MBA CONCEPTS

Working Capital Management: Introdution

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Any firm, from time to time, employs its short-term assets as well as short-term financing sources to carry out its day to day business. It is this management of such assets as well as liabilities which is described as working capital management. Working capital management is a quintessential part of financial management as a subject. It can also be compared with long-term decision-making the process as both of the domains deal with the analysis of risk and profitability.

Working capital is the Life blood of any business unit. Working capital means that capital which enables the working (operations of the organization) Working capital is required for the initial as well as regular operations. Its effective management can do much more to the success of the business and vice-versa. Among the most important items of working capital are Levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength. Thus, the working capital management comprises the management of all these components, individually and collectively too.
Working capital is formally arrived at by subtracting the current liabilities from current assets of a firm on the day the balance sheet is drawn up. Working capital is also represented by a firm’s net investment in current assets necessary to support its everyday business. Working capital frequently changes its form and is sometimes also referred to as circulating capital.

“circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another.” - Gretsenberg

Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to the best effect. The primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations.
In the present scenario of cutthroat competition, the business does not have any other option then cutting the cost of its operations, for this effective management of working capital forms an important part of cost reduction. As it is evidenced by many researches, in any manufacturing unit, the proportion of raw material in the total cost of the product will be the highest and hence if the organization wants to minimize the cost of production it has to tackle the cost of raw material first. If it is interested in improving its Liquidity, it increases the Level of its working capital. However, this policy is Likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should strike a balance between Liquidity and profitability.

A firm is required to maintain a balance between Liquidity and profitability while conducting its day to day operations. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role within the business. This requires that business must be run both efficiently and profitably. In the process, an asset-Liability mismatch may occur which may increase firm’s profitability in the short run but at a risk of its insolvency. On the other hand, too much focus on Liquidity will be at the expense of profitability and it is common to find finance textbooks (for e.g see Gitman, 1984 and Bhattacharya, 2001) begin their working capital sections with a discussion of the risk and return tradeoffs inherent in alternative working capital policies. Thus, the manager of a business entity is in a dilemma of achieving desired tradeoff between Liquidity and profitability in order to maximize the value of a firm.

Working capital was defined as the money tied up in inventory and receivables less payable. For most product based businesses, the amount of money tied up in working capital can be substantial. If it could reduce its inventory and receivables, it could eliminate some of its debt and related interest costs. The focus is to Looks at ways of managing working capital at an optimum Level, using techniques for reducing the amount of inventory that is held, speeding up the collection of receivables and deferring the settlement of payables.

Exception to Law of Supply

2019-10-21T01:09:00.000-07:00

We know that the law of supply states that other factors kept constant as the price increases, the quantity supplied of a commodity increases and vice versa. What if there is decrease in quantity supplied with rise in price and vice versa? Such situations are called as exceptions to the law of supply simply because they do not follow this law. Following are the exceptions to the law of supply:

Expectations regarding future prices: When the sellers expect the prices to rise in the future then they may adopt wait and watch policy and withhold their supply of goods. Even though the price may be higher the sellers may want to supply the goods when the prices rise even more which would fetch them good returns. Also if the sellers expect the prices to fall in the coming days then they may sell off their goods at existing lower prices in order to avoid losses.

Farm produce: In case of farm products it is nothing but a play of climate. Such products may not obey the law of supply as they may not react to changes in prices due to heavy dependency on weather conditions.

Perishable commodities: The commodities fall in different classes and not all of them can be stored for a longer period of time. Certain commodities have very short shelf life and they need to be made available in the market before they perish. The common examples of perishable goods are fruits, sea produce, flowers, meat, vegetables and so on. So for such goods the sellers cannot simply wait for a longer time and supply these in the market even when the prices are not rising.

Out of fashion goods: When goods are in fashion then the sellers can command a high price. But there are certain goods that go out of fashion and are no longer in vogue. Such goods are supplied by the sellers at low prices in order to clear these goods.

Economic Slowdown: The businesses pass through different phases and the sellers have to adapt to these changes. During the low economic phases the sellers may not have advantage of high prices and hence during such tough times goods are sold even when they do not witness price rise in order to recover their costs. So the law of supply is not applicable in this case.

Change in business: It may happen that the seller may plan to enter into an entirely new area of business by exiting the current one. So when the present business is on the verge of closure then the seller may sell the goods at lower prices simply to clear them off. So here too the law of supply is not followed.

Immediate requirement of funds: The seller may face a time when he is in immediate need of funds. At such situation he may supply the goods in the market even at lower prices.

Supply of labour: Another fine example of the exception to the law of supply is the labour supply. The workers are interested in high wages till a certain point. Once that point is achieved they may like to devote their time to leisure activities. So after a particular point the workers may no longer be interested in higher wages. This simply means that initially the supply of labour is directly related to the wages but after a certain level the relation between wages and supply of labour turns inversely related. The supply curve in such a situation will be ‘backward sloping’ SS1 as illustrated in figure, At WN wage rate, the supply of labor is ON. But beyond NW wage rate the worker will reduce rather than increase his working hours. At MW1 wage rate the supply of labor is reduced to OM.

Extension and Contraction of Supply: Extension and Contraction of supply refer to movements on the same supply curve. If with a rise in price, the supply rises, it is called an extension of supply; if, with a fall in price, the supply declines it is called a contraction of supply. The ‘extension’ and ‘contraction’ of supply are illustrated in figure, the movement from point E to E1 on the same supply curve shows an extension of supply and E1 to E shows a contraction of supply. Supply is said to increase when more is offered in the market without a change in price. Supply is said to decrease when less is offered in the market without a change in the price of the commodity. In figure 5, at price EM, the supply is OM. SS is the supply curve before the change. S1S1 shows an increase in supply because at the same price ME = M1E1 more is offered for sale, i.e., OM1 instead of OM. S2S2 shows the decrease in supply because at the same price ME = M2E2 less is offered for sale, i.e., OM2 instead of OM.

Supply Function and Law of Supply

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Supply Function And Equation:
A supply function is a mathematical expression of the relationship between quantity demanded of a product or service, its price and other associated factors such as input costs, prices of related goods, etc.A supply function has single dependent variable (i.e. the quantity supplied) and many independent variables i.e. market price, price of related goods, input costs, etc. A supply equation can be formulated by studying the relationship between supply (the dependent variable) and the independent variables and determining whether the relationship is positively-related or negatively-related. For example, in general the supply and market price are inversely related. The same is the case with supply and input prices i.e. at higher input prices, supply is lower. On the other hand, supply and technological progress are inversely related, i.e. better technology means more supply, etc.

A supply function can be used to find out the expected quantities of a product which will enter the market if we know the market price, input costs and other variables. If we have a demand function and supply function for a market, we can solve them to find out the equilibrium price (i.e. the market clearing price) and the equilibrium quantity.

It explains the relationship between the supply of a commodity and the factors determining its supply. We can better represent the supply function in the form of the following equation:

Sx = f (Px, PI, T, W, GP)

Where,
Sx = supply of commodity x
Px = Price of commodity x
PI = Price of inputs
T = Technology
W = Weather conditions
GP = Government Policy

Law Of Supply:
Law of supply expresses a relationship between the supply and price of a product. It states a direct relationship between the price of a product and its supply, while other factors are kept constant.
For example, in case the price of a product increases, sellers would prefer to increase the production of the product to earn high profits, which would automatically lead to increase in supply.
Similarly, if the price of the product decreases, the supplier would decrease the supply of the product in market as he/she would wait for rise in the price of the product in future.

The law of supply is a basic micro-economic concept that states that price and quantity supplied are directly related. Thus, when the price of a product increases, the quantity supplied increases. Equally, when the price of a product decreases, the quantity supplied decreases. This is always true as long as its assume that all factors affecting supply remain equal (ceteris paribus).

Assumptions in Law of Supply:
The law of supply expresses the change in supply with relation to change in price. In other words the main assumption of law of supply is that it studies the effect of price on supply of a product, while keeping other determinants of supply at constant.

Apart from this, there are certain assumptions that are necessary for the application of law of supply, which are as follows:

i. Assumes that the price of a product changes, but the change in the cost of production is constant. This is because if the cost of production rises with increase in price, then sellers would not supply more due to the reduction in their profit margin. Therefore, law of supply would be applicable only when the cost of production remains constant.

ii. Assumes that there is no change in the technique of production. This is because the advanced technique would reduce the cost of production and make the seller supply more at a lower price.

iii. Assumes that there is no change in the scale of production. This is because if the scale of production changes with a period of time, then it would affect the supply. In such a case, the law of supply would not be applicable.

iv. Assumes that the policies of the government remain constant. If there is an increase in tax rates, then the supply of product would decrease even at the higher price. Therefore, for the application of law of supply, it is necessary that government policies should remain constant.

v. Assumes that the transportation cost remain the same. In case the transportation cost reduces, then the supply would increase, which is invalid according to the law of supply.

vi. Assumes that there is no speculation about prices in future, which otherwise can affect the supply of a product. If there is no speculation about products, then the economy is assumed to be at balance and people are satisfied with the available products and do not require any change.

Supply Schedule:
Supply schedule represents the relationship between prices and the quantities that the firms are willing to produce and supply. In other words, at what price, how much quantity a firm wants to produce and supply.
Suppose the following is an individual’s supply schedule of bananas:

Price Per Dozen ($)	Quantity Supplied (in dozens)
4	3
6	6
8	9
10	12
12	13

Supply Curve:
Supply curve is the graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis.
The supply curve will move upward from left to right, which expresses the law of supply: As the price of a given commodity increases, the quantity supplied increases (all else being equal).
Note that this formulation implies that price is the independent variable, and quantity the dependent variable. In most disciplines, the independent variable appears on the horizontal or x-axis, but economics is an exception to this rule.

Supply Introduction

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Supply is the quantity of goods a firm offers to sell in the market at a given price. Now the theory of supply states that with an increase in price the number of goods a firm wishes to supply will also increase.

Supply refers to the amount of a good or service that the producers/providers are willing and able to offer to the market at various prices during a period of time. There are two important aspects of supply:

Supply refers to what is offered for sale and not what is finally sold.
Supply is a flow. Hence, it is a certain quantity per day or week or month, etc.

In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or directly to another agent in the marketplace. Supply can be in currency, time, raw materials, or any other scarce or valuable object that can be provided to another agent. This is often fairly abstract. For example in the case of time, supply is not transferred to one agent from another, but one agent may offer some other resource in exchange for the first spending time doing something. Supply is often plotted graphically as a supply curve, with the quantity provided (the dependent variable) plotted horizontally and the price (the independent variable) plotted vertically.

In the goods market, supply is the amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant. In the labor market, the supply of labor is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the wage rate.

In financial markets, the money supply is the amount of highly liquid assets available in the money market, which is either determined or influenced by a country's monetary authority. This can vary based on which type of money supply one is discussing. M1 for example is commonly used to refer to narrow money, coins, cash, and other money equivalents that can be converted to currency nearly instantly. M2 by contrast includes all of M1 but also includes short-term deposits and certain types of market funds.

Determinants of Supply

While the price is an important aspect for determining the willingness and desire to part with goods/services, many other factors determine the supply of a product or service as discussed below:

Price of the Good/ Service

The most obvious one of the determinants of supply is the price of the product/service. With all other parameters being equal, the supply of a product increases if its relative price is higher. The reason is simple. A firm provides goods or services to earn profits and if the prices rise, the profit rises too.

Price of Related Goods

Let’s say that the price of wheat rises. Hence, it becomes more profitable for firms to supply wheat as compared to corn or soya bean. Hence, the supply of wheat will rise, whereas the supply of corn and soya bean will experience a fall.

Hence, we can say that if the price of related goods rises, then the firm increases the supply of the goods having a higher price. This leads to a drop in the supply of the goods having a lower price.

Price of the Factors of Production

Production of a good involves many costs. If there is a rise in the price of a particular factor of production, then the cost of making goods that use a great deal of that factors experiences a huge increase. The cost of production of goods that use relatively smaller amounts of the said factor increases marginally.

For example, a rise in the cost of land will have a large effect on the cost of producing wheat and a small effect on the cost of producing automobiles.

Therefore, the change in the price of one factor of production causes changes in the relative profitability of different lines of production. This causes producers to shift from one line to another, leading to a change in the supply of goods.

State of Technology

Technological innovations and inventions tend to make it possible to produce better quality and/or quantity of goods using the same resources. Therefore, the state of technology can increase or decrease the supply of certain goods.

