UNIT I

Management: - Management in all business & organizational activities is the act of

getting people together to accomplish desired goals & objectives using available
resources efficiently & effectively. Management comprises planning, organising,
staffing, leading or directing & controlling an organisation or effort for the purpose of
accomplishing a goal.
Definitions: 1. Management is the art of getting things done through others Mary Parker
Follet.
2. Management is guiding human & physical resources in to dynamic organisational
units which attain their objectives to the satisfaction of those served within a high
degree of moral & sense of attainment on the part of those rendering services
American Marketing Association.
Nature or scope or characteristics: 1. Management is a group activity.
2. Management is goal oriented.
3. Management is a factor of production.
4. Management is universal in character.
5. Management is needed at all levels of the organisation.
6. Management is distinct process.
7. Management is a system of authority.
8. Management is a dynamic function.
9. Management is an art as well as science.
10. Management is a profession.
Principles of Management: - A principle refers to a fundamental truth. It serves as a
guide to thought & actions. Management principles are the statements of
fundamental truth based on logic which provides guidelines for managerial decision
making & actions. These principles are derived,
a. On the basis of observation & analysis i.e. practical experience of managers.
b. By conducting experimental studies.
14 Principles of Management described by Henri Fayol: 1. Division of work.
2. Authority & responsibility.
3. Delegation of work & authority.
4. Unity of direction One plan for group of activities.
5. Unity of command Orders & instructions from only one boss.
6. Equity Fairness, Kindness & justice.

7. Order Proper & systematic arrangement of things & people.

8. Discipline Sincerity, obedience.
9. Initiative Workers should be encouraged to take initiative in the work assigned to
them.
10. Fair remuneration Remuneration should be fair & satisfactory.
11. Stability Employees shouldnt be moved frequently.
12. Scalar chain Ranging from authority to the lowest.
13. Centralization & Decentralization.
14. Espirit De Corps Team spirit.
Levels of Management: 1. Top level.
2. Middle level.
3. Lower level.

Features of Principles of Management: 1. Principles of management are universal.

2. Principles of management are flexible.
3. Principles of management have a cause & effect relationship.
4. Principles of management aim at influencing human behavior.
5. Principles of management are of equal importance.
Scientific Management: - Scientific Management also called Taylorism. It was a
theory of management that analyzed & synthesized workflows. Its main objective was
improving economic efficiency, especially labour productivity. Its development began
with Fredrick Winslow Taylor in the 1880s & 1890s with in the manufacturing
industries.
Definition: - Scientific Management means knowing exactly what you want men to
do & seeing that they do it in the best and the cheapest way F.W.Taylor.

Nature/Features: 1. It is systematic, analytical & objective approach to solve industrial problems.

2. It implies scientific techniques in method of work, recruitment, selection & training
of workers.
3. It attempts to discover the best method of doing a work at a cheapest cost.
4. It discards the age of old methods of rule of thumb.
5. It involves a complete change in the mental attitude of workers as well as the
management.
6. It lays emphasis on all factors of production, men, material & technology.
7. It attempts to develop each man to his greatest efficiency & prosperity.
Aims & Objectives: 1. To achieve increased production, reduced costs & maximum efficiency.
2. To provide trained & efficient workforce.
3. To standardize methods of work, material & equipment.
4. To develop science for each of element of a mans work.
5. To replace old rule of thumb.
6. To select, train, teach & appoint workmen scientifically.
7. To promote co operation.
8. To ensure division of work & responsibility.
Phases/Principles: 1. The development of a science for each element of mans work which will replace
the old rule of thumb method.
2. Scientific selection & training of workmen instead of the old practice of allocating
the worker to choose his own work & to train himself.
3. Co operation of the management with the workers so as to ensure all the work
being done in accordance with the principles of the science which has been
developed.
4. Almost equal division of the work & the responsibility b/w the management & the
workmen.
Benefits: 1. Increase in production & productivity.
2. Reduction in cost of production.
3. Better quality products.
4. Proper selection & training of workers.
5. Better working conditions.
6. Better utilization of resources.
7. Gains to consumers.

Criticisms: I. Workers Criticisms: 1. Speeding up of workers.

2. Loss of workers skill & initiative.
3. Unemployment.
4. Discrimination b/w workers Efficient workers get more wages.
II. Employers Criticisms: 1. Expensive.
2. Reorganisation.
3. Unsuitable for small scale units.
4. Over production.
III. Psychologists Criticisms: 1. Mechanical in nature.
2. Speed up of workers.
3. Monotony.
4. Absence of non wage incentives.
Managerial Functions: - The functions which describe managerial job, when put
together make up the management process. This process is analysed in to key
functions of management. As all the functions are not equally important for all
managers, time spent by them for each of these functions varies according to their
levels in the organisation. The managerial functions are,
1. Planning: Planning refers to anticipate the opportunity, problems & conditions &
choosing from among the alternative future courses of action. It includes the following
activities.
a. Forecasting.
b. Establishing objectives.
c. Programming.
d. Scheduling.
e. Budgeting.
f. Establishing procedures.
g. Developing policies.
2. Organizing: - It is the process of defining & grouping of activities & creating
authority relationship among them. It consists of,
a. Developing the organisation structure.
b. Delegating authority.
c. Establishing relations.

3. Staffing: - It involves selection, training & development, compensation & appraisal

of subordinates by the manager.
4. Directing: - It involves managing people & the work through the means of
motivation, proper leadership, effective communication & co ordination.
5. Coordinating: - It involves bringing proper coordination b/w activities & workers.
6. Controlling: - It enables management to ensure that achievement is in
accordance with the established plans. It involves,
a. Establishing performance standards.
b. Performance evaluation.
c. Corrective action.
Business: - The business is an activity which is primarily pursued with the object of
earning profits. A business activity involves production, exchange of goods & services
to earn profits or earn a living. The word business means a state of being busy.
Features or Nature: 1. Entrepreneur.
2. Economic activities.
3. Exchange of goods & services.
4. Profit motive.
5. Risk & uncertainty.
6. Continuity of transactions.
7. Creation of utility.
8. Organisation.
9. Financing.
10. Consumer satisfaction.
Essentials of successful business: 1. Setting objectives.
2. Proper planning.
3. Proper financial planning.
4. Marketing system.
5. Dynamic leadership.
6. Research.
10 Qualities of a successful businessmen: 1. Knowledge of business.
2. Impressive personality.
3. Hard working.
4. Co operative.
5. Courageous.

6. Initiative & decision making power.

7. Relations with employees & customers.
8. Honesty.
9. Responsibility.
10. Discipline.
Sole Proprietorship: - Sole trader is the oldest & most commonly used form of
business organisation. In this an individual is at the helm of affairs. He makes all the
investments, shares, risks, takes all profits, manages & controls the business himself.
The sole trader mainly depends upon his own resources. The business is normally
run with the help of family members but he may employ persons to look after the day
to day activities of the business.
Characteristics: 1. Individual initiative.
2. Unlimited liability.
3. Full management & control.
4. Secrecy.
5. Proprietor & Proprietorship are one.
6. Limited area of operations.
Advantages: 1. Easy in formation.
2. Better control.
3. Flexibility in operations.
4. Secrecy.
5. Quick decision making.
Disadvantages: 1. Limited resources.
2. Limited managerial liability.
3. Uncertain continuity.
4. Limited scope for employees.
5. More risk involved.
Partnership: - A partnership is an association of two or more persons to carry on as
co owners, a business & to share its profits & losses. When the business expands
in size, the proprietor finds it difficult to manage the business & is forced to take more
outsiders who will not only provide additional capital but also assist him in managing
the business on sound lines.

