Engineering Management Lecture Notes

ENGINEERING MANAGEMENT
FOR ELECTRONICS ENGINEERS

SEMESTER 5 - ELECTRONICS & COMMUNICATION - 2013 SCHEME - KERALA UNIVERSITY
KAILAS SREE CHANDRAN

DEPT OF MECHANICAL
MOHANDAS COLLEGE OF ENGINEERING & TECHNOLOGY
PREFACE
This study material is prepared based on the syllabus of the subject Engineering
Management for Electronics Engineers for Semester 5, Electronics &
Communication Engineering, 2013 scheme, Kerala University. The notes for first
three modules have been included in this book. Students are advised to refer
prescribed text books also for understanding the subject thoroughly. This notes
can be used as an additional reference for improving the knowledge on the topic.
The figures included in this study material gives a better view on the topic and
can be used in exams. The syllabus and a model question paper are also included
with this study notes for easy reference.
Kailas Sree Chandran

Department of Mechanical Engineering,
Mohandas College of Engineering & Technology,
Thiruvananthapuram.
kailassreechandran@yahoo.co.in
CONTENTS
DESCRIPTION
PAGE NO
MODULE 1
Chapter 1 Engineering Management
MODULE 2
Chapter 2 Personal Management
31
Chapter 3 Marketing Management
50
Chapter 4 Financial Management
60
MODULE 3
Chapter 5 Cost Concept
76
Chapter 6 Quality Engineering
86
Engineering Management for Electronics Engineers (2013 Scheme Kerala University)
MODULE 1
CHAPTER 1
ENGINEERING MANAGEMENT
Management is concerned with human beings whose behavior is highly
unpredictable. Ever since people began forming groups to achieve goal, they
could not achieve as individuals. Managing has been essential to provide the
coordination of individuals efforts. Management is found in every walk of life.
Management does not perform specific jobs. It motivates other people to perform
specific jobs. Management is not doing the work but getting the work done
through the effort of others.
Management brings together basic resources popularly known as 6 Ms Men,
Material, Machines, Methods, Money and Market.
This helps to achieve the expected results quickly and economically in terms of
Production
Sales
Profit and
Goodwill in the Market
1.1 SYSTEM APPROACH OF MANAGEMENT

The systems approach to management indicates the fourth major theory
management thought called modern theory. Modern theory considers
organization as an adaptive system which has to adjust to changes in
environment. An organization is now defined as a structured process
which individuals interact for attaining objectives.
of
an
its
in
Meaning of "System": The word system is derived from the Greek word meaning
to bring together or to combine. A system is a set of interconnected and
inter-related elements or component parts to achieve certain goals. A system has
three significant parts:
1. Every system is goal-oriented and it must have a purpose or objective
to be attained.
KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.
Page
3. Inputs of information, material and energy are allocated for processing as per
plan so that the outputs can achieve the objective of the system.
2. In designing the system we must establish the necessary arrangement of

components.
1.2 FUNCTIONS OF MANAGEMENT

a) Planning
Planning involves selecting missions and objectives and the actions to achieve
them, it requires decision makin, that is, choosing future courses of action from
among alternatives. No real plan exists until a decision-a commitment of human
or material resources or reputation has been made.
b) Organizing
Organizing involves establishing an intentional structure of roles for people to
fill in an organization. It is intentional in the sense of making sure that all the
tasks necessary to accomplish goals are assigned and, it is hoped, assigned to
people who can do them best.
c) Staffing
Staffing involves filling and keeping filled the positions in the organization
structure. This is done by identifying workforce requirements; inventorying the
people available; and recruiting, selecting, placing, promoting, appraising,
planning the careers of, compensating, and training or otherwise developing both
candidates and current job holders so that tasks are accomplished effectively and
efficiently.
d) Leading/Directing
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Leading is influencing people so that they will contribute to organization and

group goals; it has to do predominantly with the interpersonal aspect of managing.
Leading involves motivation, leadership styles and approaches, and
communication.

e) Controlling
Controlling is measuring and correcting individuals and organizational
performance to ensure that events conform to plans. It involves measuring
performance against goals and plans, showing where deviations from standards
exist, and helping to correct them.
1.3 ORGANIZATION STRUCTURES

Organisational structure is defined as the
Relatively enduring allocation of work roles and administrative mechanisms
that creates a pattern of interrelated work activities and allows the organisation to
conduct, co-ordinate and control its work activities
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In an organization of any size or complexity, employees' responsibilities typically

are defined by what they do, who they report to, and for managers, who reports
To put it in simple words Organisational structure refers to the levels of

management and division of responsibilities within an organisation.

to them. Over time these definitions are assigned to positions in the organization
rather than to specific individuals. The relationships among these positions are
illustrated graphically in an organizational chart.
1.3.1 Types of Organisation Structure
Line Organisation
It is perhaps the oldest and the simples organisational structure. In this kind of
structure every manager exercise a direct authority over his subordinate who in
turn directly reports to their superiors.
There is a hierarchical arrangement of authority.

Each department is self contained and works independently of other
departments.
Lines of authority are vertical i.e. from top to bottom.
There are no staff specialists.
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Advantages
Simple to establish and operate
Promotes prompt decision making.
Easy to control as the managers have direct control over their subordinates.
Communication is fast and easy as there is only vertical flow of
communication.

Disadvantages
Lack of specialisation
Managers might get overloaded with too many things to do.
Failure of one manager to take proper decisions might affect the whole
organisation.
However, line structures are suitable for
small businesses where there are few subordinates
organisations where there is largely of routine nature and methods of
operations are simple.
Functional Organisation
The organisation is divided into a number of functional areas. This organisation
has grouping of activities in accordance with the functions of an organisation such
as production, marketing, finance, human resource and so on.
The specialist in charge of a functional department has the authority over all other
employees for his function.
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Advantages
Is logical and reflection of functions
Follows principle of occupation specialisation
Simplifies training
Better control as the manger in charge of each functional department is
usually an specialist.

Disadvantages
Overspecialisation and narrow viewpoints of key personnel can limit the
organisation growth.
Reduced coordination between functions.
Conflicts between different functions could be detrimental for the
organisation as a whole.
Difficult for general managers to coordinate different departments.
However, it is much suitable for large organisations where there is ample scope
for specialisation. Once harmony and proper coordination among different
functions is achieved, it could lead to sure success for an organisation.
Line and Staff Organisation
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Advantages
Line managers are provided by expert advice by these specialists.
Staff managers provide specialist advice which can improve quality of decisions
in various departments.
It is a combination of line and functional structures. In this organisation a

structure, the authority flows in a vertical line and get the help of staff specialist
who are in advisory. When the line executives need advice, information about
any
specific
area,
these
staff
specialists
are
consulted.
For example Chief accountant has command authority over accountants and
clerks in the accounts departments but he has only advisory relationship with
other departments like production or sales.

Disadvantages
Line managers and staff managers might have conflicts on particular issues.
Line and staff managers might not be clear as to what the actual area of operations
is and what is expected of them. Co-ordination may be a problem.
Staff personnel are not accountable for the results and thus may not take tasks
seriously.
However, Line and staff organisation is very suitable for large organisation.
Project Organisation
The project structure consists of a number of horizontal organisational units to
complete projects of a long duration. A team of specialists from different areas
is created for each project. Usually this team is managed by the project manager.
The project staff is separate from and independent of the functional departments.
Advantages
Special attention can be provided to meet the complex demand of the
project.
It allows maximum use of specialist knowledge thus chances of failure are
very less.
Project staff works as a team towards common goal which results in high
motivation level for its members.
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Disadvantages
As the project staff consists of personnel from diverse fields, it might be quite
challenging for the project manager to coordinate among them.

Matrix Organisation
Matrix organisation combines two structures functional departmentation

and project structure.
Functional department is a permanent feature of the matrix structure and
retains authority for overall operation of the functional units.
Project teams are created whenever specific projects require a high degree
of technical skill and other resources for a temporary period.
Project team form the horizontal chain and functional departments create a
vertical chain of command.
Members of a particular team are drawn from the functional departments
and are placed under the direction of a project manager who has the overall
responsibility of a particular project.
Advantage
Is oriented towards end results.
Professional identification is maintained
Pinpoints product-profit responsibility
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Disadvantages
Conflict in organisation authority exists.
Possibility of disunity of command exists
Requires manager effective in human relations

Matrix organisations is used in industries with highly complex product systems
for example, aerospace industry where project teams are created for specific
space or weapon systems.
1.4 DIFFERENT FORMS OF ORGANISATIONS
If one is planning to start a business or is interested in expanding an existing one,
an important decision relates to the choice of the form of organisation. The most
appropriate form is determined by weighing the advantages and disadvantages of
each type of organisation against ones own requirements.
Various forms of business organisations from which one can choose the right one
include:
(a) Sole proprietorship,
(b) Partnership,
(c) Cooperative societies, and
(d) Joint stock company.
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Sole proprietorship is a popular form of business organisation and is the most

suitable form for small businesses, especially in their initial years of operation.
Sole proprietorship refers to a form of business organisation which is owned,
managed and controlled by an individual who is the recipient of all profits and
bearer of all risks. This is evident from the term itself. The word sole implies
only, and proprietor refers to owner. Hence, a sole proprietor is the one
who is the only owner of a business. This form of business is particularly common
in areas of personalised services such as beauty parlours, hair saloons and small
scale activities like running a retail shop in a locality. payment of debts in case
the assets of the business are not sufficient to meet all the debts. As such the
owners personal possessions such as his/her personal car and other assets could
be sold for repaying the debt. Suppose the total outside liabilities of XYZ dry
cleaner, a sole proprietorship firm, are Rs. 80,000 at the time of dissolution, but
its assets are Rs. 60,000 only. In such a situation the proprietor will have to bring
in Rs. 20,000 from her personal sources even if she has to sell her personal
property to repay the firms debts.
1.4.1 Sole Proprietorship

Features
Salient characteristics of the sole proprietorship form of organisation are as
follows:
(i) Formation and closure: Hardly any legal formalities are required to start a sole
proprietary business, though in some cases one may require a license. There is no
separate law that governs sole proprietorship. Closure of the business can also be
done easily. Thus, there is ease in formation as well as closure of business.
(ii) Liability: Sole proprietors have unlimited liability. This implies that the owner
is personally responsible for
(iii) Sole risk bearer and profit recipient: The risk of failure of business is borne
all alone by the sole proprietor. However, if the business is successful, the
proprietor enjoys all the benefits. He receives all the business profits which
become a direct reward for his risk bearing.
(iv) Control: The right to run the business and make all decisions lies absolutely
with the sole proprietor. He can carry outhis plans without any interference from
others.
(v) No separate entity: In the eyes of the law, no distinction is made between the
sole trader and his business, as business does not have an identity separate from
the owner. The owner is, therefore, held responsible for all the activities of the
business.
(vi) Lack of business continuity: Since the owner and business are one and the
same entity, death, insanity, imprisonment, physical ailment or bankruptcy of the
sole proprietor will have a direct and detrimental effect on the business and may
even cause closure of the business.
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Sole proprietorship offers many advantages. Some of the important ones are as
follows:
(i) Quick decision making: A sole proprietor enjoys considerable degree of
freedom in making business decisions. Further the decision making is prompt
because there is no need to of his/her efforts as he/she is the sole recipient of all
the profit. The need to share profits does not arise as he/she is the single owner.
This provides maximum incentive to the sole trader to work hard. consult others.
This may lead to timely capitalisation of market opportunities as and when they
arise.
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Merits

(ii) Confidentiality of information: Sole decision making authority enables the
proprietor to keep all the information related to business operations confidential
and maintain secrecy. A sole trader is also not bound by law to publish firms
accounts.
(iii) Direct incentive: A sole proprietor directly reaps the benefits
(iv) Sense of accomplishment: There is a personal satisfaction involved in
working for oneself. The knowledge that one is responsible for the success of the
business not only contributes to self-satisfaction but also instils in the individual
a sense of accomplishment and confidence in ones abilities.
(v) Ease of formation and closure: An important merit of sole proprietorship is
the possibility of entering into business with minimal legal formalities. There is
no separate law that governs sole proprietorship. As sole proprietorship is the
least regulated form of business, it is easy to start and close the business as per
the wish of the owner.
Limitations
Notwithstanding various advantages, the sole proprietorship form of organisation
is not free from limitations. Some of the major limitations of sole proprietorship
are as follows:
(i) Limited resources: Resources of a sole proprietor are limited to his/her
personal savings and borrowings from others. Banks and other lending
institutions may hesitate to extend a long term loan to a sole proprietor. Lack of
resources is one of the major reasons why the size of the business rarely grows
much and generally remains small.
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(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the

owner has unlimited liability. If the business fails, the creditors can recover their
dues not merely from the business assets, but also from the personal assets of the
proprietor. A poor decision or an unfavourable circumstance can create serious
financial burden on the owners. That is why a sole proprietor is less inclined to
take risks in the form of innovation or expansion.
11
(ii) Limited life of a business concern: In the eyes of the law the proprietorship
and the owner are considered one and the same. Death, insolvency or illness of a
proprietor affects the business and can lead to its closure.

(iv) Limited managerial ability: The owner has to assume the responsibility of
varied managerial tasks such as purchasing, selling, financing, etc. It is rare to
find an individual who excels in all these areas. Thus decision making may not
be balanced in all the cases. Also, due to limited resources, sole proprietor may
not be able to employ and retain talented and ambitious employees.
Though sole proprietorship suffers from various shortcomings, many
entrepreneurs opt for this form of organisation because of its inherent advantages.
It requires less amount of capital. It is best suited for businesses which are carried
out on a small scale and where customers demand personalised services.
1.4.2 Partnership Based Business Organization

The inherent disadvantage of the sole proprietorship in financing and managing
an expanding business paved the way for partnership as a viable option.
Partnership serves as an answer to the needs of greater capital investment, varied
skills and sharing of risks.
The Indian Partnership Act, 1932 defines partnership as the relation between
persons who have agreed to share the profit of the business carried on by all or
any one of them acting for all.
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Definitions given above point to the following major characteristics of the

partnership form of business organisation.
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Features

(i) Formation: The partnership form of business organisation is governed by the
Indian Partnership Act, 1932. It comes into existence through a legal agreement
wherein the terms and conditions governing the relationship among the partners,
sharing of profits and losses and the manner of conducting the business are
specified. It may be pointed out that the business must be lawful and run with the
motive of profit. Thus, two people coming together for charitable purposes will
not constitute a partnership.
(ii) Liability: The partners of a firm have unlimited liability. Personal assets may
be used for repaying debts in case the business assets are insufficient. Further, the
partners are jointly and individually liable for payment of debts.
Jointly, all the partners are responsible for the debts and they contribute in
proportion to their share in business and as such are liable to that extent.
Individually too, each partner can be held responsible repaying the debts of the
business. However, such a partner can later recover from other partners an amount
of money equivalent to the shares in liability defined as per the partnership
agreement.
(iii) Risk bearing: The partners bear the risks involved in running a business as a
team. The reward comes in the form of profits which are shared by the partners
in an agreed ratio. However, they also share losses in the same ratio in the event
of the firm incurring losses.
(iv) Decision making and control: The partners share amongst themselves the
responsibility of decision making and control of day to day activities. Decisions
are generally taken with mutual consent. Thus, the activities of a partnership firm
are managed through the joint efforts of all the partners.
(v) Continuity: Partnership is characterised by lack of continuity of business since
the death, retirement, insolvency or insanity of any partner can bring an end to
the business. However, the remaining partners may if they so desire continue the
business on the basis of a new agreement.
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13
(vi) Membership: The minimum number of members needed to start a partnership

firm is two, while the maximum number, in case of banking industry is ten and in
case of other businesses it is twenty.
Merits
The following points describe the advantages of a partnership firm.
(i) Ease of formation and closure: A partnership firm can be formed easily by
putting an agreement between the prospective partners into place whereby they
agree to carryout the business of the firm and share risks. There is no compulsion
with respect to registration of the firm. Closure of the firm too is an easy task.
(ii) Balanced decision making: The partners can oversee different functions
according to their areas of expertise. Because an individual is not forced to handle
different activities, this not only reduces the burden of work but also leads to
fewer errors in judgements. As a consequence, decisions are likely to be more
balanced.
(iii) More funds: In a partnership, the capital is contributed by a number of
partners. This makes it possible to raise larger amount of funds as compared to a
sole proprietor and undertake additional operations when needed.
(iv) Sharing of risks: The risks involved in running a partnership firm are shared
by all the partners. This reduces the anxiety, burden and stress on individual
partners.
(v) Secrecy: A partnership firm is not legally required to publish its accounts and
submit its reports. Hence it is able to maintain confidentiality of information
relating to its operations.
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A partnership firm of business organisation suffers from the following

limitations:
(i) Unlimited liability: Partners are liable to repay debts even from their personal
14
Limitations

resources in case the business assets are not sufficient to meet its debts. The
liability of partners is both joint and several which may prove to be a drawback
for those partners who have greater personal wealth. They will have to repay the
entire debt in case the other partners are unable to do so.
(ii) Limited resources: There is a restriction on the number of partners, and hence
contribution in terms of capital investment is usually not sufficient to support
large scale business operations. As a result, partnership firms face problems in
expansion beyond a certain size.
(iii) Possibility of conflicts: Partnership is run by a group of persons wherein
decision making authority is shared. Difference in opinion on some issues may
lead to disputes between partners. Further, decisions of one partner are binding
on other partners. Thus an unwise decision by some one may result in financial
ruin for all others. In case a partner desires to leave the firm, this can result in
termination of partnership as there is a restriction on transfer of ownership.
(iv) Lack of continuity: Partnership comes to an end with the death, retirement,
insolvency or lunacy of any partner. It may result in lack of continuity. However,
the remaining partners can enter into a fresh agreement and continue to run the
business.
(v) Lack of public confidence: A partnership firm is not legally required to
publish its financial reports or make other related information public. It is,
therefore, difficult for any member of the public to ascertain the true financial
status of a partnership firm. As a result, the confidence of the public in partnership
firms is generally low.
Different kinds of partners in Partnership based organization
A partnership firm can have different types of partners with different roles and
liabilities. An understanding of these types is important for a clear understanding
of their rights and responsibilities. These are described as follows:
Page
(ii) Sleeping or dormant partner: Partners who do not take part in the day to
day activities of the business are called sleeping partners. A sleeping partner,
15
(i) Active partner: An active partner is one who contributes capital, participates
in the management of the firm, shares its profits and losses, and is liable to an
unlimited extent to the creditors of the firm. These partners take actual part in
carrying out business of the firm on behalf of other partners.

however, contributes capital to the firm, shares its profits and losses, and has
unlimited liability.
(iii) Secret partner: A secret partner is one whose association with the firm is
unknown to the general public. Other than this distinct feature, in all other aspects
he is like the rest of the partners. He contributes to the capital of the firm, takes
part in the management, shares its profits and losses, and has unlimited liability
towards the creditors.
(iv) Nominal partner: A nominal partner is one who allows the use of his/her
name by a firm, but does not contribute to its capital. He/she does not take active
part in managing the firm, does not share its profit or losses but is liable, like
other partners, to the third parties, for the repayments of the firms debts.
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The word cooperative means working together and with others for a common
purpose. The cooperative society is a voluntary association of persons, who join
together with the motive of welfare of the members. They are driven by the need
to protect their economic interests in the face of possible exploitation at the hands
of middlemen obsessed with the desire to earn greater profits. The cooperative
society is compulsorily required to be registered under the Cooperative Societies
Act 1912. The process of setting up a cooperative society is simple enough and
at the most what is required is the consent of at least ten adult persons to form a
society. The capital of a society is raised from its members through issue of
shares. The society acquires a distinct legal identity after its registration.
16
1.4.3 Cooperative Society Organization

Features
The characteristics of a cooperative society are listed below.
(i) Voluntary membership: The membership of a cooperative society is voluntary.
A person is free to join a cooperative society, and can also leave anytime as per
his desire. There cannot be any compulsion for him to join or quit a society.
Although procedurally a member is required to serve a notice before leaving the
society, there is no compulsion to remain a member. Membership is open to all,
irrespective of their religion, caste, and gender.
(ii) Legal status: Registration of a cooperative society is compulsory. This
accords a separate identity to the society which is distinct from its members. The
society can enter into contracts and hold property in its name, sue and be sued by
others. As a result of being a separate legal entity, it is not affected by the entry
or exit of its members.
(iii) Limited liability: The liability of the members of a cooperative society is
limited to the extent of the amount contributed by them as capital. This defines
the maximum risk that a member can be asked to bear.
(iv) Control: In a cooperative society, the power to take decisions lies in the hands
of an elected managing committee. The right to vote gives the members a chance
to choose the members who will constitute the managing committee and this
lends the cooperative society a democratic character.
(v) Service motive: The cooperative society through its purpose lays emphasis on
the values of mutual help and welfare. Hence, the motive of service dominates its
working. If any surplus is generated as a result of its operations, it is distributed
amongst the members as dividend in conformity with the bye-laws of the society.
Merits
The cooperative society offers many benefits to its members. Some of the
advantages of the cooperative form of organisation are as follows.
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17
(i) Equality in voting status: The principle of one man one vote governs the
cooperative society. Irrespective of the amount of capital contribution by a
member, each member is entitled to equal voting rights.

