SMU Spring 2010 Second Semester Assignment Complete Set

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MB0044-Productions and Operations Management-Assignment Set 1
MB0044
Production & operations Management
Assignment Set- 1
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1. What are the components of systems productivity? Explain how CAD and
CIM help in improving productivity.
Production management encompasses all activities which go into conversion of a

sate of inputs into outputs which are useful to meet human needs. It involves the
identification of the perquisite materials, knowledge of the processes, and
installation of equipments necessary to convert or transform the materials to
products. System productivity is generally expressed as the ratio of outputs to
inputs. Productivity can be calculated for a single operation, a functional unit, a
department division or a plant. It is a measure of the efficiency of the system and
looks at the economies achieved during the processes. Every process will have
number of contributors-people machines, facilitating goods, ancillary
equipments, technology, etc. Which help in achieving maximum productivity -
each element attempting to enhance the contribution of other elements?
Enhancement of productivity is achieved by either reducing the inputs for the
same output or increasing the output by using the same input.
Opportunities exist at all stages of the workflow.
The entire system of introduce measures for increasing productivity. However in

actual manufacturing situations, the inefficiencies will have cascading effect in
hampering productivity.
Communication, effective review processes and innovative methods will ensure

optimization of resources. Capital productivity: Capital deployed in plant,
machinery, buildings and the distribution system as well as working capital are
components of the oust of manufacture and need to be productive. Demand
fluctuations, uncertainties of production owing to breakdowns and inventories
being crated drag the productivity down. Therefore, strategies are needed to
maximize the utilization of the funds allotted towards capital. Adapting to new
technologies, outsourcing and balancing of the workstations to reduce the
proportion of idle times on equipments are the focus of this section.
Computers in design and manufacturing applications make it possible to remove

much of the tedium and manual labor involved. For example, the many design
specifications, blueprints, material lists, and other documents needed to build
complex machines can require thousands of highly technical and accurate
drawings and charts. If the engineers decide structural components need to be
changed, all of these plans and drawings must be changed. Prior to CAD/CAM,
human designers and draftspersons had to change them manually, a time
consuming and error-prone process. When a CAD system is used, the computer
can automatically evaluate and change all corresponding documents instantly. In
addition, by using interactive graphics workstations, designers, engineers, and
architects can create models or drawings, increase or decrease sizes, rotate or
change them at will, and see results instantly on screen.
CAD is particularly valuable in space programs, where many unknown design

variables are involved. Previously, engineers depended upon trial-and-error
testing and modification, a time consuming and possibly life-threatening process.
However, when aided by computer simulation and testing, a great deal of time,
money, and possibly lives can be saved. Besides its use in the military, CAD is also
used in civil aeronautics, automotive, and data processing industries.
CAM, commonly utilized in conjunction with CAD, uses computers to

communicate instructions to automated machinery. CAM techniques are
especially suited for manufacturing plants, where tasks are repetitive, tedious, or
dangerous for human workers.
Computer integrated manufacturing (CIM), a term popularized by Joseph

Harrington in 1975, is also known as Autofacturing. CIM is a programmable
manufacturing method designed to link CAD, CAM, industrial robotics, and
machine manufacturing using unattended processing workstations. CIM offers
uninterrupted operation from raw materials to finished product, with the added
benefits of quality assurance and automated assembly.
2. What do you understand by ‘industry best practice’? Briefly explain different types
of Benchmarking.
Industry best practice:

Each industry would have developed over years or decades. Materials would
have changed, processes would have changed. As all products or services are
meant to serve needs of the customers, they undergo continuous changes – both
in shapes and features. Because of research that is conducted, materials and
methods go on improve necessarily. The companies that were at the force
innovate to stay in business as new entrants would be adopting the latest
techniques that the pioneers had taken decades to establish. So the practices
adopted by various firms in any industry would end up adopting almost similar
methods of getting an output required. Such practices would get refined to great
extent giving rise what we call industry best practices. These tend to get
stabilized or changed owning to the development of new equipments which are
designed and manufacturers of those with an eye on growing markets which
demand higher quality and reduced prices. Competition benefits those who can
use all these to their advantage. Industry best practices open up the field for
benchmarking by companies which need to improve their performance.
Bench Marking:
It is a method of measuring a company’s processes, methods, procedures and in
a way all functions in great detail. Benchmarking is used to understand how
these got into the system and what circumstances brought them about. It is a
learning process with a few to find out whether some of the reasons have
changed and bring in new processes for improvement.. The metrics that could be
used are – number of pieces per hour, cost per unit, number of breakdowns per
week, customer alienation during a week, return on investment, number of
returns from customers in a month, inventory turnover, and many others. As can
be seen the figures as found above determine the efficiency of the organization.
To keep focused, many organizations, especially the large ones, select a few
processes for purposes of benchmarking. This helps in ensuring constant and
deep attention to those aspects which are to be dealt with. The following are the
types of benchmarking firms consider.
Types of Benchmarking:
• Process benchmarking - the initiating firm focuses its observation and
investigation of business processes with a goal of identifying and observing the
best practices from one or more benchmark firms. Activity analysis will be
required where the objective is to benchmark cost and efficiency; increasingly
applied to back-office processes where outsourcing may be a consideration.
• Financial benchmarking - performing a financial analysis and comparing the

results in an effort to assess your overall competitiveness and productivity.
• Benchmarking from an investor perspective- extending the benchmarking

universe to also compare to peer companies that can be considered alternative
investment opportunities from the perspective of an investor.
• Performance benchmarking - allows the initiator firm to assess their

competitive position by comparing products and services with those of target
firms.
• Product benchmarking - the process of designing new products or upgrades to

current ones. This process can sometimes involve reverse engineering which is
taking apart competitors products to find strengths and weaknesses.
• Strategic benchmarking - involves observing how others compete. This type is

usually not industry specific, meaning it is best to look at other industries.
• Functional benchmarking - a company will focus its benchmarking on a single

function to improve the operation of that particular function. Complex functions
such as Human Resources, Finance and Accounting and Information and
Communication Technology are unlikely to be directly comparable in cost and
efficiency terms and may need to be disaggregated into processes to make valid
comparison.
• Best-in-class benchmarking - involves studying the leading competitor or the
company that best carries out a specific function.
• Operational benchmarking - embraces everything from staffing and

productivity to office flow and analysis of procedures performed.
3. List out the various automated systems for transfer of materials in the production
plant. What do you understand by Line Balancing? Explain with an example.
About the automated flow lines we can say it is a machine which is linked by a
transfer system which moves the parts by using handling machines which are
also automated, we have an automated flow line.
Human intervention ma is needed to verify that the operations ate taking place
according to standards. When these can be achieved with the help of automation
and the processes are conducted with self regulation, we will have automated
flow lines established.
In fixed automation or hard automation, where one component is manufactured

using services operations and machines it is possible to achieve this condition.
We assume that product life cycles are sufficiently stable to interest heavily on
the automate flow lines to achieve reduces cast per unit. Product layouts ate
designed so that the assembly tasks are performed in the sequence they are
designed at each station continuously. The finished item came out at the end of
the line.
In automated assembly lines the moving pallets move the materials from station
to station and moving arms pick up parts, place them at specified place and
system them by perusing, riveting, & crewing or even welding. Sensors will keep
track of their activities and move the assembles to the next stage. The machines
are arranged in a sequence to perform operations according to the technical
requirements.
The tools are loaded, movements are effected, speeds controlled automatically
without the need for worker’s involvement. The flexibility leads to better
utilization of the equipments. It reduces the numbers of systems and rids in
reduction of investment as well as a space needed to install them. One of the
major cancers of modern manufacturing systems is to be able to respond to
market demands which have uncertainties.
Prototyping is a process by which a new product is developed in small number so

as to determine the suitability of the materials, study the various methods of
manufactured, type of machinery required and develop techniques to over come
problems that my be encountered when full scale manufacture is undertaken.
Prototypes do meet the specification of the component that enters a product

and performance can be measured on these. It helps in con be reforming the
design and any shortcomings can be rectified at low cost.
Flexibility has three dimensions in the manufacturing field. They are variety,
volume and time. There demands will have to be satisfied. In that sense they
become constraints which restrict the maximization of productivity. Every
business will have to meet the market demands of its various products in variety
volumes of different time. Flexibility is also needed to be able to develop new

products or make improvements in the products fast enough to cater to shifting
marker needs. Manufacturing systems have flexibility built into them to enable
organization meet global demand. You have understood how the latest trends in
manufacturing when implemented help firms to stay a head in business.
4. Explain the different types of Quality Control Tools with examples? How do
Crosby’s absolutes of quality differ from Deming’s principles?
Quality Control (QC) is a system of routine technical activities, to measure and

control the quality of the inventory as it is being developed. The QC system is
designed to:
Provide routine and consistent checks to ensure data integrity,

correctness, and completeness;
Identify and address errors and omissions;
Document and archive inventory material and record all QC activities.
The following seven are considered basic tools for achieving quality.
I. Flow Chart
II. Check sheet
III. Histogram
IV. Pareto Analysis
V. Scatter Diagram
VI. Control Chart
VII. Cause and Effect Diagram
Flow Chart
It is a visual representation of process showing the various steps. It helps in
locating the points at which a problem exists or an improvement is possible.
Detailed data can be collected, analyzed and methods for correction can be
developed. A sample is shown below lists out the various steps or activities in a
particular job. It classifies them as a procedure or a decision. Each decision point
generates alternatives. Criteria and Consequences that go with decision are
amenable to evaluation for purposes of assessing quality. The flow chart helps in
pin-pointing the exact at which errors have crept in. A simple chart is shown
below.
Check Sheet
These are used to record the number of defects, types of defects, locations at
which they are occurring, times at which they are occurring, workmen by whom
they are occurring. It keeps a record of the frequencies of occurrence with
reference to possible defect causing parameter. It helps to implement a
corrective procedure at the point where the frequencies are more, so that the
benefit of correct will be maximum. A sample sheet is shown below.
Histogram
Histograms are graphical representations of distribution of data. They are
generally used to record huge volumes of data about a process. They reveal
whether the pattern of distribution – whether there is a single peak, or many
peak and also the extent of variation around the peak value. This helps in
identifying whether the problem is serious. When used in conjunction with
comparable parameters, the visual patterns help us to identify the problem
which should be attended to.
Pareto Analysis
This is a tool for classifying problem areas according to the degree of importance
and attending to the most important. Pareto principle, also called 80-20 rule,
states that 80 percent of the problems that we encounter arise out of 20 percent
of items. If we find that, in a day, we have 184 assemblies have given problems
and there are 11 possible causes, it is observed that 80 per cent of them i.e. 147
of them have been caused by just 2 or 3 of them. It will be easy to focus on these
2 or three and reduce the number of defects to a great extent. When the cause
of these defects have been attended, we will observe that some other defect
Scatter Diagram
These are used when we have two variables and want to know the degree of
relationship between them. We can determine if there is cause and effect
relationship between and its extent over a range of values. Sometimes, we can
observe that there is no relationship, in which we can change one parameter
being sure that it has no effect on the other parameter.
Control Charts
These are used to verify whether a process is under control. Variables when they
remain within a range will render the product maintain the specifications. This is
the quality of conformance. The range of permitted deviations is determined by
design parameters. Samples are taken and the mean and range of the variable of
each sample (subgroup) is recorded. The mean of the means of the samples gives
the control lines. Assuming normal distribution, we expect 99.97 per cent of all
values to lie within the UCL when we take 3 standard deviations – Upper Control
Limit – and LCL – Lower Control Limit. The graphical representation of data helps
in changing settings to bring back the process closer to the target.
Cause and Effect Diagram

This is a diagram in which all possible causes are classified on quality
characteristics which lead to a defect. These are arranged in such a way that
different branches — the causes are – leading the stem in the direction of the
discovery of the problem. When each of them is investigated thoroughly we will
be able to pinpoint some factors which cause the problem. We will also observe
that a few of them will have cumulative effect or even a cascading effect.
Deming Wheel
Deming’s approach is summarized in his 14 points.

Constancy of purpose for continuous improvement
Adopt the TQM philosophy for economic purposes
Do not depend on inspection to deliver quality
Do not award any business based on price alone
Improve the system of production and service constantly
Conduct meaningful training on the job
Adopt modern methods of supervision and leadership
Remove fear from the minds of everyone connected with the organisation
Remove barriers between departments and people
Do not exhort, repeat slogans and put up posters.
Do not set up numerical quotas and work standards
Give pride of workmanship to the workmen
Education and training to be given vigorously
State and exhibit top management’s commitment for quality and productivity
Using the above principles, Deming gave a four step approach to ensure a
purposeful journey of TQM. The slope is shown to indicate that if efforts are let
up the program will roll back
Plan – means that a problem is identified, processes are determined and relevant
theories are checked out.
Do – means that the plan is implemented on a trial basis. All inputs are correctly
measured and recorded.
Check/Study/Analyze – means that the trials taken according to the plan are in
accordance with the expected results.
Act – When all the above steps are satisfactory regular production is started so
that quality outcomes are assured
Crosby’s Absolutes of Quality

Like Deming, he also lays emphasis on top management commitment and
responsibility for designing the system so that defects are not inevitable. He
urged that there be no restriction on spending for achieving quality. In the long
run, maintaining quality is more economical rather than compromising on its
achievement.
His absolutes can be listed as under.

Quality is conformance to requirements – not ‘goodness’.
Prevention, not appraisal, is the path to quality.
Quality is measured as the price paid for non-conformance and as indexes.
Quality originates in all factions – not quality department. There are no quality
problems people, design, process create problems.
Crosby also has given 14 points similar to those of Deming. His approach
emphasizes on measurement of quality, increasing awareness, corrective action,
error cause removal and continuously reinforcing the system, so that advantages
derived are not lost over time. He desires that the quality management regimen
should improve the overall health of the organization and prescribed a vaccine.
The ingredients are:

Integrity – honesty and commitment to produce everything right first time, every
time.
Communication – Flow of information between departments, suppliers,
customers – helps in identifying opportunities.
Systems and operations – These should bring in a quality environment – so that
nobody is comfortable with anything less than the best.
5. Define project cycle, project management, and scope of project. List the various
project management knowledge areas? What are the reasons for failure of a project?
Project Cycle – A project cycle basically consists of the various activities of

operations, resources and the limitations imposed on them.
Definition of “Project Management”:

It is the practice of controlling the use of resources, such as cost, time,
manpower, hardware and software involved in a project, that start with a
problem statement and end with delivery of a complete product. Project
management involves understanding its scope and various processes in the
project cycle.
Project Management Definition

As per PMBOK (Project Management — Body of Knowledge, defined by
PMI – Project Management Institute) :
“Project management is the application of knowledge, skills, tools and
techniques to project activities to meet project requirements.
As per DIN 69901 (German Organization for Standardization):

“Project management is the complete set of tasks, techniques, tools applied
during project execution”
Scope – It refers to the various parameters that affect the project in its planning,
formulation and executions,
Like:-
The range of one's perceptions, thoughts, or actions.
Breadth or opportunity to function. See Synonyms at room.
The area covered by a given activity or subject. See Synonyms at range.
The length or sweep of a mooring cable.
Informal A viewing instrument such as a periscope, microscope, or telescope.
Before knowing the reasons of failure we have to know about project.

Project is a set of activities which are networked in order and aimed towards
achieving goal of a project.
Now, the reasons are project failure:

Incidence of Project failure
Projects being initiated of random at all levels
Project objective not in line with business objective
Project management not observed
Project manager with no prior experience in the related project
Non- dedicated team
Lack of complete support from clients
Factors contributing to project success not emphasized:
Project objective in alignment with business objective
Working within the framework of project management methodology
Effective scoping planning, estimation, execution, controls and reviews, project
bottlenecks
Communication and managing expectations effectively with clients, team merits
and stake holders
Prior expectance of PM in a similar project
Overview of information and communication Technologies (ICT) project:

Involve information and communication technologies such as the word wide
web, e-mail, fiber-optics satellites.
ii) Enable societies to produce, access, adapt and apply information in greater
amount, more rapidly and at reduce casts.
iii) Offer enormous opportunities for enhancing business and economic viability.
iv) Common problems encountered during projects.
v) No prioritization of project activity from an organizational position.
vi) One or more of the stages in the project mishandled.
vii) Less qualified non-dedicated manpower.
viii) Absence of smooth flow of communication between the involved parties.
These basic reasons lead a project to failures. In the project failures business
management and project management is directly involved. From the
management point of view it is basic things to care above topics to success of a
project. Project is the core business of a company.
6. Explain the various phases in project management life cycle. Explain the necessity
and objectives of SCM.
This is the initial phase of any project. In this phase information is collected from
the customer pertaining to the project and the requirements are analyzed. The
entire project has to be planned and it should be done in a strategic manner. The
project manager conducts the analysis of the problem and submits a detailed
report to the top project justification, details on what the problem is a method of
solving the problem, list of the objectives to be achieved, project budget and the
success rate of completing the project.
The report must also contain information and the project feasibility, and the risks
involved in the project. Project management life cycle is the integrated part of
management. It is attach with project responsibility or failure of a project.
The important tasks of this phase are as follows:

o Specification Requirements Analysis (SRA): It has to be conducted to
determine the essential requirements of a project in order to achieve
the target.
o Feasibility study: To analyze whether the project is technically,

economically and practically feasible to be undertaken.
o Trade off analysis: To understand and examine the various

alternatives which could be considered.
o Estimation: To estimate the project cost, effort requires for the

project and functionality of various process in the project.
o System design: Choose a general design that can fusil the

requirements.
o Project evolution: Evaluate the project in terms of expected profit,

cost and risks involved marketing phase. A project proposal is
prepared by a group of people including the project manager. This
proposal has to contain the strategies adopted to market the product
to the customers.
o Design phase: This phase involves the study of inputs and outputs of
the various project stages.
o Execution phase: In this phase the project manager and the teams
members work on the project objectives as per the plan. At every
stage during the execution reports are prepared.
o Control: Inspecting, Testing and Delivery phase during this phase. The
project team works under the guidance of the project manager. The
project manager has to ensure that the team working under his,
implements the project designs accurately, the project manager has
to ensure ways of managing the customer, perform quality control
work.
Closure and post completion analysis phase upon satisfactory completion and
delivery of the intended product or service the staff performance has to be
evaluated. Document the lessons from the project. Prepare the reports on
project feedback analysis followed by the project execution report.
The phase which involve in the above are:

The preparation stage involves the preparation and approval of project outline,
project plan and project budget.
The next stage involves selecting and briefing the project team about the
proposals followed by discussions on the roles and responsibility of the project
member and the organization.
The project management life cycle:

A Life cycle of a project consists of the following:
Understanding the scope of the project
Establishing objectives of the project
Formulating and planning various activities
Project execution and Monitor and control the project resources.
Risk Management:
Risk is defined in ISO 31000 as the effect of uncertainty on objectives (whether
positive or negative). Risk management can therefore be considered the
identification, assessment, and prioritization of risks followed by coordinated and
economical application of resources to minimize, monitor, and control the
probability and/or impact of unfortunate events or to maximize the realization of
opportunities. Risks can come from uncertainty in financial markets, project
failures, legal liabilities, credit risk, accidents, natural causes and disasters as well
as deliberate attacks from an adversary. Several risk management standards
have been developed including the Project Management Institute, the National
Institute of Science and Technology, actuarial societies, and ISO standards.
Methods, definitions and goals vary widely according to whether the risk
management method is in the context of project management, security,
engineering, industrial processes, financial portfolios, actuarial assessments, or
public health and safety.
The strategies to manage risk include transferring the risk to another party,
avoiding the risk, reducing the negative effect of the risk, and accepting some or
all of the consequences of a particular risk.
Certain aspects of many of the risk management standards have come under
criticism for having no measurable improvement on risk even though the
confidence in estimates and decisions increase.
Necessity and objectives of SCM:

SCM is the abbreviation of supply chain Management. It is considered by many
express worldwide as the ultimate solution towards efficient enterprise
management.
SCM is required by and enterprise as a tow to enhance management

effectiveness with a following organizational objective:
Reduction of inventory:-Enactment in functional effectiveness of existing systems
like ERP, Accounting. Software and Documentation like financial reports
statements ISO 9000 Documents etc.
Enhancement of participation level and empowerment level:

Effective integration of multiple systems like ERP, communication systems,
documentation system and secure, Design R&D systems etc.
Better utilization of resources- men, material, equipment and money.

Optimization of money flow cycle within the organization as well as to and from
external agencies.
Enhancement of value of products, operations and services
and consequently, enhancements of profitability.
Enhancement of satisfaction level of customer and clients,
supporting institutions, statutory control agencies,
supporting institutions, statutory control agencies,
suppliers and vendors, employees and executives .
Enhancement of flexibility in the organization to help in
easy implementation of schemes involving modernization,
expansion and divestment, merges and acquisitions
Enhancement of coverage and accuracy of management
information systems. With the objectives of SCM its
implementation are required. Implementation is in the
form of various functional blocks of an organization
interpenetrated through which a smooth flow of the
product development is possible.
A relatively new SCM option involves web based software with a browser
interface. Several electronic marketplaces for buying and selling goods and
materials.
Steps involved in the implementation of SCM:

There is many steps which involved in SCM implementation are- Business
Process, sales and marketing. Logistics, costing, demand planning, trade- off
analysis, environmental requirement, process stability, integrated supply,
supplier management, product design, suppliers, customers, material
specifications, etc.
Some important aspect of SCM:

The level of competition existing in the market and the impact of competitive
forces on the product development. Designing and working on a strategic logic
for better growth through value invention. Working out new value curve in the
product development along with necessary break point. Using it to analyze
markets and the economies in product design. Time, customer, quality of
product and the concept of survival of fittest.
Steps of SCM principals:

Group customer by need: Effective SCM groups, customer by tie tinct service
meets those particular segment.
Customize the logistics networks: In designing their logistics network, companies

need to focus on the service requirement and profit potential of the customer
segments identified. Listen to signals of market demand and plan accordingly-
sales and operations planners must monitor the entire supply chain to detect
early warning signals of changing customer demand and needs.
Differentiate the product closer to the customer: companies today no longer can
afford to stock pile inventory to compensate for possible forecasting errors,
instead, they need to postpone product differentiation in the manufacturing.
Process closer to actual customer demand.
Strategically manage the source of supply: by working closely with their key
suppliers to reduce the overall casts of owning materials and services; SCM
maximizes profit margins both for themselves, and their supplies.
Develop a supply chain wide technology strategy: as one of the cornerstones of

successful SCM information technology must be able to support multiple levels
of decision making.
Adopt channel spanning performance measures- Excellent supply performance

measurement systems do more than just monitor internal functions. They apply
performance criteria that embrace bathe service and financial metrics, including
as such as each accounts true profitability.
MB0044
Production & operations Management
Assignment Set- 2
1. Take an example of any product or service industry and explain the factors
considered while taking the decision on plant location.
Facility Planning Process
Planning is the most important function of management. It is important especially,

when we have to deal with lands, buildings, and machineries.
Lands, buildings and machineries are costly and once fixed cannot be moved easily.
Planning, therefore, requires a lot of thought, data gathering, and estimates for the
future. These considerations are vital for the success of any firm. Now to deeply
understand the importance of planning in operations management, we consider the
planning into two parts.
1. Planning the location of the plant
2. Planning the manufacturing facility layouts
Planning the location of the plant
You will now study about planning for the location of a plant. You will also study the
various factors that affect the economics of competing locations and helps in
choosing the most optimal location.
Factors influencing Plant Location can be broadly divided into two types namely:
general factors and special factors (See Figure Factors influencing plant location).
Figure: Factors influencing plant location
Below are the factors influencing plant location:
General factors
The general factors that influence the plant location are listed below (See Figure 5.2
General factors influencing plant location).
1. Availability of land: Availability of land plays an important role in determining the

plant location. Many-a-time, our plans, calculations and forecasts suggest a
particular area as the best to start an organisation. However, availability of land may
be in question. In such cases, we will have to choose the second best location.
2. Availability of inputs: While choosing a plant location, it is very important for the
organisation to get the labour at the right time and raw materials at good qualities.
The plant should be located:
· Near to the raw material source when there is no loss of weight
· At the market place when there is a loss of weight in the material
· Close to the market when universally available, so as to minimise the transportation

cost
Figure: General factors influencing plant location
3. Closeness to market places: Organisations can choose to locate the plant near to
the customers’ market or far from them, depending upon the product they produce.
It is advisable to locate the plant near to the market place, when:
• The projection life of the product is low

• The transportation cost is high
• The products are delicate and susceptible to spoilage
• After sales services are promptly required very often
The advantages of locating the plant near to the market place are:
• Consistent supply of goods to the customers

• Reduction of the cost of transportation
4. Communication facilities: Communication facility is also an important factor

which influences the location of a plant. Regions with good communication facilities
viz. Postal and Tele communication links should be given priority for the selection of
sites.
5. Infrastructure: Infrastructure plays a prominent role in deciding the location. The

basic infrastructure needed in any organisation are:
a. Power: For example, industries which run day and night require continuous power
supply. So they should be located near to the power stations and should ensure
continuous power supply throughout the year.
b. Water: For example, process industries such as, paper, chemical, and cement,
requires continuous water supply in large amount. So, such process industries need
to be located near to the water.
c. Waste disposal: For example, for process industries such as, paper and sugarcane
industries facility for disposal of waste is the key factor.
6. Transport: Transport facility is a must for facility location and layout of location of
the plant. Timely supply of raw materials to the company and supply of finished
goods to the customers is an important factor. The basic modes of transportation are
by Air, Road, Rail, Water, and Pipeline. The choice of location should be made
depending on these basic modes. Cost of transportation is also an important
criterion for plant location.
7. Government support: The factors that demand additional attention for plant
location are the policies of the state governments and local bodies concerning labour
laws, building codes, and safety.
8. Housing and recreation: Housing and recreation factors also influence the plant
location. Locating a plant with the facilities of good schools, housing and recreation
for employees will have a greater impact on the organisation. These factor seems to
be unimportant, but have a difference as they motivate the employees and hence
the location decisions.
5.2.1.2 Special factors
The special factors that influence the plant location are:
1.
2.
4. Economic
3. Cultural
Wages
Joint stability
factors
ventures – outside
– support investments
of big time players
2. What is Business Process? Explain with an example as to why a business process

is to be modelled.
Business Process is a total response that a business undertakes utilizing resources

and delivering outputs that create value for the customer. The same can be listed as
under.
The Business Process
(i) has a goal;

(ii) uses specific inputs;

(iii) delivers specific outputs;
(iv) collects resources;
(v) performs a number of activities in some order;
(vi) creates value for the customer.
Business Process Management refers to a set of activities undertaken to optimise

the business process for improving their performance, deliver better value for the
customer, maximize the earnings and keep its head above competition. The business
system contains a combination of people and the applications organised to meet
business objectives. The applications are automated to enable information and
reporting system to be accurate, timely and efficient. Designers and programmers
put together the data and processes to provide optimum benefits, and put in place
the architecture which is capable of addressing these needs. The architecture should
be flexible to adapt new methods, processes and even business plans. All the
elements activities, parts, products, data, people, processes, software tools, delivery
systems, performance measurement have to be structured and controlled the for
purposes of analysis, evaluation, modification, implementation and correction. This
is what we study under Business Process Modeling. Because of the extensive use of
various software programmes for all these activities, BPM is used synonymously
used for the software tools also.
BPM is not rigid in the path the activities or the way entities need to align, makes it
more flexible. Therefore it not any more necessary to define the total process
initially. The flow of the activities need not be fitted into a ‘model’ to be followed
continuously, but can be adapted to suit the situations the process is in. The user has
choices of subsequent activities and take advantage of the flexibility the process is
allowed to have.
Logical Process Modeling is the representation of putting together all the activities of
business process in detail and making a representation of them. The initial data
collected need to be arranged in a logical manner so that links are made between
nodes for making the workflow smooth.
The steps are as under:

(a) Capturing relevant data in detail to be acted upon;
(b) Establishing controls and limiting access to the data during process execution;
(c) Determining as which task in the process to be done and subsequent tasks in that
process;
(d) Making sure that all relevant data are available for all the tasks that need to be in
the order determined;
(e) Making available the relevant and appropriate data for that task;
(f) Establishing a mechanism to indicate acceptance of the results after every task or
process to have the assurance that flow is going ahead with accomplishments in the
desired path.
Some of the activities may occur in sequential order whereas some of them may run
parallel. There may be circular paths, like rework loops. Complexities arise out of the
manner in which process activities are connected together. Logical Process Model
consists only of the business activities and shows the connectivity among them. The
process model is a representation of the business activities different from the
technology dependent ones. Thus we have a model that is singularly structured only
for business activities. Since computer programmes are also present in the total
system, to allow the business oriented executives to be in control of the inputs,
processes and outputs, this unique model is helpful. Logical Process Model –
improves control on the access to data and identifies who is in possession of data at
different nodes in the dataflow network that has been structured.
A few of the logical modeling formats are given below –

a) Process Descriptions with task sequences and data addresses
b) Flow Charts with various activities and relationships
c) Flow Diagrams
d) Function hierarchies
e) Function dependency diagrams.
Every business activity when considered as a logical process model and represented
by a diagram. It can be decomposed and meaningful names given to the details. Verb
and Noun combinations can be used to described at each level. Nouns give the name
of the activity uniquely and used for the entire model meaning the same activity.
3. What is Value Engineering? Explain briefly its origins and objectives.
Value Engineering (VE) or Value Analysis is a methodology by which we try to find

substitutes for a product or an operation.
The concept of value engineering originated during the Second World War. It was
developed by the General Electric Corporations (GEC). Value Engineering has gained
popularity due to its potential for gaining high Returns on Investment (ROI). This
methodology is widely used in business re-engineering, government projects,
automakers, transportation and distribution, industrial equipment, construction,
assembling and machining processes, health care and environmental engineering,
and many others. Value engineering process calls for a deep study of a product and
the purpose for which it is used, such as, the raw materials used; the processes of
transformation; the equipment needed, and many others. It also questions whether
what is being used is the most appropriate and economical. This applies to all
aspects of the product.
For the above example, studies can be conducted to verify whether any operation
can be eliminated. Simplification of processes reduces the cost of manufacturing.
Every piece of material and the process should add value to the product so as to
render the best performance. Thus, there is an opportunity at every stage of the
manufacturing and delivery process to find alternatives which will increase the
functionality or reduce cost in terms of material, process, and time.
The different aspects of value engineering can be encapsulated into a sequence of

steps known as a ‘Job Plan’. Value Engineering in organisations helps to identify:
· The problem or situation that needs to be changed/improved
· All that is good about the existing situation
· The improvements required in the situation
· The functions to be performed
· The ways of performing each function
· The best ways among the selected functions
· The steps to be followed to implement the function
· The person who executes the function
It should be remembered that we are not seeking a cost reduction sacrificing quality.
It has been found that there will be an improvement in quality when systematic
value analysis principles are employed.
4. Discuss the difference between work study and motion study. Explain with an
example.
Work practices are ways of doing any work which has been in vogue and found to be
useful. These are determined by motion and time study conducted over years and
found to be efficient and practiced. Any method improvement that is conducted may
be adopted to change the practice, but only after trials they have shown that, they
increase the comfort of the worker and get the job done faster.
Work study
We say that work study is being conducted when analysis of work methods is
conducted during the period when a job is done on a machine or equipment. The
study helps in designing the optimum work method and standardization of the work
method. This study enables the methods engineer to search for better methods for
higher utilization of man and machine and accomplishment of higher productivity.
The study gives an opportunity to the workmen to learn the process of study thus
making them able to offer suggestions for improved methods. This encourages
workmen participation and they can be permitted to make changes and report the
advantages that can be derived from those. This course is in alignment with the
principle of continuous improvement and helps the organization in the long run.
Reward systems may be implemented for recognizing contributions from the
workmen.
Work study comprises of work measurement and method study. Work measurement
focuses on the time element of work, while method study focuses on the methods
deployed and development of better methods.
Work measurement
Work measurement can be defined as a systematic application of various techniques

that are designed to establish the content of work involved in performing a specific
task.
The task is performed by a qualified worker. With this we arrive at the standard time
for a task. This will be used to fix performance rating of other workers. It forms the
basis of incentives, promotion, and training for workmen and assessment of capacity
for the plant. Hence, training the workers is very important. (See figure 15.3)
ILO defines a qualified worker as “one who is accepted as having the necessary
physical attributes, possessing the required intelligence and education, and having
acquired the necessary skill and knowledge to carry out the work in hand to
satisfactory standards of safety, quantity, and quality”.
Figure Training workers
Methods study
Method study focus is on studying the method currently being used and developing
a new method of performing the task in a better way. Operation Flow charts, Motion
Charts, Flow Process charts, which are the elements of the task, are studied to find
the purpose of each activity, the sequence in which they are done, and the effect of
these on the work. The study may help in changing some of them and even eliminate
some of them to effect improvements. The new method should result in saving of
time, reduced motions, and simpler activities.
Machine worker interaction
Machine worker interaction study consists of studying the amount of time an

operator spends on the machine before it is activated and the time he has nothing to
do. In many modern manufacturing centres, where we have automated systems of

manufacturing, the role of the worker is limited to, observing various screens, dials,
indicator lamps to see that the process is going on smoothly. In some cases, his job
may be to load the jobs on the machines and check the settings. What is of concern
to us, is to see whether the operations permit for enabling an operator to look after
two or three machines, without affecting of the performance of the machine or man.
Ergonomics
Ergonomics is the study of physical human factors and their functioning. We study
the movements, the amount of energy that is required for certain activities, and the
coordination among them. In operations management, we use these factors at two
places.
The first is when we design the machines which are operated, the way the operator
does the tasks on the machine using different controls. Levers, wheels, switches,
pedals (See figure) have to be positioned so that the operators have maximum
comfort for long working hours.
Figure: Equipment positioned to enable maximum comfort
The other factor is the consideration given for the type of loads the body can take at
various positions. When doing jobs like lifting, clamping, moving, and holding, energy
is expended by different organs for which racks, tables, pallets, are positioned and
designed to suit workers’ physical features.
5. Time taken by three machines on five jobs in a factory is tabulated below in

table below. Find out the optimal sequence to be followed to minimise the idle
time taken by the jobs on the machines.
Job Machine Machine Machine

1 (M1) 2 (M2) 3 (M3)
A 6 8 7
B 4 5 3
C 5 5 7
D 3 4 6
E 4 3 4
Ans:
Consider M1 and M3
Job Machine Machine

1 (M1) 3 (M3)
A 6 7
B 4 3
C 5 7
D 3 6
E 4 4
JOB = D E C A B
6. List the seven principles of SCM. Discuss Bullwhip effect, its effects and
countermeasures.
Seven Principles of SCM:
1. Group customer by needs – Effective SCM groups customer by distinct

service needs, regardless of industry and then tailors services to those
particular segments.
2. Customize the logistics network – In designing their logistics network,

companies need to focus on the service requirement and profit potential of
the customer segments identified.
3. Listen to signals of market demand and plan accordingly – Sales and

operations planners must monitor the entire supply chain to detect early
warning signals of changing customer demand and needs. This demand
driven approach leads ot more consistent forecast and optimal resource
allocation.
4. Differentiate the product closer to the customer – Companies today no

longer can afford to stock pile inventory to compensate for possible
forecasting errors. Instead , they need to postpone product differentiation in
the manufacturing process closer to actual consumer demand. This strategy
allows the supply chain to respond quickly and cost effectively to changes in
customer needs.
5. Strategically manage the sources of supply by working closely with their key
suppliers to reduce the overall costs of owning materials and services, SCM
maximizes profit margins both for themselves and their suppliers.
6. Develop a supply chain wide technology strategy – as one of the cornerstones

of successful SCM information technology must be able to support multiple
levels of decision making. It also should afford a clear view and ability to
measure the flow of products, services and information.
7. Adopt channel spanning performance measures – Excellent supply chain

performance measurement systems do more than just monitor internal
functions. They apply performance criteria to every link in the supply chain –
criteria that embrace both service and financial metrics, including as each
accounts true profitability.
Bullwhip Effect in SCM
An organization will always have ups and downs. It is necessary that the managers of
the organization keep track of the market conditions and analyze the changes. They
must take decisions on the resources and make necessary changes within the
organization to meet the market demands. Failing to do so may result in wild swings
in the orders. This may adversely affect the functioning of the organization resulting
in lack of coordination and trust among supply chain members. The changes may
affect the information and may lead to demand amplification in the supply chain.
The Bullwhip effect is the uncertainty caused from distorted information flowing up
and down the supply chain. This has its affect on almost all the industries, poses a
risk to firms that experience large variations in demand, and also those firms which
are dependent on suppliers, distributors and retailers.
A bullwhip effect may arise because of
increase in the lead time of the project due to increase in variability of

demand
increase in the stocks to accommodate the increasing demand arising out of
complicated demand models and forecasting techniques
reduced service levels in the organization
inefficient allocation of resources
increased transportation cost
How to prevent it?
Bullwhip effect may be avoided by one or more of the following measures:
Avoid multiple demand forecasting

Breaking the single orders into number of batches of orders
Stabilize the prices, avoid the risk involved in overstocking by maintaining a
proper stock.
Reduce the variability and uncertainty in point of sale (POS) and sharing
information.
Reduce the lead time in the stages of the project.
Always keep analyzing the past figures and track current and future levels of
requirements
Enhance the operational efficiency and outsourcing logistics to a capable and
efficient agency.
MB0045
Financial Management
Assignment Set- 1
Q.1 Write short notes on
1. Financial management
2. Financial planning
3. Capital structure
4. Cost of capital
5. Trading on equity.
1. Financial Management
Financial Management is planning, directing, monitoring, organizing, and controlling

of the monetary resources of an organization. The management of the finances of a
business / organization in order to achieve financial objectives. Financial
Management is the efficient and effective planning and controlling of financial
resources so as to maximize profitability and ensuring liquidity for an
individual(called personal finance), government(called public finance) and for profit
and non-profit organization/firm (called corporate or managerial finance). Generally,
it involves balancing risks and profitability.
The decision function of financial management can be divided into the following 3
major areas:
INVESTMENT DECISION
1. Determine the total amount of assets needed by a firm hence closely tied to
the allocation of funds
2. Two type of investment decisions namely:
• Capital Investment decisions re: large sums, non routine, longer term, critical
to the business like purchase of plant and machinery or factory
• Working Capital Investment decisions re: more routine in nature, short term
but are also very critical decisions like how much and how long to invest in
inventories or receivables
FINANCING DECISION
1. After deciding on the amount and type of assets to buy, the financial
manager needs to decide on HOW TO FINANCE these assets with the sources
of fund
2. Financing decisions for example:
• Whether to use external borrowings/debts or share capital or retained

earnings
• Whether to borrow short, medium or long term

• What sort of mix – all borrowings or part debts part share capital or 100%
share capital
• The needs to determine how much dividend to pay out as this will directly
affects the financial decision.
2. Financial Planning
Financial Planning is an exercise aimed to ensure availability of right amount of
money at the right time to meet the individual’s financial goals
Concept of Financial Planning
Financial Goals refer to the dreams of the investor articulated in financial terms.
Each dream implies a purpose, and a schedule of funds requirements for realising
the purpose
Asset Allocation refers to the distribution of the investor’s wealth between different
asset classes (gold, property, equity, debt etc.)
Portfolio Re-balancing is the process of changing the investor’s asset allocation
Risk Tolerance / Risk Preference refers to the appetite of the investor for investment
risk viz. risk of loss
Financial Plan Is a road map, a blue print that lists the investors’ financial goals and
outlines a strategy for realising them
Quality of the Financial Plan is a function of how much information the prospect
shares, which in turn depends on comfort that the planner inspires
3. Capital Structure
Capital structure of a firm is a reflection of the overall investment and financing

strategy of the firm.
Capital structure can be of various kinds as described below:
- Horizontal capital structure: the firm has zero debt component in the
structure mix. Expansion of the firm takes through equity or retained
earnings only.
- Vertical capital structure: the base of the structure is formed by a small

amount of equity share capital. This base serves as the foundation on
which the super structure of preference share capital and debt is built.
- Pyramid shaped capital structure: this has a large proportion consisting of

equity capita; and retained earnings.
- Inverted pyramid shaped capital structure: this has a small component of

equity capital, reasonable level of retained earnings but an ever-
increasing component of debt.
SIGNIFICANCE OF CAPITAL STRUCTURE:
- Reflects the firm’s strategy

- Indicator of the risk profile of the firm
- Acts as a tax management tool
- Helps to brighten the image of the firm.
FACTORS INFLUENCING CAPITAL STRUCTURE:
- Corporate strategy
- Nature of the industry
- Current and past capital structure
4. Cost of Capital
Cost of capital is the rate of return the firm requires from investment in order to
increase the value of the firm in the market place. In economic sense, it is the cost
of raising funds required to finance the proposed project, the borrowing rate of the
firm. Thus under economic terms, the cost of capital may be defined as the weighted
average cost of each type of capital.
There are three basic aspects about the concept of cost
1. It is not a cost as such: The cost of capital of a firm is the rate of return which it
requires on the projects. That is why; it is a ‘hurdle’ rate.
2. It is the minimum rate of return: A firm’s cost of capital represents the minimum
rate of return which is required to maintain at least the market value of equity
shares.
3. It consists of three components. A firm’s cost of capital includes three components
a. Return at Zero Risk Level: It relates to the expected rate of return when a project
involves no financial or business risks.
b. Business Risk Premium: Business risk relates to the variability in operating profit
(earnings before interest and taxes) by virtue of changes in sales. Business risk
premium is determined by the capital budgeting decisions for investment proposals.
c. Financial Risk Premium: Financial risk relates to the pattern of capital structure
(i.e., debt-equity mix) of the firm, In general, a firm which has higher debt content in
its capital structure should have more risk than a firm which has comparatively low
debt content. This is because the former should have a greater operating profit with
a view to covering the periodic interest payment and repayment of principal at the
time of maturity than the latter.
5. Trading on Equity
When a co. uses fixed interest bearing capital along with owned capital in raising
finance, is said “Trading on Equity”.
(Owned Capital = Equity Share Capital + Free Reserves )
Trading on equity represents an arrangement under which a company uses funds

carrying fixed interest or dividend in such a way as to increase the rate of return on
equity shares.
It is possible to raise the rate of dividend on equity capital only when the rate of
interest on fixed – interest – bearing – security is less than the rate of return earned
in business.
•Two other terms:
•Trading on Thick Equity :- When borrowed capital is less than owned capital
•Trading on Thin Equity :- When borrowed capital is more than owned capital, it is
called Trading on thin Equity.
Q.2 a. Write the features of interim divined and also write the factors influencing
divined policy?
Interim Dividend and factors affecting it:
Usually, board of directors of company declares dividend in annual general meeting

after finding the real net profit position. If boards of directors give dividend for
current year before closing of that year, then it is called interim dividend. This
dividend is declared between two annual general meetings.
Before declaring interim dividend, board of directors should estimate the net profit
which will be in future. They should also estimate the amount of reserves which will
deduct from net profit in profit and loss appropriation account. If they think that it
is sufficient for operating of business after declaring such dividend. They can issue
but after completing the year, if profits are less than estimates, then they have to
pay the amount of declared dividend. For this, they will have to take loan. Therefore,
it is the duty of directors to deliberate with financial consultant before taking this
decision.
Accounting treatment of interim dividend in final accounts of company :-
First Case: Interim dividend is shown both in profit and loss appropriation account
and balance sheet , if it is outside the trial balance in given question.
(a) It will go to debit side of profit and loss appropriation account

(b) It will also go to current liabilities head in liabilities side.
Second Case: Interim dividend is shown only in profit and loss appropriation
account, if it is shown in trial balance.
(a) It will go only to debit side of profit and loss appropriation account.
If in final declaration is given outside of trial balance and this will be proposed
dividend and interim dividend in trial balance will be deducted for writing proposed
dividend in profit and loss appropriation account and balance sheet of company,
because if we will not deducted interim dividend, then it will be double deducted
from net profit that is wrong and error shows when we will match balance sheets
assets with liabilities.
Factors affecting dividend policy:
The dividend decision is difficult decision because of conflicting objectives and also
because of lack of specific decision-making techniques. It is not easy to lay down an
optimum dividend policy which would maximize the long-run wealth of the
shareholders. The factors affecting dividend policy are grouped into two broad
categories.
1. Ownership considerations
2. Firm-oriented considerations
Ownership considerations: Where ownership is concentrated in few people, there

are no problems in identifying ownership interests. However, if ownership is
decentralized on a wide spectrum, the identification of their interests becomes
difficult.
Various groups of shareholders may have different desires and objectives. Investors
gravitate to those companies which combine the mix of growth and desired
dividends.
Firm-oriented considerations: Ownership interests alone may not determine the

dividend policy. A firm’s needs are also an important consideration, which include
the following:
• Contractual and legal restrictions

• Liquidity, credit-standing and working capital
• Needs of funds for immediate or future expansion
• Availability of external capital.
• Risk of losing control of organization
• Relative cost of external funds
• Business cycles
• Post dividend policies and stockholder relationships.
The following factors affect the shaping of a dividend policy:
Nature of Business: Companies with unstable earnings adopt dividend policies which
are different from those which have steady earnings.
Composition of Shareholding: In the case of a closely held company, the personal

objectives of the directors and of a majority of shareholders may govern the
decision. To the contrary, widely held companies may take a dividend decision with a
greater sense of responsibility by adopting a more formal and scientific approach.
Investment Opportunities: Many companies retain earnings to facilitate planned

expansion. Companies with low credit ratings may feel that they may not be able to
sell their securities for raising necessary finance they would need for future
expansion. So, they may adopt a policy for retaining larger portion of earnings.
Similarly, is a company has lucrative opportunities for investing its funds and can
earn a rate which is higher than its cost of capital, it may adopt a conservative
dividend policy.
Liquidity: This is an important factor. There are companies, which are profitable but
cannot generate sufficient cash, since profits are to be reinvested in fixed assets and
working capital to boost sales.
Restrictions by Financial Institutions: Sometimes financial institutions which grant

long-term loans to a company put a clause restricting dividend payment till the loan
or a substantial part of it is repaid.
Inflation: In period of inflation, funds generated from depreciation may not be

adequate to replace worn out equipment. Under inflationary situation, the firm has
to depend upon retained earnings as a source of funds to make up for the shortfall.
Consequently, the dividend pay out ratio will tend to be low.
Other factors: Age of the company has some effect on the dividend decision.
The demand for capital expenditure, money supply, etc., undergoes great oscillations
during the different stages of a business cycle. As a result, dividend policies may
fluctuate from time to time.
b. What is reorder level?
Reorder Level
This is that level of materials at which a new order for supply of materials is to be
placed. In other words, at this level a purchase requisition is made out. This level is
fixed somewhere between maximum and minimum levels. Order points are based
on usage during time necessary to requisition order, and receive materials, plus an
allowance for protection against stock out.
The order point is reached when inventory on hand and quantities due in are equal
to the lead time usage quantity plus the safety stock quantity.
Formula of Re-order Level or Ordering Point:
The following two formulas are used for the calculation of reorder level or point.
Ordering point or re-order level = Maximum daily or weekly or monthly usage ×

Lead time
The above formula is used when usage and lead time are known with certainty;
therefore, no safety stock is provided. When safety stock is provided then the
following formula will be applicable:
Ordering point or re-order level = Maximum daily or weekly or monthly usage ×

Lead time + Safety stock
Q.3 Sales Rs.400, 000 less returns Rs 10, 000, Cost of Goods Sold Rs 300,000,
Administration and selling expenses Rs.20, 000, Interest on loans Rs.5000,
Income tax Rs.10000, preference dividend Rs. 15,000, Equity Share Capital
Rs.100, 000 @Rs. 10 per share. Find EPS.
Ans 3.
Sales 400,000
Less Returns 10,000 390,000
Less
COGS 30,000
S&A 20,000
Int on
Loan 5,000
IT 10,000 325,000
Div 15,000
ESC 100,000 @ 10/-
NPAT - Pref Share
Div
No of Shares
NPAT 55,000
less Pref Share Div 15,000 40,000
EPS 40,000 = Rs.4/-

10,000
Q.4 What are the techniques of evaluation of investment?
Techniques of Investment Evaluation
Three steps are involved in the evaluation of an investment:
•Estimation of cash flows

•Estimation of the required rate of return (the opportunity cost of capital)
•Application of a decision rule for making the choice.
The first two steps, discussed in the subsequent chapters, are assumed as given.
Thus, our discussion in this chapter is confined to the third step. Specifically, we
focus on the merits and demerits of various decision rules.
Investment decision rule

The investment decision rules may be referred to as capital budgeting techniques, or
investment criteria. A sound appraisal technique should be used to measure the
economic worth of an investment project. The essential property of a sound
technique is that it should maximize the shareholders’ wealth. The following other
characteristics should also be possessed by a sound investment evaluation criterion.
• It should consider all cash flows to determine the true profitability of the project.
• It should provide for an objective and unambiguous way of separating good
projects form bad projects.
• It should help ranking of projects according to their true profitability.
• It should recognize the fact that bigger cash flows true profitability.
• It should recognize the fact that bigger cash flows are preferable to smaller once
and early cash flows are preferable to later ones.
• It should help top choose among mutually exclusive projects that project which
maximizes the shareholders’ wealth.
• It should be a criterion which is applicable to any conceivable investment project
independent of other.
These conditions will be clarified as we discuss the features of various investment

criteria in the following pages.
Evaluation criteria
A number of investments criteria (or capital budgeting techniques) are in use in

proactive. They may be grouped in the following two categories:
1. Discounted cash flow (DCF) criteria
• Net present value (NPV)
• Internal rate of return (IIR)
• Profitability index (PI)
2. Non-discounted cash flow criteria
• Payback period (PB)
• Discounted payback period
• Accounting rate of return (ARR).
Discounted payback is a variation of the payback method. It involves discounted cash

flows, but as we shall see later, it is not a true measure of investment profitability.
We will show in the following pages that the net present value criterion is the most
valid technique of maximizing the shareholders wealth.
Q.5 What are the problems associated with inadequate working capital?
Problems associated with inadequate working capital
Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship
with the current day-to-day operations of a business. Every business needs funds for
two purposes.
• Long term funds are required to create production facilities through purchase
of fixed assets such as plants, machineries, lands, buildings & etc
• Short term funds are required for the purchase of raw materials, payment of
wages, and other day-to-day expenses. . It is other wise known as revolving
or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e.
Working Capital = Current Asset – Current Liability.
Businesses use capital for construction, renovation, furniture, software, equipment,

or machinery. It is also commonly used to purchase inventory, or to make payroll.
Capital is also used often by businesses to put a down payment down on a piece of
commercial real estate. Working capital is essential for any business to succeed. It is
becoming increasingly important to have access to more working capital when we
need it.
Importance of Adequate Working Capital
A business firm must maintain an adequate level of working capital in order to run its
business smoothly. It is worthy to note that both excessive and inadequate working
capital positions are harmful. Working capital is just like the heart of business. If it
becomes weak, the business can hardly prosper and survive. No business can run
successfully without an adequate amount of working capital.
Danger of inadequate working capital
When working capital is inadequate, a firm faces the following problems.
Fixed Assets cannot efficiently and effectively be utilized on account of lack of

sufficient working capital. Low liquidity position may lead to liquidation of firm.
When a firm is unable to meets its debts at maturity, there is an unsound position.
Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it
will lose its reputation. There by, a firm may not be able to get credit facilities. It may
not be able to take advantages of cash discount.
Disadvantages of Redundant or Excessive Working Capital

1. Excessive Working Capital means ideal funds which earn no profits for the
business and hence the business cannot earn a proper rate of return on its
investments.
2. When there is a redundant working capital, it may lead to unnecessary purchasing
and
Accumulation of inventories causing more chances of theft, waste and losses.
3. Excessive working capital implies excessive debtors and defective credit policy
which
May cause higher incidence of bad debts.
4. It may result into overall inefficiency in the organization.
5. When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may also fall.
7. The redundant working capital gives rise to speculative transactions.
Disadvantages or Dangers of Inadequate Working Capital

1. A concern which has inadequate working capital cannot pay its short-term
liabilities
in time. Thus, it will lose its reputation and shall not be able to get good credit
facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.
3. It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack of working capital.
4. The firm cannot pay day-to-day expenses of its operations and its creates
inefficiencies, increases costs and reduces the profits of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non-availability
of liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.
Disadvantages or Dangers of Inadequate or Short Working Capital
• Can’t pay off its short-term liabilities in time.

• Economies of scale are not possible.
• Difficult for the firm to exploit favorable market situations
• Day-to-day liquidity worsens
• Improper utilization the fixed assets and ROA/ROI falls sharply
Q6. What is Leverage? Compare and contrast Financial and operating leverage.
‘Leverage’ is the action of a lever or the mechanical advantage gained by it; it also
means ‘effectiveness’ or ‘power’. The common interpretation of leverage is derived
from the use or manipulation of a tool or device termed as lever, which provides a
substantive clue to the meaning and nature of financial leverage.
When an organization is planning to raise its capital requirements (funds), these may
be raised either by issuing debentures and securing long term loan 0r by issuing
share-capital. Normally, a company is raising fund from both sources. When funds
are raised from debts, the Co. investors will pay interest, which is a definite liability
of the company. Whether the company is earning profits or not, it has to pay interest
on debts. But one benefit of raising funds from debt is that interest paid on debts is
allowed as deduction for income tax. ‘When funds are raised by issue of shares
(equity) , the investor are paid dividend on their investment. Dividends are paid only
when the Company is having sufficient amount of profit. In case of loss, dividends
are not paid. But dividend is not allowed as deduction while computing tax on the
income of the Company. In this way both way of raising funds are having some
advantages and disadvantages. A Company has to decide that what will be its mix of
Debt and Equity, considering the liability, cost of funds and expected rate of return
on investment of fund. A Company should take a proper decision about such mix,
otherwise it will face many financial problems. For the purpose of determination of
mix of debt and equity, leverages are calculated and analyzed.
Concept of Financial Leverage
Leverage may be defined as the employment of an asset or funds for which the firm
pays a fixed cost or fixed return. The fixed cost or return may, therefore be thought
of as the full annum of a lever. Financial leverage implies the use of funds carrying
fixed commitment charge with the objective of increasing returns to equity
shareholders. Financial leverage or leverage factor is defined, as the ratio of total
value of debt to total assets or the total value of the firm. For example, a firm having
a total value of Rs. 2,00,000 and a total debt of Rs. 1,00,000 would have a leverage
factor of 50 percent. There are difficult measures of leverage such as.
i. The ratio of debt to total capital

ii. The ratio of debt to equity
iii. The ratio of net operating income (earning before interest and taxes) to fixed’
charges) The first two measures of leverage can be expressed either in book
v8lue or market value the debt of equity ratio as a measure of financial
leverage is more popular in practice. “
Risk & Financial Leverage:
Effects of financial Leverage: The use of leverage results in two obvious effects:
i. Increasing the shareholders earning under favorable economic conditions,

and
ii. Increasing the financial risk of the firm. Suppose there are two companies
each having a Rs. 1,00,000 capital structure. One company has borrowed half
of its investment while the other company has only equity capital: Both earn
Rs. 2,00,000 profit. The ratio of interest on the borrowed capital is 10%and
the rate of corporate tax 50%. Let us calculate the effect of financial leverage,
both in the shareholders earnings and the Company’s financial risk in these
two companies.
(a) Effect of Leverage on Shareholders Earnings:
Company Company
A B
Rs. Rs.
Profit before Interest and 2,00,000 2,00,000
Taxes
Equity 10,00,000 5,00,000
Debt —- 5,00,000
Interest (10%) —- 50,000
Profit after interest but before 2,00,000 1,50,000
Tax
Taxes @ 50% 1,00,000 75,000
Rate of return on Equity of Company A Rs. 1,00,000/Rs. 10,00,000 = 10%

Rate of return on Equity of Company B Rs. 75,000/Rs. 5,00,000 = 15%
The above illustration points to the favorable effect of the leverage factor on
earnings of shareholders. The concept of leverage is 5 if one can earn more on the
borrowed money that it costs but detrimental to the man who fails to do so far there
is such a thing as a negative leverage i.e. borrowing money at 10% to find that, it can
earn 5%. The difference comes out of the shareholders equity so leverage can be a
double-edged sword.
(b) Effect of Leverage on the financial risk of the company: Financial risk broadly
defined includes both the risk of possible insolvency and the changes in the earnings
available to equity shareholders. How the leverage factor leads to the risk possible
insolvency does is self-explanatory. As defined earlier the inclusion of more and
more debt in capital structure leads to increased fixed commitment charges on the
part of the firm as the firm continues to lever itself, the changes of cash insolvency
leading’ to legal bankruptcy increase because the financial ‘charges incurred, by the
firm exceed the expected earnings. Obviously this leads to fluctuations in earnings’
available to the equity shareholders.
Relationship: Financial and Operating leverage:
Relationship between financial and operating leverage: In business terminology,

leverage is used in two senses: Financial leverage & Operating Leverage
Financial leverage: The effect which the use of debt funds produces on returns is
called financial leverage.
Operating leverage: Operating leverage refers to the use of fixed costs in the
operation of the firm. A firm has a high degree of operating leverage if it employs a
greater amount of fixed costs. The degree of operating leverage may be defined as
the percentage change in profit resulting from a percentage change in sales. This can
be expressed as:
= Percent Change in Profit/Percent Change in Sales
The degree of financial leverage is defined as the percent change in earnings

available to common shareholders that is associated with a given percentage change
in EBIT. Thus, operating leverage affects EBIT while financial leverage affects
earnings after interest and taxes the earnings available to equity shareholders. For
this reason operating leverage is sometimes referred to as first stage leverage and
financial leverage as second stage leverage. Therefore, if a firm uses a considerable
amount of both operating leverage and financial leverage even small changes in the
level of sales will produce wide fluctuations in earnings per share (EPS). The
combined effect of both these types of leverages is after called total leverage which,
is closely tied to the firm’s total risk.
MB0045
Financial Management
Assignment Set- 2
Q. 1 Discuss the three broad areas of Financial Decision Making
Finance Decisions:
Finance decisions relate to the acquisition of funds at the least cost. Here cost has
two
dimensions viz explicit cost and implicit cost. Explicit cost refers to the cost in the
form of coupon rate, cost of floating and issuing the securities etc.
Implicit cost is not a visible cost but it may seriously affect the company’s operations
especially when it is exposed to business and financial risk. For example, implicit cost
is the failure of the organization to pay to its lenders or debenture holders loan
installments on due date on account of fluctuations in cash flow attributable to the
firms business risk. In India if the company is unable to pay its debts, creditors of the
company may use legal means to sue the company for winding up. This risk is
normally known as risk of insolvency. A company which employs debt as a means of
financing normally faces this risk especially when its operations are exposed to high
degree of business risk.
In all financing decisions a firm has to determine the proportion of equity and debt.
The
composition of debt and equity is called the capital structure of the firm. Debt is
cheap because interest payable on loan is allowed as deductions in computing
taxable income on which the company is liable to pay income tax to the Government
of India.
An investor in company’s shares has two objectives for investing:
1. Income from Capital appreciation (i.e. Capital gains on sale of shares at market
price)
2. Income from dividends.
It is the ability of the company to give both these incomes to its shareholders that
determines the market price of the company’s shares.
The most important goal of financial management is maximisation of net wealth of

the shareholders. Therefore, management of every company should strive hard to
ensure that its shareholders enjoy both dividend income and capital gains as per the
expectation of the market.
But, dividend is declared out of the profit earned by the company after paying
income tax to the Govt of India.
Investment Decisions:
To survive and grow, all organizations must be innovative. Innovation demands
managerial proactive actions. Proactive organization’s continuously search for
innovative ways of performing the activities of the organization. Innovation is wider
in nature. It could be expansion through entering into new markets, adding new
products to its product mix, performing value added activities to enhance the
customer satisfaction, or adopting new technology that would drastically reduce the
cost of production or rendering services or mass production at low cost or
restructuring the organization to improve productivity. All these will change the
profile of an organization. These decisions are strategic because, they are risky but if
executed successfully with a clear plan of action, they generate super normal growth
to the organization. If the management errs in any phase of taking these decisions
and executing them, the firm may become bankrupt. Therefore, such decisions will
have to be taken after taking into account all facts affecting the decisions and their
execution.
Two critical issues to be considered in these decisions are:
1. Evaluation of expected profitability of the new investments.