Definition: - The relation b/w persons who have agreed to share profits of a
business carried on by all or any of them acting for all Section 4 of Partnership Act,
1932.
Characteristics: 1. Association of two or more persons.
2. Contractual relationship.
3. Earning of profits.
4. Existence of business.
5. Unlimited liability.
6. Utmost good faith.
7. Restriction on transfer of shares.
8. Partners & Partnership are one.
Kinds: 1. Active Partner Who takes active part in the day to day work activities.
2. Sleeping Partner Who contributes capital, shares profits, but not take part in the
work concern.
3. Nominal Partner Who just lends his name for the firm no contribution & no
share in business.
4. Partner in Profits Shares profits but not losses, not allowed to take part in
management of business.
5. Partner by Estoppel or Holding out Person is not a partner but poses himself
as a partner either by words or by acts.
6. Secret Partner His membership is kept secret from outsiders.
7. Sub Partner Associating anybody in share or giving a part of his share to
stranger.
8. Minor as a partner Person who has not yet attained the age of majority.
Ideal Partnership Elements: 1. Understanding among partners.
2. Good faith.
3. Sufficient capital.
4. Long duration.
5. Balance of skill & talent.
6. Written agreement.
7. Registration.
Advantages: 1. Easy to form.
2. Large resources.

3. More credit standing.

4. Sharing of risk.
5. More growth & expansion.
6. Flexibility in operations.
Disadvantages: 1. Unlimited liability.
2. Limited resources.
3. Mutual distrust.
4. Limitations on transfer of share.
5. Lack of prompt decisions.
Rights of a Partner: 1. To take part in business.
2. Right to be consulted.
3. Right to inspect records.
4. Equal share in profits.
5. No new partner admitted without consultation.
Duties of a Partner: 1. Honesty & discipline.
2. Sharing losses.
3. Correct accounts.
4. No competing business.
5. No secret profit.
Suitability: 1. Managerial requirement & capital requirement is there.
2. Suitable for small & medium scale concerns.
3. Direct contact with the customers.
Differences b/w Sole Trading & Partnership
Elements
Sole Trading
Partnership
1. Membership 1. Owned & controlled by only 1. Two or more persons known as
2. Agreement

one person.
partners.
2. Does not require any formal 2. An agreement is required.

3. Registration

agreement.
3. No registration is required.

4. Management

advantages.
4. Controlled by one person 4. All partners have equal rights &
only

5. Secrecy

and

he

is

the

3. Needs registration to get certain

final all of them can participate in

authority.
management.
5. Complete secrecy in the 5. Fear of leaking them out.
business.

6. Risk

6. The whole risk is shared by 6. Shared by all the partners in

7. Capital

the sole trader.

proportion of their shares.
7. Only one persons resources 7. All the partners contribute

8. Uncertainty

used in the business.

towards capital of the firm.
8. The life of sole trading 8. The life of partnership is more
business is more uncertain.

certain.

Joint Stock Company: - Joint Stock Company emerges from the limitations of
Partnership. The main principle of Joint Stock Company firm is to provide opportunity
to take part in business with as low investments as possible say Rs 1,000/-. This
system is very useful for large undertakings which require huge capital. Here the
capital is divided in to certain units, each unit is called a share. The price of each
share is kept so low that even a common man can find it comfortable to pick it up.
The word company has a Latin origin com means come together, pany means
bread. Joint Stock Company means, people come together to earn their livelihood.
Features: 1. Artificial person.
2. Separate legal existence.
3. Voluntary association of persons.
4. Limited liability.
5. Capital is divided in to shares.
6. Transferability of shares.
7. Common seal.
8. Continuous dealings.
9. Ownership & management are separate.
10. Name ends with limited.
Formation: 1. Seek permission from the Securities Exchange Board of India (SEBI).
2. File prospects with Registrar.
3. Collecting minimum subscription.
4. Allotting shares.
5. Apply to Registrar for the certificate of commencement of business.
Advantages: 1. Mobilisation of larger resources.
2. Separate legal entity.
3. Limited liability.
4. Transferability of shares.
5. Liquidity of investments.

6. Inculcates habit of savings & investments.

7. Continued existence.
Disadvantages: 1. Formation is a long procedure.
2. High Government interference.
3. Delay in decision making.
4. Lack of responsibility.
5. Expecting higher prices.
6. Higher taxes.
Suitability: 1. Where there is need for high development.
2. Where there is need for large funds.
3. Where there is need for specialization.
4. Where there is need for Government control or interference.
Documents for Company Formation: 1. Memorandum of Association It consists the company name, its objectives,
liabilities of people, capital issues & the subscription of shares etc.
2. Articles of Association It consists the amount of share capital, types of shares,
transfer of shares, board meetings procedure, rights & duties of directors,
appointment & removal of directors, their remuneration, accounts audit, common seal
etc.
3. Prospectus It will be prepared to invite offers from public for subscription or
purchase of shares. It consists of name & address of office, nature of business, types
of shares, opening & closing date of public offer, amount of reserve fund, names of
auditors etc.
Private Limited v/s Public Limited Companies

1.

Elements
Minimum Paid

Private Company
up 1. Minimum 1,00,000.

Public Company
1. Minimum 5,00,000.

Capital.
2. Minimum number of 2. Minimum 2.

2. At least 7.

shares.
3. Maximum number of 3. Restricted to 50.

3. No restrictions.

members.
4.Transferability of shares.
5. Issue of Prospectus.
6. Number of Directors.
7. Qualification shares.

4. No restrictions.
5. Can issue.
6. At least 3.
7. Required to sign an

4. Complete restriction.
5. Cant issue.
6. 2 directors.
7. Need not sign an
undertaking

to

acquire undertaking

to

acquire

8.

Commencement

qualification shares.
of 8.
Immediately

qualification shares.
after 8.
Certificate

of

Business.
9. Further issue of Shares.

incorporation.
9. Will not be there.

commencement is needed.
9.
Only
method
to

10. Quorum.

generate money.
10. Two members present 10. Five members present

11.Managerial

personally.
11. No restrictions.

Remuneration.
12. Special Privileges.

net profits.
12. Enjoys some special 12. Not available.

personally.
11. Cannot exceed 11%

privileges.
UNIT II
Interest: - Interest may be defined as the paid money for the use of borrowed
capital. It may also be defined as the income produced by money which has been
loaned.
Simple Interest: - Simple Interest is directly proportional to time & total interest is
payable at the end of specified period usually one year.
A = P (1+in)
A = Accumulated Amount Final.
P = Principal Amount Initial.
i = Rate of Interest.
n = Number of years in the period.
1. Sarah borrows Rs 5,000 from her neighbour at an agreed simple interest rate of
12.5% p.a. She will pay back the loan in one lump sum at the end of 2 years. How
much will she have to pay her neighbour?
P = 5,000.
i = 0.125
n = 2.
A = P (1+in)
= 5,000 (1+0.125x2)
= 5,000 (1+0.25)
= 5,000 (1.25)
= 6,250 Rs.
2. Karthik deposits R 1000 into a special bank account which pays a simple interest
rate of 7% p.a. for 3 years, how much will be in her account at the end of the
investment term?
P = 1,000.
i = 0.07

n = 3.
A = P (1+in)
= 1,000 (1+0.07x3)
= 1,000 (1+0.21)
= 1,000 (1.21)
= 1,210 Rs.
Compound Interest: - When the interest due at the end of the period is paid it
becomes a part of the principal & itself earns interest along with the principal, it is
called compound interest.
C = P (1+i)n
If interest is paid more than once in a year i.e quarterly or semi annually etc, the
formula is,
C = P (1+i/m)nxt
CAF = Compound Amount Factor.
P = Principal Amount.
i = Rate of Interest.
n = Number of years in the period.
m = Number of periods per year.
t = Number of periods per year.
1. Calculate Compound Interest when Rs 2,000 are lent at 9% interest rate for 3
years (being compounded semi annually).
C = P (1+i/m)nxt
= 2,000 (1+0.09/2)3x2
= 2,000 (1+0.045)6
= 2,000 (1.045)6
= 2,000 (1.31)
= 2,620 Rs.
2. Calculate Compound Interest when Rs 1,500 are lent at 4.3% interest rate for 6
years (being compounded quarterly).
C = P (1+i/m)nxt
= 1,500 (1+0.043/4)6x4
= 1,500 (1+0.01075)24
= 2,000 (1.01075)24
= 2,000 (1.29256)
= 1,938.84 Rs.