Government Policy

Commodity taxes like excise duty, import duties, GST, etc. have a huge impact on the cost of production. These taxes can raise overall costs. Hence, the supply of goods that are impacted by these taxes increases only when the price increases. On the other hand, subsidies reduce the cost of production and usually lead to an increase in supply.

Other Factors

There are many other factors affecting the supply of goods or services like the government’s industrial and foreign policies, the goals of the firm, infrastructural facilities, market structure, natural factors etc.

Types of Elasticity of Demand

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The quantity of a commodity demanded per unit of time depends upon various factors such as the price of a commodity, the money income of the prices of related goods, the tastes of the people, etc., etc.
Whenever there is a change in any of the variables stated above, it brings about a change in the quantity of the commodity purchased over a specified period of time. The elasticity of demand measures the responsiveness of quantity demanded to a change in any one of the above factors by keeping other factors constant. When the relative responsiveness or sensitiveness of the quantity demanded is measured to changes, in its price, the elasticity is said be price elasticity of demand.

When the change in demand is the result of the given change in income, it is named as income elasticity of demand. Sometimes, a change in the price of one good causes a change in the demand for the other. The elasticity here is called cross electricity of demand. The three main types of elasticity of demand:

(1) Price Elasticity of Demand:

The concept of price elasticity of demand is commonly used in economic literature. Price elasticity of demand is the degree of responsiveness of quantity demanded of a good to a change in its price. Precisely, it is defined as:

"The ratio of proportionate change in the quantity demanded of a good caused by a given proportionate change in price".

Formula:

The formula for measuring price elasticity of demand is:

Price Elasticity of Demand = Percentage in Quantity Demand

Percentage Change in Price

E_d = Δq X P

Δp Q

Example:

Let us suppose that price of a good falls from $10 per unit to $9 per unit in a day. The decline in price causes the quantity of the good demanded to increase from 125 units to 150 units per day. The price elasticity using the simplified formula will be:

E_d = Δq X P

Δp Q

Δq = 150 - 125 = 25

Δp = 10 - 9 = 1

Original Quantity = 125

Original Price = 10

E_d = 25 / 1 x 10 / 125 = 2

The elasticity coefficient is greater than one. Therefore the demand for the good is elastic.

Types:

The concept of price elasticity of demand can be used to divide the goods in to three groups.

(i) Elastic. When the percent change in quantity of a good is greater than the percent change in its price, the demand is said to be elastic. When elasticity of demand is greater than one, a fall in price increases the total revenue (expenditure) and a rise in price lowers the total revenue (expenditure).

(ii) Unitary Elasticity. When the percentage change in the quantity of a good demanded equals percentage in its price, the price elasticity of demand is said to have unitary elasticity. When elasticity of demand is equal to one or unitary, a rise or fall in price leaves total revenue unchanged.

(iii) Inelastic. When the percent change in quantity of a good demanded is less than the percentage change in its price, the demand is called inelastic. When elasticity of demand is inelastic or less than one, a fall in price decreases total revenue and a rise in its price increases total revenue.

(2) Income Elasticity of Demand:

Income is an important variable affecting the demand for a good. When there is a change in the level of income of a consumer, there is a change in the quantity demanded of a good, other factors remaining the same. The degree of change or responsiveness of quantity demanded of a good to a change in the income of a consumer is called income elasticity of demand. Income elasticity of demand can be defined as:

"The ratio of percentage change in the quantity of a good purchased, per unit of time to a percentage change in the income of a consumer".

Formula:

The formula for measuring the income elasticity of demand is the percentage change in demand for a good divided by the percentage change in income. Putting this in symbol gives.

E_y = Percentage Change in Demand

Percentage Change in Income

Simplified formula:

E_y= Δq X P

Δp Q

Example:

A simple example will show how income elasticity of demand can be calculated. Let us assume that the income of a person is $4000 per month and he purchases six CD's per month. Let us assume that the monthly income of the consumer increase to $6000 and the quantity demanded of CD's per month rises to eight. The elasticity of demand for CD's will be calculated as under:

Δq = 8 - 6 = 2

Δp = $6000 - $4000 = $2000

Original quantity demanded = 6

Original income = $4000

E_y = Δq / Δp x P / Q = 2 / 200 x 4000 / 6 = 0.66

The income elasticity is 0.66 which is less than one.

Types:

When the income of a person increases, his demand for goods also changes depending upon whether the good is a normal good or an inferior good. For normal goods, the value of elasticity is greater than zero but less than one. Goods with an income elasticity of less than 1 are called inferior goods. For example, people buy more food as their income rises but the % increase in its demand is less than the % increase in income.

(3) Cross Elasticity of Demand:

The concept of cross elasticity of demand is used for measuring the responsiveness of quantity demanded of a good to changes in the price of related goods. Cross elasticity of demand is defined as:

"The percentage change in the demand of one good as a result of the percentage change in the price of another good".

Formula:

The formula for measuring, cross, elasticity of demand is:

E_xy = % Change in Quantity Demanded of Good X

% Change in Price of Good Y

The numerical value of cross elasticity depends on whether the two goods in question are substitutes, complements or unrelated.

Types and Example:

(i) Substitute Goods. When two goods are substitute of each other, such as coke and Pepsi, an increase in the price of one good will lead to an increase in demand for the other good. The numerical value of goods is positive.

For example there are two goods. Coke and Pepsi which are close substitutes. If there is increase in the price of Pepsi called good y by 10% and it increases the demand for Coke called good X by 5%, the cross elasticity of demand would be:

E_xy= %Δq_x / %Δp_y = 0.2

Since E_xy is positive (E > 0), therefore, Coke and Pepsi are close substitutes.

(ii) Complementary Goods. However, in case of complementary goods such as car and petrol, cricket bat and ball, a rise in the price of one good say cricket bat by 7% will bring a fall in the demand for the balls (say by 6%). The cross elasticity of demand which are complementary to each other is, therefore, 6% / 7% = 0.85 (negative).

(iii) Unrelated Goods. The two goods which a re unrelated to each other, say apples and pens, if the price of apple rises in the market, it is unlikely to result in a change in quantity demanded of pens. The elasticity is zero of unrelated goods.

Elasticity of Demand

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What is Elasticity of Demand?
Demand extends or contracts respectively with a fall or rise in price. This quality of demand by virtue of which it changes (increases or decreases) when price changes (decreases or increases) is called Elasticity of Demand. The Elasticity of Demand is a measure of change in the quantity demanded in response to the change in the price of the commodity. Simply, the effect of a change of price on the quantity demanded is called as the elasticity of demand.

“The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price”. –Dr. Marshall.

Elasticity means sensitiveness or responsiveness of demand to the change in price.

This change, sensitiveness or responsiveness, may be small or great. Take the case of salt. Even a big fall in its price may not induce an appreciable ex appreciable extension in its demand. On the other hand, a slight fall in the price of oranges may cause a considerable extension in their demand. That is why we say that the demand in the former case is ‘inelastic’ and in the latter case it is ‘elastic’.
The demand is elastic when with a small change in price there is a great change in demand; it is inelastic or less elastic when even a big change in price induces only a slight change in demand. In the words of Dr. Marshall, “The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price.”But the demand cannot be perfectly ‘elastic’ or ‘inelastic’.

Completely elastic demand will mean that a slight fall (or rise) in the price of the commodity concerned induces an infinite extension (or contraction) in its demand. Completely inelastic demand will mean that any amount of fall (or rise) in the price of the commodity would not induce any extension (or contraction) in its demand. Both these conditions are unrealistic. That is why we say that elasticity of demand may be ‘more or less’, but it is seldom perfectly elastic or absolutely inelastic.

Marshall, a renowned economist, has suggested a mathematical method to measure the elasticity of demand:

EP = Proportional changes in quantity demanded/Proportional changes in price

According to this formula, the elasticity of demand can be defined as a percentage change in demand as a result of the percentage change in price. Numerically, it can be written as:

Where,
ΔQ = Q1 –Q0
ΔP = P1 – P0
Q1= New quantity
Q2= Original quantity
P1 = New price
P0 = Original price

Importance of Elasticity of Demand

The concept of demand elasticity helps in understanding the price determination by the monopolist. A monopoly is the market structure wherein there is only one seller whose main objective is to maximize the profits. The price he chooses for his product depends on the elasticity of demand. Such as, if the demand for a commodity is high he can choose the higher price as the consumers will buy the product even when the price rise. But however, if the demand is elastic, he will choose the lower prices.
The determination of the price depends on demand for and supply of the commodity. But however, the demand is governed by the demand elasticity and the supply too is governed by the elasticity of supply. Therefore, the price of a commodity depends on both the demand and supply elasticity.
The concept of demand elasticity also helps in understanding other types of prices, such as exchange rates, i.e. a rate at which currency unit of one country is exchanged for the currency unit of another country. Also, the terms of trade, i.e. the rate at which the exports are changed for imports can be easily understood through this concept.
The concept of elasticity of demand also helps the government in its taxation policies. This helps the government to have a fair idea about the demand elasticity of goods which are being taxed.
This concept also helps in the determination of wages, such as if the demand for labor is inelastic the union can demand higher wages and conversely if the labor demand is elastic the demand for higher wages could not be raised.

Demand and Law of Demand

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What is Demand?
Demand for a commodity refers to the quantity of the commodity that people are willing to purchase at a specific price per unit of time, other factors (such as price of related goods, income, tastes and preferences, advertising, etc) being constant. Demand includes the desire to buy the commodity accompanied by the willingness to buy it and sufficient purchasing power to purchase it. For instance-Everyone might have willingness to buy “Mercedes-S class” but only a few have the ability to pay for it. Thus, everyone cannot be said to have a demand for the car “Mercedes-s Class”.

Demand may arise from individuals, household and market. When goods are demanded by individuals (for instance-clothes, shoes), it is called as individual demand. Goods demanded by household constitute household demand (for instance-demand for house, washing machine). Demand for a commodity by all individuals/households in the market in total constitute market demand.

Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease the quantity demanded, and vice versa. Market demand is the total quantity demanded across all consumers in a market for a given good. Aggregate demand is the total demand for all goods and services in an economy.

Determinants of Demand

There are five determinants of demand. The most important is the price of the good or service itself. The second is the price of related products, whether they are substitutes or complementary. Circumstances drive the next three determinants. The first is consumer incomes or how much money they have to spend. The second is buyers' tastes or preferences in what they want to purchase. If they prefer electric vehicles to save on gasoline, then demand for Humvees will drop. The third is their expectations about whether the price will go up. If they are concerned about future inflation they will stock up now, thus driving current demand.

What drives demand? In economics, there are five determinants of individual demand and a sixth for aggregate demand.

The five determinants of demand are:

The price of the good or service.
Income of buyers.
Prices of related goods or services. These are either complementary, those purchased along with a particular good or service, or substitutes, those purchased instead of a certain good or service.
Tastes or preferences of consumers.
Expectations. These are usually about whether the price will go up.

Demand function is a mathematical function showing relationship between the quantity demanded of a commodity and the factors influencing demand.

Dx = f (Px, Py, T, Y, A, Pp, Ep, U)

In the above equation,

Dx = Quantity demanded of a commodity

Px = Price of the commodity

Py = Price of related goods

T = Tastes and preferences of consumer

Y = Income level

A = Advertising and promotional activities

Pp = Population (Size of the market)

Ep = Consumer’s expectations about future prices

U = Specific factors affecting demand for a commodity such as seasonal changes, taxation policy, availability of credit facilities, etc.

Law of Demand:
The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services that we observe in everyday transactions. The law of demand states that quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility. That is, consumers use the first units of an economic good they purchase to serve their most urgent needs first, and use each additional unit of the good to serve successively lower valued ends.

The law of demand states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

Law of demand explains consumer choice behavior when the price changes. In the market, assuming other factors affecting demand being constant, when the price of a good rises, it leads to a fall in the demand of that good. This is the natural consumer choice behavior. This happens because a consumer hesitates to spend more for the good with the fear of going out of cash.
Demand schedule is a tabular representation of the quantity demanded of a commodity at various prices.

Demand curve is a diagrammatic representation of demand schedule. It is a graphical representation of price- quantity relationship. Individual demand curve shows the highest price which an individual is willing to pay for different quantities of the commodity. While, each point on the market demand curve depicts the maximum quantity of the commodity which all consumers taken together would be willing to buy at each level of price, under given demand conditions.