2. Rate of return required on the project.
The rate of return required by investor is normally known by hurdle rate or cutoff
rate or opportunity cost of capital. After a firm takes a decision to enter into any
business or expand it’s existing business, plans to invest in buildings, machineries
etc. are conceived and executed. The process involved is called Capital Budgeting.
Capital Budgeting decisions demand considerable time, attention and energy of the
management. They are strategic in nature as the success or failure of an organization
is directly attributable to the execution of capital budgeting decisions taken.
Investment decisions are also known as Capital Budgeting Decisions. Capital
Budgeting decisions lead to investment in real assets Dividends are payouts to
shareholders. Dividends are paid to keep the shareholders happy. Dividend policy
formulation requires the decision of the management as to how much of the profits
earned will be paid as dividend. A growing firm may retain a large portion of profits
as retained earnings to meet its needs of financing capital projects. Here, the finance
manager has to strike a balance between the expectation of shareholders on
dividend payment and the need to provide for funds out of the profits to meet the
organization’s growth.
Dividend Decisions
Dividend yield is an important determinant of an investor’s attitude towards the
security (stock) in his portfolio management decisions. But dividend yield is the
result of dividend decision. Dividend decision is a major decision made by a finance
manager. It is the decision on formulation of dividend policy. Since the goal of
financial management is maximisation of wealth of shareholders, dividend policy
formulation demands the managerial attention on the impact of its policy on
dividend on the market value of the shares. Optimum dividend policy requires
decision on dividend payment rates so as to maximize the market value of shares.
The payout ratio means what portion of earnings per share is given to the
shareholders in the form of cash dividend. In the formulation of dividend policy,
management of a company must consider the relevance of its policy on bonus
shares. Dividend policy influences the dividend yield on shares. Since company’s
ratings in the Capitalmarket have a major impact on its ability to procure funds by
issuing securities in the capital markets, dividend policy, a determinant of dividend
yield has to be formulated having regard to all the crucial elements in building up the
corporate image. The following need adequate consideration in deciding on dividend
policy:
1. Preferences of share holders Do they want cash dividend or Capital gains?

2. Current financial requirements of the company
3. Legal constraints on paying dividends.
4. Striking an optimum balance between desires of share holders and the company’s
funds requirements.
Liquidity Decision
Liquidity decisions are concerned with Working Capital Management. It is concerned
with the day to–day financial operations that involve current assets and current
liabilities.
The important element of liquidity decisions are:
1) Formulation of inventory policy

2) Policies on receivable management.
3) Formulation of cash management strategies
4) Policies on utilization of spontaneous finance effectively.
Q.2 What is the future value of an annuity and state the formulae for future value
of an annuity
The value of a group of payments at a specified date in the future. These payments
are known as an annuity, or set of cash flows. The future value of an
annuity measures how much you would have in the future given a specified rate of
return or discount rate. The future cash flows of the annuity grow at the discount
rate, and the higher the discount rate, the higher the future value of the annuity.
This calculation is useful for determining the actual cost of an annuity to the issuer:
C = Cash flow per period
i = Interest rate
n = Number of payments
This calculates the future value of an ordinary annuity. To calculate the future value
of an annuity due, multiply the result by (1+i). (Payments start immediately instead
of one period into the future.)
Example: What amount will accumulate if we deposit $5,000 at the end of each year
for the next 5 years? Assume an interest of 6% compounded annually.
PV = 5,000
i = .06
n=5
FVoa = 5,000 [ (1.3382255776 - 1) /.06 ] = 5,000 (5.637092) = 28,185.46
Year 1 2 3 4 5
Begin 0 5,000.00 10,300.00 15,918.00 21,873.08
Interest 0 300.00 618.00 955.08 1,312.38
Deposit 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
End 5,000.00 10,300.00 15,918.00 21,873.08 28,185.46
Q.3 The equity stock of ABC Ltd is currently selling for Rs 30 per share. The
dividend expected next year is Rs 2.00. the investors required rate of return on this
stock is 15 per cent. If the constant growth model applies to ABC Ltd, What is the
expected growth rate?
Formula to be used to resolve this problem
P0=D1/Ke-g
In this case,
P0 = Price of One share = Rs. 30
Ke=Required rate of return on the equity share = 15% = 0.15
D1=Expected dividend after one year = Rs. 2
g = growth rate = ?
Hence,
P0=D1/Ke-g
Ke-g = D1/P0
0.15-g = 2/30
0.15-g = 0.0666
g=0.15-0.0666
g = 0.0834
Hence Growth Rate of ABC Ltd = 8.34%
Q.4 State the assumptions underlying the CAPM model and MM model
Capital asset pricing model (CAPM) is used to determine a theoretically appropriate

required rate of return of an asset, if that asset is to be added to an already well-
diversified portfolio, given that asset's non-diversifiable risk. The model takes into
account the asset's sensitivity to non-diversifiable risk (also known as systematic risk
or market risk), often represented by the quantity beta (ß) in the financial industry,
as well as the expected return of the market and the expected return of a theoretical
risk-free asset.
Assumptions made are as below -
1. Aim to maximize economic utilities.

2. Are rational and risk-averse.
3. Are broadly diversified across a range of investments.
4. Are price takers, i.e., they cannot influence prices.
5. Can lend and borrow unlimited amounts under the risk free rate of interest.
6. Trade without transaction or taxation costs.
7. Deal with securities that are all highly divisible into small parcels.
8. Assume all information is available at the same time to all investors.
The model assumes that either asset returns are (jointly) normally distributed
random variables or that investors employ a quadratic form of utility. It is however
frequently observed that returns in equity and other markets are not normally
distributed. As a result, large swings (3 to 6 standard deviations from the mean)
occur in the market more frequently than the normal distribution assumption would
expect
The model assumes that the variance of returns is an adequate measurement of risk.
This might be justified under the assumption of normally distributed returns, but for
general return distributions other risk measures (like coherent risk measures) will
likely reflect the investors' preferences more adequately. Indeed risk in financial
investments is not variance in itself, rather it is the probability of losing: it is
asymmetric in nature.
The model assumes that all investors have access to the same information and agree
about the risk and expected return of all assets (homogeneous expectations
assumption).[citation needed]
The model assumes that the probability beliefs of investors match the true
distribution of returns. A different possibility is that investors' expectations are
biased, causing market prices to be informationally inefficient. This possibility is
studied in the field of behavioral finance, which uses psychological assumptions to

provide alternatives to the CAPM such as the overconfidence-based asset pricing
model of Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam (2001)
The model does not appear to adequately explain the variation in stock returns.
Empirical studies show that low beta stocks may offer higher returns than the model
would predict. Some data to this effect was presented as early as a 1969 conference
in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes.
Either that fact is itself rational (which saves the efficient-market hypothesis but
makes CAPM wrong), or it is irrational (which saves CAPM, but makes the EMH
wrong – indeed, this possibility makes volatility arbitrage a strategy for reliably
beating the market).[citation needed]
The model assumes that given a certain expected return investors will prefer lower
risk (lower variance) to higher risk and conversely given a certain level of risk will
prefer higher returns to lower ones. It does not allow for investors who will accept
lower returns for higher risk. Casino gamblers clearly pay for risk, and it is possible
that some stock traders will pay for risk as well.[citation needed]
The model assumes that there are no taxes or transaction costs, although this
assumption may be relaxed with more complicated versions of the model.[citation
needed]
The market portfolio consists of all assets in all markets, where each asset is
weighted by its market capitalization. This assumes no preference between markets
and assets for individual investors, and that investors choose assets solely as a
function of their risk-return profile. It also assumes that all assets are infinitely
divisible as to the amount which may be held or transacted.[citation needed]
The market portfolio should in theory include all types of assets that are held by
anyone as an investment (including works of art, real estate, human capital...) In
practice, such a market portfolio is unobservable and people usually substitute a
stock index as a proxy for the true market portfolio. Unfortunately, it has been
shown that this substitution is not innocuous and can lead to false inferences as to
the validity of the CAPM, and it has been said that due to the inobservability of the
true market portfolio, the CAPM might not be empirically testable. This was
presented in greater depth in a paper by Richard Roll in 1977, and is generally
referred to as Roll's critique
The model assumes just two dates, so that there is no opportunity to consume and
rebalance portfolios repeatedly over time. The basic insights of the model are
extended and generalized in the intertemporal CAPM (ICAPM) of Robert Merton,
and the consumption CAPM (CCAPM) of Douglas Breeden and Mark
Rubinstein.[citation needed]
CAPM assumes that all investors will consider all of their assets and optimize one
portfolio. This is in sharp contradiction with portfolios that are held by individual
investors: humans tend to have fragmented portfolios or, rather, multiple portfolios:
for each goal one portfolio — see behavioral portfolio theory and Maslowian
Portfolio Theory
MM's key assumptions and the role played by each are:
(1) Unlimited borrowing and lending is available to all market participants at

one rate of interest. Role: makes the cost of personal and corporate
borrowing and lending the same.
(2) Individual margin borrowing is secured by the shares purchased, the

borrower's liability is limited to the value of these shares, there are no costs
to bankruptcy. Role: makes the risk of personal and corporate borrowing and
lending the same.
(3) All companies can be grouped into equivalent risk classes. Role: enables
investors to identify companies with identical business risk.
(4) Capital markets are perfect. Role: permits investors to easily and
costlessly arbitrage between securities of companies which differ only in their
financing mix.
(5) There are no corporate income taxes. Role: prevents the tax code from
making debt financing more valuable by allowing interest and not dividends
as a tax deduction.
(6) Shareholders are indifferent to the form of their returns, all returns are
taxed at the same rate. Role: prevents investors from seeing any difference in
value between interest, dividends, and capital gains.
Q.5 Write the cash flow analysis?
(1) Estimate your annual gross income as the first step in preparing a cash
flow analysis. Allow for subtractions if your business is not operating at
full potential. For instance, if you own an apartment complex, you add
the amount of rent for each month, but subtract an estimated amount for
unforeseen vacancies. The longer you are in business, the easier it will be
to predict operating losses.
(2) Add any other income you receive and you will arrive at your "effective
gross income." This is a reliable business accounting figure that
represents your entire annual projected gross income. Write this number
down for future figuring.
(3) Compile a list of the expenses you incur in order to operate your
business. Separate this by category. Think about the purchases of big
equipment you make. If you have a painting business, you would write
down the expenses you pay annually for paint sprayers, rollers, brushes
and drop cloths.
(4) Write down all your office expenses, utility charges, advertising expenses
and other fees you pay for equipment repairs and maintenance.
Everything you need to purchase in the operation of your business
counts.
(5) Remember to include professional fees and taxes in your cash flow
analysis. If you have an accountant, his fee goes here--so does insurance
policy expense, worker's compensation payments, unemployment
insurance fees and taxes charged on your equipment or building.
(6) Add your business accounting expense together and double check your
chart of accounts to make sure you got them all. This number represents
the total amount of expenses necessary to operate your business. Write it
down beneath the effective income figure.
(7) Figure out your debt service. Calculate the amount of payments you will
make to the bank for loans, mortgages or other financing. Add these
together and write the number down beneath the total expenses figure.
(8) Subtract the total expenses and the total debt service figures from the
effective annual income number. This is your cash flow analysis for the
year.
Q.6 The following two projects A and B requires an investment of Rs 2, 00,000

each. The income returns after tax for these projects are as follows:
Year Project A Project B

1 Rs. 80,000 Rs. 20,000
2 Rs. 80,000 Rs. 40,000
3 Rs. 40,000 Rs. 40,000
4 Rs. 20,000 Rs. 40,000
5 Rs. 60,000
6 Rs. 60,000
Using the following criteria determine which of the projects is preferable.

Project A
year Income PVIF@10% PVCI

1 80000 0.909 72720
2 80000 0.826 66080
3 40000 0.751 30040
4 20000 0.683 13660
PVCI 182500
PVCI - NPV
182500 200000 = -17500
Project B
year Income PVIF@10% PVCI

1 20000 0.909 18180
2 40000 0.826 33040
3 40000 0.751 30040
4 40000 0.683 27320
5 60000 0.621 37260
6 60000 0.564 33840
PVCI 179680
PVCI - NPV
179680 200000 = -20320
As Project A is preferable option as it has minimal losses.

MB0046
Marketing Management
Assignment Set- 1
Q.1
a. Explain the different micro-environmental forces with examples.
Forces in the micro environment
1 The Company
Remember, in the previous unit we discussed about marketing mix and marketing
plan. Safe Express, a leader in the supply chain management solution wants to hold
its number one position in the US $ 90 billion Indian logistics market. The company
plans to expand its service areas in the coming months. To meet the targets of the
marketing plan, other departments of safe express also expanding their horizon. The
Company is coming out with logistics parks in different cities; plans to hold seven
million square feet of warehousing capacity in the next three years and invest Rs 10
billion in three years to meet those targets. The above example shows that the
company’s marketing plan should be supported by the other functional departments
also.
2 Intermediaries
Marketing intermediaries: These are firms which distribute and sell the goods of the
company to the consumer.
Marketing intermediaries play an important role in the distribution, selling and

promoting the goods and services. Stocking and delivering, bulk breaking, and selling
the goods and services to customer are some of the major functions carried out by
the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward
agents are few of the intermediaries. Retailers are final link between the company
and the customers. Their role in the marketing of product is increasing every day.
3 Publics
These are microenvironment groups, which help a company to generate the financial
resources, creating the image, examining the companies’ policy and developing the
attitude towards the product.
We can identify six types of publics
1. Financial publics influence the company’s ability to obtain funds. For example,
Banks, investment houses and stockholders are the major financial publics.
2. Media publics carry news and features about the company e.g. Deccan Herald
3. Advertisement regulation agencies, telecom regulation agency( TRAI), and

insurance regulation agency(IRDA) of the government
4. Citizen action groups: Formed by the consumer or environmental groups. For

example, people for ethical treatment of animals (PETA) or Greenpeace.
5. General publics: a company should be concerned towards general publics’

attitude towards its products and services.
6. Internal publics: Employees who help in creating proper image for the company
through word of mouth.
4 Competitors
A company should monitor its immediate competitors as its sale will be affected by
the nature and intensity of the competitors. The sale of Coca cola will be affected by
Pepsi cola, or Britannia cheese by Amul cheese. Michael Porter, the author of
Competitive Advantage of Nations suggested that, in addition to direct competition,
companies should also consider competition from substitutes. In addition to existing
competitors, the potential competitors should also be anticipated. Competition may
arise from
a. Small firms with low overheads producing duplicates.
b. Firms which diversify into certain products by merely being in the particular
industry for e.g. Pepsi entered the snacks sector competing with pure snack
producers like Haldiram.
c. Firms which expand in the same vertical for e.g. Godrej which manufactured office
furniture and steel cupboards went on to the entire range of home furniture thereby
giving competition to pure home furniture makers.
How do companies or enterprises survive and grow under the above circumstances.
While we shall study this in detail later, a simple step could be that the product
should be positioned differently and the company should be able to provide better
services.
5 Suppliers
There are many kinds of suppliers to an enterprise or an institution. There are

typically, raw material suppliers, energy and fuel suppliers, labour suppliers, office
item suppliers and so on.
Suppliers are the first link in the entire supply chain of the company. Hence any
problems or cost escalation in this stage will have direct effect on the company.
Many companies adopted supplier relation management system to manage them
well. Suppliers are a source of competition to firms today. For a large retail store like
Reliance Retail or Big Bazaar the suppliers play the most significant role in both cost
and time. Timely supplies reduce stocking of goods and blocking of space, at the
same time meet customer requirements.
In a globalised scenario suppliers are even more important as competition goes up

manifold! The Tamil Nadu State Electricity Board imports coal from New Zealand
despite huge coal reserves in India. For Volvo, India is a manufacturing hub.
6 Customers
A company may sell their products directly to the customer or use marketing
intermediaries to reach them. Direct or indirect marketing depends on what type of
markets Company serves. Generally we can divide the markets into five different
categories. They are
a. Consumer market.
b. Business market
c. Reseller market
d. Government market and
e. International market
You will come to know about these five different markets from the following
example.
MRF, a tyre company sells its product directly to consumer (in case of urgency,
customer purchases directly from showroom) i.e. operates in consumer market. It
operates in business markets by selling tyres to companies like Maruti Udyog limited.
MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka
government. If MRF sells tyres in African or American countries then it is operating in
the international market. If MRF buys the old tyres, retreads it and sells it to the
consumer at a profit then company is operating in the reseller market.
b. Mention the different ad appeals with suitable examples. (4 marks)
The different ad appeals-
A)Emotional appeal:
Positive emotional appeal or negative emotional appeals are strong tools used to
intensify the purchasing activity of the customer. Positive emotions like love, pride,
joy and humor are used in the message. Following are the advertisement where such
attributes of positive emotions used.
e.g. BMW fastest saloon car in the world- pride

e.g. Fevicol – humor
e.g. Wheel- love.
The negative emotions like fear guilt and shame are also used in the advertisement
to attract the customer.
e.g. NIIT- if you are not studying at NIIT you are missing something- guilt
e.g. Rexona deodorant – shame
B)Rational appeals:
The rational appeals highlight on the desired benefits about the products. They
highlight quality, economy value or performance of the product.
e.g. Dabur Amla – value appeal ( long Hair)

e.g. Lakme brilliance- Quality products.
e.g. Reliance India mobile- performance( works even in flood situations)
e.g. Reliance Infocom- Like the first three, the mobile phone must come to me as a
necessity and not as a luxury- economy
C)Moral appeal:
These are concerned towards public health or environment or social responsibility.
e.g. Shell lubricants show its commitment towards environment in their

advertisements.
Q.2 What are the different market entry strategies if a company wants
to enter international markets?
Organizations that plan to go for international marketing should know the answers
for some basic questions like – a. In how many countries would the company like to
operate? b. What are the types of countries it plans to enter?That’s why companies
evaluate each country against the market size, market growth, and cost of doing
business, competitive advantage and risk level.
Checklist for country evaluation
The Characteristics, weightages and score should be checked.
1. Political rights.
2. Civil liberties.
3. Control of corruption.
4. Government effectiveness.
5. Rule of law or legal issues.
6. Health expenditure.
7. Education expenditure.
8. Regulatory quality.
9. Cost of starting a business.
10. Days to start a business.
11. Trade policy.
12. Inflation.
13. Fiscal policy.
14. Consumption patterns.
15. Competition.
International Market Entry Strategies
Once the market is found to be attractive, companies should decide how to enter
this market. Companies can enter the international market by adoptingany one of
the following strategies. They are
a. Exporting
b. Licensing
c. Contract manufacturing
d. Management contract
e. Joint ownership
f. Direct investment
Exporting is the technique of selling the goods produced in the domestic country in a
foreign country with some modifications. For example, Gokaldas textiles export the
cloth to different countries from India. Exporting may be indirect or direct. In case of
indirect exporting, company works with independent international marketing
intermediaries. This is cost effective and less risky too. Direct exporting is the
technique in which organization exports the goods on its own by taking all the risks.
Maruti Udyog Limited, India’s leading car manufacturer exports its cars on its own.
Company can also set up overseas branches to sell their products. Adani Exports,
another leading exporter from India has international office in Singapore.
Licensing: According to Philip Kotler, licensing is a method of entering a foreign

market in which the company enters into an agreement with a license in the foreign
market, offering the right to use a manufacturing process, trademark, patent, or
other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has
license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may
cause some problems to the parent company. Licensee may violate the agreement
and can use the technology of the parent company.
Contract manufacturing: Company enters the international market with a tie up

between manufacturer to produce the product or the service. For example, Gigabyte
Technology has contract manufacturing agreement with D- link India to produce and
sell their mother boards. Another significant manufacturer is TVS Electronics; it
produces key boards in its own name as well as for other companies too.
Management contracting: In this case, a company enters the international market

by providing the know how of the product to the domestic manufacturer. The
capital, marketing and other activities are carried out by the local manufacturer,
hence it is less risky too.
Joint ownership: A form of joint venture in which an international company invests

equally with a domestic manufacturer. Therefore it also has equal right in the
controlling operations. For example, Barbara, a lingerie manufacturer has joint
venture with Gokaldas Images in India.
Direct Investment: In this method of international market entry, Company invests in

manufacturing or assembling. The company may enjoy the low cost advantages of
that country. Many manufacturing firms invested directly in the Chinese market to
get its low cost advantage. Some governments provide incentives and tax benefits to
the company which manufactures the product in their country. There is government
restriction in some countries to opt only for direct investment, as it produces the
jobs to the local people. This mode also depends on the country attractiveness. It
may become risky if the market matures or unstable government exists.
Q.3.a. State the meaning of Product life cycle and explain the different
stages involved in it. (8 marks)
Meaning of Product Life Cycle: It means a product has to go through the various
stages since its inception and till it completely fades out from the market. The
following graph represents the PLC curve and the 5 stages that it has to undergo
The product which is introduced into the market will undergo some modifications
over the period. Its sales also fluctuate. Therefore a marketer will be interested in
finding out how sales changes over a period and what strategies are best suited at
that point. A product life cycle can be graphed by plotting aggregate sales volume for
a product category over time. Generally the curve resembles a bell shaped curve. We
can obtain style, fashion or fad style of product life cycles also.
Product life cycle (bell shaped curve)
According to PLC, a product passes through five stages which are as follows:
1. Product development stage: In this stage company identifies the viable idea and
develops it. Even if sales in this stage are nil it requires huge research and
development budget. Therefore company incurs losses at this stage. For example,
TATA Docomo before entering the cellular services market had done research and
found that calls were charged for minutes rather than seconds.
2. Introduction stage: Company introduces the product into the market. As the
product is new to the market, consumer awareness is usually very low. Here
company adopts heavy sales promotion and product awareness programs. The cost
of product is very high and sales are very low. At this juncture the company charges
high price to the customers. For example, TATA Docomo has entered into cellular
services initially through the Billboards.
3. Growth stage: Company gets experience over the period and now tries to get the
maximum market share (takes ‘first mover’ advantage). Sales will grow rapidly,
resulting in lesser cost and better profit. Company reduces the price of the product
and offers varieties and values in it. It focuses on building better distribution network
and pushes the product through it. Therefore company needs less sales promotion.
There will be increase in Competition and the company is forced to keep a tab on its
competitors. For example, TATA Docomo has entered into the growth stage by
aggressively advertising on Television and other mediums and at the same time
giving competition to the existing players.
4. Maturity stage: In this stage, the product has already established itself in the
market. These are the characteristics of this stage – a. Peak sales.b. Low cost per
customer. c. High profits.d. Competition based pricinge. Communicating the
product differentiation (or USP) to consumers.f. Improving supply chain efficiency.g.
Defend the market share h. Industry experiences consolidation.
5. Decline stage: In this stage, product sales and profit decline. Company should
phase out weak items from their product mix and may even lower the prices of the
existing products. The advertisement budget of the company also comes down and
the company may struggle to meet its costs. For example, VCR’s have been replaced
with DVD players and so VCR entered into the decline stage and is almost out of the
market.
Other product life cycles:
1. Style: A style is a basic and distinctive mode of expression that appears in the
study of human behavior. For example, style is evident in homes, art, accessories and
clothing. Once the style is invented it will be there for a longer period.
2. Fashion: Currently accepted or popular style in a given field. For example, cargo
jeans are now the fashion with college going students. Fashion changes with time.
3. Fad: A fashion that enters quickly is adopted with great zeal, peaks early, and
declines very fast. For example, when pager was introduced, everybody wanted to
have the product. But when people found mobiles as alternative, the demand for
pager went down drastically.
b. Define Customer Relationship Management. (2 marks)
Berry defines CRM as “attracting, maintaining and – in multi-service organizations –

enhancing customer relationships.”
Berry and Parasuraman define CRM as “attracting, developing and retaining

customer relationships.”
In Industrial Marketing, Jackson defines CRM as “marketing oriented toward strong,

lasting relationships with individual accounts.”
Doyle and Roth define CRMS as “the goal of relationship selling is to earn the
position of preferred supplier by developing trust in key accounts over a period of
time.”
The sequence of activities for performing relationship marketing would include

developing core services to build customer relationship, customization of
relationship, augmenting core services with extra benefits, and enhancing customer
loyalty and fine-tuning internal marketing to promote external marketing success.
Christopher considers relationship marketing as “a tool to turn current and new

customers into regularly purchasing clients and then progressively moving them
through being strong supporters of the company and its products to finally being
active and vocal advocates for the company.”
Relationship marketing is in essence “selling by using psychological rather than

economic inducements to attract and retain customers. It seeks to personalize and
appeal to the hearts, minds and purses of the mass consumers.”- James J. Lynch
From the above definitions, it could be concluded that Customer Relationship

Management refers to all marketing activities directed towards establishing,
developing, and sustaining long lasting, trusting, win-win, beneficial and successful
relational exchanges between the focal firm and all its supporting key stakeholders.
Q.4.
a. You are a sales manager in ABC firm. You have taken some
interviews and shortlisted a few candidates. How will you select the
right candidate for the sales job? (5 marks)
1. Create an Ideal Salesperson Profile. It has always surprised me how many

companies have fully documented profiles of their ideal client. Yet, few have a
profile of their ideal salesperson. How can you screen when you don't know what
you are screening for?
This profile should be fully detailed. Some of the areas to address in the profile are
the experience you expect that candidate to already have, the skills that the
candidate should already possess and the skills you are NOT willing to teach.
The lack of a fully-defined profile of the ideal salesperson is the most common cause
of bad sales marriages. It is also the major point of frustration between sales
managers and recruiters. Recruiters often tell me that they feel they are throwing
darts while blindfolded because they have so little detail about the desired profile.
2. Always be recruiting. In sales, there is an old expression: "The toughest time to

make a sale is when you really need one." The same holds true for recruiting. When
a slot is open on the sales team, it becomes an "all hands on deck" exercise to fill it.
While the seat is open, revenue targets are in jeopardy. This leads many to forget the
profile of the ideal salesperson profile in the interest of filling a seat. Playing this
forward a bit, the seat becomes vacant again a short time later when either side
determines that it is not a good fit.
Sales recruiting is a year-round exercise. The best sales forces are always on the look
out for strong sales talent. Find a company that identifies a strong candidate that
meets their profile who wouldn't find a way to hire this individual. It is a rarity to say
the least. Sales teams have turnover either driven by the company or the employee.
It is best to have a candidate portfolio at the ready than to begin a process of
surfacing candidates when a seat is open. Poor hiring decisions are made out of
desperation to fill a seat. The open seat is a cost to the company every day it is
unfilled. Yet, the cost is more painful if the seat is filled by someone who doesn’t fit.
3. Practice Reverse Interviewing. Since the intent of the process is for both sides to
be able to determine if a marriage should be formulated, a wonderful technique is
reverse interviewing—an interview performed by a member of the sales team who
would be a peer if the candidate was hired. It is important that the individual(s)
selected to participate in this step are loyal to the company, knowledgeable and
make a favorable impression.
However, unlike traditional interviews, the "interviewer" does not ask any questions
of the candidate (as you know, it is very easy to get yourself in hot water if illegal
questions are asked). Thus, you don't want untrained people asking questions.
Rather, this "questionless" exercise has two different purposes. The first is to provide
the candidate with an opportunity to ask questions of someone who would be their
peer if they were to be hired. In essence, it is a way for them to get a picture of a day
in the life of this job. The second purpose is to measure how the candidate prepares
for a sales call.
Afterwards, conduct a debrief with the "reverse interviewer" to see what questions
were asked. Did the candidate take advantage of this opportunity, bring prepared
and insightful questions and write down answers? If they didn't, what kind of
preparation will the candidate do for a sales call? How interested are they really in
this job?
5. Host a Mock Sales Call. What better way to see if someone fits into your
company's selling environment than to put them right in it? To do this effectively,
you need to create a scenario for the candidate. I've found it most beneficial to give
the candidate the scenario a day ahead of time so they can prepare. They should be
provided with the same amount of information a sales person in your company
normally has before making an initial sales call.
Those members of your company who participate in the exercise should be

somewhat scripted. I say "somewhat" because you don't want it to be so dry that it
is unrealistic, but without any scripting it can be hard to stay in character.
The last piece you need to do this well is a score sheet. Know what you are looking to
measure in the process and score accordingly. Can they conduct a thorough needs
analysis? Did they identify the challenges faced by this prospect? Would you buy
from them?
6. Use Online Assessment Testing Wisely. There are a myriad of tools that are very
helpful in the screening process for both personality and skill. However, few, if any,
of the online assessment companies suggest that their tool should be used to make a
hiring decision. The most appropriate application is to treat it as an additional data
point in the sales talent screening program.
Linda Moeller, product director of Employee Continuum, has seen companies use
this great tool incorrectly. "We have seen many organizations fail to take the context
of an organization into account when deciding the most appropriate assessment to
use. For example, many organizations assume that implementing a sales assessment
will guarantee them improved sales performers. This is not necessarily the case. For
example, the personality characteristics required for a sales person selling office
supplies to purchasing agents are very different than those required for a
salesperson selling everything needed for a dentist office. In order to be successful,
an organization needs to consider the type of relationship they have with their
clientele and the competencies that will make these relationships successful," she
says.
b. As a consumer, what are the steps you will undertake before you
decide to buy a car? (5 marks)
The steps undertaken before deciding to buy a car-
1. Need recognition: customer posses two type of stimuli’ at this juncture. One is
driven by the internal stimuli and another is external stimuli. The examples of
internal stimuli are customer’s desire, attitude or perception and external stimuli are
advertising etc. From both stimuli customers understand the need for the product.
Here marketer should understand what customers needs have that drew customers
towards the product and should highlight those in the communication strategy.
2. Information search: In this stage customer wants to find out the information
about the product, place, price and point of purchase. Customer collects the
information from different sources like
a. Personal sources: Family, friends and neighbors
b. Commercial sources: Advertising, sales people, dealers, packaging and displays.
c. Public sources: mass media and consumer rating agencies.
d. Experiential sources: Demonstration, examining the product.
In this stage marketer should give detailed information about the product. The
communication should highlight the attributes and advantages of the product in this
stage so that he created the positive image about the product.
3. Evaluation of alternatives: After collecting the information, consumers arrive at

some conclusion about the product. In this stage he will compare different brands on
set parameters which he or she thinks required in the product. The evaluation
process varies from person to person. In general Indian consumer evaluate on the
following parameters
a. Price
b. Features
c. Availability
d. Quality
e. Durability
At this stage marketer should provide comparative advertisements to evaluate the

different brands. The advertisement should be different for different segments and
highlight the attribute according to the segment.
4. Purchase decision
In this stage consumer buy the most preferred brand. In India affordability plays an
important role at this stage. Organizations’ bring many varieties of the products to
cater to the needs of customers.
5. Post purchase behavior
After purchasing the product the consumer will experience some level of satisfaction
and dissatisfaction. The consumer will also engage in post purchase actions and
product uses of interest to the marketer. The marketer’s job does not end when the
product is bought but continues into the post purchase period. Customer would like
to see the performance of the product as he perceived before purchase. If the
performance of the product is not as he expected then he develops dissatisfactions.
Marketer should keep an eye on how consumer uses and disposes the product. In
some durable goods Indian consumer want resale value also. Many automobile
brands that were not able to get resale value lost their market positions.
Q. 5
a. What are the features of Business markets? How is it different from
consumer markets? (5 marks)
Features or Characteristics of Business Markets
Following are some of the unique features of business markets where large
establishments purchase the required goods and services from other businesses.
Such B2B operations determine the organizations as buyers and those organizations
who supply the various requirements will be the sellers or suppliers or service
providers.
1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For
example, major airlines buy the necessary equipments from the aircraft
manufacturers
2. Geographical concentration of buyers: Buyers are geographically concentrated.

