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CSP

MANAGEMENT
SCIENCE
ChandraSekhar Patro
CSP
MANAGEMENT SCIENCE
(Common to Chemical, CSE, IT, ECE, EEE)
Course Code: 13HM1102

SYLLABUS
UNIT-I
INTRODUCTION TO MANAGEMENT:
Concept- nature and importance of management- functions of management- evolution of
management thought- decision making process- designing organization structure- principles
of organization types of organization structure.

UNIT-II
OPERATIONS MANAGEMENT:
Principles and types of plant layout- work study- statistical quality control- control charts (R
Chart, P Chart & C Chart- Simple numerical problems) materials management- Need for
Inventory Control- EOQ, ABC Analysis(Simple numerical Analysis)- Types of Inventory
Analysis (HML. SDE, VED, FSN Analysis).

UNIT-III
HUMAN RESOURCE MANAGEMENT:
Concept of HRM, HRD and PMIR- Functions of HR Manager theories of motivation and
leadership styles- Job Evaluation and Merit Rating, Welfare measures-statutory and non
statutory compliance grievance handling

UNIT-IV
MARKETING MANAGEMENT:
Marketing Management- Functions of Marketing Management- Marketing mix-Market
segmentation - Marketing strategies based on product life cycle- Channels of Distribution-
Consumer Behavior and marketing research

UNIT-V
PROJECT MANAGEMENT:
Project planning and control- Project life cycle- Development of network- Difference
between PERT and CPM- Identifying critical path- probability of completing the project
within the given time, cost analysis, - project crashing (simple numerical problems).

TEXT BOOKS:
1. Ramanujam Naidu & Sastry, Management Science, 1st Edition, Himalaya
Publishers, 2012.
2. Vijaya Kumar & Appa Rao, Management Science, 1st Edition, Cengage Publishers,
2012.
3. AR Aryasri, Management Science, 4th Edition, Tata McGraw-Hill, 2009.

REFERENCES:
1. P Khanna, Industrial Engineering & Management, 2nd Edition, Dhanpat Rai, 2004.
2. Martand Telsang, Industrial Engineering & Production Management, 2nd Edition,
S. Chand & Company, 2008.
Unit-1: Introduction to Management 1.1 CSP
UNIT I
INTRODUCTION TO MANAGEMENT

CONCEPT OF MANAGEMENT
Management is what managers do. It refers to the people at top level in the
organization. It is often viewed as maneuvering, i.e. doing something cleverly to change a
situation and make things happen the way you want them to. It has drawn the concepts and
principles from a number of disciplines such as economics, sociology, psychology,
anthropology, and statistics and so on. There are a variety of views about the term
management. Traditionally, the term "management" refers to the activities (and often the
group of people) involved in the four general functions (planning, organizing, leading,
controlling).
Another common view is that "management" is getting things done through others. To
most employees, the term "management" probably means the group of people (executives and
other managers) who are primarily responsible for making decisions in the organization. In
non-profit organizations, the term management might refer to all or any of the activities of the
board, executive director and/or program directors.

Human Physical
Resources resources
Effective and
Managerial efficient Goals
activities utilization

Financial
Resources Information
resources
In general, management is a set of activities directed at the efficient and effective
utilization of resources in the pursuit of one or more goals. Different scholars from different
disciplines have expressed their views on management. For example, economists have treated
management as a factor of production; sociologists have treated it as a class or group of
persons; practitioners have treated it as a process comprising different activities.

Definition:
1. According to Harold Koontz, Management is an art of getting things done through
and with the people in formally organized groups. It is an art of creating an
environment in which people can perform and individuals and can co-operate towards
attainment of group goals.
2. According to F.W. Taylor, Management is an art of knowing what to do, when to do
and see that it is done in the best and cheapest way.
3. According to Henry Fayol, To manage is to forecast and to plan, to organize to
command, to coordinate and to control.
Therefore, we can say that good management includes both being effective and
efficient. Being efficient means doing the task correctly atleast possible cost with minimum
wastage of resources. Management is a process involving planning, organizing, staffing,
directing and controlling human efforts to achieve stated objectives in an organization.

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Unit-1: Introduction to Management 1.2 CSP
IMPORTANCE OF MANAGEMENT
Management has been important to the daily lives of people and to the organizations.
The importance of management may be traced in the following contexts:
1. Achievement of group goals: A human group consists of several persons, each
specializing in doing a part of the total task. Each person may be working efficiently,
but the group as a whole cannot realize it objectives unless there is mutual
cooperation and coordination among them. Management creates team work and
coordination in the group.
2. Optimum utilization of resources: Managers forecast the need for materials,
machinery, money and manpower. They ensure that the organization has adequate
resources and at the same time does not have idle resources.
3. Minimization of Cost: In the modern era of cut-throat competition no business can
succeed until it is able to supply the required goods and services at the lowest possible
cost per unit. Management directs the day-to-day operations in such a way that all
wastages are avoided.
4. Survival and Growth: An enterprise has to adapt itself to the changing demands of
the market and society. It takes steps in advance to meet the challenges of changing
environment. Managers enable the enterprise to minimize the risks and maximize the
benefits of opportunities.
5. Generation of Employment: By setting up and expanding business enterprises,
managers create jobs for the people. Managers also create such an environment that
people working in enterprise can get job satisfaction and happiness.
6. Continuity in the organization: Continuity is very important in the organization. It
is only management that keeps the organization continuing. Where there are no
proper guidelines for decision making continuity cannot be guaranteed.
7. Development of the Nation: Efficient management is equally important at National
level. The development of a country largely depends on the quality of the
management of its resources. By producing wealth, management increases the
national income and living standards of people.

NATURE OF MANAGEMENT
The study and application of management techniques in managing the affairs of the
organization have changed its nature over a period of time. The following points will describe
the nature of management:
1. Management is a Social process: Management is done by people, through people
and for people. Social process refers to a series of activities that are performed in the
society. These activities are carried out by administrators, politicians, economists,
doctors, lawyers, parents, etc.
2. Management is goal oriented: Management involves achieving certain goals; it has
no justification to exist without goals. The basic goal of management is to ensure
efficiency and economy in utilization of human, physical and financial resources.
3. Management is Universal: Management is an essential element of every organized
activity irrespective of the size or type of activity. All types of organizations require
management. Managers at all levels perform the same basic functions.
4. Management is a continuous process: Management is dynamic and an on-going
process. The cycle of management continuous to operate so long as there is organized
action for the achievement of group goals.

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Unit-1: Introduction to Management 1.3 CSP
5. Management is a Group Activity: Management is very much less concerned with
individuals efforts. It is more concerned with groups. It involves the use of group
effort to achieve predetermined goal of management of ABC & Co. is good refers to a
group of persons managing the enterprise.
6. Relative, Not Absolute Principles: Management principles are relative, not absolute,
and they should be applied according to the need of the organization. A particular
management principle has different strengths in different conditions. Therefore,
principles should be applied according to the prevailing conditions.
7. Management is Multidisciplinary: Management has been developed as a separate
discipline, but it draws knowledge and concepts from various disciplines like
psychology, sociology, economics, statistics, operations research, etc. Management
integrates the idea and concepts taken from these disciplines and presents newer
concepts which can be put into practice for managing the organizations.
8. Management is Intangible: Management is an unseen or invisible force. It cannot be
seen but its presence can be felt everywhere in the form of results. However, the
managers who perform the function are tangible or visible.
9. Management is a Profession: A Profession refers to a vocation or a branch of
advanced learning such as engineering or medicine. Management helps to carry out
every profession in a scientific manner.
10. Management is an Art as well as Science: An art is characterized by practical
knowledge, personal creativity and skill. A science is a systematized body of
knowledge of facts. It involves basic principles, which are capable of universal
application.

MANAGEMENT AS ART OR SCIENCE


To understand the basic nature of management, it must be analyzed in terms of art
and science, in relation to administration, and as a profession, in terms of managerial skills
and style of managers.

Management as a Science:
Science means a systematic body of knowledge pertaining to a specific field of study.
It contains general principles and facts which explains a phenomenon. These principles and
theories help to explain past events and may be used to predict the outcome of actions.
Scientific methods of observations and experiments are used to develop principles of science.

Thus, the essential features of science are as follows:


1. Systematic body of knowledge: Management has a systematic body of knowledge
consisting of general principles and techniques. These help to explain events and
serve as guidelines for managers in different types of organizations.
2. Universal principles: Management contains sound fundamental principles which can
be universally applied. For instance, the principle of unity of command states that at a
time one employee should be answerable to only one boss.
3. Scientific enquiry and experiments: Management principles are also based on
scientific enquiry and investigation. These have been developed through experiments
and practical experience of a large number of managers.
4. Cause and effect relationship: The principles of management establish cause and
effect relationship between different variables. For instance lack of balance between
authority and responsibility will cause management to become ineffective.

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Unit-1: Introduction to Management 1.4 CSP
5. Tests of validity and predictability: Principles of management can also be tested for
their validity. For example, the principle of unity of command can be tested by
comparing two persons, one having a single boss and other having two bosses. The
performance of the first person will be higher than that of the second.

Management as an Art:
Art implies the application of knowledge and skills to bring about the desired results.
The essential elements of arts are:
1. Practical knowledge: Every art signifies practical knowledge. For example, a person
cannot become a successful manager simply by reading the theory and getting a
degree. He must also learn to apply his knowledge in solving managerial problems in
practical life.
2. Personal skill: Every artist has his own style and approach to his job. Every manager
has his individual approach and style in solving managerial problems. The success of
a manager depends on his personality in addition to his technical knowledge.
3. Result-oriented approach: Arts seeks to achieve concrete results. The process of
management is also directed towards the accomplishment of desirable goals. Every
manager applies certain knowledge and skills to achieve the desired results.
4. Creativity: Art is basically creative and an artist aims at producing something that
had not existed before. A manager effectively combines and coordinates the factors of
production to create goods and services.
5. Improvement through people: Practice makes one perfect. Every artist becomes
more and more efficient through constant practice. A manager gains experience
through regular practice and becomes more effective.

Management is Combination of Art and Science:


Management knowledge exhibits characteristics of both a science as well as an art. It
is a science because it has an organized body of knowledge consisting of certain universal
facts. It is known as an art because it involves creating results through practical application of
knowledge and skills. However, art and science are complementary to each other. Art
without science has no guide and science without art is knowledge wasted. For example, a
successful manager must know the principles of management and also acquire the skill of
applying those principles for solving managerial problems in different situations.

FUNCTIONS OF MANAGEMENT
Management is a process of the quality of both physical as well as human resources to
seek objectives. The elements or activities which are performed in this process are known as
functions of management. Various authors have classified these functions differently:
Writers Management Functions
Henry Fayol Planning, Organizing, Commanding, Coordinating, Controlling

Luther Gullick POSDCORD- Planning, Organising, Staffing, Directing


Coordinating, Reporting, Directing

Koontz Planning, Organising, Staffing, Leading, Controlling


Thus, the functions of management may be classified in to five categories: Planning,
Organizing, Staffing, Directing (leadership, motivation, communication, coordination) and
Controlling.

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Unit-1: Introduction to Management 1.5 CSP

PLANNING
The first function of the manager is planning. It is also the foremost and the essential
function. Planning defines the goals and objectives to be reached in the plan period. It also
consists of policies, procedures, methods, budgets, strategy and programmes that are needed
to achieve the goals set. Decision-making is the most important and integral part of planning.
Planning is the most basic and pervasive process involved in managing. It means
deciding in advance what actions to take and when and how to take them. Planning is needed,
firstly for committing and allocating the organizations limited resources towards achieving
its objectives in the best possible manner and, secondly for anticipating the future
opportunities and problems.
Planning is putting down in black and white the actions which a manager intends to
take. Each manager is involved in planning though the scope and character may vary with the
level of the manager. Planning involves determination of objectives; forecasting; formulation
of policies and programmes; and preparation of schedules.

The steps generally involved in planning are as follows:


1. Establishing Verifiable Goals or Set of goals to be achieved
2. Establishing Planning Premises
3. Deciding the planning Period
4. Finding Alternative Course of Action
5. Evaluating and selecting a Course of Action
6. Developing Derivative plans
7. Measuring and Controlling the progress

ORGANIZING
Organizing is to give a proper shape to the structure that should execute the plan
smoothly to achieve its success. It is the function of putting together different parts forming
an enterprise and makes it an organic whole to enable it to carry out defined operations.
Various activities to fulfill the goals have to be grouped and these are to be assigned to
people in-groups or departments. The authority, responsibility, accountability needed at each
level to execute the plan is to be defined and delegated.
Organizing simply can be defined as a process that results in organizational structure
through departmentalization, linking departments together, defining authority and
responsibility and prescribing authority relationship sub activities. The organizing function
deals with all those activities that result in the formal assignment of tasks and authority and a
coordination of effort. The supervisor staffs the work unit, trains employees, secures
resources, and empowers the work group into a productive team.

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Unit-1: Introduction to Management 1.6 CSP
The process of organizing consists of the following steps:
a. Determining and defining the activities required for the achievement of planned goals;
b. Grouping the activities into proper and convenient units;
c. Assigning the duties and activities to specific positions and people
d. Delegating authority to those positions and people;
e. Defining and fixing responsibility for performance; and
f. Establishing horizontal and vertical authority-responsibility relationship throughout
the organization.

STAFFING
It is the function of manning the organization structure and keeping it manned.
Staffing has assumed greater importance in the recent years due to advancement of
technology, increase in size of business, complexity of human behavior etc. The main
purpose of staffing is to put right man on right job i.e. square pegs in square holes and round
pegs in round holes.
The staffing function involves identifying/selecting the right person for executing
each task planned. By carrying the functions of organizing and staffing the "plan" is
transformed from a document level to the operational stage. Having found the right
candidate, it is equally important that you are able to retain him. Among other things,
motivation and leadership provided by the top management of organization also plays an
important role.
The staffing function includes all the jobs connected with:
Manpower Planning;
Recruitment; Selection & placement;
Training & development;
Remuneration, Performance Appraisal;
Promotions & Transfer.

DIRECTING
It is that part of managerial function which actuates the organizational methods to
work efficiently for achievement of organizational purposes. It is considered life- spark of the
enterprise which sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work. Direction is that inert-personnel aspect
of management which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals.
The function of directing embraces the following activities:
a. Issuing orders and instructions.
b. Supervising (overseeing) people at work.
c. Motivation, i.e. creating the willingness to work for certain objectives.
d. Communication, i.e. establishing understanding with employees regarding plans and
their implementation, and
e. Leadership or influencing the behavior of employees.
Direction has following elements:
1. Supervision: implies overseeing the work of subordinates by their superiors. It is the
act of watching & directing work & workers.
2. Motivation: means inspiring, stimulating or encouraging the sub-ordinates with zeal
to work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.

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Unit-1: Introduction to Management 1.7 CSP
3. Leadership: may be defined as a process by which manager guides and
influences the work of subordinates in desired direction.
4. Communications: is the process of passing information, experience, opinion etc
from one person to another. It is a bridge of understanding.

CONTROLLING
Control is the tool for course regulation as the organization marches ahead and
correcting it when it diverts off-course. The results of the activity must confirm to the laid
down standards and all variations should be analyzed and root cause identified. Controlling
includes ongoing collection of feedback, and monitoring and adjustment of systems,
processes and structures accordingly. Examples include use of financial controls, policies and
procedures, performance management processes, measures to avoid risks etc.
Planning and controlling go hand in hand. There can be no control without a plan and
plans cannot be successfully implemented in the absence of controls. Controls provide a
means of checking the progress of the plans and correcting any deviations that may occur
along the way. It implies measurement of accomplishment against the standards and
correction of deviation if any to ensure achievement of organizational goals.
The purpose of controlling is to ensure that everything occurs in conformities with the
standards. Controlling is the measurement & correction of performance activities of
subordinates in order to make sure that the enterprise objectives and plans desired to obtain
them as being accomplished.

The process of controlling involves the following steps:


a. establishing standards for measuring work performance;
b. measurement of actual performance and comparing it with the standards;
c. finding variances between the two and see the reasons ; and
d. taking corrective action for rectifying deviations so as to ensure attainment of
objectives

MANAGEMENT LEVELS

Level of Management refers to the categories or layers of managerial positions in an


organization. The level of management determines the amount of authority and status of the
person occupying the position at that level. Managerial Hierarchy consists of:

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Unit-1: Introduction to Management 1.8 CSP
Top-level Management or Senior Management:
These includes board of Directors, CEOs they comprise small groups but are
responsible for overall management they formulate plans, decide objectives & communicate
to middle level management.
1. Require an extensive knowledge of management roles and skills.
2. They have to be aware of external factors such as markets and government policies.
3. Their decisions are made using analytic, directive, conceptual and behavioral/
participative processes.
4. They are responsible for strategic decisions.
5. They have to chalk out the plan and see that plan may be effective in the future.

Middle Level of Management:


The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. In small
organization, there is only one layer of middle level of management but in big enterprises,
there may be senior and junior middle level management. Their role can be emphasized as:
1. Executing plans of the organization in accordance with the policies and directives of
the top management.
2. They participate in employment & training of lower level management.
3. They interpret and explain policies of top level management to lower level.
4. They are responsible for coordinating the activities within the division or department.
5. They evaluate the performance of employees and send the reports and other important
data to top level management.

Lower Level of Management:


Lower level is also known as supervisory / operative level of management. It consists
of supervisors, foreman, section officers, superintendent, workers, etc. They are concerned
with direction and controlling function of management. Their activities include:
1. Assigning of jobs and tasks to various workers.
2. They guide and instruct workers for day to day activities.
3. They are responsible for the quality as well as quantity of production.
4. They communicate workers problems, suggestions, and recommendatory appeals,
etc., to the higher level, and higher level goals & objectives to the workers.
5. They arrange necessary materials, machines, tools etc for getting the things done.

EVALUATION OF MANAGEMENT THOUGHT


From the start of the 19th century until the 20th century, managers and scholars have
formed a theoretical framework to explain what they believe to be good practices of
management. Their efforts led to different classes of perspectives on management and each
perspective is based on different assumptions towards the objectives of the organization and
human behavior.

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Unit-1: Introduction to Management 1.9 CSP
The schools of management thoughts are classified as follows:
1. Classical Perspective: This perspective existed in the 19th century and early 20th century.
It focuses on the rational and scientific approaches to the study of management and on
finding ways to mould an organisation to become more efficient. Classical management
theory can be divided into three perspectives distinguished by the issues and problems
that they address.
Scientific management emerged primarily among American scholars and
managers and focused on issues involved in the management of work and workers.
The theory of scientific management developed by F.W.Taylor and others accepted
the empirical methods for arriving at conclusions.
Administrative theory (also called Functional approach) evolved from a concern
by both European and American academicians and managers with the nature and
management of the total organization. Issues and problems that they sought to
address focused on the technical efficiency of the organization. Other thinkers like
Henry Fayol following the functional approach emphasized on the importance of
managerial functions and principles for universal application.
Bureaucracy theory was developed by the German sociologist, Max Weber, which
portrays the structure and design of organization characterized by a hierarchy of
authority, formalized rules and regulations that serve to guide the coordinated
functioning of an organization.

2. Neo-Classical or Human Relations Perspective: The neo-classical writers tried to


remove the deficiencies of the classical school and suggested improvements for good
human relations in the organization. Human relation is frequently used as a general term
to describe the ways in which managers interact with their employees. When employee
management stimulates more and better work, the organization has effective human
relations, when morale and efficiency deteriorate, its human relations are said to be
ineffective.
The human relations movement/approach arose from early attempts to
systematically discover the social and psychological factors that would create effective
human relations. Their propositions are based on 'human relations studies' and
motivational theories such as Hawthorne Experiments, Maslows need hierarchy theory,
etc.

3. Quantitative Management or Behavioral Sciences Perspective: The behavioral school


emerged partly because the classical approach did not achieve sufficient production,
efficiency and workplace harmony. People did not always follow predicted or expected
patterns of behavior. Thus there was increased interest in helping managers deal more
effectively with the people side of their organizations.
Several theorists tried to strengthen neoclassical management theory with the
insights of sociology and psychology. The behavioral science perspective believes that it
is difficult to understand the sociology of a group separate from the psychology of the
individuals comprising it and the anthropology of the culture within which it exists.

4. Contemporary or Modern Perspective: The modem management thinkers define


organization as a system and also consider the impact of environment on the effectiveness
of the organization. The organization is viewed as adaptive systems which must in order
to survive adjust to environmental changes. As a result, two approaches have gained
prominence after 1960s, which are: Systems approach and Contingency approach.

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Unit-1: Introduction to Management 1.10 CSP
SCIENTIFIC MANAGEMENT
The classical scientific branch arose because of the need to increase productivity and
efficiency. The emphasis was on trying to find the best way to get the most work done by
examining how the work process was actually accomplished and by scrutinizing the skills of
the workforce.
The concept of scientific management was introduced by Frederick Winslow Taylor
in USA in the beginning of 20th century (1856-1915). Since Taylor has put the emphasis on
solving managerial problems in a scientific way, often, he is called as Father of Scientific
Management and his contributions as the principles of scientific management. He also
developed a theory of organizations, which has been largely accepted by subsequent
Management Philosophers.

Definition:
Scientific management is concerned with knowing exactly what you want to do and
then see in that they do it in the best and cheapest way.
Taylor was concerned with the problems of increasing labour productivity without
putting under strain or workers. Scientific management implies the application of scientific
methods of study and analysis to the problems of management. On the basis of experiments,
he published many papers and books and all his contributions were compiled in his book
Scientific Management.

His contributions are divided into two parts:


Principles of scientific management.
Elements and tools of scientific management.

Principles of Scientific Management:


Taylor has given certain basic principles of scientific management.
1) Replacing rule of thumb with science: It requires scientific study and analysis of
each element of a job in order to replace the old rule of thumb approach development
of a science for each element of a mans job requires that decisions should be made on
the basis of facts rather than opinions and beliefs.
2) Harmony in group action: Taylor has pointed out that attempts should be made to
obtain harmony in group action rather than discord. Group harmony suggests that
there should be mutual give and take situation and proper understanding so that group
as a whole contributes to the maximum.
3) Co-operation: Scientific management involves achieving cooperation rather than
chaotic individualism. It is based on mutual confidence, co-operation and goodwill.
Co-operation between management and workers can be developed through mutual
understanding and a change in thinking.
4) Maximum output: Scientific management involves continuous increase in
production and productivity instead of restricted production either by management or
by worker. This can be possible when efficiency and output are maximized.
Maximum output and optimum utilization of resources brings profits.
5) Development of workers: All workers should be developed to the fullest extent
possible for their own and for the companys highest prosperity. Training should be
provided to the workers to keep them fully fit according to the requirement of new
methods of working which may be different from non-scientific methods.

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Unit-1: Introduction to Management 1.11 CSP
Elements and Tools of Scientific Management:
1. Separation of planning & doing: Taylor emphasized the separation of planning
aspect from actual doing of the work. In other words planning should be left to the
supervisor and the worker should concentrate only on operational work.
2. Functional foremanship: Taylor introduced the concept of functional foremanship
based on specialization of functions. In this system, eight persons are involved to
direct the activities of workers. Out of these four persons are concerned with planning
viz., route clerk, instruction card clerk, time and cost clerk and disciplinarian. The
remaining four persons are concerned with doing aspect of the job, viz., speed boss,
inspector, gang boss and maintenance foreman.
Work Shop Manager

Planning In charge Production In charge

Route Time and Instruction Disciplinar Gang Route Inspecto Maintenance


Clerk cost clerk Card clerk ian Boss Boss r Foreman

Worker

3. Standardization: It is a process of fixing well thought out and tested standards of


norms with a view to minimize efficiency of work. It should be maintained in respect
of instruments and tools, period of work, amount of work, working conditions, cost of
production, etc.
4. Selection and Training: Taylor has suggested that workers should be selected on
scientific basis taking into account their education, work experience, aptitude,
physical strength, etc. A worker should be given work for which he is physically and
technically most suitable. Apart from selection, proper training should be provided to
workers to make them more effective and efficient.
5. Financial Incentives: Financial incentives can motivate workers to put in their
maximum efforts. If provisions exist to earn higher wages by putting in extra effort,
workers will be motivated to earn more. According to this scheme, a worker who
completes the normal work gets wages at higher rate per piece and one who does not
complete gets at lower rate.
6. Economy: While applying scientific management, not only scientific and technical
aspects should be considered but adequate consideration should be given to economy
and profit. The economy and profit can be achieved by making the resources more
productive as well as by eliminating the wastages.
7. Mental Revolution: scientific management depends on the mutual co-operation
between management and workers. For this co-operation, there should be mental
change in both parties from conflict to co-operation.

CRITICISM:
Scientific management ignored human side of organization. Taylor and his disciples
were called "Efficiency Experts" because they concentrated attention on improving
efficiency of workers and machines. Scientific management is therefore restricted in scope as
a theory of Industrial Engineering or Industrial Management, rather than a general theory of
management.

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Unit-1: Introduction to Management 1.12 CSP
Although it is accepted that the scientific management enables the management to put
resources to its best possible use and manner, yet it has not been spared of severe criticism.
Employers Viewpoint:
1. More Expensive: Scientific management is a costly system and a huge investment is
required in establishment of planning dept., standardization, work study, training of
workers. It may be beyond reach of small firms.
2. Time Consuming: Scientific management requires mental revision and complete
reorganizing of organization. A lot of time is required for work, study standardization
& specialization.
Workers Viewpoint:
1. Unemployment: Workers feel that management reduces employment opportunities
through replacement of men by machines and by increasing human productivity
fewer workers are needed to do work leading to chucking out from their jobs.
2. Exploitation: Workers feel they are exploited as they are not given due share in
increasing profits which is due to their increased productivity. Wages do not rise in
proportion as rise in production. Wage payment creates uncertainty & insecurity.
3. Monotony: Due to excessive specialization the workers are not able to take initiative
on their own. Their status is reduced to being mere cogs in wheel. Jobs become dull.
Workers lose interest in jobs and derive little pleasure from work.
4. Weakening of Trade Union: Everything is fixed & predetermined by management.
So it leaves no room for trade unions to bargain as everything is standardized,
standard output, standard working conditions, standard time etc.
5. Over speeding: The scientific management lays standard output, time so they have to
rush up and finish the work in time. The workers speed up to that standard output, so
scientific management drives the workers to rush towards output and finish work in
standard time.

ADMINISTRATIVE / MODERN OPERATIONAL MANAGEMENT


Administrative theory focuses on the total organization and attempts to develop
principles that will direct managers to more efficient activities. Administrative theorists
looked at productivity improvements from the "top down", as distinguished from the
Scientific Approach of Taylor, who reorganized from "bottom up". Administrative theorists
developed general guidelines of how to formalize organizational structures and relationships.
Henri Fayol (1841-1925) was a French mining engineer who spent many of his later
years as an executive for a French coal and iron combine. In 1916, as director of the
company, Fayol penned the book General and Industrial Management. In this book, Fayol
classified the study of management into several functional areas which are still commonly
used in executive training and corporate development programs. The functional areas
identified by Fayol are planning, organizing, commanding, coordinating, and controlling. His
contributions are divided in the following categories:
According to Fayol the following are the list of qualities required in a manager:
Physical includes Health, Vigor and address.
Mental includes ability to understand and learn, judgment, and capability.
Moral includes energy, firmness, initiative, loyalty, etc.
Educational includes qualifications.
Technical - peculiar to the function being performed.
Experience knowledge in related field.

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Unit-1: Introduction to Management 1.13 CSP
Organizational Activities:
He emphasized the role of administrative management and concluded that all
activities that occur in business organizations could be divided into six main groups.
1. Technical - related to production or manufacturing.
2. Commercial includes buying, selling and exchange.
3. Financial includes search for capital and its optimum use.
4. Security related to protection of property and person.
5. Accounting includes record keeping, costing and statistics.
6. Managerial includes planning, organizing, commanding, coordinating and
controlling).
He concluded that the six groups of activities are interdependent and that it is the role
of management to ensure all six activities work smoothly to achieve the goals of an
enterprise.

General 14 Principles of Management:


Henry Fayol has given 14 general principles of management:
1. Division of work: It is helpful to take the advantage of specialization. Here, the work
is divided among the members of the group based on the employees skills and
talents.
2. Authority and Responsibility: Fayol finds authority as a continuation of official and
personal factors. Official authority is derived from the managers position and
personal authority is derived from personal qualities such as intelligence, experience,
moral worth, past services, etc., Responsibility arises out of assignment of activity.
3. Discipline: All the personal serving in an organization should be disciplined.
Discipline is obedience, application, behavior and outward mark of respect shown by
employees.
4. Unity of Command: Unity of command means that a person should get orders from
only one superior. Fayol has considered unity of command as an important aspect in
managing an organization.
5. Unity of Direction: According to this principle, each group of activities with the
same objective must have one head and one plan. Unity of direction provides better
coordination among various activities to be undertaken by an organization.
6. Subordination of individual interest to general interest: Individual interest must be
subordinate to general interest when there is conflict between the two. However
factors like ambition, laziness, weakness, etc., tend to reduce the importance of
general interest. Therefore, superiors should set an example in fairness and goodness.
7. Remuneration to Personnel: Remuneration to employees should be fair and provide
maximum possible satisfaction to employees and employers.
8. Centralization of Authority: Authority is to be centralized when decision making
powers are retained at top level. The degree of centralization or decentralization is
determined by the needs of the company.
9. Scalar Chain: There should be a scalar chain of authority and of communication
ranging from the highest to the lowest. It suggests that each communication going up
or coming down must flow through each position in the line of authority. It can be
short-circuited only in special circumstances. Scalar chain can be presented as
follows:

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Unit-1: Introduction to Management 1.14 CSP
10. Order: This is a principle relating to the arrangement of things and people. In social
order, there should be the right man in the right place.
11. Equity: Equity is the combination of justice and kindness. Equity in treatment and
behavior is liked by everyone and it brings loyalty in the organization.
12. Stability of tenure: No employee should be removed or transferred within short time.
There should be reasonable security of jobs. Stability of tenure is essential to get an
employee accustomed to new work and succeeding in doing it well.
13. Initiative: Within the limits of authority and discipline, managers should encourage
their employees for taking initiative. Initiative is concerned with thinking out and
execution of a plan. Initiative increases zeal and energy on the part of human beings.
14. Esprit de corps: It is the principle of union is strength and extension of unity of
command for establishing team work. The manager should encourage esprit de corps
among his employees.
Until today, his principles remain important as they continue to have a significant
impact on current managerial thinking. Fayol's main contribution was the idea that
management was not a talent related to genetic hereditary, but a skill that could be taught. He
created a system of ideas that could be applied to many areas of management and laid down
basic rules for managing large organizations.

DECISION MAKING
Decision-making is an essential aspect of modern management. It is a primary
function of management. Decision-making is the key part of manager's activities. Decisions
are important as they determine both managerial and organizational actions. A decision may
be defined as "a course of action which is consciously chosen from among a set of
alternatives to achieve a desired result." It represents a well-balanced judgment and a
commitment to action.
Decision is a choice from among a set of alternatives. The word 'decision' is derived
from the Latin words de ciso which means 'a cutting away or a cutting off or in a practical
sense' to come to a conclusion. Decision-making is a process by which a decision (course of
action) is taken. Decision-making lies embedded in the process of management.
According to Trewatha & Newport, "Decision-making involves the selection of a
course of action from among two or more possible alternatives in order to arrive at a solution
for a given problem".

Decision Making Process:


Decision-making involves a number of steps which need to be taken in a logical
manner. Decision-making process prescribes some rules and guidelines as to how a decision
should be taken or made. This involves many steps logically arranged. Drucker recommended
the scientific method of decision-making which, according to him, involves the following six
steps as shown below:

1. Identify/Define the Problem: Identification of the real problem before a business


enterprise is the first step in the process of decision-making. It is rightly said that a
problem well-defined is a problem half-solved. Information relevant to the problem
should be gathered so that critical analysis of the problem is possible. In brief, the
manager should search the 'critical factor' at work. It is the point at which the choice
applies.

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Unit-1: Introduction to Management 1.15 CSP
Identify/Define the Problem

Analyzing the Problem

Developing Alternative Solutions

Selecting the Best Solution

Implementation of Decision

Feedback & Follow up Action

2. Analyzing the Problem: After defining the problem, the next step in the decision-
making process is to analyze the problem in depth. This is necessary to classify the
problem in order to know who must take the decision and who must be informed
about the decision taken.
3. Developing Alternative Solutions: After defining the problem and analyzing its
nature, the next step is to obtain the relevant information/ data about it. Using this
data the manager has to determine available alternative courses of action that could be
used to solve the problem at hand. If necessary, group participation techniques may be
used while developing alternative solutions as depending on one solution is
undesirable.
4. Selecting the Best Solution: After preparing alternative solutions, the next step in the
decision-making process is to select an alternative that seems to be most rational for
solving the problem. The alternative thus selected must be communicated to those
who are likely to be affected by it. Acceptance of the decision by group members is
always desirable and useful for its effective implementation.
5. Implementation of Decision: After the selection of the best decision, the next step is
to convert the selected decision into an effective action. Without such action, the
decision will remain merely a declaration of good intentions. Here, the manager has to
convert 'his decision into 'their decision' through his leadership.
6. Ensuring Feedback: Feedback is the last step in the decision-making process. Here,
the manager has to make built-in arrangements to ensure feedback for continuously
testing actual developments against the expectations. It is like checking the
effectiveness of follow-up measures.

Factors influencing the managerial decision making process:


There are many reasons due to which the decision taken by the manager may be
ineffective. The various factors influencing the managerial decision making process are:
1. Inadequate information, data and knowledge: For rational decision-making accurate,
reliable and complete information about various aspects of the problem under
investigation is necessary. The possible future trends can be estimated with the help of
such information. However, adequate and reliable information may not be available at
the time of decision-making.

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Unit-1: Introduction to Management 1.16 CSP
2. Uncertain environment: Decisions are taken on the basis of information available
about various environmental variables. However, the variables are many and complex
in nature. They may be related to political, economic, social and other aspects. It is
not possible to study all such variables in depth due to inadequate information/data.
3. Limited capacity of decision-maker: A decision-maker should be expert,
knowledgeable, intelligent and matured. He needs vision and capacity to imagine
possible future situation. In the absence of such qualities, the decision-maker may not
be able to take rational decisions. Similarly, the decision taken may not be rational if
the decision-maker fails to follow all necessary steps required for scientific decision-
making.
4. Personal element in decision-making: Decision-making should be always impartial
and also favorable to the organization. Decision against organization but favorable to
decision maker or other employees will be unfair. Such decision will not be rational.
Similarly, every decision-maker has his own personal background in the form of
personal beliefs, attributes, preferences, likes and dislikes and so on.
5. A decision cannot be fully independent: Managerial decisions are interlinked and
interdependent. A manager has to make adjustments or compromises while making
decisions. For example, for reducing price, some compromise with the quality may be
necessary.

