UNIT – I

Management: - Management in all business & organizational activities is the act of getting people together to accomplish
desired goals & objectives using available resources efficiently & effectively. Management comprises planning, organising,
staffing, leading or directing & controlling an organisation or effort for the purpose of accomplishing a goal.
Definitions: -
1. “Management is the art of getting things done through others” – Mary Parker Follet.
2. “Management is guiding human & physical resources in to dynamic organisational units which attain their objectives to the
satisfaction of those served within a high degree of moral & sense of attainment on the part of those rendering services” –
American Marketing Association.
Nature or scope or characteristics: -
1. Management is a group activity.
2. Management is goal oriented.
3. Management is a factor of production.
4. Management is universal in character.
5. Management is needed at all levels of the organisation.
6. Management is distinct process.
7. Management is a system of authority.
8. Management is a dynamic function.
9. Management is an art as well as science.
10. Management is a profession.
Levels of Management: -
1. Top level.
2. Middle level.
3. Lower level.

Managerial Roles: -
Managerial Skills: -
1. Conceptual skills.
2. Human Relations skills.
3. Technical skills.
4. Communication skills.
5. Administrative skills.
6. Leadership skills.
7. Problem solving skills.
8. Decision making skills.
Managerial Functions: - The functions which describe managerial job, when put together make up the management process.
This process is analysed in to key functions of management. As all the functions are not equally important for all managers,
time spent by them for each of these functions varies according to their levels in the organisation. The managerial functions
are,
1. Planning: – Planning refers to anticipate the opportunity, problems & conditions & choosing from among the alternative
future courses of action. It includes the following activities.
a. Forecasting.
b. Establishing objectives.
c. Programming.
d. Scheduling.
e. Budgeting.
f. Establishing procedures.
g. Developing policies.
2. Organizing: - It is the process of defining & grouping of activities & creating authority relationship among them. It consists
of,
a. Developing the organisation structure.
b. Delegating authority.
c. Establishing relations.
3. Staffing: - It involves selection, training & development, compensation & appraisal of subordinates by the manager.
4. Directing: - It involves managing people & the work through the means of motivation, proper leadership, effective
communication & co – ordination.
5. Coordinating: - It involves bringing proper coordination b/w activities & workers.
6. Controlling: - It enables management to ensure that achievement is in accordance with the established plans. It involves,
a. Establishing performance standards.
b. Performance evaluation.
c. Corrective action.
Scientific Management: - Scientific Management also called Taylorism. It was a theory of management that analyzed &
synthesized workflows. Its main objective was improving economic efficiency, especially labour productivity. Its development
began with Fredrick Winslow Taylor in the 1880’s & 1890’s with in the manufacturing industries.
Definition: - “Scientific Management means knowing exactly what you want men to do & seeing that they do it in the best
and the cheapest way” – F.W.Taylor.
Nature/Features: -
1. It is systematic, analytical & objective approach to solve industrial problems.
2. It implies scientific techniques in method of work, recruitment, selection & training of workers.
3. It attempts to discover the best method of doing a work at a cheapest cost.
4. It discards the age of old methods of rule of thumb.
5. It involves a complete change in the mental attitude of workers as well as the management.
6. It lays emphasis on all factors of production, men, material & technology.
7. It attempts to develop each man to his greatest efficiency & prosperity.
Aims & Objectives: -
1. To achieve increased production, reduced costs & maximum efficiency.
2. To provide trained & efficient workforce.
3. To standardize methods of work, material & equipment.
4. To develop science for each of element of a man’s work.
5. To replace old rule of thumb.
6. To select, train, teach & appoint workmen scientifically.
7. To promote co – operation.
8. To ensure division of work & responsibility.
Phases/Principles: -
1. The development of a science for each element of man’s work which will replace the old rule of thumb method.
2. Scientific selection & training of workmen instead of the old practice of allocating the worker to choose his own work & to
train himself.
3. Co – operation of the management with the workers so as to ensure all the work being done in accordance with the
principles of the science which has been developed.
4. Almost equal division of the work & the responsibility b/w the management & the workmen.
Benefits: -
1. Increase in production & productivity.
2. Reduction in cost of production.
3. Better quality products.
4. Proper selection & training of workers.
5. Better working conditions.
6. Better utilization of resources.
Criticisms: -
I. Worker’s Criticisms: -
1. Speeding up of workers.
2. Loss of workers skill & initiative.
3. Unemployment.
4. Discrimination b/w workers – Efficient workers get more wages.
II. Employer’s Criticisms: -
1. Expensive.
2. Reorganisation.
3. Unsuitable for small – scale units.
4. Over production.
III. Psychologist’s Criticisms: -
1. Mechanical in nature.
2. Speed up of workers.
3. Monotony.
4. Absence of non – wage incentives.
Administrative Principles of Management: - A principle refers to a fundamental truth. It serves as a guide to thought &
actions. Management principles are the statements of fundamental truth based on logic which provides guidelines for
managerial decision making & actions. These principles are derived,
a. On the basis of observation & analysis i.e. practical experience of managers.
b. By conducting experimental studies.
14 Principles of Management described by Henri Fayol: -
1. Division of work.
2. Authority & responsibility.
3. Delegation of work & authority.
4. Unity of direction – One plan for group of activities.
5. Unity of command – Orders & instructions from only one boss.
6. Equity – Fairness, Kindness & justice.
7. Order – Proper & systematic arrangement of things & people.
8. Discipline – Sincerity, obedience.
9. Initiative – Workers should be encouraged to take initiative in the work assigned to them.
10. Fair remuneration – Remuneration should be fair & satisfactory.
11. Stability – Employees shouldn’t be moved frequently.
12. Scalar chain – Ranging from authority to the lowest.
13. Centralization & Decentralization.
14. Espirit De’ Corps – Team spirit.
Features of Principles of Management: -
1. Principles of management are universal.
2. Principles of management are flexible.
3. Principles of management have a cause & effect relationship.
4. Principles of management aim at influencing human behavior.
5. Principles of management are of equal importance.
Business: - The business is an activity which is primarily pursued with the object of earning profits. A business activity
involves production, exchange of goods & services to earn profits or earn a living. The word business means a state of being
busy.
Features or Nature: -
1. Entrepreneur.
2. Economic activities.
3. Exchange of goods & services.
4. Profit motive.
5. Risk & uncertainty.
6. Continuity of transactions.
7. Creation of utility.
8. Organisation.
9. Financing.
10. Consumer satisfaction.
Essentials of successful business: -
1. Setting objectives.
2. Proper planning.
3. Proper financial planning.
4. Marketing system.
5. Dynamic leadership.
6. Research.
10 Qualities of a successful businessmen: -
1. Knowledge of business.
2. Impressive personality.
3. Hard working.
4. Co – operative.
5. Courageous.
6. Initiative & decision making power.
7. Relations with employees & customers.
8. Honesty.
9. Responsibility.
10. Discipline.
Sole Proprietorship: - Sole – trader is the oldest & most commonly used form of business organisation. In this an individual is
at the helm of affairs. He makes all the investments, shares, risks, takes all profits, manages & controls the business himself.
The sole trader mainly depends upon his own resources. The business is normally run with the help of family members but
he may employ persons to look after the day – to – day activities of the business.
Characteristics: -
1. Individual initiative.
2. Unlimited liability.
3. Full management & control.
4. Secrecy.
5. Proprietor & Proprietorship are one.
6. Limited area of operations.
Advantages: -
1. Easy in formation.
2. Better control.
3. Flexibility in operations.
4. Secrecy.
5. Quick decision making.
Disadvantages: -
1. Limited resources.
2. Limited managerial liability.
3. Uncertain continuity.
4. Limited scope for employees.
5. More risk involved.
Partnership: - A partnership is an association of two or more persons to carry on as co – owners, a business & to share its
profits & losses. When the business expands in size, the proprietor finds it difficult to manage the business & is forced to take
more outsiders who will not only provide additional capital but also assist him in managing the business on sound lines.
Definition: - “The relation b/w persons who have agreed to share profits of a business carried on by all or any of them acting
for all” – Section 4 of Partnership Act, 1932.
Characteristics: -
1. Association of two or more persons.
2. Contractual relationship.
3. Earning of profits.
4. Existence of business.
5. Unlimited liability.
6. Utmost good faith.
7. Restriction on transfer of shares.
8. Partners & Partnership are one.
Kinds: -
1. Active Partner – Who takes active part in the day – to – day work activities.
2. Sleeping Partner – Who contributes capital, shares profits, but not take part in the work concern.
3. Nominal Partner – Who just lends his name for the firm no contribution & no share in business.
4. Partner in Profits – Shares profits but not losses, not allowed to take part in management of business.
5. Partner by Estoppel or Holding out – Person is not a partner but poses himself as a partner either by words or by acts.
6. Secret Partner – His membership is kept secret from outsiders.
7. Sub Partner – Associating anybody in share or giving a part of his share to stranger.
8. Minor as a partner – Person who has not yet attained the age of majority.
Ideal Partnership Elements: -
1. Understanding among partners.
2. Good faith.
3. Sufficient capital.
4. Long duration.
5. Balance of skill & talent.
6. Written agreement.
7. Registration.
Advantages: -
1. Easy to form.
2. Large resources.
3. More credit – standing.
4. Sharing of risk.
5. More growth & expansion.
6. Flexibility in operations.
Disadvantages: -
1. Unlimited liability.
2. Limited resources.
3. Mutual distrust.
4. Limitations on transfer of share.
5. Lack of prompt decisions.
Rights of a Partner: -
1. To take part in business.
2. Right to be consulted.
3. Right to inspect records.
4. Equal share in profits.
5. No new partner admitted without consultation.
Duties of a Partner: -
1. Honesty & discipline.
2. Sharing losses.
3. Correct accounts.
4. No competing business.
5. No secret profit.
Suitability: -
1. Managerial requirement & capital requirement is there.
2. Suitable for small & medium scale concerns.
3. Direct contact with the customers.
Differences b/w Sole Trading & Partnership
Elements Sole Trading Partnership
1. Membership 1. Owned & controlled by only one 1. Two or more persons known as partners.
person.
2. Agreement 2. Does not require any formal 2. An agreement is required.
agreement.
3. Registration 3. No registration is required. 3. Needs registration to get certain
advantages.
4. Management 4. Controlled by one person only and he 4. All partners have equal rights & all of them
is the final authority. can participate in management.
5. Secrecy 5. Complete secrecy in the business. 5. Fear of leaking them out.
6. Risk 6. The whole risk is shared by the sole 6. Shared by all the partners in proportion of
trader. their shares.
7. Capital 7. Only one persons resources used in the 7. All the partners contribute towards capital
business. of the firm.
8. Uncertainty 8. The life of sole trading business is 8. The life of partnership is more certain.
more uncertain.
Joint Stock Company: - Joint Stock Company emerges from the limitations of Partnership. The main principle of Joint Stock
Company firm is to provide opportunity to take part in business with as low investments as possible say Rs 1,000/-. This
system is very useful for large undertakings which require huge capital. Here the capital is divided in to certain units, each
unit is called a share. The price of each share is kept so low that even a common man can find it comfortable to pick it up. The
word company has a Latin origin com means “come together”, pany means “bread”. Joint Stock Company means, people
come together to earn their livelihood.
Features: -
1. Artificial person.
2. Separate legal existence.
3. Voluntary association of persons.
4. Limited liability.
5. Capital is divided in to shares.
6. Transferability of shares.
7. Common seal.
8. Continuous dealings.
9. Ownership & management are separate.
10. Name ends with limited.
Formation: -
1. Seek permission from the Securities Exchange Board of India (SEBI).
2. File prospects with Registrar.
3. Collecting minimum subscription.
4. Allotting shares.
5. Apply to Registrar for the certificate of commencement of business.
Advantages: -
1. Mobilisation of larger resources.
2. Separate legal entity.
3. Limited liability.
4. Transferability of shares.
5. Liquidity of investments.
6. Inculcates habit of savings & investments.
7. Continued existence.
Disadvantages: -
1. Formation is a long procedure.
2. High Government interference.
3. Delay in decision making.
4. Lack of responsibility.
5. Expecting higher prices.
6. Higher taxes.
Suitability: -
1. Where there is need for high development.
2. Where there is need for large funds.
3. Where there is need for specialization.
4. Where there is need for Government control or interference.
Documents for Company Formation: -
1. Memorandum of Association – It consists the company name, its objectives, liabilities of people, capital issues & the
subscription of shares etc.
2. Articles of Association – It consists the amount of share capital, types of shares, transfer of shares, board meetings
procedure, rights & duties of directors, appointment & removal of directors, their remuneration, accounts audit, common
seal etc.
3. Prospectus – It will be prepared to invite offers from public for subscription or purchase of shares. It consists of name &
address of office, nature of business, types of shares, opening & closing date of public offer, amount of reserve fund, names
of auditors etc.
Private Limited v/s Public Limited Companies
Elements Private Company Public Company