Demand curve has a negative slope, i.e, it slopes downwards from left to right depicting that with increase in price, quantity demanded falls and vice versa. The reasons for a downward sloping demand curve can be explained as follows-

Income effect- With the fall in price of a commodity, the purchasing power of consumer increases. Thus, he can buy same quantity of commodity with less money or he can purchase greater quantities of same commodity with same money. Similarly, if the price of a commodity rises, it is equivalent to decrease in income of the consumer as now he has to spend more for buying the same quantity as before. This change in purchasing power due to price change is known as income effect.
Substitution effect- When price of a commodity falls, it becomes relatively cheaper compared to other commodities whose price have not changed. Thus, the consumer tend to consume more of the commodity whose price has fallen, i.e, they tend to substitute that commodity for other commodities which have not become relatively dear.
Law of diminishing marginal utility- It is the basic cause of the law of demand. The law of diminishing marginal utility states that as an individual consumes more and more units of a commodity, the utility derived from it goes on decreasing. So as to get maximum satisfaction, an individual purchases in such a manner that the marginal utility of the commodity is equal to the price of the commodity. When the price of commodity falls, a rational consumer purchases more so as to equate the marginal utility and the price level. Thus, if a consumer wants to purchase larger quantities, then the price must be lowered. This is what the law of demand also states.

Exceptions to Law of Demand

The instances where law of demand is not applicable are as follows-

There are certain goods which are purchased mainly for their snob appeal, such as, diamonds, air conditioners, luxury cars, antique paintings, etc. These goods are used as status symbols to display one’s wealth. The more expensive these goods become, more valuable will be they as status symbols and more will be there demand. Thus, such goods are purchased more at higher price and are purchased less at lower prices. Such goods are called as conspicuous goods.
The law of demand is also not applicable in case of giffen goods. Giffen goods are those inferior goods, whose income effect is stronger than substitution effect. These are consumed by poor households as a necessity. For instance, potatoes, animal fat oil, low quality rice, etc. An increase in price of such good increases its demand and a decrease in price of such good decreases its demand.
The law of demand does not apply in case of expectations of change in price of the commodity, i.e, in case of speculation. Consumers tend to purchase less or tend to postpone the purchase if they expect a fall in price of commodity in future. Similarly, they tend to purchase more at high price expecting the prices to increase in future.

Managerial Economics and Micro Economics

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Managerial Economics is basically a blend of Economics and Management. Two branches of economics i.e. micro economics and macro economics are the major contributors to managerial economics. Micro Economics is the study of the behavior of individual consumers and firms whereas microeconomics is the study of economy as a whole.

Managerial Economics and Micro Economics
All the firms operating in the market have to take under consideration the constituent of the economic environment for its proper functioning. This economic environment is nothing but the Micro economics elements.

Micro Economics is a broader concept as compare to Managerial Economics. Micro Economics forms the foundation of managerial economics. Almost all the concepts of Managerial Economics are the perceptions of Micro Economics concepts.
Microeconomics is the study of a single or an individual unit of an economy. It focuses on determining the market prices through demand and supply where the deciding units are consumers and firms. Therefore, it pays attention to individuals' income and output. Resource allocation is also an important element of microeconomics, which entails availing resources in an efficient way so it fulfills the requirements of an economy. On the other hand, managerial economics applies the economic theories and analytical tools to provide choices for a firm. It deals with different methodologies and principles for businesses to allocate scarce resources for decision-making.

Managerial economics can be perceived as an applied Micro Economics. Demand Analysis and Forecasting, Theory of Price, Theory of Revenue and Cost, Theory of Supply and Production are major bare bones of Micro Economics that underpins the Managerial Economics. Managerial Economics applies the theories of Micro Economics to resolve the issues of the organization and for decision making.

All Managers want to carry out their function of decision making with maximum efficiency. Their business planning can be effectively planned and performed with comprehensive knowledge and understanding of micro economic concept and its applications. Optimum decision making to achieve the objective of the organisation i.e. for profit maximizing or for cost minimizing, is possible with proper compliance of micro economic know how, regardless of the technological constraints and given market conditions. Micro Economic Analysis is important as it is applied to day to day dilemma and concerns.

The reliance of Managerial Economics on Micro Economics is made clearer in the points below:

If a manager wants to increase the price of the product due to increase in cost of production, he will analyze the price elasticity of demand for that product so that price rise is not followed by substantial fall in the demand of the product. It is the application of demand analysis to the real world situation.
For fixing the price of the products managers applies the pricing theories, cost and revenue theories of micro economics.
Decisions regarding production and supply of the product in the market, knowledge of availability of fixed and variable factors of production, state of technology to be used and availability of raw-material are essential. This can be determined with the knowledge of theory of production.
Determination of price and output is possible with the acquaintance of market structures and approaches pertinent for determination of price and output in the given market setup.
Managerial economics utilizes statistical methods such as game theory, linear programming etc for application of Economic Theory in Decision making.
One of the responsibilities of Manager is to workout budgets for different departments of the organization which is learned from Capital Budgeting and Capital Rationing.
Cost and benefit analysis helps the manager in decision making.
Study of welfare economics helps Manager in taking care of social responsibilities of the organization.
Microeconomics is the study that deals with partial equilibrium analysis which is useful for the manager in deciding equilibrium for his organization.
Managerial Economics also uses tools of Mathematical Economics and econometrics such as regression analysis, correlation analysis etc.
Theory of firm, an important element of microeconomics, is one of the most significant element of Managerial Economics.

Significance And Scope Of Managerial Economics

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Management is concerned with decision-making; Managerial Economics helps the decision-making process in the following ways:

1. Managerial Economics a number of tools and techniques to enable a Manager to become a more competent model builder. With the help of these models, the Manager can capture the essential relationships that represent the real situation while eliminating the relatively less important details.
2. Managerial Economics provides most of the concepts that are needed for the analysis of business problems. Concepts like elasticity of demand, fixed and various costs, short and long-run costs, opportunity costs.net present value etc. help in understand and solving a decision problem.

3. Managerial Economics helps in making decisions such as:

What should be the product mix?
Which is the production technique and the input-mix that is least costly?
What should be the level of output and price for the product?
How to take investment decisions?
How much should a firm advertise and how to allocate the advertisement fund between different Media?

Scope of Managerial Economics

Managerial Economics deals with allocating the scarce resources in a manner that minimizes the cost. As we have already discussed, Managerial Economics is different from microeconomics and macro-economics. Managerial Economics has a more narrow scope - it is actually solving managerial issues using micro-economics. Wherever there are scarce resources, managerial economics ensures that managers make effective and efficient decisions concerning customers, suppliers, competitors as well as within an organization. The fact of scarcity of resources gives rise to three fundamental questions-

1. What to produce?

2. How to produce?

3. For whom to produce?

The first question relates to what goods and services should be produced and in what amount/quantities. The managers use demand theory for deciding this. The demand theory examines consumer behavior with respect to the kind of purchases they would like to make currently and in future; the factors influencing purchase and consumption of a specific good or service; the impact of change in these factors on the demand of that specific good or service; and the goods or services which consumers might not purchase and consume in future. In order to decide the amount of goods and services to be produced, the managers use methods of demand forecasting.

The second question relates to how to produce goods and services. The firm has now to choose among different alternative techniques of production. It has to make decision regarding purchase of raw materials, capital equipment, manpower, etc. The managers can use various managerial economics tools such as production and cost analysis (for hiring and acquiring of inputs), project appraisal methods( for long term investment decisions),etc for making these crucial decisions.

The third question is regarding who should consume and claim the goods and services produced by the firm. The firm, for instance, must decide which is it’s niche market-domestic or foreign? It must segment the market. It must conduct a thorough analysis of market structure and thus take price and output decisions depending upon the type of market.

Managerial economics helps in decision-making as it involves logical thinking. Moreover, by studying simple models, managers can deal with more complex and practical situations. Also, a general approach is implemented. Managerial Economics take a wider picture of firm, i.e., it deals with questions such as what is a firm, what are the firm’s objectives, and what forces push the firm towards profit and away from profit. In short, managerial economics emphasizes upon the firm, the decisions relating to individual firms and the environment in which the firm operates. It deals with key issues such as what conditions favor entry and exit of firms in market, why are people paid well in some jobs and not so well in other jobs, etc. Managerial Economics is a great rational and analytical tool.

Managerial Economics is not only applicable to profit-making business organizations, but also to non- profit organizations such as hospitals, schools, government agencies, etc.

Meaning And Nature Of Managerial Economics

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What is Managerial Economics?
Managerial Economics can be defined as amalgamation of economic theory with business practices so as to ease decision-making and future planning by management. Managerial Economics assists the managers of a firm in a rational solution of obstacles faced in the firm’s activities. It makes use of economic theory and concepts. It helps in formulating logical managerial decisions. The key of Managerial Economics is the micro-economic theory of the firm. It lessens the gap between economics in theory and economics in practice. Managerial Economics is a science dealing with effective use of scarce resources. It guides the managers in taking decisions relating to the firm’s customers, competitors, suppliers as well as relating to the internal functioning of a firm. It makes use of statistical and analytical tools to assess economic theories in solving practical business problems.

Managerial economics uses both Economic theory as well as Econometrics for rational managerial decision making. Econometrics is defined as use of statistical tools for assessing economic theories by empirically measuring relationship between economic variables. It uses factual data for solution of economic problems. Managerial Economics is associated with the economic theory which constitutes “Theory of Firm”.
Theory of firm states that the primary aim of the firm is to maximize wealth. Decision making in managerial economics generally involves establishment of firm’s objectives, identification of problems involved in achievement of those objectives, development of various alternative solutions, selection of best alternative and finally implementation of the decision.

“The integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management”.
-Spencer and Siegelman

“Managerial economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions”.
-McGutgan and Moyer

Study of Managerial Economics helps in enhancement of analytical skills, assists in rational configuration as well as solution of problems. While microeconomics is the study of decisions made regarding the allocation of resources and prices of goods and services, macroeconomics is the field of economics that studies the behavior of the economy as a whole (i.e. entire industries and economies). Managerial Economics applies micro-economic tools to make business decisions. It deals with a firm.

Managerial Economics is economics applied in decision-making. It is that branch of economics that serves as a link between abstract theory and managerial practice. Managerial economics is concerned with the business firm and the economic problems that every management need to solve.

Economics as a science is concerned with the problem of allocation of scarce resources among competing ends. These problems of allocation are on a regular basis confronted by individuals, households, firms as well as economies. Economics provide us with a number of concepts and analytical tools to help us understand and analyze such problems. Managerial Economics may be taken as economics applied to problems of choice of alternatives of economic nature and allocation of the resources by the firms. In other words, managerial economics involves analysis of allocation of the resources available to a firm or a unit of management among the activities of that unit. It is thus concerned with choice or selection among alternatives.

Definition of Managerial Economics

Some of the popular definitions of managerial economics are:

“Managerial economics…is the integration of economics theory with business practice for the purpose of facilitating decision-making and forward planning by management.” Spencer and Siegelman.

“Managerial economics… is the use of economics mode of thought to analyze business situation.” McNair and Meriam.

“A fundamental academic subject which seeks to understand and to analyse the problems of business decision-making.” Hague.

As is evident, there are different projections of the subject matter on managerial economics by different authorities, but the following features seem common to these viewpoints.

Concerned with decision-making of economic nature.
This implies that managerial economics deals with identification of economic choices and allocation.

Micro-economic in character, where the unit of study is a firm. It concentrates on the study of the firm and not on the working of the economy.
The chief source of concepts and analytical tools for managerial economics is micro-economic theory, also known as price theory, some of the popular micro- economic concepts are the elasticity of demand, marginal cost, the long-run economies and diseconomies of scale, opportunity cost, present value and market structures. Managerial economics also uses some of the well-accepted models in price theory, such as model for monopoly price, kinked demand model, the model of price discrimination and the behavioral and managerial models.

Concerned with normative micro-economics, where the economist says what he thinks should happen rather than what does happen to the firm.
When applies that the decisions of the firm are made almost always within the broad framework of economic environment within which thee firm operates, known as maco-economic conditions. With regards to these conditions, we may stress these points.

Takes the help of macro-economics to understand and adjust to the environment in which the firm operates.
We know that the decisions of the firm are made almost always within the broad framework of economic environment within which firm operates, known as micro-economic conditions. With regards to these conditions, we may stress these points.

i) The economy in which the business operates is predominantly a free enterprise economy using price and market.

ii) The present-day economy is the one undergoing rapid technological and economic changes.

iii) The intervention of government in economic affairs has increased in recent times and there is no likelihood that this intervention will stop in future.

