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Kisan Expo(11 - 17 December 2013, Pune, India)

2013-10-28T16:58:00.003+05:30

Kisan Expo is a 7 days event which is being held from 11th December to the 17th December 2013 at the Hindustan Antibiotics Ground in Pimpri, Pune, India. This event showcases products like Agricultural Equipment & Machinery, Farm Implements, Seeds & Planting Material, Fertilizers, Pesticides, Irrigation Systems, Green House & Accessories, Bio Technology, Horticulture, Sericulture, Fisheries, Aquaculture, Animal Husbandry, Dairy Equipment & Products, Poultry Equipment & Products, Agro Forestry, Organic Farming, Material handling equipment, Agro Processing & Packaging, Agri Business Services etc. in the Agriculture & Forestry industry.

Starts: Wednesday, 12/11/13 at 10:00 a.m. Ends:Tuesday, 12/17/13 6:00 p.m.

Hindustan Antibiotics Ground

Pimpri, Pune, Maharashtra

INR50

MB0043 – Human Resource Management Semester -I Assignment set-II

2012-03-17T13:22:00.001+05:30

MB0043 – Human Resource Management Semester -I

Assignment set-II

Q.1. List and explain the sources of recruitment?

Answer:

Sources of recruitment:-

Advertisement:- Enterprise advertises vacancies through newspaper, trade journals & magazines. The content of advertisement & media through which advertisement is to be given is decided by Human Resource department. It is convenient & economical method.

Casual Callers:- On occasions people drop in without any announcement of vacancy to find out if jobs are available. A waiting list of such visitors may be prepared & they may be screened to fill the vacancies whenever they arise.
Gate hiring or Recruitment at factory gate: It is usually followed by factories to fill up vacancies at lower level. A large enterprise usually plays a notice on notice board specifying details of job available. A large number of unemployed persons assemble at gate where personnel manage scrutinize them & pick the persons as per requirement Small workshops recruit fitters, welders etc, through this source.
Educational Institutions:- School, colleges & professional institutions offer opportunities for recruiting their students. Prospective employers verify credentials of students & conduct interview directly, placement cells have been set up in well known educational institutions to help students in securing suitable jobs.
Management Consultants:- Help to recruit technical, professional & managerial personnel for example accountants, engineers. They specialize in middle level & top level executive placements. They maintain data bank of persons with different qualifications & skills & even advertise jobs on behalf their clients to recruit right type of personnel.
Recommendations:- Friends & relative of present employees are also good source of recruitment. Many concern prefer such candidates as they generally stand surety for new recruits and their background is partly known & type of preliminary screening take place.
Labour Contractor:- Workers are recruited through labor contractors who are themselves employees of organization. The disadvantage of this system is that if contractor leaves the organization, all the workers employed through him will also leave. Recruitment through this source has been banned for public sector units. However, this practice is still common in case of construction industry.
Telecasting:- The practice of telecasting of vacant posts over T.V. (Doordarshan & other channels) is gaining importance these days. Special programmes like ‘Job Watch’, ‘Youth Pulse’, ‘Employment News’ etc, over T.V. have become quite popular in recruitment for various types of jobs. The use of T.V. as a source of recruitment is less as compared to other sources because it is an expensive medium.
Union list:- ‘Sometimes trade Unions list maintain list of candidates seeking employment in the concern. Such candidates could be recruited in consultation with union.
Central application file:- A file is maintained of past applicants who were not selected earlier, in case of immediate requirements such candidates can also be contacted.

Merits:-

Wide Options:- It brings large number of applicants as it permits enterprise to have free hands in making selection.
Fresh talent:- Enterprise can expect to get fresh talented candidates from outside which leads to infusion of New Blood & new ideas in to enterprises.
Element of competition:- This is a healthy feature from point of view of enterprise as internal candidates have to compete with outside candidate

Limitations:-

Lengthy process:- It takes long time. The business has to notify vacancies & wait for applications to initiate selection process.
Costly process:- A lot of money has to be spent on advertisement & processing of applications.
Uncertain Response:- The candidates from outside may not be suitable for enterprise. There is no guarantee that enterprise will be able to attract right kinds of people from external sources.
Dissatisfaction among Existing staff:- They may feel that their chances of promotion may be reduced.

Q.2. Write a note on objectives of training?

Answer: Defining objectives for training is a critical step in the whole development process. Why? Well, without a training objective instructors don't know exactly what it is to be taught, learners don't know what they are to learn, and managers don't know what they are investing their training dollars in. Think of training objectives as check points on a roadmap. Because if they are done correctly, it clearly defines you’re the route to get from point "A" to point "B", telling everyone how to get there. A training objective defines what is to be learned, how well it is to be performed, and under what conditions it is to be performed. Naturally, it goes without saying objectives must be clear, honest, complete, and unquestionably correct!

"A training objective must clearly state the task to be done, the conditions under which training will take place and observed, and the standards of learning that should be accomplished."A complete objective will contain a:

Task
Condition
Standard

The Task: (Description of Performance)

The first requirement is that the objective contain an action verb that describes doing something that can be seen and measured. Words such as the following do not possess a common, single meaning and are capable of different interpretations:

Comprehend	Know	Contemplate
Fully understand	Remember	Perceive
Grasp significance of	Have Faith in	Believe in
Be aware of	Decide	Recognize
Really appreciate	Enjoy	Experience
Have a feeling for	Consider	Examine

While these are legitimate goals, perhaps, but may be a bit unclear and fuzzy around the edges.

How does an instructor see the action the student is taking when demonstrating that he or she can appreciate, has faith in, etc.? Furthermore, the student does have a clear understanding of just what he or she has to do either. Do not use these words to describe the task the student must perform.

The following words tells the student what they must do, they can be good action verbs for a training objective:

Inventory	Overhaul	Measure	Calculate	Recover
Test	Solve	Write	List	Operate
Construct	Disassemble	Detect	Name	Adjust
Identify	Define	Assemble	Explain	Install
Maintain	Locate	Remove	Calibrate	Replace
Authenticate	Rewire	Troubleshoot	Repair	Build

Determine the most accurate action possible. Verbally explaining is not as accurate as explaining in writing. The point is that both you and the student must agree on what you are going to have them do.

Conditions:

The conditions under which the behavior is to be observed. The objective will contain the conditions under which action will take place. The student deserves to know what he or she will be given, or not given, to do the task. The questions you need to ask yourself are, do the conditions affect task performance?

If Yes. Do they affect the type and amount of training? Generally the types of conditions to be considered are as follows:

Training aids, handbooks, instructions, preprinted forms, environmental conditions and safety briefing, and other written documents. The student should be told what he or she will be given in order to complete the task.

Standards:

The standard of performance is the last part of a complete objective. This is what a student must achieve before he or she is considered to have satisfactory completed the objective.

In other words, "can they walk and chew gum at the same time without falling down."

Now that you have a little more information about objectives, its also not seldom necessary for a course of instruction to taught to mastery level, unless that is your intended objective.

In most training environments, the students are taught how to do a task, but then they must practice on the job to be good at it. It's also not usually necessary or reasonable to expect the student to perform without error just to pass a course. Usually, you will set it to a level where the student is expected to solve a certain percentage of problems or meet specific accuracy standards, or to do things within a certain amount of time. These criteria (speed, accuracy, quantity) often become the standards. They tell the student how well and how fast he or she must complete the task. This should be presented to the students as part of the training objectives.

Q.3. What are the different career development activities? Explain.

Answer: Career Development Activities are activities that help you to acquire skills, gain knowledge and cultivate the right attitudes. From the Career Development Assessment you will have a list of Skills, Knowledge and Attitudes (SKA) to develop. Like most of us you probably are short of time and have limited resources so you need to focus on what is essential.

Priorities SKAs to develop both for long term and short term goals

For your career development to be successful and efficient, you need to priorities SKAs to develop both for long term and short term goals from the Career Development Assessment decide which are the top one to three Skills, Knowledge and Attitudes (SKA) areas you want to develop for each short and long term goal.

From your research you should have an idea what the essential SKAs are, the ones without which you will never be in line for a promotion to that job. If you already got that – great, keep perfecting it. If not that developing these essential SKAs is your top priority. Use our FREE Career Development Plan to capture your ideas.

Use this stage for another reality check about your goals. To make your goals achievable, check that you have some of the talents required for the job. If you hate speaking to people, but love analyzing data don’t aim to be Sales Director or Head of Customer Services; aim for a job that plays to your strengths and talents. Working on strengths will make choosing your career development activities much easier, more cost and time effective. It will also make the learning a more pleasant journey and reap greater rewards in terms of satisfaction and happiness.

Evidence - how would it look like when you have developed each SKA

Defining some clear “sensory based” (see, feel, hear) evidence at the outset, allows us to check if you have achieved something. For each of these priorities write down how you and possibly others would know you have developed these skills, knowledge and attitudes? What would you see, feel, hear, say? What would others see you doing and saying? What would the results be? Be as descriptive as possible as that will give you ideas for the next step.

Under “Presentation Skills” for example describe what that actually means for you: “I can hold eye contact with the audience; I can use a flipchart, PowerPoint and props; I can speak with only a few notes; my breathing is regular; I can answer questions with ease.”

Brainstorm possible development activities

List all the different activities that could help you to acquire each Priority SKA (Skill, Knowledge, Attitude). This is the creative phase, the more ideas the better. Below is a list of some Career Development Activities.

Evaluate and choose the most appropriate development activities
Now you can judge and evaluate all the different development activities by checking the impact of the activity and the ease of implementing the activity.Impact– if I do this activity will I acquire the SKA? All of it (high), a major part of it, a small part of it (Low)? Decide if the activity has High or Low impact.Ease of implementation – how easy is it to do this activity? How easy is it to get this activity signed off and financed? Where does the activity take place – how easy can I get there? How much time is involved? Decide if ease of implementation is High (=Easy) or Low (=difficult).

You then combine these two criteria and priorities those that have high impact and easy implementation. If you like doing this visually, use one post it note for each development activity and place them in a grid like the one below. You can then add granularity to your evaluation by how far away from the middle in each direction you place your post-it.

Make a plan (what, when, who, where, how)
Now you are ready to make the plan. You may still need to do some research like check the budget, investigate training providers, talk to line manager/colleague/spouse, book course. These are the action steps you note under “Next step”. Keep updating the plan and make sure you do the next steps and keep progressing. Please include development activities for long term goals in here as the Skills, Knowledge and Attitudes required to achieve your long term goals may take a longer period.

Q.4.Discuss some steps that are commonly practiced for motivating employees.

Answer: It is a costly mistake to get lost in the false theory that more money equals happy employees. Believing this is costing you valuable time, revenue, employees...and even threatening your own job. Cash will always be a major factor in motivating people and a solid compensation plan is critical to attracting and keeping key personnel. But the key is that additional cash is not always the only answer and in many cases not even the best answer. Too many bonus or commission checks get cashed, spent and forgotten just that quickly. Grocery stores and gasoline stations are among the necessary stops that seem to get in the way of using your extra cash on something special for you. One alternative to giving commissions or bonus dollars is to give gifts through a catalog point system.

The company you choose will provide you with catalogs, price sheets and point checks at no charge. The structure for your bonus plan can remain the same but instead of awarding cash to your employees you award equivalent points. Those points may then be used to purchase an enormous variety of gifts or travel plans from the catalog. The stimulation involved is long-lasting. It begins with the employee being able to browse the catalog choosing what they will strive to earn. The catalog acts as a tangible reminder of their goal. The gift itself will last as evidence of their achievements.

Whenever I have implemented this program, the employees are overwhelmingly in favor of the point system as opposed to cash. This type of program is very popular with employees because they purchase things they would never normally have the "money" to afford. With solid compensation in place, let's look at non-monetary motivation...20 steps to success.

1. Recognition/Attention. When your employees accomplish something they have achieved something. Your recognition is appreciation for that achievement. I believe that most managers don't give enough recognition because they don't get enough. Therefore, it doesn't come natural to do it. If this applies to you, you need to drop this excuse like a bad habit! Become a giver! Look at the price. Recognition is free!

2. Applause. A form of recognition yes, but a very specific form. Physically applaud your people by giving them a round of applause for specific achievements. Where? When? The answer is wherever and whenever. At meetings or company-sponsored social gatherings, a luncheon, or in the office. At the end of a shift, before a shift, and whenever possible in the middle of a shift. Using plaques or trophies is another effective way of applauding your people. Although "wooden applause" is often successfully used in the form of Employee of the Month plaques, more creative ideas are sorely underutilized. Take the time to be creative, matching special accomplishments with unique awards.

3. One-on-One Coaching. Coaching is employee development. Your only cost is time. Time means you care. And remember your people don't care how much you know... until they know how much you care. Whenever the emphasis is on positive feedback, I make sure to do this coaching in "public." Whenever you recognize and encourage people in "public," it acts as a natural stimulant for others who are close enough to see or hear what's taking place.

4. Training. Is training ever finished? Can you possibly overtrain? NO and NO. For whatever reasons, too many people feel "My people have already been trained" or "I've got good people...they only need a little training." But training never ends. Schedule "tune- up" training sessions. These should be led by you or by a supervisor with help from specific employees who show a particular strength in the skills taught. I know this takes time, but these types of training sessions will continually enhance the performance of your people and the productivity of your business.

5. Career Path. Your employees need to know what is potentially ahead for them, what opportunities there are for growth. This issue is a sometimes forgotten ingredient as to the importance it plays in the overall motivation of people.

Set career paths within your organization. Do you promote from within? I hope you can answer yes to that. Although specific circumstances require you to look for talent outside your company you should always first consider internal personnel. If you do this you are sending a very positive message to every one that there are indeed further career opportunities within your organization.

6. Job Titles. When you talk about job titles you are tapping the self-esteem of people. How someone feels about the way they are perceived in the workforce is a critical component to overall attitude and morale. Picture a social gathering that includes some of your staff. The subject of work inevitably comes up. Will your people be proud, or embarrassed, to share their title and workplace? The importance of feeling proud of who you are and what you do is monumental.

Be creative as you think of possibilities for titles. Have your staff come up with ideas giving them input into the titles. Bottom line, you are dealing with pride...and pride enhances a positive attitude...and a positive attitude is the foundation for continuing success.

7. Good Work Environment. A recent industry study shows just how inaccurate your results can be. Employers were asked to rank what they thought motivated their people
and then employees were asked to rank what really did motivate them.

Employers felt "working conditions" was a nine (or next to last) in terms of importance. What did the employees say? Number two! Working conditions are very important to the way employees feel about where they work.

Cosmetically, does your office look nice? Are there pictures on the walls, plants and fresh paint among other features that generally make people feel good about their environment? Does their work space have enough room or are they cramped in a "sardine can?" What about furniture? Is the desk the right size, chair comfortable? Is there file space and do they have the miscellaneous office supplies needed for maximum performance? Is the temperature regulated properly so they don't feel they're in the Amazon jungle one minute and the North Pole the next?

8. On-the-Spot Praise. This too is associated with recognition but the key here is timing. When there is a reason for praising someone don't put it off for any reason! Promptness equals effectiveness. Praise people when the achievement is fresh on everyone's mind.

What is effective is for us to get off our keisters and go out and tell whoever it is what a great presentation it was or applaud them for the sale...praise them promptly for what they accomplished or achieved! Don't allow time to creep in and snatch away any ounce of the positive impact that praise can have when it is delivered promptly.

9. Leadership Roles. Give your people leadership roles to reward their performance and also to help you identify future promotable people. Most people are stimulated by leadership roles even in spot appearances. For example, when visitors come to your workplace use this opportunity to allow an employee to take the role of visitors guide.

A great place to hand out leadership roles is to allow your people to lead brief meetings. Utilize your employees' strengths and skills by setting up "tune up" training sessions and let one of your employees lead the training. The best time to do this is when new people start. Or, assign a meeting leader after someone has attended an outside seminar or workshop. Have them lead a post show, briefing the other employees regarding seminar content and highlights. Have your employees help you lead a project team to improve internal processes.

10. Team Spirit. Have a picture taken on your entire staff (including you!), have it enlarged and hang it in a visible spot. Most people like to physically see themselves as part of a group or team.

When running contests in your area, try to create contests and affiliated activity that are team driven. People driving to reach goals together definitely enhance team spirit solely because they must lean upon others and be prepared to be leaned on.

One very effective idea for me has been building a collage of creative ideas with the "Team" theme. All employees are responsible for submitting a phrase referring to TEAM on a weekly rotation. Each of these ideas (such as TEAM: Total Enthusiasm of All Members or There is no I in Team) is placed on a wall, creating a collage of Team-oriented phrases. Don't have one person responsible for this...do it as a team.

11. Executive Recognition. This is the secret weapon. And like any secret weapon, timing is most critical. If this is used too often the value is diminished. And if it is used only for special occasions and rare achievements the value is escalated. We talked earlier about general recognition and the positive impact that has on your people. That will go up a few notches when it comes from an executive. Some of the same vehicles can be used here such as memos and voice mail. To add yet another level of stimulation, have an executive either personally call to congratulate someone (or a group) or even show up in person to shake hands and express his or her appreciation.

12. Social Gatherings. Scheduled offsite events enhance bonding which in turn helps team spirit, which ultimately impacts your positive work environment. Halloween costume parties, picnics on July 4th, Memorial Day or Labor Day, and Christmas parties are only some of the ideas that successfully bring people together for an enjoyable time. Some others that I've used with equal success are softball games (against other companies or among employees, depending on staff size), groups going putt-putt golfing or movie madness.

13. Casual Dress Day. This will apply more to the Business-to-Business world based on the difference in normal dress codes from the Business-to-Consumer arena. For those required to "dress business" every day a casual day becomes a popular desire. Use holidays to create theme color casual days such as red and green before Christmas or red, white and blue before July 4th, or black and orange prior to Halloween. This will add to the impact you're trying to have by calling a casual day in the first place. Establish pre-vacation casual days for each individual employee to enjoy on the day before his or her vacation.

Major sports events are a perfect opportunity for casual days to support your local or favorite team with appropriate colors, buttons, and logo wear. Spontaneous casual days produce a lot or stimulation based on the element of surprise. Announce a casual dress day for the following work day "just because." Use individual or team casual dress days as contest prizes or awards for specific accomplishment.

14. Time Off. Implement contests that earn time off. People will compete for 15 minutes or 1/2 hour off just as hard as they will for a cash award. And in many cases, I have had people pick time off over cash when given the choice. Put goals in place (padded of course) and when these goals are reached by individuals, teams or the entire staff, reward them with time off. Allow early dismissals, late arrivals, and extended lunch periods or additional breaks.

15. Outside Seminars. Outside seminars are a stimulating break. Because outside seminars are not always cost efficient for most people, consider on-site seminars or workshops for your staff. Use outside seminars as a contest prize for one or two people. Then set up a structured plan for those seminar attendees to briefly recreate the seminar to the rest of your people when they return. Now everyone gets educated for the price of one.

16. Additional Responsibility. There are definitely employees in your organization who are begging for and can handle additional responsibility. Our job as managers is to identify who they are and if possible match responsibilities to their strengths and desires.

17. Theme Contests. Over the years my contests have produced up to 170% increase in performance. But equally as important, they've helped maintain positive environments that have reduced employee turnover by 400%.

Overall the most successful contests seem to be those affiliated with different themes. Holidays, anniversaries, sports and culture are examples of ideas to base contests on. Sports, without a doubt, provide the largest opportunity for a wide variety of contests. Even Culture can be used to create theme contest. My favorite is using the '50s and '60s as a theme for a contest that I run at least once a year.

18. Stress Management. There are many articles and books available on the subject. Make this reference material available to your people. Make sure they know it is available and encourage them to use it.

If possible, have an in-house seminar on stress management techniques. So that production time is not lost, you might consider having a brown bag luncheon with a guest speaker on this subject. Because stress is an ongoing concern, anytime is a good time for a seminar like this to take place.

Be as flexible as you can with breaks during the course of the day.

19. Pizza/Popcorn/Cookie Days. Every now and then pizza, popcorn, or cookie days will help break up that everyday routine and help people stay motivated. Because it is a natural tendency for people to get excited in anticipation of something, structure some of these days in advance. Then buy some pizzas or different cookies or even whip out some different types of popcorn.

20. Gags and Gimmicks. Use different gimmicks as awards to help inspire performance increases from your people. The key to awards is establishing the perception of priceless value that is associated with them. They should be recognized as status symbols in your environment. Here are some of my ideas:

Plastic/rubber whale for "whale" of a performance.
Pillsbury dough boy for the person raisin' the most bread.
Cardboard stars for star-studded performances.
Plastic phonograph records for setting a new record.
California raisins for those with the highest percentage of "raisin" their productivity.
Special parking space for the person who drives the hardest.
Toy cymbals for those "symbolizing" total effort.
Special Mountain Dew can for that person who exemplifies the "can do" attitude.
A figurine of E.T. for out-of-this-world performance.
The Eveready Bunny for those that keep going, and going, and going.
Large Tootsie Roll replica for those on a "roll."
A drum for the person that "drums" up the most business.

Q.5. Describe the grievance handling procedure.

Answer: Maintaining quality of work life for its employees is an important concern for the any organisation. The grievance handling procedure of the organisation can affect the harmonious environment of the organisation. The grievances of the employees are related to the contract, work rule or regulation, policy or procedure, health and safety regulation, past practice, changing the cultural norms unilaterally, individual victimization, wage, bonus, etc. Here, the attitude on the part of management in their effort to understand the problems of employees and resolve the issues amicably have better probability to maintain a culture of high performance. Managers must be educated about the importance of the grievance process and their role in maintaining favorable relations with the union. Effective grievance handling is an essential part of cultivating good employee relations and running a fair, successful, and productive workplace. Positive labor relations are two-way street both sides must give a little and try to work together. Relationship building is key to successful labor relations.

Precautions and Prescriptions

The management should take care of following aspects to develop a culture of trust and confidence upon the employees.

1. Always ensure that the managers involved in the grievance handling procedures have a quiet place to meet with the complainant.

2. Always ensure that managers have adequate time to be devoted to the complainant.

3. Explain manager's role, the policy and the procedures clearly in the grievance handling procedure.

4. Fully explaining the situation to the employee to eliminate any misunderstanding and promote better acceptance of the situation complained of.

5. Try to let employee present their issues without prejudging or commenting

6. Do use a positive, friendly ways to resolve the crisis than punitive steps, which disturb the system.

7. Do remain calm, cool, collected during the course of the meeting.

8. Always focus on the subject of the grievance than allied issues.

9. Don't make threats manage the grievances.

10. Never make use of allegations against personalities.

11. Be aware of the staff member's potential concerns to the possible repercussions of raising a grievance.

12. Don't become angry, belligerent, or hostile during grievance handling procedure.

13. Do listen for the main point of arguments and any possible avenue to resolve the grievance.

14. Listen and respond sensitively to any distress exhibited by the employees.

15. Eliminating the source of the irritation or discomfort being complained of.

16. Reassure them that the managers will be acting impartially and that your hope is to resolve the matter if possible.

17. Don't "horse trade" or swap one grievance for another (where the union wins one, management wins one). Each case should be decided on its merits.

18. Avoid usage of verbosisms like "it will be taken care of."

19. Ensure effective, sensitive and confidential communication between all involved.

20. Take all possible steps to ensure that no victimization occurs as a result of the grievance being raised.

21. The investigator or decision maker acts impartially, which means they must exclude themselves if there is any bias or conflict of interest.

22. All parties are heard and those who have had complaints made against others are given an opportunity to respond.

23. Try to look upon the problem on different angles for appropriate understanding.

24. Ensuring that there is proper investigation of the facts and figures related the problem under concern.

25. Consider all relevant information in the investigation process.

26. Ask the staff member their preferred resolution option, although it is important to make it clear that this may not be a possible outcome.

27. Be aware of the limits of authority of the person who involved in the grievance handling procedures.

28. If the manager feels that he/she is not the appropriate person (senior manager) to deal with the issue refer the complainant to the appropriate person as soon as possible.

29. Try to get a better idea of whether the alleged discrimination or harassment happened or didn't happen.

30. Tell them exactly what they are supposed to have done, to whom and explain, why this may be seen as discrimination/harassment or as inappropriate.

31. Grievances are preferably to be settled informally at the level of the employee's immediate supervisor.

32. Try the level best to involve team members to resolve the crisis at unit level itself.

33. Avoid as far as possible the union involvement in conflict resolution situation process.

34. Follow documentation the procedures, of all necessary steps taken to resolve the problem/complaint.

A grievance is a sign of employee’s discontent with job and its nature. The employee has got certain aspirations and expectations which he thinks must be fulfilled by the organisation where he is working. When the organisation fails to satisfy the employee needs, he develops a feeling of discontent or dissatisfaction. Thus, grievance is caused due to the difference between the employee expectation and management practices.

Breach defines a grievances as “ any dissatisfaction or feeling of injustice in connection with one’s employment situation that is brought to the notice of the management

Jucius defines a grievance as “---- any discontent or dissatisfaction, whether exposed or not, whether valid or not, arising out of anything connected with the company which an employee thinks, believes or even feels to be unfair, unjust or inequitable.

Grievances, if they are not identified and redressed, may affect adversely the workers,managers and their organisation. The effects include:

1.On production:

Low quality of production
Low quality of production and productivity
Increase in the wastage of material, spoilage/leakage of machinery.
Increase in the cost of production per unit.

2.On employees:

Increase in the rate of absenteeism and turnover
Reduces the level of commitment, sincerity and punctuality.
Increases the incidence of accidents.
Reduces the level of employee morale.

3.On managers:

Strains the superior-subordinate relations.
Increases the degree of supervision, control and follow up.
Increases in disciplinary action cases.
Increases in unrest and, thereby, machinery to maintain industrial peace

Q.6.Write a note on types of groups.

Answer:

Types of Groups

Fern Nichols started Moms In Touch in 1984 out of a desperate desire to pray with at least one other mom for the needs of her children and their junior high school. The ministry soon flourished as other moms caught the vision of covering each school in prayer. While most MITI women are in Traditional Groups, which pray for one school, over the years we have expanded our groups to include women who pray for children from different schools, but come together regularly to pray through the Four Steps of Prayer.

In keeping with the mission of Moms In Touch International, groups which pray for children who are not students will choose a school to pray for, possibly a child’s future or previous school, or another school in the area which does not have its own MITI group. Then, during the school intercession time, the group will pray for the teachers, the administration and students at the chosen school(s).

Groups that pray for more than one school should not feel compelled to do Words and Deeds. Their love, support and encouragement for the staff is in the form of your prayers.

Group Types

Traditional: The traditional Moms In Touch group prays for a specific school.

College/University: Prayer is a special way of connecting with a college student, whether living away or remaining at home.

Career: Mothers of adult children who are no longer in school can still be praying for this important season in their child’s life.

Grandmothers: Grandmothers can pray with a group for the school their grandchildren attend or they can form a Grandmothers Group.

Church-based: Women in a local community may choose to meet together in an area church to pray for their children and the schools they attend. Several schools and all ages of children may be represented.

Children with Special Needs: Mothers who have children with special needs often pray in Traditional or Church-based Groups. However, for moms who wish to pray specifically with those who understand the uniqueness of raising a child with special needs, they can form a Special Needs Group.

Homeschool: Homeschool moms are in a unique position to pray for themselves as both teacher and mom.

Language-based: Moms who come together based on a language other than English, such as Spanish, Korean or Chinese, can register as a Language-based Group.

Military: Mothers with sons or daughters in the military may choose to pray with a Career Group or form their own Military Group.

Preschool: A Preschool Group can be a group praying for children who attend preschool, or it can be a group praying for children not yet attending school.

Prison/Jail: MITI leaders minister to moms in prison by facilitating an hour of prayer for the children these moms so desperately miss.

Prodigal: Mothers of wayward children can feel isolated and distraught. Meeting to pray with other moms can bring hope as together the children are lifted to the Lord. Moms of prodigal children can form a Prodigal Group or can pray with any relevant group type.

Working Moms: Moms who work outside the home can pray together before work, at lunch, after work or on the weekend.

MB0043 - Human Resource Management Semester-I Assignment set -I

2012-03-17T13:20:00.002+05:30

MB0043 - Human Resource Management Semester-I

Assignment set -I

Q.1.Write down the difference between personnel management and HRM ?

Answer:

Personnel management can be defined as obtaining, using and maintaining a satisfied workforce. It is a significant part of management concerned with employees at work and with their relationship within the organization.

“Personnel management is the planning, organizing, compensation, integration and maintenance of people for the purpose of contributing to organizational, individual and societal goals.”

“Personnel Management is that part which is primarily concerned with human resource of organization.”

Nature of Personnel Management

Personnel management includes the function of employment, development and compensation- These functions are performed primarily by the personnel management in consultation with other departments.
Personnel management is an extension to general management. It is concerned with promoting and stimulating competent work force to make their fullest contribution to the concern.
Personnel management exists to advice and assists the line managers in personnel matters. Therefore, personnel department is a staff department of an organization.
Personnel management lays emphasize on action rather than making lengthy schedules, plans, and work methods. The problems and grievances of people at work can be solved more effectively through rationale personnel policies.
It is based on human orientation. It tries to help the workers to develop their potential fully to the concern.
It also motivates the employees through its effective incentive plans so that the employees provide fullest co-operation.
Personnel management deals with human resources of a concern. In context to human resources, it manages both individual as well as blue- collar worker.

HRM

Human resource management (HRM, HR) is the management of an organization's employees^. This includes employment and arbitration in accord with the law, and with a company's directives.

Features of HRM

Organizational management
Personnel administration
Manpower management
Industrial management

But these traditional expressions are becoming less common for the theoretical discipline. Sometimes even employee and industrial relations are confusingly listed as synonyms, although these normally refer to the relationship between management and workers and the behavior of workers in companies.

The theoretical discipline is based primarily on the assumption that employees are individuals with varying goals and needs, and as such should not be thought of as basic business resources, such as trucks and filing cabinets.

Human Resource Management (HRM) is seen by practitioners in the field as a more innovative view of workplace management than the traditional approach. Its techniques force the managers of an enterprise to express their goals with specificity so that they can be understood and undertaken by the workforce and to provide the resources needed for them to successfully accomplish their assignments. As such, HRM techniques, when properly practiced, are expressive of the goals and operating practices of the enterprise overall. HRM is also seen by many to have a key role in risk reduction within organizations.

Personnel Management versus Human Resource Management

The view that there are more similarities than differences between personnel and HR management is shared by a number of authors. Legge, for instance, is tempted to say that there are “not a lot” differences between the two approaches, but nevertheless manages to detect some diverging aspects. These however cannot be qualified as substantial differences, but are rather a matter of emphasis and meaning. Torrington regards personnel management as a continuing process of evolution and growth, in which more and more fields of expertise are acquired and assimilated. Within this evolutionary process HRM is only adding “a further dimension to a multi-faceted role”, and is not at all a revolutionary concept. However, the effect of HRM should not be underestimated. Armstrong maintains that although the procedures and techniques strongly resemble those of personnel management, the strategic and philosophical context of HRM makes them appear more purposeful, relevant, and consequently, more effective.

On the other side, authors like Storey regard HRM as a “radically different philosophy and approach to the management of people at work”. In this view, HRM provides a completely new form of managing personnel and can therefore be regarded as a “departure from orthodoxy” of traditional personnel management. As the concept of HRM is not homogeneous but comprises different theoretical and philosophical approaches, the two main versions of HRM, namely the ‘soft’ and the ‘hard’ model, will be sketched in the following

‘Soft’ and ‘Hard’ Models of HRM

he sees personnel management caught in ambiguity as it is torn by managing the tension between organizational demands and needs of employees. The clear strategic orientation of HRM provides an “escape route from ambiguity”, because it has “sharply refocused the attention on the organizational loyalties of the personnel function.” Thus, its full organizational legitimacy may be regained.

1. Personnel management deals with employees, their payroll and employment laws. On the other hand, Human Resources Management deals with the management of the work force, and contributes to an organization’s success.

2. HRM basically deals with developing personnel management skills. It is Human Resources Management that develops a team of employees for an organization.

3. While Personnel management is considered to be reactive, Human Resources Management is stated to be proactive.

4. Personnel management focuses on administrating people or employees. On the other hand, the prime focus of Human Resources Development is to build a dynamic culture.

5. Personnel management is independent from an organization. On the contrary, Human Resources Management forms an integral part of a company or an organization.

Q.2. Write a note of scope of HR in INDIA?

Answer:

Scope of HR in India:

Contrary to these forces, in India the owner manager/government/public sector manager was an industry icon and a national hero of sorts. The Personnel Management practices were dominant of the ‘brick-and-motor’ industry. Though the approach was largely welfare oriented and reactive in nature it served effectively for the large PSU organizations that built the country’s foundation.

Its only in the past 10-12 years with the immense growth on account of the IT industry that winds of change began to blow. It was largely the advent of the Information Technology era in India that brought with it the western management practices. MNC’s (multinational companies) started up their operations in India. The FDI (foreign direct investment) went up steeply as the world saw the potential in the country’s human resources. India became a preferred location for MNC’s primarily from the USA, followed by other developed countries.

The gave birth to a new generation of management as well as HRM practices. New hiring methods, new ways of paying salaries, new employment terms and most importantly increased focus on individual performance and outcomes. There was emphasis on deliverables and linking individual and team performance to business results and success. Given the highly educated workforce there was a de-emphasis in the role of the trade unions. The era of the trade union dominance gave way to the new order of individual negotiated salaries and terms and clearly performance linked assessment systems. Another transformation that the Indian workplace witnessed was the focus on ethics and ethical practices in doing business. It was only fair to expect that with the weak legal system, it needed the support of the government policies and the corporate policies to beat the corruption that existed. This has significantly contributed to India emerging as a preferred destination for doing business.

All of this has yielded to give way to the birth of the ‘professional manager’ Professional managers today are a critical and essential part of the Indian corporate. The professional manager brought about a shift in the culture from a highly authoritarian approach of getting work done, to a more collaborative and participative approach. The entrepreneurs who earlier operated in a secure, sheltered market and hardly face challenges, were challenged by the globalization that swept in with the liberalization policies and measure brought in by the Indian government late 1995 and onwards. Despite the challenges, the Indian employee and his manager evolved. Together they stepped up to face the challenge head-on and to win not only in India but also globally. The levers of (a) low cost, (b) highly skilled, and (c) English as the medium of education and it being the corporate-language: were the key drivers that enabled the flow of global business to India. There was exponential growth in employment both directly (jobs in the international and domestic companies) as well as indirectly (as support industries like transport, catering and ancillary industries). The simultaneous investment of the government in building the necessary infrastructure did its share of providing impetus towards creating more jobs for the people of the country.

Hence, human relations movement in India has evolved very differently as compared to what we see in the developed economies of the USA and the UK. What is currently acting as a limitation is the enhanced awareness on the need for research based HRM practices. While there is a lot of work happening in the Indian education system to promote this, it is going to take a while before it can create a distinct body of knowledge that is reference able. For now the industry relies on emulating westerns HR practices and customizing on a as-needed basis for the Indian corporation. For the rest the industry forums and consortiums like the NASSCOM act as a hub bringing together organizations on a regular basis to discuss challenges and share best practices and identify ways and means o overcome them together. So far this has been successful and working to the advantage of the Indian corporate. Leading MNC research and consulting firms like Mercer and Hewitt too contribute to the industry through carrying out research and sharing reports on a regular basis. The approach however remains analytical and less prescriptive.

Q.3. Explain the critical steps in human resource planning system?

Answer:

Critical steps in Human resource planning system:

A. Purpose of Human Resource Planning: Human Resource Planning fulfils individual as well as organizational goals. What it essentially amounts to is “striking a balance” between the future human resources needs and the future enterprise needs. And this is done with the clear objective of maximizing the future return on investment in human resources. And this objective may be laid down for a short-term (i.e. for one year).

B. Estimating/Forecasting the future Manpower Requirements: the first step in the process is to arrive at the desired organizational structure at a given point in time. Mapping this structure with the existing structure helps in identifying the gap in resources requirement. The number and type of employees needed have to be determined. In addition to the structure there are a number of external factors that affect this determination. They include business forecasts, competitor strategy, expansion plans, product/skills mix changes, profit/revenue growth projections, in addition to management philosophy and government policies. This step also includes an analysis of the external labor/talent environment, its demographics, demand/supply of the required talent, and cost considerations.

C. Auditing Human Resources: Once the future human resource needs are estimated, the next step is to determine the present supply of manpower resources. This is done through what is called “Skills Inventory”. A skills inventory contains data about each employee’s skills, abilities, work preferences and other items of information which indicate his worth to the company. Skills inventory are also referred to as competency dictionaries. This information is usually retained as part of the performance management system with the HR department. This step in the HRP system helps identify the existing profile of the manpower and its efficiency. It helps highlight where the organization is vs. where it ought to be. The step concludes with identifying clear gaps in the skills/ manpower mix required to meet the upcoming business objectives.

D. Job Analysis: After having decided how many persons would be needed, it is necessary to prepare a job analysis. The recorded details of training, skills, qualification, abilities, experience and responsibilities, etc. as needed for a job are studied. Job analysis includes the preparation of job descriptions and job specifications.

E. Developing a Human Resource Plan: This step refers t the development and implementation of the human resource plan, which consists in finding out the sources of labour supply with a view to making an effective use of these sources. Some important considerations at this point are:

• Specific roles/disciplines being hired for, of them which roles are pivotal for the business

• Competencies and capabilities needed

• Manager vs. employee hiring

• Hire internally vs. External sourcing

• Planning for new skills through training existing staff vs. hiring new teams

• In case of surpluses, planning for redeployment/ reduction in workforce as required

• Succession planning for key positions in the company

Q.4. With reference to the compensation and salary system what are the systems that are helpful to raise the effectiveness of employees.

Answer: Compensation/ salary systems are designed to ensure that employees are rewarded appropriately depending on what they do and the skills and knowledge (intellect)required for doing a specific job. It must therefore provide for the following key factors in order to be effective: The following factors may be helpful to raise the effectivenessemployees:-

Signal to the employee the major objectives of the organizations- therefore it must link to the overall goals and objectives of the company. For example if doing a quality job is critical for the company its compensation system has to ensure that this is adequately rewarded. On the other hand if a company values productivity and units produces, the compensation system would be designed such that productivity is rewarded.
Attract and retain the talent an organization needs – the need to benchmark salaries to the prevalent market standard for that job / skill so that the company is able to attract the right talent. If a enterprises pays a salary lower that what the market does for that job/responsibilities, the probability that suitable candidates would take the job offer and join the company. Even if they do join subsequently when they find that the market pays more for that job they would quickly find a more remunerative job and leave the company.

Motivate employees to perform effectively – as discussed at the outset, money is a key motivator and it often might be the only motivator for most employees, therefore ensuring that compensation is appropriately disbursed need to be taken care of while designing the compensation system. Jobs in the brick and motor, production setups would focus on higher incentive policies that would motivate the employee to produce more while the base-salary would be low.

Create the type of culture the company seeks to engender – compensation systems play a critical role as sponsors for the organizations culture. A performance driven culture would build compensation policies that clearly and significantly reward performance. A company that rewards loyalty would reward employees who stay longer in the company with significantly better incentive programs.

Hence we see how compensation systems are reflective of the organizations over all philosophy of what its goals and objectives are and how this can be linked to salary payout.

Broad banding versus Competency based pay systems:

Organizations that follow a skill based or competency based pay system frequently use board banding to structure their compensation payments to employees. Broad branding simply compresses many traditional salary grades (say 15 to 20 grades) into a few wide salary bands (three or four grades). By having relatively few job grades, this approach tries to play down to play down the value of promotions. Depending on changing market conditions and organizational needs, employees move from one position to another without raising objectionable questions, (such as when the new grade is available, what pay adjustments are made when duties change etc) As a result movement of employees between departments, divisions and locations becomes smooth. Employees with greater flexibility and broader set of capabilities can always go in search of jobs in other departments, or locations that allow them to use their potential fully. Board banding further helps reduce the emphasis on hierarchy and status. However, broad banding can be a little un-setting to new recruit when he is made to roll on various jobs. Most employees still believe that the existence of many grades helps tem grab promotional opportunities over a period of time. Any organization having fewer grades may be viewed negatively — as having fewer upward promotion opportunities. Moreover a number of individuals may not want to move across the organizations into other areas.

Below versus above market compensation:

In high tech firms R&D workers might be paid better than their counterparts in the manufacturing division. Blue chip firms such as HLL, Nestle, Procter & Gamble, TCS, Hughes Software Systems might pay above market compensation to certain groups in order to attract (and retain) the cream of the crop. To grow rapidly and to get ahead of others in the race, especially in knowledge based industries most companies prefer to pay above market salaries. Above market wages are typical in well-established manufacturing units operating in a highly competitive environment. Firms paying below market tend to be small young and non-unionized.

Open versus secret pay: In real world the issue of paying compensation openly or in secret way may often become a bone of contention between employees and the employer(s). Current research evidence indicates that pay openness is likely to be more successful in organizations with extensive employee involvement and an egalitarian culture that encourages trust and commitment. Open pay eliminates doubts in the minds of employees regarding equity and fairness — because there is equal pay for equal work. But open pay has a downside. First, managers are forced to defend their compensation decisions publicly. The question of how much pay one should get is more or less decided by the manager, based on his own subjective assessment of various factors. In such decision, it is not easy to please everyone. Second, the cost of making a mistake in a pay decision increase when pay is open. Third, to avoid never ending and time wasting arguments with employees managers may eliminate pay differences among subordinates despite differences in performance levels. This may in the end force talented people to leave the organizations. Pay secrecy involves withholding information from the recruits regarding how much others make, what raises others have received and even what pay grades and ranges exist within an organizations. Pay secrecy gives managers some amount of freedom in compensation management, since pay decisions are not disclosed and there is no need to justify or defend them. Employees who do not know how much others are getting have no objective base for pursuing complaints about their own pay. Secrecy also serves to cover up inequities prevailing within the internal pay structure.

Q.5. What is competency? How it can be linked to the HR system?

Answer: If your organization has chosen this method, it means that it begins at the recruitment stage. The competencies required for the vacant positions are identified. The interview questions are based on the requirements of each job.

By taking these actions, you increase employee value as a very important asset. As described management is defined as 'achieving results through others (people).' This gives emphasis on the jobs in the organization and the employees who carry out these jobs. However, David Dubois and William Rothwell, among other writers, propose the alternative to management of the jobs and the people who perform them. They prefer concentrating on the recruitment activity and managing competencies required to perform the jobs. They believe organizations that implement competency based human resource management can respond quickly to changes. The former method concentrates on people management. The latter gives priority to managing competencies.

Types of Competencies

A competency based human resource system approach requires effective talent management in the following areas:

Functional Competencies.

These are the competencies required to perform the duties and responsibilities for each and every position. It is clear that these competencies vary from job to job.

Behavioral Competencies.

These are the types of behaviors that employees demonstrate, showing that they have the required skills and knowledge. These competencies enable employees to perform their jobs well.

Core Competencies.

These are competencies that run across functions and levels. These competencies are common for all positions. Such competencies can improve the competitive advantage of your organization.

Mike Martin gives examples of behavioral competencies such as:

communication and motivation abilities;
leadership skills;
teamwork;
decision making ability;
analytical ability, and
adaptability

Core competencies are normally selected from the most important functional and behavioral competencies such as:

leadership
change management skill
people-skill development ability
strategic planning ability
employee recruitment, motivation and retention skills

It is clear that competency based human resource system is based on the selection and management of the right competencies. And ensuring that employees including new employees possess those competencies.

Employee effectiveness is measured against the standards relevant to the industry in which your organization is engaged in. What is lacking is referred to as a 'competency gap.'

Your objective is to address the competency gap or gaps by providing the right training and development programs.

Competency Based Human Resource System and Competency-Based Training

In competency based human resource management; the emphasis is on behavioral approach and performance.

It is closely connected to HR talent management. Here, 'HR' refers to every member of the entire workforce, not just people in Human Resource departments.

Competency based training is training intended to improve employee competence or to equip them with new competencies required in the effective performance of jobs. This includes the needs of the organization as it responds to changes in a dynamic environment. It is a continuous activity. This is vital in maintaining your organization's competitive edge. Training can improve competence required by people at the various levels in the organization's hierarchy and every area of tactical and operational activities, such as:

individual employees in their personal mastery of their time, their jobs and relationships
heads of Unit especially in intra-group management
team leaders in inter-group management
departmental and business unit heads in the functional management of their respective area of operations
senior management especially the CEO in the industry's management especially effective leadership skills
heads of global organizations in global and diversity management

Competence and Service Excellence

Competent people assist your organization in attaining service excellence. Excellent service is a pre-condition for organizational success. And success means positive financial outcomes and / or organizational survival. A competency based human resource system is considered as one of the approaches in human resource management. Ensure that this strategy is aligned to your organization's objectives.

Other Areas of Application

Apart from recruitment and the selection process, a competency based human resource system will require the same approach in rewards management, succession planning and employee transfer. There are institutions of learning that offer courses in competency-based human resource management.

Q.7. “Dynamic Learning” is an organization that wants to revise the HR policies. It has conducted a survey and the results of survey indicated that there is employee unrest, tardiness, absenteeism, more grievances. This all clearly indicates low morale. Suggest the measures that can be taken to improve employee morale.

Answer: Morale boosters can take the form of recognition, compensation, special perks or simply terminating employees. Here are 11 low cost morale boosters. Employee morale improves when staff feel they are valued. Share and implement their innovations and ideas.

Keep Score: Mount a large score board in the office to recognize top performers and to motivate those on the bottom of the list.

Inspect: The old management adage, inspect what you expect is true. Companies with a lack of focus can confuse staff and lead to less morale.

Thank You Notes: Send a special thank you letter to you staff’s family or spouse, praising their good work and efforts.

Huddle: Have a daily morning huddle to highlights tasks for the day and to cheer yesterday’s wins.

Open Up: Provide an open forum or one-on-one time to allow employees to express their concerns and feelings can be an easy means to boost morale.

Have Fun: Special events and outside work activities can take the pressure off the day-to-day grind in the office.

Show Charity: Get your staff involved in a bigger cause to help them see there is more to life than work.

Add Perks: Use low cost perks such as a Foosball table in the lunch room.

Fire Staff: Sometimes the root cause of low employee morale can be a staff member whose negativity brings down the group. Even a top performer can bring down staff behind your back.

Measure it: Keep tabs on the levels of morale in your business by regularly measuring employee satisfaction. the backbone of business success resides in the productivity and output of your employees. Those companies who remain vigilant to the signs of low morale and who focus on improving morale can thwart off the impact of a low morale workplace.Compensation/ salary systems are designed to ensure that employees are rewarded appropriately depending on what they do and the skills and knowledge (intellect) required for doing a specific job. It must therefore provide for the following key factors in order to be effective:

The following factors may be helpful to raise the effectiveness employees:-

• Signal to the employee the major objectives of the organizations- therefore it must link to the overall goals and objectives of the company. For example if doing a quality job is critical for the company its compensation system has to ensure that this is adequately rewarded. On the other hand if company values productivity and units produces, the compensation system would be designed such that productivity is rewarded.

• Attract and retain the talent an organization needs – the need to benchmark salaries to the prevalent market standard for that job / skill so that the company is able to attract the right talent. If a enterprises pays a salary lower that what the market does for that job/responsibilities, the probability that suitable candidates would take the job offer and join the company. Even if they do join subsequently when they find that the market pays more for that job they would quickly find a more remunerative job and leave the company.

• Motivate employees to perform effectively – as discussed at the outset, money is a key motivator and it often might be the only motivator for most employees, therefore ensuring that compensation is appropriately disbursed need to be taken care of while designing the compensation system. Jobs in the brick and motor, production setups would focus on higher incentive policies that would motivate the employee to produce more while the base-salary would be low.

• Create the type of culture the company seeks to engender – compensation systems play a critical role as sponsors for the organizations culture. A performance driven culture would build compensation policies that clearly and significantly reward performance. A company that rewards loyalty would reward employees who stay longer in the company with significantly better incentive programs.

Hence we see how compensation systems are reflective of the organizations over all philosophy of what its goals and objectives are and how this can be linked to salary payout.

MB0042 - Managerial Economics Semester – I Assignment Set-2

2012-03-17T13:19:00.000+05:30

MB0042 - Managerial Economics Semester – I

Assignment Set-2

Q.1. Income elasticity of demand has various applications. Explain each application with the help of an example.

Answer:

Income elasticity of demand may be defined as the ratio or proportionate change in the quantity demanded of a commodity to a given proportionate change in the income. In short, it indicates the extent to which demand changes with a variation in consumer’s income. The following formula helps to measure Ey.

Original demand = 400 units Original Income = 4000-00

New demand = 700 units New Income = 6000-00

Generally speaking, Ey is positive. This is because there is a direct relationship between income and demand, i.e. higher the income; higher would be the demand and vice-versa. On the basis of the numerical value of the co-efficient, Ey is classified as greater than one, less than one, equal to one, equal to zero, and negative. The concept of Ey helps us in classifying commodities into different categories.

1. When Ey is positive, the commodity is normal [used in day-to-day life]

2. When Ey is negative, the commodity is inferior. For example Jowar, beedi etc.

3. When Ey is positive and greater than one, the commodity is luxury.

4. When Ey is positive, but less than one, the commodity is essential.

5. When Ey is zero, the commodity is neutral e.g. salt, match box etc.

Practical application of income elasticity of demand

1. Helps in determining the rate of growth of the firm.

If the growth rate of the economy and income growth of the people is reasonably forecasted, in that case it is possible to predict expected increase in the sales of a firm and vice-versa.

2. Helps in the demand forecasting of a firm.

It can be used in estimating future demand provided the rate of increase in income and Ey for the products are known. Thus, it helps in demand forecasting activities of a firm.

3. Helps in production planning and marketing

The knowledge of Ey is essential for production planning, formulating marketing strategy, deciding advertising expenditure and nature of distribution channel etc in the long run.

4. Helps in ensuring stability in production

Proper estimation of different degrees of income elasticity of demand for different types of products helps in avoiding over-production or under production of a firm. One should also know whether rise or fall in income is permanent or temporary.

5. Helps in estimating construction of houses

The rate of growth in incomes of the people also helps in housing programs in a country. Thus, it helps a lot in managerial decisions of a firm.

Cross Elasticity of Demand

It may be defined as the proportionate change in the quantity demanded of a particular commodity in response to a change in the price of another related commodity. In the words of Prof. Watson cross elasticity of demand is the percentage change in quantity associated with a percentage change in the price of related goods. Generally speaking, it arises in case of substitutes and complements. The formula for calculating cross elasticity of demand is as follows.

