Complete 7 Modules Summary

Designing an effective strategy is an important step in marketing. It helps a company identify its
target consumers and position its products in their minds.

By segmenting their market, companies can divide large, heterogeneous markets into smaller,
homogeneous segments whose needs can then be met efficiently. This process of dividing the
market into smaller consumer groups is called segmentation.

Once a company has segmented its market, it has to decide whether or not to cater to the needs of
one or many such groups. This decision is taken through a process called targeting. After
segmentation and targeting, the final step in the STP framework is to position a product.

Segmentation is the process of dividing a large audience into smaller groups in order to meet their
demands effectively.

Typically, the first four bases of segmentation are as follows:

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Next, you learnt about benefit-based segmentation, which is often the most difficult to perform.
You learnt that benefit-based segmentation involves:

Moving on, the different bases for segmentation can be arranged as a 2x2 matrix as shown below:

You learnt about the industrial applications of the MAADS criteria through the example of
BigBazaar and Foodhall.


Targeting is the next step in building an effective marketing strategy. You should always check
whether your targeting strategy fulfils the following criteria or not.

Targeting strategies can of different kinds, and each of them is used to target a different number of
segments. Typically, there are three types of targeting strategies:

Once marketers have segmented their audience and have decided which targeting strategy to
adopt, the next and final step is to position the product in the consumers’ minds.

A product is positioned with respect to the competitors’ products in the consumers’ mind using a
perceptual map. The steps involved in the design of a perceptual map are as follows:


You saw how a perceptual map is prepared while launching a new brand of beer (Bud Light) in the
market.

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Once marketers have designed appropriate segmentation and targeting strategies, the next step is
to devise an effective positioning plan. A product is positioned on the basis of the following four
levers:

1. Product
2. Price
3. Place
4. Promotion

While designing an effective product strategy, the different levels of a product must be given
individual focus. These levels are as follows:

After all the levels of a product have been designed, the next step is to understand the components
of a product strategy.

These are as follows:

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It is important to consider the stage at which a product is. This is because the marketing strategy for
the product will vary according to the stage. Typically, there are four stages in a product life cycle
(PLC). These are as follows:

Price is the second P of a product’s marketing mix. Price strategies must be effective in positioning
a product in the customer’s mind correctly.


Distribution channels help in transferring products from companies to their consumers. The different
channel intermediaries, along with their functions, are shown in the image below:


The last P in a product’s marketing mix is Promotion. The different methods of promotion are as
follows:

You also learnt that the focus of promotional strategies can be changed as per a product’s position
during its life cycle.
● At the introduction stage, the promotional strategy focuses on increasing awareness of the
product.
● At the growth stage, the focus is on increasing the number of consumers and achieving
brand loyalty.
● At the maturity and decline stages, the focus is on increasing the product’s shelf life.
Sometimes, brands decide to kill or reposition their products at these stages.


Summary
External Influencers
There are multiple external factors that can influence a consumer’s purchase decision. In this
session, you learnt about four important external influencers that affect a consumer’s decision-
making process. Let us summarise each of these factors.
Culture
Culture constitutes a set of fundamental customs and beliefs that are passed on to an individual by
their family, society and other similar institutions that have influenced their way of life. You learnt
that businesses must:
Family and Friends
A consumer’s purchase decision is greatly affected by the opinions of their reference groups. A
person’s reference group can be defined as a set of people who have a direct/indirect influence
on their behaviour.
Typically, reference groups can be divided into the following two types:
Lifestyle
In layman terms, lifestyle can be defined as a pattern of living as expressed through an

individual’s activities, interests and opinions.
You also learnt about the basic lifestyle dimensions, which can be described as follows:
Socio-Economic Class
A consumer’s socio-economic class is an external influencer that has a direct impact on their
buying behaviour.
As defined by the Market Research Society of India, or the MRSI, socio-economic classification of
consumers is based on the following two parameters:
The education level of the chief earner can fall in any of the following categories:
• Illiterate
• Literate but no formal schooling, or schooling up to 4 years
• Schooling between 5 and 9 years of age
• SSC passed
• Attended college, including earning a diploma, but not a graduate
• Graduate or postgraduate (general)
• Graduate or postgraduate (professional)
The second criterion, i.e., the number of consumer durables owned by the family, includes pre-
listed items such as electricity connection, ceiling fans, an LPG stove, a two-wheeler, a colour TV, a
refrigerator, a washing machine, a personal computer or laptop, a four-wheeler, an air conditioner
and agricultural land.
These two parameters can be represented in the following way:

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upGrad or its bonafide contributors and is purely for the dissemination of education. You are permitted to
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herein or the uploading thereof on other websites or use of the content for any other
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Summary
Internal Influencers
Besides the external factors that influence the purchase decision of a consumer, there are several
internal factors that drive consumers towards buying a particular product or service. Let us
summarise these internal factors.
Motivation
Motivation can be defined as the reason behind an individual’s actions, desires and needs.
Typically, it is of the following two types:
To classify motivational needs, Abraham Maslow proposed Maslow’s hierarchy of needs.

Maslow’s hierarchy of needs depicts a set of needs in the form of a pyramid structure, where the
levels of the hierarchy start at the bottom, progressing from the most basic needs to other,
higher-level needs.
The five levels of needs are classified as follows:

Perception
Sensation and perception are two processes that have a direct impact on a consumer’s decision-
making process.
Sensation is the process through which the brain receives information about various objects and
events that are taking place around.
On the other hand, perception is the process through which the brain interprets the sensation and
makes meaning out of it. Perception is often described as a process through which its target
consumer identifies, organises and interprets stimuli or information to make meaning out of it. The
perceptual process comprises the following three important steps:
In addition to the three steps of the perceptual process, perceptual selection comprises three
mechanisms that help an individual screen their surroundings. These processes are as follows:
Learning
Learning is a process through which individuals acquire the experience of purchasing a product
and then apply the knowledge to any future purchase.
Individuals learn through the following two processes:

You also learnt about the three learning models, which are as follows:
Attitudes and Beliefs
Beliefs are the way people think about and what they believe about a particular product or
service, whereas attitude is a learned way to behave in a consistently favourable or unfavourable
manner concerning a given object. The attitudes and beliefs of a consumer help them form a
perception about a product.
You learnt that an individual’s attitude can be developed in the following three ways:
following basis:
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Summary
Consumer Decision-Making Process
In taking the decision to purchase a product, consumers go through different stages right from the
realisation of the need to buy the product to its actual purchase. The stages of this journey may
vary depending on the type of purchase and the expectations of the consumers.
Decision-Making Process
A consumer’s decision-making process in buying a product or service typically has five steps.
These steps can be defined as follows:
Decision-Making Rules
Before finalising a product to purchase, consumers make simple strategies in their minds to
choose the best product from the available options to them. These strategies are termed as
‘decision-making rules.’
Broadly, they can be divided into the following types:
Furthermore, you learnt that the non-compensatory decision rule can be divided into three types:
Online Purchase Decisions
The steps followed in the traditional and online decision-making processes are almost the same.
However, the consumer journey in the digital context is often shorter since each stage is tightly
integrated with the next. Due to better access, consumers can interact and gather information
about each other’s experience with a product or service.
This also means that consumer interaction occurs at every stage. For example, a consumer at the
evaluation stage may post their evaluation process online, which, in turn, might affect the
decisions of other customers.
You learnt that in a consumer’s online decision-making process, through the inner circle, they
inform each other and advocate the positives or negatives of a product.
The consumer journey for an online purchase can be represented as:
B2B Purchase Decisions
A typical B2B decision-making process for a consumer is different from a B2C decision-making
process. The stages in a B2B decision-making process are as follows:
Purchase Funnel
Businesses influence consumers along their decision-making process, right from the stage of need
recognition to the actual purchase of a product through the application of the purchase funnel.
The purchase funnel basically consists of the following four stages:
following basis:
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Summary
Introduction to Advertising
You began this session by learning about advertising and understanding that an effective advertisement
should be able to grab the attention of the audience, must have a clear message and should be aesthetically
correct.
Advertising Strategy
Broadly, you can divide the objectives of an advertisement as:
Next, you learnt about the message strategy and the creative strategy as two important strategies that are
used for communicating the message of an ad.
A message strategy can again be of three types, which are described in the table below.

A creative strategy captures the attention of the audience and invokes purchase intent. It aligns the
company’s objectives with the needs of the customers, both of which are in line with the type of marketing
channel being used.
Next, you learnt about the message source which determines who conveys the message in your
advertisement.
ATL, BTL and TTL Advertising Campaigns
You learnt how offline marketing channels can be divided into the following three types on the basis of their
level of audience reach.

By analysing a few ad campaigns, you were able to identify the objectives of the ads, the type of message
strategy being used and the brand’s unique value proposition.
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Summary
Offline Channels
In this session, you were introduced to the offline marketing channels available to a marketer while designing
an effective advertising strategy for their audience. Let us summarise each of these channels one by one.
TV Advertising
In this segment you learnt that to design an effective TV advertising strategy, you must pay attention to
three factors:
While choosing the right media vehicle for your ad, two important things must be kept in mind. These
are:
You learnt that the TV channel share can be calculated as the percentage of people watching one channel
as compared to the total TV viewership for a particular daypart.
Now once the media vehicle according to the target audience is identified, the next step is to choose the
right spot for your advertisement. In television, the different factors which influence the advertisement

spot are:
For deciding the frequency of your advertisement, you learnt that you can choose from three different
strategies defined as :
Radio Advertising
In this segment you learnt that in order to design an effective Radio advertisement strategy, you must keep
the following factors in mind -

While deciding the right media vehicle for your ad, you learnt that the Radio station should be calculated.
It can be calculated as:
Radio station share = AQH persons of one station/ AQH persons of people listening to radio in total
Here, AQH or Average Quarterly Hour persons is the average no. of people listening to a particular station
for at least 5 minutes during a 15-minute period.
While deciding your radio ad’s placement schedule, you can choose from the following two types:
For the flight schedule, you learnt about the Dayparts, which are:

The prime time however are the morning drives and the afternoon drives.
Moving on, you learnt that while deciding the frequency of your radio ad, you can use three different
strategies, namely:
Print media Advertising
Print media advertising includes advertisements through magazines, newspapers and pamphlets. Choosing
the right ad spot in a paper is necessary, as there are various national and regional level newspapers, with
diverse audience.
You learnt that to design an effective print media advertising strategy, the three factors that must be
considered are:
While choosing the right media vehicle, you must pay attention the following two aspects of the
newspaper/magazine you choose to place your ad in.
While deciding the placement of your ad in a newspaper, you must keep the following two factors in mind -

For a magazine however, you can select one of these positions to place your ad :
You also learnt that the frequency of an ad for newspapers and magazines should be:

Metrics for TV, Radio and Print Advertising
You learnt that the common methods used to measure the success of offline media channels are:
For Television, you learnt that the success of a campaign can be measured using three metrics, namely:

In the third metric ROI (Return on Investment), SOV is the share of voice which is calculated as the
percentage of your product’s share of impressions relative to the impressions of the competitors in the
category. SOE or share of expenditure is the company’s monitored media expenditure relative to the total
expenditure of the competitors.
For print media campaigns on the other hand, you saw the two most commonly used metrics are -
Outdoor Advertising
Outdoor advertising or out of home media (OOH) advertising is used to advertise about broad messages,
branding and support various campaigns. There are various forms of outdoor advertising which include:
In this segment, you also learnt through multiple examples that the language and the location of your
outdoor ad has a huge role to play in its success.
Metrics for Outdoor Advertising
In this segment, you learnt about the methods to measure the size of your potential audience. There are
three ways to do this.
Moving on, you learnt that the various metrics to measure the success of your OOH campaign are as
follows:

Event Advertising
Event marketing helps you to create more meaningful and long-lasting relationship with the customers. It
involves presenting and advertising your product via human commercials in a social gathering. There are
various types of events -
You also learnt that a company can have two roles while participating in an event. These are:
Metrics for Event Advertising
Events are an excellent way to demonstrate the value and benefits which your product or service offers in
front of the audience. Successful events not just attract audience, but they do it efficiently. The various ways
of measuring success of the event marketing campaign are: -

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is strictly prohibited.
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included in any public or private electronic retrieval system or service without UpGrad’s prior written
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Summary
Online Channels
In this session you learnt that online marketing channels can be divided broadly into two types -
Organic Channel: SEO
Search marketing strategies are used to increase any firm’s presence online so that whenever a potential
customer searches for their brand or a related service, their owned media assets are displayed at the top of
search results.
On-page SEO refers to all the activities that you can perform on your site to improve its ranking. It is further
divided into two parts:
Off-page SEO, on the other hand, refers to all the activities you perform away from your site to improve its
ranking. An important aspect of Off-page SEO is the Authority of your website in Google’s eyes.
You learnt about the three types of optimisation needed for an SEO campaign to deliver adequate outcomes.

Organic Channel: E-mail marketing
You learnt that there are five objectives that e-mail marketing helps companies to achieve. These are:
You also saw that the broad framework that helps brands to create an effective email marketing campaigns
comprises of 6 main steps:

You learnt that there are four key metrics to pay attention to when evaluating the effectiveness of any email
marketing campaign:
Paid Channel: Search engine marketing
You learnt that search engine marketing is a paid marketing channel and compared it against search engine
optimisation, an organic method of ranking higher in various search results. The main purpose of SEM is
trifold.

Finally, you learnt about the three main components of SEM ads:
Paid Channel: Display Ads
In this segment, you studied display advertising. It is essentially advertising on websites or on apps or on social
media websites through banners and other ad formats made of text, images, flash, video, and audio.
The main purpose of display advertising is to deliver general advertisements and brand messages to site
visitors. Loosely display ads can be bucketed into 3 categories:

Paid Channel: Social media marketing
In this segment, you studied the final leg of digital marketing: social media marketing. Throughout the
consumer decision-making process, social media marketing serves the following purpose:
Now, when a brand decides its social media strategy, the following are the key considerations:

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The following topics were covered in this session:
● Overview of the income statement that reports a company’s profit and loss over a period of time,
● Overview of the cash flow statement that segregates the cash inflow and outflow into various
categories, and
● Overview of the balance sheet that determines the financial position of a company at a particular point
of time.
The income statement measures the profit generated by a company over a period of time. It is also
known as the profit and loss (P&L) statement.
● Wealth is the accumulation of profit over a period of time.
In the long run, a company can generate wealth only by selling its products and services.
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The income statement does not give a holistic picture about a company’s financial position. Therefore, another
statement is required. A cash flow statement indicates the amount of cash inflows and outflows of a company
over a period of time.
● The cash inflows and outflows of a company are generated by the following activities:
● The following formula is used to calculate the total cash generated by a company during a particular
period:

While the income statement and cash flow statement try to capture a company’s performance over a period of
time, the balance sheet is a financial statement that depicts the financial position of a company at the end of
the period.
A balance sheet has two sides:
In a balance sheet, the following equation always holds true:
The shareholders, bankers and suppliers are the fund holders of a company.

The balance sheet shows the sources of funds acquired by a company and how it uses those funds.
It indicates the amount of money a company owns, the amount it owes to external parties, and the
amount invested by the shareholders of a company.
The three financial statements are used for following purposes:
UpGrad or its bona fide contributors and is purely for the dissemination of education. You are permitted to
basis:
used for subsequent, self-viewing purposes or to print an individual extract or copy for
non-commercial personal use only.
● Any further dissemination, distribution, reproduction, copying of the content of the document herein
or the uploading thereof on other websites or use of content for any other commercial/unauthorized
permission.

The following topics and concepts were covered in this session through the pizza food truck
activity:
● The basics of accounting
● The impact of business decisions on the three financial statements
● The link between the three financial statements
The exercise revolved around a pizza food truck business that is yet to start its operations. In the
start-up phase, the following financial transactions had taken place for the month of December.
These transactions impacted the financial statements, i.e., the balance sheet and cash flow
statement. The following points are key while accounting for these transactions:
● The cash injected by the food truck owner into the business is called the ‘share capital’.
● The raw materials purchased to manufacture pizza will be recorded as ‘inventory’.
● The ‘cash balance’ on the assets side of the balance sheet is the ‘cash at the end’ value
from the cash flow statement.
● The ‘total of assets’ is always equal to the ‘total of liabilities and equity’.

For the month of January, the following financial transactions had taken place for the pizza food
truck business.
These transactions impacted the three financial statements. The following points are key while
accounting for these transactions:
● The cash balance at the end of the previous month becomes the cash balance at the
beginning of the next month.
● The raw material and utility cost is an expense for the production of pizza.
● The inventory of raw materials at the end can be calculated using the following formula.
● By the matching principle concept, Cost of goods sold = Quantity sold x Production cost
per unit. Matching principle states that in the income statement, costs should be recognised
at the same time as the corresponding sales revenue, as the produced goods can be either
stored or sold.
● The truck rental cost will be a fixed expense for the food truck business.
● Using the ‘realisation of sales’ principle, Sales revenue = Quantity sold x Selling price per
pizza. This principle states that the sales should be recognised as the sales revenue when
the goods/services become the property of the company’s customer, irrespective of the
receipt of cash for them.
● Cash at the end of the period can be calculated using the following formula.

● The income statement accounts for the sales, cost of goods sold and other expenses for the
current period to arrive at the profit.
● The bottom line of the income statement is the profit for the month. It belongs to the
company’s shareholders and is, hence, added to the share capital in the balance sheet.
The ‘break-even’ point is a financial tool that helps in determining the number of units to be sold in
order to cover all expenses. It represents the minimum number of goods that need to be sold in
order to generate profits.
There are two types of costs:
The formula to calculate the break-even point and variable margin is given below.

For the month of February, the following financial transactions had taken place for the pizza food
truck business.
● ‘Sales on credit’ translate into ‘accounts receivable’ on the asset side of the balance sheet.
● The accumulated undistributed profits or losses of the company for the previous period are
recorded as the ‘retained earnings’ for the current period.
● In the balance sheet, assets should not be overvalued, and liabilities should not be
undervalued. This is known as the prudence principle.
● Inventory should be valued at the lowest of cost or purchasing price and market value.
If a company has negative or zero cash at the end of month but positive profit, there is a need to
analyse the reasons why the cash is stuck. If the cash is stuck in funding the operating working
capital, then there is a further need to analyse the following:

For the month of March, the following financial transactions had taken place for the pizza food truck
business.
● Fixed assets provide future economic benefits to the company.

● Outstanding payments create future liability for the business.
● Depreciation represents the spread of the purchasing price of an equipment throughout its
forecasted useful life span. It is expensed in the income statement for the current period. The
following are the key points about depreciation.
● Insurance on fixed assets is a recurring cost that the company needs to pay every month.
This value would be expensed in the income statement, irrespective of the cash or credit
purchase of the truck.
● Owner’s equity can be calculated using the following formula.

For the month of April, the following financial transactions had taken place for the pizza food truck
business.
● Increase in the credit sales increases the accounts receivable for the business. This impacts
the cash flow of a business.
● Purchase of fixed assets leads to cash outflow from the business.
● If the cash inflow from operating activities is less than the cash outflow from investing
activities, the cash at the end may turn negative or less than the cash at the beginning of the
period.
Analysing the three financial statements reveals the financial position of the company, which helps
in decision-making.

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to UpGrad or its bonafide contributors and is purely for the dissemination of education. You are
permitted to access print and download extracts from this site purely for your own education only
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● No part of this document or UpGrad content may be reproduced or stored in any other web
site or included in any public or private electronic retrieval system or service without
UpGrad’s prior written permission.

The following topics and concepts were covered in this session:
● The basic structure of the income statement

● The key metrics to look for in an income statement
● The basic structure of the balance sheet
● Dividends
● The link between the financial statements
The income statement, also known as the profit and loss statement, tells you about the income and
expenses that your firm has incurred over a period of one financial year.
The following principles of accounting are followed while preparing an income statement.

An income statement typically consists of the following line items.
While cost of goods sold, marketing, legal, HR, R&D, depreciation and amortisation are grouped
under operating expenses, interest and taxes comprise the non-operating expenses of a company.
To analyse an income statement, the following metrics can be used:
● Variable margin: It is often computed as a % of sales revenue to enable comparison among

companies and benchmarking with the industry average. It can be computed using the
following formula.

● Earnings before interest and tax (EBIT): It shows the profit from the core, primary
revenue-generating activities of a business. It can be computed using the following formula.
● Earnings before interest, tax, depreciation and amortisation (EBITDA): It shows the
cash-operating income of a company. It can be computed using the following formula.
EBITDA is a better indicator of cash-operating performance as compared to EBIT because of the

following reasons.
A balance sheet gives a snapshot of the financial position of a company at a particular point of time.
It has two sides: The Assets side and the Liabilities and Equity side.
● The assets side of the balance sheet consists of the following line items.

The value of inventory must be the lowest of the purchase price or estimated market value as per
the ‘Prudence principle’.
● The liabilities and equity side of the balance sheet consist of the following line items.

● When a company declares no dividend for a period, then,
● When a company declares dividend for a period, then,
After paying the dividend, the balance sheet of the company is still balanced.
The three financial statements are linked similar to the three ends of a triangle, and the resulting structure is
known as the financial triangle. This is because:
● The bottom line of the cash flow statement, ‘Cash at end’, is transferred to the asset side in
the balance sheet.
● The bottom line of the income statement, ‘Net profit’, is transferred to the owner's equity side
of the balance sheet.
In order to have a comprehensive view of the financial health of a company in any period, it is
important to analyse all the three statements.
Typically, a business can be summarised as having the following framework.
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A highly leveraged company is a company where the proportion of debt is more than
the proportion of equity. And, if the debt is used to finance a company’s assets, it is
called financial leverage. Financial leverage is often used to enhance the reward of
the shareholders of a company.
Let’s understand the concept of financial leverage with a small example.
Suppose you want to purchase 10g gold worth ₹50,000. You wish to sell the gold
after 1 year as you have a strong conviction that the price will then be around
₹60,000/10g.
Scenario 1: To fund this purchase, you use your savings worth ₹20,000 and borrow
₹30,000 from a bank at a 5% interest rate per annum.
After 1-year, the gold price reached ₹60,000.
So, you get ₹60,000 after selling the gold.
But, out of this ₹60,000, ₹30,000 needs to be repaid to the bank along with an
interest of ₹1,500. The residual amount, in this case, will be ₹60,000 - ₹30,000 -
₹1,500 = ₹28,500. Hence, this ₹28,500 will belong to you on your initial investment
of ₹20,000.
28,500−20,000
Therefore, return on equity = 20,000
= 42.50%.

Scenario 2: To fund this purchase, you use your savings worth ₹50,000. After 1-year,
the gold price reached ₹60,000.
Further, this ₹60,000 will belong to you on your initial investment of ₹50,000.
60,000−50,000
= 16.67%.
Hence, you can see that in both the scenarios, asset price and the final selling price was
the same. However, due to the difference in the amount of equity investment and presence
of debt in the total investment, the return to the
shareholders got enhanced.
However, in business, the increase in the

market price of the assets will not enhance the
return on equity. The assets purchased with
the capital invested will be put to operational
use to generate profits. This profit is
represented by the increase in the gold price in
this example.
One simple reason for the enhanced return in

scenario 01 can be,
1) The total return of ₹10,000 was distributed among a smaller equity shareholder
value and,
2) The fixed cost of debt (5%) is lower than the return on overall investment.
This ultimately pulled up the return on equity.
However, the presence of debt may not always reap positive results. That is why financial
leverage is also known as a double-edged sword.

Consider scenario 3: To fund this purchase, you use your savings worth ₹20,000 and
borrow ₹30,000 from a bank at a 5% interest rate per annum. Suppose, the price of 10g
gold after one year comes down to ₹40,000.
In this case, you get ₹40,000 after selling the gold.
But, out of this ₹40,000, ₹30,000 needs to be repaid to the bank along with an interest of
₹1,500. The residual amount, in this case, will be ₹40,000 - ₹30,000 - ₹1,500 = 8,500.
Further, the sum of ₹8,500 will belong to you on your initial investment of ₹20,000.
8,500−20,000
= -57.5%.
This is because the interest rate of 5% needs to be paid to the lender irrespective of the
profitability status of the company. When this fixed interest rate is lower than the return
earned on the investment, the return on equity is enhanced and if the fixed interest rate is
higher than the return earned on the investment, the return on equity is destroyed.
Let’s also consider the following scenario.
Scenario 04: To fund the purchase of 10g gold, you use savings worth ₹8,000 and
borrow ₹42,000 from a bank at a 25% interest rate per annum.
After 1-year, the gold price reached ₹60,000.
But, out of this ₹60,000, ₹42,000 needs to be repaid to the bank along with interest of
₹10,500. The residual amount, in this case, will be ₹60,000 - ₹42,000 - ₹10,500 =
₹7,500. Further, this sum of ₹7,500 will belong to you on your initial investment of
₹8,000.
7,500−8,000
= -6.5%.

Note: The return on equity may also get destroyed if the interest rate and proportion
of debt are not optimum.