(ii) Limited liability: The liability of members of a cooperative society is limited
to the extent of their capital contribution. The personal assets of the members are,
therefore, safe from being used to repay business debts.
(iii) Stable existence: Death, bankruptcy or insanity of the members do not affect
continuity of a cooperative society. A society, therefore, operates unaffected by
any change in the membership.
(iv) Economy in operations: The members generally offer honorary services to
the society. As the focus is on elimination of middlemen, this helps in reducing
costs. The customers or producers themselves are members of the society, and
hence the risk of bad debts is lower.
(v) Support from government: The cooperative society exemplifies the idea of
democracy and hence finds support from the Government in the form of low
taxes, subsidies, and low interest rates on loans.
(vi) Ease of formation: The cooperative society can be started with a minimum
of ten members. The registration procedure is simple involving a few legal
formalities. Its formation is governed by the provisions of Cooperative Societies
Act 1912.
Limitations
The cooperative form of organisation suffers from the following limitations:
(i) Limited resources: Resources of a cooperative society consists of capital
contributions of the members with limited means. The low rate of dividend
offered on investment also acts as a deterrent in attracting membership or more
capital from the members.
(ii) Inefficiency in management: Cooperative societies are unable to attract and
employ expert managers because of their inability to pay them high salaries. The
members who offer honorary services on a voluntary basis are generally not
professionally equipped to handle the management functions effectively.
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(iv) Government control: In return of the privileges offered by the government,

cooperative societies have to comply with several rules and regulations related to
18
(iii) Lack of secrecy: As a result of open discussions in the meetings of members

as well as disclosure obligations as per the Societies Act (7), it is difficult to
maintain secrecy about the operations of a cooperative society.

auditing of accounts, submission of accounts, etc. Interference in the functioning
of the cooperative organisation through the control exercised by the state
cooperative departments also negatively affects its freedom of operation.
(v) Differences of opinion: Internal quarrels arising as a result of contrary
viewpoints may lead to difficulties in decision making. Personal interests may
start to dominate the welfare motive and the benefit of other members may take
a backseat if personal gain is given preference by certain members.
Different types of Cooperative Societies
Various types of cooperative societies based on the nature of their operations are
described below:
(i) Consumers cooperative societies: The consumer cooperative societies are
formed to protect the interests of consumers. The members comprise of
consumers desirous of obtaining good quality products at reasonable prices. The
society aims at eliminating middlemen to achieve economy in operations. It
purchases goods in bulk directly from the wholesalers and sells goods to the
members, thereby eliminating the middlemen. Profits, if any, are distributed on
the basis of either their capital contributions to the society or purchases made by
individual members.
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(iii) Marketing cooperative societies: Such societies are established to help

small producers in selling their products. The members consist of producers who
wish to obtain reasonable prices for their output. The society aims to eliminate
middlemen and improve competitive position of its members by securing a
favourable market for the products. It pools the output of individual members and
performs marketing functions like transportation, warehousing, packaging, etc.,
to sell the output at the best possible price. Profits are distributed according to
each members contribution to the pool of output.
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(ii) Producers cooperative societies: These societies are set up to protect the
interest of small producers. The members comprise of producers desirous of
procuring inputs for production of goods to meet the demands of consumers. The
society aims to fight against the big capitalists and enhance the bargaining power
of the small producers. It supplies raw materials, equipment and other inputs to
the members and also buys their output for sale. Profits among the members are
generally distributed on the basis of their contributions to the total pool of goods
produced or sold by the society.

(iv) Farmers cooperative societies: These societies are established to protect
the interests of farmers by providing better inputs at a reasonable cost. The
members comprise of farmers who wish to jointly take up farming activities. The
aim is to gain the benefits of large scale farming and increase the productivity.
Such societies provide better quality seeds, fertilisers, machinery and other
modern techniques for use in the cultivation of crops. This helps not only in
improving the yield and returns to the farmers, but also solves the problems
associate with the farming on fragmented land holdings.
(v) Credit cooperative societies: Credit cooperative societies are established for
providing easy credit on reasonable terms to the members. The members
comprise of persons who seek financial help in the form of loans. The aim of such
societies is to protect the members from the exploitation of lenders who charge
high rates of interest on loans. Such societies provide loans to members out of the
amounts collected as capital and deposits from the members and charge low rates
of interest.
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20
(vi) Cooperative housing societies: Cooperative housing societies are

established to help people with limited income to construct houses at reasonable
costs. The members of these societies consist of people who are desirous of
procuring residential accommodation at lower costs. The aim is to solve the
housing problems of the members by constructing houses and giving the option
of paying in instalments. These societies construct flats or provide plots to
members on which the members themselves can construct the houses as per their
choice.

1.4.4 Joint Stock Companies
A company is an association of persons formed for carrying out business
activities and has a legal status independent of its members. The company form
of organisation is governed by The Companies Act, 1956. A company can be
described as an artificial person having a separate legal entity, perpetual
succession and a common seal. The shareholders are the owners of the company
while the Board of Directors is the chief managing body elected by the
shareholders. Usually, the owners exercise an indirect control over the business.
The capital of the company is divided into smaller parts called shares which can
be transferred freely from one shareholder to another person (except in a private
company).
The company has a separate legal existence apart from its members who
compose it.
Its formation, working and its winding up, in fact, all its activities are
strictly governed by laws, rules and regulations. The Indian Companies
Act, 1956 contains the provisions regarding the legal formalities for setting
up of a public limited company. Registrars of Companies (ROC) appointed
under the Companies Act covering the various States and Union Territories
are vested with the primary duty of registering companies floated in the
respective states and the Union Territories.
A company must have a minimum of seven members but there is no limit
as regards the maximum number.
The company collects its capital by the sale of its shares and those who buy
the shares are called the members. The amount so collected is called the
share capital.
The shares of a company are freely transferable and that too without the
prior consent of other shareholders or without subsequent notice to the
company.
The liability of a member of a company is limited to the face value of the
shares he owns. Once he has paid the whole of the face value, he has no
obligation to contribute anything to pay off the creditors of the company.
The shareholders of a company do not have the right to participate in the
day-to-day management of the business of a company. This ensures
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21
Public Limited Company

A public limited company is a voluntary association of members which is
incorporated and, therefore has a separate legal existence and the liability of
whose members is limited. Its main features are :-
separation of ownership from management. The power of decision making

in a company is vested in the Board of Directors, and all policy decisions
are taken at the Board level by the majority rule. This ensures a unity of
direction in management.
As a company is an independent legal person, its existence is not affected
by the death, retirement or insolvency of any of its shareholders.
Advantages
Continuity of existence
Larger amount of capital
Unity of direction
Efficient management
Limited liability
Disadvantages
Scope for promotional frauds
Undemocratic control
Scope for directors for personal profit
Subjected to strict regulations
Page
It has an independent legal existence. The Indian Companies Act,1956

contains the provisions regarding the legal formalities for setting up of a
private limited company. Registrars of Companies (ROC) appointed under
the Companies Act covering the various States and Union Territories are
vested with the primary duty of registering companies floated in the
respective states and the Union Territories.
It is relatively less cumbersome to organise and operate it as it has been
exempted from many regulations and restrictions to which a public limited
company is subjected to. Some of them are : it need not file a prospectus with the Registrar.
it need not obtain the Certificate for Commencement of business.
it need not hold the statutory general meeting nor need it file the
statutory report.
22
Private Limited Company

A private limited company is a voluntary association of not less than two and not
more than fifty members, whose liability is limited, the transfer of whose shares
is limited to its members and who is not allowed to invite the general public to
subscribe to its shares or debentures. Its main features are :-
restrictions placed on the directors of the public limited company do

not apply to its directors.
The liability of its members is limited.
The shares allotted to it's members are also not freely transferable
between them. These companies are not allowed to invite public to
subscribe to its shares and debentures.
It enjoys continuity of existence i.e. it continues to exist even if all
its members die or desert it.
Hence, a private company is preferred by those who wish to take the advantage
of limited liability but at the same time desire to keep control over the business
within a limited circle and maintain the privacy of their business.
Advantages
Continuity of existence
Limited liability
Less legal restrictions
Disadvantages
Shares are not freely transferable
Not allowed to invite public to subscribe to its shares
Scope for promotional frauds
Undemocratic control
Features
The definition of a joint stock company highlights the following features of a
company.
(i) Artificial person: A company is a creation of law and exists independent of its
members. Like natural persons, a company can own property, incur debts, borrow
money, enter into contracts, sue and be sued but unlike them it cannot breathe,
eat, run, talk and so on. It is, therefore, called an artificial person.
Page
(iii) Formation: The formation of a company is a time consuming, expensive and

complicated process. It involves the preparation of several documents and
compliance with several legal requirements before it can start functioning.
23
(ii) Separate legal entity: From the day of its incorporation, a company acquires
an identity, distinct from its members. Its assets and liabilities are separate from
those of its owners. The law does not recognise the business and owners to be one
and the same.

Registration of a company is compulsory as provided under the Indian Companies
Act, 1956.
(iv) Perpetual succession: A company being a creation of the law, can be brought
to an end only by law. It will only cease to exist when a specific procedure for its
closure, called winding up, is completed. Members may come and members may
go, but the company continues to exist.
(v) Control: The management and control of the affairs of the company is
undertaken by the Board of Directors, which appoints the top management
officials for running the business. The directors hold a position of immense
significance as they are directly accountable to the shareholders for the working
of the company. The shareholders, however, do not have the right to be involved
in the day-to-day running of the business.
(vi) Liability: The liability of the members is limited to the extent of the capital
contributed by them in a company. The creditors can use only the assets of the
company to settle their claims since it is the company and not the members that
owes the debt. The members can be asked to contribute to the loss only to the
extent of the unpaid amount of share held by them. Suppose Akshay is a
shareholder in a company holding 2,000 shares of Rs.10 each on which he has
already paid Rs. 7 per share. His liability in the event of losses or companys
failure to pay debts can be only up to Rs. 6,000 the unpaid amount of his share
capital (Rs. 3 per share on 2,000 shares held in the company). Beyond this, he is
not liable to pay anything towards the debts or losses of the company.
(vii) Common seal: The company being an artificial person acts through its Board
of Directors. The Board of Directors enters into an agreement with others by
indicating the companys approval through a common seal. The common seal is
the engraved equivalent of an official signature. Any agreement which does not
have the company seal put on it is not legally binding on the company.
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24
(viii) Risk bearing: The risk of losses in a company is borne by all the share
holders. This is unlike the case of sole proprietorship or partnership firm where
one or few persons respectively bear the losses. In the face of financial
difficulties, all shareholders in a company have to contribute to the debts to the
extent of their shares in the companys capital. The risk of loss thus gets spread
over a large number of shareholders.

Merit
The company form of organisation offers a multitude of advantages, some of
which are discussed below.
(i) Limited liability: The shareholders are liable to the extent of the amount unpaid
on the shares held by them. Also, only the assets of the company can be used to
settle the debts, leaving the owners personal property free from any charge. This
reduces the degree of risk borne by an investor.
(ii) Transfer of interest: The ease of transfer of ownership adds to the advantage
of investing in a company as the share of a public limited company can be sold
in the market and as such can be easily converted into cash in case the need arises.
This avoids blockage of investment and presents the company as a favourable
avenue for investment purposes.
(iii) Perpetual existence: Existence of a company is not affected by the death,
retirement, resignation, insolvency or insanity of its members as it has a separate
entity from its members. A company will continue to exist even if all the members
die. It can be liquidated only as per the provisions of the Companies Act.
(iv) Scope for expansion: As compared to the sole proprietorship and partnership
forms of organisation, a company has large financial resources. Further, capital
can be attracted from the public as well as through loans from banks and financial
institutions. Thus there is greater scope for expansion. The investors are inclined
to invest in shares because of the limited liability, transferable ownership and
possibility of high returns in a company.
(v) Professional management: A company can afford to pay higher salaries to
specialists and professionals. It can, therefore, employ people who are experts in
their area of specialisations. The scale of operations in a company leads to
division of work. Each department deals with a particular activity and is headed
by an expert. This leads to balanced decision making as well as greater efficiency
in the companys operations.
Limitations
Page
(i) Complexity in formation: The formation of a company requires greater time,

effort and extensive knowledge of legal requirements and the procedures
25
The major limitations of a company form of organisation are as follows:

involved. As compared to sole proprietorship and partnership form of
organisations, formation of a company is more complex.
(ii) Lack of secrecy: The Companies Act requires each public company to provide
from time-to-time a lot of information to the office of the registrar of companies.
Such information is available to the general public also. It is, therefore, difficult
to maintain complete secrecy about the operations of company.
(iii) Impersonal work environment: Separation of ownership and management
leads to situations in which there is lack of effort as well as personal involvement
on the part of the officers of a company. The large size of a company further
makes it difficult for the owners and top management to maintain personal
contact with the employees, customers and creditors.
(iv) Numerous regulations: The functioning of a company is subject to many legal
provisions and compulsions. A company is burdened with numerous restrictions
in respect of aspects including audit, voting, filing of reports and preparation of
documents, and is required to obtain various certificates from different agencies,
viz., registrar, SEBI, etc. This reduces the freedom of operations of a company
and takes away a lot of time, effort and money.
(v) Delay in decision making: Companies are democratically managed through
the Board of Directors which is followed by the top management, middle
management and lower level management. Communication as well as approval
of various proposals may cause delays not only in taking decisions but also in
acting upon them.
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26
(vi) Oligarchic management: In theory, a company is a democratic institution

wherein the Board of Directors are representatives of the shareholders who are
the owners. In practice, however, in most large sized organisations having a
multitude of shareholders; the owners have minimal influence in terms of
controlling or running the business. It is so because the shareholders are spread
all over the country and a very small percentage attend the general meetings. The
Board of Directors as such enjoy considerable freedom in exercising their power
which they sometimes use even contrary to the interests of the shareholders.
Dissatisfied shareholders in such a situation have no option but to sell their shares
and exit the company. As the directors virtually enjoy the rights to take all major
decisions, it leads to rule by a few.

(vii) Conflict in interests: There may be conflict of interest amongst various
stakeholders of a company. The employees, for example, may be interested in
higher salaries, consumers desire higher quality products at lower prices, and the
shareholders want higher returns in the form of dividends and increase in the
intrinsic value of their shares. These demands pose problems in managing the
company as it often becomes difficult to satisfy such diverse interests.
1.4.5 Factors which decide the choice of form of business organization
Page
(i) Cost and ease in setting up the organisation: As far as initial business settingup costs are concerned, sole proprietorship is the most inexpensive way of starting
a business. However, the legal requirements are minimum and the scale of
operations is small. In case of partnership also, the advantage of less legal
formalities and lower cost is there because of limited scale of operations.
Cooperative societies and companies have to be compulsorily registered.
Formation of a company involves a lengthy and expensive legal procedure. From
the point of view of initial cost, therefore, sole proprietorship is the preferred form
27
After studying various forms of business organisations, it is evident that each

form has certain advantages as well as disadvantages. It, therefore, becomes vital
that certain basic considerations are kept in mind while choosing an appropriate
form of organisation. The important factors determining the choice of
organisation are discussed below:

as it involves least expenditure. Company form of organisation, on the other hand,
is more complex and involves greater costs.
(ii) Liability: In case of sole proprietorship and partnership firms, the liability of
the owners/partners is unlimited. This may call for paying the debt from personal
assets of the owners. In joint Hindu family business, only the karta has unlimited
liability. In cooperative societies and companies, however, liability is limited and
creditors can force payment of their claims only to the extent of the companys
assets. Hence, from the point of view of investors, the company form of
organisation is more suitable as the risk involved is limited.
(iii) Continuity: The continuity of sole proprietorship and partnership firms is
affected by such events as death, insolvency or insanity of the owners. However,
such factors do not affect the continuity of business in the case of organisations
like joint Hindu family business, cooperative societies and companies. In case the
business needs a permanent structure, company form is more suitable. For short
term ventures, proprietorship or partnership may be preferred.
Page
(v) Capital considerations: Companies are in a better position to collect large

amounts of capital by issuing shares to a large number of investors. Partnership
firms also have the advantage of combined resources of all partners. But the
resources of a sole proprietor are limited. Thus, if the scale of operations is large,
company form may be suitable whereas for medium and small sized business one
can opt for partnership or sole proprietorship. Further, from the point of view of
expansion, a company is more suitable because of its capability to raise more
funds and invest in expansion plans. It is precisely for this purpose that in our
opening case Nehas father suggested she should consider switching over to the
company form of organisation.
28
(iv) Management ability: A sole proprietor may find it difficult to have expertise
in all functional areas of management. In other forms of organisations like
partnership and company, there is no such problem. Division of work among the
members in such organisations allows the managers to specialise in specific areas,
leading to better decision making. But this may lead to situations of conflicts
because of differences of opinion amongst people. Further, if the organisations
operations are complex in nature and require professionalised management,
company form of organisation is a better alternative. Proprietorship or partnership
may be suitable, where simplicity of operations allow even people with limited
skills to run the business. Thus, the nature of operations and the need for
professionalised management affect the choice of the form of organisation.