BASIC CONCEPTS OF ORGANISATION


The term 'organization' connotes different meanings to different people. Many writers
have attempted to state the nature, characteristics and principles of organization in their own
may. The word 'organization' is also used widely to connote a group of people and the
structure of relationships. The term organization is used in many ways. It means different
things different people. Currently the following uses of the term are popular
A group of people united by a common purpose.
An entity, an ongoing, business unit engaged in utilizing resources to create a
result.
A structure of relationships between various positions in an enterprise.
A process by which employees, facilities and tasks are related, to each other, with a
view to achieve specific goals.

Definition:
According to Koontz and O'Donnel "It is grouping of activities necessary to attain
enterprise objectives and the assignment of each grouping to a manager with authority
necessary to supervise it".

Steps in Organizing:
Organizing involves the following interrelated steps:
1. Determination of Objectives: Organization is always related to certain objectives.
Therefore, it is essential for the management to identify the objectives before starting
any activity. It will help the management in the choice of men and materials with the
help of which it can achieve its objectives.
2. Identification and Grouping of Activities: If the members of the group are to pool
their efforts effectively, there must be proper division of the major activities. Each job
should be properly classified and grouped. This will enable the people to know what
is expected of them as members of the group.

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Unit-1: Introduction to Management 1.17 CSP
3. Assignment of Duties: After classifying and grouping the activities, each individual
should be given a specific job to do according to his ability and made responsible for
that. He should also be given the adequate authority to do the job, assigned to him.
4. Developing Authority, Responsibility and Relationships: Since so many
individuals work in the same organization, it is the responsibility of management to
lay down structure of relationships in the organization. This will help in the smooth
working of the enterprise by facilitating delegation of responsibility and authority.

PRINCIPLES OF ORGANISATION
Effective and efficient working of any organization depends on how the managerial
function of organization is being performed. The function of organization can be carried
effectively with the help of under mentioned principles:
1. Division of work: While structuring organization, division of work, at the very
outset, should be considered as the basis of efficiency. It is an established fact that
group of individuals can secure better results by having division of work. This is also
called the principle of specialization.
2. Attention to objectives: An organization is a mechanism to accomplish certain goals
or objectives. The objectives of an organization play an important role in determining
the type of structure which should be developed.
3. Span of Management: Span of management also refers to span of control signifying
the number of subordinates reporting directly to any executive. It is an established fact
that larger the number of subordinates reporting directly to the executive, the more
difficult it tends to be for him to supervise and coordinate them effectively.
4. Unity of Command: Organization structure should also be designed in such a way
that there exists unity of command in the sense that a single leader is the ultimate
source of authority.
5. Flexibility: While designing the organization it should be kept in mind that
organizational structure should not be regarded as static. Every organization is a
living entity in a living environment which is fast changing.
6. Proper balance: It is important to keep various segment or departments of an
organization in balance. The problem of balance basically arises when an activity or a
department is further divided and subdivided into smaller segments
7. Efficiency: The organization should be able to attain the predetermined objectives at
the minimum cost. From the point of view of an individual, a good organization
should provide the maximum work satisfaction.
8. Decentralization: This principle is of great significance to big organizations.
Decentralization implies selective dispersal of authority to help departments and units
to run effectively and efficiently without frequent interruptions from the top of the
enterprise.
9. Scalar principle: Scalar chain refers to the vertical placement of superiors starting
from the chief executive at the top through the middle level to the supervisory level at
the bottom. Proper scalar chain or line of command is prerequisite for effective
organization.
10. Continuity: The form of organization structure should be such which is able to serve
the enterprise to attain its objectives for a long period of time.
11. Coordination: The principal of coordination underlines that there should be proper
liaison and cooperation between different departments and units of work. Unity of
efforts for the accomplishment of desired objectives is the main aim of organization.

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Unit-1: Introduction to Management 1.18 CSP
12. Authority and Responsibility: Authority should commensurate with responsibility.
While assigning the responsibility, authority should also be assigned. If authority is
not granted, the subordinates cannot discharge their responsibility properly.

TYPES OF ORGANISATION
The organization functional structure is divided into two categories as:
1. Formal organization
2. Informal organization
Formal Organization:
A formal organization is deliberately designed to achieve some particular objectives.
It refers to the structure of well-defined jobs, each bearing a definite measure of authority,
responsibility and accountability. The structure is consciously designed to enable the
organizational members to work together for accomplishing common objectives. It tells him
to do certain things in a specified manner, to obey orders from designated individuals and to
cooperate with others. The formal organization is built around four key pillars; namely,
a. division of labor,
b. scalar and functional processes,
c. structure, and
d. span of control.
The basic characteristics of formal organization are as follows:
1. Organization structure is laid by the top management to achieve organizational goals.
2. Organization structure is based on division of labor and specialization to achieve
efficiency in operations.
3. Organization structure concentrates on the jobs to be performed and not the
individuals who are to perform jobs.
4. The organization does not take into consideration the sentiments of organizational
members.
5. The authority and responsibility relationships created by the organization structure are
to be honored by everyone.

Informal Organization:
Informal organization refers to the relationship between people in the organization
based on personal attitudes, emotions, prejudices, likes, dislikes, etc. These relations are not
developed according to procedures and regulations laid down in the formal organization
structure; generally, large formal groups give rise to small informal or social groups. These
groups may be based on same taste, language, culture or some other factor. These groups are
not preplanned, but they develop automatically within the organization according to its
environment.
The salient features of informal organization are as follows:
1. Informal relations are unplanned. They arise spontaneously.
2. Formation of informal organizations is a natural process.
3. Informal organization reflects human relationships.
4. Informal organizations are based on common taste, problem, language, religion,
culture, etc.

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Unit-1: Introduction to Management 1.19 CSP
Difference between Formal and Informal Organizations:
The difference between formal and informal organizations can be enumerated as:
1. Formation: Formal organization is deliberately created by management. It is the
result of a conscious and deliberate effort involving delegation of authority. On the
other hand, informal organization arises spontaneously and no conscious efforts are
made to create it. It takes place on the basis of relationships, caste, culture,
occupations and on personal interests etc.
2. Basis: A formal organization is based upon rules and procedures, while an informal
organization is based upon attitudes and emotions of the people. It depends on
informal, social contacts between people working and associating with one another.
3. Nature: A formal organization is stable and predictable and it cannot be changed
according to the whims or fancies of people. But an informal organization is neither
stable nor predictable.
4. Set-up: A formal organization is a system of well defined relationships with a definite
authority assigned to every individual. It follows predetermined lines of
communication. On the contrary, an informal organization has no definite form and
there are no definite rules as to who is to report to whom.
5. Emphasis: In a formal organization, the main emphasis is placed on authority and
functions. In an informal organization the stress is on people and their relationships.
6. Authority: Formal authority is attached to a position and it flows from top to bottom.
Informal authority is attached to a person and it flows either downwards or
horizontally.
7. Existence: A formal organizations exists independently of the informal groups that
are formed within it. But an informal organization exists within the framework of a
formal structure.
8. Rationality: A formal organization operates on logic rather than on sentiments or
emotions. All activities follow a predetermined course. As an association between
like-minded people, an informal organization has little rationality behind it. In an
informal organization, activities are influenced by emotions and sentiments of its
members.

DEPARTMENTATION
Departmentation is a means of dividing the large functional organization into smaller,
flexible administrative units. It makes grouping of activities into units and sub-units created
through departmentation which are known as department, division, section, branch etc. The
process of departmentation takes place at all levels in the organisation. At the top level, the
breakup of functions into activities is called Primary Departmentation. Grouping activities
into separate units at the middle level is called Intermediate Departmentation and at the
lower level it is called Ultimate Departmentation or Secondary Departmentation. Let us
discuss some definitions of Departments.

Definition:
1. According to Louis Allen, Departmentation is a means of dividing the large and
monolithic functional organisation into smaller flexible administrative units.
2. According to Koontz and ODonnell, A department is a distinct area, division or
branch of an enterprise over which a manager has authority for the performance of
specified activities.

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Unit-1: Introduction to Management 1.20 CSP
In short, we need departmentation in an enterprise to divide the activities along with
authority, responsibility and accountability with sole objective to get the work done smoothly
and in the best possible way.

Importance of Departmentation:
The importance of departmentation is to facilitate successful operation and to create
an environment for effective performance. Grouping of activities and employees into
departments makes it possible to expand an organisation to a large extent. It enables the
organisation to recapture some of the advantages of the small functional organisation while
minimising the disadvantages of that which comes with increasing size, diversity and
dispersion.
The importance of departmentation may be stated in the following way:
1. Specification: Departmentation helps to grow specification in various activities
which leads to improving the efficiency of operation.
2. Feeling of autonomy: Departmentation gives independent charges to managers. The
feeling of independence provides satisfaction and in turn increases their
responsibilities and efficiency.
3. Fixation of responsibility: Through departmentation, responsibilities of the work can
be precisely and accurately fixed. The authority and responsibility of each department
is defined precisely.
4. Budget Preparation: It makes the preparation of budget for departments easier as
well as for the organisation as a whole easier.
5. Development of Management: The managers of each department perform
specialised functions. They take independent decision and develop themselves for
higher positions. Departmentation facilitates the development of managerial personnel
by providing them opportunities for exercising initiatives.
6. Facility in Appraisal: Since the managers perform specified jobs, their performance
appraisals become easier. Departmentation facilitates administrative control as
standards of performance are laid down separately for each department.
7. Proper Supervision: As the authority for making decisions is diffused to the
managers of the departments and works are assigned to each individual department
wise, supervision and control become easier.

Principles of Departmentation:
1. Attainment of organisational objectives: It implies that departments are designed or
created to provide all the facilities to achieve organisational objectives in an effective
and efficient manner.
2. Comprehensive departmentation: It implies that the entire functions of the
enterprise are to be covered while creating the departments.
3. Inter-departmental co-operation: It implies that departments should be designed in
such a way that maximum inter-departmental co-operation is possible.
4. Promotion of specialisation: It should help in enhancing both managerial and
operational specialisation so that organisational efficiency can be achieved.
5. Cost-benefit analysis: It should be designed and developed in a manner to get the
maximum benefit with minimum possible costs.
6. Special attention to key-result areas: Key-result areas are those areas which
determine the long term growth and survival of an organisation. It may include
profitability, market standing, public relation etc. According to this principle while
creating departments the key-result areas should be given special attention.

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Unit-1: Introduction to Management 1.21 CSP
7. Principle of flexibility: It implies that there should be sufficient scope to change the
design or set of departments as per the requirements of changing situation.
8. Human consideration: Human consideration such as needs, values, attitudes,
expectation, feelings etc. must be taken into consideration while creating departments
along with technical or financial considerations.

Methods of Departmentation:
Different methods of creating departments in an organisation are:
1. Departmentation by Function
2. Departmentation by Product
3. Departmentation by Customer
4. Departmentation by Territory
5. Departmentation by Process

Departmentation by Function:
In departmentalization by function the activities of an organisation are divided into
the primary functions to be performed i.e. manufacturing, marketing, research and
development, employee relations, and finance. This arrangement has the advantage of the
specialization and concentration of similar activities within a departmental unit. The major
problem with this form is the coordination of the specialized activities. The following chart
depicts clearly the departmentation on the basis of function:

Advantages:
The main advantages of this basis of departmentations are:
1. Benefits of specialisation.
2. Coordination among departments.
3. Simple organisation structure.

Dis-advantages:
The main disadvantages of this basis of departmentation are:
1. Isolation of the departments.
2. Lack of coordination.
3. Hindered development of individuals.

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Unit-1: Introduction to Management 1.22 CSP
Departmentation by Product:
Large organisations with number of products can follow the departmentations on the
basis of products. All the activities related to each product are grouped separately. That is,
each department becomes autonomous, dealing in a particular product. For example, an
organisation manufacturing a number of products like soaps, tooth paste, cosmetics, blades,
milk powder, etc. groups all the activities from manufacturing to distribution independently
for each product. The following chart that depicts departmentation by product:

Advantages:
The main advantages of Departmention by product are:
1. Profitability of each product can be assessed.
2. Better service to consumers can be provided as the salesmen have thorough
knowledge about the product.
3. It is suitable for undertakings manufacturing varied and complex product
lines.
4. Flexibility in product lines can be attained as the addition or dropping of
product lines is easy.
5. Specilisation is made possible.

Disadvantages:
The main disadvantages of departmentation by product are:
1. Confusion in the customers mind.
2. Duplication and wastages of resources.
3. Increased costs.

Departmentation by Customers or Markets:


An organisation can divide its activities into departments on the basis of different
customer groups served by the organisation, such as industrial users, consumers, wholesalers,
retailers etc. The following chart depicts the customer-wise departmentation. The following
chart that depicts departmentation by customers:

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Unit-1: Introduction to Management 1.23 CSP

Advantages:
The advantages of developmentations by customer are:
1. Specialised service to customers.
2. Supply of goods according to customers requirements.

Disadvantages:
The disadvantages of departmentation by customer are:
1. Difficulty in coordination.
2. High cost.
3. Under utilisation of human resources.

Departmentation by Territory:
Under this system the activities of the organisations are grouped into different
departments on the basis of the geographical area. For example, a company can carry out its
activities by grouping them into regions like eastern region, western region, southern region,
northern region, etc. This type of departmentation is suitable for large organisations which
are geographically spread over to different areas. The following chart depicts the territorial
departmentation:

Advantages:
The advantages of territorial departmentations are:
1. Familiarity with customers in the particular region.
2. Enjoying advantages of local situations.
3. Benefits from geographical market segmentation.
4. Training for development.

Disadvantages:
The disadvantages of territorial departmentations are:
1. Increase in costs.
2. Difficulty in coordination and control.

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Unit-1: Introduction to Management 1.24 CSP
Departmentation by Process:
Departmentation by process implies the grouping of the activities into different
departments on the basis of the processes involved in production. For example, in a textile
unit, departmentation can be done on the basis of process i.e. spinning, weaving, dyeings,
bleaching etc. The following chart shows the departmentation by process:

Advantages:
The advantages of departmentation by process are:
1. High operational efficiency.
2. Benefits of specialisation.
3. Reduction in manufacturing time and unnecessary movements in the process.

Disadvantages:
The disadvantages of departmentations by process are:
1. High Costs.
2. Requiring continuous training.

In actual practice no single method of grouping activities is applied throughout the


organisation structure. In reality, a single organisation may employ one or all of the bases of
departmentalization at the same of various hierarchical levels.

DECENTRALIZATION
An organization is said to be decentralized when managers at middle level and lower
level are given the authority to take decisions on matters relating to their functions. They are
required to take decision keeping in view the overall policies of the company.
According to Allen, "Decentralization refers to the systematic effort to delegate to the
lowest levels all authority except that which can only be exercised at central points." Thus,
decentralization means reservation of some authority (power to plan, organize, direct and
control) at the top level and delegation of authority to make decisions at points as near as
possible to where actions take place.

Advantages of Decentralization:
1. Reduction in the Burden of Chief Executive: Decentralization of authority reduces
the burden of the chief executive, as he delegates a major part of his authority to his
subordinates and this will enable him to devote more time on important functions.
2. Quick Decisions: Decentralization avoids red-tapism in making decisions as it places
responsibility for decision making as near as possible with the place where actions
take place.
3. Diversification of Activities: With the addition of new product lines, an organization
may grow complex and pose a challenge to the top executives. The challenge can be
met effectively by decentralizing the authority under the overall coordinating purview
of the top management.

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Unit-1: Introduction to Management 1.25 CSP
4. Development of Managerial Personnel: When authority is decentralized, the
subordinates get the opportunity of taking initiative to develop their talents and to
enable them to develop qualities for managerial positions. They learn how to decide
and depend on their own judgment and how to manage.
5. Effective Control and Supervision: The greater the degree of decentralization, the
more effective becomes the span of control. It leads to effective supervision as
managers at the lower levels have complete authority to make changes in work
assignment, to change production schedules, to recommend promotions and to take
disciplinary actions.
6. Effective Coordination: Under decentralization, coordinated efforts are required only
at the levels of segments created by decentralization. This makes coordination more
effective
7. Improvement of Motivation and Morale: Decentralization of authority fulfils the
human needs of power, independence and status. It gives the local executives an
opportunity to take initiative and to try new ideas. This improves their motivation and
heightens their morale.
8. Miscellaneous Economies: In addition to the above advantages, decentralization also
achieves several internal and external economies. Internal economies include speedier
communication, better utilization of lower level and middle level executives, greater
incentive to work and greater opportunities for training. These make possible for the
management to reduce the cost of production and meet competition effectively.
Limitations of Decentralization:
1. Decentralization increases the administrative expenses because it requires the
employment of trained personnel to accept authority. The services of such highly paid
personnel may not be fully utilized particularly in small organizations.
2. Decentralization requires the product lines of the concern to be broad enough to allow
creation of autonomous units, which is not possible in small concerns.
3. Decentralization of authority may create problems in bringing coordination among the
various units.
4. Decentralization may not be possible because of external factors. If a company is
subject to uncertainties, it will not be able to meet these under decentralization.
5. Decentralization may bring about inconsistencies in the company.

DELEGATION OF AUTHORITY AND RESPONSIBILITY


Delegation of authority means conferring authority to another to accomplish a
particular assignment while operating with prescribed limits and standards established.
Delegation of authority is the key to organization. An executive confers authority on the
subordinates to accomplish specific tasks which may not be able to do alone. That means a
manager can get things done through others by sharing authority with them.
Principles of Delegation of Authority:
The following principles are guides to successful delegation. Unless carefully
recognized in practice, delegation may be ineffective, organization may fail and the
managerial process may be seriously impeded:
1. Parity between authority and responsibility: There should be complete parity
between authority and responsibility. If authority is more than responsibility, people
will make misuse of their authority and if responsibility is more than authority, the
results can never be achieved.

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Unit-1: Introduction to Management 1.26 CSP
2. Responsibility in terms of results: To be effective, delegation of authority should be
always be in terms of exact results of responsibility. In other words, responsibility
should be specific on a specific person, because everybodys responsibility is
nobodys responsibility.
3. Principle of Unity of command: To avoid confusion, conflicts and duplication of
work-orders, instructions and guidelines should flow to a subordinate from a single
particular executive only.
4. Delegation of responsibility: Authority can be delegated, but responsibility cannot
be delegated. By delegating authority, an executive does not escape from
responsibility. He is, in addition, responsible for the act of his subordinates also.
5. Overlapping of responsibilities: While delegating authority, it must be ensured that
duties and responsibilities of subordinates do not overlap.
6. Free flow of information: In delegation of authority, there should be free two way
communication (i.e. exchange of ideas, suggestions, instructions, guidelines, etc.,)
between an executive and a subordinate.
7. Delegated authority: Authority delegated to a subordinate should be adequate,
enough and as per the status and position of the subordinate, in order to achieve
optimum results.

TYPES OF MECHANISTIC AND ORGANIC STRUCTURES OF ORGANIZATION


An organization structure shows the authority and responsibility relationships
between the various positions in the organization by showing who reports to whom. It is a set
of planned relationships between groups of related functions and between physical factors
and personnel required for the achievement of organizational goals.
Organization involves establishing an appropriate structure for the goal seeking
activities. The structure of an organization is generally shown on an organization chart or a
job- task pyramid. For instance, if an undertaking is in production line, the, dominant element
in its organization chart, would be manufacturing and assembling. A good organization
structure should not be static but dynamic. It should be subject to change from time to time in
the light of the changes in the business environment. While designing the organization
structure, due attention should be given to the principles of sound organization.

There are two types of structural variables, namely;


a) Basic structure involves such central issues as how the work of the organization will
be divided and assigned among positions, groups, departments, divisions, etc. and
how the coordination necessary to achieve organizational objectives will be brought
about.
b) Operating mechanism includes such factors as information system, control
procedures, rules and regulations, system of reward and punishment, etc.

Management Science CS PATRO


Unit-1: Introduction to Management 1.27 CSP

In order to organize the efforts of individuals, any of the following types of


organization structures may be set up:
1. Line organization
2. Line and staff organization
3. Functional organization
4. Matrix organization
5. Committee organization
6. Project organization
7. Inverted Pyramid structure
8. Virtual organization
9. Cellular organization
10. Team structure
11. Boundary less organization
12. Lean and Flat organization

LINE ORGANIZATION
It is also known as scalar or military or vertical organization and perhaps is the oldest
form. In this form of organization managers have direct responsibility for the results; line
organization can be designed in two ways:
a) Pure Line Organization: Under this form, similar activities are performed at a
particular level. Each group of activities is self contained unit and is able to perform
the assigned activities without the assistance of others.

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Unit-1: Introduction to Management 1.28 CSP
Production Manager

Foreman-A Foreman-B Foreman-C

Worker Worker Worker

b) Departmental Line Organization: Under this form, entire activities are divided into
different departments on the basis of similarity of activities. The basic objective of
this form is to have uniform control, authority and responsibility.

Production Manager

Foreman-A Foreman-B Foreman-C


(Body Moulding) (Seating) (Finishing)

Worker Worker Worker

Suitability:
This type of organisational structure is suitable to small scale organizations where the
number of subordinates is quite small.

Advantages:
1. Simplicity: Line organization is very simple to establish and can be easily understand
by the employees.
2. Discipline: Since each position is subject to control by its immediate superior position,
often the maintenance of discipline is easy unity of command and unity of direction
foster discipline among the people in the organization.
3. Co-ordination: The hierarchy in management helps in achieving effective coordination.
4. Effective communication: There will be a direct link between superior and his
subordinate; both can communicate properly among him or herself.
5. Economical: Line organization is easy to operate and it is less expensive.
6. Unity of command: In this every person is under the command of one boss only.
7. Prompt decision: Only one person is in charge of one division or department. This
enables manager to take quick decisions.
8. Over all development of the managers: The departmental head has to look after all the
activities of his department; therefore, it encourages the development of all round
managers at the higher level of authority.

Disadvantages:
1. Ability of Manager: The success of the enterprise depends upon the caliber and
ability of few departmental heads, loss of one or two capable men may put the
organization in difficulties.

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Unit-1: Introduction to Management 1.29 CSP
2. Personnel limitations: In this type of organization an individual executive is suppose
to discharge different types of duties. He cannot do justice to all different activities
because he cannot be specialized in all the trades.
3. Overload of work: Departmental heads are overloaded with various routine jobs
hence they cannot spare time for managerial functions like planning, budgeting, etc.
4. Dictatorial way: In line organization, too much authorities centre on line executive.
Hence it encourages dictatorial way of working.
5. Duplication of work: Conflicting policies of different departments result in
duplication of work.
6. Unsuitable for large concerns: It is limited to small concerns.
7. Scope of favourism: As the departmental heads has the supreme authority, there is
chance of favourism.

LINE AND STAFF ORGANIZATION


It refers to a pattern in which staff specialists advise line managers to perform their
duties. When the work of an executive increases its performance requires the services of
specialists which he himself cannot provide because of his limited capabilities on these
matters. Such advice is provided to line managers by staffs personal who are generally
specialists in their fields. The staff people have the right to recommend, but have no authority
to enforce their preference on other departments.
Features:
1) This origin structure clearly distinguishes between two aspects of administration viz.,
planning and execution.
2) Staff officers provide advice only to the line officers; they do not have any power of
command over them.
3) The staff supplements the line members.

Suitability:
It can be followed in large organizations where specialization of activities is required,
because it offers ample opportunities for specialization.

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Unit-1: Introduction to Management 1.30 CSP
Advantages:
1. Planned specialization: The line and staff structure is based upon the principle of
specialization. The line managers are responsible for operations contributing directly to
the achievement of organizational objectives where as staff people are there to provide
expert advice on the matters of their concerns.
2. Quality decisions: Decisions come after careful consideration and thought each expert
gives his advice in the area of his specialization which is reflected in the decisions.
3. Prospect for personal growth: Prospect for efficient personal to grow in the
organization not only that, it also offers opportunity for concentrating in a particular
area, thereby increasing personal efficiency
4. Less wastage: There will be less wastage of material.
5. Training ground for personnel: It provides training ground to the personnel in two
ways. First, since everybody is expected to concentrate on one field, ones training
needs can easily be identified. Second, the staff with expert knowledge provides
opportunities to line managers for adopting rational multidimensional approach towards
a problem.

Disadvantages:
1. Chances of Mis-interpretation: Although the expert advice is available, yet it reaches
the workers through line supervisors. The line officers may fail to understand the
meaning of advice and there is always a risk of misunderstanding and
misinterpretation.
2. Chances of friction: There are bound to be occasions when the line and staff may
differ in opinion may resent in conflict of interests and prevents harmonious relations
between the two.
3. Ineffective Staff in the absence of authority: The staff has no authority to execute
their own advice. Their advice is not a binding on the line officers. Therefore the
advice given by specialist may be ignored by line heads.
4. Expensive: The overhead cost of the product increases because of high salaried
specialized staff.
5. Loss of initiative by line executives: If they start depending too much on staff may
lose their initiative drive and ingenuity.

FUNCTIONAL ORGANIZATION
It is the most widely used organization structure in the medium and large scale
organizations having limited number of products. This structure emerges from the idea that
the organization must perform certain functions in order to carry on its operations.
Functional structure is created by grouping the activities on the basis of functions
required for the achievement of organizational objectives. For this purpose, all the functions
required are classified into basic, secondary and supporting functions according to their
nature & importance.
Features:
1) The whole activities of an organization are divided into various functions.
2) Each functional area is put under the charge of one executive.
3) For any decision, one has to consult the functional specialist.

Suitability:
Functional organisational structure is suitable for large scale organizations.

Management Science CS PATRO


Unit-1: Introduction to Management 1.31 CSP
General Manager

Marketing Finance Personnel Production


Manager Manager Manager Manager

Branch Manager Office Manager Factory Manager

Line of authority
Functional authority

Advantages:
1. Separation of work: In functional organization, work has been separated from routine
work. The specialist has been given the authority and responsibility for supervision
and administration pertaining to their field of specialization unnecessary over loading
of responsibilities is thus avoided.
2. Specialization: Specialization and skilled supervisory attention is given to workers
the result is increase in rate of production and improved quality of work.
3. Ease in selection and training: Functional organization is based upon expert
knowledge. The availability of guidance through experts makes it possible to train the
workers properly in comparatively short span of time.
4. Reduction in prime cost: Since for every operation expert guidance is there, wastage
of material is reduced and thus helps to reduce prime cost.
5. Scope of growth and development of business: This type of organization presents
ample scope for the growth and development of business.

Disadvantages:
1. Indiscipline: Since the workers receive instructions from number of specialist it leads
to confusion to whom they should follow. Therefore, it is difficult to maintain
discipline
2. Shifting of responsibility: It is difficult for the top management to locate
responsibility for the unsatisfactory work everybody tries to shift responsibility on
others for the faults and failure.
3. Kills the initiative of workers: As the specialized guidance is available to the workers
the workers will not be using their talents and skills therefore their initiative cannot be
utilized.
4. Overlapping of authority: The sphere of authority tends to overlap and gives rise to
friction between the persons of equal rank.
5. Lack of co-ordination between functions: except the function in which he is
specialized he is absolutely indifferent to other functions. Therefore, there is a lack of
coordination of function and efforts.

Management Science CS PATRO


Unit-1: Introduction to Management 1.32 CSP
MATRIX ORGANISATION
It is also called project organization. It is a combination of all relationships in the
organization, vertical, horizontal and diagonal. It is a mostly used in complex projects. The
main objective of Matrix organization is to secure a higher degree of co-ordination than what
is possible from the conventional, organizational structures such as line and staff.
In matrix organization structure, a project manager is appointed to co-ordinate the
activities of the project. Under this system a subordinate will get instructions from two or
more bosses, Viz., administrative head and his project manager.

General Manager

Production Personnel Finance Marketing

Project A
W W W W
Manager

Project B W
W W W
Manager

Project C
W W W W
Manager

Suitability:
It can be applicable where there is a pressure for dual focus, pressure for high
information processing, and pressure for shred resources.
Ex: Aerospace, chemicals, Banking, Brokerage, Advertising etc.

Advantages:
1. It offers operational freedom & flexibility
2. It focuses on end results.
3. It maintenance professional Identity.
4. It holds an employee responsible for management of resources.

Disadvantages:
1. It calls for greater degree of coordination,
2. It violates unity of command.
3. Difficult to define authority & responsibility.
4. Employee may be de motivated.

COMMITTEE ORGANISATION
A committee does not represent a separate type of organization like line and staff, or
functional. It is rather a device which is used as supplementary to or in addition to any of the
above types of organizations. A committee may be defined as a group of people performing
some aspects of Managerial functions. Thus, a committee is a body of persons appointed or
elected for the Consideration of specific matters brought before it.

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Unit-1: Introduction to Management 1.33 CSP

Suitability:
It is suitable for educational organizations and universities.

Merits:
1. Pooling up of opinions.
2. It facilitates coordination.
3. It enhances communication.
4. It gives better motivation.

Demerits:
1. It is highly expensive.
2. It makes compromised decisions.
3. Lack of secrecy.
4. Domination by few members.

PROJECT ORGANIZATION
A project organization is a special case where common service like finance, purchase
etc. are organized at the functional level. But project resources are allocated to the project
manager. Since the business responsibility rests with the project manager, necessary authority
is given to him with the requisite resources. This type of organization structure helps in
making decisions for project control in terms of cost, resource and time.

Merits:
1. This calls for quick divisions.
2. Organizing all functional.
3. Proper coordination of work of different departments.

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Unit-1: Introduction to Management 1.34 CSP
Demerits:
1. It tends to increase the problems of control for top management.
2. It is special case of product organization.
3. The organization may get disintegrated with increasing focus on departments.

VIRTUAL ORGANIZATION
The concept of virtual organisation or corporation along with virtual team and office
has entered management field very recently. The meaning of virtual is having the efficacy
without the material part; unreal but capable of being considered as real for the purpose. It
works in a network of external alliances, using the Internet. This means while the core of the
organization can be small but still the company can operate globally is a market leader in its
niche.
Employees in a virtual organization will become emasculate and ineffective in the
absence of information and knowledge. Therefore, virtual organizations use a seamless web
of electronic communication media. The main components of this web are as follows:
1. Technology: The traditional ways of working has been transformed through new
technology.
2. E-mail integration: The whole organization can take advantage of SMS products
such as Express Way by integrating SMS into the existing e-mail infrastructure.
3. Office systems integration: SMS technology can greatly enhance the existing or new
office systems. For example, phone messages can be sent via SMS rather than
returning it in a message book.
4. Voice Mail Alert: Addition of SMS technology to the existing voice mail system
builds an effective method of receiving voice mail alerts.
5. Mobile Data: This enables a laptop to retrieve information anywhere through the
mobile phone network. In the past corporate information has been inaccessible from
many places where it is needed. One can keep connected to his/her virtual
organization from anywhere by linking laptop to mobile phone.

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Unit-1: Introduction to Management 1.35 CSP
Advantages:
1. Saves time and travel expenses.
2. Provides excess to outside experts, without down time and travel or logging expenses.
3. Ability to organize in teams even if members are not in reasonable proximity to each
other.
4. Firms can expand their potential labour markets. They can hire and retain the best
people irrespective of their physical locations.
5. Employees can accommodate both personal and professional lives.
6. Employees can be assigned to multiple concurrent teams.
7. Dynamic team membership allows people to move from one project to another.
8. Team communication and work reports are available on-line to facilitate swift
responses to the demands of a global market.

Disadvantages:
1. Lack of physical interactions.
2. Lack of synergies arising from face-to-face interaction.
3. Non-availability of verbal and non-verbal cues such as voice, eye movement, facial
expression and body language which make communication more effective.

BOUNDARY LESS ORGANIZATION


It may be defined as an organisation structure that can avoid all the barriers (vertical,
horizontal, external, geographic) much more permeable than they are now. Boundary less
organisation allows free flow of ides/information / resources throughout the organisation and
into others. The boundaries are:
1. Vertical: Boundaries between layers within an organization.
2. Horizontal: Boundaries which exist b/w organizational departments.
3. External: Barriers between the organization and the outside world. (Customers,
suppliers other govt. committees).
4. Geographic: Barriers among organization units located in different countries.
A boundary less organisation is the opposite of a bureaucracy with numerous barriers
and division. In contrast, the organisation without boundaries offers interaction and
networking among professionals inside and outside the organisation. It is characterized by
teamwork and communication.
The purpose of this initiative was to remove barriers between the various departments
as well as between domestic and international operations. To reward people for adopting the
integration model, bonuses were awarded to those who not only generated new ideas but
also shared them with others.

Advantages:
1. It allows free flow of ideas of information or resources throughout the organisation
and others.
2. Boundary less organization is able to achieve greater integration and coordination.
3. They are able to adapt to environmental changes.
4. It is highly flexible and responsive.
5. It reduces ineffectiveness.
6. Creativity, quality, timeliness.
7. Increase in speed and flexibility.

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Unit-1: Introduction to Management 1.36 CSP
Disadvantages:
1. Lack of flexibility to changing mission needs/rapidly changing world.
2. Slow/poor in responding customer requirement.
3. Failure to get things to done.
4. Customer/vendor has a hard time dealing with the organization.

TEAM STRUCTURE
One of the newest organizational structures developed in the 20th century is team. In
small businesses, the team structure can define the entire organization. Teams can be both
horizontal and vertical. While an organization is constituted as a set of people who synergies
individual competencies to achieve newer dimensions, the quality of organizational structure
revolves around the competencies of teams in totality.
For example, every one of the Whole Foods Market stores, the largest natural-foods grocer in
the US developing a focused strategy, is an autonomous profit centre composed of an average
of 10 self-managed teams, while team leaders in each store and each region are also a team.
Larger bureaucratic organizations can benefit from the flexibility of teams as well.

Suitable:
Xerox, Motorola, and DaimlerChrysler are all among the companies that actively use
teams to perform tasks.

Advantages:
1. Team-based organizations filter decision making down to all levels of management.
2. Team-based organizations require that all employees participate in the decision-
making process.
3. Employees feel they are part of the total organization, rather than members of an
individual department.
4. Team-based organizations run more efficiently and effectively, giving them a
competitive edge in today's global market.

Disadvantages:
1. Recognition for individual achievement within a hierarchical organization is a
motivator and a factor in determining compensation.
2. Team-based organizations value team performance over individual performance.
3. Lack of focus on the individual in team-based organizations.
4. Motivating individuals in a team-based organization can be more challenging.
5. Team-based organizations are decentralized rather than hierarchical.

Management Science CS PATRO


Unit-1: Introduction to Management 1.37 CSP
INVERTED PYRAMID STRUCTURE
This is an alternative to traditional chain of command. This is a structure which is
narrow at the top and wide at the base. It includes few levels of management i.e. sales people
and sales support staff sit at the top as they are key decision makers for all issues related to
sales and dealings with customers. Since they are in tough with customers, they are given all
the freedom to follow their own judgment at all levels.