The profitability framework can be used to build ratios and analyse the performance of a company.
The capital raised is invested to run the day-to-day operations of a company. This capital is employed in the
following resources:
Operating working capital can be defined using the image below:
The profitability framework helps build the following ratios:

The balance sheet is the closest financial statement that can be used to compute the capital employed.
However, both the sides of a balance sheet have mixed items, i.e., both the sides have operating and financing
items.
Some of the common operating and financing items as as follows:
To transform a balance sheet into an economical balance sheet, the operating and financing items can be
segregated as follows:
The key points related to operating margin are as follows:

The key points related to return on capital employed (RoCE) are as follows:
RoCE and operating margin are interlinked. Given below are the drivers of RoCE:
where,

The key points related to return on average capital employed (RoACE) are as follows:
The drivers of return on average capital employed are as follows:

Stakeholders having claim on RoCE are as follows:
Criteria for value creation include:
The RoCE is compared against the weighted average cost of capital (WACC) of a company. Listed below are
key points related to WACC:

Some key points related to return on equity (RoE) are as follows:
Increase in return on equity (RoE) occurs due to:
Factors that are multiplied to arrive at RoE from RoCE are depicted below:

The equation above reveals the following:
basis:
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● Any rights not expressly graned in these terms are reserved.

Here is a list of all the relevant metrics taught in this session. This sheet provides a quick view of the
formulas and uses of the various metrics. Keep it handy to save yourself some time in answering
questions.
Metric Formula Purpose
(Sales revenue - cost To assess the gross profit per

Variable Margin of goods sold) / Sales unit of sales
Operating income / To assess the operating profit
Operating Margin Sales per unit of sales
Net profit / Owners' To assess the return per unit
Return on Equity equity of equity invested
Earnings after taxes
before interest / To assess the return per unit
{(Opening capital of capital employed (when
Return on Average employed + Closing there is a change in capital
Capital Employed capital employed)/2} employed during a year)
To assess the return per unit
Earnings before of capital employed (when
Return on Capital interest and taxes / capital employed remains
Employed Capital employed constant)
Note: No single metric is sufficient to judge the financial performance of a company.

Different combinations of these metrics are used to analyse the financial health and
performance of a company.

The definition of operating working capital and the formula to calculate it is as follows:
The drivers of operating working capital include:
The operating working capital ratio can be calculated to facilitate comparison between companies:
● Working capital divided by sales = Working capital/Sales revenue × 100
● It is a measure to benchmark the performance of a company against that of other companies of

different sizes
In order to understand the drivers of working capital, you need to calculate the activity ratios of a company.
Given below are these activity ratios:
Changes in operating working capital may arise due to changes in business scenarios (which can be derived
through activity ratios), as discussed below:

Drivers of operating working capital include:
To optimise the overall cost of production, it is important to determine the batch size and number of units to
be produced in each batch. This prevents an organisation from paying additional set-up costs and warehousing
costs.
The total cost of production can be determined through the following formulas:

Graphically, optimum batch size is represented as shown below:
The optimal batch size can be calculated using the following formula:
𝑊𝑎𝑟𝑒ℎ𝑜𝑢𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑋 𝐴𝑛𝑛𝑢𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

2 𝑋 𝑆𝑒𝑡𝑢𝑝 −𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑏𝑎𝑡𝑐ℎ
Economic order quantity = Annual quantity produced divided by Optimum number of batches
basis:
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Hello there!
While a cash flow profile may look simple, it sometimes becomes difficult to derive
the intended meaning from the graph. Let’s now learn to interpret a simple cash flow
profile.
A simple cash flow profile is given below. It shows both the amount of cash flow and
the direction of cash flow, that is, positive or negative. In this graph, the three
categories of cash flow statements are represented by three bars in three different
colours.
Figure 1
Next, let’s learn to interpret Figure 1.

In this particular graph, i.e., figure 1, the cash flow from operating activities starts from
the horizontal axis. This is because the cash at the beginning is 0. The blue bar
extends upwards from 0 to 5000. This means that the cash flow from operating
activities is positive and is 5000.
The orange bar moves downwards from the level of 5000. This means that cash flow
from investing activity is negative.
If the bar would have extended

upwards from the level of 5000, then
the cash flow from investing activity
would have been positive and the
graph would have looked as given on
the right side in figure 2.
Figure 2
Coming back to the first graph, figure 1, the downwards movement of the bar is to the
level of 4000. This means that cash flow from investing activity is 5000 - 4000 = 1000
and due to downward movement, it is negative 1000.
The next bar in figure 1 is cash flow from financing activity. The cash flow financing
activity starts from the level where the cash flow from investing activity stops, that is,
4000. From this level, you can see that the bar moves upwards to a level of 6000.
This means that the cash flow from financing activity is positive. Further, the amount is
defined by the level at which the upwards movement stops, which is 6000 - 4000
=2000. The movement is upward so the cash flow financing activity is positive 2000.
Finally, the last bar in figure 1 represents the cash at the end. Cash at the end = Cash
at the beginning + cash flow from operating activities + Cash flow from investing

activities + Cash flow from financing activities. Hence, the grey bar extends to the
level of 6000 (0+5000-1000+2000).
Hence, to summarise:
Each bar in the graph starts from the level at which the previous bar stops.
If the bar moves upwards, it indicates a positive cash flow.
If the bar moves downwards, it indicates a negative cash flow.
The amount of movement is determined by the formula: Upper limit - lower limit.
Happy learning!

This session covered the following topics:
● The basic structure of a cash flow statement

● Interpreting a cash flow profile
● Cash flow from operations and total cash generated
A cash flow statement is a financial statement, which identifies the actual movement of cash due to
any financial transaction in a company:
● A cash flow statement starts with the ‘cash at the beginning of the period’, and the bottom
line is the ‘cash at the end of the period’. Between these two line items is ‘the total cash flow
generated’, which can be calculated as shown below.
The image below explains the different entities in the calculation of the total cash flow generated.

The excess cash from operations, which remains after investment in the company’s growth is
called the free cash flow. The free cash flow is what the company uses as a means to reward
the bankers and its shareholders for their investment in it.
The graphical presentation of a cash flow statement is known as the cash flow profile of a company.
Interpretation and analysis of the cash flow profile of a company reveals its cash flow position,
which can then be used to draw meaningful conclusions about the company.
The table below shows the different elements in the ‘cash flow from financing activities’ and ‘cash
from investment activities’.
Category Element
Financing ● Issue of new loan or repayment of existing loan

activities ● Issue of new shares for buyback of old shares
● Dividend distribution/interest payment
Investing activities ● Purchase of property, plant and equipment

● Sale of fixed assets
The following points are key while accounting for the cash flow from operating activities:
● It starts with the EBIT as it is closely linked to cash.

● The depreciation expense is an accounting non-cash expense; hence, it must be added back
to the EBIT to determine the true cash flow of the company.
● While accounting for the working capital, the key points include the ones shown in this table,

Element Increase Decrease
Accounts receivable Customers owe more Collection from the past

money to the company; year’s accounts receivable
cash outflow > Newly generated
accounts receivable; cash
inflow
Inventory Inability to sell; cash Sales increased; cash

outflow inflow
Accounts payable Company owes more Company has paid its

money to its suppliers; supplier; cash outflow
cash inflow
● The interest expense and taxes are deducted from the EBIT to arrive at the cash flow from
operating activities.
Analysing the cash flow statement reveals the difference between the profit made by the company
and the actual cash generated by it.

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A simple guide to
Time Value of Money
You are now well into the Accounting and Finance course.
We appreciate all the hard work you are putting in! The skills you are picking up in this course will
help you make sound financial decisions both in your personal and your professional life.
In the upcoming videos, you will learn one of the most important concepts of finance, the Time
Value of Money. The professors and experts will teach you a lot of cool formulae which will help
you perform all sorts of calculations and solve a variety of problems.
However, it is also important to remember that a lot of the concepts in finance are things that you
already know from experience! In this document, we will guide you towards adopting a basic
intuition that will help you solve all the problems that are thrown at you throughout this session.
Call it a learning hack, if you will.
The Value of Time
An Analogy
Let’s say you want to compare the raw

mathematical acumen of two kids: Anil and
Sunil. Anil is 10 years old whereas Sunil is 5.
Would it be fair if you compare their math skills

directly? No. A 10-year-old kid would be
significantly better at math than a 5-year-old.
This is because humans learn over time.
In order to do a fair comparison, you should

ask the questions: What kind of math problems
could Anil solve back when he was 5 years old? How does that compare to Sunil’s current math
skills?
You’ve just compared the kids on a level playing field, i.e. you compared them at an equivalent
age.

Value of Time in the Monetary Context
We do something similar while comparing monetary amounts. You cannot

directly compare two amounts from two different points in time. The ‘one
rupee’ that your grandfather carried in his pocket when he was young isn’t
the same as the ‘one rupee’ that you carry with you now. This is because
money grows with time.
But how does money grow? Let’s find out.
Compound Interest
Remember the concept of compound interest from your schooldays? Compound interest is how
money grows with time.
Imagine that your grandfather deposited that ₹1 in a bank at an annual compounding rate of 10%
per annum. Now, 50 years later, that one rupee would have grown to approximately ₹117!
How did we calculate this? There’s a simple formula for annual compounding:
𝑁𝑒𝑤 𝑎𝑚𝑜𝑢𝑛𝑡 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 × (1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑡
where, ‘t’ is the number of years.
Therefore, your grandfather’s ₹1 from 50 years ago is equivalent to ₹117 today!
If you want to do a fair comparison between your 1 rupee and your grandfather’s 1 rupee, you
won’t compare them directly to one another. Instead, you will first convert your grandfather’s
rupee to its present value (which is ₹117) and only then will you compare it to your ₹1.
Thus, even though both amounts look the same (₹1), they are vastly different because your
grandfather’s money had time to grow. This concept is known as the Time Value of Money.
Using the Time Value of Money
All investment decisions ultimately boil down to this: “Will I get more in return than what I am
investing?”
Let’s say you are investing in a fund, which is promising to give you ₹10,500 after a year if you
invest ₹10,000 today.
You may be thinking: ₹10,500 is greater than ₹10,000 so this is a great investment!
But hold on. Remember, these two amounts can to be compared only after we calculate their
value at an equivalent point in time.
You research and find out that your bank is giving you an interest rate of 10% per annum. This
means, your money has the potential to grow at 10%. Therefore, your ₹10,000 today would be
valued at ₹11,000 after a year.
Now you can compare ₹11,000 (the value of your money

after a year) with the ₹10,500 (the value that the fund will
give you after a year) because both these amounts exist at
the same point in time, i.e. after a year.
This basically means you are spending ₹11,000 to get

₹10,500. It’s a bad investment!
This is a fundamental principle that you can use to solve all

problems that are thrown at you throughout this session.
The formulae that you will learn in the upcoming videos will sometimes help you arrive at answers
faster. But if you’re ever stuck, just remember to convert all cash amounts to a single
point in time before comparing them.
Happy learning,
Cheers,
Team upGrad

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other commercial/unauthorised purposes in any way which could infringe the intellectual
property rights of upGrad or its contributors, is strictly prohibited.

The concept of time value of money suggests that the money earned today has more value than the same
amount of money earned in the future. This is due to the potential earning capacity of the given amount of
money. The two most common terms used in corporate finance are mentioned in the following diagram.
The compound rate and the discount rate are used to arrive at the following two values:
The relationship between the present value (PV) and the future value (FV) can be depicted using the following
formula:
(𝑇*𝑁)
● 𝐹𝑢𝑡𝑢𝑟𝑒 𝑣𝑎𝑙𝑢𝑒 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 ∗ (1 + 𝑅/𝑁) , 𝑤ℎ𝑒𝑟𝑒,
○ R: The rate of interest,
○ T: The time period, and
○ N: The compounding intervals per time period.
There are two more common terms used in corporate finance, which are mentioned in the following diagram.
The Excel function for calculating the present value of a single future cash flow is as follows:
● = 𝑃𝑉(𝑟𝑎𝑡𝑒, 𝑛𝑝𝑒𝑟, 𝑝𝑚𝑡, 𝑓𝑣, 𝑡𝑦𝑝𝑒), 𝑤ℎ𝑒𝑟𝑒,

○ rate: The rate of interest,
○ nper: The number of payment periods,
○ pmt: The recurring cash flow,
○ fv: The future value of the cash flow, and
○ type: The timing of the cash flow. This input is optional; it takes the default value as 0. It can
be changed as follows:
■ 0: If the payment is made at the end of the period
■ 1: If the payment is made at the beginning of the period.
Certain investment opportunities involve multiple cash flows instead of one-time cash inflow and cash
outflow. A fixed cash flow for a fixed period of time is known as annuity.
To calculate the present value of a periodic set of equal amounts of cash flows, i.e., annuity, the following
formula can be used:
𝑛
𝐶𝐹1
● 𝑃𝑉 = ∑ 𝑇 , 𝑤ℎ𝑒𝑟𝑒,
𝑡=1 (1+𝑟𝑎𝑡𝑒)
○ 𝑟𝑎𝑡𝑒: 𝑇ℎ𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡, 𝑎𝑛𝑑
○ 𝑇: 𝑇ℎ𝑒 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑.
The total present value indicates the maximum amount of money that you should invest in a project. Any
amount that is greater than the total present value would result in a loss for the project.

In order to make a decision regarding any project, you need to compare the total present value (sum of the
present values of individual cash flows) with the initial investment. The decision can be made based on the
following points:
The Excel function for calculating the present value of an annuity is as follows:
● = 𝑃𝑉(𝑟𝑎𝑡𝑒, 𝑛𝑝𝑒𝑟, 𝑝𝑚𝑡, 𝑓𝑣, 𝑡𝑦𝑝𝑒), 𝑤ℎ𝑒𝑟𝑒,

○ pmt: The recurring cash flow: annuity value,
○ fv: The future value of the cash flows, and
○ type: The timing of cash flow. This input is optional; it takes the default value as 0. It can be
changed as follows:
■ 1: If the payment is made at the beginning of the period
One important point to remember while using the PV function in Excel is provided below:
The absolute value of the result derived using the PV function should be compared with the absolute value
of the initial investment in order to make an investment decision. The decision can be made based on the
following points:

The FV function in Excel for calculating the future value of an annuity is as follows:.
= 𝐹𝑉(𝑟𝑎𝑡𝑒, 𝑝𝑒𝑟𝑖𝑜𝑑, 𝑎𝑛𝑛𝑢𝑖𝑡𝑦, 𝑝𝑣, 𝑡𝑦𝑝𝑒), 𝑤ℎ𝑒𝑟𝑒,

○ pmt: The recurring cash flow,
○ pv: The present value of the cash flows, and
○ type: This input is optional; it takes the default value as follows:
■ 1: If the payment is made at the beginning of the period
The FV function also follows the Excel convention.
If the fixed future value, the interest rate and the time period are given, then the annuity value can be
calculated using the following equation:
𝐹𝑢𝑡𝑢𝑟𝑒 𝑣𝑎𝑙𝑢𝑒
Annuity = 𝑇*𝑛 , where,
[{(1+𝑅/𝑛) }−1]/𝑅
○ R: The rate of interest, and,

○ T: Time period
○ n: The compounding intervals per time period.
There are two methods for calculating the present value of uneven cash flows, which are mentioned in the
following tables.

● The value derived from the net present value (NPV) function must be compared with the initial
investment to make an investment decision.
● The total PV also gives the maximum value that must be paid for an investment made today based
on the future return on the investment. Any amount that is greater than the total PV will lead to a
loss for the project.
The future value of uneven cash flows can be derived by calculating the FV of individual cash inflows. Refer to
the points mentioned in the following table.

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Cost of capital is a crucial element in the process of investment decision making and valuation of firms. If a
company invests in projects where the return is greater than the cost of capital, then there is value creation.
On the other hand, if the return is less than the cost of capital, then there is value destruction.

A company acquires the required capital from various sources, such as by borrowing from outsiders or using

funds from owners. These sources are mentioned in the following diagram.
A company has to pay the following charges to both the sources for the risk that they assume by investing
their capital in the company:

The risk assumed by debt providers is lower than the risk assumed by equity owners. Therefore, the cost of debt
is lower than the cost of equity.

The formula for calculating the weighted average cost of capital (WACC) is as follows:

W ACC = (W eightage of debt x cost of debt) + (W eightage of equity x cost of equity) , where,
Debt
○ Weight of debt is calculated as:
(Debt + equity)
and
Equity
○ Weight of equity is calculated as:
(Debt + equity)

The weighted average cost of capital is compared to the return on investment to determine the feasibility of a
project. To understand this better, refer to the points mentioned below.

A few key points regarding the cost of capital are mentioned below.

The techniques of project evaluation help in identifying whether an investment opportunity is profitable or
not. Some of the key techniques of project evaluation are mentioned in the following diagram.


● Net present value (NPV) is the present value of the future cash flows minus the present value of the
initial investment. NPV can be calculated using the following formula:
, where,
■ CFt= Cash flow for that year,

■ R = Cost of capital,
■ T = Time period, and
■ Outlay = Present value of initial investment.
According to the NPV technique of project evaluation:
Other key points regarding the NPV technique of project evaluation are mentioned below.

● Profitability index (PI) is measured as the ratio of the present value of cash flows to the initial investment. It
P V of f uture cash inf lows
can be calculated as follows: P I = Initial investment
. Other key points regarding the PI
technique of project evaluation are mentioned below.
● The rate of return at which the present value of cash outflows is equal to the present value of cash
inflows is known as the internal rate of return (IRR). IRR can be calculated using the following formula:

C1 C2 CN
○ NPV = C 0 + + + ... + by substituting the value of NPV = 0
(1 + r)1 (1+r)2 (1 + r) n
○ = IRR(Range of value), where range of values = initial investment and cash inflows for the year
According to the IRR technique of project evaluation:

● The payback period of an investment refers to the time taken to recover the full cost of the
investment. The drawbacks of payback period are mentioned below.

The general principles of project evaluation are as follows:


Every project comes with its own set of risks. Some of the risks are visible to a project manager at the beginning
of the project, while some risks are encountered while undertaking the project.
There are two types of risks, which are as follows:

● Internal risks: These are risks that can be controlled by the organisation. The different types of internal
risks are mentioned below.
● External risks: These are risks that cannot be controlled by the organisation. The different types of
external risks are mentioned below.


There are certain risk evaluation techniques that can help a manager prioritise the risks affecting their
project, thus enabling them to come up with mitigation strategies in order to counter the risk. The two
techniques that can be used to evaluate the risks of a project are as follows:
● Sensitivity analysis: It refers to observing changes in the NPV by changing one input variable at a time. To

understand this better, refer to the points mentioned below.
● Scenario analysis: It refers to observing changes in the NPV by changing multiple input variables at a time.

There is a base-case (expected scenario for a project) situation, a best-case (scenario with no risks)
situation and a worst-case (scenario with multiple major risks) situation.
○ A firm assigns probabilities to the NPV values for all the scenarios to calculate the risk-adjusted
NPV for a project. For this risk-adjusted NPV, refer to the points mentioned below.

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Leadership can be defined as the ability to lead people to success by influencing, persuading, inspiring and
empowering them. Hence, communication is the cornerstone of leadership and is the key to success in today’s
interconnected world.

Communication can be classified into two types:
1. Non-verbal communication, and
2. Verbal communication

Communication that takes place without the use of words, by relying on gestures, facial expressions, tone,
etc., to convey feelings, attitude and emotions is known as non-verbal communication.

Non-verbal communication can take place in two ways:
1. One-to-one communication
● Helps reinforce verbal communication using body language
● Helps in defining relationships between people
2. One-to-many communication
● Helps establish a connection with the audience
● Helps understand the audience’s response
● Helps emphasise the message being conveyed

Sometimes, a person's words can contradict their actions. Hence, it is important to use your own judgement
and ask clarifying questions before making any assumptions.

Non-verbal communication can be broadly classified into five forms:


Posture is the way a person stands, sits, or holds his/her body. There are two types of postures:

1. Open posture: An open posture communicates openness/interest in someone and a readiness to
listen. It includes standing erect with your shoulders straight and drawn back and your weight equally
distributed on both legs.

2. Closed posture: A closed posture communicates submissiveness, shyness, defensiveness, discomfort,
or a lack of interest in the conversation. It is indicated by slouching, folding arms, crossing legs, leaning
on one leg, or an inclination to face away from the other person.

Gestures include movements of a person’s head, arms, hands, etc., to convey feelings, intentions, ideas, and so
on. A crucial gesture used in interpersonal communication is the ‘handshake’. There are three types of
handshakes:
1. Dominating: When one hand of a participant is on top, this means that they are indulging in a
dominating handshake.
2. Submissive: When one hand of a participant is on bottom this means that the participant is indulging in
a submissive handshake.

3. Equal: If both participants’ hands are equally balanced, then it is an equal handshake.

Apart from handshakes, the three kinds of gestures that are most commonly used in a business setting are as
follows:

Palms exposed Denotes accepting nature,
openness, honesty, and
trustworthiness. It is used with
equals, such as colleagues.
Palms facing down Denotes power and authority. It is

used in front of subordinates to
communicate strict adherence to
rules, deadlines, etc.
Closed hand with pointed finger Denotes condescendence. It is

used to communicate veiled
threats.

The mirroring technique, which involves imitating the body language of the other person by subtly taking on
his/her facial expressions and gestures, is an effective way to establish a connection with that person.
However, one must take care not to imitate the negative body language of a person.

Eye contact forms a crucial part of ensuring a proper flow in everyday communication. Depending on the
situation and the kind of relationship that you share with the other person, you can employ one of following
three types of eye contact:


Business gaze ● Used with clients,
colleagues, etc., in a
business environment
● Focus your gaze at an
imaginary triangle starting
from the forehead of the
person, with the line
joining the eyes forming
the base of the triangle.
Social gaze ● Used in social set-ups with

friends/acquaintances.
● Focus your gaze at an
imaginary triangle just
below the eyes, including
the nose and lips.

Intimate gaze ● Reserved for a

partner/spouse
● Focus your gaze at the
area from the eyes to
below the chin.

The benefits of making proper eye contact are shown in the following image:


Facial expressions form a vital part of social interactions. They help you infer the emotional state of
the other person properly and, hence, help you interact accordingly. The seven broad types of human
emotions are shown in the image below:

Types of facial expressions:
1. Macroexpressions
● No attempt to modify/ conceal emotions
● Last for 0.5 to 4 seconds
● Easy to see and identify
2. Microexpressions
● Expressions go off the face in a fraction of a second
● Signs of concealed emotions
● Cannot be controlled voluntarily


While interacting with someone, you should constantly be on the lookout for expressions that occur fleetingly
and compare them to the emotion behind the words being expressed by the person. A mismatch between the
two is a clear sign of deception.

Vocalics refer to the characteristics of voice that provide the context to enable the right interpretation of
verbal messages. Vocalics can be divided into the following four components:

1. Pitch
● A high-pitched voice indicates excitement or nervousness.
● A low-pitched voice is deep, relaxed and measured, and has a dominating effect on the listener.
2. Rate of speech
● Fast-paced speech indicates dishonesty, lack of confidence or impatience.
● Slow-paced speech is used to stress the importance of what is being said.
3. Volume
● Low volume of voice reflects shyness or nervousness.
● A clear and loud tone denotes confidence.
● Leaders sometimes drop the volume of their voices to draw attention to something extremely
important.
4. Pauses
● One should take an appropriate number of pauses to help people understand what they are
trying to communicate.
● Taking too many pauses is a sign of lying or deception.

The ability to identify, understand and manage both your own feelings and those of others and use these
emotions to guide your actions and decisions is known as ‘emotional intelligence’. The four components of
emotional intelligence are shown in the image below:


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In today’s world, managers are required to address their teams in meetings in order to convey important
information, strategise plans, track progress on projects, and empower their teams. In order to do so
efficiently, both the content and the delivery of what is being conveyed by a manager should be top-notch.

The rhetorical triangle is a great tool to structure content in order to present the most persuasive argument. It
has the following three components:

1. Ethos helps build trust with the audience by establishing credibility and authority.
2. Pathos helps establish an emotional connection with the audience.
3. Logos helps the audience think by including statistics, data, etc.

These three elements should be used in an interconnected and balanced manner, depending on the context.
Both content and delivery go hand in hand when it comes to public speaking. Some of the ways to improve the
delivery of a speech are shown in the image below:


The most commonly used form of oral communication at the workplace is a presentation. Some tips to create
and deliver a good presentation are shown in the image below:


The ‘what’, ‘why’, and ‘how’ of a presentation are as described below:


The 10-20-30 rule states that a presentation should have no more than 10 slides, should last less than 20
minutes, and should have a font size not less than 30.

After delivering a presentation, the next important task is to answer questions from the audience. The ability
to properly answer audience questions after giving the presentation plays a great role in deciding the success
of your presentation. Some tips that can help you answer audience questions more effectively are as follows:


However, if someone asks you a question that you do not know the answer to, you should calmly reply that
you will be able to answer the question when you have more information on the subject. There is no harm in
accepting that you do not know the answer to a few of the questions.

The effects of ineffective communication are shown in the image below:


As workplaces are getting more and more diverse, it has become important to overcome these communication
barriers within teams. It is important to identify these barriers in order to overcome them. The most
commonly faced barriers to effective cross-cultural communication are as follows:

These cultural differences can be overcome by:


Instead of turning a blind eye to cultural differences, one should make oneself aware of these differences by
politely asking questions, researching, and so on.