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

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

Plan A

Plan B

Cost of machinery

50,000

1,20,000

Life time

20 years

40 years

Salvage Value

10,000

20,000

Annual expenses

9,000

6,000

Interest rate

11%

11%
Plan A

A1 = P [i(1+i)n/(1+i) n-1]
= 50,000 [0.11(1.11)20/(1.11) 20-1]
= 50,000 [0.11(8.062)/(8.062)-1]
= 50,000 [0.88682/7.062]
= 50,000 [0.12557]
= 6,278 Rs.
A2 = F [i/(1+i)n-1]
= 10,000 [0.11/(1+0.11)20-1]
= 10,000 [0.11/(1.11)20-1]
= 10,000 [0.11/8.062-1]
= 10,000 [0.11/7.062]
= 10,000 [0.015576]
= 155.76 Rs
Therefore A = (A1-A2) + Annual expenses
= 6,278.5 155.76 + 9,000
= 15,122.74 Rs
Plan B
A1 = P [i(1+i)n/(1+i) n-1]
= 1,20,000 [0.11(1.11)40/(1.11) 40-1]
= 1,20,000 [0.11(65)/(65)-1]
= 1,20,000 [7.15/64]
= 1,20,000 [0.1117]
= 13,406.25 Rs.
A2 = F [i/(1+i)n-1]
= 20,000 [0.11/(1+0.11)40-1]
= 20,000 [0.11/65-1]
= 20,000 [0.11/64]
= 20,000 [0.0017]
= 34.375 Rs
Therefore A = (A1-A2) + Annual expenses
= 13,406.25 34.375 + 6,000
= 19,371.875 Rs

Of both the plans annuity in Plan A is minimum, therefore Plan A is the best one.
Present Worth Method: - In this method you will try to find out the present value
based up on future and annuity values.
1. P = F [1/(1+i)n]
2. P = A [(1+i)n-1/i(1+i)n]
1. You want to buy a house 5 years after for Rs 1,50,000. Assuming 6% interest rate
annually how much should you invest today to yield 1,50,000 in 5 years.
P = F [1/(1+i)n]
= 1,50,000[1/(1+0.06)5]
= 1,50,000[1/(1.06)5]
= 1,50,000[1/1.338]
= 1,50,000[0.74738415545]
= 1,12,107.62 Rs
2. Opening a new centre requires some amount for a company. They expect that
centre will generate net annual cash flows of 75,000 a year for 10 years. Rate of
interest is at 15%. Calculate the present capital you need.
P = A [(1+i)n-1/i(1+i)n]
= 75,000 [(1+0.15)10-1/(0.15)(1+0.15)10]
= 75,000 [(1.15)10-1/(0.15)(1.15)10]
= 75,000 [4.04556-1/(0.15)( 4.04556)]
= 75,000 [3.04556/0.606834]
= 75,000 [5.01876955]
= 3,76,407.716 Rs
Present Worth Extra Problem
3. The data regarding the initial costs of two equipments A & B are given below. Find
out the economical machine for selection by using present worth method.
Particulars

Equipment A

Equipment B

Initial Cost

10,000 (not correct)

15,000 (not correct)

Operating Cost p/y

1,000

800

Life of Equipment

4 Years

5 Years

Interest rate

10%

10%

(Expected)

Equipment A
I Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)1]
= 1,000(0.909)
= 909 Rs

II Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)2]
= 1,000(0.826)
= 826 Rs
III Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)3]
= 1,000(0.751)
= 751 Rs
IV Year P = F [1/(1+i)n]
= 1,000[1/(1+0.10)4]
= 1,000(0.683)
= 683 Rs
Therefore total present worth = 10,000 + 909 + 826 + 751 + 683 = 13,169 Rs
Equipment B
I Year P = F [1/(1+i)n]
= 800[1/(1+0.10)1]
= 800(0.90875)
= 727 Rs
II Year P = F [1/(1+i)n]
= 800[1/(1+0.10)2]
= 800(0.82625)
= 661 Rs
III Year P = F [1/(1+i)n]
= 800[1/(1+0.10)3]
= 800(0.75125)
= 601 Rs
IV Year P = F [1/(1+i)n]
= 800[1/(1+0.10)4]
= 800(0.6825)
= 546 Rs
V Year P = F [1/(1+i)n]
= 800[1/(1+0.10)5]
= 800(0.62125)
= 497 Rs
Therefore total present worth = 15,000 + 727 + 661 + 601 + 546 + 497 = 18,032 Rs
As Equipment A expenditure is less it is economical.

Future Worth Method: - In this method you will try to find out the future value based
up on present and annuity values.
1. F = P (1+i)n
2. F = A [(1+i)n-1/i]
1. If Mr. A is making 5 annual deposits of Rs 500/- each at 7% annually starting from
now, what will be the amount at the end of five years.
F = A [(1+i)n-1/i]
= 500 [(1+0.07)5-1/0.07]
= 500 [(1.07)5-1/0.07]
= 500 [1.403-1/0.07]
= 500 [0.403/0.07]
= 500 [5.757]
= 2.878.5 Rs
2. You have 1,12,107.62 Rs with you at present & you want to invest them in a bank
for 5 years at an interest rate of 6%. How much amount do you get after 5 years.
F = P (1+i)n
= 1,12,107.62 (1+0.06)5
= 1,12,107.62 (1.06)5
= 1,12,107.62 (1.338)
= 1,50,000 Rs
Depreciation: - Depreciation is the permanent & gradual decrease in the quality or
value of an asset every year. The word depreciation is derived from the Latin word
Depretium. De means decline & Pretium means price. It means decline in value of
asset.
Definition: - Depreciation is the gradual decrease in the value of asset from any
cause Carter.
Need: 1. To ascertain true profit.
2. To show real value of fixed assets.
3. To provide necessary funds for its replacements.
4. To keep capital intact.
5. To follow legal provisions.
Methods: 1. Straight Line Method: - This method is also known as fixed instalment method.
Under this method a fixed percentage of depreciation is written off every year till the
end of its working life. This method is very simple to operate & very easy to
understand. The depreciation that is to be charged every year remains the same.

D = C S/n
2. Declining Balance Method: - This method is also known as diminishing balance
method or written down value method or reducing balance method. Under this
method a fixed percentage of depreciation is written off on the diminishing book value
of the asset. Depreciation that is to be charged every year will decrease year by year.
In the earlier years, depreciation will be more & in the later years depreciation is less
under this method.
D = 1-(S/C)1/nx100
2. Sum of Years Digits Method: - This method is an accelerated method of
depreciation which is based on the assumption that the loss in the value of the fixed
asset will be greater during the earlier years & will go on decreasing gradually with
the decrease in the life of such asset. This method is found by estimating an assets
useful life in years, then assessing consecutive numbers to each year & totalling
these numbers.
D = Remaining Life Time/Total of Years x Actual Value of Machine
D = (C-S) [n+1-k/n(n+1)/2]
1. Manohar purchased machinery for his business at Rs 1,00,000 on 1/1/1990.
Assuming annual depreciation is 10%, calculate depreciation for 5 years under
straight line method and life of the machine is 10 years.
D = C S/n
= 1,00,000 /10
= 10,000 Rs
I Year = 1,00,000 10,000 = 90,000.
II Year = 90,000 10,000 = 80,000.
III Year = 80,000 10,000 = 70,000.
IV Year = 70,000 10,000 = 60,000.
V Year = 60,000 10,000 = 50,000.
2. Reddy Brothers purchased machinery at Rs 1,40,000 on 1/1/1990 and spent Rs
10,000 for its installation. Assuming annual depreciation is 10%. Calculate
depreciation for 4 years under straight line method and life of the machine is 10
years.
D = C S/n
= 1,50,000 /10
= 15,000 Rs
I Year = 1,50,000 15,000 = 1,35,000.
II Year = 1,35,000 15,000 = 1,20,000.
III Year = 1,20,000 15,000 = 1,05,000.

