Weightage According to Objectives:

Objectives Knowledge Understanding Application Skill Total

Marks 28 41 13 18 100

Percentage 28% 41% 13% 18% 100%

Weightage According to Types of Questions:

Types of Questions No. of Questions Marks Time

1. Essay Type Questions 4 20 55 Minutes

2. Long Questions 10 30 50 Minutes

3. Short Questions 15 30 45 Minutes

4. Very Short Questions 10 10 20 Minutes

5. Objective Questions 10 10 10 Minutes

Total 49 100 180 Minutes

Weightage According to Difficulty Level:

Level of Difficulty Marks Value of Difficulty

1. Easy 40 40%

2. Medium 45 45%

3. Difficult 15 15%

Total 100 100%

Chapterwise Weightage of Marks:

Name of the Chapter Marks

1. Nature and Significance of Management 10

2. Principles of Management 6

3. Planning 7

4. Organizing 10
 5. Staffing 10

6. Directing 10

7. Controlling 6

8. Financial Management 8

9. Financial Market 8

10. Marketing Management 9

11. Consumer Protection 8

12. Business Environment 8

Total Marks 100

Gujarat Board Textbook Solutions Class 12 Organization of

Commerce and Management Chapter 1 Nature and Significance
of Management
GSEB Class 12 Organization of Commerce and Management Nature and Significance of
Management Text Book Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
Art of getting work done from others is known as
(A) Planning
(B) Organizing
(C) Directing
(D) Co-ordinating
Answer:
(C) Directing

Question 2.
What type of activity is management?
(A) Universal
(B) Inefficient
(C) Defining objectives
(D) Transparent
Answer:
(A) Universal

Question 3.
What is the method that puts knowledge easily into practice called?
(A) Profession
(B) Science
(C) Art
(D) Direction
Answer:
(C) Art

Question 4.
What does management association frame for its own profession?
(A) Inconsistency
(B) Improper
(C) Code of conduct
(D) Decisions
Answer:
(C) Code of conduct

Question 5.
How many levels of management are there?
(A) One
(B) Two
(C) Three
(D) Four
Answer:
(C) Three

Question 6.
Who are included in top level management?
(A) Experts
(B) Workers
(C) Departmental heads
(D) Board of Directors
Answer:
(D) Board of Directors

Question 7.
What is the other name for bottom level management?
(A) Functional level
(B) Worker’s level
(C) Policy making level
(D) Officer’s level
Answer:
(A) Functional level
Question 8.
Who among the following is not included in any of the level of management?
(A) Supervisor
(B) Jobber
(C) Worker
(D) Accountant
Answer:
(D) Accountant

Question 9.
If planning is the brain of business then what is organization?
(A) Heart
(B) Limbs
(C) Structure
(D) Blood
Answer:
(C) Structure

Question 10.
Which of the following is the function of marketing management?
(A) Distribution of income
(B) Production
(C) Product-mix
(D) Use of finance
Answer:
(C) Product-mix

Question 11.
Which of the following is not included in Human Resource Management?
(A) Repairing and maintenance
(B) Training and development
(C) Promotion and transfer
(D) Recruitment and selection
Answer:
(A) Repairing and maintenance

2. Answer the following questions in one sentence each :

Question 1.
What is management?
Answer:
Management is the art of getting things done through others.
Question 2.
In which activities management is necessarry?
Answer:

1. Industries,
2. religion,
3. defense, management
4. society,
5. politics,
6. education, and
7. sports.
Question 3.
Which level of management has the supreme authority to manage the business?
Answer:
Top level management.

Question 4.
What is other name of middle level of management?
Answer:
Officer’s level

Question 5.
Which level of management follows the order and instruction given by chief executive officer?
Answer:
Middle level management.

Question 6.
Which level of management does the function of machinery layout and repairing?
Answer:

Question 7.
What are the elements included in product-mix?
Answer:
Appearance of the product, colour of the product, size of the product, shape of the product,
weight of the product, print on the product, packing of the product, guarantee of work, after-
sales service, variety of product, etc

Question 8.
Give the full form of IIM.
Answer:
Indian Institute of Management

Question 9.
Give the full form of MBA.
Answer:
Management of business administration

Question 10.
Give the full form of CEO.
Answer:
Chief Executive Officer

3. Answer the following questions in short :

Question 1.
State any two functions performed at the top level management.
Answer:

 The top level (or higher level) management is the supreme authority for managing the
enterprise.
It consists of Board of Directors, Managing Directors (MD), General Manager (GM) and
Chief Executive Officers (CEO).
 The top management takes important policy decisions for the business unit.
Functions of the top management:

 To lay down primary and subsidiary objectives of business.

 The directors act as the trustees of the business enterprise.
 To select Chief Executive Officer and higher officers and to assign them authority and
responsibility.
 To sanction the budget for different departments of the business unit.
 To abide by law and to take care of interest of different stakeholders of the business.
 To take strategic decisions by making long term plans.
 To analyse and resolve complex problems of management as per legal provisions.
 To draft plans for the enterprise, implement them and to supervise them.
 To conduct functions like distribution of profit, dividend, reserve fund, re-investment of
profit, etc.
 To analyse reports of different activities and to instruct further activities accordingly.
Question 2.
How does management benefit the society?
Answer:
Social benefit:

 A business is done while remaining in the society and for the interest of the society.
 Management makes uses of resources such as manpower, knowledge gained from the
society, etc. available in the society and then works in the favour of the society.
 When the business earns success it in turn increases the wealth and welfare of society. For
example, with time, development and competition business units produce goods and
services at low cost for the people. This results into welfare of the entire society.
Question 3.
What is planning?
Answer:

 The process of selecting facts for obtaining the desired results and establishing inter -
relationship between them, as well as observing necessary activities for forecasting and
anticipating the future of business is called planning.
 Planning is the first step of management.
 Planning consists of deciding well in advance as what work has to be done, who will do
what, when, how, to what extent and when will the work be finished for achieving
predetermined objectives.
Question 4.
What is organisation?
Answer:

 Organizing or organization is a structure for assigning authority and responsibility among

individuals for achieving business objectives.
 Business objectives, policy, programmes, etc. are decided through planning whereas
organizing is done for executing the plans.
 Under organizing, various sections and groups of people are allotted various business
activities so that the objectives can be fulfilled.
 The structure of organization decides on matters like who will supervise, who will have
authority and responsibility of work, inter-relationship among individuals, etc.

Question 5.
What is co-ordination?
Answer:
Co-ordination:

 To task of maintaining co-ordination and harmony among the different functions carried
out by different departments in the business unit is called co-ordination.
 Although co-ordination is not a function of management but it is required at each and
every stage of management.
 It is necessary right from the planning stage to controlling.
Question 6.
Who are included in the top level management?
Answer:
Board of Directors, Managing Directors, General Manager, Chief Executive Officer, etc.

Question 7.
Which are the main elements of marketing management?
Answer:
The main function of marketing management is to get information about the market demand.
Question 8.
Discuss various elements of price-mix.
Answer:

Question 9.
Discuss about staffing.
Answer:
Staffing:

 It is said that “Employees are arms and legs (limbs) of unit.”

 According to Dr. George Terry, “Staffing is concerned with availing and maintaining
satisfactory manpower.”
 Every business organization requires staff. Hence, staffing is a very important function of
management. An organization without staff is like a mere skeleton. Activities of all
businesses depend on their staff.
 The function of staffing is to recruit employees for the right position, at the right time, in
the right number, with the right qualification. It also includes selection, training, transfer,
promotion, dismissal, retirement and welfare activities of employees.
 This function is carried out by the Human Resource Department of the business
organization.
 Staffing also monitors the output of work of each employee. It also listens to the
problems of the employees. This helps in maintaining the enthusiasm and zeal of
employees. Enthusiasm for work and comfortable and encouraging work environment
leads to increase in productivity and efficiency of the organization.
 Today staffing also includes man-power planning, human resource development,
evaluation of work, job analysis, etc. It is a highly known fact that a satisfied staff is an
invaluable asset of the business.
4. Answer the following questions in brief :
Question 1.
Discuss the importance of management.
Answer:

 Management has always held a central and am extremely important position in any
activity.
 The success or failure of any business activity heavily depends on how it is managed.
 If a business unit has best of the resources that too in all the required quantities and
qualities but are not managed properly then they cannot be utilized with their full
efficiency. This will lead to under-performance of the unit.
The importance of management can be understood in detail through the following points:
1. Necessary in every field:

 Use of management is not limited to business activities but also in each and every type of
activities including religion, defence, society, politics, education, sports, etc.
 While managing an activity, the functions of management namely Planning, Organization,
Direction and Control are put into use.
2. Optimum utilization of resources:

 Through management optimum utilization of business resources such as land, capital, raw
materials, humans and machinery can be done.
 Proper management reduces wastage of resources and improves their efficiency.
3. Accomplishment of objectives:

 Management is necessary for accomplishing objectives.

 Management makes optimum utilization of resources which in turn helps to achieve
business objectives.
4. Useful for the success of business:

 The contribution of management in the success of a business unit is more compared to

other elements.
 Success or failure of a business largely depends on management.
 The entire credit of a small scale industry rising into a large scale industry goes to
management.
 Efficient management can also convert a loss making unit into a profit making unit.
5. Increase in job opportunities:
Efficient management can grow a small firm into company whereas on the other hand,
inefficient management can lead to closure of full-fledged developed companies.

6. Increase in profit:

 The main aim of business is to earn profit.

 Competent and proficient managers have in depth knowledge about management and
hold business skills.
 They make maximum and the most economic utilization of available resources and earn
maximum profit out the business.
 Thus, management playa a key role in earning and increasing profit.
7. Social benefit:

 A business is done while remaining in the society and for the interest of the society.
 Management makes uses of resources such as manpower, knowledge gained from the
society, etc. available in the society and then works in the favour of the society.
 When the business earns success it in turn increases the wealth and welfare of society. For
example, with time, development and competition business units produce goods and
services at low cost for the people. This results into welfare of the entire society.
8. National motive:
Role of management is extremely important in utilizing untapped human resources and factors
of production for the economic, social and national development of an economy.
Question 2.
Explain: Management as a profession
Answer:
Management as a profession:

 Profession is an activity where specialized knowledge in specific field is acquired and it is

used for the welfare of the entire society. In return, a fee is charged. Doctors, lawyers,
chartered accountants, engineers, etc. are professionals.
 Today’s business management is also handled by people who are trained and expert in
the field. In other words they are thorough professionals. In this sense, management is
also considered as a profession.
The profession of such people has following characteristics:
1. Requires specialized knowledge:

 Specialized knowledge is required for a profession. For example, a degree of L.L.B is

needed for becoming a lawyer and degree of MBBS, MD or MS is necessary for the
profession of doctor.
 Similarly, degree of BBA (Bachelor of Business Administration), MBA (Master of Business-
Administration) degrees is necessary for the specialized knowledge of management.
2. Increase in knowledge and research:

 The management professionals undergo several training, enrich their experience through
work.
 This increases their knowledge and research capabilities as well as activities.
3. Professional association:
All professionals form their associations. For example, there is association of doctors, association
of lawyers, chartered accountants, etc.

In the same way there is also association of management professionals.

 These associations provide education and training and update professionals with latest
practices of management.
 IIM (Indian Institutes of Management) is one of the finest management education
Institutes of India. It is working at national and international level. This institute works for
developing management professionals.
 There are also other hundreds of universities and institutions that provide management
training and education.
4. Framing and implementation of code of conduct:
Each professional association frames code of conduct for its members. It is mandatory for all
members to follow the code of conduct.

5. Moral responsibility:

 Moral responsibility is an important factor for all the professions.

  All the professionals must be loyal to their professions and they need to fulfill their moral
responsibilities. For example, it is the moral responsibility of the chartered accountant to
remain loyal to his clients and not disclose their financial information.
Conclusion:
From these characteristics we can conclude that management has evolved and is also yet
evolving as an independent profession for the benefit of individual, society and the mankind.

Question 3.
Explain functions performed by top level management.
Answer:

 The top level (or higher level) management is the supreme authority for managing the
enterprise.
It consists of Board of Directors, Managing Directors (MD), General Manager (GM) and
Chief Executive Officers (CEO).
 The top management takes important policy decisions for the business unit.
Functions of the top management:

 To lay down primary and subsidiary objectives of business.

 The directors act as the trustees of the business enterprise.
 To select Chief Executive Officer and higher officers and to assign them authority and
responsibility.
 To sanction the budget for different departments of the business unit.
 To abide by law and to take care of interest of different stakeholders of the business.
 To take strategic decisions by making long term plans.
 To analyse and resolve complex problems of management as per legal provisions.
 To draft plans for the enterprise, implement them and to supervise them.
 To conduct functions like distribution of profit, dividend, reserve fund, re-investment of
profit, etc.
 To analyse reports of different activities and to instruct further activities accordingly.
Question 4.
Give difference between levels of management. (Any five points)
Answer:
Question 5.
Discuss the importance of co-ordination.
Answer:
Importance of co-ordination:

1. Co-ordination makes management functions like planning, organizing, directing,

controlling, etc. effective.
2. Co-ordination makes possible smooth functioning of all the business activities.
3. When there is proper co-ordination then neither any work remains incomplete nor any
work gets duplicated.
4. Co-ordination maintains harmony among various departments of management.
5. Co-ordination enables to maintain a balance between order and time of business
activities performed by various departments.
6. Co-ordination enables accomplishment of pre-decided objectives.
Question 6.
Discuss the importance of human resource management.
Answer:
Importance of Human Resource Management:

 Efficiency of employees increases

 Profitability of the business increases
 Business prestige is maintained
 Higher standards are maintained for the quality of goods or services
 Feeling of oneness among employees is developed
 Maximum utilization of factors of production is possible –
 Reduction in labour turnover rate occurs
 Job satisfaction among the employees enhances
 Employees get job satisfaction which finally creates an environment of industrial peace.

Question 7.
What are the functions of financial management?
Answer:
Financial Management:
Financial management is the process of dealing with all the finance related functions of the
business.

 The function of acquisition, utilization and allocation of capital is called financial function
or financial management.
 Finance is the lifeblood of business. No activity is possible without finance.
 Finance is required for the establishment, development, expansion and modernization of
a business.
Following functions are included in financial management:

 To estimate the financial needs of the business activities

 To make financial plans keeping in mind the time duration
 To prepare budget
  To allocate funds to various departments
 To decide capital structure and to select sources of acquiring capital
 To carry out the procedure for acquiring the finance
 To see that the acquired funds are properly utilized and to keep control over financial
activities
 To form financial policy
 To plan for taxes
 To make arrangement of assets
5. Answer the following questions in detail :
Question 1.
Define management and explain its characteristics.
Answer:
Management:
Management is the process of reaching organizational goals by working with and through
people and other organizational resources.

Following characteristics of management are to be kept in mind in order to understand the

concept and nature of management:
1. Universal process:
Management is a universal process i.e. it is required everywhere and anywhere.

 Whenever people work in group to accomplish a desired objective it needs proper

management.
 Although management is a commercial term its use is not limited to industries or
companies. It is also used in various social and religious fields and activities like
agriculture, army, education, etc.
 Each field and unit or department of that field makes use of management in its own ways.
2. Goal-oriented activity:
Management is a tool to attain a goal and not a goal itself.
Every business unit is formed to achieve certain business and profit objectives. Proper
management is extremely important to achieve these objectives in a competent and economical
way.

3. Group activity:

 Management is required when two or more people are working together to accomplish
pre-determined objectives.
 In this sense, management is a group or say collective activity.
4. Continuous process:

 Management is a continuous process which keeps on going till the organization lasts.
 It is quite difficult or even impossible to stop management of things, processes and
people as long as the organization exists.
 Although management aims at attaining certain pre-defined goals, it cannot be stopped
on attainment of goals unlike other goal based activities.
  Once the previously set goals are attained, new objectives and targets are set by the
business unit. This keeps the management process on and on. Thus, the cycle of defining
objectives, achieving them and re-defining them goes on continuously.
5. Human process:
Although management is a universal activity, it cannot be done without humans.
The human element is the most significant and central element of management. ‘Without man’
there is no ‘management’. All other means of production are useless without man. Management
is done by the human being and for the human being.

6. Decision process:

 Management has to continuously take decisions while managing business. Each and every
work needs decision making.
 The organization cannot proceed without taking any decision. Moreover, after taking the
decision, the organization has to put it into implementation. Thus, the process of decision
is a function of management.
7. Science, Art and Profession:
The way science works on its own set of rules and principles, so does management. Hence many
experts consider management as a science. On the other hand, management focuses heavily on
managing man i.e. people. Managing people is an art and so management is also considered as
an art. Getting work done from man requires proficiency, intelligence, cleverness and insight. So,
management is the art of getting the work done.

Today’s business management is also handled by people who are trained and are expert in the
field. In other words they are thorough professionals. For example, professionals like lawyers,
doctors, chartered accountants, etc. manage their works quite professionally. Similarly, people
who have
acquired knowledge in fields of BBA and MBA are considered management professionals.

Question 2.
Draw a diagram of different levels of management. Also explain its functions.
Answer:
Middle level management:

 The middle level of management is an important link between top level and bottom level
of management.
 It consists of departmental officers, divisional officers and experts of various fields. For
example, production manager, sales head, purchase officer finance manager, human
resource manager, accounts head, etc.
 The middle level is also known as Officer’s Level.
Functions:

 To implement the orders and instructions given by Chief Executive Officers.

 Each departmental head prepares the budget for its department and presents it before
the top level management for approval.
 To formulate policies, rules and structures for the accomplishing objectives of the
enterprise. To decide suitable methods for achieving these objectives, to analyse the
methods and also to decide appropriate measures.
 To take necessary steps to increase efficiency and effectiveness of departmental activities.
 To make attempts to motivate the employees of department.
 To keep in constant touch with the officers of the other departments and establish co-
ordination.
 To focus on functioning of sub-divisions.
 To supervise the working of the departments, get information, provide directions and
provide information about progress and working of the department to the top level
management.
 To help the top level management in taking policy decisions.
The bottom level of management:
  The lowest level of management in an organization is called the Bottom Level or
Supervisors’ Level Management.
 The decisions and policies taken by top level management are actually implemented by
this level. Hence, this level is also known as Functional/ Operational Level of Management.
 This level of management includes supervisors, jobbers, foremen, etc.
 Supervisors working at this level are actually representatives of management. At this level,
management there is more of administrative work rather than managerial functions.
 Although bottom level of management is the lowest level of management, it plays a very
important role in the business.
 Efficient and successful performance of this level leads to achievement of business
objectives. This then provides support to the entire business.
Functions:

 To supervise function of employees.

 To maintain the discipline and morale of employees.
 To plan routine work of the respective department.
 To perform functions related to employees like transfer, promotion, training, etc.
 To get instructions, orders and programme from the departmental officers to carry out
the departmental functions.
 To perform the functions like the layout, repairing and maintenance of machinery.
 To make arrangement for necessary equipment, raw-materials, etc. for the workers. ‘
 To solve the genuine problems of workers.
 To implement decisions and policies decided by top level of management.
 To forward reports of various activities taking place at the bottom level, suggestions and
complaints of employees to the middle level of management.
Question 3.
Define co-ordination and explain characteristics of it.
Answer:
Co-ordination:

 To task of maintaining co-ordination and harmony among the different functions carried
out by different departments in the business unit is called co-ordination.
 Although co-ordination is not a function of management but it is required at each and
every stage of management.
 It is necessary right from the planning stage to controlling.
Characteristics of co-ordination:

1. Co-ordination is required for all the activities, right from planning to controlling. As a
result, none of the management process is possible without co-ordination.
2. Co-ordination is required at every level of management.
3. Success of co-ordination depends upon effective communication.
4. Co-ordination is not possible without co-operation. Co-operation of employees engaged
in different activities is necessary to maintain co-ordination among various activities of
the organization.
5. Co-ordination makes possible optimum utilization of business resources.
 6. Co-ordination is a part of every activity of management. Therefore co-ordination is
considered soul of management.
Importance of co-ordination:

 Co-ordination makes management functions like planning, organizing, directing,

controlling, etc. effective.
 Co-ordination makes possible smooth functioning of all the business activities.
 When there is proper co-ordination then neither any work remains incomplete nor any
work gets duplicated.
 Co-ordination maintains harmony among various departments of management.
 Co-ordination enables to maintain a balance between order and time of business
activities performed by various departments.
 Co-ordination enables accomplishment of pre-decided objectives.
Question 4.
Define marketing management and explain its functions.
Answer:
Marketing management:
1. In a broader sense we can say that marketing management is the activity of providing goods
or services from producers to customers. Over and above exchange of goods with money it also
includes market research, distributive method, sales promotion, storage, insurance, etc.
The main elements of marketing management are goods or services, forming physical
distribution policy, price policy, increase in sale, packaging, etc.

2. Marketing management studies the needs of customers and passes the information to the
production department. The production department then produces goods or services that are
needed by the customers which are then finally made available to the customers.

3. Thus, marketing management helps in satisfying the needs of a particular customer or group
of such customers. It focuses on optimum utilization of resources and increasing the profitability
of the organization.

4. Marketing management also aims at creating demand for goods or services in the market.

Functions of marketing management:

1. Product or Product-mix:
The marketing management gives inputs for taking decision regarding development of new
product or upgrading existing product. The input could be for appearance, colour, size, shape,
weight, print, packing, guarantee of work, after sales services, variety of product, etc.

2. Price:

 In modern times, a customer expects availability of better quality of goods at reasonable

rate. Therefore utmost care should be taken while deciding the price of the product.
 The price decision includes sales policy, credit policy, policy regarding discount, wholesale
or retail sale and also commission to mediators, etc.
3. Distribution:

 Distribution-mix include decisions regarding various ways of selling like direct selling,
through the whole seller, retailers agents, as well as problems related to transportation,
etc.
 Distribution-mix is related to the size and scope of a business unit.
4. Promotion:

 The main aim of promotion is to increase the sale.

 It includes advertisement, publicity, selling through salesmen, ways and means to attract
customers and traders, etc.
 Though promotion mix is expensive, it leads to increase in sale, which results into higher
profitability.

Question 5.
Define human resource management and explain its functions.
Answer:
Human Resource Management (HRM):

 The process which takes into consideration matters like proficiency, knowledge,
intelligence, likes and dislikes, personal development, necessity, etc. of employees,
integrates them with business objectives and channelizes the business towards the path
of success and profitability is called Human Resource Management (HRM).
 Land, building, machinery, furniture and vehicles are all material assets of a business unit.
The business takes care that these assets are fully utilized and do not get eroded
unnecessarily.
 Similarly, employees working in the business unit are its live asset. Without them no
business can ever work. Hence, it is necessary to take care of them. .
 Business objectives can be easily and successfully achieved if the needs of employees are
taken care and conducive work environment is provided.
 Due to such care, enthusiasm, loyalty and feeling of oneness among employees develop.
This increases their work efficiency.
Question 6.
Define production management and explain its functions.
Answer:
Production management:

 The process which includes planning for production, deciding programmes, maintaining
co-ordination, direction and keeping control is called production c management.
 The process of converting naturally available raw material into consumable finished goods
with the help of human efforts is known as production:
 Production management takes care that the goods and services produced are capable of
satisfying the needs of the customers.
Following functions are included in production management:
  To decide production plan
 To undertake production researdh
 To select product development as well as product-mix
 To select technology and machinery for production
 To take decisions regarding selection of location for production as well as its layout
 To estimate material and other needs for production
 To control production activity
 To control product quality
 To undertake activities for controlling expenditure maintaining and increasing productivity
_
 To introduce variety of products and simplify production process
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 2 Principles of
Management
GSEB Class 12 Organization of Commerce and Management Principles of Management
Text Book Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
What is principles of management?
(A) Result of experience
(B) Management decide it
(C) Decided by experiments
(D) Managers decide it
Answer:
(A) Result of experience

Question 2.
Why does need arise to make changes in principles of management?
(A) Change in assets
(B) Change in capital
(C) Change in technology
(D) Change in managers
Answer:
(C) Change in technology

Question 3.
Who is the promoter of scientific management?
(A) Luther Gulick
(B) Fredrick Taylor
(C) Henri Fayol
(D) Peter Drucker
Answer:
(B) Fredrick Taylor

Question 4.
Which thoughts were presented till the end of 19th century?
(A) Neo classical
(B) Pre-classical
(C) Classical
(D) Modern
Answer:
(C) Classical

Question 5.
Who was the promoter of neo classical thought?
(A) Harzburg
(B) Henri Fayol
(C) Fredrick Taylor
(D) Elton Mayo
Answer:
(D) Elton Mayo

Question 6.
Who said that ‘you save your employees, your employees will save yours’ everything?
(A) C. K. Prahlad
(B) Prof. Urvik
(C) Aargris
(D) Peter. F. Drucker
Answer:
(B) Prof. Urvik

Question 7.
Which management gurus given below have contributed to modern thought?
(A) C. K. Prahlad
(B) Elton Mayo
(C) Max Weber
(D) Henry Gentt
Answer:
(A) C. K. Prahlad

Question 8.
Who had given general principles of management?
(A) Fredrick Taylor
(B) Peter. F. Drucker
(C) Henri Fayol
(D) Chester Barnard
Answer:
(C) Henri Fayol

Question 9.
Method of removing waste generated from unnecessary movement done in wrong directions
from any work?
(A) Time study
(B) Motion study
(C) Different wage rates
(D) Employee observation
Answer:
(B) Motion study

Question 10.
Who was the founder of principle of management by objective?
(A) Peter F. Drucker
(B) Fredrick Taylor
(C) Henri Fayol
(D) Max Weber
Answer:
(A) Peter F. Drucker

Question 11.
Which activity from the following is possible by implementing labour division?
(A) Aggregation
(B) Specialization
(C) Simplification
(D) Integration
Answer:
(B) Specialization

Question 12.
If employee does not get appropriate compensation then what arises?
(A) Labour turnover
(B) Promotion of labour
(C) Absence of labour
(D) Decline of labour
Answer:
(A) Labour turnover

2. Answer the following questions in one sentence each :

Question 1.
What is ‘Principle of management’?
Answer:
Principles which are formed in relation to the human behavior for achieving the goals easily are
known as principles of management.

Question 2.
What is time Study?
Answer:
Time study means scientific study being done for the time required to complete certain part of
task. The time decided to finish this work in normal circumstances, is called standard time.

Question 3.
What is unity of command?
Answer:
Unity of command means that employees cannot follow orders from more than one superior. It
means that the employees should get order from only one superior for any job or activity.

Question 4.
What is management thoughts?
Answer:
The principles, opinions and thoughts given by several management gurus are together known
as management thoughts.

Question 5.
Which concepts are included in behavior related thoughts?
Answer:
Concepts like inter-human relations, motivation, leadership, information communication
process, disposal of industrial disputes are included in behavior related thoughts.

Question 6.
In modem thoughts which other subject are related with management?
Answer:
Psychology, social studies, statistics, mathematics and computer and information technology are
the other subjects related – to thoughts of modern management.

3. Answer the following questions in short :

Question 1.
What is scientific management?
Answer:

 F. W. Taylor defined scientific management as “Knowing exactly what you want your man
to do, and then see to it that they do it ¡n the best and the cheapest way”
 Scientific Management is a mental revolution favouring employeesof a factory. It focuses
on tasks and duties of the employees, their colleagues and owners.
Taylor suggested the following things to be adopted for scientific management:

1. Each worker should be assigned work as per his mental and physical ability.
2. Each worker should be instructed to perform maximum work as per category.
3. A worker working efficiently and rapidly should be paid 30% to 100% more wages.
Question 2.
What does the principle of equality?
Answer:
Equality:

 Employees are a part of managerial system.

 The employees are human beings and so the management should adopt a practical and
humanitarian approach to handle them.
 Superiors should behave appropriately and uniformly while taking work from their sub-
ordinates.
 The management should make efforts to establish equality in unit informally father than
through legal or traditional ways.
 This principle believes that behaviour of employees is based on faithfulness, attitude,
uniformity and justice in the unit.
Question 3.
‘Principles of management are flexible – Suggest.
Answer:
Flexibility:
The principles of management are not rigid. The manager may change them as per the need of
the business. For example, in large units the principle of division of work may be applied
uniformly, but in small units the principle of division of work may not be applied in the same
proportion and hence the 1 manager of the small unit may have to change the principle as per
the firm’s requirements,

Question 4.
In to which six parts, Henry Fayol divided his entrepreneur activities – Explain.
Answer:

 enri Fayol was a French engineer and an industrialist. He contributed much in the
management thoughts and principles.
 In 1961, he gave 14 principles of management. He presented these principles in his book
‘Industrial and General Management’.
 For better management, ease and clarification of these 14 principles he divided activities
of industrial units in 6 parts. The six parts are:
Industrial activity Inclusions

Industrial activity Inclusions

(1) Technical activities These activities include factory machineries and activities related
 production.

(2) Commercial
activities Activities like purchasing, sales, exchange of units

Activities like procurement of capital, use of capital, fund

(3) Financial activities maintenance, re investment

These include safety of employees, safety of assets, safety of goods

(4) Safety activities (raw materials)

(5) Accounting These include financial statements and performing necessary

activities statistical analysis

(6) Management These include planning, organization, direction, co ordination control

activities activities
Question 5.
What is ‘Rule of Thumb’?
Answer:

 Under the traditional management, the owners dominated the workers.

 The workers were asked to do maximum work without giving them any major benefits.
 Workers had no voice of their own. They had to simply follow what was told to do in
whatever manner.
 The orders given by the owners and managers was the rule of the thumb against which
the workers had no say.

Question 6.
Explain the principle of unity of command.
Answer:
Unity of command:

 The concept of getting command from only one superior is called Unity of Command.
 Employees cannot follow orders from more than one superior. Hence this principle
suggests that employee should get order from only one superior for any job or activity.
 As per this principle, an employee should be responsible to only one superior or
department for a particular job.
 This principle prevents any confusion that may arise amongst employees with respect to
whose order to follow. If order comes from more than one superior then it creates
confusion amongst employees and hampers industrial discipline.
Question 7.
Explain Taylor’s differential wage rate study.
Answer:
Differential wage-rate study:
  A referential wage-rate system is a method of wage payment in which after tests a
standard time for any task is being set. The worker gets a high wage- rate for completing
the job within the allotted time and lower wage-rate for / completing the job beyond the
allotted time.
 Frederick Taylor favored this motivational wage method.
 Each worker working in factory has different work efficiency. Considering this fact, efficient
worker should get more wages whereas workers having less efficiency should get lower
wages.
4. Answer the following questions in brief :
Question 1.
Discuss about importance of the principles of management.
Answer:
Importance of principles of management:

 Principles of management provide a vision to the behaviour and approach of the

managers. This in turn highly affects the management.
 Managers make use of these principles for achieving business goals.
The importance of management principles is discussed below:

1. Increases managerial efficiency:

 Principles of management provide guidelines to managers to perform in a variety of

situations.
 This improves the functioning of a business unit and also improves efficiency of
managers.
2. Maximum usage and effective administration of resources:

 In most of the business units, the human and physical resources are available in limited
quantity. So, there arises a need of maximum usage of these resources that are available
in limited quantity.
 Management principles help in increasing the utility and efficiency of resources that too
with minimum cost inputs.
3. Helps to take scientific and logical decisions:

 Decisions should be always based on facts, proper logic and objectives. They should be
justifiable and should be taken on time so as to make them effective.
 Management principles help to take appropriate decisions on proper time without getting
biased.
4. To cope up with the changing business environment:
Management principles are necessary to meet business environment in changing circumstances.

5. To fulfill social responsibility:

 Profit is considered as the main aim of the business, but it is not the only aim.
Development and progress of society are also aims of business unit.
  By effective implementation of management principles, business unit can easily achieve
aim of social responsibility.
6. Useful for research, training and development:

 Management principles are the main elements of management thoughts.

 Training, education and development are possible only through proper implementation of
management principles.
 For example, in modern time, aptitude tests are conducted for appointing employees in
various business units. These aptitude tests are prepared through research and by
implementing and using management principles.
Question 2.
Write a short-note on modem thoughts.
Answer:
Thoughts of modern management:

 The format of industries and business-Hnit again changed after 1960. This demanded,the
need of special approach of management.
 Management was not restricted to only business and industrial units but also included
professional people and units that provided professional services like that of taxation, law,
medicine, etc. These professions gave rise to a new class of managers.
 Over and above management thoughts, thoughts for psychology, social studies, statistics,
mathematics and computer, information technology also emerged.
 Management Gurus like Koontz O’Donnell, George R. Terry, Peter F. Drucker, William
Ouchi and C. K. Prahlad have contributed in the thoughts of modern management.
Question 3.
‘Principles of management are based on human behavior.’ – Explain the statement.
Answer:
Based on human behaviour:

 Human is at the center of the management. So, the principles of management largely
affect human behaviour.
 Human behaviour is a psychological phenomenon and so implementing management
principles on humans will affect their behaviour in the industry.
 Hence, it is important to keep this in mind while implementing the principles.
Question 4.
Explain behavior related thoughts.
Answer:
Thoughts related to Human Behaviour:

 Management is an art of getting work from others i.e. humans. Keeping this ‘ in mind
these thoughts consider human behaviour as the main part of, management.
 Prof. Urvik said, “You manage your men, your men will manage rest of all”. A business unit
is managed by people. Hence, it is utmost important to study inter-relationship between
humans at work place.
  Since, management of people is done on a constant basis the thoughts related to human
behaviour emphasizes on studying aspects that affect behaviour of humans in the work
place and their approach towards the work. So, these thoughts emphasize on concepts
like job satisfaction, increasing efficiency of employees, ways to keep them motivated, etc.
All this is done by performing psychological observations on employees.
 Concepts like inter-human relations, motivation, leadership, information communication
process, disposal of industrial disputes are included in behaviour related thoughts.
 One of the biggest drawbacks of this approach is that it focuses on psychological aspects
only and does not consider economic parameters of the business unit. Hence, some
believe that the human relations cannot be maintained at the cost of productivity.