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In business, a lot of communication happens in the written format. This can be in the form of reports, emails,
business letters, memos, performance appraisals, etc. The level of formality depends on the type of document
that you are writing and the kind of audience that you are writing for/to. Business communication can take
place in the following forms:

A well-written business document should have the following four qualities:
1. Direct: It should get to the point straight away.
2. Logical: It should consist of data points and logical inferences instead of statements such as ‘I feel it
should be this way’ or ‘I think we should do this’.
3. Concise: It should precisely convey the required information without giving unnecessary details.
4. Clear: It should be easy to understand, without any scope of misunderstanding or misinterpretation.

The four stages of writing a business document are as follows:


In a business setting, written communication mostly happens through emails. Hence, it is important to
structure your emails in a proper and effective manner. The three main components of an email are as follows:

1. Subject line: A subject line is important to catch the reader’s attention, and it should also clearly
communicate the context of the email. For this, the subject line should have the following
characteristics:
● It should be catchy, short and focussed.
● It should never be a one-word line such as ‘URGENT!!’.
● It should convey the content and context of the email in 4–5 words.
● It should create interest and a sense of urgency in the mind of the reader.
2. Body: The body of an email contains the following four elements:
● Salutation: This should address the recipient appropriately. For an unknown recipient, use
‘Dear Sir/Madam’; for women, add ‘Ms.’ before the name; and for a person holding a doctorate,
use ‘Dr.’.
● Introduction: This builds up the context of the email. It begins with the sender’s introduction
and the name of the person who referred the sender to the receiver, if applicable. It also
touches upon the main reason for sending the email.
● Message: This details the purpose of the email. Add relevant facts and figures here. If needed,
add any extra information that may interest the receiver. Use links or attachments instead of
making the email body too long.
● Conclusion: This includes the action that a recipient should take after reading the email. Ask
for small and easily actionable tasks to ensure a response. The conclusion should also include
proper send-offs, such as ‘Best regards’, ‘Best’, ‘Regards’ or ‘Best wishes’.


3. Signature: A proper email signature should ideally have the following sender details:
● Name
● Title
● Contact number
● Organisation’s name or logo
● Links to social handles containing samples of work

Lack of adherence to business etiquette makes communication inefficient and non-actionable. Hence, basic
writing etiquette needs to be followed, which can be broadly classified into the following two categories: ‘How
to write an email’ and ‘How to reply to an email’. These are depicted in the following image:

Along with complying with the business etiquettes mentioned above, you should avoid making the following
mistakes in your communication:


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In this session, we discuss three main topics: the concept of personal branding, its importance in today’s
world, and the steps towards creating a personal brand vision statement. Let’s understand these, one by one.

Personal branding is about an individual's values, ethics, what one stands for, what is one’s aim, and how one
portrays and communicates these aspects to the outside world. It is similar to the concept of branding of
products, except the products here are the individuals themselves.

As individuals, we communicate our personal brand on a daily basis without making any conscious effort. For
instance, we write articles or blogs; we like, share, or comment on certain articles or posts; we share our
pictures; we express our opinions, and so much more.

In effect, we are portraying our personality, our values, and our beliefs to the outside world through digital
media. It reflects who we are as individuals and shapes how the outside world perceives us.

In today’s hyperconnected and overcrowded digital environment, personal branding has become imperative
for individuals to stand out from the crowd. Large companies often tend to have individuals with strong
personal brands at CXO levels because they are the ones who represent the company and, hence, help
enhance the company’s value. Also, if a company is owned by an individual, his/her personal brand is directly
associated with the firm. Thus, the effects of personal branding often percolate into the firm.

Personal branding is important as it helps individuals meet their goals such as increase their recognition in
their respective industries, increase their sales numbers, or land better jobs.

The vision statement reflects the objective of creating one’s personal brand. It includes things that we value,
our passions, our goals, and our personality traits which will help us achieve those goals. To create a vision
statement, you need to understand yourself, your motives, and your aims. All these can come together to
create a personal brand vision statement.

To create a personal brand vision statement, you need to list down the following:

1. Values: Values are what drive an individual and are extremely important as they help the individual in
making decisions. The priority and importance of each value keep changing, depending on the different
stages of life. These values should, therefore, be listed according to their current priority levels.
2. Passions: Passions are qualities that inspire and motivate individuals. If an individual is passionate
about something, they spend significant time on it and pursue it diligently.
3. Strengths: Strengths are the key qualities of an individual and refer to what one brings to the table at
work.
4. Goals: Goals should be as specific as possible and also include timelines to make them objective to the
extent possible. Some examples of goals are:
● Become the marketing head of a global conglomerate within five years.
● Start a healthcare firm within the next two years.
● Get a job at a data analytics firm within the next six months.
● Get a promotion and 20% salary hike at my current company within the next year.

A personal brand vision statement can be written in the structure given below:

‘My vision is to (goal: write down your goals here) using my (passions and/or key strengths: mention your
passions and/or key strengths here). I want to achieve my goals using my (values and/or key strengths:
mention your values and/or key strengths).’

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This session will cover the following topics:
● Defining your target audience
● Building online and offline assets for personal branding
● Maintaining your personal brand

You should target your personal branding communication towards a specific audience that can help you
achieve your goals. The table below lists examples of the target audience one must choose for a set of goals:

Goal Target Audience
Better career opportunities Recruiters
Increase in sales Current client network and potential clients
Grow your network and establish thought Industry colleagues

leadership

Building a personal brand requires communicating an individual’s values, attributes and strengths to their
target audience. Therefore, one must build assets, both online and offline, in order to communicate one’s
personal brand vision statement.

Here are the various online assets that can be used for personal branding:

LinkedIn: This is one of the most widely used professional networks and is growing rapidly. Here are some
guidelines for using this platform:
● Professional headshot: You should have a professional headshot as your profile picture.
● Background photo: It is a visual statement on your profile, grabs people’s attention, and acts as a
catalyst for engagement.
● Creative headline: Your headline should be such that it captures people’s attention and showcases
your qualities.
● Summary: This should be used to tell your life story and should not be left blank. This allows people to
connect with you on a more humane and personal level.
● Updated profile: An unfilled profile reflects unprofessionalism and shows inactivity. You should,
therefore, fill out your profile properly and regularly update it to reflect your current job and profile.
● Skills and endorsements: List out your skills and get endorsements as they help in verifying your skills
since they come in from a third party.
● Media and marketing collateral: Share case studies and white papers to showcase the work you do.
This adds an extra dimension to your profile.
● Publishing platform: This is one of the most important aspects of LinkedIn. It allows you to publish
your thoughts and opinions via blogs and share them with your network. The more you publish, the
higher are your chances of increasing your engagement and achieving your personal branding goals.
● Engagement: You should engage with the members of your target audience. Numerous other articles
are published daily on LinkedIn that are in alignment with your personal branding efforts; these
articles should also be leveraged for engagement purposes.
● Recommendations: These add credibility to your personal branding efforts and showcase key
qualities to your target audience.

Facebook: This is more of a personal social network but has a large user base. Guidelines for using this
platform are:
● Privacy option: This allows individuals to keep some of their content private and ensures that a user
can control what is publicly visible. Individuals should share some personal information so that people
can feel connected to them. They should, however, not share any unprofessional or inappropriate
content.
● Optimise visible areas: Certain areas are visible to everyone, such as name, profile, display picture,
cover photo, and the custom URL name. Hence, they should be optimised.
● Link to other social profiles: This allows people to move to your professional profiles.
● Engagement: Similar to that on LinkedIn, individuals should engage with their target audience on
Facebook through likes, shares and comments on articles.

Twitter: Guidelines for using this platform are:
● Handle: One should carefully choose a handle to make it look professional and not tacky.
● Updated profile: The profile should be regularly updated to showcase your likes, dislikes and your
current profession.
● Follow leaders: You should closely follow different leaders so as to learn the tricks of the trade.
● Create and curate content: You can share snippets of your blogs and articles along with their links to
ensure that people are being diverted towards the main articles. You can use trending hashtags to
create engagement. You should tweet regularly, with a proper schedule.
● Engagement: You should engage with the people you follow and the ones who follow you. The more
the engagement, the more visibility your personal brand gets.
● Blogs: Third-party blogs that receive a lot of traffic from your target audience should be targeted to
publish articles. Articles published on such platforms help you build a thought leadership stance in the
industry.

Offline assets for personal branding communication include:
1. Business cards:

2. Professional networking events:
● Participation in relevant forums and networks helps you build face-to-face relationships with
your target audience and expand your network.
● Speaking slots at such events also add a lot of value. These provide an opportunity to speak
before a new audience and demonstrate your expertise to them. Such events should be
tracked on a regular basis, and you should reach out to the organisers in advance for speaking
slots as they get filled very quickly.

Building a personal brand is not just a one-off activity but requires considerable and continuous efforts. The
steps that you need to follow in order to successfully build your personal brand are:


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This session will cover the importance of monitoring your personal brand and the best practices of doing so.

Your personal brand portrays your personality, values and opinions. If your values are not being accurately
portrayed on online platforms, it will have a negative effect on your personal brand and the achievement of
your goals. People comprehend what they see and, therefore, monitoring the same becomes an important part
of the entire personal branding process.

Large firms understand the importance of monitoring their brands, and this is reflected in their immediate
responses to any queries or comments online. They ensure that they are available for their customers at all
times and that nothing negative is being said or portrayed about the brands and their values.

Monitoring a personal brand has two main aspects:
1. Keeping a constant check on what is being communicated about you
2. Responding to communications

Let’s go through the two aspects, one by one:

1. Keeping a check on what is being communicated about you
The first step is to search for information about yourself on Google. The objective is to check what appears
and to ensure that nothing inappropriate shows up. It is important to remember that the end objective is not
to hide your real personality and showcase a false one, but to ensure that your online presence is consistent
with your values and personal branding goals. Some tips to deal with inappropriate content that shows up on a
Google search are:
● If you find anything objectionable, remove it.
● If a friend has posted something objectionable, ask him/her to remove it.
● If the content is in the control of a third-party platform, reach out to them to sort it out.

Apart from searching for information on yourself on Google, you should also thoroughly monitor your social
media profiles. There are many tools available that can help you monitor your online presence and
performance as far as building your personal brand online is concerned. Some of them are:


2. Responding to communication
You should keep a daily check on your blogs, posts, and any other forms of content, such as guest articles you
have written, to ensure that you respond to people who may be trying to connect with you. Missing out on
responding to such people can jeopardise your personal brand-building efforts and portray you as a
non-responsive person.

Spend some time every day to check all communication that has taken place on your content. If a reply is
required, you should ensure that you respond as soon as possible. Delays often increase the chances of losing
out on the engagement opportunity.

There are also certain other factors that must be kept in mind while responding and engaging with individuals
on online platforms. Often, articles and posts receive negative feedback or comments. You should ensure that
you stay calm and respond to such feedback professionally without instigating a fight. In order to avoid
escalation, certain occasions may even require you to block repeat offenders. The key here is to ensure that
you do not hurt your personal brand.

To conclude, monitoring your personal brand should not be treated as a one-off activity but rather a
continuous and ongoing effort. There needs to be regularity and consistency in building, maintaining, and
monitoring your personal brand.


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In this session, you were introduced to the concepts of statistics and basics of data visualisation.
Data, today, is one of the most important tools that, if read properly, can reveal many doors and solutions at
the same time. In this session, you learnt the basics of statistics and how to use data visualisation effectively.
First, you learnt what statistics is and the basic concepts in statistics.
Statistics is basically collection, summarisation, analysis and reporting of data in a well-organised manner.
There are two types of statistics:
1. Descriptive statistics: In this type of statistics, you analyse the data that has been collected and find
patterns in them. It is often used to analyse past performances of the employees or marketing tactics.
2. Inferential statistics: In this type of statistics, you analyse the data and predict future events. For
instance, predicting company sales and impact of marketing strategy.
Next, you explored the basic concepts in statistics, which included:

1. Data: Any information collected or generated from online activity or otherwise is known as data. Any
attribute of an object can be recorded as data. For example, the most bought dress, the cost of a dress,
etc.
2. Dataset: A collection of data for a particular study is known as a dataset. For example, various types of
purchases made on christmas.
3. Variable: Any characteristics such as age, weight etc that can be measured or counted. Suppose you
need to use some data repeatedly in a report. Here, you can define a variable, that is, a name that
represents the data. You can then use the variable instead of describing the whole data repeatedly in a
report.
Types of variables:
● Qualitative or categorical variables
● Quantitative variables
○ Discrete variables
○ Continuous variables

Data visualisation is a part of statistics that helps you build a narrative and present your data in the best
possible way.
First, you learnt bar graphs as a data visualisation tool.

You learnt that bar graphs show relative data of various components of data.
Given below is an example of a data represented in the form of bar graph:
Next, you learnt how to create a bar chart in Excel:
1. Select the range. For example, F1:G16.

2. In the Insert tab, of the Charts group, click on the Column symbol.
3. Select the desired type of bar graph.

4. The resultant bar graph will appear on your sheet.
Next, you learnt another data visualisation tool, that is, pie charts.
Pie chart is the circular representation of data. A pie chart is used when 100% of data needs to be represented
and the division of categories is within 100%.
Given below is an example of a data represented in the form of pie charts:

Next, you learnt how to make pie charts in Excel.
1. Select a range, say, A1:D2.
2. In the Insert option, select the Pie symbol.
3. Select the desired type of pie chart.
4. The final result will appear on the Excel sheet. Add labels as necessary.

Next, you learnt another visualisation tool, that is, histograms.
A histogram is a visual representation of the distribution of data. The data can be of two types, numerical and
categorical. Two important points about histograms are as follows:
● A histogram is an extended form of a bar graph in which there are no gaps between adjacent bars.
● To construct a histogram, you need to first construct a frequency distribution table.
Finally, you learnt how to make a histogram in Excel.
1. Enter the bin numbers (upper levels) in the desired range (say, C8:C15).

2. Click on Data Analysis in the Data tab.
3. Select Histogram and click Okay.
4. Select the Input range.

5. Click the Bin Range box and select the range you want.

6. Then, click on the Output Range option, click in the Output Range box and select any cell.
7. Check final Chart Output and label them.

Disclaimer: All content and material on the upGrad website is copyrighted, belonging to either upGrad or its bona fide
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purposes in any way that could infringe the intellectual property rights of upGrad or its contributors is strictly
prohibited.

In this session, you learnt various measures of central tendency.
Measures of central tendency help to understand data in a systematic manner. Each measure is an indication
of a different tendency.
You first learnt the three basic measures of central tendency, which were:
● Mean
○ Mean is the sum of all the data values divided by the total number of sample values.
○ Mean is commonly represented by the symbol 𝝁.
● Median
○ If you arrange the sample data in the ascending order of frequency, from left to right, the value
in the middle is called the median.
○ For an odd number of values, you get one median.
○ For an even number of values, the median is the average of the two middle values.
● Mode
○ In a data set, the value with the highest frequency is referred to as the mode.
○ For qualitative data, it is not possible to measure the mean or median values, as there are no
numerical values.
○ Thus, the variable with the highest frequency is considered as the measure of central tendency
in such cases.
Next, you learnt how to calculate these measures using Excel. The formulas for mean and median would be as
follows:
● Mean can be calculated using the Excel function =AVERAGE(A1: A20) if the data is distributed over
A1: A20 in the Excel workbook.
● Median can be calculated using the Excel function =MEDIAN(A1: A20) if the data is distributed over
A1: A20 in the Excel workbook.

The second part you need to consider when calculating the measures of central tendency would be the effect
of the outliers, which are called measures of dispersion.
First, you looked at the following parameters that are used as measures of dispersion:
a. Variance: Variance is the variability of individual data points.

b. Standard deviation: Standard deviation is the square root of variance.
Next, you learnt how to calculate variance using the following formula:
● Variance = ∑(x−μ)^2/(n) (for a population) | ∑(x−μ)^2/(n-1) (for a sample)
Next, you focussed on standard deviation.
● Standard deviation is the square root of the variance. This metric serves the purpose of measuring
variation without exaggerating its magnitude. It is popularly represented as 𝜎. So, the variance is
represented as σ^2.
● Standard deviation can be calculated using the Excel function =STDEV.S(A1: A20) if the data is
distributed over A1: A20 in the Excel workbook.
Next, you learnt another measure of dispersion, that is, interquartile range. Unlike standard deviation,
interquartile range is also considered as a measure of resistance.
The interquartile range is said to be a much better parameter to indicate the variation or spread in the data.
Quartile values refer to the values in a sample at the 25th, 50th, 75th and 100th percentile.
Next, you learnt the visual representation of an interquartile range, as shown below:

Finally, you learnt how to calculate the interquartile scores using Excel.
● QUARTILE functions mentioned in the table below can be used in Excel.
Quartile Excel Function
25th percentile or First Quartile QUARTILE (A1: A20, 1)
50th percentile or Second Quartile QUARTILE (A1: A20, 2)
75th percentile or Third Quartile QUARTILE (A1: A20, 3)
100th percentile or Fourth Quartile QUARTILE (A1: A20, 4)

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In this session, you learnt all about probability and different concepts involved in probability.
When it comes to dealing with data, it is important to understand how probable it is for an event to occur or
how likely a proposition is true, and probability does exactly that.
Probability helps to take well-informed and calculated decisions, which is essential when it comes to handling
a business.
In this segment, you learnt about what exactly probability is.
Probability is a measure of uncertainty that helps us understand the chance that a certain event can occur
out of all possible outcomes.
Probability is a mathematical formula of measuring your chances.
After learning about what probability is, you moved on to learning how to calculate probability.
The formula for probability is as follows:

Probability of an event = Number of favourable outcomes/
Total number of equally likely outcomes
Next, you learnt the three ways of calculating probability:

1. Classical/Theoretical approach - Certain assumptions are made (for instance, all possible outcomes
are equally likely) and the probability values are then calculated using a formula.
2. Empirical/Frequentist approach - According to this approach, probabilities are derived from

observations.
3. Subjective approach - It reflects an individual’s understanding and judgement of how likely the
outcomes are.
Finally, you looked at some basic rules of probability:
1. The value of the probability of any event always lies between 0 and 1. This is fairly intuitive, as on the
extreme ends, either the event is impossible (for instance, the probability of rolling a regular die and
getting a ‘7’ on the face) or it always occurs (for instance, the probability of tossing a regular coin and
getting either heads or tails). Most events, however, lie somewhere in between. The range that the
probability of an event A can take is represented mathematically as follows:
● 0 ≤ P(A) ≤ 1
2. According to the addition rule of probability, if two events, A and B, are mutually exclusive (both the
events cannot occur at the same time), then the probability that either of them occurs is equal to the
sum of their individual probabilities. This rule can be represented mathematically as follows:
● P(A ‘or’ B) = P(A) + P(B); if A and B are mutually exclusive events
The outcomes of tossing a coin or rolling a die are mutually exclusive. In other words, you cannot get both ‘3’
and ‘5’ on rolling a regular die once. Hence, the probability of getting either '3' or '5' is equal to the sum of the
probability of getting '3' and the probability of getting '5'.

3. According to the multiplication rule of probability, if two events, A and B, are independent (the
occurrence of one event does not affect the probability of the occurrence of the other), then the
probability that both of them will occur is equal to the product of their individual probabilities. This
rule can be represented mathematically as follows:
● P(A ‘and’ B) = P(A) * P(B); if A and B are independent events
A random variable maps the outcome of a random process to a numerical value.
Suppose you are tossing a coin, which is a random process. You can define a random variable X that takes the
value 10.5 if the outcome is ‘heads’ and 15.7 if the outcome is ‘tails’. In this case, the probability of getting
heads will be denoted by P(X = 10.5) and that of getting tails will be denoted by P(X = 15.7). If you use a fair
coin, then both these values will be equal to ½.
It is important to note that even if a process inherently produces numerical outcomes, such as the roll of a
die, a random variable can be defined such that it alters the numerical outcomes. For example, define a
random variable Y as twice the number that appears on the face of a die when you roll it. In this case, your
random variable Y takes the values 2, 4, 6, 8, 10 and 12 when the face of the die shows 1, 2, 3, 4, 5 and 6,
respectively.
After learning about random variables, you learnt about discrete and continuous variables.
A random variable is discrete if there are finite or countable values. And, random variables are continuous if
the values have intervals and are normally infinite.
Next, you learnt how to calculate the mean, variance and standard deviation of a discrete random variable.
A probability distribution could be any of the following:
● An equation
● P(x) = x/21
● (for x = 1, 2, 3, 4, 5 and 6)
The sum of the probabilities of all of the outcomes must be equal to 1.

● If the probability of getting heads on tossing a coin is 0.7, then that of not getting heads (i.e., getting
tails) must be 0.3 so that the sum of the probabilities of all the possible outcomes equals 1. The mean
of the random variable is also referred to as the expected value of the random variable.
● The expected value of a random variable X is the average value of X that you would ‘expect’ to
obtain after performing the experiment for an infinite number of times.

The variance of X gives you an indication of the spread of the values from the mean that the random
variable can take. The higher the variance, the higher the number of the values that are spread out from
the mean of the distribution.
The standard deviation is also a measure of the dispersion of the values of the random variable from its
mean.
In this segment, you learnt that the probability distribution of a continuous random variable is called a
probability density function (PDF). It is important to understand that the value of a PDF at a given point is not
the probability of obtaining that point. In fact, the probability of obtaining any single point is 0. Some
properties of a PDF are listed below:
1. The probability of obtaining any single point is 0.
2. The probability of an interval is the area under the PDF curve in that interval.
3. The total area under the PDF curve is always equal to 1 since the total probability should equal 1.
Next, you learnt that the cumulative probability at a point is the probability of the occurrence of any
value less than or equal to that point. It is denoted with F(x) and can be represented mathematically
as follows:
● F(x) = P(X ≤ x)
For a continuous random variable, the cumulative probability at a point is the area under the curve
from -∞ up to that point. Since the PDF never takes a negative value, the cumulative probability
function is a non-decreasing function. This means that the value of the cumulative probability
function either stays the same or increases as we move to the right in the graph.
The most commonly occurring continuous probability distribution is a normal distribution. Several natural
phenomena, such as the height of men/women of a certain age, blood pressure and IQ scores, follow a normal
distribution. Normal distribution is symmetric with respect to its mean and extends infinitely on both sides.
In a normal distribution, the probability density is higher, close to the mean and decreases exponentially as
you move further away from the mean. In simple terms, it means that there is a high probability that the value
of the random variable is close to the mean. As you move further away from the mean, the probability of the
occurrence of such values decreases.
The empirical rule is illustrated in the image given below.
The empirical rule states that there is:
1. A 68% probability of the variable lying within one standard deviation of the mean,
2. A 95% probability of the variable lying within two standard deviations of the mean, and
3. A 99.7% probability of the variable lying within three standard deviations of the mean.
In other words, in case you look at the outcome of one trial at random, there is a 68% chance that the outcome
lies within one standard deviation of the mean, a 95% chance that the outcome lies within two standard
deviations of the mean and a 99.7% chance that the outcome lies within three standard deviations of the
mean. It is important to note that the numbers specified in the empirical rule are only approximations.

The standard normal distribution is a normal distribution with a mean of 0 and a standard deviation of 1.
The formula used to convert any point in a normal distribution into its equivalent point (referred to as the
‘z-score’) in the standard normal distribution is as follows:
● Z-score = x - μ / σ
An important point to note here is that the properties of the original point on a normal distribution are
retained when it is translated on to the standard normal distribution. For instance, if the cumulative
probability of x is 0.813 in a normal distribution, the cumulative probability of its equivalent z-score will also
be 0.813 in the standard normal distribution.
The z-score tells you how many standard deviations away your observed value is from the mean. This is
extremely helpful in probability calculations and for comparing points on two different normal distributions.
The ‘NORM.DIST’ function in Excel can be used to calculate the cumulative probability of any point on a
normal distribution. Similarly, the ‘NORM.S.DIST’ function can be used to calculate the cumulative probability
of any point on the standard normal distribution.
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prohibited.

In this session, you learnt about the importance of sampling in decision-making.
A sample is only a small part of a larger population.
Suppose you want to find the average number of times the people in India visited a doctor last year for a
business application. Now, given India’s population, that number must be in the millions, if not billions! You
cannot possibly ask this question to every person, which would be a costly and time-consuming process.
A sample is a small part of a population. Often, the population is too large, making it infeasible or expensive to
collect data from the entire population. This is where inferential statistics comes into play. By now, you know
that inferential statistics involves making inferences about or deriving insights into a large population from a
small sample.
The parameters of a sample (mean, variance, etc.) and a population are calculated using the same formulae.
However, one major difference is that for a sample of size n, the formula for calculating the variance (S 2 ) has a
denominator of ‘n - 1’, whereas in the case of a population of size N, the formula for calculating the variance (σ
2 ) has a denominator of ‘N’. The table given below includes the formulae and notations related to populations
and their samples.

