MS - ECE Notes 1.merged

Management Science
Management Science
Unit - Content Page No
1. Introduction to Management 1 - 43
Nature and Importance of Management
Functions of Management
Evaluation of Management Thought
Theories of Motivation
Leadership Styles
Decision making Process
Designing organization structure
Principles of organization
Types of organization structure
2. Operations Management 44 - 87
Work Study
Statistical Quality Control through Control charts
Control Charts (P chart, R chart, C chart) simple problems
Inventory Control
EOQ, ABC analysis simple problems
Project Management
PERT / CPM
Project crashing (simple problems)
3. Functional Management 88 - 118
Concept and Functions of Finance, HR, Production, Marketing Management and Services
Job Evaluation and Merit Rating
Product Life Cycles
Channels of distributions
Types and methods of Production
4. Strategic Management
Vision, Mission, Goals and Strategy
Corporate Planning Process
1 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

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Environmental Scanning
SWOT analysis
Different Steps in Strategy Formulation, Implementation and Evaluation
5. Business Ethics and Communication
Ethics in Business and Management
Ethics in HRM, Finance & Marketing Management
Business ethics and Law
6. Contemporary Management Practice
Concepts of MIS, MRP, JIT
TQM, six sigma and CMM
Supply chain management, ERP
Performance Management
BPO, Business process Re-engineering
Bench Marking and Balance Score Card

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Unit 1 – Introduction to Management
Management is what managers do. A manager’s job is to ensure good

management in the organization. Good management implies, doing something
cleverly to change the situation and making things happen in the way you want
them to be. When human beings started working in groups towards the
achievement of common objectives, they needed a manager who can direct, co
ordinate and integrate their individual activities in a group and secure their team
work to accomplish organizational objectives.
Management definition expressed by different experts based on their view of

management is
Henry Fayol – ‘to manage is to forecast and plan, to organize, to command, to co

ordinate and to control’
Peter F Drucker – ‘management is concerned with the systematic organization of

economic resources (men, material, machinery and money etc) and its task is to
make these resources productive’
F W Taylor – ‘management is knowing exactly what you want the men to do and
then seeing that they do it in the best and cheapest ways’
Characteristics of Management
i) Management is multidimensional (3D) -
Work management – every organization has its own work to do like treating
patient in hospital, serving food and hospitality in restaurants and producing
clothes in clothing firm etc. Management considers this work as their goals to be

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achieved and further this work in terms of problems to be solved, decisions to be

made, plans and budgets to be formulated, authority to be delegated etc.
People management – the above work has to be done by people, by assigning work
to worthy employees who can work effectively towards the realisation of
organizational goals. This involves the worthy employees to ensure that their
strength is highlighted and weakness is driven out of their working strategy.
Operations management – every organization aims to complete the work in time

either towards a particular product or a service with respect to their domain of
operation. Management takes part after the production process as this transforms
the input with the help of technology into an output for consumption.
ii) Goal Oriented Process –
Every organization has its own goal and is directed towards the achievement of
those goals. Some organizations might have profit motive and social organizations
(NGO) might have goals of eradicating illiteracy among children etc. Management
recognizes these goals and strives to fulfill them.
iii) Continuous Process –
Manager is the one who performs all the functions of management like planning,
organizing, staffing, directing and controlling. Even though these functions are
separate in nature, management performs all of them simultaneously all the time in
a continuous process.
iv) Group activity –
Every organization has large number of employees and it is important to realize

that these individuals work together in a team towards the achievement of

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organizational goals. Management guides the individuals towards the right

direction and enables all the individuals to grow and develop as their needs and
opportunities change.
v) Dynamic function –
In order to be successful, every organization has to adapt to its environment.

Management is dynamic in nature and thus adapts to the ever – changing social,
economic and political conditions. Examples like McDonald’s and Domino’s
changing its menu as per the demand of customers.
vi) Intangible force –
Management is not tangible as it cannot be touched but can be easily felt and
sensed. If there is order instead of chaos within the organization, all the employees
are happy and organizational goals are being organized in a way that they can be
easily achieved through good management.
Nature of Management
i) Multidisciplinary –
Management has been developed as a separate discipline yet it draws knowledge,

concepts and ideas from other disciplines like psychology, sociology, statistics,
economics, operations research, ecology and history etc. management integrates
the ideas and concepts taken from other disciplines and presents newer concepts
which can be put into practice for managing the organizations.
ii) Management is dynamic in nature –

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Management has framed certain principles, which are flexible enough in nature
and that change with the changing environment in which the organization exists.
iii) Relative, not absolute principles –
All the existing management principles are relative and not absolute (perfect).
These principles should be applied as per the need of the organization because
every principle has different strengths in different conditions. So principles should
be applied in organizations according to the prevailing situations.
iv) Management as profession –
Management has been regarded as profession by many while many have suggested
that it has not achieved the status of profession. But today we can see the signs that
management is working towards increased professionalism (competence).
v) Management is universal –
Management is completely a universal phenomenon but the management principles

are not universally applicable. They have to be applied in the organization after
modifying them as per the prevailing condition.
vi) Management is a system of authority –
In reality, it is the authority which commands the sub ordinates and takes the
responsibility for the execution of their assigned tasks. So the chain of authority
distribution and responsibility always goes with the authority.
vii) Management is both a science and an art –
Management has organized a body of knowledge consisting of well – defined

concepts, principles and techniques which have wide applications and so it is
treated as science. The application of these concepts, principles and techniques

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requires specialized skills and knowledge of the manager which turn to be his
personal possession. So it is viewed as an art of management.
Significance of Management
i) Helps in achieving group goals –
Management arranges the factors of production, then assembles and organizes the
resources, integrates them in effective manner so as to achieve organizational
goals. By defining the organizational objective clearly, there would be no wastage
of time, money and effort. Thus management converts disorganized resources of
men, material, machines, money etc into usefully organized enterprise. These
resources are co ordinate, directed and controlled in a way that enterprise work
towards the achievement of goals.
ii) Optimum utilization of resources –
Management utilizes all the physical & human and financial resources
productively and this leads to the efficacy of management. Management provides
maximum utilization of scarce resources by selecting the best possible alternate use
out of other uses. It makes effective use of experts, professionals and these services
leads towards the use of their skills, knowledge and proper utilization by avoiding
wastage. If employees and machines are producing its maximum output then there
is no under employment of other resources.
iii) Reduces cost –
Management uses physical & human and financial resources in such a manner
which results in best output. These maximum results achieved through minimum

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input by proper planning, organizing and controlling of the resources helping in

cost reduction.
iv) Establishes sound organization –
One of the objectives of management is to establish sound organization which

means establishing effective authority& responsibility relationship i.e who is
accountable to whom, who can give instructions to whom, who are superiors and
who are subordinates. Management fills up the positions basing on clear job
description having right persons, with right skills, training and qualification.
v) Establishes equilibrium –
Management keeps in touch with the changing environment as it is dynamic in

nature. With the changes made in the external environment, the internal co
ordination of organization must change accordingly. Thus adopting the
organization to changing needs of society or changing demand of market where it
is responsible for the growth and survival of organization.
vi) Essential for prosperity of society –
A good management makes a difficult task easier by avoiding wastage of scarce

resources. It improves standard of living and increases the profit where the
business and society will get maximum output at minimum cost by creating
employment opportunities thus generating income in hands. Efficient management
leads to better economical production which helps in increasing the welfare of
people.
Functions of Management

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Management has been described as a social process involving responsibility for

economical and effective planning; regulation of operations of an enterprise in the
fulfillment of given purposes. Also it is a dynamic process consisting of various
elements and activities. These elements and activities are different from operations
performed in marketing, finance, manufacturing etc but the activities are common
to every manager at all levels of organization.
Different experts have classified functions of management. According to George

and Jerry, ‘there are 4 fundamental functions of management say planning,
organizing, actuating & controlling’.
According to Henry Fayol, ‘to manage is to forecast and plan, to organize, to

command and to control’. According to Luther Gullick, he derived a keyword
POSDCORB where P – Planning, O – Organizing, S – staffing, D – Directing, Co
– Coordination, R – Reporting and B – Budgeting. Most widely acceptable
functions of management were given by Koontz and O’Donnell i.e. Planning,
Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it is convenient to

separate the function of management but
practically these functions are overlapping
in nature i.e. they are highly inseparable.
Each function blends into the other & each
affects the performance of others.
i) Planning –

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According to KOONTZ, “Planning is deciding in advance - what to do, when to do

& how to do”. A plan is a future course of actions. It is an exercise in problem
solving & decision making. It is the process of thinking before doing. It means the
determination of what is to be done, how and where it is to be done, who is to do it
and how results are to be evaluated. Planning is necessary to ensure proper
utilization of human & non-human resources. It is an intellectual activity and it
also helps in avoiding confusion, uncertainties, risks, wastages etc.
ii) Organizing –
It is the process of bringing together physical, financial and human resources and
developing productive relationship among them for the achievement of
organizational goals. According to Henry Fayol, “To organize a business is to
provide it with everything that is useful for its functioning i.e. raw material, tools,
capital and personnel’s”. Organizing as a process involves following steps planned:
 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
iii) Staffing –
It is the function of manning the positions in organization structure and keeping it

filled. The main purpose o staffing is to put right man on right job. According to
Kootz & O’Donell, “Managerial function of staffing involves manning the
organization structure through proper and effective recruitment, selection, training,

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appraisal & development of personnel to fill the roles designed in the structure”.
Staffing involves elements as below:
 Manpower Planning (estimating man power in terms of searching, choose

the person and giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
iv) Directing –
It is the process of issuing orders, instructions to guide and teach the subordinates
with the proper method of work and ensuring that they perform their jobs as
planned. Direction is a function of management which deals directly with
influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:
 Supervision - act of watching & directing work & workers.

 Motivation - inspiring, stimulating or encouraging the sub-ordinates.
 Leadership - manager guides and influences the work.
 Communication - process of passing information, experience and opinion.
v) Controlling –
It is the process of measuring the current performance of employee and then assess
if the given objectives are achieved or not. According to Koontz ‘Controlling is the
measurement & correction of performance activities of subordinates in order to

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make sure that the enterprise objectives and plans desired to obtain them as being
accomplished”. Controlling has following steps:
a. Establishment of standard performance.

b. Measurement of actual performance of employees.
c. Comparison of actual performance with the standards and finding out
deviation if any.
d. Corrective action.
Levels of Management – Top, Middle and Lower Management
The number of levels in

management increases when the
size of the business and work
force increases and vice versa.
The level of management
determines a chain of command,
the amount of authority & status
enjoyed by any managerial
position.
Evaluation of Management Thought
Management thoughts and practices have been started back in the ancient times. In
fact, ever since people began living together in groups they have tried to organize
their activities so as to achieve a certain level of efficiency and effectiveness.
Ancient civilization dating back to 3000 B.C had an efficient system of tax

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collection, managed by the priests. Later on during the early 19 th century formal
management theories began taking shape. Later Industrial Revolution has brought
about the development of steam engine and other mechanized means of production
which helped to promote awareness as regards the need for efficient management
of the societal resources.
Major classification of Management Approaches & their Contributors
Classical Approach Scientific Management F.W.Taylor

Henry Gantt
Franck & Lillian Gilberth
Administrative Henry Fayol
Management
Bureaucracy Max Weber
Behavioral Approach Human Relation Approach Elton Mayo
Behavioral Science Maslow
Approach Herzberg
McGregor
Likert
Chester Bernard
Modern Approach Quantitative Approach Russel L Ackoff
F.W.Lanchester
Thomas A.Edison
System Approach Churchman West
Contingency Theory Paul Hersey
Social System Approach Vilfredo Pareto
Decision Theory Approach Herbert A.Simon

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7’s Framework Mickensy

Thoery Z William Ochi
Classical Approach
a) Scientific Management
The concept of SM was first introduced by Frederick Winslow Taylor in USA in

the beginning of 20th century and then carried by Frank & Lillian Gilbreth, Henry
Gantt, George Berth and Edward Felen etc. SM concerned essentially on
improving the operational efficiency at the shop floor level. F.W.Taylor was a
scientist and made researches on how man at work can be efficiently. He found
inefficiencies and wastage in factories due to workers and managers as they were
not aware of scientific methods. Thus he developed a theory known “scientific
management”, in which he suggested that the efficiency can be improved by
investigations, analysis and measurement. SM is the result of applying scientific
knowledge and scientific methods to the various aspects of management and the
problems that arise out of them.
According to Taylor ‘scientific management is concerned with knowing exactly

what you want the men to do and then see that they do it in the best and cheapest
way’.
Principles of Scientific Management
i) Replacing rule of thumbs with science – taylor has emphasized that in SM,
organized knowledge should be applied which will replace rule of thumb (rough
measurements or approximate guess without measurements). Use of scientific

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methods will determine any piece of work where rule of thumb emphasizes
estimation only.
ii) Harmony In–Group action – Taylor insisted that both the groups should work
together with a positive at-titude towards each other and with mutual cooperation.
They must share the ‘Give & Take’ relationship while working so that group as a
whole contributes to a maximum level. Thus both workers and managers should
work with each other in harmony and avoid discord.
iii) Cooperation between Management and Workers – the workers start thinking
that it is their work and they have to put their heart in the work assigned to them.
SM is based on mutual respect, cooperation, goodwill and confidence of both
parties.
iv) Maximum output in place of restricted output –
Workers and management should try to maximize the productivity by following

scientific techniques proposed by Taylor. These scientific techniques assure better
and improved quality output with minimum wastage. Maximization of output is
beneficial rather than limited or restricted output.
v) Development of workers through scientific selection and training – Taylor

principle states that the workers should be selected who can perform specialized
tasks and then have to be trained on the job in order to attain the objectives of the
firm. They have to be trained from time to time basing on the latest techniques
developed in the market.
b) Administrative Management
Henry Fayol was a French industrialist who is the ‘Father of Modern

Management’. He was a mining engineer and worked in all the positions and

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reached to a position of managing director in a coal mining company. From his

point of view, he stated that technical abilities are more important for low level
employees where managerial abilities are important for high level managers.
Fayol analyzed the process of management and divided the activities of an

industrial undertaking firm into 6 groups like Technical, Commercial, Financial,
Security, Accounting and Managerial. He felt that all the activities are well known
but managerial activity need further analysis. Thus he studied this activity by
diving into 3 parts namely Managerial qualities & training, General Principles of
Management and Functions of Management.
He developed 14 principles of management which has to be taught at school level

to acquire managerial knowledge.
Principles of Administrative Management
Division of Labour Parity of Authority & Responsibility
Discipline Unity of Command
Unity of Direction Equity
Centralization & Decentralization Order
Scalar chain Stability of Tenure
Initiative Fair remuneration to employees
Subordination of Individuals interest to general Interest
Espirt de Corps

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c) Bureaucratic Management
Max Weber contributed the theory of bureaucracy to the management thought. He

brought his theory of authority structure and description of organizations based on
the nature of authority relations within the organization. The 3 types of legitimate
authority are as follows:
i) Rational – legal Authority – Obedience is owed to a legally established position

within the hierarchy of a business, government etc
ii) Traditional Authority – people obey a person as he belongs to certain class or

occupies a position by possessing the authority, such as royal family.
iii) Charismatic Authority – obedience is based on the follower’s belief that a

person has some special power or appeal.
Rational legal authority is considered important in organizations where traditional

leaders chosen do not possess competency and charismatic leaders are too
emotional and irrational.
Behavioral Approach
Human factor was considered important when dealing with business and
production issues.
a) Human Relations Approach
Elton Mayo was famous for his experiments at the Hawthrone Plant of the Western
Electric Company, USA for evaluating the attitudes and psychological reaction of
workers on the job situations. The study focused on the influence of social attitudes
and relationships of workgroups on performance. After the experiments he

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revealed that workers valued most of the social relations at work along with
monetary incentives and good physical working conditions.
b) Behavioral Science Approach (THEORIES OF MOTIVATION)
Maslow’s Hierarchy of Needs Theory
Major concern of Abraham Maslow was the personal adjustment of the individual
within the work organization, and the effects of group relationships and leadership
styles.
In this theory, Maslow made his assumptions towards the fulfillment of Human
Needs and has defined the hierarchy of needs which is divided into 5
interdependent needs of satisfaction.
Herzberg Two Factor Theory
Frederick Herzberg is a psychologist and developed this Herzberg maintenance –

hygiene theory. He stated that there are certain factors which give job satisfaction
while some factors cause dissatisfaction and are independent of other factors.
Two-factor theory distinguishes between:

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Motivators or satisfiers (e.g. challenging work, recognition for one's

achievement, responsibility, opportunity to do something meaningful, involvement
in decision making and sense of importance to an organization) that gives positive
satisfaction on the job itself through recognition, achievement, or personal growth.
Hygiene or maintenance factors (e.g. status, job security, salary, fringe benefits,
work conditions, good pay, paid insurance, vacations) The term "hygiene" is used
in the sense that these are maintenance factors which do not give positive
satisfaction and motivation. These are extrinsic to the work itself, and include
aspects such as company policies, supervisory practices, or wages/salary.
Herzberg considered the following hygiene factors from highest to lowest

importance as this factor cannot be completely eliminated like company policy,
supervision, employee's relationship with their boss, work conditions, salary, and
relationships with peers.
Douglas McGregor Theory
His contribution to behavioral science was the development of Theory X and

Theory Y, which were the two approaches to the categorization of people and
management responses.
Theory X is based on a series of assumptions that people generally do not want to

work for employer. As it is difficult to realize, the management is more likely to
pass strict instructions and no scope for independent thoughts likewise. It is
believed that employees are more interested towards money and security and thus
based on this leadership styles were developed.
Theory Y is based on assumptions that people are willing and do want to work, if
given the right environment. And management can see organizational goals

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discussed in an open forum so that employees can gain a better understanding of

what is to be achieved etc.
Modern Management
System Approach to Management
Churchman West is the major contributor for system approach of management.

Systems approach to management views organization as a unified, purposeful
system composed of interrelated parts. So managers have to deal with the
organization as a whole rather that dealing separately with various segments of
organization. Treatment of organization as an open system is another contribution
of systems approach. Elements of systems approach are detailed below:
 The parts and sub-parts of a system have mutual relationship with each other
and are arranged in an orderly manner.
 The change in one part has an impact on the other parts according to the
nature of relationship defined.
 System transforms inputs into outputs through a transformation process with
the help of a mediator. This process is essential for the survival of the
system.
 Reaction of output environment is feedback which is used for evaluating and
improving the functioning of the system.
Leadership and Leadership Styles:
Leader: One who leads a given group or team of people is called leader. If
you can influence people to perform better in a given organizational setting,
that means you are a leader.

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Leadership is the ability to influence people to achieve the given goals in

an organization.
A true leader is one who shares success with followers and absorbs all
failures.
A manager has to be a mini-leader the has to inspire his subordinates and
get work done) and leader to be a mega-leader (otherwise he does not
understand the ground realities of functioning)
Leadership Styles: Leader has to ensure that people under his guidance are
comfortable and their good work is recognized.
A good leader has to adopt such a style of working that takes care of people
around him. There are also some leader who do not care for people and
who care more for the task completion.
Types:
Autocratic leadership: Here, leader command the followers and expects

compliance from them for all the instructions given, leaders are more
dogmatic and positive. They lead by his ability to withhold or give rewards
or punishments. Here, no suggestions from the followers are entertained
and almost up-down approach is seen. They direct others. They do not
allow any participation.
Democratic leadership: Here leaders consult subordinates and involve them
in decision making. They encourage discussion with the group leaders
believes in two-way communication. They listen to followers; try to
facilitate the decision making.
Free – Rein leadership: Free – Rein leaders exercises little authority and
give maximum freedom to subordinates while making decisions. It is a
bottom-up approach. Suggestions from the followers are encourage and

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rewarded. They give high degree of independence subordinates in their

operations.
Social Responsibility:
Social responsibility refers to the process with includes several activities
from providing safe products and services to giving apportion of the
company’s profits to welfare organizations.
Responsibility towards shareholders: The business enterprise has the
responsibility to provide fair return on capital to the shareholders. The firm
must provide them regular, accurate, and full information about the
working of enterprise in order to fulfill and encourage their interest in the
affairs of the company.
Responsibility towards consumers: The management has to provide quality
products and services to the customers at reasonable prices. It should
consider customer suggestions and also plan it services more effectively
through consumer satisfaction survey.
Responsibility towards employees: Good working conditions motivate
workers to contribute their best it is the responsibility of the management
recognize their unions and respect their right to associate with a union of
their choices.
Responsibility towards creditors: The business has to repay the loan it has
taken from the financial institutions as per the repayment schedule also it
should inform the creditors about the developments in the company from
time-to-time.
Responsibility towards Government: The business firm has to pay its taxes
and be fair in its endeavors’. It should also support the government in
community development projects.

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Responsibility towards competitors: The business firm should always

maintain the highest ethical standards and maintain cordial relations with
each of the competitors, which is a critical and sensitive segment.
Responsibility towards public: Business units have tremendous responsibility
towards the general public to support the cause of community development. Most
of the companies maintain public relations departments exclusively to maintain
good relations with the community.
Decision Making Process
Decision-making is the process of identifying and choosing alternatives based on

the values, preferences and beliefs of the decision-maker. A major part of decision-
making involves the analysis of a finite set of alternatives described in terms of
evaluative criteria. Then the next task might be to find the best alternative when all
the criteria are considered simultaneously. Step by step method of decision making
process contains 7 steps as follows:
Identify a Problem – Recognize a problem or see the opportunities
Gather Information – collect relevant data and information towards the problem
Analyze the Situation – interpret the data to see the available course of action
Develop Options – generate all possible options relevant to the situation
Evaluate Alternatives – basing on acceptability, feasibility, desirability
Select a preferred Alternative – choose the best for future success that avoid risk
Act upon the decision – implement the decision by looking over the resources.