Suitable:
This organisation structure is suitable for sales associates, journalism, etc.

Advantages:
1. In this structure the customers are given the first preference.
2. It becomes simple to know their preferences and plan the strategies of the
organisation accordingly.
3. Front line employees are given more responsibility and authority in the organisation
than the top management because they are closest to the customers.
4. Decentralization of authority and responsibility place a very important role in prompt
and timely decisions.
5. The inverted pyramid structure motivates the employees as they are placed in a better
position than the top management.

Disadvantages:
1. This structure may be dangerous because the role of top management is shifted to
supporting one from that of commanding one which ultimately leads to the direction
less- organisation.
2. In this structure there is absence of clear authority and responsibility levels as a result
of which people become confused and business veers out of control.
3. Frontline supervisor cannot make strategies regarding organisations even though they
have proper understanding of the customers because they are not equipped to do so.

CELLULAR ORGANISATION
A form of organization consisting of a collection of self-managing firms or cells held
together by mutual interest. A cellular organization is built on the principles of self-
organization, member ownership, and entrepreneurship. It has been replacing other systems.
In this the workers manufacture total products in teams i.e. cells.

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Unit-1: Introduction to Management 1.38 CSP
Each cell within the organization shares common features and purposes with its sister
cells but is also able to function independently. Every team of workers has the responsibility
to improve or maintain the quality and quantity of its products. The cells comprise self
managed teams. They monitor themselves and correct wherever necessary on their own. The
idea is an extension of the principles of group technology, or cellular manufacturing.

Advantages:
1. It allows free flow of ideas of information or resources throughout the organisation
and others.
2. They are able to adapt to environmental changes.
3. It is highly flexible and responsive.
4. It reduces ineffectiveness and Increase in speed.

Disadvantages:
1. Slow response customer requirement.
2. Failure to get things to done.
3. Lack of flexibility to changing mission needs changing the world.
4. Customer has a hard time dealing with the organization.

FLAT AND LEAN ORGANISATION

Flat Organizations are those, which have few or even one level of management. For
example, a service organization with equal partners and 30 employees. Flat organizations are
known by their wider span of management of control. Each manager controls more number
of employees at a given point of time.

Managing Director

Sales Manager Production Manager Personnel Manager Finance Manager

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Unit-1: Introduction to Management 1.39 CSP
Tall/Lean organizations may have many levels of management. It focuses on vertical
communication through the levels of grades. It involves narrow span of management.
Generally the greater the height of organisational chart, the smaller is the span of control,
vice versa.
Managing Director

General Manager

Sales Manager Production Manager Personnel Manager Finance Manager

Advantages:
1. It is simple to understand.
2. Easy supervision & control.
3. Quick decisions are possible.
4. It sets clearly the direct lines of authority and responsibility of a line manager.

Disadvantages:
1. Lack of specialization
2. Low Morale
3. Autocratic approach
4. Overburden to manager

IMPORTANT QUESTIONS
1. Explain the nature and functions of management?
2. Explain how scientific management paved way for changes in the traditional mindset.
3. Management is regarded as an art by some, science by others. In the light of this
statement, Explain the exact nature of management
4. What is the contribution of Henry Fayol to management thought? Explain 14
principles of management thought.
5. Write short notes on:
a. Maslow theory of Hierarchy of Human Needs
b. Frederick Herzberg two factor theory of motivation.
c. Theory X and Theory Y (Douglas Mc. Gregor)
d. Mayos Hawthorne Experiments
6. Explain the concept of Systems approach to Management with diagram?
7. What are the challenges you have to face as a manger? Discuss.
8. State the history of evolution of management thought with emphasis on modern
management techniques.
9. Is management an art or science? Justify your answer.
10. Define organization and discuss its characteristics.
11. Explain the meaning of organization and state its principles.
12. What do you mean by formal and informal organization? Evaluate its importance.

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Unit-1: Introduction to Management 1.40 CSP
13. What do you understand by informal organization? How does it differ from a formal
organization?
14. "Organization is an important tool to achieve organizational objectives", Comment.
15. Write brief notes and merits and demerits of the following.
a. Line & staff organization
b. Line organization
c. Functional organization
16. What do you understand by decentralization? Explain the advantages and
disadvantages of decentralization.
17. Discuss the process of organizing and explain the relationship among organization,
organizing and management.
18. Give brief note on classification of organization based on authority relationship and
evaluate their merits and demerits.
19. What are the different organizational structure designs in modern trends?
20. Define Departmentation. Explain the methods of Departmentation.
21. Briefly explain the merits and demerits of the following:
a. Matrix structure
b. Project organisation
c. Committee organisation
d. Boundary less organisation

Management Science CS PATRO


Unit-2: Operations Management 2.1 CSP
UNIT II
OPERATIONS MANAGEMENT

PLANT LAYOUT
Plant layout deals with the arrangement of work areas and equipment. It is related to
allocation of adequate spaces at the appropriate places for work equipment, working men,
materials, other supporting activities and also customers. The basic theme behind the
arrangement of work area is to produce the product economically, to provide the service
effectively and to provide a safe and good physical environment for the users that is, the
workers and / or the consumers.

Definition:
According to Moore, Plant layout is a plan of an optimum arrangement of facilities
including personnel, operating equipment, storage space, material handling equipment and all
other supporting services along with the design of best structure to contain all these
facilities.

OBJECTIVES OF PLANT LAYOUT


The primary goal of the plant layout is to maximise the profit by arrangement of all
the plant facilities to the best advantage of total manufacturing of the product. The objectives
of plant layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimize materials handling and cost.
5. Effective utilization of men, equipment and space.
6. Provide for employee convenience, safety and comfort.
7. Minimize investment in equipment.
8. Minimize overall production time.
9. Facilitate the organizational structure.

PRINCIPLES OF PLANT LAYOUT


1. Principle of integration: A good layout is one that integrates men, materials,
machines and supporting services and others in order to get the optimum utilization of
resources and maximum effectiveness.
2. Principle of minimum distance: This principle is concerned with the minimum
travel (or movement) of man and materials. The facilities should be arranged such
that, the total distance travelled by the men and materials should be minimum and as
far as possible straight line movement should be preferred.
3. Principle of cubic space utilization: The good layout is one that utilize both
horizontal and vertical space. It is not only enough if only the floor space is utilized
optimally but the third dimension, i.e., the height is also to be utilized effectively.
4. Principle of flow: A good layout is one that makes the materials to move in forward
direction towards the completion stage, i.e., there should not be any backtracking.

Management Science CS PATRO


Unit-2: Operations Management 2.2 CSP
5. Principle of maximum flexibility: The good layout is one that can be altered without
much cost and time, i.e., future requirements should be taken into account while
designing the present layout.
6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and
machinery against fire, theft, etc.
7. Principle of minimum handling: A good layout is one that reduces the material
handling to the minimum.

TYPES OF PLANT LAYOUT


The Plant Layouts can be classified into the following five categories:
1. Process layout
2. Product layout
3. Fixed position layout
4. Combination layout
5. Hybrid layout

1. PRODUCT LAYOUT OR LINE LAYOUT:


This type of layout is developed for product-focused systems. In this type of
layout only one product, or one type of product, is produced in a given area. In case of
product being assembled, this type of layout is popularly known as an assembly line
layout. The equipment here is laid out accordance to the sequence in which it is used for
making the product. Product layout is usually suitable for assembling operations, for
example in the automobile industry.
Product layout can be applicable where:
the machines can be continuously handled for longer periods.
time and motion study can be conducted.
the products so manufactured do not require higher degree of inspection.

Advantages:
1. Removal of obstacles in production: Product layout ensures unrestricted and
continuous production thereby minimising bottlenecks in the process of production,
this is because work stoppages are minimum under this method.
2. Economies in material handling: Under this method there are direct channels for the
flow of materials requiring lesser time which considerably eliminate back-tracking of
materials. On account of this, cost of material handling is considerably reduced. This
is greatly helpful in achieving desired quality of the end product.
3. Lesser manufacturing time: Under this method (as already pointed), backward and
forward handling of materials is not involved; it leads to considerable saving in
manufacturing time.
4. Lesser work in progress: On account of continuous uninterrupted mass production,
there is lesser accumulation of work in progress or semi-finished goods.

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Unit-2: Operations Management 2.3 CSP
5. Proper use of floor space: This method facilitates proper and optimum use of
available floor space. This is due to non- accumulation of work in progress and
overstocking of raw materials.
6. Economy in inspection: Inspection can be easily and conveniently undertaken under
this method and any defect in production operations can be easily located in
production operations. The need for inspection under this method is much less and
can be confined at some crucial points only.
7. Lesser manufacturing cost: On account of lesser material handling, inspection costs
and fullest utilization of available space, production costs are considerably reduced
under this method.
8. Lesser labour costs: Due to specialization and simplification of operations and use of
automatic simple machines, employment of unskilled and semi-skilled workers can
carry on the work. The workers are required to carry routine tasks under this method.
This leads to lesser labour costs.
9. Introduction of effective production control: Effective production control on
account of simple operation of this method can be employed successfully. Production
control refers to the adoption of measures to achieve production planning.

Dis-Advantages:
1. Lesser flexibility: As work is carried in sequence and process arranged in a line, it is
very difficult to make adjustments in production of operations. Sometimes, certain
changes under this method become very costly and impractical.
2. Large investment: Under this method, machines are not arranged in accordance with
functions as such similar type of machines and equipment is fixed at various lines of
production. This leads to unavoidable machinery duplication resulting in idle capacity
and large capital investment on the part of the entrepreneur.
3. Higher overhead charges: Higher capital investment leads to higher overheads
(fixed overheads) under this method. This leads to excessive financial burden.
4. Interruption due to breakdown: If one machine in the sequence stops on account of
breakdown, other machines cannot operate and work will be stopped. The work
stoppage may also take place on account of irregular supply of material, poor
production scheduling and employee absenteeism etc.
5. Difficulties in expanding production: Production cannot be expanded beyond
certain limits under this method.
6. Lack of specialization in supervision: Supervision of different production jobs
becomes difficult under this method as there is absence of specialized supervision as
the work is carried on in one line having different processes and not on the basis of
different departments for different specialized jobs.
7. Under-utilization of machines: As has already been pointed out, separate set of one
type of machines is fixed at different lines of production. Usually, these machines are
not properly and fully utilized and there remains idle capacity in the form of under-
utilized equipment.

2. PROCESS LAYOUT OR FUNCTION LAYOUT:


Process layout is recommended for batch production. All machines performing
similar type of operations are grouped at one location in the process layout e.g., all lathes,
milling machines, etc. are grouped in the shop will be clustered in like groups. Thus, in
process layout the arrangement of facilities are grouped together according to their
functions. The flow paths of material through the facilities from one functional area to
another vary from product to product. A typical process layout is shown below.

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Unit-2: Operations Management 2.4 CSP

Process layout can be preferred when:


more varieties of products are manufactured in fewer quantities
close quality inspection is required
it is difficult to carry out time and motion study
it is necessary to use the same machine for more than one product

Advantages:
1. Maximum utilisation of machines: This method ensures fuller and effective
utilisation of machines and consequently investment in equipment and machines
becomes economical.
2. Greater flexibility: Changes in the sequence of machines and operations can be made
without much difficulty. This is because the machines are arranged in different
departments in accordance with the nature of functions performed by them.
3. Scope for expansion: Production can be increased by installing additional machines
without much difficulty.
4. Specialisation: As has already been pointed out that under this method, specialised
machines are used for performing different production operations. This leads to
specialisation.
5. Effective utilisation of workers: Specialised workers are appointed to carry different
type of work in different departments. This leads to effective and efficient use of their
talent and capabilities.
6. More effective supervision: As the machines are arranged on the basis of functions,
performed by them, the specialised and effective supervision is ensured by the
specialised knowledge of supervisors. Each supervisor can perform his task of
supervision effectively as he has to supervise limited number machines operating in
his department.
7. Lesser work stoppages: Unlike the product method, if a machine fails, it does not
lead to complete work stoppage and production schedules are not seriously affected.
Due to breakdown in one machine, the work can be easily transferred to the other
machines.

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Unit-2: Operations Management 2.5 CSP
Disadvantages:
1. Coverage of more floor area: Under this method, more floor space is needed for the
same quantum of work as compared to product layout.
2. Higher cost of material handling: Material moves from one department to another
under this method, leading to the higher cost of material handling. The mechanical
devices of material handling cannot be conveniently employed under this method on
account of functional division of work.
3. Higher labour costs: As there is functional division of work, specialised workers are
to be appointed in different departments for carrying specialised operations. The
appointment of skilled worker leads to higher labour costs.
4. Longer production time: Production takes longer time for completion under this
method and this leads to higher inventories of work-in-progress.
5. Difficulties in production, planning and control: Due to large variety of products
and increased size of the plant, there are practical difficulties in bringing about proper
coordination among various areas (departments) and processes of production. The
process of production, planning and control becomes more complex and costly.
6. Increased inspection costs: Under this type of layout more supervisors are needed
and work is to be checked after every operation which makes the process of
supervision costlier.

3. FIXED POSITION LAYOUT:


This is also called the project type of layout. In this type of layout, the material, or
major components remain in a fixed location and tools, machinery, men and other
materials are brought to this location. This type of layout is suitable when one or a few
pieces of identical heavy products are to be manufactured and when the assembly consists
of large number of heavy parts, the cost of transportation of these parts is very high.
For example, building ships, manufacture of aircrafts, heavy pressure vessels and
automobile industries, etc,.

Advantages:
1. Economies in transformation: As the work is carried at one place and material is not
taken from one place to another, this leads to savings in transformation costs.
2. Different jobs with same layout: Different projects can be undertaken with the help
of same layout.
3. Production in accordance with specifications: The jobs can be performed in
accordance with the specifications given by the customers.
4. Scope for flexibility: It provides maximum flexibility for various changes in
production processes and designs of the products.
Disadvantages:
1. Immobility of material: As material is fixed at one place, this leads to certain
difficulties in arranging specialised workers, machines and equipment for the job.
2. Large investment: This method is time consuming and costlier as compared to first
two methods.

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Unit-2: Operations Management 2.6 CSP
3. Unsuitable for small products: This method is not suitable for producing and
assembling small products in large quantities. In actual practice, it has been observed
that a judicious combination of three types viz., product, process and stationary
material layout is undertaken by different organisations.

4. COMBINATION LAYOUT:
A combination of process and product layouts combines the advantages of both
types of layouts. A combination layout is possible where an item is being made in
different types and sizes. Here machinery is arranged in a process layout but the process
grouping is then arranged in a sequence to manufacture various types and sizes of
products. It is to be noted that the sequence of operations remains same with the variety
of products and sizes. The below figure shows a combination type of layout:

5. HYBRID OR CELLULAR LAYOUT:


It is also called Multi-Objective Layout. A grouping of equipment for performing
a sequence of operations on family of similar components or products has become all the
important. Group technology (GT) is the analysis and comparisons of items to group them
into families with similar characteristics. GT can be used to develop a hybrid between
pure process layout and pure flow line (product) layout. This technique is very useful for
companies that produce variety of parts in small batches to enable them to take advantage
and economics of flow line layout.
The application of group technology involves two basic steps; first step is to
determine component families or groups. The second step in applying group technology
is to arrange the plants equipment used to process a particular family of components. This
represents small plants within the plants.

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Unit-2: Operations Management 2.7 CSP
Advantages:
1. The group technology reduces production planning time for jobs.
2. It reduces the set-up time.
3. It can increase component standardization and rationalization.
4. Effective machine operation and productivity.
5. It can decrease the Paper work and overall production time.
6. Work-in-progress and work movement.
7. It can reduce the Overall cost.
Disadvantages:
1. This type of layout may not be feasible for all situations.
2. If the product mix is completely dissimilar, then we may not have meaningful cell
formation.

WORK STUDY
Work study is a generic term for those techniques, method study and work
measurement which are used in the examination of human work in all its contexts. According
to British standard (BS 3138), work study refers to the method study and work measurement,
which are used to examine human work in all its contexts by systematically investigating into
all factors affecting its efficiency and economy to bring forth the desired improvement. The
principal aim of work study is to bring efficiency and economy by making improvements in
the method of doing the job. It is used in agricultural, manufacturing, services, transport, etc.
It has 2 parts:

Work study is a means of enhancing the production efficiency (productivity) of the


firm by elimination of waste and unnecessary operations. It is a technique to identify non-
value adding operations by investigation of all the factors affecting the job. It is the only
accurate and systematic procedure oriented technique to establish time standards.

METHOD STUDY
Method study enables the industrial engineer to subject each operation to systematic
analysis. The main purpose of method study is to eliminate the unnecessary operations and to
achieve the best method of performing the operation. Method study is also called methods
engineering or work design. Method engineering is used to describe collection of analysis
techniques which focus on improving the effectiveness of men and machines.
According to British Standards Institution (BS 3138), Method study is the systematic
recording and critical examination or existing and proposed ways or doing work as a means
or developing and applying easier and more effective methods and reducing cost.

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Unit-2: Operations Management 2.8 CSP
Fundamentally method study involves the breakdown of an operation or procedure
into its component elements and their systematic analysis. In carrying out the method study,
the right attitude of mind is important. The method study man should have:
1. The desire and determination to produce results;
2. Ability to achieve results;
3. An understanding of the human factors involved.
Method study scope lies in improving work methods through process and operation
analysis, such as: Manufacturing operations and their sequence, Workmen, Materials, tools
and gauges, Layout of physical facilities and work station design, Movement of men and
material handling, and Work environment.

Steps Involved in Method Study:


The process of method study involves the following procedure:

Method Study

Aim: To develop better working methods

PROCEDURE
SELECT the task to be studied.
RECORD all related facts about current or proposed methods.
EXAMINE the facts critically considering the purpose,
sequence, place and resources.
DEVELOP the best possible method.
DEFINE the best possible method.
EVALUATE different alternatives to develop new method.
INSTALL the new improved method.
MAINTAIN verify the installed method.

RESULT
Increased Efficiency, Cost Effectiveness and
productivity through
a) Improved workplace layout
b) Improved equipment design
c) Reduction in worker fatigue
d) Improved product/process design

1. Select: The task or work to which the method study principles are to be applied is to be
identified and the objectives such as saving costs, increasing productivity, eliminating
unnecessary emotions by works, etc are to be specified.
2. Record: The current process of doing job has to be recorded. While doing so, every
detail, however small it may be, has to be identified. Where the process is too long,
involving many stages of production, inspection, the present process of doing the job is
recorded sufficiently, together with all the relevant information, by using the process
chart symbols.

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Unit-2: Operations Management 2.9 CSP
Symbol Meaning
Operation (doing something):
It involves change in the condition of a product
Ex: Assembly of spare parts
Transport (Moving something from one location to
another): Ex: Assembled PC is moved to inspection
section.
Storage (Permanent):
It occurs when object is kept and protected against
unauthorized removal.
Ex: When PC is put into store after inspection.
Delay (Temporary storage):
It occurs to an object when conditions do not permit the
D performance of next job.
Ex: Machinery breakdown, waiting for next stage, etc.
Inspection:
To check whether the Quality and quantity of the product
is good or not.
Operation cum Inspection:
Inspection is taking place during the production process.

Operation cum Transportation:


Assembling is taking place while spares are transported.

3. Examine: This is the most important phase of method study. After an activity has been
suitably recorded by means of any method, the recorded events are to be critically
examined. The analysis may be based on primary questions like purpose, place,
sequence, person etc.
4. Develop: Based on the recorded data, the alternative methods of doing the same job
more effectively are to be identified and evaluated. From these alternatives, the best one
is selected and developed to suit the requirements.
5. Evaluate: The different alternatives to developing a new improved method comparing
the cost-effectiveness of the selected new method with the current method with the
current method of performance.
6. Install: The new method so developed is to be installed in a phased manner. As part of
installation, adequate planning of schedules and deployment of resources should be
taken care of. Once the method is adopted, the workers have to be retrained, the
equipment has to be provided, and the method has to be tested in order to seek
improvement.
7. Maintain: It should be ensured that the method is used in the manner intended.
Complaints and improvements in productivity should be registered. Once the new
method starts yielding the desired result, it is necessary to maintain the new method
without any change for some time.

Objectives of Method Study:


Method study is essentially concerned with finding better ways of doing things. It
adds value and increases the efficiency by eliminating unnecessary operations, avoidable
delays and other forms of waste. The objectives of method study techniques are:

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Unit-2: Operations Management 2.10 CSP
1. Improved layout and design of workplace.
2. Improved and efficient work procedures.
3. Effective utilisation of men, machines and materials.
4. Improved design or specification of the final product.
5. Present and analyse true facts concerning the situation.
6. To examine those facts critically.
7. To develop the best answer possible under given circumstances based on critical
examination of facts.

WORK MEASUREMENT
Work measurement is also called by the name Time Study. Work measurement is
absolutely essential for both the planning and control of operations. Without measurement
data, we cannot determine the capacity of facilities or it is not possible to quote delivery dates
or costs. We are not in a position to determine the rate of production and also labour
utilization and efficiency. It may not be possible to introduce incentive schemes and standard
costs for budget control.
According to British Standard Institute time study has been defined as The
application of techniques designed to establish the time for a qualified worker to carry out a
specified job at a defined level of performance.

Procedure Involved in Time Study:


The process of work measurement involves the following procedure:

Work Measurement

Aim: To develop Time Standard

PROCEDURE
DESCRIBE the given work for measurement.
BREAK the job into elements.
MEASURE the performance of operator.
DETERMINE the basic time.
PROVIDE time allowance for fatigue etc.
DETERMINE standard time.

RESULT
Increased Efficiency and
Higher productivity through
a) Scientific basis to develop incentive systems
b) Maintain reasonable levels of employment
c) Reliable means of planning and control

The essential pre-requisite to carry out work measurement is to describe the method
underlying the job. Stop watch time is the basic technique for determining accurate time
standards. They are economical for repetitive type of work. Steps in taking the time study are:

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Unit-2: Operations Management 2.11 CSP
1. Select the work to be studied.
2. Obtain and record all the information available about the job, the operator and the
working conditions likely to affect the time study work.
3. Breakdown the operation into elements. An element is a instinct part of a specified
activity composed of one or more fundamental motions selected for convenience of
observation and timing.
4. Measure the time by means of a stop watch taken by the operator to perform each
element of the operation. Either continuous method or snap back method of timing
could be used.
5. At the same time, assess the operators effective speed of work relative to the
observers concept of normal speed. This is called performance rating.
6. Adjust the observed time by rating factor to obtain normal time for each element
Normal = Observed time X Rating / 100
7. Add the suitable allowances to compensate for fatigue, personal needs, contingencies,
etc., to give standard time for each element.
8. Compute allowed time for the entire job by adding elemental standard times
considering frequency of occurrence of each element.
9. Make a detailed job description describing the method for which the standard time is
established.
10. Test and review standards wherever necessary. The basic steps in time study are
represented by a block diagram.

The objectives of work measurement are to provide a sound basis for:


1. Comparing alternative methods.
2. Assessing the correct initial manning (manpower requirement planning).
3. Planning and control.
4. Realistic costing.
5. Financial incentive schemes.
6. Delivery date of goods.
7. Cost reduction and cost control.
8. Identifying substandard workers.
9. Training new employees.

STATISTICAL QUALITY CONTROL


The process of applying statistical principles to solve the problem of controlling the
quality control of a product of service is called Statistical Quality control. W.A.Shewart in
1931 introduced, the control charts on basis of statistical principles.
Quality Control (QC) may be defined as a system that is used to maintain a desired
level of quality in a product or service. It is a systematic control of various factors that affect
the quality of the product. It depends on materials, tools, machines, type of labour, working
conditions etc. Quality control aims at prevention of defects at the source, relies on effective
feedback system and corrective action procedure. Quality control uses inspection as a
valuable tool.

Definition:
According to Juran Quality control is the regulatory process through which we
measure actual quality performance, compare it with standards, and act on the difference.

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Unit-2: Operations Management 2.12 CSP
Quality is of two types:
a) Quality of design: It refers to product features such as performance, reliability,
durability, use, service, etc., in comparing two products.
b) Quality of conformance: It means whether the product meets the given quality
specifications or not.

TYPES OF QUALITY CONTROL


Quality Control is not a function of any single department or a person. It is the
primary responsibility of any supervisor to turn out work of acceptable quality. Quality
control can be divided into three main sub-areas, those are:
1. Off-Line Quality Control: Its procedure deal with measures to select and choose
controllable product and process parameters in such a way that the deviation between
the product or process output and the standard will be minimized. Much of this task is
accomplished through product and process design. Example: Taguchi method,
principles of experimental design etc.
2. Statistical Process Control: SPC involves comparing the output of a process or a
service with a standard and taking remedial actions in case of a discrepancy between
the two. It also involves determining whether a process can produce a product that
meets desired specification or requirements.
3. Acceptance sampling plans: A plan that determines the number of items to sample
and the acceptance criteria of the lot, based on meeting certain stipulated conditions
(such as the risk of rejecting a good lot or accepting a bad lot) is known as an
acceptance sampling plan.

STATISTICAL PROCESS CONTROL


Statistical process control (SPC) is the application of statistical techniques to
determine whether the output of a process conforms to the product or service design. It aims
at achieving good quality during manufacture or service through prevention rather than
detection. It is concerned with controlling the process that makes the product because if the
process is good then the product will automatically be good.

Confidence limit:
It indicates the range of confidence level. A confidence level refers to the probability
that the value of measurement or parameter, such as length of screw, is correct.
Ex: If a component is required with measurement of 50 mm. across, then the buyer
accepts all components measuring between 48 mm and 52 mm across, considering a five
percent confidence level.
Control limit:
Control limits are found in the control charts. There are two control limits 1) Upper
control limit (UCL) and 2) Lower control limit (LCL). These are determined based on the
principles of normal distribution.
Ex: In a pilot investigation of the length of the nails produced in the shop floor, it is
found that the mean length X is cm, the S.D 3, the measure of variability of the nails
produced 0.2 cm. How do you construct the control chart for this data.

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Unit-2: Operations Management 2.13 CSP

CONTROL CHARTS:
It is a technique of ensuring the quality of the products during the manufacturing
process itself. It aims to control and maintain the quality of products in manufacturing
process. It is carried out through control charts. A control chart compares graphically the
process performance data to compute statistical control limits. It is of two types:

1. Variable charts:
A variable is one whose quality measurement changes from unit to unit. The
quality of these variables is measured in terms of hardness, thickness, length, etc.
These are drawn using principles of normal distribution. It is meant for variable type
of data i.e. X-Bar chart and R charts.

X Charts:
In control charts for variables, to construct a chart, only the mean or the
average value of dimensions in the samples in plotted on it. Procedure for
construction X-Chart:
a) Compute average of averages X.
b) Calculate average of Range (R).
c) Multiply the average range by the conversion factor (A2). This gives A2R.
d) Calculate the upper control and lower control limits
Upper control limit (UCL) = X+A2R
Lower control limit (LCL) = X+A2R
Where, A2 are conversion factors from table of constants.

R Charts:
In control charts for variables, to construct a chart, only the mean or the
average value of dimensions in the samples in plotted on it. Procedure for
construction R-Chart:
a) Compute average of averages X and R for each of the samples obtained.
b) Calculate average of Range (R).
c) Multiply the average range by the conversion factor (D4 or D3).
d) Calculate the upper control and lower control limits
Upper control limit (UCL) = D4R
Lower control limit (LCL) = D4R
Where, D4 or D3 are conversion factors from table of constants.
R is average of sample ranges

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Unit-2: Operations Management 2.14 CSP
Table of constants for X and R charts
n A2 D3 D4
2 1.880 0 3.268
3 1.023 0 2.574
4 0.729 0 2.282
5 0.577 0 2.114
6 0.483 0 2.004
7 0.419 0.076 1.924
8 0.373 0.136 1.864
9 0.337 0.184 1.816
10 0.308 0.223 1.777

2. Attribute charts:
The quality of attributes can be determined on basis of yes or no. It is one in
which it is not possible to measures the quality characteristics of a product, i.e., it is
based on visual inspection only like good or bad, success or failure, accepted or
rejected. It is meant for attribute type of data i.e. C-chart and P-chart.

C Chart:
It is used where there are a number of defects per unit. Here the sample size
should be a constant. It is used when there are several independent defects that occur
in ever unit produced. It is calculated as:
Upper control limit (UCL) = c + 3c
Lower control limit (LCL) = c + 3c
Where,
Total No. of defects in all samples
c = -------------------------------------------
Total No. of samples inspected

P Chart:
It is used where there is data about the number of defectives per sample. It is
also known as fraction defective or percentage defective chart. It is classified on go
or nogo basis i.e. good or bad defective. It is calculated as:
Upper control limit (UCL) = p + 3[ p (1 p)] / n
Lower control limit (LCL) = p + 3[ p (1 p)] / n
where,
Total No. of defectives found
average defective (p) = --------------------------------------
Total No. of pieces inspected
n = No. of pieces inspected.

Management Science CS PATRO


Unit-2: Operations Management 2.15 CSP
ILLUSTRATIONS
1. Construct x and R charts from the following information and state whether the process
is in control for each of the following x has been computed from a sample of 5 units
drawn at an interval of half an hour from an ongoing manufacturing process.

Solution:
The mean of means =

Range is calculated as =

X Chart: X chart UCL and LCL compute at sample size 5 in A2 table value is 0.58

R Chart: R chart UCL and LCL compute at sample size 5 in D4 table value is 2.11
and D3 table value is 0

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Unit-2: Operations Management 2.16 CSP
2. From the following data prepare C - chart:

Solution:

3. For each of the 14 days a number of magnets used in electric relays are inspected and
the number of defectives is recorded. The total number of magnets tested is 14,000. The
following are the particular of the number of defectives found every day.

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Unit-2: Operations Management 2.17 CSP
Solution:

ACCEPTANCE SAMPLING
Acceptance sampling is a technique of deciding whether to accept the whole lot or not
based on the number of defectives from a random drawn sample. It is widely use in buying
food products, such as rice, wheat etc. Before buying the random samples drawn from the
bags of say rice are tested. If the quality of sample drawn looks good or free from defects
then according to the requirement the entire bag or part of it can be brought. The process of
acceptance sampling through operating characteristic curve (OCC):

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Unit-2: Operations Management 2.18 CSP
Operating characteristic curve (OCC):
The graphical relationship between percentage defective in the lots being submitted
for inspection and the probability acceptance is termed as operating characteristic of a
particular sampling plan.

It gives a clear picture about the probability of acceptance of lot for various values of
percent defectives in the lot. The probability of acceptance of a lot is high for low values of
actual percentage decrease and it is low for high values of actual percentage defectives.

Construction of OC curve:
To develop a sampling plan for acceptance sampling, an appropriate O.C curve must
be selected to construct an OC curve an agreement has to be reached between the producer
and the consumer on the following four points.
1. Acceptable quality level (AQL): This is the maximum proportion of defectives that
will make the lot definitely acceptable.
2. Lot tolerance percentage defective (LTPD): This is the maximum proportion of
defectives that will make the lot definitely unacceptable.
3. Producers risk (): This is the risk, the producer is willing to take that lots of the
quality level AQL will be rejected, even though, they are acceptable usually = 5%
4. Consumer risk (): This is the risk, the consumer is willing to take that lots of the
quality level LTPD will be accepted, even though, they are actually unacceptable
usually = 10%.

Management Science CS PATRO


Unit-2: Operations Management 2.19 CSP
MATERIALS MANAGEMENT
Materials management is a function, which aims for integrated approach towards the
management of materials in an industrial undertaking. Its main objective is cost reduction and
efficient handling of materials at all stages and in all sections of the undertaking. Its function
includes several important aspects connected with material, such as, purchasing, storage,
inventory control, material handling, standardization etc.
Materials management plays a significant role in controlling the costs and reducing
the wastage in a manufacturing industry. Most oftenly, 70% of the price of goods are towards
cost of materials and rest on wages, salaries, overheads and profits. It means material cost
form a significant portion of total cost. For running any industry or business, we need a
number of resources. These resources are popularly known as 5 M's of any Industrial activity
i.e. Men, Machines, Materials, Money and Management.
Materials refer to inputs into the production process, most of which are embodied in
the finished goods being manufactured. It may be raw materials, work in progress, finished
goods, spare parts, etc.

Objectives of Materials Management:


The objectives of integrated materials management can be classified in two categories:
1. Primary Objectives:
i) To purchase the required materials at minimum possible prices by following the
prescribed purchase policies and encouraging healthy competition.
ii) To achieve high inventory turnover.
iii) To incur minimum possible expenditure on administrative and other activities.
iv) To ensure that continuity of supply of materials.
v) To supply materials of consistent quality.
vi) To maintain good relationship with the suppliers of materials.
vii) To ensure training and development of employees.
2. Secondary Objectives:
a) To assist technical/design department in developing new materials and products.
b) To make economic 'make or buy' decisions.
c) To ensure standardization of materials.
d) To contribute in the product improvement.
e) To contribute in the development of inter departmental harmony.
f) To follow scientific methods of forecasting prices and future consumption.

INVENTORY MANAGEMENT
An inventory is a list of items or goods. Inventory and stock control are used
interchangeably in business circle. There are various types of inventory depending upon the
context or situations. For example, inventory in a library means the list of books, journals,
periodicals, furniture, fans, etc.
A typical firm carries different kinds of inventories such as: raw materials and
purchased parts; partially completed goods called work-in-process (WIP); finished-goods or
merchandise in retail stores; replacement parts, tools, and supplies; and goods-in-transit to
warehouses or customers (called pipeline inventory).
Generally a firm has about 30 percent of its current assets and as much as 90 percent
of its working capital invested in inventory. Because inventories may represent a significant
portion of total assets, a reduction of inventories can result in a significant increase in return
on investment (ROI) - a ratio of profit after taxes to total assets.

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Unit-2: Operations Management 2.20 CSP
It is, therefore, necessary to hold inventories of various kinds to act as a buffer
between supply and demand for efficient operation of the system. Thus, an effective control
on inventory is a must for smooth and efficient running of the production cycle with least
interruptions.

INVENTORY CONTROL
Inventory control is a planned approach of determining what to order, when to order
and how much to order and how much to stock so that costs associated with buying and
storing are optimal without interrupting production and sales. Inventory control basically
deals with two problems:
(i) When should an order be placed? (Order level), and
(ii) How much should be ordered? (Order quantity).
These questions are answered by the use of inventory models. The scientific inventory
control system strikes the balance between the loss due to non-availability of an item and cost
of carrying the stock of an item. Scientific inventory control aims at maintaining optimum
level of stock of goods required by the company at minimum cost to the company.