(vi) Degree of control: If direct control over operations and absolute decision
making power is required, proprietorship may be preferred. But if the owners do
not mind sharing control and decision making, partnership or company form of
organisation can be adopted. The added advantage in the case of company form
of organisation is that there is complete separation of ownership and management
and it is professionals who are appointed to independently manage the affairs of
a company.
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29
(vii) Nature of business: If direct personal contact is needed with the customers
such as in the case of a grocery store, proprietorship may be more suitable. For
large manufacturing units, however, when direct personal contact with the
customer is not required, the company form of organisation may be adopted.
Similarly, in cases where services of a professional nature are required,
partnership form is much more suitable. It would not be out of place to mention
here that the factors stated above are inter-related. Factors like capital
contribution and risk vary with the size and nature of business, and hence a form
of business organisation that is suitable from the point of view of the risks for a
given business when run on a small scale might not be appropriate when the same
business is carried on a large scale. It is, therefore, suggested that all the relevant
factors must be taken into consideration while making a decision with respect to
the form of organisation that should be adopted.

Difference between Private And Public company:
S.no
1
6
7
8
It must have the word private

limited as part of its name
It is not necessary to file
prospectus or statement in lieu
of prospectus with register
Only two signature are
adequate for memorandum and
articles of association
This company is prohibited
from inviting public to
subscribe to its shares or
debentures
Restricts the rights of its
members to transfer their
shares in the company
there must be at least two
director s and two members
The maximum number member
is 50 excluding present and past
employees
There are no restrictions on the
allotment shares
Public company
It can start business only after
obtaining certificate to commerce
business from Register
It will only limited as part of its
name
It must file prospectus or, where no
prospects is issued, statement in
lieu of prospectus with the register
Seven persons will have to sign
memorandum and articles of
association
Public company can invite public
through prospectus to subscribe to
its shares and debenture
The members of a public company
can freely transfer their shares
There must be at least three
directors and seven members
There is no maximum limit.
There are certain conditions to be
fulfilled before allotment of shares
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30
Private company
A private company can start
business immediately after
obtaining a certificate of in
corporation
MODULE 2
CHAPTER 2
PERSONNEL MANAGEMENT
Page
2.1 OBJECTIVES OF PERSONNEL MANAGEMENT

The objectives of personnel management/HRM in any industrial organization can
be summarized as under.
(1) To attain maximum individual development (self-development) of the
members of an organization and also to utilize available human resources (with
the organization) fully and effectively.
(2) To mould effectively the human resources.
(3) To establish desirable working relationships between employer and
employees and between groups of employees.
31
The management function of staffing involves finding, attracting, and keeping

personnel of the quality and quantity needed to meet the organizations goals.
Staffing is included in some management textbooks as part of the organization
function and in others as a separate function, but the same steps are required.
Effective staffing requires first identifying the nature and number of people
needed, planning how to get them, selecting the best applicants, orienting and
training them, evaluating their performance, and providing adequate
compensation.

(4) To ensure satisfaction to the workers so that they are freely ready to work.
(5) To improve the service rendered by the enterprise to the society through better
employee morale, which leads to more efficient individual and group
performance.
(6) To establish and maintain a productive and self respecting relationship among
all the members of an organization.
(7) To ensure the availability of a competent and willing workforce to the
organization for its progress and prosperity.
(8) To help organization to achieve its goals by providing well
trained, efficient and properly motivated employees.
(9) To maintain high morale and good human relations within the organization
for the benefit of employer and employees.
(10) To secure the integration of all the individuals and groups with the
organization by reconciling individual/group goals with those of an organization.
Page
Selection is the process of picking individuals with requisite qualifications and

competence to fill jobs in the organization. A formal definition of selection is it
is the process of differentiating between applicants in order to identify those with
a greater likelihood of success.
32
2.2 SELECTION PROCESS

Selection is significant as it has its impact on work performance and employee
cost. Selection is generally done by the HR department often in consultation with
the line managers.
Selection Process
Selection is a long process, commencing from the preliminary interview
of the applicants and ending with the contract of employment. In practice, the
process differs among organizations and between two different jobs within the
same organization. Selection procedure for senior managers will be long-drawn
and rigorous, but it is simple and short while hiring shop-floor workers.
Environmental Factors Affecting Selection
Selection is influenced by several factors. More prominent among them
are supply and demand of specific skills in the labour market, unemployment rate,
labour-market conditions, legal and political considerations, companys image,
companys policy, HRP, and cost of hiring. The last three constitute the internal
environment and the remaining form the external environment of the selection
process.
Page
The applications received from job seekers are subject to scrutiny so as to

eliminate unqualified applicants. This is usually followed by a preliminary
interview the purpose of which is more or less the same as scrutiny of
applications, that is, elimination of unqualified applications. Scrutiny enables the
HR specialists to eliminate unqualified jobseekers based on the information
33
1. Preliminary Interview

supplied in their applications forms. Preliminary interview, on the other hand,
helps reject misfits for reasons, which did not appear in the application forms.
Besides, preliminary interview, often called courtesy interview, is a good public
relations exercise.
2. Selection Tests
Job seekers who pass the screening and the preliminary interview are called for
tests. Different types of tests may be administered, depending on the job and the
company. Generally, tests are used to determine the applicants ability, aptitude
and personality. Ability tests assist in determining how well an individual can
perform tasks related to the job. An excellent example of this is the typing test
given to a prospective employee for a secretarial job. An aptitude test helps to
determine a persons potential to learn in a given area. An example of such a test
is the General Management Aptitude Test which many business students take
prior to gaining admission to a graduate business school programme.
Personality tests are given to measure a prospective employees motivation to
function in a particular working environment.
There are various tests designed to assess a candidates personality. The Bersenter
Personality Inventory, for example, measures ones self-sufficiency, neurotic
tendency, sociability, introversion and extroversion, locus of control, and selfconfidence. The Thematic Apperception test (TAT) assesses an individuals
achievement and motivational levels. Other personality tests, such as the
California Psychological Inventory (CPI), the Thurstone Temperament Survey
(TTS), Minnesota Multiphasic Personality Inventory (MMPI), and GuildfordZimmerman Temperament Survey, have been designed to assess specific
personality traits.
Aptitude tests indicate the ability or fitness of an individual to engage
successfully in any number of specialized activities. They cover such areas as
clerical aptitude, numerical aptitude, mechanical aptitude, motor-coordination,
finger dexterity and manual dexterity.
Page
Graphology test is designed to analyse the handwriting of an individual. It has

been said that an individuals handwriting can suggest the degree of energy,
34
Interest tests are used to measure an individuals activity preferences. These tests
are particularly useful for students considering many careers or employees
deciding upon career changes.

inhibitions and spontaneity, as well as disclose the idiosyncracies, and elements
of balance and control. For example, big letters and emphasis on capital letters
indicate a tendency towards domination and competitiveness. A slant to the right,
moderate pressure and good legibility show leadership potential. Employers
usually consult graphologists to supplement their usual personnel recruitment
procedures. Polygraph tests are designed to ensure accuracy of the information
given in the applications. Department stores, treasury offices and jewellery shops
that is those highly vulnerable to theft or swindling may find polygraph tests
useful.
3. Employment Interview
The next step in the selection process is employment interview. An interview is
conducted at the beginning and at the end of the selection process. The emphasis
here is on the latter.
Interview is a formal, in-depth conversation conducted to evaluate the applicants
acceptability. It is considered to be an excellent selection device. Its popularity
stems from its flexibility. Interview can be adapted to unskilled, skilled,
managerial and professional employees. It allows a two-way exchange of
information, the interviewers learn about the applicant, and the applicant learns
about the employer.
However, interviews do have shortcomings. Absence of reliability is one
limitation. No two interviewers offer similar scoring after interviewing an
applicant. Lack of validity is another limitation. This is because, few departments
use standardized questions upon which validation studies can be conducted.
Finally, biases of interviewers may cloud the objectivity of interviews.
Page
The panel interview consists of two or more interviewers and the figure may go
up to as many as 15. Any panel interview is less intimate and more formal than
the one-to-one, but if handled and organized well, it can provide a wealth of
information. If not handled carefully, the panel interview can make the candidate
35
The employment interview can be one-to-one, sequential or panel. In one-to-one

interview, there are only two participants the interviewer and the interviewee.
This can be the same as the preliminary interview discussed earlier. The
sequential interview takes the one-to-one a step further and involves a series of
interviews, usually utilizing the strength and knowledge-base of each interviewer,
so that each interviewer can ask questions in relation to his subject area of each
candidate, as the candidate moves from room to room.

feel ill at ease and confused about whose question to answer and whom to address.
Interviewers themselves are likely to experience nightmare, not knowing who
will ask which question and in what order.
4. Reference & Background Checks
Many employers request names, addresses, and telephone numbers of references,
for the purpose of verifying information and perhaps, gaining additional
background information on an applicant. Although listed on the application form,
references are not usually checked until an applicant has successfully reached the
fourth stage of a sequential selection process. When the labour market is very
tight, organizations sometimes hire applicants before checking references.
Previous employers, known public figures, university professors, neighbours or
friends can act as references. Previous employers are preferable because they are
already aware of the applicants performance. But, the problem with the reference
is the tendency on the part of the previous employer to over-rate the applicants
performance just to get rid of the person.
Organizations normally seek letters of references or telephone references. The
latter is advantageous because of its accuracy and low cost. The telephone
reference also has the advantage of soliciting immediate, relatively candid
comments, and attitudes can sometimes be inferred from hesitations and
inflections in speech.
It may be stated that the information gathered through references hardly influence
selection decisions. The reasons are obvious:
The candidate approaches only those persons who would speak well about
him.
People may write favourably about the candidate in order to get rid of him.
People may not like to divulge the truth about a candidate, lest it might
damage or ruin his career.
In several cases, references are a formality and are seldom verified by the
employer.
Page
After obtaining information through the preceding steps, selection decision the
most critical of all the steps must be made. The other stages in the selection
process have been used to narrow the number of candidates. The final decision
36
5. Selection Decision

has to be made from the pool of individuals who pass the tests, interviews and
reference checks.
The views of the line manager will be generally considered in the final selection
because it is he who is responsible for the performance of the employee. The HR
manager plays a critical role in the final selection.
6. Physical Examination
After the selection decision and before the job offer is made, the candidate is
required to undergo a physical fitness test. A job offer is, often, contingent upon
the candidate being declared fit after the physical examination. The results of the
medical fitness test are recorded in a statement and are preserved in the personnel
records. There are several objectives behind a physical test. Obviously, one
reason for a physical test is to detect if the individual carries any infectious
diseases. Secondly, the test assists in determining whether an applicant is
physically fit to perform the work. Third, the physical examination information
may be used to determine if there are certain physical capabilities which
differentiate successful and less successful employees. Fourth, medical check-up
protects applicants with health defects from undertaking work that could be
detrimental to themselves or might otherwise endanger the employers property.
Finally, such an examination will protect the employer from workers
compensation claims that are not valid because the injuries or illnesses were
present when employee was hired.
7. Job Offer
Page
The company may also want the individual to delay the date of reporting on duty.
If the new employees first job upon joining the company is to go on training, the
organization may request that the individual delays joining the company until
perhaps a week before such training begins. Naturally this practice cannot be
37
The next step in the selection process is job offer to those applicants who have
crossed all the previous hurdles. Job offer is made through a letter of appointment.
Such a letter generally contains a date by which the appointee must report on
duty. The appointee must be given reasonable time for reporting. This is
particularly necessary when he is already in employment, in which case the
appointee is required to obtain a relieving certificate from the previous employer.
Again, a new job may require movement to another city which means
considerable preparation and movement of property.

abused especially if the individual is unemployed and does not have sufficient
finances.
Page
38
Decency demands that the rejected applicants be informed about their nonselection. Their applications may be preserved for future use, if any. It needs no
emphasis that the applications of selected candidates must also be preserved for
future references.

2.3 PURPOSES AND IMPORTANCE OF RECRUITMENT
The general purpose of recruitment is to provide a pool of potentially qualified
job candidates. Specifically, the purposes are to:
Determine the present and future requirements of the organization in
conjunction with its personnel planning and job analysis activities
Increase the pool of job candidates at minimum cost
Help increase the success rate of the selection process by reducing the
number of visibly, under qualified or overqualified job applicants
Help reduce the probability that job applicants, once recruited and selected,
will leave the organization only after a short period of time
Meet the organizations legal and social obligations regarding the
composition of its workforce
Begin identifying and preparing potential job applicants who will be
appropriate candidates
Increase organizational and individual effectiveness in the short term and
long term
Evaluate the effectiveness of various recruiting techniques and sources for
all types of job applicants
2.4 SOURCES OF RECRUITMENT
The sources of recruitment can be broadly categorized into internal and external
sources(I) Internal Recruitment Internal recruitment seeks applicants for positions
from within the company. The various internal sources include
Page
Promotion is an effective means using job posting and personnel records. Job
posting requires notifying vacant positions by posting notices, circulating
publications or announcing at staff meetings and inviting employees to apply.
Personnel records help discover employees who are doing jobs below their
educational qualifications or skill levels. Promotions has many advantages like it
is good public relations, builds morale, encourages competent individuals who
are ambitious, improves the probability of good selection since information on
the individuals performance is readily available, is cheaper than going outside to
recruit, those chosen internally are familiar with the organization thus reducing
the orientation time and energy and also acts as a training device for developing
middle-level and top-level managers. However, promotions restrict the field of
39
a. Promotions and Transfers

selection preventing fresh blood & ideas from entering the organization. It also
leads to inbreeding in the organization. Transfers are also important in providing
employees with a broad-based view of the organization, necessary for future
promotions.
b.
Employee referrals-
Employees can develop good prospects for their families and friends by
acquainting them with the advantages of a job with the company, furnishing them
with introduction and encouraging them to apply. This is a very effective means
as many qualified people can be reached at a very low cost to the company. The
other advantages are that the employees would bring only those referrals that they
feel would be able to fit in the organization based on their own experience. The
organization can be assured of the reliability and the character of the referrals. In
this way, the organization can also fulfill social obligations and create goodwill.
c. Former EmployeesThese include retired employees who are willing to work on a part-time basis,
individuals who left work and are willing to come back for higher compensations.
Even retrenched employees are taken up once again. The advantage here is that
the people are already known to the organization and there is no need to find out
their past performance and character. Also, there is no need of an orientation
programme for them, since they are familiar with the organization.
d. Dependents of deceased employeesUsually, banks follow this policy. If an employee dies, his / her spouse or son or
daughter are recruited in their place. This is usually an effective way to fulfill
social obligation and create goodwill.
(II) External Recruitment External recruitment seeks applicants for positions
from sources outside the company. They have outnumbered the internal methods.
The various external sources include
Page
Many associations provide placement service to its members. It consists of

compiling job seekers lists and providing access to members during regional or
national conventions. Also, the publications of these associations carry classified
advertisements from employers interested in recruiting their members. These are
40
a. Professional or Trade Associations

particularly useful for attracting highly educated, experienced or skilled
personnel. Also, the recruiters can zero on in specific job seekers, especially for
hard-to-fill technical posts.
b. Advertisements It is a popular method of seeking recruits, as many recruiters prefer
advertisements because of their wide reach. Want ads describe the job benefits,
identify the employer and tell those interested how to apply. Newspaper is the
most common medium but for highly specialized recruits, advertisements may be
placed in professional or business journals.
Advertisements must contain proper information like the job content, working
conditions, location of job, compensation including fringe benefits, job
specifications, growth aspects, etc. The advertisement has to sell the idea that the
company and job are perfect for the candidate. Recruitment advertisements can
also serve as corporate advertisements to build company image. It also cost
effective.
c. Employment ExchangesEmployment Exchanges have been set up all over the country in deference to the
provision of the Employment Exchanges (Compulsory Notification of Vacancies)
Act, 1959. The Act applies to all industrial establishments having 25 workers or
more each. The Act requires all the industrial establishments to notify the
vacancies before they are filled. The major functions of the exchanges are to
increase the pool of possible applicants and to do the preliminary screening. Thus,
employment exchanges act as a link between the employers and the prospective
employees. These offices are particularly useful to in recruiting blue-collar, white
collar and technical workers.
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Colleges, universities, research laboratories, sports fields and institutes are fertile
ground for recruiters, particularly the institutes. Campus Recruitment is going
global with companies like HLL, Citibank, HCL-HP, ANZ Grindlays, L&T,
Motorola and Reliance looking for global markets. Some companies recruit a
given number of candidates from these institutes every year. Campus recruitment
is so much sought after that each college; university department or institute will
have a placement officer to handle recruitment functions. However, it is often an
expensive process, even if recruiting process produces job offers and
41
d. Campus Recruitments-

acceptances eventually. A majority leave the organization within the first five
years of their employment. Yet, it is a major source of recruitment for prestigious
companies.
e. Walk-ins, Write-ins and Talk-insThe most common and least expensive approach for candidates is direct
applications, in which job seekers submit unsolicited application letters or
resumes. Direct applications can also provide a pool of potential employees to
meet future needs. From employees viewpoint, walk-ins are preferable as they
are free from the hassles associated with other methods of recruitment. While
direct applications are particularly effective in filling entry-level and unskilled
vacancies, some organizations compile pools of potential employees from direct
applications for skilled positions. Write-ins are those who send written enquiries.
These jobseekers are asked to complete application forms for further processing.
Talk-ins involves the job aspirants meeting the recruiter (on an appropriated date)
for detailed talks. No application is required to be submitted to the recruiter.
f. ContractorsThey are used to recruit casual workers. The names of the workers are not entered
in the company records and, to this extent; difficulties experienced in maintaining
permanent workers are avoided.
g. ConsultantsThey are in the profession for recruiting and selecting managerial and executive
personnel. They are useful as they have nationwide contacts and lend
professionalism to the hiring process. They also keep prospective employer and
employee anonymous. However, the cost can be a deterrent factor.
h. Head Hunters-
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They are useful in specialized and skilled candidate working in a particular

company. An agent is sent to represent the recruiting company and offer is made
to the candidate. This is a useful source when both the companies involved are in
the same field, and the employee is reluctant to take the offer since he fears, that
his company is testing his loyalty.

i. Radio, Television and InternetRadio and television are used to reach certain types of job applicants such as
skilled workers. Radio and television are used but sparingly, and that too, by
government departments only. Companies in the private sector are hesitant to use
the media because of high costs and also because they fear that such advertising
will make the companies look desperate and damage their conservative image.
However, there is nothing inherently desperate about using radio and television.
It depends upon what is said and how it is delivered. Internet is becoming a
popular option for recruitment today. There re specialized sites like naukri.com.
Also, websites of companies have a separate section wherein; aspirants can
submit their resumes and applications. This provides a wider reach.
j. CompetitorsThis method is popularly known as poaching or raiding which involves
identifying the right people in rival companies, offering them better terms and
luring them away. For instance, several executives of HMT left to join Titan
Watch Company. There are legal and ethical issues involved in raiding rival firms
for potential candidates. From the legal point of view, an employee is expected
to join a new organization only after obtaining a no objection certificate from
his/ her present employer. Violating this requirement shall bind the employee to
pay a few months salary to his/ her present employer as a punishment. However,
there are many ethical issues attached to it.
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k. Mergers and AcquisitionsWhen organizations combine, they have a pool of employees, out of whom some
may not be necessary any longer. As a result, the new organization has, in effect,
a pool of qualified job applicants. As a result, new jobs may be created. Both new
and old jobs may be readily staffed by drawing the best-qualified applicants from
this employee pool. This method facilitates the immediate implementation of an
organizations strategic plan. It enables an organization to pursue a business plan,
However, the need to displace employees and to integrate a large number of them
rather quickly into a new organization means that the personnel-planning and
selection process becomes critical more than ever.