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Designing Organization Structure
Organization refers to the institution wherein the management functions are

performed while organizing refers to one of the functions of management. It is also
called as arranging and structuring work to accomplish organizational goals.
Organizational structure is the formal arrangement of jobs within an organization.
Organizational structure design is the process of involving decisions about six key
elements namely
i) Work specialization – division of work into separate job tasks also called as
division of labour. This allows a manager to break the complex tasks into smaller
individual tasks which the workers can complete easily as they are trained in
performing those tasks.
ii) Departmentalization – it is on the basis by which the jobs are grouped together.
Functional (grouping of activities based on the function performed e.g. IT,
accounting, HR, manufacturing, engineering and marketing), Product (grouping of
activities based on product line where the manager gains much knowledge about
the product and becomes closer to the customer), Geographic (grouping of
activities based on territory where the superior is capable of handling the specific
regional issues effectively), Process (grouping of activities based on product or
service or process flows as each process requires different skills and the flow of
work activities is efficiently managed) and Customer (grouping of the activities
based on different classes of customer or clients by focusing on special customer
needs).

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Function Process
Product Customer
iii) Chain of Command - the continuous line of authority that extends from upper
levels of an organization to the lowest levels of the organization determining who
reports to whom. A proper chain of command ensures that every task, job position
and department has one person preferably taking responsibility for performance.

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Authority - the right lying with the manager to tell people what to do and to expect
them to do it.
Line authority – a manager who is directly responsible for achieving organizational

goals and has the right to direct the work of employees
Staff authority – the individuals in an organization who provide services and

advice to line managers. Staff positions offer line managers planning advice
through research, analysis and options development through their expert power.
iv) Span of Control - the number of employees who can be effectively and
efficiently supervised by a manager. Managers with wide spans of control have
many subordinates, employees under such managers have more authority to
perform their jobs and even make decisions than do employees reporting to
managers with narrow spans of control.

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Flat Structure – managers have

wide span of control and chain
contains only employees
reporting to a manager by
making it a short chain of
command.
Vertical Structure – managers
have narrow span of control and
more managers exist in the chain
at different levels by making it
long chain command.
v) Centralization and Decentralization
Centralization is the degree to which decision-making is concentrated at the upper

levels of the organization where the power of planning and decision making are
exclusively in the hands of top management. Decentralization is the degree to
which lower-level employees provide input or actually make decisions where the
power is distributed by the top management to the middle and low level
management. It is the delegation of authority to all levels of management.

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vi) Formalization – it is a process in which managers specify standards,

procedures, rules and responsibilities for the individual employees, units and teams
that lead to the development of processes, relationship and operating procedures.
Highly formalized jobs offer little discretion over what is to be done. Low
formalization means fewer constraints on how employees do their work.
Principles of Organization
Principles are the guidelines for planning an efficient organizational structure
1. Unity of Objective: The organisation and every part of it should be directed

towards the attainment of objectives. Every member of the organisation should be
familiar with its goals and objectives. There must be unity of objective and the
principle requires objectives to be clearly formulated. In the absence of a common
goal, various departments will set up their own goals and there is a possibility of
conflicting objectives for different departments.
2. Division of Work and Specialization: The entire work in the organisation should
be divided into various parts so that every individual is assigned with a duty
according to his skill and qualification. As the employee continues with the same
work he gets specialized in his work that leads to efficiency and quality.
3. Definition of Jobs: Every position in the organisation should be clearly defined

in relation to other positions in the organisation. The duties and responsibilities
assigned to every position and its relationship with other positions should be so
defined that there is no overlapping of functions.
4. Separation of Line and Staff Functions: Whenever possible, line functions

should be separated from staff activities. Line functions are those which
accomplish the main objectives of the company. In many manufacturing

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companies, the manufacturing and sales departments are considered to be

accomplishing the main objectives of the business and so are called the line
functions. Other functions like personnel, plant maintenance, financing and legal
are considered as staff functions.
5. Chain of Command or Scalar Principle: There must be clear lines of authority

running from the top to the bottom of the organisation. Authority is the right to
decide, direct and coordinate. Clarity is achieved through delegation of authority
by levels from the top position to the operating level. From the chief executive, a
line of authority may proceed to departmental managers, to supervisors or foremen
and finally to workers.
6. Principle of Authority and Responsibility: Responsibility should always be

coupled with corresponding authority. Each subordinate must have sufficient
authority to discharge the responsibility entrusted to him. This principle suggests
that if a plant manager in a multi-plant organisation is held accountable for all
activities in his plant, he should not be subject to seek orders from company
headquarters for his day to day activities.
7. Unity of Command: No one in the organisation should report to more than one
line supervisor. Everyone in the organisation should know to whom he reports and
who reports to him. Stated simply, everyone should have only one boss. Receiving
directions from several supervisors may result in confusion, chaos, conflicts and
lack of action.
8. Unity of Direction: According to this principle a group of activities that have a

common goal should be managed by one person. There should be one head and
one plan for a common objective of different activities. This facilitates smooth
progression towards the achievements of overall organisational goals.

Management Science
9. Principle of Exception: This principle states that top management should

interfere only when something goes wrong and should attend to exceptional
matters only. All routine activities and decisions should be supervised at lower
level, whereas problems involving unusual matters and policy decisions should be
referred to higher levels.
10. Span of Control: The number of persons a manager or a supervisor can direct
refers to span to control. The number of subordinates should be such that the
supervisor should be able to control their work effectively within the limits of
available time and ability. The exact number may vary according to the nature of
the job and the frequency of intensity of supervision needed.
11. Principle of Balance: It means that assignment of work should be such that
every person should be given only that much work which he can perform well
rather than over loading or under loading of work. The work should be divided in
such a way that everybody should be able to give his maximum.
12. Principle of Communication: A good communication network is essential to

achieve the objectives of an organisation. No doubt the line of authority provides
channels of communication downward and upward, yet some blocks in
communication exist in many organizations. The confidence of superior in his
subordinates and two-way communication are the factors that unite an organisation
into an effectively operating system.
13. Principle of Flexibility: The organisation structure should be flexible so that it

can be easily and economically adapted to the changes in the nature of business as
well as technological innovations. Flexibility of organisation structure ensures the
ability to change with the environment without disrupting the basic design.

Management Science
14. Principle of Continuity: The organization should be dynamic and not static.
There should always be a possibility of making necessary adjustments. For this
purpose the form of organisation structure must be able to serve the enterprise to
attain its objective for a long period of time.
Types of Organization Structure
The type of organizational structure would depend upon the type of organization
itself and its philosophy of operations. Following are the types:
1. Line Organization Structure - This is the oldest and simplest method of

administrative organization. The authority flows from top to bottom and in the
same way line of command is carried out from top to bottom. The line of command
flows on an even basis without any gaps in communication and co-ordination
taking place. It clearly identifies authority, responsibility and accountability at each
level.
Advantages –
Simplest- It is the most simple and oldest method of administration.
Unity of Command- In these organizations, superior-subordinate relationship

is maintained and scalar chain of command flows from top to bottom.

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Better discipline- The control is unified and concentrates on one person and
therefore, he can independently make decisions of his own. Unified control
ensures better discipline.
Fixed responsibility- In this type of organization, every line executive has got
fixed authority, power and fixed responsibility attached to every authority.
Flexibility- There is a co-ordination between the top most authority and bottom
line authority. Since the authority relationships are clear, line officials are
independent and can flexibly take the decision. This flexibility gives
satisfaction of line executives.
Prompt decision- Due to the factors of fixed responsibility and unity of

command, the officials can take prompt decision.
Disadvantages –
Over reliance- The line executive’s decisions are implemented to the bottom.
This results in over-relying on the line officials.
Lack of specialization- A line organization flows in a scalar chain from top to

bottom and there is no scope for specialized functions if no experts exists.
Inadequate communication- The policies and strategies which are framed by

the top authority are carried out in the same way. The complaints and
suggestions of lower authority are not communicated back to the top authority.
Lack of Co-ordination- Whatever decisions are taken by the line officials, in

certain situations wrong decisions, are carried down and implemented in the
same way. Therefore, the degree of effective co-ordination is less.

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Authority leadership- The line officials have tendency to misuse their

authority positions. This leads to autocratic leadership and monopoly in the
concern.
2. Functional Organizational Structure - This has been divided to put the

specialists in the top position throughout the enterprise. Functional authority
remains confined to functional specialists to different departments. This helps in
maintaining quality and uniformity of performance of different functions
throughout the enterprise. The entire organizational activities are divided into
specific functions such as operations, finance, marketing and personal relations.
Each functional area is put under the charge of functional specialists and he has got
the authority to give all decisions regarding the function whenever the function is
performed throughout the enterprise.
Advantages –
Specialization- Better division of labour takes place which results in

specialization of function and its consequent benefit.

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Effective Control- Management control is simplified as the mental functions

are separated from manual functions. Checks and balances keep the authority
within certain limits. Specialists may be asked to judge the performance of
various sections.
Efficiency- Greater efficiency is achieved because of every function performing

a limited number of functions.
Economy- Specialization compiled with standardization facilitates maximum

production and economical costs.
Expansion- Expert knowledge of functional manager facilitates better control

and supervision.
Disadvantages –
Confusion- The functional system is quite complicated to put into operation,

especially when it is carried out at low levels. Therefore, co-ordination becomes
difficult.
Lack of Co-ordination- Disciplinary control becomes weak as a worker is

commanded not by one person but a large number of people. Thus, there is no
unity of command.
Difficulty in fixing responsibility- Because of multiple authorities, it is

difficult to fix responsibility.
Conflicts- There may be conflicts among the supervisory staff of equal ranks.
They may not agree on certain issues.

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Costly- Maintenance of specialist’s staff of the highest order is expensive for a

concern.
3. Line and staff Organizational Structure – This is the modification of line

organization and it is more complex than line organization. In this structure,
specialized and supportive activities are attached to the line of command by
appointing staff supervisors and staff specialists who are attached to the line
authority. The power of command always remains with the line executives and
staff supervisors guide, advice and council the line executives. The whole
organization is divided into different functional areas to which staff specialists are
attached. The Power of command remains with the line executive and staff serves
only as counselors. Example, Personal Secretary to the Managing Director is a
staff official.
Advantages –
Relief to line of executives- In a line and staff organization, the advice and
counseling which is provided to the line executives divides the work between
the two. The line executive can concentrate on the execution of plans and they
get relieved of dividing their attention to many areas.

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Expert advice- The planning and investigation which is related to different

matters can be done by the staff specialist and line officers can concentrate on
execution of plans with the help of expert advice.
Benefit of Specialization- Line and staff through division of whole concern

into two types of authority divides the enterprise into parts and functional areas.
This way every officer or official can concentrate in its own area.
Better co-ordination- Line and staff organization through specialization is able

to provide better decision making and concentration remains in few hands. This
feature helps in bringing co-ordination in work as every official is concentrating
in their own area.
Benefits of Research and Development- Through the advice of specialized

staff, the line executives get time to execute plans by taking productive
decisions which are helpful for a concern. This gives a wide scope to the line
executive to bring innovations and go for research work in those areas. This is
possible due to the presence of staff specialists.
Disadvantages –
Lack of understanding- In a line and staff organization, there are two

authorities flowing at one time. This results in the confusion between the two.
As a result, the workers are not able to understand as to who is their
commanding authority. Hence the problem of understanding can be a hurdle in
effective running.
Lack of sound advice- The line official get used to the expertise advice of the
staff. At times the staff specialists also provide wrong decisions which the line

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executives have to consider. This can affect the efficient running of the
enterprise.
Line and staff conflicts- Line and staff are two authorities which are flowing at
the same time. The factors of designations, status influence sentiments which
are related to their relation, can pose a distress on the minds of the employees.
This leads to minimizing of co-ordination which hampers a concern’s working.
Costly- In line and staff concern, the concerns have to maintain the high
remuneration of staff specialist. This proves to be costly for a concern with
limited finance.
Assumption of authority- The power of concern is with the line official but the
staff dislikes it as they are the one more in mental work.
Staff steals the show- In a line and staff concern, the higher returns are
considered to be a product of staff advice and counseling. The line officials feel
dissatisfied and a feeling of distress enters a concern. The satisfaction of line
officials is very important for effective results.
4. Divisional Organizational Structure – this organizes the activities of a

business around geographical, market, or product and service groups
completely. A company organized on divisional lines could have operating
groups where each such division contains a complete set of functions. This
approach is useful when decision-making should be clustered at the division
level to react more quickly to local conditions. The divisional structure is
especially useful when a company has many regions, markets, and/or products.

Management Science
Advantages –
Accountability - This approach makes it much easier to assign

responsibility for actions and results. In particular, a division is run by its
own management group, which looks out for the best interests of the
division.
Competition - The divisional structure works well in markets where there is

a great deal of competition, where local managers can quickly shift the
direction of their businesses to respond to changes in local conditions.
Local decisions - The divisional structure allows decision-making to be

shifted downward in the organization, which may improve the company's
ability to respond to local market conditions.
Multiple offerings - When a company has a large number of product

offerings, or different markets that it services, and they are not similar, it
makes more sense to adopt the divisional structure.
Speed - This approach tends to yield faster responses to local market

conditions.
Disadvantages –

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Cost - When you set up a complete set of functions within each division,
there are likely to be more employees in total than would be the case if the
business had instead been organized under a purely functional structure.
Also, there must still be a corporate organization, which adds more overhead
cost to the business.
Inefficiencies - When there are a number of functional areas spread among

many divisions, no one functional area will be as efficient as would have
been the case if there had instead been one central organization for each
function.
Rivalries - The various divisions may have no incentive to work together,

and may even work at cross-purposes, as some managers undercut the
actions of other divisions in order to gain localized advantages.
Strategic focus - Each division will tend to have its own strategic direction,
which may differ from the strategic direction of the company as a whole.
5. Project Organizational Structure - The line, line and staff and functional
authority organisational structures facilitate establishment and distribution of
authority for vertical coordination and control rather than horizontal relationships.
The direction of work flow depends on the distribution of talents and abilities in
the organisation and the need to apply them to the problem that exists. Once the
project has been completed, the team members from various cross functional
departments may go back to their previous positions or may be assigned to a new
project. The project manager specifies what effort is needed and when work will be
performed whereas the concerned department manager executes the work using his
resources.

Management Science
Disadvantages - There may be

conflict between the project
manager and the departmental
manager on the issue of
exercising authority over team
members.
Advantages –
Work is defined by a specific goal and target date for completion.
Work is unique and unfamiliar to the organisation.
Work is complex having independent activities and specialized skills are

necessary for accomplishment.
Work is critical in terms of possible gains or losses.
Work is not repetitive in nature.
6. Matrix Organizational Structure – this is a combination and interaction of

project and functional structures. The key features of a matrix structure are that the
functional and project lines of authority are super-imposed with each other and are
shared by both functional and project managers. The project managers are
generally responsible for overall direction and integration of activities and
resources related to the project. The functional managers are concerned with the
operational aspects of the project.

Management Science
Advantages - Specialized
experts in the functional
areas; hire employees at
corporate and operational
level; adaptability and
flexibility because of the
partial divisional nature
Disadvantages – High administration cost; Potential confusion over authority and

responsibility; High prospects of conflict; Overemphasis on group decision making
and Excessive focus on internal relations
7. Hybrid Organizational Structure – This structure is a form of

departmentalization, which combines both functional and divisional structure.
Particularly large organizations adopt this structure to gain the advantages of both
functional and divisional structures. Functional structure gives the benefits of
economies of scale, in-depth expertise and resource utilization efficiencies,
whereas, divisional structure gives the benefits of specialization of products,
services and markets
Advantages - Decentralized
decision making; Strong
product/project co-ordination;
Fast response to change; Flexible
use of resources and efficient use
of support systems

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Disadvantages –
Conflicts arise due to huge staff and control over them is difficult and
Coordination between a division and a corporate functional department is time
consuming.
Modern Trends in organizational structure design
Virtual Organization Structure, (business without walls) which is a network of

independent companies (suppliers, customers, even competitors) linked by
information technology to share skills, costs, and access to one another’s markets.
This network structure allows companies to come together quickly to exploit
rapidly changing opportunities. The key attributes of a virtual corporation are:
Technology – Information technology helps geographically distant companies

form alliances and work together.
Opportunism - Alliances are less permanent, less formal, and more

opportunistic than in traditional partnerships.
Excellence - Each partner brings its core competencies to the alliance, so it is

possible to create an organization with higher quality in every functional area
and increase competitive advantage.
Trust - The network structure makes companies more reliant on each other and
forces them to strengthen relationships with partners.
No borders - This structure expands the traditional boundaries of an

organization.
Cellular Organization Structure

Management Science
Organizations that are structured around the units/cells complete the entire
assembly processes are called cellular organizations. In modern organizations,
these cellular organizations have been replacing the continuous line production
process systems. In these organizations, workers manufacture total product or sub
assemblies in teams. Every team of workers has their responsibility to maintain the
quality and quantity of its products. Each team is free to reorganize itself so as to
improve the performance and product quality. These teams comprise of self
managed teams. This organization structure develops both strong sense of
independence and interdependence, with improvement being seen at a central level
as a continuous phenomenon. Each individual team (cell) experiences either
negative or positive reinforcements for its specific behaviors. They monitor
themselves and correct when necessary on their own. Cellular organizations are
characterized by much smaller staff all over the organization with middle
management positions reduced and lean management members at the top. It is both
lean and flat structure.

Management Science
Unit 2 – Operations Management
Operations management is chiefly concerned with planning, organizing and

supervising of production, manufacturing of products or provision of services. This
management ensures that an organization successfully turns its inputs into outputs
in an efficient manner. The inputs themselves could represent anything from
materials, equipment and technology to human resources such as staff or workers.
What operations management is more precisely described by two key

elements: supply chain management and logistics
One must be able to understand the series of processes within a company to get
them to flow seamlessly, and in this sense the role is directly related to supply
chain management. Meanwhile, the coordination involved in setting up these
processes in practice represents logistics; the combination of understanding and
coordinating the work of a company are central to become a successful operations
manager.
Work Study According to ILO (International Labour

Organisation) work study is “a term used to
embrace the techniques of method study and
work measurement that are employed to
ensure the best possible use of human and
material resources in carrying out a specified
activity.” Aim of work study is to bring
efficiency and economy by making
improvements in the method of doing the
job.

Management Science
Work study strives to establish better standards of performance by identifying the

essential movements in the process of carrying out the job and determining the
standard time for a given job.
Objectives of Work Study
 To analyze the present method of doing a job systematically, in order to

develop a new and better method,
 To improve operational efficiency and eliminates wasteful elements,
 To measure the work content of a job by measuring the time required to do the
job for a qualified worker and hence to establish standard time,
 It increases the productivity by ensuring the best possible use of human,
machine and material resources (3 M’s) and to achieve best quality products at
minimum possible cost.
Method Study (Motion study)
Work method analysis or motion

study is a scientific technique of
observing, recording and
critically examining the present
method of performing a task or
job or operation with an aim of
improving the present method
and developing a new cheaper
method.
Work Measurement (Time study)

Management Science
Objectives – Comparing alternative methods, Realistic costing, cost reduction &

cost control, Training new employees, Find ineffective time in progress, Establish
work incentive schemes
It is defined as the application of

techniques designed to establish
the work content of a specified
task by determining the time
required for carrying out the task
at a defined standard of
performance by a qualified
worker.
Where the process is too long, involving many stages of production,

inspection or transportation, the present process of doing the job is recorded
sufficiently together with all the relevant information, using the process chart
symbols.
Symbol Meaning
Operation: Operation involving changes in the

condition of a product
Ex: Assembly of spare parts
Transport: Something from the location to

another Ex: Assemble PC is moved to
inspection
Storage: section
(permanent) To store the materials,
goods etc. Ex: When PC is put into the store after
inspection
Delay: (Temporary storage) Arises when the product
waits for next stage in the process
Ex: Machinery breakdown etc.

Management Science
Inspection: To check whether the quality and quantity

of the product is satisfactory or not
Operation – cum – Inspection: Inspection is taken place
during the production process
Operation – cum – Transportation: Assemble is taking

place while the belt conveyer transports the spares.
Statistical Quality Control
Quality is the totality of features and characteristics of a product or service that

bear on its ability to satisfy given needs. It implies that quality is an attribute of a
product. A product is a quality product if it meets all the requirements established
for it; that is, it is a defect-free product.
Definition: It is defined as customer satisfaction in general and fitness for use in

particular. Both the external consumer who buy the product and services and the
internal consumers that is, all divisions or departments of the business organization
are equally interested in the quality.
The quality of a product can be evaluated in many ways referred to as dimensions

of quality. Therefore, it is important to differentiate among these dimensions:
1. Performance: Will the product do the intended job?
2. Reliability: How often does the product fail? (Quality of being trustworthy)
3. Durability: How long does the product last?

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4. Serviceability: How easy is it to repair the product?
5. Aesthetics: What does the product look like?
6. Features: What does the product do?
7. Perceived quality: What is the reputation of the company or its product?
8. Conformance to standards: Is the product made exactly as the designer intended?
Quality improvement is the reduction of variability in processes and products. One

goal of quality control is to learn how to implement statistical tools that can be
used to improve quality. The process of applying statistical tools to solve the
problems while controlling the quality of a product or service is called Statistical
Quality Control.
Key Elements of Quality Management
The four main components of quality are as below
Quality Planning – it is the development of strategic activities designed to improve

the quality of a product. The planning will include both statistical and management
activities.
Quality Assurance – it is a system of activities whose purpose is to provide an

assurance that the overall quality control is in fact being done effectively. For a
specific product or service, this may involve verification audits and the evolution
of the quality factors that affect the specification, design, production, procurement,
installation, test and inspection, sales, marketing, and use of the product or service.
– Quality assurance makes sure that quality control is doing what it should be
doing. Such an effort should be organized within a factory, company, or
corporation and motivated by management.