Objectives of Inventory Control:


1. To ensure adequate supply of products to customer and avoid shortages as far as
possible.
2. To make sure that the financial investment in inventories is minimum (i.e., to see that
the working capital is blocked to the minimum possible extent).
3. Efficient purchasing, storing, consumption and accounting for materials is an
important objective.
4. To maintain timely record of inventories of all the items and to maintain the stock
within the desired limits.
5. To ensure timely action for replenishment.
6. To provide a reserve stock for variations in lead times of delivery of materials.
7. To provide a scientific base for both short-term and long-term planning of materials.

ECONOMIC ORDER QUANTITY (EOQ)


It is defined as that quantity of material, which can be ordered at one time to minimize
the cost of ordering and carrying the stocks. It refers to the size of each order that keeps the
total cost low. The framework used to determine this order quantity is also known as Wilson
EOQ Model or Wilson Formula. It is also known as quantitative technique. It depends on
two types of costs:

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Unit-2: Operations Management 2.21 CSP
1. Inventory Ordering Costs: The cost refer to the cost incurred to procure the materials
particularly in large organizations, these cost are significant. This is also called as
procurement cost.
Definition: It is the cost of placing an order from a vendor. This includes all costs
incurred from calling for quotation to the point at which the item is taken into stock.
Ex: Receiving quotations, processing purchase requisition, Receiving materials and
then inspecting it, Follow up and expediting purchase order, processing sellers
invoice.

2. Inventory carrying cost: Carrying cost which are also known as holding costs are the
costs incurred in maintaining the stores in the firm. They are based on average inventory.
Ex: Storage cost includes: Rent for storage facilities, Salary of person and related storage
expenses, Cost of insurance, Cost of capital.

Determining EOQ:
(a) Graphical Method:
Total cost = ordering costs + carrying costs
EOQ = quantity at which total cost is minimum

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Unit-2: Operations Management 2.22 CSP
Algebraic Method:
Step-1:
Total ordering cost per year = No. of order placed per year x ordering costs per order
=A/SxO
Step-2:
Total carrying cost per year = Average inventory level x carrying cost per year
=S/2xC
Where, A = Annual Demand
S = Size of each order (units per order)
O = ordering cost per order
C = carrying cost per unit
Step-3:
EOQ = TOC = TCC
=A/SxO
=S/2xc
2AO = S2C
S2 = 2AO / C
S = 2AO / C
2
EOQ =
Where,
EOQ is the size of economic order quantity
A is the annual demand in units
O is the ordering costs per order
C is the carrying cost per unit

ILLUSTRATIONS
1. A biscuit manufacturing company buys lot bags of 10,000 bags wheat per annum. The
cost per bag is Rs.500 and ordering cost is Rs.400. The inventory carrying cost is
estimated at 10% of the price of the wheat. Determine EOQ and number of orders
required per year.
Solution:
Annual demand (A) = 10,000 bags
Ordering cost per order (O) = Rs.400
Carrying cost per unit (C) = 10% of Cost price
= 0.10 x 500 = Rs.50/-

EOQ = 400 bags

In the above case, the company has to place 25 orders to optimize its ordering and
carrying costs.

Management Science CS PATRO


Unit-2: Operations Management 2.23 CSP
2. An oil engine manufacturer purchases lubricants at the rate of Rs.42 per piece from a
vendor. The requirements of these lubricants are 1800 per year. What should be the
ordering quantity per order, if the cost per placement of an order is Rs.16 and inventory
carrying charges per rupee per year is 20 paise.
Solution:
Given data are:
Number of lubricants to be purchased, A = 1800 per year
Procurement cost, O = Rs. 16 per order
Inventory carrying cost, C = Rs. 42 Re. 0.20 = Rs. 8.40 per year
Then, optimal quantity (EOQ),
2
EOQ =
2 x 1800 x 16
= 8.4

= 82.8 or 83 lubricants (approx).

3. A manufacturing company purchase 9000 parts of a machine for its annual


requirements ordering for month usage at a time, each part costs Rs. 20. The ordering
cost per order is Rs. 15 and carrying charges are 15% of the average inventory per
year. You have been assigned to suggest a more economical purchase policy for the
company. What advice you offer and how much would it save the company per year?
Solution:
Given data are:
Number of lubricants to be purchased, A = 9000 parts per year
Cost of the part = Rs. 20
Procurement cost, O = Rs. 15 per order
Inventory carrying cost, C = 15% of cost of the part
= Rs. 20 0.15 = Rs. 3 per each part per year
Then, optimal quantity (EOQ),
2
Q=
2 x 9000 x 56
= 3
= 300 units

And, Optimum order interval, (to) = Q/D in years


= 300 / 9000
= 1/30 years

Minimum average cost = 2.A.C.O


= 2 x 9000 x 15 x 3
= Rs.900

If the company follows the policy of ordering every month, then the annual ordering cost is
= Rs 12 15
= Rs. 180

Lot size of inventory each month = 9000/12


= 750

Management Science CS PATRO


Unit-2: Operations Management 2.24 CSP
Average inventory at any time = Q / 2
= 750/2
= 375

Therefore, storage cost at any time = 375 C


= 375 3
= Rs. 1125

Total annual cost = 1125 + 180


= Rs. 1305

Hence, the company should purchase 300 parts at time interval of 1/30 year instead of
ordering 750 parts each month. The net saving of the company will be
= Rs. 1305 Rs. 900
= Rs. 405 per year.

4. The XYZ Ltd. carries a wide assortment of items for its customers. One of its popular
items has annual demand of 8000 units. Ordering cost per order is found to be Rs.12.5.
The carrying cost of average inventory is 20% per year and the cost per unit is Re. 1.00.
Determine the optimal economic quantity and make your recommendations.

Solution:

The table and the graph indicates that an order size of 1000 units will gives the
lowest total cost among the different alternatives. It also shows that minimum total
cost occurs when carrying cost is equal to ordering cost.

Management Science CS PATRO


Unit-2: Operations Management 2.25 CSP
ABC ANALYSIS
It is a technique of controlling inventories based on their value and quantities. It is
remembered as Always Better Control. In this analysis, the classification of existing
inventory is based on annual consumption and the annual value of the items. Hence we obtain
the quantity of inventory item consumed during the year and multiply it by unit cost to obtain
annual usage cost.
The items are then arranged in the descending order of such annual usage cost. The
analysis is carried out by drawing a graph based on the cumulative number of items and
cumulative usage of consumption cost.
Classification is done as follows:
Category Value (%) Volume (%) Degree of Control
A 70 10 Strict
B 20 20 Moderate
C 10 70 Low

100

90 C
Volume of Inventory (Rs.)
70

0 10 30 100
Volume of inventory (units)

A Category:
It comprises of inventory which are costly and valuable. Normally 70% of funds are
tied up in costly stocks, which would be 10% of total volume of stock and these require strict
monitoring on a day to day basis.
B Category:
It comprises of inventory which is less costly. 20% of funds are tied up in such stocks
which are 20% of total of stocks. These require monitoring on a weekly or fortnightly basis.
C Category:
It consists of least cost inventory. 10% of funds are tied up in such stocks which are
70% of total volume. It can be monitored on a monthly or bi-monthly basis.
For effective inventory control, combination of the techniques of ABC with VED or
ABC with HML or VED with HML analysis is practically used.

Advantages of ABC Analysis:


(1) Exercise selective control is possible.
(2) Focus high attention on high value items is possible.
(3) It helps to reduce the clerical efforts and costs.
(4) It facilitates better planning and improved inventory turnover.
(5) It facilitates goods storekeeping and effective materials handling.

Management Science CS PATRO


Unit-2: Operations Management 2.26 CSP
ILLUSTRATION

1. A computer hardware company has organized its 10 items on an annual dollar-


volume basis. Details like item numbers, their annual demand, unit cost, annual dollar
volume, and percentage of the total represented by each item are shown in Table.
Solution:
The items are classified as A, B, and C in the Table and the same is shown
graphically in the accompanied figure.

ABC Analysis of 10 Items


Item no. % of no. of Annual Unit cost Annual $ % of annual Combined Class
items volume ($) volume Dollar volume %
stocked (Units) = (3)
(1) (3) (4) (4)
1 (2)
20% 1000 90.00 90,000 38.8% 72% A
2 500 154.00 77,000 33.2% A
3 30% 1550 17.00 26,350 11.3% 23% B
4 350 42.86 15,001 6.4% B
5 1000 12.50 12,500 5.4% B
6 50% 600 14.17 8,502 3.7% 5% C
7 2000 0.60 1,200 0.5 % C
8 100 8.50 850 0.4 % C
9 1200 0.42 504 0.2 % C
10 250 0.60 150 0.1 % C
8550 $232,057 100%

Note that C type items are not necessarily unimportant; incurring a stock-out of C
items such as the nuts and bolts used to assemble manufactured goods can result in a costly
shutdown of an assembly line. However, due to the low annual dollar volume of C items,
there may not be much additional cost incurred by ordering larger quantities of some items,
or ordering them a bit earlier.

Management Science CS PATRO


Unit-2: Operations Management 2.27 CSP
OTHER TECHNIQUES
1. HML Analysis: In this analysis, the classification of existing inventory is based on
unit price of the items. It refers to:
H High price items, unit value of > Rs.1000
M Medium price items, unit value of Rs.100 to Rs.1000
L Low price items, unit value of < Rs.100

2. VED Analysis: In this analysis, the classification of existing inventory is based on


criticality of the items. It is mainly used in spare parts inventory. It refers to:
V Vital spare part: If there is shortage in this category production would
come to a halt. So large stock should be maintained
E Essential spare part: Stock costs of these parts are very high. Here
production will not stop but the efficiency of production will be affected.
D Desirable parts: Not so essential. These are readily available.

3. FSN Analysis: In this analysis, the materials are classified based on their movement
from inventory for a specified period. Items are classified on basis of their
consumption. Higher the stay of an item in the inventory, the slower would be the
movement of the material. This analysis helps to avoid investments on non-moving
items. It refers to:
F Fast moving materials.
S Slow moving materials.
N Non-moving materials.

4. SDE Analysis: This analysis is mainly used in procurement of raw materials. It states
whether the particular raw material is easy or difficult to procure. It refers to:
S Secure: Raw materials that are scarce in the manufacturing place and have
to import from other locations. Supply of this type of raw material is very less.
D Difficult: Raw materials that are available indigenously but are difficult to
procure.
E Easily available: Raw materials that are easily available to the nearby
markets and are easy to procure.

5. GOLF analysis: In this analysis, the classification of existing inventory is based


sources of the items. They are classified as:
G - Government supply
O - Ordinarily available
L - Local availability
F - Foreign source of supply

6. SOS analysis: In this analysis, the classification of existing inventory is based nature
of supply of items. They are classified as:
S - Seasonal items
OS - Off-seasonal items

Management Science CS PATRO


Unit-2: Operations Management 2.28 CSP
IMPORTANT QUESTIONS

1. What are the objectives of plant layout? Explain the factors influencing plant layout.
2. What do you understand by product layout? Analyse the advantage & disadvantage of
product layout.
3. What do you understand by plant layout? What is it importance and explain various
principles of Plant layout.
4. What is a fixed position layout and under what conditions do you adopt it? Explain.
5. Compare and contrast Product and Process layout.
6. What are different types of plant layout?
7. What is SQC? Explain the various techniques of SQC and throw light on their
limitations?
8. What are the objectives of work measurement? Briefly point out the methods of work
measurement?
9. What are the different types of charts and diagrams used in work study
investigations?
10. What do you mean by work study/ Explain the basic procedure involved in method
study and work measurement.
11. Name the various recording techniques used in Method Study. Give the various
symbols used in recording with their meaning?
12. What are the symbols used in process charts. How is process charts prepared?
13. What is time study? Explain its need and procedure for conducting time study.
14. What is work study? State its objectives and state the tools of work study.
15. What is Quality Control? Explain the techniques of quality control?
16. What is meant by Acceptance Sampling? Explain with graphs?
17. Graphically represent economic order quantity and explain the type of costs that go
into them.
18. Discuss the procedure of classifying inventory into A,B,C categories.
19. The demand for a product is 30000 units per annum. Cost per unit is Rs 4,
procurement cost is Rs.60 per order and carrying cost is 20% of inventory value.
Determine EOQ.
20. Define Inventory control and state objectives of inventory control and what are the
steps involved in inventory control function. Explain briefly?
21. What is meant by SQC? What is the importance is identified by the company for its
usage.
22. Explain the functions of material manager. How is the activities need coordination
with other functional areas?
23. What is meant by inventory? What is the need for inventory control at different stages
of production? What are the different costs involved in maintaining inventory?

Management Science CS PATRO


Unit-3: Human Resource Management 3.1 CSP
UNIT III
HUMAN RESOURCE MANAGEMENT

CONCEPT OF HRM
Human Resource Management (HRM) is a relatively new approach to managing
people in any organisation. People are considered the key resource in this approach. Human
Resource Management is a process, which consists of four main activities, namely,
acquisition, development, motivation, as well as maintenance of human resources. Human
Resource Management is responsible for maintaining good human relations in the
organisation. It is also concerned with development of individuals and achieving integration
of goals of the organisation and those of the individuals.

Definition:
1. Scott, Clothier and Spriegel, Human Resource Management as that branch of
management which is responsible on a staff basis for concentrating on those aspects
of operations which are primarily concerned with the relationship of management to
employees and employees to employees and with the development of the individual
and the group.
2. Edwin B. Flippo, Human resource management is planning, organizing, directing
and controlling of the procurement, development, and resources to the end that
individual and societal objectives are accomplished.

Nature of Human Resource Management:


The nature of the human resource management has been highlighted in its following
features:
1. Inherent Part of Management: Human resource management is inherent in the
process of management. This function is performed by all the managers throughout
the organisation rather that by the personnel department only. If a manager is to get
the best of his people, he must undertake the basic responsibility of selecting people
who will work under him.
2. Pervasive Function: Human Resource Management is a pervasive function of
management. It is performed by all managers at various levels in the organisation. It is
not a responsibility that a manager can leave completely to someone else. However,
he may secure advice and help in managing people from experts who have special
competence in personnel management and industrial relations.
3. Basic to all Functional Areas: Human Resource Management permeates all the
functional area of management such as production management, financial
management, and marketing management. That is every manager from top to bottom,
working in any department has to perform the personnel functions.
4. People Centered: Human Resource Management is people centered and is relevant in
all types of organizations. It is concerned with all categories of personnel from top to
the bottom of the organisation. The broad classification of personnel in an industrial
enterprise may be as
Blue-collar workers (i.e. those working on machines and engaged in loading,
unloading etc.) and white-collar workers (i.e. clerical employees),
Managerial and non-managerial personnel,
Professionals (such as Chartered Accountant, Company Secretary, Lawyer,
etc.) and non-professional personnel.

Management Science CS PATRO


Unit-3: Human Resource Management 3.2 CSP
5. Personnel Activities or Functions: Human Resource Management involves several
functions concerned with the management of people at work. It includes manpower
planning, employment, placement, training, appraisal and compensation of
employees. For the performance of these activities efficiently, a separate department
known as Personnel Department is created in most of the organizations.
6. Continuous Process: Human Resource Management is not a one shot function. It
must be performed continuously if the organisational objectives are to be achieved
smoothly.
7. Based on Human Relations: Human Resource Management is concerned with the
motivation of human resources in the organisation. Human relations skills are also
required in training performance appraisal, transfer and promotion of subordinates.

HUMAN RESOURCE DEVELOPMENT (HRD)


Human Resource Development is a continuous and planned process. It is viewed as a
process to help employees:
(a) To acquire and sharpen their capabilities to perform better.
(b) To enable them to discover their own potential and utilize them for organizational
development.
(c) To develop an organizational culture that reflects strong superior subordinate
relationships, team work, motivation, etc.
According to HRD, the employees must continuously acquire capabilities and sharpen
and use them. Organizations should develop enabling culture, wherein the employees take
initiative and risks in the process of achieving their goals, experiment, and make things
happen.

Nature of the HRD:


1. System Perspective: HRD is said to be core of a larger system known as Human
Resource System. It is concerned with providing learning experience for the
organizational members to develop their competencies. HRD is only a sub-system of
the organization which is integrated with all other sub-systems such as production,
finance, marketing etc.
HRD is viewed as a system consisting of several interdependent and
interrelated sub-systems. These include performance appraisal, potential appraisal,
role analysis, training, job enrichment, communication etc. In designing a human
resources development system enough attention should be paid to building linkages
can be established in number of ways depending upon the companies of the system.

2. Behavioural Science Knowledge: Human Resources Development makes the use of


the principles and concepts of behavioural science for the development of the people.
It uses knowledge drawn from the psychology, sociology and anthropology for
planning and implementing various programs for the development of individuals,
groups and organization.

3. Quality of life: In general, HRD has its relevance to the quality of human life
improvement. At the organizational level, it is concerned with improving the quality
of work life so as to achieve greater satisfaction of employees and higher level of
productivity.

Management Science CS PATRO


Unit-3: Human Resource Management 3.3 CSP
4. Continuous Process: As a dynamic and proactive process, HRD believes in and
emphasize the need for continuous development of personnel to face the
innumerable challenges in the functioning of an organization. However, HRD
mechanisms, process, policies, etc. differ from organization to organization to suit the
need of the situation. HRD sub-systems are deeply interlinked with social, cultural,
economic and political factors.

PERSONNEL MANAGEMENT AND INDUSTRIAL RELATIONS (PMIR)


It is the process of acquiring, developing, employing, appraising, remunerating and
retaining people, so that right type of people available at right position and at right time in the
organization. A personal manager is primarily concerned with taking care of human
relationships in the organization.

Definition:
According to Edwin B. Flippo, Personal Management is defined as the planning,
organizing, directing and controlling of procurement, development, compensation, integration
and maintenance of people for the purpose of contributing to the organizational goals.

Features of PMIR:
1. It is concerned with managing people at all levels in the organization.
2. It is concerned with employees both at individual and group.
3. It is a method of helping the employees to identify and develop their potential.
4. It is a method to solve, intelligently and equitably, the problems of organizations
pertaining to management of HR.
5. It is required in every organization in the form of services of the personnel manager.

Functions of PMIR:
1. Recruitment and maintenance of labour force: This function includes attracting,
screening, testing, hiring and inducting men on the job.
2. Training: Training is a must to prepare the worker to meet the challenges of the new
jobs or techniques and to maintain and to improve the quality of work so that the
employees may earn more for them and contribute more to the unit.
3. Job analysis and Job description: It involves the studies of job requirements of the
enterprise and assignment of well defined functions to jobs so that qualified
employees may be hired. It forms the basis of wage determination
4. Compensation: It includes, determining wage rates, incentive systems, rating of
employees and performance standards.
5. Keeping personnel records: It includes collection of bio-data of all employees
pertaining to their work, i.e., training, job performance, aptitude, payment records etc.
6. Welfare: It includes health and safety program, sanitary facilities, recreational
facilities, educational activities etc.

HRM vs. PMIR


Personnel Management refers to the activities of a specialist responsible for devising
and executing the personnel policies and strategies in the organization. Recently it is being
referred as HRM. According to Storey, there are 27 differences between HRM and PMIR
under 4 heads:

Management Science CS PATRO


Unit-3: Human Resource Management 3.4 CSP
1. Beliefs and Assumptions:
In PMIR, the terms and conditions are clearly defined with each of the
employee. It is defined as to what the employee has to do and also what the employees
have to do. The rules, norms and customs set precedence for human behaviour.
In HRM, the aim is to go beyond the contract. The people do not like to be
controlled by rules. The actions of management are justified by business needs. People
tend to do all that is required to achieve the mission.

2. Strategic Aspects:
In PMIR, the key issue is the labour management relation i.e., look for further
instructions at every critical stage.
In HRM, the focus is on customer, the initiatives are integrated. It makes the
decision making process faster.

3. Line Management:
In PMIR, the management role is restricted to each transaction. The initiatives
of line managers make a lot of difference and degree of standardization of any issue is
high.
In HRM, the role of leadership is more chain oriented. The communication is
direct and standardization is low. The differences between line and staff managers are
reducing.

4. Key Levels:
It offers a solution to the given problem, such as deployment of human resources,
evaluation and rewarding of performance, etc. these are the most critical and central
issues of difference between HRM and PMIR.

Difference between HRM and PMIR:


Dimension PMIR HRM
1. Contract Careful of written contracts Aim to go beyond contract
2. Rules Importance of devising Can do outlook, impatience
clear rules with rules
3. Guide to Procedures Business needs
management action
4. Behaviour referent Norms or customs and Values or mission
practice
5. Managerial task monitoring Nurturing
6. Nature of relations Pluralist Unitarist
7. Conflict Institutionalized De-emphasized
8. Key Relations Labour management Customer
9. Initiatives Piecemeal Interpreted
10. Corporate plan Marginal Central
11. Speed of Decision Slow Fast
12. Management Role Transactional Transformational leadership
13. Key managers Personal or IR specialists General or line managers
14. Communication Indirect Direct
15. Standardization High Low
16. Prized management Negotiation Facilitation
skills

Management Science CS PATRO


Unit-3: Human Resource Management 3.5 CSP
17. Selection Separate, managerial task Integrated, key task
18. Pay Job evaluation, fixed grades Performance related
19. Conditions Separately negotiated Harmonization
20. Labour management Collective bargaining Towards individual contract
contracts
21. Thrust of relations Regularized through Marginalized with
with stewards facilities and training bargaining
22. Job categories and Many Few
grades
23. Communication Restricted flow Increased flow
flow
24. Job Design Division of labour Team work
25. Conflict Handling Temporary truce Manage climate and culture
26. Training and Controlled access to courses Learning companies
Development
27. Foci of attention for Personnel procedures Wide ranging cultural,
interventions structural and personnel
strategy

FUNCTIONS OF HR MANAGER
The various functions of a HR Manager are as follows:
1. Manpower Planning: Manpower planning is also known as human resource planning
(HRP). It may be defined as a rational method of accessing the requirements of
human resources at different level in an organization. It ends with proposals of
recruitment, retention or dismissal. Through planning a management strives to have
the right number and the right kinds of people at the right places, at the right time, to
do things which result in both the organisation and the individual receiving the
maximum long-range benefit.
Importance of Manpower planning:
1. It directly contributes to achieve the corporate objectives.
2. It enables to secure the right kind of quantity of human resources at different
levels.
3. It helps decision makers in search for optimum strategy.
4. It helps the line managers to highlight the existing problems in managing the
HR under their control.
5. It provides an adequate basis to take meaningful decisions.

2. Recruitment: Recruitment means search of the prospective employee to suit the job
requirements as represented by job specificationa technique of job analysis. When the
manpower plan reveals the need for additional people in organization, the manager
has to initiate the search for employees and see that they apply for jobs in the
organization. Recruitment is often called Positive function. At this stage the
applications are invited for further scrutiny and short-listing.
The sources of recruitment includes internet, executive search agencies,
employment exchanges, university and college campus, Ads in TV and Radio,
recommendation of existing employees, etc.

Management Science CS PATRO


Unit-3: Human Resource Management 3.6 CSP
3. Selection: The process of identifying the most suitable persons for the organization is
called selection. It is also called Negative function because here applications are
screened and shortlisted on the basis of selection criteria. The main purpose is to
choose right person for right job. The selection procedure, depending upon the cadre,
involves different stages. The organizations are free to formulate their own selection
procedures, as there is no standard practice.
Normally a selection process involves: Initial screening or short listing,
Comprehensive application or bio-data screening, Aptitude or written tests, Group
discussions, Personal interview, Medical examination, Employment offer.

4. Training and Development skills: Training is an organized activity for increasing


the knowledge and skills of people for a definite purpose. It involves systematic
procedures for transferring technical know-how to the employees so as to increase
their knowledge and skills for doing specific jobs with proficiency. In other words,
the trainees acquire technical knowledge, skills and problem solving ability by
undergoing the training programme.
The training methods are differed into two categories:
On-the-job training methods: It is designed to make employees immediately
productive. It is learning by physically doing the work. These methods
include: Job instruction training, Experimental learning, Demonstration,
Apprentice learning.
Off-the-job training Methods: It is meant for developing an understanding of
general principles, providing background knowledge, generating an awareness
of comparative ideas and practice. It includes: Lectures or talks and class room
instructions, Conferences, Seminars, Team discussions, Case study, Role
planning, Programmed instructions.

5. Placement: After training the employee is placed in his position under the charge of a
manager. The new recruit is allowed to exercise full authority and is held responsible
for the results. Placement involves assigning a specific job to each one of the selected
candidates. However, placement is not simple as it looks. It involves striking a fit
between the requirements of a job and the qualifications of a candidate. The
importance of placement is that it reduces employees turnover, absenteeism,
accidents and dissatisfactions.

6. Salary and Wage Administration: Compensation is the Human Resources


Management function that deals with the every type of reward individuals receives in
the exchange for performing organizational tasks. It is the major cost of doing the
business for many organizations. It is the chief reason why some individuals seek
employment. The objective of the compensation is to create the system of rewards that is
equitable to the employers and employees alike. The desired outcome of the
employees is to attract the employees towards the tasks.
The salary constitutes of the Basic Salary, Dearness Allowance (DA), House
Rent Allowance (HRA) and other allowances. Some other benefits include profit
sharing, bonus, leave travel concessions, medical reimbursement, provident fund,
gratuity, group insurance schemes, pension, accident compensation, leave with pay,
educational allowance, etc.

Management Science CS PATRO


Unit-3: Human Resource Management 3.7 CSP
7. Promotion: It refers to the advancement of an employee to a job with a higher
authority and responsibility. It may also carry better compensation package. It is
viewed as a means of filling up vacancies in the organization from time to time. The
basis of promotion could be merit or seniority depending upon the nature and level of
job. As and when the vacancies arise, the qualified staff may get promotion.

8. Transfer: It is a lateral shift that moves an individual employee from one position to
another i.e. it may be in same department or to a different department or location. To
optimize the human resources at different locations or departments, employees are
transferred from one location to another. It is also viewed as a tool for punishing the
employee in case of misconduct or misbehavior. It does not involve any change in
salary, duties and responsibilities.

9. Separation: It refers to termination of employment i.e. the employee is separated


from his job. It is also called as dismissal. In case of misconduct or misbehavior or
where the employee is not in a position to improve his performance, he is terminated.

MANPOWER PLANNING
Manpower planning is also known as Human Resource Planning (HRP). Human
Resource Planning is concerned with the planning the future manpower requirements are the
organisation. Human Resource planning is the process by which a management determines
how an organisation should move from its current manpower position to its desired
manpower position. Through planning a management strives to have the right number and the
right kinds of people at the right places, at the right time, to do things which result in both the
organisation and the individual receiving the maximum long-range benefit.
Definition:
1. Coleman Human Resource Planning as the process of determining manpower
requirements and the means for meeting those requirements in order to carry out the
integrated plan of the organisation.
2. Leap and Crino HRP includes the estimation of how many qualified people are
necessary to carry out the assigned activities, how many people will be available, and
what, if anything, must be done to ensure that personnel supply equals personnel
demand at the appropriate point in the future.
Objectives of HR Planning:
The objectives of human resource planning may be summarized as below:
1. Forecasting Human Resources Requirements: HRP is essential to determine the
future needs of HR in an organization. In the absence of this plan it is very difficult to
provide the right kind of people at the right time.
2. Effective Management of Change: Proper planning is required to cope with changes
in the different aspects which affect the organization. These change needs
continuation of allocation/reallocation and effective utilization of HR in organization.
3. Realizing the Organizational Goals: In order to meet the expansion and other
organizational activities the organizational HR planning is essential.
4. Promoting Employees: HRP gives the feedback in the form of employee data which
can be used in decision-making in promotional opportunities to be made available for
the organization.
5. Effective Utilization of HR: The data base will provide the useful information in
identifying surplus and deficiency in human resources.

Management Science CS PATRO


Unit-3: Human Resource Management 3.8 CSP
Manpower Planning Process (HRP Process):
Human resource planning refers to a process by which companies ensure that they
have the right number and kinds of people at the right place, at the right time; capable of
performing different jobs efficiently. Planning the use of human resources is an important
function in every organisation. A rational estimate to various categories of personnel in the
organisation is an important aspect of human resource planning.
HRP involves the following process:

Corporate Goals and Resources


----------------------------------------------------------------------------------------------------------------
Departmental targets and resources
Department
Level Identify and Analyze workload

Access manpower requirements

Succession plan Employee Turnover Employee Development

Shortage or Surplus of Staff


----------------------------------------------------------------------------------------------------------------
Formulate strategies for
Succession, Recruitment, Redundancy, Employee Development

Top Management Review


Company
Level Financial Clearance

Management Approval
---------------------------------------------------------------------------------------------------------------
Action Plans

Evaluation and Control

Steps in Human Resource Planning:


1. The manpower planning starts with identifying the corporate goals and resources.
2. Each department has to identify their targets and resources allocated.
3. Analyze their work load and access manpower requirements.
4. They have to formulate succession plan, training programs for employee
development and employee turnover.
5. In case of additional staff required, plan for recruitment and in case of surplus,
discharge them.
6. Accordingly the proposals are made to top management. They review the
proposal.
7. After getting clearance, the departments evaluate the financial terms.
8. After approval, they formulate action plans to implement the decisions.
9. Action plans are evaluated and controlled in terms of department requirements
and financial constraints.

Management Science CS PATRO


Unit-3: Human Resource Management 3.9 CSP
RECRUITMENT
Recruitment means search of the prospective employee to suit the job requirements as
represented by job specificationa technique of job analysis. It is the first stage in selection
which makes the vacancies known to a large number of people and the opportunities that the
organisation offers. In response to this knowledge, potential applicants would write to the
organisation. The process of attracting people to apply in called recruitment.
Definition:
1. Dale S. Beach - Recruitment as the development and maintenance of adequate
manpower resources. It involves the creation of a pool of available labour upon whom
the organisation can depend when it needs additional employees.
2. Edwin B. Flippo - Recruitment is the process of searching for prospective employees
and stimulating them to apply for jobs in the organisation.

Sources of Recruitment
The various sources of recruitment are generally classified as:
1. Internal Sources:
This refers to the recruitment from within the company. The various internal
sources are promotion, transfer, past employees and internal advertisements.

2. External Sources:
External sources refer to the practice of getting suitable persons from outside. The
various external sources are advertisement, employment exchange, past employees,
private placement agencies and consultants, walks-ins, campus recruitment, trade unions,
etc. The following external sources of recruitment are commonly used by the big
enterprises:
1. Direct Recruitment: An important source of recruitment is direct recruitment by
placing a notice on the notice board of the enterprise specifying the details of the jobs
available. It is also known as recruitment at factory gate. It is generally followed for
filling casual vacancies requiring unskilled workers. This method of recruitment is
very cheap as it does not involve any cost of advertising vacancies.

2. Casual Callers: The organisations which are regarded as good employers draw a
steady stream of unsolicited applications in their offices. This serves as a valuable
source of manpower. If adequate attention is paid to maintain pending application
folders for various jobs, the personnel department may find the unsolicited
applications useful in filling the vacancies whenever they arise.

3. Media Advertisement: Advertisement in newspapers or trade and professional


journals is generally used when qualified and experienced personnel are not available
from other sources. Advertisement gives the management a wider range of candidates
from which to choose. Its disadvantage is that it may bring in a flood of response, and
many times, from quite unsuitable candidates.

4. Employment Agencies: Employment exchanges run by the Government are regarded


as a good source of recruitment for unskilled, semi-skilled and skilled operative jobs.
In some cases, compulsory notification of vacancies to the employment exchange is
required by law. Thus, the employment exchanges bring the jobs givers in contact
with the job seekers.

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Unit-3: Human Resource Management 3.10 CSP
5. Management Consultants: Management consultancy firms help the organisations to
recruit technical, professional and managerial personnel. They specialize middle level
and top level executive placements. They maintain data bank of persons with different
qualifications and skills and even advertise the jobs on behalf their clients to recruit
right type of personnel.

6. Campus Recruitment: Jobs in industry have become increasing technical and


complex to the point where college degrees are widely required. Consequently big
organisations maintain a close liaison with the universities, vocational institutes and
management institutes for recruitment to various jobs. It is also known as campus
recruitment.

7. Recommendation: Applicants introduced by friends and relatives may prove to be a


good source of recruitment. In fact, many employers prefer to take such persons
because something about their background is known. When a present-employee or a
business friend recommends someone for a job, a type of preliminary screening is
done and the person is placed on a job.

8. Labour Contractors: Labour contractors are an important source of recruitment in


some industries in India. Workers are recruited through labour contractors who are
themselves employees of the organisation. The disadvantage of this system is that if
the contractor leaves the organisation, all the workers, employed through him will
also leave. That is why this source of labour is not preferred by many business
organizations.

9. Telecasting: The practice of telecasting of vacant posts over T.V. is gaining


importance these days. Special programmes like Employment News, etc, over the
T.V have become quite popular in recruitment for various types of jobs. The detailed
requirements of the job and the qualities required to do it are publicized along with
the profile of the organisation where vacancy exists.

10. Raiding: Raiding is a technical term used when employees working elsewhere are
attracted to join organisations. The organisations are always on the lookout for
qualified professionals, and are willing to offer them a better deal if they make the
switch. There are always some employees who are professionally very competent, but
dissatisfied with something or the other in the organisation.

SELECTION
.

The process of identifying the most suitable persons for the organization is called
selection. It is also called Negative function because here applications are screened and
shortlisted on the basis of selection criteria. The main purpose is to choose right person for
right job. The selection procedure, depending upon the cadre, involves different stages. The
organizations are free to formulate their own selection procedures, as there is no standard
practice. Selection is the process of picking up individuals (out of the pool of job applicants)
with requisite qualifications and competence to fill jobs in the organization.
Definition:
Selection is the process of differentiating between applicants in order to identify and
hire those with a greater likelihood of success in a job.

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Unit-3: Human Resource Management 3.11 CSP
Essentials of a Good Selection Practice:
1. Detailed job descriptions and job specifications prepared in advance and endorsed by
personnel and line management.
2. Trained the selectors.
3. Determine aids to be used for selection process.
4. Check competence of recruitment consultants before retention.
5. Involve line managers at all stages.
6. Attempt to validate the procedure.
7. Help the appointed candidate to succeed by training and management development.