Ec =

Symbolically Ec =

Price of Tea rises from Rs. 4-00 to 6 -00 per cup

Demand for coffee rises from 50 cups to 80 cups.

Cross elasticity of coffee in this case is 1.6.

It is to be noted that –

1. Cross elasticity of demand is positive in case of good substitutes e.g. coffee and tea.

2. High cross elasticity of demand exists for those commodities which are close substitutes. In other words, if commodities are perfect substitutes For example Bata or Corona Shoes, close up or pepsodent tooth paste, Beans and ladies finger, Pepsi and coca cola etc.

3. The cross elasticity is zero when commodities are independent of each other. For example, stainless steel, aluminum vessels etc.

4. Cross elasticity between two goods is negative when they are complementaries. In these cases, rise in the price of one will lead to fall in the quantity demanded of another commodity For example, car and petrol, pen and ink.etc.

Q.2. When the opinion survey method used and what is is the effectiveness of the method.

Answer:

Survey Methods;

Survey methods help us in obtaining information about the future purchase plans of potential buyers through collecting the opinions of experts or by interviewing the consumers. These methods are extensively used in short run and estimating the demand for new products. There are different approaches under survey methods. They are

Consumers’ interview method:

Under this method, efforts are made to collect the relevant information directly from the consumers with regard to their future purchase plans. In order to gather information from consumers, a number of alternative techniques are developed from time to time. Among them, the following are some of the important ones.

a) Survey of buyer’s intentions or preferences: It is one of the oldest methods of demand forecasting. It is also called “Opinion surveys”.

Under this method, consumer-buyers are requested to indicate their preferences and willingness about particular products. They are asked to reveal their ‘future purchase plans with respect to specific items. They are expected to give answers to questions like what items they intend to buy, in what quantity, why, where, when, what quality they expect, how much money they are planning to spend etc. Generally, the field survey is conducted by the marketing research department of the company or hiring the services of outside research organizations consisting of learned and highly qualified professionals.

The heart of the survey is questionnaire. It is a comprehensive one covering almost all questions either directly or indirectly in a most intelligent manner. It is prepared by an expert body who are specialists in the field or marketing.

The questionnaire is distributed among the consumer buyers either through mail or in person by the company. Consumers are requested to furnish all relevant and correct information.

The next step is to collect the questionnaire from the consumers for the purpose of evaluation. The materials collected will be classified, edited analyzed. If any bias prejudices, exaggerations, artificial or excess demand creation etc., are found at the time of answering they would be eliminated.

The information so collected will now be consolidated and reviewed by the top executives with lot of experience. It will be examined thoroughly. Inferences are drawn and conclusions are arrived at. Finally a report is prepared and submitted to management for taking final decisions.

The success of the survey method depends on many factors:

1) The nature of the questions asked,

2) The ability of the surveyed

3) The representative of the samples

4) Nature of the product

5) Characteristics of the market

6) consumer-buyers behavior, their intentions, attitudes, thoughts, motives, honesty etc.

7) Techniques of analysis conclusions drawn etc.

The management should not entirely depend on the results of survey reports to project future demand. Consumer buyers may not express their honest and real views and as such they may give only the broad trends in the market. In order to arrive at right conclusions, field surveys should be regularly checked and supervised.

This method is simple and useful to the producers who produce goods in bulk. Here the burden of forecasting is put on customers.

However this method is not much useful in estimating the future demand of the households as they run in large numbers and also do not freely express their future demand requirements. It is expensive and also difficult. Preparation of a questionnaire is not an easy task. At best it can be used for short term forecasting.

Q.3. Show how price is determined by the forces of demand and supply, by using forces of equilibrium.

Answer:

Equilibrium between demand and supply price:

Equilibrium between demand and supply price is obtained by the interaction of these two forces. Price is an independent variable. Demand and supply are dependent variables. They depend on price. Demand varies inversely with price, a rise in price causes a fall in demand and a fall in price causes a rise in demand. Thus the demand curve will have a downward slope indicating the expansion of demand with a fall in price and contraction of demand with a rise in price. On the other hand supply varies directly with the changes in price, a rise in price causes a rise in supply and a fall in price causes a fall in supply. Thus the supply curve will have an upward slope. At a point where these two curves intersect with each other the equilibrium price is established. At this price quantity demanded equals the quantity supplied. This we can explain with the help of a table and a diagram.

Price in Rs	Demand in Units	Supply in Units	State Of Market	Pressure on price
30	5	25	D>S	P ¯
25	10	20	D>S	P ¯
20	15	15	D=S	Neutral
10	20	10	S>D	P
5	30	5	S>D	P ¯

In the table at Rs. 20 the quantity demanded is equal to the quantity supplied. Since this price is agreeable to both the buyers and the sellers, there will be no tendency for it to change; this is called the equilibrium price. Suppose the price falls to Rs.5 the buyers will demand 30 units while the sellers will supply only 5 units. Excess of demand over supply pushes the price upwards until it reaches the equilibrium position where supply is equal to demand. On the other hand if the price rises to Rs. 30 the buyers will demand only 5 units while the sellers are ready to supply 25 units. Sellers compete with each other to sell more units of the commodity. Excess of supply over demand pushes the price downwards until it reaches the equilibrium. This process will continue till the equilibrium price of Rs. 20 is reached. Thus the interactions of supply and demand forces acting upon each other restore the equilibrium position in the market.

In the diagram DD is the demand curve, SS is the supply curve. Demand and supply are in equilibrium at point E where the two curves intersect each other. OQ is the equilibrium output. OP is the equilibrium price. Suppose the price is higher than the equilibrium price i.e. OP2. At this price quantity demanded is P2 D2, while the quantity supplied is P2 S2. Thus D2 S2 is the excess supply which the sellers want to push off in the market, competition among sellers will bring down the price to the equilibrium level where the supply is just equal to the demand. At price OP1, the buyers will demand P1D1 quantity while the sellers are prepared to sell P1S1. Demand exceeds supply. Excess demand for goods pushes up the price; this process will go on until the equilibrium is reached where supply becomes equal to demand.

Changes in Market Equilibrium

The changes in equilibrium price will occur when there will be shift either in demand curve or in supply curve or both:

Effects of Shift in demand

Demand changes when there is a change in the determinants of demand like the income, tastes, prices of substitutes and complements, size of the population etc. If demand raises due to a change in any one of these conditions the demand curve shifts upward to the right. If, on the other hand, demand falls, the demand curve shifts downward to the left. Such rise and fall in demand are referred to as increase and decrease in demand.

A change in the market equilibrium caused by the shifts in demand can be explained with the help of a diagram.

Effects of Changes in Both Demand and Supply

Changes can occur in both demand and supply conditions. The effects of such changes on the market equilibrium depend on the rate of change in the two variables. If the rate of change in demand is matched with the rate of change in supply there will be no change in the market equilibrium, the new equilibrium shows expanded market with increased quantity of both supply and demand at the same price.

This is made clear from the diagram below:

Similar will be the effects when the decrease in demand is greater than the decrease in supply on the market equilibrium.

Q.4. Distinguish between fixed cost and variable cost using an example.

Answer.

1. Fixed costs

These costs are incurred on fixed factors like land, buildings, equipments, plants, superior type of labor, top management etc. Fixed costs in the short run remain constant because the firm does not change the size of plant and the amount of fixed factors employed. Fixed costs do not vary with either expansion or contraction in output. These costs are to be incurred by a firm even output is zero. Even if the firm close down its operation for some time temporarily in the short run, but remains in business, these costs have to be borne by it. Hence, these costs are independent of output and are referred to as unavoidable contractual cost.

Prof. Marshall called fixed costs as supplementary costs. They include such items as contractual rent payment, interest on capital borrowed, insurance premiums, depreciation and maintenance allowances, administrative expenses like manager’s salary or salary of the permanent staff, property and business taxes, license fees, etc. They are called as over-head costs because these costs are to be incurred whether there is production or not. These costs are to be distributed on each unit of output produced by a firm. Hence, they are called as indirect costs.

2. Variable costs

The cost corresponding to variable factors are discussed as variable costs. These costs are incurred on raw materials, ordinary labor, transport, power, fuel, water etc, which directly vary in the short run. Variable costs directly and proportionately increase or decrease with the level of output. If a firm shuts down for some time in the short run; then it will not use the variable factors of production and will not therefore incur any variable costs. Variable costs are incurred only when some amount of output is produced. Total variable costs increase with increase in the level of production and vice-versa. Prof. Marshall called variable costs as prime costs or direct costs because the volume of output produced by a firm depends directly upon them.

It is clear from the above description that production costs consist of both fixed as well as variable costs. The difference between the two is meaningful and relevant only in the short run. In the long run all costs become variable because all factors of production become adjustable and variable in the long run.

However, the distinction between fixed and variable costs is very significant in the short run because it influences the average cost behavior of the firm. In the short run, even if a firm wants to close down its operation but wants to remain in business, it will have to incur fixed costs but it must cover at least its variable costs.

1. Total fixed cost (TFC)

TFC refers to total money expenses incurred on fixed inputs like plant, machinery, tools & equipments in the short run. Total fixed cost corresponds to the fixed inputs in the short run production function. TFC remains the same at all levels of output in the short run. It is the same when output is nil. It indicates that whatever may be the quantity of output, whether 1 to 6 units, TFC remains constant. The TFC curve is horizontal and parallel to OX-axis, showing that it is constant regardless of out put per unit of time. TFC starts from a point on Y-axis indicating that the total fixed cost will be incurred even if the output is zero. In our example, Rs 360=00 is TFC. It is obtained by summing up the product or quantities of the fixed factors multiplied by their respective unit price.

2. Total variable cost (TVC)

TVC refers to total money expenses incurred on the variable factor inputs like raw materials, power, fuel, water, transport and communication etc, in the short run. Total variable cost corresponds to variable inputs in the short run production function. It is obtained by summing up the production of quantities of variable inputs multiplied by their prices. The formula to calculate TVC is as follows. TVC = TC-TFC. TVC = f (Q) i.e. TVC is an increasing function of out put. In other words TVC varies with output. It is nil, if there is no production. Thus, it is a direct cost of output. TVC rises sharply in the beginning, gradually in the middle and sharply at the end in accordance with the law of variable proportion. The law of variable proportion explains that in the beginning to obtain a given quantity of output, relative variation in variable factors-needed are in less proportion, but after a point when the diminishing returns operate, variable factors are to be employed in a larger proportion to increase the same level of output.

TVC curve slope upwards from left to right. TVC curve rises as output is expanded. When out put is Zero, TVC also will be zero. Hence, the TVC curve starts from the origin.

Q.5. Discuss Marris Growth Maximization model and show how it is different from the Sales maximization model

Answer.

Marris Growth Maximization Model

Profit-maximization is a traditional objective of a firm. Sales maximization objective is explained by Prof. Boumal. On similar lines, Prof. Marris has developed another alternative growth maximization model in recent years. It is a common factor to observe that each firm aims at maximizing its growth rate as this goal would answer many of the objectives of a firm. Marris points out that a firm has to maximize its balanced growth rate over a period of time.

Marris assumes that the ownership and control of the firm is in the hands of two groups of people, ie, owners and managers. He further points out that both of them have two distinctive goals. Managers have a utility function in which the amount of salary, status, position, power, prestige and security of job etc are the most important variables where as in case of owners are more concerned about the size of output, volume of profits, market share and sales maximization etc.

Utility function of the managers and that the owners are expressed in the following manner –

Uo = f [size of output, market share, volume of profit, capital, public esteem etc.]

Um = f [salaries, power, status, prestige, job security etc.].

In view of Marris the realization of these two functions would depend on the size of the firm. Larger the firm, greater would be the realization of these functions and vice-versa. Size of the firm according to Marris depends on the amount of corporate capital which includes total volume of assets, inventory levels, cash reserves etc. He further points out that the managers always aim at maximizing the rate of growth of the firm rather than growth in absolute size of the firm. Generally managers like to stay in a growing firm. Higher growth rate of the firm satisfy the promotional opportunities of managers and also the share holders as they get more dividends.

Marris identifies two constraints in the rate of growth of a firm:

1. There is a limit up to which output of a firm can be increased more economically, limit to manage the firm efficiently, limit to employ highly qualified and experienced managers, limit to research and development and innovation etc.

2. The ambition of job security puts a limit to the growth rate of the firm itself deliberately. If growth reaches the maximum, then there would be no opportunity to expand further and as such the managers may loose their jobs. Rapid growth and financial soundness should go together. Managers hesitate to take unwanted risks and uncertainties in the organization at the cost of their jobs They would like to avoid risky investment projects, concentrate on generating more internal funds and invest more finance on only those products and services which brings more profits Hence, managers would like to seek their job security through adoption of a cautious and prudent financial policy.

He further points out that a high risk-loving management would like to maintain a relatively low amount of cash on hand and invest more on business, borrow more external funds and invest more in business expansion and keep low profit levels. On the other hand, a highly risk-averting management may have exactly opposite policy. Ultimately, it is the job security which puts a constraint on business decisions by the managers.

The Marris growth maximization model. highlights on achieving a balanced growth rate of a firm. Maximum growth rate [g] is equal to two important variables-

1. The rate of demand for the products [gd]

2. Growth rate of capital[gc]

Hence, Max g = gd = gc.

The growth rate of the firm depends on two factors- a] the rate of diversification [d]and b] the average profit margin.

The diversification rate depends on the number of new products introduced per unit of time and the rate of success of new products in the market. The success of new products is determined by its changes in fashion styles, consumption habits, the range of products offered etc. More over diminishing marginal returns would operate in any business and as such there is a limit to diversification. Similarly, market price of the given product, availability of alternative substitute products and their relative prices, publicity, propaganda and advertisements, R&D expenses and utility and comparative value of the product etc would decide the profit ratio. Higher expenditure on sales promotion and R&D would certainly reduce profits level as there are limits to them.

The rate of capital growth is determined by either issue of new shares to obtain additional funds and external funds and generation of more internal surplus. Generally a firm would select the last one to avoid higher degrees of risks in the business.

The Marris model states that in order to maximize balanced growth rate or reach equilibrium position, there should be equality between the growth rate in demand for the products and growth rate in supply of capital. This implies the satisfaction of three conditions.

1. The management has to maintain a low liquidity ratio, ie, liquid asset / total assets. But this ratio should not create any financial embarrassment to meet the required payments to all the concerned parties.

2. The management has to maintain a proper leverage ratio between value of debts/Total assets so that it will have enough money to invest in order to stimulate growth.

3. The management has to keep a high level of retained profits for further expansion and development but it should not displease the shareholders i.e. by giving low dividends.

In this case, the mangers would maximize their utility function and the owners would maximize their utility functions. The managers are able to get their job security with a high rate of growth of the firm and share holder would become happy as they get higher amount of dividends.

Demerits

1. It is doubtful whether both managers and owners would maximize their utility functions simultaneously always

2. The assumption of constant price and production costs are not correct.

3. It is difficult to achieve both growth maximization and profit maximization together.

Q.6. Explain how fiscal policy is used to achieve economics stability.

Answer:

Fiscal policy:

During the period of inflation or uptrend in the economy, when the private enterprise is over enthusiastic and there is over expansion and over production government can use taxation and licensing policy as very effective instruments to check such unwieldy growth. Price control measures can be adopted. Government should adopt surplus budget, reduce public expenditure and resort to public borrowing. The cumulative result of these measures would reduce the supply of money in circulation, purchasing power and demand.

On the contrary, during the period of depression government should adopt deficit budget, Increase the volume of public expenditure, redeem public debt and resort to external borrowings, indulge in a moderate dose of deficit financing, reduce tax rates, grant subsidies, development rebates, tax-concessions, tax-relief’s and freight concessions etc. As a result of these measures, supply of money in circulation will increase. This in its turn would raise the purchasing power, demand for goods and services, production and employment etc. J.M. Keynes recommended a number of public works programmes to be launched by the government to cure depression. The New Deal policy of President Roosevelt in the U.S.A. and Blum experiment in France were based on this very belief.

Fiscal Measures

The following are some of the important anti-inflationary fiscal measures: -

1. Reduction in the volume of public expenditure.

2. Rise in the levels of taxes, introduction of new taxes and bringing more people under the coverage of taxes.

3. More internal borrowings by public authorities.

4. Postponing the repayment of debt to people.

5. Control on the volume of deficit financing.

6. Preparation of a surplus budget.

7. Introduction of compulsory deposit schemes.

8. Incentive to savings.

9. Diverting the public expenditure towards the projects where the time gap between investment and production is least, (small gestation period).

10. Tariffs should be reduced to increase imports and thus allow a part of the increased domestic money income to ‘leak-out’.

11. Inducing wage earners to buy voluntarily Govt., bonds and securities etc.

12. Thus, Fiscal measures succeed to a greater extent to contain inflation in its own way.

MB0042 – Managerial Economics Semester - I Assignment Set-I

2012-03-17T13:17:00.001+05:30

MB0042 – Managerial Economics Semester - I

Assignment Set-I

Q1. Price elasticity of demand depends on various factors. Explain each factor with the help of an example.

Answer.

Elasticity of Demand:

Earlier we have discussed the law of demand and its determinants. It tells us only the direction of change in price and quantity demanded. But it does not specify how much more is purchased when price falls or how much less is bought when price rises. In order to understand the quantitative changes or rate of changes in price and demand, we have to study the concept of elasticity of demand.

Meaning and Definition

The term elasticity is borrowed from physics. It shows the reaction of one variable with respect to a change in other variables on which it is dependent. Elasticity is an index of reaction.

In economics the term elasticity refers to a ratio of the relative changes in two quantities. It measures the responsiveness of one variable to the changes in another variable.

Elasticity of demand is generally defined as the responsiveness or sensitiveness of demand to a given change in the price of a commodity. It refers to the capacity of demand either to stretch or shrink to a given change in price. Elasticity of demand indicates a ratio of relative changes in two quantities.ie, price and demand. According to prof. Boulding. “Elasticity of demand measures the responsiveness of demand to changes in price” 1 In the words of Marshall,” The elasticity (or responsiveness) of demand in a market is great or small according to the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price” 2.

Kinds of elasticity of demand

Broadly speaking there are five kinds of elasticity of demand.

They are Price Elasticity, Income Elasticity, Cross Elasticity, Promotional Elasticity and Substitution Elasticity. We shall discuss each one of them in some detail.

Price Elasticity of Demand

In the words of Prof. Stonier and Hague, price elasticity of demand is a technical term used by economists to explain the degree of responsiveness of the demand for a product to a change in its price.

where Ep is price elasticity

It implies that at the present level with every change in price, there will be a change in demand four times inversely. Generally the co-efficient of price elasticity of demand always holds a negative sign because there is an inverse relation between the price and quantity demanded.

Symbolically Ep =

Original demand = 20 units original price = 6 – 00

New demand = 60 units New price = 4 – 00

In the above example, price elasticity is – 6.

The rate of change in demand may not always be proportionate to the change in price. A small change in price may lead to very great change in demand or a big change in price may not lead to a great change in demand. Based on numerical values of the co-efficient of elasticity, we can have the following five degrees of price elasticity of demand.

Different Degree of Price Elasticity of Demand

1. Perfectly Elastic Demand: In this case, a very small change in price leads to an infinite change in demand. The demand curve is a horizontal line and parallel to OX axis. The numerical co-efficient of perfectly elastic demand is infinity (ED=)

Perfectly Inelastic Demand: In this case, what ever may be the change in price, quantity demanded will remain perfectly constant. The demand curve is a vertical straight line and parallel to OY axis. Quantity demanded would be 10 units, irrespective of price changes from Rs. 10.00 to Rs. 2.00. Hence, the numerical co-efficient of perfectly inelastic demand is zero. ED = 0

Relative Elastic Demand: In this case, a slight change in price leads to more than proportionate change in demand. One can notice here that a change in demand is more than that of change in price. Hence, the elasticity is greater than one. For e.g., price falls by 3 % and demand rises by 9 %. Hence, the numerical co-efficient of demand is greater than one.

Relatively Inelastic Demand: In this case, a large change in price, say 8 % fall price, leads to less than proportionate change in demand, say 4 % rise in demand. One can notice here that change in demand is less than that of change in price. This can be represented by a steeper demand curve. Hence, elasticity is less than one.

In all economic discussion, relatively elastic demand is generally called as ‘elastic demand’ or ‘more elastic’ demand while relatively inelastic demand is popularly known as ‘inelastic demand’ or ‘less elastic demand’.

5. Unitary elastic demand: In this case, proportionate change in price leads to equal proportionate change in demand. For e.g., 5 % fall in price leads to exactly 5 % increase in demand. Hence, elasticity is equal to unity. It is possible to come across unitary elastic demand but it is a rare phenomenon.

Out of five different degrees, the first two are theoretical and the last one is a rare possibility. Hence, in all our general discussion, we make reference only to two terms-relatively elastic demand and relatively inelastic demand.

Q.2. A company is selling a particular brand of tea and wishes to introduce a new flavor. How will the company forecast demand for it.

Answer.

Demand Forecasting for a New Product

Demand forecasting for new products is quite different from that for established products. Here the firms will not have any past experience or past data for this purpose. An intensive study of the economic and competitive characteristics of the product should be made to make efficient forecasts.

a) Evolutionary approach

The demand for the new product may be considered as an outgrowth of an existing product. For e.g., Demand for new Taj Tea, which is a modified version of Taj Tea can most effectively be projected based on the sales of the old Tea, the demand for new Taj Tea can be forecasted based on the a sales of the old Taj Tea. Thus when a new product is evolved from the old product, the demand conditions of the old product can be taken as a basis for forecasting the demand for the new product.

b) Substitute approach

If the new product developed serves as substitute for the existing product, the demand for the new product may be worked out on the basis of a ‘market share’. The growths of demand for all the products have to be worked out on the basis of intelligent forecasts for independent variables that influence the demand for the substitutes. After that, a portion of the market can be sliced out for the new product. For e.g., A moped as a substitute for a scooter, a cell phone as a substitute for a land line. In some cases price plays an important role in shaping future demand for the product.

c) Opinion Poll approach

Under this approach the potential buyers are directly contacted, or through the use of samples of the new product and their responses are found out. These are finally blown up to forecast the demand for the new product.

d) Sales experience approach

Offer the new product for sale in a sample market; say supermarkets or big bazaars in big cities, which are also big marketing centers. The product may be offered for sale through one super market and the estimate of sales obtained may be ‘blown up’ to arrive at estimated demand for the product.

e) Growth Curve approach

According to this, the rate of growth and the ultimate level of demand for the new product are estimated on the basis of the pattern of growth of established products. For e.g., An Automobile Co., while introducing a new version of a car will study the level of demand for the existing car.

f) Vicarious approach

A firm will survey consumers’ reactions to a new product indirectly through getting in touch with some specialized and informed dealers who have good knowledge about the market, about the different varieties of the product already available in the market, the consumers’ preferences etc. This helps in making a more efficient estimation of future demand.

These methods are not mutually exclusive. The management can use a combination of several of them, supplement and cross check each other.

Activity: The construction industry registers the changes in the demand for various products required in the industry more visibly. Identify changes in demand for housing and trace the changes in demand for steel, cement etc during the same period.

Q.3. The supply of a product depends on the price. What are the other factors that will affect the supply of a product.

Answer.:

Determinants of Supply

Apart from price, many factors bring about changes in supply. Among them the important factors are:

1. Natural factors: Favorable natural factors like good climatic conditions, timely, adequate, well distributed rainfall results in higher production and expansion in supply. On the other hand, adverse factors like bad weather conditions, earthquakes, droughts, untimely, ill-distributed, inadequate rainfall, pests etc., may cause decline in production and contraction in supply.

2. Change in techniques of production: An improvement in techniques of production and use of modern, highly sophisticated machines and equipments will go a long way in raising the output and expansion in supply. On the contrary, primitive techniques are responsible for lower output and hence lower supply.

3. Cost of production: Given the market price of a product, if the cost of production rises due to higher wages, interest and price of inputs, supply decreases. If the cost of production falls, on account of lower wages, interest and price of inputs, supply rises.

4. Prices of related goods: If prices of related goods fall, the seller of a given commodity offer more units in the market even though, the price of his product has not gone up. Opposite will be the case when the price of related goods rises.

5. Government policy: When the government follows a positive policy, it encourages production in the private sector. Consequently, supply expands. For example granting of subsidies, development rebates, tax concession, etc,. On the other hand, output and supply cripples when the government adopts a negative policy. For example withdrawal of all concessions and incentives, imposition of high taxes, introduction of controls and quota system etc.

6. Monopoly power: Supply tends to be low, when the market is controlled by monopolists, or a few sellers as in the case of oligopoly. Generally supply would be more under competitive conditions.

7. Number of sellers or firms: Supply would be more when there are a large number of sellers. Similarly production and supply tends to be more when production is organized on large scale basis. If rate or speed of production is high, supply expands. Opposite will be the case when number of sellers is less, small scale production and low rate of production.

8. Complementary goods: In case of joint demand, the production & sale of one product may lead to production and sale of other product also.

9. Discovery of new source of inputs: Discovery of new sources of inputs helps the producers to supply more at the same price & vice-versa.

10. Improvements in transport and communication: This will facilitate free and quick movements of goods and services from production centers to marketing centers.

11. Future rise in prices: When sellers anticipate a further rise in price, in that case current supply tends to fall. Opposite will be the case when, the seller expect a fall in price.

Thus, many factors influence the supply of a product in the market. A firm should have a thorough knowledge of all these factors because it helps in preparing its production plan and sales strategy.

The other factor that will affect the supply of a product are:

1. Time period

Time has a greater influence on elasticity of supply than on demand. Generally supply tends to be inelastic in the short run because time available to organize and adjust supply to demand is insufficient. Supply would be more elastic in the long run.

2. Availability and mobility of factors of production

When factors of production are available in plenty and freely mobile from one occupation to another, supply tends to be elastic and vice – versa.

3. Technological improvements

Modern methods of production expand output and hence supply tends to be elastic. Old methods reduce output and supply tends to be inelastic.

4. Cost of production

If cost of production rises rapidly as output expands, then there will not be much incentive to increase output as the extra benefit will be choked off by the increase in cost. Hence supply tends to be inelastic and vice-versa.

5. Kinds and nature of markets

If the seller is selling his product in different markets, supply tends to be elastic in any one of the market because, a fall in the price in one market will induce him to sell in another market. Again, if he is producing several types of goods and can switch over easily from one to another, then each of his products will be elastic in supply.

6. Political conditions

Political conditions may disrupt production of a product. In that case, supply tends to become inelastic.

7. Number of sellers

Supply tends to become more elastic if there are more sellers freely selling their products and vice-versa.

8. Prices of related goods

A firm can charge a higher price for its products, if prices of other products are higher and vice-versa.

9. Goals of the firm

If the seller is happy with small output, supply tends to be inelastic and vice-versa.

Thus, several factors influence the elasticity of supply.

Q.4. Show how producers’ equilibrium is achieved with isoquants and isocost curves.

Answer.

PRODUCERS EQUILIBRIUM (Optimum factor combination or least cost combination).: The optimal combination of factor inputs may help in either minimizing cost for a given level of output or maximizing output with a given amount of investment expenditure. In order to explain producer’s equilibrium, we have to integrate Iso-quant curve with that of Iso-cost line. Iso-product curve represent different alternative possible combinations of two factor inputs with the help of which a given level of output can be produced. On the other hand, Iso-cost line shows the total outlay of the producer and the prices of factors of production.

The intention of the producer is to maximize his profits. Profits can be maximized when he is producing maximum output with minimum production cost. Hence, the producer selects the least cost combination of the factor inputs. Maximum output with minimum cost is possible only when he reaches the position of equilibrium. The position of equilibrium is indicated at the point where Iso-Quant curve is tangential to Iso-Cost line. The following diagram explains how the producer reaches the position of equilibrium.

It is quite clear from the diagram that the producer will reach the position of equilibrium at the point E where the Iso-quant curve IQ and Iso-cost line AB is tangent to each other. With a given total out lay of Rs. 5,000 the producer will be producing the highest output, i.e. 500 units by employing 25 units of factors X and 50 units of factor Y. (assuming Rs. 2,500 each is spent on X and Y)

The price of one unit of factor X is Rs.100-00 and that of Y is Rs. 50-00.. Rs.100 x 25 units of 2500 – 00 and Rs. 50 x 50 units of Y = 2500 – 00. He will not reach the position of equilibrium either at the point E1 and E2 because they are on a higher Iso-cost line. Similarly, he cannot move to the left side of E, because they are on a lower Iso-Cost line and he will not be able to produce 500 units of output by any combinations which lie to the left of E.

Thus, the point at which the Iso-Quant is tangent to the Iso-Cost line represents the minimum cost or optimum factor combination for producing a given level of output. At this point, MRTS between the two points is equal to the ratio between the prices of the inputs.

ISO-Quants and ISO-Costs

The prime concern of a firm is to workout the cheapest factor combinations to produce a given quantity of output. There are a large number of alternative combinations of factor inputs which can produce a given quantity of output for a given amount of investment. Hence, a producer has to select the most economical combination out of them. Iso-product curve is a technique developed in recent years to show the equilibrium of a producer with two variable factor inputs. It is a parallel concept to the indifference curve in the theory of consumption.

Meaning and Definitions

The term “Iso – Quant” has been derived from ‘Iso’ meaning equal and ‘Quant’ meaning quantity. Hence, Iso – Quant is also called Equal Product Curve or Product Indifference Curve or Constant Product Curve. An Iso – product curve represents all the possible combinations of two factor inputs which are capable of producing the same level of output. It may be defined as – “ a curve which shows the different combinations of the two inputs producing the same level of output .”

Each Iso – Quant curve represents only one particular level of output. If there are different Iso–Quant curves, they represent different levels of output. Any point on an Iso – Quant curve represents same level of output. Since each point indicates equal level of output, the producer becomes indifferent with respect to any one of the combinations.

Equal Product Combination

Combinations	Factor X (Labor)	Factor Y Capital	Total Output in units
A	12	1	100
B	8	2	100
C	5	3	100
D	3	4	100
E	2	5	100

In the above schedule, all the five factor combinations will produce the equal level of output, i.e.100 units. Hence, the producer is indifferent with respect to any one of the combinations mentioned above.

Graphic Representation

In the diagram, if we join points ABCDE (which represents different combinations of factor x and y) we get an Iso-quant curve IQ. This curve represents 100 units of output that may be produced by employing any one of the combinations of two factor inputs mentioned above. It is to be noted that an Iso-Product Curve shows the exact physical units of output that can be produced by alternative combinations of two factor inputs. Hence, absolute measurement of output is possible.

Iso – Quant Map

A catalogue of different combinations of inputs with different levels of output can be indicated in a graph which is called equal product map or Iso-quant map. In other words, a number of Iso Quants representing different amount of out put are known as Iso-quant map.

Marginal Rate of Technical Substitution (MRTS)

It may be defined as the rate at which a factor of production can be substituted for another at the margin without affecting any change in the quantity of output. For example, MRTS of X for Y is the number of units of factor Y that can be replaced by one unit of factor X quantity of output remaining the same.

Combinations	Factor X	Factor Y	MRTS of x for y
A	12	1	Nil
B	8	2	4:1
C	5	3	3:1
D	3	4	2:1
E	2	5	1:1

In the above example, we can notice that in the second combination the producer is substituting 4 units of X for 1 unit of Y. Hence, in this case MRTS of Y for X is 4:1.

Generally speaking, the MRTS will be diminishing. In the above table, we can observe that as the quantity of factor Y is increased relative to the quantity of X, the number of units of X that will be required to be replaced by one unit of factor Y will diminish, quantity of output remaining the same. This is known as the law of Diminishing Marginal Rate of Technical Substitution (DMRTS).

Properties of Iso- Quants:

1. An Iso-Quant curve slope downwards from left to right.

2. Generally an Iso-Quant curve is convex to the origin.

3. No two Iso-product curves intersect each other.

4. An Iso-product curve lying to the right represents higher output and vice-versa.

5. Always one Iso-Quant curve need not be parallel to other.

6. It will not touch either X or Y – axis.

ISO-Cost Line or Curve

It is a parallel concept to the budget or price line of the consumer. It indicates the different combinations of the two inputs which the firm can purchase at given prices with a given outlay. It shows two things (a) prices of two inputs (b) total outlay of the firm. Each Iso-cost line will show various combinations of two factors which can be purchased with a given amount of money at the given price of each input. We can draw the Iso-cost line on the basis of an imaginary example.

Let us suppose that a producer wants to spend Rs. 3,000 to purchase factor X and Y. If the price of X per unit Rs. 100 he can purchase 30 units of X. Similarly if the price of factor Y is Rs. 50 then he can purchase 60 units of Y.

When 30 units of factor X are represented on OY – axis and 60 units of factor Y are represented on OX- axis, we get two points A & B. If we join these two points A and B, then we get the Iso-Cost line AB. This line represents the different combinations of factor X and Y that can be purchased with Rs. 3,000.

The Iso-Cost line will shift to the right if the producer increase his outlay from Rs. 3,000 to Rs. 4,000. On the contrary, if his outlay decreases to

Rs. 2,000, there will be a backward shift in the position of Iso-cost line.

The slope of the Iso-cost line represents the ratio of the price of a unit of factor X to the price of a unit of factor Y. In case, the price of any one of them changes there would be a corresponding change in the slope and position of Iso-cost line.

PRODUCERS EQUILIBRIUM (Optimum factor combination or least cost combination).

The optimal combination of factor inputs may help in either minimizing cost for a given level of output or maximizing output with a given amount of investment expenditure. In order to explain producer’s equilibrium, we have to integrate Iso-quant curve with that of Iso-cost line. Iso-product curve represent different alternative possible combinations of two factor inputs with the help of which a given level of output can be produced. On the other hand, Iso-cost line shows the total outlay of the producer and the prices of factors of production.

Q.5. Discuss the full cost pricing and marginal cost pricing method. Explain how the two methods differ from each other.

Answer:.

Pricing Methods

The traditional theory of value and pricing policies etc., provide a theoretical base to the management to take decision on setting the right price. The actual pricing of products depend upon various factors and considerations. Hence there are several methods of pricing.

1. Full – Cost pricing or Cost Plus Pricing Method

Full cost pricing is one of the simplest and common methods of pricing adopted by different firms. Hall and Hitch of the Oxford University in their empirical study of actual business behavior found that business firms do not determine price and output by comparing MR and MC. On the other hand, under Oligopoly and monopolistic conditions they base their market price on full cost conditions. According to this principle, businessmen charge price that cover their average cost in which are included normal or conventional profits. Cost refers to full allocated costs. According to Joel Dean, it has three components –

i) Actual cost which refers to the actual or total expenses incurred in production. For e.g., wage bills, raw material cost, overhead charges etc.

ii) Expected cost refers to the forecast for the pricing period on the basis of expected prices, output rate and productivity.

iii) Standard cost refers to cost incurred at the normal level of output.

In brief, a firm computes the selling price of its product by adding certain percentage to the average total cost of the product. The percentage added to costs is called margin or mark-ups. Hence, this method is also called Margin – pricing and Mark – up pricing.

Cost +pricing = Cost + Fair profit

Fair profit means a fixed percentage of profit markups. It is arbitrarily determined. The margin of profits included in the price of a product differs from industry to industry and commodity to commodity on account of differences in competitive strength, cost of production, total turnover, accounting practices etc. Past traditions, directives from trade associations, guidelines from the government may also decide the percentage of profits.

This method envisages covering the total costs incurred in producing and selling a commodity In this case businessmen do not seek supernormal profit. Hence, a price based on full average cost is the ‘right cost’, the one which ought to be charged based on the idea of fairness under Oligopoly and Monopolistic competition.

Illustration

Production = 8000 units.

Total Fixed Cost = Rs 30,000

Total Variable Cost = Rs. 50,000

Total Cost = Rs. 80,000

Per Unit Cost = 80,000 / 8000 = Rs 10

20% Net Profit Margin

On Cost =

Cost Price = Rs 10

20% NPM on Cost = Rs. 10

Selling Price = + Rs. 2

Rs. 12

Marginal Cost Pricing

It is based on a pure economic concept of equilibrium of a firm, where marginal cost is equal to marginal revenue. Under this method price is determined on the basis of marginal cost which refers to the cost of producing additional units. Price based on marginal cost will be much more aggressive than the one based on total cost. A firm with large unused capacity will have to explore the possibility of producing and selling more. If the price is sufficient to cover the marginal cost, particularly in times of recession the firm should be able to produce and sell the commodity and can think of recovering the total cost in the long run.

This method though sounds excellent theoretically has the serious limitation of ascertaining the marginal cost.

Evaluation of the full cost pricing

Generally, the firms will not have information about demand conditions, nature and degree of competition, technology used etc., further modern business conditions are extremely uncertain. Besides a firm may be producing or selling innumerable varieties of goods and to calculate prices on the basis of profit maximization may be almost impossible. The cost plus method is convenient since the firms have only to add some standard mark-up to their cost. Over a period of time, through trial and error, they can find out the proper mark – up. The supreme merit of this method lies in its mechanical simplicity and its apparent fairness.

It is safer, cheaper and imparts competitive stability particularly when there is tough competition in the market. It is useful particularly in product tailoring and public utility pricing. It is justified on moral grounds because price based on costs is a just price.

According to Professor Joel Dean, it is the best method of pricing in case of new products because if the firm is able to realize its normal profits, then only it can take a decision to produce and market a product otherwise not.

This method attaches too much of significance to allotted costs and mark-ups. It tends to diminish the interest of the producer in cost control. However, many firms adopt this method of pricing due to its inherent benefits.

2. Rate of Return Pricing

Rate of return pricing is a modified form of full cost pricing. Under this method, a producer decides a predetermined target rate of return on capital invested. Full – cost pricing considers the mark-ups or profit arbitrarily. Instead of setting the percentage arbitrarily a firm will determine the average mark- up on costs necessary to produce a desired rate of return on the company’s investments. Thus, under this method, price is determined along a planned rate of return on investment. In this case, a company estimates future sales, future costs and arrive at a mark – up that will achieve a target return on a company’s investment.

Professor Davies and Hughes in their book, “Managerial Economics” have used the following formula to calculate the desired rate of return when a mark up is applied on cost.

Percentage mark – up =

Let us suppose that the capital employed by a firm is Rs.16 lacks and the total cost is Rs.12 lacks with a planned rate of return of 30 percent. By making use of the above formula, we can find out the percentage mark-up of the firm in the following way.

Illustration:

Production = 10,000 units

Total Cost = 4,00,000

Per Unit Cost = 4,00,000 / 10,000 = Rs 40

30% of Rs 40 is

Now, if the total cost per unit is = 40

30 % mark-up = 12

The selling price would be = 52

The mark-up is thus carefully planned and calculated, as different from the arbitrary percentage used in the cost plus pricing.

The management will regard this price as the base price applicable over a period of time. However, when cost of production changes as a result of changes in the prices of raw materials or due to changes in the levels of wages, the management can change the price suitably. Besides, the base price can be modified suitably according to changes in demand and competitive conditions in the market.

Q.6. Discuss the price output determination using profit maximization under perfect competition in the short run.

Answer: Price – Output determination under Perfect Competition (General Model)

It is very interesting to study the price – output model under perfect competition. Under a perfectly competitive market, in case of the industry, market price of the product is determined by the interaction of supply and demand. The market price is not fixed by either the buyer or the seller, firm, industry or the government. It is only the market forces, i.e., demand and supply determines the equilibrium price of the product. We come across this peculiar feature under perfect competition alone.

Alfred Marshall compared supply and demand to the two blades of a scissors. Just as both the blades work together to cut a piece of cloth, both supply and demand interact with each other to determine the market price at which exchange takes place. In the process of price determination, supply is not more important than demand or demand is not more important than supply. Both forces play an equally important role.

We can explain how price is determined in the market by the interaction of demand and supply with the help of the following schedule.

Price in Rs.	Demand in Units	Supply in Units	State of Market	Pressure on price
10	1000	9000	Surplus S > D	Downward
8	3000	7000	Surplus S > D	Downward
6	5000	5000	Equilibrium S =D	Neutral
4	7000	3000	Shortage D > S	Upward
2	9000	1000	Shortage D > S	Upward

From the table above, it is clear that equilibrium price is determined at Rs. 6.00 where quantity demanded is exactly equal to quantity supplied i.e., 5000 units.

Case of industry, interaction of supply and demand will determine the equilibrium market price. In the diagram, P indicates OR as equilibrium price and OQ as equilibrium output. The price at which demand and supply are equal is known as equilibrium price. The quantity bought and sold at the equilibrium price is known as equilibrium output.

In the figure equilibrium price is determined at the point P where both demand and supply are equal. The upper limit to the price of a product/service is determined by the demand. This price should not exceed ‘what the market can bear’. In short, the price of the product / service should not exceed the value of its benefit to the buyers (price should not be more than the utility of product / service).

The lower limit to the price is determined by production cost. In the long run, the price should not fall below production costs of making and distributing the product / service. With reference to the industry, the point P can be regarded as the position of stable equilibrium. Even if there are changes in price, there will be automatic adjustments in supply and demand, restoring the original equilibrium position. When the price rises from OR to OR1 supply exceeds demand, there will be excess supply over demand excess supply of goods push down the price from OR1 to OR, the original price.

Similarly, when price falls from OR to OR2, demand exceeds supply, excess demand over supply in its turn push up the prices from OR2 to OR – the original price. Thus, equality between demand and supply determine the market price.

Under perfect competition, a firm will not have any independence to fix the price of its own product. The industry is the price – maker or giver and a firm is a price – taker or price acceptor and quantity adjuster. As a part of the industry, it has to simply charge the price which is determined by the industry. If it charges a higher price it will loose its sales and if it charges lesser price, it will incur losses.

In case of the firm, the price line which is equal to AR and MR, will be horizontal and parallel to OX – axis. This is because same price has to be charged by the firm for all the units supplied, irrespective of changes in demand. Hence,

Price-Output Determination in the Short Period:

Short period is a time period in which there are two types of factors of production. One is the fixed factors and the other is the variable factors. In the short period, production can be changed only by changing the variable factors of production. Fixed factors of production cannot be changed. In other words, in the short period, supply can be changed only to some extent. In this period volume of production can be changed but capacity of the plant cannot be changed. He can increase the supply only with the help of existing machines and plants. New factories and plant-equipment cannot be installed.

The aim of a monopolist is to earn maximum profits or suffer minimum losses if the circumstances compel. Monopolist, being single seller of his product, can fix his price equal to, above or less than the short period average cost of the product. Thus, he can earn normal profits, supernormal profits or incur losses even in the short period.

This depends upon the nature and extent of the demand for his product. In order to earn maximum profits or suffer minimum losses, a monopolist compares his marginal revenue (MR) with marginal cost (MC). If marginal revenue exceeds marginal cost of a product, the monopolist can increase his profit by increasing his production. On the contrary, if MC exceeds MR at a particular level of output, the monopolist can minimize his losses by reducing his production. So the monopolist is said to be in equilibrium where marginal revenue is equal to marginal cost.

In the short period, a monopoly firm can earn supernormal profits, normal profits or incur losses. In case of losses, price must be covering at least the average variable costs. Otherwise the firm will stop production. The maximum loss can be equal to fixed costs. The three cases of monopoly equilibrium can be shown through the figures drawn below.

In figure (a) AR > AC. Hence, super normal profits.

In figure (b) AR = AC. Hence, normal profits.

In figure (c) AR < AC. Hence, losses.

The figures explain how a monopoly firm can earn supernormal profits, normal profits or incur losses in the short period.

MB0041- Financial and Management Accounting semester - Set – 1

2012-03-17T13:15:00.000+05:30

MB0041- Financial and Management Accounting semester - I

Assignment Set – 1

Q.1 Assure you have just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position statement after every transaction. Did you firm earn profit or incurred loss at the end? Make a small comment on your financial position at the end.

Answer:

We shall consider five transactions and show how they are accounted for in the books of the business.

1. Mr. Rajesh brings Rs.100000 cash as capital into his business.

2. He purchases Mobile Set to his shop Rs.10000

3. He buys currencies for cash Rs.50000

4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun

5. He pays wages to servants Rs.1000

Transaction 1: The business receives capital in cash. Capital is a liability and cash is an asset to the business.

Liability		Asset
Capital	100000	Cash	100000

Q.2.a. List the accounting standards issued by ICAI.

Answer: To bring uniformity in terminology, accounting concepts, conventions, and assumptions, the Institute of Chartered Accountants of India (ICAI) established Accounting Standards Board (ASB) in 1977. An Accounting Standard is a selected set of accounting policies or broad guidelines. Example: While depreciating an asset the practice of adopting straight line method or diminishing balance method or any other method is a convention regarding the principles and methods to be chosen out of several alternatives. There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory.

Q.2.b. Write short notes of IFRS.

Answer: International Financial Reporting System: IFRS are standards, interpretations and framework for the preparation and presentation of financial statements. IFRS was framed by International Accounting Standards Board (IASB).

The objective of financial statement is to provide information about the financial position, performance and changes in the financial position of an entity. It should also provide the current financial status of the entity to all the users of financial information. IFRS follows accrual basis of accounting and the financial statements are prepared on the basis that

an entity will continue for the foreseeable future. IFRS helps entities access global capital market with ease.

Q.3 Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following particulars for 20X1 Jan

1. Cash in hand Rs. 50,000, Bank Overdraft Rs. 20,000

2. Paid into bank Rs. 10,000

3. Bought goods from Hari for Rs, 200 for each

4. Bought goods for Rs. 2,000 paid cheque for them, discount allowed 1%

5. Sold goods to Mohan for each Rs. 1.175

6. Received a cheque from Shyam to whom goods were sold for Rs. 800.Discount allowed 12.5%

7. Shyam’s cheque deposited into bank

8. Purchased an old typewriter for Rs. 200, Spent Rs. 50 on its repairs

9. Bank notified that Shyam’s cheque has been returned dishonored and debited account in respect of charges Rs. 10

10. Received a money order Rs. 25 from Hari

11. Shyam settled his account by means of a cheque for Rs. 820, Rs. 20 being for interest charged.

12. Withdrew from the bank Rs. 10,000

13. Discounted a B/E for Rs. 1,000 at 1% through bank

14. Honored our own acceptance by cheque Rs. 5,000

15. Withdrew fir personal use Rs. 1,000

16. Paid tread expenses Rs. 2,000

17. Withdrew from bank for private expenses Rs. 1,500

18. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,005

19. Issued cheque to Ram Saran for cash purchased of furniture Rs.1,575

20. Received a cheque for commission Rs. 500 from R.& Co. and deposited into bank

21. Ramesh who owned us Rs. 500 became bankrupt and paid us 50 paise in the rupee

22. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000out of into bank

23. Paid rent to landlord “Mohan” by cheque of Rs. 220

24. Interest allowed by bank Rs. 30

25. Half-yearly bank charges Rs. 50

Answer:

RECEIPTS	DISCOUNT	CASH	BANK	PAYMENT	DISCOUNT	CASH	BANK
To balance b/d		50000		By purchase		200	2000
To balance b/d(OD)			20000	By purchase	20
To capital			10000	By purchase		250	810
To sales			1175	By cheque ret	100		10000
To sales	100		800	By drawing

Q.4 Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it.

Answer: The Balanced Score Card is a framework for integrating measures derived from strategy. While retaining financial measures of past performance, the Balanced Score Card introduces the drivers of future financial performance. (Figure 1) The drivers (customer, internal business process, and learning & growth perspectives) are derived from the organization's strategy translated into objectives and measures.

The Balanced Score Card is more than a measurement system it can be used as an organizing framework for their management processes. The real power of the Balanced Score Card is when it is transformed from a measurement system to a management system. It fills the void that exists in most management systems - the lack of a systematic process to implement and obtain feedback about strategy

Q.5 From the following data of Jagdish Company prepare (a) a statement of source and uses of working capital (funds) (b) a schedule of changes in working capital.

Assets	2008	2007
Cash	1,26,000	1,14,000
Short-term investment	42,400	20,000
Debtors	60,000	50,000
Stock	38,000	28,000
Long term Investment	28,000	44,000
Machinery	2,00,000	1,40,000
Building	2,40,000	80,000
Land	14,000	14,000
Total	7,48,400	4,90,000
Liabilities and equity
Accumulated depreciation	1,10,000	60,000
Creditors	40,000	30,000
Bills Payable	20,000	10,000
Secured loans	2,00,000	1,00,000
Share capital	2,20,000	1,60,000
Share Premium	24,000	Nil
Reserves and surplus	1,34,000	1,30,000
Total	7,48,400	4,90,000

Income Statement

Sales	2,40,000
Cost of goods sold	1,34,600
Gross profit	1,05,200
Less operating expenses: Depreciation – machinery 20,000 Depreciation – Building 32,000 Other expenses 40,000	92,000
Net profit from operation	13,200
Gain on sale on long – term investment	4,800
Total	18,000
Loss on sale of machinery	2,000
Net profit	16,000

Adjustments:

1) Machinery worth Rs.70000 was purchased and worth Rs.10000 was sold during the year [Accumulated depreciation on machinery is Rs.18000 after adjusting depreciation on machinery sold]. Proceeds from the sale of machinery were Rs.6000

2) Dividends paid during the year Rs.11600

Answer:

a statement of source and uses of working capital (funds)

Adjusted Profit and Loss account

Particular	Amount	Particular	Amount
To depreciation on machine and building	92,000	Fund generated from operation	1,08,000
To dividend	11,600
To General Reserve	4,400
Total	1,08,000	Total	1,08,000

Schedule of changes in Working Capital:

Particular	Year 2007	Year 2008	Increase	Decrease
Current Assets
Cash	1,14,000	1,26,000	12,000
Short-term investment	20,000	42,400	22,400
Debtors	50,000	60,000	10,000
Long term Investment	44,000	28,000		16,000
Stock	38,000	28,000		10,000
Total current assets	2,66,000	2,84,400
Current Liabilities
Accumulated depreciation	60,000	1,10,000		50,000
Creditors	30,000	40,000		10,000
Bills payable	20,000	10,000	10,000
Total Current Liabilities	1,10,000	1,60,000
Working Capital A-B	1,56,000	1,24,400
Decrease in working capital		31,600	31,600
Total	1,56,000	1,56,000	86,000	86,000

Q.6 what is a cash budget? How it is useful in managerial decision making?

Answer: A proper control over cash is very essential. Cash is an important component in any activity. The control becomes inescapable. If cash is not properly managed or if it is mismanaged, the ultimate result would be disastrous. In many times and in many business situations, business failures are noticed due to the lacunae found in the cash management. Hence cash budgeting occupies a pivotal place in the study of Financial Management.