Management Science
Quality Control – it is the regulatory process through which we measure actual

quality performance. The Statistical Control of Quality is application of statistical
principles and techniques in all stages of design, production, maintenance and
service, directed toward the economic satisfaction of demand.
Quality control consists of inspection, testing and quality measurement verifies that
the projects deliverables conform to specification, is fit for purpose and meet
stakeholder’s expectations. Quality control techniques are varied and the technique
used should be driven by the nature of the project. The most obvious example of
quality control is the inspections and tests that are done to check whether a product
meets is specification. The exact inspection method used depends entirely on the
technical nature of the product being developed by the project.
Quality Improvement – There may be opportunities to improve management

processes during the life of the project or information that assists the management
of future projects. continual systematic approaches to quality improvements such
as adherence to Total Quality Management (TQM), ISO 9000, Six Sigma or any
external industry standards, can be used.
Elements of statistical Quality Control: The technique used under SQC can be
divided in to two parts a) Process control b) Acceptance sampling

Management Science
Process control is a technique of

ensuring the quality of the products
during the manufacturing process itself.
If a process consistently produces items
with acceptable or tolerable range of
specification then it is said to be
statically under control. Process control
is achieved through control charts.
Process control aims to control and
maintain the quality of the products in
the manufacturing process.
Statistical Quality control charts: A control chart compares graphically the process
performance data to be computed within statistical control limits. These control
limits act as limit lines on the chart. control chats are the tools to determine
whether the process is under control or not. The quality of the production process
may be affected by chance cause or assignable cause. The main objective of
control chart is not to achieve the state of statistical control but to identify process
variation and generate background information helpful to reduce the same.
Chance cause: such causes, which may or may not affect the manufacturing
process are called chance cause, chance cause cannot even be identified. It is not
possible to always maintain the given specification.
Assignable Cause: Assignable causes affect the quality of the production process.
These causes can be identified and specified. Causes such as change in the labour
shift, power fluctuations, or excessive tool wear are said to be assignable causes as
they affect the quality of manufacturing process in different ways.
Process capability: Process capability refers to the ability to achieve measurable
results from a combination of machines, tools, methods, materials and people
engaged in production.

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Confidence limits and control limit
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
may accept 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. It also determines
whether the variation found in the production process is desirable or undesirable.
When any of the measurements cross either UCL or LCL, it is an indication of
presence of an assignable cause and requires an immediate action to set the process
under control.
EX: Rather than examining every nail, a sample number of nails produced every
hour is taken for detailed examination. Variations are plotted on the control chart.
Here the process is initially under control and later it is running out of control. This
implies that nails are produced either shorter or longer than specified.
Control charts for variables: 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, and so on. The control charts for variables are drawn
using the principles of normal distribution. These are designed to test the means of
the samples more effectively rather than the measurement of individual variables.
The distribution of means is aptly represented by the standard deviation calculated
as:

Management Science
SD of mean values of samples

σ - SD of individual samples
n – sample size
There are two types of control charts for variables X and R chart.
X and R Chart: The X chart is used to show the process variations based on the
average 8measurement of samples collected. It shows more light on diagnosing
quality problem when read along with R chart. It shows the erratic or cyclic shifts
in the manufacturing process. It can also focus on when to take a remedial measure
to set right the quality problems. However, collecting data about all the variables
involves a large amount of time and resources.
The R chart is based on the range of the items in the given ample. It highlights the
changes in the process variability. It is a good measure of spread or range. It shows
better results when read along with the X chart.
For X-bar
n is the number of observations k is the number of subgroups
Upper control limit: Lower control limit:
For Range R - Bar
k is the number of subgroups.

Management Science
Upper control limit: Lower control limit:
Control charts for Attributes
In manufacturing, sometime it is required to control burns, cracks, voids, dents,

scratches, missing and wrong components, rust etc. Here, we inspect products only
as good or bad but not how much good or how much bad. Furthermore, there are
many quality characteristics that come under the category of measurable variables
but direct measurement is not taken for reasons of economy. These products are
inspected with GO and NOT GO gauges. Again under this type also, our aim is to
tell that whether product confirms or does not confirm to the specified values.
Quality characteristics expressed in this way are known as attributes.
C chart is used where there a number of defects per unit. This control charts
controls the number of defects per unit. Here the sample size should be constant. It
reveals the pattern of quality. This chart is useful when several independent defects
may occur in every unit produced and some examples are Typing mistakes on the
part of a typist, Leakage in water tight joints of radiator, Welding defects in a truss
and Number of spots on a distempered wall. Control limits are calculated as:
UCLc = C̅ + 3
LCLc = C̅ – 3
Where C̅ is (ratio between) total number of defects found in all samples / the total
number of samples inspected
Example
The following table shows the number of defects on the surface of bus in a depot
on 21st sep 2013

Management Science
Computation:
(i) Compute the average number of defects C̅ = 110/20 = 5.5.
(ii) Compute the trial control limits, UCLc = 5.5 + 3 = 12.54
LCLc = 5.5 – 3 = – 1 .74 = 0, as -ve defects are not possible.

Construction:
1. Mark abscissa as the body number to a suitable scale (1 to 20).
2. Mark ordinate as number of defects say upto 15. Looking to the table, the
maximum number of 14 defects are in body No. 8.
3. Mark various points for the body number and the number of defects in that body.
4. Join all the 20 points with straight lines and also draw one line each for average
control line value, upper control limit and lower control limit, i.e. 5.5, 12.54 and 0
respectively.

Management Science
Interpretation:
As shown in the chart, one point No. 8 having 14 defects fall outside the upper
control limit. The data relate to the production on 21/5/2014. then C̅ value requires
recalculation which will be 96/19 = 5.05. The value 5.05 will be the standard value
of C̅ for next day’s production. Consequently the control limits are also revised if it
decided to apply the data in next day’s production, i.e., 22/5/2014.
P chart is used whenever the quality characteristics are expressed as the number of
units confirming or not confirming to the specified specifications either by visual
inspection or by ‘GO’ and ‘NOT GO’ gauges. P̅ (P bar) is the central line value
and is defined as the ratio between the total number of defective (non-conforming)
products observed in all the samples combined and the total number of products
inspected. For example, 15 products are found to be defective in a sample of 200,
then 15/200 is the value of P̅.
The standard deviation for fraction defective denoted by σ P is calculated by the
formula.

Management Science
where n = sample size and P̅ = fraction defective.
Example - Compute and construct the chart.
Computation and Construction:

Here the maximum percent defective is 7% and the total number of samples
inspected is 20. On graph paper, make abscissa for samples number 1, 2, 3, up to
20. Make ordinate as percent defective so as to accommodate 7%. Next go on
marking various points as shown by the table as sample number vs. percent
defective.

Management Science
Draw three firm horizontal lines, one each for central line value, upper limit and
lower limit after obtaining by calculations.
Acceptance Sampling - One method of controlling the quality of a product is

100% inspection which requires huge expenditure in terms of time, money and
labour. Moreover due to boredom and fatigue involved in repetitive inspection
process, there exists a possibility to overlook and some defective products may
pass the inspection point.

Management Science
Also when the quality of a product is tested by destructive testing (e.g., life of a
candle or testing of electrical fuses) then 100% inspection shall destroy all the
products.
Advantages of Acceptance Sampling:

The method is applicable in those industries where there is mass production and
the industries follow a set production procedure.
The method is economical and easy to understand.
Causes less fatigue boredom
Computation work involved is comparatively very small.
The people involved in inspection can be easily imparted training.
Products of destructive nature during inspection can be easily inspected by

sampling.
Due to quick inspection process, scheduling and delivery times are improved.
Limitations of Acceptance Sampling:

(i) It does not give 100% assurance for the confirmation of specifications so there
is always some likelihood/risk of drawing wrong inference about the quality of the
batch/lot. (ii) Success of the system is dependent on, sampling randomness, quality
characteristics to be tested, batch size and criteria of acceptance of lot.
Producer’s and Consumer’s Risk:

Management Science
The acceptance or rejection of the whole batch of products in acceptance sampling

depends upon the results of the sample inspected. There is always a chance that a
sample may not be true representative of the batches or lots from which it is drawn.
This leads to following two types of risks:

(i) Producer Risk (α):
It is the small probability of a lot/batch being good or even better acceptable
quality level (AQL) but yielding a bad sample and thus getting rejected. So this
probability of rejection of a good lot which otherwise would have been accepted is
known as producer’s risk (α).
(ii) Consumer Risk (β):

It is the probability of a batch/lot being bad or worse than the limiting quality (LQ)
but yielding a good sample and getting accepted. So this probability of a defective
lot being accepted which otherwise would have been rejected is known as
consumer risk (β).
(iii) Acceptable quality level (AQL): This is the maximum proportion of

defectives that will make the lot definitely acceptable.
(iv) Lot tolerance percentage defective (LTPD): This is the maximum
proportion of defectives that will make the lot definitely unacceptable.
The main types of acceptance sampling plans for attributes are: i) Single sampling
plan, ii) Double sampling plan, iii) Multiple sampling plan, and iv) Sequential
sampling plan.

Management Science
A sampling plan in which a decision about the acceptance or rejection of a lot is

based on a single sample that has been inspected is known as a single sampling
plan.
For example, suppose a buyer purchases cricket balls in lots of 500 from a
company manufacturing cricket balls. To check the quality of the lots, the buyer
draws a random sample of size 20 from each lot and takes a decision about
accepting or rejecting of the lot on the basis of the information provided by this
sample. Since the buyer takes the decision about the lot on the basis of a single
sample, this sampling plan is a single sampling plan. A single sampling plan
requires the specification of two quantities which are known as parameters of the
single sampling plan. These parameters are n – size of the sample, and c –
acceptance number for the sample.
Let us suppose that the lots are of the same size (N) and are submitted for
inspection one at a time. The procedure for implementing the single sampling plan
to arrive at a decision about the lot is described in the following steps: Step 1: We
draw a random sample of size n from the lot received from the supplier or the final
assembly. Step 2: We inspect each and every unit of the sample and classify it as
defective or non-defective. At the end of the inspection, we count the number of
defective units found in the sample. Suppose the number of defective units found
in the sample is d. Step 3: We compare the number of defective units (d) found in
the sample with the stated acceptance number (c). Step 4: We take the decision of
acceptance or rejection of the lot on the basis of the sample as follows: Under
acceptance sampling plan If the number of defective units (d) in the sample is less
than or equal to the stated acceptance number (c), i.e., if d ≤ c, we accept the lot
and if d > c, we reject the lot. Under rectifying sampling plan If d ≤ c, we accept
the lot and replace all defective units found in the sample by non-defective units

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and if d > c, we accept the lot after inspecting the entire lot and replacing all
defective units in the lot by non-defective units
Double sampling plan: If it is not possible to decide the fate of the lot on the basis
of first sample, a second sample is drawn and the decision is taken on the basis of
the combined results of first and second sample.
Multiple sampling plan: A lot is accepted or rejected based upon the result
obtained from several samples (of parts) drawn from the lot.
Sequential sampling plan: (Item by item analysis) Sequential sampling involves

increasing the sample size by one part at a time till the sample becomes large
enough and contains sufficient number of defectives to decide intelligently whether
to accept or reject the lot.
Inventory Control
Inventory is defined as a comprehensive list of movable items which are required

for manufacturing the products and to maintain the plant facilities in working
conditions.
Inventory control (stock control) can be broadly defined as "the activity of

checking a shop’s stock." It is the coordination and supervision of supply, storage,
distribution, and recording of materials to maintain quantities adequate for current
needs without excessive oversupply or loss. At the root of inventory control,
however, is the inventory control problem, which involves determining when to
order, how much to order, and the logistics (where) of those decisions. An
inventory control system is used to keep inventories in a desired state while
continuing to adequately supply customers, and its success depends on maintaining
clear records on a periodic or perpetual basis.

Management Science
Objectives of Inventory Control
 To support the production departments with materials of the right quality in the
right quantity, at the right time and the right price, and from the right supplier
 To ensure availability of needed inventory for uninterrupted production and for
meeting consumer demand
 To avoid accumulation of work in process
 To maintain necessary records for protecting against thefts, wastes leakages of
inventories and to decide timely replenishment of stocks
 To maintain adequate inventories at the required sales outlets to meet the
market needs promptly, thus avoiding both excessive stocks or shortages at
any given time
 To contribute directly to the overall profitability of the enterprise
Functions of Inventory Control

 Effective Running of Stores - This may include problems of layout, utilization
of storage space, issuing and receiving procedures of items kept in stock.
 Technological Responsibility for the State of Different Materials - This may

include the method of storage, maintenance procedures, studies of deterioration
and obsolete materials and corrective action required
 Stock Control System - This includes purchase procedures of materials,
ordering policies, physical verification and records of items stored.
 Maintenance of Specified Inputs - Specified raw materials, finished
components/parts work m process, general supplies in sufficient quantities are
maintained to meet the production requirements of the enterprise.
 Protection of Inventories - The inventories are to be protected from improper
material handling; wrong and unauthorized removal from the stores.

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 Pricing - Pricing of all input materials being supplied to various shops is

essential for further cost estimation of final products.
Advantages of Inventory Control
 Improvement in Customers Satisfaction
 Improved Manpower Management
 Improvement in Effectiveness of Key Personnel
 Reduction in Manufacturing Costs - Proper utilization of manpower and other
infrastructural facilities through the elimination of idleness caused by shortage
of input materials
 Strengthening the Financial Position - Sound inventory control shall lead to
preservation of more liquid working capital position and reduction in overall
capital requirements for field warehouses other storage facilities and for plant
and machinery to meet peak production requirements
Inventory management refers to the process of ordering, storing, and using a

company's inventory. These include the management of raw materials,
components, and finished products as well as warehousing and processing such
items. For companies with complex supply chains and manufacturing processes,
balancing the risks of inventory gluts and shortages is especially difficult. To
achieve these balances, firms have developed two major methods for inventory
management: just-in-time and materials requirement planning.
Objective of Inventory Management System is Minimizing the sum of the
inventory carrying, ordering and shortage costs by determining: the type of
inventory control system to use; how much to order and when to order.

Management Science
Economic Order Quantity (EOQ) – It is defined as the quantity of materials,

which can be ordered at one time to minimize the cost of ordering and carrying the
stocks. In other words, it refers to size of each order that keeps the total cost low. It
is the optimal inventory size that should be ordered with the supplier to minimize
the total annual inventory cost of the business. Other names used for economic
order quantity are optimal order size and optimal order quantity.
Two significant factors that determine the EOQ are economic ordering cost and
economic carrying cost (holding).
Economic Ordering costs - The ordering costs are the costs that are incurred every
time an order for inventory is placed with the supplier. Examples of these costs
include telephone charges, delivery charges, invoice verification expenses and
payment processing expenses etc. The total ordering cost usually varies according
to the frequency of placing orders. Mostly, it is directly proportional to the number
of orders placed during the year which means If the number of orders placed
during the year increases, the annual ordering cost will also increase and if, on the
other hand, the number of orders placed during the year decreases, the annual
ordering cost will also decrease
Economic Holding costs - The holding costs (also known as carrying costs) are the
costs that are incurred to hold the inventory in a store or warehouse. Examples of
costs associated with holding of inventory include occupancy of storage space,
rent, shrinkage, deterioration (becoming slowly worse), obsolescence, insurance
and property tax etc. The total holding cost usually depends upon the size of the
order placed for inventory. Mostly, the larger the order size, the higher the annual
holding cost and vice versa. The total holding cost is sometimes expressed as a
percentage of total investment in inventory.

Management Science
The EOQ is the level of quantity at which the combined ordering and holding cost
is at the minimum level. There is an inverse relationship between ordering cost and
holding cost. Keeping the annual demand constant if for example the number of
orders decreases, the ordering cost will also decrease but the holding cost will rise
and vice versa.
Formula that determines the economic order quantity (EOQ):
Where,
D = Demand per year

Co = Cost per order
Ch = Cost of holding per unit of inventory
Example - The material DX is used uniformly throughout the year. The data about
annual requirement, ordering cost and holding cost of this material is given below:
 Annual requirement: 2,400 units
 Ordering cost: $10 per order
 Holding cost: $0.30 per unit
Required: Determine the economic order quantity (EOQ) of material DX using

above data.
Solution

Management Science
The economic order quantity for material DX is 400 units. Now, we can compute
the number of orders to be placed per year, annual ordering cost, annual holding
cost and combined annual ordering and holding cost as follows:
Number of orders per year
Annual demand / EOQ = 2,400 units / 400 units = 6 orders per year
Ordering cost
Number of orders per year × Cost per order = 6 orders × $10 = $60
Holding cost
Average units × Holding cost per unit = (400/2) × 0.3 = $60
Combined ordering and holding cost at economic order quantity (EOQ):
Ordering cost + Holding cost = $60 + $60 = $120
Notice that both ordering cost and holding cost are $60 at economic order
quantity. The holding cost and ordering cost at EOQ tend to be the same.

Management Science
Tabular determination of economic order quantity (EOQ)
Under tabular approach of determining economic order quantity, the combined

ordering and holding cost is computed at different number of orders and their
respective order quantities. This approach is also known as trial and error approach
of determining economic order quantity.
This approach is illustrated below using the same data as used in the above
example:
*Average units × Holding cost per unit: 1,200 units × 0.30 = $360 (Holding cost)
Notice that the quantity of 400 units with 6 annual orders and a combined ordering
and holding cost of $120 is the most economical quantity to order. Other order
quantities that result in more or less than six orders per year are not so economical.
For example, if only one order for the whole annual requirement of 2,400 units is
placed, the combined ordering and holding cost comes to $370 which is far higher
than the cost at economic order quantity of 400 units.

Management Science
ABC Analysis
Vilfredo Pareto, a renowned economist, has propagated this theory almost a

century ago that 80% of the wealth in any society is held by 20% of its people.
This principle got international acclaim as Pareto Principle or 80:20 Rule. It has
also been applied to various other business and economic situations. In 1940, a
mechanical engineer named Joseph Juran derived ABC Analysis from Pareto
Principle wherein he sought to segregate ‘Critical Few’ from ‘Trivial Many’ of the
inventory items. Pareto Principle for Inventory Management says that 80% of the
sales value is derived from 20% of the stock items. ABC Analysis works on the
same principle and recommends the basis for classification and management of
inventory.
Rule of ABC Analysis - ABC analysis classifies inventory into 3 categories
Class A – forms 15% to 20% of the stock quantity but commands 80% to 85% of
the value (high value item).
Class B – forms 30% to 35% of the stock quantity but commands 10% to 15% of
the value (medium value item).
Class C – forms 50% of the stock in terms of quantity but commands only 55% of
the value (low level item).
Thus, it can be seen that Group A, which accounts for only a minor portion of the
physical units, is very valuable in terms of the revenue it brings. Group B is ‘mid-
range’ stock items that comprise of a slightly larger share of the physical stock
units but their value is still less as compared to Class A. And finally, Class C items

Management Science
are a large collection of such small, insignificant items that are essential for
running the business smoothly but their commercial value is inconsequential.
Example - The following table contains various stock units for the business, their
demand and their sales price per unit:
Now, we will work out the sales value of these units individually, the total sales
value and the total no. of units that the business has to stock.
Next, we will work out the percentage share of each category into the total sales
value of US$ 339,000.

Management Science
Finally, the composite percentage share of high value stock items and their
classification according to ABC Analysis can be worked out:
Here, it can be seen that stock items H1 and J1 together control almost 90% share
of the total sales value and hence have been classified as Group A which demands
the highest attention, active management of inventory and constant monitoring of
these stock items.
J2 and J3 command 8.44% of the share in total sales value whereas K1 and K2
command a meager 2.26% of the total sales value. Hence, they have been
categorized as Class B and Class C respectively.
Now, if you see the percentage share of the units in each category with respect to
the total units demanded, it would look like this:

Management Science
The above-mentioned table shows clearly that:
Class A items represent 22.5% of the total stock units and generate 89.30% of the
revenue
Class B items constitute 32.5% of the total stock units and generate 8.44% of the
revenue.
Class C items make up for 45% – the biggest share of the total stock units but their
share in total revenue generation is mere 2.26%.
Thus, this example clearly collaborates the ABC analysis and underlying Pareto
Principle that 80% of the value is contributed by 20% of the items
Project Management (Project Scheduling) - It is the practice of initiating,

planning, executing, controlling, and closing the work of a team to achieve specific
goals and meet specific success criteria at the specified time. The primary
challenge of project management is to achieve all of the project goals within the
given constraints. A project is defined by a set of activities. Each activity is defined
by its duration (time to complete the activity) and its predecessors (activities that
must be completed before the activity can start). CPM (Critical Path Method) is

Management Science
used to assist the project manager in scheduling the activities (i.e., when should
each activity start). It assumes that activity durations are known with certainty
(Developed for industrial projects for which activity times are known). PERT
(Program Evaluation and Review Technique) is used to assist in project scheduling
similar to CPM. However, PERT assumes that activity durations are random
variables (i.e., probabilistic).
Example: Building a New Home When building a home individual subcontractors

are hired to: ― Grade and prepare the land ― Build the foundation ― Frame up
the home. ― Insulate the home ― Wire (Electricity, Cable, Telephone lines) the
home ― Drywall ― Paint (inside) ― Put vinyl siding on home ― Install Carpet
― Landscape ― Lay Concrete (identify time estimated for different activities)
Project Network
Event: An event is specific instant of time which indicates the beginning or end of
the activity event is also known as a junction or node. It is represented by a circle
and the event number is written with in the circle.
Arrows - An arrow leads from tail to head directionally.
Indicates an ACTIVITY, a time consuming effort that is required to perform a part

of the work
Nodes  A node is represented by a circle.
Indicate EVENT, a point in time where one or more activities start and/or finish.
Activity: Every project consists of number of job operations or tasks which are
called activity.