1. Minimum Paid up Capital. 1. Minimum 1,00,000. 1. Minimum 5,00,000.

2. Minimum number of shares. 2. Minimum 2. 2. At least 7.
3. Maximum number of members. 3. Restricted to 50. 3. No restrictions.
4.Transferability of shares. 4. Complete restriction. 4. No restrictions.
5. Issue of Prospectus. 5. Can’t issue. 5. Can issue.
6. Number of Directors. 6. 2 directors. 6. At least 3.
7. Qualification shares. 7. Need not sign an undertaking to 7. Required to sign an undertaking
acquire qualification shares. to acquire qualification shares.
8. Commencement of Business. 8. Immediately after incorporation. 8. Certificate of commencement is
needed.
9. Further issue of Shares. 9. Will not be there. 9. Only method to generate money.
10. Quorum. 10. Two members present 10. Five members present
personally. personally.
11.Managerial Remuneration. 11. No restrictions. 11. Cannot exceed 11% net profits.
12. Special Privileges. 12. Enjoys some special privileges. 12. Not available.

UNIT – II
Financial Management: - Financial management may be defined as planning, organising, directing and controlling the
financial activities of an organisation. According to Guthman and Dougal, financial management means, “the activity
concerned with the planning, raising, controlling and administering of funds used in the business.” It is concerned with the
procurement and utilisation of funds in the proper manner.
Objectives: -
1. To ensure availability of sufficient funds at reasonable cost (liquidity).
2. To ensure effective utilisation of funds (financial control).
3. To ensure safety of funds by creating reserves, re-investing profits, etc. (minimisation of risk).
4. To ensure adequate return on investment (profitability).
5. To generate and build-up surplus for expansion and growth (growth).
6. To minimise cost of capital by developing a sound and economical combination of corporate securities (economy).
7. To coordinate the activities of the finance department with the activities of other departments of the firm (cooperation).
Interest: - Interest may be defined as “the paid money for the use of borrowed capital”. It may also be defined as “the income
produced by money which has been loaned”.
Simple Interest: - Simple Interest is directly proportional to time & total interest is payable at the end of specified period
usually one year.
A = P (1+in)
A = Accumulated Amount Final.
P = Principal Amount Initial.
i = Rate of Interest.
n = Number of years in the period.
1. Sarah borrows Rs 5,000 from her neighbour at an agreed simple interest rate of 12.5% p.a. She will pay back the loan in
one lump sum at the end of 2 years. How much will she have to pay her neighbour?
P = 5,000.
i = 0.125
n = 2.
A = P (1+in)
= 5,000 (1+0.125x2)
= 5,000 (1+0.25)
= 5,000 (1.25)
= 6,250 Rs.
2. Karthik deposits R 1000 into a special bank account which pays a simple interest rate of 7% p.a. for 3 years, how much will
be in her account at the end of the investment term?
P = 1,000.
i = 0.07
n = 3.
A = P (1+in)
= 1,000 (1+0.07x3)
= 1,000 (1+0.21)
= 1,000 (1.21)
= 1,210 Rs.
Compound Interest: - When the interest due at the end of the period is paid it becomes a part of the principal & itself earns
interest along with the principal, it is called compound interest.
C = P (1+i)n
If interest is paid more than once in a year i.e quarterly or semi annually etc, the formula is,
C = P (1+i/m)nxt
CAF = Compound Amount Factor.
P = Principal Amount.
i = Rate of Interest.
n = Number of years in the period.
m = Number of periods per year.
t = Number of periods per year.
1. Calculate Compound Interest when Rs 2,000 are lent at 9% interest rate for 3 years (being compounded semi – annually).
C = P (1+i/m)nxt
= 2,000 (1+0.09/2)3x2
 = 2,000 (1+0.045)6
= 2,000 (1.045)6
= 2,000 (1.31)
= 2,620 Rs.
2. Calculate Compound Interest when Rs 1,500 are lent at 4.3% interest rate for 6 years (being compounded quarterly).

C = P (1+i/m)nxt
= 1,500 (1+0.043/4)6x4
= 1,500 (1+0.01075)24
= 2,000 (1.01075)24
= 2,000 (1.29256)
= 1,938.84 Rs.
Equivalent Cash Flow Diagram: - The actual inflows & outflows of money are called cash flows. Without cash flow estimates
over a stated time period, no engineering economy study can be conducted. Every income of a company is considered as
inflow & every expenditure of a company is outflow. Cash inflows shows the positive effects & cash outflows show the
negative effects.
Net cash flow = Cash inflows – Cash outflows
Cash Flow Diagram: - A cash flow diagram is simply a graphical representation of cash flows drawn on a time scale. In cash
flow diagram time t=0 represents the present & t=1 represents the end of time period 1 & son on.
The direction of the arrows on the cash flow diagram is important. Vertical arrow pointing up indicates a positive cash flow,
while pointing down indicates a negative cash flow.
(+)

1 2

(-)
Annual Equivalent Method or Annuity Method: - In this method you will try to find out the annual expenditure value based
up on future and present values.
1. A = F [i/(1+i)n-1]
2. A = P [i(1+i)n/(1+i) n-1]
If both are given then value with present will be called as A1 and value with future will be called as A2. Then A = (A1-A2) +
Annual expenses
1. To finance the college education of a just born child, the parents expect that they need Rs 2,00,000 18 years from now.
They believe that they can earn 7% on their savings. How much should they put a side each year.
A2 = F [i/(1+i)n-1]
= 2,00,000 [0.07/(1+0.07)18-1]
= 2,00,000 [0.07/3.3799-1]
= 2,00,000 [0.0294]
= 5,880 Rs Rs
2. In a manufacturing concern for purchasing a machinery two alternatives are under consideration. We shall call them as
plan A & plan B. Evaluate the plans.