Cash budgeting is the process of forecasting the expected receipts known as cash inflows, and expected payments known as cash outflows to meet the future obligations. The written statement of receipts and payments is known as the cash budget. It is a crystal ball which enables one to observe the future movements in cash position. It is a mere forecast of cash position of an undertaking for a definite period of time. The period may be daily, weekly, monthly, quarterly, semi-annually, or manually. The major two components of cash budget would be forecast first the cash receipts and then second forecasting the cash disbursements.

MB0041 - Financial and Management Accounting Semester - 1 Assignment Set - 2

2012-03-17T13:04:00.000+05:30

MB0041 - Financial and Management Accounting Semester - 1

Assignment Set - 2

Q.1 Selected financial information about Vijay merchant company is given below:

	2009	2010
Sales	43000	69000
Cost of goods sold	32500	57000
Debtor	3000	7200
Inventory	5500	11400
Cash	800	1500
Other current asset	2700	4000
Other current liabilities	11000	16000

Compute the current ratio, quick ratio, and average debt collection period and inventory turnover for 2009 and 2010. State whether there is a favorable or unfavorable change in liquidity from 2009 to 2010. At the beginning of 2009, the company had debtors of Rs.2500 and inventory of Rs.3000.

Ans :2009

Current ratio =Current Asset/ Current Liabilities

= debtor+ cash+ inventory+ other current asset/ current liabilities

=3000+800+5500+2700/ 11000 =1.09

Quick ratio= Current Asset- Inventory/ current liabilities

= 3000+800+2700/ 11000= 0.59

Average collection Period

Avg. trade debtor= opening debtor+ closing debtor/2

= 2500+3000/2=2750

Avg. collection period= avg.trade debtor *no. of working days/ net sales

= 2750 * 365/ 43000= 23.34 = 23 days

Inventory turnover ratio

Inventory turnover ratio= cost of goods sold/ avg. inventory= 32500 / 3000+5500/2= 32500/ 4250= 7.6 times.

2010

Current ratio =Current Asset/ Current Liabilities

= debtor+ cash+ inventory+ other current asset/ current liabilities

= 7200+ 11400+ 1500+ 4000/ 16000= 1.50

Quick ratio= Current Asset- Inventory/ current liabilities

= 7200+ 1500+ 4000/ 16000= 0.79

Average collection Period

Avg. trade debtor= opening debtor+ closing debtor/2

= 3000 + 7200 /2 =5100

Avg. collection period= avg.trade debtor * no. of working days/ net sales

= 5100/69000 * 365 = 26.9 or 27 days.

Inventory turnover ratio

Inventory turnover ratio= cost of goods sold/ avg. inventory= 57000 / 5500 +11400 /2= 69000/ 8450 = 6.74 times.

As the liquid ratio of 2010 is more than 2009, there is a favorable change in the firm’s liquidity in 2010 than 2009.

Q.2 Explain different methods of costing. Your answer should be studded with examples (preferably firm name and product) for each method of costing.

Ans: Costing refers to the techniques and process of determining costs of a product manufactured or a service rendered. The method of costing depends upon the nature of the product, production method and specific business condition. For example, in cement and steel industry, raw material passes through different stages or process and production is done on continuous bases while in cases of construction of a house or contract to build a metro rail/ fly over/ under pass the job is for a specific purpose and each job is different from the other. In service industry like hospitality industry, software development, back office processing work etc process costing technique is used.

Methods of costing

Job costing

Batch costing
Contract costing
Composite costing

Process costing

Unit costing
Operating costing
Operation costing

Job costing

It is used in those business concerns where production is carried out as per specific order and customer’s specification.

Batch costing

This method is used to determine the cost of a group of identical products. The batch consist of similar products is a unit and not a single item within the batch. E.g. Production of tablets, nuts & bolts, components and spare parts.

Contract costing

This method is based on the principle of job costing and used by house builders and civil contractors. The contract becomes the cost unit for which relevant cost are determined. E.g. Construction of an apartment, housing colony, airports, flyovers etc.

Composite costing

In this method of costs are accumulated for different components of the product and then combined because the nature of the product is complex. E.g. manufacturing of aero planes, motor vehicles, and computers.

Process costing

This method is used in those industries where manufacture is done continuously thereby it is difficult to trace costs to specific units. The total cost is averaged for the numbers of units manufactured.

Unit costing

This method is used when a single item is produced and the final product is composed for homogenous units. The cost per unit is obtained by dividing the total cost by the total number of units manufactured. E.g. sugar industry, cement, fertilizer, chemicals, petroleum refining, LPG, paper etc.

Operating costing

This method is used by service industries. The unit cost differs among these services depending upon the nature of services being rendered. E.g. passenger mile, bed in a hospital, per student in a college.

Operation costing

This product costing is used when conversion activities are very similar across products lines but the direct materials differ significantly. E.g. the professional basket balls are covered with genuine leather whereas the scholastic basket balls are covered with imitation leather.

Q.3 State the importance of differentiating between the fixed costs and variable costs in managerial decision.

Ans: Fixed expenses remain constant in aggregate amount and do not vary with the increase or decrease in production up to a particular level of output. Just contrary to this, variable expenses increases or decreases in proportion to increase or decrease in output and remain constant per unit of output. Fixed expenses per unit continue to vary with the increase or decrease in production because these expenses remain constant up to a certain level of production. Thus, fixed overhead lead to different costs per units at different level of production. On account of this, a special technique known as marginal costing has been developed which excludes fixed over head entirely from cost of production and gives us the same cost per unit up to particular level of output. Thus under this technique fixed expenses are not allocated to cost units but are charged against “fund” which arise out of excess of selling price over total variable costs.

The marginal costing helps the management in taking many policy decisions. The vital areas where these concepts are applied directly are as follows:

Level of activity planning: Normally, the management will consider different levels of production or selling activities to decide optimum level of activity. Such periodic exercise shall put the organization in the right tract to achieve its goal. Since the optimum level of activity results in the maximum contribution per units, the planning can become a perfect execution tool.
Alternative methods of production: with the help of marginal costing techniques, its possible to undertake decision about the alternative methods of production. All the decision should be focused at the greater contribution so that profit can be maintained ata balanced level.
Make or buy decision: Depending upon the situational ambience, the management can have a blue print on a vital decision. Management can think of outsourcing the production activities or to undertake it within its purview. Based on the comparative statement of cost of manufacture with the purchase price, decision can be taken.
Fixation of selling price: while pricing a product, the marginal costing techniques can come handy. While fixing a price for a product, it is prudent to take in top account the recovery of marginal cost in addition to get a reasonable contribution to cover fixed overheads. Pricing will be at ease once the marginal cost and overall profitability of the concern are known.
Selection of optimum sales mix: the product mix plays an important role when a firm produces more than one product. The main focus will on profit maximization. With the help of marginal costing techniques, it is possible to decide the best product mix which results in maximum profit to the firm.
New product introduction: when a firm intends to diversify its activities or to expand its existing markets, with the help of marginal costing techniques. By fixing the time horizon to recover the fixed costs and profit, decision can be taken for the introduction of new products.
Balancing of profits: As the economic trends gets changed on account of government fiscal policies and regulations, competition at the regional, national, and international levels, marginal costing techniques can aid to bring out facts with regard to maintain a desired level of profits.
Final balancing decision: If the sales of the product were not encouraging to cover the fixed costs, it is quite natural that firm may decide about its continuance. This may lead to dovetailing or completely closing down the operations. Marginal costing helps the management to take a sound decision.

Q.4 Following are the extracts from the trial balance of a firm as at 31st March 2009

Name of the account

	DR	CR
Sundry debtor	205000
Bad debt	3000

Additional Information

1) After preparing the trial balance, it is learnt that Mr. X a debtor has become insolvent and nothing could be recovered from him and, therefore the entire amount of Rs.5,000 due from him was irrecoverable.

2) Create 10% provision for doubtful debt.

Required: Pass the necessary journal entries and show the sundry debtors account, bad debts account, and provision for doubtful debts account, P&L a/c and Balance sheet as at 31st March 2009.

Ans:

Bad debt a/c………dr. Rs. 5000

To Mr. X a/c Rs. 5000

(Being amount due from Mr. X proved to be bad)

Profit & loss a/c………dr. Rs.20000*

To Provision for Bad 7 doubtful debts Rs.20000

(Being bad debt provision created @ 10% )

*Working note

Provision for bad debt = 205000- 5000= 200000 *10%=20000

Preparation of ledger accounts

Sundry Debtor A/c

Dr	Amount	Cr	Amount
To balance c/d	5000 5000	By bad debt a/c By balance b/d	5000 5000 5000

Bad debt A/c

Dr	Amount	Cr	Amount
To Sundry Debtor	5000 5000		5000 5000

Provision for bad and doubtful debt A/c

Dr	Amount	Cr	Amount
To balance c/d	20000 20000	By P/L a/c By balance b/d	20000 20000 20000

Profit & loss A/c

Dr	amount	Cr	Amount
To bad debt... 3000 Add. Bad debt Written off 5000 Add. New provision Created 20000	28000

Balance Sheet

Liabilities	Amount	Assets	Amount
		Sundry Debtor …205000 Less: Additional bad debt w.f. 5000 200000 Less: provision for Bad debt 20000	180000

Q.5 A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in investment in accounts receivable. Based upon this information, the company’s (select the best one and give reason).

1) Average collection period has decreased.
2) Percentage discount offered has decreased.
3) Accounts receivable turnover has decreased.
4) Working Capital has increased.

Ans: The effects of change in the credit policy are:

An increase in sales
An increase in discount taken
A decrease in bad debts
A decrease in account receivables.

Now we have to find out the appropriate cause:

First no.4 Working capital has increased. An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities. It means the firm, has increased its investment in account receivables or debtors. But it is not satisfying the no.4 effect which is “a decrease in account receivables”.

Then no.3 Account receivable turnover has decreased. Account receivable turnover is also known as debtor turnover ratio. A higher debtor turnover ratio indicates more efficient management of debtors/ sales or more liquid debtors. Similarly lower debtor turnover ratio indicates inefficient management of debtors/ sales and less liquid debtors. If debtor turnover ratio has been decreased and debtors are less liquid then bad debt will increase. But it is not satisfying no. 3 effect which is “a decrease in bad debt”.

Then no.2 Percentage discount offered has decreased. Firms offer cash discounts to induce their customers to make prompt payments. Cash discounts have implications on sales volume, average collection period, investment in receivables, incidence of bad debts and profits. Providing a small cash discount would be beneficial for the seller as it would allow him to have access to the cash sooner. The sooner a seller receives the cash, the earlier he can put the money back into the business to buy more supplies and/or grow the company further. Here the firm is providing lower discounts to the customers. By doing this the firm can recover the cash sooner, thereby reducing the chances of bad debts. By providing cash discounts it can induce the buyers. Hence thereby it increases sales volume. Cash discount induces the buyer for prompt payment, so there is less chance of credit sales and decrease in account receivables. Also the cash discount enables the customer to buy at a lesser price. So they pay immediately to avail discounted price. Thus it increases the amount of discount taken. So this reason is appropriate for all the outcomes of the change in the credit policy.

Then no.1 Average collection period has decreased. The average collection period represents the number of days for which a firm has to wait before its receivables are converted in to cash. It measures the quality of debtors. Generally, the shorter the average collection period the better is the quality of the debtors as a short collection period implies quick payments by debtors. Similarly, a higher collection period implies as inefficient collection performance which in turn adversely affect the liquidity or short term paying capacity of the firm out of its current liabilities. As noted above shorter collection period results in more liquid debtors who make quick payments, thereby reducing the chances of bad debts. If the firm is providing more discounts then more consumers will be attracted, thereby increasing the sales. If the debtors are more liquid, then there will be an obvious reduction in the account receivables. However, this reason is more appropriate than the previous one, for all the outcomes of the change in the credit policy.

Q.6 Identify the users of accounting information.

Ans: Accounting reports are designed to meet the common information needs of most decision makers. These decisions include when to buy, hold or sell the enterprise share. It assesses the ability of the enterprise to pay its employees, determine distributed profits and regulates the activities of the enterprise. Investors and lenders are the most obvious users of accounting information.

Investors: Investors may be broadly classified as retail investors, high net worth individuals, institutional investors both domestic and foreign. As chief provider of risk capital, investors are keen to know both the return from their investment and the associated risk. Potential investors need information to judge prospect for their investment.
Lenders: Banks, financial institutions and debenture holders are the main lenders and they need information about the financial stability of the borrower enterprise. They are interested in information that would enable them to determine whether their borrower has the capability to repay the loans along with the interest due on it. They also use the information for monitoring the financial condition of the borrowers.
Regulators, rating agencies and security analyst: investors and creditors seek the assistance of information specialist in assessing prospective returns. Equity analyst, bond analyst and credit rating agencies offer a wide range of information in the form of answering queries on television shows, providing trends in business news papers on a particular stock, offer valuable information in seminars, discussion groups, meeting and interviews. Security analyst obtain valuable information including insider information by means of face to face meeting with the company officials, visit their premises and make constant enquiry using e-mails, teleconference and video conference.
Management: management needs information to review the firm’s short term solvency and long term solvency. It has come to ensure effective utilization of resources, profitability in terms of turnover and investment. It has to decide upon the courses of action to be taken in future. Management may also be interested in acquiring other business which is undervalued. When managers receive commission or bonus related profit or other accounting measures, they have a natural interest in understanding how these numbers are computed. Further when faced with a hostile takeover attempt, they communicate additional financial information with a view to boosting the firm’s stock price.

Employees, trade unions and tax authorities: Employees are keen to know about the general health of the organization in terms of stability and profitability. Current employees have a natural interest in the financial condition of the firm as their compensation will depend upon the financial performance of the firm. Potential employees may use financial information to find out the future prospect of the firm. Trade union use reports for negotiating wage package, declaration of bonus and other benefits. Tax authorities need information to assess the tax liabilities of the firm.
Customers: customers have an interest in the accounting information about the continuation of company especially when they have established a long term involvement with or dependant on the company.
Government and regulatory agencies: Government and the regulatory agencies require information to obtain timely and correct information, to regulate the activities of the enterprise if any. They seek information when tax laws need to be amended, to provide institutional support to lagging industries. The regulatory agencies use financial reports to take action against the firm when appropriate returns are not filled in times or to take appropriate action against the firm when complaints/misappropriation are being logged. Stock exchange has a legitimate interest in financial reports of publicly held enterprises to ensure efficient operation of capital market.
The public: Every firm has a social responsibility. Firms depend on local economy to meet their varied needs. They may get patronage from local government in the form of capital subsidy, cheap land and tax sops in the form of tax holidays for certain period of time. Prosperity of the enterprise may lead to prosperity of the economy both directly and indirectly. Published financial statement assist public by providing information about the trends and recent developments of the firm.

MB0040 – STATISTICS FOR MANAGEMENT

2012-03-17T13:02:00.002+05:30

MBA SEMESTER 1

MB0040 – STATISTICS FOR MANAGEMENT- 4 Credits (Book ID: B1129)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions

1. (a) What is the difference between a qualitative and quantitative variable?

Ans: Qualitative variables are based on qualitative aspect or descriptive characteristics of a phenomenon viz. sex, beauty, literacy, honesty, intelligence, religion, eye-sight tec.

Such variables are usually dichotomous in nature in which the whole data are divided into two groups viz. a group with presence of the attribute and a group with absence of the attribute such as blind and not blind, deaf and not deaf etc.

However in certain cases variables can also be made in manifold manner in which the data are grouped under more than two classes. This type of classification is made when the qualitative aspect are defined by some grade or performance. For instance, in the field of education, the classification can be made in to different group viz. primary, secondary, higher secondary, and higher education. Similarly on the basis of eye sight, the data may be grouped under different grades of eye-sight viz. A, B, C, etc. Further, qualitative classifications are made in made manner when more than on e attribute are taken into consideration at a time, the classification will lead to a type of manifold classification.

Quantitative variables are numerical in nature. In simple these variables can be measured in quantitative terms. For example- mark, income, expenditure, profit, loss, height, weight, age, price, production etc. which is capable of quantitative expression and measurement. Quantitative variables may be defined as a characteristic which varies in amount of magnitude under different time and place e.g. mark, age, and height etc. These variables can be of two types viz. a) discrete variables, b) Continuous variables. A variable that assumes only some specified values in a given range is known as discrete variable. A variable that assumes all the values in the series is known as continuous variables.

(b) A town has 15 neighborhoods. If you interviewed everyone living in one particular neighborhood, would you be interviewing a population or a sample from the town? Would this be a random sample? If you had a list of everyone living in the town, called a frame, and you randomly selected 100 people from all neighborhoods, would this a random sample? [5 Marks]

Before answering this question we need to know what population is and what a sample is. The totality of all individual in a survey is called population or universe. If the number of objects in a population is finite then it is called finite population otherwise it is known as infinite population.

A sample is a part or subset of the population. By studying the sample, we can predict the characteristics of the entire population from where the sample is taken. The data that describes the characteristics of sample is known as statistics.

Now if we interview only one particular neighborhood then it would be a sample survey not a population survey. Because here we interviewed every individuals of a particular group not the whole population. But by selecting 100 people from all neighborhoods for a survey would be called as a random sample.

2. a) Explain the steps involved in planning of a statistical survey? [5 Marks]

Ans: Stages in a statistical survey:

Nature of the problem to be investigated should be clearly defined in an unambiguous manner.

Objectives of the investigation should be stated at the outset. Objectives could be

Obtain certain estimates.

Establish a theory.

Verify an existing statement.

Find relationship between characteristics.

The scope of investigation has to be made clear. The scope of the investigation refers to the area to be covered, identification of units to be studied, nature of characteristics to be observed, accuracy of measurement, analytical method, time cost and other resources required.

Whether to use data collected from primary sources or secondary sources should be determined in advanced.

The organization of investigation is the final step in the process. It encompasses the determination of the number of investigator required, their training, supervision work needed, funds required.

b) What are the merits & Demerits of Direct personal observation and Indirect Oral Interview? [5 Marks]

Ans: Direct personal observation: In the direct personal observation method, the investigator collects data by having direct contact with the units of investigation. The accuracy of the data depends upon the ability, training, and attitude of the investigator.

Merits

We get the original data which is more accurate and reliable.

Satisfactory information can be extracted by the investigator through indirect questions.

Data is homogenous and comparable.

Additional information can be gathered.

Misinterpretation of question can be avoided.

Demerits

This method consumes more cost.

This method costs more time.

This cannot be used when the scope of the investigation is wide.

Indirect oral interview: Indirect oral interview is used when the area to be covered is large. The investigator collects the data from a third party or witness or had of the institution. This method is generally used by police department in cases related to enquiries on causes of fires, theft or murders.

Merits

Economical in terms of time, cost and man power.

Confidential information can be collected.

Information is likely to be unbiased and reliable.

Demerits

The degree of accuracy of information is less.

3. a) Draw Ogives from the following data and measure the median value. Verify it by actual calculations. [5 Marks]

Central size	5	15	25	35	45
Frequency	5	11	21	16	10

Central Value	Limits	Frequency	Less than		Greater than
5	0-10	5	10	5	0	63
15	10-20	11	20	16	10	58
25	20-30	21	30	37	20	47
35	30-40	16	40	53	30	26
45	40-50	10	50	63	40	10
Total		63

Now from the meeting points of these two ogives if we draw a perpendicular to the X axis, the point where it meets X axis gives median of the series. So here midpoint of 20-30 limit is 25. So median is 25.

By actual calculation

Here n=63, hence median is (N+1)/2th item which is (63+1)/2=32nd item =25.

So ogive median and actual median are same.

b) Size f cf

1000-1500 120 120

1500-2000 f1 120+f1

2000-2500 400 520+f1

2500-3000 500 1020+f1

3000-4000 410-f1* 1430

4000-5000 50 1480

5000-6000 20 1500

N=1500(given)

*N=1500-(120+400+500+50+20)-f1

Median = (N)th item , 1500/2=750th item ,but median is 2600 (given)

This lies between 2500-3000 groups

Now M= L1 + L2-L1 (m-c)

2600= 2500+ 3000-2500/500 *(750-(520+f1))

= >2600 = 2500+ 500/500* (750-520-f1)

= >2600 = 2500- 230-f1

= >2600-2500= 320-f1

= > 100= 320- f1

= > f1 =130

Then f2 = 410-130=280

Ci f m fm

1000-1500 120 1250 150000

1500-2000 130 1750 227500

2000-2500 400 2250 900000

2500-3000 500 2750 1375000

3000-4000 280 3500 980000

4000-5000 50 4500 225000

5000-6000 20 5500 110000 1500 3967500

X= Ó fm

Ó f

=3967500/1500 = 2645 (ans)

4. a) What is the main difference between correlation analysis and regression analysis?

Ans: Correlation analysis: When two or more variables move in sympathy with other, they are said to be correlated. If both variables move in the same direction then they are said to be positively correlated. If the variables move in opposite direction then they are said to be negatively correlated. If they move haphazardly then there is no correlation between them.

Regression analysis: Regression analysis is used to estimate the values of the dependent variables from the values of the independent variables. Regression analysis is used to get measure of the error involved while using the regression line as a basis for estimation. Regression coefficient is used to calculate correlation coefficient.

The main difference between these two is:- correlation analysis attempts to study the relationship between the variable ‘X’ and ‘Y’. Regression analysis attempts to predict the average ‘X’ for a given ‘Y’. It is attempted to quantify the dependence of one variable on the other.

Difference between regression coefficient and correlation coefficient

Correlation coefficient Regression Coefficient

The correlation coefficients, rxy = ryx. The regression coefficients, byx = bxy

It indirectly helps in estimation. It is meant for estimation.

It has no units attached to it. It has units attached to it.

There exists nonsense correlation. There is no such nonsense correlation.

It is not based on cause and effect It is based on cause and effect relationship.

relationship.

b) In Multiple regressions analysis is an extension of two variable regression analyses. In this analysis, two or more independent variables are used to estimate the values of a dependent variable, instead of one independent variable.

Objectives of multiple regression analysis are:

To derive an equation, this provides estimates of the dependent variable from values of the two or more independent variables?

To obtain the measure of the error involved in using the regression equation as a basis of estimation.

To obtain a measure of the proportion of variance in the dependent variable accounted for or explained by the independent variables.

In the given question N=12, hence degree of freedom will be v=n-1, where n is the sample size. So the degree of freedom will be 12-1=11

5. a) Discuss what is meant by Quality control and quality improvement.

Ans: a) Quality Control – is defined as the part of quality management focused on fulfilling quality requirements. Ideally, prevention based controls should prevent problems from occurring, but in reality, no system is foolproof and problems do occur. Accordingly, controls to detect quality problems must be established so that customers receive only products that meet their requirements. ISO 9000 Lead Auditor Training Detection based controls are reactive – the problem and cost have already occurred and the company is resorting to damage control. The intent of detection is to evaluate output from processes and activities by implementing controls to catch problems when they do occur. For example, final inspection to catch defective product before it gets shipped.

Quality Improvement – is defined as the part of quality management focused on increasing the ability to fulfill requirements. Continual improvement results from ongoing actions taken to enhance product characteristics or increase process effectiveness and efficiency. This is one of the key characteristics that differentiate a quality management system from a quality assurance system, i.e., being able to improve the effectiveness and efficiency and of a process or activity by setting measurable objectives and using performance data to manage the achievement of these objectives.

Effectiveness is defined as the extent to which planned activities are realized and planned results are achieved. In determining the effectiveness of quality assurance and quality improvement activities, the following questions should be asked:

– To what extent have problems in product or processes been prevented?

– To what extent have planned objectives for quality been met?

Efficiency is defined as the relationship between result achieved and resources used.

The measure of efficiency is determined by asking the following:

– Can we get the same output using fewer resources?

– Can we get more output without adding resources?

These questions may be applied to the output of any activity within the quality management system of an organization.

It should be noted that ISO 9001 requires organizations to achieve QMS effectiveness through quality assurance and continual improvement activities. QMS efficiency is desirable, but not currently required by ISO 9001. ISO 9004 provides guidelines that consider both the effectiveness and efficiency of the QMS.

Quality improvement actions may include:

• Measuring and analyzing situations

• Establishing improvement objectives

• Searching for possible solutions

• Evaluating these solutions

• Implementing the selected solution

• Measuring, verifying, and analyzing results

• Formalizing the changes

b) What are the limitations of a quality control charts?

The quality control chart is based on the research of Villefredo Pareto. He found that approximately 80 percent of all wealth of Italian cities he researched was held by only 20 percent of the families. The Pareto principle has been found to apply in other areas, from economics to quality control. Pareto charts have several disadvantages, however.

Easy to Make but Difficult to Troubleshoot

Based on the Pareto principle, any process improvement should focus on the 20 percent of issues that cause the majority of problems in order to have the greatest impact. However, one of the disadvantages of Pareto charts is that they provide no insight on the root causes. For example, a Pareto chart will demonstrate that half of all problems occur in shipping and receiving. Failure Modes Effect Analysis, Statistical Process Control charts, run charts and cause-and-effect charts are needed to determine the most basic reasons that the major issues identified by the Pareto chart are occurring.

Multiple Pareto Charts May Be Needed

Pareto charts can show where the major problems are occurring. However, one chart may not be enough. To trace the cause for the errors to its source, lower levels of Pareto charts may be needed. If mistakes are occurring in shipping and receiving, further analysis and more charts are needed to show that the biggest contributor is in order-taking or label-printing. Another disadvantage of Pareto charts is that as more are created with finer detail, it is also possible to lose sight of these causes in comparison to each other. The top 20 percent of root causes in a Pareto analysis two to three layers down from the original Pareto chart must also be compared to each other so that the targeted fix will have the greatest impact.

Qualitative Data versus Quantitative Data

Pareto charts can only show qualitative data that can be observed. It merely shows the frequency of an attribute or measurement. One disadvantage of generating Pareto charts is that they cannot be used to calculate the average of the data, its variability or changes in the measured attribute over time. It cannot be used to calculate the mean, the standard deviation or other statistics needed to translate data collected from a sample and estimate the state of the real-world population. Without quantitative data and the statistics calculated from that data, it isn't possible to mathematically test the values. Qualitative statistics are needed to whether or not a process can stay within a specification limit. While a Pareto chart may show which problem is the greatest, it cannot be used to calculate how bad the problem is or how far changes would bring a process back into specification.

Q6. a) Suggest a more suitable average in each of the following cases:

Average size of ready-made garments.

Average marks of a student.

Ans: Average size of readymade garments: Arithmetic mean will be used because it is continuous and additive in nature.

Average marks of a student: Arithmetic mean will be used because the data re in the interval and the distribution is symmetrical.

b) State the nature of symmetry in the following cases:

When median is greater than mean, the series is said to have negative skewness. The following characteristics can be seen

Mode > Median > Mean

The left tail of the curve is longer than the right tail, when the data are plotted through a histogram, or a frequency polygon.

The formula of skewness and its coefficients give negative figures.

When mean is greater than median, the series is said to have positive skewness.the following characteristics can be seen

Mean > Median > Mode

The right tail of the curve is longer than its left tail, when the data are poltted through a histogram, or a polygon.

The formula of skewness and its coefficients give positive figures.

The following example would show the above distributions and their respective characteristics:

Value (X)	Positively Skewed			Negatively Skewed
	F	FX	CF	F	FX	CF
10	5	50	5	5	50	5
20	15	300	20	7	140	12
30	13	390	33	9	270	21
40	11	440	44	11	440	32
50	9	450	53	13	650	45
60	7	420	60	15	900	60
70	5	350	65	5	350	65
Total	65	2400	-	65	2800	-

Mean= 2400/65= 37 Mean= 2800/65= 43

Median=(65+1)/2=33th Median= 33th item =50

Item =30

MB0039 – Business Communication Assignment

2012-03-17T13:01:00.000+05:30

Master of Business Administration - MBA Semester 1

MB0039 – Business Communication - 4 Credits

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Explain the different types of communication with relevant examples. (10 marks)

Communication is a process that involves exchange of information, thoughts, ideas and emotions. Communication is a process that involves a sender who encodes and sends the message, which is then carried via the communication channel to the receiver where the receiver decodes the message, processes the information and sends an appropriate reply via the same communication channel.

Types of Communication:

Communication can occur via various processes and methods and depending on the channel used and the style of communication there can be various types of communication.

Types of Communication Based on Communication Channels:

Based on the channels used for communicating, the process of communication can be broadly classified as verbal communication and non-verbal communication. Verbal communication includes written and oral communication whereas the non-verbal communication includes body language, facial expressions and visuals diagrams or pictures used for communication.

Verbal Communication:

Verbal communication is further divided into written and oral communication. The oral communication refers to the spoken words in the communication process. Oral communication can either be face-to-face communication or a conversation over the phone or on the voice chat over the Internet. Spoken conversations or dialogs are influenced by voice modulation, pitch, volume and even the speed and clarity of speaking. The other type of verbal communication is written communication. Written communication can be either via snail mail, or email. The effectiveness of written communication depends on the style of writing, vocabulary used, grammar, clarity and precision of language.

Nonverbal Communication:

Non-verbal communication includes the overall body language of the person who is speaking, which will include the body posture, the hand gestures, and overall body movements. The facial expressions also play a major role while communication since the expressions on a person’s face say a lot about his/her mood. On the other hand gestures like a handshake, a smile or a hug can independently convey emotions. Non verbal communication can also be in the form of pictorial representations, signboards, or even photographs, sketches and paintings.

Types of Communication Based on Style and Purpose

Based on the style of communication, there can be two broad categories of communication, which are formal and informal communication that have their own set of characteristic features.

Formal Communication

Formal communication includes all the instances where communication has to occur in a set formal format. Typically this can include all sorts of business communication or corporate communication. The style of communication in this form is very formal and official. Official conferences, meetings and written memos and corporate letters are used for communication. Formal communication can also occur between two strangers when they meet for the first time. Hence formal communication is straightforward, official and always precise and has a stringent and rigid tone to it.

Informal Communication:

Informal communication includes instances of free unrestrained communication between people who share a casual rapport with each other. Informal communication requires two people to have a similar wavelength and hence occurs between friends and family. Informal communication does not have any rigid rules and guidelines. Informal conversations need not necessarily have boundaries of time, place or even subjects for that matter since we all know that friendly chats with our loved ones can simply go on and on. by kvsudepizzacom.

Q.2 What are the general principles of writing especially business writing? (10 marks)

Principles of Business Writing:

The principles of Good Business Letter can be described in the following ways:

1) Knowing the Addressee – Good Business Letter should contain the relevant information about the knowledge of subject and the person to whom it is addressed. It will create maximum influence on the reader and will benefit in best possible way.

2) Writing Naturally – Good Business Letter should have genuineness in expression of thoughts or ideas. It should be written in soft spoken language and the reader should believe that we are in conversation with him.

3) Writing clearly and Without Ambiguity – Good Business Letter should be free from any confusion or ambiguity. It should insured clarity of thoughts with no omission of words, no faulty punctuation and no disorderly arrangement of facts. There has to be affixation of full stops and commas at right places so that there is no change in the sense or subject of the matter. Besides this, there has to be proper specification of numbers and figures to maintain the authenticity of the matter. The faulty punctuations or faulty words may prove disaster or failure for the business relations.

4) Writing Completely – Good Business Letter should have all the relevant facts and complete information so that there are no unnecessary queries. The letter should be complete in all aspects and everything should be described or written specifically.

5) Courtesy and Consideration – The courtesy in business correspondence is simply not restricted to obligatory words like “Thank you” or “Please” but implies to promptness in attending to the letters. It is important to acknowledge letters when it is not possible to give immediate replies. There has to be politeness in declining business proposals or saying “no” and it has to be done in decent manner. In business, courtesy begets courtesy, so there has to be congenial and friendly with business associates and parties.

6) Avoiding Jugglery or Jumbling of Words – It is important that the language of the letters should be simple and should not be like essay or article from literary point of view. It has to be written in short sentences with simple words. The letter should not have typical or difficult words and it should be refrained from verbose or prosaic style of writing.

7) Avoiding the use of commercial words/phrases/abbreviations – The use of commercial words/phrases/abbreviations should be avoided as they have become obsolete and out of practice. There are some important commercial terms that cannot be substituted, yet they should be minimize or avoided in the letters.

8) Effectiveness – Good Business Letter should be concise, precise, relevant, concrete and consistent so that it is easily understood by the reader and its contents should be fully followed. The letter should be arranged in the relevant way so that the important facts should be given prime importance. It should be followed by other important facts in continuation so that the entire letter becomes link chain. The letter can be divided into small paragraphs and each paragraph should contain specific type of information. It should be not too short or too lengthy as this may prove monotonous or irrelevant in a business letter to the reader.

9) Planning the Letter – The writer of the letter should have good thinking power and should plan out its contents before writing the letter. It helps in assorting all relevant facts, figures and places so that the letter becomes more useful and result oriented. The following steps are to be taken for planning a letter and they are as follows:

a) Collecting facts or information – It refers to collecting all the relevant facts or information to be included in the letter.

b) Selecting right or accurate style/approach – It implies to the initiation of letter and can be done through three approaches or styles. They are:

1) Direct – In this type we can jump into main issue or conclusion before giving any type of preface or introduction. For example – Enquiries, Quotations, Orders etc.

2) Indirect – It involves making indirect or preface for the main information, issue or subject.

3) Persuasive – It should be written in a way that the reader should be motivated and its content should arouse his interest to create a demand for the business. For example – sales executive offering lucrative offers to sell his products through effective business letter writing.

c) Arranging Facts, Figures and Places – The collected information of the relevant facts, figures and places should be arranged and assorted properly so that the letter becomes link chain and should be able to satisfy readers.

10) Checking or Revising the Letter – The business letter should be revised and checked thoroughly before signature and dispatch. It is done to assure accuracy, clarity and effectiveness of a business letter. It should be free from faulty words, faulty punctuation, and incomplete information etc for congenial and prosperous business relations.

Q.3 how would you prepare yourself for an oral business presentation? (10 marks)

Delivering a formal presentation can be either fairly stress-free or nerve-wrecking. Your level of comfort can depend on the size of your audience, the critical spectators attending your presentation, or the feedback that you may anticipate. Whatever you may find as a cause for concerns about speaking before a group, never let it be your knowledge about what you will speak. With thorough and effective research about your subject, you will discover that you are already halfway prepared to address your listeners. The following steps can complete your preparation.

Instructions:

1. Study your subject. You may have already been provided great information from which you could pull. But if there are other sources, such as the Internet or experts, use them to enhance your own insight. Doing so can also help you develop more confidence in your speech.

2. In the comfort of your own study lab (wherever that may be), anticipate all types of responding questions from people in your audience: challenging questions, critical questions, crazy questions, and simple questions (the ones which are so simple that you forgot to prepare an answer for). Equip yourself with facts and insight accordingly. For enlightenment on people's views, I have read several message boards and even complaint sites to help me prepare for the unexpected.

3. Organize the notes from which you will speak. Whether typed or handwritten, you must be able to comprehend them in order to convey them to an audience. So, if you jot your notes down on index cards, write legibly.

Also, bind the notes - paper or cards - that you plan to use during your presentation. Dropping loose papers or cards during your speech should not distract an attentive listener, but it can certainly distract you, the speaker. Make your task a tad bit easier on yourself alleviating the possibility of that problem.

4. If you decide to speak with the aid of a Power Point presentation, bear in mind how you will insert information to be displayed. Don't expect an audience to read lengthy sentences or any paragraph - no matter how much time they are given.

By all means, do not prepare yourself to read every word written on that Power Point. The audience does not need to see the back of your head. They don't need to hear your voice drift into a state of monotony, which is what can happen if you read word-for-word from your notes.

5. Practice your presentation in private and be willing to be your own biggest critic. Grab a tape recorder or any recording device to listen to your own speech.

6. As I expressed above, approach the podium with a solid knowledge base about every point your will discuss.

7. Please do not imagine your audience in their underwear. You need to focus. If eye contact with any of those listeners intimidates you, then look just past the last row of people to land your sight on either some empty seats or the wall. There are corners of walls and other inanimate objects where you can place your focus until you find yourself comfortable enough to make brief eye contact with a few friendly or neutral faces.

8. Remember that the last row of listeners need to hear your voice. Unless you have a reliable microphone, be sure to project.

9. Do not overestimate your listeners' attention spans. Keep their interest. Give your tone some range (logical range, that is). And wherever your subject and the points from which you speak will allow, engage your audience with illustrations which they can relate to.

10. Please impose neither overly technical terminologies nor acronyms on your audience. While these expressions of intelligence seem effective, they actually reflect a lazy effort to communicate detailed and comprehensible information to listeners.

11. Remember that, at this point, there should be no reason to lose confidence. If you've studied your subject, grasped a clear understanding of it, and followed the tips above, you have the tools to conquer any sharp sensation that you may feel in the pit of your gut going before any group.

Q.4 you are a team manager having 15 members in your team. Two of your key team members are on 3-weeks leave. You have to call for a monthly team meeting within a week. How effectively you would plan and carry out this meeting? (10 marks)

Q. 5 Distinguish between circulars and notices along with formats. (10 marks)

A circular is a communication meant to convey information of a business firm to customers, business Mends etc. In the course of business, occasions will arise to send out circular letters. The sender aims giving certain information to the public. There are also other ways to communicate or advertise in newspapers or journals.

Generally printed or cyclostyled circular letters have a few advantages such as, less expenses, any number of letters can be posted in a day, to a certain extent the personal meet of the sales agents can be substituted, and the recipient, if interested, may call upon the firm or the sales agent, and so the agent need not wait to have an appointment. The objectives of circular letters are: To obtain publicity for a merchandise, to impress the readers with the facts about the firm and the products, to make the readers more interest in their contents, to attain the confidence of the readers and to stimulate sales.

A circular letter is one that carries a communication to a number of addresses. The basic difference between a circular and a general letter is that, whereas the former is addressed to many persons, the latter is addressed to only one person. Circular letters are to be read by a large number of people, whereas general letters arc personal and private in nature.

Notices are methods used to keep the workforce as a whole up to date with what is going on. There are impersonal methods of communication i.e. the same communication is sent to all the workers. Notices may relate to vacant posts, holiday arrangements, union matters or social events and are likely to be displayed on a notice board. Sometimes important notices are included with wage or salary slips. They keep workers informed and attempt to make them feel a part of a large company.

The advantages of this method are:

It can contain diagrams as well as written information.

A written record of the message is kept.

They can be created in such a way as to attract attention.

Employees tend to look at notice boards in their breaks.

Circulars and notices are written forms of communication within the organization.

The difference between a circular and a notice is circulars are announcements those are

Distributed to small or selective groups of people within an organization, whereas notices are meant for a larger group of people.

In simple term, a notice is a mention in writing, a sign or placard conveying some information or intelligence. while a circular is a letter or advert, of which many copies have been made, addressed and distributed to a circle of people, customer.

Basically, they both convey info. to a predetermined group or circle. The only diff is that while the former is strategically placed in known locations, the latter is forwarded directly to the intended recipients. by kvsudepizzacom.

Q. 6 You are a sales manager for a particular brand of mixer and blender. Frame a sample bad news letter telling a customer about that her claim for the product replacement is rejected on the grounds that the product didn’t have any defect during the sale. (10 marks)

Master of Business Administration - MBA Semester 1

MB0039 – Business Communication - 4 Credits

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 As a part of top management team, how would you communicate to your shareholders about the company’s expansion plans? (10 marks)

Q.2 ABC Ltd. wants to communicate about its corporate image to all its stakeholders and also to the general public. As an advisor, how do you recommend them to do it? (10 marks)

Q.3 what is oral business communication? Explain its benefits to the organisation and to the individual employee. (10 marks)

According to a 2005 study published in the Journal of Employment Counseling, oral communication skills are being increasingly sought after by employers. When surveying over 100 successful businesses, researchers found that more and more employers are emphasizing the development of good speaking skills in their employees. With this in mind, the concept of oral communication is an important idea to study and understand in the context of business.

Presentations:

One form of oral communication in a business setting is a presentation. Presentations are usually an organized conveyance of information to a group of people. Stylistically, they tend to be far more formal than informal, and rely more heavily on data and facts than they do analysis. Presentations are sometimes more persuasive in nature, like a pitch for an ad campaign, but tend to be informative more often, such as an employee briefing or a report on quarterly earnings. Presentations may include some dialog after the sender of the message has finished their speech, but they are, by and large, much more monologue reliant. This makes it important for the speaker to anticipate possible objections to the message and address them in the actual speech.

Client Interaction

Another form of oral communication in business encompasses interaction with clients. Depending on the level of connection between the employee and the client, the communication in these interactions can range from incredibly formal to informal and casual. These interactions usually include a combination of data and analysis, and will be more persuasive than informative in nature, as the employee is trying to encourage continued and expanded business with the client. Because of the nature of these interactions, the communication is definitely a dialog, making listening skills incredibly important.

Interoffice Interaction

Oral communication in the office can be referred to as interoffice interaction. This is comprised of conversations with superiors, subordinates and co-workers. Depending on the levels of power separation between the individuals engaging in conversation, the communication will fluctuate between formal and informal, though it should always remain professional. Conversations in this context may reference data, but will be much more analysis heavy, and will be a dialog by nature.

Benefits

Oral communication in business provides a variety of benefits. First, oral communication is accompanied by nonverbal signifiers, which provides context that can enhance understanding in the communication process. Posture, facial expressions, and habitual movements may provide clues as to an individuals feelings about the ideas being discussed. Even in telephone conversations, pitch, rate, volume and tone of the respective speakers can help in understanding sentiments.

Oral communication also provides a springboard for relational development. Unlike with email, memos and chat functions, which tend to take a task-oriented approach to communication, the immediacy involved in oral communication allows for instant feedback and a more relational approach. This is important, as strong relationships in business often lead to more profitable and productive cooperation.

Q.4. Give short notes on communication network in the organisation. (10 marks)

Networks are another aspect of direction and flow of communication. Bavelas has shown that communication patterns, or networks, influence groups in several important ways. Communication networks may affect the group's completion of the assigned task on time, the position of the de facto leader in the group, or they may affect the group members' satisfaction from occupying certain positions in the network. Although these findings are based on laboratory experiments, they have important implications for the dynamics of communication in formal organizations.

There are several patterns of communication:

"Chain",

"Wheel",

"Star",

"All-Channel" network,

"Circle".

The Chain can readily be seen to represent the hierarchical pattern that characterizes strictly formal information flow, "from the top down," in military and some types of business organizations. The Wheel can be compared with a typical autocratic organization, meaning one-man rule and limited employee participation. The Star is similar to the basic formal structure of many organizations. The All-Channel network, which is an elaboration of Bavelas's Circle used by Guetzkow, is analogous to the free-flow of communication in a group that encourages all of its members to become involved in group decision processes. The All-Channel network may also be compared to some of the informal communication networks.

If it's assumed that messages may move in both directions between stations in the networks, it is easy to see that some individuals occupy key positions with regard to the number of messages they handle and the degree to which they exercise control over the flow of information. For example, the person represented by the central dot in the "Star" handles all messages in the group. In contrast, individuals who occupy stations at the edges of the pattern handle fewer messages and have little or no control over the flow of information.These "peripheral" individuals can communicate with only one or two other persons and must depend entirely on others to relay their messages if they wish to extend their range.

In reporting the results of experiments involving the Circle, Wheel, and Star configurations, Bavelas came to the following tentative conclusions. In patterns with positions located centrally, such as the Wheel and the Star, an organization quickly develops around the people occupying these central positions. In such patterns, the organization is more stable and errors in performance are lower than in patterns having a lower degree of centrality, such as the Circle. However, he also found that the morale of members in high centrality patterns is relatively low. Bavelas speculated that this lower morale could, in the long run, lower the accuracy and

speed of such networks.

In problem solving requiring the pooling of data and judgments, or "insight," Bavelas suggested that the ability to evaluate partial results, to look at alternatives, and to restructure problems fell off rapidly when one person was able to assume a more central (that is, more controlling) position in the information flow. For example, insight into a problem requiring change would be less in the Wheel and the Star than in the Circle or the Chain because of the "bottlenecking" effect of data control by central members.

It may be concluded from these laboratory results that the structure of communications within an organization will have a significant influence on the accuracy of decisions, the speed with which they can be reached, and the satisfaction of the people involved. Consequently, in networks in which the responsibility for initiating and passing along messages is shared more evenly among the members, the better the group's morale in the long run.

Q. 5 what are the different types of business letters? Explain with example. (10 marks)

Business letter is an old form of official correspondence. A business letter is written by an individual to an organization or an organization to another organization. Business letters are written for various purposes. One writes a letter to enquire information, apply for a job, acknowledge someone's work, and appreciate one's job done, etc.

As the motive of writing the letter is different, the style of the letter changes and you get different types of business letters. The various types of business letters are used by different people to serve their purpose of sending the message across.

Let's take look at the most common types of business letters:

Acknowledgement Letter: This type of letter is written when you want to acknowledge some one for his help or support when you were in trouble. The letter can be used to just say thanks for something you have received from some one, which is of great help to you.

Apology Letter: An apology letter is written for a failure in delivering the desired results. If the person has taken up a task and he fails to meet the target then he apologizes and asks for an opportunity to improve in this type of letter.

Appreciation Letter: An appreciation letter is written to appreciate some one's work in the organization. This type of letter is written by a superior to his junior. An organization can also write an appreciation letter to other organization, thanking the client for doing business with them.

Complaint Letter: A complaint letter is written to show one that an error has occurred and that needs to be corrected as soon as possible. The letter can be used as a document that was used for warning the reader.

Inquiry Letter: The letter of inquiry is written to inquire about a product or service. If you have ordered a product and yet not received it then you can write a letter to inquire when you will be receiving it.

Order Letter: This letter is as the name suggests is used for ordering products. This letter can be used as a legal document to show the transaction between the customer and vendor.

Letter of Recommendation: This type of letter is written to recommend a person for a job position. The letter states the positive aspects of the applicant's personality and how he/she would be an asset for the organization. Letter of recommendation is even used for promoting a person in the organization.

Q. 6 prepare your resume highlighting your personal achievements, job experience if any and educational background. Also prepare a cover letter to the organisation where you want to apply and the position to be applied for. (10 marks)

MB0038 – Management Process and Organization Behavior

2012-03-17T12:58:00.000+05:30

MB0038 – Management Process and Organization Behavior - 4 Credits

(Book ID: B1127)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Write a note on the managerial roles and skills. [10] [10]

To meet the many demands of performing their functions, managers assume multiple roles. Henry mintzberg has identified ten roles common to the work of all managers. The ten roles are divided into three groups: interpersonal, informational, and decisional. The informational roles link all managerial work together. The interpersonal roles ensure that information is provided. The decisional roles make significant use of the information. The performance of managerial roles and the requirements of these roles can be played at different times by the same manager and to different degrees depending on the level and function of management. The ten roles are described individually, but they form an integrated whole.

The idea of a role comes from sociology and is the pattern of actions expected of a person in his activities involving others. It arises as a result of the position that he occupies in a group in a given situation. Thus, a manager who occupies different positions in different situations plays different roles because people in each situation have different expectations of him concerning his functions.
Interpersonal Roles:

The three interpersonal roles are primarily concerned with interpersonal relationships. In the figurehead role, the manager represents the organization in all matters of formality. The top-level manager represents the company legally and socially to those outside of the organization.

•Figure head- Ceremonial and symbolic role, obliged to perform a number of routine duties of a legal or social nature.

•Leadership – Responsible for leading the subordinates towards objective by motivation. He is responsible for staffing, training, controlling, directing.

•Liaison – Liasoning with external bodies and public relations activities.

The Informational Role:

The direct relationships with people in the interpersonal roles place the manager in a unique position to get information. Thus, the three informational roles are primarily concerned with the information aspects of managerial work.

•Monitor – collecting and passing on information, both from inside and outside the organization

•Disseminator – communicating information to the organization members.

•Spokesman – representing the organization to outsiders
The Decisional Role:

The unique access to information places the manager at the centre of organizational decision-making. There are four decisional roles. In the entrepreneur role, the manager initiates change.

•Entrepreneur - bring innovative ideas to improve organizational performance.

•Disturbance handler – taking corrective measure to cope up with adverse situation.

•Resource allocators – Allocating human, physical resource and proper allocation of funds.

•Negotiator – negotiating with trade unions, stakeholders, customers.

Management skill can has been identified by Katz as

• Technical skill

• Human skill

• Conceptual skill

Technical skill-

The ability to do and apply specialized knowledge or expertise All jobs require some skills of expertise. Many people develop there skill either by training or develop their skill by job.

Human Skill-

This is the ability to work with, understanding and moyivate other people. This requires sensitivity towards other issue and concern. People, who are proficient in technical skill, but not with interpersonal skill, may face difficulty to manage their subordinates,. To acquire the human skills, it is pertinent to recognize the feelings and sentiments of others, ablity to motivate others even in adverse situation, and communicate own feeling to others in a positive and inspiring way.

Conceptual Skill-

This is the ability to critically analyze, diagnose a situation and forward a feasible solution. It requires creative thinking, generating options and choosing the best available option.

Q.2 Explain the social learning theory in detail. [10] [10]

Social learning theory was proposed by Albert Bandura in 1977.

"Learning would be exceedingly laborious, not to mention hazardous, if people had to rely solely on the effects of their own actions to inform them what to do. Fortunately, most human behavior is learned observationally through modeling: from observing others one forms an idea of how new behaviors are performed, and on later occasions this coded information serves as a guide for action."

The social learning theory proposed by Albert Bandura has become perhaps the most influential theory of learning and development. While rooted in many of the basic concepts of traditional learning theory, Bandura believed that direct reinforcement could not account for all types of learning.

His theory explains a social element, that people can learn new information and behaviors by watching other people. Known as observational learning (or modeling), this type of learning can be used to explain a wide variety of behaviors.

Social learning has four processes.

• Attention process

• Retention process

• Motor reproduction process

• Reinforcement process

Attention process:

People learn from a model or other person only when they pay attention, recognize and identify its critical features. In order to learn they have to pay attention. Any thing that distract, will have a adverse effect on the learning. If the model is interested or there is a novel aspect to the situation, it is more likely to draw the full attention of the learner.

Retention process

A model’s influence will depend on how well the individual remembers the model’s action after it is not longer available. The ability to store information is also an important part of the learning process. Retention can be affected by a number of factors, but the ability to pull up information later and act on it is vital to observational learning.

Motor reproduction process

After a person has paid attention and recognized the critical factor and retaining the features. He has the reproduce the same. It should be converted into action to bring out the results. Further practice of the learned behavior leads to improvement and skill advancement.

Reinforcement process

Individual will be motivated to exhibit the modeled behavior if positive incentives or rewards are provided. Finally, in order for observational learning to be successful, you have to be motivated to imitate the behavior that has been modeled. Reinforcement and punishment play an important role in motivation. While experiencing these motivators can be highly effective, so can observing other experience some type of reinforcement or punishment? For example, if you see another student rewarded with extra credit for being to class on time, you might start to show up a few minutes early each day.