Question 5.
Discuss about Peter F. Drucker’s contribution in management field.
Answer:
Contribution of Peter F. Drucker in the field of management:

 Peter F. Drucker (1909-2005) was a well-known management guru. He was also a famous
writer, philosopher and an educator.
 When globalization took place in the world, the business management changed
drastically. It demanded development of new methods of management.
 Peter F. Drucker gave more importance to humans as asset of a business unit.
 He gave the concept of ‘Management by Objective (MBO)’ and principles of ‘Self-
regulation’.
 Under Management by Objective Peter says that there should be uniformity in aim of
employees and managers for achieving the aims.
 Management by Objective is highly effective for a large variety of business units having
different formats. Drucker also contributed significantly in human resources management,
marketing management and stress management.
 Owing to several contributions to the modern day management, Peter F. Drucker is also
called the Father of Modern Management.
5. Answer the following questions in detail :
Question 1.
Describe the principles of scientific management.
Answer:
Principles of Scientific Management as given by Fredrick Taylor:
1. Scientific method:
Traditional methods should be abandoned and instead scientific methods should be adopted
for working. Managers should think how the work can be done in the best way by analyzing it
scientifically.

2. Planning and Implementation:

Instead of leaving the function of planning and implementation on workers, experts should draft
the plans and workers should follow.
3. Job analysis:

 Analysis of the job to be done should be done before starting it. This is the best way to
get work done speedily that too with lower cost.
 Under job analysis, time and motion study, as well as fatigue study, should be done. This
will decrease the cost of production and increase productivity.
4. Standardization:
Products and process should be standardized and process should be simplified. Doing so will
reduce rework and produce all products or services with same desired specifications.
Standardization and simplification can be done for equipment, time, work environment,
resources, etc.

5. Scientific selection and training:

 Workers should be selected through appropriate and scientific methods.

 Standards or benchmarks should be set for education of employees, skill, guts, physical
strength, training, etc. before selecting them.
 Moreover, an employee should be assigned work which is appropriate to his education,
study and skill.
Training should be provided to the workers from time to time to increase their efficiency.
 A variety of scientific tests should be designed and used to know their work interest.
6. Financial motivation:

 Skilled and efficient workers should be given financial and other motivations. Several
wage schemes have been recommended for motivating employees.
 The wage system must be adopted on the basis of individual productivity of employee.
 Wage rate should not be decided on the basis of speculation or randomness but only
after conducting scientific study.
7. Economical measures:

 While implementing the scientific management, the stress should be also put on
econorhical ways of management rather than only scientific and technical methods of
management. The unit should emphasize on low cost production too.
 Cost estimation arid cost control methods should be considered well in advance.
Moreover, if-there occurs deviation in the estimations and their implementations then
corrective action should be taken.
8. Mental revolution:

 Mental revolution should take place between owners and workers for achieving
objectives.
 Mental revolution reduces stress between owners and workers and makes achievement of
goals easy.
Question 2.
Describe in detail about classical thoughts.
Answer:
Thoughts of Classical Theory:
1. The thoughts of management presented till the end of 19th century are known as thoughts of
classical theory. Frederick Taylor, Max Weber, Gilbreath, Henry Gantt and Henri Fayol were the
main promoters of thoughts of classical theory.

2. Among these, the contribution of Taylor is quite important.

3. The principles of scientific management presented by Frederick Taylor exist in the theory of
management even today.

4. The method of scientific management favors scientific principles by ‘time and motion study’
rather than relying on traditional methods.
Scientific management has made important contribution in the areas of specialization in
management, progressive wages system, responsibility and scientific distribution of task.

5. Contribution of Henri Fayol in thoughts of classical theory is also quite significant. He gave
certain general principles of management.

6. He decided levels of different tasks in business unit and tried to set limits for each task.

7. He also provided universal principles of management as guidelines for performing managerial

duty at different levels.

8. Max Weber also contributed into thoughts of classical theory. By the end of 19th century,
formats and size of industries started growing due to industrial revolution. The classical theory
proved to be less effective on these large industries and so there rose a need for changes in
these principles. There rose a need of paying importance to financial motivation, less important
to human approach and informal relations, etc.

Question 3.
Describe Henry Fayol’s principles of management.
Answer:
Henri Fayol’s Principles of management:
With his rich experience and knowledge Henri Fayol presented 14 important principles of
Management. They are:
1. Division of work:

 Management gives more weightage to higher efficiency of employees and managers.

Division of work is one of the ways to achieve this.
 As per management principles, productivity can be increased by optimum use of
production equipment. However, in addition to this division of work is necessary to
increase efficiency of employees and managers.
  Henri emphasized on division of work as it can also lead to specialization along with
increased productivity. Division of work should be done at both managerial level and
factory level to take the advantage of specialization.
2. Authority (power) and responsibility:

 Power and responsibility are two sides of a coin. Power without responsibility and
responsibility without power are incomplete.
 When a person is assigned a responsibility for some job then he should be also given
some power to control that job.
 While assigning the power, different parameters like post of employees, knowledge,
qualification, experience, art of leadership, maturity, etc. should be considered. This will
increase the enthusiasm of employees which in turn will make it easier to attain business
objectives.
3. Discipline:

 A proper discipline should be maintained for successfully attaining business objectives.

 Discipline creates harmonious environment at work place.
 In order to maintain discipline in the industry it is very important to make optimum use of
equipment and to see that activities are done consistently.
 Industrial discipline can be established by setting specific rules and code of conduct. This
then leads to proper administration of the unit.
 It becomes easy to manage and control the unit having more employees if proper code of
conduct is established.
 It also increases work interest of employee and makes the work easy for the managers.
 Supervision, clear and appropriate contracts between workers and owners and
appropriate implementation of punishments at every level are important aspects of
discipline.
4. Unity of command:

 The concept of getting command from only one superior is called Unity of Command.
 Employees cannot follow orders from more than one superior. Hence this principle
suggests that employee should get order from only one superior for any job or activity.
 As per this principle, an employee should be responsible to only one superior or
department for a particular job.
 This principle prevents any confusion that may arise amongst employees with respect to
whose order to follow. If order comes from more than one superior then it creates
confusion amongst employees and hampers industrial discipline.
5. Unity of direction:

 Planning shapes the future of business. However, if activities do not go as planned, then
they are re-directed and brought on the planned track.
 The directions fo’r these things should be given by superior authority. By doing so
activities can be well co-ordinated and all the tasks can be done easily.
  According to this principle there should be only one superior employee leading a
particular group of employees. This group should be focused on one specific objective at
a time.
6. Subordination of individual interest to the general interest:

 This principle states that ‘general interest’ is superior to ‘individual interest’.

 This principle tells that interest of whole unit should be kept in focus rather than interest
of individual or group of employees.
 The manager must try to integrate the individual goal with the organizational goal in such
a manner that both the objectives are accomplished with efficiency and effectiveness.
7. Remuneration of personnel:

 The return or reward given to the employees against the service they render is called
remuneration.
 Fayol says that employees of company should be paid suitable and ideal wages. This
makes owner-employee relation stronger.
 In a unit, all employees do not work with the same efficiency. Some employees show
higher efficiency, than other. Such employees should be given more wages or rewards
compared to other. This will keep the employees loyal towards the unit and stop them
from leaving the job.
 The unit should also put into practice promotional schemes like bonus, profit sharing,
representation in management committee, etc.
8. Centralization:

 The business unit should decide the extent of centralization or decentralization it wants to
adopt so as to have proper management.
 Not delegating the powers to sub-ordinates and keeping them only in the hands of
owners or top personnel is called centralization.
 Centralization is adopted when the business unit is small. This helps in making the best
use of strength and abilities of employees.
 If the unit is big, it is highly advisable to leave centralization and adopt de-centralization
of power.
9. Scalar chain:

 Scalar chain is the formal line of authority which moves from highest to lowest rank in a
straight line. This chain specifies the route through which the information is to be
communicated to the desired location/person.
 Fayol emphasized that each information in the organization must flow according to this
chain to facilitate clear communication of orders of the superiors and feelings of the
subordinates.
 This chain must be strictly followed in the organization.
 This principle emphasizes on creating chain from top level management to bottom level
employees.
 Chain of power from higher administrative officers to bottom level employees should not
be broken. .
  There should be proper delegation of powers and responsibility at respective level.
Moreover, the employees of the unit should be aware of , who is responsible to whom.
10. Order:

 Here the word ‘order’ does not mean any command but it means right arrangement of
things and activities.
 This principle states that there should be a proper order for everything. Fayol is of the
view that in every organization there should be a fixed place for everything to facilitate
smooth working and avoid wastage of resources.
Fayol suggests the following two types of orders in a unit:
(A) Material order:
This order specifies that there should be a proper place for all physical resources of the unit.

(B) Social order:

 This order specifies that there should be a proper place for all human resources in
accordance with their designations. It states “An appointed place for every employee and
each employee at his/her appointed place”.
 Skilled employees should be employed at placed at right place in the unit.
11. Equality:

 Employees are a part of managerial system.

 The employees are human beings and so the management should adopt a practical and
humanitarian approach to handle them.
 Superiors should behave appropriately and uniformly while taking work from their sub-
ordinates.
 The management should make efforts to establish equality in unit informally father than
through legal or traditional ways.
 This principle believes that behaviour of employees is based on faithfulness, attitude,
uniformity and justice in the unit.
12. Stability of tenure of personnel:

 ‘Stability’ means no frequent change, termination and transfer, etc.

 This principle says that in an organization whenever an employee is appointed for a job,
he/she should not be removed or transferred from that position frequently.
 Permanent and stable employees are asset of any business unit.
 An employee can develop himself by remaining in unit and contributing in the
achievement of goals of the business unit.
 Moreover, as the employee remains for long time in the unit, his knowledge of system of
work in the unit leads to more productivity. This also reduces ‘ labor turnover rate.
13. Initiative:

 ‘Initiative’ means to start, to begin or to instruct in a project.

  Here, in this principle Fayol suggested that each employee should be given an
opportunity to take some initiative in framing the functional plan as well as in determining
the steps to be taken at each level for proper execution of the plan.
 Industrialists should provide such atmosphere that employees can enthusiastically
participate in initiation.
 Initiation improves ability of independent working of an employee and inculcates their
leadership qualities.
14. Esprit de Corps (Feeling of Oneness):

 Esprit de Corps means team spirit and team work, the feeling of oneness.
 Success of an industrial unit lies in mutual relations of managers and employees. Owing to
this fact there should be harmony in both classes.
 Managers should generate group feeling among.employees. They should instill in the
minds of employees that by working together they can achieve the goal easily and
quickly.
 Henri Fayol said that ‘Above list is not last list of management principles. Managers can
add new principles based on their experience, research and knowledge. These principles
can be implemented in all kind of activities like business, economic, political and social.’

Question 4.
Describe in detail about Nature of management.
Answer:
Principles of management are not rigid and are quite practical.
-> These principles are the. guidelines to perform a task.
-> For example, the principles guide the managers to take various decisions at the time of
implementation of different tasks of management such as planning, organization and direction.
Experts believe that although the management principles are mostly true [ , they are not
absolute truth because there are also exceptions to these principles.

We can derive the following conclusions from the principles of management:

1. Universal acceptance:

 Principles of management can be applied to most of the business units i.e. they are
universally applicable.
 These principles are needed wherever there is a need of collective efforts of humans.
However, their application and form of implementation may change as per the type, form,
activity and size of the business unit.
2. Flexibility:
The principles of management are not rigid. The manager may change them as per the need of
the business. For example, in large units the principle of division of work may be applied
uniformly, but in small units the principle of division of work may not be applied in the same
proportion and hence the manager of the small unit may have to change the principle as per the
firm’s  requirements,
3. General guidelines:

 Principles of management are developed on the basis of experiences gained by different

experts in different situations.
 While managing the unit there arise several different types of simple and complex
problems. These issues may differ from unit to unit. So, in these regards, the principles of
management may work fine for one unit but might not work for the other.
 Hence, it should be noted that the principles of management are general guidelines. They
cannot be observed strictly that too in the same manner by every business unit.
4. Based on human behaviour:

 Human is at the center of the management. So, the principles of management largely
affect human behaviour.
 Human behaviour is a psychological phenomenon and so implementing management
principles on humans will affect their behaviour in the industry.
 Hence, it is important to keep this in mind while implementing the principles.
5. Contingency:

 Contingency is ono of the elements applicable to the principles of management. Units can
make use of these principles and achieve the business goals easily.
 For example, decisions related to questions like appropriate and reasonable wages to the
employees, etc. depends on the concern regarding necessity and contingency of the
affecting factors.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 3 Planning
GSEB Class 12 Organization of Commerce and Management Planning Text Book
Questions and Answers

1. Select the correct alternative and write answer to the following questions
Question 1.
Mention first function of management.
(A) Organizing
(B) Planning
(C) Directing
(D) Controlling
Answer:
(B) Planning

Question 2.
Planning is related to
(A) Past
(B) Present.
(C) Production
(D) Future
Answer:
(D) Future

Question 3.
What is the first step of planning process?
(A) Defining objectives
(B) Clarifying planning premises
(C) Preparing alternative
(D) Formation of subsidiary
Answer:
(A) Defining objectives

Question 4.
Planning function means
(A) Routine function
(B) Fixed function
(C) Function of choice
(D) Formation of subsidiary
Answer:
(C) Function of choice

Question 5.
Decisions and strategies are decided by management for accomplishment of objectives are
known as
(A) Programme
(B) Policy
(C) Rules
(D) Budget
Answer:
(B) Policy

Question 6.
What is pre-condition for successful planning?
(A) Long term
(B) Short term
(C) Organization
(D) Flexibility
Answer:
(D) Flexibility

Question 7.
State the last step of planning process.
(A) Evaluation of plan
(B) Selection of best plan
(C) Verification of plan
(D) Determination of alternative
Answer:
(A) Evaluation of plan

2. Answer the following questions in one sentence each :

Question 1.
In which fields is planning found?
Answer:
Planning is found in business, politics, education, religion, social events, etc.

Question 2.
Give full form of O.R.
Answer:
Operation Research

Question 3.
What are the first and last functions of planning?
Answer:
The first function of planning is to determine the objectives and last function is to evaluate the
plan.

Question 4.
When is the principle of ‘Look and Leap’ adopted?
Answer:
The principle of‘look and leap’is adopted when the entire plan is to be evaluated. Step by step
proceedings are done after which, appropriate decisions are taken.

Question 5.
State types of budget.
Answer:
Capital expenditure budget, sales budget, production budget, production cost budget, cash
budget etc.

Question 6.
Mention reasons for the uncertainitics in planning.
Answer:
There are uncertainties in planning because planning is based on assumptions and forecasting
which is made for future. Future is uncertain and therefore, assumptions carmot be fully correct.
Uncertainties prevail in planning as it is related to future.

Question 7.
What is planning premises?
Answer:
Planning premises is the second step of planning. After determining objectives, planning
assumptions or forecasting has to be made. These assumptions and forecasting are known as
premises which has to be clear and precise for success of . planning in business unit.

Question 8.
What is method / procedure?
Answer:
Method is an arrangement for carrying out business programmes. Strategy depicts the
arrangement of facing competition, policy gives information to fulfill the objectives while
method refers to best way of accomplishment of pre-determined objectives.

3. Answer the following questions in short :

Question 1.
What do you mean by determination of objectives?
Answer:
Determination of objectives:

 The first step in planning is to set the objectives.

 It is said that, if objectives are determined properly then it becomes extremely useful for
the management.
 Planners should set realistic, intellectual and achievable objectives.
Question 2.
What is planning.
Answer:
The task of collecting information for the activities to be undertaken in business, consider them
in advance and plan out how to do these activities is called planning. Planning is anjntellectual
process to achieve business goals.

Two important definitions of planning are:

 Definition of Bill Goetz: “Task of planning is choosing.”

 Definition of George R. Terry: “Function of planning means assumption for results, policy
to follow function, stages and to decide the method to be followed.”
Question 3.
What is the need of strategy?
Answer:
Strategy:

 A plan of action designed to achieve a pre-decided long-term or overall aim is called a

strategy.
 Strategy formation helps the business unit to be capable enough to face the competition
or to survive against the other factors.
  Strategy should be kept confidential from the competitors.
 A well-defined strategy can surely lead to success.
Question 4.
State the elements or components of planning.
Answer:
Elements/components of planning:
The subsidiary plans and programmes on which a planning is based are called elements of
planning.

The elements of planning are discussed below:

1. Objectives
2. Strategy
3. Policy
4. Method/Procedure
5. Rules
6. Budget
7. Programme

Question 5.
What is subsidiary plan?
Answer:
Formulation and evaluation of subsidiary plan:

 Over and above the main plan, different projects or alternatives have to be considered as
per basic plan or in support of basic plan. These plans are known as subsidiary/derivative
plan.
For example, a car manufacturing company is trying to make a decision to make tyres for
its cars. On the other hand, it is also thinking to buy them rather than manufacturing.
Such an alternative is considered subsidiary plan.
 Even the subsidiary plan is evaluated to assess that it does not obstruct the basic plan in
future.
Question 6.
What is final budget?
Answer:
Budget is a tool to control the accomplishment of business objectives.

Question 7.
“Planning should be flexible.” Why?
Answer:
Flexibility:

 Although planning is done so that tasks take place as per planned method, still planning
holds a good amount of flexibility.
  During the execution of planned steps the business may experience certain external
factors. These factors may disturb the planned process. Hence, the unit may have to make
necessary changes as per time, circumstances and situations.
 Thus, planning is dynamic and flexibility is the precondition for planning.
Question 8.
“Planning is primary function of management.” Explain.
Answer:
Primary function:
Planning is the primary function of management. Management starts with planning.
Other functions of management like organization, staffing directing, controlling are
implemented on the basis of planning.

Question 9.
What do you mean by policy?
Answer:
Policy:

 The decisions and strategies that the management decides for accomplishments of
objectives are known as policies.
 The type of policy framed by the business unit reflects the idea of efficiency and working
style of the business unit.
 Just like an objective, the policy should also be pragmatic and real.

Question 10.
“Planning is an expensive process.” Why?
Answer:
Expensive process:

 In a large unit, experts are engaged in the planning function.

 Since these experts are highly experienced and knowledgeable they charge high
consultation fees for assisting in framing the plans.
 While planning several resources are also to be gathered like holding meetings,
conducting surveys, gathering data and performing analysis, etc. All these activities
require .time, effort and money. Hence, planning incurs huge expenses to the unit.
4. Answer the following questions in brief :
Question 1.
“Planning brings smoothness in managerial function.” Explain.
Answer:

 The task of collecting information for the activities to be undertaken in business, consider
them in advance and plan out how to do these activities is called planning.
 Planning is done using mental abilities while remaining conscious about the outcomes.
 Managers develop plans precisely and minutely by undergoing rigorous brain storming,
collecting and analyzing statistical data, collecting relevant information, etc.
  During the planning, the role, responsibilities and authorities of each person and
department is also carefully drawn.
 As a result, when the business operations start following the plans, all the departments
and employees very well know what has to be done, how it has to be done and in which
time frame.
 There arises no confusion related to who is responsible for what and who should report to
whom.
 Hence, planning makes the daily operations very smooth, easy and achievable.
Question 2.
Explain any four elements or components of planning.
Answer:
Elements/components of planning:
The subsidiary plans and programmes on which a planning is based are called elements of
planning.

The elements of planning are discussed below:

1. Objectives:

 All the plans of a business unit are based on the objectives they wish to achieve.
 So, it is important that the managers consider all the factors affecting business while
drafting the plans.
 Such objectives should be set which are realistic and achievable.
2. Strategy:

 A plan of action designed to achieve a pre-decided long-term or overall aim is called a

strategy.
 Strategy formation helps the business unit to be capable enough to face the competition
or to survive against the other factors.
 Strategy should be kept confidential from the competitors.
 A well-defined strategy can surely lead to success.
3. Policy:

 The decisions and strategies that the management decides for accomplishments of
objectives are known as policies.
 The type of policy framed by the business unit reflects the idea of efficiency and working
style of the business unit.
 Just like an objective, the policy should also be pragmatic and real.
4. Method/Procedure:

 The business units develop various methods or procedures to conduct business activities.
 Method guides the best way for accomplishing pre-determined objectives as well as
doing tasks.
5. Rules:

 Framing rules is extremely important to accomplish the functions of planning.

  Rules decide the procedure and give the clear understanding.
 They also ensure that discipline will be followed in the unit among the employees.
 Through proper observance of rules it becomes easy for the unit to accomplish the
objectives. For example the rule of prohibiting the use of mobile during working hours
helps to increase efficiency of employees.
6. Budget:

 Budget is a tool that controls the outcomes and helps accomplishing business objectives.
 A unit prepares different types of budget such as capital expenditure budget, sales
budget, production budget, production cost budget, cash budget, etc.
 Budget helps to control the business activities and also to increase the efficiency of
management. s
7. Programme:

 The sequence of activities undertaken by a business unit to accomplish a task is called

programme.
 If the work is done according to programme then the objectives can be fulfilled without
any confusions or hindrances.
 The management sees to it that the work is done as per the programme as well as per the
standards set. Corrective measures are taken in case if there are deviations.

Question 3.
Explain any four limitations of planning.
Answer:
Limitations of planning:
1. Uncertain future:

 Planning is based on assumptions and forecasting i.e. it talks about future. But, no one
knows future and so it is uncertain.
 So, one may make assumptions and frame plans based on these assumptions. But it
should be well noted, that assumptions can be wrong. Hence, uncertainties prevail in
planning.
2. Expensive process:

 In a large unit, experts are engaged in the planning function.

 Since these experts are highly experienced and knowledgeable they charge high
consultation fees for assisting in framing the plans.
 While planning several resources are also to be gathered like holding meetings,
conducting surveys, gathering data and performing analysis, etc. All these activities
require .time, effort and money. Hence, planning incurs huge expenses to the unit.
3. Time consuming:
Planning involves collection of necessary information, its classification, analysis and
interpretation to decide alternatives for the business. Thus it is a lengthy and time-consuming
process.
4. Planning is irrelevant:

 Although planning is extremely important but future is uncertain. There are chances of
changes in government policies, tax slabs, price, demand, supply, etc.
 Any major change can fail even a solid plan and hence planning becomes irrelevant in
such a situation.
Question 4.
Discuss the importance of planning.
Answer:
Importance of planning:

 Planning is the foundation of any business and an outline for its future. It is necessary in
each and every field.
 Hence, government, private sector and all other sectors make plans for their activities.
 Considering the importance of planning, the Central Government of India has formed the
planning commission which plans the various activities for India.
Following are some of the importance planning:

1. Planning helps to perform all activities systematically.

2. Wastage of resources can be avoided.
3. Planning reduces future uncertainties.
4. Planning leads to precision.
5. It is useful for accomplishing objectives.
6. Planning also brings smoothness in other managerial functions.
7. Planning increases co-operation among employees.
8. It enables effective control over the activities and unit.
9. Planning co-ordinates various activities.
Question 5.
Explain operational and contingency plans.
Answer:
Operational plan:

 An operational plan is a detailed plan which provides a clear picture of how a team,
department or an individual will contribute for achieving strategic goals of the
organization.
 Operational plan is almost similar to tactical plan.
 Generally, operational plans are formed for short duration say about one year.
 Under this, plans related to monthly or quarterly production, sales, etc. are made for
achieving of objectives of annual production.
 These plans are made by departmental heads for the implementation of strategic plan.
 These plans are mainly formed for performing routine work and achieving daily targets.
Hence, implementation of operational plans becomes easy, if they are made by involving
concerned employees in the decisions, as these plans are related with routine work.
Contingency plan:
  A plan designed to take account of a possible future event or circumstance is called a
contingency plan.
 Business unit face changing market situations. These changes could be change in political,
economical, social or natural factors.
 If the business has to make changes in the original plan or make a new plan due to such
reasons then the plan made is called contingency plan.
Question 6.
Discuss single use plan and contingency plan.
Answer:
Single Use plan:

 As the name suggests, single use plans are made for handling one-time, non-recurring
problems. Single-use plans are also referred to as ‘specific plans’ since these are meant to
solve a particular problem.
 These plans are formulated to handle non-repetitive and unique problem. These plans
cannot be used again and again. These plans become obsolete after achieving their
purpose.
 The examples of these plans could be constructing a dam, making budget, organizing an
event, etc.
Contingency plan:

 A plan designed to take account of a possible future event or circumstance is called a

contingency plan.
 Business unit face changing market situations. These changes could be change in political,
economical, social or natural factors.
 If the business has to make changes in the original plan or make a new plan due to such
reasons then the plan made is called contingency plan.

Question 7.
Explain the following statements :
(i) “Planning is a conscious and mental process.”
Answer:
Conscious and mental process:
Planning is done using mental abilities while remaining conscious about the outcomes.
This is so because during planning decisions are taken consciously and on the basis of
calculative assumptions.

(ii) “Planning is irrelevant.”

Answer:
Planning is irrelevant:
Although planning is extremely important but future is uncertain. There are chances of changes
in government policies, tax slabs, price, demand, supply, etc.
-> Any major change can fail even a solid plan and hence planning becomes irrelevant in such a
situation.
(iii) “Planning is concerned with future.”
Answer:
Concerned with future:

 Planning presumes that there are uncertainties involved in future.

 While remaining in present, planning evaluates future and hence we can say that planning
is concerned with the happenings of future and is focused on – taking best steps for the
same.
5. Answer the following questions in detail:
Question 1.
What is planning? Explain its characteristics.
Answer:
(a) Planning:
The task of collecting information for the activities to be undertaken in business, consider them
in advance and plan out how to do these activities is called planning. Planning is an intellectual
process to achieve business goals.

(b) Characteristics of planning:

1. Universal process:
Planning is a universal process. Planning is required in each and every field may it be business,
politics, education, religion or a social event.

2. Primary function:
Planning is the primary function of management. Management starts with planning.
Other functions of management like organization, staffing directing, controlling are
implemented on the basis of planning.

3. Conscious and mental process:

Planning is done using mental abilities while remaining conscious about the outcomes.
This is so because during planning decisions are taken consciously and on the basis of
calculative assumptions.

4. Flexibility:

 Although planning is done so that tasks take place as per planned method, still planning
holds a good amount of flexibility.
 During the execution of planned steps the business may experience certain external
factors. These factors may disturb the planned process. Hence, the unit may have to make
necessary changes as per time, circumstances and situations.
 Thus, planning is dynamic and flexibility is the precondition for planning.
5. Precise:
Planning is a process done for the future.
Since, future is uncertain, the planning is to be done precisely and minutely by rigorous brain
storming, collecting and analyzing statistical data, collecting relevant information, etc.
6. Forecasting is essential:
Forecasting and planning are considered as the first function of management. Forecasting is
done by considering the uncertainties of future that will take place while making a plan for the
business unit.

7. List of alternatives:
While planning for any objective there exist a variety of alternatives. For example, there can be
several alternatives (i.e. ways) to increase the sales in future. These alternatives could be
increasing advertisement, reducing prices, training to sales staff, announcing attractive offers,
etc. The planners need to select the best suitable alternative from these.

8. Concerned with future:

 Planning presumes that there are uncertainties involved in future.

 While remaining in present, planning evaluates future and hence we can say that planning
is concerned with the happenings of future and is focused on – taking best steps for the
same.
9. Continuous process:

 Planning is a continuous process.

 It is such a process which begins with the establishment of the organization and continues
till the end i.e. till the organization lasts. However, the plans and planning process keep on
changing continuously as per time and situation.
10. Objective oriented activity:

 Planning is done to achieve a specific, pre-determined business objective.

 Once an objective is accomplished the management decides the next objective for
business.
 It is desirable that realistic objectives are set so that they can be planned and achieved
well. Thus planning is an objective oriented activity.
11. Planning considers various available options and then selects the best suited one.
Since the planners need to make such decisions on a regular and continuous basis it is said that
planning is a decision oriented process.

Question 2.
Give the definition of planning and explain its process.
Answer:
(A) Planning:
The task of collecting information for the activities to be undertaken in business, consider them
in advance and plan out how to do these activities is called planning. Planning is an intellectual
process to achieve business goals.

(B) Process of planning:

The stage-wise process of framing a plan is discussed below:
1. Determination of objectives:
  The first step in planning is to set the objectives.
 It is said that, if objectives are determined properly then it becomes extremely useful for
the management.
 Planners should set realistic, intellectual and achievable objectives.
2. Clarifying planning premises:

 The forecast or the assumptions about future which provide a base for planning in
present are known as planning premises.
 After determining the objective, it is important to clarify the planning premises.
 Forecasting is made after considering the internal and external factors that affects the
business unit.
 Unclear and imprecise premises can fail a plan.
3. Collection and analysis of information:

 Once the planning premises is done, the planners gather necessary information. The
information may be gathered through direct sources or indirect sources.
 The information is then classified, analyzed and interpreted. This helps to make
assumptions for desired results.
4. Preparation of alternative plan:

 After collecting, analyzing and interpreting information, alternative plan is to be made. An

alternative plan and list of alternatives help in case if the main plan does not work as
planned or if there are some unforeseen changes in the market.
 The list of alternative steps could be whether to sale the goods by producing on our own
or by purchasing and re-selling, second alternative for the material to be used, etc.
5. Evaluation of alternatives:

 Once the list of alternatives is prepared, they are evaluated to see if they are suitable
alternatives or not.
 How each alternative will affect the business and its processes is evaluated.
 Evaluation of alternatives is an intellectual process. Mathematical and statistical methods
are used for the evaluation of alternatives.
 Business, units make use of a subject called Operation Research (O.R.) to ‘ prepare the
model of an ideal plan.
6. Selection of the best alternative:
The various alternatives are evaluated, analyzed and scrutinized and then the best alternative is
selected.

7. Formulation and evaluation of subsidiary plan:

 Over and above the main plan, different projects or alternatives have to be considered as
per basic plan or in support of basic plan. These plans are known as subsidiary/derivative
plan.
  For example, a car manufacturing company is trying to make a decision to make tyres for
its cars. On the other hand, it is also thinking to buy them rather than manufacturing.
Such an alternative is considered subsidiary plan.
 Even the subsidiary plan is evaluated to assess that it does not obstruct the basic plan in
future.
8. Evaluation of plan:

 Once the basic plan and the subsidiary plan are formed the entire plan is thoroughly
evaluated. The business unit takes the help of experts and consultants to evaluate the
plan as and when necessary.
 This third-party opinion helps the unit to get a correct opinion and also mistakes if any.
 The business unit follows the principle of ‘Look and Leap’ at every stage i.e. it evaluates
the plan at every stage and then moves forward accordingly.

Question 3.
Explain elements or components of planning.
Answer:
Elements/components of planning:
The subsidiary plans and programmes on which a planning is based are called elements of
planning.

The elements of planning are discussed below:

1. Objectives:

 All the plans of a business unit are based on the objectives they wish to achieve.
 So, it is important that the managers consider all the factors affecting business while
drafting the plans.
 Such objectives should be set which are realistic and achievable.
2. Strategy:

 A plan of action designed to achieve a pre-decided long-term or overall aim is called a

strategy.
 Strategy formation helps the business unit to be capable enough to face the competition
or to survive against the other factors.
 Strategy should be kept confidential from the competitors.
 A well-defined strategy can surely lead to success.
3. Policy:

 The decisions and strategies that the management decides for accomplishments of
objectives are known as policies.
 The type of policy framed by the business unit reflects the idea of efficiency and working
style of the business unit.
 Just like an objective, the policy should also be pragmatic and real.
4. Method/Procedure:
  The business units develop various methods or procedures to conduct business activities.
 Method guides the best way for accomplishing pre-determined objectives as well as
doing tasks.
5. Rules:

 Framing rules is extremely important to accomplish the functions of planning.

 Rules decide the procedure and give the clear understanding.
 They also ensure that discipline will be followed in the unit among the employees.
 Through proper observance of rules it becomes easy for the unit to accomplish the
objectives. For example the rule of prohibiting the use of mobile during working hours
helps to increase efficiency of employees.
6. Budget:

 Budget is a tool that controls the outcomes and helps accomplishing business objectives.
 A unit prepares different types of budget such as capital expenditure budget, sales
budget, production budget, production cost budget, cash budget, etc.
 Budget helps to control the business activities and also to increase the efficiency of
management. s
7. Programme:

 The sequence of activities undertaken by a business unit to accomplish a task is called

programme.
 If the work is done according to programme then the objectives can be fulfilled without
any confusions or hindrances.
 The management sees to it that the work is done as per the programme as well as per the
standards set. Corrective measures are taken in case if there are deviations.
Question 4.
Explain limitations of planning.
Answer:
Limitations of planning:
1. Uncertain future:

 Planning is based on assumptions and forecasting i.e. it talks about future. But, no one
knows future and so it is uncertain.
 So, one may make assumptions and frame plans based on these assumptions. But it
should be well noted, that assumptions can be wrong. Hence, uncertainties prevail in
planning.
2. Expensive process:

 In a large unit, experts are engaged in the planning function.

 Since these experts are highly experienced and knowledgeable they charge high
consultation fees for assisting in framing the plans.
 While planning several resources are also to be gathered like holding meetings,
conducting surveys, gathering data and performing analysis, etc. All these activities
require .time, effort and money. Hence, planning incurs huge expenses to the unit.
3. Time-consuming:
Planning involves collection of necessary information, its classification, analysis and
interpretation to decide alternatives for the business. Thus it is a lengthy and time-consuming
process.