Particulars Plan A Plan B

Cost of machinery 50,000 1,20,000
Life time 20 years 40 years
Salvage Value 10,000 20,000
Annual expenses 9,000 6,000
Interest rate 11% 11%
Plan A
A1 = P [i(1+i)n/(1+i) n-1]
= 50,000 [0.11(1.11)20/(1.11) 20-1]
= 50,000 [0.11(8.062)/(8.062)-1]
= 50,000 [0.88682/7.062]
= 50,000 [0.12557]
= 6,278 Rs.
A2 = F [i/(1+i)n-1]
= 10,000 [0.11/(1+0.11)20-1]
= 10,000 [0.11/(1.11)20-1]
= 10,000 [0.11/8.062-1]
= 10,000 [0.11/7.062]
= 10,000 [0.015576]
= 155.76 Rs
Therefore A = (A1-A2) + Annual expenses
= 6,278.5 – 155.76 + 9,000
= 15,122.74 Rs
Plan B
A1 = P [i(1+i)n/(1+i) n-1]
= 1,20,000 [0.11(1.11)40/(1.11) 40-1]
= 1,20,000 [0.11(65)/(65)-1]
= 1,20,000 [7.15/64]
= 1,20,000 [0.1117]
= 13,406.25 Rs.
A2 = F [i/(1+i)n-1]
= 20,000 [0.11/(1+0.11)40-1]
= 20,000 [0.11/65-1]
= 20,000 [0.11/64]
= 20,000 [0.0017]
= 34.375 Rs
Therefore A = (A1-A2) + Annual expenses
= 13,406.25 – 34.375 + 6,000
 = 19,371.875 Rs
Of both the plans annuity in Plan A is minimum, therefore Plan A is the best one.
Present Worth Method: - In this method you will try to find out the present value based up on future and annuity values.
1. P = F [1/(1+i)n]
2. P = A [(1+i)n-1/i(1+i)n]
1. You want to buy a house 5 years after for Rs 1,50,000. Assuming 6% interest rate annually how much should you invest
today to yield 1,50,000 in 5 years.
P = F [1/(1+i)n]
= 1,50,000[1/(1+0.06)5]
= 1,50,000[1/(1.06)5]
= 1,50,000[1/1.338]
= 1,50,000[0.74738415545]
= 1,12,107.62 Rs
2. Opening a new centre requires some amount for a company. They expect that centre will generate net annual cash flows of
75,000 a year for 10 years. Rate of interest is at 15%. Calculate the present capital you need.
P = A [(1+i)n-1/i(1+i)n]
= 75,000 [(1+0.15)10-1/(0.15)(1+0.15)10]
= 75,000 [(1.15)10-1/(0.15)(1.15)10]
= 75,000 [4.04556-1/(0.15)( 4.04556)]
= 75,000 [3.04556/0.606834]
= 75,000 [5.01876955]
= 3,76,407.716 Rs
Present Worth Extra Problem
3. The data regarding the initial costs of two equipments A & B are given below. Find out the economical machine for
selection by using present worth method.
Particulars Equipment A Equipment B
Initial Cost 10,000 (not correct) 15,000 (not correct)
Operating Cost p/y 1,000 800
(Expected)
Life of Equipment 4 Years 5 Years
Interest rate 10% 10%

Equipment A
I Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)1]
= 1,000(0.909)
= 909 Rs
II Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)2]
= 1,000(0.826)
= 826 Rs
 III Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)3]
= 1,000(0.751)
= 751 Rs
IV Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)4]
= 1,000(0.683)
= 683 Rs
Therefore total present worth = 10,000 + 909 + 826 + 751 + 683 = 13,169 Rs
Equipment B
I Year P = F [1/(1+i)n]
= 800[1/(1+0.10)1]
= 800(0.90875)
= 727 Rs
II Year P = F [1/(1+i)n]
= 800[1/(1+0.10)2]
= 800(0.82625)
= 661 Rs
III Year P = F [1/(1+i)n]
= 800[1/(1+0.10)3]
= 800(0.75125)
= 601 Rs
IV Year P = F [1/(1+i)n]
= 800[1/(1+0.10)4]
= 800(0.6825)
= 546 Rs
V Year P = F [1/(1+i)n]
= 800[1/(1+0.10)5]
= 800(0.62125)
= 497 Rs
Therefore total present worth = 15,000 + 727 + 661 + 601 + 546 + 497 = 18,032 Rs
As Equipment A expenditure is less it is economical.
Future Worth Method: - In this method you will try to find out the future value based up on present and annuity values.
1. F = P (1+i)n
2. F = A [(1+i)n-1/i]
1. If Mr. A is making 5 annual deposits of Rs 500/- each at 7% annually starting from now, what will be the amount at the end
of five years.
F = A [(1+i)n-1/i]
= 500 [(1+0.07)5-1/0.07]
= 500 [(1.07)5-1/0.07]
= 500 [1.403-1/0.07]
 = 500 [0.403/0.07]
= 500 [5.757]
= 2.878.5 Rs
2. You have 1,12,107.62 Rs with you at present & you want to invest them in a bank for 5 years at an interest rate of 6%. How
much amount do you get after 5 years.
F = P (1+i)n
= 1,12,107.62 (1+0.06)5
= 1,12,107.62 (1.06)5
= 1,12,107.62 (1.338)
= 1,50,000 Rs
Depreciation: - Depreciation is the permanent & gradual decrease in the quality or value of an asset every year. The word
depreciation is derived from the Latin word “Depretium”. “De” means decline & Pretium means price. It means decline in
value of asset.
Definition: - “Depreciation is the gradual decrease in the value of asset from any cause” – Carter.
Need: -
1. To ascertain true profit.
2. To show real value of fixed assets.
3. To provide necessary funds for its replacements.
4. To keep capital intact.
5. To follow legal provisions.
Methods: -
1. Straight Line Method: - This method is also known as fixed instalment method. Under this method a fixed percentage of
depreciation is written off every year till the end of its working life. This method is very simple to operate & very easy to
understand. The depreciation that is to be charged every year remains the same.
D = C – S/n
2. Declining Balance Method: - This method is also known as diminishing balance method or written down value method or
reducing balance method. Under this method a fixed percentage of depreciation is written off on the diminishing book value
of the asset. Depreciation that is to be charged every year will decrease year by year. In the earlier years, depreciation will be
more & in the later years depreciation is less under this method.
D = 1-(S/C)1/nx100
3. Sum of Years Digits Method: - This method is an accelerated method of depreciation which is based on the assumption
that the loss in the value of the fixed asset will be greater during the earlier years & will go on decreasing gradually with the
decrease in the life of such asset. This method is found by estimating an assets useful life in years, then assessing consecutive
numbers to each year & totalling these numbers.
D = Remaining Life Time/Total of Years x Actual Value of Machine
D = (C-S) [n+1-k/n(n+1)/2]
1. Manohar purchased machinery for his business at Rs 1,00,000 on 1/1/1990. Assuming annual depreciation is 10%,
calculate depreciation for 5 years under straight line method and life of the machine is 10 years.
D = C – S/n
= 1,00,000 /10
= 10,000 Rs
 I Year = 1,00,000 – 10,000 = 90,000.
II Year = 90,000 – 10,000 = 80,000.
III Year = 80,000 – 10,000 = 70,000.
IV Year = 70,000 – 10,000 = 60,000.
V Year = 60,000 – 10,000 = 50,000.
2. Reddy Brothers purchased machinery at Rs 1,40,000 on 1/1/1990 and spent Rs 10,000 for its installation. Assuming annual
depreciation is 10%. Calculate depreciation for 4 years under straight line method and life of the machine is 10 years.
D = C – S/n
= 1,50,000 /10
= 15,000 Rs
I Year = 1,50,000 – 15,000 = 1,35,000.
II Year = 1,35,000 – 15,000 = 1,20,000.
III Year = 1,20,000 – 15,000 = 1,05,000.
IV Year = 1,05,000 – 15,000 = 90,000.
3. Shankar & co purchased machinery at Rs 50,000 on 1/4/1991 and spent Rs 10,000 for its installation. Assuming annual
depreciation is 10%, scrap value of machinery Rs 2,000, calculate depreciation for 5 years under straight line method and life
of the machine is 10 years. Assume that accounts closed at 31st December every year.
D = C – S/n
= 60,000 – 2,000/10
= 5,800 Rs
I Year = 60,000 – (5,800x9/12) = 60,000 – 4,350 = 55,650.
II Year = 55,650 – 5,800 = 49,850.
III Year = 49,850 – 5,800 = 44,050.
IV Year = 44,050 – 5,800 = 38,250.
V Year = 38,250 – 5,800 = 32,450.
4. A firm purchased machinery at Rs 1,20,000 and spent Rs 30,000 for its repairs. Assuming annual depreciation is 10%, scrap
value of machinery Rs 20,000 and life of the machine is 5 years. Calculate depreciation for 3 years under diminishing balance
method.
D = 1-(S/C)1/nx100
= 1-(20,000/1,50,000)1/5x100
= 1-(0.133)0.2x100
= 1-(0.668)x100
= 0.332x100
= 33%
I Year = 1,50,000 – 49,500 = 1,00,500.
II Year = 1,00,500 – 33,165 = 67,335.
III Year = 67,335 – 22,220.55 = 45,114.45
5. A firm purchased machinery at Rs 50,000 on 1/1/93. On 1/7/93 it buys additional machinery of Rs 10,000 & spends Rs
1,000 on its erection. The accounts are closed on 31sr December every year. Assuming annual depreciation is 10%. Calculate
depreciation for 5 years under reducing balance method.
Cost of Machinery = 50,000 + 10,000 + 1,000 = 61,000
 I Year = 61,000 – (50,000x10/100 + 11,000x10/100x6/12) = 61,000 – 5,550 = 55,450.
II Year = 55,450 – 5,545 = 49,905.
III Year = 49,905 – 4,990.5 = 44,914.5
IV Year = 44,914.5 – 4,491.45 = 40,423.05
V Year = 40,423.05 – 4,042.30 = 36,380.75
6. ABC LTD purchased a truck for Rs 65,000 on 1/1/91. The expected life was 5 years & salvage value Rs 5,000. Calculate the
annual depreciation expense by applying sum of year’s digits method for 5 years.
D = Remaining Life Time/Total of Years x Actual Value of Machine
Actual Value = 65,000 – 5,000 = 60,000.
I Year = 5/15x60,000 = 20,000.
II Year = 4/15x60,000 = 16,000.
III Year = 3/15x60,000 = 12,000.
IV Year = 2/15x60,000 = 8,000.
V Year = 1/15x60,000 = 4,000.
7. Kishore purchased a truck for Rs 1,10,000 on 1/1/91. The expected life was 5 years & salvage value Rs 20,000. Calculate
the annual depreciation expense by applying sum of year’s digits method for 5 years.
D = Remaining Life Time/Total of Years x Actual Value of Machine
Actual Value = 1,10,000 – 20,000 = 90,000.
I Y ear = 5/15x90,000 = 30,000.
II Year = 4/15x90,000 = 24,000.
III Year = 3/15x90,000 = 18,000.
IV Year = 2/15x90,000 = 12,000.
V Year = 1/15x90,000 = 6,000.
Net Present Value (NPV): - The difference between the present value of cash inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the profitability of an investment or project. In finance, the net present
value (NPV) or net present worth (NPW)[1] of a time series of cash flows, both incoming and outgoing, is defined as the sum of
the present values (PVs) of the individual cash flows of the same entity. The value should be greater than or equal to 0. If two
positive values are there then the highest value will be accepted.
NPV = Rt/(1+i)t
t = time of the cash flow,
i = discount rate,
RT = Net cash flow i.e. cash inflow – cash outflow, at time t.
1. Calculate the NPV of the project, discount rate is 12%. Examine the acceptance of the project.
Year Cash Inflows
0 - 28,900
1 12,450
2 19,630
3 2,750
NPV t = 0 = Rt/(1+i)t
= - 28,900/(1+0.12)0
= - 28,900/(1.12)0
 = - 28,900/1
= - 28,900
NPV t = 1 = Rt/(1+i)t
= 12,450/(1+0.12)1
= 12,450/(1.12)1
= 12,450/1.12
= 11,116.07
NPV t = 2 = Rt/(1+i)t
= 19,630/(1+0.12)2
= 19,630/(1.12)2
= 19,630/1.2544
= 15,648.91
NPV t = 3 = Rt/(1+i)t
= 2,750/(1+0.12)3
= 2,750/(1.12)3
= 2,750/1.404928
= 1,957.396
Therefore NPV = - 28,900 + 11.116.07 + 15,648.91 + 1,957.396 = - 177.63
As the value is less than 0 the project is rejected.
2. Calculate the NPV of the project, discount rate is 11.25 & 10.75%. Examine which project should get the acceptance.
Year Project A Project B
0 - 48,000 - 1,26,900
1 18,400 69,700
2 31,300 80,900
3 11,700 0