Management Science
Classification of activities:
1) Critical activity 2) Non-Critical activity 3) Dummy activity

Critical activity: In a network diagram critical activities are those which consume
more than their estimated time, the project will be delayed. It shown with thick
arrow
Non-critical activity: Such activities have a provision of float or slack so that, even
if they consume a specified time over and above the estimated time.
Dummy activity: When two activities start at the same instant of time like A and
B the head event are joined by dotted arrows and this is known as dummy activity
2
Dummy
1 Activity
3 4 5
CPM Basic terminology:
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.
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
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.
Earliest Finish Time (EFT): It is the earliest possible time at which an activity can
finish

Management Science
EFT = EST + Duration of activity

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

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: Float in the network analysis that represents 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 used with reference to activity.
Floats are three types:
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
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
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

Management Science
A Gantt chart is a horizontal bar chart developed as a production control tool in

1917 by Henry L. Gantt, an American engineer and social scientist. Frequently
used in project management, a Gantt chart provides a graphical illustration of a
schedule that helps to plan, coordinate, and track specific tasks in a project.
A Gantt chart is constructed with a horizontal axis representing the total time span
of the project, broken down into increments (for example, days, weeks, or months)
and a vertical axis representing the tasks that make up the project (for example, if
the project is outfitting your computer with new software, the major tasks involved
might be: conduct research, choose software, install software).

Management Science
These Gantt charts could be quit large when projects contained over one hundred
activities. It was not practical for the project manager to duplicate the Gantt chart
for her manager, and if the supervisor of the project managers had several project
managers, it was not practical to display all of the projects' Gantt charts unless
there was quite a lot of wall space.
Limitations - Do not clearly indicate details regarding the progress of activities; do

not give a clear indication of interrelation ship between the separate activities
PERT was developed by the US Navy for the planning and control of the Polaris
missile program and the emphasis was on completing the program in the shortest
possible time. In addition PERT had the ability to cope with uncertain activity
completion times (e.g. for a particular activity the most likely completion time is 4
weeks but it could be anywhere between 3 weeks and 8 weeks).
CPM was developed by Du Pont and the emphasis was on the trade-off between
the cost of the project and its overall completion time (e.g. for certain activities it
may be possible to decrease their completion times by spending more money - how
does this affect the overall completion time of the project?)
Framework for PERT and CPM

Essentially, there are six steps which are common to both the techniques. The
procedure is listed below:
1. Define the Project and all of it’s significant activities or tasks. The Project (made
up of several tasks) should have only a single start activity and a single finish
activity.
2. Develop the relationships among the activities. Decide which activities must
precede and which must follow others.

Management Science
3. Draw the “Network” connecting all the activities. Each Activity should have
unique event numbers. Dummy arrows are used where required to avoid giving the
same numbering to two activities.
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network. This is called the critical path.
6. Use the Network to help plan, schedule, monitor and control the project.
The Key Concept used by CPM/PERT is that a small set of activities, which make
up the longest path through the activity network that control the entire project. If
these “critical” activities could be identified and assigned to responsible persons,
management resources could be optimally used by concentrating on the few
activities which determine the fate of the entire project.
Significance of PERT / CPM
There are many variations of CPM/PERT which have been useful in planning
costs, scheduling manpower and machine time. The main significance of using
CPM/PERT is that, they answer the following important questions of a project,
How long will the entire project take to be completed? What are the risks
involved?
Which are the critical activities or tasks in the project which could delay the entire
project if they were not completed on time?
Is the project on schedule, behind schedule or ahead of schedule?
If the project has to be finished earlier than planned, what is the best way to do this
at the least cost?

Management Science
Activity A B C D E F G H
Immediate Predecessor --- --- A A, B A,B C D,F E,G
Example - Illustration of network analysis of a minor redesign of a product and its

associated packaging. How long will it take to complete this project?
What is the minimum possible time in which we can complete this project?
For clarity, this list is kept to a minimum by specifying only immediate

relationships

Management Science
1-3-5-7-8-9-11 = 24
Critical Path takes 24 weeks for the completion of the project
An Example - Calculation of Time Estimates in PERT
In the network of figure below, the PERT time estimates of the activities are
written along the activity arrows in the order to-tm-tp. Compute the expected time
and variance for each activity. Also compute the expected duration and standard
deviation for the following paths of the network.
(a) 10-20-50-80-90 (20 - 70)
(b) 10-30-50-70-90
(c) 10-40-60-80-90 (40 -50)

Management Science
The computation of expected times and variances for different activities are carried
in a table given below.
Expected Time tE = (to + 4tm + tp ) /6
Variance σ
2= [(
tp - to ) / 6 ]2
Activity Time Estimates Expected Time Variance
i j to tm tp tE σ2
10 20 6 9 12 9.00 1.00
10 30 3 5 9 5.33 1.00
10 40 10 14 18 14.00 1.78
20 50 7 10 13 10.00 1.00
20 70 3 4 8 4.5 0.69
30 50 4 10 12 9.33 1.78
40 50 8 11 14 11.00 1.00
40 60 5 10 15 10.00 2.78
50 70 3 4 5 4.00 0.11
50 80 11 15 17 14.67 1.00
60 80 7 9 12 9.17 0.69
70 90 4 8 10 7.67 1.00
80 90 6 7 9 7.17 0.25

Management Science
Example - Calculation of Time Estimates in CPM
In the project network given in figure below, activities and their durations are
specified at the activities. Find the critical path and the project duration
Calculations in Network Analysis
The following calculations are required in network analysis in order to prepare a

schedule of the project.
a. Total completion time of the project

b. Earliest time when each activity can start (i.e. earliest start time)
c. Earliest time when each activity can finish (i.e. earliest finished time)
d. Latest time when each activity can be started without delaying the project
(i.e. latest start time)
e. Latest time when each activity can be finished without delaying the project
(i.e. latest finish time)
f. Float on each activity (i.e. time by which the completion of an activity can
be delayed without delaying the project)
g. Critical activity and critical path

Management Science
The symbols used in the calculations are shown in table below.
Symbol Description
Ei Earliest occurance time of event i
Lj Latest allowable occurance time of event j
tEi-j Estimated completion time of activity (i,j)
(EST)ij Earliest starting time of activity (i,j)
(EFT)ij Earliest finishing time of activity (i,j)
(LST)ij Latest starting time of activity (i,j)
(LFT)ij Latest finishing time of activity (i,j)
The computations are made in following steps.
(a) Forward Pass Computations:
(b) Backward Pass Computations:
(c) Calculation of Slack:
Event slack is defined as the difference between the latest event and earlist event
times.
Slack for head event = Lj - Ej Slack for tail event = Li - Ei

Management Science
The calculations for the above taken example network are summarised below in
the table.
S(i)
Predecessor Successor
tEi-j (EST)ij (EFT)ij (LST)ij (LFT)ij
Event i Event j
Slack
5 10 7 0 7 0 7 0
5 15 12 0 12 7 19 -
5 20 17 0 17 5 22 -
10 20 15 7 22 7 22 0
10 25 9 7 16 21 30 -
15 30 11 12 23 19 30 7
20 25 5 22 27 25 30 -
20 30 8 22 30 22 30 0
25 35 10 27 37 30 40 3
25 45 15 27 42 35 50 -
30 35 10 30 40 30 40 0
30 40 8 30 38 35 43 -
35 45 10 40 50 40 50 0
40 45 7 38 45 43 50 5
(d) Determination of Critical Path:
The sequance of critical activities in a network is called the critical path. The
activities with zero slack of head event and zero slack for tail event, are called as
crititcal activities. In the taken network, the following activities are critical
activities: 5 - 10, 10 - 20, 20 - 30, 30 - 35, 35 - 45.
Thus the critical path is A - E - G - K - M.
Critical path duration is 7 + 15 + 8 + 10 + 10 = 50.
Benefits of PERT / CPM
Useful at many stages of project management
Mathematically simple
Give critical path and slack time

Management Science
Provide project documentation
Useful in monitoring costs
minimum project completion time
Limitations to CPM/PERT
Clearly defined, independent and stable activities
Specified precedence relationships
Over emphasis on critical paths
Project Crashing
Crashing - Project crashing is the method for shortening the project duration by
reducing the time of one or more critical activities to less than their normal time.
Crashing is achieved by devoting more resources. Thus the cost associated with the
project is increased.
Objective: To reduce project duration; while minimizing cost of crashing.
Time-Cost Trade off - In Crashing if cost increases then time decreases. Time and
cost are thus inversely related. Cost Slope

Management Science
Crashing of Network: After identifying the critical path, it is necessary to identify

the priority to crash the activities by calculating the cost slope
For reducing the duration extra expenditure to be incurred, but to save resources,
organizations keep this extra expenditure at a minimum.
CT = Crash Time
Total Cost
OT = Optimum Time O (A+B)
NT = Normal Time
Indirect Cost
(B)
Direct Cost
(A)
Example - Given the following data, work out the minimum duration of the project
and corresponding cost
Normal Crashing Normal Crashing
Activity Job
time time cost cost
A 1-2 N10 6 400 600
B 1-3 4 2 100 140
C 2-4 6 4 360 440
D 3-4 8 4 600 900
E 2-5 8 6 840 1100
F 4-6 6 2 200 300
G 5-6 10 8 1200 1400
Solution:
Normal Crashig Normal Crashing C C N

Activity Job time time cost cost Cost Slope Priorities
C
(NT) (CT) (NC) (CC) NT T

C
A 1-2 10 6 400 600 50 1
B 1-3 4 2 100 140 20

Management Science
C 2-4 6 4 360 440 40

D 3-4 8 4 600 900 75
E 2-5 8 6 840 1100 130 2
F 4-6 6 2 200 300 50
G 5-6 10 8 1200 1400 100 3
8
2 5
10
6
10 6 6
1
8
4
Critical path is 1-2-5-6 and Duration is 28 days

Total cost is = Direct cost + Indirect cost = (10+4+6+8+8+6+10) + 0 = 52/-
1-2 activity crashing by 4 days:
EST LFT
8
2 5
10
6
6 6 6
4
1
8
4
Total cost is = Direct cost + Indirect cost =(52 + (4 x 50) + 0) = 252/-

Management Science
EST LFT
8
2 5
8
6
6 6 6
4
1
8
4
6
2 5
8
6
0 0 6 6 6
4
1
8 20 20
4 12 14
3
Critical path is 1-2-5-6 and Project Duration is 20 days

Optimum cost= 712/- Optimum Duration = 20 days

Management Science
Unit 3 – Functional Management
Financial Management
Financial Management means planning, organizing, directing and controlling the

financial activities such as procurement and utilization of funds of the enterprise. It
means applying general management principles to financial resources of the
enterprise.
Scope of Financial Management
Investment decisions include investment in fixed assets (called as capital

budgeting). Investments in current assets are also a part of investment decisions
called as working capital decisions.
Financial decisions they relate to the raising of finance from various resources
which will depend upon decision on type of source, period of financing, cost of
financing and the returns thereby.
Dividend decision the finance manager has to take decision with regards to the net
profit distribution. Net profits are generally divided into two: Dividend for
shareholders and retained profits
Objectives of Financial Management
The financial management is generally concerned with procurement, allocation and

control of financial resources. The objectives can be-
1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders that depends upon the earning
capacity, market price of the share, expectations of the shareholders.

Management Science
3. To ensure optimum funds utilization. Once the funds are procured, they
should be utilized in maximum possible way at least cost.
4. To ensure safety on investment, i.e. funds should be invested in safe
ventures so that adequate rate of return can be achieved.
5. To plan a sound capital structure - there should be sound and fair
composition of capital so that a balance is maintained between debt and
equity capital.
Functions of Finance
i) Procurement or Sourcing of funds

Assessing the requirement of funds
The function of procurement of funds starts from estimating the requirement of
funds. It involves a lot of forecasting exercises to identify each and every future
requirement of the project and find out the sum required for investment in fixed
assets and working capital. Not only the quantum of a requirement is enough, the
finance manager has also to decide the timing of that requirement. The timing of
funds is very important in financial management because it carries time value of
money and we know ‘a dollar today is the same as a dollar 1 year later’.

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Financing Decisions / Capital Structure Decision

Once a reasonable estimate of funds is charted out, the capital structure decisions
would finalize two things viz. a) the mix of long-term finance and short-term
finance 2) the mix of own funds and debt funds. Longs term funds are normally
used to finance long-term requirements such as fixed assets, other long-term
investments and a part of the working capital that remains permanently invested at
any point of time.
ii) Utilization of Funds - Working capital management
Working capital management is a very important day to day activity for a finance
manager. It spreads over both the broader functions i.e. procurement as well as
utilization of funds. It mainly involves management of current assets and current
liabilities and keeps the gap between two managed as per the available funds with
the organization. Cash management is a big task in working capital management.
The finance manager has to ensure that all the branches, units etc have the
sufficient cash to address the necessary expenses. The smoother the management
of cash, the smoother is the flow of operations of the business.
Dividend decisions
Dividend decisions mainly involve taking decisions in relation to the payment of
dividend to the shareholders. The main concerns to handle is to decide the dividend
payout ratio which is dependent on a lot of things like requirement of funds to the
company in their projects, the comparison of returns expected in company’s
projects and the return available to the shareholder in the normal market, stability
of the dividend payment, market expectations, trend of earnings, tax considerations
to the shareholders etc.
Investment decisions (Capital Budgeting)
Investment decisions involve utilization/application of funds in the right mix of
projects and fixed assets to maximize the returns for the organization. There are

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various techniques used like Net Present Value, Internal Rate of Return,
and Payback Period etc.
Financial Analysis / Performance Appraisal
The financial analysis is neither included in the functions of the finance but it is
necessary to evaluate all the functions of finance which are performed. This
evaluation results in the findings for improvements etc. Performance appraisal
assesses the effectiveness of procurement of funds and their respective utilization.
There are other functions like dealing with day to day transactions and negotiating
with the creditors, debtors, bankers etc.
Human Resource Management
Human resource management is the process of managing the human resources of

an organization in tune with the vision of the top management. HRM, then, is
engaged not only in securing and developing the talents of individual workers, but
also in implementing programs that enhance communication and cooperation
between those individual workers in order to nurture organizational development.
Personnel Management - Defines personnel management as the planning,

organizing, and controlling of the procurement, development, compensation,
integration and maintenance of people for the purpose of contributing to the
organizational goals
The functions are as below -

1 Human resource planning
The first function of HR is all about knowing the future needs of the organization.
What kind of people does the organization need, and how many? Knowing this
will shape the recruitment, selection, performance management, learning and
development, and all other HR functions.

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Human resources planning is similar to workforce planning. Both focus on where

the organization is today and what it needs to be successful in the future.
2. Recruitment and selection
The second HR function involves attracting people to work for the organization
and selecting the best candidates. Attracting people usually starts with an employee
brand. Being an attractive employer has plenty of advantages – just as it is the
other way around. With a strong employer brand and the right sourcing strategies,
you’re already halfway there. Once candidates apply, selection is an HR instrument
to pick the best qualified and highest-potential candidates.
3. Performance management
Performance management is essential in ensuring that workers stay productive and
engaged. Good performance management involves good leadership, clear goal-
setting, and open feedback. Performance management tools include the (bi) annual
performance review, in which the employee is reviewed by his/her manager. It also
includes 360-degree feedback tools in which peers, managers, subordinates, and
sometimes even customers review the employee’s performance. These kinds of
tools can be very helpful in providing feedback. Performance management is also
an instrument to close the gap between the workforce you have today and the one
you want to have tomorrow. One of the best ways to build your future workforce is
through learning and development (L&D).
4. Learning and development
Enabling employees to develop the skills they need for the future is an essential
responsibility for HR. This is also related to the first HR function we listed, in
which HR bridges the gap between the workforce today and the workforce needed
in the near future. Traditionally, organizations have a set budget for learning and
development. This budget is then distributed among its employees. L&D falls

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under the employer’s responsibility to take care of its employees. Despite the
differences in regulation, almost all employers understand the value of investing in
the (future) skills of their employees. It’s the responsibility of the HR department
to lead these efforts in the right direction.
5. Career planning
Other function of HR is career planning, guidance, and development for

employees, together also referred to as career path. Showing employees how their
personal ambition can align with the future of the company helps to engage and
retain them. For the organization, there are the benefits of better succession
planning, higher productivity, and a stronger employer brand.
6. Function evaluation
Function evaluation is a more technical role of HR that involves comparing various

functions in terms of qualification, the quality, and availability of workers, job
location, working times, the economic situation, job responsibility, and how much
value this job adds to the organization. The idea behind function evaluation is that
similar jobs should be rewarded similarly.
7. Rewards
Rewarding employees for their work is a function that is impossible to miss.

Rewards include salary but also growth and career opportunities, status,
recognition, a good organizational culture, and a satisfying work-life balance.
The total rewards framework shows that rewards are more than just money. They
can also be relational and psychological outcomes. For example, fantastic
colleagues and meaningful work are also rewarding to employees. The monetary
reward of the job consists of financial rewards and other (secondary) benefits.
Rewards are thus much more than just financial. Here is a non-exhaustive
overview of total rewards:

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 Base salary Performance-based-pay

 Bonuses Social environment
 Job security Status
 Alternating work Autonomy
 Growth opportunities Feedback
 Formal and informal development opportunities
8. Industrial relations
Another function of HR is maintaining and cultivating relationships with labor
unions and other collectives, and their members. Maintaining good relations with
unions will help to spot and resolve potential conflicts quickly and will also be
beneficial in more difficult economic times when layoffs or other actions are
required.
9. Employee participation and communication
One of the key roles of HR is to be a credible activist for the employees.

Employees need to be informed and heard on different topics that are relevant to
them. Communication relates to spreading information relevant to employees.
10. Health and safety
HR plays an important role in creating and implementing health and safety

regulations. Making these regulations part of the company culture is one of the
main functions of HR. Safety is such a big part of the company culture that safety
roles are applied everywhere.
11. Personal wellbeing
HR has a function in assisting and taking care of employees when they run into
personal problems. Personal wellbeing is about supporting employees when things
don’t go as planned.

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12. Administrative responsibilities

The final function of HR is its administrative responsibility. These include
personnel procedures and Human Resource Information Systems. Personnel
procedures involve the handling of promotions, relocations, discipline,
performance improvement, illness, regulations, cultural and racial diversity,
unwanted intimacies, bullying, and so on. For each of these situations, policies and
procedures need to be developed and followed to successfully comply with the
requests, or overcome these challenges.
Human Resource Information Systems (HRIS) store employee data. These systems
need to be purchased, implemented and managed so the data can be used for better
decision making.
Marketing Management
Marketing management is the analysis, planning, implementation and control of

programmes designed to bring about desired exchanges with target markets for the
purpose of achieving organisational objectives. It relies heavily on designing the
organizations offering in terms of the target markets needs and desires and using
effective pricing, communication and distribution to inform, motivate and service
the market.
Functions of Marketing Management
1. Market Research
First stage in any product development is market research which is done to assess
the potential demand and growth expectations in the market. If it is already an
existing product category such as shoes, cooking oil, soap, TV, there would be lot
of secondary data available from research agencies and in the public domain.

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However, if it is a new product or service, it makes sense to do a sample market

survey with the help of a competent firm. In such cases, a more boarder term is
used – marketing research. This can gauge the attitude of buyers, potential market
size, consumer preferences, acceptable pricing, product features and attributes.
Likewise, in the service industry too, a new marketing management concept or
service is normally launched after elaborate surveys. Product, Price, Promotion and
Place are the four P’s of marketing and market research usually focuses on one
aspect such as price or promotion. Marketing management professionals depend on
two types of data for analysis of the market- qualitative and quantitative
2. Product development and management
Once the market research has enabled the evolvement of specifications of a

product or service, the next step in the marketing management process is making
of the product. Getting the right raw materials, dies, fabrication, prototype making
and other processes are some of the details to be worked out with the production
planning and manufacturing units. The success of a product would depend on raw
materials, technological know-how and good inventory management. Experts say
that with rapid advances in technology and availability of raw materials, product
life-cycle is getting shorter and shorter. Each product goes through a cycle
popularly known as Product Life Cycle (PLC) which is made up of the following
stages-development of product, introduction to market, growth through increased
promotion and sales, maturity when sales reaches a peak, followed by saturation in
the market and subsequent decline. PLC can be extended through advertising to
gain new market share, price discounts to lure customers, using product
enhancements to add value and target new areas. Even new packaging and colour
changes can improve perception levels.