Merits and demerits of External Recruitment
The merits are The organization will have the benefit of new skills, new
talents and new experiences, if people are hired from external
sources.
The management will be able to fulfill reservation
requirements in favour of the disadvantaged sections of the
society.
Scope for resentment, heartburn and jealousy can be avoided
by recruiting from outside.
The demerits are Better motivation and increased morale associated with
promoting own employees re lost to the organization.
External recruitment is costly.
If recruitment and selection processes are not properly
carried out, chances of right candidates being rejected and
wrong applicants being selected occur.
High training time is associated with external recruitment.
2.5 OBJECTIVES OF TRAINING AND DEVELOPMENT
Training and development programs are designed to keep an organization at the
front of its industry maximize performance and energize every level of the
organization. Training and Development is also seen to strengthen the tie between
employee development and strategic operation objectives.
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The objectives of Training and Development are as follows: Efficiency: Employees become efficient after undergoing training. Efficient
employees contribute to the growth of the organization.
Fewer accidents: Accidents, scrap and damage to machinery and equipment
can be avoided or minimized through training. Even dissatisfaction,
complaints, absenteeism, and turnover can be reduced if employees are trained
well.
Meeting manpower needs: Future needs of employees will be met through
training and development programmes. Training serves as an effective source
of recruitment. Training is an investment in human resource with promise of
better returns in future.

Improves quality: Better-informed workers are likely to make less operational
mistakes. Quality of products or services will definitely increase. This can be
well measured through the reduction in rejections.
Personal growth: Training programmes also deal with personality
development of the employees (through goal setting, motivation, leadership
skills, etc.) thus they personally gain through exposure to training
programmes.
Obsolescence prevention: Training and development programs foster the
initiative and the creativity of the employees and help to prevent the
manpower obsolescence, which may be due to age, temperament, or the
inability of the person to adapt himself to technological changes.
Versatility in operations: Training makes the employees versatile in
operations. All rounders can be transferred to any job. Flexibility is therefore
ensured. Growth indicates prosperity, which is reflected in profits every year.
Employee stability: Training contributes to employee stability in at least 2
ways. Employees become efficient after undergoing training. Efficient
employees contribute to the growth of the organization. Growth renders
stability to the work force. Further trained employees tend to stay with the
organization.
2.6 DIFFERENT METHODS AND TECHNIQUES OF TRAINING
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A multitude of techniques are used to train employees. Training techniques

represent the medium of imparting skills and knowledge to employees. Training
techniques are means employed in the training methods. They are basically of
two types.

1. Lectures: It is the verbal presentation of information by an instructor to a
large audience. The lecturer is presumed to possess knowledge about the
subject. A virtue in this method is that it can be used for large groups and
hence the cost of training per employee is very low. However, this method
violates the principle of learning by practice. Also this type of communication
is a one-way communication and there is no feedback from the audience
because in case of very large groups it is difficult to have interactive sessions.
Long lectures can also cause Boredom.
2. Audio Visuals: This is an extension of the lecture method. This method
includes slides, OHPs, video tapes and films. They can be used to provide a
range of realistic examples examples of job conditions and situations in the
condensed period of time. It also improves the quality of presentation to a
great extent.
3. On- the Job- Training: It is used primarily to teach workers how to do their
present jobs. Majority of the industrial training is on the job training. It is
conducted at the work site and in the context of the job. Often, it is informal,
as when experienced worker shows a trainee how to perform tasks. In this
method, the focus of trainers focus is on making a good product and not on
good training technique. It has several steps, the trainee first receives an
overview of the job, its purpose and the desired outcomes. The trainer then
demonstrates how the job is to be performed and to give trainee a model to
copy. And since a model is given to the trainee, the transferability to the job
is very high. Then the employee is allowed to mimic the trainers example.
The trainee repeats these jobs until the job is mastered.
Methods and Techniques of Training
On the Job Techniques
Away from the

workplace
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Methods applied in the

workplace while the
employee is working.
Off the Job Techniques

4. Programmed Instruction (PI): In this method, training is offered without the
intervention of the trainer. Information is provided to the employee in blocks,
in form of books or through teaching machine. After going through each block
of material, the trainee goes through a test/ answers a question. Feedback in
the form of correct answers is provided after each response. Thus PI involves:
Presenting questions, facts, and problems to the learner.

Allowing the person to respond
Providing feedback on the accuracy of the answers
If the answers are correct, he proceeds to the next block or else,
repeats the same.
However it is an impersonal method and the scope of learning is less as

compared to other methods of training. Also the cost of preparing books,
manuals and machinery is very high.
5. Computer Assisted Instruction (CAI): This is an extension of the PI method. In this
method, the learners response determines the frequency and difficulty level of the
next frame. This is possible thanks to the speed, memory and the data manipulation
capabilities of the computer.
6. Simulation: It is any equipment or technique that duplicates as nearly as the
possible the actual conditions encountered at the job. It is an attempt to create
a realistic for decision-making. This method is most widely used in
Aeronautical Industry.
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8. Case study: It is a written description of an actual situation in the business,

which provokes the reader to think and make decisions/ suggestions. The
trainees read the case, analyse it and develop alternative solutions, select the
best one and implement it. It is an ideal method to promote decision making
skills. They also provide transference to an extent. They allow participation
through dicussion. This is the most effective method of developing problem
solving skills.
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7. Vestibule Training: This method utilizes equipment which closely resemble

the actual ones used in the job. It is performed in a special area set aside for
the purpose and not at the workplace. The emphasis is placed on learning skills
than on production. It is however difficult to duplicate pressures and realities
of actual situations. Even though the kind of tension or pressure may be the
same but the employee know it is just a technique and not a real situation. Also
the employees behave differently in real situations than in simulations. Also
additional investment is required for the equipment.

The method /approach to analysis may not be given importance. Many a
times only the result at the end of the case may be considered and not the
line of thinking to approach it. This is a major disadvantage since case
studies must primarily be used to influence or mend the attitude or thinking
of an individual.
9. Role Playing and Behavior Modeling: This method mainly focuses on
emotional (human relation) issues than other ones. The essence is on creating
a real life situation and have trainees assume parts of specific personalities
(mostly interchanged roles of boss and subordinate to create empathy for one
another). The consequence is better understanding of issues from the others
point of view.
Concept of Behavior Modeling:
Fundamental psychological process by which new patterns of
behavior can be acquired and existing ones can be altered.
Vicarious process learning takes place not by own experience but
by observation or imagination of others action.
It is referred to as copying, observational learning or imitation
implying that it a behavior is learned or modified through
observation of others experiences.
This change may be videotaped and showed to the trainee and he can
review and critique it.
It also helps him see the negative consequences that result from not
using the behavior as recommended.
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11. Apprenticeships and Coaching: It is involved learning from more

experienced employee/s. This method may be supplemented with other offthe-job methods for effectiveness. It is applied in cases of most craft workers,
carpenters, plumbers and mechanics. This approach uses high levels of
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10.Sensitivity Training: it uses small number of trainees usually less than 12 in

a group. They meet with a passive trainer and get an insight into their own
behavior and that of others. These meetings have no agenda and take place
away from the workplace. The discussions focus on why participants behave
the way they do and how others perceive them. The objective is to provide the
participants with increased awareness of their own behavior, the perception of
others about them and increased understanding of group process. Examples:
Laboratory training, encounter groups. Laboratory training is a form of group
training primarily used to enhance interpersonal skills. It can be used to
develop desired behaviors for future job responsibilities. A trained
professional serves as a facilitator. However once the training is over
employees get back to being the way they are.

participation and facilitates transferability. Coaching is similar to
apprenticeships. But it is always handled by a supervisor and not by the HR
department. The person being trained is called understudy. It is very similar
to on the job training method. But in that case, more stress is laid on
productivity, whereas here, the focus is on learning.
2.7 ORIENTATION AND TRAINING
When a new employee reports to work, the employing organization needs to help
the newcomer become part of the organization by introducing him or her to the
policies and values of the organizations as a whole and specific requirements of
the persons new department and job. The personnel department generally deals
with these responsibilities in modern organizations. Orientation also involves the
process of inculcating the values of the organization, such as attitudes toward
quality, safety, and customers, etc. The management also needs to arrange for
the appropriate training sources and methods to impart the skills and expertise
required to work on specific areas in organizational activities. In a more
comprehensive sense, orientation and training can be considered to include the
total socialization of the new employee to the environment and culture of his or
her new organization.
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Training and Development is the process of developing knowledge, skills, and

behaviour in people that will enable them to perform better their current and
future jobs, and to discharge the responsibility effectively. It is, however,
important to distinguish between Training and Development before we procede
with further discussions on the topic. Training presuposes that the desire skill is
already with in the capacity of the individual and that they only need to be shown
how to apply the skills and knowledge to perform the job. Development,
however, involves preparation for tasks or behaviours that currently beyond the
individuals range of responses.
CHAPTER 3
MARKETING MANAGEMENT
According to American Marketing Association, "Marketing is an organisational
function and a set of processes for creating, communicating and delivering value
to customers and for managing customer relationships in ways that benefit the
organisation and its stakeholders."
According to Harold Koontz, "Management is the art of getting things done
through and with people in formally organised groups."
Management consists of the interlocking functions of creating corporate policy
and organising, planning, controlling, directing an organisation's resources in
order to achieve the objectives of the policy.
According to Philip Kotler, "Marketing Management is the analysis, planning,
implementation and control of programmes designed to bring about desired
exchanges with target audiences for the purpose of personal and of mutual gain.
It relies heavily on the adoption and coordination of product, price, promotion
and place for achieving responses.".
Marketing management is a business process, to manage marketing activities in
profit seeking and non profit organisations at different levels of management.
Marketing management decisions are based on strong knowledge of marketing
functions and clear understanding and application of supervisory and managerial
techniques.
3.1 MARKETING ENVIRONMENT
The term Marketing Environment refers to the forces and factors that affects the
organisation ability to built and maintain good relationship with its customers.
Marketing environment surrounds the organisation and it impacts upon the
organisation. Marketers have to interact with internal and external people at micro
and macro level and builds internal and external relationships. The key elements
of marketing environment are as follows :-
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50
1. Internal Environment,
2. Micro Environment, and
3. Macro Environment.

Internal Environment
Internal factors like men, machine, money, material, etc., on which marketing
decision depends consists internal marketing environment. The internal
environment refers to the forces that are within the organisation and affects its
ability to serve its customers. It includes marketing managers, sales
representatives, marketing budget, marketing plans, procedures, inventory,
logistics, and anything within organisation which affects marketing decisions,
and its relationship with its customers.
Micro Environment
Individuals and organisations that are close to the marketing organisation and
directly impacts its ability to serve its customers, makes Marketing Micro
Environment. The micro environment refers to the forces that are close to the
marketing organisation and directly impact the customer experience. It includes
the organisation itself, its suppliers, marketing intermediaries, customers, markets
or segments, competitors, and publics. Happenings in micro environment is
relatively controllable for the marketing organisation.
Macro Environment
Macro environment refers to all forces that are part of the larger society and
affects the micro environment. It includes demography, economy, politics,
culture, technology, and natural forces. Macro environment is less controllable.
The Environmental Factors may be classified as:
1. Internal Factor
2. External Factor
External Factors may be further classified into:
External Micro Factors & External Macro Factors
External Micro Factors:
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2. Marketing Intermediaries: They are the people who assist the flow of products
from the producers to the consumers; they include wholesalers, retailers,
agents, etc. These people create place & time utility. A company must select
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1. Suppliers: They are the people who provide necessary resources needed to
produce goods & services. Policies of the suppliers have a significant
influence over the marketing managers decisions because, it is laborers, etc.
A company must build cordial & long-term relationship with suppliers.

an effective chain of middlemen, so as to make the goods reach the market in
time. The middlemen give necessary information to the manufacturers about
the market. If a company does not satisfy the middlemen, they neglect its
products & may push the competitors product.
3. Consumers: The main aim of production is to meet the demands of the
consumers. Hence, the consumers are the center point of all marketing
activities. If they are not taken into consideration, before taking the decisions,
the company is bound to fail in achieving its objectives. A companys
marketing strategy is influenced by its target consumer. Eg: If a manufacturer
wants to sell to the wholesaler, he may directly sell to them, if he wants to sell
to another manufacturer, he may sell through his agent or if he wants to sell to
ultimate consumer he may sell through wholesalers or retailers. Hence each
type of consumer has a unique feature, which influences a companys
marketing decision.
4. Competitors: A prudent marketing manager has to be in constant touch
regarding the information relating to the competitors strategies. He has to
identify his competitors strategies, build his plans to overtake them in the
market to attract competitors consumers towards his products.
5. Public: A Companys obligation is not only to meet the requirements of its
customers, but also to satisfy the various groups. A public is defined as any
group that has an actual or potential ability to achieve its objectives. The
significance of the influence of the public on the company can be understood
by the fact that almost all companies maintain a public relation department. A
positive interaction with the public increase its goodwill irrespective of the
nature of the public. A company has to maintain cordial relation with all
groups, public may or may not be interested in the company, but the company
must be interested in the views of the public.
External Macro Environment:
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1. Demography: It is defined as the statistical study of the human population &

its distribution. This is one of the most influencing factors because it deals
with the people who form the market. A company should study the population,
its distribution, age composition, etc before deciding the marketing strategies.
Each group of population behaves differently depending upon various factors
such as age, status, etc. if these factors are considered, a company can produce
only those products which suits the requirement of the consumers. In this
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These are the factors/forces on which the company has no control. Hence, it has
to frame its policies within the limits set by these forces:

regard, it is said that to understand the market you must understand its
demography.
2. Economic Environment: A company can successfully sell its products only
when people have enough money to spend. The economic environment affects
a consumers purchasing behavior either by increasing his disposable income
or by reducing it. Eg: During the time of inflation, the value of money comes
down. Hence, it is difficult for them to purchase more products. Income of the
consumer must also be taken into account. Eg: In a market where both husband
& wife work, their purchasing power will be more. Hence, companies may
sell their products quite easily.
3. Physical Environment or Natural Forces: A company has to adopt its
policies within the limits set by nature. A man can improve the nature but
cannot find an alternative for it.
Nature offers resources, but in a limited manner. A product manager utilizes
it efficiently. Companies must find the best combination of production for the
sake of efficient utilization of the available resources. Otherwise, they may
face acute shortage of resources. Eg: Petroleum products, power, water, etc.
4. Technological Factors: From customers point of view, improvement in
technology means improvement in the standard of living. In this regard, it is
said that Technologies shape a Persons Life.
Every new invention builds a new market & a new group of customers. A new
technology improves our lifestyle & at the same time creates many problems.
Eg: Invention of various consumer comforts like washing machines, mixers,
etc have resulted in improving our lifestyle but it has created severe problems
like power shortage.
Eg: Introduction to automobiles has improved transportation but it has resulted
in the problems like air & noise pollution, increased accidents, etc. In simple
words, following are the impacts of technological factors on the market:
a) They create new wants
b) They create new industries
c) They may destroy old industries
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5. Social & Cultural Factors: Most of us purchase because of the influence of

social & cultural factors. The lifestyle, values, believes, etc are determined
among other things by the society in which we live. Each society has its own
culture. Culture is a combination of various factors which are transferred from
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d) They may increase the cost of Research & Development.

older generations & which are acquired. Our behaviour is guided by our
culture, family, educational institutions, languages, etc.
The society is a combination of various groups with different cultures &
subcultures. Each society has its own behavior. A marketing manager must
study the society in which he operates.
Consumers attitude is also affected by their society within a society, there
will be various small groups, each having its own culture.
Eg: In India, we have different cultural groups such as Assamese, Punjabis,
Kashmiris, etc. The marketing manager should take note of these differences
before finalizing the marketing strategies.
Culture changes over a period of time. He must try to anticipate the changes
new marketing opportunities.
3.2 PRODUCT LIFE CYCLE (PLC)
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Businesses should manage their products carefully over time to ensure that they
deliver products that continue to meet customer wants. The process of managing
groups of brands and product lines is called portfolio planning.
54
We define a product as "anything that is capable of satisfying customer needs.

This definition includes both physical products (e.g. cars, washing machines,
DVD players) as well as services (e.g. insurance, banking, private health care).