Project A
NPV t = 0 = Rt/(1+i)t
= - 48,000/(1+0.1125)0
= - 48,000/(1.1125)0
= - 48,000/1
= - 48,000
NPV t = 1 = Rt/(1+i)t
= 18,400/(1+0.1125)1
= 18,400/(1.1125)1
= 18,400/1.1125
= 16,539.325
NPV t = 2 = Rt/(1+i)t
= 31,300/(1+0.1125)2
= 31,300/(1.1125)2
= 31,300/1.2377
 = 25,288.84
NPV t = 3 = Rt/(1+i)t
= 11,700/(1+0.1125)3
= 11,700/(1.1125)3
= 11,700/1.377
= 8,496.73
Therefore NPV = - 48,000 + 16.539.325 + 25,288.84 + 8,496.73 = 2,326.92
Project B
NPV t = 0 = Rt/(1+i)t
= - 1,26,900/(1+0.1075)0
= - 1,26,900/(1.1075)0
= - 1,26,900/1
= - 1,26,900
NPV t = 1 = Rt/(1+i)t
= 69,700/(1+0.1075)1
= 69,700/(1.1075)1
= 69,700/1.1075
= 62,934.5
NPV t = 2 = Rt/(1+i)t
= 80,900/(1+0.1075)2
= 80,900/(1.1075)2
= 80,900/1.2265
= 65,960.05
NPV t = 3 = Rt/(1+i)t
= 0/(1+0.1075)3
= 0/(1.1075)3
= 0/1.3584
=0
Therefore NPV = - 1,26,900 + 62.934. 5 + 65,960.05 + 0 = 1,994.55
As the value of Project A is more than Project B, Project A is selected and Project B is rejected.

UNIT – III
Human Resource Management or Personnel Management: - Personnel Management can be defined as obtaining, using &
maintaining a satisfied workforce. It is a significant part of management concerned with employees at work & with their
relationship within the organisation.
Definition: - “Personnel Management is that part which is primarily concerned with human resource of organisation” –
Brech.
Nature: -
1. Includes function of employment, development & compensation.
2. Extension to general management.
3. Emphasizes on action.
4. Based on human orientation.
5. Motivates employees to get full co – operation from them.
Role of Human Resource Manager: -
1. Provides assistance to top management.
2. Advices the line manager.
3. Acts as a counsellor.
4. Acts as a mediator.
5. Acts as a spokesman.
Functions: -
1. HR Planning.
2. Recruitment.
3. Selection.
4. Training & Development.
Job Analysis: - It is a primary tool in personnel management. In this a personnel manager tries to gather, synthesize and
implement the information available regarding the workforce in the concern. There are two outcomes of job analysis.