For example, shipping industries are located on the east and west coasts of India
than in any other places.
3. Variable demand: The nature of demand is fluctuating because the demand is

basically a derived one. Based on the requirements of the consumer markets,
organizations buy the goods and make the finished goods available in the market for
final consumption. Larger the consumer demand, larger will be the organizational
buying. For example, mobiles are being used by a large population and so cellular
companies have to meet this rising demand.
4. Inelastic demand: The demand is also inelastic because organizations cannot

make rapid changes in the production structure and so prices remain constant in the
short-term. For example, Shoe manufacturers will not buy much leather if the price
of leather is less neither will they buy less leather if the price increases.
5. Systematic purchasing: The purchasing activity is directly between the buyer and
supplier organization which means there are no or very few middlemen involved.
Purchasing activity is usually undertaken by purchase departments based on a

proper structure and through various mechanisms like having purchase requisitions
from other sections, inviting tenders and sending invoices from the suppliers,
purchasing agreements or contracts with the key suppliers, renewing agreements
etc. For example, Reliance Fresh has regular contracts with the agricultural
producers for smooth supply of fresh fruits and vegetables.
6. Multiple buying influences: there will be several parties involved in deciding

about the purchases because organizations will have several departments and units
functioning under it with different requirements. So, unless they have the proper
resources to work with there will be problems in the departments. For example,
purchase department in a Hospital must be aware about the specific requirements in
the clinical wards, operation theaters, labs, etc.
7. Reciprocation: This means that when an organization buys goods from another
organization then the supplier organization also might need certain other goods that
are produced by the buyer organization. For example, a stationery supplier will
supply the necessary stationeries to the paper manufacturer who in turn provides
papers to the supplier.
8. Lease agreements: Most organizations take on lease the expensive equipments

required by them rather than buy it. So, in this way, they reduce cost, get better
service and the lessor or one who provides the equipments will also profit from the
rent or lease charges. For example, TATA provides the transport trucks to other
organizations on lease.
b. List out the 5 important requisites of an effective segmentation by

giving suitable examples. (5 marks)
Requisites of Effective Segmentation
1. Measurable and Obtainable: The size, profile and other relevant characteristics of
the segment must be measurable and obtainable in terms of data. If the information
is not obtainable, no segmentation can be carried out. For example, Census of India
provides the data on migration and education level, but does not specify how many
of the migrated employees are educated and if educated how many are in white
collared jobs. If a company wants to target white color collared employees who are
migrated to particular city, it will not able to measure the same. .
2. Substantial: The segment should be large enough to be profitable. For consumer

markets, the small segment might disproportionably increase the cost and hence
products are priced too high. For example, when the cellular services started in India
cost of the incoming calls and outgoing calls were charged at Rs 12/minute. As the
number of subscribers grew, incoming calls became free. Further growth of
subscribers resulted in lowering tariffs for outgoing calls to the lowest level in the
world.
3. Accessible: The segment should be accessible through existing network of people

at an affordable cost. For example, Majority of the rural population is still not able to
access the internet due to the high cost and non-availability of connections and
bandwidth.
4. Differentiable: The segments should be different from each other and may
require different 4Ps and programs. For example, Life Insurance Corporation of India
needs separate marketing programs to sell their insurance plans, unit plans, pension
plans and group schemes
5. Actionable: The segments which a company wishes to pursue must be actionable

in the sense that there should be sufficient finance, personnel, and capability to take
them all.
Q. 6. Explain briefly what are the several processes involved in new

product development. (10 marks)
New Product Development
New products are essential for existing firms to keep the momentum and for new
firms they provide the differentiation. New product doesn’t mean that it is
absolutely new to the world. It may be a modification, or offered in a new market, or
differentiated from existing products. Therefore it is necessary to understand the
concept of new products.
Meaning of New Products:
a. They are really innovative. For example, Google’s Orkut, a networking site which
revolutionized social networking. In this site people can meet like minded people;
they can form their own groups, share photos, comments and many more.
b. They are very different from the others: Haier launches path-breaking 4-Door
Refrigerators first time in India
c. They are imitative; these products are not new to the market but new to the
company. For example, Cavin Kare launched Ruchi pickles. This product is new to
Cavin Kare but not to the market.
New product development process:
Stage 1 – Idea generation: New product idea can be generated either from the
internal sources or external sources. The internal sources include employees of the
organization and data collected from the market. The external source includes
customers, competitors and supply chain members. For example, Ingersoll Rand
welcomes new ideas from the General public
Stage 2-Idea screening: Organization may have various ideas but it should find out
which of these ideas can be translated into concepts. In an interview to Times of
India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many
changes from the basic version. He told that he wanted to develop car with scooter
engine, plastic doors etc… But when he unveiled the car, there were many changes
in the product. This shows that initial idea will be changed on the basis of market
requirements.
Stage 3 – Concept development: the main feature or the specific desire that it caters
to or the basic appeal of the product is created or designed in the concept
development.
ConceptsI:used
Concept for Tata
Low-end Nano
‘rural carprobably
car,’ are: without doors or windows and with plastic
curtains that rolled down, a four-wheel version of the auto-rickshaw
Concept II: A car made by engineering plastics and new materials, and using new
technology like aerospace adhesives instead of welding.
Concept
Stage 4 –III:Concept
Indigenous, in-house
testing: carstage
At this whichconcept
meets all the environment
is tested standards
with the group of target
customers. If any changes are required in the concept or the message it will be done
during this stage. Also the effectiveness is tested on a minor scale. If the concept
meets the specific requirements, then it will be accepted.
Stage 5 Marketing strategy development: The marketing strategy development

involves three parts. The first part focuses on target market, sales, market share and
profit goals. TATA’s initial business plan consisted sales of 2 lakhs cars per annum.
The second part involves product price, distribution and marketing budget
strategies. TATA’s fixed Rs 1 lakhs as the car price, and finding self employed persons
who work like agent to distribute the cars. The final part contains marketing mix
strategy and profit goals.
Stage 6 – Business analysis: it is the analysis of sales, costs and profits estimated for
a new product and to find out whether these align with the company mission and
objectives.
Stage 7 – Product development: during this stage, product is made to undergo

further improvements, new features or improvised versions are added to the
product. There is also scope for innovation and using the latest technology into the
product.
Stage 8 – Test marketing: is the most crucial stage for the testing product’s
performance and its future in the market. There are certain cases where product has
failed in the test marketing and had to be withdrawn.
– The product is introduced into the realistic market
– The 4P’s of marketing are tested.
– The cost of test marketing varies with the type of product.

Stage 9 – Commercialization: In this stage product is completely placed in the open

market and aggressive communication program accompanied with promotion
activities is carried out to support it.
MB0046
Marketing Management
Assignment Set- 2
Q1. Highlight the importance of Distribution channel and marketing intermediaries

in carrying out the marketing function.
The delivery of goods and services from producers to their ultimate consumers or
users includes many different activities. These different activities are known as
marketing functions. Different thinkers have described these functions in different
ways. Some of the most important functions of marketing are briefly discussed
below:
1. Marketing Research and Information Management
Marketers need to take decisions scientifically. Marketing research function is

concerned with gathering, analyzing and interpreting data in a systematic and
scientific manner. The types of market information could be analysis of market size
and characteristics, consumer tastes and preferences and changes in them from time
to time, channels of distribution and communication and their effectiveness,
economic, social, political and technological environment and changes therein. A
company can procure such information from specialized market research agencies,
government or can decide to collect themselves.
2. Advertising and Sales Promotion – Advertising is a mass media tool used to

inform, persuade or remind customers about products or services. It is an
impersonal form of communication targeted at a chosen group through paid space
or time.
Sales Promotion is a short-term incentive given to customers or intermediaries to

promote sales. It supplements advertising and personal selling and can be used at
the time of launching a new product or even during its maturity period.
3. Product Planning and Management – A Marketer should identify the needs and
wants of consumers, develop suitable products / services and make them available.
Marketer is also required to maintain the product and its variations in size, weight,
package and price range according to the changing needs and requirements of his
customers. Information available through Market Research helps product
management in taking appropriate decisions while planning the marketing efforts.
4. Selling – This function of marketing is concerned with transferring of products to

the customer. An important part of this function is organizing sales force and
managing their activities. Sales force management includes recruitment, training,
supervision, compensation and evaluation of salesmen. They need to be assigned
targets and territories where they can operate. The salesmen interact with
prospective purchasers face-to-face in order to sell the goods. The purchaser may be
end customer or an intermediary, such as a retailer or a dealer.
5. Physical Distribution – Moving and handling of products from factory to

consumers come under this function. Order processing, inventory, management,
warehousing and transportation are the key activities in the physical distribution
system.
6. Pricing – This is perhaps the most important decision taken by marketer, as it is

the only revenue fetching function and success and failure of the product may
depend upon this decision. Therefore, the decision regarding how much to charge
should be taken such that the price is acceptable to the prospective buyers and at
the same time fetches profits for the company. While deciding on the price, the
factors to be considered are competition, competitive prices, company’s marketing
policy, government policy, and the buying capacity of target market etc.
Importance of marketing intermediaries
These are firms which distribute and sell the goods of the company to the consumer.
Marketing intermediaries play an important role in the distribution, selling and

promoting the goods and services. Stocking and delivering, bulk breaking, and selling
the goods and services to customer are some of the major functions carried out by
the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward
agents are few of the intermediaries. Retailers are final link between the company
and the customers. Their role in the marketing of product is increasing every day.
Q.2 a. Explain the different product mix pricing strategies. (6 marks)
Product Mix Pricing Strategies
1. Product Line pricing: Strategy of setting the price for entire product line. Marketer
differentiates the price according to the range of products, i.e. suppose the company
is having three products in low, middle and high end segment and prices the three
products say at Rs 10 Rs 20 and Rs 30 respectively.
Figure
In the above example of Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia
7610 priced @ Rs 6249 and Nokia E90 priced @ Rs 34599. All the three products
cater to the different segments – low, middle and high income group respectively.
The three levels of differentiation create three price points in the mind of consumer.
The task of marketer is to establish the perceived quality among the three segments.
If the customers do not find much difference between the three brands, he/she may
opt for low end products.
2. Optional Product pricing: this strategy is used to set the price of optional or
accessory products along with a main product.
Figure 10.2
Body cover Slide Molding Rear underbody Roof End

Rs 1521 Rs 1123 Rs 8883 Rs 6396
Maruti Suzuki will not add above accessories to its product Swift but all these are
optional. Customer has to pay different prices as mentioned in the picture for
different products. Organizations separate these products from main product so that
customer should not perceive products are costly. Once the customer comes to the
show room, organization explains the advantages of buying these accessory
products.
3. Captive product pricing: Setting a price for a product that must be used along with
a main product. For example, Gillette sells low priced razors but make money on the
replacement cartridges.
4. By-product pricing: It is determining the price for by-products in order to make

the main product’s price more attractive. For example, L.T. Overseas, manufacturers
of Dawaat basmati rice, found that processing of rice results in two by-products i.e.
rice husk and rice brain oil. If the company sells husk and brain oil to other
consumers, then company is adopting by-product pricing.
5. Product bundle pricing: It is offering companies several products together as a

bundle at the reduced price. This strategy helps companies to generate more
volume, get rid of the unused products and attract the price conscious consumer.
This also helps in locking the customer from purchasing the competitors’ products.
For example, Anchor toothpaste and brush are offered together at lower prices.
Q2 b. Give a note on marketing concepts.
The Marketing Concept – The Marketing Concept proposes that a company’s task is
to create, communicate and deliver a better value proposition through its marketing
offer, in comparison to its competitors; to its target segment and that this customer
oriented approach only can lead to success in the market place.
Today, marketing function is seen as one of the most important functions in the
organization. Many marketers put the customers at the centre of the company and
argue in favor of such a customer orientation, where all functions work together to
respond, serve and satisfy the customer.
Many successful and well known multinational companies have adopted marketing
concept as their business and marketing philosophies. Many Indian companies in the
banking and other service sectors follow customer orientation and service as their
motto. According to this concept, a company’s marketing effort must start right from
identifying, through Market Research, exact needs and wants of the target market.
Q.3 a. What are the features of business markets?
Features or Characteristics of Business Markets
Following are some of the unique features of business markets where large
establishments purchase the required goods and services from other businesses.
Such B2B operations determine the organizations as buyers and those organizations
who supply the various requirements will be the sellers or suppliers or service
providers.
1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For
example, major airlines buy the necessary equipments from the aircraft
manufacturers
2. Geographical concentration of buyers: Buyers are geographically concentrated.

For example, shipping industries are located on the east and west coasts of India
than in any other places.
3. Variable demand: The nature of demand is fluctuating because the demand is

basically a derived one. Based on the requirements of the consumer markets,
organizations buy the goods and make the finished goods available in the market for
final consumption. Larger the consumer demand, larger will be the organizational
buying. For example, mobiles are being used by a large population and so cellular
companies have to meet this rising demand.
4. Inelastic demand: The demand is also inelastic because organizations cannot

make rapid changes in the production structure and so prices remain constant in the
short-term. For example, Shoe manufacturers will not buy much leather if the price
of leather is less neither will they buy less leather if the price increases.
5. Systematic purchasing: The purchasing activity is directly between the buyer and
supplier organization which means there are no or very few middlemen involved.
Purchasing activity is usually undertaken by purchase departments based on a
proper structure and through various mechanisms like having purchase requisitions
from other sections, inviting tenders and sending invoices from the suppliers,
purchasing agreements or contracts with the key suppliers, renewing agreements
etc. For example, Reliance Fresh has regular contracts with the agricultural
producers for smooth supply of fresh fruits and vegetables.
6. Multiple buying influences: there will be several parties involved in deciding

about the purchases because organizations will have several departments and units
functioning under it with different requirements. So, unless they have the proper
resources to work with there will be problems in the departments. For example,
purchase department in a Hospital must be aware about the specific requirements in
the clinical wards, operation theaters, labs, etc.
7. Reciprocation: This means that when an organization buys goods from another
organization then the supplier organization also might need certain other goods that
are produced by the buyer organization. For example, a stationery supplier will
supply the necessary stationeries to the paper manufacturer who in turn provides
papers to the supplier.
8. Lease agreements: Most organizations take on lease the expensive equipments

required by them rather than buy it. So, in this way, they reduce cost, get better
service and the lessor or one who provides the equipments will also profit from the
rent or lease charges. For example, TATA provides the transport trucks to other
organizations on lease.
Q.3 b. Write a short note on product line and product mix.
Product line: The group of related products which uses same marketing efforts to
reach the consumer.
The product line identifies profitable and unprofitable products and helps in
allocation of resources according to that. The product line understanding helps the
marketer to take line extension, line pruning and line filling strategies of the
company.
Pidilite Industries, the adhesives and chemical company, have the following group of
related products (or product lines) in consumer and business markets.
Consumer market.
1. Fabric
2.
3.
4.
5. Adhesives
Art and
materials
Construction
Automotive
Business care sealants.
and stationeries.
chemicals.
chemicals
market
1.
2.
3.
4.
5. Industrial
Textile
Organic
Leather
Product adhesives.
chemicals.
pigment
resins
chemicals.
Line powders.
and
Decisions:
The
a.
b.
c. major line
a. Product
d. Product product
lengthline decisions
stretching
linefilling
pruning
length: The numberareof items in the product line is called the product
line length. Company should decide whether it requires longer chain or shorter
length. The decision depends upon the objective of the company, competitive
environment and profitability. If the chain is short company can add new products
and if it is lengthy company can reduce the number of products. For example,
Pidilite’s adhesives and sealants line has following 11 items in the product line.
Hence the length of product line is 11
1. White Glue 2. Paper Glue

3. Glue Stick 4. Instant Adhesive
5. Epoxy Putty 6. Epoxy Adhesive
7. PVC Insulation Tape 8. Silicone Sealants
9. Contact Glue 10. All Purpose Glue
11. Maintenance Spray
b. Product line stretching: Company lengthens its product line either by stretching
upwards or downwards or both ways. Line stretching decision depends on three
situations -
i. Company which operates in high end market may come up with mid class or low
class targeted products.
ii. The company which operates in lower end of market may come up with high end
market products.
iii. If the company operates in mid segment and comes out with low end product as
well as high end product then it is stretching both ways.
For example, Maruti Suzuki Limited launched its first product, Maruti 800 in the year
1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti
800 and targeted for higher segment. This shows that the company extended its
product line upwards or in short, upward stretch.
Tata Motors launched their Rs 1 lakh car NANO in the year 2008. The company which
was targeting upper class and middle class with their products SUMO and Indica
respectively, has stretched downwards to reach the lower level segment. This
illustrates the downward stretch.
Toyota Kirloskar Limited which extended their line from Qualis and Corolla to Innova
and Camry is planning to come out with small car in India. This clearly illustrates the
two way stretch of the product line.
c. Product line filling: Adding more items in the present product line. For example, in
the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800
and Maruti Zen. Here company was trying to fill the gap existing in the segment by
introducing ALTO, i.e. line filling.
d. Product line pruning: Removing the unprofitable products form the product line.
Toyota Kirloskar phased out their well known brand Qualis when they thought the
brand was not adding value to the product line.
Product Mix
Product mix: The number of product lines and items offered by marketer to the
consumers
A company’s product mix has four different dimensions. They are product mix width,
product mix length, product mix depth and product mix consistency.
The following shows the product mix of Jyothy Laboratories:
Fabric care House hold Utensil Fragrances Personal Allied

insecticide cleaners care business
Ujala supreme Maxo Exo dish Maya Jeeva Natural Continental
cyclothrin coil wash bar special
(9ml, 30ml, (8, 15, 20, 40 (Coconut
75ml, (8hr, 10hr, (100g, 200g and 100 Milk with
125ml,250ml) 12hr) 380g) sticks.) Milk Protein,
Coconut Milk
with Jasmine
and Coconut
Milk with
Kasturi
Manjal, and
is presented
in 75gm
packs. )
Ujala washing Max vaporizer Exo dish Marketing of

powder wash liquid godrej Tea
(30ml, 45ml)
(25g, 500g, (500ml,
1Kg) 125ml)
Stiff & shine Max aerosol Marketing of

Ekta dhoop
(20gm sachets, (150ml,300ml)
100ml and
200ml bottles)
Product mix width: The total number of product lines that company offers to the
consumers.
For example, Jyothy Laboratories’ product mix has six lines. Hence the width is 6
Product mix length: The total number of items that company carries within its
product line.
For example, Jyothy Laboratories fabric care division has three items
Product line depth: The number of versions offered of each product in the line.
For example, Jyothy Laboratories’ Jeeva Natural is offered in three versions i.e.
Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with
Kasturi Manjal, and is presented in 75gm packs.
Product mix consistency: If company’s product lines usage, production and

marketing are related, then product mix is consistent, else it is unrelated.
In the case of Jyothy Laboratories, all six product lines are FMCGs. Hence it is having
consistent product mix. But ITC Company’s cigarette and cloth product lines are
totally unrelated.
Q.4. a. Select any deodorant brand and evaluate its positioning strengths or
weakness in terms of attributes, benefits, values, brand name and brand equity.
Brand Name
A name, term, design, symbol, or any other feature that identifies one seller’s good
or service as distinct from those of other sellers’.
The legal term for brand is trademark. A brand may identify one item, a family of
items, or all items of that seller. If used for the firm as a whole, the preferred term is
trade name
Brand name: Axe
Axe was launched in France in 1983 by Unilever. It was inspired by another of

Unilever's brands, Impulse.
Unilever were keen to capitalize on Axe's French success and the rest of Europe from
1985 onwards, later introducing the other products in the range. Unilever were
unable to use the name Axe in the United Kingdom and Ireland due to trademark
problems so it was launched as Lynx
Although Axe's lead product is the fragranced aerosol deodorant body spray, other
formats of the brand exist. Within underarm care the following are available:
deodorant aerosol body spray, deodorant stick, deodorant roll-on, anti-perspirant
aerosol spray (called Axe Dry), and anti-perspirant stick (also called Axe Dry).
The attribute of the brand that customer associates with his/ her belief. A person
may associate the brand for power, strength or protectiveness. For example, a
customer may associate Axe brand not just for perfumes but also any accessory
associated with perfumes such as Shampoos etc. So, for him, Axe represents
perfume.
Brand Equity
Brand equity is set of assets linked to a brand‘s name and symbol that adds value to
the product or service and/or that firm’s customer.
Components of brand equity:
1. Brand loyalty: From its launch (Axe), the yearly fragrance variant has played a key
part in the success of the brand by offering something new each year.
2. Brand awareness: The type of fragrance (Axe) variants have evolved over time.
From 1983 until about 1989, the variant names were descriptions of the fragrances
and included Musk, Spice, Amber, Marine, and Oriental.
3. Perceived quality
4. Brand associations: Axe also launches limited edition variants from time to time
that may be on sale for a few months or over a year
4.b. You are a research expert in the field of marketing footwear products. What
are the various research approaches you would consider before making a
consumer survey regarding footwear? (4 marks)
Below are the various research approaches that need to be considered before
making a consumer survey regarding footwear products:
1. Observational Research – Fresh data can be collected by observing the

situation and the people in the situation.
2. Focus Group Research is a method of discussion in which a team of eight to
twelve persons invited for a group discussion in presence of a skilled
moderator to discuss a product, service, a firm or any marketing related
activity. The proceedings are observed and recorded on videotape and
subsequently analyzed to understand consumer attitudes, beliefs and
behavior.
3. Survey Research – This is the most common of the approaches wherein
surveys are undertaken with the help of a questionnaire to learn about
people’s knowledge, beliefs and preferences.
4. Behavioral Research – Customer’s actual behavior in terms of actual
purchases reflect their preferences and are more reliable than responses
provided in surveys which are memory based.
5. Experimental Research – The most scientific method of research is
experimental research which tries to capture cause and affect relationships.
Q. 5 a. What advice would you give a company that has facing bad publicity?
What steps would you tell the company to improve its reputation?
Publicity can be said as a simple act of making a suggestion to the concerned parties
– TV or radio channel, news reporter or journalist, film makers, etc. that leads to the
inclusion of a company/products in an already existing story or a newly developed
one. Publicity may also include any such information that attracts attention to a
company, its products, its people or any event, usually generated by a third party
such as media. Publicity maybe a part of PR or it may be independent of it in certain
situations.
Publicity may have positive or negative impacts. For example, it became a negative
publicity for Coca-Cola when people in India, started to throw or break the bottles on
the roads because of the belief that it contained pesticides or toxic substances. News
channels covered the same giving negative publicity to the company and the
products.
Ways in which organizations can use publicity as a communication tool are as

follows:
· Organizing events, contests, exhibitions, public displays, tours, etc.
· Sponsoring awards, scholarships or giving charity for any noble cause.
· Issuing reports, conducting survey or polls, taking stand on any debatable or

environmental issues, etc.
· Any other way that is appropriate like for example displaying the products in a
movie and asking the lead actors to use the products in that movie.
Ways in which organizations can avoid or minimize the effects of bad publicity:
· Providing people with the accurate information and giving clarifications if needed
either through press release, media interviews, websites, public messages,
advertising etc.
· Company’s top management or spokesperson can give a public statement or

comment in the various media.
· Improvising Public Relations and designing good publicity message to erase the
effects of bad publicity.
· Continuing to provide quality products and services to the consumers.
· Involving in community work or environmental protection campaigns or any such

activity for a good cause.
b. As a brand manager, what are the ways in which you will select a brand name for
your product- watches and how will you position it in the market?
Brand provides the image to the product. Brand manager should be careful in
selecting a proper name for the brand for watches.
Brand Name: Titan
There are six suggestions from Philip Kotler to create a successful brand name. They
are
1. It should suggest something about the product benefits and qualities; e.g. Titan
2. It should be easy to pronounce, recognize, and remember
3. The brand name should be distinctive
4. It should be extendable
5. The name should be easily translated into a foreign language
6. It should be capable of registration and legal protection e.g. Titan is a registered

brand and other brands cannot compete with it using any similar sounding name.
Brand managers have four options of sponsoring the brand. They are
1. Manufacturer brand
2. Private brand
3. Licensing
4. Co- branding
Q. 6 a. What is MIS? What are its benefits?
MIS (Marketing Information System):
MIS is a set of procedures to collect, analyze and distribute accurate, prompt and
appropriate information to different levels of marketing decision makers.
Benefits of MIS
Various benefits of having a MIS and resultant flow of marketing information are
given below:
1. It allows marketing managers to carry out their analysis, planning implementation

and control responsibilities more effectively.
2. It ensures effective tapping of marketing opportunities and enables the company

to develop effective safeguard against emerging marketing threats.
3. It provides marketing intelligence to the firm and helps in early spotting of

changing trends.
4. It helps the firm adapt its products and services to the needs and tastes of the
customers.
5. By providing quality marketing information to the decision maker, MIS helps in

improving the quality of decision making.
6.b. How is rural marketing different from urban markets?
Rural Marketing
In a rapidly changing scenario, marketers have to continuously explore new markets

and ways of serving them. In India, enterprises are discovering the potential of a
huge rural population to drive business. Prof C K Prahlad, had aptly summed up the
potential as ‘fortune at the bottom of the pyramid’ in a pathbraking book of the
same name. Rural marketing is not something akin to glocalisation. It is not the
modification of urban marketing strategies to suit the rural market. On the other
hand it is developing products to meet the needs of the rural sector and reaching it
across as per the specific characteristics of the rural environment. In case of a
detergent, it is producing one which will suit the rural environment (considering that
the dirt and grime is different, clothing alternatives are different, availability of water
and number of times of washing is different and so on); packaging and pricing which
will be akin to their requirement and alternative ways for which the detergent may
be put to use. For example Hindustan Lever found that its detergent was being used
for washing the cattle.
Importance of Rural marketing: The following table will give you some idea about the
emergence of the rural market which marketers may ignore at their own peril.
Rural Markets different from Urban Markets
This has to be understood in the light of the 4Ps or 7Ps of marketing. Imagine that
you are trying to establish a Coffee Café Day Outlet in a remote village in
Maharashtra. Will that be viable proposition? Yet there may be consumers for coffee
in the rural sector too. The offering has to suit the sector. Similarly an ice cream
parlor may not be a workable idea in a village or a cluster of villages if there is no

electricity connection there. The ice cream cart vendor is a better idea. Keeping
these situations in perspective, one can draw some inferences why rural marketing is
different.
1. Accessibility and mobility: This applies both for the supplier and the consumer.
The movement of the people is restricted by the lack of surface roads and the mode
of transport. There are restrictions by way of visibility during night.
2. Average income level of consumers: The average wage earners are characterized
by lower per capita income and disposable income in comparison to the urban.
3. Geographical distances: The living quarters are separated more than they are in
the urban areas. The cluster of villages is also segregated by distances.
4. Literacy level: On an average the literacy level in the rural sector is lower in
comparison to the urban sector.
There could be several other issues which are specific to the rural sector. These may
force marketers to take a different approach for the entire marketing process or at
least some of them as against the urban sector.
MB0047
Management Information System
Assignment Set- 1
Q1. What is MIS? Define the characteristics of MIS? What are the basic Functions
of MIS? Give some Disadvantage of MIS?
Answer:-
MIS systems are extensively used in generating statistical report of any organization
which can be used to study management by behavior. They set objectives to their
employees using ratio analysis. Management also uses MIS for decision making from
the low level management to top level management. In order to perform task using
Information systems use of technical support is required. So it is the combination of
3 components i.e. organization, technology and management.
MIS characteristics
It supports transaction handling and record keeping.