The stages through which individual products develop over time is called
commonly known as the "Product Life Cycle".
The classic product life cycle has four stages (illustrated in the diagram below):
introduction; growth; maturity and decline
Introduction Stage
At the Introduction (or development) Stage market size and growth is slight. it is
possible that substantial research and development costs have been incurred in
getting the product to this stage. In addition, marketing costs may be high in order
to test the market, undergo launch promotion and set up distribution channels. It
is highly unlikely that companies will make profits on products at the Introduction
Stage. Products at this stage have to be carefully monitored to ensure that they
start to grow. Otherwise, the best option may be to withdraw or end the product.
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The Growth Stage is characterised by rapid growth in sales and profits. Profits
arise due to an increase in output (economies of scale)and possibly better prices.
At this stage, it is cheaper for businesses to invest in increasing their market share
as well as enjoying the overall growth of the market. Accordingly, significant
promotional resources are traditionally invested in products that are firmly in the
Growth Stage.
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Growth Stage

Maturity Stage
The Maturity Stage is, perhaps, the most common stage for all markets. it is in
this stage that competition is most intense as companies fight to maintain their
market share. Here, both marketing and finance become key activities. Marketing
spend has to be monitored carefully, since any significant moves are likely to be
copied by competitors. The Maturity Stage is the time when most profit is earned
by the market as a whole. Any expenditure on research and development is likely
to be restricted to product modification and improvement and perhaps to improve
production efficiency and quality.
Decline Stage
In the Decline Stage, the market is shrinking, reducing the overall amount of
profit that can be shared amongst the remaining competitors. At this stage, great
care has to be taken to manage the product carefully. It may be possible to take
out some production cost, to transfer production to a cheaper facility, sell the
product into other, cheaper markets. Care should be taken to control the amount
of stocks of the product. Ultimately, depending on whether the product remains
profitable, a company may decide to end the product.
Examples
Set out below are some suggested examples of products that are currently at
different stages of the product life-cycle:
INTRODUCTION
Third generation
mobile phones
GROWTH
Portable DVD
Players
MATURITY
Personal
Computers
DECLINE
E-conferencing
Email
Faxes
Handwritten
letters
All-in-one racing
skin-suits
iris-based personal
identity cards
Breathable
synthetic fabrics
Cotton t-shirts
Shell Suits
Smart cards
Credit cards
Cheque
books
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Typewriters

3.3 MARKETING MIX
Introduction to Marketing Mix
Marketing is the process of identifying, anticipating, and satisfying customers'
requirements with the purpose to make profits. In this process marketing
managers and marketing representatives have to take various marketing decisions
to make the operations profitable. They have to decide what combination of
marketing policies and procedures be adopted to bring about desired behaviour
of trade and consumers at minimum cost. They have to decide how can
advertising, personal selling, pricing, packaging, channels, warehousing, and the
other elements of marketing be manipulated and mixed to make marketing
operations profitable. More specifically, they have to decide a marketing mix - a
decision making method in relation with the product, price, promotion, and
distribution.
The term Marketing Mix was introduced by Neil H. Borden in his article - "The
Concept of Marketing Mix". He learned about it in a research bulletin on the
management of marketing costs, written by his associate, Prof. James Culliton. in
1948. In this study of manufacturers' marketing costs he described the business
executive as a "decider," an "artist" - a "mixer of ingredients," who sometimes
follows a recipe prepared by others, sometimes prepares his own recipe as he goes
along, sometimes adapts a recipe to the ingredients immediately available, and
sometimes experiments with or invents ingredients no one else has tried.
Definition of Marketing Mix
According to Philip Kotler - "Marketing Mix is the combination of four elements,
called the 4P's (product, Price, Promotion, and Place), that every company has
the option of adding, subtracting, or modifying in order to create a desired
marketing strategy"
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Meaning of Marketing Mix

The Marketing Mix is a marketing tool used by marketing professionals. It is
often crucial when determining product or brand's offering, and it is also called
as 4P's (Product, Price, Promotion, and Place) of marketing. However, in case of
services of different nature the 4 P's have been expanded to 7P's or 8P's.
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According to Principles of Marketing, 14e, Kotler and Armstrong, 2012 - "The

Marketing Mix is the set of tactical marketing tools - Product, Price, Promotion,
and Place - that the firm blends to produce the response it wants in the target
market."

In recent times, giving more importance to customer a new concept have been
introduced, i.e. Concept of 4C's. The Concept of 4C's is more customer-driven
replacement of 4P's. According to Lauterborn's the 4C's are - Consumer, Cost,
Communication, and Convenience. According to Shimizu's the 4C's are Commodity, Cost, Communication, and Channel.
Product - Products are offerings that a marketer offers to the target

audience to satisfy their needs and wants. Product can be tangible good or
intangible service. Tangible products are goods like - cellphone, television,
or motor car, whereas intangible products are services like - financial
service in a bank, health treatment by a doctor, legal advice of a lawyer.
Price - Price is the amount that is charged by marketer of his offerings or
the amount that is paid by consumer for the use or consumption of the
product. Price is crucial in determining the organisation's profit and
survival. Adjustments in price affects the demand and sales of the product.
Marketers are required to be aware of the customer perceived value of the
product to set the right price.
Promotion - Promotion represents the different methods of
communication that are used by marketer to inform target audience about
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4P's - Producer-oriented Model of Marketing Mix
the product. promotion includes - advertising, personal selling, public

relation, and sales promotion.
Place - Place or distribution refers to making the product available for
customers at convenient and accessible places.
In case of services, the producer-oriented model of marketing mix is consists of

7P's. Including the above 4P's there are additional 3P's - Physical Evidence,
People, and Process. Physical evidence refers to elements like uniform of
employees, signboards, and etc. People refers to the employees of the
organisation comes in contact with the customers in the process of marketing.
Process refers to the systems and processes followed within organisation.
4C's - Consumer-oriented model of marketing Mix
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Consumer - In this model the Product is replaced by Consumer. Marketers

focuses more on consumer satisfaction. The product is designed and
produced keeping in consideration the requirements of consumer.
Cost - Price is replaced by Cost. Here the cost refers to the total cost of
owning a product. It includes cost to use the product, cost to change the
product, and cost of not choosing the competitor's product.
Communication - Promotion is replaced by Communication.
Communication includes advertising, public relation, personal selling, and
any method that can be used for proper,timely, and accurate
communication between marketer and consumer.
Convenience - Place is replaced by Convenience. it focuses on ease of
buying, convenience in reaching to the store/product, and convenience in
getting product information.
CHAPTER 4
FINANCIAL MANAGEMENT
Financial management performs different function for the effective management
of funds of any organization. Financial management is concerned with the
supervision of the capital invested in the business enterprise, allocation of finance
to resources and overall increase in the value of business.
Financial management is the planning of the requirement of capital investment
with the objective of earning higher return incurring the least cost and efficient
management of the financial management of the financial affairs of any business
enterprise.
According to the J.J Hampton "Financial management is an applied field of
business administration."
Financial management may be defined as, "Financial management is the integral
part of general management engaged in raising of finance, allocation and
utilization of finances or funds and other managerial function for the overall
growth of the enterprise."
Financial management has some basic features. Financial management is an
applied form of general management. It concerned with the procurement and
conversation of capital funds to meet the financial needs of the business enterprise
and to achieve the overall objectives of the firm.
4.1 OBJECTIVES OF FINANCIAL MANAGEMENT
Financial management is the integral part of general management having the
objective of maximization of wealth of the business enterprise. Another objective
of financial management is to achieve adequate return on investment. For this
purpose, investment of funds is to be made in profitable schemes.
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ALLOCATION OF FINANCE: Financial management aims at the proper

allocation of finance raised or collected from the different sources. Proper
allocation of funds ensures security, liquidity and profitability of funds. It uses
the funds in most productive way.
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RISING OF FUNDS: Rising of finance is the main objectives of financial

management. It aims to procure required finance from different sources at the
most convenient and economical rates.

PROPER INVESTMENT DECISION: It aims at the proper investment of funds
collected from different sources. Proper investment of funds helps to increase the
profitability of the enterprise.
MAXIMIZATION OF WEALTH: It aims at the wealth maximization of the
business enterprise. It aims to the improvement of the market value of shares
through wealth maximization.
EARNING OF REASONABLE PROFIT: It aims at the earning of reasonable
amount of return by investing the capital funds collected. Profit can be earned by
increasing return on investment of funds.
COORDINATION: It aims to establish coordination between the finance dept.
and other dept. of the business enterprise in respect of financial activities.
PRESERVATION OF CAPITAL FUNDS: It aims to preserve the amount of
capital invested by adopting proper financial policy.
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PROPER TAX PLANNING: It aims to make proper tax planning considering the
previsions of Income Tax Act, Value Added Tax (VAT) and other related tax
laws and accounting standards.

4.2 WORKING CAPITAL
Working capital is an excess of current assets over current liabilities. In other
words, the amount of current assets which is more than current liabilities is known
as Working Capital. If current liabilities are nil then, working capital will equal
to current assets. Working capital shows strength of business in short period of
time. If a company have some amount in the form of working capital, it means
Company have liquid assets, with this money company can face every crises
position in market.
Working Capital = Current Assets - Current Liabilities
Current Assets
Current assets are those assets which can be converted into cash within One year
or less then one year . In current assets, we includes cash, bank, debtors, bill
receivables, prepaid expenses, outstanding incomes .
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Current Liabilities
Current Liabilities are those liabilities which can be paid to respective parties
within one year or less than one year at their maturity. In current liabilities, we
includes creditors, outstanding bills, bank overdraft, bills payable and short term
loans, outstanding expenses, advance incomes .

Concept of Working Capital
Concept of working capital includes meaning of working capital and its nature.
Working capital is the investment in current assets. Without this investment, we
can not operate our fixed assets properly. For getting good profits from fixed
assets, we need to buy some current assets or pay some expenses or invest our
money in current assets. For example, we keep some of cash which is the one of
major part of working capital. At any time, our machines may need repair. Repair
is revenue expense but without cash, we can not repair our machines and without
machines, our production may delay. Like this, we need inventory or to invest in
debtors and other short term securities.
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On the basis of Concept, we can divide our working capital into two parts:

1. Gross Working Capital
In this concept of working capital, we study gross working capital. We do not
deduct current liabilities in this concept but we use current liabilities as source of
fund. Suppose, if we buy goods on credit, it means our save our cash and we can
use this as working capital for paying other expenses.
2. Net Working Capital
Under this concept we use net working capital. For this, we first deduct all our
current liabilities from our current assets. Excess of current assets over current
liabilities will be current assets. We have to maintain minimum level of working
capital in our business for operation of business activities. This concept is also
used for preparation of balance sheet. In the vertical form of balance sheet, we
show excess of current assets over current liabilities.
Factors Affecting Working Capital
1. Small or Large Business
It is the first determinant of working capital that it is affected with the nature of
business. Business may be small or large. In small business, company need high
working capital because, small business is relating to trading of goods, for starting
small business, you need very small fixed capital but need high working capital
for paying day to day expenses. But in large business, we require more fixed
capital than working capital for purchasing fixed asset.
2. Small or Large Demand
Nature of demand also absolutely affects the working capital need. Some product
can be easily sold by businessman, in that business; you need small amount of
working capital because your earned money from sale can easy fulfill the shortage
of working capital. But, if demand is very less, it is required that you have to
invest large amount of working capital because your all fixed expenses must be
paid by you. For paying fixed capital you need working capital.
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Production policy is also main determinant of working capital requirement.

Different company may different production policy. Some companies stop or
decrease the production level in off seasons, in that time, company may also
reduce the number of employees or decrease the purchasing of new raw material,
so, it will certainly decrease the amount of working capital but on the side, some
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3. Production Policy

company may continue their productions in off season, in that case, they need
definitely large amount of working capital.
4. Credit Policy
Credit policy is relating to purchasing and selling of goods on credit basis. If
company purchases all goods on credit and sells on cash basis or advance basis,
then it is certainly company need very low amount of working capital. But if in
company, goods are purchased on cash basis, and sold on credit basis, it means,
our earned money will receive after sometime and we require large amount of
working capital for continuing our business.
5. Dividend Policy
Dividend policy also effect working capital requirement. Company can distribute
major part of net profit. But, if there is no reserve, we have to invest large amount
in working capital because, lacking of reserve will affect on adversely on fulfill
our liabilities. In that case, we have to yield working capital by taking short term
loan for paying uncertain liability.
6. Working Capital Cycle
Working capital cycle shows all steps which starts from cash purchasing of raw
material and then this converted into finished product, after this it is converted
into sale, if it is credit sale, debtors will also the part of working capital cycle and
when we gets money from our debtors, it is the final part of working capital cycle.
If we receive fastly from our debtors, we need small amount working capital.
Otherwise, for purchasing new raw material, we need more amount of working
capital.
7. Manufacturing Cycle
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65
Manufacturing cycle means the process of converting raw material into finished
product. Long manufacturing cycle will create the situation in which we require
large amount of working capital. Suppose, we have to construct the building, for
constructing colony of buildings, it may consume the time more than 5 years, so
according to this we need working capital.

8. Business Cycle
There are two main part of business cycle, one is boom and other is recession. In
boom, we need high money or working capital for development of business but
in recession, we need only low amount of working capital.
9. Price Level Changes
If there is increasing trend of products prices, we need to store high amount of
working capital, because next time, it is precisely that we have to pay more for
purchasing raw material or other service expenses. Inflation and deflation are two
major factors which decide the next level of working capital in business.
10. Effect of External Business Environmental Factors
There are many external business environmental factors which affect the need of
working capital like fiscal policy, monetary policy and bank policies and
facilities.
Working Capital Cycle
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The working capital cycle (WCC) is the amount of time it takes to turn the net
current assets and current liabilities into cash. The longer the cycle is, the longer
a business is tying up capital in its working capital without earning a return on it.
Therefore, companies strive to reduce its working capital cycle by collecting
receivables quicker or sometimes stretching accounts payable.

Different Types of Working Capital Cycle
1. Gross working capital
Total or gross working capital is that working capital which is used for all the
current assets. Total value of current assets will equal to gross working capital.
2. Net Working Capital
Net working capital is the excess of current assets over current liabilities.
Net Working Capital = Total Current Assets Total Current Liabilities
This amount shows that if we deduct total current liabilities from total current
assets, then balance amount can be used for repayment of long term debts at any
time.
3. Permanent Working Capital
Permanent working capital is that amount of capital which must be in cash or
current assets for continuing the activities of business.
4. Temporary Working Capital
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Sometime, it may possible that we have to pay fixed liabilities, at that time we
need working capital which is more than permanent working capital, then this
excess amount will be temporary working capital. In normal working of business,
we dont need such capital.

4.3 SOURCES OF FINANCE
There are various sources of finance such as equity, debt, debentures, retained
earnings, term loans, working capital loans, letter of credit, euro issue, venture
funding etc. These sources are useful in different situations. They are classified
based on time period, ownership and control, and their source of generation.
Sources of finance are the most explored area especially for the entrepreneurs
about to start a new business. It is perhaps the toughest part of all the efforts.
There are various sources of finance classified based on time period, ownership
and control, and source of generation of finance.
Having known that there are many alternatives of finance or capital, a company
can choose from. Choosing right source and the right mix of finance is a key
challenge for every finance manager. The process of selecting right source of
finance involves in-depth analysis of each and every source of finance. For
analyzing and comparing the sources of finance, it is required to understand all
characteristics of the financing sources. There are many characteristics on the
basis of which sources of finance are classified.
On the basis of a time period, sources are classified into long term, medium term,
and short term. Ownership and control classify sources of finance into owned
capital and borrowed capital. Internal sources and external sources are the two
sources of generation of capital. All the sources of capital have different
characteristics to suit different types of requirements. Lets understand them in a
little depth.
According to Time-Period:
Long Term Sources of Finance: Long-term financing means capital

requirements for a period of more than 5 years to 10, 15, 20 years or
maybe more depending on other factors. Capital expenditures in fixed
assets like plant and machinery, land and building etc of a business are
funded using long-term sources of finance. Part of working capital
which permanently stays with the business is also financed with longterm sources of finance. Long term financing sources can be in form of
any of them:
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Sources of financing a business are classified based on the time period for which
the money is required. Time period is commonly classified into following three:
Short Term Sources of Finance: Short term financing means

financing for a period of less than 1 year. Need for short term finance
arises to finance the current assets of a business like an inventory of raw
material and finished goods, debtors, minimum cash and bank balance
etc. Short term financing is also named as working capital financing.
Short term finances are available in the form of:
Trade Credit
Short Term Loans like Working Capital Loans from Commercial
Banks
Fixed Deposits for a period of 1 year or less
Advances received from customers
Creditors
Payables
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Page
Share Capital or Equity Shares

Preference Capital or Preference Shares
Retained Earnings or Internal Accruals
Debenture / Bonds
Term Loans from Financial Institutes, Government, and
Commercial Banks
Venture Funding
Asset Securitization
International Financing by way of Euro Issue, Foreign Currency
Loans, ADR, GDR etc.
Medium Term Sources of Finance: Medium term financing means
financing for a period of 3 to 5 years. Medium term financing is used
generally for two reasons. One, when long-term capital is not available
for the time being and second, when deferred revenue expenditures like
advertisements are made which are to be written off over a period of 3
to 5 years. Medium term financing sources can in the form of one of
them:
Preference Capital or Preference Shares
Debenture / Bonds
Medium Term Loans from
o Financial Institutes
o Government, and
o Commercial Banks
Lease Finance
Hire Purchase Finance
Factoring Services
Bill Discounting etc.
According to Ownership and Control:

Sources of finances are classified based on ownership and control over the
business. These two parameters are an important consideration while selecting a
source of finance for the business. Whenever we bring in capital, there are two
types of costs one is interest and another is sharing of ownership and control.
Some entrepreneurs may not like to dilute their ownership rights in the business
and others may believe in sharing the risk.
Owned Capital: Owned capital is also referred as equity capital. It is

sourced from promoters of the company or from the general public by
issuing new equity shares. Business is started by the promoters by
bringing in the required capital for a startup. Owners capital is sourced
from following sources:
Equity Capital
Preference Capital
Retained Earnings
Convertible Debentures
Venture Fund or Private Equity
Further, when the business grows and internal accruals like profits of the
company are not enough to satisfy financing requirements, the promoters have
a choice of selecting ownership capital or non-ownership capital. This
decision is up to the promoters. Still, to discuss, certain advantages of equity
capital are as follows:
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It is a long term capital which means it stays permanently with

the business.
There is no burden of paying interest or installments like
borrowed capital. So, the risk of bankruptcy also reduces.
Businesses in infancy stages prefer equity capital for this reason.
Borrowed Capital: Borrowed capital is the capital arranged from
outside sources. These include the following:
Financial institutions,
Commercial banks or
The general public in case of debentures.
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In this type of capital, the borrower has a charge on the assets of the business
which means the borrower would be paid by selling the assets in case of
liquidation. Another feature of borrowed capital is regular payment of fixed
interest and repayment of capital. Certain advantages of borrowing capital are
as follows:
There is no dilution in ownership and control of business.

