organizations managers may perform all duties related to employees’
salaries, welfare and working conditions.
Bus as organizations grow and number of persons employed increases, a separate
department called the human resource department is formed which has specialists in
the field to manage people. Human resource management includes many specialized
activities and duties which the human resource personnel must perform.
STAFFING AS A PART OF HUMAN RESOURCE MANAGEMENT (HRM)
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Human resource management (HRM) includes many specialized activities and duties
which the human resource personnel must perform. These are:
1) Recruitment, i.e., search for qualified people.
2) Developing compensation and incentive plans.
3) Training and development of employees for efficient performance and career
growth.
4) Handling grievances and complaints.
5) Providing grievances and complaints
6) Providing for social security and welfare of employees.
7) Defending the company in laws suits and avoiding legal complications etc.
IMPORTANCE OF STAFFING
The right people can help to take a business to the top; the wrong people can break
the business.
The need for staffing function has assumed greater importance these days because of:
Rapid advancement of technology;
Increasing size of organization and
Complicated behavior of human beings.
The following points highlight the importance of staffing to the organization:
1)
2)
3)
4)
5)
Obtaining competent personnel
Higher performance
Continuous survival and growth
Optimum utilization of human resources
Improves job satisfaction and morale of employees
CONCLUSION: staffing is an indispensable function of management. Without it, in an
organization, there will be – “Less Work More Play”.
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STAFFING PROCESS
1. ESTIMATING MANPOWER REQUIREMENTS
It means estimating the number and types of persons required in the organization in
case of starting a new business or expanding the existing business.
Understanding the manpower requirements necessitatesWorkload Analysis: It would enable an assessment of the number and types
of human resources necessary for the performance of various jobs and
accomplishment of organizational objectives.
Workforce Analysis: It estimates the number and type of human resources
available. It would reveal whether the organization is under- staffed, overstaffed or optimally staffed.
Recruitment
 Recruitment refers to the process of finding possible candidates for a job or
function. It has been defined as the process of searching for prospective
employees and stimulating them to apply for jobs in an organization.
Process of Recruitment:
 The various activities involved with the process of recruitment includes
(a) Identification of the different sources of labour supply.
(b) Assessment of their validity.
(c) Choosing the most suitable source or source, and
(d) Inviting applications from the prospective candidates, for the vacancies
SOURCES OF RECRUITMENT:
1) Internal sources
2) External sources
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INTERNAL SOURCES:
 Transfers: It involves shifting of an employee from one job to another, one
department to another or from one shift to another, without a substantive change
in the responsibilities and status of the employee
 Promotions: Promotion leads to shifting an employee to a higher position,
carrying higher responsibilities, facilities, status and pay. Promotion is a vertical
shifting of employees
MERITS OF INTERNAL SOURCES:
 Employees are motivated to improve their performance
 Simplifies the process of selection and placement
 Transfer is a tool of training the employees to prepare them for higher jobs.
 Shifting workforce from the surplus departments to those where there is shortage
of staff
 Cheaper as compared to getting candidates from external sources.
LIMITATIONS OF INTERNAL SOURCES:
 When vacancies are filled through internal promotions, the scope for induction of
fresh talent is reduced.
 Employees may become lethargic if they are sure of time bound promotions
 Enterprise cannot use internal sources of recruitment.
 Spirit of competition among the employees may be hampered.
Frequent transfers of employees may often reduce the productivity of the organization
EXTERNAL SOURCES:
1) Direct Recruitment: The direct recruitment, a notice is placed on the notice
board. Of the enterprise specifying the details of the jobs available. Job seekers
assemble outside the premises of the organization on the specified date and
selection is done on the spot recruitment.
2) Casual callers: organizations keep a database of unsolicited applicants in their
offices. Such jobseekers can be a valuable source of manpower. A list of such
jobseekers can be prepared and can be screened to fill the vacancies as they
arise.
3) Advertisement: The advantage of advertising vacancies is that more
information about the organization and job can be given in the advertisement.
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Advertisement gives the management a wider range of candidates from which to
choose. Disadvantage is that it may bring in a flood of response, and many
times, from quite unsuitable candidates.
EMPLOYMENT EXCHANGE: Employment exchanges run by the government are
regarded as a good source of recruitment for unskilled and operative jobs.
Disadvantage is that it may be up-to-date and many of the candidates referred by them
may not be found suitable.
 Placement Agencies and Management Consultants:
These provide a nationwide service. These agencies compile bio data of a large
number of candidates and recommend suitable names to their clients. Such
agencies charge fee for their service and they are useful.
CAMPUS RECRUITMENT: Organizations maintain a close liaison with the
universities. Vocational schools and management institutes to recruit qualified
personnel for various jobs
RECOMMENDATIONS OF EMPLOYEES: Applicant introduced by present
employees, or their friends and relatives may prove to be a good source of
recruitment. Such applicants are likely to be good employees because their
background is sufficiently known
 Labour Contractors: workers are recruited through labour contractors who are
themselves employees of the organization. The disadvantages of this system are
that if the contractor himself decides to leave the organization, all the workers
employed through him will follow suit.
 Advertising on Television: Generally advertised through television and
newspaper the detailed requirements of the job and the qualities required to do it
are publicized along with the profile of the organization where vacancy exists.
 Web Publishing: There are certain website specifically designed and dedicated
for the purpose of providing information about both job seekers and job opening.
Merits of External Source:




Qualified personnel
Wider Choice
Fresh Talent
Competitive Spirit
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Limitations of External Sources:
 Dissatisfaction among existing staff
 Lengthy process
 Costly process
Selection:
 Selection is the process of identifying and choosing the best person out of a
number of prospective candidates for a job. Towards this purpose, the
candidates are required to take a series of employment tests and interviews.
Process of selection:
 Preliminary Screening: Preliminary screening helps the manager eliminate
unqualified or unfit job seekers based on the information supplied in the
application forms.
 Selection Tests: An employment test is a mechanism (either a paper and pencil
test or an exercise) that attempts to measure certain characteristics of
individuals. These characteristics range from aptitudes, such as manual
dexterity, to intelligence to personalities.
 Important Tests Used for Selection of Employees
 Intelligence Tests
 Aptitude Test
 Personality Test
 Trade Test
 Interest Test
 Employment Interview: The role of the interviewer is to seek information and
that of the interviewee is to provide the same. Though, in present times, the
interviewee also seeks information from interviewer.
 Reference and Background Checks: Many employers request names,
addresses, and telephone numbers of references for the purpose of verifying
information and, gaining additional information on an applicant.
 Selection Decision: The final decision has to be made from among the
candidates who pass the tests, interviews and reference checks.
 Medical Examination: After the selection decision and before the job offer is
made, the candidate is required to undergo a medical fitness test. Fit candidates
are given the job.
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 Job offer: Job offer is made through a letter of appointment/confirm his
acceptance. Such a letter generally contains a date by which the appointee must
report on duty.
Basic information that should be included in a written contract of employment
will vary according to the level of the job, but the following checklist sets out the
typical headings: Job Title, Duties, Responsibilities, Date when continuous
employment starts and the basis for calculating service, rates of pay,
allowances, hours of work, leave rules, sickness, grievance procedure,
disciplinary procedure, work rules, termination of employment
Training And Development:
Training and Development is an attempt to improve the current or future employee
performance by increasing an employee’s ability to perform through learning, usually
by changing the employee’s attitude or increasing his or her skills and knowledge.
Benefits to the Organisation:
 Wastage of efforts and money is minimized.
 Leading to higher profits.
 Increases employee morale and reduces absenteeism and employee turnover.
 It helps in obtaining effective response to fast changing environment.
Benefits to the Employee:




Improved skills and knowledge
Increased performance and help in earning more money.
Training makes the employee more efficient.
Training increases the satisfaction and morale of employees.
Training, Development and Education:
 Training: Is any process by which the aptitudes, skills and abilities of employees
to perform specific jobs are increased. It is a process of learning new skills and
application of knowledge. It attempts to improve their performance on the current
job or prepare them for any intended job.
 Education: Is the process of increasing the knowledge and understanding of
employees. It is the understanding and interpretation of knowledge. It does not
provide definite answers, but rather develops a logical and rational mind that can
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determine relationships among pertinent variables and thereby understand a
phenomenon
 Development: refers to the learning opportunities designed to help employees
grow. It covers not only those activities job performance but also those which
bring about growth of the personality, help individuals in the progress towards
maturity and actualization of their potential capacities so that they become not
only good employees but better men and women.
VERY SHORT QUESTION/ANSWERS.
Q1.What do you mean by ‘staffing’?
Ans. staffing means ‘ finding the right people for the right job’. In other words ,it
means filling and keeping filled the job position in the organization.
Q2. Define “Recruitment.”
Ans. Recruitment may be defined as the process of searching for prospective
employees and stimulating them to apply for jobs in the organization.
Q3. Which source of recruitment is suitable for established business, internal
or external source?
Ans. External source.
Q4. Give the meaning of ‘placement ‘as a step in the process of staffing.
Ans. Placement refers to employee occupying the position or post for which he has
been selected.
Q5. Why is said that recruitment is positive process?
Ans. Because recruitment aims at attracting number of candidates to apply for
the given job and there is rejection in this process.
Q6 Why is it said that selection is negative process?
Ans. Selection is said to be negative process because it aims at rejection of
employees. At every stage many people are eliminated from the process and
only a few more to next stage.
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Q7 Name and state the ‘on-the-job method of training ‘that is used to give
training to the electricians.
Ans. Apprenticeship training.
It is the method of training where the trainee is put under the guidance of a
master worker to acquire a higher level.
Q8 Where is vestibule training suitable?
Ans. Where sophisticated and expensive machinery/ equipment is required.
Q9 For whom is internship suitable and why?
Ans. Technical people as they get to balance their theoretical knowledge with
practical training.
Q10 Name the method of training which the trainee learns under the guidance
of a master worker.
Ans. Apprenticeship training.
Q11 Give the meaning of ‘compensation ‘in the process of ‘staffing’.
Ans. Compensation refers to all forms given of pay or rewards given to the
employees.
SHORT QUESTION ANSWERS.
Q.1. Enumerate four points of importance of staffing.
OR
Why Is staffing considered an important function of management in all types
of organization ? State any three reasons.
Ans. Staffing is considered an important function of management because of the
following reasons :(any three):
1. It helps in discovering and obtaining competent personnel for various jobs.
2. It results in improved performance by putting right person on the right job.
3. It ensures continuous survival and growth of the enterprise through the
succession planning for managers.
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4. It ensures optimum utilization of human resources .It avoids disruption of
work by indicating in advance the shortage of personnel.
5. It improves job satisfaction and morale of employees through objective
assessment and fair reward for their contribution.
6. It avoids wastage of material , time ,effort and energy.
Q.2. Explain the main functions of human resource management?
OR
‘Human Resource Management Includes many specialized activities and
duties’.
State any four such activities.
Ans. Following are the main functions of human resource management:
i) Search for qualified and competent people.
ii) Analysis of jobs and collection of information about jobs.
iii) Development of compensation and various incentive plans.
iv) Training and development of employees.
v) Maintenance of labor relations with union and management.
vi) Providing social security to employees and handling grievances.
vii)Defending enterprise from legal complications.
Q.3. State any three advantages of Internal sources of Recruitment.
Ans. Advantages of internal sources of recruitment:
a) Motivate employees as promotion at higher level may lead to a chain or
promotions at lower levels in the organization .
b) Simplify the process of selection as the candidate are already known to
the organization.
c) No need for induction training as the employees are already familiar
with the organization.
d) Help in adjustment of surplus staff in those departments where there is
shortage of staff.
e) Economical source of recruitment.
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Q.4. Despite the internal sources of recruitment being economical ,why do
the companies not always use this source? Give any four reasons
Ans. The companies do not always use internal source of recruitment because of
the following reasons:
i)
The scope for the entrance of fresh and more talented employees is
reduced .
ii) Surety of promotion makes the employees lazy.
iii) All the vacancies of an organization cannot be fulfilled by this source.
iv) Use of internal source of recruitment hampers the spirit of competition
among the employees.
Q5. What do you mean by selection? Enumerate various steps in selection
process.
Ans. Selection is the process through which unsuitable candidates are rejected and
the suitable ones are chosen .In other words ,selection is choosing from
among the candidates the ones who best meet the position’s requirements.
Steps in selection process as under:
i) Preliminary screening.
ii) Selection Tests.
iii) Employment Interviews.
iv) References and Background checks.
v) Selection Decision.
vi) Medical Examination.
vii) Job Offer.
viii) Contract of Employment.
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Q. 6.Why training is important for the employees? State any reasons.
OR
State any four reasons why training is needed for the
employees.
Ans. Reasons why training is needed for the employees:
a)
b)
c)
d)
e)
f)
It helps in promotion and career growth
It helps to earn more.
It reduces accidents
It increases the morale and satisfaction of the employees
It provides better employment opportunities
It helps in the mobility of employees.
LONG QUESTION/ANSWERS.
Q1. Explain the process of staffing.
Ans.
Estimating manpower requirement
Recruitment
Selection
Placement & orientation
Training & development
Performance appraisal
Promotion and career planning
compensation
Q2. Difference between recruitment and selection.
Ans.
Basis
1.meaning
2.sequence
Recruitment
It is process of searching and
motivating candidates to apply
for a job
It proceeds selection is the
process of staffing
Selection
It is process of staffing
which rejects unsuitable
candidates
It follows the steps of
requirement in process of
staffing .
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3.scope
It is restricted to the expense
of receipt of application
The basic purpose is to create
a large pool of applicants for
the job.
4.purpose
5.positive/ne
gative
process
It includes sorting of the
candidates .
The basic purpose is to
eliminate
as
many
candidates as possible until
the
most
suitable
candidates get finalized.
Recruitment is a positive Selection
is
negative
process in the sense that more process in the sense that
and more
applicants are more
application
are
sought to be attracted.
rejected than selected.
Q3.Difference between training and development.
Ans.
Basis
1.meaning
2.nature
3.focous
4.duration
5.purpose
6.level
trainees
involved
7.scope
learning
Training
It is process of imparting
knowledge
for
doing
specific job
It is a job oriented process
It focus on training skill
Development
It is process of learning
opportunities designed to help
employees group.
It is a carrier oriented process
It focus on human ideas
conceptual
Its duration is short
Its duration is long.
The basic purpose of The
basic
purpose
of
training is to enable the development is to enable the
employees to document overall growth of employees.
job or some intended job.
of Training is required by Development is usually required
superiors and laborers.
by higher managerial level.
of Training has a narrow
scope because it is a part
of development
8.depth
of Training means making
knowledge
employees
skillful
in
imparted
particular job
9.initiative in Training
enables
the
learning
employees to do their
existing or intended jobs
more skillfully.
Development has a wide scope
as training itself is a part of
development
Development means making
employees skillful in many
fields.
Development
enables
the
employees to tackle future as
well as existing problems more
skillfully.
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98
Q4.‘Delegation is the entrustment od responsibility and authority to another
and the creation of accountability for performance.’ In the light of this
statement identify and explain the essential elements of delegation.
Ans. Delegation is the entrustment of responsibility and authority to another and the
creation of accountability for performance. The essential element of delegation
are;
(a) Authority:
 It refers to right of an individual to command his subordinates and to
take action within the scope of his position.
 It arises from the established scalar chain which links the various job
position and level of an organization.
 Authority flows from top to bottom.
(b) Responsibility:
 It is the obligation of a subordinate to properly perform the assigned
duty.
 It arises from a superior –subordinate relationship.
 It flows upwards.
(c) Accountability:
 It implies being answerable for the final outcome.
 It cannot be delegated
 It flows upwards.
HOTS
1. Name the concept related to
(i)searching for qualified people
(ii discovering the most suitable candidate to fill the vacant job position?
Ans. (i) Recruitment
(ii) Selection
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Q.2. Some learning opportunities are designed and delivered to improve skills
and abilities of employees whereas some other are designed to help in
the growth of individuals in all respects. Identify and explain the two
concepts explained above.
Ans. ‘Some learning opportunities are designed and delivered to improve skills and
abilities of employees’ refers to TRAINING.’
Some other are designed to help in the overall growth of individuals in
all respects’ refers to DEVELOPMENT.
Training is the process by which the aptitudes, skills and abilities of
the employees to perform specific jobs are improved.
Development is the process by which the employees acquire skill and
competence for handling higher jobs in the future. It refers to learning
opportunities designed to help employees grow.
Q.3. Selection is a negative process’. Explain.
Ans. Selection is choosing from among the candidates the ones who best meet a
position’s requirements.
 To achieve this target, candidates are required to take a series of tests and
interviews in different stages.
 At each stage, many are eliminated and only a few move to next stage.
 The process of elimination continues till the right ones are finalized.
 The above scenario clearly establishes the fact that selection is the
process In other words, selection is the process of selecting the most
potential candidates from among those who had applied for the job by
going through the process of rejection of relatively unsuitable candidates.
Hence, it is referred to as a negative process.
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Q.4. Atul, is working in an organization. After every three every three month
his manager transfers him form one department to another so that the
may gain a broader understanding of all the departments of
organization.
Name and explain the method of training Atul is undergoing.
Ans. Job Rotation.
 This method of training involves shifting the trainee from one
department to another or from one job to another.
 It enables the trainee to gain a Broader understanding of all parts of the
business and how the organization functions as a whole.
 It makes it easier for organization at the tome of promotions
replacements and transfers.
Value based question
1. A company proposes a salary structure in its advertisement, but
later follows completely different salary structure i.e. less than quoted.
What kind of reactions will it evoke? Mention the values ignored
(a) Honesty
(b) Trust.
(c) Commitment.8.
Q2Transfer is used as a tool to threaten employees. Is it a right attitude? What
values are ignored?
(a) Democracy
(b) Empathy.
(c) Motivation.9.
Q3.Campus Recruitment is a good source of recruitment. But there is a wide
difference in their salary structure, when compared to others who are
appointed through other sources. List the values ignored here.
(a) Honesty
(b) Trust.
(c)) Equality.
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CHAPTER -7
DIRECTING
CONCEPT SUMMARY
 Meaning of Directing: It refers to instructing, guiding, communicating and
inspiring people in the organization.
 Importance of Directing:
1) It initiates action
2) It integrates employees’ efforts.
3) It is the means of motivation.
4) It facilitates implementing changes.
5) It creates balance in the organization.
 Functions of a supervisor:
1) Facilitates control
2) Optimum utilization of resources
3) Maintenance of discipline
4) Feedback
5) Improves communication
6) Improves motivation
 Motivation – Motivation process of stimulating people to accomplish desired
goals. It depends up on satisfying the needs of people.
 Maslow’s Hierarchy of Needs:-According to Maslow, man does every work to
satisfy his need. A man has various needs and their order can be determined. The
needs of a human being serve as a motivation for him. On the basis of priority
human needs can be divided into five parts
1) Physiological needs
2) Safety needs
3) Affiliation or social needs
4) Esteem needs
5) Self- actualization needs.
 Financial or Monetary Incentives: financial incentives are those incentives
which are evaluated in terms of money. These are helpful to satisfy physiological
and safety evaluated in terms of money. These are helpful to satisfy physiological
and safety need. It includes the following
1) Pay and allowances
2) Productivity-linked wage incentive
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3) Bonus
4) Profit sharing
5) Co-partnership
6) Suggestions
7) Retirement benefits
8) Perquisites
 Non- financial or Non- monetary Incentives: Non-financial are not directly
related with money. These incentives help in the satisfaction of top hierarchy
needs like social, esteem and self- actualization. It includes the following
1) Status
2) Organizational climate
3) Career advancement opportunity
4) Job enrichment
5) Employee recognition Programmes
6) Job security
7) Employee participation
8) Employee empowerment.
 Meaning of leadership: It refers to influence others in a manner to do what the
leader wants them to do.
Leadership Styles:
1. Autocratic Leadership style:(a) Meaning: - It refers to that leadership style in which the leader tends to run the
show all by him-self.
(b) Characteristics:





Centralized Authority
Single – man Decision
Wrong belief
Regarding Employee
Only Downward communications.
(c) Advantages:
 Quick and clear Decision
 Satisfactory work
 Necessary for less Educated Employees
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(d) Disadvantages:
 lack of motivation
 agitation by Employees
 possibility of partiality
2. Democratic Leadership Style: Meaning: It refers to that leadership style in which the leader consults with his
sub ordinates before making any final decisions.
 Characteristics :-(i) cooperative Relations, (ii) Belief in Employee ,(iii)open
communication.
 Advantages: (i) High Morale, (ii) creations of More Efficiency and productivity,
(iii) Availability of sufficient Time for Constructive Work.
 Disadvantages: (i) Requirement of Educated Subordinates, (ii) Delay in
Decisions, (iii) lack of Responsibility in Managers.
3. Laissez-faire or Free-rein Leadership Style:(a) Meaning: It refers to that leadership style in which the leader gives his sub
ordinates complete freedom to make decisions.
(b) Characteristics




Full faith in subordinates
Independent Decision-making system
Decentralization of Authority
Self- Directed Supervisory and Controlled
(c) Advantages
 Development of self-confidence in sub ordinates
 High-level motivation
 Helpful in Development and Extension of the Enterprise
(d) Disadvantages
 Difficulty in Cooperation
 Lack of Importance of Managerial Post
 Suitable only for Highly Educated Employees.
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Communication: Communication refers to process of exchange of ideas between or
among person and creates understanding. Communication process involves the
elements of source, encoding, channel, receiver, decoding and feedback.
Formal Communications Refers to all official communications in the form of orders,
memos, appeal, notes, circular, agenda, minutes etc.
Informal Communications Are usually in the form of rumors, whispers etc. They are
unofficial, spontaneous, unrecorded, spread very fast and usually distorted.
Barriers May exist for effective communications. Some of these barriers includesemantic barriers, organizational barriers, language barriers, transmission barriers,
psychological barriers and personal barriers.
Manager should take appropriate measures to overcome these barriers and promote
effective communication in the organization such as
Improving communication effectiveness:









Clarify the ideas before communication
Communicate according to the needs of receiver
Consult others before communicating
Be aware of language
Convey things of help and value to listeners
Ensure proper feedback
Communicate for present as well as future
Follow up communicate and
Be a good listeners
VERY SHORT QUESTION ANSWERS.
Q.1 What do you mean by Maximum Individual Contribution (MIC)?
Ans:- It means that every individual should contribute to this maximum potential in
the organization.
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Q.2 Give any two element of directing?
Ans:- (a) supervision.
(b) Motivation.
(c) Leadership Communication.
(d) Communication
Q.3 Define Motive.
Ans:- Motive is inner state that energizes , activates or move and direct behavior to
towards goals.
Q.4 What role does motive play in the process in motivation?
Ans:- Motive energizes , activates and direct employers in an organization towards
achievements of organizational goals.
Q.5 How does motivation helps organization in reducing of the cost of new
recruitment and training?
Ans:- By providing suitable incentives to enhance internal promotion.
Q.6 which is the highest level of need in the Maslow’s Theory of motivation?
Ans:- Self Actualization need.
Q.7 Which factors are includes in esteem needs?
Ans:- Self respect , autonomy status.
Q.8 Name the incentive scheme used to enrich and make jobs interesting?
Ans:- Job enrichment.
Q.9 Give meaning of ‘Authoritative style’ of leadership.
Ans:- It is a one in Which a leader gives order and insists that they are obeyed .He
determine the policies for the group without consulting them.
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Q.10 Nitin, working in X Ltd. Centralizes the power with himself and takes all
decisions without even consulting his subordinates .He commands and
except strict compliance from his subordinates. In case of noncompliance he used to punish subordinates. and In case of
accomplishment of task rewards them identified style on the basis of
which Mr.Jitin leads them.
Ans:- Authoritative Leadership.
Q.11 Meet working in Y Ltd. Is participative in the sense he consult
subordinates on proposed action and decision. He also delegates
authority and allow subordinates to share on the basis of which Mr.
Meet leads his subordinates.
Ans :- Participative Leadership.
Q12 How does communication helps in smooth working of an enterprises?
Ans:- By making organizational interaction possible.
Q13 what you mean by informal communication?
Ans:- Is the communication that takes place without following the formal lines of
communication.
Q14 Why informal system of communication generally refused as the
‘grapevine communication.
Ans:- It spread throughout the organization with its branches going out in all
directions in utter disregard to the levels of authority.
Q15 what is Vertical communication.
Ans:- Upwards or downwards communication through formal channels is called
Vertical communication.
Q16 why does the need for informal communication arise?
Ans:-They cannot do through formal channels hence need for informal
communication.
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Q17 Define ‘Gossip Network’.
Ans:- Communication on non-selective basis among one anther is called gossip
Network.
Q18 what is the advantages of informal communications.
Ans:- It can transmit reactions of subordinates to superiors.
Q.19. Give examples of barriers of communication.
Ans:- Semantic barriers, psychological barrier, organizational barrier.
20. Name the four elements of directing.
1.
2.
3.
4.
Supervision
Motivation
Leadership
Communication
SHORT ANSWERS.
Q1. How does the directing function ingrate employees’ efforts’?
Ans. At all level of management there are subordinates. The work entrusted to
these individuals is interrelated. The performance of each individuals affects
the performance of others. Thus individual efforts need to be integrated, so
that the organization achievers its goods. Directing integrates the activities of
subordinates through guidance and counseling.
Q2.Explain in brief the concept of motivation, leadership and communication.
Ans. Motivation is process of stimulating people to action to accomplish desired
goals. Motivation depends upon satisfying needs of people
Leadership is an art or process of influence the behavior of people so that
they will strive willingly enthusiastically towards the achievement of
organization goals.
Communication is a process by which people create and share information
with another to reach common understanding.
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Q4.Explain any four point, how supervision is an important element of
directing.
Ans. (i) Maintain day to day contact
(ii) Link between workers and management
(iii) Ensures perform of work
(iv) Builds efficient team of workers
LONG QUESTION ANSWERS.
1. Define motivation and explain its main features.
Ans.Motivation is the driving force that inspire people to put their efforts willingly foe
the achievement of organizational goals.
It is the inner state within individual that automatically drives him towards goal
oriented activity
It is a psychological phenomenon which energizes activates and stimulates
with the internal feeling of you employees to accomplish desired goal. Such
arousal of internal feeling in the mind of an individual drives him automatically
to accomplish the desired goals of an organization. It cannot be forced on
employees.
It comes automatically from the employees as it is the volunteer willingness to
do the work.
2. Motivation is a continuous process. Explain
Ans. Human needs give rises to the process of motivation. A need of individual give
rises to tension which further inspire him to drive i.e. to take action .These
action lead to search behavior to fulfill such needs.
At last when the needs are satisfied, the person gets rid of the tension. After
satisfaction of present need. He again determines future needs.
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110
Determination of future needs.
3. How does motivation improve the efficiency of the worker in an
organization ?give any three points.
Ans. Motivation improves the efficiency by following ways :
(I) It stimulates the willingness among worker to put in their best efforts.
(II) It bridges the between ability and willingness to work.
(III) It makes the place of a work a source of joy and thus helps in reduction of
absenteeism.
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4. Explain the concept of motivation and Maslow need hierarchy theory of
motivation?
Ans. Motivation is the process of stimulating people to action to accomplish desired
goal.
Maslow need hierarchy in motivation: mellows theory of motivation was
based on needs. He felt that within every human being, there exists a
hierarchy of five needs.
Needs are those desire, wants or urges of motivates an individual to take
steps for its fulfillment.
(A)
Basic physiological needs- hunger, thirst, shelter, sleeps.
(B)
Safety needs- protection against dangers, safety of property, etc.
(C)
Affiliation/ belongingness needs- affection, acceptance, sense of
belongingness, etc.
(D)
Esteem needs- self-respect, autonomy, status, etc.
(E)
Self-actualization needs- growth and self-fulfillment.
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Q5. Explain five financial incentives.
Ans. Financial incentives are as under :
Pay and allowance: salary is the basic monetary incentive for any employee.
Besides basic salary, it also include dearness allowance, travelling allowance
and other allowance.
Productivity linked wage incentives some time wages incentive plans are
linked with productivity to increase latter.
Bonus: it is the incentive which is given bin additional to the salary or wages
of the employees.
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Retirement benefits: various retirement benefits such as provident fund,
pension and gratuity act as great motivators for an employee when he/she is
in service.
Perquisites: various perquisites and fringe benefits such as car allowance for
the children house rent allowance etc are provided by the companies in
addition to the salary.
Q6.
’’ Leadership is considered as the most important element of the
directing function of management.’’ In the light of this statement, explain
the importance of leadership.
Ans. Yes, I agree with the above statement. Leadership is a key factor in making
any organization successful it (Any four) :
Leadership aims at influencing subordinates to achieve organizational goals.
The importance of leadership can be discussed as follows:
Influences the behavior of people
Leadership involves influencing the behavior of the people and making them
contribute their full efforts for the good of the organization
Handles conflicts
A good leader helps in solving the conflicts among his followers and also
removes their negative feelings
Maintains coordination
A leader always maintains good relations with his followers and provides them
the required confidence, support and encouragement. He thus helps in
creating a healthy working environment
Introduces change
A good leader helps in solving the problem of “resistance to change” by
inspiring and persuading them to accept the change without any
discontentment.
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Q7. What do you mean by authoritative style of leadership? Give advantage
and disadvantage of authoritative style leadership. Also suggest the
situation where it is suitable.
Ans. Authoritative style of leadership is called the Autocratic leadership.
An authoritative leader keeps the power with him. He takes all the decisions on
his own and does not consult his subordinates.
Such a leader is command in nature and except hissubordinates to follow his
order without questioning
Him. He believes in threatening and punishing the juniors for not following
instructions .
such a leader keeps full control over is subordinates while supervising them.
He thinks thst money is basic need that makes people work besides security.
Advantages
This style of leadership helps in quick decision making as employees are not
consulted while taking decisions.
Autocratic leadership is crucial in getting high productivity when needed
especially in case of emergency.
Disadvantages
Autocratic leadership leads to irritation, conflict and low morale among
employees.
Subordinates do not appreciate the leader as decisions are imposed on them
and they do not get a chance for development.
Q8. What do you mean by democratic style of leadership? Give advantages
and disadvantages of democratic style of leadership.
Ans. Democratic style of leadership is also called participative leadership.
Democratic leader consult his employee in participative decision making
discusses the proposed action with, his staff and follows by majority decision.
Participative leader allows freedom of thinking and expression. He welcomes
the suggestion and view of his subordinate and listens to their grievances.
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Such a leader delegates his authority and permits the subordinates to share the
power he enjoys.
Advantages
Such a style of leadership enhances the job satisfaction, motivating and morale
of the employees.
It enhances acceptance to change as against resistance to change.
Disadvantages
It is time consuming and result in delay in decision making.
In case Subordinate incomplete and want to avoid interaction with the leader,
then such leadership style in appropriate.
Q9. Explain any six common barriers to effective communication.
Ans. Barriers to effective communication are also follows
Bad expression of message: badly expressed message, wrong due to wrong
usage of words, grammar, omission of important details, lack of clarity etc.
Loss by transmission & poor retention: by a time a message reaches the
final recipient, the information contained in it is lost partially or completely
when it has pass through various level.
Status: communication among people belonging to different status and
position is rather difficult.
Unclarified assumption: sometimes a message is not precise and has
implicit assumptions. If the Seder does not take care to clarify their meaning
explicitly.
Premature evaluation: it seen that some people have a tendency to display “I
know all” approach by interrupting the sender &yet claiming that they have got
what they have in mind.
Unwiilingllness to communicate : best of communicators
cannot
communicate with those who are just not open to same . Some are simply not
keen to communicate much anyway.
Q10 Suggest certain measures for improving communication effectiveness.
116
Ans.
Any issue to be communicated to a subordinate should be clearly and
completely studied and analyzed by superior.
Moreover.it should be started in such a manner that can help a subordinate
easily understand it in the same sense in which the superior wants him to
receive it.
Communicate according to the needs of receiver
The level of understanding and education of the receiver must be very clear to
the sender.
Sender should be try to communicate according to the level of the receiver.
Ensure the feedback
Proper feedback helps in improving the communication process.
The sender should ask appropriate regarding message conveyed by him and
the receiver should be encouraged to respond to same.
Follow up communications
Regular follow up and review of the instruction given to subordinate help in
removing difficulties in implementing the instruction.
Q11 Explain the process of communication.
Ans. It contain following steps
1. The sender formulates the message than he wants to convey to the
receiver.
2. He selects an appropriate channel or medium through the message is to
be transmitted.
3. The message is received by the receiver.
4. Received message is decoded by the receiver can draw the meaning of
the message.
5. The receiver sends his response to the sender. In case any confusion, the
same conveyed and necessary clarification sought.
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12 Explain any four psychological barriers to effective communication.
Ans. Premature evaluation
It refers to evaluation the message before the sender even completes. it this
may lead to understanding and thus act as a barrier to effective
communication.
Lack of attention
None listening to a message without giving proper attention, by the receiver
because of preoccupied mind, act as great psychological barriers.
Rules
Rigid rules and regulations may place may difficulties’ in the way constructive
communication.
Status
Communication among people belonging to different status and position is
rather difficult. They don’t feel to communication with one another.
HOTS
Q.1. How does motivation help in the negative attitude of employers to
positive attitudes?
Ans. According to William G. scout, “motivation means a process of
stimulating people to action to accomplish desired goals”.
If a worker is not rewarded properly, he may develop negative attitude
towards his work.
 However, by giving suitable reward, encouragement and praise, his
negative attitude can be changed to positive one.
 In general, motivation makes a person realize that in spite of his
dissatisfaction he still needs to give his best as an employee in his own
interest.
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 hence, it changes the negative attitude of employees to positive attitude.
Q.2. “leadership is required only for less efficient subordinates”. Do you
agree? Explain any four reasons in support of your answer.
Ans. No I don’t agree. Leadership is required not only for less efficient subordinates
but for all subordinates because of the following reasons: (any four)
Leadership- (a) Guides and inspires employees/influences the behavior.
(b) Creates confidence.
(c) Facilitates change…..
(d) Provides training.
(e) Handles conflicts.
(f) Improves efficiency.
(g)Enhances group cohesion
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Q.3. In ABC Ltd. All the employees take things easy and are free to approach
anyone for minor queries and problems. And problems. This has
resulted in everyone talking to one another causing thereby inefficiency
in the office. It has also resulted in loss of secret and confidential
information. What system do you think the manager of ABC LTD.?
Should adopt to improve communication? Give reasons.
Ans. In my point of view, the ABC Ltd. should adopt formal communication
system to improve its state of affairs. Reasons for same are:
(i) It ensures maintaining secrecy of confidential matters.
(ii) It provides support to the authority of a superior over subordinates
because it flows through official channels designed in the organizational
chart.
(iii) Such communication is systematic and ensures orderly flow of
information and ideas.
(iv) The source of communication can be easily located. Hence, in case of
any confusion, the matter can be easily clarified.
Q.4. Compare Authoritative Style, democratic Style and Leissez- Faire Style
of leadership on the basis of (i) Decision making; (ii) motivation
technique; (iii) Focus (iv) Delegation of authority; (v) initiative; (vi)
Communication.
Ans. Leadership Style-A Comparison
Basis
Authoritative Style
1.Decision
making
Decision making is
done by the leader
alone. He is ‘l’ centric
and does not consult
subordinates.
2.Motivation
technique
Coercion
(i.e.
threatening
and
punishing employees)
Leader- ship focuses
on boss Absent
Democratic Style
Laissez-fire
Style
Decision making is Decision making
participative.
is
done
by
Subordinates are subordinates. It is
consulted
by ‘You’ centric.
leader on different
issues and it is
‘we’ centric.
Employees
are Employees
are
involved
and self-motivation
involved
and and follow selfrewarded for work. guidance
and
control.
120
3. Focus
Absent
4. Delegation Absent
of Authority
Leadership
focuses on group
Present
Leadership
focuses
on
subordinates
Full delegation of
authority
5. Initiative
Highly strict role of Present
leader who expects
complete compliance
of orders.
Fully present
6.
Communicati
on
Downward i.e. one Both down word Free
flowing
way communication
and upward i.e. communication.
two
way
communication
Value Based Questions.
Q1.Goodwill Tier manufacturing Co. appoints Mr. Ravi as supervisor of their
production department. He is kind and guides his subordinates. He
clarifies their doubts in performing the task. This helps the worker
to achieve their targets. As a supervisor, what functions will you perform
to cope with the situation? What positive values are exhibited by Mr.
Ravi?
Help
Motivation
Compassion
Responsible
Q2 Mr. Vimal Nath, a sales manager, achieved his sales targets one month in
advance. His achievement was displayed on the notice board and a
certificate for the best performance was awarded to him by the CEO of
the Co. Name the type of incentive offered to the employees. What values
can be generated among the workers by adopting this incentive?
ANS. Recognition
Motivation
Sense of appreciation
Encouragement
Inspiration to other workers
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CHAPTER-8
CONROLLING
CONCEPTS MAPPING :-
122
123
PROCESS OF CONTROLLING
1. Meaning of controlling: comparing actual performance with standards and
finding deviations if any and taking corrective action.
Actual Performance=Standards=No deviation
Features /Nature of Controlling:




Controlling is pervasive
Controlling is a primary function
Controlling is a continuous process
Controlling is a goal oriented function
2. Process of Controlling:
1. Setting performance standards: standards are the criteria against which
actual performance would be measured. Standards serve as bench marks.
They can be set in both quantitative as well as qualitative.
2. Measurement of actual performance: Performance should be measured in
an objective and reliable manner.
124
3. Comparing actual performance with standards:
4. Analyzing deviations: Major deviation or minor deviation and analyzing the
causes of deviation.
a) Critical point control: Focus only on key Result Areas (KRAs).
b) Management by Exception: Concentrate only on major deviations only.
5. Taking corrective action: when deviations go beyond the acceptable range,
especially in the important areas, it demands immediate managerial attention so
that deviations do not occur again and standards are accomplished.
Conclusion: In case the deviation cannot be corrected through managerial action,
the standards may have to be revised.
125
IMPORTANCE OF CONTROLLING
RELATIONSHIP BETWEEN PLANNIG AND CONTROLLING:
 Planning and controlling are inseparable twins of management. Planning
initiates the process of management and controlling completes the process.
Plans are the basis of control and without control the best laid plans may go
astray.
 Planning is clearly a prerequisite for controlling. It is utterly foolish to think that
controlling could be accomplished without planning
 Planning is prescriptive and controlling is evaluative
 It is often said that planning is looking ahead while controlling is looking back.
However, the statement is only partially correct. Plans are prepared for future
and involve looking ahead. On the contrary, controlling is like a postmortem of
past activities to find out deviations from the standards. In that sense
controlling is a backward looking function. However, it should be understood
that planning is guided by past experience and the corrective initiated by
control function.
126
127
VERY SHORT QUESTION ANSWER
Q1 What do you understand by controlling?
Ans. Controlling is that function of management which ensures that activities of an
organization conform to the standard .it also involves establishing standards,
measuring performance against these standards and correcting deviations
from the standards set.
Q2 Suppose you are the manager of xyz clothing ltd it comes to your
knowledge that postal expenses have been increased by15% over the
standard price and cost of labor and raw materials has increased by
3%which of the two deviations is more critical according to you?
Ans. Increase in cost of labor and raw material is more critical. (the principle of
critical point control)
Q3 Give an example of external factors beyond the controlling process.
Ans. Government policy.
Q4 which two steps in the process control are concerned with compelling
events to confirm to plan?
Ans. (i) Comparison of actual performance with standards
(ii) Taking corrective action.
Q5 Why is it said that “controlling is a continuous activity”
Ans. Controlling is a continuous activity because it involves constants review of
actual performance for taking corrective action, if any.
Q6 What should be the ‘focus point ‘ for a manager while controlling ‘as
controlling at each and every step is not possible ?
Ans. Focus point for a manager while controlling should be key result areas.
Q7 What is important while analyzing deviations in controlling?
Ans. While analyzing deviations, it is important to determine the acceptable range of
deviations /key result areas.
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Q8 Why is controlling blind without planning?
Ans. Planning provides standards to control without which controlling becomes
aimless or baseless.
SHORT ANSWERS.
Q1 Explain the various steps in the process of controlling.
Ans. Steps involved in the process of controlling
Setting performances standards
Standards are the criteria, set in both quantitative and qualitative terms
against which actual performance can be measured.
Standards are the benchmarks towards which efforts of entire organization
are directed .
Thus standards act as s lighthouse that warns and guide the ship at sea as
far possible ,standards must be set up in numerical.
Taking corrective action
The final set in the process of controlling involves taking corrective action. if
the deviations are within acceptable limits no corrective measures is required.
However IF the deviations exceed acceptable limits. They should be
immediately brought to the notice of the management for taking corrective
measures, especially in important and criticial areas.
129
.
Q2 “An attempt to control everything results in controlling nothing.”Explain.
Ans. Management by Exception/control by exception: This principal is based on
the belief that “an attempt to control everything results in controlling nothing.”
Critical point control: Critical point control helps in controlling process by
focusing on key results areas (KRAs) which are critical to the success of an
organization.
Q3 “planning and controlling are inseparable twins of management” Explain.
Ans. (i) Controlling is blind without planning. Controlling involves comparison of
actual performance with certain standards which are provided by planning .
(ii) Planning is meaningless without controlling as controlling ensures that the
events conform to the plans.
(iii) Planning prescribes an appropriate course of action for achieving
objectives whereas controlling evaluates whether decision have been
translated into desired action.
(iv) Planning and controlling are both backward-looking as well as forwardlooking functions.
HOTS
130
1. ‘Controlling brings back the management cycle back to the planning
function’. Comment.
 The controlling function involves comparing the actual performance with the
predetermined standards, finding out deviations, analyzing the causes of
such deviations and finally taking corrective measures for further
improvement.
 This helps in formulating future plans.
 Thus, controlling brings back the management cycle back to the planning
function.
2.
What do you mean by management by exception?
OR
‘If you try to control everything, you may end up by controlling nothing’.
Comment.
It implies that manager must focus attention only on factors critical to
performance.
Normal factors of deviation should be ignored as they can be corrected at lower
levels.
It is based on the maxim –“an attempt to control everything results in
controlling nothing.’’
Based on this, only major deviations from standards should be reported to toplevel management and other routine problems should be looked into by the
subordinates.
For example, if a plan allows 5 percent decrease in the output as acceptable
range of deviation then only such decrease in the output as acceptable range
of deviation than only such decrease in output should be reported to the
management as is well beyond 5 percent.
VALUE BASED QUESTIONS
1. An effective system of controlling discourages dishonesty among
employees. What values does this statement imply?
Orderliness
Discipline
Honesty
131
2. Give examples of values which are in the form of qualitative standards
Loyalty
Team spirit
Cooperation
3. What value does the Manager establish through a proper measurement
of actual Performance?
Objectivity
Impartial
CHAPTER 9
FINANCIAL MANAGEMENT
CONCEPT SUMMARY
Meaning of Business Finance:
activities is called business finance.
Financial Management:
usage of finance.
Money required for carrying out business
It is concerned with optimal procurement as well as
Role of Financial Management: It cannot be over-emphasized, since it has a
direct bearing on the financial health of a business. The financial health of a
business. The financial statements such as profit and loss A/C and B/S reflect a
firm’s financial position and its financial health.
i.
ii.
iii.
iv.
v.
The size as well as the composition of fixed assets of the business
The quantum of current assets as well as its break –up into cash, inventories
and receivables.
The amount of long-term and short- term financing to be used.
Break – up of long –term financing into debt, equity etc.
All items in the profit and loss account e.g, interest, expenses, depreciation
etc.
132
Objectives of Financial Management: Maximization of owner’s wealth is some
objective of financial management. It means maximization of the market value of
equity shares. Market price of equity share increases if the benefits from a decision
exceed the cost involved.
133
FINANCIAL DECISIONS
Investment Decision: It relates to how the firm’s funds are invested in different
assets. Investment decision can be long- term or short- term. A long – term
investment decision is also called a capital budgeting decision.
Factors affection capital Budgeting Decision/Investment Decision:
1. Cash flows of the project: if anticipated cash flows are more than the cost
involved then such projects are considered.
2. The rate of return: The investment proposal which ensures highest rate of return
is finally selected.
3. The investment criteria involved:
investment proposals are selected.
Through capital budgeting techniques,
Financing Decision:-It refers to the quantum of finance to be raised from various
sources of long-term of finance. It involves identification of various sources. The
main sources of funds for a firm are shareholders’ funds and borrowed funds.
Shareholders’ funds refer to equity capital and retained earnings. Borrowed funds
refer to finance raised as debentures or other forms of debt.
134
Factors Affecting Financing Decision:a) Cost: The cost of raising funds through different sources is different. A prudent
financial manager would normally opt for a source which is the cheapest.
b) Risk: The risk associated with different sources is different.
c) Floatation costs: Higher the floatation cost, less attractive the source.
d) cash flow position of the Business: A stronger cash flow position may make
debt financing more viable than funding through equity.
e) Level of fixed operating costs: If a business has high level of fixed operating
costs (e.g., building rent, Insurance premium, salaries etc.), It must opt for lower
fixed financing costs, Hence, lower debt financing is better, Similarly, if fixed
operating cost is less, more
g) State Of Capital Markets: Health of the capital market may also affect the
choice of source of fund. During the period when stock market I rising, more people
are ready to invest in equity. However, depressed capital market may make issue of
equity shares difficult for any company.
DIVIDEND DECISION:- The decision involved here is how much of the profit
earned by company (after paying tax) is to be distributed to the shareholders and
how much of it should be retained in the business for meeting the investment
requirements.
FACTORS AFFECTING DIVIDEND DECISION:a) Earnings: Dividends are paid out of current and past earning. Therefore,
earnings are a major determinant of the decision about dividend.
b) Stability of Earnings: Other things remaining the same, a company having
stable earning is in a position to declare higher dividend. As against this, a
company having unstable earnings is likely to pay smaller dividend.
c) Stability of Dividends: It has been found that the companies generally follow
a policy of stabilizing dividend per share.
d) Growth Opportunities: Companies having good growth opportunities retain
more money out of their earnings so as to finance the required investment.
e) Cash Flow Position: Dividends involve an outflow of cash. A company may
be profitable but short on cash. Availability of enough cash in the company is
necessary for declaration of dividend by it.
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f) Shareholder Preference: while declaring dividends, managements usually
keep in mind the preference of the shareholders in this regard.
g) Taxation Policy: The choice between payment of dividends and retaining the
earnings is, to some extent, affected by difference in the tax treatment of
dividends and capital gains.
h) Stock Market Reaction: Investors, in general, view an increase in dividend
as good news and stock prices react positively to it. Similarly, a decrease in
dividend may have a negative impact on the share prices in the stock market.
i) Access to Capital Market: Large and reputed companies generally have
easy access to the capital market and therefore may depend less on retained
earnings to finance their growth. These companies tend to pay higher
dividends than the smaller companies which have relatively low access to the
market.
j) Legal Constraints: Certain provisions of the Company’s Act place
restrictions on payouts as divided. Such provisions must be adhered to while
declaring the dividends.
k) Contractual Constraints: While granting loans to a company, sometimes the
lender may impose certain restrictions on the payment of dividends in future.
FINANCIAL PLANNING
Financial Planning is essentially preparation of financial blueprint of an
organization’s future operations. The objective of financial planning is to ensure
that enough funds are
OBJECTIVES
(a) To ensure availability of funds whenever these are required: This include
a proper estimation of the funds required for different purposes such as for the
purchase of long- term assets or to meet day- to-day expenses of business
etc.
(b)To see that the firm does not raise resources unnecessarily: Excess
funding is almost as bad as inadequate funding.
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IMPORTANCE OF FINANCIAL PLANNING
i. It tries to forecast what may happen in future under different business
situations. By doing so, it helps the firms to face the eventual situation in a
better way. In other words, it makes the firm better prepared to face the
future.
ii. It helps in avoiding business shocks and surprises and helps the company in
preparing for the future.
iii. If helps in co-ordaining various business functions e.g., sales and production
functions, by providing clear policies and procedures.
iv. Detailed plans of action prepared under financial planning reduce waste,
duplication of efforts, and gaps in planning.
v. It tries to link the present with the future.
vi. It provides a link between investment and financing decisions on a continuous
basis.
vii. By spelling out detailed objectives for various business segments, it makes
the evaluation of actual performance easier.
CAPITAL STRUCTURE: Capital structure refers to the mix between owners and
borrowed funds.
FACTORS AFFECTING THE CHOICE OF CAPITAL STRUCTURE
1. Cash Flow Position: Size of projected cash flows must be considered before
issuing debt.
2. Interest Coverage Ratio (ICR): The interest coverage ratio refers to the
number of times earnings before interest and taxes of a company covers the
interest obligation.
3. Debt Service Coverage Ratio (DSCR): Debt service coverage Ratio takes
care of the deficiencies referred to in the interest coverage Ratio (ICR).
4. Return on Investment (RoI): I the Rol of the company is higher, it can
choose to use trading on equity to increase its EPS, i.e., its ability to use debt
is greater.
5. Cost of debt: A firm’s ability to borrow at a lower rate increases its capacity to
employ higher debt. Thus, more debt can be used of debt can be raised at a
lower rate.
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6. Tax Rate: Since interest is a deductible expense, cost of debt is affected by
the tax rate.
7. Cost of Equity: Stock owners expect a rate of return from the equity which is
commensurate with the risk they are assuming. When a company increases
debt, the financial risk faced by the equity holders, increases.
8. Floatation Costs: Process of raising resources also involves some cost.
Public issue of shares and debentures requires considerable expenditure.
Getting a loan from a financial institution may not cost so much.
9. Risk Consideration: As discussed earlier, use of debt increases the financial
risk of a business.
10. Flexibility: If a firm uses its debt potential to the full, it loses flexibility to
issue further debt.
11. Control: Debt normally does not cause a dilution of control.
12. Regulatory Framework: Every company operates within a regulatory
framework provided by the law e.g., public issue of shares and debentures
has to be made under SEBI guidelines.
13. Stock market conditions: If the stock markets are bullish, equity shares are
more easily sold even at a higher price. However, during a bearish phase, a
company may find rising of equity capital more difficult and it may opt for
debt.
14. Capital Structure of other companies: A useful guideline in the capital
structure planning is the debt- equity rations of other companies in the same
industry. There are usually some industry norms which may help.
MANAGEMENT OF FIXED CAPITAL
Fixed capital refers to investment in long –term assets. Management of fixed capital
involves around allocation of firm’s capital to different projects or assets with longterm implications for the business. These decisions are called investment decisions
or capital budgeting decisions and affect the growth, profitability and risk of the
business in the long run. These long- term assets last for more than one year.
IMPORTANCE OF CAPITAL BUDGETING DECISIONS
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(i) Long- term growth and effects: These decisions have bearing on the long –
term growth. The funds invested in long- term assets are likely to yield returns
in the future.
(ii) Large amount of funds involved: These decisions result in a substantial
portion of capital funds being blocked in long –term projects
(iii) Choice of Technique: Some organizations are capital intensive where others
are labour intensive. A capital – intensive organization requires higher
investment in plant and machinery as it relies less on manual labour.
(iv) Technology Up gradation: In certain industries, assets become obsolete
sooner consequently, their replacements become due faster. Higher investment
in fixed assets may, therefore, be required in such cases/
(v) Growth Prospects: Higher growth of an organization generally requires higher
investment in fixed assets.
(vi) Diversification: A firm may choose to diversity its operations for various
reasons, with diversification, fixed capital requirements increases.
(vii) Financing Alternatives: A developed financial market may provide leasing
facilities as an alternative to outright purchase. Availability of leasing facilities,
thus, may reduce the funds required to be invested in fixed assets, thereby
reducing the fixed capital requirements. Such a strategy is especially suitable in
high risk lines of business.
(viii) Level of Collaboration: At times, certain business organizations share each
other’s facilities. For example, a bank may use another’s ATM or some of them
may jointly establish a particular facility. Such collaboration reduces the level of
investment in fixed assets for each one of the participating organizations.
WORKING CAPITAL REQUIREMENTS
Net working capital may be defined as the excess of current assets over current
liabilities.
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FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS
1) Nature of Business: Trading Organizations- Less working capital
Manufacturing organizations – more working capital
2) Scale of Operations: Large scale organizations- more working capital small
scale organizations –less working capital
3) Business Cycle: Boom period – more working capita Depression period –
less working capital
4) Seasonal factors: Peak season – more working capital lean season – less
working capital
5) Production cycle: Longer production cycle- more working capital shorter
production cycle- less working capital
6) Credit allowed: Conservative/strict credit policy-less working capital liberal
credit policy- more working capital
7) Credit availed: If credit is available easily form suppliers – less working
capital.
If credit is not available easily from suppliers- more working capital
8) Operating efficiency : If current assets are managed efficiently- less working
capital
If current assets are not managed efficiently – more working capital
9) Availability of Raw Material: Easy and timely availability of raw material –
less working capital
Difficulty and lengthy time period are involved in getting raw materials – more
working capital
10) Growth Prospects:If there is possibility of growth potential- more working
capital if there is no possibility of growth potential-more working capital if
there is no possibility of growth- less working capital
11) Level of competition: If there is stiff and cut- throat competition –more
working capital
12) Inflation: During inflation – more working capital
During recession – less working capital
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FINANCIAL LEVERAGE/CAPITAL GEARING/TRADING ON EQUITY
It is an assumption that by using fixed charge bearing securities in the capital
structure of a company, return to the equity shareholder can be increased. But this
is possible only when the rate of return of the company is higher than the rate
interest which a company pays on its debt capital.
For example a company has Rs. 10.crotes capital. Option 1 the company uses only
equity capital option 2 the company uses 50% equity and 50% debt capital in its
capital structure. Rate of interest on debt is 15%. Rate of company uses 50% debt
capital in its capital structure. Rate of interest on debt is 15%. Rate of Income – tax
is 30%.profit before interest and tax is Rs.2 crores.
Particulars
Profit before interest
and taxes (PBIT)
Less: Interest on debt
Profit after tax
Less: Income – tax
@30%
Profit after tax and
interest
No. of equity shares (
FV Rs.10 each)
Return
to
shareholders(EPS)
Option1
2,00,00,000
Option 2
2,00,00,000
----------------------------2,00,00,000
60,00,000
15,00,000
1,85,00,000
55,50,000
1,40,00,000
1,29,50,000
20,00,000
10,00,000
Rs.7
Rs.12.95
VERY SHORT QUESTION /ANSWERS
Q1 Give the second name for fixed asset management?
Ans. Capital budgeting.
Q2 Delta Cables Ltd. Earned a net profit of Rs50 crores. Atul, the finance
manager of Delta Cable Ltd., want to decide how to appropriate these
profits. Which financial decision will help him in deciding it?
Ans. Dividend decision
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Q3Name the type of investment decision which relates to short-term and
affects day to day operation of a company.
Ans. Working capital decisions or short term investment decisions .
Q4 A Company wants to establish a new unit in which a machinery of worth
Rs10 lakhs is involved. Identify the type of decision involved in financial
management.
Ans. Investment decision/capital budgeting decision.
Q5 What do you call the techniques of evaluating proposals?
Ans. Capital budgeting techniques.
Short question/answers
Q1. Define financial management. Explain in brief any four objectives of
financial management.
Ans. financial management may be defined as management of flow of funds.it
includes any decision made by business enterprise that affects its finance. it
is related to optimum acquisition and allocation of funds for achieving
organizational objective.
Objectives of financial management are as follows:(1) Wealth maximization: financial management aims at procuring funds at
reasonable cost and maximization wealth of the owners of the company i.e. of
the shareholders.
(2) Profit maximization: financial management aims at maximization of profits
through optimum utilization of finance.
(3) Efficient Utilization of resources: financial management aims at reducing the
cost and maximizing benefits by using resources efficiently.
(4) Meeting financial commitments: the aim of financial management is to meet
financial commitments like payment of regular interest on long term borrowing
and repayment of loans etc.
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Q2. Explain briefly the important decision taken in financial management.
Ans. There are three important decisions taken in financial management:
(i) Investment decision
It involves allocation of resources or capital to various investment proposals.
 These investment proposal can be short-term or long term.
 Investment decision related to short -term is known as working capital
decision.
 long-term decision are referred to as capital budgeting
Investment proposal are evaluated on the basis of their expected returns and
risks involved therein.
(ii) Finance decision
 This decision is related to how much of fund to be raised and from which
source etc.
 The pros and cons of different sources are ascertained and best combination
of various source viz. shares, loans, debentures etc.is determined.
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(iii) Dividend decision
This decision is related to the appropriation of earned profit.
 It involves how much to retain in the business and how much to distribute
among shareholders as dividends.
 The part of profits retained in the business, known as retained earnings, is
recycled for reinvestment and expansion and diversification of business
activities.

The rest of profits are distributed among shareholders in the form of
dividends. The dividend decision greatly influences the finance decisions as
the enterprise. Does not require external funds to the extent of retained
earnings.
LONG QUESTION/ANSWERS
1 Explain the factors affecting financing decisions.
Ans. Financing decision is the decision about the quantum of finance to be raised
from various long term sources and how much is to be raised from each
source.
The following are the main factors affecting decision:
i.
Cost: the cost of obtaining funds through debt or equity is different and
the least expensive source is opted for.
ii.
Risk: like cost, the risk associated with different sources for obtaining
finance is different.
iii. Flotation Cost: higher floatation cost makes the source for raising funds
less attractive.
iv. Cash flow position of the business: If a business enterprise is having a
strong cash flow position, it would be beneficial for it to opt for debt
financing instead of equity.
v.
Control Consideration: fear of reduction in management's control over
business enterprise results in giving more preference to debt financing
rather than equity.
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vi. State of capital markets: health of capital market greatly affects the
choice for a source of fund. people are willing to invest in the market
when it is rising. However, it may be very difficult for a company to issue
equity shares in depressed capital market.
Q2. Explain the role of financial planning in management.
Financial planning is the preparation of a financial blueprint of an organization’s
future operations.

Financial planning means estimating the amount of capital required by
enterprise and determining its composition. It is the process of establishing
the objective, policies, procedures, programmers and budgets etc. to deal
with the financial activities of the organization.