It is also called as integrated database Management System which supports
in major functional areas.
It provides operational, tactical, and strategic level managers with east access
to timely but, for the most, structured information.
It supports decision –making function which is a vital role of MIS.
It is flexible which is needed to adapt to the changing needs of the
organization.
It promotes security system by providing only access to authorized users.
MIS not only provides statistical and data analysis but also works on the basis
on MBO (management by objectives). MIS is successfully used for measuring
performance and making necessary change in the organizational plans and
procedures. It helps to build relevant and measurable objectives, monitor
results, and send alerts.
Basic Function of MIS
The main functions of MIS are:

Data Processing: Gathering, storage, transmission, processing and getting
output of the data. Making the data into information is a major task.
Prediction: Prediction is based on the historical data by applying the prior
knowledge methodology by using modern mathematics, statistics or
simulation. Prior knowledge varies on the application and with different
departments.
Planning: Planning reports are produced based on the enterprise restriction
on the companies and helps in planning each functional department to work
reasonably.
Control: MIS helps in monitoring the operations and inspects the plans. It
consists of differences between operation and plan with respect to data
belonging to different functional department. It controls the timely action of
the plans and analyzes the reasons for the differences between the
operations and plan. Thereby helps managers to accomplish their decision
making task successfully.
Assistance: It stores the related problems and frequently used information to

apply them for relative economic benefits. Through this it can derive instant
answers of the related problem.
Disadvantages of MIS
The following are some of the disadvantages of MIS:
MIS is highly sensitive: MIS is very helpful in maintaining logging information

of an authorized user. This needs to monitor constantly.
Quality of outputs is governed by quality of inputs.
MIS budgeting: There is difficulty in maintaining indirect cost and overheads.
Capturing the actual cost needs to have an accrual system having true costs
of outputs which is extremely difficult. It has been difficult to establish
definite findings.
MIS is not flexible to update itself for the changes.
The changes in the decision of top level management decrease its
effectiveness.
Information accountability is based on the qualitative factors and the factors
like morality, confidence or attitude will not have any base.
2. Explain Knowledge based system? Explain DSS and OLAP with example?
Answer:
Knowledge Based System (KBS)
KBS are the systems based on knowledge base. Knowledge base is the database
maintained for knowledge management which provides the means of data
collections, organization and retrieval of knowledge. The knowledge management
manages the domain where it creates and enables organization for adoption of
insights and experiences.
There are two types of knowledge bases.
a. Machine readable knowledge bases: The knowledge base helps the computer to
process through. It makes the data in the computer readable code which makes the
operator to perform easier. Such information sare used by semantic web. Semantic
web is a web that will make a description of the system that a system can
understand.
b. Human readable knowledge bases: They are designed to help people to retrieve
knowledge. The information need to be processed by the reader. The reader can
access the information and synthesize their own.
KBS refers to a system of data and information used for decision making. The system
is automated to work on the knowledge based data and information required in a
particular domain of management activity. The processing is done based on the past
decisions taken under suitable conditions. Decision making is based on the fact that
the condition is similar to the past situation hence the decision is also is similar.
Examples of KBS are intelligent systems, robotics, neural networks etc.
Online Analytical Processing (OLAP)
OLAP refers to a system in which there are predefined multiple instances of various
modules used in business applications. Any input to such a system results in
verification of the facts with respect to the available instances.
A nearest match is found analytically and the results displayed form the database.
The output is sent only after thorough verification of the input facts fed to the
system. The system goes through a series of multiple checks of the various
parameters used in business decision making. OLAP is also referred to as a multi
dimensional analytical model. Many big companies use OLAP to get good returns in
business.
The querying process of the OLAP is very strong. It helps the management take
decisions like which month would be appropriate to launch a product in the market,
what should be the production quantity to maximize the returns, what should be the
stocking policy in order to minimize the wastage etc.
A model of OLAP may be well represented in the form of a 3D box. There are six
faces of the box. Each adjoining faces with common vertex may be considered to
represent the various parameter of the business situation under consideration.
E.g.: Region, Sales & demand, Product etc.
Model of OLAP
Decision Support Systems (DSS)
DSS is an interactive computer based system designed to help the decision makers to
use all l the resources available and make use in the decision making. In
management many a time problems arise out of situations for which simple solution
may not be possible. To solve such problems you may have to use complex theories.
The models that would be required to solve such problems may have to be
identified. DSS requires a lot of managerial abilities and managers judgment.
You may gather and present the following information by using decision support
application:
· Accessing all of your current information assets, including legacy and relational data
sources, cubes, data warehouses, and data marts
· Comparative sales figures between one week and the next
· Projected revenue figures based on new product sales assumptions
· The consequences of different decision alternatives, given past experience in a

context that is described.
Manager may sometimes find it difficult to solve such problems. E.g. – In a sales
problem if there is multiple decision variables modeled as a simple linear problem
but having multiple optima, it becomes difficult to take a decision. Since any of the
multiple optima would give optimum results. But the strategy to select the one most
suitable under conditions prevailing in the market, requires skills beyond the model.
It would take some trials to select a best strategy. Under such circumstances it would
be easy to take decision if a ready system of databases of various market conditions
and corresponding appropriate decision is available. A system which consists of
database pertaining to decision making based on certain rules is known as decision
support system. It is a flexible system which can be customized to suit the
organization needs. It can work in the interactive mode in order to enable managers
to take quick decisions. You can consider decision support systems as the best when
it includes high-level summary reports or charts and allow the user to drill down for
more detailed information.
A DSS has the capability to update its decision database. Whenever manager feels
that a particular decision is unique and not available in the system, the manager can
chose to update the database with such decisions. This will strengthen the DSS to
take decisions in future.
There is no scope for errors in decision making when such systems are used as aid to
decision making. DSS is a consistent decision making system. It can be used to
generate reports of various lever management activities. It is capable of performing
mathematical calculations and logical calculation depending upon the model
adopted to solve the problem. You can summarize the benefits of DSS into following:
· Improves personal efficiency
· Expedites problem solving
· Facilitates interpersonal communication
· Promotes learning or training
· Increases organizational control
· Generates new evidence in support of a decision
· Creates a competitive advantage over competition
· Encourages exploration and discovery on the part of the decision maker
· Reveals new approaches to thinking about the problem space
3. What are Value Chain Analysis & describe its significance in MIS? Explain what is
meant by BPR? What is its significance? How Data warehousing & Data Mining is
useful in terms of MIS?
Answer:
Value Chain Analysis:
The activities performed by a particular enterprise can be analyzed into primary

activities, which directly adds value to the enterprise’s factors of production, which
are together referred to as the ‘value chain’, and supporting activities.
Figure: Product Differentiation and Value Chain representation
Porter’s Enterprise Value-Chain
Value-addition activities like production, marketing delivery, and servicing of the

product. These activities are connected in a chain. Support activities include those
providing purchased inputs, technology, human resources, or overall infrastructure
functions to support the primary activities.
It is possible to reduce the transaction cost by proper coordination of all the

activities. It should be possible to gather better information for various controls and
also replace the same by less costlier activities. It will also be possible to reduce the
overall time required to complete an activity.
Therefore coordination is very important to achieve competitive advantage. For this

it is necessary to manage the value chain as a system rather than as separate parts.
An enterprise’s value chain for competing in a particular industry is embedded in a
larger stream of activities. What Porter termed as ‘value system’, may be referred to
as the ‘industry value-chain’. This chain consists of mainly the suppliers and
distribution channels. Any activity of an organization is subjected to one or more of
the following –
· New technologies – Newer technologies changes the direction of the value chain.
· Shifting buyer needs – The buyers have been increasing their demands to satisfy
their needs in the form convenience and better price and features. This demand
influences a change in the related market segments;
· Variation in industry segmentation – The value system undergoes a change

depending upon the existence of old and new systems and its components in the
value chain. Organizations, which fail to adjust will have to close down their
business.
· Changes in the costs – It is possible to gain competitive advantage by optimizing

the activities based on present conditions. Enterprises which continue to work on
the older approaches in outdated modes of operation suffer.
· Changes in government regulations – If there is a change in the standards of the

product of the enterprise, with respect to the environmental controls, restrictions on
entry to the market, and trade barriers then it affect the performance of the
enterprise.
BPR
The existing system in the organization is totally reexamined and radically modified
for incorporating the latest technology. This process of change for the betterment of
the organization is called as Business process re-engineering. This process is mainly
used to modernize and make the organizations efficient. BPR directly affects the
performance. It is used to gain an understanding the process of business and to
understand the process to make it better and re-designing and thereby improving
the system.
BPR is mainly used for change in the work process. Latest software is used and
accordingly the business procedures are modified, so that documents are worked
upon more easily and efficiently. This is known as workflow management.
Signification of BPR
Business process are a group of activities performed by various departments, various
organizations or between individuals that is mainly used for transactions in business.
There may be people who do this transaction or tools. We all do them at one point
or another either as a supplier or customer. You will really appreciate the need of
process improvement or change in the organizations conduct with business if you
have ever waited in the queue for a longer time to purchase 1 kilo of rice from a
Public Distribution Shop (PDS-ration shop). The process is called the check-out
process. It is called process because uniform standard system has been maintained
to undertake such a task. The system starts with forming a queue, receiving the
needed item form the shop, getting it billed, payment which involves billing, paying
amount and receiving the receipt of purchase and the process ends up with the exit
from the store. It is the transaction between customer and supplier.
Data Warehousing – Data Warehouse is defined as collection of database which is

referred as relational database for the purpose of querying and analysis rather than
just transaction processing. Data warehouse is usually maintained to store heuristic
data for future use. Data warehousing is usually used to generate reports.
Integration and separation of data are the two basic features need to be kept in
mind while creating a data warehousing. The main output from data warehouse
systems are; either tabular listings (queries) with minimal formatting or highly
formatted "formal" reports on business activities. This becomes a convenient way to
handle the information being generated by various processes. Data warehouse is an
archive of information collected from wide multiple sources, stored under a unified
scheme, at a single site. This data is stored for a long time permitting the user an
access to archived data for years. The data stored and the subsequent report
generated out of a querying process enables decision making quickly. This concept is
useful for big companies having plenty of data on their business processes. Big
companies have bigger problems and complex problems. Decision makers require
access to information from all sources. Setting up queries on individual processes
may be tedious and inefficient.
Data Mining – Data mining is primarily used as a part of information system today,
by companies with a strong consumer focus - retail, financial, communication, and
marketing organizations. It enables these companies to determine relationships
among "internal" factors such as price, product positioning, or staff skills, and
"external" factors such as economic indicators, competition, and customer
demographics. And, it enables them to determine the impact on sales, customer
satisfaction, and corporate profits. Finally, it enables them to "drill down" into
summary information to view detail transactional data. With data mining, a retailer
could use point-of-sale records of customer purchases to send targeted promotions
based on an individual's purchase history. By mining demographic data from
comment or warranty cards, the retailer could develop products and promotions to
appeal to specific customer segments.
4. Explain DFD & Data Dictionary? Explain in detail how the information
requirement is determined for an organization?
DFD
Data flow diagrams represent the logical flow of data within the system. DFD do not
explain how the processes convert the input data into output. They do not explain
how the processing takes place.
DFD uses few symbols like circles and rectangles connected by arrows to represent
data flows. DFD can easily illustrate relationships among data, flows, external
entities stores. DFD can also be drawn in increasing levels of detail, starting with a
summary high level view and proceeding o more detailed lower level views.
Rounded rectangles represent processes that transform flow of data or work to be

done.
Rectangle represents external agents- the boundary of the system. It is source or
destination of data.
The open-ended boxes represent data stores, sometimes called files or databases.
These data stores correspond to all instances of a single entity in a data model.
Arrow represents data flows, inputs and outputs to end from the processes.
A number of guideline should be used in DFD
Choose meaningful names for the symbols on the diagram.

Number the processes consistently. The numbers do not imply the sequence.
Avoid over complex DFD.
Make sure the diagrams are balanced
Data Dictionary
The data dictionary is used to create and store definitions of data, location, format
for storage and other characteristics. The data dictionary can be used to retrieve the
definition of data that has already been used in an application. The data dictionary
also stores some of the description of data structures, such as entities, attributes and
relationships. It can also have software to update itself and to produce reports on its
contents and to answer some of the queries.
Determining the Information Requirement
The sole purpose of the MIS is to produce such information which will reduce
uncertainty risk in a given situation.
The difficulty to determine a correct and complete set of information is on account

of the factors given below:
1. The capability constraint of the human being as an information processor, a

problem solver and a decision-maker.
2. The nature and the variety of information in precise terms.
3. Reluctance of decision-makers to spell out the information for the political and the
behavioural reasons.
4. The ability of the decision-makers to specify the information.
In spite of these difficulties, methods are evolved based on the uncertainty scale,
starting from the low to the high level of uncertainty. If the uncertainty is low,
seeking information requirement or needs is easy as against a very high level of
uncertainty.
There are four methods of determining the information requirements. They are:
1. Asking or interviewing
2. Determining from the existing system
3. Analysing the critical success factors
4. Experimentation and modelling.
Asking or Interviewing
In this method a designer of the MIS puts questions or converses with the user of the
information and determines the information requirements. Putting the questions is
an art and it should be used properly to seek information.
When the user has to select one answer from a finite set of answers a closed
question should be asked. For example, "Which are the raw materials used for
making a product?" But an open question is put, when the user has no precise
knowledge but has an ability to determine all answers to select one out of them? For
example, "Which are the raw materials which can be used in a product?" In open
questions, the answers may not be immediate but can be obtained by surveying the
domain knowledge of the user.
When multiple users or several decision-makers in similar functions or positions are

involved, a brain storming session is performed to cover all possible answers to the
questions. When several users are involved, group consensus can be sought to get
the most feasible set of answers.
The experts or experienced users are asked to give their best answers—this
approach is called the Delphi method. In all these methods, the system designer has
to test the validity of all the answers independently. An experienced designer is able
to analyse critically the answers given to the questions and determine the correct
information requirement.
Determining from the Existing System
In a number of cases the existing system, which has been evolved after a number of
years, and has been designed out of experience gives straightaway the requirement
of information. In any situations, systems from other companies can give additional
information requirements.
The fund of knowledge is available from the textbooks, handbooks, research studies
which can determine the information requirement. For example, systems such as the
accounts receivables, the accounts payables, the pay roll, the inventory control, the
financial accounting, etc., have a well determined, information requirement.
Irrespective of the type of organisation and business, ninety per cent of the
information requirement is common and the balance ten per cent may be typical to
the organisation or the business, which needs to be determined separately. The
managers in the operations and the middle management use the existing systems as
a reference for determining the information requirements.
This method is adopted when the rules and decision methods are outside the
purview of the decision-maker. They are determined or imposed by external sources
such as the Government, the Authority, the principles, etc. For example, the
information required to manage shares of the company are determined through the
rules and regulations laid down by the Company Law Board. The manager of the
shares department has very little additional information need.
In all such functions, the manager determines the information needs and the
designer of the MIS can always fall back on the prescribed law books, manuals,
theory and textbooks, hand books, etc to confirm the information needs.
Analysing the Critical Success Factors
Every business organisation performs successfully on efficient management of

certain critical success factors. Other factors are important and play a support role in
the functioning of the organisation. Many times a function is singularly critical to the
successful functioning of a business organisation.
For example, in a high technology business, the management of the technology

becomes the critical function. Or in a service organisation, the management of
service becomes a critical factor. In a consumer industry, marketing and service
becomes the critical function. The information requirements of such organisations
largely relate to these critical factors. The analysis of these functions or factors will
determine the information requirements.
Experimentation and Modelling
When there is total uncertainty, the designer and the user of the information resort
to this method for determining the information requirement. The experimentation
would decide the methodology for handling the complex situation. If the method is
finalised, the information needs are determined as they have been evolved through
the experimentation. Test marketing of a product is an approach of the
experimentation to decide the correct marketing strategy.
Sometimes models are used for deciding the initial information needs and they are
modified during the implementation stage. The information requirements
determined through such methods undergo a qualitative change as the users get the
benefit of learning and experience and the needs may undergo a change or get
replaced completely.
5. What is ERP? Explain its existence before and its future after? What are the
advantages & Disadvantages of ERP? What is Artificial Intelligence? How is it
different from Neural Networks?
Answer:
ERP
Manufacturing management systems have evolved in stages over the few decades
from a simple means of calculating materials requirements to the automation of an
entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing
continual readjustments in production, as well as the unsuitability of the parameters
fixed by the system, led MRP (Material Requirement Planning) to evolve into a new
concept : Manufacturing Resource Planning (or MRP2) and finally the generic
concept Enterprise Resource Planning (ERP)
The initials ERP originated as an extension of MRP (material requirements planning

then manufacturing resource planning). ERP systems now attempt to cover all basic
functions of an enterprise, regardless of the organization’s business or charter. Non-
manufacturing businesses, non-profit organizations and governments now all utilize
ERP systems.
To be considered an ERP system, a software package must provide the function of at

least two systems. For example, a software package that provides both payroll and
accounting functions could technically be considered an ERP software package.
However, the term is typically reserved for larger, more broadly based applications.
The introduction of an ERP system to replace two or more independent applications
eliminates the need for external interfaces previously required between systems,
and provides additional benefits that range from standardization and lower
maintenance to easier and/or greater reporting capabilities.
Examples of modules in an ERP which formerly would have been stand-alone

applications include: Manufacturing, Supply Chain, Financials, Customer Relationship
Management (CRM), Human Resources, Warehouse Management and Decision
Support System.
ERP Before and After
Before
Prior to the concept of ERP systems, departments within an organization (for
example, the human resources (HR)) department, the payroll department, and the
financial department) would have their own computer systems. The HR computer
system (often called HRMS or HRIS) would typically contain information on the
department, reporting structure, and personal details of employees. The payroll
department would typically calculate and store paycheck information. The financial
department would typically store financial transactions for the organization. Each
system would have to rely on a set of common data to communicate with each
other. For the HRIS to send salary information to the payroll system, an employee
number would need to be assigned and remain static between the two systems to
accurately identify an employee. The financial system was not interested in the
employee-level data, but only in the payouts made by the payroll systems, such as
the tax payments to various authorities, payments for employee benefits to
providers, and so on. This provided complications. For instance, a person could not
be paid in the payroll system without an employee number.
After
ERP software, among other things, combined the data of formerly separate
applications. This made the worry of keeping numbers in synchronization across
multiple systems disappears. It standardized and reduced the number of software
specialties required within larger organizations.
Advantages and Disadvantages of ERP
Advantages – In the absence of an ERP system, a large manufacturer may find itself
with many software applications that do not talk to each other and do not effectively
interface. Tasks that need to interface with one another may involve:
A totally integrated system

The ability to streamline different processes and workflows
The ability to easily share data across various departments in an organization
Improved efficiency and productivity levels
Better tracking and forecasting
Lower costs
Improved customer service
Disadvantages – Many problems organizations have with ERP systems are due to
inadequate investment in ongoing training for involved personnel, including those
implementing and testing changes, as well as a lack of corporate policy protecting

the integrity of the data in the ERP systems and how it is used.
While advantages usually outweigh disadvantages for most organizations
implementing an ERP system, here are some of the most common obstacles
experienced:
Usually many obstacles can be prevented if adequate investment is made and
adequate training is involved, however, success does depend on skills and the
experience of the workforce to quickly adapt to the new system.
Customization in many situations is limited

The need to reengineer business processes
ERP systems can be cost prohibitive to install and run
Technical support can be shoddy
ERP's may be too rigid for specific organizations that are either new or want
to move in a new direction in the near future.
Artificial Intelligence
Artificial Intelligence is the science and technology based on various functions to
develop a system that can think and work like a human being. It can reason, analyze,
learn, conclude and solve problems. The systems which use this type of intelligence
are known as artificial intelligent systems and their intelligence is referred to as
artificial intelligence. It was said that the computer don’t have common sense. Here
in AI, the main idea is to make the computer think like human beings, so that it can
be then said that computers also have common sense. More precisely the aim is to
obtain a knowledge based computer system that will help managers to take quick
decisions in business.
Artificial Intelligence and Neural Networks

Artificial intelligence is a field of science and technology based on disciplines such as
computer science, biology, psychology, linguistics, mathematics and engineering.
The goal of AI is to develop computers that can simulate the ability to think, see,
hear, walk, talk and feel. In other words, simulation of computer functions normally
associated with human intelligence, such as reasoning, learning and problem solving.
AI can be grouped under three major areas: cognitive science, robotics and natural
interfaces.
Cognitive science focuses on researching on how the human brain works and how
humans think and learn. Applications in the cognitive science area of AI include the
development of expert systems and other knowledge-based systems that add a
knowledge base and some reasoning capability to information systems. Also
included are adaptive learning systems that can modify their behavior based on
information they acquire as they operate. Chess-playing systems are some examples
of such systems.
Fussy logic systems can process data that are incomplete or ambiguous. Thus, they
can solve semi-structured problems with incomplete knowledge by developing
approximate inferences and answers, as humans do.
Neural network software can learn by processing sample problems and their
solutions. As neural nets start to recognize patterns, they can begin to program
themselves to solve such problems on their own.
Neural networks are computing systems modeled after the human brain’s mesh like
network of interconnected processing elements, called neurons. The human brain is
estimated to have over 100 billion neuron brain cells. The neural networks are lot
simpler in architecture. Like the brain, the interconnected processors in a neural
network operate in parallel and interact dynamically with each other.
This enables the network to operate and learn from the data it processes, similar to
the human brain. That is, it learns to recognize patterns and relationships in the
data. The more data examples it receives as input, the better it can learn to duplicate
the results of the examples it processes. Thus, the neural networks will change the
strengths of the interconnections between the processing elements in response to
changing patterns in the data it receives and results that occur
6. Distinguish between closed decision making system & open decision making
system? What is ‘what – if‘analysis? Why is more time spend in problem analysis &
problem definition as compared to the time spends on decision analysis?
Answer:-
Closed decision making system & Open decision making system
The decision-making systems can be classified in a number of ways. There are two
types of systems based on the manager’s knowledge about the environment. If the
manager operates in a known environment then it is a closed decision-making
system. The conditions of the closed decision-making system are:
a) The manager has a known set of decision alternatives and knows their outcomes
fully in terms of value, if implemented.
b) The manager has a model, a method or a rule whereby the decision alternatives
can be generated, tested, and ranked for selection.
c) The manager can choose one of them, based on some goal or objective criterion.
Few examples are a product mix problem, an examination system to declare pass or
fail, or an acceptance of the fixed deposits.
If the manager operates in an environment not known to him, then the decision-
making system is termed as an open decision-making system. The conditions of this
system in contrast closed decision-making system are:
a) The manager does not know all the decision alternatives.
b) The outcome of the decision is also not known fully. The knowledge of the
outcome may be a probabilistic one.
c) No method, rule or model is available to study and finalise one decision among the
set of decision alternatives.
d) It is difficult to decide an objective or a goal and, therefore, the manager resorts

to that decision, where his aspirations or desires are met best.
Deciding on the possible product diversification lines, the pricing of a new product,
and the plant location, are some decision-making situations which fall in the
category of the open decision-making systems.
The MIS tries to convert every open system to a closed decision-making system by
providing information support for the best decision. The MIS gives the information
support, whereby the manager knows more and more about environment and the
outcomes, he is able to generate the decision alternatives, test them and select one
of them. A good MIS achieves this.
What if analysis
Decisions are made using a model of the problem for developing various solution
alternatives and testing them for best choice. The model is built with some variables
and relationship between variables considered values of variables or relationship in
the model may not hold good and therefore solution needs to be tested for an
outcome, if the considered values of variables or relationship change. This method of
analysis is called 'what if analysis.'
For example, in decision-making problem about determining inventory control

parameters (EOQ, Safety Stock, Maximum Stock, Minimum Stock, Reorder level) lead
time is assumed fairly constant and stable for a planning period. Based on this, the
inventory parameters are calculated. Inventory manager wants to know how the
cost of holding inventory will be affected if lead time is reduced by one week or
increased by one week. The model with changed lead time would compute the cost
of holding inventory under new conditions. Such type of analysis can be done for
purchase price change, demand forecast variations and so on. Such analysis helps a
manager to take more learned decisions. ‘What if analysis’ creates confidence in
decision-making model by painting a picture of outcomes under different
conditions?
Why is more time spend in problem analysis & problem definition as compared to
the time spends on decision analysis?
The manager, being a human being, behaves in a peculiar way in a given situation.
The response of one manager may not be the same as that of the two other
managers, as they differ on the behavioural platform. Even though tools, methods
and procedures are evolved, the decision is many a times influenced by personal
factors such as behaviour.
The managers differ in their approach towards decision-making in the organisation,

and, therefore, they can be classified into two categories, viz., the achievement-
oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the
completion of the task somehow. The achievement-oriented manager will always
opt for the best and, therefore, will be enterprising in every aspect of the decision-
making. He will endeavour to develop all the possible alternatives. He would be
scientific, and therefore, more rational. He would weigh all the pros and cons
properly and then conclude.
The manager’s personal values will definitely influence ultimately. Some of the
managers show a nature of risk avoidance. Their behaviour shows a distinct pattern
indicating a conservative approach to decision-making – a path of low risk or no risk.
Further, even though decision-making tools are available, the choice of the tools may
differ depending on the motives of the manager. The motives are not apparent, and
hence, are difficult to understand. A rational decision in the normal course may turn
out to be different on account of the motives of the manager.
The behaviour of the manager is also influenced by the position he holds in the
organisation. The behaviour is influenced by a fear and an anxiety that the personal
image may be tarnished and the career prospects in the organisation may be spoiled
due to a defeat or a failure. The managerial behaviour, therefore, is a complex mix of
the personal values, the atmosphere in the organisation, the motives and the
motivation, and the resistance to change. Such behaviour sometimes overrides
normal decisions based on business and economic principles.
The interplay of different decision-making of all the managers in the organisation

shapes up the organisational decision-making. The rationale of the business decision
will largely depend upon the individuals, their positions in the organisation and their
inter-relationship with other managers.
If two managers are placed in two decision-making situations, and if their objectives
are in conflict, the managers will arrive at a decision objectively, satisfying individual
goals. Many a times, they may make a conscious decision, disregarding
organisation’s objective to meet their personal goals and to satisfy their personal
values. If the manager is enterprising, he will make objectively rational decisions. But
if the manager is averse to taking risk, he will make a decision which will be
subjectively rational as he would act with limited knowledge and also be influenced
by the risk averseness. Thus, it is clear that if the attitudes and the motives are not
consistent across the organisation, the decision-making process slows down in the
organisation.
MB0047
Management Information System
Assignment Set- 2
1. How hardware & software support in various MIS activities of the organization?
Explain the transaction stages from manual system to automated systems?
Hardware support for MIS
Generally hardware in the form of personal computers and peripherals like printers,
fax machines, copier, scanners etc are used in organization to support various MIS
activities of the organization.
Advantages of a PC : Advantages a personal computer offers are –

a) Speed – A PC can process data at a very high speed. It can process millions of
instructions within fraction of seconds.
b) Storage – A PC can store large quantity of data in a small space. It eliminates the
need of storing the conventional office flat files and box files which requires lots of
space. The storage system in a PC is such that the information can be transferred from
place to another place in electronic form.
c) Communication – A PC on the network can offer great support as a communicator
in communicating information in the forms of text and images. Today a PC with
internet is used as a powerful tool of communication for every business activity.
d) Accuracy – A PC is highly reliable in the sense that it could be used to perform
calculations continuously for hours with a great degree of accuracy. It is possible to
obtain mathematical results correct up to a great degree of accuracy.
e) Conferencing – A PC with internet offers facility of video conferencing worldwide.
Business people across the globe travel a lot to meet their business partner,
colleagues, and customers etc to discuss about business activities. By video
conferencing inconvenience of traveling can be avoided.
A block diagram of a computer may be represented as
Input unit is used to give input to the processor. Examples of input unit –Keyboard,
scanner, mouse, bar code reader etc.
A processor refers to unit which processes the input received the way it has been
instructed. In a computer the processor is the CPU – Central Processing Unit. It does all
mathematical calculations, logical tasks, storing details in the memory etc. Output unit
is used to give output s from the computer. Examples of output unit – Monitor,
printer, speakers etc.
Organization of Business in an E enterprise – Software Applications in MIS
Internet technology is creating a universal bench or platform for buying and selling of
goods, commodities and services. Essentially Internet and networks enable integration
of information, facilitate communication, and provide access to everybody from
anywhere. And software solutions make them faster and self-reliant as they can
analyze data information, interpret and use rules and guidelines for decision-making.
These enabling capabilities of technology have given rise to four business models that
together work in an E enterprise organization. They are:
• E business
• E communication
• E commerce
• E collaboration
These models work successfully because Internet technology provides the

infrastructure for running the entire business process of any length. It also provides
email and other communication capabilities to plan, track, monitor and control the
business operations through the workers located anywhere. It is capable of linking to
disparate systems such as logistics, data acquisition and radio frequency used systems
and so on. Low cost connectivity physical, virtual and universal standards of Internet
technology make it a driving force to change conventional business model to E
business enterprise model.
Internet has enabled organizations to change their business process and practices. It
has dramatically reduced cost of data and information processing, its sending and
storing. Information and information products are available in electronic media, and is
a resident on the network. Once everyone is connected electronically, information can
flow seamlessly from any location to any other location. For example, product
information is available on an organization website which also has a feature of order
placement. An order placed is processed at the backend and status of acceptance,
rejection is communicated instantaneously to the customer. Such order is then placed
directly on the order board for scheduling and execution. These basic capabilities of
Internet have given rise to number of business models. Some of them are given in
Table
The Internet and networks provide platform and various capabilities whereby
communication, collaboration, and conversion has become significantly faster,
transparent and cheaper. These technologies help to save time, resource and enable
faster decision making. The technology adds speed and intelligence in the business
process improving quality of service to the customer. The business process of serving
the customer to offer goods, products or services is made up of the following
components.
· Enquiry processing
· Order preparation
· Order placement
· Order confirmation
· Order planning
· Order scheduling
· Order manufacturing
· Order status monitoring
· Order dispatching
· Order billing
· Order receivable accounting
· Order payment processing