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3. Promotion
A good product would not sell unless the consumers come to know about the
product. With the advent of marketing management technology, newer options are
available at the disposal of the marketers. The first step in the process is to identify
a media planner and device appropriate mix of platforms to announce the launch of
the product. With a little effort and support from public relations agencies some
launch publicity can be obtained in business newspapers and business pages of
newspapers. Newspapers, radio, television, websites, social media such
as Facebook, LinkedIn, Pinterest, Twitter are all useful platforms to launch and
popularize products. A product can also expect to achieve some strength on the
basis of word-of-mouth publicity but that can be attained only after
sufficient market penetration is gained through traditional publicity channels.
Hoardings, digital banners, point-of-purchase (POP) displays all contribute to
overall brand and awareness about the product. Since no company has enormous
resources to spend on advertising they need to optimize them so that positive return
on investment (ROI) is achieved. There must be continuous monitoring and
tracking of ad spends and their ability to make sales conversions. Participation in
trade fairs and events can also boost sales and revenue for companies be it
consumer goods, industrial goods, banking and financial services
4. Sales & Distribution
The company has done the market research, identified the product required and
gone ahead with production planning, prototype testing, advertising and
promotion, and marketing management trials. The products must reach the targeted
markets through a well-planned distribution channel of national level distributors,
clearing & forwarding agents, regional distributors, wholesalers and retailers. This
is a crucial marketing management function as already availability of the product is

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vital for the consumers to buy and consume the product. Many a time due to lack
management function of planning, the products may not have reached the shop
shelves but sufficient advertising has created a demand among consumers who in
turn get disappointed when the product is not immediately available. There must be
proper enterprise resource planning (ERP) system in place to track the activities of
finance, production planning, shop floor, marketing, sales, distribution and
administration so that marketing management requirements are adequately met,
inventory control and financial cost control is achieved. Use of mobile computing
applications can enable field staff to get to update and feed market data and
information to headquarters on a real time basis.
5. Storage
Proper storage of goods is vital for not only perishable and semi-perishable goods
but also for processed food, consumer durables, but only to a lesser extent for
industrial goods. It is important that distribution centers have adequate
warehousing facility that can be leased and emergency requirements for supply to
retail outlets.
6. Standardization and Testing
The products produced should conform to regulatory standards regarding safety,

environmental impact, quality of raw materials used, design and other parameters.
In Asian countries, governments have set different standards for food, consumer,
electrical equipments, mobile gadgets and products are allowed to be sold only if
they meet those stringent requirements. Although this is a function of
the production and technical teams, the success of the product would depend on
conforming to such standards. Marketing management team also needs to ensure

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that the products are periodically tested and evaluated based on consumer feedback
so that adequate improvisations can be made.
7. After-Sales and customer service
Most often companies pay less attention to an important function of market- after-
sales service. The success of a product depends on customer satisfaction and hence
it is vital that it is tracked on a regular basis. No product is perfect but the success
of a company depends on how fast it is with complaints redressal. In recent times,
major car makers Ford, Toyota and Suzuki had to recall several new batches of
their cars due to technical defects. It happened with Apple iphones too. It goes on
to prove that even large corporates are fallible and it is in their long term interest to
admit and provide product replacement and support.
8. Financing
Most often goods are sold to distributors and wholesalers on credit and not
immediate cash. The act of providing credit and money when needed for
distributors, the costs of getting merchandise into the hands of the final user is
known as finance function in marketing management. The need finance in
marketing activity is towards working capital and fixed capital that can raised
through own funds of the company if it is cash rich, or through bank loans and
advance and trade credit. Trade credit is provided by the manufacturer to
distributors and wholesalers. Various options of short, medium and long term
finance have to be availed in the marketing of goods and services. It may be
recalled that in times of mild recession and change in trade cycles, wholesalers,
distributors and retailers face cash flow problems and fail to meet their day-to-day
obligations. To the extent they are not able to prove their creditworthiness,
adequate institutional financial management function support may not be

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forthcoming. It is here that the marketing management team has to lend a helping
hand to tide over the crisis by rescheduling payments and giving time to meet the
obligations of sellers and resellers.
9. Market Risk taking
Business carries a lot of market risk due to new competition, fall in prices, loss of
goods due to spoilage, depreciation, obsolescence, theft, fire and floods.
Sometimes for unknown reasons a slight defect or quality concerns in certain
batches of goods shipped may have to be recalled. New regulatory rules can also
make sale of manufactured goods or products impossible. It is the function of
marketing management to provide for adequate market risks which are unforeseen
and often unpredictable with the data available.
10. Market information
Timely market information is vital for product enhancement and sales growth. The
importance of timely market information is being recognized more than before due
to expansion of markets, proliferation of products and intense competition. Timely
marketing management information is vital for the companies to decide on when to
sell, at what price to sell, the number of competitors and their offerings. Now
business firms employ service providers to gather data, analyse and interpret facts.
They also actively seek facts, information from external sources such as
government publications, government reports and market research firms. Such data
an also come from internal departments and a robust ERP system can enable
creation of useful marketing management reports that help in business decision
making.

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Production Management
Production Management is the process of effective planning and regulating the

operations of that section of an enterprise which is responsible for the actual
transformation of materials into finished products. Production Management is a set
of general principles for production economies, facility design, job design,
schedule design, quality control, inventory control, work study and cost and
budgetary control.
Functions of Production Management

Design and development of the production process
Production planning and control
Implementation of the plan and related activities to produce the desired output
Administration and coordination of the activities of various components and
departments responsible for producing the necessary goods and services
Get real-time insight into the production
Improve performance with flexible routing
Monitor production costs with ease
Job Evaluation
It is the process to assess the relative value of a job in an organisation by

comparing it with other jobs within the organisation and with job market outside. It
attempts to make a methodical comparison between jobs to assess their relative
worth for the purpose of establishing a rational pay structure. Job evaluation is
different from job analysis. Job analysis is a systematic way to accumulate
information about a job. Every job evaluation method requires some basic job
analysis in order to provide accurate information about the jobs concerned.

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Therefore, job evaluation begins with job analysis and ends at that point where the
value of a job is determined for achieving pay equity between jobs. Basically, Job
evaluation is the application of a process to identify, analyse and measure each job
against established criteria and weigh the relative value of jobs in a uniform and
consistent manner. It is not used to obtain a salary increase for the incumbent.
Major objectives of job evaluation is to establish logical & accurate relationship of

each job to other jobs within organisation, to regulate the wage rate for each job in
relation to other job in the organisation, to select employees accurately and train,
promote or transfer them impartially, to encourage employee goodwill, strengthen
morale and provide an incentive and to provide management with a basis for
proper control.
Methods of Job Evaluation

There are many methods by which job evaluation is done.
1. Ranking / Grading Method: Under ranking method, jobs are organized in

descending order of importance with the help of job description and job
specification. The ranking of job is done by a committee of experts called
raters. The ranking is done at departmental level, for every department the job is
ranked in order of importance. The main benefits of this method are that it is
simple, easily understood by all concerned and easy to operate, inexpensive and
can be used conveniently in small establishments. The limitations include the
degree of differences in the jobs. Sometimes it is based on the rater's general
knowledge of the jobs. It is inappropriate for big company with a complex
organisational structure.
2. Factor Comparison / Weight-in-Money Method: In this type of procedure, the
jobs are ranked in the following way: Common key elements of different jobs

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are selected. These selected key elements are weighted and ranked. A monetary
value is assigned to each element of all jobs. Then these monetary values of
individual jobs are weighted. Then total value of each job is available. The
major benefits if these methods are that it is more accurate and systematic as
compared to simple ranking method. Different jobs also can be rated on the
basis of common factors. The drawbacks of this method comprise that it is
complicated, not easily explainable and expensive. Application of weightage
and monetary values may involve bias of rankers. It is difficult to install hence
not used extensively.
3. Point Rating Method: In this method, each job is appraised separately,
considering each of the job factors such as skill, effort, responsibility and
working conditions and combining them into a single point score for each job.
Main advantages are that it is analytical in its approach, it gives a quantitative
value for each job. Basis and guidelines of valuation are standardized and
codified in a user manual. Disadvantages include, manual used for rating the
jobs needs periodical revision and update. It is difficult for application and
unintelligible for workers.

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Summary of job evaluation method
Process of Job Evaluation

The process of job evaluation involves following steps:
Securing acceptance from employees after explaining the purpose and use of job
evaluation programme,
Creating job evaluation committee consisting of experienced employees, union

representatives and HR experts,
Deciding the job to be evaluated, which may represent the type of work performed
in the organisation
Analyzing and preparing job description.
Selecting method of evaluation, according to the job factors and organisational

demand,
Classifying the jobs on the basis of weightage and monetary values,
Installing the programme in the whole organisation after explaining it to

employees,

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Conducting periodical review in the light of changes in environment from time to

time
To summarize, Job evaluation is associated with a process of establishing worth of

different jobs. Job evaluation offers a basis for ranking or grading different jobs
and developing a pay structure for them. It is the process of explaining the duties,
authority relationships, skills, condition of work and other relevant information
related to jobs. It provides valuable data and information to develop job description
and specification documents. Job evaluation is a significant task of human resource
manager which is done in order to determine the value or worth of each job within
the organization.
Merit Rating
Merit rating of an employee is “the process of evaluating the employee’s

performance on the job in terms of the requirements of the job.” It is a technique of
assessing the worth of an employee with reference to job requirements.

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“Employees rating is the evaluation or appraisal of the relative worth to the

company of a man’s services on his job.”
Process is used for merit rating:

(i) Establishing Standards:
The employees/workers will have to be rated against the standards set for their
performance. There should be some base on which one may categorize that the
performance of a person is good, average, bad etc. The standards may be in terms
of quantity and quality of production in case of workers; personality traits like
leadership, initiative, imagination in case of executives, files cleared in case of
office staff, etc. These standards will help in setting yardsticks for evaluating
performance of the people concerned.
(ii) Communicating Standards to Workers:

The standards set for performance should be communicated to the employees.
They should know what is expected from them. When the standards are made
known to employees, they will try to achieve their performance equal or above
them. Even later on they will not resent adverse reports if they fail to achieve
certain standards. It is essential to get feedback from employees whether they have
followed the standards as is desired by the management.
(iii) Measuring Actual Performance:

The next step in evaluation process is to measure actual performance of employees.
The performance may be measured through personal observation, statistical
reports, oral reports, written reports, received from the executives concerned.
(iv) Comparing Actual with Standards:

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The actual performance is compared to the standards set earlier for finding out the
standing of workers. The employee is evaluated and judged by his potential for
growth and advancement. Deviations in performance are also recorded at this
stage.
(v) Discussing Reports with Workers:

The assessment reports are periodically discussed with concerned
employees/workers. The weak points, good points and difficulties are indicated for
helping employees to improve their performance. The information received by
employees influences their performance. It also effects their attitude and work in
future. It may be easy to convey good reports but it requires tact to discuss adverse
reports with the concerned employees.
(vi)Taking Corrective Action:

Evaluation process will be useful only when corrective action is taken on the basis
of reports. One corrective action may be in the form of advice, counselling,
warning etc. Other action may be in the form of additional training, refresher
courses, delegation of more authority, special assignments, coaching etc. These
actions will be useful in helping employees to improve their future performance.

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Importance of Merit Rating:

It is an established fact that people differ in their abilities and attitudes. The
evaluation of their performance is the most important tool of an organization. This
helps in assigning of work according to ability and capacity, spotting people for
higher responsibility jobs, and recognising training and development requirements.
1. It is a managerial technique to find out the worth/capacity of various workers.
2. It helps in correct placement of workers.
3. Evaluation reports help employees to know their good points and weaknesses.
The superiors also counsel their subordinates in improving their performance.
4. It provides a scientific basis for employee’s selection, training, promotion,

demotion and any other action required.
5. It provides a basis for fixing wages and salaries and also helps in deciding about
pay increases and incentive schemes for work force.
6. Merit rating can be used as basis of sound personnel policy in relation to

transfer, promotion of workers.
7. It helps in eliminating personal prejudices and human bias against workers for
any reasons.
8. It helps in removing grievances and develops a sense of confidence amongst

workers because they will be sure of impartial evaluation process.

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9. The workers will be more concerned in improving their performance and it will
create more discipline among the employees.
10. It aims at providing data to superiors with which they may judge future job
assignments and compensation required.
11. It helps in improving employer-employee relations through mutual confidence

which is a result of frank discussions between a supervisor and his workmen.
Advantages of Merit Rating:

(1) It provides a scientific basis for judging the capability of employees who will
try to improve their performance if it is not up to their satisfaction. Hence it helps
in making comparisons.
(2) It provides a sound basis for the purpose of promotion, demotion, transfer or
termination of employees. Better persons are selected for promotion. The
systematic evaluation remains as a part of permanent record.
(3) It helps in distinguishing efficient and inefficient workers. In this way it reveals
the defects in the selection procedure if any. Those employees who are misfit may
be spotted and appropriate action initiated against them.
(4) Workers may be given increase in pay or incentives if their performance is

good. It helps the management in avoiding spot judgements and replacing it by
advance decisions.
(5) It develops confidence among the workers since the methods of evaluation are
systematic and impartial. Among the workers, a sense of competition develops
resulting into increased output hence improved productivity.

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(6) It creates a congenial atmosphere in which employer-employee relations are

improved. Subordinates are motivated to work harder for getting favourable rating.
(7) Merit rating is helpful in stimulating and guiding the development of an

employee as it points out the weakness of the employees. In this way training
requirements can be known and training programme can be accordingly decided.
(8) It is a systematic evaluation technique which produces better supervisors and

executives. On the basis of merit-rating report, the top management can judge the
ability of executives writing such reports.
However, formal merit rating may not take place in case of a small unit where the
informal rating can provide all the desired information. In case of a large scale
concern, or big industries both employer and employee will be benefited from a
systematic performance appraisal.
Product Life Cycle
A new product progresses through the sequence of stages from introduction to

growth, maturity and decline. This sequence is known as the product life cycle and
is associated with changes in the marketing situation, thus impacting the marketing
strategy and marketing mix. Product Life Cycle Theory is an economic theory that
was developed by Raymond Vernon in response to the failure of the Heckscher-
Ohlin model to explain the observed pattern of international trade. Raymond
Vernon divided products into three categories based on their stages in the product
life cycle and how they behave in the international trade market:
1 New Product 2 Maturing Product 3 Standardized Product

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There are five stages in a product's life cycle in respect to the Product Life Cycle
Theory:
1 Introduction 2 Growth 3 Maturity 4 Saturation 5Decline
Stage 1: Introduction
This is where the new product is introduced into the market, the customers are
unaware about the product. To create demand, producers promote the new product
to stimulate sales. At this stage, profits are low and there are only a few
competitors. As more units of the product sell, it enters the next stage
automatically.
Stage 2: Growth
In this stage, demand for the product increases sales. As a result, production costs
decrease and profits are high. The product becomes widely known and competitors
enter the market with their own version of the product. To attract as many
consumers as possible, the company that developed the original product increases
promotional spending. When many potential new customers have bought the
product, it enters the next stage

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Stage 3: Maturity
When the product enters the maturity stage the rate of growth of its sales declines,
though the volume of sales keeps on increasing. This is so because most of the
persons needing the product-had; already adopted it during the growth stage and
now when the product enters its maturity stage, it faces a small and declining
number of potential buyers. Consequently, the firm has to spend relatively
increasing amount of sales promotion.
Stage 4: Saturation
It is a stage in which there is neither increase nor decrease in the volume of sale.
Through modification in the attribute of the product is needed to attract new
consumers. At this stage, the sales volume of the product ceases to grow. The only
additional demand for the product happens to be its replacement demand
Stage 5: Decline
Ultimately the product enters a stage of decline where its sale volume starts
shifting down. The competitors have by then entered the market with substitutes
and imitations and the product distinctiveness starts diminishing. Consequently, the
sale of the product also starts declining.
We can analyze from the product life cycle that as the product moves to the next
stage of its life-cycle, the sellers control over prices keeps on further reducing. So,
in order to save itself from the stage of saturation and decline, the firm makes a
fresh innovation just at a time when the existing product is about to enter the
saturation stage. In this manner, the firm marks a new product line.
Channels of Distribution

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A distribution channel is a chain of businesses or intermediaries through which a

good or service passes until it reaches the final buyer or the end consumer.
Distribution channels can include wholesalers, retailers, distributors, and even the
Internet. Distribution channels are part of the downstream process, answering the
question "How do we get our product to the consumer?" This is in contrast to the
upstream process, also known as the supply chain, which answers the question
"Who are our suppliers?"
A distribution channel is the path by which all goods and services must travel to
arrive at the intended consumer. Distribution channels can be short or long, and
depend on the amount of intermediaries required to deliver a product or service.
Goods and services sometimes make their way to consumers through multiple
channels—a combination of short and long. Increasing the number of ways a
consumer is able to find a good can increase sales. But it can also create a complex
system that sometimes makes distribution management difficult. Longer
distribution channels can also mean less profit each intermediary charges a
manufacturer for its service.
Channels are broken into two different forms—direct and indirect.

A direct channel allows the consumer to make purchases from the manufacturer
while an indirect channel allows the consumer to buy the good from a wholesaler
or retailer. Indirect channels are typical for goods that are sold in traditional brick-
and-mortar stores.
The first channel is the longest because it includes all four: producer, wholesaler,
retailer, and consumer. The wine and adult beverage industry is a perfect example
of this long distribution channel. In this industry—thanks to laws born out of
prohibition—a winery cannot sell directly to a retailer. It operates in the three-tier

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system, meaning the law requires the winery to first sell its product to a wholesaler
who then sells to a retailer. The retailer then sells the product to the end consumer.
The second channel cuts out the wholesaler—where the producer sells directly to a
retailer who sells the product to the end consumer. This means the second channel
contains only one intermediary. Dell, for example, is large enough to sell its
products directly to reputable retailers such as Best Buy.
The third and final channel is a direct-to-consumer model where the producer sells
its product directly to the end consumer. Amazon, which uses its own platform to
sell Kindles to its customers, is an example of a direct model. This is the shortest
distribution channel possible, cutting out both the wholesaler and the retailer.
Choosing the Right Distribution Channel

Not all distribution channels work for all products, so it's important for companies
to choose the right one. The channel should align with the firm's overall mission
and strategic vision including its sales goals. The method of distribution should add
value to the consumer. Do consumers want to speak to a salesperson? Will they
want to handle the product before they make a purchase? Or do they want to
purchase it online with no hassles? Answering these questions can help companies
determine which channel they choose.
Secondly, the company should consider how quickly it wants its product(s) to
reach the buyer. Certain products are best served by a direct distribution channel
such as meat or produce, while others may benefit from an indirect channel.
If a company chooses multiple distribution channels, such as selling products

online and through a retailer, the channels should not conflict with one another.
Companies should strategize so one channel doesn't overpower the other.

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Types or Methods of Production

1. Unit or Job Type of Production
This type of production is most commonly observed when you produce one single
unit of a product. A typical example of the same will be tailored outfits which are
made just for you or a cake which is made just like you want it. Example - It is
one of the most common types of products used because it is generally used by
small businesses like restaurants, individual products providers or individual
services providers. It is also a type of production used by very premium companies
like Harley Davidson, or Dell. Harley Davidson actually has a lot of accessories
which can be customized, and which suit the individual. Same ways, you can
design your own DELL laptop on their website with the given specifications. Job
Production is highly motivating for workers because it gives the workers an
opportunity to produce the whole product and take pride in it.
Features of Unit production or Job Production
 Depends a lot on skill

 Dependency is more on manual work than mechanical work
 Customer service and customer management plays and important role
2. Batch Type of Production

It is one of the types of production most commonly used in consumer durables,
FMCG or other such industries where there are large varieties of products with
variable demands. Batch production takes place in batches. The manufacturer
already knows the number of units he needs to a manufacturer and they are
manufactured in one batch. So, if a manufacturer has the shortage of Product X and
100 units of this product is consumed in one month, then the manufacturer can give

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orders for batch production of 100 units of Product X. The batches may be as small
as 10 units or they may be as large as 1 lakh units of the same products. However,
as long as there is a defined quantity of product which has to be manufactured
before moving on to the next item in the list, it is known as batch production.
Examples of batch production include FMCG like Biscuits, confectionaries,
packaged food items etc. It is used in Medicines, Hardware, Consumer durables
and many such industries.
Features of Batch production
 Production is done in batches

 The total number of units required is decided before the batch production starts
 Once a batch production starts, stopping it midway may cost a huge amount to
the company.
 Demand plays a major role in a batch production. Example – seasonality of
products.
3. Mass Production or Flow Production

One of the best examples of mass production is the manufacturing process adopted
by Ford. Mass production is also known as flow production or assembly line
production. It is one of the most common types of products used in the automobile
industry and is also used in industries where continuous production is required.
An Assembly line or mass production plant typically focuses on specialization.

There are multiple workstations installed and the assembly line goes through all
the workstations turn by turn. The work is done in a specialized manner and each
workstation is responsible for one single type of work. As a result, these
workstations are very efficient and production due to which the whole assembly

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line becomes productive and efficient. Products which are manufactured using
mass production are very standardized products. High sophistication is used in the
manufacturing of these products. If 1000 products are manufactured using mass
production, each one of them should be exactly the same. There should be no
deviation in the product manufactured. The flow production method is financially
the most efficient and effective because there is less of a need for skilled workers.
Features of Mass Production
 Mass production is generally used to dole out huge volumes of the product
 It is used only if the product is standardized
 Demand does not play a major role in a Mass production. However, production
capacity determines the success of a mass production.
 Mass production requires huge initial investment and the working capital
demand is huge too.
4. Continuous Production or Process Production
There is a lot of confusion between mass production and continuous production. It

can be differentiated by a single element. The amount of mechanical work
involved. In Mass production, both machines and humans work in tandem.
However, in continuous production, most of the work is done by machines rather
than humans. In continuous production, the production is continuous,24×7 hours,
all days in a year. A good example of the continous production is brewing. In
brewing, the production goes on 24 hours a day and 365 days a year. This is
because brewing takes a lot of time and production is important. As a result, there
is a continuous input of raw materials such as malt or water, and there is
continuous output in the form of beer or other alcoholic drink. The key factor in

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this is that the brewing and fermentation process itself is time-consuming, and the
maximum time is spent in the fermentation which is a continuous process.
There are many chemicals which are manufactured in the form of a continuous
process due to the huge demand across the world. Similarly, the Plastic industry is
known to adopt the continuous production methodology where production can go
continuously for weeks or months depending on the demand. Once the production
starts, you only need to feed in the raw material, and the machines turn out the
finalized products.
Features of Continuous production
 Majority of the work is done by machines rather than humans

 Work is continuous in nature. Once production starts, it cannot be stopped
otherwise it will cause huge loss.
 A very controlled environment is required for continuous production.