The cost of borrowed funds is low since it is a deductible expense
for taxation purpose which ends up saving on taxes for the
company.
It gives the business a leverage benefit.
According to Source of Generation:
Internal Sources: Internal source of capital is the capital which is

generated internally from the business. Internal sources are as follows:
Retained profits
Reduction or controlling of working capital
Sale of assets etc.
The internal source has the same characteristics of owned capital. The best
part of the internal sourcing of capital is that the business grows by itself and
does not depend on outside parties. Disadvantages of both equity capital and
debt capital are not present in this form of financing. Neither ownership is
diluted nor fixed obligation / bankruptcy risk arises.
External Sources: An External source of finance is the capital which

is generated from outside the business. Apart from the internal sources
finance, all the sources are external sources of capital.
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Deciding the right source of finance is a crucial business decision taken by toplevel finance managers. The wrong source of finance increases the cost of funds
which in turn would have a direct impact on the feasibility of project under
concern. Improper match of the type of capital with business requirements may
go against the smooth functioning of the business. For instance, if fixed assets,
which derive benefits after 2 years, are financed through short-term finances will
create cash flow mismatch after one year and the manager will again have to look
for finances and pay the fee for raising capital again.
4.4 SHARES AND DEBENTURES

To start an industry on a large scale, requires huge amount of capital, professional
skills, and other resources. Sometime it may not be possible for a single individual
to do the needful. In such cases, a group of likeminded people get together and
set up a company, called a Joint- Stock Company registered under companies act.
The people who start the company are called promoters of the company, who
frame the constitution of the company, which lays down the objectives of the
company.
To raise the capital from the general public, the company issues a prospectus
giving details of the projects undertaken, background of the company, its strength
and risks involved. The capital of the company is divided into convenient units
of equal value, called shares. Normally, they are of the denomination of Rs. 10 or
Rs.100.
4.4.1 Shares
Smallest division of the companys capital is known as shares. The shares are
offered for sale in the open market, i.e. stock market to raise capital for the
company. The rate on which the shares are offered is known as share price. It
represents the portion of ownership of the shareholder in the company. The
shareholders are entitled to the dividend (if any) declared by the company on the
shares.
Equity Shares: The shares which carry voting rights on which the rate of
dividend is not fixed. They are irredeemable in nature. In the event of
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The shares are movable i.e. transferable and consist of a distinctive number. The
shares are broadly divided into two major categories:
winding up of the company equity, shares are repaid after the payment of
all the liabilities.
Preference Shares The shares which do not carry voting rights, but the
rate of dividend is fixed. They are redeemable in nature. In the event of
winding up of the company, preference shares are repaid before equity
shares.
4.4.2 Debentures
A long-term debt instrument issued by the company under its common seal, to
the debenture holder showing the indebtedness of the company. The capital raised
by the company is the borrowed capital; that is why the debenture holders are the
creditors of the company. The debentures can be redeemable or irredeemable in
nature. They are freely transferable. The return on debentures is in the form of
interest at a fixed rate.
Debentures are secured by a charge on assets, although unsecured debentures can
also be issued. They do not carry voting rights. The debentures are of following
types:
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73
Secured Debentures
Unsecured Debentures
Convertible Debentures
Non-convertible Debentures
Registered Debentures
Bearer Debentures

Differences between Shares and Debentures
The following are the major differences between Shares and Debentures:
1. The holder of shares is known as a shareholder while the holder of
debentures is known as debenture holder.
2. Share is the capital of the company, but Debenture is the debt of the
company.
3. The shares represent ownership of the shareholders in the company. On the
other hand, debentures represent indebtedness of the company.
4. The income earned on shares is the dividend, but the income earned on
debentures is interest.
5. In the event of winding up, debentures get priority of repayment over
shares.
6. Shares cannot be converted as opposed to debentures are convertible.
7. There is no security charge created for payment of shares. Conversely,
security charge is created for the payment of debentures.
8. A trust deed is not executed in case of shares whereas trust deed is executed
when the debentures are issued to the public.
9. Unlike debenture holders, shareholders have voting rights.
10.Shares are issued at a discount subject to some legal compliance.
Debentures can be issued at a discount without any legal compliance.
Similarities between Shares and Debentures
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74
Both are Financial Asset.

Both can be issued to the public.
Source of raising money for the company.
They can be issued at the discount.

Comparison Chart Shares and Debentures
Basis for
comparison
Meaning
What is it?
Holder
Status of Holders
Form of Return
Security for
payment
Voting Rights
Conversion
Repayment in the
event of winding
up
Quantum
The shares are the

owned funds of the
company.
Shares represent the
capital of the company.
The holder of shares is
known as shareholder.
Owners
Shareholders get the
dividend.
No
The holders of shares
have voting rights.
Shares can never be
converted into
debentures.
Shares are repaid after
the payment of all the
liabilities.
Dividend on shares is
an appropriation of
profit.
No trust deed is
executed in case of
shares.
DEBENTURES
The debentures are the
borrowed funds of the
company.
Debentures represent the debt
of the company.
The holder of debentures is
known as debenture holder.
Creditors
Debenture holders get the
interest.
Yes
The holders of debentures do
not have any voting rights.
Debentures can be converted
into shares.
Debentures get priority over
shares, and so they are repaid
before shares.
Interest on debentures is a
charge against profit.
When the debentures are
issued to the public, trust deed
must be executed.
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75
Trust Deed
SHARES
MODULE 3
CHAPTER 5
COST CONCEPTS
When commodities and services are produced, various expenses have to be
incurred, e.g., purchase of raw materials, payment to labour, landlord, capitalist,
etc. The sum total of the expenses incurred plus the normal profit expected by
the producer is called the cost of production. The various concepts of cost are
discussed below:
1. Nominal Cost and Real Cost: Nominal cost is the money cost of
production. The real costs of production are the pain and sacrifices of
labour involved in the process of production.
2. Explicit and Implicit costs: Explicit costs are the accounting costs or
contractual cash payments which the firm makes to other factor owners
for purchasing or hiring the various factors. Implicit costs are the costs of
self-owned factors which are employed by the entrepreneur in his own
business. These implicit costs are the opportunity costs of the self-owned
and self-employed factors of the entrepreneur, that is, the money incomes
which these self-owned factors would have earned in their next best
alternative uses.
3. Accounting Costs and Economic Cost: Accounting costs are the actual
or explicit costs which are paid by the entrepreneurs to the owners of hired
factors and services. On the other hand, economic costs not only include
the explicit costs but also the implicit costs of the self-owned factors or
resources which are used by the entrepreneur in his own business.
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5. Business Cost and Full Cost: Business costs include all the expenses
which are incurred in carrying out a business. The concept of business
cost is similar to the accounting or actual cost. The concept of Full cost
includes two other costs: the opportunity cost and normal profit. Normal
profit is a necessary minimum earning which a firm must get to remain in
its present occupation.
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4. Opportunity Cost: The opportunity cost (or transfer earnings) of any good
is the expected return from the next best alternative good that is forgone
or sacrificed. For example, if a farmer who is producing wheat can also
produce potatoes with the same factors. Then, the opportunity cost of a
quintal of wheat is the amount of output of potatoes given up.

6. Private costs and Social Costs: Private costs are the economic costs
which are actually incurred or provided for by an individual or a firm. It
includes both explicit and implicit costs. Social cost, on the other hand,
implies the cost which a society bears as a result of production of a
commodity. Social cost includes both private cost and the external cost.
External cost includes (a) the cost of free goods or resources for which
the firm is not required to pay for its used, e.g., atmosphere, rivers, lakes
etc. (b) the cost in the form of disutility caused by air, water, and noise
pollution, etc.
7. Total, Average and Marginal Costs: Total cost refers to the total outlays
of money expenditure, both explicit and implicit on the resources used to
produced a given output. Average cost is the cost per unit of output which
is obtained by dividing the total cost (TC) by the total output (Q), i.e.,
TC/Q = average cost. Marginal cost is the addition made to the total cost
as a result of producing one additional unit of the product.
8. Fixed Costs and Variable Costs: Fixed costs are the expenditure incurred
on the factors such as capital, equipment, plant, factory building which
remain fixed in the short run and cannot be changed. Therefore, fixed
costs are independent of output in the short run i.e., they do not vary with
output in the short run. Even if no output is produced in the short run,
these costs will have to be incurred. Variable costs are costs incurred by
the firms on the employment of variable factors such as labour, raw
materials, etc., whose amount can be easily increased or decreased in the
short run. Variable costs vary with the level of output in the short run. If
the firm decided not to produce any output, variable costs will not be
incurred.
9. Short-run and Long-run Cost: Short-run costs are the costs which vary
with the change in output, the size of the firm remaining the same. Shortrun costs are the same as variable costs. On the other hand, long-run costs
are incurred on the fixed assets, like plant, building, machinery, land etc.
Long-run cost are the same as fixed-costs. However, in the long-run even
the fixed costs become variable costs as the size of the firm or scale or
production is increased.
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1. When MC falls, AC also falls but at lower rate than that of MC. So long
as MC curve lies below the AC curve, the AC curve is falling.
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Relation Between Marginal Cost(MC) and Average Cost(AC): The

relationship between MC and AC may be explained as follows:

2. When MC rises, AC also rises but at lower rate than that of MC. That is,
when MC curve lies above AC curve, the AC curve is rising.
3. MC intersects AC at its minimum. That is, MC = AC at its minimum.
Elements of Costs
- Material Cost: This is the cost of material or the commodity used by the
organisation for its production purpose. Material is the substance, from which a
product is made. Thus, it may be in a raw or a manufactured state. It can be direct
or indirect.
- Direct Material Cost forms an integral part of the finished product and
is identified with the individual cost centre. It is also described as process
material, stores material, production material, etc. Example: Raw materials
purchased or purchased primary packing material, etc.
- Indirect Material Cost is used for ancillary purposes of the business and
cannot be conveniently identified with the individual cost centre. Example:
Consumable stores, oil and waste, printing and stationery material etc.
- Labour Cost: This is the cost, incurred in the form of remuneration paid to the
employees or labours of the organisation. The workforce required to convert
material into finished product is called labour. It can be direct or indirect.
- Direct Labour Cost is the cost incurred on those employees who directly
take part in the manufacturing process and easily identified with the individual
cost centre.
- Indirect Labour Cost is the cost incurred on those employees who do not
directly take part in the manufacturing process and cannot identified with the
individual cost centre. Example: salary of foreman, salesmen, directors salary,
etc.
- Expenses: are the costs of services provided to the organisation. It can be direct
or indirect.
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- Indirect Expenses are the expenses which cannot be directly identified

with the individual cost centres. Example: rent, lighting, telephone expenses,
etc.
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- Direct Expenses are the expenses which can be directly identified with
the individual cost centres. Example: hire charges of machinery, cost of
defective work for a particular job or contract etc.
Elements of Cost
Components of Cost
1. Prime Cost
Prime cost consists of costs of direct materials, direct labors and direct
expenses. It is also known as basic, first or flat cost.
2. Factory Cost
Factory cost comprises prime cost and, in addition, works or factory
overheads that include costs of indirect materials, indirect labors and indirect
expenses incurred in a factory. It is also known as works cost, production or
manufacturing cost.
3. Office Cost
Office cost is the sum of office and administration overheads and factory
cost. This is also termed as administration cost or the total cost of production.
4. Total Cost
Selling and distribution overheads are added to the total cost of production
to get total cost or the cost of sales.
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Various components of total cost can be depicted with the help of the table
below:

Components of total cost
Direct material
Direct labor
Direct expenses
Prime cost or direct cost or first cost
Prime cost plus works overheads
Works or factory cost or production cost

or manufacturing cost
Works cost plus office and

administration overheads
Office cost or total cost of production
Office cost plus selling and

distribution overheads
Cost of sales or total cost
Cost Components
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Break Even analysis is another control device used in business firms. It

involves of a chart to depict the overall volume of sales necessary to cover costs.
It is point which the cost and revenue of the enterprise are exactly equal. In other
words, it is that point where the enterprise neither earns a profit nor incurs a loss.
Break even analysis can be used both as an aid in decision making and as
a control device. The specific areas where break even analysis can help in
decision making include.
1. Identifying the minimum sales volume necessary to prevent loss.
2. Identifying the minimum sales volume to meet established profit
objectives.
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5.1 BREAK EVEN ANALYSIS

3. Providing information helpful in making decision on the effect of raising
or lowering prices, and
4. Providing data helpful in decisions to drop or add product lines.
As an aid to control, break even analysis provides one more yardstick by which
to evaluate companys performance at the en d of a sales period.
The break-even point can be calculated with the following formula
Break - Even point
Question 1: A company is faced with a situation where it can either produce some
item by adding additional infrastructure which will cost them Rs. 15,00,000/but unit cost of production will be Rs. 5/- each. Alternatively it can buy the same
item from a vendor at a rate of Rs. 20/- each. When should the company add
to its capacity in terms of demand of items per annum? Draw the diagram to
show the BEP.
Solution: Let the capacity is x when company will meet its demand, so
1500000 + 5x = 20x
15x = 1500000
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x = 10000
Question 2: The following data refers to a manufacturing unit

Fixed cost = Rs. 100000/Variable cost = 100/- per unit
Selling price = Rs. 200/- per unit
(i)
Calculate the BEP
(ii) Calculate the number of component needed to be product
to get a profit of Rs. 20000/Solution:
(i)
At break even point
F + Q.V = S Q
Q=
(ii)
100000
200100
= 1000
For fixed profit Rs. 20000/F + Q.V + P = S Q

Q=
100000+20000
200100
= 1200
5.2 DEPRECIATION
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The theory of depreciation contends that the capital sunk on an asset will become
valueless after some period of time. This period of time id considered to be
the life time of the asset. The major aspects to be taken into consideration in
depreciation calculation are:
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No articles remain ever new and immortal. Most of the productive instruments
and articles such as building, plant, machinery, equipments and so on become
obsolete (outdated) in course of time, losing their economic value and productive
efficiency; and such fall in the economic value of assets is referred to as
depreciation.

a) The first cost or initial cost of the asset.
b) The period of time of depreciation assessment since the time of
purchase.
c) The action of the enterprise resulting in depreciation; and
d) Any possible external changes of normal and predictable limits, etc.
Types (Kinds) and Causes of Depreciation:
A common classification of the types of depreciation
includes:
1. Physical Depreciation; and
2. Functional Depreciation.
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2. FunctionalDepreciation This is the result of failure of the machine or

plant to function properly; caused by the factors like:
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1. Physical Depreciation The depreciation resulting in physical impairment of

asset is known as physical depreciation. Physical depreciation manifests itself
in such tangible ways as the wearing of particles of an asset. The major causes
of physical depreciation are:
Physical decay or deterioration There are certain items in a factory such as
insulation materials, furniture, electric cables, buildings, chemicals, and
vessels, etc., which get decay because of climate and atmospheric effect,
with the result value of these articles goes on reducing with lapse of time.
Wear and Tear Continuous use of machines causes the machine and articles
to wear-away and tear-out with time. The machines gradually tend to go
out of adjustment not only as a result of use, and also because of
temperature changes, vibration impact, etc.
Ageing Articles exposed to the atmosphere and weather conditions decay
in the operating capacities or in their usefulness. This also contributes to
the reduction in the economic value of the articles.
Accident Depreciation The newly installed machines without
careful maintenance; the unexpected accidents result in loss of physical
work-efficiency due to heavy damages and also loss if its economic value
and such depreciation is called as accidental depreciation.
Deferred(Bad) Maintenance and Negligence If the machines and articles
are not maintained according to the instruction issued; such as lubricating,
decarbonising, etc., and also negligence on the part of user of the machine
may also result in lessening work-efficiency and depreciation of machines
and assets. It also results in reduction of expected life time of the asset and
loss of economic value.

Inadequacy It means the capacity of a machine becoming less than what
is required. Where the equipments are becoming inadequate for handling
the load of new products and increased demands. Then these machines need
to be either scrapped or replaced. Sometimes, even the healthy machines
need to be dismantled and sold for a lesser price than what is really worth
expected of it.
Obsolescence or Outdatedness It is loss of value of machine due to
new inventions and new products replacing the old ones altogether. In
other words, the existing machines become outdated and inadaptable to the
new changes in production techniques, use and to produce the new products
introduced into the product-line of the company.
Lack of adaptability the failure of the existing machines to adapt to the new
method of production and use.
Methods of Computing Depreciation
There are different depreciation methods applicable on the basis of the type and
nature of the industry, pattern of profit earning, growth rate of the enterprise and
out put, etc. Major methods of computing the depreciation of assets are:
1. Straight Line Method:
This method assumes that the loss of value of machine is directly proportional to
its age. In this method the book-value of the asset decreases linearly (a straight
line law) with time; because same amount of depreciation charge is made each
year. It means one should deduct the scrap or salvage value (S) from the original
value and divide the remaining value by the number of years of useful life (n).
Then,
( )
=
Where C Original cost

S - Salvage or Scrap value or residual value
n The serviceable life or economic life i.e., the number of years
of useful life of the asset.
D Depreciation amount per year
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This method is also called as Diminishing or Declining Balance Method or

Percentage on Book-Value Method. In this method, depreciation takes place at
a fixed rate on the basis of negative compound interest law. Obviously, the
depreciation charge is the largest in the first year and decreases in each
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2. Reducing Balance Method:

succeeding years. Hence, under this method, the book-value of the machine goes
on diminishing as its existence continues.
1

X = 1- ( )
X Yearly depreciation factor

C Initial cost
S Scrap Value
N Estimated life
3. Sinking Fund Method:
This method is also known as the Interest Law Method, or Annuity or
Compound Interest Method. In this method, an identical sum is charged every
year as depreciation. The rate of depreciation will be constant throughout the life
of the machine. At the end of the useful life of the machine or asset, the total
amount in depreciation plus compound interest should become equal to the
original cost of the fixed assets.
The formulae to calculate depreciation under this method:
Rate of depreciation per year D =
( )
(1+) 1
( )
( 1+ ) 1
4. Sum of the Years Digits Method:
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85
This method is often called as Fixed Base Diminishing Rate Method. In this
method, the depreciation will be greater initially and it will go on decreasing
gradually in subsequent years of usefully life of the asset. Therefore, while
calculating the depreciation, the net amount (i.e., the total depreciation fund
accumulated during the life time is equal to the total first cost minus scrap or
salvage value) is spread over the whole life of the asset in a decreasing proportion.
The credit of developing and elaborating this method goes to W.M.Cole in
similarity with Diminishing Balance Method.
CHAPTER 6
QUALITY ENGINEERING
6.1 QUALITY
Definition of Quality
The meaning of Quality is closely allied to cost and customer needs.
Quality may simply be defined as fitness for purpose at lowest cost.
o The component is said to possess good quality, if it works well in
the equipment for which it is meant. Quality is thus defined as
fitness for purpose.
Quality is the totality of features and characteristics both for the products
and services that can satisfy both the explicit and implicit needs of the
customers.
Quality of any product is regarded as the degree to which it fulfills the
requirements of the customer.
Quality means degree of perfection. Quality is not absolute but it can
only be judged or realized by comparing with standards. It can be
determined by some characteristics namely, design, size, material,
chemical composition, mechanical functioning, workmanship, finish and
other properties.
Meaning of Control:
Control is a system for measuring and checking (inspecting) a phenomenon. It
suggests when to inspect, how often to inspect and how much to inspect. In
addition, it incorporates a feedback mechanism which explores the causes of
poor quality and takes corrective action.
Control differs from inspection, as it ascertains quality characteristics of an
item, compares the same with prescribed quality standards and separates
defective items from non-defective ones. Inspection, however, does not involve
any mechanism to take corrective action.
Meaning of Quality Control:
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Quality Control can be defined as the entire collection of activities which

ensures that the operation will produce the optimum Quality products at
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Quality Control is a systematic control of various factors that affect the quality
of the product. The various factors include material, tools, machines, type of
labour, working conditions, measuring instruments, etc.

minimum cost.
As per A.Y.Feigorbaum Total Quality Control is: An effective system for
integrating the quality development, Quality maintenance and Quality
improvement efforts of the various groups in an organization, so as to enable
production and services at the most economical levels which allow full customer
satisfaction.
In the words of Alford and Beatly, Quality Control may be broadly defined as
that Industrial management technique means of which products of uniform
accepted quality are manufactured. Quality Control is concerned with
making things right rather than discovering and rejecting those made wrong.
In short, we can say that quality control is a technique of management for
achieving required standards of products.
Factors Affecting Quality:
In addition to men, materials, machines and manufacturing conditions there are
some other factors which affect the product quality. These are:
Market Research i.e. demand of purchaser.