Steps in Selection:
1. Preliminary Interview: The purpose of preliminary interviews is basically to
eliminate unqualified applications based on information supplied in application forms.
The basic objective is to reject misfits. On the other hands preliminary interviews is
often called a courtesy interview and is a good public relations exercise.
2. Selection Tests: Jobseekers who past the preliminary interviews are called for tests.
There are various types of tests conducted depending upon the jobs and the company.
These tests can be Aptitude Tests, Personality Tests, and Ability Tests and are
conducted to judge how well an individual can perform tasks related to the job.
Besides this there are some other tests also like Interest Tests (activity preferences),
Graphology Test (Handwriting), Medical Tests, Psychometric Tests etc.
3. Employment Interview: The next step in selection is employment interview. Here
interview is a formal and in-depth conversation between applicants acceptability. It is
considered to be an excellent selection device. Interviews can be One-to-One, Panel
Interview, or Sequential Interviews. Besides there can be Structured and Unstructured
interviews, Behavioral Interviews, Stress Interviews.
4. Reference & Background Checks: Reference checks and background checks are
conducted to verify the information provided by the candidates. Reference checks can
be through formal letters, telephone conversations. However it is merely a formality
and selections decisions are seldom affected by it.
5. Selection Decision: After obtaining all the information, the most critical step is the
selection decision is to be made. The final decision has to be made out of applicants
who have passed preliminary interviews, tests, final interviews and reference checks.
The views of line managers are considered generally because it is the line manager
who is responsible for the performance of the new employee.
6. Physical Examination: After the selection decision is made, the candidate is required
to undergo a physical fitness test. A job offer is often contingent upon the candidate
passing the physical examination.
7. Job Offer: The next step in selection process is job offer to those applicants who
have crossed all the previous hurdles. It is made by way of letter of appointment.
8. Contract of Employment: After the job offer is made and candidates accept the
offer, certain documents need to be executed by the employer and the candidate. Here
is a need to prepare a formal contract of employment, containing written contractual
terms of employment etc.

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Unit-3: Human Resource Management 3.12 CSP
TRAINING AND DEVELOPMENT
Training is an organized activity for increasing the knowledge and skills of people for
a definite purpose. It involves systematic procedures for transferring technical know-how to
the employees, so as to increase their knowledge and skills for doing specific jobs with
proficiency. In other words, the trainees acquire technical knowledge, skills and problem
solving ability by undergoing the training programme.
Training makes newly appointed workers fully productive in the minimum of time.
Training is equally necessary for the old employees whenever new machines and equipment
are introduced and/or there is a change in the techniques of doing the things. In fact, training
is a continuous process. It does not stop anywhere. The managers are continuously engaged
in training their subordinates. The purpose of training is to bring about improvement in the
performance of work. They should ensure that any training programme should attempt to
bring about positive Changes in the Knowledge, Skills, and Attitudes of the workers.

Definition:
According to Edwin B. Flippo, Training is the act of increasing the knowledge and
skills of an employee for doing a particular job.

Need and Importance of Training:


1. Increasing Productivity: Instruction can help employees increase their level of
performance on their present job assignment. Increased human performance often
directly leads to increased operational productivity and increased company profit.
2. Improving Quality: Better informed workers are less likely to make operational
mistakes. Quality increases may be in relationship to a company product or service, or
in reference to the intangible organizational employment atmosphere.
3. Helping Company fulfills its Future Personnel Needs: Organizations that have a
good internal educational programme will have to make less drastic manpower
changes and adjustments in the event of sudden personnel alternations. When the need
arises, organizational vacancies can more easily be staffed from internal sources if a
company initiates and maintains and adequate instructional programme for both its
non-supervisory and managerial employees.
4. Improving Organizational Climate: An endless chain of positive reactions results
from a well-planned training programme. Production and product quality may
improve; financial incentives may then be increased, internal promotions become
stressed, less supervisory pressures ensue and base pay rate increases result.
5. Improving Health and Safety: Proper training can help prevent industrial accidents.
A safer work environment leads, to more stable mental attitudes on the part of
employees. Managerial mental state would also improve if supervisors now that they
can better themselves through company-designed development programmes.
6. Obsolescence Prevention: Training and development programmes foster the
initiative and creativity of employees and help to prevent manpower obsolescence,
which may be due to age, temperament or motivation, or the inability of a person to
adapt himself to technological changes.
7. Personal Growth: Employees on a personal basis gain individually from their
exposure to educational experiences. Again, Management development programmes
seem to give participants a wider awareness, an enlarged skin, an enlightened
altruistic philosophy, and make enhanced personal growth possible.

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Unit-3: Human Resource Management 3.13 CSP
METHODS OF TRAINING:
The following methods are generally used to provide training i.e. On-the-Job Training
and Off-the-Job Training:

On-the-Job Training Methods:


This type of training is imparted on the job and at the work place where the employee
is expected to perform his duties. It enables the worker to get training under the same
working conditions and environment and with the same materials, machines and equipments
that he will be using ultimately after completing the training.
1. On Specific Job: On the job training methods is used to provide training for a specific
job such electrician, motor mechanic, pluming etc.
a) Experience: This is the oldest method of on-the-job training. Learning by
experience cannot and should not be eliminated as a method of development, though
as a sole approach, it is a wasteful, time consuming and inefficient.
b) Coaching: On-the-Job coaching by the superior is an important and potentially
effective approach is superior. The technique involves direct personnel instruction
and guidance, usually with extensive demonstration.

2. Job Rotation: The major objective of job rotation training is the broadening of the
background of trainee in the organisation. If trainee is rotated periodically from one job
to another job, he acquires a general background.

3. Special Projects: This is a very flexible training device. The trainee may be asked to
perform special assignment, thereby he learns the work procedure. Sometime a task-
force is created consisting of a number of trainees representing different functions in the
organisation.
4. Apprenticeship: Under this method, the trainee is placed under a qualified supervisor
or instructor for a long period of time depending upon the job and skill required. Wages
paid to the trainee are much less than those paid to qualified workers. This type of
training is suitable in profession, trades, crafts and technical areas like fitter, turner,
electrician, welders, carpenters etc.

5. Vestibule Training: Under this method, actual work conditions are created in a class
room or a workshop. The machines, materials and tools under this method is same as
those used in actual performance in the factory. This method gives more importance to
learning process rather than production.

6. Multiple Management: Multiple management emphasizes the use of committees to


increase the flow of ideas from less experience managers and to train them for positions
of greater responsibility.

Off-the-job Training Methods:


The following are the off the job training techniques:
1. Special Courses and Lectures: Lecturing is the most traditional form of formal
training method. Special courses and lectures can be established by business
organizations in numerous ways as a part of their development programmes.
a) First, there are courses, which the organizations themselves establish to be taught by
members of the organizations.

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Unit-3: Human Resource Management 3.14 CSP
b) Second approach to special courses and lectures is for organizations to work with
universities or institutes in establishing a course or series of course to be taught by
instructors by these institutes.
c) Third approach is for the organizations to send personnel to programmes established
by the universities, institutes and other bodies.

2. Conferences: This is also an old method, but still a favorite training method. In this
method, the participants pools, their ideas and experience in attempting to arrive at
improved methods of dealing with the problems, which are common subject of
discussion; Conferences may include buzz sessions that divide conferences into small
groups of four or five intensive discussion. These small groups then report back to the
whole conference with their conclusions or questions.

3. Case Studies: This technique, which has been developed, popularized by the Harvard
Business School, U.S.A is one of the most common form of training. A case is a written
account of a trained reporter of analyst seeking to describe an actual situation. Some
causes are merely illustrative; others are detailed and comprehensive demanding
extensive and intensive analytical ability. Cases are widely used in variety of
programmes. This method increases the trainees power of observation, helping him to
ask better questions and to look for broader range of problems.

4. Brainstorming : This is the method of stimulating trainees to creative thinking This


approach developed by Alex Osborn seeks to reduce inhibiting forces by providing for a
maximum of group participation and a minimum of criticism. A problem is posed and
ideas are invited. Quantity rather quality is the primary objective. Ideas are encouraged
and criticism of any idea is discouraged.

5. Laboratory Training: Laboratory training adds to conventional training by providing


situations in which the trains themselves experience through their own interaction some
of the conditions they are talking about. Laboratory training is more concerned about
changing individual behaviour and attitude. There are two methods of laboratory
training: simulation and sensitivity training.
a) Simulation: An increasing popular technique of management development is
simulation of performance. In this method, instead of taking participants into the
field, the field can be simulated in the training session itself Simulation is the
presentation of real situation of organisation in the training session. There are two
common simulation methods of training: role-playing is one and business game.
b) Sensitivity Training: Sensitivity training is the most controversial laboratory
training method. Many of its advocates have an almost religious zeal in their
enhancement with the training group experience. Some of its critics match this
favour in their attacks on the technique.

PLACEMENT
Placement involves assigning a specific job to each one of the selected candidates.
However, placement is not simple as it looks. It involves striking a fit between the
requirements of a job and the qualifications of a candidate. The importance of placement is
that it reduces employees turnover, absenteeism, accidents and dissatisfactions.

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Unit-3: Human Resource Management 3.15 CSP
Definition:
Pigors and Myers defined placement as, the determination of the job to which an
accepted candidate is to be assigned, and his assignment to that job. It is a matching of what
the supervisor has reason to think he can do with the job demands and what he offers in the
form of pay rolls, companionship with others, promotional possibilities etc.

Principles of Placement:
A few basic principles should be followed at the time of placement of a worker on the
job. This is elaborated below:
1. Man should be placed on the job according to the requirements of the job. The job
should not be adjusted according to the qualifications or requirements of the man. Job
first, man next, should be the principle of the placement.
2. The job should be offered to the person according to his qualification. This should
neither the higher nor the lower than the qualification.
3. The employee should be made conversant with the working conditions prevailing in
the organization and all things relating to the job. He should also be made aware of
the penalties if he commits the wrong.
4. While introducing the job to the new employees, an effort should be made to develop
a sense of loyalty and cooperation in him so that he may realize his responsibility
better towards the job and the organization.
5. The placement should be ready before the joining date of the newly selected person.
6. The placement in the initial period may be temporary as changes are likely after the
completion of training. The employee may be later transferred to the job where he can
do better.
Proper placement helps to improve the employees morale. The capacity of the
employees can be utilized fully. The right placement also reduces labour turnover,
absenteeism and also the accident rate.

WAGE AND SALARY ADMINISTRATION


Compensation is the Human Resources Management function that deals with the
every type of reward individuals receives in the exchange for performing organizational
tasks. It is the major cost of doing the business for many organizations. It is the chief reason
why some individuals seek employment.
Financial compensation is either direct or indirect. The direct financial compensation
consist of the person receives in the form of wages, salaries, bonuses or commissions etc.
Indirect compensation consists of the like praise, self-esteem, recognitions, motivation,
productivity, (Benefits and Welfare). In the present economic situation the major cash flow of
the organization is more than 50% in financial and non-financial compensations. Pay is
influenced by series of external and internal factors.
While the basic wage or pay is the main component of compensation, fringe benefits
and cash and non-cash benefits influence the level of wages or pay because the employer is
concerned more about labour costs than wage rates per se. The tendency now is towards an
increasing mix of fringe benefits, which therefore have an important impact on pay levels. In
industrialized countries, and sometimes in countries with high personal tax rates, the non-pay
element of executive compensation has substantially increased in recent years.

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Unit-3: Human Resource Management 3.16 CSP
The compensation policy depends on certain criteria below:
1. Adequate: Minimal Governmental, union and managerial levels should be met.
2. Equitable: Each person should be paid fairly, in the line with his or her effort,
abilities and training.
3. Balanced: Pay, benefits and other rewards should provide a reasonable total rewards
package.
4. Cost-effective: The pay should not be excessive, considering what the organization
can afford to pay.
5. Secure: Pay should be enough to help employees feel secure and aid him or her in
satisfying basic needs.
6. Incentive providing: Pay should motivate effective and productive work.
7. Acceptable to the employee: The employee should understand the pay system and
feel it is a reasonable system for the enterprise and him or herself.

Determinants of Compensation:
Fair and adequate compensation is critical to motivating employees attracting high-
potential employees, and retaining competent employees. Compensation has to be fair and
equitable among all workers in the same company (internal equity). Internal equity can be
achieved when pay is proportionate to the individual employees qualifications and
contributions to a company.
On the other hand, compensation also has to be fair and equitable in comparison to the
external market (external equity). If a company pays its employees below the market rate, it
may lose competent employees. In determining adequate pay for employees, a manager must
consider the three major factors: the labour market, the nature and scope of the job, and
characteristics of the individual employee. Potential employees are recruited from a certain
geographic areathe labour market.
The actual boundary of a labour market varies depending on the type of job, company,
and industry. Pay for a job even within the same labour market may vary widely because of
many factors, such as the industry, type of job, cost of living, and location of the job.
Compensation managers must be aware of these differences. To help compensation managers
understand the market rate of labour, a compensation survey is conducted.
Several factors are generally considered in evaluating the market rate of a job. They
include the cost of living of the area, union contracts, and broader economic conditions.
Urban or metropolitan areas generally have a higher cost of living than rural areas. Usually,
in calculating the real pay, a cost-of-living allowance (COLA) is added to the base wage or
salary. Cost-of-living indexes are published periodically in major business journals. The
characteristics of an individual employee are also important in determining compensation. An
individuals job qualifications, abilities and skills, prior experiences, and even willingness to
work in hardship conditions are determining factors. Within the reasonable range of a market
rate, companies offer additional compensation to attract and retain competent employees.
In principle, compensation must be designed around the job, not the person. Person-
based pay frequently results in discriminatory practices, which violates the legal
preconditions. For job-based compensation, management must conduct a systematic job
analysis, identifying and describing what is happening on the job. Each job must be carefully
examined to list the necessary tasks and actions, identify skills and abilities required, and
establish desirable behaviours for successful completion of the job.
As the market becomes more dynamic and competitive, companies are trying harder
to improve performance. Since companies cannot afford to continually increase wages by a
certain percentage, they are introducing many innovative compensation plans tied to
performance. Several of these plans are:

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Unit-3: Human Resource Management 3.17 CSP
1. Incentive Compensation Plan: Incentive compensation pays proportionately to
employee performance. Incentives are typically given in addition to the base wage;
they can be paid on the basis of individual, group, or plant-wide performance. While
individual incentive plans encourage competition among employees, group or plant-
wide incentive plans encourage cooperation and direct the efforts of all employees
toward achieving overall company performance.

2. Skill-Based or Knowledge-Based Compensation: Skill-based pay is a system that


pays employees based on the skills they possess or master, not for the job they hold.
Some managers believe that mastery of certain sets of skills leads to higher
productivity and therefore want their employees to master a series of skill sets. As
employees gain one skill and then another, their wage rate goes up until they have
mastered all the skills. Similar to skill-based pay is knowledge-based pay.

3. Team-Based Compensation: As many companies introduce team-based


management practices such as self-managed work teams, they begin to offer team-
based pay. Recognizing the importance of close cooperation and mutual development
in a work group, companies want to encourage employees to work as a team by
offering pay based on the overall effectiveness of the team.

4. Performance-Based Compensation: In the traditional sense, pay is considered


entitlement that employees deserve in exchange for showing up at work and doing
well enough to avoid being fired. While base pay is given to employees regardless of
performance, incentives and bonuses are extra rewards given in appreciation of their
extra efforts. Other incentives and bonuses are calculated based on this new merit pay,
resulting in substantially more total dollars for highly ranked employee performance.
Frequently, employees also receive an end-of-year lump sum bonus that does not
build into base pay.

PROMOTION
The employees are given the promotions to higher posts and positions as and when
vacancies are available or when new posts are created at the higher levels. It is quite common
in all types of organizations. It is the product of internal mobility of the employees due to
change in organizational processes, structure etc. It is better than direct recruitment which
satisfies many human resources problems of the organization and helps in achieving
organizational objectives.
Promotion means higher position to an employee who carries higher status, more
responsibilities and higher salary. The higher status and salary is the two most important
ingredient of any promotion. It is an advancement of employee to a higher post with greater
responsibilities and higher salary, better service conditions and thus higher status.
Policy varies with organization. So the promotion is very sensitive to employees, it is
very essential. The promotion policy should clearly stated, widely circulated, and fully
explained to their employees. The promotion policy which influences the number of factor of
the organization such as, morale, motivation, turnover of the personnel in the organization.
The personnel department of the organization must develop an effective promotion policy.
The promotion policy should consider merit, potential and seniority of the employees. The
merit factor requires a good procedure for evaluating the performance of the employee.

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Unit-3: Human Resource Management 3.18 CSP
Purpose of Promotion:
1. To motivate employees to higher productivity.
2. To attract and retain the services of qualified and competent people to recognize and
reward the efficiency of an employee.
3. To increase the effectiveness of the employee and the organization.
4. To fill up higher vacancies from the within the organization.
5. To built loyalty, morale and the sense of belongingness in the employee.
6. To impress upon others that opportunities are available to them too in the
organization, if they perform well.

TRANSFER
One of the internal mobility of the employee is transfer. It is lateral movement of
employee in an organization by the employee. Transfers of employees can possible from one
department to another from one plant to another. Transfer may be initiated by the
organization or by the employees with the approval of the organization. It can be also due to
changes in organizational structure or change in volume of work, it is also necessary due to
variety of reasons. But broadly can be done either to suit the conveniences of organization
and to suit the convenience of employees.

Definition:
Dale Yoder has defined transfer as A transfer involves the shifting of an employee
from one job to another without changing the responsibilities or compensation.

Types of Transfers:
Most of the transfers generally carried out four types of transfers which are discussed below:
1. Production Transfer: Such transfers are resorted to when there is a need of
manpower in one department and surplus manpower in other department. Such
transfers are made to meet the company requirements. The surplus employees in one
department/section might be observed in other place where there is a requirement.

2. Replacement Transfers: This takes place to replace a new employee who has been
in the organization for a long time and thereby giving some relief to an old employee
from the heavy pressure of work.

3. Remedial Transfers: As the name suggest, these transfers are made to rectify the
situation caused by faulty selection and placement procedures. Such transfers are
made to rectify mistakes in placement and recruitments. If the initial placement of an
individual is faulty or has not adjusted to work/job, his transfer to a more appropriate
job is desirable.

4. Versatility Transfer: Such transfers are made to increase versatility of the employees
from one job to another and one department to another department. Transfer (Job
Rotation) is the tool to train the employees. Each employee should provide a varied
and broader job experiences by moving from one department to another. This is for
preparing the employee for promotion; this will definitely help the employee to have
job enrichment.

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Unit-3: Human Resource Management 3.19 CSP
Purposes of Transfer:
The transfer are generally affected to build up a more satisfactory work team and to
achieve the following purposes:
1. To increase the effectiveness of the organization.
2. To increase the versatility and competency of key positions.
3. To deal with fluctuations in work requirements.
4. To correct incompatibilities in employee relations.
5. To correct, erroneous placement.
6. To relieve monotony.
7. To adjust workforce.
8. To punish employees.

SEPARATION
Employees separate from the campus in a variety of ways. Some separations are
voluntary and initiated by the employee, such as resignation or retirement. Others are
involuntary and initiated by management, such as lay off or medical separation. The death of
an employee or dismissal for cause creates unique challenges. Each type of separation
requires specific, different actions by you, though some processes are common to all.
Whatever the circumstances, every employee leaving the campus, whether voluntarily
or involuntarily, should feel they were treated with respect. These are:
1. Death of an Employee: When an employee dies, the surviving family members or
named beneficiaries may be eligible for certain benefits. You should report the death
immediately so notifications can be made and paperwork started. Its also important
to maintain contact with the family and offer assistance. Retirement benefits may be
due to the family and if the employee retired with a disability, additional insurance
may be due. The beneficiaries will be contacted by the offices involved.
2. Dismissal: Dismissal is the ultimate disciplinary action, normally used when other
methods employed to correct performance or behavioural problems have not been
successful. Under circumstances of extreme misconduct, dismissal without prior
warning may be warranted. Dismissal or discharge involves separating an employee
from the payroll for violation of company rules or for inadequate performances.
Which include indiscipline, insubordination and dishonesty and so constitutes the
major cause of dismissal.
3. Job Abandonment: An employee who does not report to work when expected or call
into report their absence for five consecutive days or more may be considered to have
abandoned their position, and may be subject to dismissal without prior discipline, as
noted in the dismissal.

4. Exit Interviews: Employees terminating from the campus are valuable resources.
Through hearing their feelings, concerns, and impressions, you collect data relevant to
your department and the campus. Exit interviews are used primarily for voluntary
separations. During this meeting, talk about the employees reasons for leaving, and
how the employee feels about the job and supervision. Ask for specific suggestions
the employee may have for you and the department.

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Unit-3: Human Resource Management 3.20 CSP
5. Lay off: The purpose of the layoff is to reduce the financial burden on the
organization in the event that human resources cannot be utilized profitably. Lay off
involves temporary removal from the payroll of the people with surplus skills.
According to the Industrial Act, 1947, lay off means the failure, refusal or inability of
employer on account of shortage of power, raw material or accumulation of stocks,
breakdown of machinery or by any reason to give employment to a workmen whose
names appear to be in master roll.

6. Medical Separation: When an employee becomes unable to perform essential,


assigned duties of a position as a result of a disability or medical condition, the
campus is committed to providing services to assist the employee, including efforts at
reasonable accommodation. If accommodation efforts are unsuccessful, the employee
may be medically separated.

7. Resignation: When the separation is initiated by the employee himself, it is termed as


resignation. Although some resignation to rectify the mistakes in the procurement of
personnel or to bring new blood into the affected unit, but excessive turnover may
prove costly to the organization. It is a fact that, the investment in the recruitment,
selection and training of the employees is lost due to resignation.

8. Retirement: Majority of the separations are from retirements. Employees who have
rendered services to the organization for a number of years expect the organization to
provide for their future, when they have retired. Retirement of an employee is an
important event in his life also has an important impact on the organization, where the
employee worked for a major portion of his life. Therefore at the time of parting or
separation there must be an exit interview to know the improvements he wanted to be
introduced in the organization.

MOTIVATION
The word motivation has been derived from the latin word motive which means
any idea, need or emotion that prompts a man into action. Human motives are internalised
goals within individuals. Motivation may be defined as those forces that cause people to
behave in certain ways. Motivation encompasses all those pressures and influences that
trigger, channel, and sustain human behaviour. Most successful managers have learned to
understand the concept of human motivation and are able to use that understanding to achieve
higher standards of subordinate work performance.
Motivation is the process of channelling a person's inner drives so that he wants to
accomplish the goals of the organization. It seeks to know the incentives for work and tries to
find out the ways and means whereby their realization can be helped and encouraged.
Managers, by definition, are required to work with and through people, so they must gain at
least some understanding of the forces that will motivate the people they are to manage.

Definition:
1. Koontz and O'Donnell, "Motivation is a general term applying to the entire class of
drives, needs, wishes and similar forces".

2. Lewis Allen, "Motivation is the work a manager performs to inspire, encourage and
impel people to take required action".

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Unit-3: Human Resource Management 3.21 CSP
Theories of Motivation:
Many methods of employee motivation have been developed. There are many
approaches to classify the theories of motivation. Two primary approaches to motivation are
content and process.
1. The content approach emphasizes what motivates employees, focuses on the
assumption that individuals are motivated by the desire to fulfill inner needs. Content
theories focus on the needs that motivate people.
2. The process approach emphasizes how and why people choose certain behaviors in
order to meet their personal goals. Process theories focus on external influences or
behaviors that people choose to meet their needs.

MAYOS HAWTHORNE EXPERIMENTS


The human relations approach was born out of a reaction to classical approach. For
the first time an intensive and systematic analysis of human factor in organisations was made
in the form of Hawthorne experiments.
To investigate the relationship between productivity and physical working conditions,
a team of four members George Elton mayo, White head, Roethlisberger and William
Dickson was introduced by the company in Hawthorne plant. These experiments are often
referred to as the Hawthorne experiments or Hawthorne studies as they took place at the
Western Electric Company in Chicago.
They conducted various researches in four phases:
1. Experiments to determine the effects of changes in illuminations on productivity.
Illumination experiments (1924-27).
2. Experiments to determine the effects of changes in hours and other working
conditions on productivity. (Relay assembly test room experiments 1927-28).
3. Mass interviewing programme (1928-1930).
4. Determination and analysis of social organization at work (Bank wiring observation
room experiments 1931-32).

Experiment Results:
After analyzing the results from the Hawthorne experiments Mayo concluded that
workers were motivated by more than self interest and the following had an impact too:
1. Psychological Contract: There is an unwritten understanding between the worker
and employer regarding what is expected from them; Mayo called this the
psychological contract.
2. Interest in Workers: A workers motivation can be increased by showing an interest
in them. Mayo classified studying the workers (through the experiments) as showing
an interest in the workers.
3. Work is a Group Activity: Work is a group activity, team work can increase a
workers motivation as it allows people to form strong working relationships and
increases trust between the workers. Work groups are created formally by the
employer but also occur informally.
4. Social Aspect of Work: Workers are motivated by the social aspect of work, as
demonstrated by the female workers socializing during and outside work and the
subsequent increase in motivation.
5. Recognize Workers: Workers are motivated by recognition, security and a sense of
belonging.

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Unit-3: Human Resource Management 3.22 CSP
6. Communication: The communication between workers and management influences
workers morale and productivity. Workers are motivated through a good working
relationship with management.

Conclusion:
The traditional view of how to motivate employees is that you offer monetary rewards
(pay increases, bonuses, etc.,) for work completion. However the Hawthorne experiments
may suggest that motivation is more complicated than that. Advocates of the "Hawthorne
Effect" will state that the Hawthorne experiment results show that motivation can be
improved through improving working relationships and social interaction.

MASLOWS THEORY OF HUMAN NEEDS


Abraham H. Maslow, a famous social scientist or psychologist, has given a
framework that helps to explain the strength of certain needs. He identifies five levels of
needs, which are best seen as a hierarchy with the most basic need emerging first and the
most sophisticated need last. People move up the hierarchy one level at a time. Gratified
needs lose their strength and the next level of needs is activated. As basic or lower-level
needs are satisfied, higher-level needs become operative. A satisfied need is not a motivator.
The most powerful employee need is the one that has not been satisfied.

The hierarchy of needs is identified as follows:

1. Physiological needs: The Physiological needs are at the top of hierarchy because they
tend to have the highest strength until they are reasonably satisfied. It includes the
need for food, sleep, shelter, etc. these are the basic needs and if these are not
satisfied, one does not think of needs at higher level.
2. Safety or Security Needs: Once physiological needs are satisfied to a reasonable
level, the next level in the hierarchy is safety. Safety means being free of physical
danger or self-preservation. It covers protection, job security, safety of property, food
or shelter, etc.
3. Affiliation or Acceptance or Social needs: After the first two needs are satisfied,
social needs become important in the need hierarchy. Man wants to live in the society
as a member of society. He wants to love and be loved by others. It includes desire to
seek or show affection and recognition, need for companionship, identification with a
group, etc.

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Unit-3: Human Resource Management 3.23 CSP
4. Esteem needs: These needs are concerned with self respect, self confidence, a feeling
of personal worth, feeling of being unique and recognition. Satisfaction of these needs
produces feelings of self confidence, prestige, power and control.
5. Self actualization needs: These needs indicate the strong desire to achieve
something, particularly in view of potential one has. This includes competence which
implies control over environmental factors both physical and social and achievement.

Conclusion:
Maslow suggest that the various levels are interdependent and overlapping, each
higher level need emerging before the lower level need has been completely satisfied.

DOUGLAS Mc GREGORS THEORY X AND THEORY Y


McGregor's work was based on Maslow's hierarchy of needs. He grouped Maslow's
hierarchy into "lower order" (Theory X) needs and "higher order" (Theory Y) needs.
McGregor, in 1960 in his book The Human side of Enterprise states that people inside the
organization can be managed in two ways. The first is basically negative, which falls under
the category X and the other is basically positive, which falls under the category Y.
After viewing the way in which the manager dealt with employees, McGregor
concluded that a managers view of the nature of human beings is based on a certain grouping
of assumptions and that he or she tends to mold his or her behavior towards subordinates
according to these assumptions.
Douglas McGregor has classified the basic assumption regarding human nature into
two parts and has designated them as 'theory X and 'theory Y' as discussed below:

Theory - X: This is the traditional theory of human behaviour, which makes the following
assumptions about human nature:
1. Management is responsible for organizing the elements of productive enterprises -
money, material, equipment, and people - in the interest of economic ends.
2. With reference to people it is a process of directing their efforts, motivating them,
controlling their actions, modifying their behaviour in order to be in conformity with
the needs of the organization.
3. Without this active intervention by management, people would be passive even
resistant to organizational needs. Hence they must be persuaded, rewarded, punished
and properly directed.
4. The average human being has an inherent dislike of work and will avoid it if he can.
5. He lacks ambition, dislikes responsibility and prefers to be led.
6. He is inherently self-centred, indifferent to organizational needs.
7. He is by nature resistant to change.
8. He is gullible, not very bright.

Theory - Y: The assumption of theory Y, according to McGregor are as follows:


1. Work is as natural as play or rest, provided the conditions are favourable; the average
human being does not inherently dislike work.
2. External control and the thrust of punishment are not the only means for bringing
about efforts towards organizational objectives. Man can exercise self-control and
self-direction in the service of objectives to which he is committed.

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Unit-3: Human Resource Management 3.24 CSP
3. Commitment to objectives is a result of the rewards associated with their
achievement. People select goals for themselves if they see the possibilities of some
kind of reward that may be material or even psychological.
4. The average human being, under proper conditions does not shirk responsibility, but
learn not only to accept responsibility but also to seek it.
5. He has capacity to exercise a relatively high degree of imagination, ingenuity and
creativity in the solution of organizational problems in widely, not narrowly
distributed in the population.
6. Under conditions of modern industrial life the intellectual potentialities of people are
only partially utilized. As a matter of fact, men, have unlimited potential.

Theory X and Theory Y combined:


For McGregor, Theory X and Y are not different ends of the same continuum. Rather
they are two different continua in themselves. Thus, if a manager needs to apply Theory Y
principles, that does not preclude him from being a part of Theory X & Y.

Comparison of Theory X and Theory Y:


Theory - X Theory - Y
Theory X assumes human beings Theory Y assumes that work is as natural
inherently dislike work and are distasteful as play or rest.
towards work.
Theory X emphasizes that people do not Theory Y assumes just the reverse.
have ambitions and they shrink Given proper conditions, people have
responsibility. ambitions and accept responsibility.

Theory X assumes that people in general According to Theory Y the creativity is


have little capacity for creativity. widely distributed in the population.

According to Theory X, people lack self While in Theory Y people are self-
motivation and require be externally directed and creative and prefer Self-
controlling and closely supervising in control.
order to get maximum output.

Theory X emphasize upon centralization Theory Y emphasizes decentralization


of authority in decision-making process. and greater participation in decision
making process.

HERZBERGS TWO FACTOR THEORY OF MOTIVATION


Frederick Hertzberg conducted a structured interview programme to analyze the
experience and feelings of 200 engineers and accountants in nine different companies in
Pittsburg area, U.S.A. During the structured interview, they were asked to describe a few
previous job experiences in which they felt exceptionally good or exceptionally bad about
their jobs.
In his analysis, he found that there are some job conditions which operate primarily to
dissatisfy employees when the conditions are absent, however their presence does not
motivate them. It is referred as Hygiene or Maintenance Factors. Another set of job
conditions operates primarily to build strong motivation and high job satisfaction, but their
absence rarely proves strongly dissatisfying. It is referred as motivational factors.

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Unit-3: Human Resource Management 3.25 CSP
1. Hygiene Factors: According to Hertzberg, there are 10 maintenance factors. These
maintenance factors are necessary to maintain at a reasonable level of satisfaction in
employees. Any increase beyond this level will not produce any satisfaction to the
employees. However, any cut below this level will dissatisfy them. Dissatisfaction
occurs when the following hygiene factors, extrinsic or job context, maintenance
factors are not present on the job and include:
1. company policy and administration,
2. technical supervision,
3. salary,
4. job security,
5. personal life,
6. status,
7. working conditions,
8. interpersonal relationship with superiors,
9. interpersonal relationship with peers and
10. interpersonal relationship with subordinates
2. Motivational Factors: These factors are capable of having a positive effect on job
satisfaction often resulting in an increase in ones total output. Most of the factors are
related with job contents. An increase in these factors will satisfy the employees.
However, any decrease in these factors will not affect their level of satisfaction.
Satisfaction comes from motivators that are intrinsic or job content, such as:
1. achievement,
2. recognition,
3. advancement;
4. work itself,
5. possibility of growth and
6. responsibility

LEADERSHIP
Leadership is the process of influencing the behaviour of other to work willingly an
enthusiastically for achieving predetermined goals. Effective leadership is necessary for
inspiring the people to work for the accomplishment of objectives. It provides a cohesive
force which holds the group intact and develops a spirit of cooperation. Chester Bernard
viewed leadership as the quality of behavior of individuals whereby they guide people and
their activities. A leader interprets the objectives of the people working under him and guides
them towards achievement of those objectives. He also creates and sustains enthusiasm
among them for superior performance.
Leadership is the process of influencing the subordinates so that they cooperate
enthusiastically in the achievement of group goals. In other words, leadership is the process
by which an executive imaginatively directs, guides, and influences the work of others in
choosing and attaining specified goals by mediating between the individuals and the
organization in such a manner that both will obtain maximum satisfaction.

Definitions:
1. Barnard Key, Leadership is the process of influencing and supporting others to work
enthusiastically toward achieving objectives.
2. Louis A. Allen, A leader is one who guides and directs other people. He gives the
efforts of his followers a direction and purpose by influencing their behavior.

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Unit-3: Human Resource Management 3.26 CSP
Characteristics of Leadership:
An analysis of the above definitions reveals that leadership as a managerial process
has the following characteristics:
1. Leadership is a process of influence: Leadership is a process whose important
ingredient is the influence exercised by the leader on the group members. A person is
said to have an influence over others when they are willing to carry out his wishes and
accept his advice, guidance and direction. Successful leaders are able to influence the
behavior, attitudes and beliefs of their followers.

2. Leadership is related to a situation: When we talk to leadership, it is always related


to a particular situation at a given point of time and under a specific set of
circumstances. That means leadership styles will be different under different
circumstances. At one point of time, the subordinates may accept the autocratic
behavior of the leader while at a different point of time and under a different situation
participative leadership style may be successful.

3. Leadership is the function of stimulation: Leadership is the function of motivating


people to strive willingly to attain organizational objectives. Leaders are considered
successful when they are able to subordinate the individual interests of the employees
to the general interests of the organization. A successful leader allows his
subordinates to have their individual goals set up by themselves in such a way that
they do not conflict with the organizational objectives.

LEADERSHIP STYLES:
Leadership style refers to a leaders behavior. Behavioral pattern which the leader
reflects in his role as a leader is often described as the style of leadership. Leadership style is
the result of leaders philosophy, personality, experience, and value system. It also depends
upon the types of followers and the organizational atmosphere prevailing in the enterprise.

The important leadership styles are as follows:


1. Autocratic (or) Authoritarian leaders
2. Participative (or) Democratic leaders
3. Free Rein (or) Laissez Faire leaders

1. Autocratic Leadership Style:


This is also known as Authoritarian or Directive style. In this style manager
centralizes decision-making power in him. He structures the complete work situation for
his employees. He does not entertain and suggestions or initiative from subordinates. He
gives orders and assigns tasks without taking subordinates opinion.