4. Planning is irrelevant:

 Although planning is extremely important but future is uncertain. There are chances of
changes in government policies, tax slabs, price, demand, supply, etc.
 Any major change can fail even a solid plan and hence planning becomes irrelevant in
such a situation.
5. Tends to be rigid:

 Planning is done keeping future in mind. Now, if an adverse situation occurs in the future,
managers or employees avoid taking risk,of deviating from the plan and making changes
as per the new market situation.
 They stick to the plan i.e. remain rigid for making changes.
6. Uncertainty of external factors:
Business units are affected by external factors which keep on changing. This hinders the success
of planning.

7. Incomplete information:

 Collecting necessary information is the pre-condition of the planning process.

 If a plan is formulated and implemented on the basis of incomplete and unclear
information then it may not give the desired result.
8. Restricts creativity of employees:

 A plan is formed by manager but implemented by the employees (or say workers) of the
business unit.
 Although employees have creativity and experience about the processes of the business
unit they do not have the authority to make changes in the plan. Thus planning restricts
the creativity of employees.
9. Use of faulty methods:
While deciding assumptions and estimates for a plan, the planners make use of different
mathematical and statistical methods. If these methods or information are faulty or say
inappropriate, there are chances that the unit may take a wrong decision. This may fail the plan.

10. Other limitations:

Over and above these limitations, many other factors that affect planning are changes in
technology, prejudice of planner, ignorance of facts, problem of leadership, etc.
Question 5.
Discuss types of plan.
Answer:
1. Standing plan:

 When there is repetition of some specific activities in an organization then the

organization forms a plan to take care of that activity. Such a plan is called standing plan.
 Standing plans provide guidelines for taking decisions in repetitive situation hence
standing plan can be used repeatedly.
 Standing plans help the subordinates to take prompt decision.
2. Strategic plan:

 Strategic planning is an organization’s process of defining its strategy, or direction, and

making decisions on allocating its resources to pursue this strategy.
 Based on their philosophies the business units decide several business objectives.
 The unit then develops short term as well as long term strategies for achieving the desired
objectives. This is called strategic planning.
The effects of strategic plans can be seen in the long term. These plans shape the future of the
business.

3. Tactical plan:

 Tactical plan is a short-term plan prepared for maximum one year and it emphasizes the
current operations of various parts of the organization.
 Since these are short term plans, they clarify short term objectives that the business aims
at. Hence business activities remain goal oriented and take place in a systematic manner.
 The tactical plans or say short term plans are prepared by middle level management.
 These plans guide the departmental heads and employees about the roles that they must
play to achieve tactical plans.
4. Operational plan:

 An operational plan is a detailed plan which provides a clear picture of how a team,
department or an individual will contribute for achieving strategic goals of the
organization. Operational plan is almost similar to tactical plan.
 Generally, operational plans are formed for short duration say about one year.
 Under this, plans related to monthly or quarterly production, sales, etc. are made for
achieving of objectives of annual production.
 These plans are mainly formed for performing routine work and achieving daily targets.
5. Single Use plan:

 As the name suggests, single use plans are made for handling one-time, non-recurring
problems. Single-use plans are also referred ta as ‘specific plans’ since these are meant to
solve a particular problem.
  These plans are formulated to handle non-repetitive and unique problem. These plans
cannot be used again and again. These plans become obsolete after achieving their
purpose.
 The examples of these plans could be constructing a dam, making budget, organizing an
event, etc.
6. Contingency plan:

 A plan designed to take account of a possible future event or circumstance is called a

contingency plan.
 Business unit face changes like change in political, economical, social or natural factors.
 If the business has to make changes in the original plan or make a new plan due to such
reasons then the plan made is called contingency plan.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 4 Organizing
GSEB Class 12 Organization of Commerce and Management Organizing Text Book
Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
When more than one person is working towards the achievement of common goal, the structure
so formed is called
(A) Planning
(B) Organization
(C) Control
(D) Directing
Answer:
(B) Organization

Question 2.
What is possible from the following due to departmentalization of work?
(A) Specialization
(B) Planning
(C) Co-ordination
(D) Directing
Answer:
(A) Specialization

Question 3.
Which organization is called army organization?
(A) Matrix
(B) Functional
(C) Linear
(D) Informal
Answer:
(C) Linear

Question 4.
_______ in which type of organization, work is given more importance than department?
(A) Linear
(B) Functional
(C) Informal
(D) Matrix
Answer:
(B) Functional

Question 5.
The network framed naturally by human relations is called
(A) Informal organization
(B) Linear organization
(C) Formal organization
(D) Matrix organization
Answer:
(A) Informal organization

Question 6.
A person who is at bottom level and receives orders is called
(A) Subordinate
(B) Superior
(C) Project manager
(D) Officer
Answer:
(A) Subordinate

Question 7.
Organization framed with the mixture of project structure and general structure is called
(A) Linear organization
(B) Matrix organization
(C) Functional organization
(D) Informal organization
Answer:
(B) Matrix organization

Question 8.
What is it called where authority is centrally delegated at higher management level?
(A) Decentralization
(B) Centralization
(C) Decapitalization
(D) Transmission
Answer:
(B) Centralization

Question 9.
From the following, what should be implemented to prepare future managers?
(A) Decentralization
(B) Centralization
(C) Decapitalization
(D) Work distribution
Answer:
(A) Decentralization

Question 10.
What cannot be delegated from the following?
(A) Authority
(B) Responsibility
(C) Accountability
(D) Work
Answer:
(C) Accountability

2. Answer the following questions in one sentence each :

Question 1.
What is organization?
Answer:
The activity conducted by the co-operation of two or more people and their co-ordination is
called organizing.

Question 2.
What is called delegation of Authority?
Answer:
Delegation of authority is such a kind of process in which the administrator gives a part of the
powers to his sub-ordinates along with duties and the helpers, with the help of others, for the
purpose of work . performance, accepts such powers consciously.

Question 3.
What is Informal Organisation?
Answer:
Informal organization is the formation of internal relations formed on its own, in order to
provide contribution to some result achievements, formed without any formal planning.
Question 4.
What is Matrix Organisation?
Answer:
Matrix organization is a modern kind of organization, which has two different types of
structures. One is the simple kind of structure, which is a part of decision making process and
the other is a structure solving technical problems and is called project structure. This
combination results in matrix organization.

Question 5.
What is Responsibility?
Answer:
Responsibility is the duty assigned by the top level officer to the subordinates for a particular
work.

Question 6.
What is accountability?
Answer:
Accountability is when the delegated authority holder has to provide proper explanation and
follow reporting process to the top level management.

3. Answer the following questions in short :

Question 1.
“Organising is Body and Planning is a Brain of Business Enterprise” – Explain.
Answer:

 The goal of the organization is decided by planning process. Planning is the first as well as
most important part of the business.
 The success of management does not come by just planning but also on the effective
implementation of planning.
 After planning comes the organization. The success and goal achievement of any
unit/work depends on proper division of work, distribution of authority and responsibility,
delegation of authority among the employees. All these tasks are done under organizing.
 So, in a way we can say that planning is the soul of business whereas the work is done
under organizing and so organizing works as the body.
Question 2.
“Distribution of Authority and Responsibility is a base of an Organisation” – Explain.
Answer:

 Under organizing, the authority and responsibility of each individual is decided. It is also
decided who will report to whom.
 Divisional heads, sub-divisional heads and skill based heads are finalized and then all the
heads are given power and responsibilities so that they can perform their work well.
 In addition to this, the post of each person is also clarified. His role, authority and
responsibility in the organization is also decided
  Over and above all these, the power and responsibilities are divided and balanced among
employees of various posts.
 Doing so gives every employee a clear picture of his roles and the contribution – he has to
make to achieve business goals. Moreover, this also removes any confusion regarding
every individual’s role in the organization.
 Hence, distribution of authority and responsibility is the base of an organization.

Question 3.
“Formal and Informal Organisations are Complementary to each other.” – Explain.
Answer:
In the formal organizational structure, individuals are assigned various job positions. While
working at those job positions, the individuals interact with each other and develop some social
and friendly groups in the organization i.e. they form informal organizational structure.

 The existence of informal structure depends upon the formal structure because people
working at different job positions interact with each other to form informal structure and
the job positions are created in formal structure.
  So, if there is no formal structure, there will be no job position, there will be no people
working at job positions and there will be no informal structure.
 Although formal organization goes as per procedures, divisions and work allocations, the
informal organization makes the execution more effective and harmonious and serves as
a complement of formal organization.
Question 4.
When is Decentralisation Possible?
Answer:

 The decision of decentralization largely depe’nds on the size of the unit and the approach
of the administrators.
 It is a policy matter and so it can be possible only if the management decides to go for it.
 A large scale unit raises the need of decentralization.
4. Answer the following questions in brief :
Question 1.
Describe characteristics of Informal Organisation.
Answer:
Characteristics informal organization:
1. As the name suggest, the structure of this type of organization is informal.

 It develops from inter-relationships and interactions.

 This kind of structure is naturally formed when the employees working together work for
a commonly defined goal.
2. Based on human relations:

 This kind of structure is based on human relations.

  It is formed between people who share similar feelings, interests, values, hobbies, habits
and beliefs.
3. Ever-changing:

 The informal structure is ever changing.

 When an employee leaves one group and joins another work group, the new informal
structure is created or changed, as per the change in work environment.
4. Universal:

 This structure is universal i.e. it is not only found in businesses.

 It is found in all places wherever human activities take place.
5. Informal communication:

 The channel of communication is informal i.e. the communication is done informally and
mainly orally.
 As a result, there are chances to have more opinions and fewer facts in it. This kind of
communication is very fast.
6. Small size:

 The size of this organization is mostly small because it forms due to individual
relationships, exchange of ideas, sharing same wave-length, etc.
 A large organization can have several such informal organizations but members in each
would mostly less.
7. Lack of control:
These organizations are formed on the basis of circle and mindset of ‘ individuals. Hence, no
control can be maintained within an informal
organization.

8. Complements formal structure:

 Since informal organization emerges from formal organization it is said that informal
organization complements formal organizations.
 In the modern times, informal fcommunication structure is used widely. This helps to
reduce industrial disputes and maintain discipline. Hence this structure is more popular.
Question 2.
Explain Functional Organisation with its formation.
Answer:
Functional (Work-based) Organization

 Linear organization gives more importance to department than work. This is the greatest
limitation of this kind of structure.
 Keeping this limitation in mind, the ‘work based’ or say ‘function based’ organization
came into existence.
 An organization with a functional structure is divided based on functional areas, such as
IT, finance, or marketing.
  In this structure, the experts with specialized knowledge are given special responsibilities
for areas of their expertise. This type of structure is called ‘ functional organization. For
example, Human Resource Manager will look after the recruitment, transfer, promotions,
etc.
 Thus, in functional organization, the distribution of work is not done according to the
departmental but according to the nature of work.
Formation of functional organization:
The core of functional organization lies in giving special importance to work distribution on the
basis of specialization.

 Specialized experts are appointed for each kind of work. These experts do not serve only
as advisors but they are also administrative heads of their work areas. They are fully
responsible for the task assigned to them. For example, the purchase officer is fully
responsible for all type of purchase related work.
 The Chief Executive Officer is at the top and holds the supreme powers of the functional
organization.

Functional Organization

 As demonstrated in the chart, the unit can be divided into two (or more) parts. Each unit
has its assigned list of activities and works.
 The units then assign the tasks and works to different officers. For example, the factory
unit (or department) will assign the work to Quality Control Officer, Chief Maintenance
Engineer and so on.
 Each officer then gives orders to the employees under him to perform the task.
 In functional organization, not a single work remains unassigned and at the same time not
a single work is assigned twice.
 This structure is more favourable for units where there are a variety of works to be done.
For example, IT Industry, Telecom industry, etc.
Question 3.
Write a note on Matrix Organisation.
Answer:
Matrix Organization:

 The organizational structure in which people with similar skills are pooled for work
assignments, resulting in more than one manager is called a matrix organization.
 Matrix organization is a combination of work based (functional organization) and project
based organization.
 Matrix management is the practice of managing individuals with more than one reporting
line i.e. in a matrix organization structure.
 For example, all engineers may be in one engineering department and report to an
engineering manager (i.e. part of functional organization structure), but these same
engineers may be assigned to different projects and report to a different engineering
manager or a project manager while working on that project. Therefore, each engineer
may have to work under several managers at same point of time.
Design of matrix organization:

 In matrix organization we find the combination of work based and project based
organization.
In this type of organization, several project managers are appointed for various projects
and each project manager is given different type of work responsibilities.
 The responsibility of the project manager is to successfully complete the project assigned
to him that too on time.
 For each project, a pool of employees is made from different areas of the company. Each
of these employees holds some specific skill which is needed by the project.
Example:

 An IT company has a typical functional organization structure. So, it has various

departments such as Research Department, Programming Department, Marketing,
Accounts, etc.
 The company takes various projects from its clients. Let us say a project from Vodafone,
Torrent Power, etc.
 For Vodafone project, the company may form a team of a computer expert,
Matrix Organization

research expert, production engineer, technical expert and an accounts expert for executing the
project. All these experts already work in specific departments of the company and report to
their own bosses. But, under the Vodafone project they will also report to their new temporary
manager who is handling the Vodafone Project.

The authority of the functional managers goes downwards (vertical) whereas that of project
managers goes sideways i.e. horizontal and so the structure of the organization takes a matrix
design.
Once when the work is done, they are sent to their respective work areas / to which they
belonged.

Question 4.
Explain about Elements of delegation of authority.
Answer:
According to Louis Allen, following three elements are included in the
delegation of authority:

1. Entrustment of responsibility
2. Conferment of authority
3. Creation of accountability
 These three elements act as the supports of delegation and so we get a tripod structure
wherein delegation rest on these three elements.
 All the three elements are equally important and independent and yet mutually
connected.
 An effective organizational structure can be formed by balancing these elements.
(A) Entrustment of responsibility:

 The duty assigned by the top level officer to the subordinates for a particular work is
called entrustment of responsibility.
 Entrusting responsibility creates a relationship between superior and subordinate because
the subordinate is expected to follow the orders given by the superior and also report him
about the assigned work duty. Thus, assignment of responsibility flows from top to
bottom level.
(B) Conferment of authority:

 By giving authority to a person, one can expect results and accomplished works.
 During delegation, the administrators should provide enough power to the ‘ sub
ordinates so that they can further allot or distribute the work in various parts to the lower
levels and get the work done.
 Hence delegation of authority is an important step towards allotment of power. This flows
from upper to lower level.
(C) Creation of accountability:
The person who has been delegated the power and work is accountable for this work to the
higher authorities.

 He needs to provide proper explanation and follow reporting process to the top level
management. This is known as accountability.
 The middle level authority holder cannot free himself from his responsibility of getting
work done. Note that this accountability flows from lower level to upper level i.e. the
lower level is accountable to the middle level and middle to upper level.
5. Answer the following questions in detail:
Question 1.
Explain types of organisation.
Answer:
1. Linear Organization:
  Linear organization is the most simple and ancient type of organization.
 This format of organization is used in Army since a very long time and so it is also known
as Army organization.
 In linear organization, the top level holds the maximum power. In other words, the power
is centralized at the top level.
 The distribution of power and responsibilities is done in straight line from top level to
bottom level. .
 Since, the distribution of power is in a straight line from top to bottom level, it is called
linear organization.
Formation of linear organization:

 In a linear organization, the greatest power is with the Board of Directors. They take policy
based decisions for the organization.
 The Board of Directors empowers the General Manager.
 The General Manager is the main Administrative Head. It is his work to ensure that the
lower employees follow the task and decisions taken by the Board of Directors.
 Below the General Manager are the various departments such as production department,
administrative department and sales department.
 For each department there is a department head. The department head is responsible for
the work going on his entire department.
 Under each department head there are several officers. For example, there will be
purchase officer and production officer in the production department. Similarly there will
be administrative officer and accounts officer in the administrative department, etc.
 Under such officers, supervisors, foreman and clerks, etc. work. Finally, the workers work
under the foreman. ‘
2. Functional Organization:

 Linear organization gives more importance to department than work. This is the greatest
limitation of this kind of structure.
 Keeping this limitation in mind, the ‘work based’ or say ‘function based’ organization
came into existence.
 An organization with a functional structure is divided based on functional areas, such as
IT, finance, or marketing. ’
 In this structure, the experts with specialized knowledge are given special responsibilities
for areas of their expertise. This type of structure is called functional organization. For
example, Human Resource Manager will look after the recruitment, transfer, promotions,
etc.
Formation of functional organization:

 The core of functional organization lies in giving special importance to work distribution
on the basis of specialization.
 Specialized experts are appointed for each kind of work. These experts do not serve only
as advisors but they are also administrative heads of their work areas. They are fully
responsible for the task assigned to them. For example, the purchase officer is fully
responsible for ail type of purchase-related work.
  The Chief Executive Officer is at the top and holds the supreme powers of the functional
organization.
  A unit can be divided into two (or more) parts. Each unit has its assigned list of activities
and works.
 The units then assign the tasks and works to different officers. For example, the factory
unit (or department) will assign the work to Quality Control Officer, Chief Maintenance
Engineer and so on.
 Each officer then gives orders to the employees under him to perform the task.
3. Formal Organization:

 In order to achieve the predefined goals, the formal structure of relationship established
among persons and work is called formal organization.
 Linear organization and functional organization are types of formal organization.
 In formal organization, necessary powers are given to enable the person to perform
certain kind of responsibilities.
 The organization also clarifies matters related to delegation of authority among superior
officers.
4. Informal Organization:
In the formal organizational structure, individuals are assigned various job positions. While
working at those job positions, the individuals interact with each other and develop some social
and friendly groups in the organization. This network of social and friendly groups forms
another structure in the organization which is called informal organizational structure.

 The informal organizational structure gets created automatically and the main purpose of
such structure is getting psychological satisfaction.
 The existence of informal structure depends upon the formal structure because people
working at different job positions interact with each other to form informal structure. So, if
there is no formal structure, there will be no job position and there will be no informal
structure.
 The members while doing the formal work also interact at social level, bring their own
values and assumptions during work discussion. The members of informal organization
develop friendship, alliances, trusted sources of information and share preferences on
how work should be done.
5. Matrix Organization:

 The organizational structure in which people with similar skills are pooled for work
assignments, resulting in more than one manager is called a matrix organization.
 Matrix organization is a combination of work based (functional organization) and project
based organization.
 For example, all engineers may be in one engineering department and report , to an
engineering manager (i.e. part of functional organization structure), but these same
engineers may be assigned to different projects and report to a different engineering
manager or a project manager while working on that project. Therefore, each engineer
may have to work under several managers at same point of time.
Formation of matrix organization:
  In this type of organization, several project managers are appointed for various projects
and each project manager is given different type of work responsibilities.
 The responsibility of the project manager is to successfully complete the project assigned
to him that too on time.
 For each project, a pool of employees is made from different areas of the company. Each
of these employees holds some specific skill which is needed by the project.

Question 2.
Explain steps for the process of organisation.
Answer:
Steps for process of organizing:
1. Clarification of objectives:
The first and foremost step of organizing is to have a clearly defined goals and their proper
understanding. It is important to properly understand what the main goals are and what are the
sub-goals. It is also important to understand the basis or structure on which the organization is
formed.

2. List of functions:
Once the goals are defined properly, the list of work to be done is prepared.

 While preparing the list it should be taken care that neither a task is left nor it is repeated.
 To check these things, the list of functions is prepared by properly considering the
functions.
3. Departmentalization of functions:

 After preparing the list of functions, the works that are similar in nature are classified and
similar functions are placed together. Then the division of work is done accordingly.
 For example, work related to purchase is put under purchase department, work related to
sales is put under sales department, work related to finance is put under accounts
department and so on.
 After this division, specialization needed for each work is planned.
 The division is planned on the basis of nature of unit, geographical area, work area, etc.
For example, sales of western India would be taken care by Gujarat zone, sale of central
India would be taken care by Madhya Pradesh centre, etc.
 Similarly, work distribution such as advertisement and promotion work, packaging and
distributing work, etc. is done as per the department.
4. Determining departmental positions and abilities:

 Once the works are divided into various departments, the type of persons that will handle
the responsibilities in each department is decided. The unit also decides the abilities that
these people should hold.
 For example, sales officer will be needed for handling the sales department, quality check
will be handled by quality inspector, etc.
 Similarly, sub-posts or categories are also decided.
5. Delegation of power and responsibilities:

 Divisional heads, sub-divisional heads and skill based heads are finalized and then all the
heads are given power and responsibilities so that they can perform their work well. .
 In addition to this the post of each person is also clarified. His role, authority and
responsibility in the organization is also decided
 Over and above all these, the power and responsibilities are divided and balanced among
employees of various posts.
6. Establishment of inter-relationship:

 After the proper distribution of work, and delegation of power and responsibilities among
different departmental personnel, how all these will be inter-related or will interact is
decided. For example, how will sales team and production team inter-relate, how will
quality control department and production department inter-relate, etc.
 Through departmentalization, the power and responsibilities are decentralized and at the
same can be centralized by forming inter-relations.
7. To prepare organizational chart:

 In order to provide people the perfect idea of positions of each person a proper
organizational chart is prepared.
 Such a chart should be properly prepared and should be displayed on the notice board.
Question 3.
Explain characteristics of organising.
Answer:
Characteristics of organizing:
1. Goal oriented activity:

 The main objective of organizing is to achieve business goals.

 The business defines the main objective as well as departmental objectives or sub-goals. It
also defines individual goals of the employees.
 Organizing is a linear structure that co-ordinates with the goals of business, departmental
goals and goals of individual employees. Hence organization is called a goal oriented
activity.
2. Planning based:

 Planning is the first step of management. Organization is done on the basis of planning
and objectives developed by the management.
 Hence it can be said that organization is based on proper planning.
3. Delegation of authority and responsibilities:

 The workers of the business unit work for the business goals given to them.
 These people are allotted work as per their capabilities and their skills.
 A person is delegated authorities on the basis of his designation.
 Hence organizing is a structure that establishes relationship of authority and responsibility
among the people.
4. Gives importance to human element:

 Human beings are at the centre of organizing.

 The success of an organization depends on its employees.
 Effective organizational structure is based on developing effective human relationships.
5. Flexibility:

 After forming the organization the management may come across situations where in
they would have to make changes in the organization.
 It is possible that unit may experience major changes in business environment,
technological’ advancement, etc. As a result, the organization will have to change based
on these situations. Hence, organizing is flexible.
6. Establishment of inter-relationships:

 Organizing establishes inter-relationship among work, positions or departments.

 Organizing clarifies the relationships of one work with the other work and one
department with the other department.
7. Monitoring and control:

 Monitoring, controlling and coordinating are the basic requirements of an organization.

 Under monitoring and controlling, organizing checks matters such as whether the
employees are performing their task as per the powers and responsibilities assigned to
him or not.
8. Group activities:

 in an organization, many people work together for the accomplishment of a common

goal.
 Organizing provides such a structure which enables smooth functioning of group
activities.
9. Controlled administrative structure:

 Organizing is a specific type of controlled administrative structure.

 In any business unit, rules and controls are required in order to define relationships.
Organizing also does the same.

Question 4.
Describe importance of decentralisation.
Answer:
Importance of decentralization:
The idea of decentralization is becoming popular in modern times owing to several advantages
it holds.

Its importance can be understood through the following points:

1. Quick decisions:
In decentralization, the person who has the power to take the decision is actively involved in his
area of decision making. As a result, decisions are taken quickly and effectively.

2. Less work load on top level:

 The top level is the level where most of the policy matter related decisions are taken.
 By adopting decentralization, the decision making powers are given to middle or lower
level. Hence, the work load on upper level is reduced.
3. Increases motivation:

 Under decentralization, employees of middle level and lower level are given ^ certain
decision making independence.
 These employees become more motivated because they get a feeling that their seniors
trust them and their decisions.
 Moreover, when the decisions become correct, they get more motivated and confident.
4. Increase in management abilities:

 Under decentralization, employees of middle level and lower level are given certain
decision making independence.
 Hence, these employees become efficient leaders. They develop skills to work in
coordination.
 They develop good administrative skills and they learn the methods of controlling the
staff.
 Ail this improves management abilities of these employees and the company produces
managers for the future.
5. Effective control:

 Under decentralization, the managers of all the levels have enough power to manage,
make decisions and control their respective areas.
 As a result, they can exercise control over the employees, can take decisions if employees
makes mistakes and can take disciplinary actions. This makes management easy and
controlling effective.
6. Harmony is created:

 Due to decentralization, employees of all levels are included in the decision making
process and hence are given importance.
 All the levels of officers and employees i.e. the decision makers and the followers discuss
business matters and then take proper decisions.
 This increases interaction among people, feeling of onenesls and harmony.
Question 5.
Explain importance of delegation of authority.
Answer:
Importance of delegation of power can be understood from the following points:
1. Work-efficient management:
  Due to delegation of power, the officers working on higher level can free themselves from
routine and basic work. This helps them to focus more on important areas.
 This also helps to accomplish business objectives easily due to which the business unit
gets work-efficient management.
2. Development of employees:
Delegation empowers various employees working in the organization to take decisions on
several matters. This improves their decision making ability, confidence and overall
development.

3. Motivation:

 Delegation of power enables the employees to develop their abilities.

 When the higher administrator delegates the power to the subordinates, such
subordinates not only get the work accomplished but at the same time also gets
motivated due to such work accomplishment and the responsibility and power vested on
them.
4. Benefit of specialization:

 Different individuals have different abilities and specialization. The administrator may be
specialized in marketing but not in finance.
 The administrators can identify specialists from various areas of the organization and
delegate them powers based on their specialization. Hence, the organization gets the
benefit of specialized skills.
5. Co-ordination:

 Delegation improves the relationship of helper and upper officers.

 The middle and lower level employees get the chance to take their decisions
independently. In this way, their opinions are respected and they are able to develop inter
personal relations in the organization.
 These things help to improve co-ordination in the unit.
6. Scope for expansion:

 Due to delegation of power, the upper level officers become free from several works.
 Hence, they can focus on expansion of the business.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 5 Staffing
GSEB Class 12 Organization of Commerce and Management Staffing Text Book
Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
Employee are ________ for business.
(A) equal to capital
(B) responsibility
(C) strength
(D) invaluable assets
Answer:
(D) invaluable assets

Question 2.
The main function of Human Resource Management is
(A) Increase in sales
(B) Quality control
(C) Man power planning
(D) Production
Answer:
(C) Man power planning

Question 3.
First step or stage of the selection process is
(A) Receiving and screening of applications
(B) Preliminary meeting and welcome
(C) Personal interview
(D) Employment test
Answer:
(B) Preliminary meeting and welcome

Question 4.
The procedure up to obtaining candidates’ application is
(A) Recruitment function
(B) Ordinary function
(C) Advertisement function
(D) Scection function
Answer:
(A) Recruitment function

Question 5.
Which test decides the ability of the candidate?
(A) IQ test
(B) Aptitude test
(C) Psychological test
(D) Trade test
Answer:
(D) Trade test
Question 6.
Selection procedure for non-managerial staff is
(A) difficult
(B) short and simple
(C) expensive
(D) long and special
Answer:
(B) short and simple

Question 7.
Which type of function of management is staffing?
(A) Productive
(B) Objective oriented
(C) Managerial
(D) Administrative
Answer:
(D) Administrative

Question 8.
________ is the second step after recruitment.
(A) To give promotion
(B) Selection
(C) Training
(D) Transfer
Answer:
(B) Selection

Question 9.
Which test is conducted to know the nature and self-confidence of the employee?
(A) IQ test
(B) Trade test
(C) Aptitude test
(D) Psychological test
Answer:
(D) Psychological test

2. Answer the following questions in one sentence each :

Question 1.
Give the full forms of: IIM, IIT, HRM
Answer:
IIM — Indian Institute of Management, IIT – Indian Institute of Technology, HRM – Human
Resource Management.

Question 2.
What is an organization without staff compared to?
Answer:
An organization without staff is compared to a skeleton.

Question 3.
State the names of various types of tests conducted for selection process.
Answer:

1. IQ test,
2. aptitude test
3. trade test, and
4. psychological test.
Question 4.
Which is the base of the selection process?
Answer:
The base of selection process is size of the organization, type of organization, and kind of
employees required.

Question 5.
State the reasons for recruitment.
Answer:
The reason for recruitment to take place is when new enterprise is established, or when an
existing firm is expanded or when an employee resigns or dies or retires.

3. Answer the following questions in short :

Question 1.
State the difference between recruitment and selection.
Answer:

Basis for
comparison Recruitment Selection

Recruitment is an activity of searching Selection refers to the process of

candidates and encouraging them selecting the best candidates and
Meaning apply for it. offering them job.

It has a positive approach i.e. it

encourages more and more people to It has a negative approach where it
Approach apply rejects the unsuitable candidates

Key Factor Advertising the job Appointment of the candidate

Sequence Recruitment is the first step Selection is the second step

 Vacancies are notified by the firm The firm makes applicant pass
through various sources and through various levels like submitting
application form is made available to form, written test, interview, medical
Process the candidate. test and so on.

Contractual As recruitment only implies the Selection involves the creation of

Relation communication of vacancies, no contractual relation between the
contractual relation is established. employer and employee.

Method Economical Expensive

Question 2.
State the internal and external sources of recruitment.
Answer:

 In general terms recruitment can be defined as, “The process of looking for probable
employees and making them apply for the job.”
 In a broader sense “Recruitment is the process of acquiring at the right time, in the right
number, in the right place, persons with the right qualifications.”
 Recruitment is not a one-time job. It keeps on continuing in the organization.
 Recruitment takes place when a new enterprise is established, when an existing unit is
expanded or when an employee resigns, dies or retires. Sources of Recruitment:
There are two sources of recruitment.
(A) Internal sources

1. Promotion
2. Transfer
3. Friends and relatives of employees
4. Recalling retrenched employees
5. Promotion with transfer
6. Waiting list
(B) External sources

1. Through advertisement
2. Through employment exchange
3. Through educational institutions
4. Through trade unions
5. Through contractors and jobbers
6. Recruitment at the gate
7. Modern methods
Question 3.
What is development?
Answer:
  As contrast to training, development is an organized activity in which the manpower
learns and grows through self-assessment. It is a type of educational process which
develops the personnel over a period of time.
 The concept of development is more applicable to the higher level and top level
management.
 Top level management and departmental heads perform more of intellectual work than
physical work. Like workers, they do not work on machines. They play roles of leaders who
lead the workers, manage them, motivate them and take out work from them. So, their
training needs are different. Hence, they need different kind of training or say
development.
 The objective of this training is to increase their mental ability and their efficiency in
taking policy decisions and leading the organization in more
and more efficient way. Such development trainings make them experts in technical
knowledge which then help in them in making strategic plans and policies. This type of
training is called officer development.
 The modern world industries are developing very fast. The managers need to remain in
line with these developments so that they can stay well in the competition. So to enhance
the ability of top level management, the organization undertakes development-oriented
programs.
 Development is the process of imparting theoretical and practical knowledge to top-level
management and departmental heads.
 The term development refers to a program which helps to achieve the predefined
objectives of the organization by improving the capabilities of heads (officers).
Question 4.
What is recruitment?
Answer:

 In general terms recruitment can be defined as, “The process of looking for probable
employees and making them apply for the job.”
 In a broader sense “Recruitment is the process of acquiring at the right time, in the right
number, in the right place, persons with the right qualifications.”
 Recruitment is not a one time job. It keeps on continuing in the organization.
 Recruitment takes place when a new enterprise is established, when an existing unit is
expanded or when an employee resigns, dies or retires.
Sources of Recruitment:
There are two sources of recruitment.
(A) Internal sources

1. Promotion
2. Transfer
3. Friends and relatives of employees
4. Recalling retrenched employees
5. Promotion with transfer
6. Waiting list
(B) External sources
 1. Through advertisement
2. Through employment exchange
3. Through educational institutions
4. Through trade unions
5. Through contractors and jobbers
6. Recruitment at the gate
7. Modern methods
Question 5.
Give the meaning of training.
Answer:

 “Training means providing theoretical and practical knowledge with reference to the work
of the employees.”
 As stated by an expert, “Training means giving up-to-date information about the
organization and also to increase efficiency, skill, aptitude, attitude and technical skill of
the employees.”
 In short “Training means imparting knowledge and education with the objective of
gaining proficiency in the business.”