These external conditions are beyond the control of the firm, hence the firm needs to adjust itself to the changes in these conditions to survive and grow. This sort of a management is called a progressive management.

Goal-oriented and prescriptive
It deals with how decisions should be mad e by managers to achieve the organizational goals. Knowledge of managerial economics helps in making wise choices—as managrs continue to face the problem of scarcity of resources and making suitable choices to allocate them appropriately in order to achieve organizational goals.

Pragmatic
Managerial Economics concentrate on making economics theory more application- oriented. It is concerned with those analytical tools which are useful in improving decision-making.

Both ‘conceptual’ and ‘Metrical’
An intelligent application of quantitative techniques to business presupposes considered judgement and hard and careful thinking about the nature of the particular problem to be solved. Managerial Economics provides necessary conceptual tools to achieve this. Moreover, it helps the decision makers by providing measurement of various economic entities and their relationships. This material dimension of managerial economics is complementary to its conceptual framework.

MBA Books and Notes Download

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MBA Course Structure and Syllabus for 2-Years:

The MBA Program Duration of the Course is 2 years, the typical full-time MBA student takes three courses, per semester. Most full-time programs feature two semesters per academic year, which means students can expect to complete their degree two full years after they began the program.

Syllabus for MBA Course

The Master of Bussiness management syllabus can be defined below as subjects for sem Examination.

Sem I

Principles of Management
Managerial Economics
Accounting for Managers
Business Legislation
Business Communication & Information Systems
Research Methodology & Quantitative Techniques

Sem-II

Human Resource Management & Organizational Behaviour
Financial Management
Marketing Management
Operations Management
Cost Accounting
Economic Environment of Business

Sem III

Strategic Management
Summer Internship Project Assessment
Project Management OR Environment Management
Elective 1 – Paper-1 &2
Elective 1 – Paper-1 & 2

One Foundation Course is to be selected by the student

Sem IV

Business Ethics & Corporate Governance
Entrepreneurship Development
Project Work
International Business Management OR Agri-Business Management
Elective I – Paper-3
Elective II – Paper-3

One Foundation Course is to be selected by the student.

MBA Specialization Courses:

Marketing
Media
Nonprofit and Government
Operations and Logistics
Organizational
Risk Management
Sport management
Systems
Aviation Management
Family Business and Entrepreneurship
Hospital and Health Care
Hospitality Management
Media and Entertainment Management
Automobile Dealership Management
Defense Technology Management

Download MBA Books & Notes For All Semesters in PDF – 1st, 2nd Year. MBA Full Form is Masters of Bussiness Administration. MBA is an Internationally accepted master of post-graduate level degree. Download MBA 1st year, 2nd-year notes from below provided links.

Download MBA Notes	Download
Marketing Management	Download
Accounting for Managers	Download
Computer Applications in Management	Download
Research Methodology	Download
Human Resource Management	Download
Business Legislation	Download
Security Analysis and Investment Management	Download
Management of Financial Services	Download
Project Planning, Analysis, and Management	Download
International Financial Management	Download
International Marketing	Download
Business Communication	Download
Accounting for Managers	Download
Human Resource Development: Strategies and System	Download
Multinational Financial Management	Download
Organisational Change	Download
Product and Brand Management	Download
Purchasing and Materials Management	Download
Rural and Agriculture Management	Download

Basic Accounting Terms

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1. Accounts Payable (AP)
Accounts Payable include all of the expenses that a business has incurred but has not yet paid. This account is recorded as a liability on the Balance Sheet as it is a debt owed by the company.

2. Accounts Receivable (AR)
Accounts Receivable include all of the revenue (sales) that a company has provided but has not yet collected payment on. This account is on the Balance Sheet, recorded as an asset that will likely convert to cash in the short-term.

3. Accrued Expense
An expense that been incurred but hasn’t been paid is described by the term Accrued Expense.

4. Asset (A)
Anything the company owns that has monetary value. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid).

5. Balance Sheet (BS)
A financial statement that reports on all of a company’s assets, liabilities, and equity. As suggested by its name, a balance sheet abides by the equation

Assets = Liabilities + Equity.

6. Book Value (BV)
As an asset is depreciated, it loses value. The Book Value shows the original value of an Asset, less any accumulated Depreciation.

7. Equity (E)

Equity denotes the value left over after liabilities have been removed. Recall the equation Assets = Liabilities + Equity. If you take your Assets and subtract your Liabilities, you are left with Equity, which is the portion of the company that is owned by the investors and owners.

8. Inventory
Inventory is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold. As these items are sold to customers, the inventory account will lower.

9. Liability (L)

All debts that a company has yet to pay are referred to as Liabilities. Common liabilities include Accounts Payable, Payroll, and Loans.

10. Cost of Goods Sold (COGS)
Cost of Goods Sold are the expenses that directly relate to the creation of a product or service. Not included in this category are those costs that are needed to run the business. An example of COGS would be the cost of Materials, or the Direct Labor to provide a service.

11. Depreciation (Dep)
Depreciation is the term that accounts for the loss of value in an asset over time. Generally, an asset has to have substantial value in order to warrant depreciating it. Common assets to be depreciated are automobiles and equipment. Depreciation appears on the Income Statement as an expense and is often categorized as a “Non-Cash Expense” since it doesn’t have a direct impact on a company’s cash position.

12. Expense (Cost)
An Expense is any cost incurred by the business.

13. Gross Margin (GM)
Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period. It represents the profitability of a company after deducting the Cost of Goods Sold.

14. Gross Profit (GP)
Gross Profit indicates the profitability of a company in dollars, without taking overhead expenses into account. It is calculated by subtracting the Cost of Goods Sold from Revenue for the same period.

15. Income Statement (Profit and Loss) (IS or P&L)
The Income Statement (often referred to as a Profit and Loss, or P&L) is the financial statement that shows the revenues, expenses, and profits over a given time period. Revenue earned is shown at the top of the report and various costs (expenses) are subtracted from it until all costs are accounted for; the result being Net Income.

16. Net Income (NI)
Net Income is the dollar amount that is earned in profits. It is calculated by taking Revenue and subtracting all of the Expenses in a given period, including COGS, Overhead, Depreciation, and Taxes.

17. Net Margin
Net Margin is the percent amount that illustrates the profit of a company in relation to its Revenue. It is calculated by taking Net Income and dividing it by Revenue for a given period.

18. Revenue (Sales) (Rev)

Revenue is any money earned by the business.

19. Accounting Period
An Accounting Period is designated in all Financial Statements (Income Statement, Balance Sheet, and Statement of Cash Flows). The period communicates the span of time that is reported in the statements.

20. Allocation
The term Allocation describes the procedure of assigning funds to various accounts or periods. For example, a cost can be Allocated over multiple months (like in the case of insurance) or Allocated over multiple departments (as is often done with administrative costs for companies with multiple divisions).

21. Business (or Legal) Entity
This is the legal structure, or type, of a business. Common company formations include Sole Proprietor, Partnership, Limited Liability Corp (LLC), S-Corp and C-Corp. Each entity has a unique set of requirements, laws, and tax implications.

22. Cash Flow (CF)
Cash Flow is the term that describes the inflow and outflow of cash in a business. The Net Cash Flow for a period of time is found by taking the Beginning Cash Balance and subtracting the Ending Cash Balance. A positive number indicates that more cash flowed into the business than out, where a negative number indicates the opposite.

23. Certified Public Accountant (CPA)
CPA is a professional designation that an accountant can earn by passing the CPA exam and fulfilling the requirements for both education and work experience, which vary by state.

24. Credit
A credit is an increase in a liability or equity account, or a decrease in an asset or expense account.

25. Debit
A debit is an increase in an asset or expense account, or a decrease in a liability or equity account.

26. Diversification
Diversification is a method of reducing risk. The goal is to allocate capital across a multitude of assets so that the performance of any one asset doesn’t dictate the performance of the total.

27. Enrolled Agent (EA)
An Enrolled Agent is a professional accounting designation assigned to professionals who have successfully passed tests showcasing expertise in business and personal taxes. Enrolled Agents are generally sought out to complete business tax filings to ensure compliance with the IRS.

28. Fixed Cost (FC)
A Fixed Cost is one that does not change with the volume of sales. For example, rent and salaries won’t change if a company sells more. The opposite of a Fixed Cost is a Variable Cost.

29. General Ledger (GL)
A General Ledger is the complete record of a company’s financial transactions. The GL is used in order to prepare all of the Financial Statements.

30. Generally Accepted Accounting Principles (GAAP)
These are the rules that all accountants abide by when performing the act of accounting. These general rules were established so that it is easier to compare ‘apples to apples’ when looking at a business’s financial reports.

31. Interest
Interest is the amount paid on a loan or line of credit that exceeds the repayment of the principal balance.

32. Journal Entry (JE)
Journal Entries are how updates and changes are made to a company’s books. Every Journal Entry must consist of a unique identifier (to record the entry), a date, a debit/credit, an amount, and an account code (that determines which account is altered).

33. Liquidity
A term referencing how quickly something can be converted into cash. For example, stocks are more liquid than a house since you can sell stocks (turning it into cash) more quickly than real estate.

34. Material

Material is the term that refers whether information influences decisions. For example, if a company has revenue in the millions of dollars, an amount of Rs. 0.50 is hardly material. GAAP requires that all Material considerations must be disclosed.

35. On Credit/On Account
A purchase that happens On Credit or On Account is a purchase that will be paid at a future time, but the buyer gets to enjoy the benefit of that purchase immediately. “Bartender, put it on my tab…”

36. Overhead
Overhead are those Expenses that relate to running the business. They do not include Expenses that make the product or deliver the service. For example, Overhead often includes Rent, and Executive Salaries.

37. Payroll
Payroll is the account that shows payments to employee salaries, wages, bonuses, and deductions. Often this will appear on the Balance Sheet as a Liability that the company owes if there is accrued vacation pay or any unpaid wages.

38. Present Value (PV)
Present Value is a term that refers to the value of an Asset today, as opposed to a different point in time. It is based on the theory that cash today is more valuable than cash tomorrow, due to the concept of inflation.

39. Receipts
A Receipt is a document that proves payment was made. A business produces receipts when it provides its product or service and it receives receipts when it pays for goods and services from other businesses. Received Receipts should be saved and cataloged so that a company can prove that its incurred expenses are accurate.

40. Variable Cost (VC)

These are costs that change with the volume of sales and are the opposite of Fixed Costs. Variable costs increase with more sales because they are an expense that is incurred in order to deliver the sale. For example, if a company produces a product and sells more of that product, they will require more raw materials in order to meet the increase in demand.

Controlling Function of Management and Process

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Controlling consists of verifying whether everything occurs in confirmation with the plans adopted, instructions issued and principles established. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. Controlling measures the deviation of actual performance from the standard performance, discovers the causes of such deviations and helps in taking corrective actions.

According to Brech, “Controlling is a systematic exercise which is called as a process of checking actual performance against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs.”

According to Donnell, “Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on right course.”

According to Koontz And O’Donnell, “Managerial control implies the measurement of accomplishment against the standard and the correction of deviations to assure attainment of objectives according to plans”

According to Dale Henning, “Control is the process of bringing about conformity of performance with planned action.”

Features of Controlling Function

Following are the characteristics of controlling function of management-

Controlling is an end function- A function which comes once the performances are made in confirmation with plans.
Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns.
Controlling is forward looking- because effective control is not possible without past being controlled. Controlling always look to future so that follow-up can be made whenever required.
Controlling is a dynamic process- since controlling requires taking review-able methods, changes have to be made wherever possible.
Controlling is related with planning- Planning and Controlling are two inseparable functions of management. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. Planning presupposes controlling and controlling succeeds planning.