A B C

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Unit-3: Human Resource Management 3.27 CSP
There are three categories of autocratic leaders.
a) Strict Autocrat:
He follows autocratic styles in a very strict sense. His method of influencing
subordinates behaviour is through negative motivation that is by criticizing
subordinates, imposing penalty etc.

b) Benevolent Autocrat:
He also centralizes decision making power in him, but his motivation style is
positive. He can be effective in getting efficiency in main situations. Some like to
work under strong authority structure and they drive satisfaction by this
leadership.

c) Incompetent Autocrat:
Sometimes, superiors adopt autocratic leadership style just to hide their in
competency, because in other styles they may exposed before their subordinates.
However, this cannot be used for a long time.

Advantages:
1. It provides strong motivation and reward to manager.
2. It permits very quick decisions.
3. Less competent subordinates also have scope to work in the organisation.

Disadvantages:
1. People in the organisation dislike it specially, when it is strict and the
motivational style is negative.
2. Employees lack motivation frustration, low morale and conflict develops in the
organisation.
3. There is more dependence and less individuality in the organisation.

2. Participative Leadership Style:


It is also called as democratic, consultative or idiographic leadership style. In this
style the manager decentralizes his decision-making process. Instead of taking unilateral
decision he emphasizes consultation and participation of his subordinates. He can win the
cooperation of his group and can motivate them effectively and positively.

B
D M

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Unit-3: Human Resource Management 3.28 CSP
Advantages:
1. Employees are highly motivated.
2. The productivity of employees is very high.
3. Subordinates share the responsibility with superior & try to safeguard them also.

Disadvantages:
1. Complex nature of organisation requires as through understanding of its problems
which lower-level employees may not be able to do.
2. Some people in the organisation want minimum interaction with their superior.
3. Some leaders may use this style as a way of avoiding responsibility.

3. Free-rein Leadership:
A free-rein leader does not lead, but leaves the group entirely to itself as shown in
the following figure. In this style, manager once determines policy, programmes, and
limitations for action and the entire process is left to subordinates group members
perform everything and the manager usually maintains contacts with outside persons to
bring the information and materials which the group needs.

M
A B

C D
A A
Advantages:
1. Positive effect on job satisfaction and moral of subordinates.
2. It gives chance to take initiative to the subordinates.
3. Maximum possible scope for development of subordinates.

Disadvantages:
1. Under this style of leadership, there is no leadership at all.
2. Subordinates do not get the guidance and support of the leader.
3. Subordinates may move in different directions and may work at cross purpose
which may create problem for the organisation.
Free rein style of leadership may be appropriate when the subordinates are well
trained, highly knowledgeable, self-motivated and ready to assume responsibility.

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Unit-3: Human Resource Management 3.29 CSP
JOB EVALUATION
It is a technique of assessing systematically the relative worth of each job. The
fundamental pre-requisite to the establishment of a compensation policy is the determination
of the comparative values of jobs throughout the hierarchy. These values form the basis to
build the pay and the benefits package.

Objectives:
1. To establish correct wage correct wage differentials for all jobs within the factory.
2. To bring new jobs into their proper relatively with jobs previously established.
3. To help clarify lines of authority, responsibility and promotion.
4. To accomplish the foregoing by means of the facts and principles, this can be readily
explained to and accepted by all concerned.
5. To establish a general wage level for a given factory which will have parity with those
of neighboring factories.
Advantages:
1. It is simple, inexpensive and expeditions.
2. It is easily understood and easily administered.
3. It helps setting better rates based purely a judgment and experience.
4. Same unions prefer it, because it leases more room for bargaining.

Disadvantages:
1. Job may be ranked on the basis of incomplete inform action and without the benefits
of well defined standards.
2. The rank position of different jobs is likely to be influenced by prevailing wage ranks.
3. No one committee number is likely to be familiar with all the jobs.

JOB EVALUATION METHODS


It is broadly be classified as: Qualitative Method and Quantitative Method
Qualitative Method:
It can broadly be classified as ranking or classifying the job from lowest to highest.
1. Ranking technique: In this method, the jobs in the organization are arranged in either
in the ascending or descending order and numbered serially. The basis of such
arrangement could be the job description in terms of duties, responsibilities,
qualifications needed, relative difficulty involved in don the job, or value to the
company.
Amount of work involved
Supervision needed
Extent of responsibility required
Difficulties involved in the work conditions

2. Classification Method: This is also called job-grading method. Here, the number of
grades and the salary particulars for each grade are worked out first. The grades are
clearly described in terms of knowledge, skill and so on. Major steps for job
evaluation:
Deciding the number of grades
Writing grade descriptions
Identifying/listing of the jobs to be evaluated
Preparing job descriptions

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Unit-3: Human Resource Management 3.30 CSP
Quantitative Method:
Where point values are assigned to the various demands of a job and relative value is
obtained by summing all such point values.
1. Factor comparison method: Every job requires certain capabilities on the part of the
person who does the job. These capabilities are considered as critical factors, which
can be grouped as follows:
Mean effort
Skill
Physical
Responsibility
Working conditions
Step involved in the factor comparison method:
i) Identify the key jobs
ii) Rank the key job, factor by factor
iii) Apportion the salary among each factor and rank the key jobs
iv) Compare factor ranking of each job with its monetary ranking
v) Develop a monetary comparison scale
vi) Evaluate non-key jobs based on the monetary comparison scale

2. Point-rating method: There are four widely accepted factors used in the point rating
method, skill, effort, responsibility and job conditions each of these factors is divided
into sub-factors.
Skills: It includes the rating factors such as Education and training,
Experience, Judgment and initiative.
Efforts: This factor includes Physical and Mental abilities of an individual.
Responsibility: It includes the factors like Materials or product, Equipment or
process, Safety of others, and Work of others.
Job conditions: It includes the working environment of the organisation.

MERIT RATING
Merit rating in a technique to evaluate the merits of duals according to job request
merit. The personal abilities that an individual brings to his job, measured by the extent to
which his output or quality of his work exceeds the minimum that can reasonably to expected
for his basic rate of pay.

Definition:
1. Edward Flippo, Merit rating is a systematic, periodic and, so far as humanly
possible, an impartial rating of an employees excellence in matters pertaining to his
present job to his potentialities for a job.
2. Scot, Clothier and Spriegal, Merit rating of an employee is the process of evaluating
the employees performance on the job in terms of the requirements of the job.

Objectives of Merit Rating:


The objects of Merit Rating are as follows:
1. To make a comparative study of the abilities of different employees.
2. To provide higher reward to the more efficient employees.
3. To prove the justification of different wages to employees according to their abilities.
4. To establish harmonious relation between employees and employers.

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Unit-3: Human Resource Management 3.31 CSP
5. To motivate the employees to do better and more work.
6. To determine a policy for promotions and transfer.
7. To evaluate the success of training programmes.

Methods of Merit Rating:


1. Rating Procedure: In this method, the abilities of an employee are compared with
that of other employees. Under this method, the employees are divided into efficient
and inefficient employee. This method adopts the technique of paired comparison.
Therefore, the pairs of two employees each are made according to the formula of
N(N-1)Z and the more efficient employee in every pair is underlined. The employee
having maximum underline is treated as the most efficient employee whereas the
employee having no underline to his credit is treated least efficient employee.
2. Grading Method: Here different grades are divided for evaluating the ability of
different employees and then the employees are placed in these grades. The grades
are, Excellent, Very Good, Good, Average, Bad, and Worst. Every grade may again
be sub-divided into three grades: (i) Highly Satisfactory (ii) Satisfactory (iii) Non-
satisfactory. Employees can be placed in any of these groups according to their
abilities.
3. Man to Man Comparison Method: This is the method where, a master scale is used
to evaluate the qualities of different employees. The five scales of performance are
determined for every job in the master scale. For example, to measure the efficiency
of employees, first of all the most efficient employee is selected and after that the
most inefficient employees are selected who are respectively more efficient than
average efficiency and less efficient than average efficiency.
4. Graphic Rating Method: In this method, the abilities of employees are evaluated
through graph. The abilities of all the employees are represented on a graph paper
with the help of scale. Following qualities are included to evaluate the ability of
employees such as Quantity of Job, Quality of job, Regularity, ability to learn, ability
to initiate, dependence upon other employees and officers, safety aspects, ability to
direct, ability to supervise, behaviour with other employees and officers.
5. Checking List Method: A list of necessary qualities for the performance of a job is
prepared under this method. The qualities of the employees are measured on the basis
of the abilities of such lists. If an employee possesses that quality the sign (+) is
marked in the list. If that quality is not possessed by an employee the sign (-) is
marked in the list. If there is a doubt regarding it, the sign of (?) is marked in the list.
On the basis these sign, the abilities of an employee are evaluated.
6. Descriptive Method: In this method supervisor prepares a detailed report of the
abilities, efficiency and potentialities of the employees under his supervision. All the
employees are evaluated on the basis of these reports.
7. Forced Choice Descriptive Method:
In this method some details are collected regarding the performance of an
employee on the given job. After this, some standards are fixed with the consent of
evaluations. The performance of an employee is evaluated on the basis of these
standards and the ability and efficiency of all the employees are evaluated on this
basis.

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Unit-3: Human Resource Management 3.32 CSP
Comparison of Job Evaluation and Merit Rating:
Job Evaluation Merit Rating
Meaning It is a technique by which different Merit Rating is the process by
jobs of an enterprise are evaluated. which the ability, efficiency and
potentiality of an employee are
evaluated.

Beginning This process is started before the This process of Merit Rating is
appointment of an employee. started after the appointment of
employees.

Procedure of In the process of job evaluation, In the process of Merit Rating, the
Evaluation the ability, efficiency and the performance of an employee is
potentiality of an employee are evaluated by comparing it with the
evaluated. performance of another
employees of equal rank and
status.

Relation It is related with the relative study It is related with relative study of
of different jobs. different employees.

Basis of In the process of job evaluation, In the process of Merit Rating, the
Determining the remuneration of an employee remuneration of an employee is
Wages and is determined. determined on the basis of his
Salaries efficiency, ability and potentiality.

GRIEVANCE HANDLING
A grievance may be defined as any feeling of discontent or dissatisfaction, whether
expressed or not and whether valid or not, arising out of anything connected with the
company that an employee thinks, believes or even feels is unfair, unjust or inequitable.
A grievance may be:
1. Unvoiced or stated by the worker,
2. Written or unwritten, and
3. Valid or ridiculous, and may arise out of something connected with the company,
e.g., company policy or actions

A good grievance handling procedure:


1. Simple, easy to understand and to operate
2. Settle grievances at lower level
3. Systematically handle the grievances promptly remedify the conditions complained of
4. Depending upon the nature of grievance, refer it to appropriate authority
5. Ask the employee to give his complaint in writing;
6. Permit the worker to appeal against the decision taken at lower level
7. The grievance procedure should be made, realizing the importance of industrial
harmony and good labour relations.

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Unit-3: Human Resource Management 3.33 CSP
Reasons for Grievances
Grievances may occur for a number of reasons:
1. Economic: Employees may demand for individual wage adjustments. They may feel
that they are paid less when compared to others. For example, late bonus, payments,
adjustments to overtime pay, perceived inequalities in treatment, claims for equal pay,
and appeals against performance- related pay awards.
2. Work environment: It may be undesirable or unsatisfactory conditions of work. For
example, light, space, heat, or poor physical conditions of workplace, defective tools
and equipment, poor quality of material, unfair rules, and lack of recognition.
3. Supervision: It may be objections to the general methods of supervision related to the
attitudes of the supervisor towards the employee such as perceived notions of bias,
favoritism, nepotism, caste affiliations and regional feelings.
4. Organizational change: Any change in the organizational policies can result in
grievances. For example, the implementation of revised company policies or new
working practices.
5. Employee relations: Employees are unable to adjust with their colleagues, suffer
from feelings of neglect and victimization and become an object of ridicule and
humiliation, or other inter- employee disputes.
6. Miscellaneous: These may be issues relating to certain violations in respect of
promotions, safety methods, transfer, disciplinary rules, fines, granting leaves,
medical facilities, etc.

Forms of Grievances
A grievance may take any one of the following forms: (a) factual, (b) imaginary, (c)
disguised.
1. Factual: A factual grievance arises when legitimate needs of employees remain
unfulfilled, e.g., wage hike has been agreed but not implemented citing various
reasons.
2. Imaginary: When an employees dissatisfaction is not because of any valid reason
but because of a wrong perception, wrong attitude or wrong information he has. Such
a situation may create an imaginary grievance. Though management is not at fault in
such instances, still it has to clear the fog immediately.
3. Disguised: An employee may have dissatisfaction for reasons that are unknown to
himself. If he/ she are under pressure from family, friends, relatives, neighbours,
he/she may reach the work spot with a heavy heart. If a new recruit gets a new table
and almirah, this may become an eyesore to other employees who have not been
treated likewise previously.

Grievances Handling Procedure


The procedure the management applies to deal with the employees grievances can be
stated as follows:
1. Timely Action: The first and foremost requisite in grievance handling is to settle
them immediately as and when they arise. Or say, grievances need to be nipped in the
bud. Sooner the grievance is settled, lesser will be its effects on employees
performance. This requires the first line supervisors be trained in recognizing and
handling a grievance properly and promptly.

2. Accepting the Grievance: The supervisor should try to recognize and accept the
employee grievance as and when it is expressed. It must be noted that acceptance does
not necessarily mean agreeing with the grievance, it simply shows the willingness of

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Unit-3: Human Resource Management 3.34 CSP
the supervisor to look into the complaint objectively and dispassionately to deal with
the grievance. Evidences suggest that more the supervisor shows his or her concern
for the employees, lesser is the number of grievances raised by the employees.

3. Identifying the Problem: The grievance expressed by the employee maybe at times
simply emotionally, over-toned, imaginary or vague. The supervisor, therefore, needs
to identify or diagnose the problem stated by the employee.

4. Collecting the Facts: Once the problem is identified as a real problem, the supervisor
should, then, collect all the relevant facts and proofs relating to the grievance. The
facts so collected need to be separated from the opinions and feelings to avoid
distortions of the facts. It is useful to maintain the facts for future uses as and when
these are required.

5. Analyzing the cause of the Grievance: Having collected all the facts and figures
relating to the grievance, the next step involved in the grievance procedure is to
establish and analyse the cause that led to grievance. The analysis of the cause will
involve studying various aspects of the grievance such as the employees past history,
frequency of the occurrence, management practices, union practices, etc.

6. Taking Decision: In order to take the best decision to handle the grievance,
alternative courses of actions are worked out. These are, then, evaluated in view of
their consequences on the aggrieved employee, the union and the management.
Finally, a decision is taken which is best suited to the given situation in the
organisation. Such decision should serve as a precedent both within the department
and the organisation.

7. Implementing the Decision: The decision, whatsoever taken, must be immediately


communicated to the employee and also implemented by the competent authority.
McGregors Hot- stove Rule should be strictly followed while implementing the
decision. The decision, thus, implemented should also be reviewed to know whether
the grievance has been satisfactorily resolved or not.

In case, it is not resolved, the supervisor once again needs to go back to the whole
procedure step by step to find out an appropriate decision or solution to resolve the grievance.
However, if the grievance is not resolved at the internal level, the grievance is, then, referred
to an arbitrator who is acceptable to the employee as well as the management. The arbitrator
follows a quasi-judicial process where both the parties present evidence. Based on the
evidences so produced, the matter is cross-examined in thread-bare. The arbitrator then
thinks, applies his mind and arrives at a decision. The decision taken by arbitrator is final and
binding on both the parties.

Steps involved in Grievance Handling:


1. STEP-1: The aggrieved employee presents his grievance in writing to his foreman or
supervisor; he puts his grievance to union representative who also is a full time
employee of the company. If the foreman, aggrieved employee and the union
representative fail to work out a settlement of grievance, the dispute in the written
form is sent to a higher step in the procedure.

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Unit-3: Human Resource Management 3.35 CSP
2. STEP-2: The grievance is looked into by the middle management and the union
committee man; a union committee man supervises several union representatives and
is specialists in union management negotiations. If the situations still remain
unsettled, as the third step, the case if forwarded to top management and top-union
officials.

3. STEP-3: Top management representatives and top union official discuss the
grievance, which by this time has now become issue that has political implications.
Thus it is very difficult to secure an integration of interests at this higher level.

4. STEP-4: If top management and union leaders fail to settle the issue in the fourth
step, then, is to submit the same to an impartial arbitrator for final decision as to the
action required.

5. STEP-5: A failure to settle the issue at the step-4 may result in strike, picketing,
Gherao or lockout. It is the best if the grievance gets settled at the level of supervisor
and union representative.

WELFARE MEASURES-STATUTORY AND NON STATUTORY COMPLIANCE


The concept of labour welfare originated in the desire for a humanitarian approach to
ameliorate the sufferings of the workers and their families on account of the baneful effects
of large-scale industrialization like undesirable social consequences and the labour problems
which have evolved in the process of transition from tradition to modernity. Later it became a
utilitarian philosophy which worked as a motivating force for labour and for those who were
interested in it. Lastly, labour welfare received inspiration from the evolution of the social
thought in regard to democracy and welfare state.

Definition:
1. The I.L.O. (SEA) session held at New Delhi in 1947 defined, Labour Welfare as
such services, facilities and amenities, which may be established in or in the vicinity
of, undertakings to enable persons employed therein to perform their work in healthy,
congenial surroundings and to provide them with amenities conducive to good health
and good morale.

2. N.M. Joshi defined, labour welfare covers all the efforts which employers make for
the benefit or their employees over and above the minimum standard of working
conditions fixed by Factories Act, 1948 and over and above the provision of social
legislation providing against accident, old age, unemployment and sickness.

3. The Committee on Labour Welfare (1969) defined, labour welfare to include such
services, facilities and amenities as adequate canteens, rest and recreational facilities,
sanitary and medical facilities, arrangements for travel to and from work and for the
accommodation of workers employed at a distance from their homes and such other
services, amenities, and facilities including social security measures as contribute to
improve the conditions under which workers are employed.

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Unit-3: Human Resource Management 3.36 CSP
Labour Welfare Agencies in India
In India, the main agencies engaged in labour welfare include:

1. Central Government: The Central Government has passed a number of Acts for the
welfare of different types of workers. It also administers the implementation of
industrial and labour laws. The important Acts which incorporate measures for the
welfare of the workers are: Factories Act, Indian Mines Act, Employment of Children
Act, Maternity Benefits Act, Plantation Labour Act, etc. Under these Acts, employers
have to provide certain basic welfare facilities to the workers.

2. State Government: The implementation of many provisions of various labour laws


rests with the State Governments. The State Governments run health centers,
educational centers, etc. for the welfare of the workers. They also keep a vigil on the
employers that they are operating the welfare schemes made obligatory by the Central
or State Government. The State Governments have been empowered to prescribe rules
for the welfare of workers and appoint appropriate authorities for the enforcement of
welfare provisions under various labour laws.

3. Employers: Many employers provide voluntarily welfare facilities along with the
statutory welfare facilities. These include residential lease accommodation to
employees, medical and transport facilities, reading rooms, scholarships to children of
workers, patronize teams of employees for hockey, football, etc. Employers can
provide welfare facilities individually or collectively i.e., through their associations.
Employers have to play a major role in providing welfare facilities to industrial
workers.

4. Trade Unions: Trade Unions are supposed to raise the welfare of workers and
naturally they are expected to provide certain welfare facilities to their members.
Unions can provide educational cultural another facilities to their members. Some
trade unions like the Rashtriya Mill Mazdoor Sangh are doing good work in the field
of labour welfare.

5. Voluntary Organisation: Some social-welfare and charitable organizations conduct


social welfare activities which are useful to all sections of the society including
industrial workers. These agencies provide medical aid, educational facilities,
scholarships, etc. However, the contribution of such organizations in labour welfare is
not so significant.

CLASSIFICATION OF WELFARE
Welfare Services related to physical and social well-being of the employees both
within and outside the organisation. Within the organisation these include provision of
medical benefits, recreational facilities, libraries, canteens, rest rooms, etc. They may also
include meals and refreshments supplied free of cost or at subsidized rates to the employees.
But outside the organisation, welfare arrangements include provision of housing
accommodation, education of children of employees, sports fields, medical facilities for the
family, etc. The welfare facilities are classified as Statutory and Non-Statutory compliance.

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Unit-3: Human Resource Management 3.37 CSP
Statutory Welfare Compliances:
Those which have to be provided irrespective of size of establishment, say, drinking
water. Also, those which have to be provided subject to the employment of a specified
number of people. The Provisions of Factories Act Regarding Labour Welfare - Sections 42
to 49 of the Factories Act, 1948 contain specific provisions relating to welfare of labour.
Sec.42 to 45 applies to all factories irrespective of the number of workers employed. Secs. 46
to 49 are applicable to factories employing more than a specified number of workers.
These provisions are discussed below:
1. Washing Facility (Sec.42): In every factory: (a) adequate and suitable facilities for
washing shall be provided and maintained for the use of the workers therein; (b)
separate and adequately screened facilities shall be provided for the use of male and
female workers; (c) such facilities shall be conveniently accessible and shall be kept
clean.
2. Facilities for Storing and Drying Clothing (Sec.43): The State Government may, in
respect of any factory or class or description of factories, make rules requiring the
provisions therein of suitable places for keeping clothing not worn during working
hours and for the drying of wet clothing.
3. Facilities for Sitting (Sec.44): In every factory, suitable arrangements for sitting shall
be provided and maintained for all workers obliged to work in a standing position, in
order that they may take advantage of any opportunities for rest which may occur in
the course of their work.
4. First-Aid Appliances (Sec.45): There shall in every factory be provided and
maintained so as to be readily accessible during all working hours first-aid boxes or
cupboards equipped with the prescribed contents, and the number of such boxes or
cupboards to be provided and maintained shall not be less than one for every one
hundred and fifty workers ordinarily employed at any one time in the factory.
5. Canteens (Sec.46): The State Government may make rules requiring that in any
specified factory wherein more than two hundred and fifty workers are ordinarily
employed, a canteen or canteens shall be provided and maintained by the occupier for
the use of the workers.
6. Shelters, Rest Rooms and Lunch Rooms (Sec.47): In every factory wherein more
than one hundred and fifty workers are ordinarily employed, adequate and suitable
shelters of rest rooms and a suitable lunch room, with provision for drinking water,
where workers can eat meals brought by them, shall be provided and maintained for
the use of the workers.
7. Creches (Sec.48): In every factory wherein more than 30 women workers are
ordinarily employed, there shall be provided and maintained a suitable room or rooms
for the use of children under the gage of six years of such women.
8. Welfare Officers (Sec.49): In every factory wherein five hundred or more workers
are ordinarily employed, the occupier shall employ in the factory such number of
welfare officers as may be prescribed. Further, provisions were made in other acts
also for the appointment of welfare officers. For example, Section 58 of the Indian
Mines Act, 1952 provides: For every mine wherein 500 or more persons are
employed ordinarily, the owner, the agent or manager shall appoint a suitably
qualified person as Welfare Officer.

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Unit-3: Human Resource Management 3.38 CSP
Non-Statutory Welfare Compliances:
In the case of certain amenities, there are no minimum standard laid down as in the
sphere of housing, medical treatment, recreation, transport and educational facilities. This is
left to the discretion of the employer. These facilities are:
1. Economic Services: The employees often need money for purchase of bicycle,
scooter, T.V., sewing machine, fan, etc. to raise their standard of living. The employer
may advance them the money which could be paid back by the employees in the form
of monthly installments to be deducted from their salaries. The employees may also
be induced to build up their own funds for future contingencies.

2. Recreational Services: Management may provide, for recreational facilities. More


agreeable informal atmosphere is promoted through the contacts and relationships
built up in the recreational events. The management may provide for indoor games
like Table Tennis in the common room for employees. In case of big organizations,
management may also arrange for playgrounds for outdoor games and induce the
workers to prepare teams to play matches with other similar teams.

3. Facilitative Services: These are conveniences which the employees ordinarily require
such as:
a) Housing Facilities: Some organizations construct flats for their employees and
provide the same either free or at a nominal rent. In some cases, cash
compensations are given while in other cases, loans are advanced to the
employees to enable them to construct or purchase their own houses or flats.

b) Medical Facilities: Health is one of the foremost things for the employees and it
is but natural that there may be some injuries because of accidents while working.
So first-aid facilities must be provided for within the factory premises. In addition,
medical scheme is generally in operation under which reimbursement of medical
expenses actually incurred is allowed. The organisation may also prescribed
doctors from whom the employees may get services in case of need.

c) Washing Facilities: It is necessary to provide for wash basins and washing


facilities to be conveniently accessible to all workers which should be clean,
properly separated and screened for the use of male and female employees.

d) Educational Facilities: Educational facilities may be provided by the


organisation to the employees children by starting a school for them.

e) Leave Travel Concession: Many organizations reimburse actual fares incurred


by the employee in undertaking a tour along with his or her spouse and minor
children once during a specified number of years.

IMPORTANT QUESTIONS
1. Discuss in detail the objectives & functions of HRM.
2. Explain how job evaluation can be carried out in an industrial setup.
3. What do you understand by job evaluation? Explain in detail different methods of job
evaluation.
4. HRM in an organization is the most challenging function. Do you agree? Justify
your answer.

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Unit-3: Human Resource Management 3.39 CSP
5. What is the purpose of training? Explain how training can be imparted.
6. What is the difference between job evaluation & merit rating? Explain & evaluate any
four method of merit rating.
7. Difference between grievance handling and welfare administration. Explain various
causes of Grievance handling.
8. What is merit rating? Explain the uses and significance of merit rating.
9. Explain the employees benefits and incentives schemes for increasing productivity of
employees.
10. Training is an ever continuing process. Explain briefly and state the objectives of
training.
11. What recruitment techniques are generally used in India?
12. What is manpower planning? Explain the process of manpower planning?
13. Define Welfare? Explain the statutory and non-statutory welfare measures?

Management Science CS PATRO


Unit-4: Marketing Management 4.1 CSP
UNIT IV
MARKETING MANAGEMENT

MARKETING MANAGEMENT
The term market originates from the Latin word Marcatus which means a place
where business is conducted. A layman regards market as a place where buyers and sellers
personally interact and finalize deals. Marketing is an essential function of a modern
organization whether it deals in products or services. Marketing is a process of identifying the
customers requirements and satisfying them efficiently and effectively. It constitutes the
eyes and ears of the business.
Marketing is the basic reason for the existence of a business organization. In the age
of fast changes, marketing is springboard of all business activities. It works as the guide for
all business/non-business organization. It is a powerful mechanism which alone can satisfy
the needs and wants of consumers at the place and price they desire. Marketing is said to be
the eyes and ears of a business organization because it keeps the business in close contact
with its economic, political, social and technological environment, and informs it of events
that can influence its activities as per requirements of the market.

Definition:
1. Philip Kotler defines, Marketing is a societal process by which individuals and
groups obtain what they need and want through creating, offering and freely exchange
products and services of value with others.
2. E.F.L. Brech defines, Marketing is the process of determining consumer demand for
a product or service, motivating its sales and distributing it into ultimate consumption
at a profit.
For a managerial definition, marketing has often been described as the art of selling
products. Marketing management takes place when at least one party to a potential exchange
thinks about the means of achieving desired responses from other parties. Marketing
management as the art and science of choosing target markets and getting, keeping, and
growing customers through creating, delivering, and communicating superior customer value.

FUNCTIONS OF MARKETING MANAGEMENT


The marketing functions direct and facilitate the flow of goods and services from the
producer to the end user. Firms must spend money to create time, place and ownership
utilities as discussed earlier. Several studies have been made to measure marketing costs in
relation to overall product costs and service costs and most estimates have ranged between
40-60 percent. These costs are not associated with raw materials or any of the other
production functions necessary for creating form utility. What then does the consumer
receive in return for this proportion of marketing cost? This question is answered by
understanding the functions performed by marketing.
The marketing process starts and ends with these functions. Marketing is responsible
for the performance of 8 universal functions: buying, selling, transporting, storing,
standardizing and grading, financing, risk taking and securing marketing information. Some
functions are performed by manufacturers, others by marketing intermediaries like
wholesalers and retailers.

Management Science CS PATRO


Unit-4: Marketing Management 4.2 CSP
The marketing functions can be broadly categorized into three categories. Buying and
selling, the first two functions represent exchange functions. Transporting and storing are
physical distribution functions. The final four marketing functions standardizing and
grading, financing, risk taking and securing market information are often called facilitating
functions because they assist the marketer in performing the exchange and physical
distribution functions.

A. Exchange functions:
1. Buying: Ensuring that product offerings are available in sufficient quantities to
meet customer demands.
2. Selling: Using advertising, personal selling and sales promotion to match goods
and services to customer needs.
B. Physical distribution functions:
1. Transporting: Moving products from their points of production to locations
convenient for purchasers.
2. Storing: Warehousing products until needed for sale.
C. Facilitating functions:
1. Standardizing and grading: Ensuring that product offerings meet established
quality and quantity control standards of size, weight and so on.
2. Financing: Providing credit for channel members or consumers.
3. Risk taking: Dealing with uncertainty about consumer purchases resulting from
creation and marketing of goods and services that consumers may purchase in the
future.
4. Securing marketing information: Collecting information about consumers,
competitors and channel members for use in marketing decision making.

MARKETING MIX
The term marketing mix was introduced by Prof. N.H. Borden of the Harward
Business School. It describes combination of the four inputs which constitute a companys
marketing system the product, the distribution system, the price structure and the promotional
activities. Marketing mix strategy is an overall marketing approach that is used to achieve
objectives of strategy marketing plans. A marketer involves several factors while dealing
with the marketing-mix strategy product lines, brands and packaging, price setting and
strategies, channel, design, selection and management and communication strategies.

Definition:
1. According to Philip Kotler, Marketing Mix is the set of controllable variables that
the firm can use to influence the buyers response.
2. According to Mr. Jerome McCarthy an American expert, Marketing mix is the pack
of four sets of variables, namely product variables, price variables, promotion
variables and place variables.
3. According to Stanton, marketing-mix is a combination of four elements product,
pricing structure, distribution system and promotional activities used to satisfy the
needs of an organizations target market and at the time achieve its marketing
objectives. Marketing mix represents a blending of decision in four areas, product,
pricing, promotion and physical distribution. These elements are interrelated because
decision in one area usually affects actions in the others.

Management Science CS PATRO


Unit-4: Marketing Management 4.3 CSP
Marketing mix is the set of controllable variables and their levels that the firm uses to
influence its target market. McCarthy popularized the four Ps nearly product, price, place and
promotion. Each firm strives to build up such a composition of 4Ps, which can create
highest level of consumer satisfaction and at the same time meet its organisational objectives.
Thus, this mix is assembled keeping in mind the needs of target customers, and it
varies from one organisation to another depending upon its available resources and marketing
objectives. Marketing mix is a combination of several mixes as shown in above fig.
Marketing mix encompasses product-mix (brand, quality, weight, etc.), price-mix (unit
price, discount credit etc.), promotion mix (advertising, salesmanship and sales promotion),
and place-mix (distribution channels, transport, storage, etc.).

Importance of Marketing Mix:


Determination of marketing-mix is an important decision which the marketing
manager has to take. If proper marketing mix is determined the following benefits will occur
to the organization.
1. Marketing-mix takes care of the needs of the customers; it helps in increasing sales
and earning higher profits.
2. Marketing-mix facilitates meeting the requirements of different types of customers.
3. Marketing-mix gives consideration to the various elements of the marketing system.
There is a balanced relation between these elements.
4. Marketing-mix facilitates meeting the requirements of different types of customers.
5. Marketing-mix serves as the link between the business firm and its customers. It
focuses attention on the satisfaction of customers.

Various elements of marketing-mix are inter related and inter dependent as shown in
the fig. below. For instance, feature of a product inefficient its price, but the price customer
can pay also determines the product features. The choice of channels is determined by the
nature of product and its price. Similarly, promotional activities add to the cost of the
product, the nature of product and its price also influence the kind of promotion to be done.

Management Science CS PATRO


Unit-4: Marketing Management 4.4 CSP

A brief description of the elements of marketing-mix is given below:


1. Product: Product is a set of tangible and intangible attributes designed to satisfy
consumer needs. Marketing activities start from the generation of idea about product
and ends with the positioning of the product in the target markets. Customers needs
should be identified by the company, so it could design the product or services
accordingly. In the process of product planning and development, the marketer should
take into account the right design, desired color and size, preferred style, appealing
brand name, attracting packaging, well informed label and effective after sales
services of the products.
The marketer should identify the important specific variable out of the above
and it should be given due importance in product planning and development. In short,
product planning and development involves decisions about: quality of the product,
size of the product, design of the product, volume of production, Packaging,
warranties and after sale service, product testing and product range, etc.

2. Price: It is one of the most difficult tasks of the marketing manager to fix the right
price. The marketing manager has to do a lot of exercise to determine the price. Price
is the value of the product or service expressed in monetary turns. From buyers point
of view, it is the cost which he is paying to marketer in order to obtain product or
service. Price has its important role in marketing. The price of the product is related
with affordable paying capacity of the consumer, the purpose and motive behind the
purchase etc.
The marketer should explore and design suitable price strategies to capture
maximum market share. Major price policies and strategies are geographical pricing,
uniform pricing, unit pricing, resale price maintenance, leader pricing, follow the
leader pricing, skim pricing, psychological pricing, price competition, non-price
competition and discount and allowances Pricing decisions and policies have direct
influence on the sales volume and profits of the firm. Price therefore is an important
element of the marketing-mix. Right price can be determined through pricing research
and by adopting test marketing techniques.

Management Science CS PATRO


Unit-4: Marketing Management 4.5 CSP
3. Promotion: Promotion is the communication by the marketer to its target customers
regarding its products or services. In advertising, sales promotion and publicity it is
unilateral. In personal selling it is fully bilateral but in public relations it is up to some
extent bilateral. The marketer must make a judicious mixture of three basic elements
of sales promotion, advertising, personal selling and sales promotion keeping in view
the type of product, number of customers, geographical area of market, financial and
managerial resources.
Promotion deals with informing and persuading the customers regarding the
firms product. Most promotional campaigns comprise a combination of two or more
promotional methods as no single method of promotion is effective alone. Factors like
nature of product, nature of customer, stage of demand and promotional budget
influence the inputs that should be taken into consideration while devising a
promotion plan.

4. Place or Physical Distribution: Production has no meaning until and unless the
product is delivered to the consumers. In this regard, the marketer should select the
right distribution policy. The marketer should take into account the factors affecting
the choice of channel of distribution. Place-mix entails activities that are necessary to
transfer ownership of goods to customers and to make available goods at the right
time and place. Thus it includes decision about the channel of distribution and the
place at which the products should be displayed and made available to the customers.
The basic purpose of establishment of channel is to provide convenience in
buying to the customers so that they can purchase firms products or services without
any harassment. The important channels used for physical distribution of goods are
wholesalers and retailers. In some cases the manufacturers even own the retail outlets.
e.g., oil companies in India have their own stations distributing their petroleum
products.