Principles of social leaning theory are:

• The highest level of observational learning is achieved by the first organization and rehearsing the modeled behavior into wards, labels or images results in better retention than simply observing.

• Individual are more likely to adopt a modeled behavior, if it results in outcome by value.

• Individual is more likely to adopt a modeled behavior, if the model is similar to the observer and has admired status and the behavior has functional value.

Q.3 Explain the Big 5 model of personality. [10]

Many researchers argue that five basic dimensions underlie all other personality dimension. The five dimensions are as below.

• Extraversion

• Agreeableness

• Conscientiousness

• Emotional stability

• Openness to experience

Extraversion – comfort level with relationships. Extraverts tend to be gregarious, assertive and sociable. Introverts tent to be reserved, timid, and quite. This trait includes characteristics such as excitability, sociability, talkativeness, assertiveness, and high amounts of emotional expressiveness. They tend to say “YES”, “Lets do it” and so on. They are the one who are ready and loves challenges.

Example

• I am the party of life

• I don’t mind being the center of attention.

• I feel comfortable around people.

Agreeableness – individual’s propensity to defer to others, High agreeableness people- cooperative, warm and trusting. Low agreeableness people – cold, disagreeable and antagonistic. This personality dimension includes attributes such as trust, altruism, kindness, affection, and other pro social behaviors. Agreeable are considered friendly, honest and trust worthy.. They have an optimistic view of human nature.

Example

• I feel others emotions.

• I have a soft heart.

• I make people feel at ease.

Conscientiousness - A high conscientious person is responsible, organized, dependable and persistent. Those who score low on this dimension are easily distracted, disorganized and unreliable. Common features of this dimension include high levels of thoughtfulness, with good impulse control and goal-directed behaviors. Those high in conscientiousness tend to be organized and mindful of details.

It is concern with the way in which we control, regulate and direct our impulse. They work on the first impulse. They can be considered as colorful, fun to be with. Conscientiousness include the factor know as “Need for achievement”. They are the individual who achieve success through purposeful planning and persistence. They are also regarded as intelligent and reliable, on a positive note. But on the other hand as perfectionist and workaholics.

Example

• I am always prepared.

• I like order.

• I make a mess of things. (Reversed)

Emotional stability- This is also known as neuroticism a person’s ability to withstand stress. People with positive emotional stability tend to be clam, self-confident, and secure. Those with high negative scores tend to be nervous, anxious, depressed, and insecure.

Example

• I am easily disturbed

• I change my mood often

• I am relaxed most of the time (reversed)

Openness to experience – This describes a dimension of personality that distinguishes imaginative, creative people from down to earth. The range of interests and fascinations with novelty. Extremely open people are creative, curious and artistically sensitive. Those at the other end of openness category are conventional and find comfort in the familiar. Those high in this trait also tend to have a broad range of interests.

Open people are intellectually curious, appreciative of art and sensitive to beauty. They tend to be compared to close people, more aware of their feelings. People with low score tent to have a narrow, common interest. They prefer straight and obvious over the complex.

Example

• I am full of ideas

• I use difficult words

• I do not have good imagination (reversed)

Q.4 What are the different factors influencing perception? [10] [10]

Perception is our sensory experience of the world around us and involves both the recognition of environmental stimuli and actions in response to these stimuli. Through the perceptual process, we gain information about properties and elements of the environment that are critical to our survival. Perception not only creates our experience of the world around us, it allows us to act within our environment.

A number of factors influence one’s perception, they reside in.

• In the perceiver.

• In the object or target being perceived or

• In the context of the situation in which the perception is made.

Characteristics of the Perceiver

Several characteristics of the perceiver can affect perception. When an individual looks at a target and attempts to interpret what he or she stands for, that interpretation is heavily influenced by personal characteristics of the individual perceiver. The major characteristics of the perceiver influencing perception are:

• Attitudes: The perceiver’s attitudes affect perception. For example, suppose Mr. X is interviewing candidates for a very important position in his organization – a position that requires negotiating contracts with suppliers, most of whom are male. Mr. X may feel that women are not capable of holding their own in tough negotiations. This attitude will doubtless affect his perceptions of the female candidates he interviews.

• Moods: Moods can have a strong influence on the way we perceive someone. We think differently when we are happy than we do when we are depressed. In addition, we remember information that is consistent with our mood state better than information that is inconsistent with our mood state. When in a positive mood, we form more positive impressions of others. When in a negative mood, we tend to evaluate others unfavorably.

• Motives: Unsatisfied needs or motives stimulate individuals and may exert a strong influence on their perceptions. For example, in an organizational context, a boss who is insecure perceives a subordinate’s efforts to do an outstanding job as a threat to his or her own position. Personal insecurity can be translated into the perception that others are out to "get my job", regardless of the intention of the subordinates.

• Self-Concept: Another factor that can affect social perception is the perceivers’ self-concept. An individual with a positive self-concept tends to notice positive attributes in another person. In contrast, a negative self-concept can lead a perceiver to pick out negative traits in another person. Greater understanding of self allows us to have more accurate perceptions of others.

• Interest: The focus of our attention appears to be influenced by our interests. Because our individual interests differ considerably, what one person notices in a situation can differ from what others perceive. For example, the supervisor who has just been reprimanded by his boss for coming late is more likely to notice his colleagues coming late tomorrow than he did last week. If you are preoccupied with a personal problem, you may find it hard to be attentive in class.

• Cognitive Structure: Cognitive structure, an individual’s pattern of thinking, also affects perception. Some people have a tendency to perceive physical traits, such as height, weight, and appearance, more readily. Others tend to focus more on central traits, or personality dispositions. Cognitive complexity allows a person to perceive multiple characteristics of another person rather than attending to just a few traits.

• Expectations: Finally, expectations can distort your perceptions in that you will see what you expect to see. The research findings of the study conducted by Sheldon S Zalkind and Timothy W Costello on some specific characteristics of the perceiver reveal

Knowing oneself makes it easier to see others accurately.

One’s own characteristics affect the characteristics one is likely to see in others. People who accept themselves are more likely to be able to see favorable aspects of other people.

Accuracy in perceiving others is not a single skill.

These four characteristics greatly influence how a person perceives others in the environmental situation.

Characteristics of the Target

Characteristics in the target that is being observed can affect what is perceived. Physical appearance plays a big role in our perception of others. Extremely attractive or unattractive individuals are more likely to be noticed in a group than ordinary looking individuals. Motion, sound, size and other attributes of a target shape the way we see it. The perceiver will notice the target’s physical features like height, weight, estimated age, race and gender. Perceivers tend to notice physical appearance characteristics that contrast with the norm, that are intense, or that are new or unusual. Physical attractiveness often colors our entire impression of another person. Interviewers rate attractive candidates more favorably and attractive candidates are awarded higher starting salaries.

Verbal communication from targets also affects our perception of them. We listen to the topics they speak about, their voice tone, and their accent and make judgments based on this input. Non-verbal communication conveys a great deal of information about the target. The perceiver deciphers eye contact, facial expressions, body movements, and posture all in an attempt to form an impression of the target .As a result of physical or time proximity, we often put together objects or events that are unrelated.

For example, employees in a particular department are seen as a group. If two employees of a department suddenly resign, we tend to assume their departures were related when in fact, they might be totally unrelated. People, objects or events that are similar to each other also tend to be grouped together. The greater the similarity, the greater the probability we will tend to perceive them as a group.

Characteristics of the Situation

The situation in which the interaction between the perceiver and the target takes place has an influence on the perceiver’s impression of the target. E.g. meeting a manager in his or her office affects your impression in a certain way that may contrast with the impression you would have formed, had you met the manager in a restaurant. The strength of the situational cues also affects social perception. Some situations provide strong cues as to appropriate behavior. In these situations, we assume that ±ie individual’s behavior can be accounted for by the situation, and that it may not reflect the individual’s disposition. This is the discounting principle in social perception. For example, you may encounter an automobile salesperson who has a warm and personable manner, asks you about your work and hobbies, and seems genuinely interested in your taste in cars. Can you assume that this behavior reflects the salesperson’s personality? You probably cannot, because of the influence of the situation. This person is trying to sell you a car, and in this particular situation, he probably treats all customers in this manner.

Q.5 Write a note on contemporary work cohort. [10]

Contemporary Work Cohort, proposed by Robbins (2003) divides the work force into different groups depending on the era or period in which they have entered into work. It stresses upon individuals’ values which reflect the societal values of the period in which they grew up.

The cohorts and the respective values have been listed below:

Workers who entered the workforce from the early 1940s through the early 1960s and exhibited the following value orientations:

• They were influenced by the Great Depression and World War II

• Believed in hard work

• Tended to be loyal to their employer

• Terminal values: Comfortable life and family security

Boomers—Employees who entered the workforce during the 1960s through the mid1980s belonged to this category and their value orientations were:

• Influenced heavily by John F. Kennedy, the civil rights and feminist movements, the Beatles, the Vietnam War, and baby boom competition. b. Distrusted authority, but gave a high emphasis on achievement and material success.

• Distrusted authority, but gave a high emphasis on achievement and material success.

• Organizations who employed them were vehicles for their careers.

• Terminal values: sense of accomplishment and social recognition.

Xers- began to enter the workforce from the mid1980s.

They cherished the following values:

• Shaped by globalization, two career parents, MTV, AIDS, and computers.

• Value flexibility, life options, and achievement of job satisfaction.

• Family and relationships were important and enjoyed team oriented work.

• Less willing to make personal sacrifices for employers than previous generations.

• Terminal values: true friendship, happiness, and pleasure

Nexters -most recent entrants into the workforce.

• Grew up in prosperous times, have high expectation, believe in themselves, and confident in their ability to succeed.

• Never ending search for ideal job; see nothing wrong with job hopping.

• Seek financial success.

• Enjoy team work, but are highly self reliant.

• Terminal values: freedom and comfortable life.

Q.6 What are the special issues in motivation? Discuss Jan 2011

Motivation is “the processes that account for an individual’s intensity, direction, and persistence of effort toward attaining a goal” (Robbins, 2003). Intensity is concerned with how hard a person tries. This is the element most of us focus on when we talk about motivation. Direction is the orientation that benefits the organization. And Persistence is a measure of how long a person can maintain his/her effort. Motivated individuals stay with a task long enough to achieve their goal.

Some of the special issues in motivation are below.

Motivating Professionals

The professional employees likely to seek more intrinsic satisfaction from their work than blue-collar employees. They generally have strong and long-term commitment to their field of expertise are perhaps more loyal to their profession than to their employer. They need to regularly update their knowledge, and their commitment to their profession.

Therefore, extrinsic factors such as money and promotions would be low on their priority list. Rather, job challenge tends to be ranked high. They like to tackle problems and find solutions.

Managerial Implications:

• Provide them with ongoing challenging projects.

• Give them autonomy to follow their interests and allow them to structure their work.

• Reward them with educational opportunities.

• Also reward them with recognition.

Motivating temporary Workers

Temporary workers may be motivated if:

• They are provided with permanent job opportunity

• The opportunity for training is provided to them

• They are provided with permanent job opportunity

• The opportunity for training is provided to them

Motivating Low Skilled Service Workers

One of the most challenging managerial tasks in to motivate low skilled workers who are involved in repetitive physical work, where higher education and skills are not required. For this category of people, flexible work schedules and higher pay package may be proved effective motivational factors.

Master of Business Administration-MBA Semester 1

MB0038 – Management Process and Organization Behavior - 4 Cedits

(Book ID: B1127) Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Explain the theories of emotion. [10]

In psychology, emotion is often defined as a complex state of feeling that results in physical and psychological changes that influence thought and behavior. Emotionality is associated with a range of psychological phenomena including temperament, personality, mood and motivation. According to author David G. Meyers, human emotion involves "physiological arousal, expressive behaviors, and conscious experience."

Theories of Emotion:

The major theories of motivation can be grouped into three main categories: physiological, neurological and cognitive. Physiological theories suggest that responses within the body are responsible for emotions. Neurological theories propose that activity within the brain leads to emotional responses. Finally, cognitive theories argue that thoughts and other mental activity play an essential role in the formation of emotions.

The James-Lange Theory of Emotion

The James-Lange theory is one of the best-known examples of a physiological theory of emotion. Independently proposed by psychologist William James and physiologist Carl Lange, the James-Lange theory of emotion suggests that emotions occur as a result of physiological reactions to events.

According to this theory, you see an external stimulus that leads to a physiological reaction. Your emotional reaction is dependent upon how you interpret those physical reactions. For example, suppose you are walking in the woods and you see a grizzly bear. You begin to tremble and your heart begins to race. The James-Lange theory proposes that you will interpret your physical reactions and conclude that you are frightened ("I am trembling, therefore I am afraid").

The Cannon-Bard Theory of Emotion

Another well-know physiological theory is the Cannon-Bard theory of emotion. This theory states that we feel emotions and experience physiological reactions such as sweating, trembling and muscle tension simultaneously. More specifically, it is suggested that emotions result when the thalamus sends a message to the brain in response to a stimulus, resulting in a physiological reaction.

Schachter-Singer Theory

Also known as the two-factor theory of emotion, the Schachter-Singer Theory is an example of a cognitive theory of emotion. This theory suggests that the physiological arousal occurs first, and then the individual must identify the reason behind this arousal in order to experience and label it as an emotion.

Q.2. Discuss the techniques of decision making in groups. [10]

Many types of decision making models can be studied and used by teams. Understanding decision making models allows teams to make intentional choices about which model might be most appropriate for the various decisions that they confront.

Individuals benefit from understanding decision models by becoming aware of how cognitive and affective biases can both positively and negatively impact how we work to influence our team on making a decision. Being aware of our biases can limit any negative impact from our biases. The models below describe how we work to affect and manipulate the team decision-making process, sometimes in productive ways and at times in detrimental ways for team decisions.

As a team, understanding decision-making models so that the team can make the best decision is valuable. The “best decision” is described as a decision that (1) would not have been thought of by an individual alone, (2) is a sound solution to the problem, (3) is a decision based upon input, as unbiased as possible, from each team member, and (4) addresses the team’s goal for the decision-making process.

Johnson and Johnson describe seven methods/processes that a team might use to make a decision.5 each method, along with its strengths and weaknesses, is discussed below.

Method1. Decision made by authority without group discussion
Process: The designated leader makes all decisions without consulting group members.

Strengths	Weaknesses
• Takes minimal time to make decision	• No group interaction
• Commonly used in organizations (so we are familiar with method)	• Team may not understand decision or be unable to implement decision
• High on assertiveness scale (see conflict paper)	• Low on cooperation scale (see conflict paper)

Appropriate Times for Method 1
• Simple, routine, administrative decisions; little time available to make decision; team commitment required to implement the decision is low.

Method2. Decision by expert
Process: Select the expert from group let the expert consider the issues, and let the expert make decisions.

Strengths	Weaknesses
• Useful when one person on the team has the overwhelming expertise	• Unclear how to determine who the expert is (team members may have different opinions)
	• No group interaction
	• May become popularity issue or power issue

Appropriate Times for Method 2
• Result is highly dependent on specific expertise, clear choice for expert, team commitment required to implement decision is low.

Method3. Decision by averaging individuals' opinions
Process: Separately ask each team member his/her opinion and average the results.

Strengths	Weaknesses
• Extreme opinions cancelled out	• No group interaction, team members are not truly involved in the decision
• Error typically cancelled out	• Opinions of least and most knowledgeable members may cancel
• Group members consulted	• Commitment to decision may not be strong
• Useful when it is difficult to get the team together to talk	• Unresolved conflict may exist or escalate
• Urgent decisions can be made	• May damage future team effectiveness

Appropriate Times for Method 3
• Time available for decision is limited; team participation is required, but lengthy interaction is undesirable; team commitment required to implement the decision is low.

Method4. Decision made by authority after group discussion
Process: The team creates ideas and has discussions, but the designated leader makes the final decision. The designated leader calls a meeting, presents the issue, listens to discussion from the team, and announces her/his decision.

Strengths	Weaknesses
• Team used more than methods 1–3	• Team is not part of decision
• Listening to the team increases the accuracy of the decision	• Team may compete for the leader’s attention
	• Team members may tell leader “what he/she wants to hear”
	• Still may not have commitment from the team to the decision

Appropriate Times for Method 4
• Available time allows team interaction but not agreement; clear consensus on authority; team commitment required to implement decision is moderately low.

Method5. Decision by minority
Process: A minority of the team, two or more members who constitute less than 50% of the team, make the team’s decision

Strengths	Weaknesses
• Method often used by executive committees	• Can be railroading
• Method can be used by temporary committees	• May not have full team commitment to decision
• Useful for large number of decisions and limited time	• May create an air of competition among team members
• Some team perspective and discussion	• Still may not have commitment from team to decision

Appropriate Times for Method 5
• Limited time prevents convening entire team; clear choice of minority group; team commitment required to implement the decision is moderately low.

Method6. Decision by majority vote
Process: This is the most commonly used method in the United States (not synonymous with best method). Discuss the decision until 51% or more of the team members make the decision.

Strengths	Weaknesses
• Useful when there is insufficient time to make decision by consensus	• Taken for granted as the natural, or only, way for teams to make a decision
• Useful when the complete team-member commitment is unnecessary for implementing a decision	• Team is viewed as the “winners and the losers”; reduces the quality of decision
	• Minority opinion not discussed and may not be valued
	• May have unresolved and unaddressed conflict
	• Full group interaction is not obtained

Appropriate Times for Method 6
• Time constraints require decision; group consensus supporting voting process; team commitment required to implement decision is moderately high.

Method7. Decision by consensus
Process: Collective decision arrived at through an effective and fair communication process (all team members spoke and listened, and all were valued).

Strengths	Weaknesses
• Most effective method of team decision making	• Takes more time than methods 1–6
• All team members express their thoughts and feelings	• Takes psychological energy and high degree of team-member skill (can be negative if individual team members not committed to the process)
• Team members “feel understood”
• Active listening used (see communication paper)

Appropriate Times for Method 7
• Time available allows a consensus to be reached; the team is sufficiently skilled to reach a consensus; the team commitment required to implement the decision is high.

Method 7 takes well-practiced communication skills by all team members. Review prior section on environments for decision making and other mini documents on effective communication and conflict management.

Methods for Decision Making—Retrospective
these seven methods/strategies for decision making all have strengths and challenges. However, repeatedly, Method 7 (Decision by consensus) has positive long-standing results regarding team decision making.

Q.3 Elaborate the different stages in process of conflict. [10]

The conflict process can be seen as comprising five stages (1) potential opposition or incompatibility (2) Cognition and personalization (3) intentions (4) Behavior (5) Outcome.

Stage 1: Potential opposition or incompatibility: The first step in the conflict process is the presence on conditions that create opportunities for conflict to rise. These cause or create opportunities for conflict to rise. These causes or sources of conflict have been condenses into three general categories - (1) Communications (2) Structure (3) Personal Variables.

(1)Communications:

Different words connotations, jargon insufficient exchange of information and noise in communication channel are all antecedent conditions to conflict. Too much communication as well as too little communication can rely foundation for conflict.

(2)Structure:

The term structure is used, in this context to include variables such as size, degree of specialization in the tasks assigned to group members, jurisdictional clarity, members/ goal compatibility, leadership styles, reward systems and the degree of dependence between groups.

The size and specialization act as forces to stimulate conflict. The larger the group and the more specialized its activities, the greater the likelihood of conflict. Tenure and conflict have been found to be inversely related,. The potential for conflicts tends to be greatest when group members are younger and when turnover is high. The greater the ambiguity in defining where responsibility for action lies, the greater the potential for conflict to emerge. Such Jurisdictional ambiguity increases inter group fighting for control or resources and territory.

(3)Personal Variables:

Certain personality types- for example individuals who are highly authoritarian and dogmatic- lead to potential conflict. Another reason for conflict is difference in value systems. Value differences are the best explanations of diverse issues such as prejudice disagreements over one’s contribution to the group and rewards one deserves.

Stage 2: Cognition and personalization: conflict must be perceived by the parties to it whether or not conflict exists is a perception issue. If no one is aware of a conflict, then it is generally agreed that no conflict exists. Because conflict is perceives does not mean that is personalized. For e.g. ” A may be aware that B and A are in serious disagreements but it may not make A tense or nations and it may have no effect whatsoever on A’s affection towards B” It is the felt level , when individuals become emotionally involved that parties experience anxiety , tension or hostility.

Stage2 is the place in the process where the parties decide what the conflict is about and emotions plays a major role in shaping perception.

Stage 3: Intentions: Intentions are decisions to act in a given way intentions intervene between people’s perception and emotions and their overt behavior.

Using two dimensions cooperativeness (the degree to which one party attempts to satisfy the other party’s concerns)and assertiveness (the degree to which one party attempts to satisfy his or her own concerns)- five conflict handling intentions can be identified.

1) Competing: when one person seeks to satisfy his or her own interests regardless of the impact on the other parties to the conflict, he is competing.

2) Collaborating: A situation in which the parties to a conflict each desire to satisfy fully the concerns of all the parties. In collaborating, the intention o the parties are to solve the problem by clarifying differences rather than by accommodating various points of view.

3) Avoiding: a person may recognize that a conflict exists and want to withdraw from it or suppress it. Avoiding included trying to just ignore a conflict and avoiding others with whom you disagree.

4) Accommodating: The willingness of one partying a conflict top lace the opponent’s interest above his or her own.

5) Compromising: A situation in which each party to a conflict is wiling to give up something.

Intentions provide general guidelines for parties in a conflict situation. They define each party’s purpose. Yet people intention is not fixed. During the course of conflict, they might change because of reconceptualization or because of an emotional reaction to the behavior of other party.

Stage 4: Behavior: This is a stage where conflict becomes visible. The behavior stage includes the statements, actions and reactions made by the conflicting parties. These conflict behaviors are usually overt attempt to implement each party’s intentions.

Stage 5 Outcomes: The action reaction interplay between the conflicting parties result in consequences. These outcomes may be functional in that the conflict results in an improvement in the group’s performance, or dysfunctional in that it hinders group performance.

Conflict is constructive when it improves the quality of decisions simulates creativity and innovations encourages interest and curiosity among group members provides the medium through which problems can be aired and tensions released and fosters an environment of self evaluation and change.

Conflict is dysfunctional when uncontrolled opposition breeds discontent, which acts to dissolve common ties and eventually leads to the destruction of the group. Among the more undesirable consequences are a retarding of communication, reductions in group cohesiveness and subordination of group goals to the primacy of infighting between members.

Q.4 Write a note on GAS (General Adaptation Syndrome). [10]

The stress response has served an adaptive function throughout human evolution and serves and makes you more focused and alert.

But today’s causes of stress are largely emotional.

Frustrations at work, the lengthy commute, financial concerns, or relationship difficulties are today's stress causes.

Pretty much anything that annoys, frustrates, or scares you has the potential to activate the stress response and result in warning signs of stress.

Now you may feel that you are adapting to the higher and higher levels of stress. But you may be just living with an unhealthy amount of stress and in the resistance stage of the general adaptation syndrome.

Since chronic stress is deceptive and pervasive, this can mean that you don’t get much downtime or rest.

This can lead to exhaustion and even death - the third stage of the general adaptation syndrome.

Hans Seyle, a founding father of stress research, described that these stressors can affect the body in a 3-stage reaction.

These are known as the:

- Alarm phase

- Stage of resistance

- Exhaustion stage.

These different stages of stress resistance explain how stress affects health.

The alarm phase of the general adaptation syndrome:

In the alarm phase you enter a heightened psychological and physiological arousal, known as the fight or flight response. In this stage stress hormones are released into the bloodstream. Adrenaline increases muscle tension, heart rate, and causes a number of other physical effects of stress. Research suggests that if you can reframe the stressor as a challenge you can reduce cortical levels. We discuss in more detail how cortical and stresses affect the body. In the fight or flight response these stress hormones mobilize the body’s resources to fight or flee from the stressful situation. Now there are some advantages to stress – it can make you more focused and alert! But stress for too long without adequate rest or recuperation can be bad for you! Often we are not aware of the tremendous toll that our minds and body pay in the routine, chronic stress that occurs everyday.

The resistance phase of the general adaptation syndrome:

In the resistance stage the mind and the body attempt to adapt to the cause of stress. This could also be known as the adaptation phase. In this stage, the body remains alert (at a lower level) but continues the normal functions. In the resistance stage your body is like a car idling along with it's RPM too high - burning too much energy and becoming inefficient. You may think that you are adapting quite well to the higher stress level. Things may be moving along smoothly for you. However, you may simply be learning to live with an unhealthy stress level. You may notice increasing irritability and frustration, or lapses in concentration, or things just seem harder than they used to be. Stress can boost your concentration and focus, helping you to maintain motivation and discipline. But too much stress can result distress.

Each of us experience stress in different ways but some of the effects of stress include:

Warning Signs of Stress
Physical effects of stress Feelings of nausea Feeling faint or sweaty Headaches or migraine Indigestion, constipation Increased skin irritations e.g. eczema An increase in minor illnesses Feeling tired all the time	Emotional effects of stress Increased forgetfulness Difficulty making decisions A loss of a sense of humor Increased irritability or moodiness Negative thinking Poorer concentration Being constantly worried

When looking at these stress symptoms please keep in mind that these symptoms could be due to other medical problems. It is important for you to visit your local doctor for a complete checkup.

In the resistance stage, whether effective or ineffective, resistance (or adaptation) continues until the person is no longer capable of resistance or the cause of stress passes.

If the body is unable to turn the stress response off to rest and recuperate then irritability, burnout, and fatigue are likely to occur. There are a number of relaxation techniques that you can do which activate the relaxation response. The relaxation response counters the physical and emotional effects of stress.

The exhaustion phase of the general adaptation syndrome:

It is at this point that exhaustion sets in.Stress has generally occurred for some time and at this point, resistance can drop off and the activity returns to the point before the emergency. This stage of the general adaptation syndrome is characterized by issues such as burnout and exhaustion. The body loses it resistance to fight stress and the body’s immune system that fights off disease and infection is weakened.

Q.5Discuss the power and influence tactics. [10]

Influence is the process of changing someone's behavior. It's about being able to move things forward, without pushing, forcing or telling others what to do. It's the ability to work everything at your disposal, both verbal and non-verbal communication, to create the impact you want, rather than letting things just happen.

There are ten common influence tactics that people can use ethically (some are more valid are sales than others):

Legitimizing by referring to or using recognized authority

Logical Persuading by using logic to persuade the influence.

Appealing to Friendship and asking friends for favors or assistance
Socializing to establish rapport, find commonalities and build a connection
Consulting by examining a problem and working with the influence towards a solution
Stating, boldly and directly stating what you want the prospect to do
Appealing to Values, inspiring cooperation by appealing to values, emotions, or feelings
Modeling or setting an example for others to follow
Exchanging by giving something of value to the influence in return for something you want
Alliance Building, building an alliance of supporters who can help you influences others

According to Robert B. Cialdini PhD, there are 6 universal influence tactics. Click here for my influence summary of them.

Today, in this field, Dr. Cialdini is the most-cited living Social Psychologist in the world.

But merely applying a tactic will not make you an effective influencer.

Influence effectiveness depends on a combination of factors including: choice of influence tactic, your skill at using the tactic and your personal power.

For years many believed that the ability to influence was a character attribute some had it and others did not.

It's true for some people; the power to influence comes naturally. However, there's been research conducted over the past 30 years that indicates virtually anyone can apply the principles of influence to change the outcome of any personal interaction.

This research is based upon extensive observation of leading salespeople inside a wide variety of industries. By studying individuals in sales situations, scientists have been able to identify certain patterns of behavior and speech that increase the likelihood of someone saying yes to a request.

Q.6 Explain the characteristics of organization Development. [10]

Organizational Development (OD) can be described as the systematic process to change the culture, system and behavior of organization. It is process that helps in solving organizational problems and achieving organizational objectives. Organizational Development works as important mechanism that helps in impressing the organization and its employee through planned and established system. It concentrates on people dimensions like norms, values, attitudes, relationships, organizational culture etc. The strategies of Organizational Development focus on enhancement of organization effectiveness and solving organizational problems. It includes structural and technological changes and focuses on working relationships of employees with the organization. Organizational Development is the modern approach to management of change for human resources development.

The characteristics of Organizational Development (OD) are as follows:-

Organisational Development is an educational strategy that attempts to bring about a planned change.
Organisational Development relates to real organizational problems instead of hypothetical cases.
Organisational Development uses sensitivity training methods and lay emphasis on the significance of experiment based training.
Its change agents are almost external consultants outside of the organization.
The external change agents and internal organization executives establish a collaborative relationship that involves mutual trust, influence and jointly determined goals.
The external change agents are humanists and seek to establish a social and altruistic philosophy within an organisation.
The goals that the change agent seeks to achieve through OD tend to reflect human approach and aims for better conflict resolution, increased understanding and more considerable leadership.
The required changes in the organisation are usually the result of some immediate problems but it is a long term approach covering three to five years.
It is used to describe variety of change programmes and intends to change the organizational philosophies, attitudes and skills of people.
It is a dynamic process that involves considerable investment of money and time.
It is research based activity and aims at conducting surveys, collection of data and evaluation of the situation
It works on open and adaptive system concepts and believes that organizational design and managerial performance are mutually interdependent.

Operations Research MB0048 – Set 2

2012-03-17T12:50:00.000+05:30

Course MBA – 2^ndSemester

Subject: Operations Research

Assignment MB0048 – Set2

Q1. Explain how to transform an unbalanced transportation problem into a balanced transportation problem where the demand of warehouses is satisfied by the supply of factories.

Ans:-

2. Explain how the profit maximization transportation problem into a Balanced transportation problem where the demand of warehouses is Satisfied by the supply of factories.

A fictive corporation A has a contract to supply motors for all tractors produced

by a fictive corporation B. Corporation B manufactures the tractors at four

locations around Central Europe: Prague, Warsaw, Budapest and Vienna. Plans

call for the following numbers of tractors to be produced at each location:

Prague 9 000

Warsaw 12 000

Budapest 9 000

Corporation A has three plants that can produce the motors. The plants and

production capacities are

Hamburg 8 000

Munich 7 000

Leipzig 10 000

Dresden 5 000

Due to varying production and transportation costs, the profit earns on each motor

depends on where they were produced and where they were shipped. The

following transportation table (Table 7.9) gives the accounting department

estimates of the euro profit per unit (motor).

"Highest - Profit Assignment"

Applying the Stepping Stone method (modified for maximization purposes) to the

initial solution we can see that no other transportation schedule can increase the

profit and so the Highest – Profit initial allocation is also an optimal solution of

this transportation problem.

Stepping Stone Method

Step 1: Pick any empty cell and identify the closed path leading to that cell. A

closed path consists of horizontal and vertical lines leading from an empty cell

back to itself (If assignments have been made correctly, the matrix has only one

closed path for each empty cell.) In the closed path there can only be one empty

cell that we are examining. The 90-degree turns must therefore occur at those

places that meet this requirement. Two closed paths are identified. Closed path a

is required to evaluate empty cell A-E; closed path b is required to evaluate empty

cell A-F

Step 2: Move one unit into the empty cell from a filled cell at a corner of the

closed path and modify the remaining filled cells at the other comers of the closed

path to reflect this move. (More than one unit could be used to test the desirability

of a shift. However, since the problem is linear, if it is desirable to shift one unit, it

is desirable to shift more than one, and vice versa.) Modifying entails adding to

and subtracting from filled cells in such a way that supply and demand constraints

are not violated. This requires that one unit always be subtracted in a given row or

column for each unit added to that row or column. Thus, the following additions

and subtractions would be required :

For the path a:

• Add one unit to A-E (the empty cell).

• Subtract one unit from A-H.

• Add one unit to C-H.

• Subtract one unit from C-E.

For the path b,

• Add one unit to A-F (the empty cell).

• Subtract one unit from A-H.

• Add one unit to C-H.

• Subtract one unit from C-G.

• Add one unit to D-G.

• Subtract one unit from D-F.

Step 3: Determine desirability of the move. This is easily done by (1) summing

the cost values for the cell to which a unit has been added, (2) summing the cost

values of the cells from which a unit has been subtracted, and (3) taking the

difference between the two sums to determine if there is a cost reduction. If the

cost is reduced by making the move, as many units as possible should be shifted

out of the evaluated filled cells into the empty cell. If the cost is increased, no

move should be made and the empty cell should be crossed.

For cell A-E, the pluses and minuses are

3. Illustrate graphically the following special cases of Linear programming problems:

i) Multiple optimal solutions, ii) No feasible solution, iii) Unbounded problem

Ans:- Solving a LPP with 2 decision variables x1 and x2 through graphical representation is easy. Consider x1 x2 – the plane, where you plot the solution space enclosed by the constraints. The solution space is a convex set bounded by a polygon; since a linear function attains extreme (maximum or minimum) values only on the boundary of the region. You can consider the vertices of the polygon and find the value of the objective function in these vertices. Compare the vertices of the objective function at these vertices to obtain the optimal solution of the problem.

Working rule

The method of solving a LPP on the basis of the above analysis is known as the graphical method. The working rule for the method is as follows.

Step 1: Write down the equations by replacing the inequality symbols by the equality symbols in the given constraints.

Step 2: Plot the straight lines represented by the equations obtained in step I.

Step 3: Identify the convex polygon region relevant to the problem. Decide on which side of the line, the half-plane is located.

Step 4: Determine the vertices of the polygon and find the values of the given objective function Z at each of these vertices. Identify the greatest and least of these values. These are respectively the maximum and minimum value of Z.

Step 5: Identify the values of (x1, x2) which correspond to the desired extreme value of Z. This is an optimal solution of the problem

We can analyse linear programming with 2 decision variables graphically.

Example

Let’s look at the following illustration.

Maximise Z = 700 x1+500 x2

Subject to 4x1+3x2  210

2x1+x2  90

and x1  0, x2  0

Let the horizontal axis represent x1 and the vertical axis x2. First, draw the line 4x1 + 3x2 = 210, (by replacing the inequality symbols by the equality) which meets the x1-axis at the point A (52.50, 0) (put x2 = 0 and solve for x1 in 4x1 + 3x2 = 210) and the x2 – axis at the point B (0, 70) (put x1 = 0 in 4x1 + 3x2 = 210 and solve for x2).

Suppose a linear programming problem has an unbounded feasible solution space.

If the set of all values of the objective function at different feasible solutions is not bounded above (respectively, bounded below), and if the problem is a maximisation (respectively, minimisation) problem, then we say that the given problem has an unbounded solution

Q4: 4. How would you deal with the Assignment problems, where a) the objective function is to be maximized?

b) Some Assignments are prohibited?

Ans:- Let’s say there are „n‟ jobs in a factory having „n‟ machines to process the jobs. A job i (=1… n), when processed by machine j (=1… n) is assumed to incur a cost Cij. The assignment is to be made in such a way that each job can associate with one and only one machine. You can then determine an assignment of jobs to the machines to minimise the overall cost.

The cost data is given as a matrix where rows correspond to jobs and columns to machines and there are as many rows as the number of columns. The number of jobs and number of machines should be equal.

Assignment becomes a problem because each job requires different skills and the capacity or efficiency of each person with respect to these jobs can be different. This gives rise to cost differences. If each person is able to do all jobs with same efficiency then all costs will be the same and each job can be assigned to any person. When assignment is a problem it becomes a typical optimization problem. Therefore, you can compare an assignment problem to a transportation problem. The cost element is given and is a square matrix and requirement at each destination is one and availability at each origin is also one.

Additionally, you have number of origins,

Which equal the number of destinations. Therefore, the total demand is equal to the total supply. There is only one assignment in each row and each column. However if you compare this to a transportation problem, you will find that a general transportation problem does not have the above mentioned limitations. These limitations are peculiar to assignment problems only.

An assignment problem can be either balanced or unbalanced. Let’s first focus on a balanced assignment problem. A balanced assignment problem is one where the number of rows = the number of columns (comparable to a balanced transportation problem where total demand =total supply).

Balanced assignment problem: No. of rows = No. of columns

A:- the objective function is to be maximized :-

Some assignment problems are phrased in terms of maximizing the profit or effectiveness or payoff of an assignment of people to tasks or of jobs to machines. You cannot apply the Hungarian method to such maximization problems. Therefore, you need to reduce it to a minimization problem.

It is easy to obtain an equivalent minimization problem by converting every number in the table to an opportunity loss. To do so, you need to subtract every value from the highest value of the matrix and then proceed as usual

You will notice that minimizing the opportunity loss produces the same assignment solution as the original maximization problem.

B:- b Some Assignments are prohibited

Infeasible assignments

It is sometimes possible that a particular person is incapable of doing certain work or a specific a specific job cannot be performed on a particular machine. The solution of the assignment problem should take into account these restrictions so that the infeasible assignment can be avoided. This can be achieved by assigning a very high cost (say ∞ or M) to the cells where assignments are prohibited, thereby, restricting the entry of this pair of job – machine or resource – activity into the final solution. After inserting a high value  at the cell we need to apply Hungarian method to solve the problem.

5. “Simulation is an especially valuable tool in a situation where the mathematics

needed to describe a system realistically is too complex to yield analytical solutions”.

Elucidate.

Ans: Simulation is an especially valuable tool in a situation where the mathematics needed to describe a system realistically is too complex to yield analytical solutions”. Elucidate.

Simulation is the imitation of some real thing, state of affairs, or process. The act of simulating something generally entails representing certain key characteristics or behaviours of a selected physical or abstract system. Simulation is used in many contexts, such as simulation of technology for performance optimization, safety engineering, testing, training,education, and video games. Training simulators include flight simulators for training aircraft pilots. Simulation is also used for scientific modeling of natural systems or human systems in order to gain insight into their functioning. Simulation can be used to show the eventual real effects of alternative conditions and courses of action. Simulation is also used when the real system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to engage, or it is being designed but not yet built, or it may simply not exist. Simulation can be used when the problem is too

complex for analytical solution and too dangerous for actual experimentation. Key issues in simulation include acquisition of valid source information about the relevant selection of key characteristics and behaviours, the use of simplifying approximations and assumptions within the simulation, and fidelity and validity of the simulation outcomes.

6. Describe Gomory’s method of solving an all-integer programming problem.

Ans :An optimum solution to an IPP is obtained by using the simplex method, ignoring the restriction of integral values. In the optimum solution, if all the variables have integer values, the current solution will be the required optimum integer solution.

Otherwise, the given IPP is modified by inserting a new constraint called Gomory’s constraint or secondary constraint. This constraint represents necessary conditions for integrability and eliminates some non-integer solution without losing any integral solution. On addition of the secondary constraint, the problem is solved using dual simplex method to obtain an optimum integral solution. If all the values of the variables in the solution are integers, then an optimum inter-solution is obtained, or else a new constraint is added to the modified LPP and the procedure is repeated till the optimum solution is derived. An optimum integer solution will be reached eventually after introducing enough new constraints to eliminate all the superior non-integer solutions. The construction of additional constraints, called secondary or Gomory’s constraints is important and needs special attention.

Construction of Gomory’s constraints

Consider a LPP or an optimum non–integer basic feasible solution. With the usual notations, let the solution be displayed in the following simplex.

The optimum basic feasible solution is given by

xB = [x2, x3 ] = [y10, y20]; max z = y00

Since xB is a non-integer solution, we can assume that y10 is fractional. The constraint equation is

y10 = y11 x1 + y12 x2 + y13 x3+ y14 x4  0xx4 1  

It reduces to

y10 = y11 x1 + x2 + y14 x4 _____ (1) 0xx4 1  

Because x2 and x3 are basic variables (which implies that y12 = 1 and y13 = 0). The above equation can be rewritten as

x2 = y10 - y11 x1 - y14 x4

This is a linear combination of non-basic variables.

Now, since y10 0 the fractional part of y10 must also be non-negative. You can split each of yij in (1) into an integral part Iij , and a non-negative fractional part, f1j for j = 0,1,2,3,4. After the breakup (1) above, you can write it as: 

I10 + f10 = (I11 + f11) x2 + (I14 + f14) x4

f10 - f11 x2 - f14 x4 = x2 + I11 x1 + I14x4 - I10 _

If you compare (1) and (2), you will see that if you add an additional constraint in such a way that the left-hand side of (2) is an integer; then you will be forcing the non-integer y10 towards an integer.

The desired Gomory’s constraint is

f10 – f11 x1 – f11 x4 ≤ 0

It is possible to have f10 – f11 x1 – f11 x4 = h where h > 0 is an integer. Then f10 = h + f11 x1 + f14 x4 is greater than one. This contradicts that 0 < fij < 1 for j = 0, 1, 2, 3, 4.

Thus Gomory’s constraint is

10 sla 4 ,1j j ij 4 , 1j 10 j ij 4 , 1j j ig f ) 1(G x f or f x . f or f x f 10 Where Gsla (1) is a slack variable in the above first Gomory’s constraint

The additional constraint to be included in the given LPP is towards obtaining an optimum all integer solution. After adding the constraint, the optimum simplex table looks like given below.

Since – f10 is negative, the optimal solution is unfeasible. Thus the dual simplex method is to be applied for obtaining an optimum feasible solution. After obtaining this solution, the above referred procedure is applied for constructing second Gomory’s constraint. The process is to be continued till all the integer solution has been obtained.

MB0048 – Operations Research - Set 1

2012-03-17T12:46:00.000+05:30

Course MBA – 2^nd Semester

Subject:Operations Research

Assignment MB0048 – Set1

Q.1 (a) “Operation Techniques is a bunch of mathematical techniques.” Comment.

Ans:

Operations Research is an interdisciplinary branch of applied mathematics and formal science that uses methods such as mathematical modelling, statistics, and algorithms to arrive at optimal or near optimal solutions to complex problems. It is typically concerned with optimizing the maxima (profit, assembly line performance, crop yield, bandwidth, etc) or minima (loss, risk, etc.) of some objective function. Operations research helps management achieve its goals using scientific methods. The terms operations research and management science are often used synonymously. When a distinction is drawn, management science generally implies a closer relationship to the problems of business management. The field of operations research is closely related to Industrial engineering. Industrial engineers typically consider Operations Research (OR) techniques to be a major part of their toolset. Some of the primary tools used by operations researchers are statistics, optimization, probability theory, queuing theory, game theory, graph theory, decision analysis, and simulation. Because of the computational nature of these fields, OR also has ties to computer science, and operations researchers use custom-written and off-the-shelf software. Operations research is distinguished by its frequent use to examine an entire management information system, rather than concentrating only on specific elements (though this is often done as well). An operations researcher faced with a new problem is expected to determine which techniques are most appropriate given the nature of the system, the goals for improvement, and constraints on time and computing power. For this and other reasons, the human element of OR is vital. Like any other tools, OR techniques cannot solve problems by themselves.

Scope of operation Research:

Examples of applications in which operations research is currently used include:

Critical path analysis or project planning: identifying those processes in a complex project which affect the overall duration of the project.
Designing the layout of a factory for efficient flow of materials.
Constructing a telecommunications network at low cost while still guaranteeing QoS (quality of service) or QoS (Quality of Experience) if particular connections become very busy or get damaged.
Road traffic management and 'one way' street allocations i.e. allocation problems.
Determining the routes of school buses (or city buses) so that as few buses are needed as possible.
Designing the layout of a computer chip to reduce manufacturing time (therefore reducing cost) Managing the flow of raw materials and products in a supply chain based on uncertain demand for the finished products.
Efficient messaging and customer response tactics.
Robotizing or automating human-driven operations processes.
Globalizing operations processes in order to take advantage of cheaper materials, labour, land or other productivity inputs Managing freight transportation and delivery systems (Examples: LTL Shipping, intermodal freight transport).
Scheduling.
Personnel staffing.
Manufacturing steps.
Project tasks.
Network data traffic: these are known as queuing models or queueing systems.
Sports events and their television coverage blending of raw materials in oil.
Refineries determining optimal prices, in many retail and B2B settings, within the disciplines of pricing science.

Operations research is also used extensively in government where evidence-based policy is used.

Q.1- b) “Operation Research is an aid for the executive in making his decisions based on scientific methods analysis”. Discuss the above statement in brief.

Operation Research is a scientific method of providing executive departments with a quantitative basis for decisions regarding the operations under their control. Morse & Kimball Operations research is a scientific approach to problem solving for executive management. – H.M. Wagner Operations research is an aid for the executive in making these decisions by providing him with the needed quantitative information based on the scientific method of analysis. The mission of Operations Research is to serve the entire Operations Research (OR) community, including practitioners, researchers, educators, and students. Operations Research, as the flagship journal of our profession, strives to publish results that are truly insightful. Each issue of Operations Research attempts to provide a balance of well-written articles that span the wide array of creative activities in OR. Thus, the major criteria for acceptance of a paper in Operations Research are that the paper is important to more than a small subset of the OR community, contains important insights, and makes a substantial contribution to the field that will stand the test of time. Operational research, also known as operations research, is an interdisciplinary branch of applied mathematics and formal science that uses advanced analytical methods such as mathematical modelling, statistical analysis, and mathematical optimization to arrive at optimal or near-optimal solutions to complex decision-making problems. It is often concerned with determining the maximum (of profit, performance, or yield) or minimum (of loss, risk, or cost) of some real-world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries. Operational research, also known as OR, is an interdisciplinary branch of applied mathematics and formal science that uses advanced analytical methods such as mathematical modelling, statistical analysis, and mathematical optimization to arrive at optimal or near-optimal solutions to complex decision-making problems. It is often concerned with determining the maximum (of profit, performance, or yield) or minimum (of loss, risk, or cost) of some real world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries.

Operational research encompasses a wide range of problem-solving techniques and methods applied in the pursuit of improved decision-making and efficiency. Some of the tools used by operational researchers are statistics, optimization, probability theory, queuing theory, game theory, graph theory, decision analysis, mathematical modelling and simulation.

Because of the computational nature of these fields, OR also has strong ties to computer science. Operational researchers faced with a new problem must determine which of these techniques are most appropriate given the nature of the system, the goals for improvement, and constraints on time and computing power.

Work in operational research and management science may be characterized as one of three categories:

Fundamental or foundational work takes place in three mathematical disciplines: probability, optimization, and dynamical systems theory.

Modelling work is concerned with the construction of models, analyzing them mathematically, implementing them on computers, solving them using software tools, and assessing their effectiveness with data. This level is mainly instrumental, and driven mainly by statistics and econometrics. Application work in operational research, like other engineering and economics' disciplines, attempts to use models to make a practical impact on real-world problems.

• The major sub disciplines in modern operational research, as identified by the journal Operations Research, are:

• Computing and information technologies

• Decision analysis

• Environment, energy, and natural resources

• Financial engineering

• Manufacturing, service sciences, and supply chain management

• Policy modelling and public sector work

• Revenue management

• Simulation

• Stochastic models

• Transportation

Q. 2 Comment on the following statements:

a) Operation Research advocates a system approach and is concerned with optimization.

1. Systems approach:

The term system approach implies that each problem should be examined in its entirely to the extent possible and economically feasible from the point of view of the overall system of which the problem under consideration is one part. Under those approaches a manager makes conscious attempt to understand the relationships among various parts of the organisation and their role in supporting the overall performance of the organisation. Operations objective of operations research is to provide managers of the organisation with a scientific basis for solving problems involving the interaction of components of the organisation as a whole. The decision which is best for the organisation as a whole is called an optimal decision. Operations research tries to find the best decision relative to a large portion of the total organisation. Hence in operations research every problem is considered in its totality, i.e. O.R. adopts systems approach for solving the problem. In other words, “Operations Research is the scientific study of large systems with a view to identify problem areas and provide the mangers with a quantitative basis for decisions which will enhance their effectiveness in achieving the specified objectives.”

2. Inter-disciplinary Team Approach:

It is an important characteristic of O.R. According to this characteristic, no single individual can be an expert on all aspects of a problem under consideration. Thus, O.R. utilizes the inter disciplinary team approach. Under this approach, a team comprising experts from different disciplines such as mathematics, statistics, economics, management, computer science, engineering and psychology, etc. is constituted. Such a team when confronted with a problem determines its solution by utilizing the diverse background and skills of the teammates. Every expert of the team, while solving the problem, tries to abstract the essence of the problem and then determines whether a similar type of problem has been dealt by his team or not. If the answer is yes, then it is solution of the current problem. In this way, each member of the team, by utilizing his experience and expertise, may be in a position to suggest an approach to overcome a problem that otherwise may not be possible for an individual to tackle.

3. Methodological Approach:

O.R. utilizes scientific methods for solving a problem. Specifically, the process begins with the careful observation and formulation of the problem. The next step is to construct a scientific model (typically a mathematical model) that attempts to abstract the essence of the real problem. From this model, conclusions or solutions are obtained which are also valid for the real problem. In an interactive fashion, the model is then verified through appropriate experiments to determine the best or optional solution to the problem under consideration.

4. Operations economy:

O.R. is a problem solving and a decision making science. Whenever we have conflicts, uncertainty and complexity in any situation, O.R. can help in the end to reduce costs and improve profits and effects substantial “Operations Economy”. Once the old approach of management by intuit is buried, a scientific approach to decision making is bound to help. Often the conflicts are so tangled that they defy any intuitive solution, viz., the marketing function frequently caught up in recoiling the following conflicting objectives: i) product innovation, ii) high scale volume, iii) increasing market share, iv) flexibility in the market place, and v)entry into new markets and revenue markets. It is here that O.R. is likely to convincingly optimize the total effectiveness.

From all above areas of applications, one may conclude that operations research can be widely advocate a systems approach for making timely management decisions and also used as a corrective measure. O.R. encourages systems approach which concerned with the cost optimization, and hence we can say: Operation Research advocates a system approach and is concerned with optimization.

Q.2- b). Operation Research replaces management by personality. Comment.

Operations research is today recognised as an applied science concerned with large number of diverse human activities. To be precise an operation uses some valuable resources like men, money, machines, time, effort, etc. The outcome of the operation has also some value. An operations research worker is required: i) to minimize the input value for a specific output, or /and ii) to maximize the output value for a specific input, or /and iii) maximize some function of these values, e. g. the profit function (difference between output & input values) or return-on-investment function (ratio of output and input values), etc.

Some of the areas of management where techniques of operations research are applied are listed below:

1. Finance, Budgeting and Investments:

a) cash flow analysis, long range capital requirements, investment portfolios, dividend policies, etc.

b) Credit policies, credit risks and delinquent account procedures.

c) Claim and complaint procedures.

d) Dividend policies, investment and portfolio management, balance sheet and cash flow analysis.