IV Year = 1,05,000 15,000 = 90,000.

3. Shankar & co purchased machinery at Rs 50,000 on 1/4/1991 and spent Rs
10,000 for its installation. Assuming annual depreciation is 10%, scrap value of
machinery Rs 2,000, calculate depreciation for 5 years under straight line method
and life of the machine is 10 years. Assume that accounts closed at 31 st December
every year.
D = C S/n
= 60,000 2,000/10
= 5,800 Rs
I Year = 60,000 (5,800x9/12) = 60,000 4,350 = 55,650.
II Year = 55,650 5,800 = 49,850.
III Year = 49,850 5,800 = 44,050.
IV Year = 44,050 5,800 = 38,250.
V Year = 38,250 5,800 = 32,450.
4. A firm purchased machinery at Rs 1,20,000 and spent Rs 30,000 for its repairs.
Scrap value of machinery Rs 20,000 and life of the machine is 5 years. Calculate
depreciation for 3 years under diminishing balance method.
D = 1-(S/C)1/nx100
= 1-(20,000/1,50,000)1/5x100
= 1-(0.133)0.2x100
= 1-(0.668)x100
= 0.332x100
= 33%
I Year = 1,50,000 49,500 = 1,00,500.
II Year = 1,00,500 33,165 = 67,335.
III Year = 67,335 22,220.55 = 45,114.45
5. A firm purchased machinery at Rs 50,000 on 1/1/93. On 1/7/93 it buys additional
machinery of Rs 10,000 & spends Rs 1,000 on its erection. The accounts are closed
on 31sr December every year. Assuming annual depreciation is 10%. Calculate
depreciation for 5 years under reducing balance method.
Cost of Machinery = 50,000 + 10,000 + 1,000 = 61,000
I Year = 61,000 (50,000x10/100 + 11,000x10/100x6/12) = 61,000 5,550 = 55,450.
II Year = 55,450 5,545 = 49,905.
III Year = 49,905 4,990.5 = 44,914.5
IV Year = 44,914.5 4,491.45 = 40,423.05
V Year = 40,423.05 4,042.30 = 36,380.75

6. ABC LTD purchased a truck for Rs 65,000 on 1/1/91. The expected life was 5
years & salvage value Rs 5,000. Calculate the annual depreciation expense by
applying sum of years digits method for 5 years.
D = Remaining Life Time/Total of Years x Actual Value of Machine
Actual Value = 65,000 5,000 = 60,000.
I Year = 5/15x60,000 = 20,000.
II Year = 4/15x60,000 = 16,000.
III Year = 3/15x60,000 = 12,000.
IV Year = 2/15x60,000 = 8,000.
V Year = 1/15x60,000 = 4,000.
7. Kishore purchased a truck for Rs 1,10,000 on 1/1/91. The expected life was 5
years & salvage value Rs 20,000. Calculate the annual depreciation expense by
applying sum of years digits method for 5 years.
D = Remaining Life Time/Total of Years x Actual Value of Machine
Actual Value = 1,10,000 20,000 = 90,000.
I Y ear = 5/15x90,000 = 30,000.
II Year = 4/15x90,000 = 24,000.
III Year = 3/15x90,000 = 18,000.
IV Year = 2/15x90,000 = 12,000.
V Year = 1/15x90,000 = 6,000.
Net Present Value (NPV): - The difference between the present value of cash inflows
and the present value of cash outflows. NPV is used in capital budgeting to analyze
the profitability of an investment or project. In finance, the net present value (NPV)
or net present worth (NPW)[1] of a time series of cash flows, both incoming and
outgoing, is defined as the sum of the present values (PVs) of the individual cash
flows of the same entity. The value should be greater than or equal to 0. If two
positive values are there then the highest value will be accepted.
NPV = Rt/(1+i)t
t = time of the cash flow,
i = discount rate,
RT = Net cash flow i.e. cash inflow cash outflow, at time t.
1. Calculate the NPV of the project, discount rate is 12%. Examine the acceptance of
the project.
Year

Cash Inflows

- 28,900

12,450

19,630

2,750
NPV t = 0 = Rt/(1+i)t
= - 28,900/(1+0.12)0
= - 28,900/(1.12)0
= - 28,900/1
= - 28,900
NPV t = 1 = Rt/(1+i)t
= 12,450/(1+0.12)1
= 12,450/(1.12)1
= 12,450/1.12
= 11,116.07
NPV t = 2 = Rt/(1+i)t
= 19,630/(1+0.12)2
= 19,630/(1.12)2
= 19,630/1.2544
= 15,648.91
NPV t = 3 = Rt/(1+i)t
= 2,750/(1+0.12)3
= 2,750/(1.12)3
= 2,750/1.404928
= 1,957.396

Therefore NPV = - 28,900 + 11.116.07 + 15,648.91 + 1,957.396 = - 177.63

As the value is less than 0 the project is rejected.
2. Calculate the NPV of the project, discount rate is 11.25 & 10.75%. Examine which
project should get the acceptance.
Year

Project A

Project B

- 48,000

- 1,26,900

18,400

69,700

31,300

80,900

11,700

0
Project A

NPV t = 0 = Rt/(1+i)t
= - 48,000/(1+0.1125)0
= - 48,000/(1.1125)0
= - 48,000/1
= - 48,000

NPV t = 1 = Rt/(1+i)t
= 18,400/(1+0.1125)1
= 18,400/(1.1125)1
= 18,400/1.1125
= 16,539.325
NPV t = 2 = Rt/(1+i)t
= 31,300/(1+0.1125)2
= 31,300/(1.1125)2
= 31,300/1.2377
= 25,288.84
NPV t = 3 = Rt/(1+i)t
= 11,700/(1+0.1125)3
= 11,700/(1.1125)3
= 11,700/1.377
= 8,496.73
Therefore NPV = - 48,000 + 16.539.325 + 25,288.84 + 8,496.73 = 2,326.92
Project B
NPV t = 0 = Rt/(1+i)t
= - 1,26,900/(1+0.1075)0
= - 1,26,900/(1.1075)0
= - 1,26,900/1
= - 1,26,900
NPV t = 1 = Rt/(1+i)t
= 69,700/(1+0.1075)1
= 69,700/(1.1075)1
= 69,700/1.1075
= 62,934.5
NPV t = 2 = Rt/(1+i)t
= 80,900/(1+0.1075)2
= 80,900/(1.1075)2
= 80,900/1.2265
= 65,960.05
NPV t = 3 = Rt/(1+i)t
= 0/(1+0.1075)3
= 0/(1.1075)3
= 0/1.3584

=0
Therefore NPV = - 1,26,900 + 62.934. 5 + 65,960.05 + 0 = 1,994.55
As the value of Project A is more than Project B, Project A is selected and Project B is
rejected.
UNIT III
Personnel Management: - Personnel Management can be defined as obtaining,
using & maintaining a satisfied workforce. It is a significant part of management
concerned with employees at work & with their relationship within the organisation.
Definition: - Personnel Management is that part which is primarily concerned with
human resource of organisation Brech.
Nature: 1. Includes function of employment, development & compensation.
2. Extension to general management.
3. Emphasizes on action.
4. Based on human orientation.
5. Motivates employees to get full co operation from them.
Role of Personnel Manager: 1. Provides assistance to top management.
2. Advices the line manager.
3. Acts as a counsellor.
4. Acts as a mediator.
5. Acts as a spokesman.
Functions: 1. HR Planning.
2. Recruitment.
3. Selection.
4. Training & Development.
HR Planning: - HR Planning is the planning for human resources. It is also called as
Manpower Planning or Personnel Planning or Employment Planning. It is the strategy
for the acquisition, utilisation, improvement & preservation of organisations human
resources. It is the process of determining manpower needs & formulating plans to
meet these needs.
Definition: - HR Planning is the process of determining & assuming that the
organisation will have an adequate number of qualified persons, available at the
proper times, performing jobs which meet the needs of the enterprise & which
provide satisfaction for the individuals involved Brech.
Characteristics: -