The entire process in parts or full can be handled through these technologies and
software solutions. It provides important strategic, competitive advantage. Further,
the technology is flexible and capable of handling any business models such as:
• Retailing, Trading, Auctioning

• Manufacturing, Distribution & Selling
• Outsourcing, Subcontracting
• Servicing, Training, Learning, Consulting
The resultant effect is the reduction in cost of business operations, improved customer
loyalty and retention and better quality offer to the customer. Four major applications
mentioned earlier make this achievement possible. We go into details of each one of
them.
Transformation stage manual systems to automated systems
The manual system which was prevalent in the organizations before industrial
revolution was slowly transformed into digital form by means of computer and related
electronic instruments. A transformation had to necessarily go through the following
stages
a) Appraisal of the procedures

b) Types of documents
c) Storage systems
d) Formulations and coding
e) Verification and validation
f) Review
g) Documentation
2. Explain the various behavioral factors of management organization? As

per Porter, how can performance of individual corporations be
determined?
Management organizations:
An organization is a structure that uses the resources from the environment like
manpower, raw materials, capital and returns the output like products and services to
the environment. It constitutes the rules, policies, responsibilities and procedures that
are adopted by the organization.
Behavioral factors
The implementation of computer based information systems in general and MSS in
particular is affected by the way people perceive these systems and by how they
behave in accepting them. User resistance is a major behavioral factor associated with
the adoption of new systems. The following are compiled by Jiang et al. (2000) ;
Reasons that employees resist new systems:
1. Change in job content
2. Loss of status
3. Change in interpersonal relationships
4. Loss of power
5. Change in decision making approach
6. Uncertainty or unfamiliarity or misinformation
7. Job security
The major behavioral factors are
a) Decision styles symbolic processing of AI is heuristic; DSS and ANN are

analytic
b) Need for explanation – ES provides explanation, ANN does not, DSS may
provide partial explanation. Explanation can reduce resistance to change
c) Organizational climate some organizations lead and support innovations and

new technologies whereas other wait and lag behind in making changes
d) Organizational expectations – over expectation can result in disappointments

and termination of innovation. Over expectation was observed in most early
intelligent systems.
e) Resistance to change – can be strong in MSS because the impacts may be

significant.
Performance of individual corporations:

Out of many possible interpretations of a strategy an organization adopts in business,
it is found that a majority is concerned with competition between corporations.
Competition means cultivating unique strengths and capabilities, and defending them
against imitation by other firms. Another alternative sees competition as a process
linked to innovation in product, market, or technology. Strategic information systems
theory is concerned with the use of information technology to support or sharpen an
enterprise's competitive strategy. Competitive strategy is an enterprise's plan for
achieving sustainable competitive advantage over, or reducing the edge of, its
adversaries. The performance of individual corporations is determined by the extent to
which they manage the following (as given by Porter) –
a) The bargaining power of suppliers;
b) The bargaining power of buyer;
c) The threat of new entrants;
d) The threat of substitute products; And

e) Rivalry among existing firms.
Porter's classic diagram representing these forces is indicated below.
There are two basic factors which may be considered to be adopted by organization in
their strategies:
a) low cost
b) product differentiation
Enterprise can succeed relative to their competitors if they possess sustainable
competitive advantage in either of these two. Another important consideration in
positioning is 'competitive scope', or the breadth of the enterprise's target markets
within its industry, i.e. the range of product varieties it offers, the distribution channels
it employs, the types of buyers it serves, the geographic areas in which it sells, and the
array of related industries in which it competes. Under Porter's framework, enterprises
have four generic strategies available to them whereby they can attain above average
performance.
They are:
a) Cost leadership;
b) Differentiation;
c) Cost focus; And
d) Focused differentiation.
Porter's representation of them is indicated below
According to Porter, competitive advantage grows out of the way an enterprise

organizes and performs discrete activities. The operations of any enterprise can be
divided into a series of activities such as salespeople making sales calls, service
technicians performing repairs, scientists in the laboratory designing products or
processes, and treasurers raising capital. By performing these activities, enterprises
create value for their customers.
The ultimate value an enterprise creates is measured by the amount customers are
willing to pay for its product or services. A firm is profitable if this value exceeds the
collective cost of performing all of the required activities. To gain competitive
advantage over its rivals, a firm must either provide comparable value to the
customer, but perform activities more efficiently than its competitors (lower cost), or
perform activities in a unique way that creates greater buyer value and commands a
premium price (differentiation). As per Borden 1964, quoted in Wiseman 1988many
differentiation bases can be classified as 4 P’s as given below:
1. Product (quality, features, options, style, brand name, packaging, sizes, services,
warranties, returns) ;
2. Price (list, discounts, allowances, payment period, credit terms) ;
3. Place (channels, coverage, locations, inventory, transport) ; And
4. Promotion (advertising, personal selling, sales promotion, publicity).
The various attributes listed above can be sharpened the firms product by the support
of a suitable information technology.
3. Compare various types of development aspect of Information System?

Explain the various stages of SDLC?
Development of Information Systems
a) Development and Implementation of the MIS

Once the plan of MIS is made, the development of the MIS calls for determining the
strategy of development. As discussed earlier, the plan consists of various systems and
subsystems. The development strategy determines where to begin and in what
sequence the development can take place with the sole objective of assuring the
information support. The choice of the system or the subsystem depends on its
position in the total MIS plan, the size of the system, the user's understanding of the
systems and the complexity and its interface with other systems. The designer first
develops systems independently and starts integrating them with other systems,
enlarging the system scope and meeting the varying information needs. Determining
the position of the system in the MIS is easy. The real problem is the degree of
structure, and formalization in the system and procedures which determine the timing
and duration of development of the system. Higher the degree of structuredness and
formalization, greater is the stabilization of the rules, the procedures, decision making
and the understanding of the overall business activity. Here, it is observed that the
user's and the designer's interaction is smooth, and their needs are clearly understood
and respected mutually. The development becomes a method of approach with
certainty in input process and outputs.
b) Prototype Approach
When the system is complex, the development strategy is Prototyping of the System.
Prototyping is a process of progressively ascertaining the information needs,
developing methodology, trying it out on a smaller scale with respect to the data and
the complexity, ensuring that it satisfies the needs of the users, and assess the
problems of development and implementation. This process, therefore, identifies the
problem areas, inadequacies in the prototype visàvis Fulfillment of the information
needs. The designer then takes steps to remove the inadequacies. This may call upon
changing the prototype of the system, questioning the information needs, streamlining
the operational systems and procedures and move user interaction. In the prototyping
approach, the designer's task becomes difficult, when there are multiple users of the
same system and the inputs they use are used by some other users as well. For
example, a lot of input data comes from the purchase department, which is used in
accounts and inventory management. The attitudes of various users and their role as
the originators of the data need to be developed with a high degree of positivism. It
requires, of all personnel, to appreciate that the information is a corporate resource,
and all have to contribute as per the designated role by the designer to fulfill the
corporate information needs. When it comes to information the functional, the
departmental, the personal boundaries do not exist. This calls upon each individual to
comply with the design needs and provide without fail the necessary data inputs
whenever required as per the specification discussed and finalised by the designer.
Bringing the multiple users on the same platform and changing their attitudes toward
information, as a corporate resource, is the managerial task of the system designer.

The qualification, experience, knowledge, of the state of art, and an understanding of
the corporate business, helps considerably, in overcoming the problem of changing the
attitudes of the multiple users and the originators of the data.
c) Life Cycle Approach

There are many systems or subsystems in the MIS which have a life cycle, that is, they
have birth and death. Their emergence may be sudden or may be a part of the
business need, and they are very much structured and rule based. They have 100%
clarity of inputs and their sources, a definite set of outputs in terms of the contents
and formats. These details more or less remain static from the day the system emerges
and remains in that static mode for a long time. Minor modifications or changes do
occur but they are not significant in terms of handling either by the designer or the
user of the system. Such systems, therefore, have a life and they can be developed in a
systematic manner, and can be reviewed after a year or two, for significant
modification, if any.
Examples of such systems are pay roll, share accounting, basic financial accounting,
finished goods accounting and dispatching, order processing, and so on. These systems
have a fairly long duration of survival and they contribute in a big way as sources of
data to the Corporate MIS. Therefore, their role is important and needs to be designed
from the view point as an interface to the Corporate MIS.
Table below shows the difference between the two approaches helping the designer
select an approach.
d) Implementation of the Management Information System

The implementation of the system is a management process. It brings about
organizational change; it affects people and changes their work style. The process
evokes a behavior response which could be either favorable or unfavorable depending
upon the strategy of system implementation. In the process of implementation, the
system designer acts as a change agent or a catalyst.
For a successful implementation he has to handle the human factors carefully. The
user of the system has a certain fear complex when a certain cultural work change is
occurring. The first and the foremost fear is about the security to the person if the
changeover from the old to new is not a smooth one. Care has to be taken to assure
the user that such fears are baseless and the responsibility, therefore, rests with the
designer. The second fear is about the role played by the person in the organization
and how the change affects him. On many occasions, the new role may reduce his
importance in the organization, the work design may make the new job impersonal,
and a fear complex may get reinforced that the career prospects may be affected.
There are certain guidelines for the systems designer for successful implementation of
the system. The system designer should not question beyond a limit the information
need of the user.
1. Not to forget that his role is to offer a service and not to demand terms.
2. Remember that the system design is for the use of the user and it is not the
designer's prerogative to dictate the design features. In short, the designer should
respect the demands of the user.
3. Not to mix up technical needs with the information needs. He should try to develop
suitable design with appropriate technology to meet the information needs. The
designer should not recommend modifications of the needs, unless technically
infeasible.
4. Impress upon the user the global nature of the system design which is required to
meet the current and prospective information need.
5. Not to challenge the application of the information in decision making. It is the sole
right of the user to use the information the way he thinks proper.
6. Impress upon the user that the quality of information depends on the quality of
input.
7. Impress upon the user that you are one of the users in the organization and that the
information is a corporate resource and he is expected to contribute to the
development of the MIS.
8. Ensure that the user makes commitment to all the requirements of the system
design specifications. Ensure that he appreciates that his commitments contribute
largely to the quality of the information and successful implementation of the system.
9. Ensure that the overall system effort has the management's acceptance.
10. Enlist the user's participation from time to time, so that he is emotionally involved
in the process of development.
11. Realize that through serving the user, he is his best guide on the complex path of
development.
12. Not to expect perfect understanding and knowledge from the user as he may be
the user of a Non computerized system. Hence, the designer should be prepared to
change the system specifications or even the design during the course of
development.
13. Impress upon the user that the change, which is easily possible in manual system,
is not as easy in the computer system as it calls for changes in the programs at cost.
14. Impress upon the user that perfect information is nonexistent; His role therefore
still has an importance in the organization.
15. Ensure that the other organization problems are resolved first before the MIS is
taken for development. 16. Conduct periodical user meetings on systems where you
get the opportunity to know the ongoing difficulties of the users.
16. Train the user in computer appreciation and systems analysis as his perception of
the computerized information system will fall short of the designer's expectation.
Implementation of the MIS in an organization is a process where organizational
transformation takes place. This change can occur in a number of ways.
The Lewin's model suggests three steps in this process. The first step is unfreezing the
organization to make the people more receptive and interested in the change. The
second step is choosing a Course of action where the process begins and reaches the
desired level of stability, and the third step is Refreezing, where the change is
consolidated and equilibrium is reinforced. Many a times,
This process is implemented through an external change agent, such as a consultant
playing the role of a catalyst. The significant problem in this task is the resistance to
change. The resistance can occur due to three reasons, viz., the factors internal to the
users of information, the factors inherent in the design of the system and the factors
arising out of the interaction between the system and its users. The problem of
resistance can be handled through education, persuasion, and participation. This itself
can be achieved by improving the human factors, and providing incentives to the
users, and eliminating the organizational problems before implementing the system.
SDLC
System development cycle stages are sometimes known as system study. System
concepts which are important in developing business information systems expedite
problem solving and improve the quality of decision making.
The system analyst has to do a lot in this connection. They are confronted with the
challenging task of creating new systems and planning major changes in the
organization. The system analyst gives a system development project, meaning and
direction. The typical breakdown of an information systems life cycle includes a
feasibility study, requirements, collection and analysis, design, prototyping,
implementation, validation, testing and operation. It may be represented in the form
of a block diagram as shown below:
A) Feasibility study It is concerned with determining the cost effectiveness of

various alternatives in the designs of the information system and the priorities
among the various system components.
b) Requirements, collection and analysis It is concerned with understanding the

mission of the information systems, that is, the application areas of the system within
the enterprise and the problems that the system should solve.
c) Design It is concerned with the specification of the information systems structure.
There are two types of design: database design and application design. The database
design is the design of the database design and the application design is the design of
the application programs.
d) Prototyping A prototype is a simplified implementation that is produced in order to

verify in practice that the previous phases of the design were well conducted.
e) Implementation It is concerned with the programming of the final operational

version of the information system. Implementation alternatives are carefully verifies
and compared.
f) Validation and testing It is the process of assuring that each phase of the
development process is of acceptable quality and is an accurate transformation from
the previous phase.
4. Compare & Contrast E-enterprise business model with traditional

business organization model? Explain how in E-enterprise manager role &
responsibilities are changed? Explain how manager is a knowledge
worker in E-enterprise?
Managing the E enterprise
Due to Internet capabilities and web technology, traditional business organization

definition has undergone a change where scope of the enterprise now includes other
company locations, business partners, customers and vendors. It has no geographic
boundaries as it can extend its operations where Internet works. All this is possible due
to Internet and web moving traditional paper driven organization to information
driven Internet enabled E business enterprise. E business enterprise is open twenty
four hours, and being independent, managers, vendors; customers transact business
anytime from anywhere. Internet capabilities have given E business enterprise a
cutting edge capability advantage to increase the business value. It has opened new
channels of business as buying and selling can be done on Internet. It enables to reach
new markets across the world anywhere due to communication capabilities. It has
empowered customers and vendors / suppliers through secured access to information
to act, wherever necessary. The cost of business operations has come down
significantly due to the elimination of paper driven processes, faster communication
and effective collaborative working. The effect of these radical changes is the
reduction in administrative and management overheads, reduction in inventory, faster
delivery of goods and services to the customers.
In E business enterprise traditional people organization based on 'Command Control'

principle is absent. It is replaced by people organization that is empowered by
information and knowledge to perform their role. They are supported by information
systems, application packages, and decision support systems. It is no longer functional,
product, and project or matrix organization of people but E organization where people
work in network environment as a team or work group in virtual mode. E business
enterprise is more process driven; Technology enabled and uses its own information
and knowledge to perform. It is lean in number, flat in structure, broad in scope and a
learning organization.
In E business enterprise, most of the things are electronic, use digital technologies and
work on databases, knowledge bases, directories and document repositories. The
business processes are conducted through enterprise software like ERP, SCM, and
CRM supported by data warehouse, decision support, and knowledge management
systems. Today most of the business organizations are using Internet technology,
network, and wireless technology for improving the business performance measured
in terms of cost, efficiency, competitiveness and profitability. They are using E
business,
Ecommerce
Solutions to reach faraway locations to deliver product and services. The enterprise
solutions like ERP, SCM, and CRM run on Internet (Internet / Extranet) & Wide Area
Network (WAN). The business processes across the organization and outside run on E
technology platform using digital technology. Hence today's business firm is also called
E enterprise or Digital firm. The paradigm shift to E enterprise
Has brought four transformations, namely:
· Domestic business to global business.

· Industrial manufacturing economy to knowledge based service economy.
· Enterprise Resource Management to Enterprise Network Management.
· Manual document driven business process to paperless, automated, electronically
transacted business process.
These transformations have made conventional organization design obsolete. The

basis of conventional organization design is command & control which is now
collaborates & control. This Change has affected the organization structure, scope of
operations, reporting mechanisms, work practices, workflows, and business processes
at large. The comparison between conventional Organization design and E enterprise
is summarized in Table
Comparison between Conventional Design and E Organization

In E enterprise, business is conducted electronically. Buyers and sellers through
Internet drive the market and Internet based web systems. Buying and selling is
possible on Internet. Books, CDs, computer, white goods and many such goods are
bought and sold on Internet. The new channel of business is well known
as Ecommerce. On the same lines, banking, insurance, healthcare are being managed
through Internet E banking, E billing, E audit, & use of Credit cards, Smart card, ATM, E
money are the examples of the Ecommerce application. The digital firm, which uses
Internet and web technology and uses E business And Ecommerce solutions, is a
reality and is going to increase in number. MIS for E business is different compared to
conventional MIS design of an organization. The role of MIS in E business organization
is to deal with changes in global market and enterprises. MIS produces more
knowledge based products.
Knowledge management system is formally recognized as a part of MIS. It is effectively

used for strategic planning for survival and growth, increase in profit and productivity
and so on. To achieve the said benefits of E business organization, it is necessary to
redesign the organization to realize the benefits of digital firm. The organization
structure should be lean and flat. Get rid of rigid established infrastructure such as
branch office or zonal office. Allow people to work from anywhere. Automate
processes after reengineering the process to cut down process cycle time. Make use of
groupware technology on Internet platform for faster response processing. Another
challenge is to convert domestic process design to work for international process,
where integration of multinational information systems using different communication
standards, country specific accounting practices, and laws of security are to be
adhered strictly. Internet and networking technology has thrown another challenge to
enlarge the scope of Organization where customers and vendors become part of the
organization. This technology offers a solution to communicate, coordinate, and
collaborate with customers, vendors and business partners. This is just not a technical
change in business operations but a cultural change in the mindset of managers and
workers to look beyond the conventional organization. It means changing the
organization behavior to take competitive advantage of the E business technology.
The last but not the least important is the challenge to organize and implement
information architecture and information technology platforms, considering multiple
locations and multiple information needs arising due to global operations of the
business into a comprehensive MIS.
5. What do you understand by service level Agreements (SLAs)? Why are

they needed? What is the role of CIO in drafting these? Explain the
various security hazards faced by an IS?
A service level agreement (frequently abbreviated as SLA) is a part of a service
contract where the level of service is formally defined. In practice, the term SLA is
sometimes used to refer to the contracted delivery time (of the service) or
performance. As an example, internet service providers will commonly include service
level agreements within the terms of their contracts with customers to define the
level(s) of service being sold in plain language terms (typically the (SLA) will in this case
have a technical definition in terms of MTTF, MTTR, various data rates, etc.)
A service level agreement (SLA) is a negotiated agreement between two parties where
one is the customer and the other is the service provider. This can be a legally binding
formal or informal "contract" (see internal department relationships). Contracts
between the service provider and other third parties are often (incorrectly) called SLAs
— as the level of service has been set by the (principal) customer, there can be no
"agreement" between third parties (these agreements are simply a "contract").
Operating Level Agreements or OLA(s), however, may be used by internal groups to
support SLA(s).
The SLA records a common understanding about services, priorities, responsibilities,

guarantees, and warranties. Each area of service scope should have the "level of
service" defined. The SLA may specify the levels of availability, serviceability,
performance, operation, or other attributes of the service, such as billing. The "level of
service" can also be specified as "target" and "minimum," which allows customers to
be informed what to expect (the minimum), whilst providing a measurable (average)
target value that shows the level of organization performance. In some contracts,
penalties may be agreed upon in the case of non-compliance of the SLA (but see
"internal" customers below). It is important to note that the "agreement" relates to
the services the customer receives, and not how the service provider delivers that
service.
SLAs have been used since late 1980s by fixed line telecom operators as part of their
contracts with their corporate customers. This practice has spread such that now it is
common for a customer to engage a service provider by including a service-level
agreement in a wide range of service contracts in practically all industries and markets.
Internal departments (such as IT, HR, and Real Estate) in larger organization have
adopted the idea of using service-level agreements with their "internal" customers —
users in other departments within the same organization. One benefit of this can be to
enable the quality of service to be benchmarked with that agreed to across multiple
locations or between different business units. This internal benchmarking can also be
used to market test and provide a value comparison between an in-house department
and an external service provider.
Service-level agreements are, by their nature, "output" based — the result of the
service as received by the customer is the subject of the "agreement." The (expert)
service provider can demonstrate their value by organizing themselves with ingenuity,
capability, and knowledge to deliver the service required, perhaps in an innovative
way. Organizations can also specify the way the service is to be delivered, through a
specification (a service-level specification) and using subordinate "objectives" other
than those related to the level of service. This type of agreement is known as an
"input" SLA. This latter type of requirement is becoming obsolete as organizations
become more demanding and shift the delivery methodology risk on to the service
provider.
Role of CIO in drafting SLA’S

One of the major responsibilities of the CIO is to establish the credibility of the systems
organization. The systems department should not only focus on providing better
service to the various lines of business but also help businesses operate better. If the
CIO wants to be taken seriously, he needs to do what other executives do and have his
own business metrics and performance measurements, so that he can effectively
measure his internal business performance. Other business departments have them,
but CIOs generally do not because IT has always been viewed as a cost center.
Measurements in IT tend to be vague and lacking in context. For example, 'I had 14
projects last year, and I did them well.' But there is no real business measurement
there. How many projects should the manager have had? Did he really have the
capacity to handle 14 projects? A CIO should explore running their area more like a
service operation rather than a cost center, and develop metrics that track the
performance of the information systems staff, as well as the equipment comprising
the applications, infrastructure, and networks under the CIO's control. The first step,
they say, is to implement service level agreements (SLAs) with business units. It sets
the expectation on the technical areas of the CIO's operations. At a minimum, they
should set up what is expected and what levels of service the equipment will provide.
The underlying SLAs should be some sort of a chargeback system with business units,
particularly when it comes to apportioning staff time. If information systems are now
providing a service, the staff needs to understand where the service is being used to
be properly remunerated or to demonstrate where the value is.
The second part of the IT operations equation is computer equipment, and CIOs must
have a firm handle on how that equipment is being used. There are software’s to help
with the people picture, and there are other products that can monitor hardware
performance, such as network and server uptime. One of the major roles of the CIO is
to make the organization information systems savvy and increase the technological
maturity of the information systems organization. A major part of the CIO's job is to
make the users aware of the opportunities arising as a result of technical innovations,
how this can help them perform better, and familiarizing them with computers and
information systems applications. The information systems management also has the
job of helping the end users adapt to the changes caused by information systems, and
to encourage their use. Finally, CIOs need to institute life cycle management with their
applications and computer equipment. Most IT organizations do not have any idea of
the life cycle of an application – how long they want it to last, and when it needs to be
refurbished, replaced, or disposed of. Lacking this knowledge, it is easy for applications
to linger long after they should be gone, and for companies to spend far too much
money on maintaining ailing applications.
Security Hazards faced by an Information system:
Security of the information system can be broken because of the following reasons:
i) Malfunctions: In this type of security hazard, all the components of a system are
involved. People, software and hardware errors course the biggest problem. More
dangerous are the problems which are created by human beings due to the omission,
neglect and incompetence.
ii) Fraud and unauthorized access: This hazard is due to dishonesty, cheating or deceit.
This can be done through –
a) Infiltration and industrial espionage

b) Tapping data from communication lines

c) Unauthorized browsing through lines by online terminals, etc.
iii) Power and communication failure: In some locations they are the most frequent
hazards than any other else because availability of both of them depends upon the
location. Sometimes communication channel are busy or noisy. There are power cuts
and sometimes high voltage serge destroys a sensitive component of the computer.
iv) Fire hazard: it can happen because of electrical short circuits, flammable liquids etc.
v) Sabotage and riots: sometimes the employees destroy the computer centre in case
of strike, lockout or there may be chances of riots in the area.
vi) Natural Disasters: Natural disasters are not controllable. They are not frequent
hazards but if they happen they destroy the things or ruin them. Examples are
earthquake, floods, tornadoes and lightening.
vii) General hazards: this category covers many more hazards which are not covered
anywhere and difficult to define and come spontaneously.
6. Case Study: Information system in a restaurant.
Case Summary:
A waiter takes an order at a table, and then enters it online via one of the six terminals
located in the restaurant dining room. The order is routed to a printer in the
appropriate preparation area: the cold item printer if it is a salad, the hot-item printer
if it is a hot sandwich or the bar printer if it is a drink. A customer’s meal check-listing
(bill) the items ordered and the respective prices are automatically generated. This
ordering system eliminates the old three-carbon-copy guest check system as well as
any problems caused by a waiter’s handwriting. When the kitchen runs out of a food
item, the cooks send out an ‘out of stock’ message, which will be displayed on the
dining room terminals when waiters try to order that item. This gives the waiters
faster feedback, enabling them to give better service to the customers. Other system
features aid management in the planning and control of their restaurant business. The
system provides up-to-the-minute information on the food items ordered and breaks
out percentages showing sales of each item versus total sales. This helps management
plan menus according to customers’ tastes. The system also compares the weekly
sales totals versus food costs, allowing planning for tighter cost controls. In addition,
whenever an order is voided, the reasons for the void are keyed in. This may help later
in management decisions, especially if the voids consistently related to food or service.
Acceptance of the system by the users is exceptionally high since the waiters and
waitresses were involved in the selection and design process. All potential users were
asked to give their impressions and ideas about the various systems available before
one was chosen.
Questions to be analysed:
1. In the light of the system, describe the decisions to be made in the area of
strategic planning, managerial control and operational control? What information
would you require to make such decisions?
2. What would make the system a more complete MIS rather than just doing
transaction processing?
3. Explain the probable effects that making the system more formal would have on
the customers and the management.
Solution:
1. A management information system (MIS) is an organized combination of people,

hardware, communication networks and data sources that collects, transforms and
distributes information in an organization. An MIS helps decision making by providing
timely, relevant and accurate information to managers. The physical components of an
MIS include hardware, software, database, personnel and procedures.
Management information is an important input for efficient performance of various

managerial functions at different organization levels. The information system
facilitates decision making. Management functions include planning, controlling and
decision making. Decision making is the core of management and aims at selecting the
best alternative to achieve an objective. The decisions may be strategic, tactical or
technical. Strategic decisions are characterized by uncertainty. They are future
oriented and relate directly to planning activity. Tactical decisions cover both planning
and controlling. Technical decisions pertain to implementation of specific tasks
through appropriate technology. Sales region analysis, cost analysis, annual budgeting,
and relocation analysis are examples of decision-support systems and management
information systems.
There are 3 areas in the organization. They are strategic, managerial and operational
control.
Strategic decisions are characterized by uncertainty. The decisions to be made in the

area of strategic planning are future oriented and relate directly to planning activity.
Here basically planning for future that is budgets, target markets, policies, objectives
etc. is done. This is basically a top level where up-to-the minute information on the
food items ordered and breaks out percentages showing sales of each item versus
total sales is provided. The top level where strategic planning is done compares the
weekly sales totals versus food costs, allowing planning for tighter cost controls.
Executive support systems function at the strategic level, support unstructured
decision making, and use advanced graphics and communications. Examples of
executive support systems include sales trend forecasting, budget forecasting,
operating plan development, budget forecasting, profit planning, and manpower
planning.
The decisions to be made in the area of managerial control are largely dependent
upon the information available to the decision makers. It is basically a middle level
where planning of menus is done and whenever an order is voided, the reasons for the
void are keyed in which later helps in management decisions, especially if the voids are
related to food or service. The managerial control that is middle level also gets
customer feedback and is responsible for customer satisfaction.
The decisions to be made in the area of operational control pertain to implementation

of specific tasks through appropriate technology. This is basically a lower level where
the waiter takes the order and enters it online via one of the six terminals located in
the restaurant dining room and the order is routed to a printer in the appropriate
preparation area. The item’s ordered list and the respective prices are automatically
generated. The cooks send ‘out of stock’ message when the kitchen runs out of a food
item, which is basically displayed on the dining room terminals when waiter tries to
order that item. This basically gives the waiters faster feedback, enabling them to give
better service to the customers. Transaction processing systems function at the
operational level of the organization. Examples of transaction processing systems
include order tracking, order processing, machine control, plant scheduling,
compensation, and securities trading.
The information required to make such decision must be such that it highlights the
trouble spots and shows the interconnections with the other functions. It must
summarize all information relating to the span of control of the manager. The
information required to make these decisions can be strategic, tactical or operational
information.
Advantages of an online computer system:
1. Eliminates carbon copies
2. Waiters’ handwriting issues
3. Out-of-stock message
4. Faster feedback helps waiters to service the customers
Advantages to management:
1. Sales figures and percentages item-wise
2. Helps in planning the menu
3. Cost accounting details
2. If the management provides sufficient incentive for efficiency and results to their
customers, it would make the system a more complete MIS and so the MIS should
support this culture by providing such information which will aid the promotion of
efficiency in the management services and operational system. It is also necessary to
study the keys to successful Executive Information System (EIS) development and
operation. Decision support systems would also make the system a complete MIS as it
constitutes a class of computer-based information systems including knowledge-based
systems that support decision-making activities. DSSs serve the management level of
the organization and help to take decisions, which may be rapidly changing and not
easily specified in advance.
Improving personal efficiency, expediting problem solving (speed up the progress of

problems solving in an organization), facilitating interpersonal communication,
promoting learning and training, increasing organizational control, generating new
evidence in support of a decision, creating a competitive advantage over competition,
encouraging exploration and discovery on the part of the decision maker, revealing
new approaches to thinking about the problem space and helping automate the
managerial processes would make the system a complete MIS rather than just doing
transaction processing.
3. The management system should be an open system and MIS should be so designed
that it highlights the critical business, operational, technological and environmental
changes to the concerned level in the management, so that the action can be taken to
correct the situation. To make the system a success, knowledge will have to be
formalized so that machines worldwide have a shared and common understanding of
the information provided. The systems developed will have to be able to handle
enormous amounts of information very fast.
An organization operates in an ever-increasing competitive, global environment.