Process of Controlling

Controlling as a management function involves following steps:

Establishment of standards- Standards are the plans or the targets which have to be achieved in the course of business function. They can also be called as the criterion for judging the performance. Standards generally are classified into two-
1. Measurable or tangible - Those standards which can be measured and expressed are called as measurable standards. They can be in form of cost, output, expenditure, time, profit, etc.
2. Non-measurable or intangible- There are standards which cannot be measured monetarily. For example- performance of a manager, deviation of workers, their attitudes towards a concern. These are called as intangible standards.
Controlling becomes easy through establishment of these standards because controlling is exercised on the basis of these standards.
Measurement of performance- The second major step in controlling is to measure the performance. Finding out deviations becomes easy through measuring the actual performance. Performance levels are sometimes easy to measure and sometimes difficult. Measurement of tangible standards is easy as it can be expressed in units, cost, money terms, etc. Quantitative measurement becomes difficult when performance of manager has to be measured. Performance of a manager cannot be measured in quantities. It can be measured only by-
1. Attitude of the workers,
2. Their morale to work,
3. The development in the attitudes regarding the physical environment, and
4. Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly, yearly reports.
Comparison of actual and standard performance- Comparison of actual performance with the planned targets is very important. Deviation can be defined as the gap between actual performance and the planned targets. The manager has to find out two things here- extent of deviation and cause of deviation. Extent of deviation means that the manager has to find out whether the deviation is positive or negative or whether the actual performance is in conformity with the planned performance. The managers have to exercise control by exception. He has to find out those deviations which are critical and important for business. Minor deviations have to be ignored. Major deviations like replacement of machinery, appointment of workers, quality of raw material, rate of profits, etc. should be looked upon consciously. Therefore it is said, “ If a manager controls everything, he ends up controlling nothing.” For example, if stationery charges increase by a minor 5 to 10%, it can be called as a minor deviation. On the other hand, if monthly production decreases continuously, it is called as major deviation.

Once the deviation is identified, a manager has to think about various cause which has led to deviation. The causes can be-
1. Erroneous planning,
2. Co-ordination loosens,
3. Implementation of plans is defective, and
4. Supervision and communication is ineffective, etc.
Taking remedial actions- Once the causes and extent of deviations are known, the manager has to detect those errors and take remedial measures for it. There are two alternatives here-

Taking corrective measures for deviations which have occurred; and
After taking the corrective measures, if the actual performance is not in conformity with plans, the manager can revise the targets. It is here the controlling process comes to an end. Follow up is an important step because it is only through taking corrective measures, a manager can exercise controlling.

Directing Function of Management and Importance

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DIRECTING is said to be a process in which the managers instruct, guide and oversee the performance of the workers to achieve predetermined goals. Directing is said to be the heart of management process. Planning, organizing, staffing have got no importance if direction function does not take place.

Directing initiates action and it is from here actual work starts. Direction is said to be consisting of human factors. In simple words, it can be described as providing guidance to workers is doing work. In field of management, direction is said to be all those activities which are designed to encourage the subordinates to work effectively and efficiently. According to Human, “Directing consists of process or technique by which instruction can be issued and operations can be carried out as originally planned” Therefore, Directing is the function of guiding, inspiring, overseeing and instructing people towards accomplishment of organizational goals.

Direction has got following characteristics:

Pervasive Function - Directing is required at all levels of organization. Every manager provides guidance and inspiration to his subordinates.
Continuous Activity - Direction is a continuous activity as it continuous throughout the life of organization.
Human Factor - Directing function is related to subordinates and therefore it is related to human factor. Since human factor is complex and behavior is unpredictable, direction function becomes important.
Creative Activity - Direction function helps in converting plans into performance. Without this function, people become inactive and physical resources are meaningless.
Executive Function - Direction function is carried out by all managers and executives at all levels throughout the working of an enterprise, a subordinate receives instructions from his superior only.
Delegate Function - Direction is supposed to be a function dealing with human beings. Human behavior is unpredictable by nature and conditioning the people’s behavior towards the goals of the enterprise is what the executive does in this function. Therefore, it is termed as having delicacy in it to tackle human behavior.

Importance of Directing Function

Directing or Direction function is said to be the heart of management of process and therefore, is the central point around which accomplishment of goals take place. A few philosophers call Direction as “Life spark of an enterprise”. It is also called as on actuating function of management because it is through direction that the operation of an enterprise actually starts. Being the central character of enterprise, it provides many benefits to a concern which are as follows:-

It Initiates Actions - Directions is the function which is the starting point of the work performance of subordinates. It is from this function the action takes place, subordinates understand their jobs and do according to the instructions laid. Whatever are plans laid, can be implemented only once the actual work starts. It is there that direction becomes beneficial.
It Ingrates Efforts - Through direction, the superiors are able to guide, inspire and instruct the subordinates to work. For this, efforts of every individual towards accomplishment of goals are required. It is through direction the efforts of every department can be related and integrated with others. This can be done through persuasive leadership and effective communication. Integration of efforts bring effectiveness and stability in a concern.
Means of Motivation - Direction function helps in achievement of goals. A manager makes use of the element of motivation here to improve the performances of subordinates. This can be done by providing incentives or compensation, whether monetary or non - monetary, which serves as a “Morale booster” to the subordinates Motivation is also helpful for the subordinates to give the best of their abilities which ultimately helps in growth.
It Provides Stability - Stability and balance in concern becomes very important for long term sun survival in the market. This can be brought upon by the managers with the help of four tools or elements of direction function - judicious blend of persuasive leadership, effective communication, strict supervision and efficient motivation. Stability is very important since that is an index of growth of an enterprise. Therefore a manager can use of all the four traits in him so that performance standards can be maintained.
Coping up with the changes - It is a human behavior that human beings show resistance to change. Adaptability with changing environment helps in sustaining planned growth and becoming a market leader. It is directing function which is of use to meet with changes in environment, both internal as external. Effective communication helps in coping up with the changes. It is the role of manager here to communicate the nature and contents of changes very clearly to the subordinates. This helps in clarifications, easy adaptions and smooth running of an enterprise. For example, if a concern shifts from hand-looms to power-looms, an important change in technique of production takes place. The resulting factors are less of manpower and more of machinery. This can be resisted by the subordinates. The manager here can explain that the change was in the benefit of the subordinates. Through more mechanization, production increases and thereby the profits. Indirectly, the subordinates are benefited out of that in form of higher remuneration.
Efficient Utilization of Resources - Direction finance helps in clarifying the role of every subordinate towards his work. The resources can be utilized properly only when less of wastage, duplication of efforts, overlapping of performances, etc. doesn’t take place. Through direction, the role of subordinates become clear as manager makes use of his supervisory, the guidance, the instructions and motivation skill to inspire the subordinates. This helps in maximum possible utilization of resources of men, machine, materials and money which helps in reducing costs and increasing profits.

Directing is the heart of management process. Heart plays an important role in a human body as it serves the function pumping blood to all parts of body which makes the parts function. In the similar manner, direction helps the subordinates to perform in best of their abilities and that too in a healthy environment. The manager makes use of the four elements of direction here so that work can be accomplished in a proper and right manner. According to Earnest Dale, “Directing is what has to be done and in what manner through dictating the procedures and policies for accomplishing performance standards”. Therefore, it is rightly said that direction is essence of management process.a

Recruitment and Its Type

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Recruitment is a process of searching out the potential applicants and inspiring them to apply for the actual or anticipated vacancy. On the other hand, Selection is a process of hiring employees among the shortlisted candidates and providing them a job in the organization. Recruitment is a process of finding out the prospective applicants and stimulating them to apply for the vacancy. It is a long process which involves a series of activities that starts with analyzing the job requirements and ends on the appointment of the employee. The activities involved in the recruitment of employees are as under:

Analyzing job requirement
Advertising the vacancy
Attracting candidates to apply for the job
Managing response
Scrutiny of applications
Shortlisting candidates

The recruitment is done by the Human Resource managers either internally or externally. The sources of internal recruitment are promotion, transfers, retrenched employees, contact or references, ex-employees, retired employees, etc. On the other hand, sources of external recruitment are recruitment through advertisement, campus recruitment, recruitment by employment exchanges, recruitment by third parties (recruitment agencies), internet recruiting, unsolicited applicants, etc.

Recruitment is of 2 types

Internal Recruitment - is a recruitment which takes place within the concern or organization. Internal sources of recruitment are readily available to an organization. Internal sources are primarily three - Transfers, promotions and Re-employment of ex-employees.

Internal recruitment may lead to increase in employee’s productivity as their motivation level increases. It also saves time, money and efforts. But a drawback of internal recruitment is that it refrains the organization from new blood. Also, not all the manpower requirements can be met through internal recruitment. Hiring from outside has to be done.

Internal sources are primarily 3 types
1. Transfers
2. Promotions (through Internal Job Postings) and
3. Re-employment of ex-employees - Re-employment of ex-employees is one of the internal sources of recruitment in which employees can be invited and appointed to fill vacancies in the concern. There are situations when ex-employees provide unsolicited applications also.
External Recruitment - External sources of recruitment have to be solicited from outside the organization. External sources are external to a concern. But it involves lot of time and money. The external sources of recruitment include - Employment at factory gate, advertisements, employment exchanges, employment agencies, educational institutes, labour contractors, recommendations etc.
1. Employment at Factory Level - This a source of external recruitment in which the applications for vacancies are presented on bulletin boards outside the Factory or at the Gate. This kind of recruitment is applicable generally where factory workers are to be appointed. There are people who keep on soliciting jobs from one place to another. These applicants are called as unsolicited applicants. These types of workers apply on their own for their job. For this kind of recruitment workers have a tendency to shift from one factory to another and therefore they are called as “badli” workers.
2. Advertisement - It is an external source which has got an important place in recruitment procedure. The biggest advantage of advertisement is that it covers a wide area of market and scattered applicants can get information from advertisements. Medium used is Newspapers and Television.
3. Employment Exchanges - There are certain Employment exchanges which are run by government. Most of the government undertakings and concerns employ people through such exchanges. Now-a-days recruitment in government agencies has become compulsory through employment exchange.
4. Employment Agencies - There are certain professional organizations which look towards recruitment and employment of people, i.e. these private agencies run by private individuals supply required manpower to needy concerns.
5. Educational Institutions - There are certain professional Institutions which serves as an external source for recruiting fresh graduates from these institutes. This kind of recruitment done through such educational institutions, is called as Campus Recruitment. They have special recruitment cells which helps in providing jobs to fresh candidates.
6. Recommendations - There are certain people who have experience in a particular area. They enjoy goodwill and a stand in the company. There are certain vacancies which are filled by recommendations of such people. The biggest drawback of this source is that the company has to rely totally on such people which can later on prove to be inefficient.
7. Labour Contractors - These are the specialist people who supply manpower to the Factory or Manufacturing plants. Through these contractors, workers are appointed on contract basis, i.e. for a particular time period. Under conditions when these contractors leave the organization, such people who are appointed have to also leave the concern.

Manpower Planning Need and Importance

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Manpower Planning which is also called as Human Resource Planning consists of putting right number of people, right kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization. Human Resource Planning has got an important place in the arena of industrialization. Human Resource Planning has to be a systems approach and is carried out in a set procedure. Manpower planning is the process of estimating the optimum number of people required for completing a project, task or a goal within time.

Manpower planning includes parameters like number of personnel, different types of skills, time period etc. It is a never ending continuous process to make sure that the business has the optimized resources available when required taking into consideration the upcoming future projects and also the replacement of the outgoing employees. It is also called as Human Resource Planning.

Large businesses often work on forecasting and upcoming opportunities in the pipeline. If these opportunities convert into actual business, they would need manpower to start working on them. But the dilemma is that what if they hired a large number of people to work on an almost sure project but at the last moment the project didn't start on time. What would the business do with the additional skilled manpower. The other dilemma is that if they kept waiting till the last moment for a project and when the project starts they might not have enough manpower to work and deliver. These questions are solved by the process of manpower planning.

According to M.N. Rudrobasavraj, “Manpower planning may be defined as a strategy for acquisition, utilization, improvement and presentation of an enterprise human resources.”

The procedure is as follows:

Analyzing the current manpower inventory
Making future manpower forecasts
Developing employment programmes
Design training programmes

Steps in Manpower Planning

Analyzing the current manpower inventory-Before a manager makes forecast of future manpower, the current manpower status has to be analysed. For this the following things have to be noted-
- Type of organization
- Number of departments
- Number and quantity of such departments
- Employees in these work units
Once these factors are registered by a manager, he goes for the future forecasting.
Making future manpower forecasts- Once the factors affecting the future manpower forecasts are known, planning can be done for the future manpower requirements in several work units.
The Manpower forecasting techniques commonly employed by the organizations are as follows:
1. Expert Forecasts: This includes informal decisions, formal expert surveys and Delphi technique.
2. Trend Analysis: Manpower needs can be projected through extrapolation (projecting past trends), indexation (using base year as basis), and statistical analysis (central tendency measure).
3. Work Load Analysis: It is dependent upon the nature of work load in a department, in a branch or in a division.
4. Work Force Analysis: Whenever production and time period has to be analysed, due allowances have to be made for getting net manpower requirements.
5. Other methods: Several Mathematical models, with the aid of computers are used to forecast manpower needs, like budget and planning analysis, regression, new venture analysis.
Developing employment programmes- Once the current inventory is compared with future forecasts, the employment programmes can be framed and developed accordingly, which will include recruitment, selection procedures and placement plans.
Design training programmes- These will be based upon extent of diversification, expansion plans, development programmes,etc. Training programmes depend upon the extent of improvement in technology and advancement to take place. It is also done to improve upon the skills, capabilities, knowledge of the workers.