1. Future oriented.
2. Continuous process.
3. Integral part of corporate planning.
4. Optimum utilization of organisations current & future human resources.
5. Quantitative & qualitative aspects.
6. Long term & short term.
7. Primary responsibility of management.
8. Two phased process.
Objectives: 1. Optimum utilization of human resources.
2. Reduce imbalance in the distribution & allocation of manpower.
3. To ensure that organisation is well equipped.
4. To provide control measures to ensure availability of necessary resources when
required.
5. To control cost of human resources employed.
6. To ensure optimum contribution & satisfaction of the personnels with reasonable
expenditure.
Importance: 1. To carry work & to achieve objectives.
2. To identify gaps in existing man power.
3. To replace employees who retire, die etc.
4. To avoid shortage & surplus of manpower.
5. To improve human resource contribution.
Process: 1. Analysing organisational plans.
2. Forecasting demand for HR.
3. Forecasting supply of HR.
4. Estimating manpower gaps.
5. Action plan for recruitment, development etc.
6. Modify the organisational plan.

Problems: 1. Resistance by employees & employers.

2. Uncertainity.
3. Insufficient information system.
4. Time & expense.

5. Lack of top management support.

Guidelines: 1. Appropriate time schedule.
2. Adequate organisation.
3. Adequate information system.
4. Participation of all.
5. Top management support.
Factors Effecting: I. Internal Factors: 1. Company policies & strategies.
2. HR policies & job analysis.
3. Company production & operations policies.
4. Trade Unions.
II. External Factors: 1. Government policies.
2. Level of economic development.
3. Business environment.
4. Level of technology.
Recruitment: - It is the process of identifying the sources of potential employees &
encouraging them to apply for jobs in the organisation.
Definition: - Recruitment is the process of searching for perspective employees &
stimulating them to apply for jobs in the organisation Edwin.B.Flippo.
Features: 1. Series of activities.
2. Linking activity.
3. Locating & attracting people.
4. All organisations engaged.
5. Two way process.
6. Complex process.
7. Important function.

Objectives: 1. To attract all.

2. Fresh blood at all levels.
3. Developing organisational culture.
4. Search people.

5. Search talent globally.

6. To find people for positions that does not exist yet.
Process: 1. Determine the vacancies to be filled.
2. Identification of sources.
3. Attracting & motivating employees.
4. Encouraging identified candidates to apply for jobs in the organisation.
5. Ensure sufficient applications received.
Sources: I. Internal Sources: - Internal sources of recruitment include personnel already
working in the organisation. Many organisations fill job vacancies through promotions
& transfer of existing staff.
Advantages: 1. Simple process.
2. Familiar with work.
3. High motivation.
4. Morale increases.
5. Loyalty increases.
6. Career development.
7. Organisational stability.
8. Trade unions satisfied.
Disadvantages: 1. Staff may not be qualified for new job.
2. Looses most suitable candidates.
3. All vacancies cannot be fulfilled.
4. Conflicts arise.
5. Not available to a newly established enterprise.
II. External Sources: - External sources of recruitment refer to prospective
candidates outside the enterprise.
Forms: 1. Advertising.
2. Personnel consultation.
3. Employment exchanges.
4. Educational & training institutes.
5. Employee recommendations.
Advantages: 1. Wide choice.

2. Fresh outlook.
3. Varied experience.
4. Availability.
Disadvantages: 1. Demoralisation.
2. Expensive.
3. Sense of insecurity.
4. Problem from trade unions.
Recruitment Practices in India: 1. Internal sources.
2. Public employment exchanges.
3. Campus recruitment.
4. Consultants & labour contractors.
5. Employee recommendations.
6. Family & friends recommendations.
Selection: - It is a process by which the qualified personnel can be chosen from the
applicants who have offered their services to the organisation for employment. In
other words it is a process of choosing a person suitable for the job out of several
persons.
Definition: - Selection is the process of differentiating between applicants in order to
identify those with a greater likelihood of success in a job Stone.
Essentials: 1. Someone should have the authority to select.
2. Some standards must be there to compare.
3. Sufficient number of applications.
Selection Process: 1. Job analysis.
2. Recruitment.
3. Preliminary screening.
4. Application blank.
5. Preliminary interview.
6. Employment tests.
7. Employment interview.
8. Medical examination.
9. Reference checks.
10. Final selection & job offer.

Placement: - Once the candidate accepts the offer & joins, the organisation has to
place him in the job for which he has been selected. A proper placement of an
employee results in low employee turnover, low absenteeism & low accident rates in
shop floor jobs & improved morale & commitment of the employees. After selection,
the employee is first inducted in to the organisation. This is the period of
familiarisation for the employee, with the organisation, with his colleagues & with his
job. Then the employee is usually put on probation for a period ranging from six
months to two years.
.The organisation decides the final placement after the initial probation period
is over, based on employees performance during the period & his aptitude & interest.
If the employees performance is not satisfactory, the organisation may extend the
probation period or ask the employee to quit. If the employee performs satisfactorily
during this period, he is usually made a permanent employee.
Definition: - Placement is the determination of the job to which an accepted
candidate is to be assigned & his assignment to that job. It is matching of what the
supervisor has reason to think he can do with the job demands (job requirement) it is
a matching of what he imposes (in strain, working conditions) & what he offers in the
form of payroll, companionship with others, promotional possibilities etc Paul
Pigors & Charles. A. Myers.
Performance Appraisal: - Performance Appraisal or Performance Evaluation is the
process of assessing systematically the performance & progress of an employee on
the present job & his potential for higher level jobs in future.
Definition: - Performance appraisal is the systematic, periodic & an impartial rating
of an employees excellence in matters pertaining to his present job & his potential for
a better job Flippo.
Characteristics: 1. Series of steps.
2. Systematic manner.
3. Continuous process.
4. To secure information.
5. Perfect plan.

Objectives: 1. To assess worth of employees.

2. To provide a valid database.
3. To assess good & bad points of employees.

4. To test effectiveness of recruitment, selection etc.

5. To evaluate skills & training capabilities of employees.
6. To know problems faced by employees.
7. To provide a basis for comparison b/w efficient & inefficient employees.
8. To help management in fixing employees according to their capacity etc.
9. To help supervisors to know their subordinates more closely.
10. To facilitate research in HR management.
Importance: 1. Provides valuable information for personnel decisions.
2. Helps to judge effectiveness of selection methods.
3. Helps in analysing training needs.
4. Basis for improving performance of employees.
5. Facilitates planning.
6. Provides positive work environment.
7. Motivation of employees.
8. Helpful to employees & management.
9. Maintains fair relationships in groups.
10. Psychological pressure on employees.
Limitations: 1. Errors in rating.
2. Incompetence

Lack of knowledge.

3. Negative approach.
4. Status effect.
5. Resistance.
Process: 1. Establishing performance standards.
2. Communicating the standards.
3. Measuring actual performance.
4. Comparing actual with standards.
5. Discussing the appraisal.
6. Taking corrective action.

Essentials: 1. Mutual trust.

2. Clear objectives.
3. Standardisation.

4. Training.
5. Job relatedness.
6. Documentation.
7. Feedback & Participation.
8. Individual differences.
9. Post appraisal interview.
10. Legal sanction.
11. Review & appeal.
Methods: I. Traditional Methods: 1. Ranking method.
2. Grading method.
3. Paired Comparison method.
4. Graphic rating scale.
5. Forced choice method.
6. Group appraisal method.
7. Critical incidents method.
8. Confidential reports method.
II. Modern Methods: 1. Appraisal by results.
2. Management By Objectives. (MBO)
3. Human Resource Accounting method

Money basis.