Question 6.
Name the stages of the process of selection.
Answer:
Steps of process of selection:

1. Welcoming and primary meeting .

2. Receiving and screening of applications
3. Taking necessary tests:
 IQ test
 Aptitude test
 Trade test
 Psychological test
4. Personal interview
5. Checking references
6. Preliminary selection
7. Physical (Medical) examination
8. Appointment letter
9. Induction into the organization and allotment of work
Question 7.
Explain the term ‘waiting list’.
Answer:
Waiting list:

 Waiting list is the list of candidates who had applied in the past but were not appointed in
the organization. Such a list is useful for future recruitment.
  Since, the applicant of the waiting list was thoroughly screened and tested, the
organization can save time and money to spend again on advertisement and the entire
recruitment procedure.
 The organization can pick the best candidates from the waiting list if they are still
available and fill the vacant posts.
Question 8.
Staffing is not merely an employee welfare activity, Why?
Answer:

 Although one of the key objectives of staffing is to recruit and select personnel, train and
develop them and look after their welfare, there are several other important aspects that
staffing looks after.
 Staffing acquires the right employees and makes the best use of them to achieve the
business goals.
 Appropriate staff brings dynamism in all the makes all the activities of an organization.
 Other managerial functions like planning, organizing, directing, co-ordinating and
controlling are closely related with staffing.
 Moreover, staffing is an expensive process and the expense is in recurring form.
 Thus, staffing is not merely an employee welfare activity.
Question 9.
What can be known through IQ and aptitude tests?
Answer:

1. IQ test: IQ test assess the common sense, memory, smartness, power of decision making
and thinking capacity, etc.
2. Aptitude test: Aptitude test assesses whether the candidate is interested in the work for
which he is hired.
Question 10.
What can be known through trade test and psychological tests?
Answer:

 Trade test: The trade test decides if the candidate has the necessary skills to perform the
expected job or not.
 Psychological test: This test is meant to know about the nature, self-confidence, attitude
and habits of the candidate.
4. Answer the following questions in brief :
Question 1.
Write a note on staffing as a part of Human Resource Management.
Answer:

 In modern days, the staffing department is known as the Human Resource Department
(HRD).
 All the activities of staffing that the HRD does are together also called Human Resource
Management (HRM).
 The concept of HRM is broader even than staffing.
  Staffing includes recruitment, selection and training. It also includes providing
materialistic facilities, progressive wage system and taking care of welfare of employees.
Over and above all these activities of staffing, the Human Resource Management also
does the activities for growth and development of personnel.
 Thus, Human Resource Management is the process of planning for recruiting necessary
staff and developing it for achieving objectives of the enterprise.
 In these days of global competition, the importance of human resource has increased
tremendously.
 Over and above maintaining the other factors of production properly, the organization
can achieve great success if it gives proper recognition to the loyalty and efficiency of the
staff and provide them satisfaction, motivation and care.
Question 2.
State the difference between Training and Development.
Answer:

Points of
Difference Training Development

It is a process of imparting
theoretical and practical knowledge It is a process of imparting theoretical
to employees with the object of and practical knowledge to top level
1. Meaning acquiring proficiency in work management and departmental heads

The objective is over all development of

management and officers by enhancing
The objective of training is to their abilities and moulding their
2. Objective increase efficiency and productivity personalities

3. Centre Future career and probable challenges

point Work is at the centre of training are at the centre of development

4. Time and It is a short term and less expensive

expense process It is a long term and expensive process

5. Who Experienced employees, experts or Experts belonging to educational

imparts? supervisors. institutions and various fields

Developmental programs are for

Training is given to staff at the executives and departmental heads
6. To whom? bottom level. working at top and middle level.

Question 3.
“An efficient staff is an invaluable asset.” Explain the statement.
Answer:
  Appropriate and efficient staff brings dynamism in all the makes all the activities of an
organization.
 If the employees are efficient and if the organization can satisfy their needs, then the
employees can become the driving force of the organization.
 An efficient staff by making correct use of other factors of production can accomplish the
objectives of business successfully.
 Efficient staff can increase the quality of production. Moreover, their efficiency can lead to
higher productivity and reduced wastage.
 Thus, efficient staff is an invaluable asset.
Question 4.
“Staffing is like the different limbs of the organization.” Explain the statement.
Answer:

 Planning is considered the brain of organization and management. But once the planning
is done it needs to be executed too.
 The job of execution is taken care by the staff. It is staffing that performs all the planned
activities.
 Staff does the production and also increases the productivity.
 Without staff, the organization is a dead organization in which no activity can take place.
 Thus, staffing is like the different limbs of the organization.
Question 5.
“Training is expensive but its absense is more so.” Explain the statement.
Answer:

 Small companies hire trainers and pay for their training fees, accommodation,
conveyance, etc.
 Large organizations set-up a separate training department. They appoint/ special officers
who provide training to. new employees.
 The organization has to incur huge expenses on all these training activities.
 On the brighter side, training improves the efficiency of the employees. It makes them
more productive.
 Better trained personnel save resources such as raw material, time, energy and effort.
These savings lead to indirect earnings to the organization.
 Training increases morale and motivation of the employees.
 They become more loyal towards the organization and their turnaround rate reduces.
 Absence of training can lead to losses of all these benefits. Hence, it is said that although
training is expensive, its absence is more so.
5. Answer the following questions in detail :
Question 1.
Explain the meaning and characteristics of staffing.
Answer:

 The process of recruitment i.e. acquiring employees for the work and training and
maintaining them in the organization is called staffing.
  In general terms, staffing refers to just recruitment. But, the concept of staffing is much
broader and it includes all the activities of selection, training, promotion, transfer and
post-retirement activities.
Characteristics of staffing:
1. Important function of management:
Just like planning, organizing, directing, co-ordinating and controlling, staffing is also one of the
important functions of management. ,

2. Perennial process:
Organization cannot exist without employees. As long as organizational activities exist,
employees and staffing wili also exist.

3. Related to human relations:

 The main objective of staffing is to acquire the right employees and make the best use of
them to achieve the business goals.
 Out of all the factors or production, employees are the only one in living form. Humans
have feelings, emotions and self-respect.
 Since staffing is related with human element, humanitarian behavior is expected towards
them when they are made to work in the organization.
4. Staffing is a dynamic process:
Appropriate staff brings dynamism in all the activities of an organization.

5. Related with other managerial functions:

Other managerial functions like planning, organizing, directing, co-ordinating ‘ and controlling
are closely related to staffing.

6. Wide scope:
Staffing has a very wide scope and it does not end just at recruitment. It takes care of labour
welfare, training and maintaining personnel and also working for their development.

7. Capital expenditure (Investment):

The expenditure incurred for recruitment, selection, training and development of the staff is not
an expense but an investment.

Question 2.
Explain the importance of staffing.
Answer:
Importance of staffing:
1. Driving force:

 If the employees are efficient and if the organization can satisfy their needs, then the
employees can become the driving force of the organization.
  An efficient staff by making correct use of other factors of production can accomplish the
objectives of business successfully.
2. Dynamic activity:
Staffing infuses dynamism into business and helps to perform all the business activities.

3. Important for other functions of management:

Other managerial functions like coordinating, directing, controlling, planning, etc. cannot
succeed without proper staffing.

4. Limbs of business enterprise:

Planning is the brain of management and enterprise while staffing is like the limbs. Without the
limbs the body i.e. the enterprise cannot do any activity.

5. Job satisfaction among staff:

 Staffing helps to listen the complaints and problems of the employees. This then helps to
bring solution to their problems speedily.
 If the planning and distribution of work is done properly than the employees become
more satisfied with their jobs. As a result their efficiency increases.
6. Harmony in relations:
If staffing is done right, it can create a harmonious and satisfying environment between the
employees and employees and employers of the organization.

7. Increases prestige of the organization:

A contented and efficient staff is an invaluable asset. It increases the prestige of the
organization.

8. Continuous process:
Business cannot exist without staff. As long as business activities continue, staff and staffing
process will also continue.

Question 3.
What is recruitment? Discuss in detail the internal and external sources of recruitment.
Answer:

 In general terms recruitment can be defined as, “The process of looking for probable
employees and making them apply for the job.”
 In a broader sense “Recruitment is the process of acquiring at the right time, in the right
number, in the right place, persons with the right qualifications.”
 Recruitment is not a one time job. It keeps on continuing in the organization.
 Recruitment takes place when a new enterprise is established, when an existing unit is
expanded or when an employee resigns, dies or retires. Sources of Recruitment:
There are two sources of recruitment.
(A) Internal sources

1. Promotion
2. Transfer
3. Friends and relatives of employees
4. Recalling retrenched employees
5. Promotion with transfer
6. Waiting list
(B) External sources

1. Through advertisement
2. Through employment exchange
3. Through educational institutions
4. Through trade unions
5. Through contractors and jobbers
6. Recruitment at the gate
7. Modern methods
There are two main sources of recruitment,
(A) Internal sources arid
(B) External sources.

Depending upon the need of the organization and situation, recruitment is done from any of
these sources.
(A) Internal sources:
1. Promotion:

 When a post in the organization becomes vacant, it can be filled by promoting an existing
staff member after considering his work, ability, honesty, skill, loyalty and qualifications.
Promotion of employees boosts morale and loyalty of the staff.
 Moreover, promotion also results in increased salaries, status, power and responsibility.
2. Transfer:
In case of shortage of staff at a particular location or department, staff member from location or
department having surplus staff can be transferred on the basis of his suitability and
qualifications.

3. Friends and relatives of employees:

 Whenever a vacancy comes up in an organization, the management asks employees ask

employees to recommend their qualified friends and relatives for the post.
 The applications are called from such interested candidates and are screened, interviewed
and if all goes well, are recruited.
 This form of recruitment helps to boost the morale of the employees and make them feel
proud to be a part of the recruitment process.
4. Recalling retrenched employees:
  Retrenchment of employees is the process of removing employees from the organization
in case if they are surplus or to cut down organizational costs.
 The organization can invite former employees who were retrenched because of some or
the other reasons or employees who have left the organization and joined elsewhere
voluntarily to rejoin.
5. Promotion with transfer:
Under this system, organization provides promotion along with transfer and transfers
employees to a different location on the basis of their efficiency, experience and loyalty

For example, an employee can be transferred along with promotion to his native place or any
other place of his choice. This will boost the morale and enthusiasm of the employees. Since, in
many cases employees do not prefer transfer, giving them promotion and then transferring
them is a way to keep their morale high.

6. Waiting list:

 Waiting list is the list of candidates who had applied in the past but were not appointed in
the organization. Such a list is useful for future recruitment.
 Since, the applicant of the waiting list was thoroughly screened and tested, the
organization can save time and money to spend again on advertisement and the entire
recruitment procedure.
 The organization can pick the best candidates from the waiting list if they are still
available and fill the vacant posts.
(B) External sources:
1. Through advertisement:

 Advertisement is an effective way for recruitment.

 The organization releases advertisements in newspapers, business journals and periodicals
for specific posts and invites application from qualified candidates.
 The organizations also put such advertisements on internet, TV or websites. The
candidates that come across such advertisements can apply online.
 Through advertisement, the organization can receive a very large number of applications
that too from distant corners of the country.
 This helps to choose the right candidate form a large pool of applicants.
2. Through employment exchange:

 Unemployed people register themselves in public and private employment exchanges.

These exchanges prepare a database of all such people.
 The database contains details such as name, address, qualifications, experience, skills, etc.
 The organizations can approach these employment exchanges and obtain the list of
candidates that can fit into the job.
 The organizations then contact suitable candidates and calls for recruiting them.
3. Through educational institutes:
  In modern times many enterprises visit colleges and universities and ask them to arrange
a campus interview.
 Campus interviews are held by colleges and universities themselves too wherein they
invite various organizations to visit their campus and conduct interviews and select the
student as a future candidate.
 Such placement camps are arranged every year at various institutes like Indian Institute of
Management (IIM) and Indian Institute of Technology (NT) and also at several colleges
and universities.
4. Through trade unions:

 Most of the workers are the members of trade unions. Trade unions maintain the list of
these employees working in the organization.
 The organizations can contact these trade unions and take the list of such employees that
are either removed or have left the organization. They can then contact them if they are
available for the job.
 The concept of trade unions is quite popular in textile industries, mining industries, etc.
5. Through contractors:

 There are certain employment contractors who mainly supply unskilled labourers to the
organizations.
 The business enterprise makes a contract with such contractors where in the contractor
takes the responsibility to supply the workers to the enterprise.
 The contractor is in constant contact with various types of labourers. He recommends
these workers to the enterprise as and when the enterprise asks for.
 This practice is quite popular for workers working in construction industries, mining
industries, tea plantation, etc.
 This is an informal channel of recruitment and so there are chances that the contractor or
the enterprise or both together exploit the worker.
6. Recruitment at the gate:
Workers can be recruited by business enterprises by placing a notice at the factory gate. This
method is more suitable for daily wages.

7. Modern method:

 Modern method is mostly suitable for recruitment of skilled employees.

 In modern times a very large amount of recruitment is done through the internet.
 Search portals such as naukri.com, monster.com, etc. are internet companies that provide
a facility to candidates to register their bio-data on these web-portals.
 This database is then shared with the business enterprises worldwide. Whenever the
enterprise needs to fill a post, it contacts the candidates registered on these websites.
 Moreover, the candidates can also directly apply to the company from the company’s
website.
 This tool is very fast, quite effective and has very wide reach.
 Under the modern method, various procedures of recruitment such as application, exams
(tests), results and appointments can be done.
  If the candidate is well-versed with the computers, he can take tremendous benefit from
this source of recruitment.
Question 4.
Explain the selection procedure.
Answer:
The process (steps) of selection:
1. Welcoming and primary meeting:

 When the candidate arrives at the enterprise, he is welcomed by the receptionist.

 The receptionist then makes the primary investigation. If the candidate is found
suitable/eligible he is given an appointment of the recruitment officer.
 The recruitment officer then gathers information about the knowledge, education, skill
and the working capability of the candidate.
 The main objective at this stage is to see that only proper candidates are sent further for
applying for the job.
 If the candidate is found suitable in the primary meeting, he is asked to fill the application
form. This saves the time of the recruitment officer and the process becomes simple too.
2. Receiving and screening of applications:

 The candidate, along with application submits various documents such as bio-data, copies
of mark sheets, experience certificates and other certificates, etc.
 The enterprise screens these applications and documents. The ones that are found faulty
or incorrect are rejected.
3. Taking necessary tests:

 After shortlisting the candidates based on their applications, the enterprise arranges
various tests for these candidates.
 Every enterprise conducts tests in its own way. The number, difficulty level and way of
conducting test vary among organization.
 These tests help the enterprise to identify mental ability, skill, aptitude, efficiency, etc. of
the candidate.
The major types of tests are:

1. IQ test: IQ test assess the common sense, memory, smartness, power of decision making
and thinking capacity, etc.
2. Aptitude test: Aptitude test assesses whether the candidate is interested in the work for
which he is hired.
3. Trade test: Trade test decides if the candidate has the necessary skills to perform the
expected job or not.
4. Psychological test: This test is meant to know about the nature, self-confidence, attitude
and habits of the candidate.
4. Personal interview:

 Candidates who succeed in the above tests are called for personal interview.
  To remove any bias or preferences, the enterprise forms a selection cum recruitment
committee for interviewing the candidates.
 The interviewing committee consists of representatives of the management, the
departmental head, the personnel manager and experts from various fields.
 These people perform a proper work-related interview. They stick to this agenda and do
not deviate.
 They also clarify the terms and conditions of the job to the candidate.
5. Checking references:

 To know the present and past work-related situation of the candidate, the business
enterprise checks and enquires from candidate’s present and past employers.
 This is done to know whether the information provided by the candidate is correct or not.
 This also helps to obtain the right opinion about an employee before finalizing him.
6. Preliminary selection:

 If the matters gathered from personal interview and the past references are positive then
the selection committee will make a list of selected candidates.
 This list usually includes more number of candidates than required. These candidates are
also called short listed candidates.
7. Physical (Medical) examination:

 After preliminary selection of the required candidates they are sent to a specified hospital
or doctor for medical examination.
 The main objective of this examination is to know whether the candidate is suffering from
any serious illness or any other physical problem.
 Serious or major illness can decrease efficiency of the candidate and hence will affect the
productivity of the organization.
 The other employees are kept in waiting list. In future, if the organization needs more
candidates then it can select from this list.
8. Appointment letter:

 Once the candidate passes all the tests and interviews he is given the appointment letter.
 The appointment letter contains details regarding the nature of work, work place,
designation, rights and responsibilities, remuneration and other financial and non-
financial details.
9. Induction into the organization and allotment of work:
In modern organizations, after giving the appointment letter and before the allotment of duties,
employees are given information regarding the policies of the organization, organization
environment, superiors, colleagues and subordinates. In other words, the to-be employees are
introduced to the organization. This is called induction.

Question 5.
Explain the meaning and importance of training.
Answer:
Meaning of training:

 “Training means providing theoretical and practical knowledge with reference to the work
of the employees.”
 As stated by an expert, “Training means giving up-to-date information about the
organization and also to increase efficiency, skill, aptitude, attitude and technical skill of
the employees.”
 In short “Training means imparting knowledge and education with the objective of
gaining proficiency in the business.”
Importance of training:
1. To provide modern information:
Training is necessary for providing information to the employees about modern technological
changes and research.

2. Safety:

 It is extremely important to provide safety training.

 Safety related trainings are given to those workers who work on machines. The training
modules include, safe operation, importance of safety equipment such as helmet, gloves,
etc.
 Safety training improves the ability of machine handling, reduces fatigue and increases
morale.
3. Increases job satisfaction:

 Training helps employees to understand their work better and ways to improve their
efficiency and adopt new methods.
 This increases their enthusiasm which, in turn, increases their job satisfaction.
4. Reduces labour turnover rate:

 Training increases knowledge, skill and efficiency of the workers. This improves their
chances of promotion and earning higher income.
 When the efficiency along with income rises, the employees do not think of changing
their job and remain loyal to the companies. This reduces the rate of labour turnover.
5. Increase in profit:
Training increases production and productivity. This reduces cost of production and increases
profit.

6. Reduction in expenses:

 Training increases efficiency of the workers. This increases productivity as well as

production and decreases wastage of raw material and time.
 It also reduces supervision cost.
 Thus training reduces production cost.
7. Growth and development of employees:
Training increases skills, knowledge, ability and intelligence of the employees. This also results in
personal growth and development of the employees.

8. Other benefits:

 Training improves quality of production. Increased quality enhances prestige of the

organization and reduces stress of sales and complaints.
 Training creates an environment of co-operation, loyalty, sincerity and enthusiasm.
Question 6.
Give the meaning of development and explain its importance.
Answer:

 As contrast to training, development is an organized activity in which the manpower

learns and grows through self-assessment. It is a type of educational process which
develops the personnel over a period of time.
 The concept of development is more applicable to the higher level and top-level
management.
 Top level management and departmental heads perform more of intellectual work than
physical work. Like workers, they do not work on machines. They play roles of leaders who
lead the workers, manage them, motivate them and take out work from them. So, their
training needs are different. Hence, they need different kind of training or say
development.
 The objective of this training is to increase their mental ability and their . efficiency in
taking policy decisions and leading the organization in more
and more efficient way. Such development trainings make them experts in technical
knowledge which then help in them in making strategic plans and policies. This type of
training is called officer development.
 The modern world industries are developing very fast. The managers need to remain in
line with these developments so that they can stay well in the competition. So to enhance
the ability of top level management, the organization undertakes development oriented
programmes. .
 Development is the process of imparting theoretical and practical knowledge to top level
management and departmental heads.
 The term development refers to a program which helps to achieve the predefined
objectives of the organization by improving the capabilities of heads (officers).
Importance of development:
1. Increase in technical knowledge:

 Although the officers do not have to work on the machines but, with changing business
conditions, it is necessary for the officers to have technical knowledge because their
functions are related with technical aspects.
 Developmental programmes provide guidance (knowledge) to use technical knowledge,
machines and methods, so that correct and positive decisions can be taken for
organizations.
2. Research and new ideology:
Training increases the efficiency of departmental heads to work at the administrative level by
providing them knowledge about new researches and ideologies.

3. Development of the organization:

In present times, developmental programs are necessary to help the organization grow at
national and even international levels by adopting new changes and strategies.

4. Optimum use of resources:

 Developmental programs help to make optimum use of available resources.

 Moreover, training reduces unnecessary expenses, controls the cost of production and
hence increase the profit.
5. Solution to problems:
Development programs help in bringing speedy and successful solutions to newly arising,
problems in the organization.

6. Effective supervision:
Development programs enhance the skill of officers involved in technical work. This makes their
supervision more effective.

7. Reduces stress:

 Management and departmental heads often have to face many challenges and problems
while managing the enterprise or business.
 Taking decisions and managing daily operations creates a lot of stress on them.
Developmental programs help to reduce this stress.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 6 Directing
GSEB Class 12 Organization of Commerce and Management Directing Text Book
Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
What does direction includes other than order, instruction and guidance?
(A) Suggestion
(B) Control
(C) Supervision
(D) Training
Answer:
(C) Supervision
Question 2.
At which level of management, direction is required more?
(A) Bottom
(B) Middle
(C) Top
(D) All of them
Answer:
(D) All of them

Question 3.
In which element of direction does supervise, rules and analysis is included?
(A) Supervision
(B) Motivation
(C) Leadership
(D) Training
Answer:
(A) Supervision

Question 4.
In directing process, by giving objectives are achieved.
(A) Motivation
(B) Supervision
(C) Training
(D) Guidance
Answer:
(A) Motivation

Question 5.
Which is the first need as per Maslow’s hierarchy of needs?
(A) Physical needs
(B) Safety needs
(C) Social needs
(D) Esteem needs
Answer:
(A) Physical needs

Question 6.
Which of these is related to financial incentives?
(A) Promotion
(B) Appreciation
(C) Job security
(D) Appreciation of work and reward
Answer:
(A) Promotion
Question 7.
Which among the following is needed for the existence of leadership?
(A) Supervisors
(B) Planners
(C) Sub-ordinates
(D) Managers
Answer:
(C) Sub-ordinates

Question 8.
What do you mean by passing clear information from one person to another?
(A) Communication
(B) Correspondence
(C) Courier
(D) Reporting
Answer:
(A) Communication

Question 9.
The process of sending information in the form of report from bottom level
to upper level is
(A) Communication
(B) Reporting
(C) Correspondence
(D) Postal services
Answer:
(B) Reporting

Question 10.
In which form is informal communication carried out?
(A) Oral
(B) Written
(C) Written and oral
(D) Formal
Answer:
(A) Oral

2. Answer the following questions in one sentence each :

Question 1.
Define Direction.
Answer:
In layman language, direction means to guide the workers, make them aware of the work,
supervise them and to maintain their enthusiasm for the work.
Question 2.
Which needs are included in physiological needs?
Answer:
The basic needs a human body seeks such as food water, clothing and shelter are known as
physiological needs or primary needs.

Question 3.
Who implements the decision taken at the stages of planning and organising?
Answer:
Direction i.e. the one who directs.

Question 4.
Which function is referred/compared as a supervision function?
Answer:
Supervisior’s function is compared as that of a friend, philosopher and guide of the employees.

Question 5.
Which need is considered to be the most preferred need according to Maslow’s hierarchy?
Answer:
Food, clothing and shelter i.e. physiological need.

Question 6.
What do you mean by profit-sharing?
Answer:
When workers get a definite proportion of profit in the form of money other than their salary, it
is called profit-sharing.

Question 7.
What is the effect of distrust and fear on communication?
Answer:
Every messege of communication is perceieved with doubt.

Question 8.
What are the modem means of communication?
Answer:
Messeges over telephone, fax, internet, mobile phone, SMS, telex, etc.

3. Answer the following questions in short :

Question 1.
Give the list of elements of direction.
Answer:
Elements of Directing:
  Supervision
 Motivation
 Leadership
 Communication
Question 2.
What do you mean by supervision?
Answer:
Supervision:

 Supervision means to supervise the function or work done by employees.

 As per R. C. Davis, “Supervision is the function of assuring that the work is being done in
accordance with the plan and instructions.”
 Supervision function is mostly related with the internal processes of the business.
Moreover, it is required more at bottom level of management.
 Supervisor is a person who does the observation of the work done by the workers and
foremen. It is his responsibility to see that the workers and foremen complete their work
as per the standards set by the organization and the instructions and orders.
 Supervisor is the key person between the top level management and the workers.
 It is supervisor who sees the resources of the organization are used up to the optimum
level.
Question 3.
What do you mean by motivation?
Answer:
Motivation:

 The process of stimulating people to perform action and to make it possible to have
maximum work satisfaction is called motivation.
 Motivation is an internal feeling which encourages a person to work.
 A person may be capable of doing but may not be willing to do. The objective of
motivation is to see to it that the person’s willingness towards work is maintained and
increased.
 Among all the factors of production, only man is the factor which can increase ‘
production. But, the problem is that man is a living factor of production.
 Whether to increase production or productivity depends upon his willingness.
 As a result, he needs constant motivation to work.
 Motivation can be of various forms. It can be financial incentives, non-financial incentives,
amenities, unsatisfied needs, etc.
Question 4.
Explain the meaning of incentives.
Answer:
Incentive:

 Incentive means that which ‘incites’ or has a tendency ‘to incite action’.
  In the terminology of commerce, the inspiration that the business units give their workers
to maintain their work aptitude, continuously increase efficiency, maintain high quality
standards, etc. is called incentives.
 Incentives increase enthusiasm of workers.
 Incentives inspire employees to achieve their objectives.
There are two types of incentives. They are:

Question 5.
Explain the meaning of leadership.
Answer:

 The quality that influences people to make efforts willingly f6r achieving goals is called
leadership.
 Leadership is the art and skill of creating the desire in others, for achieving objectives.
 According to Dr. George R. Terry, “Leadership is the quality of influencing others to work
willingly for the realization of specified goals.”
 A leader is an influential person of the group who without any pressure provides guidance
and inspiration and thus gets the expected work willingly done.
Need of leadership in industries:

 Several people work in industrial units. Even after paying wages and incentives and
motivating them, the desired results may not be obtained if they are not led well. A good
leader can lead the unit and extract work smoothly.
 Leadership is a process of encouraging in a mutual way.
 It is a base for efficient organization.
 Leader with his attitude and behaviour channelizes the efforts of the group members in a
proper direction.
 He provides guidance to achieve decided targets, motivates to achieve objectives,
inspiration, faith, etc. Thus, leadership is a source of motivation for others.

Question 6.
Explain formal communication in short.
Answer:
Formal communication:

 Communication that depends on the structure of an organization and its rules and
regulations and is implemented for the accomplishment of business objective is called
formal communication. Generally, formal communication is in writing.
 This type of communication has a formal link between the superior and the subordinate.
Its objective is to control and co-ordinate.
 Formal communication is clear and easy to understand.
 Here, who will send information to who is decided before communicating. Moreover, the
form of information is also pre-decided.
Example:

 Notice or Memo is given as warning to the employees who are irregular and remaining
absent without prior permission.
  A letter given by superior to subordinate for his transfer or promotion.
Characteristics:

 In formal communication, superior and subordinates are formally related

 Its main objective is control and co-ordination
 Formal communication is generally in written form
 This type of communication system is accepted as policy of organization
 It is based on organization structure
 Formal organization is formed for the accomplishment of business objectives
 It is easy and clear to understand
Question 7.
‘A supervisor’s work is similar to that of a teacher.’ Explain the statement.
Answer:

 Directing is an extremely important function of management.

 It includes several functions such as supervision, giving orders and instructions ‘ and
providing active leadership to the subordinates.
 Unless these functions are done well other management functions may not result in
success.
 The efficiency of employees in business depends upon direction.
 If the directing person is efficient, then an ordinary employee will give the best result.
 The school teacher also continuously directs the students and keep supervising their each
and every activity.
 Hence, an efficient person can direct the organization to success (OR ‘A supervisor’s work
is similar to that of a teacher.’)
Question 8.
How does motivation help to reduce labour turn over rate?
Answer:
Reduction in labour turnover rate:
Motivation gives internal satisfaction to the employees and inspires them. Although workers get
remuneration as per their work, motivation becomes an add-on to provide them satisfaction
and respect.
This keeps them motivated to stay in the organization and remain loyal to the company.

Question 9.
What is co-partnership?
Answer:
Co-partnership:

 When employees or workers are taken as partners in ownership, management and

distribution of profit, it is known as co-partnership.
 Since these employees or workers are taken as co-partners, it becomes easy for owner to
increase production and to maintain industrial peace.
Question 10.
What do you mean by informal communication?
Answer:
Informal Communication:

 Any communication which depends on human relations and friendship among employees
of an organization is known as informal communication.
 Informal communication is flexible and simple in nature.
 There is no need of control and order in formal communication.
 It can be explained orally or even in a symbolic language i.e. through signs.
 Informal organization provides co-ordination and credibility to the organization.
Example:

 Industrial manager instructs the labourer to work

 Sales manager gives information and suggestions regarding presentation to the salesman
in an easy-going manner
Characteristics:

 It depends on human relations

 Control or order is not required in informal communication
 It can be explained orally or through symbolic language
 Depends on human and friendly relations
 It is flexible and easy
 Process is not important in this communication
 It gives more co-ordination and credibility to organization
 Informal communication is not. supplementary but complementary to the formal
communication
4. Answer the following questions in brief :
Question 1.
Explain the importance of direction.
Answer:
Importance of directing:
1. Increases efficiency:

 When employees are given proper directions regarding departmental functions, the
efficiency of the business increases.
 Direction clarifies function of the employee and their authority and responsibility. This
increases their efficiency.
2. Assessment of efficiency:
Through direction, assessment and evaluation of the matters like whether the employees have
done work as per direction or not, how much work is completed, how much efficiency is
increased, what is the performance, etc. can be done.

3. Motivation to employees:

 Through direction, employees can be made aware about proper method, rules and
policies of business.
 Proper direction helps to remove work related confusions and problems, re-work and
repetition of same work. This motivates them for doing the work.
4. Effective planning:
All the functions of a business cannot be planned by one person. A planner can chalk out a plan
by collecting necessary information through the subordinates.

5. Effective organization:

 Due to direction, every employee becomes aware about his authority and responsibility.
 As a result, they properly follow the orders and instructions given by the boss, This makes
entire organization effective.
6. Co-ordination and co-operation:

 Direction helps to maintain proper co-ordination among employees.

 Directing helps to align personal interests of employees with the main objectives of the
business.
7. Function of control:

 Direction reduces the chances of work-related mistakes and errors.

 This makes taking work from the employees easier. As a result the work remains
controlled.
8. Increases enthusiasm:

 Direction brings changes in the attitude of employees towards the work. Their interest
and enthusiasm in work increases.
 Since they get interested in work they become better problem solvers and feel happy to
overcome work hurdles.
9. Finding out deviation:
  Direction helps to track the allotted work. Proper direction makes supervision effective.
 So, if there is any deviation in the work as compared to the decided standards 4 then it
can be checked and brought back on track.

Question 2.
Explain the functions of supervision.
Answer:
Functions of supervisor:

 To plan activities and remove hurdles

 To provide necessary guidance and direction to complete the work on time
 To supervise the employees constantly, to save time and labour
 Supervisor does the function of integration of employee’s personal interest with the
interest of productivity of business
 To motivate and encourage the employees to increase their efficiency
 To maintain feeling of oneness among the employees
 To make communication work faster
 To give guidance regarding use of new technology introduced in the business ‘(9) To
maintain discipline among employees
 Supervisor does not keep control but provides training
 Supervisor is friend, philosopher and guide for employees
Question 3.
What are the qualities of a good leader?
Answer:
A leader should possess following qualities:
1. Physical qualities:

 Leader should possess good health. In fact, it is a prime requisite for an effective leader.
 Other than health, physical structure, well-built physique and cheerful nature inspires the
subordinates.
2. Intellectual qualities:

 A good leader should be intelligent.

 He should have intellectual qualities such as decision making power, mental ability,
grasping power, scientific approach, curiosity, reasoning ability, foresight as well as
different skills like elocution, calculative skill, knowledge of inter-relation, human skills, etc.
3. Psychological qualities:
Leader should have qualities like pleasant personality, zeal, courage, sense of co-operation, tact,
interest in work, affection, patience, etc.

Question 4.
What are the features of Informal Communication?
Answer:
Informal Communication:
  Any communication which depends on human relations and friendship among employees
of an organization is known as informal communication.
 Informal communication is flexible and simple in nature.
 There is no need of control and order in formal communication.
 It can be explained orally or even in a symbolic language i.e. through signs. -> Informal
organization provides co-ordination and credibility to the organization. Example:
 Industrial manager instructs the labourer to work
 Sales manager gives information and suggestions regarding presentation to the salesman
in an easy going manner
Characteristics:

 It depends on human relations

 Control or order is not required in informal communication
 It can be explained orally or through symbolic language
 Depends on human and friendly relations
 It is flexible and easy
 Process is not important in this communication
 It gives more co-ordination and credibility to organization
 Informal communication is not. supplementary but complementary to the formal
communication
Question 5.
Distinguish between formal and informal communication.
Answer:

Points Formal Communication Informal Communication

Communication system which depends Communication system which

on rules,regulations and depends on human relation and
accomplishment of business objectives, friendship is known as informal
Meaning is known as formal communication. communication.

The purpose of informal

communication is to have more co-
The purpose of formal communication ordination and give more credibility
Purpose is control and co-ordination. to the organization.

Due to rules and regulations, exchange Due to personal and friendly

of information between two people relations, exchange of information
Base takes place. between two people takes place.

Control and It does not require control and

Supervision It requires control and supervision. supervision.

Flexibility It is less flexible. It is more flexible.

Time It takes place at the work place during It takes place at any place .or
 working hours. during working hours.

Form of communication and

Here, sender and receiver of information procedure are not decided
Information in as well as form of communication are beforehand. It takes place as per
advance decided beforehand. time and situation.
Question 6.
Write down any six measures to over come the barriers of communication.
Answer:
Following steps can overcome barriers of communication:

1. Communication system should be arranged as per organizational structure and it should

not obstruct the information.
2. Information given by sender should be precise so that the receiver can understand
properly.
3. Various mediums of communication have ‘different effects. Therefore, an appropriate
medium of communication should be selected.
4. Communication is a two way process. So, it should be done in such a manner that
information flows in both the directions easily.
5. Feeling of mutual trust and co-operation is must between two parties who are
communicating.
6. Communication channel should be as short as possible so that, neither the flow of
information stops nor there is any delay in communication.
7. Communication system’ should be fast.
8. Communication system should be goal-oriented.
9. Broadcasting of unnecessary information increases the burden of communication. So the
broadcasting of information should be proper.
10.Communication system should be evaluated periodically. This helps to make changes as
per changing situations and technology.
11.During the entire process of communication, sender should not have any personal interest
in it. For example, at times the message sender hides few messages or purposefully gives
incomplete information or presents it eccentrically. This should not happen.
5. Answer the following questions in detail :
Question 1.
Define Direction and explain its characteristics.
Answer:
Directing:
In layman language, direction means to guide the workers, make them aware of the work,
supervise them and to maintain their enthusiasm for the work.