5. The Fifth P: Packaging: Apart from the 4Ps which are basic to the value delivery
process of any company, packaging has assumed its importance as the 5th P of
marketing mix strategy. Packaging is the art, science and technology of preparing
goods for transport, sale and exchange. In recent times, packaging has become an
effective marketing tool. It has become a useful marketing tool because of the
growing importance of self-service, innovation in packaging industry.
The significance of packaging has increased these days because of severe
competition in the market and rise in the standard of living of the people. Packaging
facilitates the sale of a product. It acts as a silent salesman of the manufacturer,
particularly at a place where there is methods of retail selling, automatic vending and
other self-selection methods of retail selling.

The Expanded Marketing Mix:


In service industry one needs more Ps than the five already discussed.
1. Physical Evidence: Before making a service purchase, the customer doesnt know
how to examine the quality of service provided by a service outlet and hence certain
physical clues like actual location etc. help in making a decision. Thus cleanliness at
school, college, hotels, clinics, restaurants, cinema hall, airports etc. becomes more
important. Where people exchange the services, the provision of adequate facilities
becomes more important as in case of hotels, airports, etc. Second part of the physical
evidence is the peripherals service coupon, air ticket, cash memo, cheque book, token,
slips, pen, crockery etc.

Management Science CS PATRO


Unit-4: Marketing Management 4.6 CSP
2. People: People constitute an important dimension of marketing of services as quality
of service depends of quality employees it has. As provider of services, the marketer
must deliver the right product to the customer. Every employee in the organization
becomes a sales person of companys service. Therefore, his attitude, style, sense of
responsibility etc. become more important. People are important to influence the other
customers.

3. Process: It refers to the process by which a customer is served with the desired
product. The process of delivery becomes important in a service organization. It
includes the procedures, mechanism and routines which remain within the
organization. The decisions in service process cover technology, specific equipments,
location, layout etc.
Thus, we see that marketing of services requires an expanded marketing mix
comprising the product, price, place, promotion and the people, physical evidence and
process. The marketer has to be more careful in selecting the right marketing-mix strategy in
case of marketing of services to satisfy the customer requirements.

MARKET SEGMENTATION
An organization cannot satisfy the needs and wants of all consumers. To do so may
result in a massive drain of company resources. Segmentation is simply the process of
dividing a particular market into sections, which display similar characteristics or behavior.
For a consumer product company making toiletries, India is a big market. However, all of the
one billion people dont look for the same features and buy for the same reasons. Thus to
satisfy the market company will divide the market into various sub units by identify
similarities among different group of customers.
Segmentation is the term given to the grouping of customers with similar needs by a
number of different variables. Once this has been done, segments can be targeted by a
number of targeting strategies. The stage that then follows is known as positioning which is
the place that products or services occupy in the marketplace in relation to the competition, as
perceived by the target market.

Definition:
According to Philip Kotler, Market segmentation is the sub-dividing of a market into
homogenous sub-sects of consumers where any sub-sects may conceivably be selected as a
market target to be reached, with a distinct marketing mix.
There are various definitions given by various authors thus we can define segmentation as:
A marketing technique that targets a group of customers with specific characteristics.
Dividing the heterogeneous market into the homogeneous sub-markets who share
similar needs and characteristics.

Need for Segmentation:


Segmentation forms basis for developing targeted and effective marketing plans.
Furthermore, analysis of market segments enables decisions about intensity of marketing
activities in particular segments. A segment-orientated marketing approach generally offers a
range of advantages for both, businesses and customers as under:

Management Science CS PATRO


Unit-4: Marketing Management 4.7 CSP
1. Facilitates proper choice of target marketing: Segmentation helps the marketers to
distinguish one customer group from another within a given market and thereby
enables him to decide which segment should form his target market.
2. Higher Profits: It is often difficult to increase prices for the whole market.
Nevertheless, it is possible to develop premium segments in which customers accept a
higher price level. Such segments could be distinguished from the mass market by
features like additional services, exclusive points of sale, product variations and like.
3. Facilitates tapping of the market, adapting the offer to the target: Segmentation
also enables the marketer to crystallize the needs of target buyers. It also helps him to
generate an accurate prediction of the likely responses from each segment of the
target buyer. Moreover, when buyers are handled after careful segmentation, the
responses for each segment will be homogeneous.
4. Stimulating Innovation: An undifferentiated marketing strategy that targets all
customers in the total market necessarily reduces customers preferences to the
smallest common basis. Segmentation provides information about smaller units in the
total market that share particular needs.
5. Makes the marketing effort more efficient and economic: Segmentation ensures
that the marketing effort is concentrated on well defined and carefully chosen
segments. After all, the resources of any firm are limited and no firm can normally
afford to attack and tap the entire market without any delimitation whatsoever.
6. Benefits the customer as well: Segmentation brings benefits not only to the
marketer, but to the customer as well. When segmentation attains higher levels of
sophistication and perfection, customers and companies can conveniently settle down
with each other, as at such a stage, they can safely rely on each others discrimination.
7. Sustainable customer relationships in all phases of customer life: Customers
change their preferences and patterns of behavior over time. Organizations that serve
different segments along a customers life cycle can guide their customers from stage
to stage by always offering them a special solution for their particular needs.
8. Targeted communication: It is necessary to communicate in a segment-specific way
even if product features and brand identity are identical in all market segments. Such
a targeted communications allows stressing those criteria that are most relevant for
each particular segment (e.g. price vs. reliability vs. prestige).
9. Higher market Shares: In contrast to an undifferentiated marketing strategy,
segmentation supports the development of niche strategies. Market leadership in
selected segments improves the competitive position of the whole organization in its
relationship with suppliers, channel partners and customers.

Criteria for Segmentation:


If segmentation has to be useful in marketing decision making, then it must possess
the following characteristics:
1. Segments must be internally homogeneous: Consumers within the segment will be
more similar to each other in characteristics and behaviour than they are to consumers
in other segments.
2. Segments must be identifiable: Individuals can be placed within or outside each
segment based on a measurable and meaningful factor.
3. Segments must be accessible: Can be reached by advertising media as well as
distribution channels. Only then, the segments can be acted upon.
4. Segments must have an effective demand: The segment consists of a large group of
consumers and they have the necessary disposable income and ability to purchase the
good or service.

Management Science CS PATRO


Unit-4: Marketing Management 4.8 CSP
Market Segmentation Process:
There are some specialized theories based upon which markets can be easily
segmented into different sections. Companies also derive separate segmentation techniques
for every product and brand. Market segmentation process is usually done with the help of
past data, on filed surveys and consumer interactions. Volumes of goods supply in every
segment are made with the help of economic indexes and average income and demand.

The five step process of market segmentation goes as follows:


1. The first step in the market segmentation process is to establish the market and
targeted consumers. This process involves tremendous paper work and surveys.
Economic and demographic factors are also analyzed in the process. In addition to
that this step might also include advertising about the product

2. The second step is often termed as market mapping and involves structuring the entire
marketing procedures based upon the need of the said market. Logistics cost, retail
and whole sale cost, etc, are some important parameters that are set up during this
stage. Another very important factor involved in this step is the targeting of
consumers who are also known as decision makers. The remaining three steps are
derived on the basis of this step.

3. The third step is entirely dependent upon the consumers as the demand by consumers
and their suggestions are largely viewed, surveyed, taken into consideration and in
many cases implemented.

4. In this step, the actual segment begins to take shape as likeminded consumers having
same demands are placed together and are analyzed as a group. Launching of a
parallel or a totally new product is viewed in this situation. This segregation is often
based upon economic indexes, demographic, geographic situations.

5. The last step is catering to the needs of existing consumers and finding new markets.
This step is purely the first step towards a new 5-step-cycle that begins with finding a
new market.

One of the basic objectives of market segmentation is to maximize sales and profits.
Hence, the three important objectives of any segmentation process is to gain new customers,
sustain the existing consumers and introduce newer products into the market for the existing
consumers and thereby gain new consumers.

BASES OF MARKET SEGMENTATION


Consumer markets are those where the products are purchased by ultimate consumers
for personal use. Industrial markets are those where the goods and services are purchased for
use either directly or indirectly in the production of other goods and services for resale.
Market segmentation of these markets use different variables. The consumer market
segmentation variables appear to fall into two broad classes: consumers background
characteristics and consumers market history. The following tables illustrate the most
important factors and variables that have been found useful for market segmentation.
Different variables are used to segment the consumer markets. They can be broadly put into
four categories:

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Demographic Segmentation:
Demos mean people and graphein means to measure or to study. In Demography
means study of people or population. In Demographic segmentation, the market is segmented
on the basis of demographic variables such as age, sex, family size, family life cycle, income,
occupation, education etc. Demographic variables or characteristics are the most popular
bases for segmenting the market.
1. Age: Age is an important factor for segmenting the market. This is because demand
and brand choice of people change with age. On the basis of age, a market can be
divided into four- Children, Teenagers, Adults and Grown-ups. For consumers of
different age groups, different types of products are produced. Johnson and Johnson
cater to the needs of children below 6 years by presenting baby powders, baby soaps,
oils etc.

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2. Sex: Sex based segmentation means grouping customers into males and females. The
wants, tastes, preferences, interests, choices etc, of men are different from that of
women. For instance, women are more fond of cosmetics and other fancy articles.
Marketers use gender differences for marketing garments, personal care products,
bikes, cosmetics and magazines.
3. Family Life Cycle: It refers to the important stages in the life of an ordinary family.
Broadly divided into the following stages:
Stage 1: Childhood.
Stage 2: Bachelorhood (unmarried).
Stage 3: Honeymooners- Young married couple.
Stage 4: Parenthood- (a) Couple with children. (b) Couple with grown up children.
Stage 5: Post- parenthood- Older married couple with children living away from
Parents (due to job or marriage of sons and daughters).
Stage 6: Dissolution- One of the partners is dead.
Wants, tastes, interests, buying habits etc vary over different life cycles stages.
4. Religion: Religious differences have important effect on marketing. The male folk
among the Muslims have a demand for striped lungis and the woman folk for pardhas.
5. Income: Income segmentation is used for automobiles, clothing, cosmetics, travel,
financial services etc. For example, BMW (car manufacturer concentrates on high
income segment).
6. Occupation: Market segmentation is done also on the basis of occupation of
consumers. For instance, doctors may demand surgical equipment, lawyers may
demand coat etc.
7. Family Size: A marketer launches different sizes of products in the market according
to size of the family. For example, shampoos and oil are available in 100 ml. 200ml.
500ml etc.
8. Education: On the basis of education, market for books may be divided as high
school, plus two, graduate and post graduate.

Psychographic Segmentation:
It refers to grouping of people into homogeneous segments on the basis of
psychological makeup namely personality and life style.
1. Life Style: A persons life style is the pattern of living as expressed in the persons
activities, interests and opinions .They express their life styles through the products
they use. For example, the life style of a college student is different from that of an
ordinary worker. Car, clothing, cosmetics, furniture, liquor, cigarettes etc. are
segmented by using life style
2. Personality: Personality reflects a persons traits, attitude and habits. It is in this
background that a person is classified as active or passive, rational or impulsive,
creative or conventional, introvert or extrovert. For example, Raymonds
advertisement says Raymonds. The Complete Man.
3. Social Class: On the basis of Social class, consumers may be grouped into lower
class, middle class and upper class. Social class is determined by income, occupation
and education.

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Geographic Segmentation:
The marketer divides the market into different geographical units. Generally
international companies segment markets geographically. The theory behind this strategy is
that people who live in same area have some similar need and wants and that need and wants
differ from those of people living in other areas.
1. Area: This type of segmentation divides the market into different geographical units
such as country, state, region, district, area etc. Some manufacturers split up their
sales territories either state-wise or district-wise. Markets may also be divided into
urban and rural markets.
2. Climate: Different types of climate prevail in different places. On the basis of
climate, areas can be classified as hot, cold, humid and rainy region. Climate
determines the demand for certain goods.
3. Population Density: The size and density of population affects the demand for
consumer goods. In those areas where size and density of population is high, there
will be good demand for consumer goods.

Behavioral Segmentation:
Behavioral segmentation is based on buyer behaviour i.e. the way people behave
during and after purchase.
1. Attitude: Customers can be segmented on the basis of attitude such as enthusiastic,
positive, indifferent, negative, hostile etc. Fashionable and latest products are used by
enthusiastic consumers. Liquor, cigarette etc are used by negative consumers.
2. Product Segmentation: The market segmentation is done on the basis of product
characteristics that are capable of satisfying certain special needs of customers.
a. Prestige products, e.g., Automobiles, clothing, Home furnishing.
b. Maturity products, e.g., Cigarettes, Blades etc.
c. Status products, e.g., most luxuries.
d. Anxiety products, e.g., Medicines, soaps etc.
e. Functional products, e.g., Fruits, vegetables etc.
3. Occasion Segmentation: According to the occasions, buyers develop a need,
purchase a product or use a product. There can be two types of situations- regular and
special. For example, for regular use, women purchase cotton or polyester sarees or
churidars. For attending marriage or reception (special occasion) they buy silk sarees.
4. Benefit Segmentation: Benefit segmentation implies satisfying one benefit group.
The benefit may be classified into Generic or Primary and Secondary or Evolved.
Product (Tooth paste) - Generic or primary utilities (Cleaning Breath fleshing),
Secondary or Evolved Utilities (brightness).
5. Volume Segmentation: The market is segmented on the basis of volume or quality of
purchase. The buyers are grouped into categories like bulk buyers, moderate buyers,
and small buyers. Heavy buyers are often small percentage of the market but account
for a high percentage of total consumption.
6. Loyalty Segmentation: Consumers have varying degree of loyality to specific
brands. On the basis of brand loyality, buyers can be divided into the following five
groups i.e., Hard-core loyals, Softcore loyals, Shifting loyals, Switchers, and
Consumer innovators.

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Unit-4: Marketing Management 4.12 CSP
MARKETING STRATEGIES BASED ON PRODUCT LIFE CYCLE
A product is a physical good or service or combination of both. It is capable of
satisfying the buyers needs. It attempts to recognize distinct stages in sales history of the
product. The success or failure of a product life depends on how well it makes adjustments to
ever changing, saturation and decline stages. The length of each stage or product life cycle
varies on product nature and environment conditions.
A product has a life cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing, purchasing, and
human resource strategies in each stage of their life cycle.

Stages in Product Life Cycle (PLC):


There are six stages a product passes through from time of its introduction to decline
over a period of time:

Sales

Introduction Early growth Rapid growth Maturity Saturation Decline

Time
1. Introduction: This stage follows just after the launch of the product. The sales are likely
to be very slow. Most of the buyers do not come forward as the product is new and
untested.
2. Early Growth: This is the critical stage. When the usage of product starts flowing into
the market and the results are encouraging more and more buyers come forward to buy
and the unit cost relatively is high, with increased expenses, etc.
3. Rapid Growth: A new product enters the stage of rapid growth when it satisfies the need
of the customers. The sales will increase with repeat purchases and also by mouth
publicity and promotion by manufacturer.
4. Maturity: When the sales growth slows down, it is called maturity stage. At this stage,
the firms tend to attract the customers away from their competitors through cheaper prices
and larger promotional efforts and outlay.
5. Saturation: When the sales slows down to zero. The size of market does not increase
beyond this stage i.e. a new customer is replaced by the old customer who has stopped
buying the product.
6. Decline: When the sales of the product tend to fall. When they do not satisfy the
customer, it is no more preferred. As a result its competing products offering superior
benefits take over the market.

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CHANNELS OF DISTRIBUTION
Channels of distribution refer to the ways and means of reaching the customer
through the intermediaries such as wholesalers, retailers and other agencies, if any. The
channel intermediaries involve the transfer of goods from seller at a given place to the buyer
in a different place. Thus, they provide place utility to the marketing process. They bring the
goods to the consumer in a convenient shape, unit, size, style and package when he wants
them. The wholesaler buys the goods from the manufacturer, stores them, if necessary, and
sells to the retailers for onward sale to the ultimate customer. Thus, they add time utility also.

Definition:
According to Stanton, A distribution channel consists of the set of people and firms
involved in the transfer of title to a product as the product moves from producer to ultimate
consumer or business user.

Functions of channel of distribution:


Primarily a channel of distribution performs the following functions:
1. It helps in establishing a regular contact with the customers and provides them the
necessary information relating to the goods.
2. It provides the facility for inspection of goods by the consumers at convenient points
to make their choice.
3. It facilitates the transfer of ownership as well as the delivery of goods.
4. It helps in financing by giving credit facility.
5. It assists the provision of after sales services, if necessary.
6. It assumes all risks connected with the carrying out the distribution function.

Factors affecting channels of distribution:


1. Type, size and nature of consumers demand: If the customer wants small
quantities, long channels are preferred and vice versa.
2. The nature of companys business: Choose the channel according to the nature of
business activity such as agricultural products, industrial products, services, etc.
3. The type of product sold: The goods may be consumer goods, durable goods or
producer or industrial goods or other goods.
4. The price of the unit of sale: If the price of one unit is as high as that of an
aeroplane, the producer can contact the consumer directly.
5. The profit margins and mark-ups: These, together with the extent of the sellers
product line play a role in attracting distributors to handle the goods.
6. Degree of competition: If the completion is intense, the manufacture has to arrange
for even door-to-door selling or retail outlets.

Types of Channels of Distribution:


The producers/manufacturers usually use services of one or more middlemen to
supply their goods to the consumers. But sometimes, they do have direct contact with the
customers with no middlemen in between them. This is true more for industrial goods where
the customers are highly knowledgeable and their individual purchases are large. The various
channels used for distribution of consumer goods can be described as follows:
1. Zero stage channel of distribution
2. One stage channel of distribution
3. Two stage channel of distribution
4. Three stage channel of distribution

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1. Zero stage channel of distribution:
(Manufacturer consumer) Zero stage distribution channels exists where there is
direct sale of goods by the producer to the consumer. This direct contact with the
consumer can be made through door-to-door salesmen, own retail outlets or even
through direct mail. Also in case of perishable Products and certain technical
household products, door-to-door sale is an easier way of convincing consumer to
make a purchase. For example, Eureka Forbes sells its water purifiers directly through
their own sales staff.
Examples: Industrial goods such as Aeroplanes, Turbo-engines, Ships, Teleshopping,
E-Business, Internet and E-Commerce.

2. One stage channel of distribution:


(Manufacturer Retailer consumer) In this case, there is one middleman i.e., the
retailer. The manufacturers sell their goods to retailers who in turn sell it to the
consumers. This type of distribution channel is preferred by manufacturers of
consumer durables like refrigerator, air conditioner, washing machine, etc. where
individual purchase involves large amount. As the retailers enjoy large discounts in
this process, they share this benefit with their customers by keeping their products
competitively priced. The consumers patronage this channel because they can buy in
small quantities from a wide variety at lower prices.
Examples: Supermarkets, departmental stores (Big Bazaar, Spensors), etc.

3. Two stage channel of distribution:


(Manufacturer-wholesaler-retailer-consumer) This is the most commonly used
channel of distribution for the sale of consumer goods. In this case, there are two
middlemen used, namely, wholesaler and retailer. This is applicable to products where
markets are spread over a large area, value of individual purchase is small and the
frequency of purchase is high. Manufacturers would find it prohibitively expensive to
set up their own outlets in such circumstances. For manufacturers of consumer goods
such as hosiery, food items, confectionery, clothes, and readymade garments,
cosmetics, and so on, intermediaries are indispensable in the distribution chain.
Example: Food items, clothes, cosmetics, readymade garments, etc.

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4. Three stage channel of distribution:
(Manufacturer-Agent-wholesaler-retailer-consumer) When the number of
wholesalers used is large and they are scattered throughout the country, the
manufacturers often use the services of mercantile agents who act as a link between
the producer and the wholesaler. They are also known as distributors or agents.
Example: Food items, clothes, movies, etc.

CONSUMER BEHAVIOUR
Behaviour is the interaction with the ambient surrounding environment, inherent in
living creatures and mediated by their external and inner activeness. Thus consumer
behaviour is actions of consumers in the market place and the underlying motives for those
actions. Marketers expect that by understanding what causes consumers to buy particular
goods and services, they will be able to determine which products are needed in the market
place, which are obsolete and how best to present those goods to the consumer.
The study of consumer behaviour is the study of how individuals make decisions to
spend their available resources (time, money, effort) on consumption related items.

Definition:
In the words of Walters and Paul consumer behaviour is the process whereby
individuals decide what, when, where, how and from whom to purchase goods and services.

Importance of Consumer Behaviour:


The modern marketing management tries to solve the basic problems of consumers in
the area of consumption. To survive in the market, a firm has to be constantly innovating and
understand the latest consumer needs and tastes. It will be extremely useful in exploiting
marketing opportunities and in meeting the challenges that the Indian market offers.
It is important for the marketers to understand the buyer behaviour due to the
following reasons.
1. The study of consumer behaviour for any product is of vital importance to marketers
in shaping the fortunes of their organisations.
2. It is significant for regulating consumption of goods and thereby maintaining
economic stability.
3. It is useful in developing ways for the more efficient utilisation of resources of
marketing. It also helps in solving marketing management problems in more effective
manner.
4. Today consumers give more importance on environment friendly products. They are
concerned about health, hygiene and fitness. They prefer natural products. Hence
detailed study on upcoming groups of consumers is essential for any firm.
5. The growth of consumer protection movement has created an urgent need to
understand how consumers make their consumption and buying decision.

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6. Consumers tastes and preferences are ever changing. Study of consumer behaviour
gives information regarding colour, design, size etc. which consumers want. In short,
consumer behaviour helps in formulating of production policy.
7. For effective market segmentation and target marketing, it is essential to have an
understanding of consumers and their behaviour.

Types of Consumer Behaviour:


There are four types of consumer behaviour. They are:
1. Complex Buying Behaviour: Consumers goes through complex buying behaviour
when they are highly involved in a purchase and aware of significant differences
among brands. Consumers are highly involved when the product is expensive, bought
infrequently, risky and self-expensive. Here consumers go through a rational/logical
thinking process to collect as much information as possible about the available
brands. Behaviour exhibited while purchasing a car is an example of complex buying
behaviour.
2. Dissonance Reduction Buying Behaviour: Sometimes consumers are highly
involved in purchases but see little difference in the brands. After the purchase they
feel that the product does not perform to their expectations. They may thing about
alternative brand which has forgone in the brand selection process. As a result, they
feel some discomfort. This mental condition is known as Cognitive Dissonance.
3. Variety Seeking Buying Behaviour: Here consumers have a lot more brand options
to choose. At the same time there are significant brand differences. Unit price of
product is low. Consumer involvement is also low. But consumer show brand
switching behaviour. They go on changing from one brand to another. They like
experiments for the sake of variety satisfaction. They exhibit variety seeking
behaviour in case of products like soap, detergents, toothpaste etc.
4. Habitual Buying Behaviour: In this situation consumers buy their products on
regular basis. Brand switching behaviour is quite common here. Variations among
brands are significant. Products are usually low priced. Gathering product knowledge
is not so important. Consumers show habitual buying behaviour in case of products
like salt, matches etc.

FACTORS INFLUENCING CONSUMER BEHAVIOUR


All factors which determine the buying or consumer behaviour are broadly classified
into six. Psychological factors, Social factors, Cultural factors, Personal factors, Economic
factors and Environmental factors.
Psychological Factors:
The following are the important psychological factors:
1. Consumer Needs and Motivation: All buying decisions start with need recognition.
People always seek to satisfy their needs. When need is not satisfied it drives people
to satisfy that need. Then the need becomes a motive. Thus motive arises from needs
and wants. The force that converts needs into motives is called motivation.
2. Perception: It is the process of selecting, organizing and interpreting information in
order to give meaning to the world or environment we live in. the way the consumers
display selective attention, distortion or retention motivates marketers to design the
product, package, promotional themes etc.

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3. Learning: Learning is the process of acquiring knowledge. Generally, learning results
in four ways Listening, Reading, Observing and experiencing. The importance of
learning theory for marketers is that they can create demand for a product by
associating it with strong drives, using motivating cues and providing positive
reinforcement.
4. Belief and Attitude: A belief is a descriptive thought that a person holds about
something. Such thoughts are based on learning, opinion or faith. For example, A
consumer believes that Maruti cars are less costly and fuel efficient. Attitude means a
persons feelings towards a particular object or situation.

Social Factors:
The major social factors are as follows:
1. Reference Group: consumer behaviour is influenced by various groups within
society known as reference groups. We have several reference groups with whom an
individual associate such as friends, relatives, classmates, club memberships etc. In
each groups there is an opinion leader whose style is adopted by others. Marketers
often identify such opinion leaders and develop advertisement featuring them as
endorsers.
2. Role and Status: A person takes up many roles in different situations in his /her life.
He can be son, father, husband, employee etc. Each role has a status. A persons role
and status influence his general as well as buying behaviour.
3. Family: Family is one of the important factors influencing buying behaviour.

Cultural Factors:
Culture determines and regulates our general behaviour. The major cultural factors are
as follows:
1. Culture: Culture simply refers to values and beliefs in which one is born and brought
up. It is a set of Ideas, Customs, Values, Art and Belief that are produced or shaped by
a society and passed on from generation to generation. Culture influence what we eat
and wear, how we relax and where we live etc.
2. Sub-Culture: It is based on religion, language, geographic region, nationality, age
etc. It is a segment within a large culture that shares a set of beliefs, values or
activities that differ in certain respects from those of the main or overall culture. The
food habits are different in different parts of India.
3. Social Class: A social class is a group of people with similar values, interest and
behaviour within a society. Consumers buying behaviour is determined by the social
class to which they belong rather than by their income alone. The social class is based
on income, education, occupation, family history, wealth, lifestyle, area of residence
etc.

Personal Factors:
Personal factors are unique to a particular person. These factors include demographic
factors and are as follows:
1. Age: Need and wants are determined by age. So buying changes with age, Taste for
food, clothing and recreation etc. changes with age.
2. Stages in the Life Cycle: People buy different goods during different life cycle
stages. Life cycle of an individual refers to the different phases of his or her life.
3. Occupation and Economic Status: Occupation influences product choice, brands
beliefs etc. It determines income, buying power and status.

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4. Life Style: It indicates how people live, how they spend their time, how and what
they choose and where they shop. It is the way people eat, drink, spend leisure time,
work and so on.
5. Personality: Personality refers to the unique psychological characteristics of an
individual. Personality of consumers influences brand preference and choice of
products.
6. Self-Image: Self image implies what one thinks of himself/herself .It is the way one
sees himself/herself or wishes to see himself/herself or wants to be seen by others.
Self-concept is an important factor to marketers in planning advertising campaign.

Economic Factors:
The various economic factors which determine consumer behaviour are as follows:
1. Personal Income: Gross income of a person is composed of disposable and
discretionary income. When disposable income rises, the expenditure on various items
will increase and vice versa.
2. Family Income: It is the aggregate income of all members of a family. The family
income remaining after the expenditure on the basic needs of the family is made
available for buying goods, durables and luxuries
3. Income Expectations: If a person expects any increase in his income he will buy
durables on hire purchase etc, if his future income is likely to decline he will restrict
his expenditure to bare necessities.
4. Savings: When a person decides to save more, he will spend less on comfort and
luxuries.
5. Liquidity Position: If an individual has more liquid assets, he goes in for buying
comfort and luxuries.
6. Consumer Credit: If Consumer Credit is available on liberal terms, expenditure on
comfort and luxuries will increase.

Environmental Factors:
The various environmental factors which determine consumer behaviour are as follows:
1. Political Situation: In state monopolies, consumers have to be satisfied with a limited
range of products, but in market oriented economy like that of USA, consumers have
wider choice.
2. Legal Forces: Consumers make purchases within the legal framework. All purchase
dealings are carried on within legal limits.
3. Technological Advancements: Technological advancements bring wide range of
changes in products/ services and makes consumers go in for latest products.
4. Ethical Considerations: Buying behaviour is influenced by the sense of social
morality and ethical considerations.

Consumer Decision Making Process:


Buying is a mental process. A decision to buy a product is taken after passing through
different stages. In order to understand how consumers buy, an attempt should be made to
know the actual stages they pass through to reach their buying decisions.
This buying process suggests that buying process starts long before actual purchase
and has consequences long after the purchase. It suggest that consumer pass through all five
stages, but it is not always true. Consumer buying process varies in buying special or
expensive items than routine or inexpensive items. A model buying process through which a
consumer passes has five stages which are as follows:

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1. Problem Recognition or Need Arousal: Consumer buying process starts with need
arousal. Need gets aroused when consumers feel that there is a difference between his
actual and desired state. A need can be activated through internal or external stimuli.
a) Internal Stimuli: Due to his biogenic conditions when person feels hungry,
thirsty, desire for sex, the need gets aroused which creates tension to person and it
becomes a drive, the person know how to cope with such drive from his previous
experience and is motivated to buy a product which satisfy his desire.
b) External Stimuli: Persons need gets aroused by external stimulus, for example a
woman has seen the advertisement of ornaments or person passing near
restaurants may have look at fresh foods which increase his appetite (hunger) and
he decides to buy a food.

2. Information Search: If an aroused need is intense and product is affordable and easily
available consumer buys it and satisfies his need, for example hungry person sees a food,
buys it and consumes it immediately. In more cases need is not intense or product is not
easily available, it enters consumers memory and will be satisfied in future. Depending
upon the intensity of need, the need produces two types of behaviour:

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a) Heightened Attention: Here, consumer, in his normal routine life, becomes alert
to any information which can help him in satisfying his need. Consumer pays his
attention to advertisement, views of his friends etc.
b) Active Information Search: Here, consumer need is intense and he actively starts
collecting information for satisfying his or her need from following sources:
Personal Sources, such as family, neighbours, friends, colleagues etc.
Public Sources, such as mass media (TV, Newspaper) etc.
Experiential Sources, such as using the product, examining the product, testing
the product, product trial etc.
Commercial Source, such as advertisements, information from dealers,
packing of the product, display etc.
The relative influence and importance of these information sources depends on
type of product and characteristics of buyer. Generally consumer receives information
from commercial sources.

3. Evaluation of Alternatives: Information collected for different products helps


consumers to evaluate the alternatives. There is not a simple and single evaluation process
used by all consumers or even by one consumer in all buying situations. Normally
consumer takes judgment about product on conscious and rational basis. Certain basic
concepts help in understanding consumer evaluation process are given below:
a) Product Attributes: Consumer perceived product in terms of its attributes
relevant to that product class or category. The attributes of normal interest in some
familiar products are: (i) Hotel: Housekeeping, Location, Atmosphere, Cost etc.
(ii) TV : Screen Size, Sound Quality, Picture Clarity, Price, colour etc.
b) Rating Information: Consumer gives ratings to information collected.
c) Assign Weightage: Consumer assigns different weight to different attributes of
products.
d) Utility Function: Consumers also consider the quality of different products with
each of its attributes.
e) Judgment Preference: The product that carries maximum attributes.

4. Purchase Decision: Once evaluation of alternative is done, consumer forms ranked


preference among alternative brands. The consumers evaluation will led to an intention
to purchase one of the products. Before actual purchase decision additional three factors
influence the buying decision.
a) Attitude of Others: Attitude of family members, wife, children, friends etc. affect
the buying decision. Suppose a person has decided to buy Maruti 800, whereas his
wife attitude towards Maruti 800 is negative, and if he gives importance to his
wife preference his decision to buy Maruti 800 will be changed.
b) Anticipated Situational Factors: Consumers purchase intention is also
influenced by anticipated circumstances. Consumer forms a purchase intention on
the basis of expected family income, expected total cost of product, expected
benefits of products etc. any change in this factors will affect their purchase
intention.
c) Unanticipated Situational Factors: The unanticipated factors prevent the
consumer to fulfill his purchase intension. For example, buyer may not be able to
negotiate desirable terms, he may not like behaviour of sales person, language of
shopkeeper etc. so buyer changes his decision to buy preferred product.

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5. Post-purchase Behaviour: After buying and trying the product, consumer will feel either
satisfied or dissatisfied. Consumer satisfaction therefore depends upon consumers
expectations and products perceived performance.
a) Post-Purchase Satisfaction: If, Consumer feels satisfied, i.e. if product matches
Consumers expectations, Consumer shall be satisfied. If products performance
exceeds Consumers expectations Consumer shall be highly satisfied. When
products performance is less than expectations than Consumer shall be
dissatisfied.
b) Post-Purchase Action: If, Consumer is satisfied with products performance,
Consumer shall continue to buy the same product and might also influence others
decision of buying that particular product. If, Consumer is dissatisfied, Consumer
will not make repeat purchase and even does not communicate with others regard
buying of that particular product.
c) Post-Purchase Use and Disposal: Some consumers also find new uses of product
so the preserve it. Some other buyers, on the other hand throw out the product
after its use, and some consumers retain the packaging of the product or its
containers for some other use.

MARKETING RESEARCH
A marketing research starts with an information need. It ends with an actionable
report or presentation or both. In between there are various steps to ensure that the marketing
research report achieves what we set out to do. The marketing research process includes the
systematic identification, collection, analysis and distribution of information for the purpose
of knowledge development and decision-making. The reasons and times at which any
company or organization might consider performing marketing research varies, but the
general purpose of gaining intelligence for decision-making remains constant throughout. As
a company or organization, the overwhelming majority of researches are currently
considering what likely revolves around the customer.
Definition:
1. American Marketing Association defines, Marketing Research is the function which
links the consumer, customer, and public to the marketer through information-
information used to identify and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions; monitor marketing performance; and
improve understanding of marketing as a process.

2. Green and Tull defined, Marketing research is the systematic and objective search
for, and analysis of, information relevant to the identification and solution of any
problem in the field of marketing.

Importance of Marketing Research:


1. It facilitates planned production by forecasting probable sales.
2. It helps in identifying the reasons for consumer resistance to existing or new products.
3. It reveals the nature of demand for the product i.e. whether the product is in demand
throughout the year or has a seasonal demand.
4. It indicates the product utility and effectiveness of existing channels of distribution.
5. It may reveal certain new uses for the existing products.
6. It provides information about potential or future markets.
7. It helps in the discovery of new lines of production.

Management Science CS PATRO


Unit-4: Marketing Management 4.22 CSP
Marketing Research Process:
Marketing research process varies with the nature of problem, the accuracy of the
results and the sum of money spent. Marketing research process consists of the interwoven
and frequently overlapping seven steps in proper sequence. According to Kotler, effective
marketing research involves six steps:

Define the problem and research objectives:


Marketing research helps in identifying problems and opportunities. Thus, marketing
management begins with defining the presence of a problem or an opportunity. The
marketing management must be careful not to define the problem too narrowly or too
broadly. A well-defined problem provides direction and maintains uniformity in research
work. It also helps in developing alternatives and setting priorities. Research is conducted by
persons other than the marketing manager. Thus, manager must state the objective of research
which generally is to solve a problem or understand an opportunity.