4. 3600 appraisal.
Career Development: - Career Development consists of activities undertaken by the
individual employees & the organisation to meet career aspirations & job
requirements. The most important requirement of career development is that every
employee must accept his or her responsibility for development.
Activities: 1. Career needs assessment.
2. Career opportunities.
3. Need opportunity alignment.
4. Monitoring career moves.
Suggestions: 1. Creating awareness about strengths & weaknesses.
2. Making employees to believe.
3. Developing appropriate career plans.

4. Providing support systems.

Process: 1. Self assessment

Discovering your desires & passions.

2. Career skill assessment

Job strengths & weaknesses.

3. Setting your career objective

4. Career development plan
5. Implement your plan

Setting best career option.

Nuts & bolts of career process.

Trying to execute the process.

6. Get the most out of your career

Getting the utmost benefits.

Advantages: 1. Perfect career.

2. Identifying problems.
3. Review of career way.
4. Identifying future.
5. Corrective action.
Disadvantages: 1. Costly process.
2. Loss of production.
3. Joining in competitors Company.
4. Time frame.
5. All problems nor solved.
Training: - Training is an act or process of increasing the knowledge & skill of an
employee for doing a particular job. Training is short term educational process &
utilising a systematic & organised procedure by which employees learn technical
knowledge & skills for a definite purpose.
Definition: - Training is a organised procedure by which people learn knowledge &
skill for a definite purpose Brech.
Objectives: 1. To improve basic knowledge.
2. To teach new techniques.
3. To prepare employees to meet changes.
4. To prepare employees for higher level tasks.

Need: 1. Job requirements.

2. Technological changes.
3. Organisational development.

4. Employee development.
Importance: 1. Higher productivity.
2. Better quality of work.
3. Less learning period.
4. Cost reduction.
5. Reduced supervision.
6. Lower accident rate.
Methods: I. On the job: 1. Job rotation.
2. Coaching.
3. Job instruction.
4. Committee assignments.
I. Off the job: 1. Training centres.
2. Role playing.
3. Lecture method.
4. Discussion method.
5. Programmed instruction.
Principles or Guidelines: 1. Clear objectives.
2. Training policy.
3. Motivation.
4. Organised material.
5. Learning periods.
6. Preparing the instructor.
7. Feedback.
8. Practice.
9. Appropriate techniques.
10. Rewards for efforts.

Process: 1. Identifying training needs.

2. Setting up of training objectives.
3. Designing the training programme.

4. Implementation of the programme.

5. Evaluation of results.
Problems: 1. Benefits not clear to top management.
2. Doesnt spend sufficient money on training.
3. Top management hardly rewards supervisors.
4. Timely information is difficult to obtain.
5. Trade unions busy in other issues.
Compensation: - Compensation is the remuneration received by an employee in
return for his / her contribution to the organisation. It is an organised practice that
involves balancing the work & employee relation by providing monetary & non
monetary benefits to employees. It is an integral part of HRM which helps in
motivating the employees & improving organisational effectiveness. It is the total
amount of monetary & non monetary benefits provided to an employee by an
employer for work performed as required.
Types: 1. Direct compensation Monetary benefits.
2. Indirect compensation Non monetary benefits.
Need: 1. To motivate employees.
2. To increase productivity.
3. To accomplish goals.
4. To fulfil needs.
5. To run organisation effectively.
Staff Role of Personnel Department: - It refers to functioning of organisation that is
responsible for the management & motivation of people in the workplace. Staff in
personnel department is concerned with,
1. Maintaining awareness of labour laws.
2. Recruitment, selection & placement.
3. Employee record keeping.
4. Organisation design & development.
5. Performance, conduct & behaviour management.
6. Industrial relations.
7. HR analysis & management.
8. Compensation & employee benefits management.
9. Training & Development.
10. Employee motivation & Performance appraisal.

Organisation for Personnel Function: 1. Recruitment & selection of new employees.

2. Induction of new employees.
3. Training & Development.
4. Performance appraisal process.
5. Discipline maintenance.
6. Employee motivation.
Goals & Plans of the organisation: - A goal or objective is a desired result a person
or a system wishes, plans & commits to achieve.
Definition: - Organisational goals are desired states of affairs or preferred results
that organisations attempt to realise & achieve Amitai Etzioni.
Types (Charles Perrow): 1. Formal or Official goals
2. Operative goals
3. Output goals

Stated goals of organisation.

Which organisation attain through its operating policies.

End product goals & related to production.

4. System goals

Related to organisation itself. Ex: - Growth, stability.

5. Product goals

Characteristics of goods. Ex: - Quality, style etc.

6. Derived goals

How organisation uses its power & how it influences. Ex: -

Employee welfare.
Motivation: - The term motivation is derived from the term motive which means an
idea, need, emotion & organic state which prompts a man to action.
Definitions: 1. Motivation is the act of stimulating someone or oneself to get a desired course of
action, to push the right button to get the desired action Michael. J. Jucius.
2. Motivation means a process of stimulating people to action to accomplish desired
goals Scott.
Nature: 1. Goal directed behaviour.
2. Satisfaction related.
3. Person motivated totally.
4. Continuous process.
5. Complex process.
6. Can be positive or negative.
Objectives: 1. To motivate employees.
2. To satisfy employee needs.
3. To develop human relations.

4. To increase morality.
5. To get good relations.
6. To reduce labour turnover.
Features of sound motivation: 1. Positive motivation.
2. Performance appraisal.
3. Conflict resolution.
4. Redesigning of job.
5. Clear objectives.
Types: 1. Positive motivation.
2. Negative motivation.
3. Extrinsic motivation

After completion of job.

4. Intrinsic motivation

At the time of job.

5. Financial motivation.
6. Non financial motivation.
Theories: I. Maslows Theory: - A. H. Maslow a famous social scientist has given a framework
that helps to explain the strength of certain needs. He developed a general theory of
motivation known as the need hierarchy theory.
Features: 1. Urge to fulfil needs is a prime factor.
2. Human needs form a particular structure of hierarchy.
3. Man is a wanting animal.
4. A satisfied need is not a motivator.
5. Lower level needs must be satisfied before higher level needs emerge.
Categories: 1. Physiological needs

Food, Clothing, Shelter.

2. Safety & Security needs

3. Social needs
4. Esteem needs

Association, belongingness etc.

Respect, status, recognition etc.

5. Self actualisation needs

Needs Hierarchy: -

Job security, insurance etc.

Capability, capacity etc.

II. Herzbergs Theory: - According to Herzberg there are two separate factors that
influence motivation. They are,
1. Satisfiers: - These include jobs and its importance, opportunities & provides for
advancement, recognition & sense of responsibility etc. These are known as job
content factors. These are responsible for self motivation of employees & for job
satisfaction.
2. Dissatisfiers: - These factors include working conditions, job security, salary,
quality of supervision, organisational policies or other factors in the immediate work
environment. These factors do not increase growth in output, they only prevent
losses in work performance and any absence of these factors causes job
dissatisfaction.
III. McGregors Theory: - McGregor a U.S behavioural scientist has developed
approach to mange & motivate based on various assumptions relating to human
behaviour. It has been formulated as Theory X & Theory Y.
1.

Assumes

Theory X
human beings

to

Theory Y
be 1. Assumes that for human beings work is

inherently distasteful towards work.

as natural as play.
2. Assumption that people do not have 2. Assumption is just the reverse.
ambitions & try to avoid responsibilities in
jobs.
3. Most people have little capacity for 3.

Capacity

for

creativity

is

widely

creativity.
distributed in population.
4. People lack self motivation & require 4. People are self directed & self
controlling.
controlled.
5. Emphasis on centralisation of authority 5. Emphasizes on decentralization &
in the organisation.
6. Motivating factors are lower needs.
7. Emphasis autocratic leadership style.

greater participation in decision making.