Sound financial planning is essential for the success of any enterprise
because of the following reasons.
i.
Forecasts what may happen in the future.
ii.
Avoids business shocks and surprises.
iii. Co-ordinates various business functions.
iv. Reduces waste and duplication of efforts.
v.
Links present with the future.
vi. Links investment and financing decision.
vii. Makes evaluation easier.
Q3. What do you mean by capital structure? Explain the features of an
appropriate Capital structure?
Ans. It refers to the proportion of owners’ fund and borrowed funds used for
financing the operation of the business. it can be calculated by either of the
following two ways:
1. As a debt equity ratio i.e.
2. As a proportion of debt out of total capital i.e.
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An appropriate capital structure should have the following features:
1. Return
2. Risk
3. Liquidity
4. Flexibility
5. Economy
Q4. What is meant by 'Fixed capital'? Describe any four factors which affect
the requirement of fixed capital requirement of a company.
Ans. Fixed capital: investment made in fixed assets is known as fixed captial.it is
usually financed through long term source of finance.
Factors affecting fixed capitals needs are:
1. nature of business
2. scale of operation
3. Growth Prospects
4. Diversification
Q5 What is meant by working capital? Explain any 4 factors affecting working
capital needs.
Ans. It refers to the investment in current assets such as cash, bill receivable,
prepaid expenses, inventories etc.
Factors affecting working capital needs:1. Nature of business
2. Production cycles
3. Seasonal factor
4. Availability of raw materials.
5. Credit allowed and credit availed .etc
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Q6. Explain in brief any five factors that should be taken into consideration
while determining the dividend policy.
OR
What is meant by dividend decision? State any four factors affecting the
dividend decision.
Answer – dividend decision is the decision about how much of the profit earned
by the company is to be distributed to the shareholders and how much
of it is to be retained in business. Factors affecting dividend policy are
as follows:
i. Earning: it is the most important factor influencing the decision about
dividend because later is declared out of current as well as past
earnings.
ii. Stability of earnings: generally, a company with stable earnings
pays higher dividend as compared to a company with unstable
earnings.
iii. Stability of Dividend: usually the companies have policy of stabilizing
dividend per share. A company should carefully assess its earning
potential while stabilizing dividend per share. A company should
carefully assess its earning potential while stabilizing the dividend per
share because even in a year of small earnings, usually dividend per
share is not altered.
iv. Growth Opportunities: if growth opportunities are available to the
company, the company retains a large share of their profits for
financing the required investment. Result, less amount is available for
distribution as dividends.
v. Cash flow position: strong cash flow position is also an essential
element for declaring dividends because sufficiency of profit may not
necessarily mean sufficiency of cash too.
7. How does trading on equity increase return on equity shares? Explain with
an example.
OR
Are the shareholders of a company likely to gain with a debt component
in the capital employed? Explain with the help of an example.
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ANS. Trading on equity is a practice followed by a company under which earning
per share is increased by employing cheaper debt. The sole objective
enterprises are always interested in employing debts whose interest is less
than the average rate of return on capital employed.
The position will be reversed if interest on debt is much more than the
average rate of return on capital employed. Now with the help of an example,
we shall move to discuss the position in detail.
Example: x Ltd, Y Ltd, and z Ltd are three companies having the same
capital employed viz Rs.50, 00,000 each. Capital employed of X Ltd. Has
only one component viz. Equity share Capital of Rs.50, 00,000. However,
capital employed of y Ltd. comprises of equity share capital of Rs.40, 00,000
and 10% Debentures of 10, 00,000and capital employed of Z Ltd. Comprises
of equity share capital of Rs.40, 00,000 and 25% Debentures of
Rs.10,00,000. Earnings before interest and tax in all the companies is Rs.10,
00,000 i.e., 20% on the total capital employed and tax rate is 50%. Now with
the help of EBIT-EPS analysis, we small examine which company is trading
on equity.
COMPARATIVE STATEMENT SHOWING EBIT-EPS ANALYSIS
X Ltd.
Y Ltd.
Z Ltd.
Share capital
Rs.50, 00,000
Rs.40, 00,000
Rs.40, 00,000
(Equity share of
Rs.10 each)
Debentures
10% Debentures 25%Debenture
of
Rs.10, 00,000
Rs.10, 00,000
EBIT
Rs.10, 00,000
Rs.10, 00,000
Rs.10, 00,000
Interest
Rs.1, 00,000
Rs.2, 50,000
EBT
Rs.10, 00,000
Rs.9, 00,000
Rs.7, 50,000
Tax
Rs.5, 00,000
Rs.4, 50,000
Rs.3, 75,000
EAT
Rs.5,00,000
Rs.4, 50,000
Rs.3, 75,000
Return on equity
EPS
=
=
=
=10%
=11.25%
=9.37%
Rs.10
Rs.11.25
Rs.9.37
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From the above it can be observed that EPS is the highest in Y Ltd. Which is using
debt at 10%? The EPS is the lowest in Z Ltd. (Rs.9.37) which is using debt at 25%.
This is so because debt carries a fixed charge and the amount of interest paid is
deductible from earnings before tax payment. The benefit to shareholders will be
realized only if the average rate of return on total capital invested is more than the
rate of interest payable on debt. It only means that Y Ltd. Is trading on equity as it is
earning @11.25% whereas it is paying interest on debt @10%.
From the above it above it can be concluded that with a debt component in
the total capital (i.e. capital employed), shareholders are likely to have the benefit of
a higher rate of return on share capital provided debt is employed at cheaper rates.
In other words, by employing debts at cheaper rates, the shareholders can increase
their earnings.
Value based question
Q1. What is the aim of financial management? State the value that should be
kept in mind while setting the objectives of financial management.
Ans:
Honesty
Social Responsibility
Commitment
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CHAPTER -10
FINANCIAL MARKETS
CONCEPT SUMMARY
CONCEPT OF FINANCIAL MARKET:
If refers to the market which creates and exchanges financial assets.
FUNCTIONS OF FINANCIAL MARKET
1.
2.
3.
4.
Mobilization of saving and channeling them Into the most productive
uses: A financial market facilitates the transfer of savings from savers to
investors (industries)
Facilitates price discovery: In the financial market, the households are
suppliers of funds and business firms represent the demand. The interaction
between them helps to establish a price for the financial asset which is being
traded in that particular market.
Provide liquidity to financial assets: Financial markets facilitate easy
purchase and sale of financial assets. In doing so they provide liquidity to
financial assets, so that they can be easily converted into cash whenever
required.
Reduce the cost of transactions: Financial markets provide valuable
information about securities being traded in the market. It helps to save time,
effort and money.
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CLASSIFICATION OF FINANCIAL MARKETS
FINANCIAL MARKET
MONEY MARKET
CAPITAL MARKET
PRIMARY
SECONDARY
MARKET
DEBT EQUITY DEBT
EQUITY
INSTRUMENTS OF MONEY MARKET
1. Treasury Bill (T-bills): It is basically an instrument of short- term borrowing by
the Government of India maturing in less than one year. They are also known as
Zero coupon bonds.
2. Commercial Paper: It is a short- term unsecured promissory notes, negotiable
and transferable by endorsement and delivery with a fixed maturity period. It is
issued by large and creditworthy companies to raise short-term funds at lower
rates of interest than market rates. It usually has a maturity period of 15 days to
one year.
3. Call Money: It is a short-term finance repayable on demand, with a maturity
period of one day to fifteen days, used for inter-bank transactions. It is a method
by which banks borrow from each other to e able to maintain the cash reserve
ratio.
4. Certificate of Deposit (CD): It is a unsecured, negotiable short-term
instruments in bearer form, issued by commercial banks and development
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financial institutions. It can be issued to individuals, corporations and
companies.
5. Commercial Bill (Trade Bill): It is a short-term, negotiable, self-liquidating
instrument which is used to finance the credit sales of firms. The bill can be
discounted with a bank it the seller (drawer) needs funds before the bill maturity.
TYPE OF CAPITAL MARKET:
Primary Market: It is also known as the new issues market. It deals with new
securities being issued for the first time. A company can raise capital through the
primary market in the form of equity shares, preference shares, debentures,
loans and deposits.
Secondary Market: It is also known as stock market or stock exchange or
second- hand market. It is a market for the purchase and sale of existing
securities.
Differences between Primary Market and Secondary Market







Primary Market
It is the market for new
securities.
Securities are exchange
between company and the
investors.
It promotes capital formation
directly.
Only buying of securities
takes place. Securities cannot
be sold here.
There is no fixed geographical
location.
Prices are determined and
decided by the management
of the company.
Securities are issued to
investors for the first time.







Secondary Market
It is the market for existing
securities.
Securities are exchanged
between investors.
It promotes capital formation
indirectly.
Bothe buying and selling of
securities can take place in
the stock exchange/stock
market.
There is a specified location.
Prices are determined by
demand and supply for the
security in the stock
exchange.
Securities may be bought and
sold many times but not the
first time.
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Methods of Floatation
Following are the method of raising capital from the primary market:
Public issue through prospectus: Under this method the company wanting to
raise capital issues a prospectus to inform and attract the investing public. It invites
prospective investors to apply for the securities.
Offer for sale: Under this method the sale of securities takes place in two steps. In
the first step the company sells the entire lot of shares to the intermediary firms of
stock brokers at an agreed price. In the second step, the intermediary resells these
shares to investors at a higher price.
Private placement: In private placement the entire lot of new securities is
purchased by an intermediary at a fixed price and sold not to the public but to
selected clients at a higher price.
 Rights issue (for existing companies): This is the offer of new shares
(additional shares) by an existing company to the existing shareholders. The
shareholder may either accept the offer for himself or assign to another. A
rights issue to the existing shareholders is a mandatory requirement.
 e-IPOs: A company proposing to issue capital to the public through the online system of the stock exchange has to enter into an agreement with the
stock exchange. This is called an Initial Public Offer (IPO).The issuer
company should also appoint a registrar to the issue having electronic
connectivity with the exchange.
STOCK EXCHANGE
 Meaning and definition of stock exchange. The stock exchange is a market in
which existing securities are bought and sold.
 The securities contract (regulation) act, 1956 defines “a stock exchange as an
association, organization, body of individuals, whether incorporated or not,
established for the purpose of assisting, regulation and controlling of business
in buying, selling and dealing in securities.”
FUNCTION OF STOCK EXCHANGE
1. Providing liquidity and Marketability to Existing Securities: It gives
investors the chance to disinvest and re-invest. This provides both liquidity and
easy marketability to already existing securities in the market.
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2. Pricing of securities: Share prices on a stock exchange are determined by
the forces of demand and supply. A stock exchange is a mechanism of
constant valuation through which the prices of securities are determined.
3. Safety of transactions: The membership of a stock exchange is well regulated
and its dealings are well defined according to the existing legal frame work.
This ensures that the investing public gets a safe and fair deal on the market.
4. Contributes to Economic Growth: A stock exchange is a market in which
existing securities are re-sold or traded. Through this process of disinvestment
and re –investment savings get channelized into their most productive
investment avenues. This leads to capital formation and economic growth.
5. Spreading of Equity Cult: The exchange can play a vital role in ensuring
wider share ownership by regulating new issues, better trading practices and
taking effective steps in educating the public about investments.
6. Providing scope for speculation: The stock exchange provides sufficient
scope within in the provisions of law for speculative activity in a restricted ad
controlled manner.
TRADING PROCEDURE:
The procedure for purchase and sale of securities in a stock exchange involves the
following steps:
1. Selection of broker
The first step is to select a broker who will buy/sell securities on behalf of the
investor. This is necessary because trading of securities can only be done
through SEBI registered brokers who are charges brokerage/commission for
his services.
2. Opening demat account
The next step is to open a demat account. Demat (Dematerialized)
Account which an Indian citizen must open with the depository participant
(banks, stock, and brokers) to trade in listed in electronic form.
The securities are held in the electronic form by a depository. At present,
there are two depositories in India NSDL (National securities Depository Ltd.)
and CSDL (Central Depository Services Ltd.)
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Depository interacts with the investors through depository participants. Your
Depository Participant will maintain your securities account balances and
intimate to you the status of your holding form time to time.
3. Placing the order
The next step is to place the order with the broker. The order can be
communicated to the broker either personally or through telephone, cell
phone, e-mail etc.
The instructions should specify the securities to be bought or sold and the
price range within which the order is to be executed. Only the securities of
listed companies can be traded on the stock exchange.
4. Executing the order
According to the instructions of the investor, the broker buys or sells
securities. The broker then issues a contract note. A copy of the contract note
is sent to the client. The contract note contains the name and the price of the
securities, names of the parties, brokerage charged. It is signed by the broker.
5. Settlement
This is the last stage in the trading of securities done by the brokers on behalf
of their clients. The mode of settlement depends upon the nature of the
contract.
Equity spot market follows a T+2 rolling settlement. This means that any trade
taking place on Monday gets settled by Wednesday. All trading on stock
exchanges takes place between 9:55 am and 3:30 pm. Indian standard Time,
Monday to Friday. Delivery of shares must be made in dematerialized form,
and each exchange has its own clearing house, which assumes all settlement
risk.
DEPOSITORY SERVICES:It refers to that service through which the transfer of ownership in shares takes
place by means of book entry without the physical movement of shares.
155
PARTICIPANTS OF DEPOSITORY SERVICES:
I. DEPOSITORY:-A Depository is an institution which holds the shares of an
investor in electronic form. At present, there are two depository institutions in
India:
 NSDL- National Securities Depository Limited.
 CDSL- Central Depository Services Limited.
II. DEPOSITORY PARTICIPANT: A Depository participant (DP) is an agent of the
depository. He functions as a mediator between the issuing company and the
investors through the depository. He opens the accounts and maintains the
securities account balance of the investors and conveys them status of their
holding from time to time. As per SEBI guidelines, banks, stock brokers etc can
become depository participants.
III. INVESTOR: He is a person who wants to deal in shares and whose name is
recorded with a Depository.
IV. ISSUING COMPANY: It is that organization which issues the securities. The
issuing company sends a list of the shareholders to the depositories.
D’MAT/Demat ACCOUNT:
Dematerialization(popularly known as D’Mat) is the process of converting a share
certificate form its physical form to electronic form and credit the same number of
holdings to the D’Mat A/C which the investor with a depository participant.
D’Mat Account refers to that account which is opened by the investors with
depository participant to facilitate trading in shares.
BENEFITS OF DEPOSITORY SERVICES and D’MAT ACCOUNT:
i.
ii.
iii.
iv.
v.
Exemption of stamp duty for dealing in shares in the electronic form.
Elimination of problem associated with transfer of shares in physical form.
Increased liquidity through speedy settlement.
Reduction in paper work.
Attracts foreign investors and promoting foreign investments
156
OBJECTIVES OF SEBI
1. To regulate stock exchanges and the securities industry to promote their
orderly functioning.
2. To protect the rights and interest of investors, particularly individual investors
and to guide and educate them.
3. To prevent trading malpractices and achieve a balance between selfregulation by the securities industry and its statutory regulation.
4. To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a view to making
them competitive and professional.
FUNCTIONS OF SEBI
Protective Functions:
i.
SEBI prohibits fraudulent and unfair trade practices in the securities market
such as
(a) Price Rigging – Marking manipulations with the sole objective of inflating
or depressing the market price of securities.
(b) Misleading statement: SEBI prohibits misleading statements which are
likely to induce the sale or purchase of securities.
ii.
iii.
iv.
SEBI prohibits insider trading. An insider is a person connected with the
company who is reasonably expected to have access to price sensitive
information in respect of securities to the company is called insider trading.
SEBI undertake steps to educate investors through investors, camps , T.V,
Newspapers etc.,
SEBI promotes fair practice and code of conduct in securities market such as
(a) Companies cannot roll over the debenture holders, funds unilaterally and
cannot change terms – term.
(b) SEBI is empowered to investigate cases of insider trading and has
provisions for still fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares
at lower prices than market price.
157
v.
SEBI issues timely guidelines clarifications to investors during stock market
up’s and downs.
DEVELOPMENT FUNCTIONS:
i. SEBI promotes training of intermediaries of the securities market such as
brokers, sub- brokers etc.,
ii. SEBI has permitted internet trading in a limited way through registered stock
brokers.
iii. In order to reduce the cost of issue, SEBI has made under- writing optional.
iv. SEBI has accepted the system of using the stock exchanges to market IPO’s
v. All intermediaries including collection banks here to register with SEBI
vi. Registration of foreign Institutional investors
development and growth of Indian markets.
(Flls) allowed
for
the
vii. PSU bonds brought under SEBI’s purview
viii. private mutual funds are allowed for the benefit of small investors.
ix. Debenture trustees to be registered by SEBI etc.
Regulatory Functions:
1. SEBI registers and registers and regulates the working of mutual funds.
2. SEBI regulates takeover of companies
3. SEBI conducts inquires and audit of the stock exchange.
4. SEBI registers and regulates the working of stock – brokers, sub – Brokers,
Brokers to an issue, share transfer agent and such other intermediaries in the
stock market.
5. SEBI regulates the business in stock exchanges and securities market.
6. SEBI has notifies rules and regulations and a code of conduct to regulate the
intermediaries in the securities market such as underwriters, merchants,
brokers etc.
7. Levying fee or other charges for carrying out the purposes of the Act.
158
VERY SHORT ANSWERS.
Q1 Give the meaning of ‘Financial market’?
Ans. Financial market is the market for the creation and exchange of financial
assets, example
shares, debentures, etc.
Q2 Mention main purpose of financial markets.
Ans. Linking savers and investors.
Q3 Who are the two competing intermediaries in banks andFinancial system ?
Ans. Banks and financial market.
Q4 Give the meaning of ‘money market’.
Ans. Money Market is a market for short term fund which deals in monetary assets
whose period of maturity of ‘capital market’.
Q5 What are the instruments of capital market?
Ans. Equity shares or Debentures.
Q6 What is other name of primary market?
Ans. New Issues Market.
Q7 Give the meaning of ‘secondary Market.
Ans. Secondary Market is market for purchase and sale of existing securities.
Q8 What is ‘demutualization’ of stock exchange?
Ans. It separates the ownership and control of changes from trading rights of
members.
159
Q9 Name the barometer that reflects market direction, indicates day to day
fluctuation in stock price and measures overall market sentiment.
Ans. Stock Market Index.
Q10Name the benchmark index of NSE>
Ans. NIFTY
Q11Name the benchmark index of BSE.
Ans. SENSEX
Q13 Who is a Broker?
Ans. A member of stock exchange through whom trading of securities is done is
known as broker.
Q14 What is the system of electronic book entry form, of holding and
transferring securities, called?
Ans. Dematerializations of securities.
Q15 What do you mean by T+2?
Ans. T+2 refer to trading days. It is the settlement cycle in NSE.
Q16When was SEBI established?
Ans. 12 April 1988
Q17 What is price rigging?
Ans. Price rigging refers to manipulation of prices of securities by companies for
their own profits.
Q18 What do you mean by depository institution?
Ans. A ’Depository’ is an institution which holds securities like shares, debentures
etc. in electronic from in which trading is done.
160
Short question/answers
Q1. What is meant by ‘Primary Market’?
Ans. Primary market is a market in which new securities are issued for the first
time to the investors.
Q2 Explain any three functions of financial market.
Ans. Functions of a financial market:
1.
2.
3.
4.
Mobilization of saving and canalizing them into most productive use.
Facilitating price discovery.
Providing liquidity to financial assets.
Reducing the cost of transactions.
Q3 Nature of money market can be well explained with the help of its features. State
any three such features of money market.
Ans. Features of money market:
1. The money market is a market for short term securities with a maturity period
up to one year.
2. It is a market where low risk, unsecured and short term debt instruments are
traded.
3. It has no physical location, but is an activity conducted over the telephone
and through the internet.
Q4. Write a note on ‘Trade Bill’?
Ans. Trade bill
 Trade bills short-term bill drawn by one business firm on another to pay a
specified sum of money.
 These are freely marketable bills. Drawer honors this bill on date of
maturity.
 It is generally used for credit purchase of goods and can also be discounted
with bank in case of emergency.
Q5 Explain the following money market instruments:
(a) Commercial paper (b) Commercial bill
Ans. (a) Commercial paper:
 It is an instrument by large and creditworthy companies to raise short
term funds at lower rates of interest than the market rates.
161
 It is an unsecured, negotiable promissory note with a fixed maturity
period.
(b) Commercial Bill:
 The holder of trade bill has the liberty to retain these bill till their maturity or
he can discount these bills with a bank, if is in need of funds, before the
maturity date of these bills.
 When trade bills are accepted by the commercial banks, they are
known as commercial bills.
 It is a bill of exchange used to finance working capital requirement of
business firms. It is short-term, negotiable and self-liquidating instrument.
Long answer type question
1. State any five methods of floating new issues in the primary market.
Ans. The methods of floating new issues in primary market are :]
(a) Offer through prospectus- It is the method of floating new issues by
inviting subscriptions from the public through issue of prospectus.
(b)Offer for sale- It is the method in which the securities are not issued
directly to the public but through intermediaries like issuing houses or stock
brokers.
(c) Private placement- It refers to allotment of securities by a company to
institutional investors and some selected individuals.
(d)Right issue-It is privilege given to existing share in proportion to the
number of shares they already hold.
(e) E-IPO-It refers to issuing securities through the online system of stock
exchange.
162
2. Difference between capital market and money market:
Ans.
Basis
Participant
Instruments
Capital market
The participants are
financial institutions, banks,
corporates, foreign investors
and retail investors.
Instruments traded are
shares, debentures and
bond
Money market
The participants are RBI,
financial institution, banks,
and corporates.
Investment
outlay
Duration
Investment outlay is small.
Instruments traded are
treasury bill, commercial
paper, certificates of deposit,
call money and commercial
bill,
Investment outlay is large.
It deals in medium terms
securities.
It deals in short term
securities
Liquidity
Capital market securities are
comparatively less liquid.
Capital market securities are
riskier than money market
instruments.
Generally yield a higher
return than money market
instruments.
Money market securities are
comparatively more liquid.
Money market securities are
comparatively safer.
Safety
Return
Money market securities
yield comparatively less
return.
3. Explain the procedure of trading in the stock Exchange.
Ans. Few years back trading on a stock exchange took place through a system of
auction or public outcry. But at present the trading is conducted through a
computer at the broker’s office.
Trading in stock exchange involves the following steps:
(i)
(ii)
Selection of brokers: the first step is to select the broker who will buy
and sell the securities on behalf of the investor. A broker can be an
individual, corporate body or partnership firm.
Openings demat account: A demand account through which share
certificates and money are transferred in case of sale or purchase of
securities.
163
(iii)
(iv)
(v)
Placing order: After openings demat account the investor specifies
the number and type of securities that he want to purchase or sell.
Execution of order: According to the instruction of investor the broker
buys or sells the securities.
Settlement: the transaction on a stock exchange is carried out either on
cash basis or on a carryover basis. The carry over basis is known as
‘badla’.
Hots
Q1 The directors of a company want to modernize its plant and machinery
by making a public issue of shares. They wish to approach the stock
exchange, while the finance manager prefers to approach a consultant
for the new public issue of shares. Advise the director whether to
approach the stock exchange or a consultant for new public issue of
shares and why. Also advise them about different methods which the
company may adopt for the new public issue of shares.
Ans. The director should approach a consultant for new public issue of shares.
The stock exchange deals with sale and purchase of existing securities only,
not in new issue of securities.
Different methods which the company may adopt for the new public issue of
shares:
Offer through prospectus.
I.
II.
III.
IV.
Offer for sale
Private placement
Rights issue
e-Ipos
value based question
1. A public Ltd. CO. Achieve the minimum subscriptions by private
placement. Whose interest has been ignored here.
Ans. Ignoring the interest of small investors.
164
CHAPTER-11
MARKETING MANAGEMENT
CONCEPT SUMMARY
MARKET: It refers to a place where the buyers and sellers meet each other for sale
and purchase of the commodity.
CUSTOMER: Customer refers to the people or organization that seeks satisfaction
or their needs and wants.
SELLER OR MARKETEER: The sellers or marketers offer a variety of entities to
customers.
MARKETING: Marketing makes goods and services more useful to the society by
creating place, time and possession utilities.
FEATURES OF MAKETING:




Need and wants
Creating a market offering
Customer value
Exchange mechanism
DIFFERENCE BETWEEN SELLING CONCEPT AND MARKETING CONCEPT:
Points
selling concept
Marketing concept
Starting point
Selling concept
Market
Main focus
Attracting consumers
Consumer satisfaction
Means
Advertising,
personal Various
selling
and
sales activities
promotion
Ends
Profit through maximum Profit through consumer
sales
satisfaction
marketing
165
MARKETING MANAGEMENT: It deals with planning, organizing and controlling
the activities related to the marketing of goods and services to satisfy the
consumer’s wants.
NATURE:
1. It is goal diverted
2. It determines the appropriate mix if the firm.
3. It is a functional area of management
4. It is a specialized job
5. It is the market concept in action
OBJECTIVES:
a. Creation of demand
b. Market share
c. Goodwill
d. Profitable sales volume through customer satisfaction
e. To determine marketing mix that will satisfy the needs of the customers
f. To generate adequate profits for the growth of the business
MARKETING FUNCTIONS:
1. Marketing research
2. Marketing planning
3. Product planning development
4. Buying and assembling
5. Packing and labeling
6. Branding
7. Customer support services
8. Storage and warehousing
166
9. Transportation
10. Promotion and selling
11. Standardization and grading
12. Pricing
13. Fixing
14. Risk taking
MARKETING MANAGEMENT PHILOSOPHIES/CONCEPTS/ORIENTATIONS
Production
Concept
1.Meaning Profits could
be
maximized by
producing at
large scale,
thereby
reducing the
per unit cost
of production
because
customers
would favour
those
products
which
are
widely
available at
an affordable
price.
Product
concept
Potential
exchange
would be
realized
when the
product is
of
high
quality
because
customers
favour
those
products
which are
superior in
quality,
performanc
e
and
features.
Selling concept
Customers would
not buy, or not
buy
enough
unless they are
adequately
attracted
and
convinced to do .
Therefore,
for
pushing the sale
of
products,
aggressive
selling
and
promotional
efforts should be
undertaken.
Marketing
Concept
In the long
run,
an
organization
can achieve
its objective
of
profit
maximizatio
n
by
identifying
customer
needs and
satisfying
them better
than
the
competitors.
The purpose
of marketing
is
to
generate
customer
value at a
profit.
Societal
concept
The task of
any
organisation is
to identify the
needs
and
wants of the
customers
and
deliver
the
desired
satisfaction in
an
effective
and efficient
manner
so
that the long
term
wellbeing
of
customers as
well as the
society
is
taken care of.
An
activity
which satisfies
customer
needs (e.g.,
manufacturing
a racing car),
but
is
detrimental to
167
the interest of
the society at
large
(e.g.,
pollution
created)
cannot
be
justified.
2.Focus
3.Means
4.Ends
5.Starting
Point
Quantity
product
of Quality,
performanc
e, features
of product.
Availability
Continuous
and
improveme
affordability
nts in the
of
product, quality,
improving
incorporati
production
ng
new
and
features,
distribution
etc.
efficiency.
Profits
Profit
through large through
volume
of product
productions. quality
improveme
nts.
Factory
Factory
MARKETING MIX, ELEMENTS:
1. Product Mix
2. Price Mix
3. Place Mix
4. Promotion Mix
MEANING OF MARKETING MIX:
Customer’s
needs
and
society’s well
beings.
Aggressive
Integrated
Integrated
selling
and marketing in marketing in
promotional
respect
of respect
of
efforts,e.g.,
products,
product, price
advertising,
price,
promotion and
sales, promotion, promotion
physical
personal,selling,e and physical distribution.
tc.
distribution.
Existing product.
Customer’s
needs.
Profit
through Profit
sales volume.
through
customer
satisfaction.
Profit through
customer
satisfaction
and
social
welfare.
Factory
Market,
society.
Market
168
It refers to the combination of four basic elements, product, price, promotion and the
place known as the four P’s of marketing.
PRODUCT: Total number of products and items that a particular seller offers to the
market is called market mix.
a). Branding:- Branding is the process of giving a name or sign or a symbol etc to
product.
Various term of relating Branding :(i). Brand
(ii). Brand Name
(iii).Brand Mark
(iv).Trade Mark
Advantages of Branding:To the Marketers:(i).Enables making product of new product
(ii).Ease in introduction of new product.
(iii).Differential pricing
(iv).Helps in advertising and display programmes.
To the Customers:(i).Helps in product identification
(ii)Status symbol
(iii).Ensures quality
169
Charterstics of a Good Brand Name.
1) A Brand name should be short, easy to pronounce, spell, recognize and
remember, e.g.,L.G,NANO,VIP,Rin,Vim etc.
2) The brand name should suggest the product’s benefits and qualities, e.g
Hajmola,Ujjala etc.
3) A brand name should be distinctive i.e, Zodiac, Kodak etc.
4) Brand name should have staying power, i.e, it should not get out of date very
soon e.g. CoCa Cola, Lux etc.
5) The brand name should be sufficiently versatile to accommodate new products,
which are added to the product line, e.g.,Maggie, Colgate,etc.
6) It should be adaptable to packaging or labeling requirements, to different
advertising media and to different language e.g the brand name Nova(given to
Ambassador car).
7) It should be capable of being registered and protected leagally.
b. Packaging:- Packaging refers to the act of designing and producing the
container or wrapper of a product.
Levels of Packaging:
1. PRIMARY PACKAGE:- It refers to the product’s immediate continer, e.g.
toothpaste tube.
2. SECONDARY PACKAGE:- It refers to additional layers of protection that are
kept till the product is ready to use e.g. a Denim Shaving cream tube comes in a
card board box.
3. TRANSPORTATION PACKAGE: It refers to further packaging component
necessary for storage and transportation.
170
Functions/importance of Packaging
1).Product identification
2). Product Protection
3) .Product Promotion
4).Product differentiation
5) Easy Handling/Facilitating use of the product
6).Rising standards of health and sanitation
7) Innovational Opportunity
c. Labelling;- It refers to designing the label to be put on the package.
Functions/importance of labeling
1)
2)
3)
4)
5)
Describe the product and specify its contents
Identification of the product or brand
Grading of products
Help in promotion of product
Providing information required by law.
PRICE MIX: It is the worth of a product or service in monetary terms:
Factors considered before fixing price are
a) Company objectives
b) Cost
c) Competition
d) Customer demand
FACTORS OF BE KEPT IN MIND BEFORE PRICING
a. Cost of production
b. Demand for product
171
c. Price if competitive firms
d. Purchasing power if customers
e. Government regulations
f. Objectives
PLACE MIX: It refers to a set of decisions that need to be taken in order to make
the product available to the consumers for purchase and consumption.
The two major distribution area under this function or marketing include:
(i). Decision regarding channels of distribution (like wholesaler, retailers) to be used.
(ii) physical movement of the product from the place of product to the customers for
their consumption to use.
DISTRIBUTION OF GOODS
a.Transportation
b.Inventory
c.Warehousing
d. Order processing
Channels of distribution:- Channels of distribution mean the path through which
the ownership as well as possession of goods passes from the producer to the
consumer.
Type/Methods:1)
2)
Direct channel(zero level)- Manufacturer
Customer
Indirect Channels:(i) One level channel
Manufacturer
Retailer
Customer
(ii) Two level channels
Manufacturer
Wholesaler
Retailer
Customer
(iii) Three level channels:
Manufacturer
Agent
Wholesaler Retailer
Customer
172
Factors Determining choice of channels of distribution
1. Market factor
i. Size of the market.
ii. Geographical concentration of potential buyers
iii. Size of order
2. Product Related Factor
i.
Nature of product
ii.
Perishable vs Non-Perishable Products
iii.
Unit value of the product
iv.
Product complexity
3. Company Characteristics
i.
Financial strength of the company
ii.
Degree of Control
4. Competitive Factors
5. Environmental factors like economic condition and legal constraints.
173
PROMOTION MIX: It is concerned with activities that are undertaken to
communicate with both customer and participate in the channel of distribution such
that sales goals are realized.
Advertising: “ Advertising is any paid form of non-personal presentation and
promotion of ideas, goods or services by an identified sponsor.”
Role of Advertising:1.Creates demand
2. Educates consumers and makes shopping easier
3.Enhances consumer confidence
4. Creates better organizational image
5. Facilitates introduction of new products.
6. Creates customer loyalty
7.Provides economics of scale
8. Improves standard of living.
174
OBJECTIONS TO ADVERTISING/CRITICISMS AGAINST ADERVERTISING
1.
2.
3.
4.
5.
6.
Add to cost
Undermines social value
Encourages sale of inferior products
Confuses the buyers rather than helps
Some advertisements are in bad taste
Some advertisements make false claim
PERSONAL SELLING:- it involves face to face interaction between the seller and
the prospective buyers.
Features
(1). Personal interaction
2) Two way communication
3) Better Response
4) Relationship
Qualities of a good sales man:
1)
2)
3)
4)
Physical qualities – personality, stamina, health, tolerance
Mental qualities-mental alertness, sharp memory, initiative, imagination
and self confidence
Social qualities –sociability, tact, sound character, sweet nature.
Vocational qualities – knowledge of product, knowledge of competitive
products, training and aptitude.
Sales Promotion:-It refers to short term use of incentives or other promotion
activities that seek to stimulate interest
a)
b)
c)
d)
e)
Rebates
Refunds
Discounts
Quality Deals
Contents
175
f)
g)
h)
i)
j)
Packaged premium
Container Premium
Premium Gifts
Sampling
Free in mail premiums
PUBLIC RELATIONS
Meaning: Public relations are the deliberate, planned and sustained effort to
establish and maintain understanding between an organization and its public.
ROLE OF PUBLIC RELATIONS
ii) More credible
iii) Economical Medium
iv) Image building
v) Boosts the sales of the organization.
VARIOUS PUBLIC RELATION TOOLS TO SHAPES THE PUBLIC IMAGE
IF THE ORGAINSATION
a) News
b) Speeches
c) Events
d) Written Materials
e) Public service activities
VERY SHORT QUESTIONS
Q1. Define market in modern marketing sense.
Q2.Give an example of services which can be marketed.
Hint: Market offer
Q3.Define marketing management in present context.
Q4. “ They don’t sell what they can make what they can sell.” Name the
marketing philosophy to which this statement is related.
176
Q5.which concept of marketing suggest that the organization should earn
profit through consumer satisfaction and social welfare?
177
Q6. Give one function of marketing.
Q7. Give few example of direct channel (zero level).
Q8. What do you mean by product?
Q9. Mention one advantage of branding to consumers.
Q10. What is meant by trade mark?
Q11. Give one function of package.
Q12. State the features of advertising (any one)
SHORT QUESTION ANSWERS.
Q1. What do you mean by trade mark?
Ans.
Trade mark is sign, mark or symbol, word or words which distinguishes a
product from others.
A registered trade mark prohibits the use of that particular brand name etc.
by other enterprises.
For example, Parle-g is the registered trade mark of pale g biscuits Pvt Ltd. &
hence cannot be used by any other biscuit manufacture.
Q12.Explain any three benefits of packing.
Ans. Packing provides the following benefits:
Product differentiation: unique packing helps in identification of products.
Unique shape and size of boxes helps a consumer identify the products easily
at the time of purchase.
Product production: it saves the product from spoilage, breakage, leakage,
climatic effect etc. It keeps it fresh and clean.
Self service outlets: it facilities handling, lifting, conveying information etc. of
the products.
178
Q.7 Outline briefly any three objectives of marketing management.
ANS: (i) Creation of demand: marketing aims at creation of demand by
attracting new customer. The usefulness of the product or services is
made known to the targeted customers well in advance. This effort
help are In manufacture to create demand .
(ii) Market share: marketing helps an enterprises to capture handsome share in
the market by the during various function of marketing
(iii) Good will: marketing help to build up the reputation of an enterprise. The image
of the enterprise is built by using various image building techniques such
as advertising, good qualities products customer care, after sale services
etc.
Q.5 Advertising encourage sale of inferior and dubious product. Give three
reasons disfavoring this statement.
ANS: Reason disfavoring the statement are as under:
Whether a product is seen as inferior or not depended upon ones economic
statue, likes & preference which themselves are not static and change from
person to person and form time to time
In every economy, even low priced product is needed by a
particular section so what is the harm if a manufacture is producing
them and advertising for them.
(i)
The regularly agencies and different consumer organization are doing
well to control the sale of dubious product anyway. After all, a captain is
held responsible for the performance dubious of his team. And
advertising is just member of the team that discourages dubious
products.
(ii) Infarct, these regulatory agencies keep a tab on the quality of ads too; so
the responsible for success of dubious products lies more on them than
any single component like advertising.
179
Q10. Explain any three function of ‘Labeling’.
Ans: - (i) Complete description of a product
It provides complete information about price, quantity, contents, expiry,
uses, and caution
In use etc. of a product.
(ii) Identification of the product
It helps in identifying the product from among various products available market.
(iii) Grading of product
It helps in grading the product into different categories.
(iv) Promotion of product
A carefully designed label helps in attaching the customers and induces them to
purchase the product.
(v) Providing information required by law
Labeling provides information required by law such as statutory warning like
‘Smoking of cigar rate is injurious to health’ on the packet of cigarettes.
LONG QUESTION ANSWERS.
Q.1 What do you means by branding? How does it help the markets?
ANS: The process of assigning a unique name, sign or a symbol to a product
is known as branding.