Money i.e. capability to invest.
Management i.e. Management policies for quality level.
Production methods and product design.
Modern quality control begins with an evaluation of the customers requirements

and has a part to play at every stage from goods manufactured right through sales
to a customer, who remains satisfied.
Objective of Quality Control:
To decide about the standard of quality of a product that is easily
acceptableto the customer and at the same time this standard should be
economical to maintain.
To take different measures to improve the standard of quality of product.
To take various steps to solve any kind of deviations in the quality
of the product during manufacturing.
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Only the products of uniform and standard quality are allowed to be sold.
To suggest method and ways to prevent the manufacturing difficulties.
To reject the defective goods so that the products of poor quality may not
reach to the customers.
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Functions of Quality Control Department:

To find out the points where the control is breaking down and investigate
the causes of it.
To correct the rejected goods, if it is possible. This procedure is known as
rehabilitation of defective goods.
Advantages of Quality Control:
Quality of product is improved which in turn increases sales.
Scrap rejection and rework are minimized thus reducing wastage. So
the cost of manufacturing reduces.
Good quality product improves reputation.
Inspection cost reduces to a great extent.
Uniformity in quality can be achieved.
Improvement in manufacturer and consumer relations.
Consequences of Poor Quality
Some of the major ways that quality affects an organization are:
i)
ii)
iii)
iv)
Loss of business,
Liability,
Productivity,
Costs
i. Loss of business: Poor designs or defective products or services can result in

loss of business. Failure to devote adequate attention to quality can damage a
profit-oriented organization's image and lead to a decreased share of the market,
or it can lead to increased criticism and/or controls for a government agency or
nonprofit organization.
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iii. Productivity: Productivity and quality are often closely related. Poor quality
can adversely affect productivity during the manufacturing process if parts are
defective and have to be reworked or if an assembler has to try a number of parts
before finding one that fits properly. Similarly, poor quality in tools and
equipment can lead to injuries and defective output, which must be reworked or
scrapped, thereby reducing the amount of usable output for a given amount of
input. Conversely, improving and maintaining good quality can have a positive
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ii. Liability: Organizations must pay special attention to their potential liability
due to damages or injuries resulting from either faulty design or poor
workmanship. This applies to both products and services. Thus, a poorly designed
steering arm on a car might cause the driver to lose control of the car, but so could
improper assembly of the steering arm.

effect on productivity.
iv. Costs: Poor quality increases certain costs incurred by the organization. These
include scrap and rework costs, warranty costs, replacement and repair costs after
purchase, and any other costs expended for transportation, inspection in the field,
and payments to customers or discounts used to offset the inferior quality. In some
instances, substantial costs, such as liability claims and legal expenses, can be
incurred.
Other costs can also be substantial: Rework costs involve the salaries of workers
and the additional resources needed to perform the rework (e.g., equipment,
energy, and raw materials). Beyond those costs are items such as inspection of
reworked parts, disruption of schedules, the added costs of parts and materials in
inventory waiting for reworked parts, and the paperwork needed to keep track of
the items until they can be reintegrated into the process. Aside from these out-ofpocket costs is opportunity costs related to sales lost to competitors because
dissatisfied customers switch their business.
The Costs of Quality
Any serious attempt to deal with quality issues must take into account the costs
associated with quality. Those costs can be classified into three categories:
Prevention costs,
Appraisal costs, and
Failure costs (internal or external failures).
a) Prevention costs relate to attempts to prevent defects from occurring. They
include costs such as planning and administration systems, working with vendors,
training, quality control procedures, and extra attention in both the design and
production phases to decrease the probability of defective workmanship.
b) Appraisal costs relate to inspection, testing, and other activities intended to
uncover defective products or services, or to assure that there are no defectives.
They include the cost of inspectors, testing, test equipment, labs, quality audits,
and field testing.
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Internal failures are those discovered during the production process; they
occur for a variety of reasons, including defective material from vendors,
incorrect machine settings, faulty equipment, incorrect methods, incorrect
processing, carelessness, and faulty or improper material handling
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c) Failure costs are incurred by defective parts or products, or faulty services.

These can be classified into two:

procedures. The costs of internal failures include lost production time,
scrap, and rework, investigation costs, possible equipment damage, and
possible employee injury.
External failures are those discovered after delivery to the customer; these
are defectives or poor service that go undetected by the producer. Resulting
costs include warranty work, handling of complaints, replacements,
liability/litigation, and loss of customer goodwill.
There are three basic assumptions that justify an analysis of the costs of quality;
these are:
Failures are caused.
Prevention is cheaper.
Performance can be measured.
6.2 TOTAL QUALITY MANAGEMENT (TQM)
Quality Control processes in business are aimed at ensuring a good or service is
of the standard of quality that the manufacturer or supplier has determined. Under
the concept of total quality management (TQM), quality control extends to every
aspect of the way a business operates. In the case of a manufactured good it means
that during design, production, and servicing the quality of work and materials
must be up to the standard laid down.
The emphasis put on quality control in many countries in recent years was to a
large extent a response to the competitive edge Japanese businesses had achieved
by paying attention to quality. However, it was an American management
consultant, W. Edwards Deming, who brought the message to the Japanese that
the consumer is the most important part of the production line, and who taught
them methods that would help them control quality. Another American, Joseph
Juran, also played a key role in promoting the idea that quality is all-important
and in developing quality-control methods. Among the steps he laid down for
improving quality were:
build awareness of the need to maintain quality;
recognize the opportunities for improvement;
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involve the workforce fully through training, communication, and

recognition;
90
set goals and make changes that will help achieve those goals (set up
projects to solve specific problems, for example);

Review systems and processes regularly so as to maintain momentum.
The enthusiasm that emerged for total quality management in the 1980s has had
a far-reaching effect in putting quality high on the list of corporate priorities and
reducing or even eliminating the quality lead that Japanese companies had
enjoyed. It is perhaps because such strides have been made that the (TQM)
concept has come into conflict with other corporate aims, as companies balance
the desirability of quality with, say, the need to reduce costs.
Broadly defined, quality refers to the ability of a product or service to
consistently meet or exceed customers needs and expectations i.e. quality is
fitness for use. Three types of quality can be considered - quality of design,
quality of conformance, and quality of performance.
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Quality of conformance has to do with the ability of a process (for instance, a

manufacturing process) to meet the specifications set forth by the design. The
types and quality of raw materials, the design and efficiency of the production
process, the amount of training given to workers, the care and attention paid by
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Quality of design has to do with intentional differences between goods and

services with the same basic purpose. A given level of design quality may satisfy
some consumers and may not satisfy others. Designing quality into a product or
service is extremely important. A good product design will prevent problems in
manufacturing and will result in satisfied customers. The product design will
specify a set of tolerances (specifications) that must be met if the product is to
operate/perform acceptably. [This is the Design Stage].

workers and the extent to which quality control practices are employed will all
affect the ability to meet the design specifications. [This is the Process Stage].
Quality of performance has to do with how well the product or service actually
performs in the marketplace. The quality of performance in the marketplace will
determine the ultimate market share of the product or service. Quality of
performance studies can reveal two kinds of quality problems. A quality problem
will exist when the product design (the set of quality characteristics and
specifications set forth in the design) does not exceed the needs of the consumer.
However, even if the product design is well conceived, a quality problem will
exist if the production process produces quality characteristics that exhibit too
much variation. [This is the Operation/Performance Stage].
Stages of Implementation of TQM
The process of implementing TQM in an organization can be organized in the
following four stages:
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(ii) Management Understanding

This step is concerned with making sure that the management understands the
objective and methodology of TQM and is ready to adopt them all the time. For
many companies, TQM means a major change in the management practice and it
is difficult to implement over a short period of time. However, to make a
significant change in management practice, it is necessary to educate the managers in their understanding and approach to TQM. Once they have mastered the
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(i) Identification and Preparation

This stage is concerned with identifying and collecting information about the
organization in the prime areas where improvement will have most impact on the
organizations performance and preparing the detailed basic work for the
improvement of the organizations activities. It is also important to find out the
cost of quality, which incorporates the total cost of waste, error correction, failure
appraisal and prevention in the organization. It is also required to understand the
views and opinions of the customers, suppliers the managers and the employees.
The differences between their views and opinions will provide an idea of the scale
of the problem and task ahead. The measurements of the cost of quality made at
the beginning of the TQM process can be compared with measurement at a later
stage to establish the achieved improvements. The initial measurements of the
costs will also indicate the potential areas for improvement and direct efforts
towards the areas where they are most needed. All data and information must
therefore be identified, prepared and summarized in a manner to ensure that the
managers get the correct information to make their decision.

principle and practice of TQM the managers can then demonstrate their total
commitment and take the lead in the quality improvement process.
(iii) Scheme for Improvement
This stage is concerned with identifying quality issues and affects a resolution of
them by management led improvement activities. To develop quality
improvement scheme, it is necessary to identify the quality problems in each
division, in each department and throughout the whole organization. A scheme
of training for improvement can be established after the realization of the
following aspects of the organization. They are:
Purpose of the department,
Customer's and suppliers relationship,
Meeting customer needs,
Problem causes and best solutions,
Prevention of recurring problems,
Customer satisfaction,
Priorities for improving efficiency
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(iv) Critical Analysis

This stage starts with new targets and. take the complete improvement process to
everybody indicating supplier and customer links in the quality chain. It also
obtains information about progress and consolidates success. To focus quality
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At this stage it is essential to know that any scheme for improvement requires
substantial investment in training, management time and communication.

aspects, everybody in the organization must assess the TQM process. It is
essential to incorporate the perception of both internal and external customers. It
is also important to ensure that everybody in the organization gets some feedback
of the success on a regular basis and at the same time the individual and team
contributions are given the recognition. Setting up of new targets as required by
customers at this stage will automatically upgrade the quality standard of the
organization and maintain the competitive position in the market place.
List of Techniques for TQM
1. Customer's perception surveys;
2. Quality function deployment;
3. Cost of quality statement;
4. Top team workshops;
5. Total quality seminars;
6. Departmental purpose analysis;
7. Quality training;
8. Improvement action team;
9. Quality circles;
10. Suggestion schemes;
11. Help calls;
12. Visible data;
13. Process management;
14. Statistical process analysis;
15. Process capability analysis;
16. Fool proofing;
17. Just in Time Manufacturing (JIT);
18. Business Process Reengineering (BPR);
19. Quality Improvement Team (QIT).
TQM Model
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Basically, the customer satisfaction depends upon the gap between the expected
and actual quality of products offered to the customer. When the customer's
expectations of product/service quality balance the actual product quality offered
by the company, the customer satisfaction results. If the customers expectations
exceed the actual results in customer delight, TQM aims at customer delight
going one step ahead of mere satisfaction of customers. The delighted customer
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Customer satisfaction is the focus of TQM. The model shown in the figure below
highlights how the implementation of TQM benefits the company in both long
term and short term and in turn achieves the customer satisfaction.

will become the loyal customer and have a complete trust in the offering of the
company's products and services. The quality of the product results in higher
reliability of which in turn helps to attain the retention of loyal customer base.
Product and Service Quality
Customer Satisfaction
Reliability
On time Delivery
Error free products
People Involvement for

continuous
improvement
Quality System
Attracting and
retaining customers
Trust Building
Need Identification
Competitiveness
Process quality
management
Bench marking
Process performance
Market Standing
Customer Preference
Profit
Organizational Gains
(i)
Costs,
(ii)
Employee turnover,
(iii)
Cycle Time,
(iv)
Creativity
and
innovations,
(v)
Employee
satisfaction
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The quality of the product depends on the ability of the company to identify both
stated and unstated needs, translation of these needs into design specifications,
and designing and managing the process to keep quality level as per design
specifications and ensuring performance. This in turn is possible through a welldesigned quality system and involvement of each and every employee at levels.
The continuous improvement in quality is the result of empowered employees
and the leadership of the management. Thus, higher quality levels of
products/services accompanies by loyal and satisfied customer base results in
enhancing competitive position of the company. The organizational benefits of
implementing TQM include - reduces cost and cycle time, job satisfaction and
reduced turnover of employees, increase in productivity and a good reward for
all the stakeholders.
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Total Quality Management Model

TQM Critical Success Factors
The successful implementation of TQM depends upon the following key factors.
1. Training
2. Bench marking
3. Customer satisfaction surveys
4. Recognition and rewards
5. Management commitment
TQM Dimensions
Total quality management has basically three dimensions: Technological
dimension, Human (people) dimension and cultural dimension. The technological
dimension is concerned with the process of designing and building quality into
the product/service, human dimension is concerned with empowering people to
demonstrate mastery over the tasks performed and the cultural dimension
encompasses the organizational environment to foster quality mindedness. The
three dimensions together create an organizational climate where continuous
improvement results because of the innovations and creativity, technology and
the channeling potential of the people.
Major Principles of Total Quality Management (TQM)
Different companies have different approaches to implementing TQM. Besides
the above five procedures/TQM programs the following principles (which are
common to all companies) must be adhered to for the successful TQM
implementation:
1. Continuous improvement. TQM is a long-term process that entails
achieving improvements in the companys operations. This means that
management should establish targets for improvement and measure
progress by using reliable criteria. The quest for quality and better service
to the customer should be a continual, never-ending one. Competitors will
seek to provide better service and customers will come to expect it. Hence,
to cease improvement efforts will likely lead to loss of competitive
advantage and a decreased level of customer satisfaction.
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3. Strategic planning and leadership. Achieving quality and market

leadership requires a viable competitive strategy that outlines goals and
desired outcomes. Moreover, senior executives should be responsible for
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2. Customer focus. In TQM, the customer is believed to be the ultimate judge

of quality. Therefore, the company must remain close to the customer and
understand how he or she views and judges quality.

introducing and supporting TQM programs.
4. Competitive benchmarking. This means identifying companies or other
organizations that are the best at something and then modeling your own
organization after them. The company need not be in the same line of
business as yours.
5. Employee empowerment. TQM is based on humanistic management
principles that suggest employee involvement and participation is essential
for success. Giving workers the responsibility for improvements and the
authority to make changes to accomplish them provides strong motivation
for employees. This puts decision making into the hands of those who are
closest to the job and have considerable insight into problems and solutions.
Empowered to bring about changes in their workplace, employees can
creatively contribute to their companys well being.
6. Teamwork approach. The use of teams for problem solving and to achieve
consensus takes advantage of group thinking, gets people involved, and
promotes a spirit of cooperation and shared values among employees.
Further, teamwork creates opportunities for learning and exchanging ideas.
7. Knowledge of tools. Everyone in the organization is trained in the use of
quality control and improvement tools.
The entire organization must be subject to the search for improved ways of
performing; nothing should be regarded as sacred or untouchable. A sometimes
helpful view is to consider the internal customers and strive to satisfy them; that
is, every activity in an organization has one or more customers who receive its
output. By thinking in terms of what is needed to satisfy these customers, it is
often possible to improve the system and, in doing so, increase the satisfaction of
the final customer.
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97
The term quality at the source refers to the philosophy of making each worker
responsible for the quality of his or her work. This incorporates the notions of
do it right and if it isnt right, fix it. Workers are expected to provide goods
or services that meet specifications and to find and correct mistakes that occur. In
effect, each worker becomes a quality inspector for his or her work. When the
work is passed on to the next operation in the process (the internal customer)
or, if that step is the last step in the process, to the ultimate customer, the worker
is certifying that it meets quality standards.
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98
This accomplishes a number of things:

1. It places direct responsibility for quality on the person(s) who directly affect
it;
2. It removes the adversarial relationship that often exists between quality
control inspectors and production workers; and
3. It motivates workers by giving them control over their work as well as pride
in it.

6.3 QUALITY CIRCLES
Quality circle may be defined as a small group of workers (5 to 10) who do
the same/similar works voluntarily meeting together regularly during their
normal working time, usually under the leadership of their own superior to
Identity
Analyse, and
Solve work related problem.
The group present the solution to the management and whenever
possible implement the solution themselves. The QC concept was first
originated in Japan in 1960.
Philosophical basis of QC
1) It is a belief that people will take pride and interest in their work if
they get autonomy and take part in the decision making process.
2) It develops a sense of belongingness in the employees towards
a particular organization.
3) It is also a belief that each employee desires to particulate in making
the organization a better place.
4) It is a mean/method for the development of human resources through
the process of training, work experience and particulate in problem
solving.
5) A willingness to allow people to volunteer their time and effort for
improvement of performance of organization.
6) The importance of each members role in meeting organizational goal.
Characteristics of Quality Circle
1) Quality circles are small primary groups of employees/workers whose
lower limit is 3 and upper limit is 12.
2) Membership is voluntary. The interested employees in some areas
may come together to form a quality circle.
3) Each quality circle is led by area supervisor.
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5) The QC members are specially trained in technique of analysis

and problem solving in order to play their role effectively.
6) The basic role of QC is to identify work related problems for improving
quality and productivity.
7) QC enable the members to exercise their hidden talents, creative
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4) The members meet regularly every week/as per aggreable schedule.

skills etc.
8) It promotes the mutual development of their member through
cooperative participation.
9) It gives job satisfaction because of identifying and solving challenging
problems while performing job.
10) Members receives public recognition.
11) Members receives recognition from company's management in the
form of memento, certificate etc.
12) As a result of above recognition there is development of self steem
and self confidence of employees.
Objectives of QC
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2) To reduce cost of products/services by waste reduction. Effective

utilization of resources eliminating errors/defects.
3) To utilize the hidden creative intelligence of the employee.
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1) To improve the quality and productivity.

4) To identify and solve work related problem.
5) To motivate people for solving challenging tasks.
6) To improve communication within the organization.
7) To increase employees loyality and commitment to organizational goal.
8) To enrich human capability, confidence, morale, attitude and
relationship.
9) To pay respect to humanity and create a happy bright workplace.
10) To satisfy the human needs of recognition and self-development.
6.4 ACCEPTANCE SAMPLING:
Acceptance Sampling is concerned with the decision to accept a mass of
manufactured items as conforming to standards of quality or to reject the
mass as non-conforming to quality. The decision is reached through
sampling. - SIMPSON AND KAFKA
For the purpose of acceptance, inspection is carried out at many stages in
the process of manufacturing. These stages may be: inspection of incoming
materials and parts, process inspection at various points in the
manufacturing operations, final inspection by a manufacturer of his own
product and finally inspection of the finished product by the purchaser.
Inspection for acceptance is generally carried out on a sampling basis. The
use of sampling inspection to decide whether or not to accept the lot is
known as Acceptance Sampling. A sample from the inspection lot is
inspected, and if the number of defective items is more than the stated
number known as acceptance number, the whole lot is rejected.
The purpose of Acceptance Sampling is, therefore a method used to make
a decision as to whether to accept or to reject lots based on inspection of
sample(s).
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101
Acceptance sampling is the process of randomly inspecting a sample of

goods and deciding whether to accept the entire lot based on the results.
Acceptance sampling determines whether a batch of goods should be
accepted or rejected.

