7.) Illustrate and explain the production process.

Production Process:
The business firm is basically a producing unit it is a technical unit in which inputs are converted
into output for sale to consumers, other firms and various government departments.

Production is a process in which economic resources or inputs (composed of natural resources

like land, labour and capital equipment) are combined by entrepreneurs to create economic goods
and services (also referred to as outputs or products).

Inputs are the beginning of the production process and output is the end of the process. In the
figure shown is a simple schematic presentation of the production process, which can be
conceived of as transforming inputs into outputs. It is to be noted at the outset that the process
may produce as joint products both goods and services (which are desired by consumers) and
commodities such as pollution (which is not desired by consumers).

In traditional economics, the term ‘production’ is used in a broad sense. It refers to the provision
of goods and services for sale in the market with a view to satisfying human needs and wants.

In managerial economics, however, the term is used in a narrow sense to refer to the processes of
physical transformation of resources, such as the transformation of iron ore into steel or the
production and assembly of components into a finished car.

This definition surely includes other and equally vital forms of transformation such as that of
location, whereby the finished car is moved from the factory to the showroom of the dealer from
whom it can be purchased. Here we concerned with production in the narrow sense of physical
transformation, with particular reference to economic problems connected with production in the
factory.

The production system can be seen as consisting of three elements – inputs, the production
process and outputs. In reality, the outputs are the starting point of the operation inasmuch as
they must be considered in the light of the market possibilities.

Inputs take the form of labour of all types, the required raw materials and sources of energy. All
these involve cost outlays. Thus the theory of cost and theory of production are interrelated. In
fact, the former is derived from the latter.

The production system can be shown as a continuous, smooth flow of resources through the pro-
cess ending in an outflow of a homogeneous product or two or more products (in fixed or
variable proportions).

Time also plays a very important role in the theory of production. We usually draw a distinction
between the short run and the long-run. The distinction is not based on any time period but is
made on the basis of the possibility of factor substitution.

In the short run, it is assumed that some factors (such as capital or plant size) remain fixed and
others are variable. In the long run, it is assumed that all factors are variable. From this we drive
the proposition that the short run costs are partly fixed and partly variable; in the long run all
costs are variable.

Finally, in traditional economics it is assumed that the techniques of production are ‘given’. But
in managerial economics, however, it is assumed that there are usually various alternatives open
to the manager from which one has to be selected.
8.) Enumerate and explain the important parts of productive systems.

1. Product Design
Product design is when a new product is created to sell to customers. The stages of the
product design process are to create an idea, determine product feasibility, test the product,
and then launch the product for customers to buy. Let's take a closer look at each of these
steps.
2. Production Planning and Scheduling
Production planning is the planning of production and manufacturing modules in a
company or industry. It utilizes the resource allocation of activities of
employees, materials and production capacity, in order to serve different customers.

Scheduling is the process of arranging, controlling and optimizing work and workloads in a
production process or manufacturing process. Scheduling is used to allocate plant and
machinery resources, plan human resources, plan production processes and purchase
materials.

3. Purchasing and Material Management

The Purchasing or Procurement management process involves managing the ordering,
receipt, review and approval of items from suppliers. A procurement process also specifies
how the supplier relationships will be managed, to ensure a high level of service is received.

The material management process typically includes the receiving and inspection of raw
materials as well as the storage of those raw materials before they go through manufacturing
runs to assemble into finished goods. Analyzing material management operations from a
detailed and activity-level perspective not only benefit the material management function, but
can also help with more effective collaboration with the procurement and manufacturing
functions that work closely with material management.

4. Inventory Control
 Inventory control is the processes employed to maximize a company's use of inventory.
The goal of inventory control is to generate the maximum profit from the least amount of
inventory investment without intruding upon customer satisfaction levels. Given the
impact on customers and profits, inventory control is one of the chief concerns of
businesses that have large inventory investments, such as retailers and distributors.

5. Work Flow Layout

A workflow process is a series of sequential tasks that are carried out based on user-defined
rules or conditions, to execute a business process. It is a collection of data, rules, and tasks
that need to be completed to achieve a certain business outcome.

6. Quality Control
Quality control is a process intended to ensure that product quality or performed service
adheres to a defined set of criteria or meets the requirements of the client. Through the
quality control process, the product quality will be maintained, and the manufacturing defects
will be examined and refined.
9.) What is Risk Management? Enumerate and explain the methods of dealing with risk

Risk Management
Risk management is the process of identifying, assessing and controlling threats to an
organization's capital and earnings. These threats, or risks, could stem from a wide variety of
sources, including financial uncertainty, legal liabilities, strategic management errors, accidents
and natural disasters.

Methods of dealing with Risk

1.) The Risk may be avoided (Avoid the Risk)
You can also change your plans completely to avoid the risk. avoid risk. This is a good
strategy for when a risk has a potentially large impact on your project. For example, if
January is when your company Finance team is busy doing the corporate accounts,
putting them all through a training course in January to learn a new process isn’t going to
be a great idea. There’s a risk that the accounts wouldn’t get done. It’s more likely,
though, that there’s a big risk to their ability to use the new process, since they will all be
too busy in January to attend the training or to take it in even if they do go along to the
workshops. Instead, it would be better to avoid January for training completely. Change
the project plan and schedule the training for February when the bulk of the accounting
work is over.

2.) The Risk may be retained (Accept the Risk)

Accepting the risk means that while you have identified it and logged it in your risk
management software, you take no action. You simply accept that it might happen and
decide to deal with it if it does.

This is a good strategy to use for very small risks – risks that won’t have much of an
impact on your project if they happen and could be easily dealt with if or when they arise.
It could take a lot of time to put together an alternative risk management strategy or take
 action to deal with the risk, so it’s often a better use of your resources to do nothing for
small risks.

3.) The Hazard may be reduced (Exploit the Risk)

Acceptance, avoidance, transference and mitigation are great to use when the risk has a
negative impact on the project. But what if the risk has a positive impact? For example,
the risk that the new washing machines are so popular that we don’t have enough Sales
staff to do the demonstrations? That’s a positive risk – something that would have a
benefit to the project and the company if it happened. In those cases, we want to
maximize the chance that the risk happens, not stop it from happening or transfer the
benefit to someone else!

Exploitation is the risk management strategy to use in these situations. Look for ways to
make the risk happen or for ways to increase the impact if it does. We could train a few
junior Sales admin people to also give washing machine demonstrations and do lots of
extra marketing, so that the chance that there is lots of interest in the new machine is
increased, and there are people to do the demos if needed.

4.) The losses may be reduced (Mitigate the Risk)

Losses or Mitigating against a risk is probably the most commonly mitigation of risk used
risk management technique. It’s also the easiest to understand and the easiest to
implement. What mitigation means is that you limit the impact of a risk, so that if it does
occur, the problem it creates is smaller and easier to fix.

5.) The Risk may be Shifted (Transfer the Risk)

Transference is a risk management strategy that isn’t used very often and tends to be
more common in projects where there are several parties. Essentially, you transfer the
impact and management of the risk to someone else. For example, if you have a third
party contracted to write your software code, you could transfer the risk that there will be
errors in the code over to them. They will then be responsible for managing this risk,
perhaps through additional training.

Normally transference arrangements are written up into project contracts. Insurance is

another good example. If you are transporting equipment as part of your project and the
van is in an accident, the insurance company will be liable for providing new equipment
to replace any that was damaged. The project team acknowledges that the accident might
happen, but they won’t be responsible for dealing with sourcing replacement kit, moving
it to the right location or paying for it as that is now the responsibility of the insurance
company.