6. Motivating factors are higher needs.
7. Emphasis democratic & supportive

8. May be said to be a negative one.

leadership styles.
8. May be said to be a positive one.

IV. William Ouchis Theory: - The management scholar William Ouchi developed
theory Z after making a comparative study on Japanese & American management
practices.
Theory Z: - Theory Z is an integrated model of motivation. It focuses attention on
organisational & behavioural aspects of management. Theory Z suggests that large
organisations are human systems & their effectiveness depends on the quality of
humanism used.
Features: 1. Trust.
2. Strong bond b/w organisation & employees.
3. Employee involvement.
4. Integrated organisation.
5. Coordination of human beings.
6. Informal control system.
Criticism: 1. Japanese management practices are not suitable.
2. Lack of research to confirm practical utility of this theory.
3. Does not provide guidelines for usage.
4. Operational problems exist as there is absence of formal structure.
5. Horizontal movement of employees may not derive advantage.
Leadership: - Leadership is an important element of directing process. It is an
influence process of influencing the behaviour of subordinates to work willingly &
enthusiastically for achieving predetermined goals.
Definition: - Leadership is the ability of influencing people to strive willingly for
mutual objectives George.R.Terry.
Nature: 1. Influence process.
2. Followers.
3. Relationship.
4. Common goals.
5. Situation bound.
6. Continuous process.
Functions: 1. Motivating members.
2. Morale boosting.
3. Satisfying needs of members.

4. Accomplishing common goals.

5. Creating confidence.
6. Resolving conflicts.
Importance: 1. To guide & inspire subordinates.
2. To secure co operation of members.
3. To create confidence among employees.
4. To create good work environment.
5. To maintain discipline among members.
6. To implement change.
7. To represent members.
Qualities of a good leader: I. Inner qualities: 1. Physical features.
2. Intelligence.
II. Acquirable qualities: 1. Emotional stability.
2. Human relations.
3. Empathy

Observing from others view.

4. Objectivity.
5. Motivating skills.
6. Technical skills.
7. Communication skills.
8. Social skills.
Styles: I. Autocratic (or) Authoritative Style: - In this style leader centralises power &
decision making in himself. Subordinates have no opportunity to make suggestions or
to take part in decision making function.
Limitations: 1. Results in job dissatisfaction.
2. Employees efficiency tends to decline.
3. Potential people do not get opportunity to show their capabilities.
Suitability: 1. Where subordinates are inexperienced.
2. Where leader wants to be dominated.
3. Where leader is highly experienced.

II. Democratic (or) Participative Style: - In this style leader takes decisions in
consultation with the subordinates. It enables subordinates to satisfy their social
needs & ego needs. It also makes them more committed to the organisation.
Benefits: 1. Opportunity to subordinates to develop skills.
2. Provides job satisfaction.
3. Helps to take right decision.
Limitations: 1. Time consuming process.
2. Few dominant subordinates influence.
3. Many cooks spoil the food.
Suitability: 1. Where subordinates are experienced.
2. Where leader prefers democratic style.
3. Where organisation made its objectives transparent to employees.
III. Laissez Faire Style: - In this style manager leaves decision making to
subordinates & he gives up his role. The biggest limitation is full freedom to
subordinates creates mismanagement in decision making.
Benefits: 1. Full freedom to subordinates.
2. Development of subordinates.
3. Free flow of communication.
Limitations: 1. No leaders inspiration.
2. Mismanagement.
3. Ignores managers contribution.
Suitability: 1. Where leader leaves powers to subordinates.
2. Where subordinates are well knowledged.
3. Where organisational objectives are well communicated to the employees.

UNIT IV
Purchasing: - Purchasing refers to a business or organisation attempting for
acquiring goods or services to accomplish the goals of the enterprise. Though there

are several organisations that attempt to set standards in the purchasing process,
processes can vary greatly b/w standards.
Objectives: 1. To avail the materials, supplies and equipment at minimum costs.
2. To ensure continuous flow of production.
3. To increase production.
4. To develop alternate sources of supply.
5. To maintain good relations with suppliers.
Source Selection: - Sourcing or selection of source is a major challenge for any
purchasing mgr. The purchasing manager has to ensure of getting the material from
a right source.
Source Selection Procedure:1. Recognition and description of need.
2. Transmission of need.
3. Selection of Source to satisfy need.
4. Contracting with accepted source.
5. Follow up with source supplier.
6. Receiving & inspecting material.
7. Payment & closure of the group.
Procurement: - Procurement is the process whereby companies purchase goods &
services from various suppliers. These include everything from indirect goods like
bulbs, uniforms etc to the direct goods like raw material which are used for
manufacturing products.
Methods:1. Petty cash

Rs. 50 or less

2. Purchasing card

Visa credit card issued by Bank of America

3. Purchase orders

Placing order

4. Bulk Purchasing

Large Amounts

5. Speculative purchasing
6. Blanket purchasing

To buy more than needs& selling it for high.

Purchasing items of same group order in one category.

7. Reciprocate purchasing
8. Hand to mouth purchasing

Selling to others our good & buying their good.

Purchasing when need arises.

Inventory Management: - Inventory management is primarily about specifying the

shape & percentage of stocked goods. The scope of inventory management
concerns the fine lines b/w lead time, carrying costs, asset management, inventory
forecasting, inventory valuation etc. It involves systems & processes that identify the
inventory requirements, set targets, inventory status & handles all functions related to

management of material. This includes the monitoring of material moved in & out of
stock room locations.
Methods: I. Economic Order Quantity (EOQ): - Economic order quantity is the order quantity
that minimizes total inventory holding costs and ordering costs. It is one of the oldest
classical production scheduling models. The framework used to determine this order
quantity is also known as Wilson EOQ Model or Wilson Formula. The model was
developed by Ford W. Harris in 1913, but R. H. Wilson, a consultant who applied it
extensively, is given credit for his in-depth analysis. EOQ applies only when demand
for a product is constant over the year and each new order is delivered in full when
inventory reaches zero. There is a fixed cost for each order placed, regardless of the
number of units ordered.
Assumptions: 1. The ordering cost is constant.
2. The rate of demand is constant.
3. The purchase price of the item is constant.
4. The perfect time is fixed.
EOQ = 2SD/PI
S = Set up costs.
D = Demand rate.
P = Production cost.
I = Interest rate.
1. Raju runs a mail-order business for gym equipment. Cost for set up of
product is Rs 250. The annual demand is 18,000 and the cost for production is
Rs 25 and interest rate is 25%.

EOQ = 2SD/PI
= 2x250x18,000/PI
= 2x45,00,000/6.25
= 90,00,000/6.25
= 14,40,000
= 12,000 units.
II. Economic Production Quantity: - It determines the production of a company. The
EPQ model was developed by E.W. Taft in 1918. This method is an extension of
the Economic Order Quantity. The difference between these two methods is that the
EPQ model assumes the company will produce its own quantity EOQ model
assumes the order quantity arrives complete and immediately after ordering. EPQ

only applies where the demand for a product is constant over the year and that each
new order is delivered / produced incrementally when the inventory reaches zero.
EOQ = 2KD/F(1-x)
K = Ordering / Set up cost.
D = Demand rate.
F = Holding cost.
x = D/P.
P = Production rate.
III. ABC Analysis: - ABC analysis is a business term used to define an inventory
categorization technique often used in materials management. It is also known
as Selective Inventory Control. The ABC analysis provides a mechanism for
identifying items that will have a significant impact on overall inventory cost. It
suggests that inventories of an organization are not of equal value. Thus, the
inventory is grouped into three categories (A, B, and C) in order of their importance.
A items are very important, B items are important, C items are marginally important.
A items 20% of the items accounts for 70% of the annual consumption.
B items 30% of the items accounts for 25% of the annual consumption.
C items 50% of the items accounts for 5% of the annual consumption.

