Module 3: Acquire Fundamental Skills in Managing a Business

MANAGEMENT FUNCTIONS OF ENTREPRENEURS

Management functions are the same to all organizations regardless of size or type. The only
difference is the amount of emphasis given to each level. But in general, managers have to do the
planning, organizing, staffing, directing, and controlling.

PLANNING

Planning is the most basic management function that tells you where to go and how to get
there. It is like preparing a blueprint of what is to be done, when, how, and by whom it should be done.

Classification of Plans:

1. Standing plans. These plans are used repeatedly and cover policies, procedures, and rules.
2. Single-used or single-purpose plans. These plans are essentially one-shot or non-repetitious.
This is used within a relatively short period of time. They comprise programs, projects, and
budgets. Programs are complicated; they are made up of objectives, goals, strategies, policies,
rules, job assignments, financial resources and other pertinent items.

Another way to classify plans is according to whether they are short, (to be from a day to a
year), intermediate range plans (to be from a few months to three years); and long-range plans (to be up
to 25 years)

Steps Involved in the Strategic Planning

1. Formulate organization objectives. This serve as the basis where the efforts and services will be
used.
2. Analyze present resources. This refers to the availability of money, staff, machines, materials,
space and time to help you realize your plans.
3. Determine alternative courses of action. Reduce number of alternatives. Remove those do not
look promising, and retain those sound ones for further analysis.
4. Examine the alternatives. You need to do some statistical and quantitative analysis of factors
involved in each alternative.
5. Select the best course of action. Choosing alternative most likely to be effective in achieving
your objectives.
 6. Develop support plans. Smaller plans aims to establish coordination among other levels of the
organization so that the enterprise goal can be easily achieve.
7. Implement the plan. Plans only come into reality when it is implemented. In implementing the
plans, it requires the exercise of other management functions, such as organizing, staffing,
directing, and controlling.

ORGANIZING

Organizing involves identifying the specific activities necessary to achieve the enterprise goals,
clustering the activities into departments or job positions, and designating the personnel to head and
compose each department.

An example of the organizing function is the owner-manager of a small factory who establishes
three departments - production department, sales department, and administrative department. He
assigns manager to head each department and clearly delineates responsibilities among them. Thus, he
give the production manager the responsibility for manufacturing, packing, and shipping, while he
delegates to the sales manager the responsibility for advertising and customer service. Then he assigns
the administrative head to look after personnel, purchasing, and accounting.

Below is the diagram showing the organizational relationships of the positions and their
corresponding authority, responsibility, and accountability.

A. Line Organization

The manager has direct command over workers who accomplish the tasks. Below is an example
of a line organization.

MANAGER

SUPERVISOR

FOREMAN

WORKERS
 B. Line and Staff Organization

Any activities that a line officer cannot do are delegated to a staff officer to render these
services. For example, in a small manufacturing enterprise, the president, production manager, and
sales manager perform line functions, while legal counsel who helps and advices the president has no
authority over line employee. Below is an example of this type.

PRESIDENT

LEGAL COUNSEL

PRODUCTION ADMINISTRATIVE
SALES MANAGER
MANAGER MANAGER
 C. Functional Staff Organization

In this setup, the worker has more than one immediate superior or as many as the types of
activities assigned to him. An example of this type is shown below.

MANAGER

SUPERVISOR

FOREMAN

QUALITY PRODUCTION
CONTROL SPECIALIST

WORKERS

STAFFING

This process involves proper and effective selection, appraisal and development of personnel to do the
jobs and fulfill the roles in the structure.

A. Asses your workload. The officers manning the operating units can determine what exactly
they are responsible for. This information can be used as basis for defining the
organizational structure, and the quantity and quality of personnel needed to handle the
workload.

B. Study jobs in the company. This refers to the process of determining the duties,
responsibilities of each job. The analysis can tell you whether or not the present workers
have the required skills and abilities. You can also find out who else among the presents
employees fit in each job.
 C. Examine your present personnel. Assess the skills, strengths, weaknesses, and potentials.
Compare your inventory against your forecasted manpower needs. Your findings will tell
you whether:

 Your company has just the right quantity and quality of people;
 You have an excess in quantity but are short in quality; or
 Both quantity and quality of skills of your personnel are insufficient.

D. Design an improvement plan. If you find out that there is a problem in quantity or quality of
skills among your present personnel, you may adopt any of the following solutions:

 If your workers are not enough, consider recruiting from inside or outside the
organization.
 If your workers do not possess the required skills, you may resort to training and
development.

DIRECTING

Directing involves putting your plans into effect. How to influence your subordinates who have
distinct needs and a unique personality, to contribute to the attainment of the firm’s objectives is the
principal concern of directing.

Understanding certain principles will help you direct the actions of your subordinates towards
the successful implementation of your plans. Directing includes the following;

A. Motivation is the process of encouraging the subordinates to act in a desired manner. When an
employee joins a company they bring with them certain needs which they hope to be able to
satisfy.