2. Purchasing, procurement and Exploration:

a) Determining the quality and timing of purchase of raw materials, machinery, etc.

b) Rules for buying and supplies under varying prices.

c) Bidding policies.

d) Equipment replacement policies.

e) Determination of quantities and timings of purchases.

f) Strategies for exploration and exploitation of new material source.

3. Production Management:

a) Product planning:

i) Location and size of warehouses, distribution centres, retail outlets, etc.

ii) Distribution policy

b) Manufacturing & facility planning:

i) Production scheduling and sequencing

ii) Product scheduling and allocation of resources

iii) Selection & location of factories, warehouses and their sizes

iv) Determining the optimal production mix.

v) Maintenance policies & preventive maintenance.

vi) Scheduling & sequencing the production run by proper allocation of machines.

4. Marketing Management:

a) Product selection, timing, competitive actions.

b) Advertising strategy & choice of different media of advertising.

c) Number of salesman, frequency of calling of accounts, etc.

d) Effectiveness of market research.

e) Size of the stock to meet the future demand.

5. Personnel Management:

a) Recruitment policies & assignment of jobs.

b) Selection of suitable personnel with due consideration for age and skills, etc.

c) Establishing equitable bonus systems.

6. Research & Development:

a) Determination of areas of concentration of research and development.

b) Reliability & evaluation of alternative designs.

c) Control of development projects.

d) Coordination of multiple research projects.

e) Determination of time & cost requirements.

From all above areas of applications, one may conclude that operations research can be widely used in taking timely management decisions and also used as a corrective measure. The application of this tool involves certain data and not merely a personality of decision maker, and hence we can say: Operations Research has replaced management by personality.

Q.3. Explain how the profit maximization transportation problem can be converted to an equivalent cost minimization transportation problem.

How to convert profit maximization transportation problem to an equivalent cost minimization transportation problem can be understood by following Illustration as:

A firm has three factories located in city A, B & C and supplies goods to four dealers, dealer 1, 2, 3 & 4, spread all over the country. The production capacities of these factories are 1000, 700 & 900 units per month respectively. The monthly orders from the dealers are 900, 800, 500 & 400 units respectively. Per unit return (excluding transportation costs) are Rs. 8, 7 & 9 at the three factories. Unit transportation costs from the dealers are given below:

Factory	Dealers
Factory	1	2	3	4
City - A	2	2	2	4
City - B	3	5	3	2
City - C	4	3	2	1

Optimal distribution system to maximize the total r eturn to be determined.

From the given data, we compute a matrix of net returns as done in table below;

(Transportation matrix (Net return) for the Maximization problem)

Factory	Dealers				Factory capacity
Factory	1	2	3	4	Factory capacity
City - A	6	6	6	4	1000
City - B	4	2	4	5	700
City - C	5	6	7	8	900

To convert the given maximization problem to an equivalent minimization problem, we identify the cell (element) which has the highest contribution per unit (in this problem C-4 has highest per unit contribution, Rs.8), and subtract all elements from this highest element. The resultant matrix is a transportation problem with minimizing objective function. This has been given in the following table.

(Transportation matrix for the Minimization problem)

Factory	Dealers				Factory capacity
Factory	1	2	3	4	Factory capacity
City - A	2	2	2	4	1000
City - B	4	6	4	3	700
City - C	3	2	1	0	900
Dealer requirement	900	800	500	400	2600

The minimization problem is solved as a usual transportation problem. The resulting optimal solution is also the optimal solution to the original (maximization) problem. The value of the objective function is computed by referring the matrix of the maximization problem. It should be noted that the converted minimization problem will have at least one element with zero value.

Q 4. Write the difference in the simplex solution procedure for a maximization problem and a minimization problem of linear programming.

The difference in the simplex solution procedure for a maximization problem and a minimization problem of linear programming can be explained by the steps followed to solve the minimization/ minimization problem as follows ;

1. Introduce stack variables (S_i’s) for “£” type of constraint.

2. Introduce surplus variables (S_i’s) and artificial variables (A_i) for “³” type of constraint.

3. Introduce only Artificial variable for “=” type of constraint.

4. Cost (C_j) of slack and surplus variables will be zero and that of artificial variable will be “M”

5. Find Z_j – C_j for each variable.

6. Slack and artificial variables will form basic variable for the first simplex table. Surplus variable will never become basic variable for the first simplex table.

7. Z_j = sum of [cost of variable x its coefficients in the constraints – Profit or cost coefficient of the variable].

8. Select the most negative value of Z_j – C_j. That column is called key column. The variable corresponding to the column will become basic variable for the next table.

9. Divide the quantities by the corresponding values of the key column to get ratios; select the minimum ratio. This becomes the key row. The basic variable corresponding to this row will be replaced by the variable found in step 6.

10. The element that lies both on key column and key row is called Pivotal element.

11. Ratios with negative and “a” value are not considered for determining key row.

12. Once an artificial variable is removed as basic variable, its column will be deleted from next iteration.

13. For maximisation problems, decision variables coefficient will be same as in the objective function. For minimisation problems, decision variables coefficients will have opposite signs as compared to objective function.

14. Values of artificial variables will always is – M for both maximisation and minimisation problems.

15. The process is continued till all Z_j – C_j ³ 0.

Q.5 What do you mean by the two-phase method for solving a given LPP? Why is it used?

Every linear programming problem (LPP) is associated with another linear programming problem involving the same data and optimal solutions. Such two problems are said to be duals of each other. One problem is called the primal, while the other problem is called the dual. The dual formulation is derived from the same data and solved in a manner similar to the original 'primal' formulation. In other words, you can say that dual is the 'inverse' of the primal formulation because of the following reasons.

If the primal objective function is 'maximisation' function, then the dual objective function is 'minimisation' function and vice-versa.

The column co-efficient in the primal constraint is the row co-efficient in the dual constraint.

The co-efficients in the primal objective function are the RHS constraint in the dual constraint.

The RHS column of constants of the primal constraints becomes the row of co-efficient of the dual objective function.

The concept of duality is useful to obtain additional information about the variation in the optimal solution. These changes could be effected in the constraint co-efficient, in resource availabilities and/or objective function co-efficient. This effect is termed as post optimality or sensitivity analysis.

Characteristics of dual solutions

If the primal problem possesses a unique non-degenerate, optimal solution, then the optimal solution to the dual is unique. However, dual solutions arise under a number of other conditions. Several of the cases which can arise are:

When the primal problem has a degenerate optimal solution, the dual has multiple optimal solutions.

When the primal problem has multiple optimal solutions, the optimal dual solution is degenerate.

When the primal problem is unbounded, the dual is infeasible.

When the primal problem is infeasible, the dual is unbounded or infeasible.

Formulation of Dual Concepts

Consider the following LPP

Maximise Z = c1x1 +c2x2 + . . .+ cnxn

Subject to the constraints

a11 x1 + a12 x2 + . . . + a1n xn ≤ b1

a21 x1 + a22 x2 + . . . + a2n xn ≤ b2

am1 x1 + am2 x2 + . . . + amn xn ≤ bm

x1, x2, . . ., xn ≥ 0

To construct a dual problem, you must adopt the following guidelines:

i. The maximisation problem in the primal becomes a minimisation problem in the dual and vice versa

ii. (≤) type of constraints in the primal become (≥) type of constraints in the dual and vice versa.

iii. The coefficients c1, c2, . . .,cn in the objective function of the primal become b1, b2,…,bm in the objective function of the dual.

iv. The constants b1, b2,…,bm in the constraints of the primal become c1, c2, . . .,cn in the constraints of the dual

v. If the primal has n variables and m constraints the dual will have m variables and n constraints

vi. The variables in both the primal and dual are non-negative

Thus the dual problem will be

Minimise W = b1 y1 + b2 y2 + . . . +bm ym

Subject to the constraints

a11 y1 + a21 y2 + . . . + am1 ym ≥ c1

a12 y1 + a22 y2 + . . . + am2 ym ≥ c2

a1n y1 + a2n y2 + . . . + amn ym ≥ cn

y1, y2, . . ., ym ≥ 0

Formation of dual LPP is easier when the standard form of LPP for maximisation problem must contain “≤” type of constraints, while for minimisation problem, it must contain “≥” type of constraints.

Two Phase Method:

Two-phase method for solving a given LPP can be divided in the two phses as mentioned below:

Phase I: Formulate the new problem. Start by eliminating the original objective function by the sum of the artificial variables for a minimisation problem and the negative of the sum of the artificial variables for a maximisation problem. The Simplex method optimizes the ensuing objective with the constraints of the original problem. If a feasible solution is arrived, the optimal value of the new objective function is zero (suggestive of all artificial variables being zero). Subsequently proceed to phase -II. If the optimal value of the new objective function is non-zero, it means there is no solution to the problem and the method terminates.

Phase II: Start phase II using the optimum solution of phase I as the base. Then take the objective function without the artificial variables and solve the problem using the Simplex method.

Why is it used?

The drawback of the penalty cost method is the possible computational error resulting from assigning a very large value to the constant M. To overcome this difficulty, Two - Phase Simplex method is considered where the use of M is eliminated by solving the problem in two phases.

Q. 6 Indicate any four shortcomings of taking a simulation approach to solve an O.R. problem.

Shortcomings of taking a simulation approach to solve an O.R. problem

The range of application of simulation in business is extremely wide. Unlike other mathematical models, simulation can be easily understood by the users and thereby facilitates their active involvement. This makes the results more reliable and also ensures easy acceptance for implementation. The degree to which a simulation model can be made close to reality is dependent upon the ingenuity of the OR team who identifies the relevant variables as well as their behavior.

In case of other OR models, simulation helps the manager to strike a balance between opposing costs of providing facilities (usually meaning long term commitment of funds) and the opportunity and costs of not providing them.

The simulation approach is recognised as a powerful tool for management decision-making. Shortcoming of taking a simulation approach to solve an O. R. problems are as follows;

It does not produce optimal results. Solutions are approximate, and it is some less than formal but ‘satisfactory’ approach to problem-solving only.
To be able to simulate systems, a fairly good knowledge of the parts or components of the system and their characteristics is required. The desire is to understand, explain and predict the dynamic behavior of the system or the sum total of these parts. Adequate knowledge of the system behavior.
Each simulation run like a single experiment conducted under a given set of conditions as defined by a set of values for the input solution. A number of simulation runs will be necessary and thus can be time consuming. As the number of variables increases in terms of input, the difficulty in finding the optimum values increases considerably.
Since simulation involves repetitions of the experiment, it is a time consuming task when manually done.
As a number of parameters, increase, the difficulty in finding the optimum values increases to a considerable extent.
Because of the simplicity in adoption of simulation process, one may develop to rely on this technique too often, although mathematical model is more suitable to the situation.
One should not ignore the cost associated with a simulation study for data collection, formation of the model. A good simulation model may be very expensive. Often it takes years to develop a usable corporate planning model.
The computer time as it is fairly significant.
A simulation application is based on the premise that the behaviour pattern of relevant variables is known, and this very premise sometimes becomes questionable.
Not always can the probabilities be estimated with ease or desired reliability. The results of simulation should always be compared with solutions obtained by other methods wherever possible, and “tempered” with managerial judgment

Management Information System MB0047 - Set 2

2012-03-17T12:44:00.000+05:30

Course MBA – 2^nd Semester

Subject: Management Information System

Assignment MB0047 – Set 2

1. How hardware & software support in various MIS activities of the organization? Explain the transaction stages from manual system to automated systems?

Hardware support for MIS

Generally hardware in the form of personal computers and peripherals like printers, fax machines, copier, scanners etc are used in organization to support various MIS activities of the organization.

Advantages of a PC : Advantages a personal computer offers are –

a) Speed – A PC can process data at a very high speed. It can process millions of instructions within fraction of seconds.

b) Storage – A PC can store large quantity of data in a small space. It eliminates the need of storing the conventional office flat files and box files which requires lots of space. The storage system in a PC is such that the information can be transferred from place to another place in electronic form.

c) Communication – A PC on the network can offer great support as a communicator in communicating information in the forms of text and images. Today a PC with internet is used as a powerful tool of communication for every business activity.

d) Accuracy – A PC is highly reliable in the sense that it could be used to perform calculations continuously for hours with a great degree of accuracy. It is possible to obtain mathematical results correct up to a great degree of accuracy.

e) Conferencing – A PC with internet offers facility of video conferencing worldwide. Business people across the globe travel a lot to meet their business partner, colleagues, and customers etc to discuss about business activities. By video conferencing inconvenience of traveling can be avoided.

A block diagram of a computer may be represented as

Input unit is used to give input to the processor. Examples of input unit –Keyboard, scanner, mouse, bar code reader etc.

A processor refers to unit which processes the input received the way it has been instructed. In a computer the processor is the CPU – Central Processing Unit. It does all mathematical calculations, logical tasks, storing details in the memory etc. Output unit is used to give output s from the computer. Examples of output unit – Monitor, printer, speakers etc.

Organization of Business in an E enterprise – Software Applications in MIS

Internet technology is creating a universal bench or platform for buying and selling of goods, commodities and services. Essentially Internet and networks enable integration of information, facilitate communication, and provide access to everybody from anywhere. And software solutions make them faster and self-reliant as they can analyze data information, interpret and use rules and guidelines for decision-making. These enabling capabilities of technology have given rise to four business models that together work in an E enterprise organization. They are:

E business
E communication
E commerce
E collaboration

These models work successfully because Internet technology provides the infrastructure for running the entire business process of any length. It also provides email and other communication capabilities to plan, track, monitor and control the business operations through the workers located anywhere. It is capable of linking to disparate systems such as logistics, data acquisition and radio frequency used systems and so on. Low cost connectivity physical, virtual and universal standards of Internet technology make it a driving force to change conventional business model to E business enterprise model.

Internet has enabled organizations to change their business process and practices. It has dramatically reduced cost of data and information processing, its sending and storing. Information and information products are available in electronic media, and is a resident on the network. Once everyone is connected electronically, information can flow seamlessly from any location to any other location. For example, product information is available on an organization website which also has a feature of order placement. An order placed is processed at the backend and status of acceptance, rejection is communicated instantaneously to the customer. Such order is then placed directly on the order board for scheduling and execution. These basic capabilities of Internet have given rise to number of business models. Some of them are given in Table

The Internet and networks provide platform and various capabilities whereby communication, collaboration, and conversion has become significantly faster, transparent and cheaper. These technologies help to save time, resource and enable faster decision making. The technology adds speed and intelligence in the business process improving quality of service to the customer. The business process of serving the customer to offer goods, products or services is made up of the following components.

• Enquiry processing

• Order preparation

• Order placement

• Order confirmation

• Order planning

• Order scheduling

• Order manufacturing

• Order status monitoring

• Order dispatching

• Order billing

• Order receivable accounting

• Order payment processing

The entire process in parts or full can be handled through these technologies and software solutions. It provides important strategic, competitive advantage. Further, the technology is flexible and capable of handling any business models such as:

• Retailing, Trading, Auctioning

• Manufacturing, Distribution & Selling

• Outsourcing, Subcontracting

• Servicing, Training, Learning, Consulting

The resultant effect is the reduction in cost of business operations, improved customer loyalty and retention and better quality offer to the customer. Four major applications mentioned earlier make this achievement possible. We go into details of each one of them.

Transformation stage manual systems to automated systems

The manual system which was prevalent in the organizations before industrial revolution was slowly transformed into digital form by means of computer and related electronic instruments. A transformation had to necessarily go through the following stages

a) Appraisal of the procedures

b) Types of documents

c) Storage systems

d) Formulations and coding

e) Verification and validation

f) Review

g) Documentation

2. Explain the various behavioral factors of management organization? As per Porter, how can performance of individual corporations be determined?

Ans:

Management organizations:

An organization is a structure that uses the resources from the environment like manpower, raw materials, capital and returns the output like products and services to the environment. It constitutes the rules, policies, responsibilities and procedures that are adopted by the organization.

Behavioral factors

The implementation of computer based information systems in general and MSS in particular is affected by the way people perceive these systems and by how they behave in accepting them. User resistance is a major behavioral factor associated with the adoption of new systems. The following are compiled by Jiang et al. (2000) ; Reasons that employees resist new systems:

1. Change in job content

2. Loss of status

3. Change in interpersonal relationships

4. Loss of power

5. Change in decision making approach

6. Uncertainty or unfamiliarity or misinformation

7. Job security

The major behavioral factors are

Decision styles symbolic processing of AI is heuristic; DSS and ANN are analytic

Need for explanation – ES provides explanation, ANN does not, DSS may provide partial explanation. Explanation can reduce resistance to change

Organizational climate some organizations lead and support innovations and new technologies whereas other wait and lag behind in making changes

Organizational expectations – over expectation can result in disappointments and termination of innovation. Over expectation was observed in most early intelligent systems.

Resistance to change – can be strong in MSS because the impacts may be significant.

Performance of individual corporations:

Out of many possible interpretations of a strategy an organization adopts in business, it is found that a majority is concerned with competition between corporations. Competition means cultivating unique strengths and capabilities, and defending them against imitation by other firms. Another alternative sees competition as a process linked to innovation in product, market, or technology. Strategic information systems theory is concerned with the use of information technology to support or sharpen an enterprise's competitive strategy. Competitive strategy is an enterprise's plan for achieving sustainable competitive advantage over, or reducing the edge of, its adversaries. The performance of individual corporations is determined by the extent to which they manage the following (as given by Porter) –

a) The bargaining power of suppliers;

b) The bargaining power of buyer;

c) The threat of new entrants;

d) The threat of substitute products; And

e) Rivalry among existing firms.

Porter's classic diagram representing these forces is indicated below.

There are two basic factors which may be considered to be adopted by organization in their strategies:

a) low cost

b) Product differentiation

Enterprise can succeed relative to their competitors if they possess sustainable competitive advantage in either of these two. Another important consideration in positioning is 'competitive scope', or the breadth of the enterprise's target markets within its industry, i.e. the range of product varieties it offers, the distribution channels it employs, the types of buyers it serves, the geographic areas in which it sells, and the array of related industries in which it competes. Under Porter's framework, enterprises have four generic strategies available to them whereby they can attain above average performance.

They are:

a) Cost leadership;

b) Differentiation;

c) Cost focus; And

d) Focused differentiation.

Porter's representation of them is indicated below

According to Porter, competitive advantage grows out of the way an enterprise organizes and performs discrete activities. The operations of any enterprise can be divided into a series of activities such as salespeople making sales calls, service technicians performing repairs, scientists in the laboratory designing products or processes, and treasurers raising capital. By performing these activities, enterprises create value for their customers.

The ultimate value an enterprise creates is measured by the amount customers are willing to pay for its product or services. A firm is profitable if this value exceeds the collective cost of performing all of the required activities. To gain competitive advantage over its rivals, a firm must either provide comparable value to the customer, but perform activities more efficiently than its competitors (lower cost), or perform activities in a unique way that creates greater buyer value and commands a premium price (differentiation). As per Borden 1964, quoted in Wiseman 1988many differentiation bases can be classified as 4 P’s as given below:

1. Product (quality, features, options, style, brand name, packaging, sizes, services, warranties, returns) ;

2. Price (list, discounts, allowances, payment period, credit terms) ;

3. Place (channels, coverage, locations, inventory, transport) ; And

4. Promotion (advertising, personal selling, sales promotion, publicity).

The various attributes listed above can be sharpened the firms product by the support of a suitable information technology.

3. Compare various types of development aspect of Information System? Explain the various stages of SDLC?

Development of Information Systems

a) Development and Implementation of the MIS

Once the plan of MIS is made, the development of the MIS calls for determining the strategy of development. As discussed earlier, the plan consists of various systems and subsystems. The development strategy determines where to begin and in what sequence the development can take place with the sole objective of assuring the information support. The choice of the system or the subsystem depends on its position in the total MIS plan, the size of the system, the user's understanding of the systems and the complexity and its interface with other systems. The designer first develops systems independently and starts integrating them with other systems, enlarging the system scope and meeting the varying information needs. Determining the position of the system in the MIS is easy. The real problem is the degree of structure, and formalization in the system and procedures which determine the timing and duration of development of the system. Higher the degree of structuredness and formalization, greater is the stabilization of the rules, the procedures, decision making and the understanding of the overall business activity. Here, it is observed that the user's and the designer's interaction is smooth, and their needs are clearly understood and respected mutually. The development becomes a method of approach with certainty in input process and outputs.

b) Prototype Approach

When the system is complex, the development strategy is Prototyping of the System. Prototyping is a process of progressively ascertaining the information needs, developing methodology, trying it out on a smaller scale with respect to the data and the complexity, ensuring that it satisfies the needs of the users, and assess the problems of development and implementation. This process, therefore, identifies the problem areas, inadequacies in the prototype visàvis Fulfillment of the information needs. The designer then takes steps to remove the inadequacies. This may call upon changing the prototype of the system, questioning the information needs, streamlining the operational systems and procedures and move user interaction. In the prototyping approach, the designer's task becomes difficult, when there are multiple users of the same system and the inputs they use are used by some other users as well. For example, a lot of input data comes from the purchase department, which is used in accounts and inventory management. The attitudes of various users and their role as the originators of the data need to be developed with a high degree of positivism. It requires, of all personnel, to appreciate that the information is a corporate resource, and all have to contribute as per the designated role by the designer to fulfill the corporate information needs. When it comes to information the functional, the departmental, the personal boundaries do not exist. This calls upon each individual to comply with the design needs and provide without fail the necessary data inputs whenever required as per the specification discussed and finalised by the designer. Bringing the multiple users on the same platform and changing their attitudes toward information, as a corporate resource, is the managerial task of the system designer. The qualification, experience, knowledge, of the state of art, and an understanding of the corporate business, helps considerably, in overcoming the problem of changing the attitudes of the multiple users and the originators of the data.

c) Life Cycle Approach

There are many systems or subsystems in the MIS which have a life cycle, that is, they have birth and death. Their emergence may be sudden or may be a part of the business need, and they are very much structured and rule based. They have 100% clarity of inputs and their sources, a definite set of outputs in terms of the contents and formats. These details more or less remain static from the day the system emerges and remains in that static mode for a long time. Minor modifications or changes do occur but they are not significant in terms of handling either by the designer or the user of the system. Such systems, therefore, have a life and they can be developed in a systematic manner, and can be reviewed after a year or two, for significant modification, if any.

Examples of such systems are pay roll, share accounting, basic financial accounting, finished goods accounting and dispatching, order processing, and so on. These systems have a fairly long duration of survival and they contribute in a big way as sources of data to the Corporate MIS. Therefore, their role is important and needs to be designed from the view point as an interface to the Corporate MIS.

Table below shows the difference between the two approaches helping the designer select an approach.

d) Implementation of the Management Information System

The implementation of the system is a management process. It brings about organizational change; it affects people and changes their work style. The process evokes a behavior response which could be either favorable or unfavorable depending upon the strategy of system implementation. In the process of implementation, the system designer acts as a change agent or a catalyst.

For a successful implementation he has to handle the human factors carefully. The user of the system has a certain fear complex when a certain cultural work change is occurring. The first and the foremost fear is about the security to the person if the changeover from the old to new is not a smooth one. Care has to be taken to assure the user that such fears are baseless and the responsibility, therefore, rests with the designer. The second fear is about the role played by the person in the organization and how the change affects him. On many occasions, the new role may reduce his importance in the organization, the work design may make the new job impersonal, and a fear complex may get reinforced that the career prospects may be affected. There are certain guidelines for the systems designer for successful implementation of the system. The system designer should not question beyond a limit the information need of the user.

1. Not to forget that his role is to offer a service and not to demand terms.

2. Remember that the system design is for the use of the user and it is not the designer's prerogative to dictate the design features. In short, the designer should respect the demands of the user.

3. Not to mix up technical needs with the information needs. He should try to develop suitable design with appropriate technology to meet the information needs. The designer should not recommend modifications of the needs, unless technically infeasible.

4. Impress upon the user the global nature of the system design which is required to meet the current and prospective information need.

5. Not to challenge the application of the information in decision making. It is the sole right of the user to use the information the way he thinks proper.

6. Impress upon the user that the quality of information depends on the quality of input.

7. Impress upon the user that you are one of the users in the organization and that the information is a corporate resource and he is expected to contribute to the development of the MIS.

8. Ensure that the user makes commitment to all the requirements of the system design specifications. Ensure that he appreciates that his commitments contribute largely to the quality of the information and successful implementation of the system.

9. Ensure that the overall system effort has the management's acceptance.

10. Enlist the user's participation from time to time, so that he is emotionally involved in the process of development.

11. Realize that through serving the user, he is his best guide on the complex path of development.

12. Not to expect perfect understanding and knowledge from the user as he may be the user of a Non computerized system. Hence, the designer should be prepared to change the system specifications or even the design during the course of development.

13. Impress upon the user that the change, which is easily possible in manual system, is not as easy in the computer system as it calls for changes in the programs at cost.

14. Impress upon the user that perfect information is nonexistent; His role therefore still has an importance in the organization.

15. Ensure that the other organization problems are resolved first before the MIS is taken for development. 16. Conduct periodical user meetings on systems where you get the opportunity to know the ongoing difficulties of the users.

The Lewin's model suggests three steps in this process. The first step is unfreezing the organization to make the people more receptive and interested in the change. The second step is choosing a Course of action where the process begins and reaches the desired level of stability, and the third step is Refreezing, where the change is consolidated and equilibrium is reinforced. Many a times,

SDLC

System development cycle stages are sometimes known as system study. System concepts which are important in developing business information systems expedite problem solving and improve the quality of decision making.

The system analyst has to do a lot in this connection. They are confronted with the challenging task of creating new systems and planning major changes in the organization. The system analyst gives a system development project, meaning and direction. The typical breakdown of an information systems life cycle includes a feasibility study, requirements, collection and analysis, design, prototyping, implementation, validation, testing and operation. It may be represented in the form of a block diagram as shown below:

a) Feasibility study It is concerned with determining the cost effectiveness of various alternatives in the designs of the information system and the priorities among the various system components.

b) Requirements, collection and analysis It is concerned with understanding the mission of the information systems, that is, the application areas of the system within the enterprise and the problems that the system should solve.

c) Design It is concerned with the specification of the information systems structure. There are two types of design: database design and application design. The database design is the design of the database design and the application design is the design of the application programs.

d) Prototyping A prototype is a simplified implementation that is produced in order to verify in practice that the previous phases of the design were well conducted.

e) Implementation It is concerned with the programming of the final operational version of the information system. Implementation alternatives are carefully verifies and compared.

f) Validation and testing It is the process of assuring that each phase of the development process is of acceptable quality and is an accurate transformation from the previous phase.

4. Compare & Contrast E-enterprise business model with traditional business organization model? Explain how in E-enterprise manager role & responsibilities are changed? Explain how manager is a knowledge worker in E-enterprise?

Ans:-

Managing the E enterprise

Due to Internet capabilities and web technology, traditional business organization definition has undergone a change where scope of the enterprise now includes other company locations, business partners, customers and vendors. It has no geographic boundaries as it can extend its operations where Internet works. All this is possible due to Internet and web moving traditional paper driven organization to information driven Internet enabled E business enterprise. E business enterprise is open twenty four hours, and being independent, managers, vendors; customers transact business anytime from anywhere. Internet capabilities have given E business enterprise a cutting edge capability advantage to increase the business value. It has opened new channels of business as buying and selling can be done on Internet. It enables to reach new markets across the world anywhere due to communication capabilities. It has empowered customers and vendors / suppliers through secured access to information to act, wherever necessary. The cost of business operations has come down significantly due to the elimination of paper driven processes, faster communication and effective collaborative working. The effect of these radical changes is the reduction in administrative and management overheads, reduction in inventory, faster delivery of goods and services to the customers.

In E business enterprise traditional people organization based on 'Command Control' principle is absent. It is replaced by people organization that is empowered by information and knowledge to perform their role. They are supported by information systems, application packages, and decision support systems. It is no longer functional, product, and project or matrix organization of people but E organization where people work in network environment as a team or work group in virtual mode. E business enterprise is more process driven; Technology enabled and uses its own information and knowledge to perform. It is lean in number, flat in structure, broad in scope and a learning organization.

In E business enterprise, most of the things are electronic, use digital technologies and work on databases, knowledge bases, directories and document repositories. The business processes are conducted through enterprise software like ERP, SCM, and CRM supported by data warehouse, decision support, and knowledge management systems. Today most of the business organizations are using Internet technology, network, and wireless technology for improving the business performance measured in terms of cost, efficiency, competitiveness and profitability. They are using E business,

Ecommerce

Solutions to reach faraway locations to deliver product and services. The enterprise solutions like ERP, SCM, and CRM run on Internet (Internet / Extranet) & Wide Area Network (WAN). The business processes across the organization and outside run on E technology platform using digital technology. Hence today's business firm is also called E enterprise or Digital firm. The paradigm shift to E enterprise

Has brought four transformations, namely:

• Domestic business to global business.

• Industrial manufacturing economy to knowledge based service economy.

• Enterprise Resource Management to Enterprise Network Management.

• Manual document driven business process to paperless, automated, electronically transacted business process.

These transformations have made conventional organization design obsolete. The basis of conventional organization design is command & control which is now collaborates & control. This Change has affected the organization structure, scope of operations, reporting mechanisms, work practices, workflows, and business processes at large. The comparison between conventional Organization design and E enterprise is summarized in Table

Comparison between Conventional Design and E Organization

In E enterprise, business is conducted electronically. Buyers and sellers through Internet drive the market and Internet based web systems. Buying and selling is possible on Internet. Books, CDs, computer, white goods and many such goods are bought and sold on Internet. The new channel of business is well known

as Ecommerce. On the same lines, banking, insurance, healthcare are being managed through Internet E banking, E billing, E audit, & use of Credit cards, Smart card, ATM, E money are the examples of the Ecommerce application. The digital firm, which uses Internet and web technology and uses E business And Ecommerce solutions, is a reality and is going to increase in number. MIS for E business is different compared to conventional MIS design of an organization. The role of MIS in E business organization is to deal with changes in global market and enterprises. MIS produces more knowledge based products.

Knowledge management system is formally recognized as a part of MIS. It is effectively used for strategic planning for survival and growth, increase in profit and productivity and so on. To achieve the said benefits of E business organization, it is necessary to redesign the organization to realize the benefits of digital firm. The organization structure should be lean and flat. Get rid of rigid established infrastructure such as branch office or zonal office. Allow people to work from anywhere. Automate processes after reengineering the process to cut down process cycle time. Make use of groupware technology on Internet platform for faster response processing. Another challenge is to convert domestic process design to work for international process, where integration of multinational information systems using different communication standards, country specific accounting practices, and laws of security are to be adhered strictly. Internet and networking technology has thrown another challenge to enlarge the scope of Organization where customers and vendors become part of the organization. This technology offers a solution to communicate, coordinate, and collaborate with customers, vendors and business partners. This is just not a technical change in business operations but a cultural change in the mindset of managers and workers to look beyond the conventional organization. It means changing the organization behavior to take competitive advantage of the E business technology.

5. What do you understand by service level Agreements (SLAs)? Why are they needed? What is the role of CIO in drafting these? Explain the various security hazards faced by an IS?

Ans:-

A service level agreement (frequently abbreviated as SLA) is a part of a service contract where the level of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance. As an example, internet service providers will commonly include service level agreements within the terms of their contracts with customers to define the level(s) of service being sold in plain language terms (typically the (SLA) will in this case have a technical definition in terms of MTTF, MTTR, various data rates, etc.)

A service level agreement (SLA) is a negotiated agreement between two parties where one is the customer and the other is the service provider. This can be a legally binding formal or informal "contract" (see internal department relationships). Contracts between the service provider and other third parties are often (incorrectly) called SLAs — as the level of service has been set by the (principal) customer, there can be no "agreement" between third parties (these agreements are simply a "contract"). Operating Level Agreements or OLA(s), however, may be used by internal groups to support SLA(s).

The SLA records a common understanding about services, priorities, responsibilities, guarantees, and warranties. Each area of service scope should have the "level of service" defined. The SLA may specify the levels of availability, serviceability, performance, operation, or other attributes of the service, such as billing. The "level of service" can also be specified as "target" and "minimum," which allows customers to be informed what to expect (the minimum), whilst providing a measurable (average) target value that shows the level of organization performance. In some contracts, penalties may be agreed upon in the case of non-compliance of the SLA (but see "internal" customers below). It is important to note that the "agreement" relates to the services the customer receives, and not how the service provider delivers that service.

SLAs have been used since late 1980s by fixed line telecom operators as part of their contracts with their corporate customers. This practice has spread such that now it is common for a customer to engage a service provider by including a service-level agreement in a wide range of service contracts in practically all industries and markets. Internal departments (such as IT, HR, and Real Estate) in larger organization have adopted the idea of using service-level agreements with their "internal" customers — users in other departments within the same organization. One benefit of this can be to enable the quality of service to be benchmarked with that agreed to across multiple locations or between different business units. This internal benchmarking can also be used to market test and provide a value comparison between an in-house department and an external service provider.

Service-level agreements are, by their nature, "output" based — the result of the service as received by the customer is the subject of the "agreement." The (expert) service provider can demonstrate their value by organizing themselves with ingenuity, capability, and knowledge to deliver the service required, perhaps in an innovative way. Organizations can also specify the way the service is to be delivered, through a specification (a service-level specification) and using subordinate "objectives" other than those related to the level of service. This type of agreement is known as an "input" SLA. This latter type of requirement is becoming obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider.

Role of CIO in drafting SLA’S

One of the major responsibilities of the CIO is to establish the credibility of the systems organization. The systems department should not only focus on providing better service to the various lines of business but also help businesses operate better. If the CIO wants to be taken seriously, he needs to do what other executives do and have his own business metrics and performance measurements, so that he can effectively measure his internal business performance. Other business departments have them, but CIOs generally do not because IT has always been viewed as a cost center. Measurements in IT tend to be vague and lacking in context. For example, 'I had 14 projects last year, and I did them well.' But there is no real business measurement there. How many projects should the manager have had? Did he really have the capacity to handle 14 projects? A CIO should explore running their area more like a service operation rather than a cost center, and develop metrics that track the performance of the information systems staff, as well as the equipment comprising the applications, infrastructure, and networks under the CIO's control. The first step, they say, is to implement service level agreements (SLAs) with business units. It sets the expectation on the technical areas of the CIO's operations. At a minimum, they should set up what is expected and what levels of service the equipment will provide. The underlying SLAs should be some sort of a chargeback system with business units, particularly when it comes to apportioning staff time. If information systems are now providing a service, the staff needs to understand where the service is being used to be properly remunerated or to demonstrate where the value is.

The second part of the IT operations equation is computer equipment, and CIOs must have a firm handle on how that equipment is being used. There are software’s to help with the people picture, and there are other products that can monitor hardware performance, such as network and server uptime. One of the major roles of the CIO is to make the organization information systems savvy and increase the technological maturity of the information systems organization. A major part of the CIO's job is to make the users aware of the opportunities arising as a result of technical innovations, how this can help them perform better, and familiarizing them with computers and information systems applications. The information systems management also has the job of helping the end users adapt to the changes caused by information systems, and to encourage their use. Finally, CIOs need to institute life cycle management with their applications and computer equipment. Most IT organizations do not have any idea of the life cycle of an application – how long they want it to last, and when it needs to be refurbished, replaced, or disposed of. Lacking this knowledge, it is easy for applications to linger long after they should be gone, and for companies to spend far too much money on maintaining ailing applications.

Security Hazards faced by an Information system:

Security of the information system can be broken because of the following reasons:

i) Malfunctions: In this type of security hazard, all the components of a system are involved. People, software and hardware errors course the biggest problem. More dangerous are the problems which are created by human beings due to the omission, neglect and incompetence.

ii) Fraud and unauthorized access: This hazard is due to dishonesty, cheating or deceit. This can be done through –

a) Infiltration and industrial espionage

b) Tapping data from communication lines

c) Unauthorized browsing through lines by online terminals, etc.

iii) Power and communication failure: In some locations they are the most frequent hazards than any other else because availability of both of them depends upon the location. Sometimes communication channel are busy or noisy. There are power cuts and sometimes high voltage serge destroys a sensitive component of the computer.

iv) Fire hazard: it can happen because of electrical short circuits, flammable liquids etc.

v) Sabotage and riots: sometimes the employees destroy the computer centre in case of strike, lockout or there may be chances of riots in the area.

vi) Natural Disasters: Natural disasters are not controllable. They are not frequent hazards but if they happen they destroy the things or ruin them. Examples are earthquake, floods, tornadoes and lightening.

vii) General hazards: this category covers many more hazards which are not covered anywhere and difficult to define and come spontaneously.

6. Case Study: Information system in a restaurant.

Case Summary:

A waiter takes an order at a table, and then enters it online via one of the six terminals located in the restaurant dining room. The order is routed to a printer in the appropriate preparation area: the cold item printer if it is a salad, the hot-item printer if it is a hot sandwich or the bar printer if it is a drink. A customer’s meal check-listing (bill) the items ordered and the respective prices are automatically generated. This ordering system eliminates the old three-carbon-copy guest check system as well as any problems caused by a waiter’s handwriting. When the kitchen runs out of a food item, the cooks send out an ‘out of stock’ message, which will be displayed on the dining room terminals when waiters try to order that item. This gives the waiters faster feedback, enabling them to give better service to the customers. Other system features aid management in the planning and control of their restaurant business. The system provides up-to-the-minute information on the food items ordered and breaks out percentages showing sales of each item versus total sales. This helps management plan menus according to customers’ tastes. The system also compares the weekly sales totals versus food costs, allowing planning for tighter cost controls. In addition, whenever an order is voided, the reasons for the void are keyed in. This may help later in management decisions, especially if the voids consistently related to food or service. Acceptance of the system by the users is exceptionally high since the waiters and waitresses were involved in the selection and design process. All potential users were asked to give their impressions and ideas about the various systems available before one was chosen.

Questions to be analysed:

1. In the light of the system, describe the decisions to be made in the area of strategic planning, managerial control and operational control? What information would you require to make such decisions?

2. What would make the system a more complete MIS rather than just doing transaction processing?

3. Explain the probable effects that making the system more formal would have on the customers and the management.

Solution:

1. A management information system (MIS) is an organized combination of people, hardware, communication networks and data sources that collects, transforms and distributes information in an organization. An MIS helps decision making by providing timely, relevant and accurate information to managers. The physical components of an MIS include hardware, software, database, personnel and procedures.

Management information is an important input for efficient performance of various managerial functions at different organization levels. The information system facilitates decision making. Management functions include planning, controlling and decision making. Decision making is the core of management and aims at selecting the best alternative to achieve an objective. The decisions may be strategic, tactical or technical. Strategic decisions are characterized by uncertainty. They are future oriented and relate directly to planning activity. Tactical decisions cover both planning and controlling. Technical decisions pertain to implementation of specific tasks through appropriate technology. Sales region analysis, cost analysis, annual budgeting, and relocation analysis are examples of decision-support systems and management information systems.

There are 3 areas in the organization. They are strategic, managerial and operational control.

Strategic decisions are characterized by uncertainty. The decisions to be made in the area of strategic planning are future oriented and relate directly to planning activity. Here basically planning for future that is budgets, target markets, policies, objectives etc. is done. This is basically a top level where up-to-the minute information on the food items ordered and breaks out percentages showing sales of each item versus total sales is provided. The top level where strategic planning is done compares the weekly sales totals versus food costs, allowing planning for tighter cost controls. Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. Examples of executive support systems include sales trend forecasting, budget forecasting, operating plan development, budget forecasting, profit planning, and manpower planning.

The decisions to be made in the area of managerial control are largely dependent upon the information available to the decision makers. It is basically a middle level where planning of menus is done and whenever an order is voided, the reasons for the void are keyed in which later helps in management decisions, especially if the voids are related to food or service. The managerial control that is middle level also gets customer feedback and is responsible for customer satisfaction.

The decisions to be made in the area of operational control pertain to implementation of specific tasks through appropriate technology. This is basically a lower level where the waiter takes the order and enters it online via one of the six terminals located in the restaurant dining room and the order is routed to a printer in the appropriate preparation area. The item’s ordered list and the respective prices are automatically generated. The cooks send ‘out of stock’ message when the kitchen runs out of a food item, which is basically displayed on the dining room terminals when waiter tries to order that item. This basically gives the waiters faster feedback, enabling them to give better service to the customers. Transaction processing systems function at the operational level of the organization. Examples of transaction processing systems include order tracking, order processing, machine control, plant scheduling, compensation, and securities trading.

The information required to make such decision must be such that it highlights the trouble spots and shows the interconnections with the other functions. It must summarize all information relating to the span of control of the manager. The information required to make these decisions can be strategic, tactical or operational information.

Advantages of an online computer system:

1. Eliminates carbon copies

2. Waiters’ handwriting issues

3. Out-of-stock message

4. Faster feedback helps waiters to service the customers

Advantages to management:

1. Sales figures and percentages item-wise

2. Helps in planning the menu

3. Cost accounting details

2. If the management provides sufficient incentive for efficiency and results to their customers, it would make the system a more complete MIS and so the MIS should support this culture by providing such information which will aid the promotion of efficiency in the management services and operational system. It is also necessary to study the keys to successful Executive Information System (EIS) development and operation. Decision support systems would also make the system a complete MIS as it constitutes a class of computer-based information systems including knowledge-based systems that support decision-making activities. DSSs serve the management level of the organization and help to take decisions, which may be rapidly changing and not easily specified in advance.

Improving personal efficiency, expediting problem solving (speed up the progress of problems solving in an organization), facilitating interpersonal communication, promoting learning and training, increasing organizational control, generating new evidence in support of a decision, creating a competitive advantage over competition, encouraging exploration and discovery on the part of the decision maker, revealing new approaches to thinking about the problem space and helping automate the managerial processes would make the system a complete MIS rather than just doing transaction processing.

3. The management system should be an open system and MIS should be so designed that it highlights the critical business, operational, technological and environmental changes to the concerned level in the management, so that the action can be taken to correct the situation. To make the system a success, knowledge will have to be formalized so that machines worldwide have a shared and common understanding of the information provided. The systems developed will have to be able to handle enormous amounts of information very fast.

An organization operates in an ever-increasing competitive, global environment. Operating in a global environment requires an organization to focus on the efficient execution of its processes, customer service, and speed to market. To accomplish these goals, the organization must exchange valuable information across different functions, levels, and business units. By making the system more formal, the organization can more efficiently exchange information among its functional areas, business units, suppliers, and customers.

As the transactions are taking place every day, the system stores all the data which can be used later on when the hotel is in need of some financial help from financial institutes or banks. As the inventory is always entered into the system, any frauds can be easily taken care of and if anything goes missing then it can be detected through the system.

MB0047 – Management Information System - Set 1

2012-03-17T12:41:00.000+05:30

Course MBA – 2^nd Semester

Subject: Management Information System

Assignment MB0047 – Set 1

Q1.What is MIS? Define the characteristics of MIS? What are the basic Functions of MIS? Give some Disadvantage of MIS?

Answer:

MIS is popularly known as the Management Information System. MIS is considered as one such
method of generating information which is used by management of organization for decision Making, control of activities, operations etc. During the period 1940 to 1960 computers were commercially used for census and payroll work. This involved large amount of data and its processing. Since then the commercial application exceeded the scientific applications for which the computer were mainly intended for. MIS is an information System which helps in providing the management of an organization with information which is used by management for decision making.

Management information systems (MIS)

Management information systems (MIS) are a combination of hardware and software used to process information automatically. Commonly, MIS are used within organizations to allow many individuals to access and modify information. In most situations, the management information system mainly operates behind the scenes, and the user community is rarely involved or even aware of the processes that are handled by the system.

A computer system used to process orders for a business could be considered a management information system because it is assisting users in automating processes related to orders. Other examples of modern management information systems are websites that process transactions for an organization or even those that serve support requests to users. A simple example of a management information system might be the support website for a product, because it automatically returns information to the end user after some initial input is provided.

MIS characteristics

It supports transaction handling and record keeping.
It is also called as integrated database Management System which supports in major functional areas.
It provides operational, tactical, and strategic level managers with east access to timely but, for the most, structured information.
It supports decision –making function which is a vital role of MIS.
It is flexible which is needed to adapt to the changing needs of the organization.
It promotes security system by providing only access to authorized users.
MIS not only provides statistical and data analysis but also works on the basis on MBO (management by objectives). MIS is successfully used for measuring performance and making necessary change in the organizational plans and procedures. It helps to build relevant and measurable objectives, monitor results, and send alerts.
Coordination: MIS provides integrated information so that all the departments are aware of the problem and requirements of the other departments. This helps in equal interaction of the different centers and connects decision centers of the organization.
Duplication of data is reduced since data is stored in the central part and same data can be used by all the related departments.
MIS eliminates redundant data.
It helps in maintaining consistency of data. It is divided into subsystems. Handlings with small systems are much easier than an entire system. This helps in giving easy access of data, accuracy and better information production.
MIS assembles, process, stores, Retrieves, evaluates and disseminates the information.

Function of MIS

The main functions of MIS are:

Data Processing: Gathering, storage, transmission, processing and getting output of the data. Making the data into information is a major task.
Prediction: Prediction is based on the historical data by applying the prior knowledge methodology by using modern mathematics, statistics or simulation. Prior knowledge varies on the application and with different departments.
Planning: Planning reports are produced based on the enterprise restriction on the companies and helps in planning each functional department to work reasonably.
Control: MIS helps in monitoring the operations and inspects the plans. It consists of differences between operation and plan with respect to data belonging to different functional department. It controls the timely action of the plans and analyzes the reasons for the differences between the operations and plan. Thereby helps managers to accomplish their decision making task successfully.
Assistance: It stores the related problems and frequently used information to apply them for relative economic benefits. Through this it can derive instant answers of the related problem.
Database: This is the most important function of MIS. All the information is needs a storage space which can be accessed without causing any anomalies in the data. Integrated Database avoids the duplication of data and thereby reduces redundancy and hence consistency will be increased.
The major function of MIS lies in application of the above functions to support the managers and the executives in the organization in decision-making.

MIS Function

Disadvantages of MIS

The following are some of the disadvantages of MIS:

MIS is highly sensitive: MIS is very helpful in maintaining logging information of an authorized user. This needs to monitor constantly.
Quality of outputs is governed by quality of inputs.
MIS budgeting: There is difficulty in maintaining indirect cost and overheads. Capturing the actual cost needs to have an accrual system having true costs of outputs which is extremely difficult. It has been difficult to establish definite findings.
MIS is not flexible to update itself for the changes.
The changes in the decision of top level management decrease its effectiveness.
Information accountability is based on the qualitative factors and the factors like morality, confidence or attitude will not have any base.

2. Explain Knowledge based system? Explain DSS and OLAP with example?

Answer:

Knowledge based system are the systems based on knowledge base. Knowledge base is the database maintained for knowledge management which provides the means of data collections, organization and retrieval of knowledge. The knowledge management manages the domain where it creates and enables organization for adoption of insights and experiences.

There are two types of knowledge bases.

a. Machine readable knowledge bases: The knowledge base helps the computer to process through. It makes the data in the computer readable code which makes the operator to perform easier. Such information sare used by semantic web. Semantic web is a web that will make a description of the system that a system can understand.

b. Human readable knowledge bases: They are designed to help people to retrieve knowledge. The information need to be processed by the reader. The reader can access the information and synthesize their own.

Knowledge based system refers to a system of data and information used for decision making. The system is automated to work on the knowledge based data and information required in a particular domain of management activity. The processing is done based on the past decisions taken under suitable conditions. Decision making is based on the fact that the condition is similar to the past situation hence the decision is also is similar.

Examples of KBS are intelligent systems, robotics, neural networks etc.

Decision Support Systems (DSS)

DSS is an interactive computer based system designed to help the decision makers to use all l the resources available and make use in the decision making. In management many a time problems arise out of situations for which simple solution may not be possible. To solve such problems you may have to use complex theories. The models that would be required to solve such problems may have to be identified. DSS requires a lot of managerial abilities and managers judgment.

You may gather and present the following information by using decision support application:

Accessing all of your current information assets, including legacy and relational data sources, cubes, data warehouses, and data marts
Comparative sales figures between one week and the next
Projected revenue figures based on new product sales assumptions
The consequences of different decision alternatives, given past experience in a context that is described.

Manager may sometimes find it difficult to solve such problems. E.g. – In a sales problem if there is multiple decision variables modeled as a simple linear problem but having multiple optima, it becomes difficult to take a decision. Since any of the multiple optima would give optimum results. But the strategy to select the one most suitable under conditions prevailing in the market, requires skills beyond the model.

It would take some trials to select a best strategy. Under such circumstances it would be easy to take decision if a ready system of databases of various market conditions and corresponding appropriate decision is available. A system which consists of database pertaining to decision making based on certain rules is known as decision support system. It is a flexible system which can be customized to suit the organization needs. It can work in the interactive mode in order to enable managers to take quick decisions. You can consider decision support systems as the best when it includes high-level summary reports or charts and allow the user to drill down for more detailed information.

A DSS has the capability to update its decision database. Whenever manager feels that a particular decision is unique and not available in the system, the manager can chose to update the database with such decisions. This will strengthen the DSS to take decisions in future.

There is no scope for errors in decision making when such systems are used as aid to decision making. DSS is a consistent decision making system. It can be used to generate reports of various lever management activities. It is capable of performing mathematical calculations and logical calculation depending upon the model adopted to solve the problem. You can summarize the benefits of DSS into following:

Improves personal efficiency
Expedites problem solving
Facilitates interpersonal communication
Promotes learning or training
Increases organizational control
Generates new evidence in support of a decision
Creates a competitive advantage over competition
Encourages exploration and discovery on the part of the decision maker
Reveals new approaches to thinking about the problem space

Online Analytical Processing (OLAP)

OLAP refers to a system in which there are predefined multiple instances of various modules used in business applications. Any input to such a system results in verification of the facts with respect to the available instances.

A nearest match is found analytically and the results displayed form the database. The output is sent only after thorough verification of the input facts fed to the system. The system goes through a series of multiple checks of the various parameters used in business decision making. OLAP is also referred to as a multi dimensional analytical model. Many big companies use OLAP to get good returns in business.

The querying process of the OLAP is very strong. It helps the management take decisions like which month would be appropriate to launch a product in the market, what should be the production quantity to maximize the returns, what should be the stocking policy in order to minimize the wastage etc.

A model of OLAP may be well represented in the form of a 3D box. There are six faces of the box. Each adjoining faces with common vertex may be considered to represent the various parameter of the business situation under consideration. E.g.: Region, Sales & demand, Product etc.

Model of OLAP

3. What are Value Chain Analysis & describe its significance in MIS? Explain what is meant by BPR? What is its significance? How Data warehousing & Data Mining is useful in terms of MIS?