Operating in a global environment requires an organization to focus on the efficient
execution of its processes, customer service, and speed to market. To accomplish
these goals, the organization must exchange valuable information across different
functions, levels, and business units. By making the system more formal, the
organization can more efficiently exchange information among its functional areas,
business units, suppliers, and customers.
As the transactions are taking place every day, the system stores all the data which can
be used later on when the hotel is in need of some financial help from financial
institutes or banks. As the inventory is always entered into the system, any frauds can
be easily taken care of and if anything goes missing then it can be detected through
the system.
MB0048
Operations Research
Assignment Set- 1
Q.1
a) “Operation Techniques is a bunch of mathematical techniques.” Comment.
Ans:
Operations Research is an interdisciplinary branch of applied mathematics
and formal science that uses methods such as mathematical modelling, statistics,
and algorithms to arrive at optimal or near optimal solutions to complex problems. It
is typically concerned with optimizing the maxima (profit, assembly line
performance, crop yield, bandwidth, etc) or minima (loss, risk, etc.) of some
objective function. Operations research helps management achieve its goals using
scientific methods. The terms operations research and management science are
often used synonymously. When a distinction is drawn, management science
generally implies a closer relationship to the problems of business management. The
field of operations research is closely related to Industrial engineering. Industrial
engineers typically consider Operations Research (OR) techniques to be a major part
of their toolset. Some of the primary tools used by operations researchers are
statistics, optimization, probability theory, queuing theory, game theory, graph
theory, decision analysis, and simulation. Because of the computational nature of
these fields, OR also has ties to computer science, and operations researchers use
custom-written and off-the-shelf software. Operations research is distinguished by
its frequent use to examine an entire management information system, rather than
concentrating only on specific elements (though this is often done as well). An
operations researcher faced with a new problem is expected to determine which
techniques are most appropriate given the nature of the system, the goals for
improvement, and constraints on time and computing power. For this and other
reasons, the human element of OR is vital. Like any other tools, OR techniques
cannot solve problems by themselves.
Scope of operation Research:
Examples of applications in which operations research is currently used include:
1. Critical path analysis or project planning: identifying those processes in a
complex project which affect the overall duration of the project.
2. Designing the layout of a factory for efficient flow of materials.
3. Constructing a telecommunications network at low cost while still
guaranteeing QoS (quality of service) or QoS (Quality of Experience) if
particular connections become very busy or get damaged.
4. Road traffic management and 'one way' street allocations i.e. allocation
problems.
5. Determining the routes of school buses (or city buses) so that as few
buses are needed as possible.
6. Designing the layout of a computer chip to reduce manufacturing time
(therefore reducing cost) Managing the flow of raw materials and
products in a supply chain based on uncertain demand for the finished
products.
7. Efficient messaging and customer response tactics.
8. Robotizing or automating human-driven operations processes.
9. Globalizing operations processes in order to take advantage of cheaper
materials, labour, land or other productivity inputs Managing freight
transportation and delivery systems (Examples: LTL Shipping, intermodal

freight transport).
10. Scheduling.
11. Personnel staffing.
12. Manufacturing steps.
13. Project tasks.
14. Network data traffic: these are known as queuing models or queueing
systems.
15. Sports events and their television coverage blending of raw materials in
oil.
16. Refineries determining optimal prices, in many retail and B2B settings,
within the disciplines of pricing science.
Operations research is also used extensively in government where
evidence-based policy is used.
Q.1- b) “Operation Research is an aid for the executive in making his decisions
based on scientific methods analysis”. Discuss the above statement in brief.
Operation Research is a scientific method of providing executive departments with a

quantitative basis for decisions regarding the operations under their control. Morse
& Kimball Operations research is a scientific approach to problem solving for
executive management. – H.M. Wagner Operations research is an aid for the
executive in making these decisions by providing him with the needed quantitative
information based on the scientific method of analysis. The mission of Operations
Research is to serve the entire Operations Research (OR) community, including
practitioners, researchers, educators, and students. Operations Research, as the
flagship journal of our profession, strives to publish results that are truly insightful.
Each issue of Operations Research attempts to provide a balance of well-written
articles that span the wide array of creative activities in OR. Thus, the major criteria
for acceptance of a paper in Operations Research are that the paper is important to
more than a small subset of the OR community, contains important insights, and
makes a substantial contribution to the field that will stand the test of time.
Operational research, also known as operations research, is an interdisciplinary
branch of applied mathematics and formal science that uses advanced analytical
methods such as mathematical modelling, statistical analysis, and mathematical
optimization to arrive at optimal or near-optimal solutions to complex decision-
making problems. It is often concerned with determining the maximum (of profit,
performance, or yield) or minimum (of loss, risk, or cost) of some real-world
objective. Originating in military efforts before World War II, its techniques have
grown to concern problems in a variety of industries. Operational research, also
known as OR, is an interdisciplinary branch of applied mathematics and formal
science that uses advanced analytical methods such as mathematical modelling,
statistical analysis, and mathematical optimization to arrive at optimal or near-
optimal solutions to complex decision-making problems. It is often concerned with
determining the maximum (of profit, performance, or yield) or minimum (of loss,
risk, or cost) of some real world objective. Originating in military efforts before
World War II, its techniques have grown to concern problems in a variety of
industries.
Operational research encompasses a wide range of problem-solving techniques and
methods applied in the pursuit of improved decision-making and efficiency. Some of
the tools used by operational researchers are statistics, optimization, probability
theory, queuing theory, game theory, graph theory, decision analysis, mathematical
modelling and simulation.
Because of the computational nature of these fields, OR also has strong ties to
computer science. Operational researchers faced with a new problem must
determine which of these techniques are most appropriate given the nature of the
system, the goals for improvement, and constraints on time and computing power.
Work in operational research and management science may be characterized as one

of three categories:
Fundamental or foundational work takes place in three mathematical disciplines:
probability, optimization, and dynamical systems theory.
Modelling work is concerned with the construction of models, analyzing them
mathematically, implementing them on computers, solving them using software
tools, and assessing their effectiveness with data. This level is mainly instrumental,
and driven mainly by statistics and econometrics. Application work in operational
research, like other engineering and economics' disciplines, attempts to use models
to make a practical impact on real-world problems.
• The major sub disciplines in modern operational research, as identified by the
journal Operations Research, are:
• Computing and information technologies
• Decision analysis
• Environment, energy, and natural resources
• Financial engineering
• Manufacturing, service sciences, and supply chain management
• Policy modelling and public sector work
• Revenue management
• Simulation
• Stochastic models
• Transportation
Q. 2 Comment on the following statements:
a) Operation Research advocates a system approach and is concerned with

optimization.
1. Systems approach:
The term system approach implies that each problem should be examined in its
entirely to the extent possible and economically feasible from the point of view of
the overall system of which the problem under consideration is one part. Under
those approaches a manager makes conscious attempt to understand the
relationships among various parts of the organisation and their role in supporting
the overall performance of the organisation. Operations objective of operations
research is to provide managers of the organisation with a scientific basis for solving
problems involving the interaction of components of the organisation as a whole.
The decision which is best for the organisation as a whole is called an optimal
decision. Operations research tries to find the best decision relative to a large
portion of the total organisation. Hence in operations research every problem is
considered in its totality, i.e. O.R. adopts systems approach for solving the problem.
In other words, “Operations Research is the scientific study of large systems with a
view to identify problem areas and provide the mangers with a quantitative basis for
decisions which will enhance their effectiveness in achieving the specified
objectives.”
2. Inter-disciplinary Team Approach:

It is an important characteristic of O.R. According to this characteristic, no single
individual can be an expert on all aspects of a problem under consideration. Thus,
O.R. utilizes the inter disciplinary team approach. Under this approach, a team
comprising experts from different disciplines such as mathematics, statistics,
economics, management, computer science, engineering and psychology, etc. is
constituted. Such a team when confronted with a problem determines its solution by
utilizing the diverse background and skills of the teammates. Every expert of the
team, while solving the problem, tries to abstract the essence of the problem and
then determines whether a similar type of problem has been dealt by his team or
not. If the answer is yes, then it is solution of the current problem. In this way, each
member of the team, by utilizing his experience and expertise, may be in a position
to suggest an approach to overcome a problem that otherwise may not be possible
for an individual to tackle.
3. Methodological Approach:
O.R. utilizes scientific methods for solving a problem. Specifically, the process begins
with the careful observation and formulation of the problem. The next step is to
construct a scientific model (typically a mathematical model) that attempts to
abstract the essence of the real problem. From this model, conclusions or solutions
are obtained which are also valid for the real problem. In an interactive fashion, the
model is then verified through appropriate experiments to determine the best or
optional solution to the problem under consideration.
4. Operations economy:
O.R. is a problem solving and a decision making science. Whenever we have conflicts,
uncertainty and complexity in any situation, O.R. can help in the end to reduce costs
and improve profits and effects substantial “Operations Economy”. Once the old
approach of management by intuit is buried, a scientific approach to decision making
is bound to help. Often the conflicts are so tangled that they defy any intuitive
solution, viz., the marketing function frequently caught up in recoiling the following
conflicting objectives: i) product innovation, ii) high scale volume, iii) increasing
market share, iv) flexibility in the market place, and v)entry into new markets and
revenue markets. It is here that O.R. is likely to convincingly optimize the total
effectiveness.
From all above areas of applications, one may conclude that operations
research can be widely advocate a systems approach for making timely management
decisions and also used as a corrective measure. O.R. encourages systems approach
which concerned with the cost optimization, and hence we can say: Operation
Research advocates a system approach and is concerned with optimization.
Q.2- b). Operation Research replaces management by personality. Comment.
Operations research is today recognised as an applied science concerned with large

number of diverse human activities. To be precise an operation uses some valuable
resources like men, money, machines, time, effort, etc. The outcome of the
operation has also some value. An operations research worker is required: i) to
minimize the input value for a specific output, or /and ii) to maximize the output
value for a specific input, or /and iii) maximize some function of these values, e. g.
the profit function (difference between output & input values) or return-on-
investment function (ratio of output and input values), etc.
Some of the areas of management where techniques of operations research are

applied are listed below:
1. Finance, Budgeting and Investments:
a) cash flow analysis, long range capital requirements, investment

portfolios, dividend policies, etc.
b) Credit policies, credit risks and delinquent account procedures.
c) Claim and complaint procedures.
d) Dividend policies, investment and portfolio management, balance

sheet and cash flow analysis.
2. Purchasing, procurement and Exploration:
a) Determining the quality and timing of purchase of raw materials,

machinery, etc.
b) Rules for buying and supplies under varying prices.
c) Bidding policies.
d) Equipment replacement policies.
e) Determination of quantities and timings of purchases.
f) Strategies for exploration and exploitation of new material source.
3. Production Management:
a) Product planning:
i) Location and size of warehouses, distribution centres, retail outlets,

etc.
ii) Distribution policy
b) Manufacturing & facility planning:
i) Production scheduling and sequencing
ii) Product scheduling and allocation of resources
iii) Selection & location of factories, warehouses and their sizes
iv) Determining the optimal production mix.
v) Maintenance policies & preventive maintenance.
vi) Scheduling & sequencing the production run by proper allocation

of machines.
4. Marketing Management:
a) Product selection, timing, competitive actions.
b) Advertising strategy & choice of different media of advertising.
c) Number of salesman, frequency of calling of accounts, etc.
d) Effectiveness of market research.
e) Size of the stock to meet the future demand.
5. Personnel Management:
a) Recruitment policies & assignment of jobs.
b) Selection of suitable personnel with due consideration for age and

skills, etc.
c) Establishing equitable bonus systems.
6. Research & Development:
a) Determination of areas of concentration of research and

development.
b) Reliability & evaluation of alternative designs.

c) Control of development projects.
d) Coordination of multiple research projects.
e) Determination of time & cost requirements.
From all above areas of applications, one may conclude that operations
research can be widely used in taking timely management decisions and also used as
a corrective measure. The application of this tool involves certain data and not
merely a personality of decision maker, and hence we can say: Operations Research
has replaced management by personality.
Q.3. Explain how the profit maximization transportation problem can be

converted to an equivalent cost minimization transportation problem.
How to convert profit maximization transportation problem to an equivalent cost

minimization transportation problem can be understood by following Illustration as:
A firm has three factories located in city A, B & C and supplies goods to four dealers,
dealer 1, 2, 3 & 4, spread all over the country. The production capacities of these
factories are 1000, 700 & 900 units per month respectively. The monthly orders from
the dealers are 900, 800, 500 & 400 units respectively. Per unit return (excluding
transportation costs) are Rs. 8, 7 & 9 at the three factories. Unit transportation costs
from the dealers are given below:
Factory Dealers
1 2 3 4
City - A 2 2 2 4
City - B 3 5 3 2
City - C 4 3 2 1
Optimal distribution system to maximize the total r eturn to be determined.
From the given data, we compute a matrix of net returns as done in table below;
(Transportation matrix (Net return) for the Maximization problem)
Factory Dealers Factory
capacity
1 2 3 4
City - A 6 6 6 4 1000
City - B 4 2 4 5 700
City - C 5 6 7 8 900
To convert the given maximization problem to an equivalent minimization problem,

we identify the cell (element) which has the highest contribution per unit (in this
problem C-4 has highest per unit contribution, Rs.8), and subtract all elements from
this highest element. The resultant matrix is a transportation problem with
minimizing objective function. This has been given in the following table.
(Transportation matrix for the Minimization problem)
Factory Dealers Factory
capacity
1 2 3 4
City - A 2 2 2 4 1000
City - B 4 6 4 3 700
City - C 3 2 1 0 900
Dealer requirement 900 800 500 400 2600
The minimization problem is solved as a usual transportation problem. The

resulting optimal solution is also the optimal solution to the original (maximization)
problem. The value of the objective function is computed by referring the matrix of
the maximization problem. It should be noted that the converted minimization
problem will have at least one element with zero value.
4. Write the difference in the simplex solution procedure for a maximization

problem and a minimization problem of linear programming.
The difference in the simplex solution procedure for a maximization problem and a
minimization problem of linear programming can be explained by the steps followed
to solve the minimization/ minimization problem as follows ;
1. Introduce stack variables (Si’s) for “£” type of constraint.
2. Introduce surplus variables (Si’s) and artificial variables (Ai) for “³” type of
constraint.
3. Introduce only Artificial variable for “=” type of constraint.
4. Cost (Cj) of slack and surplus variables will be zero and that of artificial
variable will be “M”
5. Find Zj – Cj for each variable.
6. Slack and artificial variables will form basic variable for the first simplex table.
Surplus variable will never become basic variable for the first simplex table.
7. Zj = sum of [cost of variable x its coefficients in the constraints – Profit or cost

coefficient of the variable].
8. Select the most negative value of Zj – Cj. That column is called key column.
The variable corresponding to the column will become basic variable for the
next table.
9. Divide the quantities by the corresponding values of the key column to get
ratios; select the minimum ratio. This becomes the key row. The basic
variable corresponding to this row will be replaced by the variable found in
step 6.
10. The element that lies both on key column and key row is called Pivotal
element.
11. Ratios with negative and “a” value are not considered for determining key
row.
12. Once an artificial variable is removed as basic variable, its column will be
deleted from next iteration.
13. For maximisation problems, decision variables coefficient will be same as in

the objective function. For minimisation problems, decision variables
coefficients will have opposite signs as compared to objective function.
14. Values of artificial variables will always is – M for both maximisation and
minimisation problems.
15. The process is continued till all Zj – Cj ³ 0.
Q.5 What do you mean by the two-phase method for solving a given LPP? Why
is it used?
Every linear programming problem (LPP) is associated with another linear

programming problem involving the same data and optimal solutions. Such two
problems are said to be duals of each other. One problem is called the primal, while
the other problem is called the dual. The dual formulation is derived from the same
data and solved in a manner similar to the original 'primal' formulation. In other
words, you can say that dual is the 'inverse' of the primal formulation because of the
following reasons.
If the primal objective function is 'maximisation' function, then the dual

objective function is 'minimisation' function and vice-versa.
The column co-efficient in the primal constraint is the row co-efficient in the
dual constraint.
The co-efficients in the primal objective function are the RHS constraint in the
dual constraint.
The RHS column of constants of the primal constraints becomes the row of
co-efficient of the dual objective function.
The concept of duality is useful to obtain additional information about the variation
in the optimal solution. These changes could be effected in the constraint co-
efficient, in resource availabilities and/or objective function co-efficient. This effect is
termed as post optimality or sensitivity analysis.
Characteristics of dual solutions
If the primal problem possesses a unique non-degenerate, optimal solution, then the
optimal solution to the dual is unique. However, dual solutions arise under a number
of other conditions. Several of the cases which can arise are:
When the primal problem has a degenerate optimal solution, the dual has
multiple optimal solutions.
When the primal problem has multiple optimal solutions, the optimal dual
solution is degenerate.
When the primal problem is unbounded, the dual is infeasible.
When the primal problem is infeasible, the dual is unbounded or infeasible.
Formulation of Dual Concepts
Consider the following LPP

Maximise Z = c1x1 +c2x2 + . . .+ cnxn
Subject to the constraints
a11 x1 + a12 x2 + . . . + a1n xn ≤ b1
a21 x1 + a22 x2 + . . . + a2n xn ≤ b2
am1 x1 + am2 x2 + . . . + amn xn ≤ bm
x1, x2, . . ., xn ≥ 0
To construct a dual problem, you must adopt the following guidelines:
i. The maximisation problem in the primal becomes a minimisation problem in the

dual and vice versa
ii. (≤) type of constraints in the primal become (≥) type of constraints in the dual and
vice versa.
iii. The coefficients c1, c2, . . .,cn in the objective function of the primal become b1,
b2,…,bm in the objective function of the dual.
iv. The constants b1, b2,…,bm in the constraints of the primal become c1, c2, . . .,cn
in the constraints of the dual
v. If the primal has n variables and m constraints the dual will have m variables and n
constraints
vi. The variables in both the primal and dual are non-negative
Thus the dual problem will be

Minimise W = b1 y1 + b2 y2 + . . . +bm ym
Subject to the constraints
a11 y1 + a21 y2 + . . . + am1 ym ≥ c1
a12 y1 + a22 y2 + . . . + am2 ym ≥ c2
a1n y1 + a2n y2 + . . . + amn ym ≥ cn
y1, y2, . . ., ym ≥ 0
Formation of dual LPP is easier when the standard form of LPP for maximisation
problem must contain “≤” type of constraints, while for minimisation problem, it
must contain “≥” type of constraints.
Two Phase Method:
Two-phase method for solving a given LPP can be divided in the two phses as
mentioned below:
Phase I: Formulate the new problem. Start by eliminating the original objective
function by the sum of the artificial variables for a minimisation problem and the
negative of the sum of the artificial variables for a maximisation problem. The
Simplex method optimizes the ensuing objective with the constraints of the original
problem. If a feasible solution is arrived, the optimal value of the new objective
function is zero (suggestive of all artificial variables being zero). Subsequently
proceed to phase -II. If the optimal value of the new objective function is non-zero, it
means there is no solution to the problem and the method terminates.
Phase II: Start phase II using the optimum solution of phase I as the base. Then take
the objective function without the artificial variables and solve the problem using the
Simplex method.
Why is it used?
The drawback of the penalty cost method is the possible computational error
resulting from assigning a very large value to the constant M. To overcome this
difficulty, Two - Phase Simplex method is considered where the use of M is
eliminated by solving the problem in two phases.
Q. 6 Indicate any four shortcomings of taking a simulation approach to solve an

O.R. problem.
Shortcomings of taking a simulation approach to solve an O.R. problem
The range of application of simulation in business is extremely wide. Unlike other

mathematical models, simulation can be easily understood by the users and thereby
facilitates their active involvement. This makes the results more reliable and also
ensures easy acceptance for implementation. The degree to which a simulation
model can be made close to reality is dependent upon the ingenuity of the OR team
who identifies the relevant variables as well as their behavior.
In case of other OR models, simulation helps the manager to strike a balance

between opposing costs of providing facilities (usually meaning long term
commitment of funds) and the opportunity and costs of not providing them.
The simulation approach is recognised as a powerful tool for management decision-

making. Shortcoming of taking a simulation approach to solve an O. R. problems are
as follows;
1. It does not produce optimal results. Solutions are approximate, and it is some
less than formal but ‘satisfactory’ approach to problem-solving only.
2. To be able to simulate systems, a fairly good knowledge of the parts or
components of the system and their characteristics is required. The desire is
to understand, explain and predict the dynamic behavior of the system or the
sum total of these parts. Adequate knowledge of the system behavior.
3. Each simulation run like a single experiment conducted under a given set of
conditions as defined by a set of values for the input solution. A number of
simulation runs will be necessary and thus can be time consuming. As the
number of variables increases in terms of input, the difficulty in finding the
optimum values increases considerably.
4. Since simulation involves repetitions of the experiment, it is a time
consuming task when manually done.
5. As a number of parameters, increase, the difficulty in finding the optimum
values increases to a considerable extent.
6. Because of the simplicity in adoption of simulation process, one may develop
to rely on this technique too often, although mathematical model is more
suitable to the situation.
7. One should not ignore the cost associated with a simulation study for data
collection, formation of the model. A good simulation model may be very
expensive. Often it takes years to develop a usable corporate planning model.
8. The computer time as it is fairly significant.
9. A simulation application is based on the premise that the behaviour pattern
of relevant variables is known, and this very premise sometimes becomes
questionable.
10. Not always can the probabilities be estimated with ease or desired reliability.
The results of simulation should always be compared with solutions obtained
by other methods wherever possible, and “tempered” with managerial
judgment
MB0048
Operations Research
Assignment Set- 2
1. Explain how to transform an unbalanced transportation problem into a

balanced transportation problem where the demand of warehouses is
satisfied by the supply of factories.
Ans :
2. Explain how the profit maximization transportation problem into a

balanced transportation problem where the demand of warehouses is
satisfied by the supply of factories.
Ans :
A fictive corporation A has a contract to supply motors for all tractors produced
by a fictive corporation B. Corporation B manufactures the tractors at four
locations around Central Europe: Prague, Warsaw, Budapest and Vienna. Plans
call for the following numbers of tractors to be produced at each location:
Prague 9 000
Warsaw 12 000
Budapest 9 000
Corporation A has three plants that can produce the motors. The plants and
production capacities are
Hamburg 8 000
Munich 7 000
Leipzig 10 000
Dresden 5 000
Due to varying production and transportation costs, the profit earns on each motor
depends on where they were produced and where they were shipped. The
following transportation table (Table 7.9) gives the accounting department
estimates of the euro profit per unit (motor).
Table 7.9 "The Euro Profit Per One Shipped Motor"

Table 7.10 shows a highest - profit assignment (Least Cost method
modification). In contrast to the Least – Cost method it allocates as much as
possible to the highest-cost cell. (Cell Hamburg - Budapest was assigned first,
Munich - Warsaw second, Leipzig - Warsaw third, Leipzig – Budapest fourth,
Dresden – Prague fifth and Leipzig – Prague sixth.) Total profit : 3 335 000 euro.
Table 7.10 "Highest - Profit Assignment"

Applying the Stepping Stone method (modified for maximization purposes) to the
initial solution we can see that no other transportation schedule can increase the
profit and so the Highest – Profit initial allocation is also an optimal solution of
this transportation problem.
Stepping Stone Method
Step 1: Pick any empty cell and identify the closed path leading to that cell. A
closed path consists of horizontal and vertical lines leading from an empty cell
back to itself (If assignments have been made correctly, the matrix has only one
closed path for each empty cell.) In the closed path there can only be one empty
cell that we are examining. The 90-degree turns must therefore occur at those
places that meet this requirement. Two closed paths are identified. Closed path a
is required to evaluate empty cell A-E; closed path b is required to evaluate empty
cell A-F.
Closed path "a"
Closed path "b"

Step 2: Move one unit into the empty cell from a filled cell at a corner of the
closed path and modify the remaining filled cells at the other comers of the closed
path to reflect this move. (More than one unit could be used to test the desirability
of a shift. However, since the problem is linear, if it is desirable to shift one unit, it
is desirable to shift more than one, and vice versa.) Modifying entails adding to
and subtracting from filled cells in such a way that supply and demand constraints
are not violated. This requires that one unit always be subtracted in a given row or
column for each unit added to that row or column. Thus, the following additions
and subtractions would be required :
For the path a:
• Add one unit to A-E (the empty cell).
• Subtract one unit from A-H.
• Add one unit to C-H.
• Subtract one unit from C-E.
For the path b,

• Add one unit to A-F (the empty cell).
• Subtract one unit from A-H.
• Add one unit to C-H.
• Subtract one unit from C-G.
• Add one unit to D-G.
• Subtract one unit from D-F.
Step 3: Determine desirability of the move. This is easily done by (1) summing
the cost values for the cell to which a unit has been added, (2) summing the cost
values of the cells from which a unit has been subtracted, and (3) taking the
difference between the two sums to determine if there is a cost reduction. If the
cost is reduced by making the move, as many units as possible should be shifted
out of the evaluated filled cells into the empty cell. If the cost is increased, no
move should be made and the empty cell should be crossed.
For cell A-E, the pluses and minuses are
For cell A-H, the pluses and minuses are
Thus in both cases it is apparent that no move into either empty cell should be
made.
Step 4: Repeat Steps 1 through 3 until all empty cells have been evaluated. To
illustrate the mechanics of carrying out a move, consider cell X-F and the closed
path leading to it, which is a short one: X-G, D-G, and D-F. The pluses and
minuses are
Since there is a savings of $5 per unit from shipping via X-F, as many units as
possible should be moved into this cell. In this case, however, the maximum
amount that can be shifted is one unit—because the maximum amount added to
any cell may not exceed the quantity found in the lowest-amount cell from which
a subtraction is to be made. To do otherwise would violate the supply and demand
constraints of the problem. Here we see that the limiting cell is X-G since it
contains only one unit.
Applying the stepping stone method to this new solution (next table) indicates,
that making this shift we obtained an optimal solution – there is no unfilled cell.
The table above indicates one marked cell B-H. This cell has closed path C-H, C-
G, D-G, D-F and B-F.
The pluses and minuses are
Since there is a savings of $0 (70 - 70) per unit from shipping via B-H, we obtain
a different – "alternate optimal solution" with the same transportation cost (next
table).
3. Illustrate graphically the following special cases of Linear programming

problems:
i) Multiple optimal solutions, ii) No feasible solution, iii) Unbounded problem
Ans -:
4. How would you deal with the Assignment problems, where a) the objective
function is to be maximized?
b) Some Assignments are prohibited?
5. “Simulation is an especially valuable tool in a situation where the

mathematics
needed to describe a system realistically is too complex to yield analytical
solutions”.
Elucidate.
Ans:
“Simulation is an especially valuable tool in a situation where the mathematics
needed to describe a system realistically is too complex to yield analytical
solutions”. Elucidate.
Simulation is the imitation of some real thing, state of affairs, or process. The act
of simulating something generally entails representing certain key characteristics
or behaviours of a selected physical or abstract system. Simulation is used in
many contexts, such as simulation of technology for performance optimization,
safety engineering, testing, training,education, and video games. Training
simulators include flight simulators for training aircraft pilots. Simulation is also
used for scientific modeling of natural systems or human systems in order to gain
insight into their functioning. Simulation can be used to show the eventual real
effects of alternative conditions and courses of action. Simulation is also used
when the real system cannot be engaged, because it may not be accessible, or it
may be dangerous or unacceptable to engage, or it is being designed but not yet
built, or it may simply not exist. Simulation can be used when the problem is too
complex for analytical solution and too dangerous for actual experimentation. Key
issues in simulation include acquisition of valid source information about the
relevant selection of key characteristics and behaviours, the use of simplifying
approximations and assumptions within the simulation, and fidelity and validity of
the simulation outcomes.
6. Describe Gomory’s method of solving an all-integer programming

problem.
Ans :
MB0049
Project Management
Assignment Set- 1
Q.1 Comment on the following
a. Importance of DMAIS in project management cycle
The projectised mantras of production management can be broadly identified as -

Define Measure, Analyze, Improve, Standardize (DMAIS). These projectised mantras
help in identifying, evaluating, and selecting the right improvement solutions for
managing a project. The mantras also help in identifying the critical issues thus
assisting the organization to adapt to the changes introduced through the
implementation of different solutions.
The phases associated with each projectised mantra of production management are:
1. Define: benchmark, customer requirement, process flow map, quality function

deployment, project management plan
2. Measure: data collection, defect metrics, sampling
3. Analysis: cause and effect, failure modes and effect analysis, decision and risk
analysis,root cause analysis, reliability analysis
4. Improve: design of experiments, modeling, and robust design
5. Standardize: control charts, time series, procedural adherence, performance
management, preventive activities displays the various phases of DMIAS.
b. Knowledge areas of project management
There are nine knowledge areas in Project Management:
1. Project Integration Management

2. Project Scope Management
3. Project Time Management
4. Project Cost Management
5. Project Quality Management
6. Project Human Resource Management
7. Project Communications Management
8. Project Risk Management
9. Project Procurement Management
Each of the nine knowledge areas contains the processes that need to be
accomplished within its discipline in order to achieve an effective project
management program. Each of these processes also falls into one of the five basic
process groups, creating a matrix structure such that every process can be related to
one knowledge area and one process group.
Q.2 Write few words on:
a. Project Characteristics
The word PROJECT comes from the Latin word PROJECTUM from the Latin verb
PROICERE; which means “to throw something forwards” which in turn comes from
PRO-, which denotes something that precedes the action of the next part of the
word in time and ICERE, “to throw”. The word PROJECT thus actually originally meant
“something that comes before anything else happens”.
A project in business and science is a temporary endeavor undertaken to create a

unique product, service, or result. Basically, it is planned to achieve a particular aim.
The aim of a project is to attain its objective and then terminate. Some of the
reasons to start a project can be:
• A customer request or market demand