Marketing: - Marketing is the process of communicating the value of a product or

service to customers, for the purpose of selling that product or service. Marketing
occupies an important position in the organisation of business unit. In traditional view
marketing asserts that the customer will accept whatever product the seller presents
to them. In modern view the producer has to produce what customer likes & what
consumer prefers.

Definition: - Marketing is the performance of business activities that direct the flow
of goods & services from producer to consumer or user American Marketing
Association.
Functions: I. Merchandising Functions: 1. Buying & Assembling.
2. Selling.
II. Physical Distribution Functions: 1. Transportation.
2. Warehousing.
III. Facilitating Functions: 1. Financing.
2. Standardisation.
3. Market information.
4. Risk bearing.
5. Pricing.
Product Life Cycle: - Product Life Cycle is that thing which explains the position of
a product in market. It is based up on the biological life cycle. For example a seed is
planted (introduction), it begins to grow (growth), it shoots out leaves & puts down
roots as it becomes an adult (maturity), after a long period as an adult the plant
begins to shrink & die out (decline).
Stages: 1. Introduction.
2. Growth.
3. Maturity.
4. Decline.

Stage

Introduction Stage

Growth Stage

Maturity Stage

Decline Stage

Characteristics
1. Costs are very high.
2. Little or no competition.
3. Demand has to be created.
4. Makes no money.
5. Slow sales volumes to start.
1. Profitability begins to rise.
2. Costs reduced.
3. Public awareness increases.
4. Sales volume increases significantly.
5. Competition begins to increase.
1. Costs are lowered.
2. Increase in competitors entry.
3. Prices tend to drop.
4. Sales volume decreases.
5. Profits go down.
1. Costs become counter optimal.
2. Sales volume decline.
3. Prices diminish.
4. Profits diminish.
5. Demand decreases.

Channels of Distribution: - It is the means employed by manufacturers & sellers to

get their products to the market & in to the hands of users. Channels are
management tools used to move goods from the place of production to the place of
consumption. They are the means by which title of goods is transferred from sellers
to buyers.
Functions: 1. Helps in production function.
2. Matching demand & supply.
3. Financing the producer.
4. Aid in communication.
5. Promotional activities.
6. Pricing.
7. Decision making.
8. Other functions.
Factors Affecting: 1. Product characteristics.
a. Purchase.
b. Perishability.
c. Weight.
d. Selling price p/u.
2. Market factors.

3. Organisational factors.
4. Middlemen considerations.
5. Environmental factors.
Types of Channels: 1. Manufacturer Consumer.
2. Manufacturer Retailer Consumer.
3. Manufacturer Distributor Retailer Consumer.
4. Manufacturer Company depot Distributor Retailer Consumer.
5. Manufacturer Company depot Distributor stockist Retailer Consumer.
Advertising: - The word advertising has its origin from a Latin word advertire which
means to turn to. The dictionary meaning of the word is to announce publicity or
public notice.
Definition: - Advertising is any paid form of non-personal presentation and
promotion of ideas, goods and services by an identified sponsor American
Marketing Association.
Functions: I. Primary Functions: 1. To increase sales.
2. To help dealers.
3. Confidence in quality.
4. Receptiveness of new product.
5. To eliminate seasonal fluctuations.
II. Secondary Functions: 1. To help salesman.
2. To furnish information.
3. To impress executives.
4. To impress workers.
5. Feeling of security.

Advantages: 1. Increase sales.

2. Steady demand.
3. Quick turnover.
4. Creation of goodwill.
5. Colourful background.
6. Curtails burden.

7. Guide force in purchasing.

8. No intermediaries.
9. Existence of press.
10. Employment opportunities.
Disadvantages: 1. Forces people.
2. Does not create new demand.
3. Costs consumer.
4. Encourages waste.
5. Mis representation of facts.
6. Wastage of national resources.
Objectives: 1. Steady demand.
2. Increased profits.
3. Facing competition.
4. Preparing ground for new product.
5. Informing changes to consumers.
6. Barring new entrants.
7. Creating goodwill.
8. To assist salesman.
Sales Promotion: - It is one of the four aspects of promotional mix. The other three
parts are advertising, personal selling & publicity. Sales promotion can be directed at
either the customer, sales staff or channel members. Sales promotions targeted at
consumer are called consumer sales promotions & sales promotions targeted at
retailers & wholesalers are called trade sales promotions. Sales promotions includes
several communication activities that attempt to provide added value or incentives to
consumers, wholesalers, retailers or other organisational customers to stimulate
immediate sales.

Internal Reasons: 1. Top management support.

2. Managers under great pressure achieve targets.
External Reasons: 1. Increase in brands.
2. Consumer is more price saver.
Objectives: -

1. Building product awareness.

2. Creating interest.
3. Providing information.
4. Stimulating demand.
5. Reinforcing demand.
Methods: 1. Sampling

Free distribution of product.

2. Trail pack.
3. Transumerism

Distributing the product where customer doesnt buy.

4. Discounts.
5. Lotteries.
6. Campaigns

Buy two get one free.

7. Additional gift.
8. News paper advertisement

Cut it.

9. Money back guarantee.

10. Shop assistant motivation

Giving him % in sale.

Marketing Research: - It is the function that links the consumer, customer & public to
the marketer through information. It is the scientific gathering, recording & analysis of
data about issues relating to marketing products & services. The goal of marketing
research is to identify & assess how changing elements of the marketing mix impacts
customer behaviour.
Types: 1. Consumer marketing research.
2. Business to business marketing research.
Advantages: 1. Know your customers.
2. Know your target market.
3. Know your competitors.
4. Easy to do business.
5. Marketing of products.
Disadvantages: 1. Not a complete solution.
2. Inappropriate training.
3. No perfect information about it.
4. Time constraint.
5. Huge cost involved.
6. Results are of different types.

Process: 1. Problem definition.

2. Research design developed.
3. Data collection.
4. Data analysis.
5. Report presentation.
Problem definition

Research design
developed

Data collection

Data analysis

Report presentation

INDUSTRIAL MANAGEMENT
Unit I: - General Management: Principles of scientific management, Brief treatment of
managerial functions. Forms of Business Organisation: Salient features of sole
proprietorship, Partnership, Joint Stock Company, private limited and public limited
companies.

Unit II: - Financial Management: Concept of interest, Simple interest, Compound

interest, equivalent cash flow diagram. Economic Evaluation of Alternatives: Basic
methods, the annual equivalent method, present worth method, future worth method.
Depreciation: Purpose, types of depreciation, common methods of depreciation. The
Straight line method, Declining balance method, the sum of the years digits method.
Unit III: - Personnel Management: Functions of Personnel Management Human
Resources Planning, Brief treatment of Recruitment, Selection, Placement,
Performance

Appraisal,

Career

Development,

Training

and

Development,

Compensation. Staff role of Personnel Department, Organization for the Personnel

Function. Goals and Plans of the Organization. Motivation and Leadership, Theories
of motivation and styles of Leadership.
Unit IV: - Materials Management: Purchasing, objective, source selection,
Procurement. Procurement methods, Inventory Management EOQ, EPQ, ABC
Analysis. Marketing Management: Functions of Marketing, Product life cycle,
Channels of distribution, Advertising & Sales promotion, Market Research.
Text Books: 1. KK Ahuja, Industrial Management, Vol. I & II, Dhanpat Rai, 1978.
2. E.Paul Degarmo, John R Chanda, William G Sullivan, Engineering Economy, Mac
Millan Publishing Co, 1979.
Reference Books: 1. Philip Kotler, Marketing Management, 11th Edition, Pearson Education, 2004.
2. P. Gopalakrishnan, Hand Book of Materials Management, PHI, 1999 3. Heinz
Weirich and Harold Koontz, Management, 10th Edition, TMH, 2004.

P.SIDDHARDHA

M.B.A., M.PHIL

INDUSTRIAL
MANAGEMENT