Importance of Manpower Planning

Key to managerial functions- The four managerial functions, i.e., planning, organizing, directing and controlling are based upon the manpower. Human resources help in the implementation of all these managerial activities. Therefore, staffing becomes a key to all managerial functions.
Efficient utilization- Efficient management of personnels becomes an important function in the industrialization world of today. Seting of large scale enterprises require management of large scale manpower. It can be effectively done through staffing function.
Motivation- Staffing function not only includes putting right men on right job, but it also comprises of motivational programmes, i.e., incentive plans to be framed for further participation and employment of employees in a concern. Therefore, all types of incentive plans becomes an integral part of staffing function.
Better human relations- A concern can stabilize itself if human relations develop and are strong. Human relations become strong trough effective control, clear communication, effective supervision and leadership in a concern. Staffing function also looks after training and development of the work force which leads to co-operation and better human relations.
Higher productivity- Productivity level increases when resources are utilized in best possible manner. higher productivity is a result of minimum wastage of time, money, efforts and energies. This is possible through the staffing and it's related activities ( Performance appraisal, training and development, remuneration)

Need of Manpower Planning

Manpower Planning is a two-phased process because manpower planning not only analyses the current human resources but also makes manpower forecasts and thereby draw employment programmes. Manpower Planning is advantageous to firm in following manner:

Shortages and surpluses can be identified so that quick action can be taken wherever required.
All the recruitment and selection programmes are based on manpower planning.
It also helps to reduce the labour cost as excess staff can be identified and thereby over-staffing can be avoided.
It also helps to identify the available talents in a concern and accordingly training programmes can be chalked out to develop those talents.
It helps in growth and diversification of business. Through manpower planning, human resources can be readily available and they can be utilized in best manner.
It helps the organization to realize the importance of manpower management which ultimately helps in the stability of a concern.

Staffing Process: Steps involved in Staffing

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It is a truth that human resource is one of the greatest for every organization because in any organization all other resources like- money, material, machine etc. can be utilized effectively and efficiently by the positive efforts of human resource.

Therefore it is very important that each and every person should get right position in the organization so as to get the right job, according to their ability, talent, aptitude, and specializations so that it will help the organization to achieve the pre-set goals in the proper way by the 100% contribution of manpower.

1. Manpower Planning

Manpower planning can be regarded as the quantitative and qualitative measurement of labour force required in an enterprise. Therefore, in an overall sense, the planning process involves the synergy in creating and evaluating the manpower inventory and as well as in developing the required talents among the employees selected for promotion advancement

2. Recruitment

Recruitment is a process of searching for prospective employees and stimulating them to apply for jobs in the organization. It stands for finding the source from where potential employees will be selected.

3. Selection

Selection is a process of eliminating those who appear unpromising. The purpose of this selection process is to determine whether a candidate is suitable for employment in the organization or not. Therefore, the main aim of the process of selection is selecting the right candidates to fill various positions in the organization. A well-planned selection procedure is of utmost importance.

4. Placement

Placement means putting the person on the job for which he is selected. It includes introducing the employee to his job.

5. Training

After selection of an employee, the important part of the programmed is to provide training to the new employee. With the various technological changes, the need for training employees is being increased to keep the employees in touch with the various new developments.

6. Development

A sound staffing policy provides for the introduction of a system of planned promotion in every organization. If employees are not at all having suitable opportunities for their development and promotion, they get frustrated which affect their work.

7. Promotions

The process of promotion implies the up-gradation of an employee to a higher post involving increasing rank, prestige and responsibilities. Generally, the promotion is linked to increment in wages and incentives but it is not essential that it always relates to that part of an organization.

8. Transfer

Transfer means the movement of an employee from one job to another without increment in pay, status or responsibilities. Therefore this process of staffing needs to evaluated on a timely basis.

9. Appraisal

Appraisal of employees as to how efficiently the subordinate is performing a job and also to know his aptitudes and other qualities necessary for performing the job assigned to him.

10. Determination of Remuneration

This is the last process which is very crucial as it involves in determining remuneration which is one of the most difficult functions of the personnel department because there are no definite or exact means to determine correct wages.

Staffing Function of Management

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The managerial function of staffing involves manning the organization structure through proper and effective selection, appraisal and development of the personnel to fill the roles assigned to the employers/workforce. According to Theo Haimann, “Staffing pertains to recruitment, selection, development and compensation of subordinates.”

Staffing can be defined as one of the most important functions of management. It involves the process of filling the vacant position of the right personnel at the right job, at right time. Hence, everything will occur in the right manner. It is a truth that human resource is one of the greatest for every organization because in any organization all other resources like- money, material, machine etc. can be utilized effectively and efficiently by the positive efforts of human resource.

Therefore it is very important that each and every person should get right position in the organization so as to get the right job, according to their ability, talent, aptitude, and specializations so that it will help the organization to achieve the pre-set goals in the proper way by the 100% contribution of manpower. Thus it can be said that it is staffing is an essential function of every business organization.

Nature of Staffing Function

Staffing is an important managerial function- Staffing function is the most important managerial act along with planning, organizing, directing and controlling. The operations of these four functions depend upon the manpower which is available through staffing function.
Staffing is a pervasive activity- As staffing function is carried out by all mangers and in all types of concerns where business activities are carried out.
Staffing is a continuous activity- This is because staffing function continues throughout the life of an organization due to the transfers and promotions that take place.
The basis of staffing function is efficient management of personnel- Human resources can be efficiently managed by a system or proper procedure, that is, recruitment, selection, placement, training and development, providing remuneration, etc.
Staffing helps in placing right men at the right job. It can be done effectively through proper recruitment procedures and then finally selecting the most suitable candidate as per the job requirements.
Staffing is performed by all managers depending upon the nature of business, size of the company, qualifications and skills of managers,etc. In small companies, the top management generally performs this function. In medium and small scale enterprise, it is performed especially by the personnel department of that concern.

Functions of Staffing

The first and foremost function of staffing is to obtain qualified personnel for different jobs position in the organization.
In staffing, the right person is recruited for the right jobs, therefore it leads to maximum productivity and higher performance.
It helps in promoting the optimum utilization of human resource through various aspects.
Job satisfaction and morale of the workers increases through the recruitment of the right person.
Staffing helps to ensure better utilization of human resources.
It ensures the continuity and growth of the organization, through development managers.

Centralization and Decentralization

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Centralization and Decentralization are the two types of structures, that can be found in the organization, government, management and even in purchasing. Centralization of authority means the power of planning and decision making are exclusively in the hands of top management. It alludes to the concentration of all the powers at the apex level. On the other hand, Decentralization refers to the dissemination of powers by the top management to the middle or low-level management. It is the delegation of authority, at all the levels of management.

To determine whether an organization is centralized or decentralized greatly depends on the location of decision-making authority and the degree of decision-making power at lower levels. There is a never ending debate between these two terms to prove which one is better.

Centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points in the organization. The implication of centralization can be :-

Reservation of decision making power at top level.
Reservation of operating authority with the middle level managers.
Reservation of operation at lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the other levels are into implementations as per the directions of top level. For example, in a business concern, the father & son being the owners decide about the important matters and all the rest of functions like product, finance, marketing, personnel, are carried out by the department heads and they have to act as per instruction and orders of the two people. Therefore in this case, decision making power remain in the hands of father & son.

On the other hand, Decentralization is a systematic delegation of authority at all levels of management and in all of the organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management.

The degree of centralization and decentralization will depend upon the amount of authority delegated to the lowest level. According to Allen, “Decentralization refers to the systematic effort to delegate to the lowest level of authority except that which can be controlled and exercised at central points.

Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation. Decentralization pattern is wider is scope and the authorities are diffused to the lowest most level of management. Delegation of authority is a complete process and takes place from one person to another. While decentralization is complete only when fullest possible delegation has taken place. For example, the general manager of a company is responsible for receiving the leave application for the whole of the concern. The general manager delegates this work to the personnel manager who is now responsible for receiving the leave applicants. In this situation delegation of authority has taken place. On the other hand, on the request of the personnel manager, if the general manager delegates this power to all the departmental heads at all level, in this situation decentralization has taken place. There is a saying that “Everything that increasing the role of subordinates is decentralization and that decreases the role is centralization”. Decentralization is wider in scope and the subordinate’s responsibility increase in this case. On the other hand, in delegation the managers remain answerable even for the acts of subordinates to their superiors.

Implications of Decentralization

There is less burden on the Chief Executive as in the case of centralization.
In decentralization, the subordinates get a chance to decide and act independently which develops skills and capabilities. This way the organization is able to process reserve of talents in it.
In decentralization, diversification and horizontal can be easily implanted.
In decentralization, concern diversification of activities can place effectively since there is more scope for creating new departments. Therefore, diversification growth is of a degree.
In decentralization structure, operations can be coordinated at divisional level which is not possible in the centralization set up.
In the case of decentralization structure, there is greater motivation and morale of the employees since they get more independence to act and decide.
In a decentralization structure, co-ordination to some extent is difficult to maintain as there are lot many department divisions and authority is delegated to maximum possible extent, i.e., to the bottom most level delegation reaches. Centralization and decentralization are the categories by which the pattern of authority relationships became clear. The degree of centralization and de-centralization can be affected by many factors like nature of operation, volume of profits, number of departments, size of a concern, etc. The larger the size of a concern, a decentralization set up is suitable in it.

Importance and Principles of Delegation

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Delegation of authority is a process in which the authority and powers are divided and shared among the subordinates. When the work of a manager gets beyond his capacity, there should be some system of sharing the work. This is how delegation of authority becomes an important tool in organization function. Through delegation, a manager, in fact, is multiplying himself by dividing/multiplying his work with the subordinates. The importance of delegation can be justified by

Through delegation, a manager is able to divide the work and allocate it to the subordinates. This helps in reducing his work load so that he can work on important areas such as - planning, business analysis etc.
With the reduction of load on superior, he can concentrate his energy on important and critical issues of concern. This way he is able to bring effectiveness in his work as well in the work unit. This effectively helps a manager to prove his ability and skills in the best manner.
Delegation of authority is the ground on which the superior-subordinate relationship stands. An organization functions as the authority flows from top level to bottom. This in fact shows that through delegation, the superior-subordinate relationship become meaningful. The flow of authority is from top to bottom which is a way of achieving results.
Delegation of authority in a way gives enough room and space to the subordinates to flourish their abilities and skill. Through delegating powers, the subordinates get a feeling of importance. They get motivated to work and this motivation provides appropriate results to a concern. Job satisfaction is an important criterion to bring stability and soundness in the relationship between superior and subordinates. Delegation also helps in breaking the monotony of the subordinates so that they can be more creative and efficient.

Delegation of authority is not only helpful to the subordinates but it also helps the managers to develop their talents and skills. Since the manager get enough time through delegation to concentrate on important issues, their decision-making gets strong and in a way they can flourish the talents which are required in a manager. Through granting powers and getting the work done, helps the manager to attain communication skills, supervision and guidance, effective motivation and the leadership traits are flourished. Therefore it is only through delegation, a manager can be tested on his traits.
Delegation of authority is help to both superior and subordinates. This, in a way, gives stability to a concern’s working. With effective results, a concern can think of creating more departments and divisions flow working. This will require creation of more managers which can be fulfilled by shifting the experienced, skilled managers to these positions. This helps in both virtual as well as horizontal growth which is very important for a concern’s stability.

Therefore, from the above points, we can justify that delegation is not just a process but it is a way by which manager multiples himself and is able to bring stability, ability and soundness to a concern.

Principles of Delegation

There are a few guidelines in form of principles which can be a help to the manager to process of delegation. The principles of delegation are as follows:

Principle of result excepted- suggests that every manager before delegating the powers to the subordinate should be able to clearly define the goals as well as results expected from them. The goals and targets should be completely and clearly defined and the standards of performance should also be notified clearly. For example, a marketing manager explains the salesmen regarding the units of sale to take place in a particular day, say ten units a day have to be the target sales. While a marketing manger provides these guidelines of sales, mentioning the target sales is very important so that the salesman can perform his duty efficiently with a clear set of mind.
Principle of Parity of Authority and Responsibility- According to this principle, the manager should keep a balance between authority and responsibility. Both of them should go hand in hand.