Answer:

Value Chain

Every firm performs a set of activities that helps in designing, producing, marketing, delivering and supporting its products. These activities form a process. At every stage of the process, the firm adds value. The chain of activities from raw material procurement to the after-sales service is called the value chain. It identifies nine strategic activities, i.e. five primary and four support activities, to create value, as shown in below figure. Primary activities are the activities that are involved in creating, distributing, selling and providing after sales assistance for a product. Primary activities are those activities that are involved in the physical creation of the product,

The Generic Value Chain

Why it is important MIS:

Value-addition activities like production, marketing delivery, and servicing of the product. These activities are connected in a chain. Support activities include those providing purchased inputs, technology, human resources, or overall infrastructure functions to support the primary activities.

It is possible to reduce the transaction cost by proper coordination of all the activities. It should be possible to gather better information for various controls and also replace the same by less costlier activities. It will also be possible to reduce the overall time required to complete an activity.

Therefore coordination is very important to achieve competitive advantage. For this it is necessary to manage the value chain as a system rather than as separate parts. An enterprise’s value chain for competing in a particular industry is embedded in a larger stream of activities. What Porter termed as ‘value system’, may be referred to as the ‘industry value-chain’.

Business Process Re-engineering (BPR)

The existing system in the organization is totally reexamined and radically modified for incorporating the latest technology. This process of change for the betterment of the organization is called as Business process re-engineering. This process is mainly used to modernize and make the organizations efficient. BPR directly affects the performance. It is used to gain an understanding the process of business and to understand the process to make it better and re-designing and thereby improving the system.

BPR is mainly used for change in the work process. Latest software is used and accordingly the business procedures are modified, so that documents are worked upon more easily and efficiently. This is known as workflow management.

Importance of BPR

Business process are a group of activities performed by various departments, various organizations or between individuals that is mainly used for transactions in business. There may be people who do this transaction or tools. We all do them at one point or another either as a supplier or customer. You will really appreciate the need of process improvement or change in the organizations conduct with business if you have ever waited in the queue for a longer time to purchase 1 kilo of rice from a Public Distribution Shop (PDS-ration shop). The process is called the check-out process. It is called process because uniform standard system has been maintained to undertake such a task. The system starts with forming a queue, receiving the needed item form the shop, getting it billed, payment which involves billing, paying amount and receiving the receipt of purchase and the process ends up with the exit from the store. It is the transaction between customer and supplier.

The above activities takes place between the customer and supplier which forms the process steps this example explains the business process. The business process may be getting admission to the college and graduating from the college, building house, and implementing new technology to an organization (Example EDUNXT in SMUDE), etc

A Process can be represented by triangle:

Continuous process

Business process reengineering is a major innovation changing the way organizations conduct their business. Such changes are often necessary for profitability or even survival.

BPR is employed when major IT projects such as ERP are undertaken. Reengineering involves changes in structure, organizational culture and processes. Many concepts of BPR changes organizational structure. Team based organization, mass customization; empowerment and telecommuting are some of the examples. The support system in any organization plays a important role in BPR. ES, DSS, AI (discussed later) allows business to be conducted in different locations, provides flexibility in manufacturing permits quicker delivery to customers and supports rapid paperless transactions among suppliers, manufacturers and retailers. Expert systems can enable organizational changes by providing expertise to non experts. It is difficult to carry out BPR calculations using ordinary programs like spreadsheets etc. Experts make use of applications with simulations tools for BPR. Reengineering is basically done to achieve cost reduction, increase in quality, improvement in speed and service. BPR enable a company to become more competitive in the market. Employees work in team comprising of managers and engineers to develop a product. This leads to the formation of interdisciplinary teams which can work better than mere functional teams. The coordination becomes easier and faster results can be achieved. The entire business process of developing a product gets a new dimension. This has led to reengineering of much old functional process in organizations.

Data Warehousing

– Data Warehouse is defined as collection of database which is referred as relational database for the purpose of querying and analysis rather than just transaction processing. Data warehouse is usually maintained to store heuristic data for future use. Data warehousing is usually used to generate reports. Integration and separation of data are the two basic features need to be kept in mind while creating a data warehousing. The main output from data warehouse systems are; either tabular listings (queries) with minimal formatting or highly formatted "formal" reports on business activities. This becomes a convenient way to handle the information being generated by various processes. Data warehouse is an archive of information collected from wide multiple sources, stored under a unified scheme, at a single site. This data is stored for a long time permitting the user an access to archived data for years. The data stored and the subsequent report generated out of a querying process enables decision making quickly. This concept is useful for big companies having plenty of data on their business processes. Big companies have bigger problems and complex problems. Decision makers require access to information from all sources. Setting up queries on individual processes may be tedious and inefficient. Data warehouse may be considered under such situations.

Data warehouse Architecture

Data ware house is center part of data repository. Data warehousing provides a strategic approach to all the business. Data warehouse is broadly famous for its characteristics like:

a. Subject oriented: Data warehouse has the ability to analyze the data. The ability to define by subject matter makes DW subject oriented.

b. Integrated: This resolves the problems of conflicts and inconsistencies existing in the units of measure.

c. Non volatile: Once the data is entered in the warehouse it shall not change. This characteristics is very important because after all the purpose of heuristic data is for future use.

d. Time variant: The data warehouse focus on change over time. To discover new trends in business, analysts need large amount of data which is contrasting to OLTP (Online transaction Processing) which works on heuristic data.

It is observed that all the companies are profit oriented and also want to exist in the market along with their competitors. Data warehousing is of strategic value because it enables us to achieve the former while deftly avoiding the latter. This is the strategic spirit in which we should understand, implement, and manage data warehousing. A very powerful introduction to a data warehousing business case said the following:

"The strategic intent of our data warehousing is to enable the business to win in the marketplace every day, with every customer, and with every purchase. By repositioning our operational data and combining it with selected foreign data, we will empower our employees so that they can routinely delight and excite our customers. Through our unique appreciation of the value of our data assets, we will elevate our data warehouses to the point where they become a compelling and durable contributor to the sustainable competitive advantage of the business. In this way, data warehousing will enable the business to impress its attitude on the marketplace and prevail over its competitors who have already lost."

Have you implemented data warehousing with such a cogent strategic intent? Sun Tzu said:

"Strategy is important to the nation-it is the ground of death and life, the path of survival and destruction, so it is imperative to examine it. There is a way of survival which helps and strengthens you; there is a way of destruction which pushes you into oblivion."

So data warehousing is a path to survival that helps and strengthens you. Our strategic understanding of data warehousing is complete.

BPR uses all these technologies like data bases, data mining, and data warehousing helps the company to perform a strategic and object oriented performance.

Data Mining

– Data mining is primarily used as a part of information system today, by companies with a strong consumer focus – retail, financial, communication, and marketing organizations. It enables these companies to determine relationships among "internal" factors such as price, product positioning, or staff skills, and "external" factors such as economic indicators, competition, and customer demographics. And, it enables them to determine the impact on sales, customer satisfaction, and corporate profits. Finally, it enables them to "drill down" into summary information to view detail transactional data. With data mining, a retailer could use point-of-sale records of customer purchases to send targeted promotions based on an individual’s purchase history. By mining demographic data from comment or warranty cards, the retailer could develop products and promotions to appeal to specific customer segments.

Data Mining is a collaborative tool which comprises of database systems, statistics, machine learning, visualization and information science. Based on the data mining approach used, different techniques form the other discipline can be used such as neural networks, artificial intelligence, fuzzy logic, knowledge representation, high performance computing and inductive logic programming.

Data Mining Process

Data mining refers to extracting or mining knowledge from large amount of data. There may be other terms which refer data mining such as knowledge mining, knowledge extraction, data/pattern analysis, data archeology, and data dredging. The Knowledge discovery as a process may consist of following steps:

1. Data Cleaning: It removes noise and inconsistent data.

2. Data integration: It is where multiple data sources are combined.

3. Data selection: Data relevant to the analysis task are retrieved from the database.

4. Data transformation: Data are transformed or consolidated into forms appropriate for mining by performing summary or aggregation operations, for instance.

5. Data mining: An essential process where intelligent methods are applied in order to extract data patterns.

6. Pattern evaluation: To identify the truly interesting patterns representing knowledge based on some interesting measure.

7. Knowledge presentation: Visualization and knowledge representation techniques are used to present the mined knowledge to the users.

When you look at the above step you will find that data mining is a very important step in knowledge representation. It interacts with the user for knowledge base.

So it is found that there is necessity of a typical architecture for data mining as a big process. The architecture of the data mining has the following components:

1. Database, data warehouse and information repository: This is one or a set of databases, data warehouse, and information repository which can be used for data cleaning and data integration.

2. Database server: This Server is responsible for fetching the relevant data

3. Data mining engine: This helps in accessing the user through applications. It accesses data from the warehouse with the help of standard data connectivity mechanisms. Usually database drivers are used to connect the database.

4. Patterns evaluation model: It acquires the data to be evaluated form the database, producing the pattern edge. This model scans the data. It searches and creates the interesting patterns based on the thresholds.

5. Graphical user interface: It communicates between the user and the data mining system. It allows the user to interact with the system and specifies the data mining queries or task.

Data mining is applicable to any kind of information repository. Some of these may be relational databases, data warehouse, transactional databases, advanced database management systems, WWW and files. Advance database systems include object oriented databases, object relational databases, and application oriented databases.

The best example for data mining which is so close to our lives is Google. The success of Google depends on the use of data mining techniques in the analysis of data in the search engine to meet your search demand.

4. Explain DFD & Data Dictionary? Explain in detail how the information requirement is determined for an organization?

Answer:

Data flow diagrams represent the logical flow of data within the system. DFD do not explain how the processes convert the input data into output. They do not explain how the processing takes place.

DFD uses few symbols like circles and rectangles connected by arrows to represent data flows. DFD can easily illustrate relationships among data, flows, external entities an stores. DFD can also be drawn in increasing levels of detail, starting with a summary high level view and proceeding

more detailed lower level views.

A number of guidelines should be used in constructing DFD.

Choose meaningful names for the symbols on the diagram.
Number the processes consistently. The numbers do not imply the sequence.
Avoid over complex DFD.
Make sure the diagrams are balanced.

Data Dictionary

The data dictionary is used to create and store definitions of data, location, format for storage and other characteristics. The data dictionary can be used to retrieve the definition of data that has already been used in an application. The data dictionary also stores some of the description of data structures, such as entities, attributes and relationships. It can also have software to update itself and to produce reports on its contents and to answer some of the queries.

Information is useful for an Organization in many aspects. It is mainly use for planning and developing process.

The information needs for the implementation of the business plan should find place in the MIS. To ensure such an alignment possibility, it is necessary that the business plan – strategic or otherwise, states the information needs. The information needs are then traced to the source data and the systems in the organization which generate such a data. The plan of development of the MIS is linked with the steps of the implementation in a business development plan. The system of information generation is so planned that strategic information is provided for the strategic planning, control information is provided for a short term planning and execution. The details of information are provided to the operations management to assess the status of an activity and to find ways to make up, if necessary. Once the management needs are translated into information needs, it is left to the designer to evolve a plan of MIS development and implementation.

While preparing the schedule due consideration is given to the importance of the system in the overall information requirement. Due regard is also given to logical system development. For example, it is necessary to develop the accounting system first and then the analysis.

Further, unless the systems are fully developed their integration is not possible. This development schedule is to be weighed against the time scale for achieving certain information requirement linked to a business plan. If these are not fully met, it is necessary to revise the time schedule and also the development schedule, whenever necessary.

The selection of the architecture, the approach to the information system development and the choice of hardware and software are the strategic decisions in the design and development of the MIS in the organization. The organizations which do not care to take proper decisions in these areas suffer from over-investment, under-utilization and are not able to meet the critical information requirements.

5. What is ERP? Explain its existence before and its future after? What are the advantages & Disadvantages of ERP? What is Artificial Intelligence? How is it different from Neural Networks?

Answer:

Enterprise resource planning (ERP) is a system that integrates all of these functions into a single system, designed to serve the needs of each different department within the enterprise. ERP is more of a methodology than a piece of software, although it does incorporate several software applications, brought together under a single, integrated interface.

ERP (enterprise resource planning) is an industry term for the broad set of activities that helps a business manage the important parts of its business. The information made available through an ERP system provides visibility for key performance indicators (KPIs) required for meeting corporate objectives. ERP software applications can be used to manage product planning, parts purchasing, inventories, interacting with suppliers, providing customer service, and tracking orders. ERP can also include application modules for the finance and human resources aspects of a business. Typically, an ERP system uses or is integrated with a relational database system.

The deployment of an ERP system can involve considerable business process analysis, employee retraining, and new work procedures.

ERP Before and After

Before

Prior to the concept of ERP systems, departments within an organization (for example, the human resources (HR)) department, the payroll department, and the financial department) would have their own computer systems. The HR computer system (often called HRMS or HRIS) would typically contain information on the department, reporting structure, and personal details of employees. The payroll department would typically calculate and store paycheck information. The financial department would typically store financial transactions for the organization. Each system would have to rely on a set of common data to communicate with each other. For the HRIS to send salary information to the payroll system, an employee number would need to be assigned and remain static between the two systems to accurately identify an employee. The financial system was not interested in the employee-level data, but only in the payouts made by the payroll systems, such as the tax payments to various authorities, payments for employee benefits to providers, and so on. This provided complications. For instance, a person could not be paid in the payroll system without an employee number.

Advantages and Disadvantages

Advantages – In the absence of an ERP system, a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface. Tasks that need to interface with one another may involve:

A totally integrated system
The ability to streamline different processes and workflows
The ability to easily share data across various departments in an organization
Improved efficiency and productivity levels
Better tracking and forecasting
Lower costs
Improved customer service

Change how a product is made, in the engineering details, and that is how it will now be made. Effective dates can be used to control when the switch over will occur from an old version to the next one, both the date that some ingredients go into effect, and date that some are discontinued. Part of the change can include labeling to identify version numbers.

Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data tampering scenario might involve a disgruntled employee intentionally modifying prices to below the breakeven point in order to attempt to take down the company, or other sabotage. ERP systems typically provide functionality for implementing internal controls to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools.

Disadvantages – Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used.

While advantages usually outweigh disadvantages for most organizations implementing an ERP system, here are some of the most common obstacles experienced:

Usually many obstacles can be prevented if adequate investment is made and adequate training is involved, however, success does depend on skills and the experience of the workforce to quickly adapt to the new system.

Customization in many situations is limited
The need to reengineer business processes
ERP systems can be cost prohibitive to install and run
Technical support can be shoddy
ERP’s may be too rigid for specific organizations that are either new or want to move in a new direction in the near future.

Artificial Intelligence and Neural Networks

Artificial intelligence is a field of science and technology based on disciplines such as computer science, biology, psychology, linguistics, mathematics and engineering. The goal of AI is to develop computers that can simulate the ability to think, see, hear, walk, talk and feel. In other words, simulation of computer functions normally associated with human intelligence, such as reasoning, learning and problem solving.

AI can be grouped under three major areas: cognitive science, robotics and natural interfaces. [Source MIS 7th edition, James O Brien and George M Marakas- Tata Mc Graw Hill].

Cognitive science focuses on researching on how the human brain works and how humans think and learn. Applications in the cognitive science area of AI include the development of expert systems and other knowledge-based systems that add a knowledge base and some reasoning capability to information systems. Also included are adaptive learning systems that can modify their behavior based on information they acquire as they operate. Chess-playing systems are some examples of such systems.

Fussy logic systems can process data that are incomplete or ambiguous. Thus, they can solve semi-structured problems with incomplete knowledge by developing approximate inferences and answers, as humans do.

Neural network software can learn by processing sample problems and their solutions. As neural nets start to recognize patterns, they can begin to program themselves to solve such problems on their own.

Neural networks are computing systems modeled after the human brain’s mesh like network of interconnected processing elements, called neurons. The human brain is estimated to have over 100 billion neuron brain cells. The neural networks are lot simpler in architecture. Like the brain, the interconnected processors in a neural network operate in parallel and interact dynamically with each other.

This enables the network to operate and learn from the data it processes, similar to the human brain. That is, it learns to recognize patterns and relationships in the data. The more data examples it receives as input, the better it can learn to duplicate the results of the examples it processes. Thus, the neural networks will change the strengths of the interconnections between the processing elements in response to changing patterns in the data it receives and results that occur.

For example, neural network can be trained to learn which credit characteristics result in good or bad loans. The neural network would continue to be trained until it demonstrated a high degree of accuracy in correctly duplicating the results of recent cases. At that point it would be trained enough to begin making credit evaluations of its own.

Genetic algorithm software uses Darwinian (survival of the fittest), randomizing and other mathematics functions to simulate evolutionary processes that can generate increasingly better solutions to problems.

Robotics: Ai, engineering and physiology are the basic disciplines of robotics. This technology produces robot machines with computer intelligence and computer-controlled, humanlike physical capabilities. This area thus includes applications designed to give robots the power of sight, or visual perception; touch or tactile capabilities; dexterity or skill in handling and manipulation; locomotion, or the physical ability to move over any terrain; and navigation, or the intelligence to properly find one’s way to a destination.

Natural interfaces: The development of natural interfaces is essential to the natural use of computers by humans. Development of natural languages and speech recognition are major thrusts in this area of AI. Being able to talk to computers and robots in conversational human languages and have them understand us as easily as we understand each other is a goal of AI research. This involves research and development in linguistics, psychology, computer science and other disciplines.

Other natural interface research applications include the development of multi-sensory devices that use a variety of body movements to operate computers. This is related to the emerging application area of virtual reality. Virtual reality involves using multi-sensory human– computer interfaces that enable human users to experience computer simulated objects, spaces activities and worlds as if they actually exist.

6. Distinguish between closed decision making system & open decision making system? What is ‘What – if‘ analysis? Why is more time spend in problem analysis & problem definition as compared to the time spends on decision analysis?

Answer:

The decision-making systems can be classified in a number of ways. There are two types of systems based on the manager’s knowledge about the environment. If the manager operates in a known environment then it is a closed decision-making system. The conditions of the closed decision-making system are:

a) The manager has a known set of decision alternatives and knows their outcomes fully in terms of value, if implemented.

b) The manager has a model, a method or a rule whereby the decision alternatives can be generated, tested, and ranked for selection.

c) The manager can choose one of them, based on some goal or objective criterion.

Few examples are a product mix problem, an examination system to declare pass or fail, or an acceptance of the fixed deposits.

If the manager operates in an environment not known to him, then the decision-making system is termed as an open decision-making system. The conditions of this system in contrast closed decision-making system are:

a) The manager does not know all the decision alternatives.

b) The outcome of the decision is also not known fully. The knowledge of the outcome may be a probabilistic one.

c) No method, rule or model is available to study and finalise one decision among the set of decision alternatives.

d) It is difficult to decide an objective or a goal and, therefore, the manager resorts to that decision, where his aspirations or desires are met best.

Deciding on the possible product diversification lines, the pricing of a new product, and the plant location, are some decision-making situations which fall in the category of the open decision-making systems.

The MIS tries to convert every open system to a closed decision-making system by providing information support for the best decision. The MIS gives the information support, whereby the manager knows more and more about environment and the outcomes, he is able to generate the decision alternatives, test them and select one of them. A good MIS achieves this.

What if analysis

Decisions are made using a model of the problem for developing various solution alternatives and testing them for best choice. The model is built with some variables and relationship between variables. In reality, the considered values of variables or relationship in the model may not hold good and therefore solution needs to be tested for an outcome, if the considered values of variables or relationship change. This method of analysis is called ‘what if analysis.’

For example, in decision-making problem about determining inventory control parameters (EOQ, Safety Stock, Maximum Stock, Minimum Stock, Reorder level) lead time is assumed fairly constant and stable for a planning period. Based on this, the inventory parameters are calculated. Inventory manager wants to know how the cost of holding inventory will be affected if lead time is reduced by one week or increased by one week. The model with changed lead time would compute the cost of holding inventory under new conditions. Such type of analysis can be done for purchase price change, demand forecast variations and so on. Such analysis helps a manager to take more learned decisions. ‘What if analysis’ creates confidence in decision-making model by painting a picture of outcomes under different conditions?

Behavioural Concepts in Decision-making

The manager, being a human being, behaves in a peculiar way in a given situation. The response of one manager may not be the same as that of the two other managers, as they differ on the behavioural platform. Even though tools, methods and procedures are evolved, the decision is many a times influenced by personal factors such as behaviour.

The managers differ in their approach towards decision-making in the organisation, and, therefore, they can be classified into two categories, viz., the achievement-oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the completion of the task somehow. The achievement-oriented manager will always opt for the best and, therefore, will be enterprising in every aspect of the decision-making. He will endeavour to develop all the possible alternatives. He would be scientific, and therefore, more rational. He would weigh all the pros and cons properly and then conclude.

The manager’s personal values will definitely influence ultimately. Some of the managers show a nature of risk avoidance. Their behaviour shows a distinct pattern indicating a conservative approach to decision-making – a path of low risk or no risk. Further, even though decision-making tools are available, the choice of the tools may differ depending on the motives of the manager. The motives are not apparent, and hence, are difficult to understand. A rational decision in the normal course may turn out to be different on account of the motives of the manager.

The behaviour of the manager is also influenced by the position he holds in the organisation. The behaviour is influenced by a fear and an anxiety that the personal image may be tarnished and the career prospects in the organisation may be spoiled due to a defeat or a failure. The managerial behaviour, therefore, is a complex mix of the personal values, the atmosphere in the organisation, the motives and the motivation, and the resistance to change. Such behaviour sometimes overrides normal decisions based on business and economic principles.

The interplay of different decision-making of all the managers in the organization shapes up the organizational decision-making. The rationale of the business decision will largely depend upon the individuals, their positions in the organization and their inter-relationship with other managers.

If two managers are placed in two decision-making situations, and if their objectives are in conflict, the managers will arrive at a decision objectively, satisfying individual goals. Many a times, they may make a conscious decision, disregarding organization’s objective to meet their personal goals and to satisfy their personal values. If the manager is enterprising, he will make objectively rational decisions. But if the manager is averse to taking risk, he will make a decision which will be subjectively rational as he would act with limited knowledge and also be influenced by the risk averseness. Thus, it is clear that if the attitudes and the motives are not consistent across the organization, the decision-making process slows down in the organization.

Assignment MB0046 – Marketing Management - Set 2

2012-03-17T12:36:00.000+05:30

Course MBA – 2^nd Semester

Subject: Marketing Management

Assignment MB0046 – Set 2

Q1. Highlight the importance of Distribution channel and marketing intermediaries in carrying out the marketing function.

The delivery of goods and services from producers to their ultimate consumers or users includes many different activities. These different activities are known as marketing functions. Different thinkers have described these functions in different ways. Some of the most important functions of marketing are briefly discussed below:

1. Marketing Research and Information Management

Marketers need to take decisions scientifically. Marketing research function is concerned with gathering, analyzing and interpreting data in a systematic and scientific manner. The types of market information could be analysis of market size and characteristics, consumer tastes and preferences and changes in them from time to time, channels of distribution and communication and their effectiveness, economic, social, political and technological environment and changes therein. A company can procure such information from specialized market research agencies, government or can decide to collect themselves.

2. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade or remind customers about products or services. It is an impersonal form of communication targeted at a chosen group through paid space or time.

Sales Promotion is a short-term incentive given to customers or intermediaries to promote sales. It supplements advertising and personal selling and can be used at the time of launching a new product or even during its maturity period.

3. Product Planning and Management – A Marketer should identify the needs and wants of consumers, develop suitable products / services and make them available. Marketer is also required to maintain the product and its variations in size, weight, package and price range according to the changing needs and requirements of his customers. Information available through Market Research helps product management in taking appropriate decisions while planning the marketing efforts.

4. Selling – This function of marketing is concerned with transferring of products to the customer. An important part of this function is organizing sales force and managing their activities. Sales force management includes recruitment, training, supervision, compensation and evaluation of salesmen. They need to be assigned targets and territories where they can operate. The salesmen interact with prospective purchasers face-to-face in order to sell the goods. The purchaser may be end customer or an intermediary, such as a retailer or a dealer.

5. Physical Distribution – Moving and handling of products from factory to consumers come under this function. Order processing, inventory, management, warehousing and transportation are the key activities in the physical distribution system.

6. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue fetching function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. While deciding on the price, the factors to be considered are competition, competitive prices, company’s marketing policy, government policy, and the buying capacity of target market etc.

Importance of marketing intermediaries

These are firms which distribute and sell the goods of the company to the consumer.

Marketing intermediaries play an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward agents are few of the intermediaries. Retailers are final link between the company and the customers. Their role in the marketing of product is increasing every day.

Q.2 a. Explain the different product mix pricing strategies. (6 marks)

Product Mix Pricing Strategies

1. Product Line pricing: Strategy of setting the price for entire product line. Marketer differentiates the price according to the range of products, i.e. suppose the company is having three products in low, middle and high end segment and prices the three products say at Rs 10 Rs 20 and Rs 30 respectively.

Figure

In the above example of Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia 7610 priced @ Rs 6249 and Nokia E90 priced @ Rs 34599. All the three products cater to the different segments – low, middle and high income group respectively. The three levels of differentiation create three price points in the mind of consumer. The task of marketer is to establish the perceived quality among the three segments. If the customers do not find much difference between the three brands, he/she may opt for low end products.

2. Optional Product pricing: this strategy is used to set the price of optional or accessory products along with a main product.

Figure 10.2

Body cover
Rs 1521

Slide Molding
Rs 1123

Rear underbody
Rs 8883

Roof End
Rs 6396

Maruti Suzuki will not add above accessories to its product Swift but all these are optional. Customer has to pay different prices as mentioned in the picture for different products. Organizations separate these products from main product so that customer should not perceive products are costly. Once the customer comes to the show room, organization explains the advantages of buying these accessory products.

3. Captive product pricing: Setting a price for a product that must be used along with a main product. For example, Gillette sells low priced razors but make money on the replacement cartridges.

4. By-product pricing: It is determining the price for by-products in order to make the main product’s price more attractive. For example, L.T. Overseas, manufacturers of Dawaat basmati rice, found that processing of rice results in two by-products i.e. rice husk and rice brain oil. If the company sells husk and brain oil to other consumers, then company is adopting by-product pricing.

5. Product bundle pricing: It is offering companies several products together as a bundle at the reduced price. This strategy helps companies to generate more volume, get rid of the unused products and attract the price conscious consumer. This also helps in locking the customer from purchasing the competitors’ products. For example, Anchor toothpaste and brush are offered together at lower prices.

Q2 b. Give a note on marketing concepts.

The Marketing Concept – The Marketing Concept proposes that a company’s task is to create, communicate and deliver a better value proposition through its marketing offer, in comparison to its competitors; to its target segment and that this customer oriented approach only can lead to success in the market place.

Today, marketing function is seen as one of the most important functions in the organization. Many marketers put the customers at the centre of the company and argue in favor of such a customer orientation, where all functions work together to respond, serve and satisfy the customer.

Many successful and well known multinational companies have adopted marketing concept as their business and marketing philosophies. Many Indian companies in the banking and other service sectors follow customer orientation and service as their motto. According to this concept, a company’s marketing effort must start right from identifying, through Market Research, exact needs and wants of the target market.

Q.3 a. What are the features of business markets?

Features or Characteristics of Business Markets

Following are some of the unique features of business markets where large establishments purchase the required goods and services from other businesses. Such B2B operations determine the organizations as buyers and those organizations who supply the various requirements will be the sellers or suppliers or service providers.

1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For example, major airlines buy the necessary equipments from the aircraft manufacturers

2. Geographical concentration of buyers: Buyers are geographically concentrated. For example, shipping industries are located on the east and west coasts of India than in any other places.

3. Variable demand: The nature of demand is fluctuating because the demand is basically a derived one. Based on the requirements of the consumer markets, organizations buy the goods and make the finished goods available in the market for final consumption. Larger the consumer demand, larger will be the organizational buying. For example, mobiles are being used by a large population and so cellular companies have to meet this rising demand.

4. Inelastic demand: The demand is also inelastic because organizations cannot make rapid changes in the production structure and so prices remain constant in the short-term. For example, Shoe manufacturers will not buy much leather if the price of leather is less neither will they buy less leather if the price increases.

5. Systematic purchasing: The purchasing activity is directly between the buyer and supplier organization which means there are no or very few middlemen involved. Purchasing activity is usually undertaken by purchase departments based on a proper structure and through various mechanisms like having purchase requisitions from other sections, inviting tenders and sending invoices from the suppliers, purchasing agreements or contracts with the key suppliers, renewing agreements etc. For example, Reliance Fresh has regular contracts with the agricultural producers for smooth supply of fresh fruits and vegetables.

6. Multiple buying influences: there will be several parties involved in deciding about the purchases because organizations will have several departments and units functioning under it with different requirements. So, unless they have the proper resources to work with there will be problems in the departments. For example, purchase department in a Hospital must be aware about the specific requirements in the clinical wards, operation theaters, labs, etc.

7. Reciprocation: This means that when an organization buys goods from another organization then the supplier organization also might need certain other goods that are produced by the buyer organization. For example, a stationery supplier will supply the necessary stationeries to the paper manufacturer who in turn provides papers to the supplier.

8. Lease agreements: Most organizations take on lease the expensive equipments required by them rather than buy it. So, in this way, they reduce cost, get better service and the lessor or one who provides the equipments will also profit from the rent or lease charges. For example, TATA provides the transport trucks to other organizations on lease.

Q.3 b. Write a short note on product line and product mix.

Product line: The group of related products which uses same marketing efforts to reach the consumer.

The product line identifies profitable and unprofitable products and helps in allocation of resources according to that. The product line understanding helps the marketer to take line extension, line pruning and line filling strategies of the company.

Pidilite Industries, the adhesives and chemical company, have the following group of related products (or product lines) in consumer and business markets.

Consumer market.

1. Adhesives and sealants.

2. Art materials and stationeries.

3. Construction chemicals.

4. Automotive chemicals

5. Fabric care

Business market

1. Industrial adhesives.

2. Textile chemicals.

3. Organic pigment powders.

4. Industrial resins and

5. Leather chemicals.

Product Line Decisions:

The major product line decisions are

a. Product line length

b. Product line stretching

c. Product line filling

d. Product line pruning

a. Product line length: The number of items in the product line is called the product line length. Company should decide whether it requires longer chain or shorter length. The decision depends upon the objective of the company, competitive environment and profitability. If the chain is short company can add new products and if it is lengthy company can reduce the number of products. For example, Pidilite’s adhesives and sealants line has following 11 items in the product line. Hence the length of product line is 11

1. White Glue	2. Paper Glue
3. Glue Stick	4. Instant Adhesive
5. Epoxy Putty	6. Epoxy Adhesive
7. PVC Insulation Tape	8. Silicone Sealants
9. Contact Glue	10. All Purpose Glue
11. Maintenance Spray

b. Product line stretching: Company lengthens its product line either by stretching upwards or downwards or both ways. Line stretching decision depends on three situations -

i. Company which operates in high end market may come up with mid class or low class targeted products.

ii. The company which operates in lower end of market may come up with high end market products.

iii. If the company operates in mid segment and comes out with low end product as well as high end product then it is stretching both ways.

For example, Maruti Suzuki Limited launched its first product, Maruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti 800 and targeted for higher segment. This shows that the company extended its product line upwards or in short, upward stretch.

Tata Motors launched their Rs 1 lakh car NANO in the year 2008. The company which was targeting upper class and middle class with their products SUMO and Indica respectively, has stretched downwards to reach the lower level segment. This illustrates the downward stretch.

Toyota Kirloskar Limited which extended their line from Qualis and Corolla to Innova and Camry is planning to come out with small car in India. This clearly illustrates the two way stretch of the product line.

c. Product line filling: Adding more items in the present product line. For example, in the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here company was trying to fill the gap existing in the segment by introducing ALTO, i.e. line filling.

d. Product line pruning: Removing the unprofitable products form the product line. Toyota Kirloskar phased out their well known brand Qualis when they thought the brand was not adding value to the product line.

Product Mix

Product mix: The number of product lines and items offered by marketer to the consumers

A company’s product mix has four different dimensions. They are product mix width, product mix length, product mix depth and product mix consistency.

The following shows the product mix of Jyothy Laboratories:

Fabric care	House hold insecticide	Utensil cleaners	Fragrances	Personal care	Allied business
Ujala supreme (9ml, 30ml, 75ml, 125ml,250ml)	Maxo cyclothrin coil (8hr, 10hr, 12hr)	Exo dish wash bar (100g, 200g 380g)	Maya (8, 15, 20, 40 and 100 sticks.)	Jeeva Natural (Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs. )	Continental special
Ujala washing powder (25g, 500g, 1Kg)	Max vaporizer (30ml, 45ml)	Exo dish wash liquid (500ml, 125ml)			Marketing of godrej Tea
Stiff & shine (20gm sachets, 100ml and 200ml bottles)	Max aerosol (150ml,300ml)				Marketing of Ekta dhoop

Product mix width: The total number of product lines that company offers to the consumers.

For example, Jyothy Laboratories’ product mix has six lines. Hence the width is 6

Product mix length: The total number of items that company carries within its product line.

For example, Jyothy Laboratories fabric care division has three items

Product line depth: The number of versions offered of each product in the line.

For example, Jyothy Laboratories’ Jeeva Natural is offered in three versions i.e. Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs.

Product mix consistency: If company’s product lines usage, production and marketing are related, then product mix is consistent, else it is unrelated.

In the case of Jyothy Laboratories, all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Company’s cigarette and cloth product lines are totally unrelated.

Q.4. a. Select any deodorant brand and evaluate its positioning strengths or weakness in terms of attributes, benefits, values, brand name and brand equity.

Brand Name

A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers’.

The legal term for brand is trademark. A brand may identify one item, a family of items, or all items of that seller. If used for the firm as a whole, the preferred term is trade name

Brand name: Axe

Axe was launched in France in 1983 by Unilever. It was inspired by another of Unilever's brands, Impulse.

Unilever were keen to capitalize on Axe's French success and the rest of Europe from 1985 onwards, later introducing the other products in the range. Unilever were unable to use the name Axe in the United Kingdom and Ireland due to trademark problems so it was launched as Lynx

Although Axe's lead product is the fragranced aerosol deodorant body spray, other formats of the brand exist. Within underarm care the following are available: deodorant aerosol body spray, deodorant stick, deodorant roll-on, anti-perspirant aerosol spray (called Axe Dry), and anti-perspirant stick (also called Axe Dry).

The attribute of the brand that customer associates with his/ her belief. A person may associate the brand for power, strength or protectiveness. For example, a customer may associate Axe brand not just for perfumes but also any accessory associated with perfumes such as Shampoos etc. So, for him, Axe represents perfume.

Brand Equity

Brand equity is set of assets linked to a brand‘s name and symbol that adds value to the product or service and/or that firm’s customer.

Components of brand equity:

1. Brand loyalty: From its launch (Axe), the yearly fragrance variant has played a key part in the success of the brand by offering something new each year.

2. Brand awareness: The type of fragrance (Axe) variants have evolved over time. From 1983 until about 1989, the variant names were descriptions of the fragrances and included Musk, Spice, Amber, Marine, and Oriental.

3. Perceived quality

4. Brand associations: Axe also launches limited edition variants from time to time that may be on sale for a few months or over a year

4.b. You are a research expert in the field of marketing footwear products. What are the various research approaches you would consider before making a consumer survey regarding footwear? (4 marks)

Below are the various research approaches that need to be considered before making a consumer survey regarding footwear products:

Observational Research – Fresh data can be collected by observing the situation and the people in the situation.
Focus Group Research is a method of discussion in which a team of eight to twelve persons invited for a group discussion in presence of a skilled moderator to discuss a product, service, a firm or any marketing related activity. The proceedings are observed and recorded on videotape and subsequently analyzed to understand consumer attitudes, beliefs and behavior.
Survey Research – This is the most common of the approaches wherein surveys are undertaken with the help of a questionnaire to learn about people’s knowledge, beliefs and preferences.
Behavioral Research – Customer’s actual behavior in terms of actual purchases reflect their preferences and are more reliable than responses provided in surveys which are memory based.
Experimental Research – The most scientific method of research is experimental research which tries to capture cause and affect relationships.

Q. 5 a. What advice would you give a company that has facing bad publicity? What steps would you tell the company to improve its reputation?

Publicity can be said as a simple act of making a suggestion to the concerned parties – TV or radio channel, news reporter or journalist, film makers, etc. that leads to the inclusion of a company/products in an already existing story or a newly developed one. Publicity may also include any such information that attracts attention to a company, its products, its people or any event, usually generated by a third party such as media. Publicity maybe a part of PR or it may be independent of it in certain situations.

Publicity may have positive or negative impacts. For example, it became a negative publicity for Coca-Cola when people in India, started to throw or break the bottles on the roads because of the belief that it contained pesticides or toxic substances. News channels covered the same giving negative publicity to the company and the products.

Ways in which organizations can use publicity as a communication tool are as follows:

· Organizing events, contests, exhibitions, public displays, tours, etc.

· Sponsoring awards, scholarships or giving charity for any noble cause.

· Issuing reports, conducting survey or polls, taking stand on any debatable or environmental issues, etc.

· Any other way that is appropriate like for example displaying the products in a movie and asking the lead actors to use the products in that movie.

Ways in which organizations can avoid or minimize the effects of bad publicity:

· Providing people with the accurate information and giving clarifications if needed either through press release, media interviews, websites, public messages, advertising etc.

· Company’s top management or spokesperson can give a public statement or comment in the various media.

· Improvising Public Relations and designing good publicity message to erase the effects of bad publicity.

· Continuing to provide quality products and services to the consumers.

· Involving in community work or environmental protection campaigns or any such activity for a good cause.

b. As a brand manager, what are the ways in which you will select a brand name for your product- watches and how will you position it in the market?

Brand provides the image to the product. Brand manager should be careful in selecting a proper name for the brand for watches.

Brand Name: Titan

There are six suggestions from Philip Kotler to create a successful brand name. They are

1. It should suggest something about the product benefits and qualities; e.g. Titan

2. It should be easy to pronounce, recognize, and remember

3. The brand name should be distinctive

4. It should be extendable

5. The name should be easily translated into a foreign language

6. It should be capable of registration and legal protection e.g. Titan is a registered brand and other brands cannot compete with it using any similar sounding name.

Brand managers have four options of sponsoring the brand. They are

1. Manufacturer brand

2. Private brand

3. Licensing

4. Co- branding

Q. 6 a. What is MIS? What are its benefits?

MIS (Marketing Information System):

MIS is a set of procedures to collect, analyze and distribute accurate, prompt and appropriate information to different levels of marketing decision makers.

Benefits of MIS

Various benefits of having a MIS and resultant flow of marketing information are given below:

1. It allows marketing managers to carry out their analysis, planning implementation and control responsibilities more effectively.

2. It ensures effective tapping of marketing opportunities and enables the company to develop effective safeguard against emerging marketing threats.

3. It provides marketing intelligence to the firm and helps in early spotting of changing trends.

4. It helps the firm adapt its products and services to the needs and tastes of the customers.

5. By providing quality marketing information to the decision maker, MIS helps in improving the quality of decision making.

6.b. How is rural marketing different from urban markets?

Rural Marketing

In a rapidly changing scenario, marketers have to continuously explore new markets and ways of serving them. In India, enterprises are discovering the potential of a huge rural population to drive business. Prof C K Prahlad, had aptly summed up the potential as ‘fortune at the bottom of the pyramid’ in a pathbraking book of the same name. Rural marketing is not something akin to glocalisation. It is not the modification of urban marketing strategies to suit the rural market. On the other hand it is developing products to meet the needs of the rural sector and reaching it across as per the specific characteristics of the rural environment. In case of a detergent, it is producing one which will suit the rural environment (considering that the dirt and grime is different, clothing alternatives are different, availability of water and number of times of washing is different and so on); packaging and pricing which will be akin to their requirement and alternative ways for which the detergent may be put to use. For example Hindustan Lever found that its detergent was being used for washing the cattle.

Importance of Rural marketing: The following table will give you some idea about the emergence of the rural market which marketers may ignore at their own peril.

Rural Markets different from Urban Markets

This has to be understood in the light of the 4Ps or 7Ps of marketing. Imagine that you are trying to establish a Coffee Café Day Outlet in a remote village in Maharashtra. Will that be viable proposition? Yet there may be consumers for coffee in the rural sector too. The offering has to suit the sector. Similarly an ice cream parlor may not be a workable idea in a village or a cluster of villages if there is no electricity connection there. The ice cream cart vendor is a better idea. Keeping these situations in perspective, one can draw some inferences why rural marketing is different.

1. Accessibility and mobility: This applies both for the supplier and the consumer. The movement of the people is restricted by the lack of surface roads and the mode of transport. There are restrictions by way of visibility during night.

2. Average income level of consumers: The average wage earners are characterized by lower per capita income and disposable income in comparison to the urban.

3. Geographical distances: The living quarters are separated more than they are in the urban areas. The cluster of villages is also segregated by distances.

4. Literacy level: On an average the literacy level in the rural sector is lower in comparison to the urban sector.

There could be several other issues which are specific to the rural sector. These may force marketers to take a different approach for the entire marketing process or at least some of them as against the urban sector.

Assignment MB0046 – Marketing Management - Set 1

2012-03-17T12:34:00.001+05:30

Course MBA – 2^nd Semester

Subject: Marketing Management

Assignment MB0046 – Set 1

Q.1

a. Explain the different micro-environmental forces with examples.

Forces in the micro environment

1 The Company

Remember, in the previous unit we discussed about marketing mix and marketing plan. Safe Express, a leader in the supply chain management solution wants to hold its number one position in the US $ 90 billion Indian logistics market. The company plans to expand its service areas in the coming months. To meet the targets of the marketing plan, other departments of safe express also expanding their horizon. The Company is coming out with logistics parks in different cities; plans to hold seven million square feet of warehousing capacity in the next three years and invest Rs 10 billion in three years to meet those targets. The above example shows that the company’s marketing plan should be supported by the other functional departments also.

2 Intermediaries

Marketing intermediaries: These are firms which distribute and sell the goods of the company to the consumer.

3 Publics

These are microenvironment groups, which help a company to generate the financial resources, creating the image, examining the companies’ policy and developing the attitude towards the product.

We can identify six types of publics

1. Financial publics influence the company’s ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics.

2. Media publics carry news and features about the company e.g. Deccan Herald

3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation agency(IRDA) of the government

4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace.

5. General publics: a company should be concerned towards general publics’ attitude towards its products and services.

6. Internal publics: Employees who help in creating proper image for the company through word of mouth.

4 Competitors

A company should monitor its immediate competitors as its sale will be affected by the nature and intensity of the competitors. The sale of Coca cola will be affected by Pepsi cola, or Britannia cheese by Amul cheese. Michael Porter, the author of Competitive Advantage of Nations suggested that, in addition to direct competition, companies should also consider competition from substitutes. In addition to existing competitors, the potential competitors should also be anticipated. Competition may arise from

a. Small firms with low overheads producing duplicates.

b. Firms which diversify into certain products by merely being in the particular industry for e.g. Pepsi entered the snacks sector competing with pure snack producers like Haldiram.

c. Firms which expand in the same vertical for e.g. Godrej which manufactured office furniture and steel cupboards went on to the entire range of home furniture thereby giving competition to pure home furniture makers.

How do companies or enterprises survive and grow under the above circumstances. While we shall study this in detail later, a simple step could be that the product should be positioned differently and the company should be able to provide better services.

5 Suppliers

There are many kinds of suppliers to an enterprise or an institution. There are typically, raw material suppliers, energy and fuel suppliers, labour suppliers, office item suppliers and so on.

Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well. Suppliers are a source of competition to firms today. For a large retail store like Reliance Retail or Big Bazaar the suppliers play the most significant role in both cost and time. Timely supplies reduce stocking of goods and blocking of space, at the same time meet customer requirements.

In a globalised scenario suppliers are even more important as competition goes up manifold! The Tamil Nadu State Electricity Board imports coal from New Zealand despite huge coal reserves in India. For Volvo, India is a manufacturing hub.

6 Customers

A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets Company serves. Generally we can divide the markets into five different categories. They are

a. Consumer market.

b. Business market

c. Reseller market

d. Government market and

e. International market

You will come to know about these five different markets from the following example.

MRF, a tyre company sells its product directly to consumer (in case of urgency, customer purchases directly from showroom) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyres in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.

b. Mention the different ad appeals with suitable examples. (4 marks)

The different ad appeals-

A)Emotional appeal:

Positive emotional appeal or negative emotional appeals are strong tools used to intensify the purchasing activity of the customer. Positive emotions like love, pride, joy and humor are used in the message. Following are the advertisement where such attributes of positive emotions used.

e.g. BMW fastest saloon car in the world- pride

e.g. Fevicol – humor

e.g. Wheel- love.

The negative emotions like fear guilt and shame are also used in the advertisement to attract the customer.

e.g. NIIT- if you are not studying at NIIT you are missing something- guilt

e.g. Rexona deodorant – shame

B)Rational appeals:

The rational appeals highlight on the desired benefits about the products. They highlight quality, economy value or performance of the product.

e.g. Dabur Amla – value appeal ( long Hair)

e.g. Lakme brilliance- Quality products.

e.g. Reliance India mobile- performance( works even in flood situations)

e.g. Reliance Infocom- Like the first three, the mobile phone must come to me as a necessity and not as a luxury- economy

C)Moral appeal:

These are concerned towards public health or environment or social responsibility.

e.g. Shell lubricants show its commitment towards environment in their advertisements.

Q.2 What are the different market entry strategies if a company wants to enter international markets?

Organizations that plan to go for international marketing should know the answers for some basic questions like – a. In how many countries would the company like to operate? b. What are the types of countries it plans to enter?That’s why companies evaluate each country against the market size, market growth, and cost of doing business, competitive advantage and risk level.

Checklist for country evaluation

The Characteristics, weightages and score should be checked.

1. Political rights.

2. Civil liberties.

3. Control of corruption.

4. Government effectiveness.

5. Rule of law or legal issues.

6. Health expenditure.

7. Education expenditure.

8. Regulatory quality.

9. Cost of starting a business.

10. Days to start a business.

11. Trade policy.

12. Inflation.

13. Fiscal policy.

14. Consumption patterns.

15. Competition.

International Market Entry Strategies

Once the market is found to be attractive, companies should decide how to enter this market. Companies can enter the international market by adoptingany one of the following strategies. They are

a. Exporting

b. Licensing

c. Contract manufacturing

d. Management contract

e. Joint ownership

f. Direct investment

Exporting is the technique of selling the goods produced in the domestic country in a foreign country with some modifications. For example, Gokaldas textiles export the cloth to different countries from India. Exporting may be indirect or direct. In case of indirect exporting, company works with independent international marketing intermediaries. This is cost effective and less risky too. Direct exporting is the technique in which organization exports the goods on its own by taking all the risks. Maruti Udyog Limited, India’s leading car manufacturer exports its cars on its own. Company can also set up overseas branches to sell their products. Adani Exports, another leading exporter from India has international office in Singapore.

Licensing: According to Philip Kotler, licensing is a method of entering a foreign market in which the company enters into an agreement with a license in the foreign market, offering the right to use a manufacturing process, trademark, patent, or other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may cause some problems to the parent company. Licensee may violate the agreement and can use the technology of the parent company.

Contract manufacturing: Company enters the international market with a tie up between manufacturer to produce the product or the service. For example, Gigabyte Technology has contract manufacturing agreement with D- link India to produce and sell their mother boards. Another significant manufacturer is TVS Electronics; it produces key boards in its own name as well as for other companies too.

Management contracting: In this case, a company enters the international market by providing the know how of the product to the domestic manufacturer. The capital, marketing and other activities are carried out by the local manufacturer, hence it is less risky too.

Joint ownership: A form of joint venture in which an international company invests equally with a domestic manufacturer. Therefore it also has equal right in the controlling operations. For example, Barbara, a lingerie manufacturer has joint venture with Gokaldas Images in India.

Direct Investment: In this method of international market entry, Company invests in manufacturing or assembling. The company may enjoy the low cost advantages of that country. Many manufacturing firms invested directly in the Chinese market to get its low cost advantage. Some governments provide incentives and tax benefits to the company which manufactures the product in their country. There is government restriction in some countries to opt only for direct investment, as it produces the jobs to the local people. This mode also depends on the country attractiveness. It may become risky if the market matures or unstable government exists.

Q.3.a. State the meaning of Product life cycle and explain the different stages involved in it. (8 marks)

Meaning of Product Life Cycle: It means a product has to go through the various stages since its inception and till it completely fades out from the market. The following graph represents the PLC curve and the 5 stages that it has to undergo

The product which is introduced into the market will undergo some modifications over the period. Its sales also fluctuate. Therefore a marketer will be interested in finding out how sales changes over a period and what strategies are best suited at that point. A product life cycle can be graphed by plotting aggregate sales volume for a product category over time. Generally the curve resembles a bell shaped curve. We can obtain style, fashion or fad style of product life cycles also.

Product life cycle (bell shaped curve)

According to PLC, a product passes through five stages which are as follows:

1. Product development stage: In this stage company identifies the viable idea and develops it. Even if sales in this stage are nil it requires huge research and development budget. Therefore company incurs losses at this stage. For example, TATA Docomo before entering the cellular services market had done research and found that calls were charged for minutes rather than seconds.

2. Introduction stage: Company introduces the product into the market. As the product is new to the market, consumer awareness is usually very low. Here company adopts heavy sales promotion and product awareness programs. The cost of product is very high and sales are very low. At this juncture the company charges high price to the customers. For example, TATA Docomo has entered into cellular services initially through the Billboards.

3. Growth stage: Company gets experience over the period and now tries to get the maximum market share (takes ‘first mover’ advantage). Sales will grow rapidly, resulting in lesser cost and better profit. Company reduces the price of the product and offers varieties and values in it. It focuses on building better distribution network and pushes the product through it. Therefore company needs less sales promotion. There will be increase in Competition and the company is forced to keep a tab on its competitors. For example, TATA Docomo has entered into the growth stage by aggressively advertising on Television and other mediums and at the same time giving competition to the existing players.

4. Maturity stage: In this stage, the product has already established itself in the market. These are the characteristics of this stage – a. Peak sales.b. Low cost per customer. c. High profits.d. Competition based pricinge. Communicating the product differentiation (or USP) to consumers.f. Improving supply chain efficiency.g. Defend the market share h. Industry experiences consolidation.

5. Decline stage: In this stage, product sales and profit decline. Company should phase out weak items from their product mix and may even lower the prices of the existing products. The advertisement budget of the company also comes down and the company may struggle to meet its costs. For example, VCR’s have been replaced with DVD players and so VCR entered into the decline stage and is almost out of the market.