Branding helps in creating a distinct image of the seller in the
market.
Advantages to markets;
It creates product differentiation.
It helps in advertising.
It helps in differential pricing.
It helps in introduction of new product.
180
Q2. What are the essentials of a good brand name?
Or
Explain any three qualities of a good brand name?
ANS: Essentials of a good brand name:
It should be distinctive & attractive. For example, surf.
It should be short, simple & easy to pronounce. For example lux.
It should be suggest benefit and qualities of the products. For example
glucose ‘D’
It should be sufficiently versatile to accommodate new products in the
product line. For example Series.
It should not contain any terms or symbol that is offensive.
The brand should have staying power. For example roohafza, Colgate etc.
are such type of brand as have been there for years and are likely to do so
in times to come too.
Q3.Define advertising. Explain its role in marketing goods and services.
Q4.Explain any six sales promotion techniques which a business house may
use to promote it products.
Q5. Explain the role of public relations in marketing.
Q6. ‘Advertising is a social waste as it adds to cost determines social values
and confuses the buyer.’ Explain how.
Q7. Advertising is unnecessary and wasteful.’ Explain how by giving any
three reasons.
Q8.”Money spent on advertisement is not a waste but an investment. Do you
agree with this view? Give reasons in support of your answer.
181
Hots
1. Aftab is scared of a facing people. Is he good sales man? What qualities
are required to become a good salesman?
Ans. No, Aftab is not a good salesman as he is not confident and is scared of facing
people
2. A mobile company is launching a new tech mobile phone in the market.
Which department is going to look into the techniques of promoting it?
Ans. public relation department
Q.3 You have been appointed as a brand manager of ford motors. The
company is to introduce a compact small car in the Indian market. The
name of the car is yet to be decided. You have been asked to chair a
brain storming session. Before the suggestion comes forward you have
to briefly explain the participants as to what constitutes a good brand
name with the help of suitable example.
ANS: In this case, competitive events are organized by the companies for
promoting their product, for sample, bournvita quiz contest etc.
(i)
It should be short, easy to pronounce, spell, recognize and
remember e.g. NANO, VIP, and VIM.
(ii) It should be suggest the product benefits and qualities likes –
genteel, promise, Safi, duracell, kleenfloor, Eveready.
(iii) It should be distinctive like-zodiac, Kodak, zer0x.
(iv) It should have a staying power, i.e should be out of date, like lux, coca
cola etc.
182
VALUE BASED QUESTION
Q1 identifies the type of product in the following Q.1 Nisha, a schoolbag
manufacturer, decided to improve the product for profit maximizaing and thus
added a water bottle holder to the existing design.
(i) Identify the marketing management philosophy adopted by Nisha.
(ii) Explain this philosophy on the basis of (a) main focus and (b) means attends.
ANS. (i) Product concept/philosophy.
(a)MAIN FOCUS of this concept is on quality, performance and features of
the product.
(b)MEANS: PRODUCT IMPROVEMENT.
(c) END: Profit through product quality.
Q.2 A salesman need not possess and personal quality to sell the product is
good, it would automatically make its place in the market. Comment.
ANS. A good product also requires personal selling. A salesman can identify the
prospective customer. Sales talk and tailored sales presentation lead to
actual sale.
A salesman can provide invaluable feed - back to top management about the
fashion, taste, attitude and behavior of the customer. This helps in designing
and developing product according to the needs of the market.
In light of above, it can be concluding that a salesman must possess personal
quality to sell a product too require personal selling.
.
183
Chapter 12.
Consumer Protection (Concept)
 It aims at Providing Protection to Consumers against Exploitative & Unfair
Trade Practices of Traders , Manufacturers & Service Providers
 Educating Consumers about their Rights & Responsibilities
 Providing Speedy & Inexpensive Redressal of their Grievances
 Creating Awareness among the Consumers so that they Organise
themselves in the form of Consumer Organisations which would Protect &
Promote their Interests
Importance of Consumer Protection
 From Consumer’s Point of View : Consumer ignorance
 Unorganized Consumers
 Widespread Exploitation of Consumers
Importance Of Consumer Protection
From the point of view of business : Long term Interest of Business
 Government Intervention
184
 Social Responsibility
 Moral Justification
 Business uses Society’s Resources
Consumer Protection Act , 1986
 The Parliament Enacted The Consumer Protection Act (CPA) in 1986.
“Consumer Protection” means Protecting & Promoting the Consumer’s
Interests Through Speedy & Inexpensive Redressal of Their Grievances .
 The CPA provides Safeguards to Consumers against Defective Goods ,
Deficient Services & Unscrupulous , Exploitative & Unfair Trade Practices of
Sellers .
 The Act Provides Certain Rights To Consumers with a View to Empowering
Them To Fight Against Such Malpractices .
 The Act Also Provides For The Formation of Consumer Protection Councils
in every District & State & at the apex level to promote & protect the
Consumer Rights .
Consumer ……………
 A “Consumer” is generally a person who uses or Consumes Goods or Avails
of Any Service . Under The Consumer Protection Act , 1986 , A Consumer Is
Defined as :
(A) Any Person Who buys any goods for a consideration , which has been
paid or promised , or partly paid & Partly promised , or under any scheme of
deferred payment .
 It includes any user of such goods , when such use is made with the approval
of the buyer , but does not include a person who obtains goods for re-sale or
for any commercial purpose.
185
(B) Any Person who hires or avails of any service for a consideration which
has been paid or promised , or partly paid promised , or under any system of
deferred payment .
 It includes any beneficiary of services when such services are availed of with
the approval of the person concerned, but does not include a person who
avails of such services for any commercial purpose .
Consumer Protection Act , 1986….
 A Complaint can be filed by any Consumer , any Registered Consumer’s
Association , the Central Government or any State Government , A Legal Heir
or representative of a deceased consumer
 A Complaint can be filed against :
(i)The Seller , Manufacturer or Dealers of Goods which are Defective
(ii) The Provider of Services , If There is any Deficiency
Three-Tier Redressal Machinery

The Consumer Protection Act , 1986 provides for setting up of a three – tier
enforcement machinery at the District , State & the National Levels for
Speedy & inexpensive redressal of consumer Grievances . The three
Redressal Agencies Are :
(i)
District Consumer Dispute Redressal Forums
(ii)
State Consumer Disputes Redressal Commissions (State commissions )
(iii)
The National Consumer Disputes Redressal Commission ( National
commission )
186
Hierarchical Structure of Three– tier Redressal Machinery
187
 Remedies Available to a Consumer :
(i)
To Remove the Defect in Goods or Deficiency in Service
(ii)
To Replace the Defective Product with a new one , free from any defect
(iii)
To Refund the Price paid for the Product or the charges paid for the Service
(iv)
To pay a Reasonable amount of Compensation for any loss or injure suffered
(v)
To Discontinue the Exploitative practice & not to repeat in the Future.’
(vi)
Not to offer Hazardous Goods For Sale
(vii)
To Cease Manufacture of Hazardous goods & to desist from offering
Hazardous Services
(viii)
To Pay the amount (not less than 5% of the value of the defective goods or
deficient services provided) , to be credited to the consumer welfare fund or
any other organization , to be utilized in the prescribed manner
(ix)
To issue corrective advertisement to neutralize the effect of a misleading
advertisement
(x)
To pay adequate costs to the appropriate party
(xi)
To withdraw hazardous goods from sale.
6.
Rights & Responsibilities of Consumers
Consumer Rights :
Right to Safety
Right to be Informed
Right to Choose
Right to be Heard
Right to seek Redressal
Right to Consumer Education.

1.
2.
3.
4.
5.
188
Rights & Responsibilities of Consumers..
 Consumer Responsibilities : :
(i) A Consumer must buy only Standardised goods , e.g. , ISI marked
Electrical goods
(ii) The Consumer must see the price , Manufacturing& expiry dates
(iii) He/She must follow the Instructions & use the product safely
(iv) Consumer must ask for cash memo ,i.e. , proof of purchase
(v) He/She must file a Complaint in a Consumer Court even if the amount of
loss is small.
(vi)
(vii)
(viii)
A consumer Must be Honest In his/her dealings . He/she must choose only
from legal goods & services & discourage unethical practices like blackmarketing , hoarding etc.
Consumers should organise themselves in the form of consumer
assosciations which would play an active part in educating consumers &
safeguarding their interests
A consumer must be aware about various goods & services available in the
market so that an intelligent & wise choice can be made.
Role of Consumer Organisations & NGO’S
1. Educating the General Public about Consumer Rights
2. Publishing periodicals & other publications
3. Providing legal assistance to consumers
4. Filling complaints in appropriate consumer courts on behalf of the consumers
5. Producing films/cassettes on food adulteration , misuse of drugs etc
6. Organising exhibitions concerning spurious , adulterated products etc.
7. Producing films/cassettes on food adulteration , misuse of drugs & cosmetics
etc
8. Organising exhibitions concerning spurious , adulterated products etc to
create awareness.
189
VERY SHORT QUESTION ANSWERS
Q.1. Ahmed wants to buy an iron. As an aware customer, how can he be sure about
the quality of iron.?
Ans. By ISI mark label.
Q.2. Rita wants to buy a packet of juice. As an aware customer, how can she be
sure about the quality of juice she plans to buy?
Ans. By FPO mark label.
Q.3. Yogesh wants to buy a gold ring. As an aware customer, how can he be sure
about the quality of gold ring he is going to buy?
Ans. By Hallmark label.
Q.4. which consumer right suggests that consumers must use ISI
electrical goods?
marked
Ans. Right to safety.
Q.5. which consumer right suggests that a consumer be made aware of his rights
and the remedies.
Ans. Right to information.
Short answers.
Q1 Who is consumer?
Ans In general terms , a consumer is a person who uses the goods or avails of any
services. However, according to consumer protection act, 1986, a consumer is:
(i) Any person, who buys goods or hires services for consideration.
(ii) Any user of goods or beneficiary of services with the approval of the buyer.
190
Q2 Explain the concept of ‘consumer protection’ and any three points of its
importance from the point of view of the consumers.
Ans – consumer protection refers to protection of consumers from unscrupulous
exploitative and unfair trade practies.
- It also refers to educating consumers about their rights and
responsibilities , getting their grievances redressed and protecting their
interests.
- For example protecting the consumers from blackmarketing,
adulteration, hoaring, misleading advertisments etc.
- Importance of consumer protection for consumers is due to:
(1) Consumer ignorance.
(2) Unorganized consumers.
(3) Widespread exploitation of consumers.
Q3 Explain any four point of importance of consumer protection from the
point of view of business.
Ans Importance of consumer protection from the point of view of business:
(1) Long term interest of business.
(2) Business uses society’s resources.
(3) Social responsibility.
(4) Moral justification.
(5) Government intervention.
Q4 Explain any four functions of consumer organizations and nongovernment organisation(NGO’S) for protecting and promoting the
interest of consumers.
Ans-Functions of consumers organisations (NGO’S) For protecting and protecting
and promoting the interest of consumers are:(any four)
(1)
(2)
(3)
(4)
Educating the general public about consumer rights.
Publishing periodicals and other publication.
Carrying out comparative testing of consumer products.
Encouraging consumers to strongly protest and take action against
unscrupulous,exploitative and unfair trade practices of sellers.
(5) providing legal assistance to consumers.
191
Q5 Explain any four ways and means of consumer protection available in
India.
Ans- Ways and means of consumer protection are(any four)
(1) Self-regulation by business.
(2) Business association.
(3) Consumer awareness.
(4) Consumer organization.
(5) Government.
(6) Legal resource.
LONG QUESTIONS.
Q1 Discuss the responsibility of consumers?
Ans:- (i) Be aware about their rights
 Consumers must be aware of their rights. These rights to basic need,
right to consumer education, right to be informed, right to choose, right
to safety.
(ii) Quality conscious
 While making purchase, consumers should look for quality certifications
marks like ISI mark on electrical appliances and Agmark on food
products.
(iii) Be assertive
 The consumer must be assertive in his dealings.
(iv) Be honest
 Consumers must Act honestly and choose /services which are
legitimate. They should also discourage unscrupulous practices like
misleading advertisement and black-marketing etc.
(v) Respect Environment
 Consumers must avoid polluting the environment.
192
Q2 What are the Relief's available to consumers on their complaints?
(i)
Removal of defects from the goods.
(ii)
Removal of deficiencies in services.
(iii)
Replacement of the defective goods with new ones.
(iv)
Refund of the price paid for the goods or charges paid for the services.
(v)
Discontinuance of unfair trade practices.
(vi)
Withdrawal of hazardous goods from being offered for sale.
(vii)
Issuance of corrective advertisement to neutralize the effect of
misleading advertisement.
(viii)
Payment of adequate cost to parties.
(ix)
Compensation for loss or injury suffered.
(x)
Payment of amount (not less than 5% of the value of the defective goods
or services) to be credited to the consumer welfare fund.
Q.3 Explain the various rights available to the consumers.
HOTS.
1. Non-Government Organizations (NGOs) perform several functions for the
protection and promotion of consumers. State any six functions performed by
them.
OR
Explain the role of Consumer Organizations and Non- Government
Organizations (NGOs) in consumer protection.
Ans. A number of consumer organizations and non-governmental organizations
have been set up for promoting the welfare of people. The role of
consumer organizations may be discussed as under.
(1) Creating consumer awareness: They publish periodicals, brochures,
journals etc. for creating consumer awareness.
193
(2)
Encouraging the consumers: They encourage and educate the
consumers to protest against unscrupulous, exploitative and unfair trade
practices of the sellers.
(3)
Filling complaints: They file suits, complaints and writ petitions on
behalf of the consumers.
(4)
Protesting against traders: They protest and take action against
adulteration, underweight selling and sale of hazardous products and
other unfair trade practices of traders.
(5) Focus on consumer problems: They arrange seminars, workshops and
conferences for the purpose of focusing on problems of consumers.
(6) Provide legal assistance: They provide legal assistance for getting
legal remedy against the damages caused to consumers.
2. Reena purchased one liter of pure Desi Ghee from a shopkeeper. After
using it she had a doubt that it is adulterated. She sent it for a laboratory
test which confirmed that the Ghee is adulterated. State any six reliefs
available to Reena, if she complains and the consumer court is satisfied
about the genuineness of the complaint.
Ans. Reliefs available to Reena: (Any six)
1. To replace adulterated0 ghee.
2. To refund the price paid for the product.
3.
To pay a reasonable amount of compensation for any loss or
injury/sickness suffered by her due to negligence of the manufacturer.
4. To pay punitive damages in appropriate circumstances.
5. To discontinue this unfair/ restrictive trade practice and not at repeat it
in future.
6. Not to offer adulterated ghee for sale.
7. To withdraw adulterated ghee from sale.
8. To cease manufacture of adulterated ghee.
194
9. To pay any amount (not less than 5% of the value of the adulterated ghee
to be credited to the Consumer Welfare Fund of any other
organization/person, to be utilized in the prescribed manner.
10. To pay adequate costs to Reena.
3. Prakhar purchased an ISI mark electric iron from 'Bharat Electricals'. While
using he found that it was not working properly. He approached the seller
and complains for the same. The seller satisfies Prakhar by saying that he
will ask the manufacturer to replace this iron. The manufacturer refused to
replace and 'Bharat Electricals' decided to file a complaint in the Consumer
Court. Can 'Bharat Electricals' do this? Why? Also explain 'who is a
consumer' as per Consumer Protection Act, 1986.
Ans.
Bharat Electricals cannot file a complaint. This is because Bharat
Electricals in not a consumer as per consumer Protection Act 1986 because
they bought the goods for re-sale/ commercial purpose. Under the
Consumer Protection Act, a consumer is defined as:
(a) Any person who buys any goods for a consideration, which has been
paid or promised, or partly paid and partly promised, or under any
scheme of deferred payment. It includes any user of such goods, when
such use is made with the approval of the buyer, but does not include a
person who obtains goods for re-sale or any commercial purpose.
(b) Any person who hires or avails of any service, for a consideration
which has been paid or promised, or partly paid and partly promised, or
under any system of deferred payment. It includes any beneficiary of
services when such services are availed of wiht the approval of the
person concerned , but does not include a person who avails of such
services for any commercial purpose.
195
Value based questions.
1. Under the consumer protection Act, every consumer has a right to be
protected against goods and services which are hazardous to life health.
Electro ltd. Manufactures and sells substandard electrical appliances. As
these appliances did not conform to safety norms and a mark assuring
quality specification was missing. Cases were noticed where these
substandard appliances had caused serious injury to many consumers.
(a) Which consumer right has been highlighted in the above case?
(b) Name the mark which the consumer should see before buying any
electrical appliances to ensure safety.
(c) Name and explain the consumer right where a consumer has a right to
have complete information about that product he intends to buy.
(d) Which values do you find disturbing in the above Para?
Ans. (a) Right to safety.
(b) ISI mark
(c) Right to be informed: The consumer has a right to have complete
information about the product he intends to buy including its ingredients,
date of manufacture, price, quantity etc.
(d) Responsibility: Goods and services which are hazardous to life and health
should not be provided to consumers.
2. A consumer has the freedom to choose from a variety of products at
competitive prices. The marketers should offer a wide variety of products
at competitive prices. The marketers should offer a wide variety of
products in terms of quality, brand price, size, etc and allow a consumer to
make a choice from amongst these. Janya, a class XII student was in need
of a ball- pen. She went to the nearest stationery shop. The shopkeeper
showed her a wide variety of ball-pens having of different prices. She
selected a pen and paid rs.250, the maximum retail price of pen, and took
cash memo for the same.
(i) which consumer right is available to Jaya.
(ii) Identify the right that power a consumer to file a complaint and to be heard
in case of dissatisfaction with a good or a service.
(iii) Name the value which is emphasized by providing a consumer right
mentioned in part (i) above.
Ans. (i) Right to choose.
(ii) Right to be heard.
(a) Respect towards the consumers.
(b) Honesty
(c) Loyalty.
196
QUESTION PAPER DESIGN 2014-15
CODE NO: 054
BUSINESS STUDIES
CLASS XII
TIME: 3 HOURS
Max. Marks 80
s. Typology of
n Questions
o
Learnin
g
outcom
es &
testing
skills
0
1
Remembering
(Knowledge
based simple
recall
questions, to
know specific
facts, terms,
concepts,
principles, or
theories,
Identify, define,
or recite ,
information)
0
2
Understanding(Comprehensiv
e to be familiar
with meaning
and to
understand
Very
short
Ans
wer
(VSA
) (1
Mark
)
Short
Ans-I
(SAI) (3
Mark
s)
Short
AnsII
(SAII) (4
Mark
s)
Long Essa Total %
Ans y
Marks Weighta
(LA) Type
ge
(6
(6
mark
Mark
s)
s)
Reaso 2
ning,
analytic
al
skills,
critical
skills
1
1
1
-
14
17%
2
2
1
_
1
18
23%
197
conceptually,
interpret,
compare,
contrast,
explain,
paraphrase, or
interpret
information)
0
3
Application(Us
e abstract
information in
concrete
situation, to
apply
knowledge to
new 1situation,
use given
content to
interpret a
situation,
provide an
example, or
solve a
problem)
2
1
1
1
1
20
25%
0
4
High Order
Thinking Skill
(Analysis &
synthesis
classify,
compare ,
contrast, or
differentiate
between
different piece
of information,
2
1
2
_
1
19
24%
198
organize
and/or
integrate
unique pieces
of information
from a variety
of sources)
0
5
Evaluation and
MultiDisciplinary(Appraise,
judge, and/or
justify the value
or worth of a
decision or
outcome, or to
predict
outcomes
based on
values.
TOTAL-2
projects
(10 marks
each) 20
8x1=
8
_
1(val
ue
base
d)
1
_
09
11%
5x3=
15
6x4=
24
3x5=
15
3x6=
18
80(25 100%
)
(proje
ct)
(20)
199
LATEST CBSE SYLLABUS
UNITWISE WEIGHTAGE
Units
Periods
Marks
14
14
12
14
18
16
18
14
120
16
Part A: Principles and Functions of
Management
1.
2.
3.
4.
5.
6.
7.
8.
Introduction to Management
Principles of Management
Business Environment
Planning
Organising
Staffing
Directing
Controlling
14
20
50
PART B: Business Finance and
Marketing
15
9. Financial Management
10.
Financial Markets
11.
Marketing Management
12.
Consumer Protection
PART C: Project Work
22
20
32
16
30
120
15
20
50
200
SAMPLE QUESTION PAPER- I
BUSINESS STUDIES
Q1: Give meaning of the term ‘Deviation’ as used in the control function of
Management?
Ans: ‘Deviation’ is the gap between Actual Results and Planned Results.
Q2: Ramesh is working under the guidance of Harish a carpenter, for the last three
years to learn the different skills of this job. Name the method of Training,
Ramesh is undergoing.
Ans: Apprenticeship Training.
Q3: Harish is engaged in warehousing Business and his Warehouses are generally
used by the business and his warehouses are generally used by the
businessmen to store fruits. Identify the working capital requirements of Harish
giving reason in support of your answer.
Ans: Working capital Requirement of Harish would be less as it is Service Industry.
Q4: Akmard wants to buy an iron. As an aware customer, how can he be sure about
the of iron?
Ans: 151 Mark label
Q5: Which concept in Financial Management takes into consideration the growth,
performance investment and requirements of funds for a given time period?
Ans: Financial Planning
Q6: In an organization employee always feel that they are under stress. They take
least initiative and fear to express their problems before the manager. What
leadership style does the manager follow?
Ans: The manager follows ‘Authoritative’ or Autocratic ‘leadership style.
201
Q7: Dushant, who was a vegetarian, went to a snack bar for having French Fries
and later on found that it has non vegetarian content. Neither the advertisement nor
the packing of the product displayed that the product has non-vegetarian contents.
Will Dushyant be able to claim compensation? Which right of the customer is
violated?
Ans: Yes, Dushyant will be able to claim the compensation as the seller has
violated the “Right to Information”.
Q8: Ankur is working as a production Manager in an organization. His subordinate
Saurabh discussed with him a method of production which will reduce the cost of
production. But due to some domestic problems and Ankur’s mind being
preoccupied he is not in a position to understand the message, Saurabh got
disappointed by this identity. Identity the factor which acts as a communication
barrier.
Ans: Lack of Attention (Psychological/Emotional Barriers to communication)
202
Q9: Explain any three functions of Packaging?
a)
b)
c)
d)
e)
Product Protection
Product Identification
Helps in grading the products into different categories.
Describes the Product & specifies its contents
Provides information required by law
(Any 3 points correctly stated and explained) – ½ x3= 1 ½
½ x3= 1 ½
Q10: “Price of a product is influenced by many factors”. Explain the three factors
influencing pricing.
Factors of feeling Pricing Decision
(a) Pricing objectives
(b) Product cost
(c) Competition in the Market
(d) Utility and Demand
(e) Government and legal Regulations
(f) Marketing Method used
(Any 3 points correctly stated & explained { ½ x 3 + ½ x 3= 3}
Q11 Explain how Principal of Management help in optimum utilization of Resources
and Effective Administrator and I fulfilling social Responsibility.
Ans: Optimum utilization of Resources & effective optimum utilization of resources
by equipping managers to foresee the cause and effect relationships thereby
reducing the wastages associated with Trail and error approach. Similarly,
Management Principal Act as guidelines for top management to formulate various
administrative plans and policies.
Fulfilling social Responsibility: Management Principles also guide the mangers to
perform social responsibilities for ex, the Principle of ‘Fair Remuration’ insists on
adequate salary to employees.
Q12: A company is manufacturing garments the manger wants to increase profits
by purchasing new high speed machines or increasing the sale price or using waste
material in manufacturing stuffed toys. He decided that using waste material to
increase the profit is the best solution for him.
203
Ans: (a) The concept of management involved is – PLANNING next three steps
involved are:
 Formulation Derivative plans to support the main plan
 Selecting the best possible alternative using waste material in manufacturing
stuffed toys
 Implementing the plan and follow up action to ensure that objectives are
achieved
(b) The value promoted by the company is “optimum utilization of resources”.
204
Q13 Distinguish between objectives and policy. Give examples
Objective
 Objectives are defined as ends
which the management seeks
to achieve by its operations
 They define the future state of
affairs which the organization
would like to realize
 Ex: increasing sales by 10% ,
earning 20%
ROI etc.
Policy
 Policies
are
generally
statements or understanding
that guide or channel thinking
in decision making
 They
define
the
broad
parameters within which a
manager may function.
 Ex: Selling products as cash
basis only, insisting on fixed
pricing, promoting from within
the organization etc.
Q14: Explain the following Principles of Management:
Order
Equity
Ans: Order means a place for everything (everyone) and everything (everyone)in
its (his/her) place
Essentially, it means orderliness.
Fayol insists that people and materials must b in suitable place at appropriate
time for maximum efficiency.
Equity implies that similar treatment is assured to employees in similar positions.
The Principle emphasis kindliness and justice in the behavior of mangers.
Towards worker mangers should be fair and impartial while dealing with their
subordinates and there should be no discrimination on the basis of sex, religion,
language belief, nationality etc
Q15: Explain the following Rights of a consumer:
Right to be Heared
Right to seek Redressal
205
Ans: Right to be Heard: The consumer has a right to file a complaint and to be
heard in case of dissatisfaction with goods or services. Therefore, many
enlightened business forms have setup their our consumer service and grievance
cells. Many consumer organizations and NGOs are also working towards this
direction and helping consumers in redressal of their grievances.
Right to seek Redreessal : The consumer has a right to get relief (s) in case of
defective goods or deficient services. The consumer rotection Act, 1986 provides a
number or reliefs to the consumers including removal of defect in the product,
replacement of the product, compensation paid for any or injury suffered by the
consumer etc.
206
Q16: What is the financial Management? Explain its objectives. (4)
Ans: Financial Management is concerned with optimum procurement as well as well
as usage of finance.
Objectives of Financial Management
The primary, objective of financial management is to maximize shareholders wealth,
which means maximization of the market value or price of equity shares of the
company.
In order to maximize shareholders wealth, financial management must aim at
achieving the following specific objectives.
1. Ensure availability of sufficient funds at a reasonable cost.
2. Ensuring effective utilization/deployment of such funds.
3. Ensuring safety of funds processed by creating reserves, reinvesting profits
etc.
Q17: Kayco.Ltd. Is manufacturing detergents. They decide to launch a new range a
herbal products. As they are in a hurry they have tested products on animals only.
The management also plans to launch a new factory in a tribal area where the
products are easily available and the labourmen, women and children are available
for work at low wages in the absence of development opportunities and schools
(a) Which value do you find disturbing in the above para?
(b) Explain the role of Public relations in launching new products.
Ans: The disturbing values in the given para are Testing on Animals is banned.
 Child labour is banned so schools should be opened for them.
(ii) Role of public relations in launching new products:
PR involves a variety of programmes to promote and protect a company’s image or
its products in the eyes of the public. An effective PR campaign is essential to PR
professionals create news about the new product to be launched in the most
positive light to get the media to accept press releases.
Q18: What is meant by “Functional Structure” of an organization? Explain any two
advantages and on limitation of this structure.
207
Ans: A functional structure is an organizational design which is created by grouping
of similar nature under major functions and organizing these functions as separate
departments.
Advantages
1.
2.
3.
4.
5.
6.
Functional specialization
Efficiency
Minimum cost
Better control & co ordination
Proper attention
Ease in training of employees ( any 2 pts correctly stated and explained)
Disadvantages
1. Functional empires
2. R in coordination
3. Interdepartmental conflicts
4. Inflexibility
Q19: your grandfather is working in an MNC as chief operating officer. At which
level of management he is working? State any three functions that will perform as
chief operating officer of the company. (4)
Ans: Top management
Functions
(i) coordination the activities of different
(ii) Welfare and survival of the organization
(iii) Formulating overall organization goal
(iv) Framing of policies
208
(any three)
Q20: explain briefly ‘STAFFING PROCESS”
Ans:





* Estimating Manpower needs
Recruitment and selection
Placement and orientation
Training and Development
Compensation
Career Planning
Q21: Rajeev and sanjeev are manager in the same organization having different
units. While discussing about the functions of management
Q22: Discuss the importance of Business Environment
Ans: Important of Business environment






It enables the firm to identify opportunities & getting the first never advantage.
It helps the firm to identify threats and early warning signals.
It helps in assisting in planning and policy formulation
It helps in tapping useful resources
It helps in coping with rapid changes
It helps in impressing performance
(Any five points correctly stated and explained)
Q23: Advertising and Personal Selling both are communication tools used by the
markets to promote their products .yet they differ their approach. Differentiate
between the two by giving any six differences.
Ans.
BASIS
ADVERTISING
PERSONAL SELLING
FORM
Impersonal form of promotion.
Personal form of promotion.
REACH
Large number of people can be Only a limited number of
approached.
people can be contacted
209
COST
Cost per person is very low
Cost per person is quite
high.
MEDIUM
TV,
radio,
magazines.
FEEDBACK
Lack of direct feedback
TIME
Covers the market in short Takes a lot of time to cover
period
the entire market.
newspaper, Sales staff.
Direct
and
feedback
immediate
Q24 explain any three protective functions and three regulatory functions of SEBI.
Ans. Protective functions of SEBI.
 Prohibition of fraudulent and unfair trade practices in the securities market.
E.g. price rigging, making misleading statements in prospectus.
 Controlling insider trading and imposing penalties for such practices
 Undertaking steps for investors protection.
Regulatory functions of SEBI.
 Registration of brokers and sub brokers and other players in the market.
 Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers.
 Regulation of takeover bids by companies.
Q25: Discuss measures to improve the effectiveness of communication
Or
What is meant by ‘Non Monetary Incentives’?
Explain any five types of non Monetary Incentives which contribute to the
performance of employees.(6)
Ans: Measures to improve communication effectiveness
1. Clarify the ideas before communication.
2. Communicate according to the need of receiver
3. Be aware of language, tone and content of message
210
4. Be a good listener
5. Ensure proper feedback
6. Communicate for present as well as for future
( pts with correct explanation)
Or
Non finanancial incentives are not measured in terms of money , provide
psychological and emotional satisfaction rather than money driver satisfaction
Various Non Financial Incentives
1.
2.
3.
4.
5.
6.
7.
8.
Recognition
Status
Career Advancement opportunities
Job security
Employee participation
Employee empowerment
Organization climate
Job enrichment
(any 5 of the above with proper exp cantion)
211
SAMPLE QUESTION PAPER –2(SOLVED)
Time : 3 Hrs
M.M 80
Q1: “He/ she keep machines, materials, tools etc., ready for operations by
concerned worker” whose work is described by this sentence under functional
foremanship?
Ans1: Gang Boss.
Q2: Define “Liberalization” as a process of economic reforms (1)
Ans 2: Liberalizations’ means “freeing the Indian Business and Industry from all
government controls and restrictions”
Q3: Name and state the ‘on the job method of training that is used to give training to
the electricians (1)
Ans 3: Apprenticeship Programmed
Q4: “An effort to control everything may end up in controlling nothing”. Identify the
principle.(1)
Ans 4: Management by Exception
Q5: Name the feature of planning which says planning is a forward looking function.
Ans 5: Planning in “Futuristic”
Q6: A company has its registered office in Delhi, manufacturing unit at Gurgaon and
marketing and sales department at Faridabad. The company manufacture as
washing machines. Which type of organizational structure should it adopt to achieve
its targets?
Ans 6: Functional structure
Q7; what determines the number of levels of management in the organization
structure?
Ans 7: Span of Management
212
Q8: Which is the highest level of need in the Mas Low theory of motivation?
Ans 8: Self Actualization need
Q9: State any three advantages of “Branding to the Marketers.
Ans 9: (1) Enables making product differentiation
(2) Helps in Advertising and display programmer
(3) Differential Pricing
(4) Ease in introduction of New product (any 3 points correctly stated &
explained 1x3=1)
Q10: Which process prepares a blue print of an organization future preparations
relating to finance? Explain any two points of its importance.
Ans 10: Financial Planning
Importance of Financial Planning
1.
2.
3.
4.
Co coordinating various business functions
Forecasting what may happen in future under different business situations.
Acquisition of required funds
Reduce waste, duplication of efforts
(any 2 of the above points ) {1+2=3}
Q11: In an organization, employees take least initiative and fear to express their
problems before the manager. What leadership style does the manager process?
Explain?
Ans 11: Autocratic Style of leadership
An Autocratic leader does not accept any suggestion from his employees. He does
not involve has employees in decision making process and thrust/ imposes his
decision and ideas on other. (1+2=3)
Q12: Differentiate between “Primary Market” and secondary Market on the basis of
(i) Capital formation (ii) purpose (iii) Buy/ Selling
213
Ans 12:
Basis
1. Capital Formation
Primary Market
Secondary
The flow of funds is
from savers to investors
in the primary market
directly promotes capital
Enhance
encash
capability (liquidity) of
market & In directly
promotes
capital
formation
Formation
2. Purpose
3. Buying/ selling
Securities are sold by
the company to the Ownership of existing
investors directly
securities is exchanged
between investors
(or
through
an
intermediary)
Only
buying
of
securities taken place in
the
primary
market
securities cannot be
sold by the investors
Both the buying and
selling of securities can
take place an stock
exchange
Q13: Explain “Trading in Equity “ Give example also.(3)
Ans 13: Trading on Equity refers to the increase in profit earned by the equity
shareholder due to the presence of fixed financial changes like interest.
Example
Co. X
Share capital
Rs 10,00,000
(10000 equity shares of Rs. 100 each
4,00,000
214
Share capital (4000 equity shares of Rs 100 each)
6,00,000
Loan @15% p.a
---
3,00,000
PBIJ @30% on Capital employed
3,00,000
2,19,000
Loan interest
nil
1,05,000
Profit before tax
3,00,000
1,05,000
Len tax
1,50,000
Profit after tax
1,50,000
Co. A
EPS = Profit after tax
Co. B
= 150000
No of Eq shares
= Rs 15/-
1,05,000
10,000
4000
Rs 26.25/-
Return enjoyed by shareholders of co. 4 is higher than that of Co. X
(1+2=3)
215
Q14: “Expenditure on advertising is a social waste”
Giving four reasons.
ANS14 (i) Undermines social values
(ii)Encourage sale of inferior goods
(iii)Confuse rather than helps
(iv)Some advertisement is in taste
(v)Advertisement cost are pressed on to the customer in the form of higher price
(Any four point correctly stated and six point )
Q15: Many companies have been investing significantly in the retail sector in India
because of several factors. Customer income is increasing people have developed
a taste of better quality product. The government has permitted 100% FDI in same
sectors of retailing. Identify and explain the dimensions of business environment by
quoting the lives from the above Para.
Ans15: Customer income is decreasing – economic environment
People have developed a taste for better quality products – social environment
technology environment
Govt. has permitted 100% F.D.I inretaling sector- political environment
Q16: “There are some barriers in communication which are concerned with
organizational structure and rules and regulation: Identify the barrier and state any
three such barriers
Ans16 Organizational barriers
1. Organizational policy
2. Rules and regulation
3. Status
216
4. Complexity in organization
5. Organizational facility (1+any three of the above correct state and explained =3)
Q17: Mansi is the marketing manager of a company selling laptops. She has six
subordinates working under her on the last day of every month she rewards the
efficient employees to motivate them.
Ans17: Value-acknowledge /one recognition of talent
(1) Non-financial incentive (1) status, career advancement opportunity, job security,
etc. (any2= 2marks)
Q18: Explain the following money market instruments
(i) Certificate of Deposit (CD)
(ii) Call Money
Ans18= certificate of deposit: Certificate of deposit (CD) are unsecured, negotiable,
about term instrument in form , by commercial banks and development financial
institution.
These can be to individual, corporation and companies during periods of tight
liquidity when the deposit growth of banks is slow but the demand for credit is high.
These help to mobilize a large amount of money for short periods (91 days to 1
year)
Call money: is a method by which banks borrow from each other to be able to
maintain cash reverse rate.
The cell money finds are for very short period of 1day to 15 days.
The interest payable on cell money loan is known as the call rate
A rise in call money rates makes other money market instruments cheaper than call
money .
217
Q19: State the principle of Esprit de corps give two positive effects of the principle
of ‘Esirit de corps’.
ANS19= `Spirit de corps’ mean `union strength.’ Fayol emphasis the need for team
work, spirit of unity and harmony among employs. a manager should replace ` I
’WITH `WE ‘ in all his conversation with worker to faster team spirit .
Positive effects
(1) TEAM SPIRIT HELPS in developing atmosphere of mutual trust and
belonging
(2) It also minimizes the need to use penalties for defaulting person.
Q20: (a) Distinguish between ‘single use and standing plans’ give example of each.
ANS20=(a) a single use plan refers to a plan developed for one time project or
event specifically designed to achieve a particular goal or objective .
Example: Budget for annual general meeting.
Standing plans: standing plans are used over and over again because they focus
on organizational situation that occur separately.
Example: recruitment and selection procedure for a particular post in a company.
STRATEGY (1)
 A strategy refers to future decisions defining the organization direction and
scopes in the long such.
(b)An Auto company Tata Ltd is facing a problem of declining market share due to
increased competition from other new existing players in the market. The Company
is planning to introduce new models with added features and new technological
advancements. Name and explain the type of plan.
Q21: “Internal sources of recruitment are better than external sources”. Explain any
five reasons in support of this statement.
ANS21: MERITS OF INTERNAL SOURCES
218





Motivation of employees to improve their performance
Less costly
Simplifies the process of selection and placement
A tool of training
Benefit of shifting workforce
[1/2 mark for each point correctly state
+1/2 mark for each point correctly explained]
Q22: “Planning is looking ahead and controlling is looking back” Comment.
Ans 22 “Planning is looking ahead whereas controlling is looking back can be
understood with the help of following points
(i) Planning is decided in the present what to do in future. In this sense ,
planning is looking ahead
(ii) On the contrary, throught controlling managers ensure that actual
performance is recoding to planned standards. Thus, controlling is like a
postmortem of past activities to find out deviations
“Planning is looking back whereas controlling is looking ahead may be
understood by giving following reasons –
(i) Planning is looking back because future planning is guided by past
experiences.
(ii) Controlling is looking ahead because the corrective action initiated by
control function aims to improve future performance conclusion:
Planning and controlling are both backward looking as well as a
forward looking function
Q23: Why was securities and exchange board of India (SEBI) was setup? Explain
any four objectives of SEBI.
Or
Explain any four factors which affect the working capital requirement of company.
Ans 23: Reasons for establishment of SEBI
219
 Variety of malpractices viz unofficial Private placement, Price Rigging,
Unofficial Premium on new issues,
 Non adherence to provisions of companies Act on the Part of companies,
Broker, Merchant Bankers, Investment consultant and others.
 Erosion of customers confidence and multiplies investors grievance
 The need for setting up a separate regulatory body known as SEBI
 The need for setting up a separate regulatory body known as SEBI
Objectives of SEBI
 To regulate stock exchanges and securities market to promote their orderly
functioning
 To protect the right and interests of investors, and to guide and educate them.
 To prevent trading malpractices.
 To regulate and develop a code of conduct and fair practice by intermediaries
like brokers, merchant bankers etc.
 To stimulate competition and encourage invocation(any 4 pts. 1x4=4)
Or
Any 4 factors affecting working capital needs