Characteristics of directing:
1. Goal oriented activity:
The purpose of directing or say direction is to guide and motivate the employees to achieve
business goals. Thus, direction is a goal oriented activity.
2. Function at every level of management:

 Direction is such a function which is used at every levels of management.

 The top level managers direct departmental officers regarding target, policy and
administrative matters.
 Similarly, at the bottom level the supervisors give orders and instructions to the foremen
and jobbers.
 The jobbers and foreman direct the workers working under their control.
 Thus, direction moves from top level to the bottom level of management.
3. Continuous process:
As long as the organization exists, the function of direction will also continue. Thus, direction is a
continuous process.

4. Observation of functions:
One of the chief functions of directing is observing whether employees are working as per
instructions given to them or not.

5. Wider scope:
Directing is not merely guiding and advising to the employees but also making them
understand the business decisions and encourage them to work for their implementation.

6. Communication:

 It is highly important to have an effective communication channel for giving orders and
guidance to the employees.
 Under ineffective communication process it is difficult to give right direction to the right
employee at the right time.
7. Motivation:

 It is necessary to motivate the employees so that they put their best efforts for the
organization.
 Higher authorities guide the employees personally. Such guidance solves the problems
and doubts of employees, generates faith in them and motivates them to do better work.
8. Flow of direction:
Direction always moves from top level to bottom level management. Top level management
gives guidance to the managers of middle level management and middle level management
directs the workers of bottom level management. Hence, the flow of direction is downwards.

9. Managerial function:
Just like other management functions such as planning, organizing, staffing, etc., direction is
also a management function.
Question 2.
Define Motivation and explain its features.
Answer:
Motivation:
The process of stimulating people to perform action and to make it possible to have maximum
work satisfaction is called motivation.

Characteristics of motivation:
1. internal inspiration:

 Motivation is that strength or power which arises from inside of the individual.
 The feeling of motivation makes the person realize that something is lacking and when he
gets inspired he marches to do .activity which can overcome that feeling of lacking.
 For example, a student may feel that he lacks in mathematics which is not allowing him to
reach desired results. If he gets this realization, he may become motivated to work for it.
2. Psychological concept:

 Motivation is a psychological phenomenon.

 The mental status and approach of every person is different.
 As a result, the need of internal inspiration and its format is also different for every
person.
3. Increases efficiency of employees:

 Motivated workers are encouraged to produce more.

 Motivation boosts their morale. Their productivity and efficiency also increase.
 Overall, these things together increase the profitability of business.
4. Continuous process:

 Once motivation process has started, it remains continuous.

 Employees should be motivated regularly to get the work done from them.
 Motivational direction and guidance should be provided to them.
5. Reduction in labour turnover rate:

 Motivation gives internal satisfaction to the employees and inspires them.

 Although workers get remuneration as per their work, motivation becomes an add-on to
provide them satisfaction and respect.
 This keeps them motivated to stay in the organization and remain loyal to the company.
6. Achievement of goals:
Motivation inspires the workers to function effectively. So, achievement of personal and
business objectives become possible and easier.

7. Wider scope:

 Motivation is a wide concept.

  Motivation includes different terms like need, motive, desire, emotion, aim, choice, will
power, eagerness, temptation, etc.
8. Adapting to changes in the organization:

 In modern time changes takes place very fast in industries and organizations. These
changes constantly affect production, technology, raw material and other activities.
 Generally, the workers are not prepared to accept these changes quickly. They are
reluctant towards new changes.
 If they are motivated well they will be able to adapt changes faster and easily. .
9. Tool to get co-operation:
Motivation gives job satisfaction to the employees. As a result, they co-operate to their higher
authorities.

10. Positive attitude:

 Motivation makes the attitude of people positive.

 Workers often face several problems. When these problems are heard and solved, they
experience a feeling of respect for staffing as well as organization.
 They work, as if they are a part of the organization. Such a style of work makes possible
the development of employees and business unit.
11. One of the functions of management:

 Motivation is an important part of the management.

 Managers have to get the work done from the living resources like employees and not
from physical resources. Therefore, to motivate, is an important function.
Question 3.
Explain the Maslow’s hierarchy of needs with diagram.
Answer:
Hierarchy of needs as given by Maslow:
In 1943, Maslow in his article ‘Principle of Human Motivation’ in 1943 gave the five needs for
those humans seek.

These needs in ascending order are,

1. Physiological or primary needs,

2. Safety needs,
3. Social needs,
4. Esteem and status needs and
5. Self-esteem and self-actualization needs.
The first three needs are of lower order. The last two needs are of higher order.

1. Physiological or primary needs:

 The basic needs that a human body seeks such as food water, clothing and shelter are
known as physiological needs or primary needs.
 These needs are so basic that unless these are fulfilled man does not seek any other need
whatever it may be.
2. Safety needs:

 After the physical needs are satisfied, the next need that comes in the hierarchy is safety.
 Safety needs refer to physical safety, job safety, safety against risk, regularity of wages,
etc.
 To safeguard himself, man buys insurance, opens saving account and fixed deposit
account, invests money, etc.
 These safety measures provide him financial mental peace.
3. Social needs:

 After security needs comes the social needs. These needs include love and affection.
 Man is a social animal. He always wants love and affection from his family, relatives and
society at large.
 Social needs include feeling of getting love and respect from the family members, friends
and relatives as well as by his colleagues at work place and by others in society.
4. Esteem and status needs:

 Esteem and status needs are also known as position need or high class need.
 Man longs that people should praise him, give him respect and that his reputation
increases in the society.
5. Self-esteem and Self-actualization needs:
  After the four needs are satisfied, man tries to satisfy his need of self-esteem or say self-
actualization.
 Each person wishes to rise in his life and reach the top position.
 He/she wishes that society takes his name with pride and in the best way and he rises in
his skills and work.
 For example, a person feels like earning name and fame like Zakir Husain in playing tabla,
Shivkumar Sharma in playing santoor, Sachin Tendulkar in the field of cricket, Amitabh
Bachchan in the field of acting, Lata Mangeshkar in the field of music, etc.
Question 4.
Explain Financial Incentives.
Answer:
Financial incentives:
Monetary benefit offered to employees to encourage behavior or actions is called financial
incentive.

 Financial incentives are boon for skilled and proficient employees or workers because they
boost their enthusiasm, courage, self-confidence and efficiency.
 Financial incentive gives security to the employees and increases their social status.
Types of financial incentive:
1. Profit sharing:

 When workers get a definite proportion of profit in the form of money other than their
salary, it is called profit-sharing.
 Profit sharing is based on the concept that surplus profit of the business is the result of
the joint efforts of the workers and owner.
2. Co-partnership:

 When employees or workers are taken as partners in ownership, management and

distribution of profit, it is known as co-partnership.
 Since these employees or workers are taken as co-partners, it becomes easy for owner to
increase production and to maintain industrial peace.
3. Promotion:

 The process of placing the staff in a higher and beneficial position is known as promotion.
 Promotion increases authority, responsibility, duties and salary of the employee.
 Promotion increases the efficiency of the staff and his morale.
4. Bonus:

 When a business earns profits, its credit goes to workers as well.

 On the basis of this thdught, the organization at the end of each year distributes ceiiain
percent of profit among works. This distributed amount is known as bonus.
5. Commission:

 In order to increase sales, business units decide sales target for the employees appointed
in sales department.
  To see that the .sales executives achieve these targets, the business units provide them
certain financial incentive on sales. This is called commission.
6. Prizes:

 When certain employees show outstanding performance or style of working, they are
honoured for their services in the form of cash prize along with certificate and medal by
the business units.
 Such prizes are given in annual meeting, get-together or by arranging a special felicitation
programme. Distributing prizes before all the staff members boost encouragement, zeal
and efficiency of the workers.
7. Suggestions and advices:

 Workers are constantly engaged in production. While working they come across several
ideas and suggestions to improve the process, reduce costs, improve productivity, etc.
 They may give such suggestions and advice to the management to improve the
production process and make it more efficient.
 When these ideas and suggestions prove fruitful, the workers are paid monetary
incentives.

Question 5.
Define Communication. Explain its characteristics.
Answer:
Communication:
Communication is the process of exchange of words, letters, instructions and opinions.

Characteristics of communication:
1. Goal oriented process:

 The objective of communication is not only to exchange information but also to achieve
objectives.
 Special care is taken to confirm that the receiver of information understands the
information as intended.
2. Clear words and language:
The words and language used in communication should be clear. It should not have double
meaning so as to avoid any confusion.

3. Two-way process:

 Communication is a two-way or bilateral process.

 Top managers send the necessary information regarding objectives, policy, method,
procedure and rules to the middle and bottom level management. While on the other
hand, the middle and bottom level management pass necessary information in the form
of report to the top level management.
4. Continuous process:
  Communication is a continuous and a permanent process.
 It starts from the beginning of the business and continues till the end.
5. Many equipment:
Several method and equipment are used to communicate things. For example, oral or written
correspondence, telephone, fax, internet, mobile phone, SMS, telex, etc.

6. Many types and methods:

There are many types and methods of communication. These include internal communication,
external communication, written communication, oral communication, communication through
signs, etc.

7. Motivating activity:
Communication clarifies the job properly. So, the officers and employees remain motivated
about what has to be done without any confusion.

8. Related to administrative process:

 Communication mainly relates to the administration of the unit.

 It is used to collect information necessary to make right decisions and for proper
administration.
 It is also used for solving the administrative problems and difficulties.
9. Human process:

 Communication is based on the behaviour of the humans.

 Irrespective of the medium of communication, without the existence of human skills,
communication does not take place. Moreover, at the time of communication fear,
feelings, anger, etc. also affect the communication. Hence, communication is called a
human process.
Question 6.
Explain barriers to effective communication.
Answer:
Barriers of effective communication:

 Communication is a human activity and so there are chances of problems in this process.
 The factors of human limitations such as affection, mistakes, estimations,
misunderstanding, distrust, fear, etc. that affect communication are called barriers of
communication.
Following barriers come in the way of effective communication:
1. Lack of planning:
If the order of information is not planned, sender will give wrong, unclear and incomplete
information.

2. Faulty translation:
Employees working at middle level receive messages from top level. At times such messages
may not be in mother-tongue. The middle level staff analyzes these messages on their own and
sends them at bottom level. The middle level person may make mistakes in translating the
message.

3. Unclear messages:

 At times, important matters may be presented in an unclear manner. Also, the words and
sentences in the message may be arranged in improperly.
 There are chances that these messages fail to give clarity to the receiver.
4. Unclear assumptions:
Many messages depend upon guess work and assumptions. If these are not clarified while
transmitting messages, their meaning and importance might . change when at the receiver’s
end.

5. Shortage of time:

 Many times decisions are taken on the basis of information. After getting information, it is
to be implemented.
 However, if information is not available on time, then the message loses its importance
and effectiveness.
6. Overburden in communication:

 There is a constant and continuous exchange of communication in large industries. A high

flow of communication over-burdens people.
 If information is transmitted and received by someone who may be over-burdened, then
he may not be able to maintain precision of information and just conduct the task of
communication.
 This may prove quite harmful for the organization.
7. Ignorance towards messages:

 Many times higher managers or bottom level employees remain inattentive and careless
regarding messages. Due to their carelessness the message may not be transmitted or
understood properly further.
 This can create several problems in the overall work processes.
8. Improper selection of media:
There are specific mediums of communication for fulfilling a desired task. If these mediums are
not selected properly then they may become barriers to communication. For example, if change
in quantity to be produced is mentioned orally rather than in written form then it may lead to
blame-game if the production is not done as per the desired change.

9. Distrust and fear:

 If fear and distrust exists in the organization, every message is perceived with doubt. This
is because people might fear of being held responsible for things unnecessarily.
  At times information is changed due to the fear that correct information will lead to
punishment or fine.
 Hence, based on some bitter experiences of the past, the correct information or message
may be edited or not passed.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 7 Controlling
GSEB Class 12 Organization of Commerce and Management Controlling Text Book
Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
Which function of the management process sees that the work is performed according to
planning?
(A) Organizing
(B) Training
(C) Directing
(D) Controlling
Answer:
(D) Controlling

Question 2.
Controlling is not a process.
(A) Continuous
(B) Internal
(C) Rigid
(D) Dynamic
Answer:
(C) Rigid

Question 3.
_________ is the process of maintaining balance between efforts and results and between
resources and objectives.
(A) Directing
(B) Staffing
(C) Co-ordinating
(D) Controlling
Answer:
(D) Controlling

Question 4.
Controlling takes place at level.
(A) Every
(B) Top
(C) Middle
(D) Bottom
Answer:
(A) Every

Question 5.
Which is not the function of controlling?
(A) Progress of activities
(B) Comparison with set standards
(C) Determining objectives
(D) Getting information about deviations
Answer:
(C) Determining objectives

Question 6.
Which function of management is known as the father of controlling?
(A) Organizing
(B) Staffing
(C) Directing
(D) Planning
Answer:
(D) Planning

Question 7.
_________ is the last function of management.
(A) Planning
(B) Organizing
(C) Staffing
(D) Controlling
Answer:
(D) Controlling

Question 8.
_________ is the first stage of the controlling process.
(A) Measuring performance
(B) Comparing actual performance against set standards
(C) Corrective action
(D) Setting standards
Answer:
(D) Setting standards

Question 9.
After knowing the deviations, what type of measures does the management take?
(A) Gives training
(B) Removes the staff
(C) Corrective action
(D) Appoint experts
Answer:
(C) Corrective action

Question 10.
What should be done when the organization obtains better results than set standards?
(A) Improve and set lower standards
(B) Improve and set higher standards
(C) No change in set standards
(D) To remove standards
Answer:
(B) Improve and set higher standards

2. Answer the following questions in one sentence each :

Question 1.
With which functions of management is planning closely related?
Answer:
Controlling

Question 2.
At which level of management function does controlling take place?
Answer:
At all levels of management

Question 3.
Before which fuention must all functions of management be performed?
Answer:
All the functions of management must be functions of management be performed before
controlling.

Question 4.
Why is it necessary to measure performance?
Answer:
By measuring performance we can know whether the processes are performing as per the set
standards and control limit or not.

Question 5.
What is deviation?
Answer:
The difference between actual figures as compared to the planned figures is called deviation.
(Statistically, it is called variance.)
Question 6.
Which external factors jeopardize the very existence of a business?
Answer:
External factors such as government policy, competition, changes in market scenario, inflation,
shortage of raw material, preference of people, change in fashion, etc.

3. Answer the following questions in short :

Question 1.
Give the meaning of controlling.
Answer:

 In layman language, controlling means deciding the activities to be carried out, evaluate,
the same and if required, take corrective measures so that they are done in conformity
with plan developed by the organization.
 Controlling is the last step of management process.
 Although controlling is considered as the last step, function of controlling starts as soon
as the activities are assigned right in the first stage i.e. the stage of planning.
 According to Peter F. Drucker, “Controlling is to maintain a balance between efforts and
results and between resources and objectives.”
Controlling takes care of:

 Checking the progress of managerial tasks

 Comparing them with the standards set by the organization
 Identify deviations between the organizational standards and the actual work going on in
the organization
 Remove such deviations by taking corrective actions
Question 2.
‘Controlling is a continuous process’ – Explain.
Answer:
Continuous process:

 Controlling is an ongoing process. It never ends.

 It is wrong to believe that once control is exercised on the activities of the enterprise,
work will always be done according to the plan.
 Deviations from the set plan can occur at any level and at any time. Hence the
organization constantly needs to supervise and control the activities done at various
levels.
 In the controlling function, quality control and cost control are important activities that
need to be constantly controlled.
Question 3.
How is controlling an internal process?
Answer:
Internal process:
  Controlling is an internal process for the organization.
 Control system plays an integral role in all the important activities of the organization
such as production, sales, purchase, financial matters, financial accounts and working
method of employees, etc.
 Since all these activities are part of business, they can be controlled. On the other hand,
change in government policy, depression, inflation, changes in the psychology of people,
etc. are external factors and hence cannot be controlled.
Question 4.
‘Controlling is a dynamic process’ – Explain.
Answer:
Dynamic process:

 Although what to control and how to control is pre-decided in the planning and
controlling functions, it is quite likely that the parameters of control may change
continuously depending upon situations.
 If the organization identifies deviations in its processes, it takes quick decision in its
control methods to normalize these processes. Hence, it is said that although controlling
is a planned function, it is a dynamic process.
Question 5.
‘Planning is the father of controlling’ – Explain.
Answer:
Planning is the father of controlling:

 Controlling exists because of planning. Controlling keeps a check on activities decided in

planning.
 In short, controlling does not exist without planning.
 Hence, it can be said that planning is the father of controlling.
4. Answer the following questions in brief :
Question 1.
Explain the relation between planning and controlling.
Answer:

 Planning is a systematic and intellectual method to achieve objectives. Planning clarifies

the reason as to why specific activities will be needed to be done in the future.
 Planning also outlines when and in how much time will the decided activities be
completed and for that what resources will be needed so that goals can be achieved.
 On the other hand, control is a process to monitor whether business activities are carried
out according to the plan, set standards and given instructions. If deviations are found,
then corrective actions are taken.
 Whenever there is planning there is controlling and conversely whenever there is
controlling planning pre-exists.Thus planning and controlling are interrelated.

Question 2.
‘Planning and controlling are two sides of the same coin’ – Explain.
Answer:
Planning and controlling are two sides of the same coin:

 Planning and controlling are two very important and interdependent functions of the
management process. The success of planning depends on Controlling.
 The function of controlling identifies deviations, takes necessary corrective action and
hence keeps the business activities on the decided direction.
 Looking from other perspective, the role of controlling comes only when something is
planned. So, if there is no planning, there is no controlling.
 Thus, planning and controlling are two sides of the same coin.
Question 3.
‘Controlling is not a negative function.’ – Justify the statement.
Answer:

 A general perception towards controlling is that under it a person is always monitored

and hence his freedom is lost.
 This perception has been developed from older management system where in the
business owners used to keep a very strict supervision on their organizations.
 Such supervision created a fear of making mistakes and a negative environment.
 The real objective of controlling is not to spread fear but to encourage innovation and
quality production. Systematic controlling leads to lesser mistakes, higher quality and
production and improved productivity.
 This also creates opportunity for employees to improve upon their mistakes and personal
efficiency.
 Thus, controlling is not a negative but a positive function.
Question 4.
Is controlling an end activity of management? Why?
Answer:
It is an end activity of management:

 In the management process, the planning function decides organizational objectives,

organizing function implements them and directing gives direction. After these functions,
the actual role of controlling begins.
 Thus, it is very important that all managerial functions are performed before control is
exercised. As a result, control is the end activity of management.
5. Answer the following questions in detail :
Question 1.
Explain the characteristics of controlling giving its meaning.
Answer:
Meaning:

 In layman language, controlling means deciding the activities to be carried out, evaluate,
the same and if required, take corrective measures so that they are done in conformity
with plan developed by the organization.
 Controlling is the last step of management process.
  Although controlling is considered as the last step, function of controlling starts as soon
as the activities are assigned right in the first stage i.e. the stage of planning.
 According to Peter F. Drucker, “Controlling is to maintain a balance between efforts and
results and between resources and objectives.”
Characteristics of controlling:
1. Controlling is related to planning:

 Planning and controlling are the two sides of the same coin.
 Planning function makes the plan whereas controlling ensures that activities are carried
out according to the plan.
 It is said that planning and controlling are like twins. If there is no planning, there is no
scope of controlling.
2. Functions at every level of management:

 Controlling is performed at every level of management. It is not confined to one

department or section.
 Managers of each level control their subordinates at their respective levels.
 Controlling is done quite systematically even at the lowest level of workers by their
supervisors.
3. Continuous process:

 Controlling is an ongoing process. It never ends.

 It is wrong to believe that once control is exercised on the activities of the enterprise,
work will always be done according to the plan.
 Deviations from the set plan can occur at any level and at any time. Hence the
organization constantly needs to supervise and control the activities done at various
levels.
 In the controlling function, quality control and cost control are important activities that
need to be constantly controlled.
4. It is an end activity of management:

 In the management process, the planning function decides organizational objectives,

organizing function implements them and directing gives direction. After these functions,
the actual role of controlling begins.
 Thus, it is very important that all managerial functions are performed before control is
exercised. As a result, control is the end activity of management.
5. Related to future:

 Although controlling is done at every stage on day-to-day basis, its core objective is to
minimize deviations and errors in processes so that end product or service comes out as
planned. In this sense, it can be said that control is related to future.
 Controlling also helps the manager to examine past activities and analyse them so that he
can learn from past mistakes and prevent them in future.
 The objective of control is to see that errors, wastage and losses which occurred in the
past are not repeated or if repeated their frequency decreases.
6. It is a constructive activity:

 A general perception towards controlling is that under it a person is always monitored

and hence his freedom is lost however, this belief in incorrect.
 In fact, the real objective of control is to see that workers work as per the plan and that
they are guided properly to overcome mistakes and deviations.
 Thus, controlling is not a negative, but a positive as well as constructive activity.
7. Internal process:

 Controlling is an internal process for the organization.

 Control system plays an integral role in all the important activities of the organization
such as production, sales, purchase, financial matters, financial accounts and working
method of employees, etc.
 Since all these activities are part of business, they can be controlled. On the other hand,
change in government policy, depression, inflation, changes in the psychology of people,
etc. are external factors and hence cannot be controlled.
8. Dynamic process:

 Although what to control and how to control is pre-decided in the planning and
controlling functions, it is quite likely that the parameters of control may change
continuously depending upon situations.
 If the organization identifies deviations in its processes, it takes quick decision in its
control methods to normalize these processes. Hence, it is said that although controlling
is a planned function, it is a dynamic process.
9. Controlling is a person-oriented or subjective activity:

 Controlling is done for the improvement of the activities of workers, by the workers and
for the workers. Thus, ‘person’ is at the center of controlling.
 Hence, it is said that control is majorly person-oriented i.e. is subjective.
10. Controlling can be formal or informal:

 Controlling is an extremely important function.

 In an organization, what to control, how to control and who will control what is defined
very systematically and scientifically.
 During the actual processes, it is quite likely that the format of control might need on-site
change. So, many a times, the format of controlling becomes informal and the changes
are brought stepping aside from the format.

Question 2.
Explain the importance of controlling.
Answer:
Importance of controlling:
  A controlled organization steers to the right direction. An organization without proper
implementation of control is like a chariot without charioteer.
 Controlling is necessary for the achievement of managerial objectives.The main objective
of controlling is to check the errors or short comings of the past and stop their
recurrence.
Following points bring out the importance of controlling:
1. Helps in achieving objectives:
Controlling helps to identify errors in the enterprise and take corrective measures. As a result it
becomes easy to achieve objectives of the enterprise.

2. Control on activities:
Controlling controls functional areas and activities like organization, production, sales,
employees, financial and quality aspects, etc.

3. Makes planning effective:

 It is said that planning lays the path and controlling helps to find the deviations and
improve them.
 In this regard, it is said that controlling helps in achieving objectives and making the plan
successful as well as effective.
4. Co-ordination between various activities:
Controlling helps in coordinating various activities of the business enterprise.

5. Evaluation of activities:
Under coordination, the activities are compared with pre-determined standards and then
evaluated.

6. Removes deviations:
Controlling aims at correcting deviations. It examines the causes of deviation and then takes
corrective measures so that deviations can be reduced.

7. Necessary for delegation of authority:

 Controlling is important for delegating authority.

 Once the authority is delegated, the supervisor or authorized personnel supervises and
controls the activity.
8. Find out errors:

 Controlling supervises and evaluates the activities of subordinates.

 Controlling also helps to find out errors, difficulties, defects and deviations and remove
them so that they are not repeated in future.
9. Long term planning:

 Controlling helps to make long term plans.

  Control can be used to make long term assumptions and forecasts for the business on the
basis of the information gathered during controlling activities.
10. Helps in directing:
Controlling simplifies directing. It supervises the personnel, gives guidance and direction in their
difficulties so that activities are performed as planned.

11. Barometer of efficiency:

In business enterprises if control is exercised efficiently, management becomes more efficient.
So controlling is called the barometer of efficiency of management.

Question 3.
Explain in detail the various stages of the controlling process.
Answer:
Stages of controlling process:

 Controlling is a universal and continuous process.

 Each business enterprise has its own procedures of conducting activities.
 Hence, the process of controlling does not remain same for each organization.
As a result, it is difficult to define specific step-wise stages of controlling. However, some stages
are generalized and discussed below.

1. Setting standards:

 The first stage of controlling is to set standards. Standards measure efficiency of the
processes and people.
 By setting standards, the organization can compare if the activities are taking place
according to the set standards.
 Unless standards are set, it is not possible to decide what to control and how to control.
 These standards can be both qualitative and quantitative.
 The standards could be set for cost price, income, capital, profit targets, production
targets, cost targets, etc.
 Standards may be set for long term or short term.
 Standards are decided at the top level management. Employees and subordinates are
informed about the same.
 The employees then plan their work according to the given targets and they constantly
strive to maintain these standards.
2. Gathering information:

 In this stage, information (in the form of data) is gathered about business processes.
  Methods of gathering information include personal observation, data collection from the
processes and oral and written reports.
3. Measuring performance:

 After gathering information about the performance of the business performance, the set
parameters are measured.
 The objective of measuring is to obtain data from the various processes of the
organization so that it can be later compared with the set standards.
 Measurement can be either qualitative or quantitative or both.
4. Comparison of work done with set standard:

 The information measured is then compared with the standards set under the control
function.
 Comparison helps the organization to decide whether the set standards have been
achieved or not.
5. Corrective measures:

 Corrective measure is the last stage of the controlling process.

 In the fourth stage, the activities are compared against set standards to find out
deviations. If deviations are present, necessary corrective measures can be taken.
Any of the following three corrective measures can be taken:
(a) No change in the condition:
If the deviations are minimal and acceptable, then there is no need to take corrective action. This
means there is no change in the condition (process).

(b) Change the condition to remove deviation:

If deviation from actual performance is more when compared to set standards, such deviations
are to be examined and necessary corrective measure is to be taken.

(c) Change the condition and establish fresh (new) standards:

 If the established standards are not attained continuously, it clearly means that the
standards are too high to meet.
 In such a situation, fresh or new standards are to be set by making required changes.
 Similarly, if deviations occur on the positive side i.e. if the results from the processes
exceed the standards and expectations then the organization needs to set higher
standards.
 By making such changes, the organization will take its processes to a higher level of
performance.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 8 Financial Management
GSEB Class 12 Organization of Commerce and Management Financial Management
Text Book Questions and Answers
1. Select the correct alternative and write answers to the following questions :
Question 1.
By which other name is the objective of wealth maximization known?
(A) Social welfare
(B) Capital investment
(C) Net present value
(D) Trading on equity
Answer:
(C) Net present value

Question 2.
On which concept is the approach to the wealth maximization based?
(A) Profitability
(B) Social responsibility
(C) Present value of wealth
(D) Cash flow
Answer:
(C) Present value of wealth

Question 3.
With what is financial management related?
(A) Finance function
(B) Finance market
(C) Capital market
(D) Stock exchange
Answer:
(A) Finance function

Question 4.
Decisions of investment means
(A) Capital cost
(B) Capital budgeting
(C) Capital structure
(D) Ploughing back of profit
Answer:
(B) Capital budgeting

Question 5.
Capital structure having proper ratio of equity and debts means
(A) Optimum capital structure
(B) Simple capital structure
(C) Working capital structure
(D) Equilibrium capital structure
Answer:
(A) Optimum capital structure
Question 6.
Which of the following statements is not true with reference to the concept of net working
capital?
(A) Excess of current assets over current liabilities
(B) Does not show the liquidity position of the company
(C) Provides proper measurement for working capital
(D) Increase in current liability does not increase net working capital
Answer:
(A) Excess of current assets over current liabilities

Question 7.
How many types of capital structure are there?
(A) Two
(B) Three
(C) Four
(D) Five
Answer:
(C) Four

Question 8.
From which capital is dividend paid?
(A) Paid up capital
(B) Authorized capital
(C) Called up capital
(D) Working capital
Answer:
(A) Paid up capital

Question 9.
Which statement is true with reference to fixed capital?
(A) Invested upto 5 years in business
(B) Components are debtors, bill receivable, bank balance, etc.
(C) Ratio of liquidity is less
(D) Investment can be withdrawn easily
Answer:
(C) Ratio of liquidity is less

Question 10.
With whom has the foreign institution investor need to registered?
(A) Company registrar
(B) Court
(C) Stock exchange
(D) SEBI
Answer:
(D) SEBI

Question 11.
Excess of current assets over current liabilities means
(A) Positive working capital
(B) Negative working capital
(C) Equilibrium working capital
(D) Gross working capital
Answer:
(A) Positive working capital

2. Answer the following questions in one sentence each :

Question 1.
Financial management is related with which type of financial decision making?
Answer:
[New investment, capital structure, dividend policy, etc.]

Question 2.
Which are the approaches adopted by financial management to achieve maximum economic
welfare of the owner?
Answer:
(A) Profit maximization and
(B) Wealth maximization

Question 3.
Which objective is acceptable for financial management?
Answer:
The objective of current value of net wealth of financial management.

Question 4.
What does capital structure consist of?
Answer:
Various securities issued by the company such as equity share, preference share, debenture, etc.

Question 5.
In which form dividend can be paid to the shareholders?
Answer:
Cash or cheque on paid-up capital of share.

Question 6.
Which type of shares must be issued by a company procuring capital fund by issuing securities?
Answer:
Equity shares

Question 7.
For which type of security issue the expense is comparatively less?
Answer:
Debenture

Question 8.
With whom foreign investment insitution has to register itself?
Answer:
SEBI

Question 9.
What are the components of fixed capital?
Answer:
Land, machinery, plant, vehicles, furniture, computers and printers, etc.

Question 10.
Why depreciation is not charged on the assets in which working capital is invested?
Answer:
Working capital is invested in current assets and it is circulating in the business. As a result its
form keep on changing and so depreciation is not calculated on it.

3. Answer the following questions in short :

Question 1.
What does the objective of owner’s maximum economic welfare mean?
Answer:
The objective of focusing on maximum profit as well as maximum wealth is called ……….

Question 2.
What are the factors affecting investment decision?
Answer:
Factors affecting investment decision:

 Need of total capital

 Estimated rate of return and profitability from investment
 Estimated net cash receivable from investment
 Element of risk involved in investment
 Requirement of working capital after investment
 Useful economic life of investment and its estimated life
 Significance of investment
 Capital rationing
 Certainty or uncertainty of earning in future
Question 3.
“Capital structure is a mixture of owner’s capital and debt.” – Explain.
Answer:

 While setting up the capital structure, the finance manager has to take decision regarding
the portion to be maintained between equity and debt in capital structure.
 A fine balance between equity capital and debt is necessary so as to maximize the returns
of the company.
 If the structure maintains an optimum balance between the two, several risks can be
avoided and maximum returns can be ensured.

Question 4.
What is meant by optimum capital structure?
Answer:
Capital structure which has proper ratio of equity share capital and debt is called

Question 5.
“Working capital means circulating capital in business.” – Explain.
Answer:

 A human being remains alive as long as blood keeps circulating his body. Moreover, if any
part of the body is devoid of sufficient quantity of blood then that part or organ may start
functioning abnormally.
 Capital does the same job for the business. If the business lacks blood, it will start
functioning abnormally and eventually die.
 Capital must be provided in order to see that all the department and functions of the
business work smoothly. Absence of capital means death of business.
 Hence it is rightly said that working capital is the life-blood of business.
Question 6.
What is production cycle?
Answer:
The time period between the procurement of raw materials and manufacturing finished goods is
called the production cycle

4. Answer the following questions in brief :

Question 1.
Explain the concept of financial management through various definitions.
Answer:
Finance:

 In layman language, management of finance is called financial management.

 Finance is the blood of business.
 Business can neither be started without finance nor can it sustain without it. Thus, finance
is the foundation stone of business.
Financial management:

 The activity done at managerial level for planning and controlling financial resources for
the business enterprise is called financial management.
 Under financial management, the managers try to optimally manage the financial
resources so that the business earns a satisfactory return.
Various definitions of financial management:

 According to F. W. Paish, “In the modern economy, based on utilization of funds, financial
management means acquiring of required funds at the required time.”
 According to Raymond J. Chambers, “Financial management means to take decisions
about financial matters to implement then smoothly and to review, them.”
 According to Prof. M. Kimbal, “Financial management means acquisition of fund, its
optimum utilization and its appropriate allocation.”
 From all these definitions we can conclude that the scope of financial management is so
wide that it covers all the financial decisions of business, right from the inception.
Question 2.
Explain the objectives of financial management.
Answer:

 The objective of financial management is maximization of the owner’s economic welfare.

 To achieve this objective, the financial management adopts following two approaches:
(A) Objective of profit maximization and
(B) Objective of wealth maximization
(A) Objective of profit maximization:

 The objective of maximizing income of the company is called profit maximization.