Role of Acceptance Sampling:
Acceptance Sampling is very widely used in practice due to the following
merits:
1.
Acceptance Sampling is much less expensive than 100 percent
inspection.
2. It is general experience that 100 percent inspection removes only 82 to
95 percent of defective material. Very good 100 percent inspection may
remove at the most 99 percent of the defectives, but still cannot reach the
level of 100 percent. Due to the effect of inspection fatigue involved in 100
percent inspection, a good sampling plan may actually give better results
than that achieved by 100 percent inspection.
3. Because of its economy, it is possible to carry out sample inspection at
various stages. Inspection provides a means for monitoring quality. For
example, inspection may be performed on incoming raw material, to decide
whether to keep it or return it to the vendor if the quality level is not what
was agreed on. Similarly, inspection can also be done on finished goods
before deciding whether to make the shipment to the customer or not.
However, performing 100% inspection is generally not economical or
practical, therefore, sampling is used instead.
Acceptance Sampling is therefore a method used to make a decision as to
whether to accept or to reject lots based on inspection of sample(s). The
objective is not to control or estimate the quality of lots, only to pass a
judgment on lots.
Using sampling rather than 100% inspection of the lots brings some risks
both to the consumer and to the producer, which are called the consumer's
and the producer's risks, respectively. We encounter making decisions
on sampling in our daily affairs.
Risks in Acceptance sampling
Page
2. Consumers Risk-: Sometimes the quality of the lot is not good but the
sample results show good quality units as such the consumer has to accept
a defective lot, such a risk is known as consumers risk.
102
1. Producers risk-: Sometimes inspite of good quality, the sample taken

may show defective units as such the lot will be rejected, such type of risk
is known as producers risk.
Acceptance Sampling Plans:

A sampling plan is a plan for acceptance sampling that precisely specifies
the parameters of the sampling process and the acceptance/rejection
criteria. The variables to be specified include the size of the lot (N), the size
of the sample inspected from the lot (n), the number of defects above which
a lot is rejected (c), and the number of samples that will be taken.
There are different types of sampling plans.
- Single Sampling (Inference made on the basis of only one sample)
- Double Sampling (Inference made on the basis of one or two samples)
- Sequential Sampling (Additional samples are drawn until an inference can
be made) etc.
Page
In this,a random sample is drawn from every lot. Each item in the sample
is examined and is labeled as either good or bad. Depending on the
number of defects or bad items found, the entire lot is either accepted or
rejected. For example, a lot size of 50 cookies is evaluated for acceptance
by randomly inspecting 10 cookies from the lot. The cookies may be
inspected to make sure they are not broken or burned. If 4 or more of the
10 cookies inspected are bad, the entire lot is rejected. In this example, the
lot size N = 50, the sample size n = 10, and the maximum number of defects
103
Single Sampling Plans

at which a lot is accepted is c = 4. These parameters define the acceptance
sampling plan.
Select
Sample
Inspect
Sample
Make
Decision
Double Sampling Plan
Page
104
This provides an opportunity to sample the lot a second time if the results of the
first sample are inconclusive. In double sampling we first sample a lot of
goods according to preset criteria for definite acceptance or rejection.
However, if the results fall in the middle range,they are considered inconclusive
and a second sample is taken. For example, a water treatment plant may sample
the quality of the water ten times in random intervals throughout the day.
Criteria may be set for acceptable or unacceptable water quality, such as .05
percent chlorine and .1 percent chlorine. However, a sample of water containing
between .05 percent and .1 percent chlorine is inconclusive and calls for a second
sample of water.

Multiple Sampling Plan:
Multiple sampling plans are similar to double sampling plans except that
criteria are set for more than two samples. The decision as to which
sampling plan to select has a great deal to do with the cost involved in
sampling, the time consumed by sampling, and the cost of passing on a
defective item. In general, if the cost of collecting a sample is relatively
high, single sampling is preferred. An extreme example is collecting a
biopsy from a hospital patient. Because the actual cost of getting the sample
is high, we want to get a large sample and sample only once. The opposite
is true when the cost of collecting the sample is low but the actual cost of
testing is high. This may be the case with a water treatment plant, where
collecting the water is inexpensive but the chemical analysis is costly. In
this section we focus primarily on single sampling plans.
6.5 CONTROL CHARTS
Since variations in manufacturing process are unavoidable, the control chart tells
when to leave a process alone and thus prevent unnecessary frequent
adjustments. Control charts are graphical representation and are based on
statistical sampling theory, according to which an adequate sized random sample
is drawn from each lot. Control charts detect variations in the processing and
warn if there is any departure from the specified tolerance limits. These control
charts immediately tell the undesired variations and help in detecting the cause
and its removal.
In control charts, where both upper and lower values are specified for a quality
characteristic, as soon as some products show variation outside the tolerances, a
review of situation is taken and corrective step is immediately taken.
Page
The control chart can be seen as part of an objective and disciplined approach
that enables correct decisions regarding control of the process, including whether
or not to change process control parameters. Process parameters should never be
105
If analysis of the control chart indicates that the process is currently under control
(i.e. is stable, with variation only coming from sources common to the process)
then data from the process can be used to predict the future performance of the
process. If the chart indicates that the process being monitored is not in control,
analysis of the chart can help determine the sources of variation, which can then
be eliminated to bring the process back into control. A control chart is a specific
kind of run chart that allows significant change to be differentiated from the
natural variability of the process.

adjusted for a process that is in control, as this will result in degraded process
performance.
In other words, control chart is:
A device which specifies the state of statistical control,
A device for attaining statistical control,
A device to judge whether statistical control has been attained or

not.
Purpose and Advantages:
1.
2.
3.
4.
5.
6.
A control charts indicates whether the process is in control or out of

control.
It determines process variability and detects unusual variations taking
place in a process.
It ensures product quality level.
It warns in time, and if the process is rectified at that time, scrap or
percentage rejection can be reduced.
It provides information about the selection of process and setting of
tolerance limits.
Control charts build up the reputation of the organization through
customers satisfaction.
A control chart consists of:

Points representing a statistic (e.g., a mean, range, proportion) of
measurements of a quality characteristic in samples taken from the
process at different times [the data]
The mean of this statistic using all the samples is calculated (e.g., the
mean of the means, mean of the ranges, mean of the proportions)
A center line is drawn at the value of the mean of the statistic
The standard error (e.g., standard deviation/sqrt(n) for the mean) of

the statistic is also calculated using all the samples
Upper and lower control limits (sometimes called "natural process

limits") that indicate the threshold at which the process output is
considered statistically 'unlikely' are drawn typically at 3 standard errors
from the center line
Page
Upper and lower warning limits, drawn as separate lines, typically

two standard errors above and below the center line
Division into zones, with the addition of rules governing
106
The chart may have other optional features, including:

frequencies of observations in each zone
Annotation with events of interest, as determined by the Quality Engineer
in charge of the process's quality.
Types of Control Charts
Variables
Attribute
Chart
R Chart
Chart
p Chart
C Chart
np Chart
U Chart
Control charts can be used to measure any characteristic of a product, such as

the weight of a cereal box, the number of chocolates in a box, or the volume of
bottled water. The different characteristics that can be measured by control
charts can be divided into two groups: variables and attributes.
Page
107
A control chart for variablesis used to monitor characteristics that

can be measured and have a continuum of values, such as height,
weight, or volume. A soft drink bottling operation is an example of a
variable measure, since the amount of liquid in the bottles is measured and
can take on a number of different values. Other examples are the weight
of a bag of sugar, the temperature of a baking oven, or the diameter of
plastic tubing.
A control chart for attributes, on the other hand, is used to monitor
characteristics that have discrete values and can be counted. Often they
can be evaluated with a simple yes or no decision. Examples include color,
taste, or smell. The monitoring of attributes usually takes less time than
that of variables because a variable needs to be measured (e.g., the bottle
of soft drink contains 15.9 ounces of liquid). An attribute requires only a
single decision, such as yes or no, good or bad, acceptable or unacceptable
(e.g., the apple is good or rotten, the meat is good or stale, the shoes have
a defect or do not have a defect, the lightbulb works or it does not work)
or counting the number of defects (e.g., the number of broken cookies in
the box, the number of dents in the car, the number of barnacles on the
bottom of a boat).

Control Charts for Variables vs. Charts for Attributes
A comparison of variable control charts and attribute control charts are given
below:
1. Variables charts involve the measurement of the job dimensions and an
item is accepted or rejected if its dimensions are within or beyond the
fixed tolerance limits; whereas as attribute chart only differentiates
between a defective item and a non-defective item without going
into the measurement of its dimensions.
2. Variables charts are more detailed and contain more information as
compared to attribute charts.
3. Attribute charts, being based upon go and no go data (which is less
effective as compared to measured values) require comparatively bigger
sample size.
4. Variables charts are relatively expensive because of the greater cost of
collecting measured data.
5. Attribute charts are the only way to control quality in those cases where
measurement of quality characteristics is either not possible or it is very
complicated and costly to do soas in the case of checking colour or
finish of a product, or determining whether a casting contains cracks or
not. In such cases the answer is either yes or no.
Advantages of attribute control charts. Attribute control charts have the
advantage of allowing for quick summaries of various aspects of the quality of a
product, that is, the engineer may simply classify products as acceptable or
unacceptable, based on various quality criteria. Thus, attribute charts sometimes
bypass the need for expensive, precise devices and time-consuming
measurement procedures. Also, this type of chart tends to be more easily
understood by managers unfamiliar with quality control procedures; therefore, it
may provide more persuasive (to management) evidence of quality problems.
Page
108
Advantages of variable control charts. Variable control charts are more

sensitive than attribute control charts. Therefore, variable control charts may
alert us to quality problems before any actual "unacceptables" (as detected by
the attribute chart) will occur. Montgomery (1985) calls the variable control
charts leading indicators of trouble that will sound an alarm before the number
of rejects (scrap) increases in the production process.
Page
Mean (X-Bar) () Charts

A mean control chart is often referred to as an x-bar chart. It is used to monitor
changes in the mean of a process. To construct a mean chart we first need to
construct the center line of the chart. To do this we take multiple samples and
compute their means. Usually these samples are small, with about four or five
observations. Each sample has its own mean. The center line of the chart is then
computed as the mean of all sample means, where n is the number of samples:
1. It shows changes in process average and is affected by changes in
process variability.
2. It is a chart for the measure of central tendency.
3. It shows erratic or cyclic shifts in the process.
4. It detects steady progress changes, like tool wear.
5. It is the most commonly used variables chart.
6. When used along with R chart:
a. It tells when to leave the process alone and when to chase and
go for the causes leading to variation;
b. It secures information in establishing or modifying processes,
specifications or inspection procedures;
c. It controls the quality of incoming material.
7. X-Bar and R charts when used together form a powerful instrument for
diagnosing quality problems.
109

Range (R) charts
These are another type of control chart for variables. Whereas x-bar charts
measure shift in the central tendency of the process, range charts monitor the
dispersion or variability of the process. The method for developing and using Rcharts are the same as that for x-bar charts. The center line of the control chart is
the average range, and the upper and lower control limits are computed. The R
chart is used to monitor process variability when sample sizes are small (n<10),
or to simplify the calculations made by process operators. This chart is called the
R chart because the statistic being plotted is the sample range.
1. It controls general variability of the process and is affected by changes in
process variability.
2. It is a chart for measure of spread.
3. It is generally used along with X-bar chart.
Plotting of and R charts:
Page
110
A number of samples of component coming out of the process are taken over a
period of time. Each sample must be taken at random and the size of sample is
generally kept as 5 but 10 to15 units can be taken for sensitive control charts. For
each sample, the average value of all the measurements and the range R are
calculated. The grand average (equal to the average value of all the average
) and R ( R is equal to the average of all the ranges R) are found and from these
we can calculate the control limits for the and R charts.

Here the factors A2 , D4 and D3 depend on the number of units per sample.
Larger the number, the close the limits. The value of the factors A2 , D4 , and
D3 can be obtained from S.Q.C tables. However for ready reference these are
given below in tabular form:
Control Charts for Attributes:

Control charts for attributes are used to measure quality characteristics that are
counted rather than measured. Attributes are discrete in nature and entail simple
yes-or-no decisions. For example, this could be the number of nonfunctioning
lightbulbs, the proportion of broken eggs in a carton, the number of rotten apples,
the number of scratches on a tile, or the number of complaints issued. Two of the
most common types of control charts for attributes are p-charts and c-charts.
P-charts are used to measure the proportion of items in a sample that are
defective. Examples are the proportion of broken cookies in a batch and the
proportion of cars produced with a misaligned fender. P-charts are appropriate
when both the number of defectives measured and the size of the total sample can
be counted. A proportion can then be computed and used as the statistic of
measurement.
Page
Plotting of P-charts: By calculating, first, the fraction defective and then the
control limits.
111
1. It can be a fraction defective chart.

2. Each item is classified as good (non-defective) or bad (defective).
3. This chart is used to control the general quality of the component parts and
it checks if the fluctuations in product quality (level) are due to chance
alone.

The process is said to be in control if fraction defective values fall within the
control limits. In case the process is out of control an investigation to hunt for the
cause becomes necessary.
Usually the Z value is equal to 3 (as was used in the X and R charts), since the
variations within three standard deviations are considered as natural variations.
However, the choice of the value of Z depends on the environment in which
the chart is being used, and on managerial judgment.
C-charts count the actual number of defects. For example, we can count the
number of complaints from customers in a month, the number of bacteria on a
petri dish, or the number of barnacles on the bottom of a boat. However, we
cannot compute the proportion of complaints from customers, the proportion of
bacteria on a petri dish, or the proportion of barnacles on the bottom of a boat.
Defective items vs Individual defects
Page
Consider a wafer with a number of chips on it. The wafer is referred to as an "item
of a product". The chip may be referred to as "a specific point". There exist certain
specifications for the wafers. When a particular wafer (e.g., the item of the
product) does not meet at least one of the specifications, it is classified as a
nonconforming item. Furthermore, each chip, (e.g., the specific point) at which a
specification is not met becomes a defect or nonconformity.
112
The literature differentiates between defect and defective, which is the same as
differentiating between nonconformity and nonconforming units. This may sound
like splitting hairs, but in the interest of clarity let's try to unravel this man-made
mystery.
So, a nonconforming or defective item contains at least one defect or

nonconformity. It should be pointed out that a wafer can contain several defects
but still be classified as conforming. For example, the defects may be located at
noncritical positions on the wafer. If, on the other hand, the number of the socalled "unimportant" defects becomes alarmingly large, an investigation of the
production of these wafers is warranted.
Control charts involving counts can be either for the total number of
nonconformities (defects) for the sample of inspected units, or for the average
number of defects per inspection unit.
Defect vs. Defective
Defect a single nonconforming quality characteristic.
Defective items having one or more defects.
C charts can be plotted by using the following formulas:
The primary difference between using a p-chart and a c-chart is as follows.
Page
A C-chart is used when we can compute only the number of defects but cannot
compute the proportion that is defective.
113
A P-chart is used when both the total sample size and the number of defects can
be computed.
FIFTH SEMESTER B.TECH DEGREE EXAMINATION

13.502 ENGINEERING MANAGEMENT FOR ELECTRONIC ENGINEERS (AT)
Time: 3 Hours
Max. Marks: 100

PART A
(Answer all questions. Each question carries 2 marks. )

1. Differentiate between professional and business ethics?
2. Define Globalization. Illustrate with one example.
3. Give salient features of Laissez Faire style of leadership?
4. What is TQM?
5. What is acceptance sampling?
6. What are the principle elements of cost?
7. Give two limitations of breakeven chart?
8. What is a joint stock company?
9. What is failure density curve?
10. What is meant by Product Life Cycle?
PART B
(Answer any one question from each Module. 20 marks each)
Module I
11. What are
the principles and functions of Management?
Discuss.
12. What are the different types of ownership?
How are they
formed? Compare their features.

Module II
13. Explain how employees
are recruited for an organization.
Discuss the selection process.
14. What are the different
types of capital? Explain about the
various sources of finance.

Module III
15. Explain any four methods for calculating depreciation. An old
car is purchased for Rs 95,000/-.
Its life was estimated as 10
years and the scrap value as Rs 32,000/- . Using the reducing

balances method calculate the depreciation rate and the
depreciation fund at the end of two years.
16. What is the importance of Break Even Analysis? Draw a
break even chart and explain all its interpretations. The fixed
costs of the year 2015-2016 are Rs 16 Lakhs. The variable
cost per unit is Rs 80/- The estimated sales for the period is
Rs 40 Lakhs. Each unit sells at Rs 400/-. Find the breakeven
point and turn over required for a profit of Rs 12 Lakhs.
Module IV
17. Distinguish between MTTF & MTBF. Discuss on reliability of
Series and Parallel systems
18.
Discuss
about
probability,
frequency,
expectation indices of system reliability.
duration
and

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ENGINEERING MANAGEMENT

FOR ELECTRONICS ENGINEERS

KAILAS SREE CHANDRAN

Kailas Sree Chandran

Chapter 3 Marketing Management

Chapter 4 Financial Management

Chapter 6 Quality Engineering

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

1.1 SYSTEM APPROACH OF MANAGEMENT

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

2. In designing the system we must establish the necessary arrangement of

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

1.2 FUNCTIONS OF MANAGEMENT

Leading is influencing people so that they will contribute to organization and

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

1.3 ORGANIZATION STRUCTURES

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

In an organization of any size or complexity, employees' responsibilities typically

To put it in simple words Organisational structure refers to the levels of

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

There is a hierarchical arrangement of authority.

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

It is a combination of line and functional structures. In this organisation a

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

Matrix organisation combines two structures functional departmentation

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

Sole proprietorship is a popular form of business organisation and is the most

1.4.1 Sole Proprietorship

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

1.4.2 Partnership Based Business Organization

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Definitions given above point to the following major characteristics of the

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

(vi) Membership: The minimum number of members needed to start a partnership

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

A partnership firm of business organisation suffers from the following

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

1.4.3 Cooperative Society Organization

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)

KSC Dept of Mechanical Mohandas College of Engineering & Technology Tvpm.

(iv) Government control: In return of the privileges offered by the government,

(iii) Lack of secrecy: As a result of open discussions in the meetings of members

Engineering Management for Electronics Engineers (2013 Scheme Kerala University)