Job Description: - It implies the enumeration and description of each operation in a job & responsibilities involved in
performing are also outlined. It includes basic job related data that is useful to advertise a specific job & attract a pool of
talent
Aims: -
1. To collect job related data.
2. To determine what needs to be delivered in a particular job.
3. To give a clear view that what kind of candidate is required.
4. It clarifies who will report to whom.
Advantages: -
1. Helps supervisors in assigning work to the subordinates.
2. It assists in manpower planning.
3. It helps to decide rate or remuneration.
4. It helps to decide about training & development programmes.
Types: -
1. General purpose.
a. Job title.
b. Job location.
c. Job summary.
d. Job duties.
2. Specific purpose
a. Detailed duties & responsibilities.
b. Sub tasks.
c. How to perform the job.
d. Essential functions.
Job Specification: - It specifies information about the skills or qualities required for doing the job. It also known as employee
specification. It helps in hiring an appropriate person, for an appropriate job.
Contents: -
1. Job title and designation.
2. Educational qualifications for that title.
3. Physical and other related attributes.
4. Physique and mental health.
Advantages: -
1. Preliminary screening in the selection procedure.
2. Helps in giving justification to each job.
3. Helps in designing training and development programmes.
4. Helps supervisors for counselling & monitoring performance of employees.
5. Helps in job evaluation.
HR Planning: - HR Planning is the planning for human resources. It is also called as Manpower Planning or Personnel Planning
or Employment Planning. It is the strategy for the acquisition, utilisation, improvement & preservation of organisations
human resources. It is the process of determining manpower needs & formulating plans to meet these needs.
Definition: - “HR Planning is the process of determining & assuming that the organisation will have an adequate number of
qualified persons, available at the proper times, performing jobs which meet the needs of the enterprise & which provide
satisfaction for the individuals involved” – Brech.
Characteristics: -
1. Future oriented.
2. Continuous process.
3. Integral part of corporate planning.
4. Optimum utilization of organisations current & future human resources.
5. Quantitative & qualitative aspects.
6. Long term & short term.
7. Primary responsibility of management.
8. Two – phased process.
Objectives: -
1. Optimum utilization of human resources.
2. Reduce imbalance in the distribution & allocation of manpower.
3. To ensure that organisation is well equipped.
4. To provide control measures to ensure availability of necessary resources when required.
5. To control cost of human resources employed.
6. To ensure optimum contribution & satisfaction of the personnel’s with reasonable expenditure.
Importance: -
1. To carry work & to achieve objectives.
2. To identify gaps in existing man power.
3. To replace employees who retire, die etc.
4. To avoid shortage & surplus of manpower.
5. To improve human resource contribution.
Process: -
1. Analysing organisational plans.
2. Forecasting demand for HR.
3. Forecasting supply of HR.
4. Estimating manpower gaps.
5. Action plan for recruitment, development etc.
6. Modify the organisational plan.
Problems: -
1. Resistance by employees & employers.
2. Uncertainity.
3. Insufficient information system.
4. Time & expense.
5. Lack of top management support.
Guidelines: -
1. Appropriate time schedule.
2. Adequate organisation.
3. Adequate information system.
4. Participation of all.
5. Top management support.
Factors Effecting: -
I. Internal Factors: -
1. Company policies & strategies.
2. HR policies & job analysis.
3. Company production & operations policies.
4. Trade Unions.
II. External Factors: -
1. Government policies.
2. Level of economic development.
3. Business environment.
4. Level of technology.
Recruitment: - It is the process of identifying the sources of potential employees & encouraging them to apply for jobs in the
organisation.
Definition: - “Recruitment is the process of searching for perspective employees & stimulating them to apply for jobs in the
organisation – Edwin.B.Flippo.
Features: -
1. Series of activities.
2. Linking activity.
3. Locating & attracting people.
4. All organisations engaged.
5. Two – way process.
6. Complex process.
7. Important function.
Objectives: -
1. To attract all.
2. Fresh blood at all levels.
3. Developing organisational culture.
4. Search people.
5. Search talent globally.
6. To find people for positions that does not exist yet.
Process: -
1. Determine the vacancies to be filled.
2. Identification of sources.
3. Attracting & motivating employees.
4. Encouraging identified candidates to apply for jobs in the organisation.
5. Ensure sufficient applications received.

Sources: -
I. Internal Sources: - Internal sources of recruitment include personnel already working in the organisation. Many
organisations fill job vacancies through promotions & transfer of existing staff.
Advantages: -
1. Simple process.
2. Familiar with work.
3. High motivation.
4. Morale increases.
5. Loyalty increases.
6. Career development.
7. Organisational stability.
8. Trade unions satisfied.
Disadvantages: -
1. Staff may not be qualified for new job.
2. Looses most suitable candidates.
3. All vacancies cannot be fulfilled.
4. Conflicts arise.
5. Not available to a newly established enterprise.
II. External Sources: - External sources of recruitment refer to prospective candidates outside the enterprise.
Forms: -
1. Advertising.
2. Personnel consultation.
3. Employment exchanges.
4. Educational & training institutes.
5. Employee recommendations.
Advantages: -
1. Wide choice.
2. Fresh outlook.
3. Varied experience.
4. Availability.
Disadvantages: -
1. Demoralisation.
2. Expensive.
3. Sense of insecurity.
4. Problem from trade unions.
Recruitment Practices in India: -
1. Internal sources.
2. Public employment exchanges.
3. Campus recruitment.
4. Consultants & labour contractors.
5. Employee recommendations.
6. Family & friends recommendations.
Selection: - It is a process by which the qualified personnel can be chosen from the applicants who have offered their services
to the organisation for employment. In other words it is a process of choosing a person suitable for the job out of several
persons.
Definition: - “Selection is the process of differentiating between applicants in order to identify those with a greater likelihood
of success in a job” – Stone.
Essentials: -
1. Someone should have the authority to select.
2. Some standards must be there to compare.
3. Sufficient number of applications.
Selection Process: -
1. Job analysis.
2. Recruitment.
3. Preliminary screening.
4. Application blank.
5. Preliminary interview.
6. Employment tests.
7. Employment interview.
8. Medical examination.
9. Reference checks.
10. Final selection & job offer.
Placement: - Once the candidate accepts the offer & joins, the organisation has to place him in the job for which he has been
selected. A proper placement of an employee results in low employee turnover, low absenteeism & low accident rates in
shop floor jobs & improved morale & commitment of the employees. After selection, the employee is first inducted in to the
organisation. This is the period of familiarisation for the employee, with the organisation, with his colleagues & with his job.
Then the employee is usually put on probation for a period ranging from six months to two years.
.The organisation decides the final placement after the initial probation period is over, based on employee’s
performance during the period & his aptitude & interest. If the employee’s performance is not satisfactory, the organisation
may extend the probation period or ask the employee to quit. If the employee performs satisfactorily during this period, he is
usually made a permanent employee.
Definition: - “Placement is the determination of the job to which an accepted candidate is to be assigned & his assignment to
that job. It is matching of what the supervisor has reason to think he can do with the job demands (job requirement) it is a
matching of what he imposes (in strain, working conditions) & what he offers in the form of payroll, companionship with
others, promotional possibilities etc” – Paul Pigors & Charles. A. Myers.
Induction & Orientation: -
Training& Development: - Training is an act or process of increasing the knowledge & skill of an employee for doing a
particular job. Training is short term educational process & utilising a systematic & organised procedure by which employees
learn technical knowledge & skills for a definite purpose.
Definition: - “Training is a organised procedure by which people learn knowledge & skill for a definite purpose” – Brech.
Objectives: -
1. To improve basic knowledge.
2. To teach new techniques.
3. To prepare employees to meet changes.
4. To prepare employees for higher level tasks.
Need: -
1. Job requirements.
2. Technological changes.
3. Organisational development.
4. Employee development.
Importance: -
1. Higher productivity.
2. Better quality of work.
3. Less learning period.
4. Cost reduction.
5. Reduced supervision.
6. Lower accident rate.
Methods: -
I. On the job: -
1. Job rotation.
2. Coaching.
3. Job instruction.
4. Committee assignments.
I. Off the job: -
1. Training centres.
2. Role playing.
3. Lecture method.
4. Discussion method.
5. Programmed instruction.
Principles or Guidelines: -
1. Clear objectives.
2. Training policy.
3. Motivation.
4. Organised material.
5. Learning periods.
6. Preparing the instructor.
7. Feedback.
8. Practice.
9. Appropriate techniques.
10. Rewards for efforts.
Process: -
1. Identifying training needs.
2. Setting up of training objectives.
3. Designing the training programme.
4. Implementation of the programme.
5. Evaluation of results.
Problems: -
1. Benefits not clear to top management.
2. Doesn’t spend sufficient money on training.
3. Top management hardly rewards supervisors.
4. Timely information is difficult to obtain.
5. Trade unions busy in other issues.
Performance Appraisal: - Performance Appraisal or Performance Evaluation is the process of assessing systematically the
performance & progress of an employee on the present job & his potential for higher level jobs in future.
Definition: - “Performance appraisal is the systematic, periodic & an impartial rating of an employee’s excellence in matters
pertaining to his present job & his potential for a better job” – Flippo.
Characteristics: -
1. Series of steps.
2. Systematic manner.
3. Continuous process.
4. To secure information.
5. Perfect plan.
Objectives: -
1. To assess worth of employees.
2. To provide a valid database.
3. To assess good & bad points of employees.
4. To test effectiveness of recruitment, selection etc.
5. To evaluate skills & training capabilities of employees.
6. To know problems faced by employees.
7. To provide a basis for comparison b/w efficient & inefficient employees.
8. To help management in fixing employees according to their capacity etc.
9. To help supervisors to know their subordinates more closely.
10. To facilitate research in HR management.
Importance: -
1. Provides valuable information for personnel decisions.
2. Helps to judge effectiveness of selection methods.
3. Helps in analysing training needs.
4. Basis for improving performance of employees.
5. Facilitates planning.
6. Provides positive work environment.
7. Motivation of employees.
8. Helpful to employees & management.
9. Maintains fair relationships in groups.
10. Psychological pressure on employees.
Limitations: -
1. Errors in rating.
2. Incompetence Lack of knowledge.
3. Negative approach.
4. Status effect.
5. Resistance.
Process: -
1. Establishing performance standards.
2. Communicating the standards.
3. Measuring actual performance.
4. Comparing actual with standards.
5. Discussing the appraisal.
6. Taking corrective action.
Essentials: -
1. Mutual trust.
2. Clear objectives.
3. Standardisation.
4. Training.
5. Job relatedness.
6. Documentation.
7. Feedback & Participation.
8. Individual differences.
9. Post – appraisal interview.
10. Legal sanction.
11. Review & appeal.
Methods: -
I. Traditional Methods: -
1. Ranking method.
2. Grading method.
3. Paired Comparison method.
4. Graphic rating scale.
5. Forced choice method.
6. Group appraisal method.
7. Critical incidents method.
8. Confidential reports method.
II. Modern Methods: -
1. Appraisal by results.
2. Management By Objectives. (MBO)
3. Human Resource Accounting method Money basis.
0
4. 360 appraisal.
Job Evaluation: - Job evaluation is a systematic way of determining the value/worth of a job in relation to other jobs in an
organization. It tries to make a systematic comparison between jobs to assess their relative worth for the purpose of
establishing a rational pay structure.
Job evaluation needs to be differentiated from job analysis. Job analysis is a systematic way of gathering information about a
job. Every job evaluation method requires at least some basic job analysis in order to provide factual information about the
jobs concerned. Thus, job evaluation begins with job analysis and ends at that point where the worth of a job is ascertained
for achieving pay equity between jobs.