 In market, investors purchase the shares of company with a hope of earning maximum
dividend. As a result, company should earn maximum profit out of its available resources.
Moreover, its dividend policy should be based on maximization of profit.
 In addition, this approach suggests that company should take up only those business
projects which can earn good profits i.e. which aims at profit maximization.
 This approach increases the share price of the company. This in turn increases company’s
per-share earning.
(B) Objective of wealth maximization:

 The concept of increasing the value of the business in order to increase the value of the
shares held by the shareholders is called wealth maximization.
 A term called Net Present Value (NPV) is used to measure the profit of the company.
Profit under NPV is obtained by subtracting the present value of wealth from the
investment required over a period of time.
 Wealth maximization focuses on building a profitable NPV. The net present value creates
wealth for the shareholders.
 Owing to this calculation, the organization should take up only such decisions which
increase the net present value and hence the wealth.
  A drawback of wealth maximization approach is that it is based only on the concept of
cash flow. It does not consider actual profit booked by the business.
 Only cash flow is considered as a measurement and the accounting profit is ignored.
 The net present value of wealth is the difference between present value of wealth and
investment required.
Net present value of wealth = Present value of wealth – Investment required
 Financial management should take such financial decisions by which wealth of the
company is maximized. If the wealth of the company is maximized, it will be reflected in
the price of the share of the company in the stock exchange.
 Market price,of the share will increase in the share market. This will result in maximization
of the wealth of shareholders.
 The objective of wealth maximization is appropriate and universally accepted. Moreover, it
is considered superior to profit maximization. Prof. Solomon has favoured the objective of
wealth maximization.
Question 3.
Write Notes:
(1) Decisions related to investment
Answer:
Decisions related to investment:

 Business requires capital investment in various assets that too for a long and fixed term.
This includes investment in machinery, land, etc.
 It is always a risky and tricky task for the financial manager to identify the best asset in
which investment should be made. Hence it is very crucial that decision of investment is
evaluated in terms of expected return and risk.
 Investment decision is called capital budgeting. There are several methods of capital
budgeting brought in use by the finance manager for deciding the investment decision to
be taken for the company. Few of these methods are pay-back method, rate of return
method, discounted cash flow method, etc.
(2) Decisions related to dividend
Answer:
Decisions related to dividend:

 Dividend is a part of profit of a company which is distributed among its shareholders.

Dividend is a return to shareholders on their investment.
 The financial manager has to tactfully decide what part of profit should be distributed as
dividend and what part of profit should be retained in business.

Question 4.
State the factors affecting working capital.
Answer:
Following factors affect working capital of an organization:
1. Type and nature of business:
  How much working capital will be needed depends on type and nature of business. For
example, trading units maintaining large stock of goods and selling the goods on credit
require more working capital compared to small trading units.
 The need of working capital also changes as per the nature of industry. For example,
electricity providing company, require less working capital whereas labour intensive
industry requires large working capital (Note: Electricity company requires huge fixed
capital but does not need large working capital to maintain it. On the other hand labour
intensive industry has large number of workers. So, the need of working capital is more
for paying salaries, incentives, etc. to large number of employees.)
2. Size of business:
Smaller the size of business unit, lesser the need of working capital and vice versa.

3. Production cycle:

 The time period between the procurement of raw materials and manufacturing finished
goods is called the production cycle.
 As the production cycle gets longer, the need of working capital increases. For example,
cotton industry and jute industry require larger working capital because the production
cycle of manufacturing cloth from raw crops is long. On the other hand, industries such as
bakery and dairy require less working capital because the production cycle is short.
4. Production policy and type of demand:
A business needs large working capital to run the operation if the goods produced are in
demand only for few months whereas the production is round the year. For example, units
manufacturing woolen clothes continue the production mostly for 12 months but the sales take
place only in winter season.

5. Stockpile of raw materials:

If a business needs raw material that is available in limited quantity or whose supply is irregular
or is available jn certain season only, then such raw material need to be kept in stock for
continuous production. Under such cases, the business needs large working capital for keeping
extra stock of such raw material.

6. Credit policy:

 If the business sells its good mostly in cash, then it does not require much working capital
since it can get cash immediately on sales. But, if the business adopts certain credit policy
such as payment to be made in 60 days, then the business needs more working capital as
it will receive payment only after 60 days.
 In yet another method, if the raw material is easily available on credit, then the business
can do with less working capital but if the business has to purchase raw material only in
cash then it requires large working capital.
7. Conversion of current assets into cash:
Less working capital is required if there is prompt collection from the debtors, sales of finished
goods is done on cash, collection of bills receivable on the date of maturity, etc. Large working
capital is required if the case is reverse.
8. Stock turnover ratio:
If the stock turnover ratio of a business is higher it requires less working capital. On the other
hand if stock turnover ratio is lower the business requires more working capital. This is because
if the company cannot sell its stock in stipulated time then its working capital remains blocked
up in unsold finished goods.

9. Operating efficiency:
If the business operates with good efficiency then it can reduce waste and also make optimal
use of resources. By doing so, the business will require less working capital.

10. Distribution of profit:

 If the distribution of profit as dividend is done in cash then it affects the cash because
dividend is paid in cash.
 If company allots a major part of its profit as dividend it will require more working capital
due to larger outflow of cash.
5. Answer the following questions in detail:
Question 1.
Explain the importance of financial management.
Answer:
Importance of financial management:
1. Estimation of financial needs:
Financial management estimates how much long term capital and short term capital will be
required for the business.

2. Acquiring finance:
Financial management acquires finance needed for the business at the minimum cost.

3. Planning and controlling:

Planning is combined with effective controlling to make economic utilization of finance.

4. Distribution of finance:
Financial management distributes finance among different departments in such a way that every
department gets adequate finance.

5. Maintaining liquidity:
It maintains liquidity by preparing cash flow statement and cash budget so that a definite cash
balance can be maintained on hand.

6. Distribution of income:
It determines what part of profit is to be distributed as dividends among the shareholders and
what part of profit is to be reinvested in the business.
7. Management of current assets:
Current assets for the business include cash, debtors, inventory, marketable securities, bank
balance, etc. Financial management formulates investment policy for managing these current
assets properly.

8. Financial decisions:
Financial management takes important decisions regarding capital budget, dividend policy,
reinvestment of profit, etc. It also co-ordinates various financial decisions such as co-ordination
between dividend policy and reinvestment of profit, etc.

9. Raising credit of business:

Financial management significantly contributes in the progress and development of business.
Efficient financial management generates financial infrastructure. This helps in timely payment of
salary of employees, payment to creditors, etc. As a result, credit of the business increases in the
market.

Question 2.
Discuss the factores affecting the capital structure.
Answer:
External factors that affect the capital structure of the company:
1. Condition of boom-depression in capital market:

 When the market is low i.e. depressed, the investors prefer to invest safely in debentures
rather than in risky equity. This earns them reasonable returns. On the other hand, when
market is in boom, the investors invest in equity shares so as to earn higher dividends and
profits.
 Thus, how the capital structure will be formed is also decided by the trends prevailing
outside the company in the capital market.
2. Current rate of interest in capital market:

 If the current rate of interest is high in capital market, companies prefer to raise capital by
issuing equity shares rather than borrowing capital since borrowing at high interest
proves costly for the company.
 If the interest rate is less, companies also prefer debentures.
3. Cost of capital expenses of issuing securities:

 When a company issues securities for raising the capital, it has to incur several expenses.
The expenses include releasing prospectus, underwriting commission, brokerage, etc. As a
result, the cost of capital increases.
 The expense on issuing debenture is lesser then issuing securities.
4. Legal restrictions:

 There are various legal restrictions which a company has to follow and hence they affect
its capital structure.
  As per Companies Act, the company raising capital fund through securities has to
compulsorily issue equity shares. In addition to this, rules of SEBI and RBI and provision of
Companies Act are also to be considered while formulating the capital structure.
5. Taxation policy:

 When the taxation is high, the companies prefer to issue debentures for acquiring capital.
By doing so, the income tax gives deduction of interest paid on the debentures to the
company.
 Naturally, equity shares become more popular if the income of dividend is tax free or the
rate is lower on the dividend income.
6. Institutional investors:

 Insurance companies, banks, financial institutions of state and central government, etc.
invest in shares and debentures of the companies as per their established rules and
conditions.
 Trends and conditions of all these institutions are considered at the time of formulating
capital structure or at the time of alteration of capital structure.
7. Foreign institutional investor:

 A financial institution established and registered outside India and whose objective is to
invest in prescribed securities in India in primary and secondary markets is known as
foreign institutional investor (Fll).
 Foreign institutional investors have to get registered with SEBI. Then, such institutions are
permitted to purchase shares and debentures of Indian company.
 Involvement of these institutions in the capital market of India affects the capital structure
of the companies.

Question 3.
Giving the definition explain the concept of working capital.
Answer:

 Capital needed in the business to run day-to-day expenses is known as working capital.
 Working capital can be classified into
1. Gross working capital and
2. Net working capital.
1. Gross working capital:
Gross working capital = Total current assets
Gross working capital includes current assets such as bill receivables, debtors, short term
marketable securities, bank balance, cash, etc.

2. Net working capital:

Net working capital means current assets minus current liabilities.
Therefore, Net working capital = Current assets – Current liabilities
  If current assets > current liabilities, it is called positive working capital.
 If current assets < current liabilities, it is called negative working capital.
Question 4.
Distinguish between :
(i) Gross working capital and net working capital.
Answer:

Points of differences Gross working capital Net working capital

It is the sum total of current assets

such as bill receivables, debtors, short
term marketable securities, bank It is current assets minus
1. Meaning balance, cash, etc. current liabilities.

2. Liquidity This concept does not give an idea This concept gives an idea how
position about the liquidity position of the much liquidity the company
company. has.

Gives the true idea of financial

position of the company.
3.Finacial position Does not give a true idea of the  
and measurement financial position of the company.

Increase in current liabilities

does not increase the gross
Increase in current
working capital. (Reason: Gross liabilities decreases net
working capital is only concerned with
4.Increase in current current assets and not liabilities.) working capital.
liabilities
(ii) Fixed capital and working capital.
Answer:

Points of
Differences Working Capital Fixed Capital

Capital invested in current assets

such as stock of raw materials and
finished goods, debtors, bills Capital invested in fixed assets such
receivable etc. is called working as land, building, machinery,
1. Meaning capital. furniture is called fixed capital.

Blocked up for a short period in Blocked up for a long period in

2. Period business. business.
 Ratio of liquidity is high because Ratio of liquidity is less because
working capital can be easily fixed capital is invested for a long
3. Liquidity converted into cash. period in fixed assets.

4. Risk Ratio of risk is low. Ratio of risk is high.

It is required for day-to-day It is required to purchase fixed

expenses like wages, salary, assets such as land, building, plant
5. Requirement purchasing raw materials, etc. and machinery.

Sources of raising fixed capital

Sources of raising working capital include issue of shares and
include trade credit, bank overdraft, debentures, financial institutions,
6. Sources indigenous bankers, etc. etc.

Depreciation is not calculated on Depreciation is calculated on fixed

7. Depreciation working capital assets

Gujarat Board Textbook Solutions Class 12 Organization of

Commerce and Management Chapter 9 Financial Market
GSEB Class 12 Organization of Commerce and Management Financial Market Text
Book Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
Securities market having maturity period of one year or less means
(A) Capital market
(B) Primary market
(C) Money market
(D) Secondary market
Answer:
(C) Money market

Question 2.
Who regulates organized money market?
(A) SEBI
(B) State Bank of India
(C) Reserve Bank of India
(D) Financial Institutions
Answer:
(C) Reserve Bank of India
Question 3.
Who issues treasury bills on behalf of Indian Government?
(A) State Bank of India
(B) Reserve Bank of India
(C) Central Bank of India
(D) Financial Institutions
Answer:
(B) Reserve Bank of India

Question 4.
Which statement is false with reference to commercial bills?
(A) Government Security
(B) Origin out of Business Transaction
(C) Discounted by Commercial Banks
(D) Negotiable Instrument
Answer:
(A) Government Security

Question 5.
Market for sale of new issues securities means
(A) Stock exchange
(B) Primary market
(C) Secondary market
(D) Speculation market
Answer:
(B) Primary market

Question 6.
Whose approval is to be obtained by stock exchange under securities contracts (Regulation) Act,
1956?
(A) Central Government
(B) SEBI
(C) Reserve Bank of India
(D) Finance Minister
Answer:
(B) SEBI

Question 7.
In which year Depository Act came into existence?
(A)1991
(B)1992
(C)1995
(D)1996
Answer:
(D)1996

Question 8.
From whom certificate of registration is to be obtained by a depository before starting its
operation?
(A) Stock exchange
(B) Central Government
(C) SEBI
(D) Reserve Bank of India
Answer:
(C) SEBI

Question 9.
How many types of orders are there in purchase-sales of securities?
(A) Two
(B) Three
(C) Four
(D) Five
Answer:
(A) Two

Question 10.
Under which Act, SEBI came into existence?
(A) Companies Act
(B) Securities Contracts (Regulation) Act
(C) National Companies Act
(D) Securities and Exchange Board of India Act (SEBI Act)
Answer:
(D) Securities and Exchange Board of India Act (SEBI Act)

2. Answer the following questions in one sentence each :

Question 1.
What is the time period for the maturity of instruments of money market?
Answer:
One year or less

Question 2.
At what price treasury bills are issued?
Answer:
Discounted price

Question 3.
Which financial instruments are traded in money market?
Answer:
Treasury bill, commercial paper, call money, etc.

Question 4.
When was Bombay Stock Exchange established?
Answer:
On 9th July, 1875

Question 5.
By whom are stock exchanges regulated in India?
Answer:
Through Security Exchange Board of India (SEBI) and Security Contract Regulation Act.

Question 6.
By whom are depository services availed?
Answer:
In India, an investor can avail services of depositories through (1) National Securities provide the
depository facilities in Depositories Limited (NSDL) and (2) Central Depository Services (India)
Limited (CDSL).

Question 7.
When did Depository Act come into force?
Answer:
In 1996

Question 8.
When did NSDL establish and start its operation?
Answer:
In 1996

Question 9.
Which is the first depository of India?
Answer:
National Securities Depositories Limited (NSDL)

Question 10.
By which name screen based trading of National Stock Exchange and Bombay Stock Exchange
are known?
Answer:
Screen based trading of National Stock Exchange is known as NEAT (National Bombay Stock
Exchange is known as BOLT i.e. BSE Online Trading.
Question 11.
What is meant by Contract note in the purchase-sales procedure of securities?
Answer:
Contract note is a confirmation of the order placed by the investor on a particular day. In other
words, contract note is a summary as well as agreement about the traded securities.

3. Answer the following questions in short :

Question 1.
What is unorganised money market?
Answer:
The informal form of money market which is not regulated by a government body is called
unorganised money market.

Question 2.
What are the instruments of money market?
Answer:

 Treasury bill,
 Commercial paper,
 Commercial bill,
 Certificate of Deposit,
 Call/Notice money, etc.
Question 3.
Which instrument of money market are negotiable?
Answer:

1. Commercial paper,
2. Commercial bill and
3. Certificate of Deposit
Question 4.
What is the main difference between call money and notice money?
Answer:
Call money ¡s borrowed for only 1 day whereas notice money is borrowed for minimum 2 days
to maximum 14 days.

Question 5.
How does stock exchange provide liquidity element to securities?
Answer:
Stock exchange ¡s a ready market in which traders (investors) can buy or sell shares as per their
will. This is how stock exchange provides liquidity.

Question 6.
Stock exchange is a mirror indicating economic condition of the country – How?
Answer:
Investors invest in share market. This way public savings gets converted as capital for industries
and companies. When companies grow by using these funds the investors further invest in the
market. The cycle of trade in stock exchange depicts how well or poor is country’s economy.

Question 7.
What is dematerialisation?
Answer:
The process of converting physical shares in electronic form is called Dematerialization or demat
in short.

4. Answer the following questions in brief :

Question 1.
What is treasury bill?
Answer:
Treasury Bills:

 When the central government is in need of funds for short term, it issues treasury bills
into the financial market. Anyone willing to buy them such as individuals, firms, etc. can
buy these bills.
 Thus, a treasury bill is a short term financial instrument (government security). It is issued
by Reserve Bank of India on behalf of Government of India.
 Treasury bill is an important component of money market all over the world.
 Treasury bill is also known as T-Bills’.
 The lock-Mn period or maturity of these bills is 91 days, 182 days or 364 days.
 The minimum amount of a T-bill is ₹ 25,000/- and then in multiples of ₹ 25,000/-.
 Government does not pay any interest to people who buy T-bills, but sells these bills at a
discounted rate. Hence, T-bill is also called ‘zero coupon bond’.
 For example, government might sell Treasury bill of ₹ 25,000 at ₹ 23,500 to the investor.
The investor would then be paid the actual value i.e. ₹ 25,000 on maturity date. Thus, the
difference between the purchase amount and redemption amount becomes the profit for
the investor.
Question 2.
Give the meaning of capital market and clarify its characteristics.
Answer:

 A capital market (locally – share market) is an organized market in which capital is raised
by the investment made by general public in the form of shares, debentures, bonds, etc.
 When companies issue equity shares in the market, investors buy them. The money
invested becomes the capital for the company who issued the shares. So, the companies
and industries get fund through the savings of general public.
Capital market is divided into two markets. They are:

1. Primary market and

2. Secondary Market
  Capital market is a source of long term capital fund for industrial enterprises.
 Long term securities like shares and debentures are traded in capital market.
 Capital market is a market for all types of securities including industrial securities and
government securities.
 Since this market mobilizes savings of the community, it boosts economic growth.
Characteristics of capital market:

 Capital market is a market for raising long term capital fund.

 Instruments of capital market include government securities, debt instruments, securities
of industrial enterprises like shares and debentures.
 Investment of fund is in long term securities.
 In India, capital market is strictly regulated by Securities and Exchange Board of India
(SEBI).
 Ownership of shares and debentures is easily transferrable.
 Provides liquidity to financial assets (securities).
 Capital market is divided into two parts –
1. Primary market and
2. Secondary Market
Question 3.
“Primary market means a market of new issued securities” – Explain and state the characteristics
of primary market.
Answer:

 When a company publicly sells new stocks or securities and bonds for the first time in the
market, the market is called the primary capital market.
 So, primary capital market is the market of newly issued securities.
 Here, the investors buy only newly issued securities as it is a market for new issued
securities. The objective of the primary capital market is to raise capital fund for the
company issuing the securities.
Characteristics of primary capital market:

 It is a market for newly issued securities.

 The companies issue new securities for investors to buy.
 There are numerous intermediaries in primary market like lead manager, registrar of issue,
share broker, etc.
 New capital is issued through prospectus in primary market.
5. Answer the following questions in detail :
Question 1.
What is money market? State its characteristics.
Answer:
Money market:

 Money market refers to a section of financial market where financial instruments (assets)
with high liquidity and short-term maturities are traded. It is a market for assets or
instruments which are close substitutes for money.
  Financial assets traded in money market include treasury bills, certificate of deposits, call
money, money via. money lenders, pawn, indigenous bankers, shroffs, etc.
 Money is borrowed and lent for a short term. Securities or financial assets having a
maturity period of one year or less are traded in this market.
 It is important to note that unlike stock exchange, money market is not a physical
location, but group of various institutions trading or dealing in money.
 Transaction takes place between two parties. One is lender and the other is borrower.
 Reserve bank, commercial banks, co-operative banks, shroffs, etc. are mainly included in
the group of money lenders, while individuals, business enterprises, farmers, traders, state
governments, central government are the borrowers of money.
Characteristics of money market:

 Money market is divided into two parts. They are:

(a) Organized money market and
(b) Unorganized money market.
 Money market is a market for short term assets or instruments, whose maturity period is
one year or less.
 Credit worthiness of participants in money market is important so that both the borrower
and lender can trade at ease.
 Money market is not a fixed physical location but a collective structure of various
institutions like Reserve Bank of India, commercial banks, financial institutions, mutual
funds, insurance companies, indigenous bankers, shroffs, etc.
 It is a market of financial instruments which can easily be converted into cash (i.e. are
highly liquid). For example, treasury bills, call money, etc.
 Sub-branches of money market also develop with economic and technological
development, such as call money market, bond market, treasury bills market, etc.
 Most of the financial instruments are debt instruments. Element of risk is less as compared
to other financial instruments.
 The success and operation of money market depends on the banking system and financial
institutions.

Question 2.
What are the characteristics of stock exchange?
Answer:
Characteristics of stock exchange (Secondary market):

1. Registered corporate body: Stock exchange is a registered and established corporate

body that prepares rules and regulations for the transactions of securities.
2. Approval of government: Stock exchange has to obtain approval of the central
government as per the provision of Securities Contracts (Regulation) Act, 1956.
3. Organized market: It is an organized market for dealing in existing listed securities.
4. Membership: Membership of stock exchange must be obtained for dealing transactions in
stock exchange.
 5. Market of securities: Stock exchange is an approved organized market for buying and
selling of securities.
6. Listing of securities: The securities which are listed on stock exchange are transacted in
stock exchange.
7. Management: It is administered and managed by board of directors.
8. Strict control over the members: The Board of Directors exercise strict control over the
members through their disciplinary powers.
9. Organizational structure: The organizational structure of stock exchange is in the form of
public company.
10.Regulation of stock exchange: All the stock’exchanges of India are regulated by Securities
and Exchange Board of India (SEBI) and Securities Contracts (Regulation) Act.
Question 3.
What are the functions of stock exchange?
Answer:
Functions of Stock Exchange (Secondary market):
1. Liquidity:

 Stock exchange provides continuous market for purchase and sale of securities. Investors
can purchase and sell securities with their free will because stock exchange provides ready
trade market.
 An important function of the stock exchange is to see that the securities remain liquid.
2. Valuation of the securities:

 The demand and supply of the securities in the market decide their valuation or say price.
 The valuation of securities is also determined by other factors such as dividend declared
by the company, factors affecting money market, etc.
 Valuation of securities enables the investors to decide whether to purchase or sell the
securities.
 The valuation of securities is also useful to the government and creditors.
3. Conversion of savings into capital:
Individuals who wish to invest their savings in the securities can easily do so. This way their
savings get converted into capital.

4. Intermediary in the creation of capital:

Stock exchange itself does not create capital. It provides platform for the purchase and sale of
securities. When the securities are traded the capital gets generated. Thus, the stock exchange
plays the role of intermediary for creating capital.

5. Safety of transactions:

 The securities are traded as per the rules of the stock exchange. Moreover, the stock
exchange is governed by SEBI which is a government body.
 The brokers working in stock exchange perform their role under the regulation of SEBI.
Owing to all these things, it can be said that financial transactions are carried out safely in
the stock exchange.
6. Growth of capital market:

 Investors invest in share market. This way public savings gets converted as capital for
industries and companies.
 These units form long term capital. When companies grow by using these funds the
investors further invest in the market. This boosts the overall economy. Thus,
development of capital market also leads to development of economic development of
the country.
7. Facilities to perform activities:
Stock exchange enables its members to perform their activities. The members then work to
protect the interests of the investors and for healthy growth of the market.

8. Necessary facilities for speculation:

 Healthy speculation keeps the stock exchange alive.

 Stock exchange provides necessary facilities for the transactions of speculation within the
legal structure.
9. Information provider:

 Stock exchange provides important information useful to the various parties. For example,
information about changes in the price of securities, flow of purchase and sale of
securities, etc.
 Such information serves as an important guide for investors, companies, government,
SEBI, etc.
 The information is useful for the government for formulating economic policy and
financial policy.
 The information also describes the economic condition and growth of company and
nation. Hence, the stock exchange is called the barometer of the economic condition of
the country.
10. Listing of securities:

 If companies desire that the transactions of their securities get conducted in the stock
exchange, then they may get their securities listed on stock exchange.
 When securities get listed in the stock exchange, the trust of investors increase for such
securities.
11. Guidance to investors:
Stock exchange discloses the financial information of listed companies. This information helps
the investors to decide in which security they should invest and in which they should withdraw.

Question 4.
Write a Note :
(a) National Securities Depository Limited
Answer:
  The full form of NSDL is National Securities Depository Limited. It was the first electronic
securities depository of India. It was established and registered with SEBI in 1996.
 NSDL is a public depository company formed under the Companies Act. Since it is a
public company, it is managed by Board of Directors.
 In order to form NSDL, the National Stock Exchange (NSE) and some financial institutions
promoted it.
 NSDL appoints several depository participants which then executes the functions of NSDL.
These participants work as agents between the investors and NSDL.
 NSDL does not charge any fee from the investors for their investments. NSDL takes this
fee from the depository participants.
 Thus, investor has neither to pay any fee, nor any operating charges directly to NSDL.
However, depository participant charges some fees from the customer/ investor.
Online Services of NSDL (via. participants):

 Dematerialization and Rematerialization

 Electronic settlement of transactions
 Crediting right and bonus shares in customer’s account
 Freezing customer’s account, etc.
(b) Central Depository Services Limited
Answer:

 Central Depository Services (India) Limited (CDSL) is the second electronic depository of
India.
 It was established in 1999 in Mumbai with collaboration of Bombay Stock Exchange and
some banks.
 Just like NSDL, CDSL provides online depository services all over India. It aims at easy and
safe services to the investors.
 It publishes the list of its registered depository participants time to time on its website.
(c) SEBI
Answer:

 Securities and Exchange Board of India(SEBI) came into existence as a statutory body on
January 30, 1992 under the Securities and Exchange Board of India Act 1992.
 its head office is in Mumbai. It has regional offices in Kolkata, Delhi and Chennai, SEBI is a
statutory body regulating stock exchanges in India.
Objectives of SEBI:

1. To protect the interest of investors in securities

2. To encourage the development of securities market
3. To regulate the securities market
Functions of SEBI:
1. To regulate business in stock exchange:
  SEBI regulates the business in stock exchanges and the operations of the stock exchanges.
It monitors whether the specified rules and guidelines are followed or not by share
brokers, sub-brokers, merchant bankers.
 It keeps an effective control on the entire working of the stock exchanges.
2. Protection of the interest of the investors:
The fundamental function of the SEBI is to protect the interest of the investors. So, it enforces
the intermediaries to obey the specified rules and regulations.

3. Registration and regulation of intermediaries:

 It registers the intermediaries such as merchant banker, share broker, sub-broker, registrar
of securities, etc. working in stock exchange and monitors their functions.
 It plans for the training of intermediaries.
4. Registration and regulation of mutual funds:
It registers and monitors mutual funds and regulates their working. For this, SEBI has
determined rules and regulations which are followed by mutual funds.

5. To prevent fraudulent trade:

It takes necessary steps to prohibit fraudulent trade in stock exchanges.

6. To cancel registration of brokers:

It cancels the registration of share brokers who do not follow rules and guidelines determined
by SEBI and who fail to provide necessary information to SEBI.

7. To regulate the merger and take-over of the companies:

It regulates merger and take-over of the companies for preserving the interest of investors. SEBI
has issued guidelines so that merger and take-over do not take place at the risk of small
investors. .

8. Guidelines with reference to public issues:

SEBI has issued different guidelines for both, first time capital issue by new company and capital
issue by existing company coming in market for capital.

9. Self-regulation:
SEBI is active for the self-regulation followed by intermediaries of stock exchange. It encourages
the intermediaries to promote their professional unions.

10. Maintaining stock exchanges as an efficient market:

It maintains stability and efficiency of stock exchanges through regulations, restrictions and
guidelines.

11. Inspection of books:

If necessary, it inspects the books of company that issues securities, depository participant and
beneficiary owner.
12. Monitoring and inspection of stock exchange:

 SEBI can monitor and inspect whether regulations laid down for stock exchange are
followed or not, whether stock exchange organization system and its working is followed
as per SEBI Act or not.
 If necessary, it conducts inquiry, inspection and audit of the accounts of the
intermediaries.
13. Guidelines:
SEBI has issued guidelines time to time for share brokers, and sub-brokers, merchant bankers,
trustees of debenture, buy back securities by company, etc.

14. To obtain annual and periodical reports:

It receives report in form of various statements for obtaining information about working and
activities of stock exchanges.

15. Research work:

SEBI undertakes the research work so that all the above functions can be done effectively.

Question 5.
Explain the purchase-sale procedure of securities in stock exchange.
Answer:
The procedure of purchase and sales of securities online is as follows:
1. Opening demat account:

 First of all the investor needs to approach any depository participant (DP) and open a
demat account with it.The DP opens this account under NSDL or CDSL.
 The investor can purchase/sell/hold their shares in the demat account.
2. Order to buy-sell:

 Once the demat account is active, the investor can trade online.
 Investor who wants to sell securities needs to place an online order with the broker.
 While purchasing/selling, the investor need to carefully mention the details such as name
of the share, price at which the investor wants to purchase or sell, etc.
There are two types of order in purchase and sale of securities. They are:
(a) Limited order:

 When an investor selects the option of ‘limited order’, it means that he will set the price at
which he needs to purchase or sell the shares. Thus, in this case, the price of purchase and
sale is pre-determined.
 Retail investors and fund houses generally trade by placing order in this format.
(b) Market order:
When an investor wants to trade at the prices existing in the market, he selects ‘market order’.
Here, the buying/selling iakes place at the latest quoted market price that appeared on the
trading screen order was made.
3. Execution of order:

 When the investor places the online order with the broker, the broker further executes the
order. The broker places the order in stock exchange.
 The broker on behalf of his customer (investor) can conduct transaction from his office
through online trading.
4. Contract note:

 Once the broker further places the order received from the investor, he prepares a
contract note for the investor.
 Contract note is a confirmation of the day on which transaction took place.
 Generally, the broker sends contract note to the customer within 24 hours after
transaction takes place.
 The contract note contains details such as name of the security traded, quantity, total
amount of transaction, order number, brokerage, taxes applicable, etc. Thus, contract note
is a summary as well as agreement about the traded securities.
5. Settlement of transaction:

 The settlement houses settle the transactions.

 The settlement house of Bombay settles the transactions done under Bombay Stock
Exchange.
 NSCCL-National Securities Clearing Corporation Limited performs the settlement of
transaction done in National Stock Exchange.
 Settlement of transaction occurs after a day of transaction or trade.
6. Payment of amount and delivery of security:

 If the investor has purchased the shares, he has to make the payment prior to the pay-in
day. The delivery is done to the investor on pay-out day.
 If the investor has sold the shares, delivery of shares is to be done prior to the pay-in
day. ,
 Customer receives money on pay-out day.
 Pay-in day is the day when the brokers shall make payment or delivery of securities to the
exchange. Pay-out day is the day when the exchange makes payment or delivery of
securities to the broker.
7. Inform customer about settlement of transactions:

 If the investor has sold the securities, the broker will make the payment to the customer
through bank.
In case if the investor has purchased the securities, the broker will make payment directly
from the investor’s bank account.
 Settlement of transaction is informed to the customer through demat account.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 10 Marketing Management
GSEB Class 12 Organization of Commerce and Management Marketing Management
Text Book Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
What is market mix in marketing management?
(A) Product, production, physical distribution and price
(B) Product, transportation, market and customer
(C) Product, competitors, government and others
(D) Product, price, promotion and physical distribution.
Answer:
(D) Product, price, promotion and physical distribution.

Question 2.
In marketing management is at the centre.
(A) Product
(B) Production
(C) Customer
(D) Profit
Answer:
(C) Customer

Question 3.
What is the main objective of branding?
(A) Making the product more durable
(B) Manufacturing the product according to law
(C) Advertising the product
(D) Differentiating company’s product from the competitors
Answer:
(D) Differentiating company’s product from the competitors

Question 4.
When the manufacturer sells the product directly to the customer, what can be said about the
levels in distribution channel?
(A) One
(B) Two
(C) Three
(D) Zero
Answer:
(D) Zero

Question 5.
What is to be done by promotion?
(A) Increasing the price
(B) Increasing the sales
(C) Increasing the production
(D) Making necessary changes in the product
Answer:
(B) Increasing the sales

Question 6.
Which of the following is the function of a salesman in personal selling?
(A) Presentation of product before the potential customer
(B) Packing the product
(C) Personal use of the product
(D) Appointing new salesman
Answer:
(A) Presentation of product before the potential customer

Question 7.
Because of promotion techniques
(A) The customer gets inspired to buy the product quickly
(B) The customer does not try to understand the product

(C) The middlemen stops selling the products to the customer

(D) The retailers stop purchasing goods from the middlemen
Answer:
(A) The customer gets inspired to buy the product quickly
Question 8.
Which of the following is the function of a marketing manager?
(A) Making the goods consumable
(B) Storages of goods
(C) Market segmentation
(D) Sales
Answer:
(A) Making the goods consumable

Question 9.
What can happen because of excessive advertisement expenses?
(A) It raises price of the product
(B) The product becomes more attractive
(C) It improves quality of the product
(D) The product is available everywhere
Answer:
(A) It raises price of the product

Question 10.
In public relation, an effort is made to create the positive environment among ail the parties
involved with the business towards the company.
(A) This statement is true.
(B) This statement is true only for the middlemen and retailers.
(C) This statement is true only for the potential customers.
(D) This statement is false.
Answer:
(A) This statement is true.

2. Answer the following questions in one sentence each :

Question 1.
What is marketing management?
Answer:
“Marketing process is a business activity in which products or services are diverted from the
producer to the consumer.”

Question 2.
Give meaning of market research.
Answer:
Marketing research is a process of collecting information regarding scope of market, taste and
preference of consumers, etc. analyzing the data statistically and coming to some logical
conclusions.

Question 3.
What is personal selling?
Answer:
The activity of presenting the product – before the potential customers, solving their doubts and
converting them into actual buyers by a salesmen is called personal selling.

Question 4.
What is sales promotion?
Answer:
According to Kotler, “Sales promotions are short-term incentives that encourage the customer
to buy the product or service.”

Question 5.
What is promotion-mix?
Answer:
Promotion mix is a group of tools to create awareness about the product and services among
consumers so that they can be attracted and motivated to purchase.

Question 6.
What is branding?
Answer:
When the product of one producer can be easily identified from that of products of other
producers and no one else can copy it by using name, logo, number, design on the label, etc. it
is known as branding.