According to this principle, if a subordinate is given a responsibility to perform a task, then at the same time he should be given enough independence and power to carry out that task effectively. This principle also does not provide excessive authority to the subordinate which at times can be misused by him. The authority should be given in such a way which matches the task given to him. Therefore, there should be no degree of disparity between the two.
Principle of absolute responsibility- This says that the authority can be delegated but responsibility cannot be delegated by managers to his subordinates which means responsibility is fixed. The manager at every level, no matter what is his authority, is always responsible to his superior for carrying out his task by delegating the powers. It does not means that he can escape from his responsibility. He will always remain responsible till the completion of task.

Every superior is responsible for the acts of their subordinates and are accountable to their superior therefore the superiors cannot pass the blame to the subordinates even if he has delegated certain powers to subordinates example if the production manager has been given a work and the machine breaks down. If repairmen is not able to get repair work done, production manager will be responsible to CEO if their production is not completed.
Principle of Authority level- This principle suggests that a manager should exercise his authority within the jurisdiction/framework given. The manager should be forced to consult their superiors with those matters of which the authority is not given that means before a manager takes any important decision, he should make sure that he has the authority to do that on the other hand, subordinate should also not frequently go with regards to their complaints as well as suggestions to their superior if they are not asked to do. This principle emphasizes on the degree of authority and the level up to which it has to be maintained.

Principle of Absoluteness of Responsibility- This principle asserts that responsibility cannot be delegated. This means even after delegating the authority to the subordinate to perform certain tasks on the manager’s behalf; the manager will be solely responsible for the doings of the subordinate. In other words, whatever actions being taken by the subordinate, the manager will be accountable to his senior. Thus, the responsibility is absolute and remains with the superior.
The Scalar Principle- There are clear lines of authority in the organization, i.e. who is under whom. This helps the subordinate to know, who delegates the authority to him and to whom he shall be accountable. Also to whom he shall contact in case things are beyond his control. Thus, this principle asserts, that there should be a proper hierarchy in the organization.
Principle of Exception- According to this principle, the subordinate shall be given complete freedom to perform his responsibilities under the purview of his authority. The manager should not interfere in between his work and must allow him to do even if he commits mistakes. But in some exceptional cases, the managers can interfere and even withdraw the authority delegated to the subordinate.

Delegation of Authority

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A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the manager should delegate authority. Delegation of Authority means division of authority and powers downwards to the subordinate. Delegation is about entrusting someone else to do parts of your job. Delegation of authority can be defined as subdivision and sub-allocation of powers to the subordinates in order to achieve effective results.

The process of delegation starts from the chief executive of an organisation who has the total responsibility for the achievement of goals. In order to share the responsibility of accomplishing goals, he further delegates the work to his subordinates.

These subordinates, finding the work assigned to them by their superior exceeds their “Span of Control” assign a portion of their works to their own subordinates. This process continues till all the tasks and activities are assigned to those who have the appropriate physical, psychological and professional abilities to do it.

Delegation is the downward transfer of formal authority from one person to another. Superiors delegate authority to subordinates to facilitate the accomplishment of the assigned work.

According to Koontz and O’Donnell, “The entire process of delegation involves the determination of results expected, the assignment of tasks, the delegation of authority for accomplishment of these tasks, and the exaction of responsibility for their accomplishment.”

Elements of Delegation

Authority - in context of a business organization, authority can be defined as the power and right of a person to use and allocate the resources efficiently, to take decisions and to give orders so as to achieve the organizational objectives. Authority must be well- defined. All people who have the authority should know what is the scope of their authority is and they shouldn’t mis-utilize it. Authority is the right to give commands, orders and get the things done. The top level management has greatest authority.

Authority always flows from top to bottom. It explains how a superior gets work done from his subordinate by clearly explaining what is expected of him and how he should go about it. Authority should be accompanied with an equal amount of responsibility. Delegating the authority to someone else doesn’t imply escaping from accountability. Accountability still rest with the person having the utmost authority.
Responsibility - is the duty of the person to complete the task assigned to him. A person who is given the responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for which he was held responsible are not completed, then he should not give explanations or excuses. Responsibility without adequate authority leads to discontent and dissatisfaction among the person. Responsibility flows from bottom to top. The middle level and lower level management holds more responsibility. The person held responsible for a job is answerable for it. If he performs the tasks assigned as expected, he is bound for praises. While if he doesn’t accomplish tasks assigned as expected, then also he is answerable for that.
Accountability - means giving explanations for any variance in the actual performance from the expectations set. Accountability can not be delegated. For example, if ’A’ is given a task with sufficient authority, and ’A’ delegates this task to B and asks him to ensure that task is done well, responsibility rest with ’B’, but accountability still rest with ’A’. The top level management is most accountable. Being accountable means being innovative as the person will think beyond his scope of job. Accountability, in short, means being answerable for the end result. Accountability can’t be escaped. It arises from responsibility.

For achieving delegation, a manager has to work in a system and has to perform following steps : -

Assignment of tasks and duties
Granting of authority
Creating responsibility and accountability

Delegation of authority is the base of superior-subordinate relationship, it involves following steps:-

Assignment of Duties - The delegator first tries to define the task and duties to the subordinate. He also has to define the result expected from the subordinates. Clarity of duty as well as result expected has to be the first step in delegation.
Granting of authority - Subdivision of authority takes place when a superior divides and shares his authority with the subordinate. It is for this reason, every subordinate should be given enough independence to carry the task given to him by his superiors. The managers at all levels delegate authority and power which is attached to their job positions. The subdivision of powers is very important to get effective results.
Creating Responsibility and Accountability - The delegation process does not end once powers are granted to the subordinates. They at the same time have to be obligatory towards the duties assigned to them. Responsibility is said to be the factor or obligation of an individual to carry out his duties in best of his ability as per the directions of superior. Responsibility is very important. Therefore, it is that which gives effectiveness to authority. At the same time, responsibility is absolute and cannot be shifted. Accountability, on the others hand, is the obligation of the individual to carry out his duties as per the standards of performance. Therefore, it is said that authority is delegated, responsibility is created and accountability is imposed. Accountability arises out of responsibility and responsibility arises out of authority. Therefore, it becomes important that with every authority position an equal and opposite responsibility should be attached.

Therefore every manager,i.e.,the delegator has to follow a system to finish up the delegation process. Equally important is the delegatee’s role which means his responsibility and accountability is attached with the authority over to here.

Relationship between Authority and Responsibility

Authority is the legal right of person or superior to command his subordinates while accountability is the obligation of individual to carry out his duties as per standards of performance Authority flows from the superiors to subordinates,in which orders and instructions are given to subordinates to complete the task. It is only through authority, a manager exercises control. In a way through exercising the control the superior is demanding accountability from subordinates. If the marketing manager directs the sales supervisor for 50 units of sale to be undertaken in a month. If the above standards are not accomplished, it is the marketing manager who will be accountable to the chief executive officer. Therefore, we can say that authority flows from top to bottom and responsibility flows from bottom to top. Accountability is a result of responsibility and responsibility is result of authority. Therefore, for every authority an equal accountability is attached.

Differences between Authority and Responsibility

Authority	Responsibility
It is the legal right of a person or a superior to command his subordinates.	It is the obligation of subordinate to perform the work assigned to him.
Authority is attached to the position of a superior in concern.	Responsibility arises out of superior-subordinate relationship in which subordinate agrees to carry out duty given to him.
Authority can be delegated by a superior to a subordinate	Responsibility cannot be shifted and is absolute
It flows from top to bottom.	It flows from bottom to top.

Functional Organization

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Functional organization has been divided to put the specialists in the top position throughout the enterprise. This is an organization in which we can define as a system in which functional department are created to deal with the problems of business at various levels. Functional authority remains confined to functional guidance to different departments. This helps in maintaining quality and uniformity of performance of different functions throughout the enterprise.

The concept of Functional organization was suggested by F.W. Taylor who recommended the appointment of specialists at important positions. For example, the functional head and Marketing Director directs the subordinates throughout the organization in his particular area. This means that subordinates receives orders from several specialists, managers working above them.

F.W. Taylor, father of scientific management, developed the concept of functional organisation. He recommended functional organisation even at the shop level where workers have to produce goods. He thought that one foreman could not manage all the aspects of production work for directing a group of employees as they could not have varied knowledge. He suggested the substitution of line authority by functional foremanship at the lower levels of the organisation structure.

Taylor suggested the division of supervisory functions into two groups:

Office specialists and;
Shop specialists

Functional Organization Structure

A functional organization structure is a hierarchical organization structure wherein people are grouped based on their area of specialization. These people are supervised by a functional manager with expertise in the same field. This expertise helps him to effectively utilize the skills of employees, which ultimately helps organizations in achieving its business objectives.

People are classified according to the function they perform within the organization in this kind of organization structure. The organizational chart for a functional organization structure shows the president, vice president, finance department, sales department, customer service, administration, etc.

Each department will have a department head who will be responsible for the performance of his section. This helps the organization control the quality and uniformity of performance. These various departments are sometimes referred to as “silos.” This means the system is vertical and disconnected. The communication flows through the department heads to the top management.

Here, all authority (i.e., budget allocation, resource allocation, decision making, etc.) stays with the functional manager. Usually, the position of the project manager does not exist in this type of organization structure. Even if this position exists, the role of the project manager will be minimal, and he will need permission from the functional manager to fulfill his requirements. The project manager may have the title of a coordinator or an expediter.

The functional organization structure is suitable for an organization which has ongoing operations and produces standard products or goods, such as manufacturing industries.

Features of Functional Organization

The entire organizational activities are divided into specific functions such as operations, finance, marketing and personal relations.
Complex form of administrative organization compared to the other two.
Three authorities exist- Line, staff and function.
Each functional area is put under the charge of functional specialists and he has got the authority to give all decisions regarding the function whenever the function is performed throughout the enterprise.
Principle of unity of command does not apply to such organization as it is present in line organization.

Merits of Functional Organization

Specialization- Better division of labour takes place which results in specialization of function and it’s consequent benefit.
Effective Control- Management control is simplified as the mental functions are separated from manual functions. Checks and balances keep the authority within certain limits. Specialists may be asked to judge the performance of various sections.
Efficiency- Greater efficiency is achieved because of every function performing a limited number of functions.
Economy- Specialization compiled with standardization facilitates maximum production and economical costs.
Expansion- Expert knowledge of functional manager facilitates better control and supervision.

Demerits of Functional Organization

Confusion- The functional system is quite complicated to put into operation, especially when it is carried out at low levels. Therefore, co-ordination becomes difficult.
Lack of Co-ordination- Disciplinary control becomes weak as a worker is commanded not by one person but a large number of people. Thus, there is no unity of command.
Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix responsibility.
Conflicts- There may be conflicts among the supervisory staff of equal ranks. They may not agree on certain issues.
Costly- Maintenance of specialist’s staff of the highest order is expensive for a concern.

Line and Staff Organization

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Line and staff organization is a modification of line organization and it is more complex than line organization. According to this administrative organization, specialized and supportive activities are attached to the line of command by appointing staff supervisors and staff specialists who are attached to the line authority. The power of command always remains with the line executives and staff supervisors guide, advice and council the line executives. Personal Secretary to the Managing Director is a staff official.

Line and staff organization is the organization that combines the merits of line and functional organization, by adding the functional specialist to the line organization. Here, line authority stays same, as in the case of line organization and it flows downward. The functional experts, give advise to the front line managers, in the matters relevant to the object of the organization. The specialist works as staff and serves the line officials, by supporting and guiding them, whenever necessary.

Features of Line and Staff Organization

Line and Staff organisation is a combination of line organisation and functional (i.e., staff) organisation. Under this system, there are line officers who have authority and command over the subordinates and are accountable for the tasks entrusted to them, and there are staff officers or specialists to offer expert advice to the line officers to perform their tasks efficiently.

Line and staff organisation clear distinction between the two aspects of administration. Viz. planning and execution. The staff personnel prepare the plans and give advice to the line officials, and line officials execute the plans with help of the departmental personnel.

The line and staff organisation is based on the principle of specialization, in the sense that the staff officers specialize in the planning function and the line officers specialization in the execution or doing function of the administration.