Career & Career Planning: - Career describes an individual’s journey through learning, work & other aspects of life. It is the
progress & actions taken by a person throughout a life time, especially those related to those persons occupations. It is often
composed of the jobs held, titles earned & work accomplished over a long period of time, rather than just referring to one
position.
Elements Needed: -
1. Attitude.
2. Enthusiastic.
3. Ethical.
4. Goal focussed.
5. Listener.
6. Networked.
7. Persistent.
8. Self – aware.
9. Self – confident.
10. Self – discipline.
11. Courageous.
12. Intelligent.
13. Sincere.
Career Development: - Career development consists of activities undertaken by the individual employees & the organisation
to meet career aspirations & job requirements. The most important requirement of career development is that every
employee must accept his or her responsibility for development.
Activities: -
1. Career needs assessment.
2. Career opportunities.
3. Need – opportunity alignment.
4. Monitoring career moves.
Suggestions: -
1. Creating awareness about strengths & weaknesses.
2. Making employees to believe.
3. Developing appropriate career plans.
4. Providing support systems.
Process: -
1. Self assessment - Discovering your desires & passions.
2. Career skill assessment - Job strengths & weaknesses.
3. Setting your career objective - Setting best career option.
4. Career development plan - Nuts & bolts of career process.
5. Implement your plan - Trying to execute the process.
6. Get the most out of your career - Getting the utmost benefits.
Stages & Models: -
1. Development Stage – Birth to 14 years old.
2. Exploration Stage – 15 years to 24 years.
3. Establishment Stage – 25 years to 44 years.
4. Ageing Stage – 45 years to 60 years.
5. Declination Stage – 60 years to final stage.
Advantages: -
1. Perfect career.
2. Identifying problems.
3. Review of career way.
4. Identifying future.
5. Corrective action.
Disadvantages: -
1. Costly process.
2. Loss of production.
3. Joining in competitors Company.
4. Time frame.
5. All problems nor solved.
Stress: - Stress may be defined as a state of psychological and / or physiological imbalance resulting from the disparity
between situational demand and the individual’s ability and / or motivation to meet those demands.
Types: -
1. Eustress – Resulting from pleasant events.
2. Distress – Resulting from unpleasant events.
a. Bad stress – Simultaneous reaction.
b. Acute stress – Short time.
c. Chronic stress – Weeks, months or even years.
Levels: -
1. Individual level stressors: -
a. Career changes.
b. Role conflict – Expectations.
c. Career concern.
d. Role overload.
e. Frustration.
f. Life changes.
2. Group level stressors: -
a. Managerial behaviour.
b. Lack of group unity.
c. Lack of participation in decision making.
d. Lack of social support.
e. Workplace violence.
f. Sexual harassment.
3. Organizational level stressors: -
a. Organizational climate.
b. Organizational structure.
c. Organizational leadership.
d. Organizational changes.
e. Occupational demands – Jobs which involve risk.
f. Work overload.
g. Work under load.
h. Working conditions.
4. Extra - Organizational stressors: -
a. Technological changes.
b. Civic amenities.
c. Caste & religion conflicts.
d. Economic uncertainties.
Strategies: -
1. Individual Strategies: -
a. Bio feedback – Gaining greater awareness of many functions.
b. Time management.
c. Meditation.
d. Counselling.
e. Relaxation techniques.
2. Organizational Strategies: -
a. Role Analysis Technique (RAT).
b. Employee assistance program.
c. Training programs.
d. Career counselling.
e. Delegation.
Compensation: - Compensation is the remuneration received by an employee in return for his / her contribution to the
organisation. It is an organised practice that involves balancing the work & employee relation by providing monetary & non
monetary benefits to employees. It is an integral part of HRM which helps in motivating the employees & improving
organisational effectiveness. It is the total amount of monetary & non – monetary benefits provided to an employee by an
employer for work performed as required.
Types: -
1. Direct compensation – Monetary benefits.
2. Indirect compensation – Non – monetary benefits.
Need: -
1. To motivate employees.
2. To increase productivity.
3. To accomplish goals.
4. To fulfil needs.
5. To run organisation effectively.
Motivation: - The term motivation is derived from the term “motive” which means an idea, need, emotion & organic state
which prompts a man to action.
Definitions: -
1. “Motivation is the act of stimulating someone or oneself to get a desired course of action, to push the right button to get
the desired action” – Michael. J. Jucius.
2. “Motivation means a process of stimulating people to action to accomplish desired goals” – Scott.
Nature: -
1. Goal directed behaviour.
2. Satisfaction related.
3. Person motivated totally.
4. Continuous process.
5. Complex process.
6. Can be positive or negative.
Objectives: -
1. To motivate employees.
2. To satisfy employee needs.
3. To develop human relations.
4. To increase morality.
5. To get good relations.
Features of sound motivation: -
1. Positive motivation.
2. Performance appraisal.
3. Conflict resolution.
4. Redesigning of job.
5. Clear objectives.
Types: -
1. Positive motivation.
2. Negative motivation.
3. Extrinsic motivation - After completion of job.
4. Intrinsic motivation - At the time of job.
5. Financial motivation.
6. Non financial motivation.
Theories: -
I. Maslow’s Theory: - A. H. Maslow a famous social scientist has given a framework that helps to explain the strength of
certain needs. He developed a general theory of motivation known as the “need hierarchy theory”.
Features: -
1. Urge to fulfil needs is a prime factor.
2. Human needs form a particular structure of hierarchy.
3. Man is a wanting animal.
4. A satisfied need is not a motivator.
5. Lower level needs must be satisfied before higher level needs emerge.
Categories: -
1. Physiological needs - Food, Clothing, Shelter.
2. Safety & Security needs - Job security, insurance etc.
3. Social needs - Association, belongingness etc.
4. Esteem needs - Respect, status, recognition etc.
5. Self actualisation needs - Capability, capacity etc.
Needs Hierarchy: -
II. Herzberg’s Theory: - According to Herzberg there are two separate factors that influence motivation. They are,
1. Satisfiers: - These include jobs and its importance, opportunities & provides for advancement, recognition & sense of
responsibility etc. These are known as “job content factors”. These are responsible for self – motivation of employees & for
job satisfaction.
2. Dissatisfiers: - These factors include working conditions, job security, salary, quality of supervision, organisational policies
or other factors in the immediate work environment. These factors do not increase growth in output, they only prevent
losses in work performance and any absence of these factors causes job dissatisfaction.
III. McGregor’s Theory: - McGregor a U.S behavioural scientist has developed approach to mange & motivate based