Question 7.
Give meaning of ‘publicity’.
Answer:
Any form of non-personal presentation of goods, services or ideas done through public media
which is free of charge is known as publicity.

3. Answer the following questions in short :

Question 1.
List out the advantages of labeling.
Answer:

 A label differentiates the product of one producer from that of other competitors.
 Through label a unique identity gets created for the product.
 Once the label becomes famous, the consumer easily identifies the product through that
label.
 Labels also help to prevent cheating of consumers through fake products.
 It is also easy for the company to advertise the product if it retains the label properly.
 Labeling ensures product quality.
Question 2.
What is the need of ‘storage of goods’?
Answer:
Storage of products:

 Products once produced do not necessarily get sold immediately.

 Products are put into market when the demand arises. It is important to build a balance
between demand and supply of goods which in turn will enable better sales.
 Since, production is done on the basis of future demand, there arise the need of storing it.
 It is utmost important that during the storage the quality of the product does not
deteriorate.

Question 3.
What is marketing-mix? What it includes?
Answer:

 The marketing mix is the foundation model in marketing.

 Marketing mix can be defined as the “set of marketing tools that the firm uses to attain its
marketing objectives”.
 Under marketing mix, the firm has to take several marketing decisions that fall under four
categories namely,
1. Product,
 2. Price,
3. Place and
4. Promotion.
 These four constituents of the marketing mix are also known as 4Ps (Product, Price, Place
and Promotion.)
 Thus, marketing mix is a base on which the firm establishes various policies and
undertakes decision so as to launch the product successfully.
 A business unit does not has control over external factors, but can certainly control the
4Ps of marketing mix to a much larger extent to satisfy and attract the consumers.

Question 4.
State any two characteristics of branding.
Answer:

1. Branding makes people trust the consistent quality that they expect from the said brand.
2. Specific colours are used while labeling and creating designs for a brand. Also, specific
pattern or designs are used to symbolize the brand.
Question 5.
State any two characteristics of a good salesman.
Answer:
Characteristics of a good salesman:

1. Salesman should be smart, interactive and physically fit.

2. Salesman should be good in communication, intelligent and efficient.
4. Answer the following questions in brief :
Question 1.
Explain the difference between selling and marketing.
Answer:
Difference between selling and marketing:
 Point of
difference Marketing Selling

The identification of the needs of the

consumer through the process of creating
profit and consumer satisfaction is called Exchange of goods or service
Meaning marketing for money is known as selling

The scope of marketing is very wide. It The scope of selling is limited

Area of includes understanding the requirement of to the transfer of ownership of
Work/ consumer, develop new products, determining products from the seller to the
Scope price and provide after sale service consumer.

To earn profit by selling

Objective To earn profit through customer satisfaction products and services

Suppliers of product, middlemen involved in

Parties sale distribution, consumers, etc. Buyers and sellers

Sales begin after production

Beginning Marketing process begins with market and ends with providing goods
and End research and ends with after sales service. or service to consumer

Storing products, gradation, packing, labeling, Since the scope of work is

Need for transportation of goods requires considerable quite narrow, less working
Capital working capital. capital is needed.

Efforts are made in manufacturing the product Efforts are made towards
Direction of as per the need of consumer and making them preparing consumers to accept
Efforts reachable to consumer. the existing product.
Question 2.
Explain the role of public relation.
Answer:
Role of publicity in promotion mix:

 Publicity is considered to be the most reliable component of promotion mix.

 The company need not pay anything for publicity of its product and hence it is the
cheapest promotion tool.
 Sometimes publicity includes the task of public relations in which the marketing manager
can give more information with fewer efforts.
 Mass communication along with gained reliability on the company makes publicity more
effective.
 Publicity creates awareness among potential customers about the product or the
company. This way it directly boosts the selling efforts of sellers and distributors.
Question 3.
Explain the selling concept in marketing management.
Answer:
Selling concept:

 The selling concept holds the idea that “consumers will not buy enough of the firm’s
products unless it undertakes a large-scale selling and promotion effort”.
 Hence, the company believes it should undertake aggressive production and
selling steps.
 Company adopts aggressive marketing methods, large scale advertising campaigns, direct
selling, etc.
 Here efforts are made to create demand for products being produced and sell rather than
understand the demand and produce accordingly.
 The complete emphasis is not given on the need of consumer but to sell what the
company is producing.
 This concept ignores customer satisfaction and keeps on producing, selling and dumping
in the market whatever is produced.
Question 4.
Mention the characteristics of a ‘good salesman’.
Answer:
Characteristics of a good salesman:

 Salesman should be smart, interactive and physically fit.

 Salesman should be good in communication, intelligent and efficient.
 The most important quality about a salesman is his ability to talk with the potential
consumers, style of presenting the product before a customer and the ability to convince
a customer.
 The salesman should have all the necessary information about the product he is
presenting to a customer.
 Honesty is an essential quality in a salesman. A salesman should be honest and should
have a good character. He should be sincere and regular in his work.
 A salesman is the representative of his company and so the way he approaches the
consumer tells about his company. Hence, the representative should be polite and
genuine so as to create a positive image of the company.
 An ideal salesman should be always enthusiastic, disciplined and ambitious.
5. Answer the following questions in detail :
Question 1.
Explain the functions of marketing.
Answer:
1. Marketing Research:

 The first and foremost work in marketing is conducting a market research.

 Marketing research is a process of collecting information regarding scope of market, taste
and preference of consumers, etc.
 A large company undergoes large scale production and has to bear high risk of success of
the product or service. As a result, when the company wishes to produce some product it
becomes necessary to gather knowledge regarding what a consumer wants in the
 product. Whether the consumer is ready to accept such a product and if yes then what
price
 On the basis of such marketing research, information regarding demand, price,
competition, etc. can be gathered.
 Methods to collect information include preparing questionnaire and getting it filled from
people, observation, obtaining sales data from POS, etc.
2. Collection of product:

 In many cases products are manufactured at different places and they need to be
collected centrally. This is known as collection of products.
 Similarly, even producers are scattered at several places. Also, some products are
seasonally produced, some products are produced on a small scale and some products
need further processing.
 In all these above scenarios, the products are to be collected at desired place for further
processes.
3. Transformation of raw material into consumable products:

 Many products require further processing before selling them to general public.
 These unfinished products can be termed as raw material. The further processes on these
raw materials make them consumable.
 While processing, care is taken that the final product meets the requirements of the
consumers.
 For example, cereals and pulses are cleaned before packing for consumers. Similarly, raw
fruits undergo specific ripening methods before sending them in fruit market.
4. Standardization and gradation:

 During the production, it is utmost important to standardize and grade the products.
 Standardization refers to a specific and nearly same colour, feel, size, quantity, etc. for
every product or product lot.
 Gradation refers to grading the product on the basis of its quality and other
characteristics. For example, fruits are graded as first quality fruit, second quality and so
on.
 By grading the products into various categories, the producer can fix different prices for
various grades and earn accordingly.
 Thus, products are standardized and graded side by side. Some products even require
standardization by government agency.
 Product standardization and gradation helps in earning the faith and loyalty of consumers
on the quality of the product.
 In India, AGMARK grades agricultural products whereas Bureau of Indian Standard (BIS)
grades industrial products.
5. Labeling the products:

 A label differentiates the product of one producer from that of other competitors.
 Through label a unique identity gets created for the product. Once the label becomes
famous the consumer easily identifies the product through that label. For example, Parle-
 G biscuit has maintained the colour and pattern of its packet
since decades and consumers can easily recognize it even while watching it from a
distance.
 Labels also help to prevent cheating of consumers through fake products. It is also easy
for the company to advertise the product if it retains the label properly.
 Labeling also ensures product quality.
Brand and branding:

 Often, producer gives a name to the product he produces. This name is called brand
name or simply brand. Brand name is kept on label of product. (Note: For example, Parle-
G is the brand name of glucose biscuits that Parle company produces.)
 Brand can be in the form of name, symbol, number, producers name or a design.
6. Price determination:
To determine the price, the producer needs to estimate various costs involved in the production.

 Some of these costs/expenses include production cost, product packing, insurance,

distribution, advertisement, taxes and duties, discounts, etc.
 After calculating all these costs, the producer adds his profit component and determines
the final sales price.
 While determining the price, the producer also considers demand for the product and
price of the competitor’s product.
 Price determination should be done before packing because it is mandatory to print the
price of the product on the pack.
7. Packing the product:

 Packing can be considered as the garment for the product.

 Packing does two tasks, providing protection to the product as well as attracting
consumers. Depending on the type of product, the producer also prints details regarding
the use of the product on the product.
 A variety of materials such as paper, plastic jars, tinned boxes, glass jar, etc. are used to
pack different products.
Advantages of packaging:

 Proper packing prevents the goods from getting damaged and makes them easier to
transport.
 Packing helps to preserve product quality and its features.
 Consumers easily come to know the price of the product from the packing itself (For
example: We can easily make out that a wafer or kurkure pack is worth Rs. 10 without
looking at the price.).
8. Storage of products:

 Products once produced do not necessarily get sold immediately.

 Products are put into market when the demand arises. It is important to build a balance
between demand and supply of goods which in turn will enable better sales.
 Since, production is done on the basis of future demand, there arise the need of storing it.
  It is utmost important that during the storage the quality of the product does not
deteriorate.
9. Transport service:

 As per the demand, the products are transported to required places.

 Different modes of transport such as roadways, railways, waterways and airways are used
to ensure constant supply of raw materials and to enable finished product to reach the
consumer.
10. Take insurance of the product:

 Numerous risks are associated while storing transporting the product. These risks include
theft, fire, decoit, loss due to riots, sinking of product in water, etc.
 So, producers and distributors often insure their goods against such risks.
 Modern producers and distributors take different types of insurance like fire insurance,
property insurance, accident insurance, marine insurance, riot insurance, etc.
11. Financial arrangement:

 Each and every activity of marketing requires money or say working capital.
 To satisfy these requirements well planned financial management is required.
 The financial manager decides how much finance to raise and allocate to the various
activities.
 For certain seasonal product, advertisements are required in particular season only and so
financial arrangement can be done well in advance.
Marketing manager’s main duties under marketing process includes:

 Avail finance at the right time

 Organize advertisement campaigns
 Set-up distribution channels
 Branding the product in the market
 Conducting market research, etc.
12. Advertisement:

 The strategy to advertise the product depends on the demand of the product as well as
availability of finance.
 How the product has to be marketed depends on the type of product, strategy of
advertisement of competitors and the effectiveness of media in creating demand for the
product.
 Advertisement contributes towards creating demand for product. This is the reason why
after advertising, the demand for such products and services increase.
 In most cases, advertisement campaign at local level proves to be more effective.
13. Sales and distribution system:

 Today’s consumer has several options and so he is impatient. As a result, it is essential

that products reach the consumers speedily and economically.
  Producers appoint distributors at various regions to achieve this task. Now, in most cases
producers distribute goods via. a centralized agency for an entire district or even a state
and reduces the burden of the multilevel distribution.
 The sales and distribution network is created according to the type of product.
 If demand for products is very high and continuous in nature, then all the methods are
adopted simultaneously.
 In distributorship, it is necessary that the products reach the wholesalers and retailers on
time. In some cases, producers also sell products at the place of production (For example:
Sale of processed Jams and pickles.)
14. Selling:

 The process in which the product is handed over to the consumer in exchange of money
is called selling.
 The middleman plays a very important role in selling function.
 More aggressive distributors having good marketing skills can generate more sales.
 Quite often, the producer directly sells the product to the consumer. This mode of selling
is the most effective form of selling.
15. After sales services:

 Marketing does not end at selling.

 After selling, the marketing function has to also take care that the consumers remain
happy and loyal.
 For this, it listens to the complaints from consumers, provides facility of replacement of
defective product, service and repair.
 Certain products require giving demonstration at the residence of consumers. Such
products include air conditioners, television, washing machine, refrigerators, etc. The
company needs to employ people having technical knowledge to do this task.
 The company also needs to create after sales service network to carry on service,
repair/replacement and listen to complaints of the consumers.

Question 2.
Explain the factors affecting the price of a product.
Answer:
Factors affecting pricing:
There are several factors that affect price determination. These are discussed below:
1. Production cost:

 Cost of producing a good that the producer has to bear is the most important of all
aspects for determining the price.
 Production cost includes cost borne to procure raw material, labour, production and
processing costs, administrative cost, sales and distribution expenses, etc.
 Over and above these costs, if the product is newly launched then there are also several
other expenses incurred for promoting the product and putting up in the market. These
costs also affect the price and can be considered indirect production cost.
  It is quite obvious that price of a product can never be lower than its production cost.
2. Demand for the product:

 Demand for the product and its price are directly related.
 Factors that affect demand include taste and preference of the consumer, number of
consumers, purchasing power of consumer, number of competitors in the market, price of
competitor’s product, etc.
 The producer may charge a high price if the demand is high, but if the demand is low, the
price has to be kept low and competitive.
 In case if the product of competitor is in high demand or if there are more competitors in
the market, the producer launching new product might have to lower its price.
 When the market is less competitive, the producer can keep a higher price and earn
higher profit.
3. Competition in the market:

 The extent of competition directly affects the price of the product.

 Producers keeps competitive price when the number of competitors are more and
competition is high.
 During competition, the prices are also fixed with objectives such as beating the
competitor’s price, or making their entry or survival difficult in the market or even with an
objective to force them to withdraw their product and quit the market.
 Contrary to this, a product having a very high brand reputation can be sold at higher price
than the competitors’ product (Note: For example, iPhone).
4. Governmental and legal controls:

 Producers of monopolistic products (especially, of daily use) usually charge high price. So,
the government imposes control on such business units in order to protect the interest of
consumers.
 Prices of products like petrol keep on fluctuating quite frequently. Hence, the government
puts a number of legal controls on such products. These factors have to be taken into
consideration while determining product price.
 Government also imposes certain regulatory control on products which are essential for
life such as lifesaving drugs, petrol, diesel, paper for daily newspaper, etc. So, the
producers of these products have to consider these factors too while determining prices.
5. Price determination on the basis of objectives:
Over and above the factors discussed above, there are some other objectives too which the
producer might consider while determining the price. Some of them are:
(A) Maximum profit:
Under this objective, the producer determines the price of the product with an aim of earning
maximum profit. He does so either because there is no competition in the market or he has
spent heavily in the research and development of the product.

(B) To acquire dominant position in the market:

In most cases the producers keep a very low price of his product so that they can attract
maximum customers and dominate the market.
(C) To sustain competition:
When competitors are more and when competition is high, the business firms tend to fix prices
lower than or at par with competitors.

6. Economic condition:

 Economic condition of the market plays an important role in determining the price of the
product.
 If the economic condition of the country is good, price can be fixed at a higher level and if
there is a recession, product price is reduced.
7. Buying behaviour:

 Consumer behavior plays an important role in determining price.

 Behaviour of consumers towards a product is affected by factors such as consumer’s
habits, social and cultural structure, individual preference, his financial condition, etc.
 Due to these factors, the attitude towards the product may change and it may not get
desired or expected response from the consumers. Hence, it is quite important to
consider these factors too before determining the price.
Question 3.
Explain the sales-promotion techniques.
Answer:
There are various techniques of promoting the sale. Some of these are discussed below:
1. Sale:
When the product is genuinely offered at lower price than its actual price for a limited period of
time, it is known as sale. Generally, such technique is used by business units to reduce closing
stock.

2. Discount:
When actual price charged for a product is less than its original price it is known as discount.
Discount is mostly offered for products that are slightly defective. This attracts a large number of
customers.

3. Advertisement coupon:

 A coupon printed in newspaper or circulated through pamphlet or some other modes

where in the consumer is given discount on producing the coupons to the seller is called
an advertisement coupon.
 There are two objectives of advertisement coupons, first to check how well is the sale
response by offering such coupons and second to provide discount to the one who
produces the coupons to the seller.
4. Gift:

 Sometimes a small gift is given along with the main product. For example, giving 1 soap
free on purchasing 3 soap bars.
  Sometimes the producer gives more quantity for the same price as a part of gift. For
example, giving 20% more detergent at the same price.
5. Additional gift:

 The producer assesses the needs of the consumers and offers additional gifts along with
the main product to lure them. For example, giving toothbrush free on purchase of a
toothpaste.
 Sometimes, product not related with the main product is also given as a gift. For example,
offering a toy as a gift in a snack pack.
6. Lucky draw:
In this technique the customer is given a coupon as a code and on a particular day results are
declared. The person whose coupon number gets selected in the lucky draw gets a gift. For
example, Bharat petroleum gives prize winning coupons on buying of petrol of ^200/- or more.

7. Facility of interest-free loans:

 Interest-free loan is a loan where in the consumer who buys a product on loan does not
need to pay interest.
 This technique is used when the product is high priced and the customer cannot afford to
pay the amount all together. For example, interest-free loans is given for purchasing T.V.,
refrigerators, 2-wheelers, etc.
 In such type of loans, the consumer can take the product to his house after paying a small
payment known as down-payment. He needs to pay the balance amount in the form of
monthly installments which are interest-free.
 Since, no interest is charged, the consumer gets easily attracted and motivated to
purchase the product.
8. Distributing samples:

 Sometimes, small samples are distributed to people so that they can check the product
and purchase if they like it.
 Sellers distribute samples of shampoo, soap, oil, pickles, jam, etc. in small sachet.
9. Organizing competitions:
In this concept, during the new product launch, the producers organize competition in order to
promote their new product. For example, the company making crayons for children would
collect information about the customer by organizing drawing competition for them before
launching new colours in the market. Here the winner gets the new product as a prize.

Question 4.
Explain in detail the role of advertisement.
Answer:
Role (Functions) of advertisement:
1. Creates demand:

 Advertisement provides information about products to the consumers in the market.

  The information might be in the form of utility of the product, its features, how is it better
than others, etc.
 All such information creates a sense of buying and using the product in the minds of
people. This is how the demand of the product is created.
 Initially, people might buy the product on trial basis. Once they get used to it, they keep
on demanding the product.
2. Benefit of large scale production:

 Advertisement can be targeted to a very large number of consumers at one go. This
increases the demand many-folds.
 In order to meet the huge demand, the company has to undergo large-scale production.
Large scale production reduces production cost and increases profitability.
 As a result, the company earns more return as compared to the advertisement cost.
3. Product awareness:

 Advertisement helps in providing information about the product to the consumer. The
information can be utility of the product, features, how to use the product, etc.
 When a product has more than one usage then through advertisement such information
is passed on to the potential consumers.
 Producer also creates a trust in consumer’s mind regarding the quality of the product.
 By sharing the trust and satisfaction of current consumers, new consumers can be
convinced to purchase the product.
 Thus, there are several ways in which advertisement creates awareness about the product.
4. Helpful in employment generation:

 Due to advertisement, demand for a product or service increases. This leads to rise in
employment in several sectors such as production, logistics, service and repair, etc.
 Also, severalemployment opportunities are created in the field of advertisement itself. This
includes employment as copy writers, advertising distributors, film makers, artists, etc.
5. Betterment of standard of living:
Advertisement creates awareness about new and innovative products in the market. Over and
above fulfilling basic needs, consumers buy the products for living a comfortable life, a life
where in their work can be done faster, and improve their standard of living.

6. Maintenance of quantum of sales:

 When a product is been advertised and repeated over and over several times, it creates a
lasting impression and remembrance on the minds of consumers. This is the reason why
at the time of purchase, consumer shows a prompt preference for these products.
 Such a policy of advertisement keeps sale at consistent level.
 In fact, products that are continuously advertised generate better sale than competitor’s
products.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 11 Consumer Protection
GSEB Class 12 Organization of Commerce and Management Consumer Protection Text
Book Questions and Answers

1. Select the correct alternative and write answer to the following questions :
Question 1.
When was the Consumer Protection Act passed?
(A) 1956
(B) 1932
(C) 1986
(D)2015
Answer:
(C) 1986

Question 2.
Who has introduced the principles of Trusteeship?
(A) Jawaharlal Nehru
(B) Subhash Chandra Bose
(C) Indira Gandhi
(D) Gandhiji
Answer:
(D) Gandhiji

Question 3.
Out of the following, which has not been included in the Consumer Protection Act 1986, as
consumers’ right?
(A) Protection
(B) Basic needs
(C) Awareness
(D) Choice
Answer:
(B) Basic needs

Question 4.
Which one of the following options is not included as Redressal Forum according to the
Consumer Protection Act?
(A) LokAdalat
(B) District Level Forum
(C) State Level Commission
(D) National Level Commission
Answer:
(A) LokAdalat

Question 5.
How many members exist in the District Level Forum?
(A) Total 3
(B) At least 3
(C) At least 5
(D) Total 5
Answer:
(B) At least 3

Question 6.
Members of which commission are appointed by the Central Government?
(A) District Level
(B) State Level
(C) National Level
(D) International Level
Answer:
(C) National Level

Question 7.
In which court, can the public interest litigation be filed?
(A) Criminal Court
(B) Civil Court
(C) District Court
(D) Supreme Court
Answer:
(D) Supreme Court

Question 8.
With which consumer protection organizational set-up is Ahmedabad connected?
(A) Consumer Education and Research Centre
(B) Consumer Guidance Society of India
(C) Consumer Unity and Trust Society
(D) Consumer Co-ordination Council
Answer:
(A) Consumer Education and Research Centre

Question 9.
Which organization works towards compilation and co-ordination of the work of the various
institutions working for consumer protection?
(A) Consumer Protection Council
(B) Consumer Protection and Research Council
(C) Consumer Co-ordination Council
(D) Consumer Unity and Trust Society
Answer:
(C) Consumer Co-ordination Council
Question 10.
Which of the following is not done by consumer protection institutions?
(A) Educating the people regarding consumer rights
(B) Publish information which has consumer interest
(C) List of consumers given to the industries
(D) Protect the interest of consumers
Answer:
(C) List of consumers given to the industries

2. Answer the following questions in one sentence each :

Question 1.
Who is the king of the market in a free market system?
Answer:
Consumer

Question 2.
Under which heads can consumer exploitation be divided?
Answer:
(a) Mental exploitation: Getting disappointed, angry and frustrated and feeling cheated
(b) Physical exploitation: Loss of money, adverse effect on human body by using the product,
etc.

Question 3.
According to the principles of Trusteeship who is the important person in an organization?
Answer:
Customer is the most important person

Question 4.
Which two rights are favoured by the United Nations Organisation in its directive for the
consumer?
Answer:
(a) Basic rights and
(b) Right to hygienic environment

Question 5.
What proof should compulsorily be produced by the consumer to prove his purchase?
Answer:
Bill of the product purchased

Question 6.
If the complainant is not satisfied by the judgement of District Level Forum, then to whom
should he appeal for reconsideration and within what period?
Answer:
The appeal should be made to State Level Commission within 30 days of the of the district
forum.

Question 7.
If the complainant is not satisfied by the judgement of State Level Commission, then to whom
should he appeal for reconsideration and within what period?
Answer:
The appeal should be made to National Level Commissions within 30 days of the judgment of
the State Level Commission.

Question 8.
If the complainant is not satisfied with the judgement of the National Level Commission, then to
whom should he appeal for reconsideration and within what period?
Answer:
The appeal can be made within 30 days of the judgment to the Supreme Court for re-examining
the case.

Question 9.
In which courts can public interest litigation be filed?
Answer:
In the Supreme Court

Question 10.
Give full forms of the following abbreviations :
(i) CERC
Answer:
CERC: Consumer Education and Research Centre

(ii) CPC”
Answer:
CPC: Consumer Protection Council

(iii) VOICE
Answer:
VOICE: Voluntary Organization in Interest of Consumer Education

(iv) CGSI
Answer:
CGSI: Consumer Guidance Society of India

(v) CUTS
Answer:
CUTS: Consumer Utility and Trust Society
(vi) CCC
Answer:
CCC: Consumer Co-ordination Council

(vii) NCH
Answer:
NCH: National Consumer Helpline

3. Answer the following questions in short :

Question 1.
What are the ways in which producers can exploit the consumers to increase their sales of goods
and services?
Answer:
Classification of consumer exploitation:
There are mainly three types of consumer exploitation.
They are:
1. Physical and mental exploitation:

 If the consumer is fooled or forced to purchase a sub-standard quality or a duplicate

product, then it leads to mental agony as well as physical loss.
 Getting disappointed, angry and frustrated and feeling cheated are forms of mental
exploitation that the consumer faces whereas loss of money, adverse effect on human
body by using the product, etc. are the form of physical loss or physical exploitation.
2. Economic exploitation:
If the seller is following malpractices such as hoarding of goods, black marketing and charging
higher price than the printed price then it is called economic exploitation of the consumer. The
consumer has to pay higher prices for purchasing hoarded or black-marketed goods.

3. Against public interest:

Public interest is not safeguarded when some products are produced by using certain materials
which can cause harm to environment.

Question 2.
Explain about consumers’ exploitation.
Answer:
Physical and mental exploitation:

 If the consumer is fooled or forced to purchase a sub-standard quality or a duplicate

product, then it leads to mental agony as well as physical loss.
 Getting disappointed, angry and frustrated and feeling cheated are forms of mental
exploitation that the consumer faces whereas loss of money, adverse effect on human
body by using the product, etc. are the form of physical loss or physical exploitation.
Question 3.
Write a note on the Principles of Trusteeship and Consumer Protection.
Answer:
Principles of Trusteeship and Consumer Protection:
Gandhiji gave fine thoughts about Trusteeship and Consumer Protection. They are:
(A) Principle of Trusteeship: Whatever wealth the society has given to us should be used for the
welfare of the people of the society.

(B) On consumer: “Consumer is the most important person visiting the place of business. He is
not dependent on the seller but we (sellers) are dependent on him. He does not interfere in our
work but he is the objective of our business.
He is not an outsider for our business but he is a part of our business. We do not favour him by
providing a product of his choice but he does a favour by giving an opportunity to serve him”.

Question 4.
Explain consumer protection from the point of view of consumers.
Answer:
Consumer protection from the view point of consumer:
1. Extensive exploitation of consumers:
It is becoming quite common that business units are trying to increase their profit by producing
sub-standard, adulterated and duplicate products and resorting to misleading advertisement,
black marketing, hoarding of goods and other unethical and exploiting policies. Such wrong and
irrelevant policies have resulted in a need for consumer protection.

2. Ignorance of consumers:

 Consumers are ignorant about laws and rights that have been empowered on them by
the government for their protection. Many a times, even if the consumers are aware, they
hesitate of fear to use such laws and rights. Also, they are misguided and misled.
 It is extremely important to make the consumers aware about their rights and laws so that
their exploitation can be stopped.
3. Lack of unity among consumers:

 A single consumer may find himself weak, but if consumers unite, they can become more
powerful and fight against the injustice done to consumers.
 The group can form a consumer protection forum. The forum can fight for the right of all
those consumers who get cheated and it will be easier and effective to protect the
interests of the consumers.
 Although such organizations have become active in India, but until they become strong, it
is essential to protect consumers through laws.
Question 5.
How does Lok Adalat help in creation of consumer awareness?
Answer:
Lok Adalat:
  Lok Adalat or People’s Court is India’s innovative contribution to the world for resolving
cases quickly.
 The concept of Lok Adalat was started in Gujarat.
 It is an effective way to provide speedy and economical justice to the poor, weak and
exploited section of the society.
 Generally, the Lok Adalats hear cases related to accident and its compensation, divorce,
alimony, general debts, personal complaints, police complaints, etc.
 Lok Adalats consist of advocates, social workers, educationalists, reputed citizens,
businessmen, police officers, insurance officers, judges and judicial officers.
 The Lok Adalats try to solve the cases amicably in such a way that both the parties get
satisfied.
Question 6.
Write in brief about Public Interest Litigations (PIL).
Answer:
Public Interest Litigation (PIL):
In Indian law, public interest litigation means a litigation (judicial proceeding) for the protection
of public interest.

 A person may not be capable enough to file a complaint individually in a court either
because of economic reasons or due to lack of time.
 There are certain matters which affect not just the individual but the entire society.
 The affected person or a group of person from the society can simply write an application
on a plain paper to the High Court of the concerned state or even directly to the Supreme
Court.
 The court must get assured that the petition is filed for the public interest and not
casually. If the court feels the application to be relevant, it can convert the petition into a
case.
 After hearing the arguments of both the parties, the court gives its judgment.
4. Answer the following questions in brief :
Question 1.
State the importance of consumer protection from the viewpoint of of business.
Answer:
Importance of consumer protection from the view point of business:
1. Use of public resources and wealth:
Every business unit is continuously and haphazardly utilizing public or say national resources
and wealth. Hence, it is the responsibility of these units to produce such goods and services
which are useful to the society. This way they can promote social welfare and justify the used
resources.

2. Social responsibility:

 It is a well-known fact that business units have social responsibility towards its
stakeholders.
 Consumers also form a major group of stakeholders for every business. The business
earns profit by selling the products to the consumers.
  The way a business takes care of its stakeholders such as directors, creditors, etc. it should
also see to it that it remains honest and fulfills its duties towards consumers who form the
most important group of stakeholders.
3. Part of the society:

 Every business is a part of the society we live in. Every business owner or a seller is
customer for another business unit. So, if consumer exploitation is inevitable then every
person will have to experience exploitation because every individual is also a consumer.
 Hence, every seller should adopt such a policy which will increase the faith of the buyer
and prevent his exploitation.
4. Impression on the society:

 The product that the business sells as well as the policies that it practices affects the
habits of the people of society, their lifestyle, thoughts, living standards, food habits,
fashions, clothing, etc.
 Advertisements and promotions play a major role in these aspects.
 These aspects demand that the business units follow ethical means as a moral
responsibility to the society and create a lasting impression on the current and future
generations.
5. Consumer protection is good for business:

 Business units have realized that wellbeing of consumers is the wellbeing of the business.
 It is quite fundamental that in the competitive market, the business must produce goods
as per the preference of the consumers. Those manufacturers / who fail to understand
this, will lose market to their competitors.
 These practices satisfy the consumers. A delighted and satisfied consumer not only
purchases the product again, but also recommends it to others. This will attract new
consumers.
6. Principles of Trusteeship and Consumer Protection:
Gandhiji gave fine thoughts about Trusteeship and Consumer Protection. They are:
(A) Principle of Trusteeship: Whatever wealth the society has given to us should be used for the
welfare of the people of the society.
(B) On consumer: “Consumer is the most important person visiting the place of business. He is
not dependent on the seller but we (sellers) are dependent on him. He does not interfere in our
work but he is the objective of our business.
He is not an outsider for our business but he is a part of our business. We do not favour him by
providing a product of his choice but he does a favour by giving an opportunity to serve him”.

Question 2.
What are the rights made available to consumers as per the Consumer Protection Act?
Answer:
Consumer Protection Act, 1986 gives 6 rights to consumers. They are discussed below.
1. Safety:

 Every consumer is entitled to get protection from products which are harmful to health.
For example, sub-standard electrical appliances can cause dangerous injuries to the
consumer and hence should not be used.
 Standardized and superior quality appliances should only be used so that they do not
cause harm to consumers.
2. Information:

 It is the right of a consumer to get all information regarding the product he wishes to
purchase. For example, he is entitled to information such as ingredients, manufacturing
date, directions for use, price, quality, weight, purity, etc.
 As per this right, a manufacturer is bound to display all information either, on the packing
or on the label of the product.
3. Choice:

 Every consumer has a right to choose the product he wishes to purchase.

 The consumer must get a product at a competitive price, in right quantity, right place and
at right time.
 The right of choice has led to production of variety of goods and services having different
quality, brand, price, size, etc.
 A fine example would be the two-wheeler vehicle industry. There are a large number of
options for scooter and motorcycles in the market in a wide price-band and features.
Consumer can select his choice of vehicle on the basis of engine power, features, colour,
design, price, etc.
4. Representation:

 If a consumer is dissatisfied with a product or a service, he has the right to represent his
problem i.e. complain.
 With this right in the mind, most business units have set-up their own complaint redressal
department. The consumers can call up and make a complain if they receive a faulty
product.
 Over and above this, there are several organizations which work for protecting the
consumers. These organizations help the consumers to file complain and deal with the
proceedings.
5. Redressal:
  The right to redressal says that if a consumer gets sub-standard quality of goods or
services as compared to what he has been promised then he has the right to get the
relief.
 The consumers are eligible for various types of relieves such as replacement of goods or
services or repair of the product or part.
 If at all the product has caused damage to the consumer he has the right to complain and
obtain compensation.
6. Consumer education:

 Every consumer has the right to get information about the product he buys or wish to
buy.
 The Act says that the consumer should get right quality and quantity at the given time
and place at an ideal price. In order to see that these aspects are taken care of, the
consumer has the right to get educated.
 If a product or a service is sub-standard as against the assured quality, then the consumer
know that he has the legal right to claim relief and or compensation.
 Most business units and organizations who work for consumer protection are also actively
working on educating consumers.
Over and above these six rights, The United Nations Organization (UNO) has issued a directive
recommending two more rights for the consumers. They are:

1. Basic Needs
2. Hygienic Environment.
1. Basic needs:
This Right says that every person is entitled to basic needs such as adequate food, water,
clothing, shelter and health care required for survival.

2. Hygienic environment:

 As per this Right, every individual has the right to get pollution-free air, water, food and
land.
 Hygienic environment gives the person a good quality of life free from diseases.
Question 3.
Define consumer and state who can complain to the dispute settlement institutions?
Answer:
Meaning of consumer:
According to the Consumer Protection Act, a consumer is “A person who receives goods or
services against an exchange, who pays or agrees to compensate partly or fully or promises to
compensate on a future date or has participated in some future payment plan. Any user of the
product or service who uses it on the basis of the permission of the purchaser is a consumer. But
the one who purchases on a resale basis or for further production is not included under the
definition of a consumer.”