Merits of Line and Staff Organization

Relief to line of executives- In a line and staff organization, the advice and counseling which is provided to the line executives divides the work between the two. The line executive can concentrate on the execution of plans and they get relieved of dividing their attention to many areas.
Expert advice- The line and staff organization facilitates expert advice to the line executive at the time of need. The planning and investigation which is related to different matters can be done by the staff specialist and line officers can concentrate on execution of plans.
Benefit of Specialization- Line and staff through division of whole concern into two types of authority divides the enterprise into parts and functional areas. This way every officer or official can concentrate in its own area.
Better co-ordination- Line and staff organization through specialization is able to provide better decision making and concentration remains in few hands. This feature helps in bringing co-ordination in work as every official is concentrating in their own area.
Benefits of Research and Development- Through the advice of specialized staff, the line executives, the line executives get time to execute plans by taking productive decisions which are helpful for a concern. This gives a wide scope to the line executive to bring innovations and go for research work in those areas. This is possible due to the presence of staff specialists.
Training- Due to the presence of staff specialists and their expert advice serves as ground for training to line officials. Line executives can give due concentration to their decision making. This in itself is a training ground for them.
Balanced decisions- The factor of specialization which is achieved by line staff helps in bringing co-ordination. This relationship automatically ends up the line official to take better and balanced decision.
Unity of action- Unity of action is a result of unified control. Control and its effective take place when co-ordination is present in the concern. In the line and staff authority all the officials have got independence to make decisions. This serves as effective control in the whole enterprise.

Demerits of Line and Staff Organization

Lack of understanding- In a line and staff organization, there are two authority flowing at one time. This results in the confusion between the two. As a result, the workers are not able to understand as to who is their commanding authority. Hence the problem of understanding can be a hurdle in effective running.
Lack of sound advice- The line official get used to the expertise advice of the staff. At times the staff specialist also provide wrong decisions which the line executive have to consider. This can affect the efficient running of the enterprise.
Line and staff conflicts- Line and staff are two authorities which are flowing at the same time. The factors of designations, status influence sentiments which are related to their relation, can pose a distress on the minds of the employees. This leads to minimizing of co-ordination which hampers a concern’s working.
Costly- In line and staff concern, the concerns have to maintain the high remuneration of staff specialist. This proves to be costly for a concern with limited finance.
Assumption of authority- The power of concern is with the line official but the staff dislikes it as they are the one more in mental work.
Staff steals the show- In a line and staff concern, the higher returns are considered to be a product of staff advice and counseling. The line officials feel dissatisfied and a feeling of distress enters a concern. The satisfaction of line officials is very important for effective results.

Classification of Organizations

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Organizations are basically classified on the basis of relationships. There are two types of organizations formed on the basis of relationships in an organization

Formal Organization - This is one which refers to a structure of well defined jobs each bearing a measure of authority and responsibility. It is a conscious determination by which people accomplish goals by adhering to the norms laid down by the structure. This kind of organization is an arbitrary set up in which each person is responsible for his performance. Formal organization has a formal set up to achieve pre- determined goals.
Informal Organization - It refers to a network of personal and social relationships which spontaneously originates within the formal set up. Informal organizations develop relationships which are built on likes, dislikes, feelings and emotions. Therefore, the network of social groups based on friendships can be called as informal organizations. There is no conscious effort made to have informal organization. It emerges from the formal organization and it is not based on any rules and regulations as in case of formal organization.

Relationship between Formal and Informal Organizations

For a concerns working both formal and informal organization are important. Formal organization originates from the set organizational structure and informal organization originates from formal organization. For an efficient organization, both formal and informal organizations are required. They are the two phase of a same concern.

Formal organization can work independently. But informal organization depends totally upon the formal organization.

Formal and informal organization helps in bringing efficient working organization and smoothness in a concern. Within the formal organization, the members undertake the assigned duties in co-operation with each other. They interact and communicate among themselves. Therefore, both formal and informal organizations are important. When several people work together for achievement of organizational goals, social tie ups tends to built and therefore informal organization helps to secure co-operation by which goals can be achieved smooth. Therefore, we can say that informal organization emerges from formal organization.

Line organization

It is the most oldest and simplest method of administrative organization. According to this type of organization, the authority flows from top to bottom in a concern. The line of command is carried out from top to bottom. This is the reason for calling this organization as scalar organization which means scalar chain of command is a part and parcel of this type of administrative organization. In this type of organization, the line of command flows on an even basis without any gaps in communication and co-ordination taking place.

Features of Line Organization

It is the most simplest form of organization.
Line of authority flows from top to bottom.
Specialized and supportive services do not take place in these organization.
Unified control by the line officers can be maintained since they can independently take decisions in their areas and spheres.
This kind of organization always helps in bringing efficiency in communication and bringing stability to a concern.

Merits of Line Organization

Simplest- It is the most simple and oldest method of administration.
Unity of Command- In these organizations, superior-subordinate relationship is maintained and scalar chain of command flows from top to bottom.
Better discipline- The control is unified and concentrates on one person and therefore, he can independently make decisions of his own. Unified control ensures better discipline.
Fixed responsibility- In this type of organization, every line executive has got fixed authority, power and fixed responsibility attached to every authority.
Flexibility- There is a co-ordination between the top most authority and bottom line authority. Since the authority relationships are clear, line officials are independent and can flexibly take the decision. This flexibility gives satisfaction of line executives.
Prompt decision- Due to the factors of fixed responsibility and unity of command, the officials can take prompt decision.

Demerits of Line Organization

Over reliance- The line executive’s decisions are implemented to the bottom. This results in over-relying on the line officials.
Lack of specialization- A line organization flows in a scalar chain from top to bottom and there is no scope for specialized functions. For example, expert advices whatever decisions are taken by line managers are implemented in the same way.
Inadequate communication- The policies and strategies which are framed by the top authority are carried out in the same way. This leaves no scope for communication from the other end. The complaints and suggestions of lower authority are not communicated back to the top authority. So there is one way communication.
Lack of Co-ordination- Whatever decisions are taken by the line officials, in certain situations wrong decisions, are carried down and implemented in the same way. Therefore, the degree of effective co-ordination is less.
Authority leadership- The line officials have tendency to misuse their authority positions. This leads to autocratic leadership and monopoly in the concern.

Principles of Organizing Function of Management

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Organizing is the establishment of effective authority relationships among selected work, persons and work places in order for the group to work together efficiently. Organizing is a process of defining the essential relationships among people, tasks and activities in such a way that all the organisation’s resources are integrated and coordinated to accomplish its objectives efficiently and effectively.

Principles of Organizing

The organizing process can be done efficiently if the managers have certain guidelines so that they can take decisions and can act. To organize in an effective manner, the following principles of organization can be used by a manager.

Principle of Specialization

According to the principle, the whole work of a concern should be divided among the subordinates on the basis of qualifications, abilities and skills. It is through division of work specialization can be achieved which results in effective organization.
Principle of Functional Definition

According to this principle, all the functions in a concern should be completely and clearly defined to the managers and subordinates. This can be done by clearly defining the duties, responsibilities, authority and relationships of people towards each other. Clarifications in authority-responsibility relationships helps in achieving co-ordination and thereby organization can take place effectively. For example, the primary functions of production, marketing and finance and the authority responsibility relationships in these departments should be clearly defined to every person attached to that department. Clarification in the authority-responsibility relationship helps in efficient organization.
Principles of Span of Control/Supervision

According to this principle, span of control is a span of supervision which depicts the number of employees that can be handled and controlled effectively by a single manager. According to this principle, a manager should be able to handle what number of employees under him should be decided. This decision can be taken by choosing either from a wide or narrow span. There are two types of span of control:-
1. Wide span of control- It is one in which a manager can supervise and control effectively a large group of persons at one time. The features of this span are:-
  1. Less overhead cost of supervision
  2. Prompt response from the employees
  3. Better communication
  4. Better supervision
  5. Better co-ordination
  6. Suitable for repetitive jobs
  According to this span, one manager can effectively and efficiently handle a large number of subordinates at one time.
2. Narrow span of control- According to this span, the work and authority is divided among many subordinates and a manager doesn't supervises and control a very big group of people under him. The manager according to a narrow span supervises a selected number of employees at one time. The features are:-
  1. Work which requires tight control and supervision, for example, handicrafts, ivory work, etc. which requires craftsmanship, there narrow span is more helpful.
  2. Co-ordination is difficult to be achieved.
  3. Communication gaps can come.
  4. Messages can be distorted.
  5. Specialization work can be achieved.
Factors influencing Span of Control
1. Managerial abilities- In the concerns where managers are capable, qualified and experienced, wide span of control is always helpful.
2. Competence of subordinates- Where the subordinates are capable and competent and their understanding levels are proper, the subordinates tend to very frequently visit the superiors for solving their problems. In such cases, the manager can handle large number of employees. Hence wide span is suitable.
3. Nature of work- If the work is of repetitive nature, wide span of supervision is more helpful. On the other hand, if work requires mental skill or craftsmanship, tight control and supervision is required in which narrow span is more helpful.
4. Delegation of authority- When the work is delegated to lower levels in an efficient and proper way, confusions are less and congeniality of the environment can be maintained. In such cases, wide span of control is suitable and the supervisors can manage and control large number of sub- ordinates at one time.
5. Degree of decentralization- Decentralization is done in order to achieve specialization in which authority is shared by many people and managers at different levels. In such cases, a tall structure is helpful. There are certain concerns where decentralization is done in very effective way which results in direct and personal communication between superiors and sub- ordinates and there the superiors can manage large number of subordinates very easily. In such cases, wide span again helps.
Principle of Scalar Chain

Scalar chain is a chain of command or authority which flows from top to bottom. With a chain of authority available, wastage of resources are minimized, communication is affected, overlapping of work is avoided and easy organization takes place. A scalar chain of command facilitates work flow in an organization which helps in achievement of effective results. As the authority flows from top to bottom, it clarifies the authority positions to managers at all level and that facilitates effective organization.
Principle of Unity of Command

It implies one subordinate-one superior relationship. Every subordinate is answerable and accountable to one boss at one time. This helps in avoiding communication gaps and feedback and response is prompt. Unity of command also helps in effective combination of resources, that is, physical, financial resources which helps in easy co-ordination and, therefore, effective organization.

Authority Flows from Top to Bottom

Managing Director

↓

Marketing Manager

↓

Sales/ Media Manager

↓

Salesmen

According to the above diagram, the Managing Director has got the highest level of authority. This authority is shared by the Marketing Manager who shares his authority with the Sales Manager. From this chain of hierarchy, the official chain of communication becomes clear which is helpful in achievement of results and which provides stability to a concern. This scalar chain of command always flow from top to bottom and it defines the authority positions of different managers at different levels.

MBA CONCEPTS

Working Capital Management: Introdution

Exception to Law of Supply

Supply Function and Law of Supply

Supply Introduction

Types of Elasticity of Demand

(1) Price Elasticity of Demand:

Formula:

Example:

Types:

(2) Income Elasticity of Demand:

Formula:

Example:

Types:

(3) Cross Elasticity of Demand:

Formula:

Types and Example:

Elasticity of Demand

Demand and Law of Demand

Exceptions to Law of Demand

Managerial Economics and Micro Economics

Significance And Scope Of Managerial Economics

Meaning And Nature Of Managerial Economics

Definition of Managerial Economics

MBA Books and Notes Download

Sem I

Sem-II

Sem III

Sem IV

MBA Specialization Courses:

Basic Accounting Terms

Controlling Function of Management and Process

Features of Controlling Function

Directing Function of Management and Importance

Importance of Directing Function

Recruitment and Its Type

Manpower Planning Need and Importance

Steps in Manpower Planning

Importance of Manpower Planning

Need of Manpower Planning

Staffing Process: Steps involved in Staffing

2. Recruitment

3. Selection

4. Placement

5. Training

6. Development

7. Promotions

8. Transfer

9. Appraisal

10. Determination of Remuneration

Staffing Function of Management

Nature of Staffing Function

Functions of Staffing

Centralization and Decentralization

Implications of Decentralization

Importance and Principles of Delegation

Delegation of Authority

Elements of Delegation

Relationship between Authority and Responsibility

Differences between Authority and Responsibility

Functional Organization

Functional Organization Structure

Features of Functional Organization

Merits of Functional Organization

Demerits of Functional Organization

Line and Staff Organization

Features of Line and Staff Organization

Merits of Line and Staff Organization

Demerits of Line and Staff Organization

Classification of Organizations

Relationship between Formal and Informal Organizations

Features of Line Organization

Merits of Line Organization

Demerits of Line Organization

Principles of Organizing Function of Management

Principle of Specialization

Principle of Functional Definition

Principles of Span of Control/Supervision

Factors influencing Span of Control

Principle of Scalar Chain