Nature of Business
Operation / Production Cycle
Business cycle
Seasonal factor
Credit allocated
Credited Availed
Level of Competition
Inflation
Cost of raw material
Growth prospects
Scale of operations
Operating efficiency
(any 4 points, correctly stated ½ x4=2
Correctly explained 1x4=4
220
Q24: Deepak purchased a book from a book seller and got the cash memo of rs
400 which he paid for the book later. He found that the actual price of the books is
Rs 380 but the book-seller had put a sticker of Rs 400 on the original price. Can
Deepak recover the extra money that he paid? What other options are available to
him against the book seller?
Or
Identify and explain the rights of a company consumer violated In the following
cases:(a) Rahul went a shopkeeper to buy soap the shopkeeper forced him to buy a
particular brand of soap out of various brands, irrespective of the willingness
of Rahul.
(b) Anil, who was vegetarian, went to a snack bar for having French fries and
later on found that it had non vegetarian content neither the advertisement nor
the packing of the product displayed that the product had non vegetarian
contents. Also state the value overlooked by the sellers in each case.
Ans24
Deepak is responsible consumer since he has got the cash memo for
the book he purchased. Cash memo is the proof of purchase. A consumer must
have the cash memo to file a complaint in a consumer court.
In this case, the book seller has charged for the book a price in excess of the list
price so, Deepak can recover the extra money he paid (Rs 20) from the book seller.
Deepak can file a complaint against the book seller in a consumer court if he does
not get back (Rs 20) from the book seller. If the consumer court is satisfied about
the genuineness of the complaint, it can issue the following direction to the
bookseller.
1. To refund the price paid for the book(400)
2. To pay adequate costs to Mr. Deepak, which he incurred for filling the
complaint.
3. To discontinue the unscrupulous , exploitative and unfair trade practices and
not to repeat in the future.
221
Or
(a) Right to choose with correct explained
(b) right to informed with correct expanded
(a) Values Over looked : (a) responsible behavior / confident behavior
(b) sensitivity towards other needs / social concern
- not legally compliant
Q25: “Delegation is a key element of effective organizing”? explain (any four)(6)
Or
Decentralization in an optional policy explain why an organization would choose to
be decentralized (any 4 points)
Ans 25 : Importance of delegation
- Reduced overload of managers
- Effective management
- Motivation of employees
- Employee development
- Facilitates organizational growth
- Quick decision making
- Basis of management hierarchy
- Better coordination
{any up to correctly states & explained }
½ mark for stating correctly ½*4=2
+ 1 mark for correct explanation 1*4=4]
Importance or decentralization – any 4 pts correctly states & explained
- Relief to top management
- Develops managerial talent
- Quick decision making
- Develops initiative among subordinates
- Facilitates growth
- Better control.
SAMPLE PAPER 3(UNSOLVED)
222
Q1: Controlling should not be misunderstood as the last function of management.
Why?
Q2: Define formal communication
Q3: What do you understand by ‘cluster network’?
Q4: How does planning provide the basis for controlling
Q5: There are two major alternative mechanisms through which allocation of funds
can be done. Name them.
Q6: Give one difference between Primary and secondary Market
Q7: Give meaning of the term ‘Deviation’ as used in the control function of
Management.
Q8: What is meant by ‘Right to be Heard’?
Q9: Discuss the meaning of Method Study
Q10: “Two persons working as same positions level should be accorded same
treatment “ Name and explain the underlying principle.
Q11: What do you mean by ‘Policy’? Give suitable examples.
Q12: Explain any three Money Market Instruments
Q13: Explain any three benefits of External Source of Recruitment.
Q14: Explain the benefits of Decentralization
Q15: What do you understood by ‘Informal Organization’? Discuss any three
benefits of it.
Q16: “Financial Planning is essentially preparation of a financial blue print of
organizations future operations. The objective of financial Planning is to ensure that
enough funds are available at the right time. Poorvil Co. known for its financial
planning. Flow financial planning contributes values to the system.
Q17: Highlight the benefits of training provided to employees.
Q18: Describe the following as ways and means of consumer protection:
a) Consumer Awareness
223
b) Government
Q19: Describe any 4 functions of labeling. (4)
Q20: “Management is both science as well as Art “Explain” (5)
Q21: Explain the various components of “Economic Environment”. (5)
Q22: “Supervision is not at all necessary in an organization as it needs to
unnecessary cost “ Do you agree”? Give reasons in support of your answer.
(5)
Q23: Discuss any four financial Incentives.
Or
Explain any four psychological barriers to communication
Q24: What is meant by financial management? Explain the three decisions involved
in financial management
Or
Explain the meaning of fixed capital; briefly explain any four factors affecting fixed
capital needs of a company. (6)
Q25: Define marketing. Explain any five function of Marketing.
OR
“All Advertising is a solid waste”. Do you agree? Give reasons to justify your
answer. (6)
224
Sample paper 4 (unsolved)
1. Employees know well in advance what they are expected to do and what are
the standards of performance on the basis of which they will be appraised,
which in turn helps them to give better performance. Which importance of
controlling is highlighted here?
2. It is concerned with instructing, guiding and inspiring people in the organization
to achieve its objectives. Name it.
3. What corrective action should be taken in case deviations are caused due to
defective machinery?
4. It is an incentive offered over and above the wages/salary to the employees.
Name the type of financial incentive referred here.
5. A company wants to establish a new unit in which a machinery of worth Rs.10
lakhs is involved. Identify the type of decision involved in financial
management.
6. What does trading on equality refer to?
7. Enterprise has little control on external factors. Mention some of these factors.
8. ‘100 gm. bottle of sauce free with 1 kg detergent.’ Which sales promotion
technique is involved here?
9. ‘Image building, basic of strategy and continuous learning are the outcomes of
understanding of Business environment. Explain.
10. ‘Equal pay for equal work for male and female workers’ refers to an example
of a key component of general environment of business. Name and explain the
component.
11. It refers to systematic effort to delegate all authority to the lowest level except
that which can be exercised at central points. Name it and explain its two
importance.
12. Aman Ltd. is manufacturing toys and has Production, Sales, Purchase and
Finance Departments. Which type of organization structure would you suggest
to them? State any three advantages of this organization structure.
13. How do ‘Choice of Technique’ and ‘Nature of Business’ affect the ‘Fixed
Capital’ requirements of a company? Explain.
14. Explain, in brief, the meaning of ‘policy’ and ‘rule’ as type of plans and give
any four points of distinction between them.
15. ‘Some learning opportunities are designed and delivered to improve skills and
abilities of employees where as some others are designed to help in the growth
225
of individuals in all respects.’ Identify and explain the two steps explained
above.
16. ‘Stock market quotation contributes to better allocation of capital and
promoting the habit of saving and investment.’ Explain.
17. Manas Company wants to develop an effective system of controlling.
Controlling is an indispensable function of management. How does controlling
inculcate values in the organization?
18. How personal selling is important to a businessman?
19. I saw an advertisement in the newspaper regarding a domestic iron and
ordered for the purchase of the same to the shopkeeper.
What will be my responsibilities as a customer so that I should not be
exploited by the shopkeeper? State any four such responsibilities.
20. R.N. Vijay is the Chairman of Teaching Point Tutorial (P) Ltd. Name the
managerial level at which he is working. State any four functions he will perform
as Chairman in this company.
21. Explain any five technique of scientific management.
22. “Maslow’s need hierarchy is considered fundamental to understanding of
motivation. “In the light of this statement, explain ‘motivation’ and Maslow’s
need hierarchy in motivation.
23. What do you mean by Laissez-fair leadership? State its features. List the
situations in which style of leadership is more suitable.
OR
Explain any for Personal barriers to communication.
24. Give six points to highlight the importance of capital market.
OR
You are a finance expert. One of your friends comes to you and tells you that
the capital market and the money market are one and the same, whereas you
differ with him. How would you convince him? Give any four reasons.
25. What are the remedies available to consumers under protection Act, 1986?
OR
Explain various ways and means in which objective of consumer protection
can be achieved.
SAMPLE PAPER 5 (UNSOLVED)
226
1. What is compared with what, in controlling?
2. What should be the ‘focus-point’ for a manager while controlling, as
controlling at each and every step is not possible?
3. ‘A good leader does not wait for opportunities but creates them’. Which quality
of a good leader is highlighted by this statement?
4. Motivation can be either positive or negative. Give two examples of negative
motivation.
5. Name the type of investment decision which relates to short-term and affects
day to day operation of a company.
6. “Cost of debt” is lower than the cost of “equity share capital”. Give reason why
even then a company cannot work only with the debt.\
7. Name the concept which suggests that only significant deviation which go
beyond the permissible limit should be brought to the notice of management.
8. ‘Scratch a card and win exciting prizes’. Which technique of sales promotion
suggests this?
9. Explain ‘threat from MNC’ and ‘world class technology’ as impacts of changes
in the government policy on business and industry.
10.
‘Demand for reservation in jobs for minorities’ refers to an example of
key component of general environment of business. Name and explain the
component.
11.
Distinguish between functional and divisional structure.
12.
It refers to systematic effort to delegate all authority to the lowest level
except that which can be exercised at central points. Name it and explain its
two importance’s.
13.
Why is management of fixed capital (or capital budgeting decisions)
important/necessary?
14.
Which type of plan is referred through each of the following statements?
(a) They are defined as ends which the management seeks to achieve by its
operations.
(b) These are general statements that guide thinking or channelize energies
towards a particular direction.
(c) They provide details in the exact manner in which any work is to be
performed.
(d) They provide the prescribed ways or manner in which a task has to be
performed considering the objective.
15.
Explain the following methods of training the workers:
(a) Vestibule Training
227
(b) Internship
16.
“Securities and Exchange Board of India (SEBI) is the watchdog of the
securities market.” Do you agree? Give four reasons in support of your
answer.
17.
How does controlling help in `achieving objectives` and `improving
employees morale`?
18.
Packet of a cake contained green symbol showing it to be a vegetarian
one. But after testing it was found that the cake had some non-vegetarian
ingredients. The company has neglected some values mention them.
19.
Reena purchased on liter of pure Desi Ghee from a shopkeeper. After
using it she had a doubt that it is adulterated. She sent it for a laboratory test
which confirmed that the Ghee is adulterated. State any six reliefs available to
Reena, if she complaints and the Consumer Court is satisfied about the
genuineness of the complaint.
228
20.
“Management is regarded as an Art by some, as Science or as an
inexact Science by others. The truth seems to be somewhere in between”. In
the light of this statement, explain the nature of management.
21.
Which principle of management is violated if an employee is asked to
receive orders from two superiors? Explain the principle with a suitable
example.
22.
‘Directing is the heart of the management process.’ Do you agree? Give
any 4 reasons in support of your answer.
23.
Explain the concept of Democratic leadership and state its features.
Or
Define formal communication. Name the type of formal communication in
which the persons of two departments, one at a higher position and another at
lower, communicate with each other. Also state the problem which may arise in this
type of communication.
24.
Or
Explain the steps in the ‘Trading Produce’ of stock exchange.
Explain the following money market instruments:
a) Call money
b) Commercial bills
c) Certificate
25.
Explain the redressal mechanism available to consumers under the
consumer protection act,1986
Or
Non -government organizations perform several functions for the protection and
promotion of interest of consumers. State any six function performed by them.
229
CLASS XII
GUIDELINES FOR TEACHERS
1. Help students to select any ONE Topic for the entire year.
2.
The topic should be assigned after discussion with the students in the class
and should then be discussed at every stage of the submission of the project.
3.
The teacher should play the role of a facilitator and should closely
supervise the process of project completion. The teachers must ensure that the project
work assigned to the students whether individually or in group are
discussed at different stages right from assignment to drafts review and
finalization. Students should be facilitated in terms of providing relevant
materials or suggesting websites, or obtaining required permissions from
business houses, malls etc for their project. The 16 periods assigned to the
Project Work should be suitably spaced throughout the academic session.
The teachers MUST ensure that the students actually go through the rigors
and enjoy the process of doing the project rather than depending on any
readymade material available outside.
4.
The students must make a presentation of the project before the class.
5.
The teachers must ensure that the student’s self esteem and creativity
is
enhanced and both the teacher and the student enjoy this process.
5.
The teachers should feel pride in the fact that they have explored the different
dimensions of the project in an innovative way and their students have put in
genuine work.
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(I)
Project ONE: ELEMENTS OF BUSINESS ENVIRONMENT
The teachers should help the students in selecting any one element of the following:
1.
Changes witnessed over the last few years on mode of packaging and its
economic impact. The teacher may guide the students to identify the
following changes:
2.
a)
The changes in transportation of fruits and vegetables such as
cardboard crates being used in place of wooden crates, etc.
Reasons for above changes.
b)
Milk being supplied in glass bottles , later in plastic bags and now in
tetra pack and through vending machines.
c)
Plastic furniture [doors and stools] gaining preference over
wooden furniture.
d)
The origin of cardboard and the various stages of changes and growth.
e)
Brown paper bags packing to recycled paper bags to plastic bags and
cloth bags.
f)
Re use of packaging [bottles, jars and tins] to attract customers for
their products.
g)
The concept of pyramid packaging for milk.
h)
Cost being borne by the consumer/manufacturer.
i)
Packaging used as means of advertisements.
The reasons behind changes in the following:
Coca – Cola and Fanta in the seventies to Thums up and Campa Cola in the
eighties to Pepsi and Coke in nineties.
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The teacher may guide the students to the times when India sold Coca Cola
and Fanta were being manufactured in India by the foreign companies.
The students may be asked to enquire about
a.
Reasons of stopping the manufacturing of the above mentioned drinks
in India THEN.
b.
The introduction of Thumbs up and Campa cola range.
c.
Reentry of Coke and introduction of Pepsi in the Indian market.
d.
Factors responsible for the change.
e.
Other linkages with the above.
f.
Leading brands and the company having the highest market share.
g.
Different local brands venturing in the Indian market.
h.
The rating of the above brands in the market.
i.
The survival and reasons of failure in competition with the international
brands.
j.
Other observations made by the students
The teacher may develop the following on the above lines
3.
Changing role of the women in the past 25 years relating to joint families,
nuclear families, women as a bread earner of the family, changes in the
requirement trend of mixers, washing machines, micro wave and standard of
living.
4.
The changes in the pattern of import and export of different Products.
5.
The trend in the changing interest rates and their effect on savings.
6.
A study on child labour laws, its implementation and consequences.
7.
8.
The state of ‘anti plastic campaign,’ the law, its effects and
implementation.
The laws of mining /setting up of industries, rules and regulations,
licenses
required for running that business.
9.
Social factors affecting acceptance and rejection of an identified product. (
Dish washer, Atta maker, etc.)
10.
What has the effect been on the types of goods and services? The students
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can take examples like:
a.
Washing machines, micro waves, mixers and grinder.
b.
Need for crèche, day care center for young and old.
c.
Ready to eat food, eating food outside, and tiffin centers.
11.
Change in the man-machine ratio with technological advances resulting in
change of cost structure.
12.
Effect of changes in technological environment on the behavior of employee.
(II)
Project TWO: PRINCIPLES OF MANAGEMENT.
The students are required to visit any one of the following:
1)
A departmental store.
2)
An Industrial unit.
3)
A fast food outlet.
4)
Any other organization approved by the teacher.
They are required to observe the application of the general Principles of
management advocated by Fayol.
Fayol’s principles
1.
Division of work.
2.
Unity of command.
3.
Unity of direction.
4.
Scalar chain
5.
Espirit de corpse
6.
Fair remuneration to all.
7.
Order.
8.
Equity.
9.
Discipline
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10.
Subordination of individual interest to general interest.
11.
Initiative.
12.
Centralization and decentralization.
13.
Stability of tenure.
OR
They may enquire into the application of scientific management techniques
by F.W.Taylor in the unit visited.
Scientific techniques of management.
1.
Functional foremanship.
2.
Standardization and simplification of work.
3.
Method study.
4.
Motion Study.
5.
Time Study.
6.
Fatigue Study
7.
Differential piece rate plan.
Tips to teacher
i.
The teacher may organize this visit.
ii.
The teacher should facilitate the students to identify any unit of their choice
and guide them to identify the principles that are being followed.
iii.
Similarly they should guide the students to identify the techniques of
scientific management implemented in the organisation.
iv.
It may be done as a group activity.
v.
The observations could be on the basis of
1. The different stages of division of work resulting to specialization.
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Following instructions and accountability of subordinates to higher
authorities.
2. Visibility of order and equity in the unit.
3. Balance of authority and responsibility.
4. Communication levels and pattern in the organization.
5. Methods and techniques followed by the organization for unity of
direction and coordination amongst all.
6. Methods of wage payments followed.
7. The arrangements of fatigue study.
8. Derivation of time study.
9. Derivation and advantages of method study.
10. Organizational chart of functional foremanship.
11. Any other identified in the organization
vi.
It is advised that students should be motivated to pick up different areas of
visit. As presentations of different areas in the class would help in better
understanding to the other students.
vii.
The students may be encouraged to develop worksheets. Teachers should
help students to prepare observation tools to be used for undertaking the
project. Examples; worksheets, questionnaire, interviews and organizational
chart etc.
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(III)
PROJECT THREE: MARKETING MANAGEMENT
It is advised that teachers should assign the students to do a simple market
research with the objective of finding out a product /service whose marketing may
be profitable like
i.
Toothpaste
ii.
Noodles
iii.
Shampoo
iv.
Bathing soap
v.
Washing detergent
vi.
Washing powder
vii.
Lipstick
viii.
Moisturizer
ix.
Shoe polish
x.
Pen
xi.
Shoes
xii.
Hair dye
xiii.
Mobile
xiv.
Chocolate
xv.
Sauces/ketchup
xvi.
Ready soups
xvii.
Body spray
xviii.
Fairness cream
xix.
Hair oil
xx.
Roasted Snacks
xxi.
Jeans
xxii.
Pickles
xxiii.
Squashes
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xxiv.
Jams
xxv.
Salt
xxvi.
Bread
xxvii.
Butter
xxviii.
Shaving cream
xxix.
Razor
xxx.
Cheese spreads
xxxi.
e -Wash
xxxii.
Tiffin wallah
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Any more as suggested by the teacher.
The teacher must ensure that the identified product should not be items whose
consumption /use is discouraged by the society and government like alcohol
products/ pan masala and tobacco products, etc.
Identify one product/service from the above which the students may like to
manufacture/provide pre assumption.
Now the students are required to make a project on the identified product/
service keeping in mind the following.
1.
Why have they selected this product/service?
2.
Find out ‘5’ competitive brands that exist in the market.
3.
What permission and licenses would be required to make the product?
4.
What are your competitors Unique Selling Proposition.[U.S.P.]?
5.
Does your product have any range give details?
6.
What is the name of your product?
7.
Enlist its features.
8.
Draw the ‘Label’ of your product.
9.
Draw a logo for your product.
10. Draft a tag line.
11. What is the selling price of your competitor’s product?
(i)
Selling price to consumer
(ii)
Selling price to retailer
(iii)
Selling price to wholesaler
What is the profit margin in percentage to the
 Manufacturer.
 Wholesaler.
 Retailer.
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12. How will your product be packed?
13. Which channel of distribution are you going to use? Give reasons for selection?
14. Decisions related to warehousing, state reasons.
15. What is going to be your selling price?
(i)
To consumer
(ii)
To retailer
(iii)
To wholesaler
16. List 5 ways of promoting your product.
17. Any schemes for
(i)
The wholesaler
(ii)
The retailer
(iii)
The consumer
18. What is going to be you’re ‘U.S.P?
19. What means of transport you will use and why?
20. Draft a social message for your label.
21. What cost effective techniques will you follow for your product.
22. What cost effective techniques will you follow for your promotion plan.
At this stage the students will realize the importance of the concept of marketing mix
and the necessary decision regarding the four P’s of marketing.
 PRODUCT
 PRODUCT
 PLACE
 PRICE
 PROMOTION
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1.
On the basis of the work done by the students the project report should include
the following:
Type of product /service identified and the (consumer/industries) process
involve there in.
2.
Brand name and the product.
3.
Range of the product.
4.
Identification mark or logo.
5.
Tagline.
6.
Labeling and packaging.
7.
Price of the product and basis of price fixation.
8.
Selected channels of distribution and reasons thereof.
9.
Decisions related to transportation and warehousing. State reasons.
10. Promotional techniques used and starting reasons for deciding the particular
technique.
11. Grading and standardization.
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PRESENTATION AND SUBMISSION OF PROJECT REPORT.
At the end of the stipulated term, each student will prepare and submit his/her
project report.
Following essentials are required to be fulfilled for its preparation and submission.
1. The total length of the project will be of 25 to 30 pages.
2. The project should be handwritten.
3. The project should be presented in a neat folder.
4. The project report should be developed in the following sequence Cover page should include the title of the Project, student information, school
and year.
 List of contents.
 Acknowledgements and preface (acknowledging the institution, the places
visited and the persons who have helped).
 Introduction.
 Topic with suitable heading.
 Planning and activities done during the project, if any.
 Observations and findings of the visit.
 Conclusions (summarized suggestions or findings, future scope of study).
 Photographs (if any).
 Appendix.
 Teacher’s observation.
 Signatures of the teachers.
 At the completion of the evaluation of the project, it should be punched in the
center so that the report may not be reused but is available for reference only.
 The projects will be returned after evaluation. The school may keep the best
projects.
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ASSESSMENT
ALLOCATION OF MARKS (TEN)
The marks will be allocated under the following
heads:
1.
Initiative, cooperativeness and participation
2.
Creativity in presentation
3.
Content, observation and research work
4.
Analysis of situations
5.
Viva
Total
1 Mark
1 Mark
2 Mark
2 Mark
4 Mark
--------------10 Marks