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Management Science
Unit - Content Page No
4. Strategic Management 119 - 135
Vision, Mission, Goals and Strategy
SWOT analysis
Different Steps in Strategy Formulation, Implementation and Evaluation
5. Business Ethics and Communication 136 - 149
Ethics in Business and Management
Ethics in HRM, Finance & Marketing Management
Business ethics and Law
6. Contemporary Management Practice 150 - 170
Concepts of MIS, MRP, JIT
TQM, six sigma and CMM
Supply chain management, ERP
Performance Management
BPO, Business process Re-engineering
Bench Marking and Balance Score Card
119 Ms Deepthi Lankoti, Assistant Professor – B.Tech, MBA

Management Science
Unit 4 – Strategic Management
The term ‘strategic management’ is used to denote a branch of management that is concerned
with the development of strategic vision, setting out objectives, formulating and implementing
strategies and introducing corrective measures for the deviations (if any) to reach the
organization’s strategic intent. It has two-fold objectives:
 To gain competitive advantage, with an aim of outperforming the competitors, to achieve

dominance over the market.
 To act as a guide to the organization to help in surviving the changes in the business
environment.
Here, changes refer to changes in the internal environment, i.e. within the organization,
introduced by the managers such as the change in business policies, procedures etc. and changes
in the external environment as in changes in the government rules that can affect business,
competitors move, change in customer’s tastes and preferences and so forth.
Strategic Management Process
1. Defining the levels of strategic intent of the business:
 Establishing vision, Designing mission and Setting objectives
Formulation of strategy
 Performing environmental and organizational appraisal

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 Considering strategies
 Carrying out strategic analysis
 Making strategies
 Preparing strategic plan
 Implementation of strategy
 Putting strategies into practice
 Developing structures and systems
 Managing behavioral and functional implementation
 Strategic Evaluation and Control
 Performing evaluation
 Exercising control
 Recreating strategies
Strategic Management is all about specifying organization’s vision, mission and objectives,
environment scanning, crafting strategies, evaluation and control.
Importance of Strategic Management
 It guides the company to move in a specific direction. It defines organization’s goals and fixes
realistic objectives, which are in alignment with the company’s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the actions of
the competitors and take necessary steps to compete in the market, instead of becoming
spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of pioneer in
exploring opportunities and also helps in identifying ways to reach those opportunities.

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 It ensures the long-term survival of the firm while coping with competition and surviving the
dynamic environment.
The basic purpose of strategic management is to gain sustained-strategic competitiveness of the

firm. It is possible by developing and implementing such strategies that create value for the
company. It focuses on assessing the opportunities and threats, keeping in mind firm’s strengths
and weaknesses and developing strategies for its survival, growth and expansion. Strategic intent
gives an idea of what the organization desires to attain in future. It answers the question what the
organization strives or stands for? It indicates the long-term market position, which the
organization desires to create or occupy and the opportunity for exploring new possibilities.
Strategic Intent Hierarchy
1. Vision: Vision implies the blueprint of the company’s future position. It describes where the
organization wants to land. It is the dream of the business and an inspiration, base for the
planning process. It depicts the company’s aspirations for the business and provides a peep of
what the organization would like to become in future. Every single component of the
organization is required to follow its vision.
2. Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. It explains
the reason for the existence of business. It is designed to help potential shareholders and
investors understand the purpose of the company. A mission statement helps to identify, ‘what

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business the company undertakes.’ It defines the present capabilities, activities, customer focus
and business makeup.
3. Business Definition: It seeks to explain the business undertaken by the firm, with respect to the
customer needs, target audience, and alternative technologies. With the help of business
definition, one can ascertain the strategic business choices. The corporate restructuring also
depends upon the business definition.
4. Business Model: Business model, as the name implies is a strategy for the effective operation of
the business, ascertaining sources of income, desired customer base, and financing details. Rival
firms, operating in the same industry relies on the different business model due to their strategic
choice.
5. Goals and Objectives: These are the base of measurement. Goals are the end results, that the
organization attempts to achieve. On the other hand, objectives are time-based measurable
actions, which help in the accomplishment of goals. These are the end results which are to be
attained with the help of an overall plan, over the particular period.
The vision, mission, business definition, and business model explains the philosophy of business
but the goals and objectives are established with the purpose of achieving them. Strategic Intent
is extremely important for the future growth and success of the enterprise, irrespective of its size
and nature.
Vision Statement
A vision statement is a declaration of an organization's objectives, intended to guide its

internal decision-making. A vision statement is not limited to business organizations and may
also be used by non-profit or governmental entities. Vision is an organization's self centered,
egoistic, selfish (in a positive and necessary sense) pleasure seeking goal that directly attracts
and motivates its employees: what a company "intakes", "inhales", "breathes in;" what catalyzes
a company's actions. That's why vision is first of all important for the company itself and its
internal decision-making, but not for customers - because it gives direction and energy to
employees of the company rather than to customers.

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Characteristics of vision statement are concise, clear, Time horizon, future-oriented, stable,
challenging, abstract, and inspiring.
Vision statements may fill the following functions for a company:
 Serve as foundations for a broader strategic plan

 Motivate existing employees and attract potential employees by clearly categorizing the
company's goals and attracting like-minded individuals
 Focus company efforts and facilitate the creation of core competencies by directing the
company to only focus on strategic opportunities that advance the company's vision
 Help companies differentiate from competitors. For example, profit is a common business
goal, and vision statements typically describe how a company will become profitable rather
than list profit directly as the long-term vision.
Mission Statement
A mission statement is the representation of why an organization exists, what its overall goal is,
identifying the goal of its operations: what kind of product or service it provides, its primary
customers or market, and its geographical region of operation. A mission is not simply a
description of an organization by an external party, but an expression, made by its leaders, of
their desires and intent for the organization. The purpose of a mission statement is to
communicate the organisation's purpose and direction to its employees, customers, vendors, and
other stakeholders. A mission statement also creates a sense of identity for its employees.
Organizations normally do not change their mission statements over time, since they define their
continuous, ongoing purpose and focus.
Objectives of a Mission Statement
The sole purpose of a mission statement is to serve as a company's goal/agenda, it outlines

clearly what the goal is. Some generic examples of mission statements would be, "To provide the
best service possible within the banking sector for our customers." or "To provide the best
experience for all of our customers." The reason why businesses make use of mission statements
is to make it clear what they look to achieve as an organization, not only to themselves and their
employees but to the customers and other people who are a part of the business, such as

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shareholders. As a company evolves, so will their mission statement. This is to make sure that
the company remains on track and to ensure that the mission statement does not lose its touch
and become boring or stale.
Significance - It is important that a mission statement is not confused with a vision statement. As
discussed earlier, the main purpose of a mission statement is to get across the ambitions of an
organisation in a short and simple fashion; it is not necessary to go into detail for the mission
statement which is evident in examples given. The reason why it is important that a mission
statement and vision statement are not confused is because they both serve different purposes.
Vision statements tend to be more related to strategic planning and lean more towards discussing
where a company aims to be in the future.
The following questions must be answered in the mission statement
 “What do we do?” — The mission statement should clearly outline the main purpose of the
organisation, and what they do.
 “How do we do it?” — It should also mention how one plans on achieving the mission
statement.
 “Whom do we do it for?” — The audience of the mission statement should be clearly stated
within the mission statement.
 “What value are we bringing?” — The benefits and values of the mission statement should
be clearly outlined.
When designing a mission statement, it should be very clear to the audience what the purpose of
it is. It is ideal for a business to be able to communicate their mission, goals and objectives to the
reader without including any unnecessary information through the mission statement.
Strategy
Creating a company strategy is the final step in this process. Defining the vision and mission are
critical before starting on strategic elements. After all, what is the strategy trying to achieve if not
the company mission? And what is the mission if not an embodiment of the vision?
Some organizations put additional steps between forming the vision/mission and creating the
strategy. For example, many choose to create an overall list of objectives or goals first, and then
to use those as the basis for their company strategy.

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A company strategy should include short- and long-term goals and should explain how those
goals will be achieved. It is focused on present actions and outcomes needed to move closer to
achieving the mission. Company strategies evolve and are updated over time to adjust for current
factors such as local economic conditions and company needs.
Does your organization have a well-crafted and easy-to-communicate vision? Does it guide
employee behavior? Does your mission reflect your core values? Is it easy to link the company
strategy back to the vision and mission?
Goals and Objectives
Strategic goals are the highest goals of the organization or an individual. Strategic goals are used
in strategic management. Properly set strategic goals are not focused only on one metric of
operation of the organization (for example, just to gain profit, but they are configured as
balanced - (e.g. Balanced Scorecard).
The strategic goals of the organization are linked to its mission and formulated vision. Strategic
goals may not necessarily meet the conditions and principles of SMART (specific, measurable,
achievable, realistic and time availability), if they are further disintegrated into the specific
objectives.
The strategic goals are crucial to clarify its vision, which they concretize and specify outcomes.
They are generally defined by the owner or top management, who is also responsible for
achieving them. Strategic goals concretize the vision and help managers to manage and motivate
staff at the organization, together with properly defined specific objectives.

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Corporate planning is an important and vital business process. Under this, the organization’s
top management sits down to formulate policies and strategies and communicate them
downward for implementation. This process of corporate planning entails preparing the
company’s mission, goals and objectives. Any organization’s mission statement clearly
elucidates its purpose of existence. Through this, the organization projects a corporate image to
the customers and provides direction for the employees.
Systematic process of determining goals that has to be achieved in the foreseeable future which
consists of: (1) Management's fundamental assumptions about the future economic,
technological, and competitive environments. (2) Setting of goals to be achieved within a
specified timeframe. (3) Performance of SWOT analysis. (4) Selecting main and alternative
strategies to achieve the goals. (5) Formulating, implementing, and monitoring the operational or
tactical plans to achieve interim objectives.
Once the mission statement is prepared, the organization next chalks out its objectives. These
are tangible and measurable targets the organization is aiming to achieve. With these
measurable targets, the organization can monitor growth and make necessary corrections.
Organizational environment consists of both external and internal factors. Environment must be
scanned so as to determine development and forecasts of factors that will influence
organizational success. Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships within an organization’s internal
and external environment. It helps the managers to decide the future path of the organization.
Scanning must identify the threats and opportunities existing in the environment. While strategy
formulation, an organization must take advantage of the opportunities and minimize the threats.
A threat for one organization may be an opportunity for another.
Internal analysis of the environment is the first step of environment scanning. Organizations
should observe the internal organizational environment. This includes employee interaction with
other employees, employee interaction with management, manager interaction with other

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managers, and management interaction with shareholders, access to natural resources, brand
awareness, organizational structure, main staff, operational potential, etc. Also, discussions,
interviews, and surveys can be used to assess the internal environment. Analysis of internal
environment helps in identifying strengths and weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the effectiveness
of long-term plans. As environment is dynamic, it becomes essential to identify competitors’
moves and actions. Organizations have also to update the core competencies and internal
environment as per external environment. Environmental factors are infinite, hence, organization
should be agile and vigile to accept and adjust to the environmental changes. For instance -
Monitoring might indicate that an original forecast of the prices of the raw materials that are
involved in the product are no more credible, which could imply the requirement for more
focused scanning, forecasting and analysis to create a more trustworthy prediction about the
input costs. In a similar manner, there can be changes in factors such as competitor’s activities,
technology, market tastes and preferences. Strategic managers must not only recognize the
present state of the environment and their industry but also be able to predict its future positions.
SWOT Analysis
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position
of the business and its environment. Its key purpose is to identify the strategies that will create a
firm specific business model that will best align an organization’s resources and capabilities to
the requirements of the environment in which the firm operates.

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An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below-
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained. Strengths can be either tangible or intangible. These are what you are
well-versed in or what you have expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give your organization its
consistency.
Strengths are the beneficial aspects of the organization or the capabilities of an organization,
which includes human competencies, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty. Examples of organizational strengths are huge
financial resources, broad product line, no debt, committed employees, etc.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the factors which do not meet the
standards we feel they should meet.
Weaknesses in an organization may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational weaknesses
are huge debts, high employee turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc.
3. Opportunities - Opportunities are presented by the environment within which our

organization operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities.

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Organization should be careful and recognize the opportunities and grasp them whenever
they arise. Selecting the targets that will serve the clients which give desired results itself is a
difficult task. Opportunities may arise from market, competition, industry/government and
technology. Increasing demand for telecommunications accompanied by deregulation is a
great opportunity for new firms to enter telecom sector and compete with existing firms for
revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the reliability
and profitability of the organization’s business. They compound the vulnerability when they
relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and reducing
industry profits; etc.
Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against internal
weaknesses and external threats. They also keep a watch on their overall business environment
and recognize and exploit new opportunities faster than its competitors.
SWOT Analysis helps in strategic planning in following manner-
a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.

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SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.
Limitations of SWOT Analysis
SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook certain key
strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses,
opportunities and threats might be very subjective as there is great degree of uncertainty in
market. SWOT Analysis does stress upon the significance of these four aspects, but it does not
tell how an organization can identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
include-
a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.
Internal limitations may include-
a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc
Strategy Formulation
Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision. The process of strategy formulation basically involves six main steps. Though these

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steps do not follow a rigid chronological order, however they are very rational and can be easily
followed in this order.
1. Setting Organizations’ objectives - The key component of any strategy statement is to set
the long-term objectives of the organization. It is known that strategy is generally a medium
for realization of organizational objectives. Objectives stress the state of being there whereas
Strategy stresses upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider
term which believes in the manner of deployment of resources so as to achieve the
objectives.
While fixing the organizational objectives, it is essential that the factors which influence the
selection of objectives must be analyzed before the selection of objectives. Once the
objectives and the factors influencing strategic decisions have been determined, it is easy to
take strategic decisions.
2. Evaluating the Organizational Environment - The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. It is essential to conduct a qualitative and
quantitative review of an organizations existing product line. The purpose of such a review is
to make sure that the factors important for competitive success in the market can be
discovered so that the management can identify their own strengths and weaknesses as well
as their competitors’ strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to its
market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this is to
compare with long term customers, so as to evaluate the contribution that might be made by
various product zones or operating departments.

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4. Aiming in context with the divisional plans - In this step, the contributions made by each
department or division or product category within the organization is identified and
accordingly strategic planning is done for each sub-unit. This requires a careful analysis of
macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing the gap
between the planned or desired performance. A critical evaluation of the organizations past
performance, present condition and the desired future conditions must be done by the
organization. This critical evaluation identifies the degree of gap that persists between the
actual reality and the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.
Strategy Implementation
Strategy implementation is the translation of chosen strategy into organizational action so as to

achieve strategic goals and objectives. Strategy implementation is also defined as the manner in
which an organization should develop, utilize, and amalgamate organizational structure, control
systems, and culture to follow strategies that lead to competitive advantage and a better
performance. Organizational structure allocates special value developing tasks and roles to the
employees and states how these tasks and roles can be correlated so as maximize efficiency,
quality, and customer satisfaction-the pillars of competitive advantage. But, organizational
structure is not sufficient in itself to motivate the employees.
Following are the main steps in implementing a strategy:
  Developing an organization having potential of carrying out strategy successfully.
  Disbursement of abundant resources to strategy-essential activities.
  Creating strategy-encouraging policies.

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  Employing best policies and programs for constant improvement.
  Linking reward structure to accomplishment of results.
  Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability between
strategy and each organizational dimension such as organizational structure, reward structure,
resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an organization.

New power relationships are predicted and achieved. New groups (formal as well as informal)
are formed whose values, attitudes, beliefs and concerns may not be known. With the change in
power and status roles, the managers and employees may employ confrontation behaviour
Strategy Evaluation
The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by
managers, groups, departments etc, through control of performance. Strategic Evaluation is
significant because of various factors such as - developing inputs for new strategic planning, the
urge for feedback, appraisal and reward, development of the strategic management process,
judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps-
1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter

questions such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator that best identify and
express the special requirements might then be determined to be used for evaluation. The
organization can use both quantitative and qualitative criteria for comprehensive assessment
of performance. Quantitative criteria includes determination of net profit, ROI, earning per
share, cost of production, rate of employee turnover etc. Among the Qualitative factors are

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subjective evaluation of factors such as - skills and competencies, risk taking potential,
flexibility etc.
2. Measurement of performance - The standard performance is a bench mark with which the
actual performance is to be compared. The reporting and communication system help in
measuring the performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation becomes
easier. But various factors such as managers contribution are difficult to measure. Similarly
divisional performance is sometimes difficult to measure as compared to individual
performance. Thus, variable objectives must be created against which measurement of
performance can be done. The measurement must be done at right time else evaluation will
not meet its purpose. For measuring the performance, financial statements like - balance
sheet, profit and loss account must be prepared on an annual basis.
3. Analyzing Variance - While measuring the actual performance and comparing it with
standard performance there may be variances which must be analyzed. The strategists must
mention the degree of tolerance limits between which the variance between actual and
standard performance may be accepted. The positive deviation indicates a better performance
but it is quite unusual exceeding the target always. The negative deviation is an issue of
concern because it indicates a shortfall in performance. Thus in this case the strategists must
discover the causes of deviation and must take corrective action to overcome it.
4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to
plan for a corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors responsible for such
performance. If the strategists discover that the organizational potential does not match with
the performance requirements, then the standards must be lowered. Another rare and drastic
corrective action is reformulating the strategy which requires going back to the process of
strategic management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.

Management Science
Unit 5 – Business Ethics & Communication
Ethics are principles based on doing the right thing. They are the moral values by which an
individual or business operates. In theory, a business or individual can act ethically and still
attain ultimate success. A history of doing the right thing can be used as a selling point to
heighten a person's or organization's reputation in the community. Not only are ethics morally
valued, they are backed by legal repercussions for failure to act within certain guidelines.
Ethics in Business
Definition - Business Ethics refers to carrying business as per self-acknowledged moral

standards. It is actually a structure of moral principles and code of conduct applicable to a
business. Business ethics are applicable not only to the manner the business relates to a customer
but also to the society at large. It is the worth of right and wrong things from business point of
view. Business ethics not only talk about the code of conduct at workplace but also with the
clients and associates. Companies which present factual information, respect everyone and
thoroughly adhere to the rules and regulations are renowned for high ethical standards. Business
ethics implies conducting business in a manner beneficial to the societal as well as business
interests.
Every strategic decision has a moral consequence. The main aim of business ethics is to provide
people with the means for dealing with the moral complications. Ethical decisions in a business
have implications such as satisfied work force, high sales, low regulation cost, more customers
and high goodwill.
Some of ethical issues for business are relation of employees and employers, interaction between
organization and customers, interaction between organization and shareholders, work
environment, environmental issues, bribes, employees rights protection, product safety etc.
Below is a list of some significant ethical principles to be followed for a successful business-
1. Protect the basic rights of the employees/workers.

2. Follow health, safety and environmental standards.

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3. Continuously improvise the products, operations and production facilities to optimize the
resource consumption
4. Do not replicate the packaging style so as to mislead the consumers.
5. Indulge in truthful and reliable advertising.
6. Strictly adhere to the product safety standards.
7. Accept new ideas. Encourage feedback from both employees as well as customers.
8. Present factual information. Maintain accurate and true business records.
9. Treat everyone (employees, partners and customers) with respect and integrity.
10. The mission and vision of the company should be very clear to it.
11. Do not get engaged in business relationships that lead to conflicts of interest. Discourage
black marketing, corruption and hoarding.
12. Meet all the commitments and obligations timely.
13. Encourage free and open competition. Do not ruin competitors’ image by fraudulent
practices.
14. The policies and procedures of the Company should be updated regularly.
15. Maintain confidentiality of personal data and proprietary records held by the company.
16. Do not accept child labour, forced labour or any other human right abuses.
17. Business houses operate in the social environment and use resources provided by the
society. They are, therefore, morally and socially committed to look after the interests of
society by adopting ethical business practices.
18. Ethical business activities improve company’s image and give it edge over competitors to
promote sales and profits.
Ethics in Management
Management Ethics’ is related to social responsiveness of a firm. It is “the discipline dealing

with what is good and bad, or right and wrong, or with moral duty and obligation. It is a standard
of behaviour that guides individual managers in their works”. “It is the set of moral principles
that governs the actions of an individual or a group.”