Other product life cycles:

1. Style: A style is a basic and distinctive mode of expression that appears in the study of human behavior. For example, style is evident in homes, art, accessories and clothing. Once the style is invented it will be there for a longer period.

2. Fashion: Currently accepted or popular style in a given field. For example, cargo jeans are now the fashion with college going students. Fashion changes with time.

3. Fad: A fashion that enters quickly is adopted with great zeal, peaks early, and declines very fast. For example, when pager was introduced, everybody wanted to have the product. But when people found mobiles as alternative, the demand for pager went down drastically.

b. Define Customer Relationship Management. (2 marks)

Berry defines CRM as “attracting, maintaining and – in multi-service organizations – enhancing customer relationships.”

Berry and Parasuraman define CRM as “attracting, developing and retaining customer relationships.”

In Industrial Marketing, Jackson defines CRM as “marketing oriented toward strong, lasting relationships with individual accounts.”

Doyle and Roth define CRMS as “the goal of relationship selling is to earn the position of preferred supplier by developing trust in key accounts over a period of time.”

The sequence of activities for performing relationship marketing would include developing core services to build customer relationship, customization of relationship, augmenting core services with extra benefits, and enhancing customer loyalty and fine-tuning internal marketing to promote external marketing success.

Christopher considers relationship marketing as “a tool to turn current and new customers into regularly purchasing clients and then progressively moving them through being strong supporters of the company and its products to finally being active and vocal advocates for the company.”

Relationship marketing is in essence “selling by using psychological rather than economic inducements to attract and retain customers. It seeks to personalize and appeal to the hearts, minds and purses of the mass consumers.”- James J. Lynch

From the above definitions, it could be concluded that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the focal firm and all its supporting key stakeholders.

Q.4.

a. You are a sales manager in ABC firm. You have taken some interviews and shortlisted a few candidates. How will you select the right candidate for the sales job? (5 marks)

1. Create an Ideal Salesperson Profile. It has always surprised me how many companies have fully documented profiles of their ideal client. Yet, few have a profile of their ideal salesperson. How can you screen when you don't know what you are screening for?

This profile should be fully detailed. Some of the areas to address in the profile are the experience you expect that candidate to already have, the skills that the candidate should already possess and the skills you are NOT willing to teach.

The lack of a fully-defined profile of the ideal salesperson is the most common cause of bad sales marriages. It is also the major point of frustration between sales managers and recruiters. Recruiters often tell me that they feel they are throwing darts while blindfolded because they have so little detail about the desired profile.
2. Always be recruiting. In sales, there is an old expression: "The toughest time to make a sale is when you really need one." The same holds true for recruiting. When a slot is open on the sales team, it becomes an "all hands on deck" exercise to fill it. While the seat is open, revenue targets are in jeopardy. This leads many to forget the profile of the ideal salesperson profile in the interest of filling a seat. Playing this forward a bit, the seat becomes vacant again a short time later when either side determines that it is not a good fit.

Sales recruiting is a year-round exercise. The best sales forces are always on the look out for strong sales talent. Find a company that identifies a strong candidate that meets their profile who wouldn't find a way to hire this individual. It is a rarity to say the least. Sales teams have turnover either driven by the company or the employee. It is best to have a candidate portfolio at the ready than to begin a process of surfacing candidates when a seat is open. Poor hiring decisions are made out of desperation to fill a seat. The open seat is a cost to the company every day it is unfilled. Yet, the cost is more painful if the seat is filled by someone who doesn’t fit.
3. Practice Reverse Interviewing. Since the intent of the process is for both sides to be able to determine if a marriage should be formulated, a wonderful technique is reverse interviewing—an interview performed by a member of the sales team who would be a peer if the candidate was hired. It is important that the individual(s) selected to participate in this step are loyal to the company, knowledgeable and make a favorable impression.

However, unlike traditional interviews, the "interviewer" does not ask any questions of the candidate (as you know, it is very easy to get yourself in hot water if illegal questions are asked). Thus, you don't want untrained people asking questions. Rather, this "questionless" exercise has two different purposes. The first is to provide the candidate with an opportunity to ask questions of someone who would be their peer if they were to be hired. In essence, it is a way for them to get a picture of a day in the life of this job. The second purpose is to measure how the candidate prepares for a sales call.

Afterwards, conduct a debrief with the "reverse interviewer" to see what questions were asked. Did the candidate take advantage of this opportunity, bring prepared and insightful questions and write down answers? If they didn't, what kind of preparation will the candidate do for a sales call? How interested are they really in this job?

5. Host a Mock Sales Call. What better way to see if someone fits into your company's selling environment than to put them right in it? To do this effectively, you need to create a scenario for the candidate. I've found it most beneficial to give the candidate the scenario a day ahead of time so they can prepare. They should be provided with the same amount of information a sales person in your company normally has before making an initial sales call.

Those members of your company who participate in the exercise should be somewhat scripted. I say "somewhat" because you don't want it to be so dry that it is unrealistic, but without any scripting it can be hard to stay in character.

The last piece you need to do this well is a score sheet. Know what you are looking to measure in the process and score accordingly. Can they conduct a thorough needs analysis? Did they identify the challenges faced by this prospect? Would you buy from them?
6. Use Online Assessment Testing Wisely. There are a myriad of tools that are very helpful in the screening process for both personality and skill. However, few, if any, of the online assessment companies suggest that their tool should be used to make a hiring decision. The most appropriate application is to treat it as an additional data point in the sales talent screening program.

Linda Moeller, product director of Employee Continuum, has seen companies use this great tool incorrectly. "We have seen many organizations fail to take the context of an organization into account when deciding the most appropriate assessment to use. For example, many organizations assume that implementing a sales assessment will guarantee them improved sales performers. This is not necessarily the case. For example, the personality characteristics required for a sales person selling office supplies to purchasing agents are very different than those required for a salesperson selling everything needed for a dentist office. In order to be successful, an organization needs to consider the type of relationship they have with their clientele and the competencies that will make these relationships successful," she says.

b. As a consumer, what are the steps you will undertake before you decide to buy a car? (5 marks)

The steps undertaken before deciding to buy a car-

1. Need recognition: customer posses two type of stimuli’ at this juncture. One is driven by the internal stimuli and another is external stimuli. The examples of internal stimuli are customer’s desire, attitude or perception and external stimuli are advertising etc. From both stimuli customers understand the need for the product. Here marketer should understand what customers needs have that drew customers towards the product and should highlight those in the communication strategy.

2. Information search: In this stage customer wants to find out the information about the product, place, price and point of purchase. Customer collects the information from different sources like

a. Personal sources: Family, friends and neighbors

b. Commercial sources: Advertising, sales people, dealers, packaging and displays.

c. Public sources: mass media and consumer rating agencies.

d. Experiential sources: Demonstration, examining the product.

In this stage marketer should give detailed information about the product. The communication should highlight the attributes and advantages of the product in this stage so that he created the positive image about the product.

3. Evaluation of alternatives: After collecting the information, consumers arrive at some conclusion about the product. In this stage he will compare different brands on set parameters which he or she thinks required in the product. The evaluation process varies from person to person. In general Indian consumer evaluate on the following parameters

a. Price

b. Features

c. Availability

d. Quality

e. Durability

At this stage marketer should provide comparative advertisements to evaluate the different brands. The advertisement should be different for different segments and highlight the attribute according to the segment.

4. Purchase decision

In this stage consumer buy the most preferred brand. In India affordability plays an important role at this stage. Organizations’ bring many varieties of the products to cater to the needs of customers.

5. Post purchase behavior

After purchasing the product the consumer will experience some level of satisfaction and dissatisfaction. The consumer will also engage in post purchase actions and product uses of interest to the marketer. The marketer’s job does not end when the product is bought but continues into the post purchase period. Customer would like to see the performance of the product as he perceived before purchase. If the performance of the product is not as he expected then he develops dissatisfactions. Marketer should keep an eye on how consumer uses and disposes the product. In some durable goods Indian consumer want resale value also. Many automobile brands that were not able to get resale value lost their market positions.

Q. 5

a. What are the features of Business markets? How is it different from consumer markets? (5 marks)

Features or Characteristics of Business Markets

1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For example, major airlines buy the necessary equipments from the aircraft manufacturers

2. Geographical concentration of buyers: Buyers are geographically concentrated. For example, shipping industries are located on the east and west coasts of India than in any other places.

b. List out the 5 important requisites of an effective segmentation by giving suitable examples. (5 marks)

Requisites of Effective Segmentation

1. Measurable and Obtainable: The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data. If the information is not obtainable, no segmentation can be carried out. For example, Census of India provides the data on migration and education level, but does not specify how many of the migrated employees are educated and if educated how many are in white collared jobs. If a company wants to target white color collared employees who are migrated to particular city, it will not able to measure the same. .

2. Substantial: The segment should be large enough to be profitable. For consumer markets, the small segment might disproportionably increase the cost and hence products are priced too high. For example, when the cellular services started in India cost of the incoming calls and outgoing calls were charged at Rs 12/minute. As the number of subscribers grew, incoming calls became free. Further growth of subscribers resulted in lowering tariffs for outgoing calls to the lowest level in the world.

3. Accessible: The segment should be accessible through existing network of people at an affordable cost. For example, Majority of the rural population is still not able to access the internet due to the high cost and non-availability of connections and bandwidth.

4. Differentiable: The segments should be different from each other and may require different 4Ps and programs. For example, Life Insurance Corporation of India needs separate marketing programs to sell their insurance plans, unit plans, pension plans and group schemes

5. Actionable: The segments which a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel, and capability to take them all.

Q. 6. Explain briefly what are the several processes involved in new product development. (10 marks)

New Product Development

New products are essential for existing firms to keep the momentum and for new firms they provide the differentiation. New product doesn’t mean that it is absolutely new to the world. It may be a modification, or offered in a new market, or differentiated from existing products. Therefore it is necessary to understand the concept of new products.

Meaning of New Products:

a. They are really innovative. For example, Google’s Orkut, a networking site which revolutionized social networking. In this site people can meet like minded people; they can form their own groups, share photos, comments and many more.

b. They are very different from the others: Haier launches path-breaking 4-Door Refrigerators first time in India

c. They are imitative; these products are not new to the market but new to the company. For example, Cavin Kare launched Ruchi pickles. This product is new to Cavin Kare but not to the market.

New product development process:

Stage 1 – Idea generation: New product idea can be generated either from the internal sources or external sources. The internal sources include employees of the organization and data collected from the market. The external source includes customers, competitors and supply chain members. For example, Ingersoll Rand welcomes new ideas from the General public

Stage 2-Idea screening: Organization may have various ideas but it should find out which of these ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many changes from the basic version. He told that he wanted to develop car with scooter engine, plastic doors etc… But when he unveiled the car, there were many changes in the product. This shows that initial idea will be changed on the basis of market requirements.

Stage 3 – Concept development: the main feature or the specific desire that it caters to or the basic appeal of the product is created or designed in the concept development.

Concepts used for Tata Nano car are:

Concept I: Low-end ‘rural car,’ probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the auto-rickshaw

Concept II: A car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding.

Concept III: Indigenous, in-house car which meets all the environment standards

Stage 4 – Concept testing: At this stage concept is tested with the group of target customers. If any changes are required in the concept or the message it will be done during this stage. Also the effectiveness is tested on a minor scale. If the concept meets the specific requirements, then it will be accepted.

Stage 5 Marketing strategy development: The marketing strategy development involves three parts. The first part focuses on target market, sales, market share and profit goals. TATA’s initial business plan consisted sales of 2 lakhs cars per annum. The second part involves product price, distribution and marketing budget strategies. TATA’s fixed Rs 1 lakhs as the car price, and finding self employed persons who work like agent to distribute the cars. The final part contains marketing mix strategy and profit goals.

Stage 6 – Business analysis: it is the analysis of sales, costs and profits estimated for a new product and to find out whether these align with the company mission and objectives.

Stage 7 – Product development: during this stage, product is made to undergo further improvements, new features or improvised versions are added to the product. There is also scope for innovation and using the latest technology into the product.

Stage 8 – Test marketing: is the most crucial stage for the testing product’s performance and its future in the market. There are certain cases where product has failed in the test marketing and had to be withdrawn.

– The product is introduced into the realistic market

– The 4P’s of marketing are tested.

– The cost of test marketing varies with the type of product.

Stage 9 – Commercialization: In this stage product is completely placed in the open market and aggressive communication program accompanied with promotion activities is carried out to support it.

MB0045 - Financial Management - Set 2

2012-03-17T12:31:00.000+05:30

Course MBA – 2^nd Semester

Subject: Financial Management

Assignment MB0045 – Set 2

Q. 1 Discuss the three broad areas of Financial Decision Making

Finance Decisions:

Finance decisions relate to the acquisition of funds at the least cost. Here cost has two

dimensions viz explicit cost and implicit cost. Explicit cost refers to the cost in the form of coupon rate, cost of floating and issuing the securities etc.

Implicit cost is not a visible cost but it may seriously affect the company’s operations especially when it is exposed to business and financial risk. For example, implicit cost is the failure of the organization to pay to its lenders or debenture holders loan installments on due date on account of fluctuations in cash flow attributable to the firms business risk. In India if the company is unable to pay its debts, creditors of the company may use legal means to sue the company for winding up. This risk is normally known as risk of insolvency. A company which employs debt as a means of financing normally faces this risk especially when its operations are exposed to high

degree of business risk.

In all financing decisions a firm has to determine the proportion of equity and debt. The

composition of debt and equity is called the capital structure of the firm. Debt is cheap because interest payable on loan is allowed as deductions in computing taxable income on which the company is liable to pay income tax to the Government of India.

An investor in company’s shares has two objectives for investing:

1. Income from Capital appreciation (i.e. Capital gains on sale of shares at market price)

2. Income from dividends.

It is the ability of the company to give both these incomes to its shareholders that determines the market price of the company’s shares.

The most important goal of financial management is maximisation of net wealth of the shareholders. Therefore, management of every company should strive hard to ensure that its shareholders enjoy both dividend income and capital gains as per the expectation of the market.

But, dividend is declared out of the profit earned by the company after paying income tax to the Govt of India.

Investment Decisions:

To survive and grow, all organizations must be innovative. Innovation demands managerial proactive actions. Proactive organization’s continuously search for innovative ways of performing the activities of the organization. Innovation is wider in nature. It could be expansion through entering into new markets, adding new products to its product mix, performing value added activities to enhance the customer satisfaction, or adopting new technology that would drastically reduce the cost of production or rendering services or mass production at low cost or restructuring the organization to improve productivity. All these will change the profile of an organization. These decisions are strategic because, they are risky but if executed successfully with a clear plan of action, they generate super normal growth to the organization. If the management errs in any phase of taking these decisions and executing them, the firm may become bankrupt. Therefore, such decisions will have to be taken after taking into account all facts affecting the decisions and their execution.

Two critical issues to be considered in these decisions are:

1. Evaluation of expected profitability of the new investments.

2. Rate of return required on the project.

The rate of return required by investor is normally known by hurdle rate or cutoff rate or opportunity cost of capital. After a firm takes a decision to enter into any business or expand it’s existing business, plans to invest in buildings, machineries etc. are conceived and executed. The process involved is called Capital Budgeting. Capital Budgeting decisions demand considerable time, attention and energy of the management. They are strategic in nature as the success or failure of an organization is directly attributable to the execution of capital budgeting decisions taken. Investment decisions are also known as Capital Budgeting Decisions. Capital Budgeting decisions lead to investment in real assets Dividends are payouts to shareholders. Dividends are paid to keep the shareholders happy. Dividend policy formulation requires the decision of the management as to how much of the profits earned will be paid as dividend. A growing firm may retain a large portion of profits as retained earnings to meet its needs of financing capital projects. Here, the finance manager has to strike a balance between the expectation of shareholders on dividend payment and the need to provide for funds out of the profits to meet the organization’s growth.

Dividend Decisions

Dividend yield is an important determinant of an investor’s attitude towards the security (stock) in his portfolio management decisions. But dividend yield is the result of dividend decision. Dividend decision is a major decision made by a finance manager. It is the decision on formulation of dividend policy. Since the goal of financial management is maximisation of wealth of shareholders, dividend policy formulation demands the managerial attention on the impact of its policy on dividend on the market value of the shares. Optimum dividend policy requires decision on dividend payment rates so as to maximize the market value of shares. The payout ratio means what portion of earnings per share is given to the shareholders in the form of cash dividend. In the formulation of dividend policy, management of a company must consider the relevance of its policy on bonus shares. Dividend policy influences the dividend yield on shares. Since company’s ratings in the Capitalmarket have a major impact on its ability to procure funds by issuing securities in the capital markets, dividend policy, a determinant of dividend yield has to be formulated having regard to all the crucial elements in building up the corporate image. The following need adequate consideration in deciding on dividend policy:

1. Preferences of share holders Do they want cash dividend or Capital gains?

2. Current financial requirements of the company

3. Legal constraints on paying dividends.

4. Striking an optimum balance between desires of share holders and the company’s funds requirements.

Liquidity Decision

Liquidity decisions are concerned with Working Capital Management. It is concerned with the day to–day financial operations that involve current assets and current liabilities.

The important element of liquidity decisions are:

1) Formulation of inventory policy

2) Policies on receivable management.

3) Formulation of cash management strategies

4) Policies on utilization of spontaneous finance effectively.

Q.2 What is the future value of an annuity and state the formulae for future value of an annuity

The value of a group of payments at a specified date in the future. These payments are known as an annuity, or set of cash flows. The future value of an annuity measures how much you would have in the future given a specified rate of return or discount rate. The future cash flows of the annuity grow at the discount rate, and the higher the discount rate, the higher the future value of the annuity.

This calculation is useful for determining the actual cost of an annuity to the issuer:

C = Cash flow per period

i = Interest rate

n = Number of payments

This calculates the future value of an ordinary annuity. To calculate the future value of an annuity due, multiply the result by (1+i). (Payments start immediately instead of one period into the future.)

Example: What amount will accumulate if we deposit $5,000 at the end of each year for the next 5 years? Assume an interest of 6% compounded annually.

PV = 5,000
i = .06
n = 5

FVoa = 5,000 [ (1.3382255776 - 1) /.06 ] = 5,000 (5.637092) = 28,185.46

Year	1	2	3	4	5
Begin	0	5,000.00	10,300.00	15,918.00	21,873.08
Interest	0	300.00	618.00	955.08	1,312.38
Deposit	5,000.00	5,000.00	5,000.00	5,000.00	5,000.00
End	5,000.00	10,300.00	15,918.00	21,873.08	28,185.46

Q.3 The equity stock of ABC Ltd is currently selling for Rs 30 per share. The dividend expected next year is Rs 2.00. the investors required rate of return on this stock is 15 per cent. If the constant growth model applies to ABC Ltd, What is the expected growth rate?

Formula to be used to resolve this problem

P0=D1/Ke-g

In this case,

P0 = Price of One share = Rs. 30

Ke=Required rate of return on the equity share = 15% = 0.15

D1=Expected dividend after one year = Rs. 2

g = growth rate = ?

Hence,

P0=D1/Ke-g

Ke-g = D1/P0

0.15-g = 2/30

0.15-g = 0.0666

g=0.15-0.0666

g = 0.0834

Hence Growth Rate of ABC Ltd = 8.34%

Q.4 State the assumptions underlying the CAPM model and MM model

Capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (ß) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.

Assumptions made are as below -

Aim to maximize economic utilities.
Are rational and risk-averse.
Are broadly diversified across a range of investments.
Are price takers, i.e., they cannot influence prices.
Can lend and borrow unlimited amounts under the risk free rate of interest.
Trade without transaction or taxation costs.
Deal with securities that are all highly divisible into small parcels.
Assume all information is available at the same time to all investors.

The model assumes that either asset returns are (jointly) normally distributed random variables or that investors employ a quadratic form of utility. It is however frequently observed that returns in equity and other markets are not normally distributed. As a result, large swings (3 to 6 standard deviations from the mean) occur in the market more frequently than the normal distribution assumption would expect

The model assumes that the variance of returns is an adequate measurement of risk. This might be justified under the assumption of normally distributed returns, but for general return distributions other risk measures (like coherent risk measures) will likely reflect the investors' preferences more adequately. Indeed risk in financial investments is not variance in itself, rather it is the probability of losing: it is asymmetric in nature.

The model assumes that all investors have access to the same information and agree about the risk and expected return of all assets (homogeneous expectations assumption).[citation needed]

The model assumes that the probability beliefs of investors match the true distribution of returns. A different possibility is that investors' expectations are biased, causing market prices to be informationally inefficient. This possibility is studied in the field of behavioral finance, which uses psychological assumptions to provide alternatives to the CAPM such as the overconfidence-based asset pricing model of Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam (2001)

The model does not appear to adequately explain the variation in stock returns. Empirical studies show that low beta stocks may offer higher returns than the model would predict. Some data to this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes. Either that fact is itself rational (which saves the efficient-market hypothesis but makes CAPM wrong), or it is irrational (which saves CAPM, but makes the EMH wrong – indeed, this possibility makes volatility arbitrage a strategy for reliably beating the market).[citation needed]

The model assumes that given a certain expected return investors will prefer lower risk (lower variance) to higher risk and conversely given a certain level of risk will prefer higher returns to lower ones. It does not allow for investors who will accept lower returns for higher risk. Casino gamblers clearly pay for risk, and it is possible that some stock traders will pay for risk as well.[citation needed]

The model assumes that there are no taxes or transaction costs, although this assumption may be relaxed with more complicated versions of the model.[citation needed]

The market portfolio consists of all assets in all markets, where each asset is weighted by its market capitalization. This assumes no preference between markets and assets for individual investors, and that investors choose assets solely as a function of their risk-return profile. It also assumes that all assets are infinitely divisible as to the amount which may be held or transacted.[citation needed]

The market portfolio should in theory include all types of assets that are held by anyone as an investment (including works of art, real estate, human capital...) In practice, such a market portfolio is unobservable and people usually substitute a stock index as a proxy for the true market portfolio. Unfortunately, it has been shown that this substitution is not innocuous and can lead to false inferences as to the validity of the CAPM, and it has been said that due to the inobservability of the true market portfolio, the CAPM might not be empirically testable. This was presented in greater depth in a paper by Richard Roll in 1977, and is generally referred to as Roll's critique

The model assumes just two dates, so that there is no opportunity to consume and rebalance portfolios repeatedly over time. The basic insights of the model are extended and generalized in the intertemporal CAPM (ICAPM) of Robert Merton, and the consumption CAPM (CCAPM) of Douglas Breeden and Mark Rubinstein.[citation needed]

CAPM assumes that all investors will consider all of their assets and optimize one portfolio. This is in sharp contradiction with portfolios that are held by individual investors: humans tend to have fragmented portfolios or, rather, multiple portfolios: for each goal one portfolio — see behavioral portfolio theory and Maslowian Portfolio Theory

MM's key assumptions and the role played by each are:

(1) Unlimited borrowing and lending is available to all market participants at one rate of interest. Role: makes the cost of personal and corporate borrowing and lending the same.

(2) Individual margin borrowing is secured by the shares purchased, the borrower's liability is limited to the value of these shares, there are no costs to bankruptcy. Role: makes the risk of personal and corporate borrowing and lending the same.

(3) All companies can be grouped into equivalent risk classes. Role: enables investors to identify companies with identical business risk.

(4) Capital markets are perfect. Role: permits investors to easily and costlessly arbitrage between securities of companies which differ only in their financing mix.

(5) There are no corporate income taxes. Role: prevents the tax code from making debt financing more valuable by allowing interest and not dividends as a tax deduction.

(6) Shareholders are indifferent to the form of their returns, all returns are taxed at the same rate. Role: prevents investors from seeing any difference in value between interest, dividends, and capital gains.

Q.5 Write the cash flow analysis?

Estimate your annual gross income as the first step in preparing a cash flow analysis. Allow for subtractions if your business is not operating at full potential. For instance, if you own an apartment complex, you add the amount of rent for each month, but subtract an estimated amount for unforeseen vacancies. The longer you are in business, the easier it will be to predict operating losses.
Add any other income you receive and you will arrive at your "effective gross income." This is a reliable business accounting figure that represents your entire annual projected gross income. Write this number down for future figuring.
Compile a list of the expenses you incur in order to operate your business. Separate this by category. Think about the purchases of big equipment you make. If you have a painting business, you would write down the expenses you pay annually for paint sprayers, rollers, brushes and drop cloths.
Write down all your office expenses, utility charges, advertising expenses and other fees you pay for equipment repairs and maintenance. Everything you need to purchase in the operation of your business counts.
Remember to include professional fees and taxes in your cash flow analysis. If you have an accountant, his fee goes here--so does insurance policy expense, worker's compensation payments, unemployment insurance fees and taxes charged on your equipment or building.
Add your business accounting expense together and double check your chart of accounts to make sure you got them all. This number represents the total amount of expenses necessary to operate your business. Write it down beneath the effective income figure.
Figure out your debt service. Calculate the amount of payments you will make to the bank for loans, mortgages or other financing. Add these together and write the number down beneath the total expenses figure.
Subtract the total expenses and the total debt service figures from the effective annual income number. This is your cash flow analysis for the year.

Q.6 The following two projects A and B requires an investment of Rs 2, 00,000 each. The income returns after tax for these projects are as follows:

Year	Project A		Project B
1	Rs. 80,000		Rs. 20,000
2	Rs. 80,000		Rs. 40,000
3	Rs. 40,000		Rs. 40,000
4	Rs. 20,000		Rs. 40,000
5		Rs. 60,000
6		Rs. 60,000

Ans: Using the following criteria determine which of the projects is preferable.

Project A

year	Income	PVIF@10%	PVCI
1	80000	0.909	72720
2	80000	0.826	66080
3	40000	0.751	30040
4	20000	0.683	13660
PVCI			182500

PVCI	-		NPV
182500			200000		=		-17500
Project B

year		Income		PVIF@10%		PVCI
1		20000		0.909		18180
2		40000		0.826		33040
3		40000		0.751		30040
4		40000		0.683		27320
5		60000		0.621		37260
6		60000		0.564		33840
PVCI						179680

PVCI	-	NPV
179680		200000	=	-20320

As Project A is preferable option as it has minimal losses.

Assignment MB0045- Financial Management - Set 1

2012-03-17T12:29:00.000+05:30

Course MBA – 2^nd Semester

Subject: Financial Management

Assignment MB0045 – Set 1

Q.1 Write the short notes on

Financial management
Financial planning
Capital structure
Cost of capital
Trading on equity.

Financial Management

Financial Management is planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization. The management of the finances of a business / organization in order to achieve financial objectives. Financial Management is the efficient and effective planning and controlling of financial resources so as to maximize profitability and ensuring liquidity for an individual(called personal finance), government(called public finance) and for profit and non-profit organization/firm (called corporate or managerial finance). Generally, it involves balancing risks and profitability.

The decision function of financial management can be divided into the following 3 major areas:

INVESTMENT DECISION

Determine the total amount of assets needed by a firm hence closely tied to the allocation of funds
Two type of investment decisions namely:

Capital Investment decisions re: large sums, non routine, longer term, critical to the business like purchase of plant and machinery or factory
Working Capital Investment decisions re: more routine in nature, short term but are also very critical decisions like how much and how long to invest in inventories or receivables

FINANCING DECISION

After deciding on the amount and type of assets to buy, the financial manager needs to decide on HOW TO FINANCE these assets with the sources of fund
Financing decisions for example:

Whether to use external borrowings/debts or share capital or retained earnings

Whether to borrow short, medium or long term

What sort of mix – all borrowings or part debts part share capital or 100% share capital

The needs to determine how much dividend to pay out as this will directly affects the financial decision.

Financial Planning

Financial Planning is an exercise aimed to ensure availability of right amount of money at the right time to meet the individual’s financial goals

Concept of Financial Planning

Financial Goals refer to the dreams of the investor articulated in financial terms. Each dream implies a purpose, and a schedule of funds requirements for realising the purpose

Asset Allocation refers to the distribution of the investor’s wealth between different asset classes (gold, property, equity, debt etc.)

Portfolio Re-balancing is the process of changing the investor’s asset allocation

Risk Tolerance / Risk Preference refers to the appetite of the investor for investment risk viz. risk of loss

Financial Plan Is a road map, a blue print that lists the investors’ financial goals and outlines a strategy for realising them

Quality of the Financial Plan is a function of how much information the prospect shares, which in turn depends on comfort that the planner inspires

Capital Structure

Capital structure of a firm is a reflection of the overall investment and financing strategy of the firm.

Capital structure can be of various kinds as described below:

Horizontal capital structure: the firm has zero debt component in the structure mix. Expansion of the firm takes through equity or retained earnings only.

Vertical capital structure: the base of the structure is formed by a small amount of equity share capital. This base serves as the foundation on which the super structure of preference share capital and debt is built.

Pyramid shaped capital structure: this has a large proportion consisting of equity capita; and retained earnings.

Inverted pyramid shaped capital structure: this has a small component of equity capital, reasonable level of retained earnings but an ever-increasing component of debt.

SIGNIFICANCE OF CAPITAL STRUCTURE:

Reflects the firm’s strategy
Indicator of the risk profile of the firm
Acts as a tax management tool
Helps to brighten the image of the firm.

FACTORS INFLUENCING CAPITAL STRUCTURE:

Corporate strategy
Nature of the industry
Current and past capital structure

Cost of Capital

Cost of capital is the rate of return the firm requires from investment in order to increase the value of the firm in the market place. In economic sense, it is the cost

of raising funds required to finance the proposed project, the borrowing rate of the firm. Thus under economic terms, the cost of capital may be defined as the weighted average cost of each type of capital.

There are three basic aspects about the concept of cost

1. It is not a cost as such: The cost of capital of a firm is the rate of return which it requires on the projects. That is why; it is a ‘hurdle’ rate.

2. It is the minimum rate of return: A firm’s cost of capital represents the minimum rate of return which is required to maintain at least the market value of equity shares.

3. It consists of three components. A firm’s cost of capital includes three components

a. Return at Zero Risk Level: It relates to the expected rate of return when a project involves no financial or business risks.

b. Business Risk Premium: Business risk relates to the variability in operating profit (earnings before interest and taxes) by virtue of changes in sales. Business risk premium is determined by the capital budgeting decisions for investment proposals.

c. Financial Risk Premium: Financial risk relates to the pattern of capital structure (i.e., debt-equity mix) of the firm, In general, a firm which has higher debt content in its capital structure should have more risk than a firm which has comparatively low debt content. This is because the former should have a greater operating profit with a view to covering the periodic interest payment and repayment of principal at the time of maturity than the latter.

Trading on Equity

When a co. uses fixed interest bearing capital along with owned capital in raising finance, is said “Trading on Equity”.

(Owned Capital = Equity Share Capital + Free Reserves )

Trading on equity represents an arrangement under which a company uses funds carrying fixed interest or dividend in such a way as to increase the rate of return on equity shares.

It is possible to raise the rate of dividend on equity capital only when the rate of interest on fixed – interest – bearing – security is less than the rate of return earned in business.

•Two other terms:

•Trading on Thick Equity :- When borrowed capital is less than owned capital

•Trading on Thin Equity :- When borrowed capital is more than owned capital, it is called Trading on thin Equity.

Q.2 a. Write the features of interim divined and also write the factors influencing divined policy?

Interim Dividend and factors affecting it:

Usually, board of directors of company declares dividend in annual general meeting after finding the real net profit position. If boards of directors give dividend for current year before closing of that year, then it is called interim dividend. This dividend is declared between two annual general meetings.

Before declaring interim dividend, board of directors should estimate the net profit which will be in future. They should also estimate the amount of reserves which will deduct from net profit in profit and loss appropriation account. If they think that it is sufficient for operating of business after declaring such dividend. They can issue but after completing the year, if profits are less than estimates, then they have to pay the amount of declared dividend. For this, they will have to take loan. Therefore, it is the duty of directors to deliberate with financial consultant before taking this decision.

Accounting treatment of interim dividend in final accounts of company :-

First Case: Interim dividend is shown both in profit and loss appropriation account and balance sheet , if it is outside the trial balance in given question.

(a) It will go to debit side of profit and loss appropriation account

(b) It will also go to current liabilities head in liabilities side.

Second Case: Interim dividend is shown only in profit and loss appropriation account, if it is shown in trial balance.

(a) It will go only to debit side of profit and loss appropriation account.

If in final declaration is given outside of trial balance and this will be proposed dividend and interim dividend in trial balance will be deducted for writing proposed dividend in profit and loss appropriation account and balance sheet of company, because if we will not deducted interim dividend, then it will be double deducted from net profit that is wrong and error shows when we will match balance sheets assets with liabilities.

Factors affecting dividend policy:

The dividend decision is difficult decision because of conflicting objectives and also because of lack of specific decision-making techniques. It is not easy to lay down an optimum dividend policy which would maximize the long-run wealth of the shareholders. The factors affecting dividend policy are grouped into two broad categories.

Ownership considerations
Firm-oriented considerations

Ownership considerations: Where ownership is concentrated in few people, there are no problems in identifying ownership interests. However, if ownership is decentralized on a wide spectrum, the identification of their interests becomes difficult.

Various groups of shareholders may have different desires and objectives. Investors gravitate to those companies which combine the mix of growth and desired dividends.

Firm-oriented considerations: Ownership interests alone may not determine the dividend policy. A firm’s needs are also an important consideration, which include the following:

Contractual and legal restrictions
Liquidity, credit-standing and working capital
Needs of funds for immediate or future expansion
Availability of external capital.
Risk of losing control of organization
Relative cost of external funds
Business cycles
Post dividend policies and stockholder relationships.

The following factors affect the shaping of a dividend policy:

Nature of Business: Companies with unstable earnings adopt dividend policies which are different from those which have steady earnings.

Composition of Shareholding: In the case of a closely held company, the personal objectives of the directors and of a majority of shareholders may govern the decision. To the contrary, widely held companies may take a dividend decision with a greater sense of responsibility by adopting a more formal and scientific approach.

Investment Opportunities: Many companies retain earnings to facilitate planned expansion. Companies with low credit ratings may feel that they may not be able to sell their securities for raising necessary finance they would need for future expansion. So, they may adopt a policy for retaining larger portion of earnings.

Similarly, is a company has lucrative opportunities for investing its funds and can earn a rate which is higher than its cost of capital, it may adopt a conservative dividend policy.

Liquidity: This is an important factor. There are companies, which are profitable but cannot generate sufficient cash, since profits are to be reinvested in fixed assets and working capital to boost sales.

Restrictions by Financial Institutions: Sometimes financial institutions which grant long-term loans to a company put a clause restricting dividend payment till the loan or a substantial part of it is repaid.

Inflation: In period of inflation, funds generated from depreciation may not be adequate to replace worn out equipment. Under inflationary situation, the firm has to depend upon retained earnings as a source of funds to make up for the shortfall. Consequently, the dividend pay out ratio will tend to be low.

Other factors: Age of the company has some effect on the dividend decision.

The demand for capital expenditure, money supply, etc., undergoes great oscillations during the different stages of a business cycle. As a result, dividend policies may fluctuate from time to time.

b. What is reorder level?

Reorder Level

This is that level of materials at which a new order for supply of materials is to be placed. In other words, at this level a purchase requisition is made out. This level is fixed somewhere between maximum and minimum levels. Order points are based on usage during time necessary to requisition order, and receive materials, plus an allowance for protection against stock out.

The order point is reached when inventory on hand and quantities due in are equal to the lead time usage quantity plus the safety stock quantity.

Formula of Re-order Level or Ordering Point:

The following two formulas are used for the calculation of reorder level or point.

Ordering point or re-order level = Maximum daily or weekly or monthly usage × Lead time

The above formula is used when usage and lead time are known with certainty; therefore, no safety stock is provided. When safety stock is provided then the following formula will be applicable:

Ordering point or re-order level = Maximum daily or weekly or monthly usage × Lead time + Safety stock

Q.3 Sales Rs.400, 000 less returns Rs 10, 000, Cost of Goods Sold Rs 300,000,

Administration and selling expenses Rs.20, 000, Interest on loans Rs.5000,

Income tax Rs.10000, preference dividend Rs. 15,000, Equity Share Capital

Rs.100, 000 @Rs. 10 per share. Find EPS.

Ans 3.

Sales	400,000
Less Returns	10,000	390,000

Less
COGS	30,000
S&A	20,000
Int on Loan	5,000
IT	10,000	325,000

Div	15,000
ESC	100,000	@ 10/-
NPAT - Pref Share Div
No of Shares


NPAT	55,000
less Pref Share Div	15,000	40,000

EPS	40,000	= Rs.4/-
	10,000

Q.4 What are the techniques of evaluation of investment?

Techniques of Investment Evaluation

Three steps are involved in the evaluation of an investment:

•Estimation of cash flows

•Estimation of the required rate of return (the opportunity cost of capital)
•Application of a decision rule for making the choice.

The first two steps, discussed in the subsequent chapters, are assumed as given. Thus, our discussion in this chapter is confined to the third step. Specifically, we focus on the merits and demerits of various decision rules.

Investment decision rule

The investment decision rules may be referred to as capital budgeting techniques, or investment criteria. A sound appraisal technique should be used to measure the economic worth of an investment project. The essential property of a sound technique is that it should maximize the shareholders’ wealth. The following other characteristics should also be possessed by a sound investment evaluation criterion.

• It should consider all cash flows to determine the true profitability of the project.
• It should provide for an objective and unambiguous way of separating good projects form bad projects.

• It should help ranking of projects according to their true profitability.
• It should recognize the fact that bigger cash flows true profitability.
• It should recognize the fact that bigger cash flows are preferable to smaller once and early cash flows are preferable to later ones.

• It should help top choose among mutually exclusive projects that project which maximizes the shareholders’ wealth.

• It should be a criterion which is applicable to any conceivable investment project independent of other.

These conditions will be clarified as we discuss the features of various investment criteria in the following pages.

Evaluation criteria

A number of investments criteria (or capital budgeting techniques) are in use in proactive. They may be grouped in the following two categories:
1. Discounted cash flow (DCF) criteria

• Net present value (NPV)

• Internal rate of return (IIR)

• Profitability index (PI)

2. Non-discounted cash flow criteria

• Payback period (PB)

• Discounted payback period

• Accounting rate of return (ARR).

Discounted payback is a variation of the payback method. It involves discounted cash flows, but as we shall see later, it is not a true measure of investment profitability. We will show in the following pages that the net present value criterion is the most valid technique of maximizing the shareholders wealth.

Q.5 What are the problems associated with inadequate working capital?

Problems associated with inadequate working capital

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purposes.

Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc
Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. . It is other wise known as revolving or circulating capital

It is nothing but the difference between current assets and current liabilities. i.e. Working Capital = Current Asset – Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital is essential for any business to succeed. It is becoming increasingly important to have access to more working capital when we need it.

Importance of Adequate Working Capital

A business firm must maintain an adequate level of working capital in order to run its business smoothly. It is worthy to note that both excessive and inadequate working capital positions are harmful. Working capital is just like the heart of business. If it becomes weak, the business can hardly prosper and survive. No business can run successfully without an adequate amount of working capital.

Danger of inadequate working capital

When working capital is inadequate, a firm faces the following problems.

Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital. Low liquidity position may lead to liquidation of firm. When a firm is unable to meets its debts at maturity, there is an unsound position. Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it will lose its reputation. There by, a firm may not be able to get credit facilities. It may not be able to take advantages of cash discount.

Disadvantages of Redundant or Excessive Working Capital

1. Excessive Working Capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments.

2. When there is a redundant working capital, it may lead to unnecessary purchasing and

Accumulation of inventories causing more chances of theft, waste and losses.

3. Excessive working capital implies excessive debtors and defective credit policy which

May cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with banks and other financial

institutions may not be maintained.

6. Due to low rate of return on investments, the value of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.

Disadvantages or Dangers of Inadequate Working Capital

1. A concern which has inadequate working capital cannot pay its short-term liabilities

in time. Thus, it will lose its reputation and shall not be able to get good credit facilities.

2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.

3. It becomes difficult for the firm to exploit favorable market conditions and undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations and its creates inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds.

6. The rate of return on investments also falls with the shortage of working capital.

Disadvantages or Dangers of Inadequate or Short Working Capital

Can’t pay off its short-term liabilities in time.
Economies of scale are not possible.
Difficult for the firm to exploit favorable market situations
Day-to-day liquidity worsens
Improper utilization the fixed assets and ROA/ROI falls sharply

Q6. What is Leverage? Compare and contrast Financial and operating leverage.

‘Leverage’ is the action of a lever or the mechanical advantage gained by it; it also means ‘effectiveness’ or ‘power’. The common interpretation of leverage is derived from the use or manipulation of a tool or device termed as lever, which provides a substantive clue to the meaning and nature of financial leverage.

When an organization is planning to raise its capital requirements (funds), these may be raised either by issuing debentures and securing long term loan 0r by issuing share-capital. Normally, a company is raising fund from both sources. When funds are raised from debts, the Co. investors will pay interest, which is a definite liability of the company. Whether the company is earning profits or not, it has to pay interest on debts. But one benefit of raising funds from debt is that interest paid on debts is allowed as deduction for income tax. ‘When funds are raised by issue of shares (equity) , the investor are paid dividend on their investment. Dividends are paid only when the Company is having sufficient amount of profit. In case of loss, dividends are not paid. But dividend is not allowed as deduction while computing tax on the income of the Company. In this way both way of raising funds are having some advantages and disadvantages. A Company has to decide that what will be its mix of Debt and Equity, considering the liability, cost of funds and expected rate of return on investment of fund. A Company should take a proper decision about such mix, otherwise it will face many financial problems. For the purpose of determination of mix of debt and equity, leverages are calculated and analyzed.

Concept of Financial Leverage

Leverage may be defined as the employment of an asset or funds for which the firm pays a fixed cost or fixed return. The fixed cost or return may, therefore be thought of as the full annum of a lever. Financial leverage implies the use of funds carrying fixed commitment charge with the objective of increasing returns to equity shareholders. Financial leverage or leverage factor is defined, as the ratio of total value of debt to total assets or the total value of the firm. For example, a firm having a total value of Rs. 2,00,000 and a total debt of Rs. 1,00,000 would have a leverage factor of 50 percent. There are difficult measures of leverage such as.

The ratio of debt to total capital
The ratio of debt to equity
The ratio of net operating income (earning before interest and taxes) to fixed’ charges) The first two measures of leverage can be expressed either in book v8lue or market value the debt of equity ratio as a measure of financial leverage is more popular in practice. “

Risk & Financial Leverage:

Effects of financial Leverage: The use of leverage results in two obvious effects:

Increasing the shareholders earning under favorable economic conditions, and
Increasing the financial risk of the firm. Suppose there are two companies each having a Rs. 1,00,000 capital structure. One company has borrowed half of its investment while the other company has only equity capital: Both earn Rs. 2,00,000 profit. The ratio of interest on the borrowed capital is 10%and the rate of corporate tax 50%. Let us calculate the effect of financial leverage, both in the shareholders earnings and the Company’s financial risk in these two companies.

(a) Effect of Leverage on Shareholders Earnings:

	Company A Rs.	Company B Rs.
Profit before Interest and Taxes	2,00,000	2,00,000
Equity	10,00,000	5,00,000
Debt	—-	5,00,000
Interest (10%)	—-	50,000
Profit after interest but before Tax	2,00,000	1,50,000
Taxes @ 50%	1,00,000	75,000

Rate of return on Equity of Company A Rs. 1,00,000/Rs. 10,00,000 = 10%
Rate of return on Equity of Company B Rs. 75,000/Rs. 5,00,000 = 15%

The above illustration points to the favorable effect of the leverage factor on earnings of shareholders. The concept of leverage is 5 if one can earn more on the borrowed money that it costs but detrimental to the man who fails to do so far there is such a thing as a negative leverage i.e. borrowing money at 10% to find that, it can earn 5%. The difference comes out of the shareholders equity so leverage can be a double-edged sword.

(b) Effect of Leverage on the financial risk of the company: Financial risk broadly defined includes both the risk of possible insolvency and the changes in the earnings available to equity shareholders. How the leverage factor leads to the risk possible insolvency does is self-explanatory. As defined earlier the inclusion of more and more debt in capital structure leads to increased fixed commitment charges on the part of the firm as the firm continues to lever itself, the changes of cash insolvency leading’ to legal bankruptcy increase because the financial ‘charges incurred, by the firm exceed the expected earnings. Obviously this leads to fluctuations in earnings’ available to the equity shareholders.

Relationship: Financial and Operating leverage:

Relationship between financial and operating leverage: In business terminology, leverage is used in two senses: Financial leverage & Operating Leverage

Financial leverage: The effect which the use of debt funds produces on returns is called financial leverage.

Operating leverage: Operating leverage refers to the use of fixed costs in the operation of the firm. A firm has a high degree of operating leverage if it employs a greater amount of fixed costs. The degree of operating leverage may be defined as the percentage change in profit resulting from a percentage change in sales. This can be expressed as:

= Percent Change in Profit/Percent Change in Sales

The degree of financial leverage is defined as the percent change in earnings available to common shareholders that is associated with a given percentage change in EBIT. Thus, operating leverage affects EBIT while financial leverage affects earnings after interest and taxes the earnings available to equity shareholders. For this reason operating leverage is sometimes referred to as first stage leverage and financial leverage as second stage leverage. Therefore, if a firm uses a considerable amount of both operating leverage and financial leverage even small changes in the level of sales will produce wide fluctuations in earnings per share (EPS). The combined effect of both these types of leverages is after called total leverage which, is closely tied to the firm’s total risk.

MB0049 – Project Management - Set 2

2012-03-17T12:08:00.000+05:30

Course MBA – 2^nd Semester

Subject: Project Management

Assignment MB0049 – Set2

Q.1 Providing adequate resource is key to productivity-Comment.

Concept of PMO is gaining ground in Project Management because enterprises need to optimize resources – especially knowledge and people – across many projects. Economies are achieved and customer satisfaction gained resulting in more profits and repeat contracts. The review of projects – their methodology and the important of interpersonal relations will help in achieving the productivity of the personnel.

Productivity at the junior level can be assumed and controlled only if all other supporting elements of business are well balanced. Higher productivity cannot be expected if they are not motivated. Through one of the mail point is

Adequate availability of resources; otherwise frustration sets in and commitment is lost;

Key elements of a Productivity Improvement Program:

Obtain Upper Management Support. Without top management support, experience shows a PIP likely will fail. The Chief Executive Officer should issue a clear, comprehensive policy statement. The statement should be communicated to everyone in the company. Top management also must be willing to allocate adequate resources to permit success.

2. Create New Organizational Components. A Steering Committee to oversee the PIP and Productivity Managers to implement it are essential. The Committee should be staffed by top departmental executives with the responsibilities of goal setting, guidance, advice, and general control. The Productivity Managers are responsible for the day-to-day activities of measurement and analysis. The responsibilities of all organizational components must be clear and well established.

3. Plan Systematically. Success doesn't just happen. Goals and objectives should be set, problems targeted and rank ordered, reporting and monitoring requirements developed, and feedback channels established.

4. Open Communications. Increasing productivity means changing the way things are done. Desired changes must be communicated. Communication should flow up and down the business organization. Through publications, meetings, and films, employees must be told what is going on and how they will benefit.

5. Involve Employees. This is a very broad element encompassing the quality of work life, worker motivation, training, worker attitudes, job enrichment, quality circles, incentive systems and much more. Studies show a characteristic of successful, growing businesses is that they develop a "corporate culture" where employees strongly identify with and are an important part of company life. This sense of belonging is not easy to engender. Through basic fairness, employee involvement, and equitable incentives, the corporate culture and productivity both can grow.

6. Measure and Analyze. This is the technical key to success for a PIP. Productivity must be defined, formulas and worksheets developed, sources of data identified, benchmark studies performed, and personnel assigned. Measuring productivity can be a highly complex task. The goal, however, is to keep it as simple as possible without distorting and depreciating the data. Measurement is so critical to success, a more detailed analysis is helpful.

Q.2 Compare the following:

a. Traditional Vs. Projectised Organization.

b. Bottom-up Vs. Top-down estimation

A. Traditional Vs. Projectised Organization.

Traditional organizations: These have the formal organisation structure, with departments, functions, sections having an hierarchy of managers and their assistant. All of them function on a continuous basis catering to a series of requirements issued by the planning department. An assembly of various units of their production forms a products and a variety of such products make up the business of the company. No one particular member or a department or a team is responsible for the completion of any particular product. Their creativity and innovation is particular respect of jobs. Most of them do not get exposed to other areas of operations in the organisation. They will become specialists and be insular.

Projectised organizations: These have teams comprising members who are responsible for completing one completely deliverable product. They will have all the resources required to do all jobs or operations to complete it. Most importantly, they have a time schedule within which all the elements of the projects have to be completed. It has been found that a sense of ‘ownership’ of the project motivates them for being creative, cooperate among themselves to achieve high productivity.

Traditional Organisations	Projectised Organisations
They have the formal organisation structure, with departments, functions, sections having a hierarchy of managers and their assistants.	They have teams comprising members who are responsible for completing one entire deliverable product.
All of the managers function on a continuous basis catering to a series of requirements issued by the planning department.	The teams will have all the resources required to finish the jobs.

An assembly of various units of their production forms a products and a variety of such products make up the business of the company.	They have a time schedule within which all the elements of the projects have to be completed.
No particular member or a department or a team is responsible for the completion of any particular product. Their creativity and innovation is in particular respect of their jobs.	There is greater accountability among team members and everyone is responsible for the delivery.
Most of the members do not get exposed to other areas of operations in the organisation. They become specialists and insular.	It is found that a sense of ‘ownership’ of the project motivates team members to be creative, cooperative among them to achieve high productivity.

B. Bottom-up Vs. Top-down estimation

Estimation Approaches There are two types of estimation approaches:

Bottom up approach

The bottom up approach consists of the following

Project manager first divides the product under development into major modules
Each module is subdivided into smaller units

Project manager defines a standard for manufacturing and self-testing as

Identify modules in the system and classify them as simple, medium or complex.

As much as possible, use either the provided standard definitions or definitions from past projects

If a project specific baseline exists, get the average build effort for simple/medium/complex (S/M/C) programs from the baseline.

If a project specific baseline does not exist, use project type, technology, language and other attributes to look for similar projects in process database. Use data from these projects to define the build effort of S/M/C program.

If no similar project exist in the process database and no project specific baseline exist refine the estimates based on project specific factors.

Top-Down Approach

The top down approach consists of the following

Get the estimate of the total size of the product in function points

Using the productivity data from the project specific capability baseline from the general process capability baseline, or from similar projects, fix the productivity level for the project

Obtain the overall effort estimate from the productivity and size estimates. Use effort distribution data from the process capability baselines or similar projects to estimate the effort for the various phases. Refine the estimates taking project specific factors into consideration.