Although it is not explicitly mentioned, it is assumed that when we say that we are collecting a sample, we are
collecting a random one. Simply put, a random sample is chosen randomly without any bias.
The central limit theorem states that if you take a sufficiently large number of random samples (sample size ‘n’)
from any distribution with a mean of μ and a standard deviation of σ, then the distribution of the sample
means (or the ‘sampling distribution of sample means’) will be a normal distribution with a mean of μ and a
standard deviation of σ/√n.
As the sample size increases, the sampling distribution of the sample means becomes narrower and better
resembles a normal distribution.
The sample size should at least be 30 to apply the central limit theorem. One of the biggest implications of the
theorem is that it can be applied irrespective of the probability distribution of the population.
Here are the steps to arrive at a confidence interval within which the population mean (µ) will lie with a certain
probability:
● First, the sampling distribution of sample means is constructed for a particular sample size (n):
○ The empirical rule states that 95% of all sample means lie within two standard errors of the
mean of the sampling distribution (which is also the mean of the population according to the
central limit theorem).
● Next, pick a random sample of a minimum sample size of 30, as this will allow you to apply the central
limit theorem.
● If the standard deviation of the population is unknown, you need to estimate the sample standard
deviation (S) as the population standard deviation (σ):
○ This can be done only if you assume that the population follows a normal distribution. Hence,
if you cannot make the assumption that the population follows a normal distribution, then you
need to be provided with an estimate of the population standard deviation before you proceed.
● According to the empirical rule, the sample mean of our randomly picked sample has a 95% chance of
lying within two standard errors of the population mean. So, we can say that the population mean has a
95% chance of lying within two standard errors of the sample mean. Hence, the 95% confidence
interval for the population mean is ‘X̄ - 2 * σs/√n’ to ‘X̄ + 2 * σ/√n’.
The confidence interval for different confidence levels can be calculated using the following formula:
Confidence interval = μ ± (z-score * σ/√n)
Here, μ is the mean of the sample, s is the standard deviation of the sample and n is the sample size.
The z-score depends on the confidence level chosen, as shown in the table given below.

Confidence Level Z-score
50% 0.674
80% 1.282
90% 1.645
95% 1.960
99% 2.576
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In business, you often have to make decisions with lakhs of rupees on stake. You cannot make such decisions
purely based on intuition. You need to follow a more robust method to ensure that your decision is not biased.
This is where hypothesis testing comes into the picture. It is important because it adds statistical rigour to
decision-making.

Hypothesis testing involves several steps such as defining the hypothesis statements, choosing a significance
level, collecting data points to construct the sample and calculating the test statistic, and finally making a
decision. The decision can either be to reject or fail to reject the null hypothesis.

The process of hypothesis testing starts with defining the two hypothesis statements.

The null hypothesis (H0) is typically defined as the status quo or the commonly-held belief/assumption. It can
be a popular belief/claim that you want to test. By convention, the null hypothesis contains equality in some
form, i.e. either ‘=’, ‘≤’, or ‘≥’.

The alternative hypothesis (H⍺ or Ha) is defined as the perfect opposite of the null hypothesis; hence, it
typically challenges the status quo. A common strategy is to define the alternative hypothesis as the one that
you are trying to prove.

It is important to note that we always begin with the assumption that the null hypothesis is true. Then:
● If we have sufficient evidence to prove that the null hypothesis is false, we ‘reject’ it. In this case, the
alternative hypothesis is proved to be true.
● If we do NOT have sufficient evidence to prove that the null hypothesis is false, we ‘fail to reject’ it. In
this case, the assumption that the null hypothesis is true remains.

Remember that in hypothesis testing parlance, we never “prove” the null hypothesis. We can only say that we
‘fail to reject’ the null hypothesis based on the evidence that we have gathered.

You can follow these steps to conduct a hypothesis test using the critical value method:

● Step 1: Frame the appropriate null and alternative hypotheses.

● Step 2: Decide the confidence level (or the significance level).

The significance level (α) is defined as ‘1 - confidence level’. The significance level helps us identify the
unlikely values of the sample statistic, assuming that the null hypothesis is true. It represents the area outside
the confidence interval (which is the rejection region). The higher the significance level, the higher are the
chances of rejecting the null hypothesis. This means that the lower the significance level, the lower are the
chances of rejecting the null hypothesis.
It is important to remember that 0.01, 0.05 and 0.10 are the most commonly used values of the significance
level. If the significance level is not specified in the question, we choose a default 5% significance level.

● Step 3: Determine the critical z-score(s) (and the rejection region).

The critical z-score(s) depends on the significance level of the test. It defines the boundary of the region
beyond which if the sample z-score lies, we reject the null hypothesis. This region is referred to as the
‘rejection region’. The region of the graph that represents values closer to the hypothesised mean than the
critical z-score(s) is called the ‘acceptance region’.

● Step 4: Compute the sample z-score (or ‘test statistic’).

The sample z-score tells us how many standard deviations away from the mean the sample mean lies in the
distribution of sample means.

Note that the standard deviation of the sample means distribution is also referred to as the ‘standard error of
the mean’, or simply the ‘standard error’, and is denoted by ‘SE’.

Therefore, the equation to calculate the sample z-score can be written as:

If the sample size is large (≥30), the Central Limit Theorem allows us to approximate the population standard
deviation (σ) as the sample standard deviation (S). Also, the mean of the sample means distribution is
assumed to be equal to the population mean.

It is important to note that in the context of z-tests, the term ‘sample z-score’ is often used interchangeably
with ‘z-statistic’. The term ‘test statistic’ is also commonly used to refer to the standardized sample mean.

● Step 5: Reach a decision and interpret the result.

Finally, we compare the sample z-score with the critical z-score(s) of the test.


If the sample z-score lies in the acceptance region, we fail to reject the null hypothesis and conclude that the
null hypothesis remains true. If the sample z-score lies in the rejection region, we reject the null hypothesis
and conclude that the null hypothesis is false and the alternative hypothesis is true.

Depending on how the hypotheses are formulated, you test for deviation from the hypothesised mean on
either one side of the mean (one-tailed tests) or on both sides of the mean (two-tailed tests).

One-tailed tests can be either left-tailed or right-tailed, depending on which side of the curve the rejection
region lies. The formulation of the null and alternative hypotheses determines the type of the test and the
position of the rejection region(s) in the distribution of sample means.

You can tell the type of the test and the position of the rejection region(s) on the basis of the ‘sign’ in the
alternate hypothesis.

‘<’ in H⍺ → Left-tailed test → Rejection region on the left side of the distribution

‘>’ in H⍺ → Right-tailed test → Rejection region on the right side of the distribution

‘≠’ in H⍺ → Two-tailed test → Rejection region on both sides of the distribution

These can be better understood with the help of the image below:


In the image, you can see how the significance region defines the critical region for different types of tests
(left-tailed, right-tailed and two-tailed, respectively). You can use the table provided below to arrive at the
critical z-scores for different significance levels and types of test:

Significance Level (⍺) One-Tailed Test (Left) One-Tailed Test (Right) Two-Tailed Test
0.01 -2.326 +2.326 ±2.58
0.05 -1.645 +1.645 ±1.96
0.10 -1.282 +1.282 ±1.645

As the significance level is split equally between the two sides in a two-tailed test, we get half the value of the
significance level on each side. This is evident from the fact that for a two-tailed test with a significance level
of 0.10, the critical z-scores are ±1.645. Here, 0.10 is split into 0.05 on the left tail and 0.05 on the right tail.
Hence, for one-tailed tests with a significance level of 0.05, we get critical z-scores of -1.645 and +1.645 for
the left-tailed and right-tailed tests, respectively.

You can follow these steps to conduct a hypothesis test using the p-value method:

● Step 1: Frame the appropriate null and alternative hypotheses.

● Step 2: Decide the confidence level (or the significance level).

● Step 3: Compute the sample z-score and the p-value.

The p-value is the area that lies farther away from the hypothesised mean than the calculated sample z-score.
Intuitively, it can be understood as the probability of getting a test statistic at least as extreme as the one
observed under the assumption that the null hypothesis is true.

Simplifying this, one can also understand the p-value as the probability of the null hypothesis being true.
Hence, a higher p-value indicates greater evidence in favour of the null hypothesis. Similarly, a lower p-value
indicates greater evidence against the null hypothesis (and in favour of the alternative hypothesis).

If you enter the same sample z-score (say, +1.5) into the ‘P Value Calculator’, then you will notice that the
p-value for a two-tailed test (0.1336) is twice that for a one-tailed test (0.06681). This is because, in a
two-tailed test, the significance level is split into two equal halves - one half for each tail. Hence, we can either
compare the probability value with ⍺/2, or we can multiple the probability value by 2 (which gives us the
p-value for a two-tailed test) and compare it with ⍺. The latter is what the calculator is doing for you.

● Step 4: Reach a decision and interpret the result.

The p-value conveniently lets you know the confidence levels (or significance levels) at which you can reject a
null hypothesis. The simple rule that you can follow while using the p-value method to test a hypothesis is:
● If p-value < ⍺ → Reject the null hypothesis.
● If p-value ≥ ⍺ → Fail to reject the null hypothesis.

Hence, under the assumption that the null hypothesis is true, if the probability of obtaining the test statistic is
less than the significance level of the test, we reject the null hypothesis in favour of the alternative hypothesis.
The significance level, therefore, functions as a cutoff to determine what values of the sample statistic are too
unlikely to have been observed if the null hypothesis were indeed true.

This rule can be understood intuitively as an extension of the critical value method. Take the example of a
right-tailed test. We know that the p-value of the critical z-score will be nothing but the significance level of
the test. If the sample z-score lies in the acceptance region (i.e., to the left of the critical z-score) its p-value will
be greater than the significance level as a greater area of the curve lies to its right.


This reasoning can be extended to the other types of tests as well. Hence, using either the critical value
method or the p-value method should give you the exact same result for identical sample and population
parameters.

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So far, you’ve had the luxury of collecting lots of data points, which meant your sample size was at least 30.
Thus, the central limit theorem allowed you to assume that your population standard deviation is equal to the
sample standard deviation. In case the sample size was less than 30, the population standard deviation was
available to you.

However, you often have to deal with scenarios where the sample size is small and the population standard
deviation is unknown. Here, a t-test is performed. Also, in several instances you need to compare the means of
two samples. Here, a two-sample test is performed.

While hypothesis testing is statistically significant, there is still a possibility of committing an error. The types
of errors and their implications need to be properly understood in order to make sensible choices.

When the sample size is less than 30, a t-test is used to conduct hypothesis tests. A t-test uses the standard
t-distribution, which is broader than the standard z-distribution. It is, however, similar to a z-distribution in
most other respects; for example, it is symmetrical about its central tendency.

In a t-test, the term 't-value', 't-score', 't-statistic' or 'test statistic' is used instead of 'sample z-score'. The
formula for calculating the t-statistic is as follows.

Note that the standard deviation of the sample means distribution is also referred to as the ‘standard error of
the mean’, or simply the ‘standard error’, and is denoted by ‘SE’.

Therefore, the formula for calculating the test statistic can be written as:

As you can see, the only difference between the formula for the test statistic for the t-test vis-a-vis the z-test
is that the standard error is calculated using the sample standard deviation (S) in the t-test, as opposed to the
population standard deviation (σ) in the z-test.

Also, the t-distribution depends on an additional parameter called the degrees of freedom (d.f.), which can be
expressed as follows:

As the sample size (i.e., the degrees of freedom) increases, the t-distribution tends to become narrower and
narrower. At sample sizes greater than or equal to 30, the t-distribution is essentially indistinguishable from a
normal distribution. Hence, if the population standard deviation is unknown and the sample size is greater
than or equal to 30, the t-test and z-test give the same results.

As a general practice, we shall use the t-test when the sample size is less than 30, irrespective of whether or
not the population standard deviation is known. Similarly, we shall use the z-test when the sample size is
greater than or equal to 30, irrespective of whether or not the population standard deviation is known.

We use the ‘P Value Calculator’ to compute the p-value and compare it to the significance level of the test in
order to make a decision regarding the hypotheses.

Two-sample means tests are of the following two types:
1. Paired two-sample means test, which is used when the two samples are related to each other. This is
typically the case when repeated observations are made from the same population on different
occasions.
2. Unpaired two-sample means test, which is used when your sample observations are independent of
each other. This is typically the case when observations are made from two different populations.

Remember that we usually select the option for conducting the two-sample unpaired test ‘assuming unequal
variances’ as it is safer to do so when we do not have any information about the variances.

We use the ‘Data Analysis Toolpak’ add-in in Microsoft Excel to perform the test. We follow the rejection rule
comparing the p-value to the significance level of the test in order to make a decision regarding the
hypotheses.

The two types of errors that can occur during a hypothesis test are as follows:
1. A type 1 error is committed when you reject a null hypothesis that is actually true. The probability of
committing a type 1 error is nothing but the significance level (α) of the test.
2. A type 2 error is committed when you fail to reject a null hypothesis that is actually false. The
probability of committing a type 2 error is denoted by β.

Increasing the significance level of the test increases the size of the rejection region, thereby increasing the
chances of rejecting the null hypothesis (irrespective of whether it is false or not). Hence, increasing the
significance level (α) of the test results in an increase in the chances of committing a type 1 error.

The probabilities of committing type 1 and type 2 errors are inversely related to each other.


Also, keeping all other things constant, increasing the sample size has the effect of decreasing the probability
of committing a type 2 error without affecting the probability of committing a type 1 error (as it is the chosen
significance level).

Depending on the circumstances, the costs of committing either of these two errors vary. The choice of
significance level affects the probabilities of the types of error that a business can encounter and the
implications of this choice. Depending on the context, you can often decide which type of error is costlier and
which is more tolerable.

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A/B testing is a controlled experiment where statistical hypothesis testing is used to determine which variant
of an experience performs better for a predetermined goal. It is especially popular in the business world.

For example, while developing an e-commerce website, there could be diverse opinions about the choices of
various elements, such as the shapes of buttons, the text on the call-to-action buttons, the colour of various UI
elements and numerous other such things.

Often, the choice of these elements is quite subjective and it is difficult to predict which option would perform
better. To resolve such conflicts, you can use A/B testing. It provides a means for you to test two different
versions of the same element/experience and check which one performs better.

In business, A/B Testing is predominantly used to deal with tests that generate categorical data. The
categories could be True/False, 1/0, Yes/No, Male/Female, Success/Failure, etc.

We use SurveyMonkey’s AB testing calculator to perform the test. We follow the rejection rule comparing
the p-value to the significance level of the test in order to make a decision regarding the hypotheses.

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Session Summary
Covariance and Correlation
Decision Science
In this segment, you learnt how to make scatter- plots using Excel, and how we can interpret
data in a scatter-plot.
Using this scatter- plot, you learnt how to build and decipher a relationship between NIFTY and
Sensex. Each dot on the graph represents a value on the X-axis and Y-axis respectively.
● For every value of Sensex on the X-axis, the dot is the corresponding value of NIFTY on
the Y-axis.
● Here, you can see a relationship between Sensex and NIFTY. Almost all the dots on the
scatter-plot can be connected using a straight line. This hints at a linear relationship
between the two data columns.
Next,
You learnt about Covariance and Correlation:
Covariance: It measures the directional association between two variables

● A positive value of covariance indicates that one of the variables increases with an
increase in the other one.
● A negative value indicates that one of the variables decreases with an increase in the
other one.
● The magnitude of covariance cannot give you any idea of the strength of the association
between the two variables. Also, the covariance value doesn’t have any bounds and can
take any value.
You can calculate the covariance between two variables using the Data Analysis ToolPak or
COVARIANCE.P function in Excel.
Correlation: It measures the extent of the association between two variables — the directional
association and its strength.
● The value of the correlation coefficient always ranges from -1 to 1

● If the correlation coefficient is —
○ 1, then the two variables are perfectly positively correlated with each other
○ 0, then the two variables are not correlated with each other
○ -1, then the two variables are perfectly negatively correlated with each other
You can calculate the correlation between two variables using the Data Analysis ToolPak or
CORREL function in Excel.
You solved a case study, and learnt the following observations about Covariance and
Correlation:
● Correlation is not Causation

○ For example: In a college, it was observed that students who slept with their shoes
on, woke up with severe headaches.
○ So, can we conclude that sleeping with your shoes on causes headaches? Is this
correlation between sleeping with shoes on and severe headaches justified?
○ We should note that this conclusion ignores that the students are going to bed drunk,
which causes the students to sleep with their shoes on in the first place!
○ In this case, the correlation between going to sleep with shoes on and headaches is
known as a spurious correlation. The fact that the students are going to bed drunk
is known as the confounder effect.
● If the correlation between two different variables is zero, it is not necessary that they are
independent. This example was explained through the Credit score of people of different
ages. In that case, there was no correlation between the two variables, but there was a
relationship between them, and they were dependent on each other.
Session Summary
Simple Linear Regression

While covariance and correlation reveal the existence of a linear relationship between
two variables, it cannot estimate future values in data.
Simple linear regression helps us to relate two variables with a mathematical equation
and allows us to predict one value if the other is known.
Linear Equations
A linear relationship between two variables suggests that when one variable changes, the other
will too. Now, the extent to which one variable will affect the other is defined through a
mathematical equation, which is known as a linear equation.
Every mathematical equation is not a linear equation.
For instance, equations like X * Y = 10 or Y = X2, when plotted on a graph, do not give a straight
line.
Only equations that form a straight line on a graph are said to be linear equations and they can
be represented in the general form:
Y = mX + C
Here, X is known as the independent variable, which means it can take any value.
On the other hand, Y is known as the dependent variable, which means its value is calculated
based on the value of X.
Here, m is called the slope of the straight line, or, in other words, m is the rate at which Y
increases with an increase in X.

As the value of the slope (m) increases, the steepness of the straight line increases as well.
Finally, in the equation Y = mX + C, C is known as the intercept of the straight line. In other
words, it is the value of Y when X is equal to 0.
Simple Linear Regression

Simple linear regression is a statistical method that is used to study the relationship between
two continuous quantitative variables in the form of a linear equation.
Y= mX + C. In this equation:
● Y is known as the dependent variable. The value of Y depends on the value of X. If you
input different values of X in the equation, then you will get different values of Y. Y is
also known as the response variable or the outcome variable in this equation.
● In the linear equation above, X is known as the independent variable. The value of X is
used to determine the value of Y. X is sometimes also called the predictor variable or
the explanatory variable.

All of the data points do not lie on the regression line, and the difference between the data point and the
regression line is known as the residual term or the error term.
Applying Simple Linear Regression

Hypothesis Testing in Simple Linear Regression
In simple linear regression, a regression model is in the form of a straight line, which can be
expressed as:
Y =β0 + β1X

Null Hypothesis
The null hypothesis in our example would be that the independent variable does not affect the
dependent variable significantly, and this can be represented mathematically as shown below:
β1=0, where β1 is the coefficient of X in the equation Y =β0 + β1X.
Alternative Hypothesis
The alternative hypothesis would be that the independent variable does affect the dependent
variable significantly, and this can be represented mathematically as shown below:
β1=/=0, where β1 is the coefficient of X in the equation Y =β0 + β1X.
R-squared is a metric that is used to evaluate the fit of a simple linear regression model or the
straight line with your data set.
The R-squared value ranges from 0 to 1.
An R-squared value of 1 indicates that the regression model completely explains the variation in
the data. A higher value of R-squared shows how closely the regression line is passing through
the data point.
Usually, in practical situations, an R-squared value above 60% is also considered to represent a
good model.
In this session, you also saw how to perform calculate the ANOVA table using Data Analysis
ToolPak in Excel.
You also drew insights from data using different values in the ANOVA table.

Session Summary
Multiple Linear Regression

In simple linear regression, the dependent variable is predicted or explained using a single
independent variable. But, in real-life scenarios the variable of our interest may have
dependencies on several different variables. Therefore, it is necessary to determine the
relationship between all the variables in order to know how a change in one of the
variables affects the dependent variable.

Multiple Linear Regression
Multiple Linear Regression is one of the methods to determine the relationship between a
dependent variable and more than one independent variables. In this regression, a straight-line
form is extended to a linear equation to determine the relationship of between dependent and
several independent variables.
Y= 0+ 1X1 + 2X2 + 3X3 + …
This linear equation in multiple linear regression is estimated from the sample data using
DataAnalysis ToolPak. This tool uses hypothesis testing in order to test the significance of the
regression equation and determine the coefficients 0, 1, 2, 3 and so on …
There are two sets of hypothesis testing in Multiple linear regression:
1. Overall Significance Test
A. Null Hypothesis(H0): None of the independent variables has any significant influence
on the dependent variable.
Mathematically, 1= 2= 3=0
B. Alternative Hypothesis (H0): At least one independent variable has a significant
influence on the dependent variable.
Mathematically, At least one of the 1, 2, 3 is non-zero
If the null hypothesis of overall significance is failed to reject, then it implies that all the
independent variable doesn’t have a significant influence on dependent variable i.e.
Mathematically, 1 = 2 = 3 = 0.

If the null hypothesis of overall significance is rejected, then it implies that at least one of the
independent variables has a significant influence on dependent variable i.e. Mathematically, At
least one of the 1, 2, 3 is non-zero. Individual significance test helps in determining the
coefficients which take a non-zero value and the value of that coefficient.
2. Individual Significance Test: The individual significance test is performed on each

independent variable to determine their regression coefficients respectively. The hypothesis for
the independent variable X1 is as follows.
A. Null Hypothesis: The independent variable X1 doesn’t have a significant influence on

the dependent variable.
Mathematically, 1= 0
B. Alternative Hypothesis: The independent variable X1 has a significant influence on the

dependent variable.
Mathematically, 1≠0
The regression coefficient of the independent variable is determined by looking at the p-values
of the independent variable.
● If p-value is less than the critical value (depends on the confidence level), Null
hypothesis is rejected, which implies independent variable X1 does have a significant
influence on dependent variable and 1 ≠ 0 and the value of 1 can be found from the
regression coefficient in the regression results. If p-value is greater than the critical value
(depends on the confidence level), Null hypothesis is failed to reject, which implies
independent variable doesn’t have a significant influence on dependent variable and 1
= 0.
Evaluation of Multiple Linear Regression
R-Square: R-square or coefficient of determination is a metric used to quantify the goodness of fit for a
regression model.
● R-square explains how close the actual data points are to the fitted regression line.
● R-Square measures the percentage of variability in the dependent variable that is explained by
the regression line.

Adjusted R-Square: R-Square does not consider the effect of multiple independent variables.
Therefore, it has to be adjusted to the number of independent variables. So, a better measure of
goodness of fit in the case of multiple regression is adjusted R-square.
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A supply chain is a mechanism through which raw materials from the suppliers are first converted and then
placed in the hands of the customers in the form of finished goods.
There are two distinct types of flows within a supply chain, which are as follows:

1. Product flow: From manufacturer to customer
2. Demand flow: From customer to manufacturer

The below picture depicts how demand information, product and cash flow across different elements in a
supply chain:

A typical supply chain involves a variety of stakeholders. Supply chain includes all or some of the following
stakeholders depending on the type of industry the organisation operates in:

● Customers
● Retailers
● Wholesalers/Distributors
● Storage locations
● Manufacturers
● Vendors or suppliers

When it comes to the supply chain, Apple has consistently been ranked as No. 1 in the world by Gartner and
other similar sources.
Supply chain can be broken down into the following smaller elements:

1. Making and delivering the right product
2. In the right condition and quantity
3. At the right time
4. To the right customer
5. At the lowest optimal cost with consistency

Supply chain is necessary to achieve certain organisational goals, which are as follows:
1. To understand demand of the products
2. To plan the supply and availability of the products
3. To deliver customer service

Supply chain planning process is divided into smaller activities. These activities are carried out to have an
effective and efficient supply chain. These activities are as follows:
1. Demand planning: It refers to the process of forecasting or predicting the demand for products to
ensure that they can be delivered to satisfy customer needs.

2. Supply planning: It refers to the entire planning process including distribution, manufacturing and
procurement operations according to demand forecasts, considering capacity constraints and material
availability.
There are four pillars of value creation within a supply chain, these are as follows:

● Effectiveness
● Efficiency
● Relevancy
● Sustainability

The below picture depicts the value creation process in a supply chain through the four pillars mentioned
above:

The supply chain mechanism related to product and demand information flow is possible only because of the
inclusion of a set of specific business processes. These business processes are integrated in with each other.

The different business processes of a typical and effective supply chain are always integrated. This integration
occurs through the following set of interdependent processes:
1. Facility network
2. Material handling equipment (MHE)
3. Transportation
4. Inventory
5. Order management

The below picture depicts how these activities are integrated with each other:

The below pictures depicts in detail each of these activities:


The single biggest advantage of the integration of these processes is the continuous interaction between each
activity, not necessarily sequentially, but based on its importance, which ensures that the integrated supply
chain manages all performance parameters.

A typical supply chain consists of certain touchpoints, which are as follows:

1. Supplier
2. Factory
3. Customer

The below picture depicts the arrangement of these touchpoints within a supply chain:

Each of these touchpoints have different sub-segments associated with them. These sub-segments are
depicted in the picture below:


The bottomline for any business is profit. Profit is one of the most valuable objectives for any organisation to
be achieved. Supply chains also work with this very objective in mind, however, sometimes organisations
succeed in achieving this objective while other times they fail.