Management Science
Business ethics is application of ethical principles to business relationships and activities. When
managers assume social responsibility, it is believed they will do it ethically, that is, they know
what is right and wrong.
Following are the ethical activities observed by managers:
1. The foremost goal of managers is to make their organizations effective.
2. Profit maximization and stakeholders’ interests were not the central goals of the managers
studied.
3. Attending to customers was seen as important.
4. Integrity was the characteristic most highly rated by managers at all levels.
5. Pressure to conform to organisational standards was seen as high.
6. Spouses are important in helping their mates grapple with ethical dilemmas.
7. Most managers seek the advice of others in handling ethical dilemmas.
Approaches to Management Ethics:

There are three approaches to management ethics:
1. Utilitarian approach:
In this approach, managers analyse the effects of decisions on people affected by these decisions.
The action rather than the motive behind the action is the focus of this approach. Positive and
negative results are weighed and managerial actions are justified if positive effects outweigh the
negative effects. Pollution standards and analysing the impact of pollution on society is
management ethics code under utilitarian approach.
2. Moral rights approach:

In this approach, managers follow ethical code which takes care of fundamental and moral rights
of human beings; the right to speech, right to life and safety, right to express feelings etc. In the
context of business organisations, managers disclose information in the annual reports necessary

Management Science
for welfare of the people concerned. The nature, timing and validity of information is taken into
account while reporting information in the annual reports.
3. Social justice approach:

According to this approach, managers’ actions are fair, impartial and equitable to all individuals
and groups. Employees are not distinguished on the basis of caste, religion, race or gender
though distinction on the basis of abilities or production is justified. For example, all employees,
males or females with same skills should be treated at par but it is justified to treat employees
who produce more differently from those who produce less.
Ethics In Human Resource Management
Human resource management deals with manpower planning and development related activities
in an organization. Arguably it is that branch of management where ethics really matter, since it
concerns human issues specially those of compensation, development, industrial relations and
health and safety issues. There is however sufficient disagreement from various quarters.
The kind of market system affects business and HR ethics; the latter thus becomes negotiable. In
occupations where the market conditions do not favor the employees it is necessary to have
government and labor union interventions in order to control the possible exploitation. In free
market system, employees and the employer are almost equally empowered, negotiation create
win win situations for both the parties. Government or labor union interventions become
harmful.
Globalization has brought about the concept of globalizing labor, trade unions have started to
decline and the role of HR as such in issues like employee policies and practices has become a
debatable topic. In fact many people are of the opinion that HR is nothing but an arm of the
stakeholders through which major strategic and policy decisions are divulged geared towards
profit making!
Thought there can be no single opinion on ethics in HR that is convincing. Market in itself is
neither an ethical institution nor unethical and no policies and procedures alone cannot govern
and align markets to human well being. However the requirement of such policies and

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procedures can also not be denied. In lieu of this HR ethics should take care of things like
discrimination (sexual, religion, age etc), compensation, union and labor laws, whistle blowing,
health and safety of the employees etc.
Ethics In Finance Management
Finance means fund or other financial resources; it deals with matter related to money and the
market. The field of finance refers to the concept of time, money and risk and how they are
interrelated. Banks are the main facilitators of funding. Finance is the set of activities that deals
with the management of funds. It helps in making the decision like how to use the collected fund.
It is also art and science of determining if the funds of an organization are being used in a right
manner or not. Through financial analysis, any company or business can take decision in making
financial investments, acquisition of company, selling of company, to know the financial
standing of their business in present, past and future. It helps to stay competitive with others in
making strategic financial decisions. Finance is the backbone of business; no business can run
without finance.
Ethics in finance may vary from industries to different industries but everyone is liable to-do
their work at utmost good faith. Peoples who involved in finance activity have to serve both their
company and their customers at utmost good faith.
Code of Ethics in Finance: 1. Act with honesty and integrity, avoiding real or clear conflicts of
interest in personal and professional relationships.2. To provide information which is full, fair,
accurate, complete, objective, relevant, timely and understandable, including in and for reports
and documents that the Company files with, or submits to, the other public communications
made by the Company.3.Act in accordance with all applicable laws, rules and regulations of

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governments, and other appropriate private and public regulatory agencies.4.Act in good faith,
responsibly, with due care, competence and carefulness, without misrepresenting material facts
or allowing my independent judgment to besubordinated.5.Respect the confidentiality of
information acquired in the course of business except when authorized or otherwise legally
obligated to disclose the information. It should not be used for personal advantage.6.To promote
ethical behavior among our associates.
Ethics in Finance in Different Fields: The situation of a stockbroker is different from that of a
mutual fund manager, a market regulator or a corporate financial officer. People in finance
involved in lot of activities which depend not only in handling of financial asset but also
involved in using of those asset and taking care of it. Everyday billions of financial transaction
takes place with a high level of integrity. However, there are several opportunities in finance for
some people to gain at others’ expenses. Finance simply concern with other people’s money and
other people’s money invites misconduct. Some of the professionals in the financial service
whom are bound to serve their clients are as follows they are stockbrokers, bankers, financial
advisers, mutual fund, pension manager and insurance agents. Financial manager in corporations,
government, and other organizations have to take care of their employers and manage their asset
as well. In finance everyone is trusted to carry certain duties from financial analyst to market
regulators. Ethics in finance is not only a concerned for an individual in a particular occupation
or profession but also for financial market and financial institution. Finance is a main function of
every business enterprises and many non-profit organizations and governmental units. Corporate
financial manager are responsible for making a decision like invest capital to the planning of
merger and acquisitions. While in other hand Public finance is concerned mostly with raising and
disbursing fund for governmental purposes.
A finance manager must provide competent, accurate and timely information that fairly presents
any potential disclosure issues, such as legal ramifications. The manager is also ethically
responsible for protecting the confidentiality of the employer and staying within the boundaries
of law.
Legal Issues - Some laws are specifically designed to address unethical actions of finance
managers. For example, if a finance manager is aware of business activity that will affect a stock
price and uses that information to buy or sell stocks for financial again, he has has broken a trust

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with his employer and broken laws established by the Securities and Exchange Commission
(SEC). A finance manager who is aware that his company may be breaking the law may be held
legally responsible for a crime.
Balancing Act - The dilemma faced by many finance managers comes in balancing the need to
act ethically while fulfilling the needs of the employer. The employer's ultimate goal is to
maximize earnings, and the drive to make money may cause an employee to act unethically. If a
manager believes his company may have crossed an ethical line, his first step should be to take it
up with his employer. If he feels the actions warrant legal intervention, he should do so without
fear of repercussion.
Whistleblowers - If a discussion with an employer does not resolve the ethical issues facing a
finance manager, he can report the activity to the appropriate government agency for
investigation. This is known as whistleblowing. Under current laws, an employee has the right to
report suspicious activity without fearing for his job. While the activity may put a strain on his
working relationship, he is protected by law.
Need of Ethics in Financial Market, Service Industry and People in Organization: Despite
the diversity of financial roles and activities, there are three major areas where there is need of
ethics are as follows: Need of ethics in finance market– In financial market there are some
barrier which includes unequal information, bargaining power, and resources. Finally, market
transactions between two parties often have third-party effects. These are the few things which
affect ethics in financial market. Need of ethics in financial service industry– This financial
service industry will affect most people directly. This industry has a duty to develop the product
according to people’s need and market them incorrect manner. But this kind of financial service
industry normally deals with client and try to gain clients confidence on them and finally do the
duties which will satisfy their clients and not to people’s. Their main aim is to stay competitive
with others. Need of ethics for financial people in organization– Huge number of people in
finance are employee of an organization. This include person who approve some project which
should not be approved, they approve in order to gain money in the term of bribe. Most of the
unethical activities like giving wrong report and wrong data to the company in order to get more
money start from here which pushes whole financial market and financial service industry down

Management Science
because all most in all organization there are lot a number of people who are held in finance roles
and activities
Ethics in Marketing Management
Markets present a clash of interest between various players. There is competition for resources,
customers and price etc, which breeds ground for activities that may not get ethical sanctions. A
certain code of conduct, policies and practices called ethics are required to manage markets and
marketing.
Marketing is the heart of all businesses and all other functions depend upon the same for keeping
the business moving. It is one business function that interact the most with markets, in fact
markets are meant to sell and they exist only when they sell! In such a scenario there are bound
to be multiple players and a clash is inevitable. Such clash leads to malpractices like hoarding,
price competitions, brand wars and use of unfair tactics, which is precisely where marketing
ethics come into play.
Whereas one school of thought says that all marketing efforts should be focused on maximizing
the shareholder value and that this is the only marketing ethics; the other believes that that
marketing and market is equally responsible to consumers, other stake holders and the
shareholders. The tactic of targeting targeted segments, creating needs that were inexistent till
now, transparency about the source of labor and environmental risks, transparency about the use
of source and the ingredients, appropriate labeling, mentioning associated health risks,
advertising jurisprudence and not making false promises fall within the ambit of marketing
ethics.
Lots of marketing and promotion was carried out for goods and services that were not a need till
yesterday and only a luxury. Today cell phones have become a need and a status symbol! These
are issues that are being discussed in marketing ethics nowadays. Marketing ethics is in its
budding stage only considering that it came into being only in late 1990s.
Like other ethical disciplines, marketing ethics is also looked up from various perspectives.
There is the perspective of virtue, expediency and other perspectives. But like other ethics there
is also the difficulty of deciding the agency responsible for ethical practice. Since there is not one

Management Science
single agency responsible for ethics this gives the independence to an individual or to any
marketing agency to act on its own and be ethical!
Marketing ethics unlike other business ethics is not only restricted to the field of marketing
alone. It influences many aspects of our life and especially in developing perceptions in the
minds of people and creating identities, classes and sections in the society. The visual channels
of communication used for marketing sometimes lead to closure of knowledge, opinions, ideas
and beliefs. It creates prejudices in the mind of people.
Business Ethics & Law
Business laws refer to the law that applies to business entities, such as partnership and
corporations. Business law regulates the business and bound it to follow the existing policies of
business world. Business law governs the transaction between businesses. Business law includes
business formation, litigation, contract, mergers and acquisitions, commercial leasing, and
consumer protection. This law deals with primary with the definition of rights and
responsibilities, overlapping issues. The Uniform Commercial Code (UCC) is the primary
governing authority for commercial transactions. (Ross law Texas Attorney1998). In business
laws, there are some essentials say contract & employment law, Environmental law, insurance
and liability, Tax law etc
Contract Law - A business contract is one of the most general legal transactions you will be
involved in when running a business. No substance what type of business you run, having an
understanding of contract law is a key to creating sound business agreements that will be legally
enforceable in the event that a dispute arises. Following is a discussion of the law of contracts. A
contract is a legally enforceable agreement between two or more parties that creates a
responsibility to do or not do particular things. The term “party” can mean an individual person,
company, or company. No matter whom the parties are, contracts almost always contain the
following essential elements:
Parties who are competent to enter into a contract, For example, a mentally disabled person
could not enter into a contract. Minors can enter into contracts, but can void them in most cases
before they reach majority age. Mutual agreement by all the parties; i.e., all parties have a

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meeting of the minds on a particular subject. M.S. Baratz (1970) each party either promises to
perform and that the party is not legally essential to perform, or promises to abstain from
performing an act that it are legally entitled to perform. There are two common type of contract
one is bilateral contract, in this type of contract mostly people think of as traditional. And
another type of contract is unilateral contract which offer request performance rather than a
promise from the person accepting the offer.
Employment Law - Workforce organization is among the most difficult tasks for business
owners, from the hiring process and wage issues to workplace safety, discrimination and the
termination of employees. Employment law covers all rights and obligations within the
employer-employee relationship — between employers and current workers, job applicants, or
former employees. Because of the difficulty of employment relationships and the wide range of
situations that can occur employment law involves legal issues as diverse as discrimination,
wrongful termination, wages and taxation, and workplace safety. Bennis, W.(1994) Many of
these issues are governed by applicable federal and state law. But, where the employment
relationship is based on a valid contract entered into by the employer and the employee, state
contract law alone may dictate the rights and duties of the parties. Basically employment law
explores the safety of working people in an organization as well as explains responsibilities of
workers.
Environmental Law - Protecting the environment is a serious matter, and the EPA and other
federal and state enforcement agencies do not hesitate to prosecute individuals or companies who
violate the myriad of laws and regulations that prohibit actions which adversely affect the
environment. Sometimes, it helps to be reminded of what can happen if laws are ignored by
taking a lesson from those who came before us. Follow up Environmental Law is very important
for the protection of business it shows to remove the element from business which are harmful
for people lives around the business properties. As well as this identify the rule and regulation to
protect the atmosphere to affect by your business.
Insurance and Liabilities - There are a variety of small business insurance plans available to
protect you, your business and your employees from devastating financial loss. Going into

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business is an inherently risky proposition, but that doesn’t mean you have to roll the dice
unprotected.
Liability Insurance - There are as many forms of liability insurance as there are ways to be liable.
Dealing with accidents and lawsuits is part of doing business, so make sure you choose the right
kind of insurance to protect yourself. Here are the most common types of small business liability
insurance plans:
General liability insurance: Sometimes referred to as a Business Owners Policy (BOP), general
Liability insurance plans protect your company from the infamous slip and fall cases. General
liability insurance also protects you against liability if you or your employees injure someone or
damage property at a customer’s location. General liability insurance is typically required in your
commercial lease.
Professional liability insurance: Sometimes also referred to as Errors and Omissions insurance
(E&O), professional liability insurance protects you against a customer who alleges that he or
she suffered a financial loss as a result of an error or an omission in the services offered by your
business.
Workers’ compensation insurance: Workers’ compensation insurance provides medical and

disability coverage for your employees in the event of a work-related illness or injury. In
addition to providing medical coverage, the workers’ compensation protects your business
against a lawsuit claiming that your business’ negligence was the cause of the work-related
illness or injury.
Auto liability insurance: Auto liability insurance covers damage that you or an employee causes
in a business-related auto accident. It is advisable to insure any vehicles your business uses,
including employees’ cars if they are used for business purposes.
Umbrella liability insurance: Sometimes referred to as Excess Liability insurance, umbrella

liability insurance offers coverage for claims that exceeds the amount of coverage on your
general liability insurance. Rosener, J. B (1990).

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Disability insurance: Disability insurance protects you, the business owner, against some of the
financial loss that may result from a serious illness or accident resulting in disability. Disability
insurance does this by replacing your income for a period of time in the event of a serious
accident or illness.
Property Insurance - While liability insurance generally protects you and your employees,
property insurance protects your physical place of business against many different types of
damage and loss. A good property insurance policy should cover all forms of property in your
business including:
The building itself, Office furniture, Inventory and supplies, Computers and other electronics,
Equipment and machinery, Property fixtures such as lights and carpets, Personal property kept at
your business etc.
Basic forms of property insurance will usually protect you from damage by fire, smoke, water
sprinkler systems, explosions, riots and vandalism, with broader coverage including additional
protection for broken windows, falling objects and water damage. Theft is not covered under the
most basic forms of property insurance, and is generally only offered in more detailed, and thus
expensive, property insurance packages. Reddin, W.J (1970).
Always carefully check a policy for exactly what is covered, and don’t assume anything is
covered if it is not explicitly stated. In addition to coverage, always check for liability limits,
deductibles and co-pays as well as examining what the process for resolving a claim is. Finally,
examine how an insurance policy determines what the value of any property you claim is. Some
plans will reimburse you for the cost of replacing the property (guaranteed replacement cost),
while others will only reimburse you for the current (depreciated) value of the property.
Tax Law - This overview provides some basic information on business form and federal
taxation. There are other options and details that apply to each form of business. For example, a
limited liability company may choose to be treated as a corporation for tax purposes because it
provides advantages in terms of deductions that a partnership tax status does not. Similarly
consider for Sole Proprietorship, partnership, S corporation (entity with not more than 75
stakeholders) and C Corporation (entity with unlimited number of stakeholders)

Management Science
Business Ethics
Business ethics is a form of applied ethics or professional ethics that examine ethical principle
and moral or ethical problems that arise in a business environment. It applies to all aspects of
business conduct and is relevant to the conduct of individuals and business organizations as a
whole. Applied ethics is a field of ethics that deals with ethical question in many fields such as
medical, technical, legal, and business ethics. Rosener, J. B (1990).
Why Business Ethics?
Ethics in business is necessary because business can become unethical, and there is plenty of
evidence as in today on unethical corporate practice. Even Adam Smith opened that ‘people of
the same trade seldom meet together, even for merriment and diversion, but the conversation
ends in a conspiracy against the public, or in some contrivance to raise prices’ Business does not
operate in a vacuum. Firms and corporations operate in the social and natural environment. By
virtue of existing in the natural and social environment, business is duty bound to be accountable
to the natural and social environment in which it survives. Irrespective of the demand and
pressure upon it, business by virtue of its existence is bound to be ethical, for at least two
reasons: one, because whatever the business does affect its stakeholders and two, because every
of the juncture of action has trajectories of ethical as well as unethical paths wherein the
existence of the business is justified by ethical alternatives it responsibility chooses. One of the
condition that brought business ethics to the forefront is the demise of small scale, high trust and
face –to-face enterprises and emergence of huge multinational corporate structures capable of
drastically affecting everyday lives of the masses.
Overview of Ethics Issues
There are some common issues in business ethics,
Philosophy of business: One of the aims of this, issues is to maximum return to the shareholders,
then should be seen unethical for a company consider the interests and right of anyone else.

Management Science
Corporate social responsibility: An umbrella term under which the ethical right and duties
existing between companies and society is debated.
Moral right: Issues regarding moral rights and duties between a company and its shareholders
fiduciary responsibility, stakeholder concept v Shareholders concept.
Industrial espionage: Ethical issues concerning relations between different companies: e.g.
hostile take over’s, industrial espionage.
Political contribution: Political contributions made by corporations.
Corporate manslaughter: Law reform, such as ethical debate over introducing a crime of
corporate manslaughter.
Marketing instruments: The misuse of corporate ethics polices as marketing instruments.

Management Science
Unit 6 – Contemporary Management Practice
Concept of MIS
A management information system (MIS) is an information system used for decision-making,

and for the coordination, control, analysis, and visualization of information in an organization.
The study of management information systems examines people, processes and technology in an
organizational context. In a corporate setting, the ultimate goal of the use of a management
information system is to increase the value and profits of the business.
The following are types of information systems used to create reports, extract data, and assist in
the decision making processes of middle and operational level managers.
 Decision support systems (DSS) are computer program applications used by middle and
higher management to compile information from a wide range of sources to support problem
solving and decision making. A DSS is used mostly for semi-structured and unstructured
decision problems.
 Executive information systems (EIS) is a reporting tool that provides quick access to
summarized reports coming from all company levels and departments such as accounting,
human resources and operations.
 Marketing information systems are management Information Systems designed specifically

for managing the marketing aspects of the business.
 Accounting information systems are focused accounting functions.
 Human resource management systems are used for personnel aspects.
 Office automation systems (OAS) support communication and productivity in the enterprise
by automating workflow and eliminating bottlenecks. OAS may be implemented at any and
all levels of management.
 School Information Management Systems (SIMS) cover school administration, often

including teaching and learning materials.

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 Enterprise resource planning (ERP) software facilitates the flow of information between all
business functions inside the boundaries of the organization and manage the connections to
outside stakeholders
 Local Databases, can be small, simplified tools for managers and are considered to be a
primal or base level version of a MIS.
Enterprise Applications
 Enterprise systems—also known as enterprise resource planning (ERP) systems—provide

integrated software modules and a unified database that personnel use to plan, manage, and
control core business processes across multiple locations. Modules of ERP systems may
include finance, accounting, marketing, human resources, production, inventory
management, and distribution
 Supply chain management (SCM) systems enable more efficient management of the supply
chain by integrating the links in a supply chain. This may include suppliers, manufacturers,
wholesalers, retailers, and final customers
 Customer relationship management (CRM) systems help businesses manage relationships
with potential and current customers and business partners across marketing, sales, and
service
 Knowledge management system (KMS) helps organizations facilitate the collection,
recording, organization, retrieval, and dissemination of knowledge. This may include
documents, accounting records, unrecorded procedures, practices, and skills. Knowledge
management (KM) as a system covers the process of knowledge creation and acquisition
from internal processes and the external world. The collected knowledge is incorporated in
organizational policies and procedures, and then disseminated to the stakeholders.
Advantages
 Improve an organization's operational efficiency, add value to existing products, engender

innovation and new product development, and help managers make better decisions.

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 Companies are able to identify their strengths and weaknesses due to the presence of revenue
reports, employees' performance record etc. Identifying these aspects can help a company
improve its business processes and operations.
 Giving an overall picture of the company.
 Acting as a communication and planning tool.
 The availability of customer data and feedback can help the company to align its business
processes according to the needs of its customers. The effective management of customer
data can help the company to perform direct marketing and promotion activities.
 MIS can help a company gain a competitive advantage.
 MIS reports can help with decision-making as well as reduce downtime for actionable items.
Disadvantages
 Retrieval and dissemination is dependant on technology hardware and software.

 Potential for inaccurate information.
Concept of MRP
Material requirements planning (MRP) is a computer-based inventory management system

designed to assist production managers in scheduling and placing orders for items of dependent
demand. Dependent demand items are components of finished goods—such as raw materials,
component parts, and subassemblies—for which the amount of inventory needed depends on the
level of production of the final product. For example, in a plant that manufactured bicycles,
dependent demand inventory items might include aluminum, tires, seats, and bike chains.
MRP was expanded to include information feedback loops so that production personnel could
change and update the inputs into the system as needed. The next generation of MRP, known as
Manufacturing Resources Planning or MRP II, also incorporated marketing, finance,
accounting, engineering, and human resources aspects into the planning process. MRP is used to
generate material requirements and help production managers plan capacity. MRP II systems
often include simulation capabilities so managers can evaluate various options.

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The information input into MRP systems comes from three main sources: a bill of materials, a
master schedule, and an inventory records file. The bill of materials is a listing of all the raw
materials, component parts, subassemblies, and assemblies required to produce one unit of a
specific finished product. Each different product made by a given manufacturer will have its own
separate bill of materials. The bill of materials is arranged in a hierarchy, so that managers can
see what materials are needed to complete each level of production. MRP uses the bill of
materials to determine the quantity of each component that is needed to produce a certain
number of finished products. From this quantity, the system subtracts the quantity of that item
already in inventory to determine order requirements.
The main outputs from MRP include three primary reports and three secondary reports. The
primary reports consist of: planned order schedules, which outline the quantity and timing of
future material orders; order releases, which authorize orders to be made; and changes to planned
orders, which might include cancellations or revisions of the quantity or time frame. The
secondary reports generated by MRP include: performance control reports, which are used to
track problems like missed delivery dates and stock outs in order to evaluate system
performance; planning reports, which can be used in forecasting future inventory requirements;
and exception reports, which call managers' attention to major problems like late orders or
excessive scrap rates.
Advantages & Disadvantages
The main benefits include helping production managers to minimize inventory levels and the
associated carrying costs, track material requirements, determine the most economical lot sizes
for orders, compute quantities needed as safety stock, allocate production time among various
products, and plan for future capacity needs.
There is a large range of people in a manufacturing company that may find the use of
information provided by an MRP system very helpful. Production planners are obvious users of
MRP, as are production managers, who must balance workloads across departments and make
decisions about scheduling work.