Develop a research plan:


A research plan for gathering needed information is chalked out at this stage. A
research plan helps in estimating the time, cost and human resources required for a research
work. A research plan determines five vital aspects. They are as follows:
1. Data sources: A researcher can gather secondary data, primary data, or both. The
secondary data is a data collected for another purpose and existing in a published
form. The primary data is freshly gathered for research product in hand.
2. Research approaches: The primary data can be collected through observations, field
surveys and experiments. Fresh data can be gathered by observing relevant people,
situations and events. Companies can also undertake field survey to learn about
peoples knowledge, beliefs, preferences and satisfaction. The most scientifically
valid research is experimental research. The responses are observed and transformed
into solution.

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Unit-4: Marketing Management 4.23 CSP
3. Research instruments: Marketing researchers use three instruments to collect
primary data:
a. Questionnaire: It is a set of questions presented to a respondent. It is the most
popular instrument.
b. Qualitative measures: Sometimes, consumer response does not match their
answers. Thus, unstructured techniques are used. For example, consumer
journey is a technique of keeping track of all the interactions of a consumer
with a product service or space.
c. Mechanical devices: Electronic devices have replaced questionnaires and
diary filling methods. For example, galvanometer can measure the interest or
emotion of a person on watching a picture or an advertisement.
4. Sampling plan: Here, a researcher has to plan the sampling unit, procedure and size.
It is not possible to interview each and every person. Therefore, the researcher must
define the target population from which sample has to be drawn. The researcher has to
choose between probability and non-probability sampling. A good sampling
procedure can provide good reliability.
5. Contact method: A researcher must decide how the respondent should be contacted.
Contact methods include telephonic interview, personal interview, online interview
and mail interview.

Collect the information:


This is the most expensive stage of research. Collecting primary data by interviewing,
observing, and/or experimenting can be done by people or machines. Unfortunately, this step
is the weakest link in the research process. For example, some respondents may not be
available at home. They must be contacted again or replaced. Others may not cooperate. They
give biased or dishonest answers. It is equally difficult to motivate data collectors. They
require proper training, incentives and supervision. Getting the right data is critical.

Analyse the information:


The value of research is determined by its results. Thus, data collected have to be
analyzed and interpreted. The researcher tabulates the data. Averages and measures of
dispersion are calculated for major variables. Advanced statistical techniques are also used
for discovering additional findings. Today, software tools are available for data entry, data
management, analysis and presentation. Analysis of data provides general estimates, whereas
interpretation draws a specific and precise conclusion.

Present the findings:


The researcher should present findings that are relevant to research objective. It has to
help management in taking decisions. A research report is an effective tool used to present
research findings. It reflects the skills and quality of the researches. It can be a written or an
oral presentation, or both. Visual aids such as line chart, pie chart, bar chart, pictographs, etc.
can be used. A well-presented report indicates the confidence levels of the researchers in
presenting strategies that help in managerial decision-making.

Follow-up:
A researcher should follow-up their studies to determine whether their results and
recommendations are being used. Without a follow-up, the researcher has no way of knowing
if the research has met the managements requirements. If it has fallen short of managerial
requirement, this is a step that can help in improving future research projects.

Management Science CS PATRO


Unit-4: Marketing Management 4.24 CSP
IMPORTANT QUESTIONS
1. Define Marketing? Explain the functions of Marketing?
2. Explain the concept of Marketing Mix in detail?
3. What do you mean by Channels of distribution? Explain its importance and functions
in marketing.
4. What are the factors that determine the choice of Channel of distribution? Why
manufacturer do favours intermediaries.
5. Consumer is a King. Comment on the statement in the light of marketing concept.
6. Discuss critically various Channels of distribution used in marketing with appropriate
examples. Which channels do you feel most appropriate for selling computer and
household refrigerator.
7. Marketing should aim at meeting a given consumers need rather than selling a given
product. Comment.
8. Describe different stages of product life cycle and marketing strategies required at
each stage.
9. Define marketing research? Explain the marketing research process?
10. What is customer behaviour? Explain the factors influencing customer behaviour in
different marketing conditions?
11. What is marketing research and explain its importance in the market?
12. Explain the importance and consumer decision making process?
13. Define market segmentation? Explain the objectives and significance of
segmentation?
14. Explain the bases of marketing segmentation in the consumer markets?

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Unit-5: Project Management 5.1 CSP
UNIT V
PROJECT MANAGEMENT

NETWORK ANALYSIS
It refers to a number of techniques for planning and control of complex projects. The
basis of network planning is the representation of sequential relationships between activities
by means of network of lines and circles. The idea is to link various activities in such a way
that the overall time spent on the project is kept to a minimum.
The advantages of developing a network are:
1. They provide logical picture of the layout and sequence of a project.
2. They help to identify the activities and events of the project.
3. They provide basis for working out times, costs involved in project.
4. They act as a focus point for action and coordination.
5. They make an enormous contribution to planning of projects.

There are two forms used for network planning:


1. Programme Evaluation and Review Technique (PERT): It is generally used for
those projects where time required to complete various activities are not known as a
priori. It is probabilistic model & is primarily concerned for evaluation of time. It is
event oriented.

2. Critical Path Method (CPM): It is a commonly used for those projects which are
repetitive in nature & where one has prior experience of handling similar projects. It
is a deterministic model & places emphasis on time & cost for activities of a project.

Features of Network Analysis:


1. Logical base of planning: Network analysis is highly applicable at several stages of
project management right from early planning stage of selecting right option from
various alternatives to scheduling stage and operational stage.
2. Simple in nature: Net work analysis is straightforward in concept and can be
easily explained to any laymen. Data calculations are simple and for large projects
computers can be used.
3. Improves coordination and communication: The graphs generated out of network
analysis display simply and direct way the complex nature of various sub- divisions
of project may, quickly perceive from the graph.
4. Wider application: The network analysis is applied to many types of projects.
Moreover, they may be applied at several levels within a given project from a single
department working on a sub-system to multi-plant operations within corporation.
Basic Network Terminologies:
1. Activity: This is a task or job of work, which takes time and resources. It is
represented by an arrow. ( ). The head of arrow indicates where the task ends
and tail where the task begins. An activity may be critical or non-critical. The arrow
points from left to right. It is used to establish:
(a) The activities involved in the project;
(b) The logical relationship;
(c) An estimate of time, which the activity is expected to take.

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Unit-5: Project Management 5.2 CSP
2. Event: This is a point in time and indicates the start or finish of an activity. Ex:
building wall completed, electrical connections started and ended. It is represented by
a circle or node ( ). The event from which an arrow comes out is called preceedor
event. The event into which the arrow gets in is called the successor event.

Tail Event Head Event

Preceedor Successor
Event Event

3. Dummy Event: This is an activity drawn to show clear and logical dependencies
between activities so as not to violate the rules of drawing networks. It does not
consume resources. Dummy activity is a hypothetical activity which takes no
resource or time to complete. It is represented by broken arrowed line & is used for
either distinguishing activities having common starting & finishing events or to
identify & maintain proper precedence relationship between activities that are not
connected by events.
It is represented by dotted arrow ( ).

4. Numbering the Event (Fulkersons Rule):


a) The initial event which has all outgoing arrows with no incoming arrow is
numbered 1.
b) Delete all the arrows coming out from node 1. This will convert some
more nodes into initial events.
c) Number these events as 2, 3, 4, .
d) Delete all the arrows going out from these numbered events to create more
initial events. Assign the next numbers to these events.
e) Continue until the final or terminal node, which has all arrows coming
in with no arrow going out, is numbered.
f) Events have to be progressively numbered from left to right i.e. 1,2,3, etc.

NETWORK:
This is the combination of activities, dummy activities and events in a logical
sequence, according to the rules of drawing a network. Each activity of the project is
represented by arrow pointing in direction of progress of project. The events of the network
establish the precedence relationship among different activities.
The rules of drawing a network:
1. A complete network should have only one point of start and only point of end event.
2. Each activity must have one preceding or tail event and one succeeding or head event.
3. An event is not complete until all activities are complete.
4. All activities must be tied into the network. Events left untied to network are called
danglers.
5. Arrows cannot go backward and loop network should be avoided.
6. An arrow should always be straight, not curved, head from left to right and do not
cross each other.
7. Use dummies only when it is required.

Management Science CS PATRO


Unit-5: Project Management 5.3 CSP
Steps for drawing CPM/PERT network:
1. Analyze & breakup of the entire project into smaller systems i.e. specific activities
and/or events.
2. Determine the interdependence & sequence of those activities.
3. Draw a network diagram.
4. Estimate the completion time, cost, etc. for each activity.
5. Identify the critical path (longest path through the network).
6. Update the CPM/PERT diagram as the project progresses.

PROGRAMME EVALUATION AND REVIEW TECHNIQUE (PERT)


It is a tool to evaluate a given programme and review the progress made in it from
time to time. A programme is also called a project. A project is defined as a set of activities
with a specific goal occupying a specific period of time. PERT is concerned with estimating
the time for different stages in a project and find out what the critical path is, i.e. which
consumes the maximum resources.

Time Estimates in PERT:


1. Optimistic Time Estimate (to): It refers to minimum time the activity takes,
assuming that there will not be any hindrances like delay, setbacks, etc in completion.

2. Pessimistic Time Estimate (tp): This is the maximum possible time it could take to
complete the job barring the major disturbances like labour strike, etc.

3. Most-Likely time Estimate (tm or ti): It is the time estimate which likes between the
optimistic and pessimistic time estimates.

4. Average Time Estimate (te): according to beta distribution, the average of the 3
estimates is equal to the aggregate of one-sixth of optimistic, two-thirds of most likely
and one-sixth of pessimistic time estimates. This equation is very significant in PERT
analysis:
te = 1/6 to + 2/3 tm + 1/6 tp
or
te = to +4tm + tp / 6

5. Range, Standard Deviation and Variance: In beta distribution, the range is equal to
the difference between pessimistic time estimate (tp) and optimistic time estimate (to).
Range = tp - to
Standard Deviation () is equal to one-sixth of range.
= (tp- to) / 6
Variance (2) = [(tp- to) / 6]2

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Unit-5: Project Management 5.4 CSP
CRITICAL PATH METHOD (CPM)
This assumes that the time required to complete an activity can be predicted
accurately, and thus the costs can be quantified once the critical path is identified. It involves
determining an optimum duration of the project, i.e. minimum duration which involves
lowest costs.
Examples of PERT and CPM:
1. Construction of projects like buildings, highways, bridges, etc.
2. Preparation of bids and proposals like multipurpose projects.
3. Maintenance and planning of oil refineries, ship repairs, etc.
4. Manufacture and assembly of large items like aeroplanes, ships etc.
5. Development of new products or services.

Difference between PERT and CPM:


PERT CPM
1. It is event oriented. It is activity oriented
2. It is based on 3 estimates: optimistic, It is deterministic.
most likely and pessimistic.

3. It is a technique for evaluating the Here time estimates are based on past
probability of completing the project. data.

4. It is not related to costs. Here time is related to costs.


5. It includes network diagram, event, It involves arrow diagram, nodes and
slack, etc. float.

6. It assumes all resources (money, It is more realistic. It provides


men, materials and machines) are information about the implications of
available as and when required crashing the duration of network and
additional costs.

IDENTIFYING CRITICAL PATH


It is the path which consumes the maximum amount of time or resources. It is that
path which has zero slack. Slack means the time taken to delay a particular event without
affecting the project completion time. If the path has zero slack, it means it is the critical path.
Slack is the difference between latest allowable occurrence time (T L) and the earliest
expected time (TE).

1. Earliest Expected Time (TE): (Forward pass time): It refers to the time when an
event can be expected to be completed at the earliest. It is computed by adding t es of
the activity path leading to that event. It is started with the start event and worked out
for all events. Where there is more than one path leading to a particular event,
consider the maximum value of the TEs.
TE (Successor Event) = maximum value of [TE (preceedor event) + te (activity)]

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Unit-5: Project Management 5.5 CSP
2. Latest Allowance Occurrence Time (TL): (Backward pass time): It is the latest
time by which an event must occur to keep the project on schedule. If not the project
is delayed. Where TE for the end event becomes TL for the end event. We start with
the end event and work out latest allowable occurrence time to all other events. Where
there is more than one path, consider the minimum value of TL.
TL (Preceedor Event) = minimum value of [TL (successor event) + te (activity)]

3. Critical Path: Critical path is that path which consumes the maximum amount of
time or resources. It is that path which has zero slack value.
(TL TE)

4. Slack: Slack means the time taken to delay a particular event without affecting the
project completion time. If a path has zero slack that means it is the critical path.
Slack = LFT EFT

5. Earliest Start Time (EST): It is the earliest possible time at which an activity can
start, and is calculated by moving from first to last event in the network diagram.

6. Earliest Finish Time (EFT): It is the earliest possible time at which an activity can
be finished.
EFT = EST + Duration of activity

7. Latest Start Time (LST): It is the latest possible time by which an activity can start
without delaying the date of completion of the project.
LST = LFT Duration of the activity

8. Latest Finish Time (LFT): It is the latest time by which the activity must be
completed. So that the scheduled date for the completion of the project may not be
delayed. It is calculated by moving backwards.

FLOAT
Floats in the network analysis represent the difference between the maximum
time available to finish the activity and the time required to complete it. The basic difference
between slack and float times is a slack is used with reference to event, float is use with
reference to activity.
Floats are three types:
1. Total float: It is the additional time which a non critical activity can consume
without increasing the project duration. However total float may affect the floats in
previous and subsequent activities.
Total float = LST EST or LFT EFT

2. Free float: Free float refers to the time by which an activity can expand
without affecting succeeding activities.
Free float = EST of Head Event EST of Trail Event Activity duration

3. Independent float: This the time by which activity may be delayed or extended
without affecting the preceding or succeeding activities in any away.
Independent float = EST of Head event LFT of Trail event Activity duration

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Unit-5: Project Management 5.6 CSP
PROBABILITY
To compute the probability of completing the project within a given time, we use the
concepts of range, standard deviation and variance. The following steps are involved in
determining probability:
1. Find out the range of pessimistic and optimistic time estimates of those activities
covered by critical path (tp to).
2. Determine standard deviation () for each activity.
3. Determine the variance (2).
4. Find the sum of variances of projects 2 = 21, 22 + + nn
5. Determine square root of sum of variances
= 21, 22 + + nn
6. Divide the slack (i.e. difference between the scheduled completion time and the latest
allowable occurrence time) by SD of entire network.
Normal deviate = Z = [TL TE / ]
This should be within a range of +-3 limits.
7. To arrive at % of probability of completing the project within a given time, the value
of the normal deviate has to be converted into the value of probability by use normal
distribution function table. The probability of not completing the project with time is
(100 + % of probability of completing the project).

PROJECT CRASHING
In project crashing, the starting point is the critical path. Once the critical path in a
network is identified, it is necessary to identify the crash activities by calculating cost slope.
The network diagram should be reconstructed at every stage of crashing incorporating the
effect of crashing in the selected sequence.
For reducing the duration, extra expenditure is required to be incurred, but to save
resources; organizations keep this extra expenditure at a minimum. As such, the decision to
crash or expedite should be taken for only those activities which would involve minimum
extra cost.
Y

Total Cost (A + B)
0

(B) Indirect costs


Project cost

(A) Direct costs

0 CT OT NT X
Project Time Duration
Where, CT = Crash time
OT = Optimum time
NT = Normal time

From the above graph, it can be observed that direct cost (A) decrease with an
increase in time. As the project duration increases, the indirect cost (B) increases. The total
cost (A+B) curve is flat U-shaped, which implies that only up to a particular point (0) the

Management Science CS PATRO


Unit-5: Project Management 5.7 CSP
crashing is economical. The time duration which involves the least total cost is the optimum
duration at optimum cost. Crashing the duration of a project may not be possible and may not
be possible beyond a particular point.

The costs associated with any project can be classified as:


1. Direct costs: The costs which are directly proportional to the number of activities
involved in the project. The more the number of activities, the more is the direct cost.
Ex: payment of salaries, etc.

2. Indirect costs: The cost those are determined per day. These are directly proportional
to the number of days of the duration of the project. Ex: Rent, interest on borrowings,
advertisement, bonus to staff, etc.

3. Normal costs: The costs that is incurred if the project allowed taking its normal
duration of time, considering the most efficient utilization of the resources.

4. Crash costs: The cost incurred to reduce activity duration to its minimum. Ex: extra
wages, over time, etc.

Computation of Project Crashing:


There are usually compelling reasons to complete the project earlier than the
originally estimated duration of critical path computed on the normal basis of a new project.
Activity Cost Slope = (Cc - Nc) (Nt - Ct)
Where,
Cc = Crash Cost = Direct cost that is anticipated in completing an activity within
crash time.
Nc = Normal Cost = This is the lowest possible direct cost required to complete an
activity
Nt = Normal Time = Min. time required to complete an activity at normal cost
Ct = Crash Time = Min. time required to complete an activity

The total project cost is the sum of the direct & the indirect costs.
Optimum duration is the project duration at which total project cost is lowest.

Management Science CS PATRO


Unit-5: Project Management 5.8 CSP
ILLUSTRATIONS
1. Draw a network to represent the project and find the minimum time of completion of
the project when time, in days, of each task is as follows. Also identify the critical path.

Activity: 1-2 1-3 2-3 2-5 3-4 3-6 4-5 4-6 5-6 6-
Duration 15 15 3 5 8 12 1 14 3 14
7
:
(Weeks)
Solution:

Network Diagram:

Critical Path = 1 2 3 4 9 7
Project Duration = 54 weeks

2. A small engineering project consists of 6 activities namely A, B, C, D, E & F with


duration of 4, 6, 5, 4, 3 and 3 days respectively. Draw the network diagram and calculate
EST, LST, EFT, LFT and floats. Mark the critical path and find total project duration.

Activity A B C D E F
Preceding - A B A D C,E
Activity
Duration 4 6 5 4 3 3

Solution:
Network Diagram:

Critical path = A-B-C-F


Project duration = 18 days

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Unit-5: Project Management 5.9 CSP
Total Free Independent
Activity Duration EST LST EFT LFT
float float float
A 4 0 0 4 4 0 0 0
B 6 4 4 10 10 0 0 0
C 5 10 10 15 15 0 0 0
D 4 4 8 4 12 4 0 0
E 3 8 12 11 15 4 4 0
F 3 15 15 18 18 0 0 0

Note: LST = LFT activity duration


LFT = EST + activity duration
Total float = LST EST or LFT EFT
Free float = EST of Head Event EST of Tail Event Activity duration
Independent float = EST of Head event LFT of Tail event Activity duration

3. A small engineering project consists of six activities. The three time estimates in number
days for each activity are given below.
Activity to tm tp
12 2 5 8
23 1 1 1
35 0 6 18
56 7 7 7
14 3 3 3
45 2 8 14
Find out:
a) Calculate the values of expected time (te), SD, variance of each activity
b) Draw the network diagram and calculate total slack for each activity
c) Identify the critical path and mark on the net work diagram
d) Probability of completing project in 25 days

Solution:

Management Science CS PATRO


Unit-5: Project Management 5.10 CSP

Critical path = 1-2-3-5-6


Project Duration = 20 days

Activity EST LFT LST EFT Slack


1-2 0 5 0 5 0
2-3 5 6 5 6 0
3-5 6 13 6 13 0
5-6 13 20 13 20 0
1-4 0 5 2 3 2
4-5 3 13 5 11 2

Probability for completing project in 25 days:



=

Here, ts = 25 days
te = 20 days

= 1 + 0 + 9 + 0 = 10

25 20
=
1+0+9+0

5
=
10

= 1.50
From the table value (z = 1.50) = 93.32%

Management Science CS PATRO


Unit-5: Project Management 5.11 CSP
4. Given the following data, work out the minimum duration of the project and
corresponding cost.

Solution:

Critical path is 1-2-5-6


Project Duration is 28 days
Total cost is = Direct cost + Indirect cost
= 3700 + 0 = Rs.3700/-

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Unit-5: Project Management 5.12 CSP
1-2 activity crashing by 4 days:

Critical path is 1-2-5-6


Project Duration is 24 days
Total cost is = Direct cost + Indirect cost
= 3700 + (4 x 50) + 0 = Rs.3900/-

5-6 activity crashing by 2 days:

Critical path is 1-2-5-6


Project Duration is 22 days
Total cost is = Direct cost + Indirect cost
= 3900 + (100 x 2) + 0 = Rs.4100/-

2-5 activity crashing by 2 days:

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Unit-5: Project Management 5.13 CSP
Critical path is 1-2-5-6
Project Duration is 20 days
Total cost is = Direct cost + Indirect cost
= 4100 + (2 x 130) + 0 = Rs.4360/-

Optimum cost = Rs.4,360/-


Optimum Duration = 20 days

5. The following table gives the information relating to a project. By using the given data
calculate the optimum duration of the project. Where indirect cost is estimated Rs.2,000
per day.

Solution:

Management Science CS PATRO


Unit-5: Project Management 5.14 CSP
Critical path is 1-2-5
Project Duration is 9 days
Total cost is = Direct cost + Indirect cost
= 5800 + (2000 x 9) = Rs.23,800/-

1-2 crashing by 1 day:

Critical path is 1-2-5


Project Duration is 8 days
Total cost is = Direct cost + Indirect cost
= [5800 + (1 x 1000)] + (2000 x 8) = Rs.22,800/-

2-5(a) crashing by 2 days:

Critical paths are 1-2-4-5 and 1-3-4-5


Project duration is 7 days only
Total cost = Direct cost + Indirect cost
= [6800 + (2 x 1500)] + (2000 x 7) = Rs.23,800/-
Here project crashed by 2 days and total cost incurred by the firm is 23,800/- but
duration is reduced by only one day. So it is suggested to crash the network by only one day,
it can help to reduce the cost. So that 2-5 activity crashing by only 1 day.

2-5(b) activity crashing by 1 day only:

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Unit-5: Project Management 5.15 CSP
Project Duration is 7 days
Total cost = Direct cost + Indirect cost
= [6800 + (1 x 1500)] + (2000 x 7)
= 8300 + 14000 = Rs.22,300/-

All activities comes under the critical activities, the priority are changed according to
the cost slope 4-5 activity having minimum cost slope. So, that it is possible to crash out 4-5
activity by one day only and 2-5 by one day simultaneously.

4-5 activity crashing by 1 day and 2-5 crashing by 1 day only:

Project Duration is 6 days


Total cost = Direct cost + Indirect cost
= [8,300 + (1 x 1500) + (1 x 200)] + (2000 x 6)
= (8300 + 1700) + (12000) = Rs.22,000/-

This network diagram not possible to crashing further, So that the project duration is 6
days and optimum cost is Rs.22,000/-
Optimum cost = Rs.22,000/-
Optimum Duration = 6 days

IMPORTANT QUESTIONS
1. Explain PERT & CPM. How will you analyze a Project?
2. Explain and illustrate what you understand by network analysis.
3. What do you mean by crashing a network? State step by step procedure of crashing.
4. What is CPM? What are the essential steps in CPM for project planning?
5. Explain PERT. What are the requirements for application of PERT technique?
6. Briefly write a note on PERT and its time estimate. How do you calculate the
expected time to complete the activity in PERT technique?
7. Write a short note on the following:
a. Critical Path
b. EST, EFT, LST, LFT
c. Float vs Slack
d. Expected Time
e. Cost Slope

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Unit-5: Project Management 5.16 CSP
SIMPLE PROBLEMS
1. Draw the network diagram for the following project:
Activity Immediate predecessors
A -
B -
C A
D B
E C,D
F D
G E
H F

2. A publisher has a contract with an author to publish a textbook. The simplified


(activities) associated with the production of the textbook are given below. The
author is required to submit to the publisher a hard copy and a computer file of the
manuscript. Develop the associated network for the project.

3. The following details are available regarding a project. Determine the critical path, the
critical activities and the project completion time.
Activity Predecessor Activity Duration
A - 3
B A 5
C A 7
D B 10
E C 8
F D,E 4

4. Tasks A, B, C,.., H, I constitute a project. The precedence relationships are


A<D; A<E; B<F; D<F; C<G; C<H; F<I; G<I
Draw a network to represent the project and find the minimum time of completion
of the project when time, in days, of each task is as follows. Also identify the critical
path.
Task: A B C D E F G H I
Time: 8 10 8 10 16 17 18 14 9

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Unit-5: Project Management 5.17 CSP
5. Draw the network diagram and determine the critical path for the following project:
Activity Time Estimates (Weeks)
1-2 5
1-3 6
1-4 3
2-5 5
3-6 7
3-7 10
4-7 4
5-8 2
6-8 5
7-9 6
8-9 4

6. A project consists of seven activities for which relevant data are given below:
(i) Draw the network, (ii) Name and highlight the critical path.
Activity Preceding activity Activity duration (days)
A - 4
B - 7
C - 6
D A, B 5
E A, B 7
F C, D, E 5
G C, D, E 4

7. From the following information draw the network and identify the critical path and
project duration.

8. The following table gives the schedule of welding activities in an assembly shop. Find
the critical path and determine the slack times for each activity.
Activity No. Duration (days) Activity No. Duration (days)
0-1 2 0-6 1
1-2 4 3-7 8
2-3 2 6-7 3
3-4 5 5-8 3
2-5 1 7-8 5
4-5 1

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Unit-5: Project Management 5.18 CSP
9. A small maintenance project small maintenance project consists of the following 12
jobs with duration in days. Find out the critical path, total project duration, float.
Job Duration
1-2 2
3-4 3
5-8 5
7-9 4
2-3 7
3-5 5
6-7 8
8-9 1
2-4 3
4-6 3
6-10 4
7-10 7

10. A project consists of the following activities and different time estimates (in days). Draw
a network and find the critical path. What is the probability that the project will be
completed by 27 days?
Activity Optimistic time Most likely time Pessimistic time
1-2 3 6 15
1-3 2 5 14
1-4 6 12 30
2-5 2 5 8
2-6 5 11 17
3-6 3 6 15
4-7 3 9 27
5-7 1 4 7
6-7 2 5 8

11. A project is composed of seven activities whose time estimates are listed in
the following table. Activities are identified by their beginning i and ending j
mode numbers:
Activity Estimated duration (weeks)
i j optimistic Most likely pessimistic
1 2 1 1 7
1 3 1 4 7
1 4 2 2 8
2 5 1 1 1
3 5 2 5 14
4 6 2 5 0
5 6 3 5 15

(i) Draw the project network and identify all paths for its completion
(ii) Find the expected duration and variance of the project
(iii) Calculate the early and late occurrence time for each mode. Calculate
expected project length
(iv) Calculate the slack of each activity

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Unit-5: Project Management 5.19 CSP
12. The following are the time estimates and the precedence relationships of the activities
in a project network. Draw the project network diagram. Determine the critical path
and the project completion time.

13. Find out the time required to complete the following project and the critical activities:

14. Find out the time, variance and standard deviation of the project with the following
time estimates in weeks:

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Unit-5: Project Management 5.20 CSP
15. A project consists of seven activities with the following time estimates. Find the
probability that the project will be completed in 30 weeks or less.

16. Draw the network diagram for the following project. Determine the time, variance and
standard deviation of the project.

17. Consider the following project with the estimates of time in weeks:

18. Given is the following information regarding a project:


Activity A B C D E F G H I J K L
Dependence - - - AB B B FC B EH EH CDFJ K
Duration (days) 3 4 2 5 1 3 6 4 4 2 1 5
Draw the Network Diagram and identify the Critical Path and Project Duration.

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Unit-5: Project Management 5.21 CSP
19. A project consists of seven activities and the time estimates of the activities are
furnished as under:
Activity Optimistic Most likely Pessimistic
Days Days Days
1-2 4 10 16
1-3 3 6 9
1-4 4 7 16
2-5 5 5 5
3-5 8 11 32
4-6 4 10 16
5-6 2 5 8
Draw the network diagram.
Identify the critical path and its duration.
What is the probability that project will be completed in 5 days earlier than the
critical path duration?
What project duration will provide 95% confidence level of completion (Z0.95
=1.65)?
Z 1.00 1.09 1.18 1.25 1.33
Probability 0.1587 0.1379 0.1190 0.1056 0.0918

20. An Engineering Project has the following activities, whose time estimates are listed:
Activity Estimated Duration (in months)
(i-j) Optimistic Most Likely Pessimistic
1-2 2 2 14
1-3 2 8 14
1-4 4 4 16
2-5 2 2 2
3-5 4 10 28
4-6 4 10 16
5-6 6 12 30
Draw the project network and find the critical path.
Find the expected duration and variance for each activity. What is the
expected project length?
Calculate the variance and standard deviation of the project length.
What is the probability that the project will be completed at least eight months
earlier than expected time?
If the project due date is 38 months, what is the probability of not meeting the
due date? Given:
z 0.50 0.67 1.00 1.33 2.00
P 0.3085 0.2514 0.1587 0.0918 0.0228

21. From the following data crash the network and identity the optimum time of the project
where the indirect cost is estimated Rs.2000 per day.

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Unit-5: Project Management 5.22 CSP
22. Given the following details of a project, determine the optimum duration and cost of
the project. Indirect cost is 1300 per week
Activity Time (weeks) Cost (rs.)
Normal Crash Normal Crash
1-2 6 4 5000 6200
1-3 4 2 3000 3900
2-3 7 6 6500 6800
2-4 3 2 4000 4500
3-4 5 3 8500 10000

23. A project has activities with the following normal and crash times and cost.
Determine a crashing scheme for the above project so that the total project time is
reduced by 3 weeks.

24. The management of a company is interested in crashing of the following project by


spending an additional amount not exceeding Rs. 2,000. Suggest how this can be
accomplished.

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Unit-5: Project Management 5.23 CSP
25. The manager of a company wants to apply crashing for the following project by
spending an additional amount not exceeding Rs. 2,000. Offer your suggestion to the
manager.

26. The following table gives data on normal time and cost and crash time and cost for a
project. Indirect costs are Rs. 50 per week.
Draw the network and identify the critical path.
What is the normal project duration and associated cost?
Find out total float for each activity.
Crash the relevant activities systematically and determine the optimum project
time and cost.
Activity NT (Week) NC (Rs.) CT (Week) CC (Rs.)
1-2 3 300 2 400
2-3 3 30 3 30
2-4 7 420 5 580
2-5 9 720 7 810
3-5 5 250 4 300
4-5 0 0 0 0
5-6 6 320 4 410
6-7 4 400 3 470
6-8 13 780 10 900
7-8 10 1000 9 1200

27. A small project is having seven activities. The relevant data about these activities is
given below.
(i) Find out the normal duration and the minimum duration.
(ii) What is the percentage increase in cost to complete the project in 21 days?
Activity Dependence NT CT NC CC
(Days) (Days) (Rs.) (Rs.)
A - 7 5 500 900
B A 4 2 400 60000
C A 5 5 500 500
D A 6 4 800 1000
E B,C 7 4 700 1000
F C,D 5 2 800 1400
G E,F 6 4 800 1600

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Unit-5: Project Management 5.24 CSP
NORMAL DISTRIBUTION TABLE

Table for Areas under the Standard Normal Curve from


0 to Z (Type II)
[P (0 X x) = n (0 Z z)]

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.1 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.2 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.3 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517
0.4 0.1554 0.1591 0.1628 0.1664 0.1700 0.1736 0.1772 0.1808 0.1844 0.1879
0.5 0.1915 0.1950 0.1985 0.2019 0.2054 0.2088 0.2123 0.2157 0.2190 0.2224
0.6 0.2257 0.2291 0.2324 0.2357 0.2389 0.2422 0.2454 0.2486 0.2517 0.2549
0.7 0.2580 0.2611 0.2642 0.2673 0.2704 0.2734 0.2764 0.2794 0.2823 0.2852
0.8 0.2881 0.2910 0.2939 0.2967 0.2995 0.3023 0.3051 0.3078 0.3106 0.3133
0.9 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3304 0.3365 0.3389
1.0 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.1 0.3643 0.3665 0.3686 0.3708 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.2 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015
1.3 0.4032 0.4049 0.4066 0.4082 0.4099 0.4115 0.4131 0.4147 0.4162 0.4177
1.4 0.4192 0.4207 0.4222 0.4236 0.4251 0.4265 0.4279 0.4292 0.4306 0.4319
1.5 0.4332 0.4345 0.4357 0.4370 0.4382 0.4394 0.4406 0.4418 0.4429 0.4441
1.6 0.4452 0.4463 0.4474 0.4484 0.4495 0.4505 0.4515 0.4525 0.4535 0.4545
1.7 0.4554 0.4564 0.4573 0.4582 0.4591 0.4599 0.4608 0.4616 0.4625 0.4633
1.8 0.4641 0.4649 0.4656 0.4664 0.4671 0.4678 0.4686 0.4693 0.4699 0.4706
1.9 0.4713 0.4719 0.4726 0.4732 0.4738 0.4744 0.4750 0.4756 0.4761 0.4767
2.0 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817
2.1 0.4821 0.4826 0.4830 0.4834 0.4838 0.4842 0.4846 0.4850 0.4854 0.4857
2.2 0.4861 0.4864 0.4868 0.4871 0.4875 0.4878 0.4881 0.4884 0.4887 0.4890
2.3 0.4893 0.4896 0.4898 0.4901 0.4904 0.4906 0.4909 0.4911 0.4913 0.4916
2.4 0.4918 0.4920 0.4922 0.4925 0.4927 0.4929 0.4931 0.4932 0.4934 0.4936
2.5 0.4938 0.4940 0.4941 0.4943 0.4945 0.4946 0.4948 0.4949 0.4951 0.4952
2.6 0.4953 0.4955 0.4956 0.4957 0.4959 0.4960 0.4961 0.4962 0.4963 0.4964
2.7 0.4965 0.4966 0.4967 0.4968 0.4969 0.4970 0.4971 0.4972 0.4973 0.4974
2.8 0.4974 0.4975 0.4976 0.4977 0.4977 0.4978 0.4979 0.4979 0.4980 0.4981
2.9 0.4981 0.4982 0.4982 0.4983 0.4984 0.4984 0.4985 0.4985 0.4986 0.4986
3.0 0.4987 0.4987 0.4987 0.4988 0.4988 0.4989 0.4989 0.4989 0.4990 0.4990
3.1 0.4990 0.4991 0.4991 0.4991 0.4992 0.4992 0.4992 0.4992 0.4993 0.4993
3.2 0.4993 0.4993 0.4994 0.4994 0.4994 0.4994 0.4994 0.4995 0.4995 0.4995
3.3 0.4995 0.4995 0.4995 0.4996 0.4996 0.4996 0.4996 0.4996 0.4996 0.4997
3.4 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4998
3.5 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998
3.6 0.4998 0.4998 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999
3.7 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999 0.4999

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