Any of the following can complain to the dispute settlement institutions:

  Consumer himself
 Registered consumer union on behalf of consumer
 State government or central government on behalf of consumers
 Legal heirs or representatives of deceased consumers
Question 4.
How is consumer awareness created?
Answer:

 The process of making consumers aware about their rights related to the products and
services they buy is called consumer awareness.
 Today, many items having similar features but belonging to different brands are .
available in the market.
 Illiterate, ignorant and unaware consumers who do not have complete knowledge or
information about such things get fooled easily by buying fake or poor quality goods.
 There are several middlemen between producers and consumers and so the consumers
get exploited in many ways.
 The system which sees that the goods and services the consumer buys are of good
quality, proper weight and at a reasonable price is known as consumer protection.
 Consumer protection is a movement which is undertaken to make consumers aware
about their rights.
 Consumer protection is a well-organized programme for the people of the society so that
they become mature consumers. The programme aims at controlling anti-consumer
activities, exploitation and deception that the consumers face.
 Every year, 15th March is celebrated as World Consumer Rights Day.
5. Answer the following questions in detail :
Question 1.
Explain the responsibilities of consumers according to Consumer Protection Act.
Answer:
If we wish to have rights, we will have to take up some responsibilities. So, rather than just
fighting about the rights, the consumer must undertake few responsibilities before buying a
product and also while using it.

The consumer should undertake following responsibilities:

1. Conscious use of rights:
The government has given several rights to the consumer. So, the consumer should be well
aware about them and should also possess knowledge about the way to use them.

2. Beware of misleading advertisements:

 In the marketing world, it is quite often that sellers and producers publish or display
misleading advertisement for promoting sales. For example, consumption of a specific
product will boost energy instantly or will increase the height of person in a short span,
etc. Such misleading advertisements are also quite common in children products.
  The consumer should use his wisdom while taking the decision to purchase such
products. He should also compare that product with other and verify the claims in order
to prevent being getting fooled.
 If the consumer finds that the claims of the product are false or if the product is different
as compared to shown in the commercial then he should report about such
advertisement.
 Attempt should also be made to stop showing such inappropriate advertisement.
3. Care during purchase:

 The producer or seller should never provide wrong incentive for the sake of selling the
product.
 Consumer should not get enchanted by the claims without verifying the details of the
product. He should emphasize on getting all the necessary information regarding the
product such as name of manufacturing unit and address, quality, quantity, direction for
use, expiry date, ingredients, manufacturing date, weight, guarantee or warranty period
and other conditions.
4. Solicit for a bill:

 A consumer should always insist on getting the bill for the product he purchases.
 Bill plays the core role during complain redressal. If the purchased product is damaged or
of a sub-standard quality or does not fulfill the desired characteristics, and if the
consumer wants to complain to the Consumer Protection Forum, it is mandatory to
submit the proof of purchase in the form of a bill.
 Apart from this, legally too every seller is bound to provide a bill to the consumer as proof
of his purchase.
5. Solicit high quality:

 Today it is quite common to see adulterated, duplicate and sub-standard products in the
market.
 Special emphasis should be laid to bring a permanent solutionfor such goods and
services.
 The consumer should also confirm if the product has got quality control certificate and
standardization mark. For example, one can look for ISI mark, ISO, mark, etc.
6. Registration of genuine complaints:

 If the consumer rights are violated in any form, the consumer should immediately
complain to the concerned authority.
 Generally, consumers ignore minor problems or violation of consumer rights and do not
bother to complain. This is not a good approach because the producer will keep on
producing such products and harm others too.
 At times, consumers misuse their rights and claim much larger compensation for minor
damages. This too is inappropriate.
 In short, it is the responsibility of the consumer to register genuine complains only.
7. Spread of consumerism:
  The act of promoting consumer protection at large is known as consumerism.
 Every consumer should take active part to promote consumerism. For this, the consumers
should unite and undertake activities for spreading knowledge about consumer
protection, the rights and responsibilities.
8. Environmental protection:
It is the duty of every consumer to protect the environment. He can even make small efforts in
this direction. For example, he should throw the waste in dustbins in order to prevent dirt and
pollution.

9. No involvement in unethical activities:

When consumer is purchasing something, he should not overlook legal aspects. For example, he
should not involve in black-marketing, hoarding of goods or any such kind of unethical
practices.

Conclusion:
From this discussion it can be concluded that rather than simply claiming consumer rights, the
consumer should first fulfill his responsibilities. Such an approach will automatically eliminate
the use of many rights.

Question 2.
Explain the 3 tier dispute settlement system according to the Consumer Protection Act.
Answer:
To see that consumers are heard for their problems, the government has formed a three-tier
redressal system. These three tire are classified as district level, state level and national level.

Based on this tire system, the redressal system can be classified as:
(a) District Forums (District Consumer Disputes Redressal Forum (DCDRF)
(b) State level commissions (State Consumer Disputes Redressal Commissions) (SCDRC)
(c) National level commission (National Consumer Disputes Redressal Commission) (NCDRC)

The main objective of maintaining the three-tier redressal system is to make it fast and
economical.

Three-Tier Redressal System:

  If the consumer is dissatisfied with a product and finds that the product purchased by him
is either defective or not as promised, he can take up the matter to the three-tier redressal
system for getting justice. He can take the help of dispute settlement organizations set-up
within the three tier redressal system.
 Depending upon compensation value, the consumer can file the complain at the
concerned body.
 He can register the complaint either individually or in the capacity of a representative of
consumer association at the District, State or Central level.
 If the grievances are common to a group of consumers, then they can also complain
collectively.
 If the consumer is dead, even his legal heirs or his representative can file the complain.
Question 3.
What types of relief and compensation arc available to the consumer according to Consumer
Protection Act?
Answer:
Consumer Protection Act, 1986 gives 6 rights to consumers.They are discussed below.

1. Safety:

 Every consumer is entitled to get protection from products which are harmful to health.
For example, sub-standard electrical appliances can cause dangerous injuries to the
consumer and hence should not be used.
 Standardized and superior quality appliances should only be used so that they do not
cause harm to consumers.
2. Information:

 It is the right of a consumer to get all information regarding the product he wishes to
purchase. For example, he is entitled to information such as ingredients, manufacturing
date, directions for use, price, quality, weight, purity, etc.
 As per this right, a manufacturer is bound to display all information either, on the packing
or on the label of the product.
3. Choice:

 Every consumer has a right to choose the product he wishes to purchase.

 The consumer must get a product at a competitive price, in right quantity, right place and
at right time.
 The right of choice has led to production of variety of goods and services having different
quality, brand, price, size, etc.
  A fine example would be the two-wheeler vehicle industry. There are a large number of
options for scooter and motorcycles in the market in a wide price-band and features.
Consumer can select his choice of vehicle on the basis of engine power, features, colour,
design, price, etc.
4. Representation:

 If a consumer is dissatisfied with a product or a service, he has the right to represent his
problem i.e. complain.
 With this right in the mind, most business units have set-up their own complaint redressal
department. The consumers can call up and make a complain if they receive a faulty
product.
 Over and above this, there are several organizations which work for protecting the
consumers. These organizations help the consumers to file complain and deal with the
proceedings.
5. Redressal:

 The right to redressal says that if a consumer gets sub-standard quality of goods or
services as compared to what he has been promised then he has the right to get the
relief.
 The consumers are eligible for various types of relieves such as replacement of goods or
services or repair of the product or part.
 If at all the product has caused damage to the consumer he has the right to complain and
obtain compensation.
6. Consumer education:

 Every consumer has the right to get information about the product he buys or wish to
buy.
 The Act says that the consumer should get right quality and quantity at the given time
and place at an ideal price. In order to see that these aspects are taken care of, the
consumer has the right to get educated.
 If a product or a service is sub-standard as against the assured quality, then the consumer
know that he has the legal right to claim relief and or compensation.
 Most business units and organizations who work for consumer protection are also actively
working on educating consumers.
Over and above these six rights, The United Nations Organization (UNO) has issued a directive
recommending two more rights for the consumers.

They are:

1. Basic Needs
2. Hygienic Environment.
1. Basic needs:
This Right says that every person is entitled to basic needs such as adequate food, water,
clothing, shelter and health care required for survival.
2. Hygienic environment:

 As per this Right, every individual has the right to get pollution-free air, water, food and
land.
 Hygienic environment gives the person a good quality of life free from diseases.

Question 4.
Explain the working of Consumer Protection Institutions and Non-Government Organizations for
protection and maintenance of consumers’ interest.
Answer:
Role of Consumer Union and Non-Government Organizations (NGOs):

 In India, there are several consumer unions and Non-Government Organizations that are
actively working for maintaining and protecting the interests of consumer.
 NGOs are non-profit organizations. They work for the welfare of the people on their own.
 NGOs have their own independent constitution. The workers follow this constitution and
work accordingly for public welfare.
 Government does not interfere with the workings of NGOs.
NGOs that work specially for consumer welfare perform the following functions:

 Educating consumers about their rights through seminars, conferences and workshops.
 Publishing periodicals, notices, booklets, etc. to spread awareness regarding problems
faced by consumers, for legal awareness, eligibility of compensation and other favourable
information.
 Consumers are informed about the comparison of various products and services available
in the market, quality analysis by the authorized laboratories and their reports.
 Support to provide legal information to the consumers and aid for the legal formality.
 Essential support is provided to the consumers to oppose unethical, exploitative and
unfair sales practices of the sellers.
 Complaints are registered in the consumer court to protect the interest of the consumer.
 Provide complete assistance to consumers who want to complain in the Consumer Court.
 Consumer satisfaction and their related information are compiled and published.
 Releasing films and information for educating consumers.
 Consumer education programmes are organized in schools and colleges and students are
educated for consumer protection.
 Awareness is created against food adulteration.
 Providing support to government institutions which work for spreading consumer
awareness.
Gujarat Board Textbook Solutions Class 12 Organization of
Commerce and Management Chapter 12 Business Environment
GSEB Class 12 Organization of Commerce and Management Business Environment Text
Book Questions and Answers
1. Select the correct alternative and write answer to the following questions :
Question 1.
In which year the Industrial Development and Regulation Act came into force?
(A) 1951
(B)1955
(C)1969
(D)1986
Answer:
(A) 1951

Question 2.
In which year did Essential Commodities Act come into existence?
(A) 1951
(B)1955
(C)1969
(D)1986
Answer:
(B)1955

Question 3.
In which year did Trade Mark Act came into existence?
(A) 1951
(B)1955
(C)1969
(D)1986
Answer:
(C)1969

Question 4.
In which year Standardized Weights and Measures Act came into existence?
(A) 1951
(B)1955
(C)1969
(D)1986
Answer:
(C)1969

Question 5.
In which year did Consumer Protection Act came into force?
(A)1951
(B)1955
(C)1969
(D)1986
Answer:
(D)1986
Question 6.
In which year did liberalization privatization and globalization start in India?
(A) 1951
(B) 1991
(C) 2001
(D)2011
Answer:
(B) 1991

Question 7.
How is India’s currency symbolized?
(A) Rupees
(B) Rs.
(C) ₹
(D) SI
Answer:
(C) ₹

Question 8.
At present, which act is prevalent for foreign exchange in India?
(A) FERA
(B) FECA
(C) FESA
(D) FEMA
Answer:
(D) FEMA

Question 9.
Which of the following is not the benefit of privatization?
(A) Increase in productivity
(B) Absence of political interference
(C) Exploitation of employees
(D) Use of modern technology
Answer:
(C) Exploitation of employees

Question 10.
Which of the following options is benefit of privatization?
(A) Misuse of power by the top bureaucrats
(B) Unequal distribution of income and wealth
(C) Exploitation of consumers
(D) Production of quality goods and services
Answer:
(D) Production of quality goods and services

2. Answer the following questions in one sentence each :

Question 1.
Give only names of factors related to business environment.
Answer:
Economic, social, cultural, technological, political and legal factors.

Question 2.
Give name of groups related to business environment.
Answer:
Business environment includes many groups like consumers, competitors, suppliers of raw
materials, employees, etc.

Question 3.
Which are the two main classification of factors of business environment?
Answer:
Internal factors and external factors

Question 4.
Give only names of internal factors affecting business environement.
Answer:

 Business objectives,
 Employees and
 Managerial systems i.e. organizational structure.
Question 5.
When can there be an increase in per capita income?
Answer:
When the rate of income is higher than the population, the per capita income increases.

Question 6.
Which aspects are included in monetary policy?
Answer:
Monetary policy includes changes in interest rates, inflation rate, credit creation, credit
availability, etc.

Question 7.
Which aspects are included in fiscal policy?
Answer:
Tax structure and government expenditure.
Question 8.
Which aspects are included in cultural factors?
Answer:
Traditions, customs, beliefs, lifestyle, etc.

Question 9.
What initiative have the banks taken to simplify banking operations and understand the
procedure?
Answer:
Banks have started e-banking i.e. internet banking and m-banking i.e. mobile banking.

Question 10.
What is essential to get benefits of “E-banking” and ‘M-banking’?
Answer:
In order to use the facilities of e-banking, the person should have a computer with an internet
connection and for mobile banking, a smart phone with an internet connection.

3. Answer the following questions in short :

Question 1.
Give the meaning of business environment and list out the factors affecting business
environment.
Answer:

 Each and every business is related to several factors of the society. These factors could be
economic, social, cultural, technological, political and legal. These factors include many
groups like consumers, competitors, suppliers of raw materials, employees, etc. The
environment created by the group of all such factors that directly or indirectly affect the
business is called business environment.
 No business can operate on its own aloof from the society i.e. the factors of the society affect the
business environment and hence the business.
Business environment is highly dynamic and also quite uncertain.

(A) Internal factors

 Business objectives
 Employees
 Managerial systems i.e. organizational structure
(B) External factors

 Economic factors
(a) Economic systems
(b) Degree of economic development
(c) Regional development and international integration
(d) National and per capita income
(e) Distribution of national income
 (f) Monetary policy
(g) Fiscal policy
(h) Other factors
 Social factors
 Cultural factors
 Technological factors
 Political factors
 Legal factors

Question 2.
Why is continuous study of business environement required?
Answer:
Continuous study:

 Business houses direct the managerial teams to keep a track of business environment.
Large business units also carry out several studies such as market research, product and
consumer satisfaction, preference, etc.
 These studies help the units to increase their market size and profit.
 Study of business environment also helps the manager to understand future trends like
situation of capital market or future demand for the products produced by the business.
The business unit can then plan accordingly for its products and services.
Example:
Information technology based companies need to continuously study new software and
hardware coming up in the market and update their own products.

Question 3.
Give the meaning of economic factors affecting business environment and state the aspects
included in it.
Answer:

 Economic factors are the fundamental data about the market and economy taken into
consideration when an investment or business value is calculated.
  The economic factors of a country play a major role in deciding the special features or
limitation of its economy or society.
 The size and the nature of business development are also dependent on economic factors
prevailing in the nation.
Following aspects (economic factors) affect the business environment , of the country:

 Economic system
 Degree of economic development
 Sectorial growth and inter-sectorial combinations
 National income and per capita income
 Distribution of national income
 Monetary policy
 Fiscal policy
Question 4.
State the social factors affecting business environment.
Answer:
Social factors include religion, caste, sect, social norms, ideologies, etc. that exists in a particular
society.

Question 5.
Which political factors are affecting business environment?
Answer:
Factors related to government and financial ideologies of the ruling party.

Question 6.
Give the meaning of liberalization.
Answer:
The movement of business and trade from a controlled to an open and free system is called
liberalization.

Question 7.
What is privatization?
Answer:
The transfer of control and management of public sector enterprise to private sector or say, the
process of passing on the ownership and management of public sector unit to private firms is
called privatization.

Question 8.
Why is globalization important?
Answer:

 Globalization plays a major role in development of a country.

 Economy of an undeveloped country or an underdeveloped country can be boosted
through globalization. On the other hand, such countries can get the benefit of innovative
 and technologically advanced products of developed countries. This way economy of
developed countries, also grow.
 Globalization enables large scale production
 Consumers get improvised, technically upgraded product at an economical price.
 Opportunities of employment generation
 Consumers get quality products and service at a low price
 Infrastructure facilities rise rapidly
 Education level increases, industries grow, unemployment reduces
4. Answer the following questions in brief :
Question 1.
Explain the meaning and importance of business environment.
Answer:

 Each and every business is related to several factors of the society. These factors could be
economic, social, cultural, technological, political and legal. These factors include various
groups like consumers, competitors, suppliers of raw materials, employees, etc. The
environment created by the group of all such factors that directly or indirectly affect the
business is called business environment.
 No business can operate on its own aloof from the society i.e. the factors of the society
affect the business environment and hence the business.
 Business environment is highly dynamic and also quite uncertain.
Question 2.
Give the meaning of economic factors affecting business environment and explain them in
detail.
Answer:

 Economic factors are the fundamental data about the market and economy taken into
consideration when an investment or business value is calculated.
 The economic factors of a country play a major role in deciding the special features or
limitation of its economy or society.
 The size and the nature of business development are also dependent on economic factors
prevailing in the nation.
Following aspects (economic factors) affect the business environment , of the country:

 Economic system
 Degree of economic development
 Sectorial growth and inter-sectorial combinations
 National income and per capita income
 Distribution of national income
 Monetary policy
 Fiscal policy
Question 3.
Write notes on social and cultural factors affecting business environment.
Answer:
Effect of social factors on business environment:
  All the business activities originate, grow and end in the society. So naturally, society plays
a major role in the environment it gives for the business activities.
 A business activity can never be separated from the society. Society represents groups of
people, social institutions, social traditions, etc.
 The society of a nation constantly evolves and hence is dynamic in nature. As a result, the
lifestyle, preferences and practices also keep on changing. All these factors change the
business environment too.
 Beliefs and ideologies of people cannot remain same throughout. So, with time people
give importance to their decisions, ideologies and rituals to achieve their development.
 Before producing several type of products the producer needs to consider religion, caste,
sect, social norms, ideologies, etc. that exists in a particular society. The decision for the
economic activity will be largely affected by these parameters.
 For example, if the society is quite conservative with respect to clothing, then the
producer should not produce very bold clothes else he will face loss.
 The society or a section of society which does not restrict itself to all these social
constraint develops much faster. People of such societies are open to new ideas and are
ready to accept new products. As a result, business activities have a higher chance to
innovate and expand.
Effect of cultural factors on business environment:
Factors like, traditions, practices, life style, habits etc. are part of cultural factors. These factors
affect the decisions that a business unit takes.

 If the business management ignores the cultural factors prevailing in a society, there are
high chances for the business to fail.
 History has recorded several examples where in companies having strong management
have failed by neglecting cultural factors. And at the same, time various products which
are not economically acceptable have become acceptable because of cultural factors and
they have become successful.
 Cultural factors are constantly changing and these changes are constant and periodical.

Question 4.
What is liberalization? What steps are taken by the Indian government as a part of liberalization?
Answer:

 The movement of business and trade from a controlled to an open and free system is
called liberalization. In other words, liberalization is the removal of certain restrictions laid
on private business units.
 In India, there were several restrictions on private business units between the year 1947
and 1991.
 In July, 1991, the government declared the policy of liberalization and started removing
several restrictions phase wise so that business units could trade freely and prosper.
 In certain sectors, controls have been removed completely or to a maximum extent.
Effects of Liberalization (Steps taken by the Indian government):
1. The government removed barrier of foreign direct investment (FDI) in Indian industries.
The government also increased the limit of FDI which was quite low before. Moreover, to attract
foreign investors and businessmen, various economic and non-economic incentives and
exemptions are being given.

2. To attract more foreign investments in Indian equity market, the procedure of purchase and
sale of shares have been made completely transparent by taking various steps.
Dematerialization (DEMAT) service has been introduced to convert the physical shares in
electronic form. Due to this the purchase and sale of shares and the transactions of money
involved therein became more transparent. The procedure of trading has been developed as per
international norms.

3. Government took several steps to make the tax structure simpler and transparent.
Procedure for sales tax and excise duty were simplified. Recently the government removed sales
tax and excise duty and introduced a common tax called GST (Goods and Service Tax).
Introduction of GST has simplified the tax structure and made it more transparent.

4. India introduced a new symbol of T for its currency so as to certify Indian currency. Indian
currency (INR) is given few reliefs under certain terms and conditions in forex market.

5. Before liberalization, most industries were dependent on licenses that they had to procure
from the government by undergoing a very tedious and time consuming procedure. After 1991,
the government removed the License Raj (License System) and made the registration of new
firms quite simple.

6. The government makes several efforts to increase the export. These include giving various
incentives to Indian industries to promote exports and removing several import duties.

7. Foreign Exchange Regulation Act (FERA) is cancelled and Foreign Exchange Management Act
(FEMA) has been introduced. Under FEMA, the government diverts the foreign exchange
towards the development of trade and commerce of our country.

8. Various changes have been made in Monopolies and Restrictive Trade Practices Act (MRTP
Act) and a number of relaxations have been given in it. However, restrictions are still there to
control unethical business practices.

9. The Reserve Bank of India has given freedom to various banks to decide their deposit and
lending rate of interest, subject to certain conditions.

10. Imports of goods and services and payment of foreign exchange have become easier. It is
now quite easy to avail foreign exchange for the purpose of foreign tours, sending children for
foreign education or for the purchase of property in the foreign country.

Question 5.
What is privatization? Write a note on effects of privatization.
Answer:
Privatization:
The transfer of control and management of public sector enterprise to private sector or say, the
process of passing on the ownership and management of public sector unit to private firms is
called privatization.

Advantages and disadvantages of privatization:

(A) Positive effects of privatization:

 Rise in production efficiency

 Absence of political interference
 Improved quality goods and services
 Systematic marketing
 Use of modern technology
 Hierarchical set-up for accountability
 Creation of competitive environment
 Advancement in research and development
 Advancement in modernization and innovation
 Maximum utilization of factors of production
 Growth of infrastructural facilities
(B) Negative effects of privatization:

 Exploitation of employees
 Misuse of powers by top management
 Unequal distribution of income and wealth
 Absence of job security
 Priority to profit
 Consumer exploitation, etc.
5. Answer the following questions in detail :
Question 1.
Give the meaning of business environment and state the importance of the study of business
environment.
Answer:

 Each and every business is related to several factors of the society. These factors could be
economic, social, cultural, technological, political and legal. These factors include various
groups like consumers, competitors, suppliers of raw materials, employees, etc. The
environment created by the group of all such factors that directly or indirectly affect the
business is called business environment.
 No business can operate on its own aloof from the society i.e. the factors of the society
affect the business environment and hence the business.
 Business environment is highly dynamic and also quite uncertain.
Importance of business environment:
1. Advantage of early entry:
  By studying business environment, the business unit can understand market opportunities
in a better way and hence it becomes easy to introduce the product in the market.
 If the producer is well aware, he may update products well before his competitors, and
earn high profit.
2. Sensitivity of the management:

 In today’s time, the management has become quite sensitive towards the factors affecting
business environment.
 Since profit is the main objective of every business, a constant study of factors affecting
business increases the profitability.
3. To grab opportunities:

 Business environment provides various opportunities. If one can understand and focus
properly then the opportunities can be grabbed and profit can be increased.
 For example, there is a continuous rise in the prices of petrol and diesel. Here lies the
opportunity to develop either fuel efficient vehicles or vehicles that work on electric or
solar power.
4. Identifying dangers:

 The business environment is highly dynamic i.e. it changes continuously. Hence, there is
always risk for the producer for acceptance of his product in the market.
 If the producer can identify such dangers well in advance, he can bring necessary changes
and save his product line.
5. Helpful in policy decisions:

 Understanding the business environment helps in deciding correct business policies.

 For example, initially, the government companies used to take care of insurance business,
but in 1991, the government changed its policy and allowed private companies to enter
into insurance business.
 Government saw that the business was expanding in India and it became quite important
to expand insurance services so that people could do business with ease.
 Later, the government also allowed foreign direct investment in private Indian insurance
companies. This further allowed various new business houses to enter in the field of
insurance.
6. Continuous study:

 Business houses direct the managerial teams to keep a track of business environment.
Large business units also carry out several studies such as market research, product and
consumer satisfaction, preference, etc.
 These studies help the units to increase their market size and profit.
 Study of business environment also helps the manager to understand future trends like
situation of capital market or future demand for the products produced by the business.
Question 2.
“Business environment creates opportunities as well as obstacles” – Explain.
Answer:
  The environment created by the group of all such factors that directly or indirectly affect
the business is called business environment.
 Business environment is dependent on economic, social, cultural, technological, political
and legal factors. These factors include many groups like consumers, competitors,
suppliers of raw materials, employees, etc.
 The business environment created due to these factors give rise to opportunities as well
as obstacles.
Let us study them:
(A) Opportunities created by business environment:

 If the country follows capitalistic type economic system, it means that the country will
adopt a policy of free trade. In this system, the government allows
the producer to take all the major decisions with respect to production and distribution.
The business unit can take advantage of this policy.
 Government implements several schemes for the growth of the three major sectors such
as agriculture, industries and service. These schemes open new doors of growth and
opportunities.
 As the developing country grows, industries such as transport, communication, banking
and insurance, etc. also get boosted. New employment is generated and national income
increases.
 When the national income increases, demand for luxurious and prestigious products
increase. This creates opportunities for market of such products.
 With the advancement of society, people’s preference, taste and adaptability towards new
goods increase. This gives rise to new markets and hence opportunities.
 If changes in the monetary policy are positive, the demand for capital for new businesses,
new house, etc. increases. Also, opportunities for steel, cement, banking and insurance,
etc, industries increase.
 Ruling parties can pass certain acts favourable to the society and industry. These acts
create business opportunities. For example, development of public infrastructure,
cleanliness drive, moving to eco-friendly products, etc. all create new opportunities.
(B) Obstacles created by business environment:

 In socialist economy, the government controls and regulates the trade. In this system all
major decisions are taken by the government. Individuals do not have a major role to
play. Such a business environment is a hindrance to innovation and efficiency.
 The government gives various subsidies in the agriculture sector. As a result, people tend
to remain in agriculture and do not move to other sectors. This hinders the employment
rate of other sectors. Moreover, the capital distributed as subsidies could be used for
important projects in other sectors.
 As the country develops, the business environment rises and shifts from agriculture to
industries and finally to service. Flowever, it is important that the country maintains a fine
balance between these three sectors. Many a times, the balance gets disturbed and the
other sectors do not get proper attention.
 Rise in national income increases demand for better and luxurious products. But, if the
income is unequally divided then it leads to class difference and social conflicts.
  If the political parties are biased and slow in decision making, the decisions taken become
obstacle for the growth of the nation.

Question 3.
State the technological factors, political factors and legal factors affecting business environment.
Answer:
Effect of technological factors on business environment:

 Technological factors affect the production decision and hence the business environment
of a region.
 Based on the technological factors, the producer needs to decide as to what technology
should he adopt to produce goods so that he can deliver the best possible products and
increase profit.
 Research and Development (R & D) takes place at a very fast rate across the world. This
leads to constant improvement in technology of production and processing methods. The
country has to adopt these changes else it will not be able to compete the international
market and the businesses will start making losses.
 For example, there was a time when India believed that use of machines should be kept at
its lowest to enable employment generation. But India had to adopt fast mechanization
owing to liberalization of industrial policy.
 Many industries have started using robotic machines. Using such machines products can
be produced much faster that too with very high precision.
 In banking sector, internet banking and mobile banking have become quite common now.
People use these technologies to save time and effort. These technologies have given rise
to a new level of business environment where in the need for development of banking
software, mobile applications, etc. have increased tremendously.
Political factors affect business environment:

 Factors related to government and financial ideologies of the ruling party are known as
political factors.
 The ruling parties frame various laws in the nation. They also establish several policies to
expand trade and commerce in the nation. How well the party does all these tasks decide
the business environment of the nation.
Example:

 In West Bengal, there was a large opposition for Nano car project of Tata group. This
opposition was so fierce that Tata group had to leave West Bengal. Gujarat government
took this as opportunity and provided various incentives to the Tata group to establish
their Nano car production plant at Sanand near Ahmedabad.
 Tata agreed and as a result, several ancillary industries also came up at Sanand along with
Tata. This is a fine example of active role of the political party to grab the opportunity and
establish positive business environment.
Legal factors affecting business environment:
  Acts approved by the Parliament and/or the Assembly which then become laws become
the legal factors that affect the economy of the nation. Every business unit need to follow
these acts.
 In order to boost business as well as maintain social welfare, the government passes
various laws.
 Industrial Development and Regulation Act 1951, Essential Commodities Act 1955, Trade
Mark Act 1969, Standard of Weights and Measures Act 1969, Consumer Protection Act
1986, etc. are few examples of trade related laws passed by the government.
 As per the need of the hour, the government also amends the laws and at times removes
the unnecessary laws. For example, when the government amended Monopolies and
Restrictive Trade Practices (MRTP) Act 1951, several Indian companies could grow and
make themselves at par with international companies.
Question 4.
What is privatization? State the factors which led to privatization and explain the favourable
effects of privatization on the Indian economy.
Answer:
Privatization:
The transfer of control and management of public sector enterprise to private sector or say, the
process of passing on the ownership and management of public sector unit to private firms is
called privatization.

Privatization in India:

 When India became independent, its economic condition was very bad. To grow the
economy rapidly it was important that large scale industries be set-up. However, the
private sector was not ready to invest in heavy industries fearing lesser and slower returns
against heavy investment.
 So, the government decided to encourage public sector industries. Government had a
vision that public sector would help in creating necessary infrastructure in the nation for
other industries, trade and commerce.
 With all these factors and visions, production of goods and services through public sector
enterprises started in India. Government gave prime importance to public sector in its
various five year plans.
 After 1991, India decided that it will allow private companies to take over sick public
sector companies as well as to venture into those industries which were till then only
under public sector.
 As a part of privatization, the structure of continuously loss making units was changed
and few very sick units were closed.
 Many public sectors offered equity shares to the general public and increased public
private partnership.
 When shares are sold to private enterprise, it is known as privatization. When public
sector units offer its capital for the participation of general public, it is known as
disinvestment. Government of India has started separate ministry ‘ for disinvestment.
Privatization was also done to increase the efficiency of industries and to achieve targets which
the public sector was not able to.
Reasons for inefficient public sector units include:

 Bureaucracy
 Obsolete technology
 Rising corruption and bribery
 Absence of accountability
 Growing influence of labour unions
 Political interference, etc.
Positive effects of privatization:

 Rise in production efficiency

 Absence of political interference
 Improved quality goods and services
 Systematic marketing
 Use of modern technology
 Hierarchical set-up for accountability
 Creation of competitive environment
 Advancement in research and development
 Advancement in modernization and innovation
 Maximum utilization of factors of production
 Growth of infrastructural facilities
Apart from this, there are also several negative effects of privatization but still, government is
promoting it.

 Under privatization, the government has given a number of public sector units to private
sector. The government owns 51 % or more equity capital in these units and rest
percentage is sold either to private sector or general public.
 Thus, the period in between 1951 to 1991 was dominated by public sector but after 1991
private sector marched ahead of public sector and is still dominating.
Question 5.
Give the meaning of globalization and explain it in detail.
Answer:

 When a country permits foreign companies to do business in their domestic economy and
allows domestic companies to do business globally, it is known as globalization.
 Earlier, every country used to protect its industries from foreign competition and did not
accept globalization.
 Later, the companies of developed countries established industries or started selling their
goods and services in developing and undeveloped countries. Subsequently, developing
and under developed countries also allowed their companies to do business in other
countries.
 Globalization is a two way activity. The way multinational companies get permission to
start industries in other countries, in the same way domestic companies can also seek
permission to do business in developed countries. This way the industries get
international exposure.
  In order to develop business and industry of the entire world, an arrangement and specific
rules and regulation was needed at the international level. With this objective, the World
Trade Organization (WTO) was formed.
 WTO makes effort to see that trade between nations take place smoothly as per the
guidelines.
 It enables its member countries to eliminate the barriers that arise in the path of
globalization. India is a member of WTO since its inception and hence the process of
globalization has become slightly easier for India.
 WTO was established from GATT (General Agreement on Tariffs and Trade). As a part of
the policy of globalization, India has accepted the GATT. It has also accepted foreign
products and services to enter the country subject to certain conditions.
 Globalization has enabled a fast growth of service sector.
 Services such as banking, insurance, transportation, communication grew rapidly and also
crossed countries.
 Owing to globalization, the world has now become a global village. India has also
globalized quite rapidly.

Question 6.
Give your views on the positive and negative effects of globalization on the Indian economy.
Answer:
Positive effects of globalization:

 Large scale production

 Increased competition leads to greater consumer protection
 Consumers get improvised, technically upgraded product at an economical price
 Opportunities of employment generation
 Consumers will be able to use quality products and service at a low price
 Speedier generation of infrastructural facilities in the country
 Increased importance of education has led to increase in spread of education
 Easier to set up new industries
 The whole world is becoming a global village
 Freedom from political bureaucracy and red tapism.
Negative effects of globalization:

 Arrangement for market set-up becomes difficult and costly

 Rise in the production of luxurious goods and services at the cost of necessities
 New problems arises because of the change in human mentality
 Rise in inequalities of income and wealth distribution
 Spread of economic situation of one country or continent to other countries quickly
 Competition is at the cost of ethical values
 Larger units get more profit and small scale units experience difficulty to survive
 When the spread of education is relatively lesser than the spread of development, the
competitive ability of employees become weak
 Multinational companies show more loyalty to their home country rather than – to the
host country
 Internationally renowned companies influence the monetary policy of the country which is
suitable to them by collaborating with the political parties.