Q.3 List out the macro issues in project management and explain each.

Macro issues in project management

Evolving Key Success Factors (KSF) Upfront: In order to provide complete stability to fulfillment of goals, one needs to constantly evaluate from time to time , the consideration of what will constitute the success of completing a project and assessing its success before completion. The KSF should be evolved based on a basic consensus document (BCD). KSF will also provide an input to effective exit strategy (EES). Exit here does not mean exit from the project but from any of the drilled down elemental activities which may prove to be hurdles rather than contributors. Broad level of KSF should be available at the conceptual stage and should be firmed up and detailed out during the planning stage. The easiest way would be for the team to evaluate each step for chances of success on a scale of ten. KSF should be available to the management duly approved by the project manager before execution and control stages. KSF rides above normal consideration of time and cost – at the levels encompassing client

expectation and management perception – time and cost come into play as subservient to these major goals.

Empowerment Title (ET): ET reflects the relative importance of members of the organization at three levels:

Team members empowered to work within limits of their respective allocated responsibilities – the major change from bureaucratic systems is an expectation from these members to innovate and contribute to time and cost.
Group leaders are empowered additionally to actindependently towards client expectation and are also vested with some limited financial powers.
Managers are empowered further to act independently but to maintain a scientific balance among time, cost, expectation and perception, apart from being a virtual advisor to the top management.

Partnering Decision Making (PDM): PDM is a substitute to monitoring and control. A senior with a better decision making process will work closely with the project managers as well as members to plan what best can be done to manage the future better from past experience. The key here is the active participation of members in the decision making process. The ownership is distributed among all irrespective of levels – the term equally should be a\voided here since ownership is not quantifiable. The right feeling of ownership is important. This step is most difficult since junior members have to respond and resist to being pushed through sheer innovation and performance – this is how future leaders would emerge. The PDM process is made scientific through:

Earned value management system (EVMS)
Budgeted cost of work scheduled (BCWS)
Budgeted cost of work performed (BCWP)
Actual cost of work performed (ACWP)

Management By Exception (MBE): “No news is good news” . If a member wants help he or she locates a source and proposed to the manager only if such help is not accessible for free. Similarly, a member should believe that a team leaders silence is a sign of approval and should not provoke comments through excessive seeking of opinions. In short leave people alone and let situation perform the demanding act. The bend limit of MBE can be evolved depending on the sensitivity of the nature and size of the project. MBE provides and facilitates better implementation of effectiveness of empowerment titles .MBE is more important since organizations are moving toward multi skilled functioning even at junior most levels.

Q.4 Describe the traits of a professional manager in details?

Traits of the professional manager:

The following traits enable a manager to be effective in his functioning. Endowed with these it will be easy to be effective. The top management will look for these in a person who they want to employ for project management.

Leadership – These managers lead by exhibiting the characteristics of leadership. They know what they should do, know why they are doing it, know how to do it and have the courage and will to do it.They have the power of taking along with them others.

People Relationships - Any leader without followers cannot be successful. They have excellent human relationship skills. The manager builds up his team based on the core values of sincerity, objectivity and dedication. He ensures that his subordinates get opportunities for growth based on performance. He makes them a part of the decision making process, thus ensuring cooperation and commitment during implementation. He delegates freely and supports them.

Integrity - Highest levels of trust, fairness and honesty are expected while dealing with people both within an outside the organisation. This includes the customers, shareholders, dealers, employees, the government and society at large. They ensure that functioning is clean. Their transactions will be transparent. Ethics is something they practice diligently.

Quality – The quality philosophy should not cover only the product quality, but every process that has gone into making it. Economy of words when instructions are given, acknowledging compliance, arriving on time, remembering the promises and above all a keen eye for details and patience tomake others know what they want are components of quality

Customer Orientation - It is now recognized that every organized two sets of customers. Internal customers are people in the organisation – employees, directors, team members – any person who needs your services, whose needs of demands you satisfy. External customers – clients and all members of society we come in contact in connection with our business. They need our solutions for their problems. So, the manager’s thinking about any problem is – what can I do for him and all actions will be in that direction.

Innovation and creativity - Professional managers think beyond the obvious. They exhibit a keenness to go behind a problem and attempt to find the root cause of the problem. They will draw from their experience from diverse fields, seek further information and consider all possible alternatives and come out with some new and unique solution. This happens when they have open minds. A saying goes the human mind is like a parachute, it is useful only when it is open. Such a work culture is very conducive for problem solving – which is the aim of all creativity. Their persistence will reward them. Such actions observed by their team members enthuse them and a spirit of adventure will bring about better solutions faster.

Performance Management The professional manager not only ensures that his performance is at peak all times, but motivates his entire team to do it. This comes by appreciation and encouragement. If there any shortfalls he arranges for training them so that their performance improves. Thus the team members know that they are expected to perform, that they get help to do so and their effort is recognized. This is the simple path of performance management. The following seven step model will be useful:

Objectives/Performance standards are set.
These are communicated to the employees.
Review/monitor the above.
Check actual performance Vs. Standards set.
Identify gaps.
Jointly decide on corrective action, if needed.
Reset objectives for next period

Objectives/Performance standards are set.

To mange any criterion, it is necessary to measure the factors that were responsible for ‘what is’. The quality of the input, their quantity and their intended usage. Then measures of the utilizationthe processes used, their suitability, and the difficulties faced in utilization and how they were resolved.

Then the outcomes – are they as they were expected. Performance closer or beyond expectation is the degree of quality. For every employee the level of achievement is set in terms of quantities and extent to which the performance approached the standard. This is the basis for evaluating performance.

These are communicated to the employees

This procedure ensures that they know what is expected of them and help them to adjust their activities in such a way as to meet them. This enables them to seek help, consult their colleagues or bosses, learn– so that they will meet the expectations. It is possible that some objectives cannot be met at all. The communication to his boss, may help in reallocating the job, so that there will be no hiccups at the end of the period

Review/monitor the above

Review helps in resetting the goals when they cannot be achieved for various reasons – shortage of resources, time etc. By monitoring, the shortfalls can be made up with the allocation of extra resources, or even diverting the operation.

Check actual performance Vs. Standards set

This is the evaluation phase. Comparison on every detail is made. Differences are recorded. Particular areas are chosen for improvement.

Identify gaps

Gaps mean the shortfall in performance standards. The immediate supervisor is also involved. The extent to which they affect the functions of the job itself are identified

Jointly decide on corrective action, if needed

There is a possibility that the performance has exceeded the set standards. But if performance is not good the reasons and extent having been identified, the course of action for effecting corrections are decided. Giving extra responsibilities, training, relocation is considered.

Reset objectives for next period

The targets are revised either upward or downward depending on the conclusion of the appraisal process.

Identification with the organisation A sense of pride and belonging goes with the “ownership” of the job, the project, team members and organisation. This is brought about by the culture and communication system in the organisation. Information sharing brings in trust and promotes belongingness. The tendency seen is that most managers strongly identify with their own departments, units or divisions and they lack a sense of organisation.

In the light of increased competition and ever changing strategies to develop business orientation, which in effect means every manager should be aware of the company’s plans, products and policies. An obvious corollary to this is that the organization’s communication policy too should be conducive to such information sharing. Today, many organizations are using interventions such as team building, survey feedback, and other activities, to ensure that employees build up a strong sense of identity and pride in the organisation they work for.

Empowering employees: The professional manager should possess the ability to empower his employees down the line. Many managers are not even ready to delegate their authority to subordinates and end up only delegating responsibility. Empowerment is the process by which employees are encouraged to take decisions pertaining to their area of work. Empowerment ensures execution of his duties. This leads employees developing a sense of pride in their jobs. But managers often hesitate to empower their subordinates as they feel insecure and show a sense of uncertainty. The professional manager practices empowerment and encourages employees to grow and develop in their positions.

Coping with changes: It is often said – ‘The only constant in this world is change’. A professional manager has the ability and capacity to cope with change. He accepts the fact that change is inevitable and is ready to implement change at the workplace. To implement change successfully, it is essential that employees are involved in the implementation of change. Further the positive and negative consequences of change need to be discussed and understood before implementation. Thus a professional manager has the attitude to accept change as a way of life and takes it in his stride

Q.5 List the major participants of project review process. Also highlight roles and responsibilities of each.

The following is a list of key participants and their responsibilities in the Project Management Review Process.

Chief Information Officer (CIO) – conduct project senior management reviews, monitor project progress, facilitate resolution of related project issues.

Chief Financial Officer – Approve investments in corporate / major information systems projects.

Systems Owners – develop or approve project deliverable, present project status, facilitate resolution of project issues.

Program Managers – develop or approve project deliverables, approve changes to project scope, ensure project reporting, present project status, conduct project management reviews, manage project funding and authorize work activities.

Project Managers - performs day to day project management, develop project deliverables, prepare project management review and senior management review presentations, present project status, manage resolution of project issues.

Corporate management Investment process Program staff – Evaluate major information systems which receive CMIP funding and prepare report to the top.

Program Manager – review and comment on project deliverables and work products, schedule and support the review meetings, provide support to systems owners and project managers, advise the CIO and associate CIO’s.

Key project stake holders and other invited participants – attend the review meeting, participate in discussion, provide input as appropriate.

Q.6 ABC organization has been in software business since last 20 years. The senior management feels that although they are making profits, but the profit on an average is the same each year. They decide that they would make some additions to the business and decided to go ahead with development of some high technology for better profits. Can you suggest some guidelines, which the management should follow in this venture?

Ans. Every business aims to commence its activities in the foreign market. The foreign market provides with both opportunities and risks. Therefore some prefer to enter in to strategic relationships and one such is the Joint Ventures.

A Joint Venture is an entity formed between two or more parties to undertake economic activity together. The JV parties agree to create, for a finite time, a new entity and new assets by contributing equity. They then share in the revenues, expenses, and assets and the control of the enterprise. Therefore the basic characteristics of joint venture can be summed up as:

1) Based on a Contractual Agreement.

2) Specific limited purpose and duration.

3) Joint Property Interest

4) Common Financial and Intangible goals and objectives.

5) Shared profits, losses, management and control.

Reasons for setting Joint Ventures abroad

The reasons for setting up joint ventures can be contributed to three main factors and they are:

1. Internal Reasons.

2. Competitive Goals.

3. Strategic Goals.

1. The Internal reasons are as follows:

Building on company’s strength.
Spreading on costs and risks.
Improving access to financial resources.
Economies of scale and advantages of size.
Access to new technologies and customers.
Access to innovative managerial practices.

2. The Competitive Goals are as follows:

Influencing structural evolution of the industry.
Defensive response to blurring industry boundaries.
Creation of stronger competitive units.
Speed to market.
Improved Agility.

3. The Strategic Goals are as follows:

Diversification
Synergies.
Transfer of technology/skill

Indian Joint Ventures Abroad

India started opening its economy a decade ago to integrate with global economy. The business ventures abroad are not a new phenomenon in the independent India. The initiatives were taken way back in the 1960s with the first ventures of Birlas in Ethopia in the year 1964. However, it has assumed specific significance after the Indian government started economic reforms in the year 1991, making globalization of Indian business an integral part of economic reforms.

Significance of Indian Joint Ventures Abroad

International trade is considered to be imperative for economic development. Economic borders of various countries have been opened on this premise under the aegis of world trade organization. In countries, whose economy has moved from the level of necessity to comforts and luxuries levels, there are increasing pressures for newer, better and superior products with consistent quality, high reliability and attractive finish etc. Further, with the labour becoming increasingly costly, the firms have to go for development of capital intensive technologies. The huge investments in new product and technology development demands higher levels of production to ensure operations of the firms above the breakeven point. The scale of operations required over a period of time reaches a level that is well above the entire domestic demand in most of the developed countries, which generally have small population.

The firms thus face the problem of searching new markets and cheaper sources of raw material, labour and other resources. Their growth and development, thus, depends upon internationalization of the business.

Advantages and Disadvantages

A business while deciding upon whether to go for a joint venture should make a thorough analysis on its business goals.

Advantages

Financial resources can be shared.
Allows for Investor diversification.
Reduces local Friction.
Reduce Fixed costs per product.
Direct management of business activities.
Competitive strengths of two parties can be combined.
A local JV partner knows the market.
Economic incentives add value to JVs.

Disadvantages

JV profits are shared.
Shared technologies can be used beyond JV.
Local Management of a JV can be unknown

Broadly there are two schemes under which an Indian Party can set up a JV abroad, namely the Automatic Route and the Normal Route/Approval Route.

Automatic Route

Under the Automatic Route, an Indian Party does not require any prior approval from the Reserve Bank for setting up a JV abroad (in case of investment in the financial sector, however, prior approval is required from the concerned regulatory authority both in India and abroad).

The criteria for direct investment under the Automatic Route are as under:

The total µfinancial commitment of the Indian Party in JVs in any country other than Nepal, Bhutan and Pakistan is up to 100% of its net worth and the investment is in a lawful activity permitted by the host country
The Indian Party is not on the Reserve Banks exporters caution list / list of defaulters to the banking system published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the Enforcement Directorate or any investigative agency or regulatory authority;
The Indian Party routes all the transactions relating to the investment in a JV through only one branch of an authorized dealer to be designated by it.

Normal Route

Proposals not covered by the conditions under the automatic route require the prior clearance of the Reserve Bank for which a specific application in form ODI with the documents prescribed therein is required to be made to RBI.

Requests under the normal route are considered by taking into account inter alias the prima facie viability of the proposal, business track record of the promoters, experience and expertise of the promoters, benefits to the country, etc

MB0049 – Project Management - Set 1

2012-03-17T12:03:00.000+05:30

Course MBA – 2^nd Semester

Subject: Project Management

Assignment MB0049 – Set1

Q.1 Comment on the following

a. Importance of DMAIS in project management cycle

The projectised mantras of production management can be broadly identified as - Define Measure, Analyze, Improve, Standardize (DMAIS). These projectised mantras help in identifying, evaluating, and selecting the right improvement solutions for managing a project. The mantras also help in identifying the critical issues thus assisting the organization to adapt to the changes introduced through the implementation of different solutions.

The phases associated with each projectised mantra of production management are:
1. Define: benchmark, customer requirement, process flow map, quality function deployment, project management plan

2. Measure: data collection, defect metrics, sampling

3. Analysis: cause and effect, failure modes and effect analysis, decision and risk analysis,root cause analysis, reliability analysis

4. Improve: design of experiments, modeling, and robust design
5. Standardize: control charts, time series, procedural adherence, performance management, preventive activities displays the various phases of DMIAS.

b. Knowledge areas of project management

There are nine knowledge areas in Project Management:

Project Integration Management
Project Scope Management
Project Time Management
Project Cost Management
Project Quality Management
Project Human Resource Management
Project Communications Management
Project Risk Management
Project Procurement Management

Each of the nine knowledge areas contains the processes that need to be accomplished within its discipline in order to achieve an effective project management program. Each of these processes also falls into one of the five basic process groups, creating a matrix structure such that every process can be related to one knowledge area and one process group.

Q.2 Write few words on:

a. Project Characteristics

The word PROJECT comes from the Latin word PROJECTUM from the Latin verb PROICERE; which means “to throw something forwards” which in turn comes from PRO-, which denotes something that precedes the action of the next part of the word in time and ICERE, “to throw”. The word PROJECT thus actually originally meant “something that comes before anything else happens”.

A project in business and science is a temporary endeavor undertaken to create a unique product, service, or result. Basically, it is planned to achieve a particular aim. The aim of a project is to attain its objective and then terminate. Some of the reasons to start a project can be:

A customer request or market demand
An organizational need
A customer request
A technological advance
A legal requirement

Projects and operations differ primarily in that operations are ongoing and repetitive, while projects are temporary and unique. Generally, a project is a means of organizing some activities that cannot be addressed within the normal operational limits.

Project characteristics:

It is temporary – temporary means that every project has a definite beginning and a definite end. Project always has a definitive time frame.
A project creates unique deliverables, which are products, services, or results.
A project creates a capability to perform a service.
Project is always developed in steps and continuing by increments – Progressive Elaboration.

b. WBS

A work breakdown structure (WBS) in project management and systems engineering, is a tool used to define and group a project's discrete work elements in a way that helps organize and define the total work scope of the project..

A work breakdown structure element may be a product, data, a service, or any combination. A WBS also provides the necessary framework for detailed cost estimating and control along with providing guidance for schedule development and control. Additionally the WBS is a dynamic tool and can be revised and updated as needed by the project manager

The Work Breakdown Structure is a tree structure, which shows a subdivision of effort required to achieve an objective; for example aprogram, project, and contract. In a project or contract, the WBS is developed by starting with the end objective and successively subdividing it into manageable components in terms of size, duration, and responsibility (e.g., systems, subsystems, components, tasks, subtasks, and work packages) which include all steps necessary to achieve the objective.

The Work Breakdown Structure provides a common framework for the natural development of the overall planning and control of a contract and is the basis for dividing work into definable increments from which the statement of work can be developed and technical, schedule, cost, and labor hour reporting can be established.

A work breakdown structure permits summing of subordinate costs for tasks, materials, etc., into their successively higher level “parent” tasks, materials, etc. For each element of the work breakdown structure, a description of the task to be performed is generated. ^[3] This technique (sometimes called a System Breakdown Structure ) is used to define and organize the total scope of a project.

The WBS is organised around the primary products of the project (or planned outcomes) instead of the work needed to produce the products (planned actions). Since the planned outcomes are the desired ends of the project, they form a relatively stable set of categories in which the costs of the planned actions needed to achieve them can be collected. A well-designed WBS makes it easy to assign each project activity to one and only one terminal element of the WBS. In addition to its function in cost accounting, the WBS also helps map requirements from one level of system specification to another, for example a requirements cross reference matrix mapping functional requirements to high level or low level design documents.

c. PMIS

Project Management Information System (PMIS) are system tools and techniques used in project management to deliver information. Project managers use the techniques and tools to collect, combine and distribute information through electronic and manual means. Project Management Information System (PMIS) is used by upper and lower management to communicate with each other.

Project Management Information System (PMIS) help plan, execute and close project management goals. During the planning process, project managers use PMIS for budget framework such as estimating costs. The Project Management Information System is also used to create a specific schedule and define the scope baseline. At the execution of the project management goals, the project management team collects information into one database. The PMIS is used to compare the baseline with the actual accomplishment of each activity, manage materials, collect financial data, and keep a record for reporting purposes. During the close of the project, the Project Management Information System is used to review the goals to check if the tasks were accomplished. Then, it is used to create a final report of the project close. To conclude, the project management information system (PMIS) is used to plan schedules, budget and execute work to be accomplished in project management.

d. Project Management strategies-Internal & external

Effective Internal Project Management Strategies

Projects fail for many internal reasons, some of them technical, some of them managerial. However, even the technical failures can often be traced back to a failure on the part of the project's executive management to recognize and deal with these inherent managerial risks. On the other hand, probably the majority of apparently successful projects do not reflect their optimum potential either.

As a matter of project experience, a number of prerequisites have been identified with the successful project. While these prerequisites do not necessarily guarantee success of future projects, their absence may well lead to sub-optimal success, if not outright failure. The Project's Executive has a vital role to play in achieving project success and should therefore insist on the following:

Executive Support - The Executive must clearly demonstrate support for the project management concept by active sponsorship and control.

External Authority - The project manager must be seen as the authoritative agent in dealing with all parties, and be the responsible and single formal contact with them.

Internal Authority - The project manager must have the necessary managerial authority within his organization to ensure response to his requirements.

Commitment Authority - The project manager must have the responsibility and authority to control the commitment of resources, including funds, within prescribed limits. The results of these decisions must be both accountable and visible.

Project Manager Involved in All Major Decisions - No major technical, cost, schedule, or performance decisions should be made without the project manager's participation.

Competence - The project manager and his team members must be competent. Other functional personnel assigned to the project must also be competent.

Project Team - The project manager should have a say in the assembly of his project team, which will help him to obtain their personal commitment, support and required quality of service.

Management Information Systems - Effective project management information and control systems must be in place.

Effective External Project Management Strategies

Prerequisites for avoiding internal project failure, or at least sub-optimal results, were discussed earlier. However, it has also been noted earlier that external conditions and events also represent uncertainty and risk to the successful accomplishment of the project. These conditions have been linked to the external stakeholders of the project. Therefore, it is essential to develop a sound stakeholder environment.

Developing a Sound Stakeholder Environment

Just as the means of influencing the project's cultural environment, as described above, was one of developing the right attitude, so it is with developing a sound stakeholder environment. Perhaps this attitude is best reflected by adopting a mind set that reverses the traditional organization chart hierarchy. In other words, place the project stakeholders at the top of the chart, followed by the front-line project team members, and on down to the project manager at the bottom. Perhaps the project team will then be better visualized as a truly service organization, designed to serve the best interests of a successful project outcome, both perceived and in reality.

Some suggested steps in this process include:

Learn how to understand the role of the various stakeholders, and how this information may be used as an opportunity to improve both the perception and reception of the project
Identify the real nature of each stakeholder group's business and their consequent interest in the project
Understand their behavior and motivation
Assess how they may react to various approaches
Pinpoint the characteristics of the stakeholders' environment and develop appropriate responses to facilitate a good relationship
Learn project management's role in responding to the stakeholders drive behind the project
Determine the key areas which will have the most impact on the successful reception of the project
Remember always that even a minor stakeholder group may discover the "fatal flaw" in the project and which could bring the project to a standstill!

Q.3 What are the various SCMo soft wares available in project management? Explain each in brief.

The process documentation system is intranet based to provide immediate access to current, up-to-date process documentation. The system allows users to navigate through graphical structures to relevant documentation and processes which were created with the ARIS-Toolset.

The content of the process documentation system includes the area supply chain management from the Odette Supply Chain Management Group. The system includes graphical process documentation, in the form of process chains, as well as the entire range of documentation related to the processes. The Process Documentation System gives, according to its objectives, an overview and a detailed view of the relevant processes for SCMo.

The entry point in the documentations system is the model “Process Overview SCMo”. This model is the starting point for the navigation to other models. The navigation between models is done via the assignment symbol. The assignment symbol of a function / process Interface indicates that there is a link to another model. The linked / assigned models can be opened by double-clicking on the assignment symbol.

This can be classified into two different navigations as shown in figure.

a) Vertical Navigation: The vertical navigation is the navigation on different levels. Starting on the work package level and going downwards into more detail, the first models of processes are found on the sub-process level.

In the model “Process Overview SCMo” those processes are assigned to the functions on Level 2. In the models there can be assignments for some functions, e.g. for a Function Allocation Diagram or a sub-process that describes that function. These two examples are currently the models on the lowest level.

b) Horizontal Navigation: The horizontal navigation is on the same level. Some processes have a link to other processes, which can be at the start or end or even in the process itself, when another process is imbedded in the process. Those links are represented by Process Interfaces.

Microsoft has a team project management solution that enables project managers and their teams to collaborate on projects. The Microsoft Project 2002 products in these solutions are:

1. Microsoft Project Standard 2002

2. Microsoft Project Server 2002

3. Microsoft Project Server Client Access License (CAL) 2002.

Support Software

Having learnt the basics of application software, you would have a fair idea of how and to what extent project management processes could be automated. However, the challenge of “making things work” remains unchanged. While software vendors are confident of “making it work”, two yawning gaps still remain:

1. Business processes which are not covered in such software

2. Integration of multi vendor supported software applications

The enterprise is normally in a dilemma – whether to look at the same vendors to support such customisation or not. This normally works out too expensive for their comfort or within their tight budgets.

Several software vendors have seized the opportunity with offerings that substantially fill these gaps effectively at a fraction of the costs quoted by the major vendors. The other carrot which these vendors offer is a unilateral transfer of the facility to customise themselves which is seen as a huge advantage. The various support software that may be used for managing projects are:

1. ARROW

2. FEDORA

3. VITAL

4. PILIN

5. MS EXCHANGE SERVER 2003

The ARROW Project

It is a consortia of institutional repository solution, combining open source and proprietary Software .Arrow is preferred support software because it:

· Provides a platform for promoting research output in the ARROW context

· Safeguards digital information

· Gathers an institution’s research output into one place

· Provides consistent ways of finding similar objects

· Allows information to be preserved over the long term

· Allows information from many repositories to be gathered and searched in one step

· Enables resources to be shared, while respecting access constraints

· Enables effective communication and collaboration between researchers

The vision of project ARROW: “The ARROW project will identify and test software or solutions to support best practice institutional digital repositories comprising e-prints, digital theses and electronic publishing.” ARROW project wanted to be a solution for storing any digital output. Their initial focus was on print equivalents such as thesis and journal articles among others. It provided solution that could offer on-going technical support and development past the end of the funding period of the project.

Fedora

ARROW wanted a robust, well architected underlying platform and a flexible object-oriented data model to be able to have persistent identifiers down to the level of individual data streams. It accommodates the content model to be able to be version independent.

Since the beginning of the project ARROW has worked actively and closely with Fedora and the Fedora Community. The ARROW project’s Technical Architect is a member of Fedora Advisory Board and sits on Fedora Development Group.

This association is reinforced by VTLS Inc. VTLS President is a member of Fedora Advisory Board and VITAL Lead Developer sits on Fedora Development Group

VITAL

VITAL refers to ARROW specified software created and fully supported by VTLS Inc. built on top of Fedora. It currently provides:

1. VITAL Manager

2. VITAL Portal

3. VITAL Access Portal

4. VALET – Web Self-Submission Tool

5. Batch Loader Tool

6. Handles Server (CNRI)

7. Google Indexing and Exposure

8. SRU / SRW Support

9. VITAL architecture overview

VITAL is part of creative development of ARROW institutional repositories. VITAL has the following features:

1. Inclusion of multimedia and creative works produced in Australian universities

2. Limited exposure nationally or internationally

3. Addition of annotation capability

4. Inclusion of datasets and other research output not easily provided in any other publishing channel

5. Being developed in conjunction with the DART (ARCHER) Project

6. Exploration of the research-teaching nexus tools that will allow value added services for repositories

7. Integration with or development of new tools that will allow value added services for repositories (for instance the creation of e-portfolios or CVs of research output of individual academics)

PILIN – Persistent Identifiers and Linking Infrastructure

There has been a growing realisation that sustainable identifier infrastructure is required to deal with the vast amount of digital assets being produced and stored within universities.

PILIN is a particular challenge for e-research communities where massive amounts of data are being generated without any means of managing this data over any length of time. The broad objectives are to:

1. Support adoption and use of persistent identifiers and shared persistent identifier management services by the project stakeholders

2. Plan for a sustainable, shared identifier management infrastructure that enables persistence of identifiers and associated services over archival lengths of time

3. Deploy a Worldwide Site Consolidation Solution for Exchange Server 2003 at Microsoft

4. Add Picture

5. Use Microsoft Exchange Server 2003 to consolidate more than 70 messaging sites worldwide into seven physical locations

In this context, let us look at Microsoft Model Enterprises (MME).

Microsoft Model Enterprises (MME)

Objectives

· Maximising the number of management tasks performed centrally

· Decreasing the number of sites through the consolidation of the smaller locations into a smaller number of RDCs

· Reducing the total number of infrastructure and application servers

· Standardising infrastructure and devices worldwide

Solution

· Consolidation of 75 tail sites into 6 regional data centers (RDCs) using local storage area networks (SANs)

· Key Focus Areas

· Proactive, detailed monitoring and analysis of WAN bandwidth utilisation and latency

· Effective but flexible approach to project planning, scheduling, and cross-group coordination

· Coordination and control of deployment of successive pre-release versions of Office System 2003 (including Outlook 2003)

Business Benefits

· Four percent overall direct cost savings

· Key enabler of the Microsoft ME initiative which through fiscal year 2003 has produced millions in overall consolidation savings including USE

IT Benefits

· Improved server utilisation

· Improved server management

· Strengthened security

· Increased reliability

Q.4 List the various steps for Risk management. Also explain GDM and its key features.

Risk management may be classified and categorized as:

1. Risk assessment and identification The assessment and identification focuses on numerating possible risks to the project. Methods that can aid risk identification include checklists of possible risks, surveys, meetings and brainstorming and reviews of plans, process and work products. The project manager can also use the process database to get information about risks and risk management on similar projects.

2. Risk prioritization – focus on the highest risk. Prioritization requires analyzing the possible effects of the risk event in case it actually occurs. This approach requires a quantitative assessment of the risk probability and the risk consequences. For each risk rate the probability of its happening as low, medium or high. If necessary, assign probability values in the ranges given for each rating. For each risk, assess its impact on the project as low, medium, high or very high. Rank the risk based on the probability. Select the top few risk items for mitigation and tracking.

3. Risk Control: The main task is to identify the actions needed to minimize the risk consequences, generally called risk mitigation steps. Refer to a list of commonly used risk mitigation steps for various risks from the previous risk logs maintained by the PM and select a suitable risk mitigation step. The risk mitigation step must be properly executed by incorporating them into the project schedule. In addition to monitoring the progress of the planned risk mitigation steps periodically revisit project. The results of this review are reported in each milestone analysis report. To prepare this report, make fresh risk analysis to determine whether the priorities have

Risk Analysis

The first step in risk analysis is to make each risk item more specific. Risks such as, “Lack of Management buy in,” and “people might leave,” are a little ambiguous. In these cases the group might decide to split the risk into smaller specific risks, such as, “manager Jane decides that the project is not beneficial,” “Database expert might leave,” and “Webmaster might get pulled off the project.” The next step is to set priorities and determine where to focus risk mitigation efforts. Some of the identified risks are unlikely to occur, and others might not be serious enough to worry about. During the analysis, discuss with the team members, each risk item to understand how devastating it would be if it did occur, and how likely it is to occur. For example, if you had a risk of a key person leaving, you might decide that it would have a large impact on the project, but that it is not very likely. In the process below, we have the group agree on how likely it thinks each risk item is to occur,using a simple scale from 1 to 10 (where 1 is very unlikely and 10 is very likely). The group then rates how serious the impact would be if the risk did occur, using a simple scale from 1 to 10 (where 1is little impact and 10 is very large). To use this numbering scheme, first pick out the items that rate 1 and 10, respectively. Then rate the other items relative to these boundaries. To determine the priority of each risk item, calculate the product of the two values, likelihood and impact. This priority scheme helps push the big risks to the top of the list, and the small risks to the bottom. It is a usual practice to analyze risk either by sensitivity analysis or by probabilistic analysis. In sensitivity analysis a study is done to analyse the changes in the variable values because of a change in one or more of the decision criteria. In the probability analysis, the frequency of a particular event occurring is determined, based on which it average weighted average value is calculated.

Each outcome of an event resulting in a risk situation in a risk analysis process is expressed as a probability. Risk analysis can be performed by calculating the expected value of each alternative and selecting the best alternative.

Ex: Now that the group has assigned a priority to each risk, it is ready to select the items to mange. Some projects select a subset to take action upon, while others choose to work on all of Project the items. To get started, you might select the top 3 risks, or the top 20%, based on the priority calculation.

GDM –

The Global Delivery Model (GDM) is adopted by an Industry or Business such that it has a capability to plan design, deliver and serve to any Customers or Clients Worldwide with Speed, Accuracy, Economy and Reliability. The key Features of GDM are ·

Standardization

Modularization

Minimum Customization

Maximum Micro structure

Adoption of a Combination of the Greatest Common Multiple and the Least Common

Factor of a Large Mass of Microbial Components-

Standardization - Ingenious Design and Development of Components and Features which are like to be accepted by 90% of Worldwide Customers. Global Standards of Design focusing on highly standardized Methods and Processes of manufacture or Development. Adopt Plug and socket Concepts with minimum adaptable joints or Connections.

Modularization - Product or Solution split up into smallest possible individual Identifiable Entities, with limited Individual Functioning Capability but powerful and robust in Combination with other Modules.

Minimum Customization - Minimum Changes or Modifications to suit Individual Customers.

Maximum micro structuring - Splitting of the Product Modules further into much smaller entity identifiable more through characteristics rather than application Features. Approach through Standardization of these Microbial Entities even across Multiple Modules. Application of these Microbial Entities to rest within multiple Projects or Products or even as add-ons suit belated Customer Needs.

Special Features of GDM

Some of the special features of GDM are ·

Cuts across Geographical and Time Zone Barriers
Unimaginable Speeds of Response and Introduction.
Common Pool of Microbial Components
Largely Independent of Skill Sets required at Delivery Stages
Highly automated Processes
Quality Assurance as a Concurrent rather than a Control Process
Near Shore Development, Manufacture and Delivery for better Logistics
Mapping of Economical Zones rather than Geographic Zones
Continuous Floating virtual Inventory to save Time and Efforts.

Q.5 Answer the two parts:

a. Importance of data management in project management-Comment.

The Role of Effective Data Management in the Success of Project Management

Data management consists of conducting activities which facilitate acquiring data, processing it and distributing it. Acquisition of data is the primary function.

To be useful, data should have three important characteristics – timeliness, sufficiency and relevancy. Management of acquisition lies in ensuring that these are satisfied before they are stored for processing and decisions taken on the analysis.

There should be data about customers, suppliers, market conditions, new technology, opportunities, human resources, economic activities, government regulations, political upheavals, all of which affect the way you function. Most of the data go on changing because the aforesaid sources have uncertainty inherent in them. So updating data is a very important aspect of their management. Storing what is relevant in a form that is available to concerned persons is also important. When a project is underway dataflow from all members of the team will be flowing with the progress of activities. The data may be about some shortfalls for which the member is seeking instructions. A project manager will have to analyse them, discover further data from other sources and see how he can use them and take decisions. Many times he will have to inform and seek sanction from top management.

The management will have to study the impact on the overall organisational goals and strategies and convey their decisions to the manager for implementation. For example, Bill of Materials is a very important document in Project Management. It contains details about all materials that go into the project at various stages and has to be continuously updated as all members of the project depend upon it for providing materials for their apportioned areas of execution. Since information is shared by all members, there is an opportunity for utilising some of them when others do not need them. To ascertain availability at some future point of time, information about orders placed, backlogs, lead times are important for all the members. A proper MIS will take care of all these aspects. ERP packages too help in integrating data from all sources and present them to individual members in the way they require. When all these are done efficiently the project will have no hold ups an assure success.

b. What is the significance of reviewing ROI?

ROI - Return on Investment (ROI) is the calculated benefit that an organization is projected to receive in return for investing money (resources) in a project. Within the context of the Review Process, the investment would be in an information system development or enhancement project. ROI information is used to assess the status of the business viability of the project at key checkpoints throughout the project’s lifecycle.

ROI may include the benefits associated with improved mission performance, reduced cost, increased quality, speed, or flexibility, and increased customer and employee satisfaction. ROI should reflect such risk factors as the project’s technical complexity, the agency’s management capacity, the likelihood of cost overruns, and the consequences of under or nonperformance. Where appropriate, ROI should reflect actual returns observed through pilot projects and prototypes.

ROI should be quantified in terms of dollars and should include a calculation of the breakeven point (BEP), which is the date when the investment begins to generate a positive return. ROI should be recalculated at every major checkpoint of a project to se if the BEP is still on schedule, based on project spending and accomplishments to date. If the project is behind schedule or over budget, the BEP may move out in time; if the project is ahead of schedule or under budget the BEP may occur earlier. In either case, the information is important for decision making based on the value of the investment throughout the project lifecycle. Any project that has developed a business case is expected to refresh the ROI at each key project decision point (i.e., stage exit) or at least yearly.

Exclusions

If the detailed data collection, calculation of benefits and costs, and capitalization data from which Return on Investment (ROI) is derived was not required for a particular project, then it may not be realistic or practical to require the retrofit calculation of ROI once the project is added to the Review portfolio. In such a case, it is recommended that a memorandum of record be developed as a substitute for ROI. The memorandum should provide a brief history of the program, a description of the major benefits realized to date with as much quantitative data as possible, and a summary of the process used to identify and select system enhancements.

Some of the major benefits experienced by sites that installed the information system that would be important to include in the memorandum are:

a) Decommissioning of mainframe computers

b) Reduction/redirection of labour

c) Elimination of redundant systems

d) Ability to more cost effectively upgrade all sites with one standard upgrade package.

In each case above, identify the specific site, systems, and labour involved in determining the cited benefit. Identify any costs or dollar savings that are known or have been estimated. The memorandum will be used as tool for responding to any future audit inquiries on project ROI.

For the Project Management Review, it is recommended that the project leader replace the text on the ROI document through -

1) a note stating which stage of its cycle the project is in;

(2) A bulleted list of the most important points from the memorandum of record; and

(3) a copy of the memorandum of record for the Review repository.

In subsequent Reviews of the information system, the ROI slide can be eliminated form the package. There is one notable exception to this guidance. Any internal use software project in the maintenance phase of its lifecycle that adds a new site or undertakes an enhancement or technology refresh that reaches the cost threshold established by Standard will need to satisfy capitalization requirements. It requires all agencies to capitalize items acquired or developed for internal use if the expected service life is two or more years and its cost meets or exceeds the agency’s threshold for internal use software. The standard requires capitalization of direct and indirect costs, including employee salaries and benefits for both Federal and Contractor employees who materially participate in the Software project. Program managers are considered to be the source of cost information for internal use software projects. If capitalization data is collected for the project in the future, the project would be expected to calculate and track its ROI.

Q.6 XYZ Company implements CMMI level-03. To make further changes it decides on starting a new division in the organization. It decides to advance the existing project management. What are the steps to be followed by the organization to drive project management to a new horizon?

Capability Maturity Model Integration (CMMI) is a process improvement approach that helps organizations improves their performance. CMMI can be used to guide process improvement across a project, a division, or an entire organization.

CMMI in software engineering and organizational development is a process improvement approach that provides organizations with the essential elements for effective process improvement. CMMI is a trademark owned by Software Engineering Institute of Carnegie Mellon University.

According to the Software Engineering Institute (SEI, 2008), CMMI helps "integrate traditionally separate organizational functions, set process improvement goals and priorities, provide guidance for quality processes, and provide a point of reference for appraising current processes."^[2]

CMMI currently addresses three areas of interest:

Product and service development — CMMI for Development (CMMI-DEV),
Service establishment, management, and delivery — CMMI for Services (CMMI-SVC), and
Product and service acquisition — CMMI for Acquisition (CMMI-ACQ).

CMMI was developed by a group of experts from industry, government, and the Software Engineering Institute (SEI) at Carnegie Mellon University. CMMI models provide guidance for developing or improving processes that meet the business goals of an organization. A CMMI model may also be used as a framework for appraising the process maturity of the organization.^[1]

CMMI originated in software engineering but has been highly generalised over the years to embrace other areas of interest, such as the development of hardware products, the delivery of all kinds of services, and the acquisition of products and services. The word "software" does not appear in definitions of CMMI. This generalization of improvement concepts makes CMMI extremely abstract. It is not as specific to software engineering as its predecessor, the Software CMM.

CMMI was developed by the CMMI project, which aimed to improve the usability of maturity models by integrating many different models into one framework. The project consisted of members of industry, government and the Carnegie Mellon Software Engineering Institute (SEI). The main sponsors included the Office of the Secretary of Defense (OSD) and the National Defense Industrial Association.

CMMI is the successor of the capability maturity model (CMM) or software CMM. The CMM was developed from 1987 until 1997. In 2002, CMMI Version 1.1 was released. Version 1.2 followed in August 2006.

CMMI representation

CMMI exists in two representations: continuous and staged. The continuous representation is designed to allow the user to focus on the specific processes that are considered important for the organization's immediate business objectives, or those to which the organization assigns a high degree of risk. The staged representation is designed to provide a standard sequence of improvements, and can serve as a basis for comparing the maturity of different projects and organizations. The staged representation also provides for an easy migration from the SW-CMM to CMMI.

CMMI model framework

Depending on the CMMI constellation (acquisition, services, development) used, the process areas it contains will vary. Key process areas are the areas that will be covered by the organization's processes. The table below lists the process areas that are present in all CMMI constellations. This collection of eight process areas is called the CMMI Model Framework, or CMF.

Capability Maturity Model Integration (CMMI) Model Framework (CMF)
Abbreviation	Name	Area	Maturity Level
REQM	Requirements Management	Engineering	2
PMC	Project Monitoring and Control	Project Management	2
PP	Project Planning	Project Management	2
CM	Configuration Management	Support	2
MA	Measurement and Analysis	Support	2
PPQA	Process and Product Quality Assurance	Support	2
OPD	Organizational Process Definition	Process Management	3
CAR	Causal Analysis	Support	5

Maturity Levels

There are Five maturity levels. However, maturity level ratings are awarded for levels 2 through 5.

Maturity Level 2 - Managed

CM - Configuration Management
MA - Measurement and Analysis
PMC - Project Monitoring and Control
PP - Project Planning
PPQA - Process and Product Quality Assurance
REQM - Requirements Management
SAM - Supplier Agreement Management

Maturity Level 3 - Defined

DAR - Decision Analysis and Resolution
IPM - Integrated Project Management +IPPD
OPD - Organizational Process Definition +IPPD
OPF - Organizational Process Focus
OT - Organizational Training
PI - Product Integration
RD - Requirements Development
RSKM - Risk Management
TS - Technical Solution
VAL - Validation
VER - Verification

Maturity Level 4 - Quantitatively Managed

QPM - Quantitative Project Management
OPP - Organizational Process Performance

Maturity Level 5 - Optimizing

CAR - Causal Analysis and Resolution
OID - Organizational Innovation and Deployment

CMMI models

CMMI best practices are published in documents called models, each of which addresses a different area of interest. The current release of CMMI, version 1.2, provides models for three areas of interest: development, acquisition, and services.

CMMI for Development (CMMI-DEV), v1.2 was released in August 2006. It addresses product and service development processes.
CMMI for Acquisition (CMMI-ACQ), v1.2 was released in November 2007. It addresses supply chain management, acquisition, and outsourcing processes in government and industry.
CMMI for Services (CMMI-SVC), v1.2 was released in February 2009. It addresses guidance for delivering services within an organization and to external customers.
CMMI Product Suite (includes Development, Acquisition, and Services), v1.3 is expected to be released in 2010. CMMI Version 1.3—Plans for the Next Version

Regardless of which model an organization chooses, CMMI best practices should be adapted by an organization according to its business objectives.

Appraisal

An organization cannot be certified in CMMI; instead, an organization is appraised. Depending on the type of appraisal, the organization can be awarded a maturity level rating (1-5) or a capability level achievement profile.

Many organizations find value in measuring their progress by conducting an appraisal. Appraisals are typically conducted for one or more of the following reasons:

To determine how well the organization’s processes compare to CMMI best practices, and to identify areas where improvement can be made
To inform external customers and suppliers of how well the organization’s processes compare to CMMI best practices
To meet the contractual requirements of one or more customers

Appraisals of organizations using a CMMI model must conform to the requirements defined in the Appraisal Requirements for CMMI (ARC) document. There are three classes of appraisals, A, B and C, which focus on identifying improvement opportunities and comparing the organization’s processes to CMMI best practices. Appraisal teams use a CMMI model and ARC-conformant appraisal method to guide their evaluation of the organization and their reporting of conclusions. The appraisal results can then be used (e.g., by a process group) to plan improvements for the organization.

The Standard CMMI Appraisal Method for Process Improvement (SCAMPI) is an appraisal method that meets all of the ARC requirements.

A class A appraisal is more formal and is the only one that can result in a level rating. Results of an appraisal may be published (if the appraised organization approves) on the CMMI Web site of the SEI: Published SCAMPI Appraisal Results. SCAMPI also supports the conduct of ISO/IEC 15504, also known as SPICE (Software Process Improvement and Capability Determination), assessments etc.

Achieving CMMI compliance

The traditional approach that organizations often adopt to achieve compliance with the CMMI involves the establishment of an Engineering Process Group (EPG) and Process Action Teams (PATs).This approach requires that members of the EPG and PATs be trained in the CMMI, that an informal (SCAMPI C) appraisal be performed, and that process areas be prioritized for improvement. More modern approaches that involve the deployment of commercially available, CMMI-compliant processes, can significantly reduce the time to achieve compliance. SEI has maintained statistics on the "time to move up" for organizations adopting the earlier Software CMM and primarily using the traditional approach.^[6] These statistics indicate that, since 1987, the median times to move from Level 1 to Level 2 is 23 months, and from Level 2 to Level 3 is an additional 20 months. These statistics have not been updated for the CMMI.

The Software Engineering Institute’s (SEI) Team Software Process methodology and the Capability Maturity Modeling framework can be used to raise the maturity level.

Applications

The SEI published that 60 organizations measured increases of performance in the categories of cost, schedule, productivity, quality and customer satisfaction.^[7] The median increase in performance varied between 14% (customer satisfaction) and 62% (productivity). However, the CMMI model mostly deals with what processes should be implemented, and not so much with how they can be implemented. These results do not guarantee that applying CMMI will increase performance in every organization. A small company with few resources may be less likely to benefit from CMMI; this view is supported by the process maturity profile (page 10). Of the small organizations (<25 employees), 70.5% are assessed at level 2: Managed, while 52.8% of the organizations with 1001–2000 employees are rated at the highest level (5: Optimizing).

Interestingly, Turner & Jain (2002) argue that although it is obvious there are large differences between CMMI and agile methods, both approaches have much in common. They believe neither way is the 'right' way to develop software, but that there are phases in a project where one of the two is better suited. They suggest one should combine the different fragments of the methods into a new hybrid method. Sutherland et al. (2007) assert that a combination of Scrum and CMMI brings more adaptability and predictability than either one alone. David J. Anderson (2005) gives hints on how to interpret CMMI in an agile manner. Other viewpoints about using CMMI and Agile development are available on the SEI Web site.

The combination of the project management technique earned value management (EVM) with CMMI has been described (Solomon, 2002). To conclude with a similar use of CMMI, Extreme Programming (XP), a software engineering method, has been evaluated with CMM/CMMI (Nawrocki et al., 2002). For example, the XP requirements management approach, which relies on oral communication, was evaluated as not compliant with CMMI.

CMMI can be appraised using two different approaches: staged and continuous. The staged approach yields appraisal results as one of five maturity levels. The continuous approach yields one of six capability levels. The differences in these approaches are felt only in the appraisal; the best practices are equivalent and result in equivalent process improvement results.

MB0044 – Production & Operations Management- Set 2

2012-03-17T11:56:00.000+05:30

Course MBA – 2^nd Semester

Subject Production and Operations Management

Assignment MB0044 – Set 2

Q.1. How hardware & software support in various MIS activities of the organization? Explain the transaction stages from manual system to automated systems?

Ans.: Hardware support for MIS

Generally hardware in the form of personal computers and peripherals like printers, fax machines, copier, scanners etc are used in organization to support various MIS activities of the organization.

Advantages of a PC : Advantages a personal computer offers are –

a) Speed – A PC can process data at a very high speed. It can process millions of instructions within fraction of seconds.

b) Storage – A PC can store large quantity of data in a small space. It eliminates the need of storing the conventional office flat files and box files which requires lots of space. The storage system in a PC is such that the information can be transferred from place to another place in electronic form.

c) Communication – A PC on the network can offer great support as a communicator in communicating information in the forms of text and images. Today a PC with internet is used as a powerful tool of communication for every business activity.

d) Accuracy – A PC is highly reliable in the sense that it could be used to perform calculations continuously for hours with a great degree of accuracy. It is possible to obtain mathematical results correct up to a great degree of accuracy.

e) Conferencing – A PC with internet offers facility of video conferencing worldwide. Business people across the globe travel a lot to meet their business partner, colleagues, and customers etc to discuss about business activities. By video conferencing inconvenience of traveling can be avoided.

A block diagram of a computer may be represented as

Input unit is used to give input to the processor. Examples of input unit –Keyboard, scanner, mouse, bar code reader etc.

A processor refers to unit which processes the input received the way it has been instructed. In a computer the processor is the CPU – Central Processing Unit. It does all mathematical calculations, logical tasks, storing details in the memory etc. Output unit is used to give output s from the computer.
Examples of output unit – Monitor, printer, speakers etc.

Organization of Business in an E enterprise – Software Applications in MIS

• E business

• E communication

• E commerce

• E collaboration

· Enquiry processing

· Order preparation

· Order placement

· Order confirmation

· Order planning

· Order scheduling

· Order manufacturing

· Order status monitoring

· Order dispatching

· Order billing

· Order receivable accounting

· Order payment processing

• Retailing, Trading, Auctioning

• Manufacturing, Distribution & Selling

• Outsourcing, Subcontracting

• Servicing, Training, Learning, Consulting

Transformation stage manual systems to automated systems

a) Appraisal of the procedures

b) Types of documents

c) Storage systems

d) Formulations and coding

e) Verification and validation

f) Review

g) Documentation
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Q.2. Explain the various behavioral factors of management organization? As per Porter, how can performance of individual corporations be determined?

Ans.:
Management organizations:

Behavioral factors

1. Change in job content

2. Loss of status

3. Change in interpersonal relationships

4. Loss of power

5. Change in decision making approach

6. Uncertainty or unfamiliarity or misinformation

7. Job security

The major behavioral factors are

Decision styles symbolic processing of AI is heuristic; DSS and ANN are analytic

Need for explanation – ES provides explanation, ANN does not, DSS may provide partial explanation. Explanation can reduce resistance to change

Organizational climate some organizations lead and support innovations and new technologies whereas other wait and lag behind in making changes

Organizational expectations – over expectation can result in disappointments and termination of innovation. Over expectation was observed in most early intelligent systems.

Resistance to change – can be strong in MSS because the impacts may be significant.

Performance of individual corporations:

a) The bargaining power of suppliers;

b) The bargaining power of buyer;

c) The threat of new entrants;

d) The threat of substitute products; And

e) Rivalry among existing firms.

Porter's classic diagram representing these forces is indicated below.

There are two basic factors which may be considered to be adopted by organization in their strategies:

a) low cost

b) product differentiation

They are:

a) Cost leadership;

b) Differentiation;

c) Cost focus; And

d) Focused differentiation.

Porter's representation of them is indicated below

1. Product (quality, features, options, style, brand name, packaging, sizes, services, warranties, returns) ;

2. Price (list, discounts, allowances, payment period, credit terms) ;

3. Place (channels, coverage, locations, inventory, transport) ; And

4. Promotion (advertising, personal selling, sales promotion, publicity).

The various attributes listed above can be sharpened the firms product by the support of a suitable information technology.
____________________________________________________________________________________________

Q.3. Compare various types of development aspect of Information System? Explain the various stages of SDLC?

Development of Information Systems

Ans.:

Development and Implementation of the MIS :

b) Prototype Approach :

Life Cycle Approach :

Table below shows the difference between the two approaches helping the designer select an approach.

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