Organisations need to have a supply chain strategy that suits the kind of business and industry that they are
operating in.
This simple mantra helps organisations in achieving the right strategic fit.
Supply chain is a business aspect that functions with the singular objective of creating value for your business.
The value created through a supply chain is known as supply chain surplus.

The supply chain cost refers to the cost of transportation, distribution and storage of products.
The two different types of strategies developed by organisations are as follows:

1. Competitive strategy
2. Supply chain strategy

An organisation is said to achieve strategic fit only when the goals of these two strategies are aligned with
each other.
The stepwise framework used by organisations for achieving the best strategic fit consists of the following
steps:


Based on the strategic fit framework, the two types of supply chain strategies that can be achieved by an
organisation are as follows:

1. Efficient supply chain strategy: This strategy ensures that cost is kept at the minimum. It mostly suits
products with low demand uncertainty.
2. Responsive supply chain strategy: This strategy ensures that the product is available to the customers
at the earliest. It mostly suits innovative products with high demand uncertainty

There are certain drivers of a supply chain that play an important role in implementing the supply chain
strategy in the most optimal manner. The below pictures depict these drivers.


Companies differentiate themselves based on their supply chain strategy alone.
Supply chain can also be utilised in creating a differentiating factor for an organisation.
Example:


A. Zara has a product lead time of about one week, whereas competitors have a lead time of close to six
months. Some key points to remember about Zara’s supply chain are as follows:
1. Zara adopted a strategy to keep all of the production in-house, which helped it reduce the
product lead time. Zara also developed a robust ecosystem of having all its suppliers in its
vicinity.
2. Zara's strategy is to produce in small lot sizes and maintain a limited inventory of one product
type. The benefits of this strategy are two-fold:
i. It does not have to block its working capital in the form of inventory.
ii. The chances of inventory getting redundant with the launch of a new product are
reduced.

B. Mumbai Dabbawalas

There have been instances where an organisation has to implement both aspects of a supply chain strategy,
i.e. cost-efficiency as well as responsiveness, to cater to different business verticals within the organisation.

Example:

A. Amazon uses a cost-efficient supply chain in its normal course of business. It has to incorporate
responsive supply chain strategy in some parts of its business to cater to the same-day delivery
audiences.

Successful supply chain managers have to be proficient in their subject of expertise.

In addition, the supply chain manager should be able to build and maintain key relationships. To summarise, a
supply chain manager is expected to:

1. Plan and implement the overall supply chain strategy
2. Collaborate with Sales, Operations and Customer Service teams
3. Determine key performance indicators (KPIs) within the supply chain
4. Suggest solutions for improving the supply chain process
5. Identify process bottlenecks and implement solutions in a timely manner
6. Ensure continuous training of supply chain personnel
7. Work with Finance, Sales and Manufacturing teams to determine the best vendors and distributors to
partner with
8. Build and maintain a good relationship with the vendors


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Summary
Demand Planning in Supply Chain
Sales and Demand

The entire supply chain planning process can be broken down into smaller planning activities that are carried
out in a stepwise manner. The output of each planning activity is fed as an input to the next planning activity.
Planning activities are carried out as part of the big, all-encompassing supply chain planning process. These
planning activities are carried out in the following order:
1. Data gathering
2. Demand planning
3. Supply planning
4. Pre-sales and operations planning (Pre-S&OP) meeting
5. Executive sales and operation planning meeting
The following picture depicts these planning activities in a sequential manner:
Sales is different from demand. The difference between the two can be summarised as follows:
Sales: When you buy a product or service, sales is generated for that product or service. In simple terms, sales
are the process by which people pay money to acquire something they demand.
Demand: Demand is the number of goods that the customers are willing to buy at several prices during a given
time frame.
For the sales and demand to be equal to each other, the organisation must have the production capacity,
technology and sales infrastructure to deliver what people want. All of these elements fall under the purview
of supply chain management.
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Determinants of Demand
The following elements determine the demand for a product or service, and are as follows:
1. Price of the given product or service: As the price of product or service increases, the quantity
demanded decreases due to the decrease in the satisfaction level of the consumers.
2. Price of related goods or services: Every product or service has two types of products and services
related to them, which are as follows:
a. Substitute products or services: These are the products or services that can be used in place
of one another to satisfy a particular want or desire (tea and coffee).
An increase in the price of the substitute product leads to an increase in the demand for the
given commodity and vice versa.
b. Complementary products or services: These are the products or services that are used
together to satisfy a particular want or desire (tea and sugar).
An increase in the price of complementary goods leads to a decrease in the demand for the
given commodity and vice versa.
3. Income of the consumer: The effect of change in income on demand depends on the nature of the
commodity under consideration.
a. If the given commodity is a normal good, then an increase in income leads to an increase in the
demand for it, while a decrease in income decreases the demand for the commodity.
b. If the given commodity is an inferior good, then an increase in income decreases the demand for
it, while a decrease in income leads to an increase in the demand for the commodity.
4. Tastes and preferences: If a commodity is in fashion or is preferred by consumers, then the demand for such
a commodity increases and vice versa.
5. Expectation of change in price in the future: If the price of a certain commodity is expected to increase in
the near future, then people will buy more of that commodity than what they would normally buy.
Demand Planning
Demand forecasting simply means predicting the future demand for a product or service. This prediction can
be made for one week, one month or even one year in the future. Demand forecasting forms the basis of all
supply chain planning.
Demand planning refers to the process of creating reliable forecasts, so products or services can be produced
and delivered more efficiently and to the satisfaction of the customers.
Certain factors can be used to predict the future demand for a product or service (and hence are useful in the
demand planning process). These factors are as follows:
1. Past demand of the product or service
2. Lead time of product replenishment: This refers to the time it takes for a product to become available
for sales again after the previous stock-out.
3. Planned advertisements and marketing efforts.
4. Planned price discounts: As you learnt earlier, the demand for a product or service is inversely
proportional to its price. Thus, when a discount is provided for a product or service, its demand
increases.
5. Competitors’ actions: The demand for your product or service largely depends on how your
competitors are responding to the changing market conditions.

6. State of economy: If the economy of a country is doing good and is expected to perform better in the
future, the overall demand for products and services is likely to increase in future.
Demand Forecasting
Demand forecasting is done for unconstrained demand.
An unconstrained demand is a demand that does not consider the industrial and logistical constraints that
might be plaguing an organisation or the entire industry.
The reasons for forecasting demand are as follows:

To satisfy the actual demand for a product or service that will arise in the future
To produce only the amount of finished goods required by the customers, neither more nor less
To reduce the volume of stock
Sales plan is a demand plan that is corrected using constraints such as the organisation's industrial and logistical
needs.
In order to successfully forecast demand, it is vital to analyse the historical unconstrained demand for the
product, and then incorporate the data on the following factors to arrive at the final numbers:
1. Data from marketing and sales campaigns
2. Shortages (voluntary or involuntary)
3. Logistical failures
4. Competitor’s campaigns
5. Exceptional events
The following characteristics are common to any demand forecast:

1. Demand forecasting is always wrong.
2. Long-term demand forecasts are less accurate.
3. Aggregate demand forecasts are more accurate.
Planning Horizons in Demand Forecasting

Before undertaking the forecasting activity, an organisation should ask the following questions:
1. What is the horizon for the business decision?
Forecasting can be done for one week, one month or even one year into the future. The organisation
should decide beforehand how ahead in the future it wants to forecast the demand for its products.
2. What is the financial impact of this business issue?
Forecasting is a capital-intensive activity. An organisation should identify in advance what will be the
financial impact of undertaking this activity.
3. What is the availability and cost of data required to generate a forecast?
As mentioned in the previous segment, while constructing a forecast, you should not only have
information on unconstrained demand figures but also cross-functional data from marketing and
other verticals. Hence, the organisation should have the required data available with it before
undertaking the forecasting activity.
4. What is the frequency of a forecasting activity? Do you need to forecast demand on a weekly,
monthly or quarterly basis?

This depends on a lot of factors such as the current position of your product in the product life cycle,
competitors’ actions, market conditions, etc.
5. Should forecasting be done at an item level or at an aggregate level?
This also depends on a lot of external factors such as past sales performance of the product or the
product category.
Considering the decision of setting up the horizon for demand forecasting, the time horizon for a demand
forecast varies from long-term forecast (3-5 years) to short-term forecast (1-2 months or even less).
The following time horizons are considered in demand forecasting:
1. Strategic horizon (long-term):
Strategic horizon includes detailed annual and bi-annual forecasts.
2. Tactical horizon (mid-term):
Tactical horizon includes detailed monthly forecasts.
3. Operational horizon (short-term):
Operational horizon includes detailed weekly and daily forecasts.
The following picture depicts in detail each of these horizons:
Qualitative Forecasting
There are two approaches used for demand forecasting: qualitative and quantitative.
The methods under both these approaches are as follows:
Methods of qualitative forecasting:
1. Market research
2. Panel or group consensus
3. Historical analogy
4. Delphi method

Methods of quantitative forecasting:
1. Time series analysis (also known as intrinsic analysis)
2. Extrinsic analysis (also known as causal analysis)
3. Simulation
Further going into the details of methods for qualitative forecasting:

1. Market research: Anyone who has participated in a taste test at a supermarket has been a part of
market research. Companies use this approach when they contemplate the introduction of a new
beverage or flow.
2. Panel consensus: In a panel consensus, a panel of experts discusses an issue to make a decision.
Examples of this method include a panel of experts developing an election forecast.
3. Historical analogy: In the historical analogy technique, the product goes through a cycle, and decisions
are made based on the past experience of similar products. The demand for IoT will follow the same
path as was followed by the demand for software. Thus, IoT demand can be predicted based on the
demand graph which was created by software.
4. Delphi method: In the Delphi method, a panel of experts answer a sequence of questions where
responses to one lead to the next question. This sequence of events continues through a number of
rounds. The difference between the Delphi method and the panel consensus method is that the
identity of experts is not revealed in the former.
Quantitative Forecasting
Quantitative forecasting techniques rely on the statistical analysis of data to generate a future forecast. These
techniques are effective when historical data is readily available and the forecast horizon is short to mid-range.
The two methods of quantitative forecasting are as follows:
1. Time series forecasting:
a. Time series forecasting is a method used for predicting activities through a chronological
order.
b. This technique forecasts future developments by evaluating previous patterns.
c. This technique is best suited for product categories with low customer uncertainties.
d. Time series forecasting can be done through the following ways:
i. Simple moving average
ii. Simple exponential smoothing
iii. ARIMA model
2. Causal forecasting:
a. Causal forecasting is a forecasting strategy in which the predictive variable is believed to have
a cause-and-effect relationship with one or more independent variables.
b. In causal forecasting, demand forecast is assumed to be highly correlated to the environmental
factors.
c. Causal forecasting can be done through the following ways:
i. Regression modelling
ii. Econometric modelling
iii. Leading indicator modelling
Most companies use a mix of qualitative and quantitative approaches to arrive at a demand forecast.

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Summary
Supply Planning in Supply Chain
Supply Planning and Strategic Fit

Supply planning is the third step in the big picture of sales and operations planning (S&OP) process.
Supply planning is the entire planning process and it includes procurement, manufacturing and distribution
operations according to demand forecasts, considering capacity constraints and material availability.
Supply planning broadly consist of the following three major components:
1. Procurement
2. Manufacturing
3. Distribution
An organisation faces the following obstacles that in achieving the strategic fit:
1. Increasing product variety
2. Rise in customers that are more demanding
3. Conflicts arising between different stakeholders within an organisation in taking up supply chain
ownership
4. Globalisation within an organisation
5. Changing business environment
6. Difficulties faced while executing new strategies
Decision Making under Demand Uncertainty

Demand uncertainty reflects the uncertainty of the customer’s demand for a product.
Implied demand uncertainty is the resulting uncertainty for only that portion of the demand that the supply
chain plans to satisfy based on the customer needs.
This facet of demand uncertainty is managed through proper distribution by the organisation.
Distribution refers to the steps taken to move and store products from the supplier stage to the customer stage
in the supply chain. Distribution happens from:
1. Supplier to manufacturer: Here, raw materials are moved.
2. Manufacturer to consumer: Here, finished goods are moved.
Distribution affects both the supply chain cost and the customer experience. Thus, it is imperative to design a
distribution network that performs flawlessly.
Decision Making under Demand Variability
The demand for a product or a service does not remain constant throughout the year and fluctuates due to a
number of factors, both internal and external. This phenomenon is known as demand variability.
There are four major causes of demand variability:

1. Volatility
2. Uncertainty
3. Complexity
4. Ambiguity
When the market signals a sharp increase in demand, especially in times of global crisis, supply chain leaders’
profitability depends on being informed and agile enough to forecast and fulfil inventory in the right places, at
the right speed and at the right time.
Five major actions that can be taken to plan for demand variability are as follows:
1. Maintain transparent, proactive relations with suppliers
2. Activate alternative sources of supply
3. Reduce lead time
4. Update inventory policy and planning
5. Align supply and demand management
Aggregate Planning
Once demand is forecasted and supply is planned, the next step in line is to plan for the production to cater to
the supply. The planning done for this production process falls under the purview of aggregate planning.
An organisation finalises its business plans on the basis of demand forecast. This business plan is broken down
to individual material requirements for a defined finite period. The process of working out these requirements
for a medium range (between 2–3 months and 12–15 months) is called aggregate planning.
Advantage of conducting aggregate planning by an organisation are as follows:
● Aggregate planning helps organisations in dealing with the production facilities in a lean manner.
● It helps to develop effective strategic plans as well as relationships with distributors and suppliers.
● It helps in the optimisation of inventory.
● It serves as a useful tool for making viable forecasts.
● It helps organisations to identify the best options so that they can meet the demand easily.
● It assists in knowing about the inefficiencies that exist within the organisation.
● It also helps to determine resources within the organisation that are required in the manufacturing
process.
Aggregate planning strategies are of the following three type:
1. Level strategy
a. A level strategy maintains a steady production rate as well as the level of the workforce by
continuing consistent human resources and production in the organisation.
2. Chase strategy
a. A chase strategy keeps pace with demand fluctuations by varying either the actual level of
output or the workforce number.
3. Hybrid strategy
a. A hybrid strategy maintains a sufficient balance between the stock level, recruiting, termination
and production rate.

Supply Planning Case Study
In this segment, you have gone through a case study about a cement manufacturer who initiated a project to
meet demand better, but after careful investigation changed their supply strategy.
The case study deals with understanding the implications of different ways of fulfilling demand.
Any manner of demand fulfilment has implications for the following:
1. Customer satisfaction, as the demand has to be met on-time and in-full
2. Overall costs, that includes tangible and intangible costs
1. Tangible costs include the total logistics cost. It is also known as the total landed cost or total
delivered cost and includes the following costs.
a. Total manufacturing cost: This is the total cost of production.
b. Non-manufacturing expenses: These are the administrative and developmental costs
associated with the purchase of materials, engineering design, etc.
c. Finished product logistics costs: These are the logistics costs incurred for transporting
the finished goods to the next entity in the supply chain, be it a distributor, a depot or a
customer.
2. Intangible or hidden costs include the following costs:
a. Demurrage and wharfage charges: These charges are faced by an organisation that uses
Indian Railways to fulfil its demand. These charges are penalty charges that an
organisation has to bear for using wharfs for extended periods of time and for temporary
storage.
b. Inventory holding costs: As each railway rake can transport only 2600 tons, there are
huge stockpiles of excess inventory. The inability to sell the excess stock to customers
results in product obsolescence or the fine grains in the cement would become lumpy.
The objective of the project was twofold:
1. To ensure that all customer demands are met on time and in full
2. To ensure that the overall costs are always under control
The organisation had two centres in Tamil Nadu that produced cement, which had to be transported to all 14
districts of Kerala. As some of these districts and subdistricts had access to railheads and some did not, the
mode of demand fulfilment was a combination of rail and road.
The table given below summarises and compares the available means of demand fulfilment.
Mode of Transport Road Transport Rail Transport
Partners 12 transporters Only one: Indian Railways
Destination Dispatched directly to depots in Dispatched to goods sheds in
sub-districts, based on demand districts. Further handling and

transportation as per demand
Capacity (tons) 24 tons per truck 2,600 tons per rake
Lead time (days) 2 days 4 days
The situation was analysed from both the supplier’s point of view and the receiver’s point of view:
1. The supplier was indifferent to the mode of dispatch; they only wanted a quicker mode of evacuating
their factories in order to achieve higher capacities of manufacturing and storage.
2. Prima facie, the receiver faced a higher landed cost when the material was transported by road. But
using rail as a means of transport resulted in excess supplies, due to which the supply spiked suddenly
and depleted after a long period of time.
Also, in using rail transport, the receiver was also burdened with the hidden costs of demurrage, wharfage,
inventory holding, redistribution and transportation.
To check if the entire demand could be fulfilled via road, the organisation compared both modes of transport
across all locations in Kerala. When all the costs were accounted for, the results were evident. Although the
landed costs were higher for road transport, it accounted for a lower overall cost across all locations in Kerala.
By shifting their demand fulfilment mode to road transport, the organisation:

1. Reduced their lead time,
2. Reduced their delivered cost,
3. Improved customer satisfaction, and
4. Facilitated easier material handling.
Sales and Operations Planning (S&OP) and Its Need
S&OP is an aspect of supply chain planning whose goal is to create a unified, consensus-based business plan.
This consensus is achieved through the cross-functional collaboration between the following departments:
● Sales
● Marketing
● Manufacturing
● Distribution
● Finance
● Human resources
There are certain limitations to statistical forecasting, as it relies heavily on models and historical data to
produce estimates. However, other data, such as revenue and profit projections and marketing events, are
often not a part of statistical forecasting.
This major drawback leads to the development of the sales and operation planning (S&OP) process.

The aim of S&OP is to gain a holistic view of the planning process by extending the forecasting process to other
functions and departments.
Incorporation of S&OP in an organisation
To incorporate S&OP within an organisation, it has to invest a lot in terms of time and other resources. The
following points should be kept in mind to understand the incorporation of S&OP:
1. S&OP is an extremely important step in the entire supply chain planning process, and hence, it is
typically led by senior management and executed on a monthly basis.
2. In this iterative process, the results from one planning cycle are compared with those of the next
planning cycle to provide the management with information on trends from across the business.
3. Participants of the S&OP meeting evaluate the projections for supply and demand to ensure that the
tactical plans for all business functions, across geographies, are aligned and support the organisation’s
broader strategy.
The following picture depicts the sequencing of activities in a sales and operations planning:

S&OP Horizons
A sales and operations planning process is defined in terms of objectives over short-, medium- and long-term
periods. The different time horizons in S&OP are as follows:
1. Strategic horizon (long-term):

Strategic horizon involves making decisions for the next three to five years. This horizon includes
planning for the following types of decisions:
1. Expansion of plant
2. Making changes in off-take policy or offtake agreement: It is an agreement between a producer
and a buyer to purchase or sell a specified quantity of the producer’s future production. Such an
agreement is usually negotiated prior to the construction of a production facility.
3. Launching of new innovative products
2. Tactical horizon (mid-term):

1. Modification of the supply chain process
2. Making changes in recruitment and operations policy
3. Operational horizon (short-term):

Operational horizon involves making decisions for the next four months. This horizon includes
planning for the following types of decision:
1. Plans for anticipated and prepared flexibility
2. Deciding on number of teams
3. Hiring temporary workforce
4. Shift operations

S&OP in Real Life
In this segment you have learnt about a ready-to-eat food manufacturer that operates on a B2B model. This
food manufacturer exports 60% of the goods produced and sells the remaining 40% in the domestic market. Its
manufacturing plants run at 90% utilisation. The manufacturer is facing a supply shortage in both domestic and
export markets. The image below summarises the key decisions that the manufacturer needs to make within
the strategic, tactical and operational horizons.

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It is important for organisations to adopt effective sourcing strategies to maximise their performance and
efficiency to gain a competitive advantage over their peers. In this module, you understood the importance of
adopting the right sourcing strategy.
In this session, you learnt:

● The role of sourcing within the scope of the business value chain
● How to distinguish between direct and indirect sourcing
● The key aspects of sourcing, such as the level of processing required for certain products
● How sourcing decisions are made within various industries
● The role of ‘make vs buy’ decisions by understanding the reasons for outsourcing and the extent to
which firms choose to control its ecosystem
● The difference between adopting a single- and a multiple-sourcing philosophy
● Apple’s decision process when choosing to adopt a single- or a multiple-sourcing strategy
In this segment, you learnt that the business value chain consists of the following cycle:
Source – Make – Move – Sell
With the help of the soft drink example, you identified the following steps in post planning, which make for a
world-class supply chain:
1) Source – The raw materials to make the drink as well as the packaging materials so the drink
reaches the customer in the right form and shape are sourced. Secondary materials, such as
cartons and shrink wrap, also enable safe transit.
2) Make – Beverage made in the right quantity and of the right quality is stored in stock-keeping units.
3) Move – The product is transported to the end consumer through various channels, which include
distributors, retailers and e-commerce partners.
4) Sell – The product is finally sold to the end consumer.
In this segment, you learnt how to distinguish between direct and indirect sourcing.

Direct sourcing refers to the sourcing of a material that is directly involved in the making of a product.
Examples include raw materials and packaging materials.
Indirect sourcing refers to the sourcing of a material that is not involved directly in the making of a
product, but enables the organisation to produce it. An example is office supplies.
Next, you learnt about the factors that differentiate between direct and indirect materials. The table below
summarises these differentiating factors.
In this segment, you learnt about the importance of sourcing strategies with the help of a few examples,
which are given below.
1. An FMCG company, such as Amul, adopts the following strategies when sourcing for an
agri-product, such as milk:
a. A village cooperative collects the milk.
b. The chiller plants store this milk, as required.
c. The dairy plant receives and checks the milk.
2. For mobile phone and automobile manufacturers, sourcing the right parts and components is critical.
A key takeaway from this example is that with an increase in product complexity, the bill of materials and
the number of vendors, too, increase.
3. In e-commerce companies, the focus is more on ensuring that shipments are not damaged and the right
courier partners are onboarded.
4. Finally, for service-based organisations, such as Infosys, the right software needs to be sourced to
deliver projects on a large scale.

In this segment, you learnt about the two key aspects of sourcing, that is:
1) A material can be used in its as-is form.
2) Material requires a certain level of processing before it can be used.
Through the example of a soft drink manufacturer, you understood that:

1) The materials that can be sourced and used in their as-is forms are raw materials, for example, sugar
and water.
2) On the other hand, PET bottles require a certain level of processing before being used.
In this segment, you learnt that outsourcing is a supply chain function, wherein a firm decides that a
particular business activity will be performed by a third party.
A firm decides to outsource in order to increase its supply chain surplus.
The following factors affect the growth of supply chain surplus:

1. Scale – If the scale is already large, then it is less likely that outsourcing can achieve further
economies of scale.
2. Uncertainty – If requirements are highly variable over a period of time, then choosing to outsource
may increase the surplus through aggregation.
3. Specificity of assets – If assets are highly firm-specific, then outsourcing may be less suitable.
In this segment, you learnt about the differences between a single- and a multiple-sourcing strategy, which
include the following:
1. Single sourcing strategy – This is a situation in which a firm decides to procure raw materials from a
single supplier.
2. Multiple sourcing strategy – This is a situation in which a firm decides to procure raw materials from
multiple suppliers.
Through the example of Erikson and Nokia, you gained an understanding of the impact of the choice of the
correct sourcing strategy on a firm.
In the year 2000, a fire broke out at a Phillips plant, which resulted in significant losses as the production at
the plant was hit. At the time of the incident, Phillips was a microchip supplier for both Erikson and Nokia.
Here is how both of these companies were affected, as a result of the plant closure.
Eriksson
- It had adopted a single-sourcing policy.
- As there was no other source for microchips, it resulted in a disruption for months together.
- The loss amounted to more than $400 million.
Nokia
- It had adopted a multiple-sourcing policy.
- It began switching its chip orders to other Phillips plants and using alternative suppliers.
- There was little impact on production despite the plant closure.
The world’s leading smartphone rivals, Apple and Samsung, have been in a business relationship since the
year 2008.
However, this relationship turned sour in 2011. Samsung has been a key supplier of display panels for
Apple products. One of the most eye-catching features of the iPhone, the OLED screen, is manufactured by
Samsung. In 2011, Apple accused Samsung of infringing on Apple’s patents. This led to an almost
decade-long legal battle between the two tech giants.
As a result, Apple was at a crossroads about how to continue its supplier relationship with Samsung. At the
time, Apple had adopted a single-sourcing strategy, as OLED screens were sourced primarily from
Samsung.
The following options were available to Apple:
Option 1
Continue its single-sourcing policy
Option 2
Switch from single sourcing to multiple sourcing
Option 3
Create its own supplier base
It is noted that Apple has continued its relationship with Samsung for having a single-sourcing policy.
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In this session, you:
● Identified the seven steps of the purchasing cycle,

● Understood the sourcing decisions made by companies using the 7-step framework of the purchasing
cycle,
● Understood the qualitative aspects to consider while choosing an appropriate supplier,
● Learnt how to use the weighted average method to select suppliers,
● Understood the key performance metrics to measure sourcing,
● Identified the key sourcing challenges faced by a company,
● Analysed Apple's purchasing cycle using the 7-step framework, and
● Learnt about the sourcing challenges faced by Apple.