on various assumptions relating to human behaviour. It has been formulated as Theory X & Theory Y.
Theory X Theory Y
1. Assumes human beings to be inherently distasteful 1. Assumes that for human beings work is as natural as
towards work. play.
2. Assumption that people do not have ambitions & 2. Assumption is just the reverse.
try to avoid responsibilities in jobs.
3. Most people have little capacity for creativity. 3. Capacity for creativity is widely distributed in
population.
4. People lack self motivation & require controlling. 4. People are self – directed & self – controlled.
5. Emphasis on centralisation of authority in the 5. Emphasizes on decentralization & greater
organisation. participation in decision making.
6. Motivating factors are lower needs. 6. Motivating factors are higher needs.
7. Emphasis autocratic leadership style. 7. Emphasis democratic & supportive leadership
styles.
8. May be said to be a negative one. 8. May be said to be a positive one.
IV. William Ouchi’s Theory: - The management scholar William Ouchi developed theory Z after making a comparative study
on Japanese & American management practices.
Theory Z: - Theory Z is an integrated model of motivation. It focuses attention on organisational & behavioural aspects of
management. Theory Z suggests that large organisations are human systems & their effectiveness depends on the quality of
humanism used.
Features: -
1. Trust.
2. Strong bond b/w organisation & employees.
3. Employee involvement.
4. Integrated organisation.
5. Coordination of human beings.
6. Informal control system.
Criticism: -
1. Japanese management practices are not suitable.
2. Lack of research to confirm practical utility of this theory.
3. Does not provide guidelines for usage.
4. Operational problems exist as there is absence of formal structure.
5. Horizontal movement of employees may not derive advantage.
Leadership: - Leadership is an important element of directing process. It is an influence process of influencing the behaviour
of subordinates to work willingly & enthusiastically for achieving predetermined goals.
Definition: - “Leadership is the ability of influencing people to strive willingly for mutual objectives” – George.R.Terry.
Nature: -
1. Influence process.
2. Followers.
3. Relationship.
4. Common goals.
5. Situation bound.
6. Continuous process.
Functions: -
1. Motivating members.
2. Morale boosting.
3. Satisfying needs of members.
4. Accomplishing common goals.
5. Creating confidence.
6. Resolving conflicts.
Importance: -
1. To guide & inspire subordinates.
2. To secure co – operation of members.
3. To create confidence among employees.
4. To create good work environment.
5. To maintain discipline among members.
6. To implement change.
7. To represent members.
Qualities of a good leader: -
I. Inner qualities: -
1. Physical features.
2. Intelligence.
II. Acquirable qualities: -
1. Emotional stability.
2. Human relations.
3. Empathy Observing from others view.
4. Objectivity.
5. Motivating skills.
6. Technical skills.
7. Communication skills.
8. Social skills.
Styles: -
I. Autocratic (or) Authoritative Style: - In this style leader centralises power & decision making in himself. Subordinates have
no opportunity to make suggestions or to take part in decision making function.
Limitations: -
1. Results in job dissatisfaction.
2. Employees efficiency tends to decline.
3. Potential people do not get opportunity to show their capabilities.
Suitability: -
1. Where subordinates are inexperienced.
2. Where leader wants to be dominated.
3. Where leader is highly experienced.
II. Democratic (or) Participative Style: - In this style leader takes decisions in consultation with the subordinates. It enables
subordinates to satisfy their social needs & ego needs. It also makes them more committed to the organisation.
Benefits: -
1. Opportunity to subordinates to develop skills.
2. Provides job satisfaction.
3. Helps to take right decision.
Limitations: -
1. Time consuming process.
2. Few dominant subordinates influence.
3. Many cook’s spoil the food.
Suitability: -
1. Where subordinates are experienced.
2. Where leader prefers democratic style.
3. Where organisation made its objectives transparent to employees.
III. Laissez Faire Style: - In this style manager leaves decision making to subordinates & he gives up his role. The biggest
limitation is full freedom to subordinates creates mismanagement in decision making.
Benefits: -
1. Full freedom to subordinates.
2. Development of subordinates.
3. Free flow of communication.
Limitations: -
1. No leader’s inspiration.
2. Mismanagement.
3. Ignores manager’s contribution.
Suitability: -
1. Where leader leaves powers to subordinates.
2. Where subordinates are well knowledged.
3. Where organisational objectives are well communicated to the employees.
UNIT – IV
Materials Management: -

Material Requirement Planning: -

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used
to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as
well.
An MRP system is intended to simultaneously meet three objectives:
1. Ensure materials are available for production and products are available for delivery to customers.
2. Maintain the lowest possible material and product levels in store
3. Plan manufacturing activities, delivery schedules and purchasing activities.
Purchasing: - Purchasing refers to a business or organisation attempting for acquiring goods or services to accomplish the
goals of the enterprise. Though there are several organisations that attempt to set standards in the purchasing process,
processes can vary greatly b/w standards.
Objectives: -
1. To avail the materials, supplies and equipment at minimum costs.
2. To ensure continuous flow of production.
3. To increase production.
4. To develop alternate sources of supply.
5. To maintain good relations with suppliers.
Source Selection: - Sourcing or selection of source is a major challenge for any purchasing mgr. The purchasing manager has
to ensure of getting the material from a right source.
Source Selection Procedure:-
1. Recognition and description of need.
2. Transmission of need.
3. Selection of Source to satisfy need.
4. Contracting with accepted source.
5. Follow up with source supplier.
6. Receiving & inspecting material.
7. Payment & closure of the group.
Procurement: - Procurement is the process whereby companies purchase goods & services from various suppliers. These
include everything from indirect goods like bulbs, uniforms etc to the direct goods like raw material which are used for
manufacturing products.
Methods:-
1. Petty cash Rs. 50 or less
2. Purchasing card Visa credit card issued by Bank of America
3. Purchase orders Placing order
4. Bulk Purchasing Large Amounts
5. Speculative purchasing To buy more than needs& selling it for high.
6. Blanket purchasing Purchasing items of same group order in one category.
7. Reciprocate purchasing Selling to others our good & buying their good.
8. Hand to mouth purchasing Purchasing when need arises.
Vendor Rating: - Vendor rating is the result of a formal vendor evaluation system. Vendors or suppliers are given standing,
status, or title according to their attainment of some level of performance, such as delivery, lead time, quality, price, or some
combination of variables. The motivation for the establishment of such a rating system is part of the effort of manufacturers
and service firms to ensure that the desired characteristics of a purchased product or service is built in and not determined
later by some after-the-fact indicator. The vendor rating may take the form of a hierarchical ranking from poor to excellent
and whatever rankings the firm chooses to insert in between the two.
Criteria for evaluation: -
1. Pricing factors include the following:
a. Competitive pricing.
b. Price stability.
c. Price accuracy.
d. Advance notice of price changes.
e. Sensitive to costs.
f. Billing.
2. Quality factors include:
a. Compliance with purchase order.
b. Conformity to specifications.
c. Reliability.
d. Reliability of repairs.
e. Durability.
f. Support.
g. Warranty.
h. State-of-the-art product/service.
3. Delivery factors include the following:
a. Time.
b. Quantity.
c. Packaging.
d. Documentation.
Inventory Management: - Inventory management is primarily about specifying the shape & percentage of stocked goods. The
scope of inventory management concerns the fine lines b/w lead time, carrying costs, asset management, inventory
forecasting, inventory valuation etc. It involves systems & processes that identify the inventory requirements, set targets,
inventory status & handles all functions related to management of material. This includes the monitoring of material moved
in & out of stock room locations.
Methods: -
I. Economic Order Quantity (EOQ): - Economic order quantity is the order quantity that minimizes total inventory holding
costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this
order quantity is also known as Wilson EOQ Model or Wilson Formula. The model was developed by Ford W. Harris in
1913, but R. H. Wilson, a consultant who applied it extensively, is given credit for his in-depth analysis. EOQ applies only
when demand for a product is constant over the year and each new order is delivered in full when inventory reaches zero.
There is a fixed cost for each order placed, regardless of the number of units ordered.
Assumptions: -
1. The ordering cost is constant.
2. The rate of demand is constant.
3. The purchase price of the item is constant.
4. The perfect time is fixed.
EOQ = √2SD/PI
S = Set up costs.
D = Demand rate.
P = Production cost.
I = Interest rate.
1. Raju runs a mail-order business for gym equipment. Cost for set up of product is Rs 250. The annual demand is 18,000
and the cost for production is Rs 25 and interest rate is 25%.
EOQ = √2SD/PI
= √2x250x18,000/PI
= √2x45,00,000/6.25
= √90,00,000/6.25
= √14,40,000
= 12,000 units.
II. Economic Production Quantity: - It determines the production of a company. The EPQ model was developed by E.W. Taft in
1918. This method is an extension of the Economic Order Quantity. The difference between these two methods is that the
EPQ model assumes the company will produce its own quantity EOQ model assumes the order quantity arrives complete and
immediately after ordering. EPQ only applies where the demand for a product is constant over the year and that each new
order is delivered / produced incrementally when the inventory reaches zero.
EOQ = √2KD/F(1-x)
K = Ordering / Set up cost.
D = Demand rate.
F = Holding cost.
x = D/P.
P = Production rate.
III. ABC Analysis: - ABC analysis is a business term used to define an inventory categorization technique often used
in materials management. It is also known as Selective Inventory Control. The ABC analysis provides a mechanism for
identifying items that will have a significant impact on overall inventory cost. It suggests that inventories of an organization
are not of equal value. Thus, the inventory is grouped into three categories (A, B, and C) in order of their importance. A items
are very important, B items are important, C items are marginally important.
A items – 20% of the items accounts for 70% of the annual consumption.
B items – 30% of the items accounts for 25% of the annual consumption.
C items – 50% of the items accounts for 5% of the annual consumption.