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Plant foremen, responsible for issuing work orders and maintaining production schedules, also
rely heavily on MRP output. Other users include customer service representatives, who need to
be able to provide projected delivery dates, purchasing managers, and inventory managers.
MRP systems also have several potential drawbacks. First, MRP relies upon accurate input
information. If a small business has not maintained good inventory records or has not updated its
bills of materials with all relevant changes, it may encounter serious problems with the outputs of
its MRP system.
The problems could range from missing parts and excessive order quantities to schedule delays
and missed delivery dates. At a minimum, an MRP system must have an accurate master
production schedule, good lead-time estimates, and current inventory records in order to function
effectively and produce useful information.
Another potential drawback associated with MRP is that the systems can be difficult, time
consuming, and costly to implement. Many businesses encounter resistance from employees
when they try to implement MRP.
Concept of JIT
Just-in-time (JIT) inventory system is a management strategy that aligns raw material orders
from suppliers directly with production schedules. Companies use this inventory strategy to
increase efficiency and decrease waste by receiving goods only as they need them for the
production process, which reduces inventory costs. This method requires producers to forecast
demand accurately. Just-in-time (JIT) manufacturing is also known as the Toyota Production
System (TPS) because the car manufacturer Toyota adopted the system in the 1970s.
The success of the JIT production process relies on steady production, high-quality
workmanship, no machine breakdowns, and reliable suppliers.
Example - Toyota is famous for its implementation of a JIT inventory system. Toyota orders
parts only when it receives new orders from customers. The company started this method in the
1970s, and it took over 15 years to perfect. Several elements of JIT manufacturing need to occur
for Toyota to succeed. The company must have steady production, high-quality workmanship, no

Management Science
machine breakdowns at the plant, reliable suppliers, and quick ways to assemble machines that
assemble the vehicles.
Advantages
JIT inventory systems have several advantages over traditional models. Production runs are
short, which means that manufacturers can quickly move from one product to another. This
method reduces costs by minimizing warehouse needs. Companies also spend less money on raw
materials because they buy just enough resources to make the ordered products and no more.
Disadvantages
The disadvantages of JIT inventory systems involve disruptions in the supply chain. If a raw
materials supplier has a breakdown and cannot deliver the goods on time, that supplier can shut
down the entire production process. A sudden unexpected order for goods may delay the delivery
of finished products to clients.
Concept of TQM
Total Quality Management, TQM, is a method by which management and employees can
become involved in the continuous improvement of the production of goods and services. It is a
combination of quality and management tools aimed at increasing business and reducing losses
due to wasteful practices. TQM is a management philosophy that seeks to integrate all
organizational functions (marketing, finance, design, engineering, and production, customer
service, etc.) to focus on meeting customer needs and organizational objectives.
The simple objective of TQM is “Do the right things, right the first time, every time.” TQM is
infinitely variable and adaptable. TQM can be a powerful technique for unleashing employee
creativity and potential, reducing bureaucracy and costs, and improving service to clients and the
community.
Principles of TQM
Management Commitment
Plan (drive, direct);
Check (review);
Act (recognize, communicate, revise)

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Do (deploy, support, participate);
Employee Empowerment
Training;
Measurement and recognition;
Excellence teams
Suggestion scheme;
Fact Based Decision Making
SPC (statistical process control);

DOE, FMEA;
The 7 statistical tools;
TOPS (team-oriented problem solving)
Continuous Improvement
Excellence teams;
Systematic measurement and focus on CONQ;
Cross-functional process management;
Attain, maintain, improve standards
Customer Focus
Supplier partnership;
Service relationship with internal customers;
Never compromise quality;
Customer driven standards;
Steps for Managing a Transition into a new system of TQM -
Identifying tasks to be done
Creating necessary management structures
Developing strategies for building commitment
Designing mechanisms to communicate the change
Assigning resources

Management Science
Concept of Six sigma
The word Sigma is a statistical term that measures how far a given process deviates from
perfection.
The central idea behind Six Sigma: If you can measure how many "defects" you have in a
process, you can systematically figure out how to eliminate them and get as close to "zero
defects" as possible and specifically it means a failure rate of 3.4 parts per million or 99.9997%
perfect.
Features of Six Sigma
 Six Sigma's aim is to eliminate waste and inefficiency, thereby increasing customer
satisfaction by delivering what the customer is expecting.
 Six Sigma follows a structured methodology, and has defined roles for the participants.
 Six Sigma is a data driven methodology, and requires accurate data collection for the
processes being analyzed.
 Six Sigma is about putting results on Financial Statements.
 Six Sigma is a business-driven, multi-dimensional structured approach for −
o Improving Processes
o Lowering Defects
o Reducing process variability
o Reducing costs
o Increasing customer satisfaction
o Increased profits
Six Sigma revolves around a few key concepts -
 Critical to Quality − Attributes most important to the customer.
 Defect − Failing to deliver what the customer wants.
 Process Capability − What your process can deliver.

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 Variation − What the customer sees and feels.
 Stable Operations − Ensuring consistent, predictable processes to improve what the

customer sees and feels.
 Design for Six Sigma − Designing to meet customer needs and process capability.
Six Sigma focuses first on reducing process variation and then on improving the process
capability.
Six Sigma offers six major benefits that attract companies −
 Generates sustained success
 Sets a performance goal for everyone
 Enhances value to customers
 Accelerates the rate of improvement
 Promotes learning and cross-pollination
 Executes strategic change
Concept of CMM
Capability Maturity Model is used as a benchmark to measure the maturity of an organization's

software process. Also it was implemented to track the quality of the software development
system.

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Significance of CMM
Today CMM act as a "seal of approval" in the software industry. It helps in various ways to
improve the software quality.
 It guides towards repeatable standard process and hence reduce the learning time on how to
get things done
 Practicing CMM means practicing standard protocol for development, which means it not
only helps the team to save time but also gives a clear view of what to do and what to expect
 The quality activities gel well with the project rather than thought of as a separate event
 It acts as a commuter between the project and the team
 CMM efforts are always towards the improvement of the process
Limitations of CMM Models
 CMM determines what a process should address instead of how it should be implemented
 It does not explain every possibility of software process improvement
 It concentrates on software issues but does not consider strategic business planning, adopting
technologies, establishing product line and managing human resources
 It does not tell on what kind of business an organization should be in
 CMM will not be useful in the project having a crisis right now
Concept of Supply chain management
The main objective of supply chain management is to monitor and relate production, distribution,
and shipment of products and services. This can be done by companies with a very good and
tight hold over internal inventories, production, distribution, internal productions and sales.
Supply chain management aims at contributing to the financial success of an enterprise. It aims
at leading enterprises using the supply chain to improve differentiation, increase sales, and
penetrate new markets. The objective is to drive competitive benefit and shareholder value.
The key benefits of supply chain management are as follows −

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 Develops better customer relationship and service.
 Creates better delivery mechanisms for products and services in demand with minimum
delay.
 Improvises productivity and business functions.
 Minimizes warehouse and transportation costs.
 Minimizes direct and indirect costs.
 Assists in achieving shipping of right products to the right place at the right time.
 Enhances inventory management, supporting the successful execution of just-in-time stock

models.
 Assists companies in adapting to the challenges of globalization, economic upheaval,

expanding consumer expectations, and related differences.
 Assists companies in minimizing waste, driving out costs, and achieving efficiencies
throughout the supply chain process.
Concept of ERP
Enterprise resource planning or ERP software is a suite of applications that manages core
business processes, such as sales, purchasing, accounting, human resource, customer support,
CRM and inventory. It’s an integrated system as opposed to individual software designed
specifically for business process. ERP software solutions have increasingly gained traction
among enterprises both big and small for its centralized approach to business processes. With it,
you can collect, store, manage, and interpret data from various business units. Likewise, ERP is
used to automate back-office tasks and streamline cross-departmental workflows. When
optimized, the solution can drive efficiency, lower costs and increase profitability.
ERP used to be accessible only to large enterprises because of the capital hardware required like
servers and multiple workstations, and dedicated teams to handle its complex deployment,
upgrades, and maintenance. However, in Accenture’s 2019 ERP trends study, they predicted that

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SaaS ERP deployment is accelerating as a mainstream delivery model with cloud vendors
chipping away chunks of the market from legacy developers.
Today, SaaS technology enables vendors to also offer ERP solutions to small and medium
enterprises. Modules are sold separately or bundled as a plan, while hardware and technical
maintenance are managed by vendors. The features of ERP software may be pared down or
limited to a couple of functions but this still allows companies of all sizes to reap the benefits of
ERP software. Some of the reasons they implement these ERP platforms are to improve
business performance (64%), to position company for growth (57%), or to reduce working
capital (57%). In addition, startups and SMBs can now rely less on manpower to go about their
day-to-day operations.
Significance of ERP
To improve business performance
To position the company for growth
To reduce working capital
To better serve customers
To make employee jobs easier
To better integrate systems across multiple locations
To replace an old ERP or legacy system
To ensure reporting or regulatory compliance
To standardize global business operations
Advantages
 Integrated systems typically improve communication between departments and business

processes through data standardization and automated workflow processing.

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 Everyone uses the same source of data, so reporting becomes more consistent, accurate, and
timely.
 The various systems share a common data methodology, so the data is consistent across
departments, business units, regions, and countries.
 Many ERP systems include an integrated reporting application. By using this reporting
application, customers can quickly gain insight into data that may not have been previously
available.
Concept of Performance Management
Performance management is a much broader and a complicated function of HR, as it

encompasses activities such as joint goal setting, continuous progress review and frequent
communication, feedback and coaching for improved performance, implementation of employee
development programmes and rewarding achievements. Performance management can be
regarded as a systematic process by which the overall performance of an organization can be
improved by improving the performance of individuals within a team framework. It is a means
for promoting superior performance by communicating expectations, defining roles within a
required competence framework and establishing achievable benchmarks. Performance
Management System includes the following components:
1. Performance Planning: Performance planning is the first crucial component of any

performance management process which forms the basis of performance appraisals.
Performance planning is jointly done by the appraisee and also the reviewee in the beginning
of a performance session. During this period, the employees decide upon the targets and the
key performance areas which can be performed over a year within the performance budget.,
which is finalized after a mutual agreement between the reporting officer and the employee.
2. Performance Appraisal and Reviewing: The appraisals are normally performed twice in a
year in an organization in the form of mid reviews and annual reviews which is held in the
end of the financial year. In this process, the appraisee first offers the self filled up ratings in
the self appraisal form and also describes his/her achievements over a period of time in
quantifiable terms. After the self appraisal, the final ratings are provided by the appraiser for

Management Science
the quantifiable and measurable achievements of the employee being appraised. The entire
process of review seeks an active participation of both the employee and the appraiser for
analyzing the causes of loopholes in the performance and how it can be overcome. This has
been discussed in the performance feedback section.
3. Feedback on the Performance followed by personal counseling and performance
facilitation: Feedback and counseling is given a lot of importance in the performance
management process. This is the stage in which the employee acquires awareness from the
appraiser about the areas of improvements and also information on whether the employee is
contributing the expected levels of performance or not. The employee receives an open and a
very transparent feedback and along with this the training and development needs of the
employee is also identified. The appraiser adopts all the possible steps to ensure that the
employee meets the expected outcomes for an organization through effective personal
counseling and guidance, mentoring and representing the employee in training programmes
which develop the competencies and improve the overall productivity.
4. Rewarding good performance: This is a very vital component as it will determine the work
motivation of an employee. During this stage, an employee is publicly recognized for good
performance and is rewarded. This stage is very sensitive for an employee as this may have a
direct influence on the self esteem and achievement orientation. Any contributions duly
recognized by an organization helps an employee in coping up with the failures successfully
and satisfies the need for affection.
5. Performance Improvement Plans: In this stage, fresh set of goals are established for an
employee and new deadline is provided for accomplishing those objectives. The employee is
clearly communicated about the areas in which the employee is expected to improve and a
stipulated deadline is also assigned within which the employee must show this improvement.
This plan is jointly developed by the appraisee and the appraiser and is mutually approved.
6. Potential Appraisal: Potential appraisal forms a basis for both lateral and vertical movement
of employees. By implementing competency mapping and various assessment techniques,
potential appraisal is performed. Potential appraisal provides crucial inputs for succession
planning and job rotation.

Management Science
Concept of BPO
Business Process Outsourcing (BPO) is outsourcing of business functions generally performed

by white collar and clerical employees to achieve various benefits such as cost savings, better
quality and ability to focus on core competence. BPO involves outsourcing processes that are not
core to a company, however, are essential for smooth operation of the company. The customer
transfers the complete responsibility of these functions to the vendor who guarantees certain
service quality standards. Such processes include customer service, payroll processing, inventory
management, etc.
BPO Constitutes the following processes in an organization –
Administrative support: Outsourcing of administrative support functions includes data entry,

document conversion, forms processing, document scanning, indexing, secretarial tasks support,
etc.
Customer relationship management: Customer service outsourcing includes outsourcing of

functions such as customer support, order taking, customer service, product support, technical
help desk, collections and market research. Refer to the report on Customer Service Outsourcing
for more details.
Document processes: Document process outsourcing includes outsourcing of customer facing,

technical, marketing and communications, financial accounting, and regulatory compliance
documents.
Finance and accounting: Finance and accounting outsourcing includes services such as internal
auditing, time and expense management, travel expenses, credit and debt analysis, collections,
invoicing, accounts payable, accounts receivable and billing-dispute resolution.
Human resources and training: Human resources (HR) is one of the most critical assets of a
company and companies need to carry out various tasks such as recruitment, training,
attrition/retention, database management, contract-worker management, etc., for their employees.
Carrying out these tasks through an internal HR department is costly and diverts the attention of

Management Science
the management from its core business issues. Hence, companies are now resorting to HR
outsourcing big time.
Intellectual property research and documentation: Outsourcing in intellectual property

research and documentation includes filing and drafting of patent applications, prior art research,
licensing support, and patent portfolio analysis.
Legal services: Legal process outsourcing (LPO) involves consulting, research, transcription,
documents management, billing, translation and other administrative and secretarial support
services required for various legal functions such as commercial litigation, arbitration and
mediation, appeals, government contracts, legal risk evaluation, etc.
Medical transcription: Medical transcription is writing down medical records dictated by

physicians and other healthcare professionals. These records include patient history and physical
reports, clinic notes, therapeutic procedures, clinical course, diagnosis, prognosis, discharge
summaries, etc.
Payroll maintenance and other transaction processing: This segment includes payroll,
payment, check, credit card and stock trade processing. Forester research predicts transaction
processing to be a large segment within the BPO industry soon, with a market size of USD 58
billion in 2008. Some vertical processes such as mortgage, loans and insurance claims processing
are also being outsourced.
Product development: Companies need to constantly innovate to remain competitive in the

market. With the increasing specialization of expertise required to carry out product
development, companies choose to outsource their R&D functions to vendors who have
expertise in a given field. Over the past few years, numerous MNCs have initiated offshoring
R&D to other countries including India which is emerging as a hub for R&D outsourcing.
Publishing: Publishing outsourcing involves outsourcing of publishing functions such as book

design, book digitization, e-publishing, drawings and graphics, indexing, journal administration,
etc.

Management Science
Research and analysis: Companies require data and its analysis for making informed strategic
decisions. These companies have started outsourcing their research and analysis requirements to
vendors who specialize in typical research and analysis work such data analytics, financial
analytics, market research, secondary research, primary research, industry overview, competitive
intelligence, etc.
Sales and marketing (including telemarketing): Sale and marketing outsourcing involves
delegating parts of sales and marketing functions such as cold calling, email pitches, telephone
surveys, lead generation, lead qualifying, appointment setting, sales team management, etc.
Security: Companies have to search for new technologies and employ qualified security
professionals to keep their data secure from theft. Maintaining these resources and implementing
a fool-proof security policy is a difficult task which can be better handled by experienced third
party security agencies. Security outsourcing involves management of investigative services,
physical security, electronic security systems, computer and network security, etc.
Supply chain management: Outsourcing in supply chain management involves logistics,

procurement, warehouse management, contract management, supply chain relationship
management, etc.
Concept of Business process Re-engineering
The Business Process Reengineering or BPR is the analysis and redesign of core business
processes to achieve the substantial improvements in its performance, productivity, and quality.
The business process refers to the set of interlinked tasks or activities performed to achieve a
specified outcome.
Simply, the business process reengineering means to change the way an individual performs the
work such that better results are accomplished. The purpose of business process reengineering is
to redesign the workflows in order to dramatically improve the customer service, achieve higher
levels of efficiency, cut operational costs and become a world-class competitor.
The business process reengineering involves a series of steps. These are:

Management Science
Step 1: Define Objectives and Framework
Step 2: Identify Customer Needs
Step 3: Study the existing business process
Step 4: Formulate a redesign business plan
Step 5: Implement the Redesign Plan
The business process is required to be reengineered because of the following reasons:
 The processes the company is using might have become outdated or holds no relevance in the
current market scenario.
 Often, the sub-divisions in the organization aims at improving their respective division
performance and overlook the resultant effects on the other departments. This might lead to
the underperformance of the firm as a whole.
 Due to the departmentalization, each employee focuses on the performance of his respective
department and may overlook the critical issues emerging in other areas of the firm, and
therefore, the need for re-engineering arises so that the role of the employees could be
broadened and shall be made more responsible towards the firm.
 The existing business process could be lengthy, time-consuming, costly, obsolete, therefore,
is required to be redesigned to match it with the current business requirements.
 The technology keeps on updating and in order to catch up with it, reengineering is a must.
Thus, the business process reengineering focuses on obtaining the quantum gains in terms of cost,
time, output, quality and responsiveness towards customers. Also, it emphasizes on simplifying
and streamlining the business process by eliminating the unnecessary or time-consuming business
activities and speeding up the workflow by making the use of high-tech systems.

Management Science
Concept of Bench Marking
Benchmarking is defined as the “process o f continuously comparing and measuring an

organisation with business leaders anywhere in the world to gain information that will help the
organisation take action to improve its performance”. Also “Benchmarking is the process of
comparing something or someone with best practice”. Best practices are collections o f activities
within an organisation that are done very well and ultimately, are recognised as such by others.
Benchmarking is an advanced quality improvement methodology, which may be integrated into
a TQM system.
Requirements for a successful benchmarking Model
A benchmarking model should have logical flow o f ideas. The attributes o f the model should be
clear so that people can describe it to others and the listener can understand in order to translate
into action. A benchmarking model should have the following requirements built in:
• A clear understanding o f benchmarking requirements
• Identification o f benchmarking team
• Use o f effective project planning tools and techniques
• The model has to create a set o f expectations regarding the information; how it is to be
gathered, reported and used to review and adjust progress o f activity.
• Identification and analysis o f gaps.
• Feedback provision to take action and recycle.
In general there are four types o f benchmarking:
Internal Benchmarking - Internal benchmarking means comparison o f internal operations

between different divisions or similar functions in different operating units within an
organisation. Internal benchmarking compares similar internal functions within an organisation,
and it often serves as a pilot project for conducting external benchmarking.

Management Science
Competitive Benchmarking - Competitive benchmarking compares a work process with that o f

the best competitor in the same market. It reveals the performance measure levels to be
surpassed. Competitive benchmarking is basically benchmarking against external direct product
competitors.
Functional Benchmarking - Functional benchmarking compares a work function to that o f the

functional leader in the same industry or cross-industry. Functional benchmarking is done with
functional competitors or industry leader firms, even if the industries themselves are dissimilar.
Generic Benchmarking - This focuses on the best work processes. Instead o f focusing on a
company’s business practices, similar procedures and functions are benchmarked.
Concept of Balance Score Card
A balanced scorecard is a performance metric used in strategic management to identify and

improve various internal functions of a business and their resulting external outcomes. It is used
to measure and provide feedback to organizations. Data collection is crucial to providing
quantitative results, as the information gathered is interpreted by managers and executives, and
used to make better decisions for the organization.
The balanced scorecard is used to attain objectives, measurements, initiatives, and goals that
result from these four primary functions of a business. Companies can easily identify factors
hindering business performance and outline strategic changes tracked by future scorecards.
The Four Legs of the Balanced Scorecard

Information is collected and analyzed from four aspects of a business:
1. Learning and growth are analyzed through the investigation of training and knowledge
resources. This first leg handles how well information is captured and how effectively
employees utilize the information to convert it to a competitive advantage over the industry.
2. Business processes are evaluated by investigating how well products are manufactured.
Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or
waste.

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3. Customer perspectives are collected to gauge customer satisfaction with quality, price, and
availability of products or services. Customers provide feedback about their satisfaction with
current products.
4. Financial data such as sales, expenditures, and income are used to understand financial
performance. These financial metrics may include dollar amounts, financial ratios, budget
variances, or income targets.
These four legs encompass the vision and strategy of an organization and require active
management to analyze the data collected. The balanced scorecard is thus often referred to as a
management tool rather than a measurement tool.

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Management Science

1 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

2 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

Unit 1 – Introduction to Management

Management is what managers do. A manager’s job is to ensure good

Management definition expressed by different experts based on their view of

Henry Fayol – ‘to manage is to forecast and plan, to organize, to command, to co

Peter F Drucker – ‘management is concerned with the systematic organization of

i) Management is multidimensional (3D) -

3 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

achieved and further this work in terms of problems to be solved, decisions to be

Operations management – every organization aims to complete the work in time

ii) Goal Oriented Process –

iii) Continuous Process –

iv) Group activity –

Every organization has large number of employees and it is important to realize

4 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

organizational goals. Management guides the individuals towards the right

In order to be successful, every organization has to adapt to its environment.

vi) Intangible force –

Management has been developed as a separate discipline yet it draws knowledge,

ii) Management is dynamic in nature –

5 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

iii) Relative, not absolute principles –

iv) Management as profession –

Management is completely a universal phenomenon but the management principles

vi) Management is a system of authority –

vii) Management is both a science and an art –

Management has organized a body of knowledge consisting of well – defined

6 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

i) Helps in achieving group goals –

ii) Optimum utilization of resources –

iii) Reduces cost –

7 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

input by proper planning, organizing and controlling of the resources helping in

iv) Establishes sound organization –

One of the objectives of management is to establish sound organization which

Management keeps in touch with the changing environment as it is dynamic in

vi) Essential for prosperity of society –

A good management makes a difficult task easier by avoiding wastage of scarce

8 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

Management has been described as a social process involving responsibility for

Different experts have classified functions of management. According to George

According to Henry Fayol, ‘to manage is to forecast and plan, to organize, to

For theoretical purposes, it is convenient to

9 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

According to KOONTZ, “Planning is deciding in advance - what to do, when to do

It is the function of manning the positions in organization structure and keeping it

10 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

 Manpower Planning (estimating man power in terms of searching, choose

 Supervision - act of watching & directing work & workers.

11 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

a. Establishment of standard performance.

Levels of Management – Top, Middle and Lower Management

The number of levels in

Evaluation of Management Thought

12 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

Major classification of Management Approaches & their Contributors

Classical Approach Scientific Management F.W.Taylor

13 Ms. Deepthi Lankoti, Asst Professor – B.Tech, MBA

7’s Framework Mickensy

The concept of SM was first introduced by Frederick Winslow Taylor in USA in