 Physiological needs these are needs for air, food, water, for survival
 Safety needs to be protected from danger, threat, or deprivation
 Esteem needs such as those for self-confidence, achievement, competence, knowledge,
self-respect freedom and independence. It also includes the needs for status,
recognition, importance, and respect.
 Self- realization needs represent the needs for full development of potentials and of
being creative.
 B. Leadership is the ability of an individual to persuade the subordinates to follow. As a leader you
need a mixture of skills to be effective. These skills may be required in varying degrees by
managers in different situations. These skills include the following;

 Conceptual skills refer to the mental capacity of an individual to grasp the relationship
of different parts into an integrated whole. They need these skills in planning, and
analyzing.
 Human relation skills is the ability to deal effectively with people
 Technical skills incorporate the capabilities to perform the mechanics of a certain job
which the operative employees perform, like producing goods that the company
manufactures.

CONTROLLING

The function of controlling is to make sure that what is done in the enterprise conforms to what
has been planned. The two main activities involved here are comparing actual performance with desired
performance and making necessary connections where there is deviation from the plans.

Steps in the controlling process:

A. Establish standards. Standards are sets of measurements against which you can evaluate
actual results.

Three common types of standards:

 Physical standards include quantity of products or services, number of customers or

clients, and quantity of clients or services.
 Monetary standards are indicated in terms of peso values and include labor cost, selling
cost, material cost, sales revenue, and gross profit.
 Time standards refer to the speed with which job should be done or the deadlines for
their completion.

B. Set performance measurements. It is also necessary to determine how often should you
measure performance, who will do the measurement, and what form will the measurement
take. An important consideration in determining appraisal is that it must be easy to do and
easy to explain to your people.

C. Measure actual performance. This step can be easy for you if the standards are spelled out
clearly and if what your personnel are doing can be determined clearly. It Includes
observation, oral and written reports, automatic methods, inspections, tests, and samples.
 D. Compare performance with standards and analyze deviations. Control does not stop after
measuring performance. Data about actual performance can be meaningless unless they are
compared with desired performance. Then you should analyze the reasons for the failure to
meet the standards so that you can deal with the roots of the performance problems.
Depending on the nature of the shortfalls in performance, you may correct these
shortfalls by resorting to any of the following remedies.

a) Revising your plans

b) Modifying your goals
c) Reassigning workers
d) Clarifying duties and responsibilities
e) Hiring additional staff
f) Firing problems workers
g) Stronger leadership

Controls can be classified as either organizational or operational. Organizational controls are

those that measure the overall performance of the organization. Operational controls evaluate day to
day activities and spot areas where you may need to take corrective actions.

Effective controls have the following characteristics:

a) They control the proper activities. People will naturally be conscious about meeting
standards if they are aware that those activities will be monitored. However, you should
take care not to cause an imbalance but concentrating to much control on one group of
activities and easing up on another.
b) Control should be timely. “A stitch in time saves nine” a popular saying goes. Control
must report deviation in time to enable you to deal with the problem before it is too late.
c) Controls should be cost effective. Controlling entails costs. You pay for the processing and
monitoring that you use, like registers and computers, you pay for the personnel like the
inspector, accountants, and inventory controllers. You also pay for the line personnel who
work on the data on scrap, production costs, and personnel report. But are all these
practical and economical?
d) Controls must be accurate. Control measures must be accurate to have a good basis for
corrective actions.
e) Controls must be accepted. It is important that your people understand the purpose and
benefits of control so that they will not feel that you have installed controls just because
you don’t trust your men.
LET US REMEMBER:

Effective management is very much important in running a business, without proper

management people might just work to pursue their own interest without considering that of the
organization or those of the other members. Effective and efficient management makes it possible for
both the organization and the employees to work for a common goal, at the same time satisfying their
respective interest.

ACTIVITY
Interview different entrepreneurs in your community; ask them to talk about their experiences
and insights as an entrepreneur – manager, especially on the management functions of planning,
organizing, staffing, directing and controlling. Discuss the results of your findings in your class.
 DIFFERENTIATE THE LEGAL FORMS OF BUSINESS OWNERSHIP
This lesson deals with legal forms of business ownership.

Words to study

Legal forms refer to the documents of ownership of a business.

Business is a legally recognized organization designed to provide goods and/or services to consumers.

Enterprise is a business undertaking.

Proprietorship is the state or right of a proprietor or owner.

Liability refers to the amount that is owed.

Transaction is a business deal or agreement.

Income is the gain or recurrent benefit usually measured in money that derives from capital or labor.

Deciding the business ownership

A business first exists in your mind is an idea. When this idea is developed and put into writing, it
becomes a plan. As you gather your resources be it material or human resources, you are making your
plan into a reality. And when you register it, it becomes a legal entity, with appropriate rights and
responsibilities.

Once you have identified your project or business, you are ready to organize and set up your
own enterprise. This means that you have to decide on its forms of ownership then later the location,
hire and train personnel, raise funds, acquire machinery and equipment, and finally register the
business.