In this segment, you learnt about the following seven steps of the purchasing cycle, and through the example
of a soft drink, you understood how they are applied to a real-world product.

Step 1: Receiving and analysing purchase requisitions

Purchase requests are received from internal planning functions within an organisation. For the soft drink
example, these requests will include all specifications of inputs, such as raw material and packaging material.
All inventory based on the lead time is shared with the procurement team.

Step 2: Selecting suppliers

Searching for potential suppliers involves issuing ‘requests for quotations’ to these potential suppliers,
receiving and analysing those quotations, and, finally, selecting the correct supplier.
The goal is to find the correct set of vendors who can provide the required material.

Step 3: Determining the correct price

Negotiate the correct price for the desired specifications. In the soft drink example, all specifications will be
drawn up, such as the width of the cap and the strength of the bottles, and all vendors must be made aware of
these specifications before negotiating for the price.

Step 4: Issuing purchase orders

After selecting the supplier, the company has to issue a purchase order to the supplier. This is a formal process
of issuing written contracts with the desired specification of the product and the terms of service.

Step 5: Following up to ensure that delivery dates are met

The inventory and frequency of the delivery of each product are determined depending on the lead time. In
the soft drink example, a perishable product such as sugar will be ordered more frequently than bottle labels,
which can easily be stored.

Step 6: Receiving and accepting goods

The purchase does not end after a purchase order has been issued. The next important step is to receive the
goods by checking their quality. If a product is rejected, the company needs to ensure that it is replaced by the
supplier.

Ensuring that the quality metrics are met and continuous feedback is provided to suppliers is the prime
responsibility involved in the sourcing function.

Step 7: Approving suppliers’ invoice for payment

The purchase cycle ends at the final stage, that is, paying the supplier. It has to generate the goods received
note, after which the payment is processed.

This is a transactional step, but it is critical for ensuring a smooth relationship between clients and vendors.
A correct reconciliation process needs to be maintained.

In this segment, you learnt that because large retail stores have a wide assortment of products, generally, each
category (for example, breakfast, soft drinks or toys) has a dedicated buying team who works closely with
suppliers to ensure that the relevant products are available for consumers.
Using the 7-step purchasing cycle framework, you understood how sourcing decisions are made in a
large-format retail store such as Big Bazaar.
These steps are as follows:
Step 1: Receiving and analysing purchase requisitions

The dedicated buying team anticipates the overall demand for each category.
Next, they determine the brand-specific demand, which is influenced by consumer preferences that may vary
based on geography.
Finally, they determine the correct Stock Keeping Unit (SKU) mix for each category.

Step 2: Selecting suppliers

It is essential to determine the existing players in the market.
One needs to understand the players that hold a greater brand pull for the set of consumers that are targeted.

Step 3: Determining the correct price

It is necessary to understand all the discounts and promotional offers provided by a particular brand.
Customers buy more from the categories in which margins are high and stores can push/promote the
products enough.

Joint business plans are made to collaborate for volumes, discounts, co-branding and promotions.

Step 4: Issuing purchase orders

A formal note for all brands with relevant specifications and quantities is issued.
This purchase order must be time-bound.

Step 5: Following up to ensure that delivery dates are met

This manual step is extremely relevant in the Indian context.
Purchase order success is measured by the following metric: ‘On time and in full’ (OTIF). This means that the
order needs to be received on the specified date as agreed upon, and there should not be anything missing
that makes the orders partially fulfilled.

Step 6: Receiving and accepting goods

Certain quality standards and the remaining shelf life of the products are to be maintained. For example, soft
drinks that have a shelf life of less than 60% are not accepted. This is done to ensure that fresh stock is present
on the shelves and stock-outs are avoided.

Step 7: Approving suppliers’ invoice for payment

In this step, the agreed-upon payment and credit terms between vendors and retail chains are fulfilled.

In this segment, you learnt about the various factors that influence vendor selection. These are as follows:
1. Technical ability
Understanding the product and investing in R&D is essential for a vendor, and this factor becomes more
relevant when dealing with high-tech specification products.
2. Manufacturing capability
For this factor, it is important to investigate whether the vendor has the capacity in terms of machinery and
manpower to deliver the required goods.
3. Reliability

Having a reliable output with a low rejection percentage is desired.
To ensure that this factor is considered, most companies have a quality certification program that helps to
monitor vendor processes.
4. After-sales services

A supplier’s role does not end once the product is delivered. An important consideration is focusing on
maintaining good after-sales services. Long-term associations happen with vendors when they exceed
expectations. This plays an important role in ensuring the longevity of relationships with customers.

5. Supplier location

A facility near the production plant is desirable; however, the key takeaway here is that proximity to your
vendor base depends on your most critical factor.
For example, Maruti in Gurgaon chose to be near their large vendor base so that they could have easier access
to their parts suppliers instead of being near a port, which may have resulted in its transportation and logistics
costs being lower.

Each company needs to consider its most ‘critical factor’ and base its decisions on it.

6. Just-in-time capability

This means that the material is moved ‘just in time’ or just before it is needed in the manufacturing process.
The technique reduces the need to store excessive quantities of material in a warehouse, and hence, a vendor
with this capability reduces the inventory carrying costs incurred by the company.

7. Price
This is an important factor, as it is the goal of all companies to reduce overhead costs and increase the bottom
line. The key takeaway is that the price should not be the only factor that is considered, and decisions
regarding vendor selection should be made on a more holistic basis.

In this segment, you learnt about the key metrics to measure sourcing performance.

They are as follows:
1. Adherence to specification
2. Cost

When considering commodity buying within FMCG products, a specific sourcing strategy needs to be
considered.

For instance, longer lead times may be more appropriate for packaging products than agri products that have
a shorter shelf life and, hence, could have a longer term forward, buying contracts to hedge risk. A strategy of
continuously monitoring the price and buying on dips may also be chosen for certain high availability material
but would be more difficult for agri products, which may require a continuous flow to be maintained.

Finally, you learnt about the performance metrics for a third-party or logistic service provider. These metrics
are as follows:

1. Cost per box shipped
This is the per-unit cost of the product.

2. Inventory mismatch
The system inventory and physical stock should be well matched.

3. Manpower productivity
This refers to the number of boxes shipped per manpower.

4. Local authority issues
Be aware of the local authority rules and regulations and understand the impact these have on your company.

In this segment, you learnt about the following key sourcing challenges to keep in mind:

1. Non-adherence to quality standards

Ensuring that quality standards are met is essential; however, globalisation poses a risk, as each country has
different specifications for the same material.
Understanding local specifications is important and requires a specific skill set.

2. Long-range logistics

Managing a well-oiled logistic system is necessary because if raw material and packaging material do not
reach the desired factory location, they are worthless. Vendors who are integrated well with logistic service
providers have an edge in today’s times.

3. Delays in supplies

This has a negative impact with respect to the following:
- Loss in sales
- Loss in shelf space
- Dent in customer experience

4. Compliance issues

Understanding local statutory compliance laws is critical. All local laws must be abided by, and with the
globalisation of supply chains, this becomes more relevant.

5. Geopolitical risk
Any geopolitical disruption leads to issues with respect to the supply and demand sides.

In this segment, we discussed the seven steps of the purchasing process, and you learnt how this relates to the
development of iPhones. The seven steps are mentioned below.

1. Receiving and analysing purchase requisitions
Apple required a high level of coordination between stakeholders, as the product life cycle was short.

2. Selecting suppliers
Apple wanted control over its suppliers and was, hence, involved in every step in building iPhones.

3. Determining the correct price
Apple invested large capital in its suppliers in exchange for full control of the production and management of
the iPhone manufacturing process. The large investment in R&D is built into the cost of the iPhone.

4. Issuing purchase order
Apple evaluated its supply base and issued purchase orders based on the capacity and low cost of production.

5. Following up to ensure that delivery dates are met
Suppliers met Apple’s every demand owing to the large capital investment.

6. Receiving and accepting goods
Apple conducted strict quality checks to protect its brand reputation.

7. Approving suppliers’ invoices for payment
The cost of keeping the inventory was borne by the supplier. Apple used to extend payables to as long as 90
days after the parts were used.

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only.
prohibited.


Logistics is the process of getting the correct product to the customer in the correct condition at the correct
time to the correct place and at the lowest or most optimal cost.
Managing logistics means managing two important elements in an organisation, inventory (along with its
corresponding warehousing) and distribution (including transportation).
1. Inventory: Inventory is an idle stock of physical goods that has an economic value associated with it. It
is visible throughout numerous points in an organisation’s production. Inventory could be for a variety
of goods such as:
a. A stockpile of raw or packing material
b. Supplies
c. Work in progress
d. Finished goods
2. Transportation: Transportation refers to the movement and modes of movement of goods and
persons from one place to another. These places are referred to as nodes in a supply chain. The
different modes of transport that are available are as follows:
a. Air
b. Water
c. Land or surface

Logistics is the process of moving and positioning inventory to meet customer requirements while ensuring
the following:
1. Optimum time and place for positioning goods
2. Minimum total landed cost
3. Minimal assets

Distribution channels include retailers, wholesalers, direct mail and field sales. Depending on the type of
business and products that you are selling, you have to incorporate any of these distribution channels within
your logistics network.
Over the past few years, Indian government has taken some steps to build the logistics infrastructure in the
country. These steps are as follows:
1. With the implementation of the Goods and Services Tax (GST), India has witnessed consolidation in
warehouse infrastructure that has led to a 30% reduction in inventory levels and 40% increment in
inventory turnover.
2. India has also implemented the concept of multimodal logistics parks (MMLPs). The advantages of
MMLPs are as follows:
a. Reduction in overall freight and warehousing costs
b. Reduction in pollution levels and traffic congestion

An organisation has multiple motives for carrying an inventory. These motives are classified into the following
three categories:
1. Transactional motive: This type of motive includes the following:
a. An enterprise maintains inventories to avoid bottlenecks in its production and sales activities.
b. By maintaining inventories, businesses ensure that production is not interrupted owing to the
shortage of raw material and sales are not affected on account of non-availability of finished
goods.
2. Precautionary motive: These types of motives include the following:
a. An enterprise holds inventories to reduce the risk during an unpredicted event such as a
natural calamity or a pandemic.
b. Under such exceptional circumstances:
i. There can be a sudden and unexpected spurt in the demand for finished goods.
ii. There can be an unforeseen slump in the supply of raw material.
c. Under both these cases, a prudent business would surely prefer having some cushion to guard
against the risk of such unpredictable changes.
3. Speculative motive: These types of motives include the following:
a. Enterprises hold inventories to take advantage of price fluctuations:
i. If the prices of raw material are expected to increase steeply in the near future, the
enterprise is likely to hold more inventories than required at lower prices.

Along with meeting all the motives that are stated above, there are other benefits of holding inventory. These
benefits are as follows:
1. It reduces the ordering cost that is incurred every time an organisation purchases raw material.
2. It also helps an organisation in achieving efficient production run.

If an organisation decides to hold a huge inventory, then this inventory also has some costs associated with it.
These costs are as follows:
1. Material costs: These are also known as ordering costs.
a. It includes costs associated with placing orders to purchase:
i. Raw material and components
ii. Clerical and administrative salaries
iii. Postage, telegrams, bills, stationery, etc.
b. Higher the number of orders, higher will be the ordering costs and vice versa.
2. Carrying costs:
a. It includes costs involved in holding or carrying inventories such as the following:
i. Insurance charges for covering risks
ii. Rent for the floor space occupied
iii. Wages paid to labourers
iv. Wastages, obsolescence or deterioration, thefts and pilferage
b. It also includes opportunity costs.

i. If the money that is blocked in inventories is invested elsewhere in the business, it
would have earned a certain return. The loss of such returns is considered to be an
opportunity cost.
In order to achieve the motives and benefits of having inventory without increasing the cost associated with
it, organisations follow certain industry practices within inventory management. They classify their
inventories into the following two types:
1. Make to stock (MTS):
a. This includes fast-moving inventory whose demand is highly predictable.
b. Example: Pizza Hut has stocks of cold drinks and cookies, as they are commonly used in each
customer order.
2. Make to order (MTO):
a. This includes slow-moving inventory whose demand is not predictable.
b. Example: Special types of pizzas that are not ordered frequently in a Pizza Hut outlet
c. In order to quicken the process of delivery to the customer, organisations use the concept of
delayed differentiation.
d. Using delayed differentiation, Pizza Hut maintains a stock of pizza bases and toppings such as
cheese, mushrooms and baby corn so that as soon as the order is placed, the company will
customise the pizza using the base and toppings and deliver it to the customer at the earliest.
Organisations also follow certain industry practices to replenish their inventory to avoid stock-out. A couple
of the replenishment models used are as follows:
1. Traditional method:
a. An example of this method includes the FMCG sales representatives visiting retailers to
discuss their future orders.
b. This method is suitable only when the number of items/stock-keeping units (SKUs) is low in
number.
2. Vendor-managed inventory (VMI):
a. This type of method is highly suitable when an organisation is dealing with a large number of
SKUs.
b. For every SKU, there is a predefined inventory level, and when the inventory goes below that
level, the order is automatically triggered to replenish that SKU from the concerned supplier
who then supplies the SKU from its warehouse or distribution centre.
c. Ikea uses VMI as a mode of inventory replenishment.

Supply chain visibility is a key criterion in avoiding a mismatch between supply and demand. Transportation is
one of the important links that enhance supply chain visibility.
There are different modes of transportation that are used by organisations to transport their products. These
modes are as follows:
1. Surface transport: Surface transport can be segmented into the following modes:
a. Road transport:
i. Road transport uses a combination of trailers in the form of flatbeds or containers.
ii. Road transport also uses trucks of various sizes such as t empos, heavy commercial
vehicles (HCV), medium commercial vehicles (MCV) and light commercial vehicles
(LCV).
iii. Road transport also uses bullets and bunkers.
b. Rail transport:
i. Rail transport uses wagons, rakes (a combination of close to 40 rakes) and bullets.
2. Water transport: Water transport uses two modes, which are ships with containers and barges (used
between ports within a country or in inland waterways).
3. Air transport: Air transport uses cargo flights and special flights (used by major courier companies).
4. E-commerce transport: E-commerce transport uses a combination of surface transport modes, along
with courier services for last-mile delivery.

Over the past few years, Indian government has taken some steps to build the transportation infrastructure in
the country. These steps are as follows:
1. Seaport development for movement of cargo. This is achieved through public-private partnerships
(PPP) such as the following:
a. The Jawaharlal Nehru Port Trust in Nhava Sheva
b. The Krishnapatnam Port Trust in Andhra Pradesh
2. Inland container depot development: Close to 50 such depots are already developed in India in
locations such as Tughlakabad and Sanathnagar.
3. Hub development for air traffic: Twenty-four air cargo hubs have been developed in India up till 2020
in locations such as Nagpur.
4. Development of special economic zones (SEZ), export-oriented units and road transport hubs in
locations such as Ichchapuram, near Visakhapatnam, and Delhi (Sanjay Gandhi National Hub).


basis:
permission.


There are certain principles of logistics or distribution systems that must always be adhered to. These are as
follows:
1. Working backwards from the endpoints to meet customer requirements
2. Utilising assets to the maximum extent possible, whether they are machines, vehicles or even floor
space
3. Avoiding double handling; for example, deciding between a one-step and a two-step distribution
process
4. Ensuring that the logistics system is always reliable, be it with regard to the equipment or the data
being used in the system
5. Ensuring that information is valid, correct, transparent and the same for all the entities in the supply
chain, as it may be critical in reducing costs and increasing customer satisfaction
6. Deciding between owning and purchasing logistics services
7. Providing incentives to achieve internal and external efficiency
Some of the major practical considerations of a distribution system include understanding the required
results, estimating the total system impact of a design and being realistic about the analysis being performed.
The design of distribution systems has far-flung effects, as it can affect product margins, profits, marketing
budgets, the final retail price of a product, and consequently, sales management practices.

There are specific distribution strategies that are used by organisations for the distribution of their products.
These strategies are as follows:
1. Cross-docking: In cross-docking, any storage areas hardly exist between the factory and the customer.
The stock is almost always on wheels and is transferred from inbound to outbound modes of transport.
In cross-docking, the products are received from an inbound transportation dock and then are
transferred to an outbound transportation dock. This entire process happens at a place known as
distribution docking terminal.
2. Milk run: Milk run is a delivery method in which a truck either collects the product from a single
supplier and delivers it to multiple retailers or collects products from multiple suppliers and delivers
them to a single retailer.
3. Direct shipping: As the name suggests, direct shipping involves the direct movement of goods from
suppliers to customers, or vice versa. The simplest mode requires only two decision points: the
quantity required to ship and the number of trucks to be used.
4. Hub-and-spoke model: A hub holds the inventory for a large region, with each spoke leading to a
smaller location based on the region’s requirement. The main driver for the hub-and-spoke model is
the proximity to customers.


A distribution network needs to consider a lot of variables in its designing phase. These variables are
categorised into separate factors as given below.
1. Strategic factors
2. Technological factors
3. Macroeconomic factors
4. Political factors
5. Infrastructure factors
6. Competitive factors

1. Strategic factors: A distribution network includes parameters related to the location and role of an
organisation’s facilities. These parameters are as follows:
a. Firms that focus on reducing their cost tend to find lowest-cost locations even if they are far
away from their customers.
i. Example: Apparel manufacturers shifted their production facilities from the US to
Asian markets even though their majority sales were coming from the US.
b. Firms that focus on being responsive to their customer needs tend to locate their facilities
closer to their customers.
i. Example: Zara has its manufacturing facilities in high-cost locations of Spain and
Portugal in order to quickly adapt to European fashion trends.
c. Organisations that work on a global scale tend to assign different roles to different facilities
based on their geographical location.
i. Example: Nike has production facilities in China and Indonesia that focus on cost and
produce mass-market-priced shoes. While Nike’s production facilities in Taiwan and
South Korea focus on responsiveness and produce highly-priced new-designed shoes.
d. The types of roles that an organisational facility can play are as follows:
i. Offshore facilities: These are low-cost facilities aimed for export-oriented productions.
ii. Source facilities: These are low-cost facilities aimed for global productions. Good
offshore facilities overtime migrate to become source facilities.
iii. Server facilities: These are regional production facilities that are typically used to
either take advantage of a location’s tax incentives or overcome trade barriers and
logistics costs.
iv. Contributor facilities: These are regional production facilities that serve only the
market where they are located.
v. Outpost facilities: These are regional production facilities that are built to gain local
skills.
vi. Lead facilities: These are facilities that lead in research and development and
production technologies. They create new products, processes and technologies for the
entire network that they serve.
2. Technological factors: If the production technology displays significant economies of scale, then
limited but high-capacity locations are better for the distribution network. Whereas if facilities have
lower fixed costs, then many local facilities are preferred, as this helps in lowering the transportation
costs.

3. Macroeconomic factors: These refer to taxes, tariffs, exchange rates and other similar factors.
4. Political factors: Companies prefer locations that have political stability, no unrest and where rules of
commerce and ownership are well-defined with an unbiased judicial system.
5. Infrastructure factors: This includes the availability of good infrastructure, sites and labour and
proximity to transportation terminals such as rails and roads. These factors play an important role in
deciding the location of organisational facilities.
6. Competitive factors: Companies must take into account their competitor’s strategy. Positive
externalities between companies happen when they locate in closer proximity, and by doing so, they
not only increase the combined demand of a specific product but also ensure that the customer has to
come to one location to get what they desire. Example: Gas stations, petrol pumps and shops in a mall
are all clustered together.

While designing a distribution network, an organisation needs to ask two fundamental questions to itself.
These questions are as follows:
1. How will the product be delivered to the customer?
2. Will the product flow use any intermediate storage locations?
Based on the responses to the questions given above, an organisation can implement the following types of
distribution network designs:
1. Manufacturing storage with direct shipping to customer: Within this type of network design, the
product is shipped directly from the manufacturer to the customer, bypassing distributors, retailers
and depots.
2. Manufacturing storage with direct shipping and in-transit storage: Within this type of network
design, the product is shipped from the manufacturer to the customer using intermediate storage or a
cross-dock facility. Such a type of distribution network is used when an organisation is selling bundled
products such as a Dell PC with a Sony monitor.
3. Distributor storage with package carrier delivery: Within this type of network design, the inventory
is held by the distributor with a warehouse who ships to the customers. Such a type of distribution
network is used by e-commerce companies such as Amazon and Flipkart that are selling products from
multiple sellers.
4. Distributor storage with last-mile delivery: Within this type of network design, the inventory is held
by the distributor with a warehouse who ships and delivers it to the customers. Such a type of
distribution network is used by online grocery companies such as BigBasket and Grofers.
5. Manufacturer/Distributor storage with customer pickup: Within this type of network design, the
product is stored by the manufacturer or the distributor, but the transport for product pickup is
managed by the customer.
6. Retail storage with customer pickup: Within this type of network design, the inventory is stored at
the retail outlets, and customers visit and purchase the product from the retail outlet. Such a type of
distribution network is used by retail chains such as Big Bazaar.
A correct set of network designs is shortlisted by understanding the characteristics of the product that an
organisation is selling and then ranking the performance of each of the six distribution network designs on
these characteristics. The characteristics are as follows:
1. Response time
2. Product variety
3. Product availability
4. Customer experience
5. Time to market
6. Order visibility
7. Returnability
8. Inventory cost
9. Transportation cost
10. Facility and handling costs
11. Cost of information flow between supply chain stakeholders
12. Product demand

Based on the importance that an organisation gives to each of these characteristics combined with the
performance of each of the six distribution network designs on those characteristics, the organisation
finalises on the set of distribution network designs that it can use to carry out the distribution of its products.

An organisation should analyse the performance of its distribution network on two parameters. These
parameters are as follows:
1. Meeting customer needs
2. Cost of meeting the customer needs
The analysis of the first parameter (meeting customer needs) is done by evaluating the performance of the
distribution network on the same set of product characteristics that were used at the time of selecting the
network. These characteristics are as follows:
1. Response time: Response time is the amount of time it takes for a customer to receive an order.
2. Product variety: Product variety is the number of different configurations that are offered by the
distribution network.
3. Product availability: Product availability is the probability of having a product in stock when a
customer order arrives.
4. Customer experience: Customer experience is the ease with which customers can place and receive
orders.
5. Time to market: Time to market is the time it takes to bring a new product to the market.
6. Returnability: Returnability is the ease with which a customer can return unsatisfactory products.

The analysis of the second parameter (cost of meeting the customer needs) is done by evaluating the supply
chain costs incurred by the distribution network. These costs are as follows:
1. Inventory cost
3. Facility and handling costs
4. Cost of information flow between supply chain stakeholders

Changing the distribution network design of an organisation not only has an impact on all of the
above-mentioned product characteristics and supply chain costs but also affects the following organisational
strategies:
1. Sourcing strategy
2. Pricing strategy


basis:
permission.


The inventories are stored within an organisation’s warehouses and distribution centres (DCs).
To manage its warehouses, an organisation asks two key questions to itself. These questions are as follows:
1. How many distribution centres (DCs) are required to adequately serve the customers?
2. How to minimise the cost of warehousing?

An organisation’s response to the two questions given above helps it to measure the cost impact of
undertaking this activity. The following are the costs that are affected:
1. Storage cost
2. Inventory holding cost
4. Customer delivery or last-mile cost to serve
5. Warehouse management system (WMS) cost

In order to streamline the service levels, some rules can be formed for deliveries based on the distance to be
covered from each warehouse. Although generic rules can be formed/followed, an optimum rule must be put
in place.
Defining such an optimum rule requires us to:
1. Follow common sense
2. Use optimisation tools: These tools take into account the following parameters:
a. Warehouses that are needed to serve the customer markets
b. Warehouses that are needed to be closer to the transport markets
c. Warehouses that are required to establish a hub-and-spoke model
d. Warehouses that are to be used as distribution centres (DCs) or regional distribution centres
(RDCs)
A typical model used commonly by organisations in deciding the number of warehouses that it needs to have
is the cost-to-serve model:
1. In this model, the supply chain team begins with the consideration of the expected service levels. The
service levels expected by customers help you in determining the optimum number of storage points
required.
2. Additionally, considering the cost and the time required to meet these service levels will help in
designing the ‘first cut’ of the warehouse network.
3. From the first cut, an iterative approach can be followed to develop the optimum warehouse network.

Over the past years, some of the major Innovations have been happening in the field of logistics. These
innovations are as follows:

1. Relay model: A truck driver drives a maximum stretch of 200–300 kilometres after which the truck is
handed over to another truck driver, thereby forming a relay structure.
a. As a result of this model, the driver is able to come back to his base location after every one or
two days, thereby improving their work-life balance.
2. Use of big data: Companies use built-in sensors in their transportation vehicles.
a. This improves the visibility of every vehicle, as it moves from one node to another in a supply
chain.
3. Use of data analytics: The company can use big data and analyse it to find truck drivers that are more
reliable than the others.
a. It can then use these reliable truck drivers to handle fragile shipments in the future.