Item Unit Price Annual Consumption CV in order Do %

1 200 3,000 6,00,000 6,00,000 63.38
2 2 60,000 1,20,000 1,50,000 15.845
3 500 20 10,000 1,20,000 12.676
4 12.5 200 2,500 40,000 4.225
5 9 350 3,150 21,000 2.218
6 25 6,000 1,50,000 10,000 1.056
7 1,000 40 40,000 3,150 0.333
8 70 300 21,000 _ 2,500 0.264
9,46,650
IV. FSN Analysis: - In FSN analysis, items are classified according to their rate of consumption. The items are classified broadly
into three groups: F – means Fast moving, S – means Slow moving, N – means Non-moving. FSN Analysis aims at classifying
items on the basis of their movement from Inventory. Here the items are classified as Fast, Slow and Non moving items taking
into consideration both,
1) Average stay of the item in Inventory and
2) Consumption rate of the item.
This analysis can be done for a specified financial period or for a range of dates as specified by the user. It is possible to do
this analysis for a particular Warehouse in a location or for all the Warehouses in the location
The higher the Average stays (relative) of an item in the Warehouse, the slower its movement from Inventory. On the
contrary a fast moving item will have a shorter stay in the Warehouse. A very high Consumption rate (relative) implies that
the item/variant is a Fast moving one and a Slow moving item will have a low Consumption rate. FSN Analysis in Inventory
takes in to account both these criterion in determining the final FSN status for an item/variant.
V. VED Analysis: - VED Analysis aims at classifying items in the Inventory on the basis of their relative importance with respect
to each other in the day to day operations in the location. Here the different Categories to which the items at the location are
classified are Vital, Essential and Desirable. This classification is dependent purely on the perception and experience of the
user and is specified during the entry of the item/variant details in to the system. The VED Analysis facilitates only in
displaying this data based on the conditions specified by the user. The different ways(conditions) of doing this analysis are
either by the Item type or by the Group type.
Marketing: - Marketing is the process of communicating the value of a product or service to customers, for the purpose of
selling that product or service. Marketing occupies an important position in the organisation of business unit. In traditional
view marketing asserts that the customer will accept whatever product the seller presents to them. In modern view the
producer has to produce what customer likes & what consumer prefers.
Definition: - “Marketing is the performance of business activities that direct the flow of goods & services from producer to
consumer or user” – American Marketing Association.
Functions: -
I. Merchandising Functions: -
1. Buying & Assembling.
2. Selling.
II. Physical Distribution Functions: -
1. Transportation.
2. Warehousing.
III. Facilitating Functions: -
1. Financing.
2. Standardisation.
3. Market information.
4. Risk – bearing.
5. Pricing.
Marketing Mix: - A planned mix of the controllable elements of a product's marketing plan commonly termed as 4Ps:
product, price, place, and promotion. These four elements are adjusted until the right combination is found
that serves the needs of the product's customers, while generating optimum income. Sometimes the first P (Product) is
substituted by presentation.
The Four Ps Model: -
1. Product – The first of the Four Ps of marketing is product. A product can be either a tangible good or an intangible service
that fulfills a need or want of consumers. Whether you sell custom pallets and wood products or provide luxury
accommodations, it’s imperative that you have a clear grasp of exactly what your product is and what makes it unique before
you can successfully market it.
2. Price – Once a concrete understanding of the product offering is established we can start making some pricing decisions.
Price determinations will impact profit margins, supply, demand and marketing strategy. Similar (in concept) products and
brands may need to be positioned differently based on varying price points, while price elasticity considerations may
influence our next two Ps.
3. Promotion – We’ve got a product and a price now it’s time to promote it. Promotion looks at the many ways marketing
agencies disseminate relevant product information to consumers and differentiate a particular product or service. Promotion
includes elements like: advertising, public relations, social media marketing, email marketing, search engine marketing, video
marketing and more. Each touch point must be supported by a well positioned brand to truly maximize return on investment.
4. Place – Often you will hear marketers saying that marketing is about putting the right product, at the right price, at the
right place, at the right time. It’s critical then, to evaluate what the ideal locations are to convert potential clients into actual
clients. Today, even in situations where the actual transaction doesn’t happen on the web, the initial place potential clients
are engaged and converted is online.
Product Life – Cycle: - Product Life Cycle is that thing which explains the position of a product in market. It is based up on the
biological life cycle. For example a seed is planted (introduction), it begins to grow (growth), it shoots out leaves & puts down
roots as it becomes an adult (maturity), after a long period as an adult the plant begins to shrink & die out (decline).
Stages: -
1. Introduction.
2. Growth.
3. Maturity.
4. Decline.
 Stage Characteristics
1. Costs are very high.
2. Little or no competition.
3. Demand has to be created.
Introduction Stage 4. Makes no money.
5. Slow sales volumes to start.
1. Profitability begins to rise.
2. Costs reduced.
3. Public awareness increases.
Growth Stage 4. Sales volume increases significantly.
5. Competition begins to increase.
1. Costs are lowered.
2. Increase in competitor’s entry.
3. Prices tend to drop.
Maturity Stage 4. Sales volume decreases.
5. Profits go down.
1. Costs become counter – optimal.
2. Sales volume decline.
3. Prices diminish.
Decline Stage 4. Profits diminish.
5. Demand decreases.
Channels of Distribution: - It is the means employed by manufacturers & sellers to get their products to the market & in to
the hands of users. Channels are management tools used to move goods from the place of production to the place of
consumption. They are the means by which title of goods is transferred from sellers to buyers.
Functions: -
1. Helps in production function.
2. Matching demand & supply.
3. Financing the producer.
4. Aid in communication.
5. Promotional activities.
6. Pricing.
7. Decision making.
8. Other functions.
Factors Affecting: -
1. Product characteristics.
a. Purchase.
b. Perishability.
c. Weight.
d. Selling price p/u.
2. Market factors.
3. Organisational factors.
4. Middlemen considerations.
5. Environmental factors.
Types of Channels: -
1. Manufacturer – Consumer.
2. Manufacturer – Retailer – Consumer.
3. Manufacturer – Distributor – Retailer – Consumer.
4. Manufacturer – Company depot – Distributor – Retailer – Consumer.
5. Manufacturer – Company depot – Distributor – stockist – Retailer – Consumer.
Market Segmentation: - Market Segmentation is the identification of portions of the market that are different from one
another. It is based on the fact that markets of commodities are not homogeneous but they are heterogeneous. Market
represents a group of customers having common characteristics but two customers are never common in their nature, habits,
income & purchasing techniques. On the basis of these characteristics customers having similar qualities are grouped in
segments. The characteristics of customers of one segment differ with those of other segment.
Definition: - “Grouping of buyers or segmenting the market is described as market segmentation.” – R.S.Davar.
Importance: -
1. Adjustment of product & marketing appeals.
2. Better position to spot marketing opportunities.
3. Allocation of marketing budget.
4. Masking the competition effectively.
5. Effective marketing programme.
6. Increase in sales volume.
Criteria: -
I. Bases for Consumer products: -
1. Socio – economic factors.
a. Age.
b. Income.
c. Education level.
d. Race & Religion.
e. Size of family.
f. Business or Profession.
2. Geographical factors.
3. Personality factors.
4. Consumer behaviour factors.
II. Bases for Industrial products: -
1. Kind of business or activity.
2. Usual purchasing procedure.
3. Geographical location of user.
4. Size of users.
Elements: -
1. Company resources.
2. Products characteristics.
3. Position of products in PLC.
4. Homogeneous nature of market.
5. Competitive marketing strategies.
6. Gov’t policies.
Advertising: - The word advertising has its origin from a Latin word “advertire” which means to turn to. The dictionary
meaning of the word is to announce publicity or public notice.
Definition: - “Advertising is any paid form of non-personal presentation and promotion of ideas, goods and services by an
identified sponsor” – American Marketing Association.
Functions: -
I. Primary Functions: -
1. To increase sales.
2. To help dealers.
3. Confidence in quality.
4. Receptiveness of new product.
5. To eliminate seasonal fluctuations.
II. Secondary Functions: -
1. To help salesman.
2. To furnish information.
3. To impress executives.
4. To impress workers.
5. Feeling of security.
Advantages: -
1. Increase sales.
2. Steady demand.
3. Quick turnover.
4. Creation of goodwill.
5. Colourful background.
6. Curtails burden.
7. Guide force in purchasing.
8. No intermediaries.
9. Existence of press.
10. Employment opportunities.
Disadvantages: -
1. Forces people.
2. Does not create new demand.
3. Costs consumer.
4. Encourages waste.
5. Mis – representation of facts.
6. Wastage of national resources.
Objectives: -
1. Steady demand.
2. Increased profits.
3. Facing competition.
4. Preparing ground for new product.
5. Informing changes to consumers.
6. Barring new entrants.
7. Creating goodwill.
8. To assist salesman.
Sales Promotion: - It is one of the four aspects of promotional mix. The other three parts are advertising, personal selling &
publicity. Sales promotion can be directed at either the customer, sales staff or channel members. Sales promotions targeted
at consumer are called consumer sales promotions & sales promotions targeted at retailers & wholesalers are called trade
sales promotions. Sales promotions includes several communication activities that attempt to provide added value or
incentives to consumers, wholesalers, retailers or other organisational customers to stimulate immediate sales.
Objectives: -
1. Building product awareness.
2. Creating interest.
3. Providing information.
4. Stimulating demand.
5. Reinforcing demand.
Methods: -
1. Sampling Free distribution of product.
2. Trail pack.
3. Transumerism Distributing the product where customer doesn’t buy.
4. Discounts.
5. Lotteries.
6. Campaigns Buy two get one free.
7. Additional gift.
8. News paper advertisement Cut it.
9. Money back guarantee.
10. Shop assistant motivation Giving him % in sale.
Marketing Research: - It is the function that links the consumer, customer & public to the marketer through information. It is
the scientific gathering, recording & analysis of data about issues relating to marketing products & services. The goal of
marketing research is to identify & assess how changing elements of the marketing mix impacts customer behaviour.
Types: -
1. Consumer marketing research.
2. Business to business marketing research.
Advantages: -
1. Know your customers.
2. Know your target market.
3. Know your competitors.
4. Easy to do business.
Disadvantages: -
1. Not a complete solution.
2. Inappropriate training.
3. No perfect information about it.
4. Time constraint.
Process: -
1. Problem definition.
2. Research design developed.
3. Data collection.
4. Data analysis.