The term legal form refers to the form of ownership of a business. You may decide to share
ownership with other people if you are not the only source of project ideas or if you do not have enough
capital and experience to start the business on your own.
 Sole proprietorship – A sole proprietorship is a business unit owned and managed by only one
person. It is the simplest and most common form.

Most small businesses start as sole proprietorships. Here, you and the business are essentially
one. You, as the sole proprietor own all the assets.

As such, you will exclusively enjoy the benefits to be derived from the business. If you decide to
become a sole proprietor, you do not need to consult anyone on matters related to setting or running the
business.

Advantages of a Sole Proprietorship Disadvantages of a Sole Proprietorship

 Relatively low start-up costs  Unlimited liability

 Greatest freedom from regulation
 Owner in direct control of decision-making
 Minimal working capital required
 Tax advantages to owner
 Owner is the boss
 All profits to owner
 In cases of death, the business may be passed
on to another by virtue of a will.
 Lack of continuity in business
organization
 Difficulty in raising capital
 All the risks are of the owner
 Owner shoulders any liability incurred in the
business

Partnership – Under this business form, two or more persons are owners of the business. The
owners define their rights and duties as partners in the business through a partnership agreement.

Advantages of a Partnership Disadvantages of a Partnership

 The partners decide as to who shall be
responsible for paying debts in case the
business is unable to pay its liabilities later.
 They agree as to how much will be the share of
each one in the profits of the business and what
business responsibilities will be assigned to
each.
 The partners agree as to when the partnership
ends such as when one partner agrees to a buy-
out offer or when one of the partner dies.
 No income tax is levied on the partnership itself
but on the owners as individuals.
 Any action of one partner within the scope of
business binds the other partner as well. Thus, if
one partner commits a mistake, the other has
to suffer the consequences as well.
 Partners also have to be consulted each time a
decision or action concerning the business
needs to be made. This means taking more time
to get things done.
 Corporation – This business form is initiated by individuals called incorporators, numbering
from a minimum of five to a maximum of fifteen.

Advantages of a Corporation Disadvantages of a Corporation

 The incorporators put up the initial or starting  The corporation is subject to more government
capital of the business. To get additional control.
capital, shares of stocks are sold to interested  The corporation is relatively complicated in form
parties called the stockholders. and management. It needs high cost of
 Each stockholder shares in the ownership of formation and operation.
the company, together with the incorporators.  Its credit is weakened by the limited liability of
 The right of the stockholder to vote on matters the stockholder.
affecting the corporation depends on the  It is subject to a heavier taxation.
number of shares he or she holds.  The stockholders’ voting rights have become
 The number of shareholders in the corporation theoretical especially in a big corporation
is used as basis for computing the share of each because of the use of proxies.
one in the profits of the corporation. This share  The stockholders have little voice in the conduct
is called the dividend. of the business of the corporation.
 The life of the business does not depend on the
stockholders.
 It has continuity in existence for a maximum of
50 years.
 Continuity is not affected by death of a stock
holder or by the transfer of shares of stocks
from one stockholder to another.
In case of losses, liabilities are settled through the
sale of the assets of the corporation.

Cooperative – A cooperative is owned by twenty-five or more individuals who, like in a

corporation buy shares in the business. However, unlike a corporation, each member of the
cooperative is entitled to only one vote on matters regarding the business regardless of the number of
shares he or she has bought. In case of losses, responsibility for paying liabilities is also borne equally by
the members.

LET US REMEMBER:

An entrepreneur should carefully choose what legal form of business he has to venture. He has
to consider or study very carefully the advantages and disadvantages of each.
 Activity

Read the following carefully. Then answer and discuss the questions at the end of the story.

Jane and Rose are best of friends working in the same agency. While they were having their
coffee break one day, Rose having three children going to school complained to Jane how difficult to
make ends meet with the meager salary they are receiving. When Jane heard her friend, she said “why
don’t you put-up a sideline? You are a good cook. You can sell peanut adobo, brittle, peanut butter or
other food products. I am sure you will not have problems in terms of raw materials because these raw
materials are abundant in our community.

Rose is sold to the idea and persuaded her friend to be her partner. The two friends contributed
P2,000.00 each to start the business. They agreed to have equal profit. Rose would take care of
production while Jane will concentrate in marketing.

Jane started getting orders while Rose concentrated in cooking. When they succeeded in getting
big orders they decided to register their business as a partnership under the name R & J Food Products.
From then on, their customers have regular orders and even becoming bigger.

After six months of operation, the partners earned P20,000.00 and they decided to divide it
equally between them. Meanwhile, Rose was exhausting herself with her production efforts, while
Jane’s life went on very casually because once the first orders have been booked, most of the buyers
placed repeated orders.

Before the business reached its first year anniversary, Rose got sick and advised to rest. Rose
cannot longer cook and Rose husbands’ forbade her to continue the business.

1. What went wrong with the business?

2. If you were Rose would you enter into a partnership with a friend or would you register
the venture as a sole proprietorship?
3. Were the partners right in splitting the profits equally?
4. Discuss the advantages and disadvantages of partnership.