Supply chain coordination is an important pillar for managing the entire supply chain. Every stage in a supply
chain has its own set of actions. These actions need to be aligned with each other in order to increase the
value that is generated from the supply chain.
This coordination is achieved by the following:
1. Information needs to be constantly shared among different stakeholders.
2. Every stakeholder needs to take into account the effects of their actions on other stakeholders.
Coordination is affected when the objectives of different stakeholders are not aligned with each other or
when the information flowing across the stakeholders is delayed or distorted.

Some techniques that are used to improve coordination in a supply chain are as follows:
1. Pricing strategy
2. Improving operational performance: Operational performance can be improved by reducing the
replenishment lead time. The replenishment lead time can be reduced in the following ways:
a. Electronic data interchange-based ordering
b. Reducing lot size
c. Rationing based on past sales
3. Improving information visibility and accuracy in the supply chain. This can be achieved in the following
two ways:
a. Continuous replenishment program (CRP):
i. CRP is a base that is used to support the entire efficient consumer response (ECR)
strategy.
ii. CRP is used to replenish products in real-time.
iii. In CRP, products are replenished only as per the quantity sold and as needed in
real-time. Since all the activities take place in real-time, there is no optimal order point,
i.e., no specific time to order for replenishments.
b. Vendor-managed inventory (VMI):
i. The buyer of a product provides information to a vendor of that product.
ii. The vendor takes full responsibility for maintaining an agreed-upon inventory of the
material, which is usually at the buyer’s consumption location.


A phenomenon that is caused when coordination and efficiency are not maintained in a supply chain is called
the bullwhip effect.
1. The bullwhip effect is a distribution channel phenomenon in which demand forecasts yield supply
chain inefficiencies.
2. It refers to increasing fluctuations in inventory owing to shifts in consumer demand.
3. The bullwhip effect on the supply chain occurs when the changes in consumer demand cause the
stakeholders in a supply chain to order more goods to meet the new demand.
4. The bullwhip effect usually flows up the supply chain, starting with the retailer, followed by the
wholesaler, the distributor, the manufacturer and, finally, the raw material supplier.

The following are the causes of the bullwhip effect:
1. Sudden updates made to the demand forecast
2. Order batching
3. Price fluctuations
4. Demand information
5. Lack of communication
6. Free return policies

The following are the ways to minimise the bullwhip effect:
1. Through better information in terms of improved communication along the supply chain and better
forecasts
2. By eliminating delays in the supply chain
3. By reducing order size and providing good customer service

The case talked about a global tyre manufacturer Michelin, which tied up with India’s local tyre manufacturer
Apollo Tyres to use their distribution network within the country. While Apollo Tyres has multiple
manufacturing units, Michelin imports and sells products using its joint venture network.

Unfortunately, the joint venture did not last for more than 18 months. The shelving of the joint venture meant
that in 30 days, Michelin had to determine the following:
1. How to move out all stocks from the 70+ Apollo Tyres’ depots and six RDCs?
2. How to establish self-sufficiency in logistics and distribution?
3. How to ensure zero disruption in serving customers?
4. How to set up an organisation to deliver and sustain logistics, distribution and customer service?
Michelin created detailed plans with stakeholders (majorly sales teams) on how to carry out each activity.

Some of the major factors that affected the strategy included the following:
1. The cost that Michelin was willing to spend (the cost as a percentage of net sales)

2. The service levels to which the sales team was willing to stretch
3. The number of depots that were strategically located to cater to the service levels

Three major factors that were considered while adopting a distribution strategy are as follows:
1. Distribution: Compared with Apollo Tyres (local), Michelin (all imports) had to align its business with
the supply points as the focus.
2. Costs: Michelin worked backwards to ensure that its logistics cost did not exceed 10% of the net sales.
3. Service provider: Michelin chose to work with a third-party logistics provider.

Michelin agreed on a distribution strategy and service levels with the sales team and worked with a
third-party logistics provider (3PL) for services in logistics, warehouses and credit management at an agreed
price.


basis:
permission.


In this session you covered the central themes of demand and supply. You learnt about the price elasticity of
demand and supply and how a market reaches equilibrium.

Demand refers to the quantity of a particular product or service that consumers will buy at a particular price
point.

The law of demand states that An increase in the price of a good will cause a decrease in the quantity
demanded. And with a decrease in the price, the quantity demanded rises, provided all other factors remain
the same.

The following image represents a standard demand curve, which shows the quantity of a product demanded
by consumers at various prices.

Here you can note that at high prices, there is a low demand for a product and at low prices, there is a higher
demand for product. This reinstates that demand is inversely proportional to price. You constructed a demand
curve for a small sample size, but in reality even for a larger market, the demand curve will look very similar to
this.

The demand curve is indeed a curve and not linear. This is because people who buy products at cheaper prices
are more sensitive to price changes. Hence a small reduction in price at the lower levels would bring in more
consumers than the same small reduction in price at higher levels.
However, we would often use a straight line to show the demand curve for easier analysis.

Price is one of the most important determinants of demand. However, there are also other factors that affect
the demand curve.
You learnt about the major determinants of demand. The demand curve shifts due to a change in any of these
factors.
The below table shows the direction of change in demand for a product due to a change in one of the
determinants, and the effect this would have on the demand curve
Determinants Change in Determinant Shift in Demand Curve
Price Increase None (upward movement

along the demand curve)
Decrease None (downward

movement along the
demand curve)
Price of substitutes Increase in the price of substitutes Rightward shift
Decrease in the price of substitutes Leftward shift
Price of complements Increase in the price of complements Leftward shift
Decrease in the price of complements Rightward shift
Expectations for the future Expecting lower prices Leftward shift
Expecting higher prices Rightward shift

Tastes and preferences Favourable change Rightward shift
Unfavourable change Leftward shift
Some products defy the law of demand due to various reasons. These are known as Veblen and Giffen goods.
Veblen goods: The demand for Veblen goods rises as

their price increases. With the help of the examples of
diamonds and wine, you learnt how the price of a
product is often perceived to be directly related to its
quality.
The curve has properties of a normal demand curve at

low prices, but above a certain price (illustrated by
yellow point) the goods start to display ‘snob value’,
and so the demand curve starts sloping upwards.
Giffen goods: The demand for Giffen goods decreases

as their price decreases.
At high prices, Giffen goods display a normal

downward slope assuming that this is the only good
consumed. When the prices drop to a certain point,
(illustrated by yellow point), a decrease in price will
decrease the quantity demanded.
With the help of an example of the experiment

conducted by Harvard economists Robert Jensen and
Nolan Miller, you learnt that lowering the price of rice

through a subsidy system resulted in households reducing their consumption of rice.

Supply refers to the quantity of a good or service that a firm or a supplier would produce at a given price point.

The law of supply states an increase in the price of a good will cause an increase in the quantity supplied. And
with a decrease in the price, the quantity supplied falls, provided all other factors remain the same.

The following image displays a standard supply curve which shows the quantity of a product supplied by
firms vs. the price of the product.

As seen in the diagram. at low prices, there is a low quantity of a good being supplied, and as the price
increases the supply for the good also increases. This shows a direct relationship between the price and the
quantity of goods supplied.

As in the case of demand, although you did the analysis for one supplier, you can note that the law of supply
would hold true for a larger market with many suppliers as well.

You learnt about the major determinants of supply. The supply curve shifts due to a change in any of these
factors.

The below table shows the direction of change in supply for a product due to a change in one of the
determinants, and the effect this would have on the supply curve.
Determinants Change in determinant Shift in Supply Curve
Price Increase None (upward movement

along the supply curve)
Decrease None (downward movement

along the supply curve)
Input prices Increase in input price Leftward shift
Decrease in input price Rightward shift
Input prices Increase in price of related goods Leftward shift
Decrease in price of related goods Rightward shift
Number of suppliers Increase Rightward shift
Decrease Leftward shift
Technology Improvement in technology Rightward shift
Deterioration in technology Leftward shift
Expectations Expectation of lower prices Rightward shift
Expectation of higher prices Leftward shift

Elasticity refers to the magnitude of change in one variable due to a change in another variable.


You learn that the price elasticity of demand and supply is the responsiveness of a change in price to a change
in quantity demanded or supplied

Price elasticity of demand is calculated as follows:

Similarly, price elasticity of supply is calculated as follows:

You also learnt about the different degrees of elasticity which is summarised below. The following figures are
shown on a demand curve, but are applicable to the supply curve as well.

Degrees of Graph
Elasticity
Perfectly
inelastic
Change in quantity = 0

Relatively
inelastic
% change in quantity is less than % change in price
Relatively
elastic
% change in quantity is more than % change in price

Perfectly
elastic
Quantity falls to 0 with any change in price

Everything you have learnt about demand and supply, come together in this segment on market equilibrium.
This is a situation where economic forces of demand and supply are balanced.

Conditions for market equilibrium are as follows:

1. Quantity demanded = Quantity supplied = Equilibrium quantity produced
2. The price charged = The equilibrium price
The market forces always push the price towards the equilibrium point. This is because:
1. At lower prices, there isn't enough supply to meet demand. This allows suppliers to charge a higher
price for the product.
2. At higher prices, there isn't enough demand. This forces suppliers to reduce prices to increase the
demand.
3. At equilibrium price, the supply is exactly the same as demand. Thus, suppliers have no incentive to
increase or reduce prices.
You learnt that the equilibrium shifts when the demand or the supply curve shift. The following table shows
how the market equilibrium price and quantity change with each combination of change in the demand and
supply curves.
'P' indicates price and 'Q' indicates quantity. ('Ambiguous' means that it can't be determined, except by
analysing the specific shifts in the supply and demand curves.)

No Change in Supply Increase in Supply Decrease in Supply
No Change in Demand P same P ↓ P ↑
Q same Q ↑ Q ↓
Increase in Demand P ↑ P ambiguous P ↑
Q ↑ Q ↑ Q ambiguous
Decrease in Demand P ↓ P ↓ P ambiguous
Q ↓ Q ambiguous Q ↓


In this session, you learnt in detail about the consumer behaviour and producer behaviour by first
understanding the fundamental decisions made by these two economic actors.
This session explained that before making a purchase decision, consumers consider the following two main
factors:
1. Budget
2. Preferences
Next, you were introduced to two economic models, which are given below:
Budget Line
In economics, a budget constraint or budget line reflects all the combinations of goods and services that a
customer can buy within his or her budget given the prevailing prices.
Indifference Curve
An indifference curve is a model that represents the consumer’s preferences. The points on a single
indifference curve gives the consumer the same utility.

The indifference curves have various shapes, each of which has its own significance:
1. L-shaped Indifference Curve: When the goods are perfect complements.
2. Convex Indifference Curve: Most common and applicable to a majority of real-life cases.
3. Straight Line Indifference Curve: When the goods are perfect substitutes.
Following are the characteristics of indifference curves.
Putting together a consumer’s budget constraint and indifference curve, a consumer's purchase preferences
are at a point where the budget constraint is tangential to the indifference curve.

Indifference curves and budget lines together help decide what or how much to buy or sell for maximum
utility within the imposed budget constraints.
A change in the price of a product leads to a dual impact on equilibrium in the quantity of two goods purchased
by a consumer.
Price effect is a combination of substitution effect and income effect.

In this example, both effects are represented.
Substitution Effect: As the price of soccer matches decrease, he will spend more on travel and less on rent.
Thus, there is a change in the budget line, shifting more towards soccer matches.
Income Effect: As consumer income increases, they will spend more on both basketball and football matches.
Thus, the indifference curve shifts towards right.
All the business pricing calculations depend, at their most basic level, on consumer choices and financial
constraints.
In business analysis, the production possibility curve is a curve that explains the variations in the quantities
that can be produced for two goods when the production of both rely on the same finite resource.
The production possibilities curve can be interpreted by understanding the points mentioned below.
The Law of Diminishing Marginal Utility states that all else equal, as consumption increases, the marginal
utility derived from each additional unit declines.

The costs that a producer incurs are as follows:
1. Fixed costs: These costs remain constant irrespective of the output produced. These need to be paid
at every level of output, even in the case of zero production.
2. Variable costs: These costs have a direct relationship with the output of the firm. These include the
cost of raw materials, wages paid per unit produced, and so on.
3. Sunk costs: These are costs which have already been incurred and cannot be recovered or changed
during the course of the business.
4. Opportunity cost: The value of the next best alternative that you give up to choose one option.
The average cost structure is as represented in the images below:
The fixed cost is not affected by the quantity produced, so the average fixed cost decreases with the increase
in quantity. The variable cost is directly proportional to the quantity produced; therefore, the average variable
cost increases with the increase in quantity. Thus, the average total cost first decreases and then increases as
shown in the figure.
External economies of scale are associated with a cost advantage to a company owing to external factors,
whereas internal economies of scale are specific to a firm.

When plotting the average total cost curve, as the average total cost decreases, a firm experiences economies
of scale, while once the average total cost starts to increase, a firm experiences diseconomies of scale. This
could happen due to communication breakdown or managerial issues.
For digital goods, you learnt that the traditional models of economics can be applied by replacing the quantity
variable with other variables such as time, research units produced and so on.
In the Twitter and Instagram examples, you saw that traditional economics for consumer analysis can be still
applied by thinking from the perspective of the factor that affects the revenue.
only.
prohibited.
In this session, you were introduced to the various types of market environments in which a firm operates.
There are two extreme market conditions: a perfectly competitive market and a monopoly market structure.
In economics, markets are divided into different types based on the level of competition that exists in each
market environment. The more competitive a market environment is, the closer it is to perfect competition,
and the less competitive a market environment is, the closer it is to a monopoly.
Each market type is characterised based on the following factors:

1. Number of producers and sellers transacting in the market
2. Type of products in terms of how similar or different they are within the market
3. The ease or difficulty with which firms can enter or exit the market
4. The extent to which a firm can determine the price of the product.
Markets can be classified into the following broad categories:
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The characteristics of a perfectly competitive market are mentioned in the image given below.
A perfectly competitive market results in the most efficient market outcome, as it provides an adequate
amount of a product at a minimal cost to consumers who are willing and able to pay for it.

The characteristics of a monopoly model are mentioned in the image given below.
There are two major types of monopolies that exist due to different barriers to entry, which are as follows:
1. Natural Monopolies: In these monopolies, economies of scale are so large that having two or more
firms operating in it only adds cost to the economy and makes it inefficient. These are usually utility
companies, wherein the government recognises the benefits of a natural monopoly.
2. Limited Monopolies: These are monopolies that are limited by either scope or time, to recover the
high costs involved.

The characteristics of a monopolistic model are as follows:
1. There are many buyers and sellers in the market.

2. Products are differentiated; however, close substitutes do exist.
3. Firms have some control over price.
4. There are low entry or exit barriers.
The characteristics of an oligopoly market structure are given in the following image.
Some simple tests can be undertaken to check whether or not a market is an oligopoly. One such test is
checking for the concentration of the market shared by the top four to six firms in the market. Another such
test is the Herfindahl-Hirschman Index or HHI, which is an index that helps to calculate the
degree of competition based on the number of firms in the market and the market share of each of those
firms.

Since consumers are negatively affected owing to the presence of monopolists, a government limits this
power in many ways. The benefits of this are as follows:
One of the basic economic assumptions is that all individuals have perfect information about their decisions.
Here, this assumption is relaxed to understand the implications of imperfect information on firms and
markets.

In economics, an externality is the cost or benefit of an action that affects a third party other than the buyer or
seller of a particular good or service. To understand externalities better, it is important to understand the
total costs and benefits of a product.
The costs of running a business can be thought to consist of the following:

1. Private costs: These are all the costs that are directly borne by the producer.
2. Social costs: These are the costs that are borne by society.
In this scenario, total costs would take into account the full spectrum of costs and, hence, are equal to private
costs + social costs.

Similarly, total benefit = private benefit + social benefit.
Externalities can be either positive or negative and can be explained as follows:
● Positive externality: A situation in which social benefits are greater than private benefits
● Negative externality: A situation in which private benefits are greater than social benefits
To prevent negative externalities, the following steps can be taken:
There are different modes of government intervention that act to change the price of a product in the market.
1. Price ceiling is a government-imposed maximum price that can be charged by suppliers for the
commodity. This is done to make commodities affordable to the general public.
2. Price floor refers to a minimum price that is decided for a product or service in the market to ensure
that the producers get their due compensation.
3. Taxation is the charge levied by a government on transactions in an economy. These charges are
collected to be used for public services and to improve the general public’s well-being.
Other than constraining the price of a product, governments can also impose regulations or restrictions on
firms, individuals or entities.

only.
prohibited.

Session Summary
Fundamentals of Macroeconomics
In this session, you were introduced to the field of macroeconomics and understood the
fundamentals of this field. You started by learning what differentiates macroeconomics for
microeconomics, how the income flows in an economy, how is an economy measured, what is
productivity, how recessions occur, and a couple of macroeconomic models that help drive
decision-making.
Introduction to Macroeconomics
Macroeconomics studies the behaviour and performance of the economy as a whole.
You learnt that macroeconomics is not concerned with the individual entities in an economy, like
microeconomics, but with the “macro” view of the economy. You also understood why
macroeconomics needs to be studies as a subject on its own because of its overarching impact of
an economy and in economic decision-making.
You learnt how the perspective towards an economy changes when you operate a business versus
when you operate or govern an entire economy.
Macroeconomics basically helps you zoom out of an economy and view it from an aggregate
perspective.
Circular Flow of Income
In this segment, you looked at the circular flow of income from a macroeconomic perspective.
You understood how macroeconomics helps you model an economy by simplifying it to two-
sector, three-sector and four-sector models. The sectors in these models are as follows:
Two-sector model: Households and Businesses (also referred to as Producers)

Three-sector model: Households, Businesses and Government
Four-sector model: Households, Businesses, Government and Foreign Trade

The four sectors of an economy:
You also learnt how income enters or leaves from an economy through injections and leakages.
Through the example of the economy of North Dakota, a state in the US, you understood how
income actually circulates in an economy.

GDP
In this segment, you learnt how an economy can be measured through its Gross Domestic
Product (GDP), Gross National Product and Net National Product (NNP)
You learnt that GDP can be calculated using the Income and Expenditure approaches.
Income approach:
• Expenditure approach: This involves adding up the money spent on the components
discussed in the formula for calculating the GDP.
• Income approach: This approach, conversely, takes into consideration the income earned
by the residents of a country.
You also learnt that GDP is of two types:

• Nominal GDP: This is the value of GDP at current market prices and is not adjusted for
inflation.
• Real GDP: As the name suggests, this is the value of all goods and services produced in a
country during a year, adjusted for inflation to reflect changes in real output.

Productivity
In this segment, you understood what makes some economies are more successful than other
economies, and what are the factors that contribute to this success.
You learnt that Productivity is calculated as the value of total output divided by the number of
hours spent in producing that output.
So, Productivity = Total Output / Total Number of Hours
Factors determining productivity
A country that utilises all these factors effectively is generally more productive than the others.
Recessions
In this segment, you learnt what recessions mean and understood how they occur.
You understood that recession refers to a severe slowdown in economic growth, marked by
falling income, decreasing GDP and increasing unemployment. An economy is said to be
in a recession when this period of low growth lasts for at least two quarters.

You also learnt that at a recession can be brought about by a significant decrease in demand,
which would lead to a demand shock, or by a severe decrease in the supply, which is referred to
as a supply shock.
• A demand-led recession or a demand shock occurs when there is a lack of demand in an

economy owing to various factors like an increase in leakage from the economy by way of
high imports or high savings, higher taxes, etc.
• A supply-led recession or supply shock occurs when there is a sudden decrease in the
supply of an essential commodity, which affects production in an economy.
Macroeconomic Models
In this segment, you looked at two economic models that are imperative to the understanding of
macroeconomics.
1. Aggregate Demand – Aggregate Supply (AD/AS) model

2. Investment-Savings and Liquidity Preference – Money Supply (IS-LM) model
AD/AS Model

The AD/AS model helps you understand the relationship between aggregate demand and
aggregate supply in an economy. It shows how spending in an economy (AD) relates to the
production in an economy (AS) to help determine the macroeconomic equilibrium, which indicates
the real GDP and price levels.
Some features of the AD-AS model:
• It is similar to a simple market demand and supply model, but it takes a broader view of
the economy, which helps governments or economists interpret the economy better and
thus take better decisions.
• It is helpful in understanding how the economy functions during a recession, when demand
drops over the long run or there is a supply shock.
• It tells you how supply adjusts over the long run to match the drop in demand to reach an
optimal price level, and vice versa.
• The understanding of aggregate demand and aggregate supply helps governments make
policy decisions and also helps explain why governments take certain policy decision that
they do.
IS-LM Model
The Investment-savings and liquidity preference-money supply (IS-LM) model helps you
understand the relationship between interest rates and output in an economy. The point at which
these two slopes meet indicates the short-run equilibrium between output and interest rates.
Simply put, it tells us how investments and savings relate to liquidity preference and money
supply. Liquidity preference refers to people’s preference for holding liquid assets over illiquid,
long-term investments.

Simply put, the IS-LM model tells you that:
• As interest rates decrease, people’s preference for saving decreases as they will
earn a lesser return on that money. This leads to more money being injected into the
economy as people spend more. This leads to higher demand, which in turn boosts
economic activity, leading to higher output. So, the IS curve slopes upwards.
• As interest rates increase, people’s preference for spending decreases, which
means there is leakage from the economy as people prefer to save more in order to earn
higher interest on their money. This leads to a decrease in demand, which in turn
decreases output. So, the IS curve slopes downwards.
• As money supply in an economy decreases, interest rates increase. As there is less
supply of money, more people will want to access that money, which in turn will lead to
higher interest being charged on borrowing that money. So, the LM curve slopes upwards.
• As money supply in an economy increases, interest rates decrease. This situation
occurs when people start spending and thereby circulating more money in the economy.
So, the LM curve slopes downwards.


Session Summary
Macroeconomic Theories and Factors
In this session, you understood some of the theories in macroeconomics and also learnt about the
various macroeconomic factors. You learnt how macroeconomic thought has evolved over the
years, how consumption works in an economy, how does income multiply, how are interest rates
decided or what affects them, what is unemployment and inflation, and how are they related.
Classical vs Keynesian Theory
The debate between Classical and Keynesian theorists has been ongoing for decades. Any
understanding of macroeconomics would be incomplete without understanding the roots of
economic theory.
You got a broad overview of the Classical and Keynesian theories of economics. You understood
how these theories differ in their approaches to analysing how economies operate and grow. You
learnt about various approaches and theories in macroeconomics, which are:
• Laissez-faire theory, which was dominant during the entire 1800s and early 1900s.
Laissez-faire is a French term meaning to let things take their own course or to leave them
alone without interfering. This theory argued that businesses do best when allowed to
operate freely without government interference, and that markets are the best way to
produce what society needs.
• Invisible hand theory by Adam Smith, where he argued against protectionism and
overregulation of the markets in the 1700s, saying that the markets should be allowed to
run their course, and this would lead to prosperous results.
• Say's Law of Markets: It states that 'supply creates its own demand', arguing that
even if there is over-production in an economy, demand will automatically be created for it.
• Keynesian theory: Developed by John Maynard Keynes, it states supply cannot create its
own demand and that 'demand creates its own supply'. Keynes argued that aggregate
demand drives production in an economy.

Consumption Function
When you learnt about GDP, you learnt that the C in the GDP formula stood for Consumption.
So, in this segment, you learnt about consumption in detail, as it usually is the biggest contributor
to any country’s GDP.
You learnt that household consumption can be modelled into a function, which goes like:
C = A + M * D,
where C = consumption, A = Autonomous spending (spending a person would do irrespective
of their income), M = Marginal propensity to spend or consume or MPC (what percentage
of the disposable income people spend), and D = Disposable income (the income left to spend
after paying taxes).
You learn that as disposable income and MPC increase, consumption in an economy
increases.
But you learnt how in real life, consumption function operates a bit differently.

In real life, as the levels of disposable income increase, the marginal propensity to
consume decreases. This is the reason why the curve gets flatter. This happens because people
with lower disposable incomes tend to spend more and people with higher disposable income do
not, as they already have enough money to spend. So, they are less likely to spend any additional
sum given to them. This helps governments make decisions regarding where they can put money
such that it gives the highest multiplier.
Multiplier Effect
In this segment, you learnt about the multiplier effect. You learnt that the multiplier effect refers
to the proportional change in output for a given amount of input in the economy. Simply
put, for every dollar injected in the economy, how much does the economy grow.
The multiplier effect helps governments understand which investments have a larger impact on
the economy and yield better results. A high multiplier indicates higher returns and a low
multiplier indicates low returns.
Governments always seek investments with high multipliers, so that when they invest or spend on
the economy, it results in the maximum economic impact and offers a high return.

Theories of Interest
In this segment, you learnt about interest rates and understood why it is important to study them.
Interest refers to the amount of money you get paid for saving your money or the
amount that you need to pay for borrowing money.
You learnt about the relation between interest rates and money supply in a market.
Money supply and interest rates have an inverse relationship:

• As interest rates increase, demand for money decreases, as borrowing money
becomes more expensive.
• As interest rates decrease, demand for money increases, as borrowing money
becomes cheaper, and people find it less burdensome to pay back their loans.
You also learnt how interest rates affect the GDP, and also how interest rates are determined for
different investments durations through the example of the yield curve. For example,
• If you invest in a one-year bond or a three-year bond, the rate of return that you get will
be lower that the interest earned if you invested in a 10-year or 20-year bond.
• Interest on illiquid investments is higher as the capital is locked up for a longer duration.
• Interest on liquid investments like the US Treasury bonds is low as they can be easily sold
or liquidated.
Unemployment and Inflation - I
In this segment, you learnt about two of the most important macroeconomic factors:
Unemployment and Inflation.
Unemployment occurs when people who are able and willing to work cannot find
work.

You also learnt about the types of unemployment:
After that you learnt what inflation means:
You learnt what inflation means: Inflation is a sustained increase in the general price level
in an economy. Inflation leads to an increase in the cost of living as the price of goods and
services rise.
You also learnt about six types or degrees of inflation:
1. Deflation: A decrease in the prices of goods and services in an economy

2. Disinflation: A decrease in the rate of inflation in an economy
3. Rising inflation: A rise in the rate of inflation in an economy
4. Stagflation: Indicates a period of stagnant growth/output and rising inflation
5. Galloping inflation: A high growth rate of inflation, exceeding 10%, with stagnant GDP
6. Hyperinflation: A 50% increase in inflation from the general inflation level
Unemployment and Inflation - II
In this segment, you learnt what causes inflation through two theories of inflation:

• Cost-push theory of inflation: Here, producers push the rising input costs to the
customers, which leads to a rise in prices of goods and services.
• Demand-pull theory of inflation: This happens in a low-supply situation, where demand
is high but supply is low, so producers increase or inflate their prices.
You also understood the relationship between inflation and unemployment by looking at the
Phillips Curve, which shows the trade-off between inflation and unemployment.

Session Summary
Macroeconomic Policies and Tools
In this session, you understood who the key actors in macroeconomic decision-making are for any
country. You also learnt about exchange rates and understood what impacts them. Then, you
learnt about the importance of economic data and where it can be accessed.
Monetary Policy
You learnt that monetary policy refers to the macroeconomic policy that is designed and
laid down by central banks. You understood how central banks make monetary policy
decisions to regulate the economy.
The Federal Reserve in the United States, the Reserve Bank of India, the European Central Bank,
the Bank of England, the Bank of Japan are all responsible for monetary policy in their respective
areas. Their decisions are therefore crucial to their economies, which is why there is often major
news coverage about decisions that they make.
The purpose of monetary policy is to shape the investment and spending decisions of
consumers and businesses through changing the money supply and interest rates of
an economy.
Central banks achieve their objectives in two ways: Regulating money supply and regulating
interest rates.
Regulating money supply in the market:

• The central bank buys government bonds and securities to increase money supply in
the economy,
• This is also known as Quantitative Easing, which is a measure to increase money supply
in the economy to boost economic activity
• This injection leads to a decrease in interest rates as banks have more liquidity
• This in turn boosts GDP
• When the Federal Reserve in the US resorted to Quantitative Easing after the financial
crisis, it bought lots of different long-term securities to increase the money supply.
Effectively, when this happens, the Fed buys a bond and creates dollars to pay for it,
thereby increasing the amount of money in circulation.

Regulating interest rates in the market:
• As interest rates increase, economic activity increases, which leads to higher prices
• This in turn leads to a spike in inflation
• If interest rates are low, inflation increases
• If interest rates are high, economic activity stagnates
You also learnt that central banks need to strike a fine balance between low inflation
rates and stable economic growth. So, the objective is to control inflation and promote
economic growth.
Finally, you learnt about Stagflation in detail in relation to monetary policy:

• Stagflation = Stagnation (flat economic growth) + Inflation
• Stagflation occurs when poor economic growth and high inflation occur simultaneously. It is
a challenge for central banks, as lowering the inflation would hurt economic activity and
boosting economy would further increase inflation. Monetary policy is not effective in
dealing with stagflation,
Fiscal Policy
In this segment, you learnt that fiscal policy refers to the spending, taxation and
borrowing that the government uses to tide over the economy through fluctuations in
the business cycles.
As you can make out from that definition, governments are the key actors when it comes to fiscal
policy. Government spending decisions are based on the fiscal policy appointed by the
government.
As you learnt that in the formula for GDP [(C + I + G + (X - M)], G stands for government
spending. This is a major component of the GDP. So, if government spending increases, the
GDP is positively impacted and if government spending decreases, the GDP is
negatively impacted.
You also found answer to the question: Why doesn’t a government spend an infinite
amount of money to keep growing its GDP?
The answer is that:
• Government uses deficit spending, i.e., it borrows money, which means additional debt
• Crowding-out effect, i.e., higher government spending leads to higher interest rates
You also learnt that fiscal policy is highly political in nature and can be difficult to enact due to
the involvement of several stakeholders and interests.

Then, you learnt about the types of fiscal policies:
Exchange Rate
In this segment, you learnt about a very important concept, that is applicable and of interest to
most of you: Exchange rate. Because when you travel abroad, exchange rate is a factor that you
always need to keep in mind when spending abroad, etc.
You learnt that exchange rate is of two types:

1. Nominal exchange rate: How much of one currency can one unit of another currency
buy
2. Real exchange rate: The rate at which one country can trade its goods for goods from
another country
You learnt that exchange rates and rise and fall:

• Economic growth can lead to currency appreciation
• Recession can lead to currency depreciation
You also learnt about the theory of purchasing power parity (PPP), which states that no
matter where in the world you are, the same bundle of products should cost you the
same. The theory states that the purchasing power of two currencies must be in ‘parity’, i.e.,
equivalent. So, a pair of Adidas shoes that costs €50 in France should cost the equivalent of €50
in any other country.
But this parity does not really exist. Therefore, the nominal exchange rate between
two countries must reflect the price difference between them.

Then, you learnt that
• A strong domestic currency benefits importers but negatively impacts exporters
• A weak domestic currency benefits exporters but negatively impacts importers
Another important concept that you learnt about is currency pegging, wherein countries take
measures to ensure that currency does not move much against another currency. For
example, Saudi Arabia has pegged its currency Riyal against the US dollar at 3.70 Riyal per US
dollar. The objective of currency pegging is to assure investors that their investments are safe in
another country.
Economic Data
In this segment, you learnt about the importance of economic data and where you can access it.
Some sources of economic data:
• The World Bank

• Government websites (for India: data.gov.in)
• Statistical organisations
You also learnt about the criteria for evaluating information or data:
• Frequency of data
• Reliability of data


Session Summary
Foreign Trade
In this session, you understood what about the fourth component of the GPD calculation, which
includes exports and imports, which basically refers to foreign trade. You learnt what foreign trade
means, what trade policy is and the various trade barriers, what are foreign investments and what
is balance of payment.
Introduction to Foreign Trade
In this segment, you got introduced to an interesting concept of “comparative advantage”, which
is key to foreign trade for any country. Foreign trade occurs when countries export or import
goods or services, and thus are involved in exchange of goods or services with other countries.
You learnt that the most important concept of foreign trade is that it allows countries to use their
comparative advantage for economic benefit. This helps them grow economically and gain
financial advantage.
You understood the basis of foreign trade:

1. It allows countries to export goods at comparatively higher prices than they can get in the
domestic market.
2. It allows countries to import goods at a lower price than they can get in the domestic
market.
You also learnt about the factors that can drive comparative advantage for any country:
• An abundance of natural resources: Allows countries to export what they have in

abundance
• Robust physical assets: Allows countries to produce goods efficiently in large quantities
• Human capital or skilled resources: Allows countries to produce high-quality goods
• Political stability: Instils confidence in trade partners when they import from a country
that their orders will not suffer because of domestic political instability
• A big and ready consumer market: Ensures exporters that when they export to a
country, there is a ready market available for their goods.

You also learnt about the possible drawbacks of foreign trade, which are:
• Goods that are exported become expensive for domestic consumers

• Domestic industries suffer as they try to match cheap imports
Trade Policy
As the name suggests, Trade Policy governs foreign trade.

Trade policy is the set of regulations and agreements that control the flow of trade
between countries.
Benefits of foreign trade (also learnt in the last segment):

• Helps countries by letting them export products they specialise in
• Helps countries by letting them import products they don’t produce
Motivations for foreign trade:
• Support local employment opportunities: By decreasing cheap imports from other

countries that have the advantage of extremely low-cost labour
• Protect infant or nascent industries: Protecting these industries from foreign
competition
• Counter aggressive trade policies: Retaliating to hostile trade policies of other
countries, for example, anti-dumping duties
• Generate extra revenues: Imposing additional taxes and duties on imported goods
You also learnt that even though foreign trade is beneficial for countries, governments make use
of trade barriers to restrict the flow of trade with some countries.
These trade barriers are of two types: Tariff barriers and non-tariff barriers

You also learnt about free-trade agreements (FTAs). An FTA is an agreement between two or
more countries about how trade should flow among them.
Overall, the outcome of FTAs should be increased trade and wealth for all participating countries
Foreign Investments
In this segment, you learnt how countries make and receive investments from other countries and
the types of investments.
The motivation behind making foreign investments are:

• Financial benefit for the involved parties
• Investing entity should get a better rate of return
• Receiving country should get the capital needed to develop

You learnt that foreign investments can be of two types: Foreign direct investments (FDI) and
foreign indirect investments (FII).
You learnt that FDI can be made through:

• Setting up operations in another country
• Acquiring assets or businesses in another country
Indirect investments can be made through:

• Investing in the shares or bonds in another country or stock market
• Purchasing government debt in another country
You also understood that high FDI inflow into a country indicates good economic health and
prospects for a country.
Balance of Payment
You learnt that Balance of Payment is the recorded summary of all the financial
transactions that a country’s entities perform with the rest of the world over a defined
period of time.
The balance of payment segregates these transactions into two components:

1. Current account:
a. Reflects a country’s net income or net spending through trade
b. Includes all exports and imports, interest payments on international investments, and
transfer payments, including international remittances
c. Transactions are recorded in real time
2. Capital account:
a. Reflects all international sales and purchase of assets, like purchases of government debt,
bonds, or foreign direct investment, etc.
Another important concept that you learnt about is the balance of trade (BoT), which refers to
the difference between the value of a country’s exports and imports for a given period of
time. You also learnt that:
• If the value of a country's exports exceeds that of imports, then the country is said to have
a trade surplus.
• On the other hand, if the value of imports exceeds that of exports, then the country is said
to have a trade deficit.

The Balance of Trade (BoT) is the difference between money value of imports and exports of
material goods only (tangible), whereas Balance of Payment (BOP) is the difference between a
country's receipts and payments in foreign exchange (both tangible and intangible). This is the
reason why BoT is a part of a country's BoP.
You also learnt about disequilibrium in the balance of payment. So, when a country’s current
account reflects a surplus or deficit, its balance of payments is said to be in
disequilibrium.
Factors causing disequilibrium in balance of payments:

Economic factors
• Imbalance between exports and exports
• Higher prices of domestic goods leading to higher imports
• New supply sources
• Substitute goods
Political factors:
• Political instability or volatility leading to capital flight or discouraging foreign
investment
Social factors:
• Change in taste or fashion leading to preference for imports
• Explosion in population leading to high demand for imports
You also understood how governments can correct the disequilibrium in their BoP through various
measures such as lowering imports, increasing exports and controlling inflation levels in the
economy, etc.


In today’s world, managers are required to address their teams in meetings in order to convey important
information, strategise plans, track progress on projects, and empower their teams. In order to do so
efficiently, both the content and the delivery of what is being conveyed by a manager should be top-notch.

The rhetorical triangle is a great tool to structure content in order to present the most persuasive argument. It
has the following three components:

1. Ethos helps build trust with the audience by establishing credibility and authority.
2. Pathos helps establish an emotional connection with the audience.
3. Logos helps the audience think by including statistics, data, etc.

These three elements should be used in an interconnected and balanced manner, depending on the context.
Both content and delivery go hand in hand when it comes to public speaking. Some of the ways to improve the
delivery of a speech are shown in the image below:


The most commonly used form of oral communication at the workplace is a presentation. Some tips to create
and deliver a good presentation are shown in the image below:


The ‘what’, ‘why’, and ‘how’ of a presentation are as described below:


The 10-20-30 rule states that a presentation should have no more than 10 slides, should last less than 20
minutes, and should have a font size not less than 30.

After delivering a presentation, the next important task is to answer questions from the audience. The ability
to properly answer audience questions after giving the presentation plays a great role in deciding the success
of your presentation. Some tips that can help you answer audience questions more effectively are as follows:


However, if someone asks you a question that you do not know the answer to, you should calmly reply that
you will be able to answer the question when you have more information on the subject. There is no harm in
accepting that you do not know the answer to a few of the questions.

The effects of ineffective communication are shown in the image below:


As workplaces are getting more and more diverse, it has become important to overcome these communication
barriers within teams. It is important to identify these barriers in order to overcome them. The most
commonly faced barriers to effective cross-cultural communication are as follows:

These cultural differences can be overcome by:


Instead of turning a blind eye to cultural differences, one should make oneself aware of these differences by
politely asking questions, researching, and so on.

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In business, a lot of communication happens in the written format. This can be in the form of reports, emails,
business letters, memos, performance appraisals, etc. The level of formality depends on the type of document
that you are writing and the kind of audience that you are writing for/to. Business communication can take
place in the following forms:

A well-written business document should have the following four qualities:
1. Direct: It should get to the point straight away.
2. Logical: It should consist of data points and logical inferences instead of statements such as ‘I feel it
should be this way’ or ‘I think we should do this’.
3. Concise: It should precisely convey the required information without giving unnecessary details.
4. Clear: It should be easy to understand, without any scope of misunderstanding or misinterpretation.

The four stages of writing a business document are as follows:


In a business setting, written communication mostly happens through emails. Hence, it is important to
structure your emails in a proper and effective manner. The three main components of an email are as follows:

1. Subject line: A subject line is important to catch the reader’s attention, and it should also clearly
communicate the context of the email. For this, the subject line should have the following
characteristics:
● It should be catchy, short and focussed.
● It should never be a one-word line such as ‘URGENT!!’.
● It should convey the content and context of the email in 4–5 words.
● It should create interest and a sense of urgency in the mind of the reader.
2. Body: The body of an email contains the following four elements:
● Salutation: This should address the recipient appropriately. For an unknown recipient, use
‘Dear Sir/Madam’; for women, add ‘Ms.’ before the name; and for a person holding a doctorate,
use ‘Dr.’.
● Introduction: This builds up the context of the email. It begins with the sender’s introduction
and the name of the person who referred the sender to the receiver, if applicable. It also
touches upon the main reason for sending the email.
● Message: This details the purpose of the email. Add relevant facts and figures here. If needed,
add any extra information that may interest the receiver. Use links or attachments instead of
making the email body too long.
● Conclusion: This includes the action that a recipient should take after reading the email. Ask
for small and easily actionable tasks to ensure a response. The conclusion should also include
proper send-offs, such as ‘Best regards’, ‘Best’, ‘Regards’ or ‘Best wishes’.


3. Signature: A proper email signature should ideally have the following sender details:
● Name
● Title
● Contact number
● Organisation’s name or logo
● Links to social handles containing samples of work

Lack of adherence to business etiquette makes communication inefficient and non-actionable. Hence, basic
writing etiquette needs to be followed, which can be broadly classified into the following two categories: ‘How
to write an email’ and ‘How to reply to an email’. These are depicted in the following image:

Along with complying with the business etiquettes mentioned above, you should avoid making the following
mistakes in your communication:


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In this session, we discuss three main topics: the concept of personal branding, its importance in today’s
world, and the steps towards creating a personal brand vision statement. Let’s understand these, one by one.

Personal branding is about an individual's values, ethics, what one stands for, what is one’s aim, and how one
portrays and communicates these aspects to the outside world. It is similar to the concept of branding of
products, except the products here are the individuals themselves.

As individuals, we communicate our personal brand on a daily basis without making any conscious effort. For
instance, we write articles or blogs; we like, share, or comment on certain articles or posts; we share our
pictures; we express our opinions, and so much more.

In effect, we are portraying our personality, our values, and our beliefs to the outside world through digital
media. It reflects who we are as individuals and shapes how the outside world perceives us.

In today’s hyperconnected and overcrowded digital environment, personal branding has become imperative
for individuals to stand out from the crowd. Large companies often tend to have individuals with strong
personal brands at CXO levels because they are the ones who represent the company and, hence, help
enhance the company’s value. Also, if a company is owned by an individual, his/her personal brand is directly
associated with the firm. Thus, the effects of personal branding often percolate into the firm.

Personal branding is important as it helps individuals meet their goals such as increase their recognition in
their respective industries, increase their sales numbers, or land better jobs.

The vision statement reflects the objective of creating one’s personal brand. It includes things that we value,
our passions, our goals, and our personality traits which will help us achieve those goals. To create a vision
statement, you need to understand yourself, your motives, and your aims. All these can come together to
create a personal brand vision statement.

To create a personal brand vision statement, you need to list down the following:

1. Values: Values are what drive an individual and are extremely important as they help the individual in
making decisions. The priority and importance of each value keep changing, depending on the different
stages of life. These values should, therefore, be listed according to their current priority levels.
2. Passions: Passions are qualities that inspire and motivate individuals. If an individual is passionate
about something, they spend significant time on it and pursue it diligently.
3. Strengths: Strengths are the key qualities of an individual and refer to what one brings to the table at
work.
4. Goals: Goals should be as specific as possible and also include timelines to make them objective to the
extent possible. Some examples of goals are:
● Become the marketing head of a global conglomerate within five years.
● Start a healthcare firm within the next two years.
● Get a job at a data analytics firm within the next six months.
● Get a promotion and 20% salary hike at my current company within the next year.

A personal brand vision statement can be written in the structure given below:

‘My vision is to (goal: write down your goals here) using my (passions and/or key strengths: mention your
passions and/or key strengths here). I want to achieve my goals using my (values and/or key strengths:
mention your values and/or key strengths).’

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This session will cover the following topics:
● Defining your target audience
● Building online and offline assets for personal branding
● Maintaining your personal brand

You should target your personal branding communication towards a specific audience that can help you
achieve your goals. The table below lists examples of the target audience one must choose for a set of goals:

Goal Target Audience
Better career opportunities Recruiters
Increase in sales Current client network and potential clients
Grow your network and establish thought Industry colleagues

leadership

Building a personal brand requires communicating an individual’s values, attributes and strengths to their
target audience. Therefore, one must build assets, both online and offline, in order to communicate one’s
personal brand vision statement.

Here are the various online assets that can be used for personal branding:

LinkedIn: This is one of the most widely used professional networks and is growing rapidly. Here are some
guidelines for using this platform:
● Professional headshot: You should have a professional headshot as your profile picture.
● Background photo: It is a visual statement on your profile, grabs people’s attention, and acts as a
catalyst for engagement.
● Creative headline: Your headline should be such that it captures people’s attention and showcases
your qualities.
● Summary: This should be used to tell your life story and should not be left blank. This allows people to
connect with you on a more humane and personal level.
● Updated profile: An unfilled profile reflects unprofessionalism and shows inactivity. You should,
therefore, fill out your profile properly and regularly update it to reflect your current job and profile.
● Skills and endorsements: List out your skills and get endorsements as they help in verifying your skills
since they come in from a third party.
● Media and marketing collateral: Share case studies and white papers to showcase the work you do.
This adds an extra dimension to your profile.
● Publishing platform: This is one of the most important aspects of LinkedIn. It allows you to publish
your thoughts and opinions via blogs and share them with your network. The more you publish, the
higher are your chances of increasing your engagement and achieving your personal branding goals.
● Engagement: You should engage with the members of your target audience. Numerous other articles
are published daily on LinkedIn that are in alignment with your personal branding efforts; these
articles should also be leveraged for engagement purposes.
● Recommendations: These add credibility to your personal branding efforts and showcase key
qualities to your target audience.

Facebook: This is more of a personal social network but has a large user base. Guidelines for using this
platform are:
● Privacy option: This allows individuals to keep some of their content private and ensures that a user
can control what is publicly visible. Individuals should share some personal information so that people
can feel connected to them. They should, however, not share any unprofessional or inappropriate
content.
● Optimise visible areas: Certain areas are visible to everyone, such as name, profile, display picture,
cover photo, and the custom URL name. Hence, they should be optimised.
● Link to other social profiles: This allows people to move to your professional profiles.
● Engagement: Similar to that on LinkedIn, individuals should engage with their target audience on
Facebook through likes, shares and comments on articles.

Twitter: Guidelines for using this platform are:
● Handle: One should carefully choose a handle to make it look professional and not tacky.
● Updated profile: The profile should be regularly updated to showcase your likes, dislikes and your
current profession.
● Follow leaders: You should closely follow different leaders so as to learn the tricks of the trade.
● Create and curate content: You can share snippets of your blogs and articles along with their links to
ensure that people are being diverted towards the main articles. You can use trending hashtags to
create engagement. You should tweet regularly, with a proper schedule.
● Engagement: You should engage with the people you follow and the ones who follow you. The more
the engagement, the more visibility your personal brand gets.
● Blogs: Third-party blogs that receive a lot of traffic from your target audience should be targeted to
publish articles. Articles published on such platforms help you build a thought leadership stance in the
industry.

Offline assets for personal branding communication include:
1. Business cards:

2. Professional networking events:
● Participation in relevant forums and networks helps you build face-to-face relationships with
your target audience and expand your network.
● Speaking slots at such events also add a lot of value. These provide an opportunity to speak
before a new audience and demonstrate your expertise to them. Such events should be
tracked on a regular basis, and you should reach out to the organisers in advance for speaking
slots as they get filled very quickly.

Building a personal brand is not just a one-off activity but requires considerable and continuous efforts. The
steps that you need to follow in order to successfully build your personal brand are:


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This session will cover the importance of monitoring your personal brand and the best practices of doing so.

Your personal brand portrays your personality, values and opinions. If your values are not being accurately
portrayed on online platforms, it will have a negative effect on your personal brand and the achievement of
your goals. People comprehend what they see and, therefore, monitoring the same becomes an important part
of the entire personal branding process.

Large firms understand the importance of monitoring their brands, and this is reflected in their immediate
responses to any queries or comments online. They ensure that they are available for their customers at all
times and that nothing negative is being said or portrayed about the brands and their values.

Monitoring a personal brand has two main aspects:
1. Keeping a constant check on what is being communicated about you
2. Responding to communications

Let’s go through the two aspects, one by one:

1. Keeping a check on what is being communicated about you
The first step is to search for information about yourself on Google. The objective is to check what appears
and to ensure that nothing inappropriate shows up. It is important to remember that the end objective is not
to hide your real personality and showcase a false one, but to ensure that your online presence is consistent
with your values and personal branding goals. Some tips to deal with inappropriate content that shows up on a
Google search are:
● If you find anything objectionable, remove it.
● If a friend has posted something objectionable, ask him/her to remove it.
● If the content is in the control of a third-party platform, reach out to them to sort it out.

Apart from searching for information on yourself on Google, you should also thoroughly monitor your social
media profiles. There are many tools available that can help you monitor your online presence and
performance as far as building your personal brand online is concerned. Some of them are:


2. Responding to communication
You should keep a daily check on your blogs, posts, and any other forms of content, such as guest articles you
have written, to ensure that you respond to people who may be trying to connect with you. Missing out on
responding to such people can jeopardise your personal brand-building efforts and portray you as a
non-responsive person.

Spend some time every day to check all communication that has taken place on your content. If a reply is
required, you should ensure that you respond as soon as possible. Delays often increase the chances of losing
out on the engagement opportunity.

There are also certain other factors that must be kept in mind while responding and engaging with individuals
on online platforms. Often, articles and posts receive negative feedback or comments. You should ensure that
you stay calm and respond to such feedback professionally without instigating a fight. In order to avoid
escalation, certain occasions may even require you to block repeat offenders. The key here is to ensure that
you do not hurt your personal brand.

To conclude, monitoring your personal brand should not be treated as a one-off activity but rather a
continuous and ongoing effort. There needs to be regularity and consistency in building, maintaining, and
monitoring your personal brand.


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Family and Friends

In layman terms, lifestyle can be defined as a pattern of living as expressed through an

• Literate but no formal schooling, or schooling up to 4 years

• Schooling between 5 and 9 years of age

• Attended college, including earning a diploma, but not a graduate

• Graduate or postgraduate (general)

• Graduate or postgraduate (professional)

These two parameters can be represented in the following way:

To classify motivational needs, Abraham Maslow proposed Maslow’s hierarchy of needs.

The five levels of needs are classified as follows:

Individuals learn through the following two processes:

Attitudes and Beliefs

Broadly, they can be divided into the following types:

Online Purchase Decisions

The consumer journey for an online purchase can be represented as:

B2B Purchase Decisions

Broadly, you can divide the objectives of an advertisement as:

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© Copyright 2019. UpGrad Education Pvt. Ltd. All rights reserved

● Wealth is the accumulation of profit over a period of time.

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© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

A balance sheet has two sides:

In a balance sheet, the following equation always holds true:

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The three financial statements are used for following purposes:

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© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

There are two types of costs:

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© Copyright. UpGrad Education Pvt. Ltd. All rights reserved

● Fixed assets provide future economic benefits to the company.

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© Copyright. UpGrad Education Pvt. Ltd. All rights reserved