• An organizational need
• A customer request
• A technological advance
• A legal requirement
Projects and operations differ primarily in that operations are ongoing and
repetitive, while projects are temporary and unique. Generally, a project is a means
of organizing some activities that cannot be addressed within the normal operational
limits.
Project characteristics:
• It is temporary – temporary means that every project has a definite beginning
and a definite end. Project always has a definitive time frame.
• A project creates unique deliverables, which are products, services, or results.
• A project creates a capability to perform a service.
• Project is always developed in steps and continuing by increments –
Progressive Elaboration.
b. WBS
A work breakdown structure (WBS) in project management and systems
engineering, is a tool used to define and group a project's discrete work elements in
a way that helps organize and define the total work scope of the project..
A work breakdown structure element may be a product, data, a service, or any

combination. A WBS also provides the necessary framework for detailed cost
estimating and control along with providing guidance for schedule development and
control. Additionally the WBS is a dynamic tool and can be revised and updated as
needed by the project manager
The Work Breakdown Structure is a tree structure, which shows a subdivision of

effort required to achieve an objective; for example aprogram, project,
and contract. In a project or contract, the WBS is developed by starting with the end
objective and successively subdividing it into manageable components in terms of
size, duration, and responsibility (e.g., systems, subsystems, components, tasks,
subtasks, and work packages) which include all steps necessary to achieve the
objective.
The Work Breakdown Structure provides a common framework for the natural
development of the overall planning and control of a contract and is the basis for
dividing work into definable increments from which the statement of work can be
developed and technical, schedule, cost, and labor hour reporting can be
established.
A work breakdown structure permits summing of subordinate costs for tasks,

materials, etc., into their successively higher level “parent” tasks, materials, etc. For
each element of the work breakdown structure, a description of the task to be
performed is generated. [3] This technique (sometimes called a System Breakdown
Structure ) is used to define and organize the total scope of a project.
The WBS is organised around the primary products of the project (or planned
outcomes) instead of the work needed to produce the products (planned actions).
Since the planned outcomes are the desired ends of the project, they form a
relatively stable set of categories in which the costs of the planned actions needed to
achieve them can be collected. A well-designed WBS makes it easy to assign each
project activity to one and only one terminal element of the WBS. In addition to its
function in cost accounting, the WBS also helps map requirements from one level of
system specification to another, for example a requirements cross reference matrix
mapping functional requirements to high level or low level design documents.
c. PMIS
Project Management Information System (PMIS) are system tools and techniques
used in project management to deliver information. Project managers use the
techniques and tools to collect, combine and distribute information through
electronic and manual means. Project Management Information System (PMIS) is
used by upper and lower management to communicate with each other.
Project Management Information System (PMIS) help plan, execute and close
project management goals. During the planning process, project managers use PMIS
for budget framework such as estimating costs. The Project Management
Information System is also used to create a specific schedule and define the scope
baseline. At the execution of the project management goals, the project
management team collects information into one database. The PMIS is used to
compare the baseline with the actual accomplishment of each activity, manage
materials, collect financial data, and keep a record for reporting purposes. During the
close of the project, the Project Management Information System is used to review
the goals to check if the tasks were accomplished. Then, it is used to create a final
report of the project close. To conclude, the project management information
system (PMIS) is used to plan schedules, budget and execute work to be
accomplished in project management.
d. Project Management strategies-Internal & external
Effective Internal Project Management Strategies
Projects fail for many internal reasons, some of them technical, some of them
managerial. However, even the technical failures can often be traced back to a
failure on the part of the project's executive management to recognize and deal with
these inherent managerial risks. On the other hand, probably the majority of
apparently successful projects do not reflect their optimum potential either.
As a matter of project experience, a number of prerequisites have been identified

with the successful project. While these prerequisites do not necessarily guarantee
success of future projects, their absence may well lead to sub-optimal success, if not
outright failure. The Project's Executive has a vital role to play in achieving project
success and should therefore insist on the following:
Executive Support - The Executive must clearly demonstrate support for the project
management concept by active sponsorship and control.
External Authority - The project manager must be seen as the authoritative agent in
dealing with all parties, and be the responsible and single formal contact with them.
Internal Authority - The project manager must have the necessary managerial
authority within his organization to ensure response to his requirements.
Commitment Authority - The project manager must have the responsibility and
authority to control the commitment of resources, including funds, within prescribed
limits. The results of these decisions must be both accountable and visible.
Project Manager Involved in All Major Decisions - No major technical, cost, schedule,
or performance decisions should be made without the project manager's
participation.
Competence - The project manager and his team members must be competent.
Other functional personnel assigned to the project must also be competent.
Project Team - The project manager should have a say in the assembly of his project
team, which will help him to obtain their personal commitment, support and
required quality of service.
Management Information Systems - Effective project management information and

control systems must be in place.
Effective External Project Management Strategies
Prerequisites for avoiding internal project failure, or at least sub-optimal results,

were discussed earlier. However, it has also been noted earlier that external
conditions and events also represent uncertainty and risk to the successful
accomplishment of the project. These conditions have been linked to the external
stakeholders of the project. Therefore, it is essential to develop a sound stakeholder
environment.
Developing a Sound Stakeholder Environment
Just as the means of influencing the project's cultural environment, as described

above, was one of developing the right attitude, so it is with developing a sound
stakeholder environment. Perhaps this attitude is best reflected by adopting a mind
set that reverses the traditional organization chart hierarchy. In other words, place
the project stakeholders at the top of the chart, followed by the front-line project
team members, and on down to the project manager at the bottom. Perhaps the
project team will then be better visualized as a truly service organization, designed
to serve the best interests of a successful project outcome, both perceived and in
reality.
Some suggested steps in this process include:
• Learn how to understand the role of the various stakeholders, and how this
information may be used as an opportunity to improve both the perception
and reception of the project
• Identify the real nature of each stakeholder group's business and their
consequent interest in the project
• Understand their behavior and motivation
• Assess how they may react to various approaches
• Pinpoint the characteristics of the stakeholders' environment and develop
appropriate responses to facilitate a good relationship
• Learn project management's role in responding to the stakeholders drive
behind the project
• Determine the key areas which will have the most impact on the successful
reception of the project
• Remember always that even a minor stakeholder group may discover the
"fatal flaw" in the project and which could bring the project to a standstill!
Q.3 What are the various SCMo soft wares available in project management?
Explain each in brief.
The process documentation system is intranet based to provide immediate access to

current, up-to-date process documentation. The system allows users to navigate
through graphical structures to relevant documentation and processes which were
created with the ARIS-Toolset.
The content of the process documentation system includes the area supply chain
management from the Odette Supply Chain Management Group. The system
includes graphical process documentation, in the form of process chains, as well as
the entire range of documentation related to the processes. The Process
Documentation System gives, according to its objectives, an overview and a detailed
view of the relevant processes for SCMo.
The entry point in the documentations system is the model “Process Overview
SCMo”. This model is the starting point for the navigation to other models. The
navigation between models is done via the assignment symbol. The assignment
symbol of a function / process Interface indicates that there is a link to another
model. The linked / assigned models can be opened by double-clicking on the
assignment symbol.
This can be classified into two different navigations as shown in figure.

a) Vertical Navigation: The vertical navigation is the navigation on different levels.

Starting on the work package level and going downwards into more detail, the first
models of processes are found on the sub-process level.
In the model “Process Overview SCMo” those processes are assigned to the
functions on Level 2. In the models there can be assignments for some functions, e.g.
for a Function Allocation Diagram or a sub-process that describes that function.
These two examples are currently the models on the lowest level.
b) Horizontal Navigation: The horizontal navigation is on the same level. Some

processes have a link to other processes, which can be at the start or end or even in
the process itself, when another process is imbedded in the process. Those links are
represented by Process Interfaces.
Microsoft has a team project management solution that enables project managers
and their teams to collaborate on projects. The Microsoft Project 2002 products in
these solutions are:
1. Microsoft Project Standard 2002
2. Microsoft Project Server 2002
3. Microsoft Project Server Client Access License (CAL) 2002.
Support Software
Having learnt the basics of application software, you would have a fair idea of how
and to what extent project management processes could be automated. However,
the challenge of “making things work” remains unchanged. While software vendors
are confident of “making it work”, two yawning gaps still remain:
1. Business processes which are not covered in such software
2. Integration of multi vendor supported software applications

The enterprise is normally in a dilemma – whether to look at the same vendors to

support such customisation or not. This normally works out too expensive for their
comfort or within their tight budgets.
Several software vendors have seized the opportunity with offerings that
substantially fill these gaps effectively at a fraction of the costs quoted by the major
vendors. The other carrot which these vendors offer is a unilateral transfer of the
facility to customise themselves which is seen as a huge advantage. The various
support software that may be used for managing projects are:
1. ARROW
2. FEDORA
3. VITAL
4. PILIN
5. MS EXCHANGE SERVER 2003
The ARROW Project
It is a consortia of institutional repository solution, combining open source and

proprietary Software .Arrow is preferred support software because it:
· Provides a platform for promoting research output in the ARROW context
· Safeguards digital information
· Gathers an institution’s research output into one place
· Provides consistent ways of finding similar objects
· Allows information to be preserved over the long term
· Allows information from many repositories to be gathered and searched in one step
· Enables resources to be shared, while respecting access constraints
· Enables effective communication and collaboration between researchers
The vision of project ARROW: “The ARROW project will identify and test software or
solutions to support best practice institutional digital repositories comprising e-
prints, digital theses and electronic publishing.” ARROW project wanted to be a
solution for storing any digital output. Their initial focus was on print equivalents
such as thesis and journal articles among others. It provided solution that could offer
on-going technical support and development past the end of the funding period of
the project.
Fedora
ARROW wanted a robust, well architected underlying platform and a flexible object-
oriented data model to be able to have persistent identifiers down to the level of
individual data streams. It accommodates the content model to be able to be version
independent.
Since the beginning of the project ARROW has worked actively and closely with
Fedora and the Fedora Community. The ARROW project’s Technical Architect is a
member of Fedora Advisory Board and sits on Fedora Development Group.
This association is reinforced by VTLS Inc. VTLS President is a member of Fedora

Advisory Board and VITAL Lead Developer sits on Fedora Development Group
VITAL
VITAL refers to ARROW specified software created and fully supported by VTLS Inc.
built on top of Fedora. It currently provides:
1. VITAL Manager
2. VITAL Portal
3. VITAL Access Portal

4. VALET – Web Self-Submission Tool
5. Batch Loader Tool
6. Handles Server (CNRI)
7. Google Indexing and Exposure
8. SRU / SRW Support
9. VITAL architecture overview
VITAL is part of creative development of ARROW institutional repositories. VITAL has

the following features:
1. Inclusion of multimedia and creative works produced in Australian universities
2. Limited exposure nationally or internationally
3. Addition of annotation capability
4. Inclusion of datasets and other research output not easily provided in any other
publishing channel
5. Being developed in conjunction with the DART (ARCHER) Project
6. Exploration of the research-teaching nexus tools that will allow value added
services for repositories
7. Integration with or development of new tools that will allow value added services
for repositories (for instance the creation of e-portfolios or CVs of research output of
individual academics)
PILIN – Persistent Identifiers and Linking Infrastructure
There has been a growing realisation that sustainable identifier infrastructure is

required to deal with the vast amount of digital assets being produced and stored
within universities.
PILIN is a particular challenge for e-research communities where massive amounts of

data are being generated without any means of managing this data over any length
of time. The broad objectives are to:
1. Support adoption and use of persistent identifiers and shared persistent identifier
management services by the project stakeholders
2. Plan for a sustainable, shared identifier management infrastructure that enables

persistence of identifiers and associated services over archival lengths of time
3. Deploy a Worldwide Site Consolidation Solution for Exchange Server 2003 at

Microsoft
4. Add Picture
5. Use Microsoft Exchange Server 2003 to consolidate more than 70 messaging sites
worldwide into seven physical locations
In this context, let us look at Microsoft Model Enterprises (MME).

Microsoft Model Enterprises (MME)
Objectives
· Maximising the number of management tasks performed centrally
· Decreasing the number of sites through the consolidation of the smaller locations
into a smaller number of RDCs
· Reducing the total number of infrastructure and application servers
· Standardising infrastructure and devices worldwide
Solution
· Consolidation of 75 tail sites into 6 regional data centers (RDCs) using local storage
area networks (SANs)
· Key Focus Areas
· Proactive, detailed monitoring and analysis of WAN bandwidth utilisation and

latency
· Effective but flexible approach to project planning, scheduling, and cross-group

coordination
· Coordination and control of deployment of successive pre-release versions of Office

System 2003 (including Outlook 2003)
Business Benefits
· Four percent overall direct cost savings
· Key enabler of the Microsoft ME initiative which through fiscal year 2003 has
produced millions in overall consolidation savings including USE
IT Benefits
· Improved server utilisation
· Improved server management
· Strengthened security
· Increased reliability
Q.4 List the various steps for Risk management. Also explain GDM and its key
features.
Risk management may be classified and categorized as:

1. Risk assessment and identification The assessment and identification focuses on
numerating possible risks to the project. Methods that can aid risk identification
include checklists of possible risks, surveys, meetings and brainstorming and reviews
of plans, process and work products. The project manager can also use the process
database to get information about risks and risk management on similar projects.
2. Risk prioritization – focus on the highest risk. Prioritization requires analyzing the
possible effects of the risk event in case it actually occurs. This approach requires a
quantitative assessment of the risk probability and the risk consequences. For each
risk rate the probability of its happening as low, medium or high. If necessary, assign
probability values in the ranges given for each rating. For each risk, assess its impact
on the project as low, medium, high or very high. Rank the risk based on the
probability. Select the top few risk items for mitigation and tracking.
3. Risk Control: The main task is to identify the actions needed to minimize the risk
consequences, generally called risk mitigation steps. Refer to a list of commonly used
risk mitigation steps for various risks from the previous risk logs maintained by the
PM and select a suitable risk mitigation step. The risk mitigation step must be
properly executed by incorporating them into the project schedule. In addition to
monitoring the progress of the planned risk mitigation steps periodically revisit
project. The results of this review are reported in each milestone analysis report. To
prepare this report, make fresh risk analysis to determine whether the priorities
have
Risk Analysis
The first step in risk analysis is to make each risk item more specific. Risks such as,
“Lack of Management buy in,” and “people might leave,” are a little ambiguous. In
these cases the group might decide to split the risk into smaller specific risks, such
as, “manager Jane decides that the project is not beneficial,” “Database expert might
leave,” and “Webmaster might get pulled off the project.” The next step is to set
priorities and determine where to focus risk mitigation efforts. Some of the
identified risks are unlikely to occur, and others might not be serious enough to
worry about. During the analysis, discuss with the team members, each risk item to
understand how devastating it would be if it did occur, and how likely it is to occur.
For example, if you had a
risk of a key person leaving, you might decide that it would have a large impact on
the project, but that it is not very likely. In the process below, we have the group
agree on how likely it thinks each risk item is to occur,using a simple scale from 1 to
10 (where 1 is very unlikely and 10 is very likely). The group then rates how serious
the impact would be if the risk did occur, using a simple scale from 1 to 10 (where 1is
little impact and 10 is very large). To use this numbering scheme, first pick out the
items that rate 1 and 10, respectively. Then rate the other items relative to these
boundaries. To determine the priority of each risk item, calculate the product of the
two values, likelihood and impact. This priority scheme helps push the big risks to
the top of the
list, and the small risks to the bottom. It is a usual practice to analyze risk either by
sensitivity analysis or by probabilistic analysis. In sensitivity analysis a study is done
to analyse the changes in the variable values because of a change in one or more of
the decision criteria. In the probability analysis, the frequency of a particular event
occurring is determined, based on which it average weighted average value is
calculated.
Each outcome of an event resulting in a risk situation in a risk analysis process is

expressed as a probability. Risk analysis can be performed by calculating the
expected value of each alternative and selecting the best alternative.
Ex: Now that the group has assigned a priority to each risk, it is ready to select the
items to mange. Some projects select a subset to take action upon, while others
choose to work on all of Project the items. To get started, you might select the top 3
risks, or the top 20%, based on the priority calculation.
GDM –
The Global Delivery Model (GDM) is adopted by an Industry or Business such that it
has a capability to plan design, deliver and serve to any Customers or Clients
Worldwide with Speed, Accuracy, Economy and Reliability. The key Features of GDM
are ·
Standardization
Modularization
Minimum Customization
Maximum Micro structure
Adoption of a Combination of the Greatest Common Multiple and the Least Common
Factor of a Large Mass of Microbial Components-
a) Standardization - Ingenious Design and Development of Components and

Features which are like to be accepted by 90% of Worldwide Customers.
Global Standards of Design focusing on highly standardized Methods and
Processes of manufacture or Development. Adopt Plug and socket Concepts
with minimum adaptable joints or Connections.
b) Modularization - Product or Solution split up into smallest possible individual

Identifiable Entities, with limited Individual Functioning Capability but
powerful and robust in Combination with other Modules.
c) Minimum Customization - Minimum Changes or Modifications to suit

Individual Customers.
d) Maximum micro structuring - Splitting of the Product Modules further into

much smaller entity identifiable more through characteristics rather than
application Features. Approach through Standardization of these Microbial
Entities even across Multiple Modules. Application of these Microbial Entities
to rest within multiple Projects or Products or even as add-ons suit belated
Customer Needs.
Special Features of GDM
Some of the special features of GDM are ·
• Cuts across Geographical and Time Zone Barriers

• Unimaginable Speeds of Response and Introduction.
• Common Pool of Microbial Components
• Largely Independent of Skill Sets required at Delivery Stages
• Highly automated Processes
• Quality Assurance as a Concurrent rather than a Control Process
• Near Shore Development, Manufacture and Delivery for better Logistics
• Mapping of Economical Zones rather than Geographic Zones
• Continuous Floating virtual Inventory to save Time and Efforts.
Q.5 Answer the two parts:

a. Importance of data management in project management-Comment.
The Role of Effective Data Management in the Success of Project Management
Data management consists of conducting activities which facilitate acquiring data,

processing it and distributing it. Acquisition of data is the primary function.
To be useful, data should have three important characteristics – timeliness,

sufficiency and relevancy. Management of acquisition lies in ensuring that these are
satisfied before they are stored for processing and decisions taken on the analysis.
There should be data about customers, suppliers, market conditions, new

technology, opportunities, human resources, economic activities, government
regulations, political upheavals, all of which affect the way you function. Most of the
data go on changing because the aforesaid sources have uncertainty inherent in
them. So updating data is a very important aspect of their management. Storing
what is relevant in a form that is available to concerned persons is also important.
When a project is underway dataflow from all members of the team will be flowing
with the progress of activities. The data may be about some shortfalls for which the
member is seeking instructions. A project manager will have to analyse them,
discover further data from other sources and see how he can use them and take
decisions. Many times he will have to inform and seek sanction from top
management.
The management will have to study the impact on the overall organisational goals
and strategies and convey their decisions to the manager for implementation. For
example, Bill of Materials is a very important document in Project Management. It
contains details about all materials that go into the project at various stages and has
to be continuously updated as all members of the project depend upon it for
providing materials for their apportioned areas of execution. Since information is
shared by all members, there is an opportunity for utilising some of them when
others do not need them. To ascertain availability at some future point of time,
information about orders placed, backlogs, lead times are important for all the
members. A proper MIS will take care of all these aspects. ERP packages too help in
integrating data from all sources and present them to individual members in the way
they require. When all these are done efficiently the project will have no hold ups an
assure success.
b. What is the significance of reviewing ROI?
ROI - Return on Investment (ROI) is the calculated benefit that an organization is

projected to receive in return for investing money (resources) in a project. Within
the context of the Review Process, the investment would be in an information
system development or enhancement project. ROI information is used to assess the
status of the business viability of the project at key checkpoints throughout the
project’s lifecycle.
ROI may include the benefits associated with improved mission performance,
reduced cost, increased quality, speed, or flexibility, and increased customer and
employee satisfaction. ROI should reflect such risk factors as the project’s technical
complexity, the agency’s management capacity, the likelihood of cost overruns, and
the consequences of under or nonperformance. Where appropriate, ROI should
reflect actual returns observed through pilot projects and prototypes.
ROI should be quantified in terms of dollars and should include a calculation of the
breakeven point (BEP), which is the date when the investment begins to generate a
positive return. ROI should be recalculated at every major checkpoint of a project to
se if the BEP is still on schedule, based on project spending and accomplishments to
date. If the project is behind schedule or over budget, the BEP may move out in time;
if the project is ahead of schedule or under budget the BEP may occur earlier. In
either case, the information is important for decision making based on the value of
the investment throughout the project lifecycle. Any project that has developed a
business case is expected to refresh the ROI at each key project decision point (i.e.,
stage exit) or at least yearly.
Exclusions
If the detailed data collection, calculation of benefits and costs, and capitalization
data from which Return on Investment (ROI) is derived was not required for a
particular project, then it may not be realistic or practical to require the retrofit
calculation of ROI once the project is added to the Review portfolio. In such a case, it
is recommended that a memorandum of record be developed as a substitute for
ROI. The memorandum should provide a brief history of the program, a description
of the major benefits realized to date with as much quantitative data as possible,
and a summary of the process used to identify and select system enhancements.
Some of the major benefits experienced by sites that installed the information
system that would be important to include in the memorandum are:
a) Decommissioning of mainframe computers

b) Reduction/redirection of labour
c) Elimination of redundant systems
d) Ability to more cost effectively upgrade all sites with one standard upgrade
package.
In each case above, identify the specific site, systems, and labour involved in
determining the cited benefit. Identify any costs or dollar savings that are known or
have been estimated. The memorandum will be used as tool for responding to any
future audit inquiries on project ROI.
For the Project Management Review, it is recommended that the project leader
replace the text on the ROI document through -
1) a note stating which stage of its cycle the project is in;
(2) A bulleted list of the most important points from the memorandum of record;
and
(3) a copy of the memorandum of record for the Review repository.
In subsequent Reviews of the information system, the ROI slide can be eliminated
form the package. There is one notable exception to this guidance. Any internal use
software project in the maintenance phase of its lifecycle that adds a new site or
undertakes an enhancement or technology refresh that reaches the cost threshold
established by Standard will need to satisfy capitalization requirements. It requires
all agencies to capitalize items acquired or developed for internal use if the expected
service life is two or more years and its cost meets or exceeds the agency’s threshold
for internal use software. The standard requires capitalization of direct and indirect
costs, including employee salaries and benefits for both Federal and Contractor
employees who materially participate in the Software project. Program managers
are considered to be the source of cost information for internal use software
projects. If capitalization data is collected for the project in the future, the project
would be expected to calculate and track its ROI.
Q.6 XYZ Company implements CMMI level-03. To make further changes it decides
on starting a new division in the organization. It decides to advance the existing
project management. What are the steps to be followed by the organization to
drive project management to a new horizon?
Capability Maturity Model Integration (CMMI) is a process improvement approach

that helps organizations improves their performance. CMMI can be used to guide
process improvement across a project, a division, or an entire organization.
CMMI in software engineering and organizational development is a process

improvement approach that provides organizations with the essential elements for
effective process improvement. CMMI is a trademark owned by Software
Engineering Institute of Carnegie Mellon University.
According to the Software Engineering Institute (SEI, 2008), CMMI helps "integrate
traditionally separate organizational functions, set process improvement goals and
priorities, provide guidance for quality processes, and provide a point of reference
for appraising current processes."[2]
CMMI currently addresses three areas of interest:
1. Product and service development — CMMI for Development (CMMI-DEV),

2. Service establishment, management, and delivery — CMMI for Services
(CMMI-SVC), and
3. Product and service acquisition — CMMI for Acquisition (CMMI-ACQ).
CMMI was developed by a group of experts from industry, government, and the
Software Engineering Institute (SEI) at Carnegie Mellon University. CMMI models
provide guidance for developing or improving processes that meet the business
goals of an organization. A CMMI model may also be used as a framework for
appraising the process maturity of the organization.[1]
CMMI originated in software engineering but has been highly generalised over the
years to embrace other areas of interest, such as the development of hardware
products, the delivery of all kinds of services, and the acquisition of products and
services. The word "software" does not appear in definitions of CMMI. This
generalization of improvement concepts makes CMMI extremely abstract. It is not as
specific to software engineering as its predecessor, the Software CMM.
CMMI was developed by the CMMI project, which aimed to improve the usability of
maturity models by integrating many different models into one framework. The
project consisted of members of industry, government and the Carnegie Mellon
Software Engineering Institute (SEI). The main sponsors included the Office of the
Secretary of Defense (OSD) and the National Defense Industrial Association.
CMMI is the successor of the capability maturity model (CMM) or software CMM.
The CMM was developed from 1987 until 1997. In 2002, CMMI Version 1.1 was
released. Version 1.2 followed in August 2006.
CMMI representation
CMMI exists in two representations: continuous and staged. The continuous

representation is designed to allow the user to focus on the specific processes that
are considered important for the organization's immediate business objectives, or
those to which the organization assigns a high degree of risk. The staged
representation is designed to provide a standard sequence of improvements, and
can serve as a basis for comparing the maturity of different projects and
organizations. The staged representation also provides for an easy migration from
the SW-CMM to CMMI.
CMMI model framework
Depending on the CMMI constellation (acquisition, services, development) used, the

process areas it contains will vary. Key process areas are the areas that will be
covered by the organization's processes. The table below lists the process areas that
are present in all CMMI constellations. This collection of eight process areas is called
the CMMI Model Framework, or CMF.
Capability Maturity Model Integration (CMMI) Model Framework (CMF)

Maturity
Abbreviation Name Area
Level
REQM Requirements Management Engineering 2
Project
PMC Project Monitoring and Control 2
Management
Project
PP Project Planning 2
Management
CM Configuration Management Support 2
MA Measurement and Analysis Support 2
Process and Product Quality
PPQA Support 2
Assurance
Process
OPD Organizational Process Definition 3
Management
CAR Causal Analysis Support 5
Maturity Levels
There are Five maturity levels. However, maturity level ratings are awarded for levels
2 through 5.
Maturity Level 2 - Managed
• CM - Configuration Management
• MA - Measurement and Analysis
• PMC - Project Monitoring and Control
• PP - Project Planning
• PPQA - Process and Product Quality Assurance
• REQM - Requirements Management
• SAM - Supplier Agreement Management
Maturity Level 3 - Defined
• DAR - Decision Analysis and Resolution

• IPM - Integrated Project Management +IPPD
• OPD - Organizational Process Definition +IPPD
• OPF - Organizational Process Focus
• OT - Organizational Training
• PI - Product Integration
• RD - Requirements Development
• RSKM - Risk Management
• TS - Technical Solution
• VAL - Validation
• VER - Verification
Maturity Level 4 - Quantitatively Managed
• QPM - Quantitative Project Management

• OPP - Organizational Process Performance
Maturity Level 5 - Optimizing
• CAR - Causal Analysis and Resolution

• OID - Organizational Innovation and Deployment
CMMI models
CMMI best practices are published in documents called models, each of which
addresses a different area of interest. The current release of CMMI, version 1.2,
provides models for three areas of interest: development, acquisition, and services.
• CMMI for Development (CMMI-DEV), v1.2 was released in August 2006. It

addresses product and service development processes.
• CMMI for Acquisition (CMMI-ACQ), v1.2 was released in November 2007. It
addresses supply chain management, acquisition, and outsourcing processes
in government and industry.
• CMMI for Services (CMMI-SVC), v1.2 was released in February 2009. It
addresses guidance for delivering services within an organization and to
external customers.
• CMMI Product Suite (includes Development, Acquisition, and Services), v1.3

is expected to be released in 2010. CMMI Version 1.3—Plans for the Next
Version
Regardless of which model an organization chooses, CMMI best practices should be

adapted by an organization according to its business objectives.
Appraisal
An organization cannot be certified in CMMI; instead, an organization is appraised.

Depending on the type of appraisal, the organization can be awarded a maturity
level rating (1-5) or a capability level achievement profile.
Many organizations find value in measuring their progress by conducting an

appraisal. Appraisals are typically conducted for one or more of the following
reasons:
1. To determine how well the organization’s processes compare to CMMI best

practices, and to identify areas where improvement can be made
2. To inform external customers and suppliers of how well the organization’s
processes compare to CMMI best practices
3. To meet the contractual requirements of one or more customers
Appraisals of organizations using a CMMI model must conform to the requirements

defined in the Appraisal Requirements for CMMI (ARC) document. There are three
classes of appraisals, A, B and C, which focus on identifying improvement
opportunities and comparing the organization’s processes to CMMI best practices.
Appraisal teams use a CMMI model and ARC-conformant appraisal method to guide
their evaluation of the organization and their reporting of conclusions. The appraisal
results can then be used (e.g., by a process group) to plan improvements for the
organization.
The Standard CMMI Appraisal Method for Process Improvement (SCAMPI) is an

appraisal method that meets all of the ARC requirements.
A class A appraisal is more formal and is the only one that can result in a level rating.
Results of an appraisal may be published (if the appraised organization approves) on
the CMMI Web site of the SEI: Published SCAMPI Appraisal Results. SCAMPI also
supports the conduct of ISO/IEC 15504, also known as SPICE (Software Process
Improvement and Capability Determination), assessments etc.
Achieving CMMI compliance
The traditional approach that organizations often adopt to achieve compliance with
the CMMI involves the establishment of an Engineering Process Group (EPG) and
Process Action Teams (PATs).This approach requires that members of the EPG and
PATs be trained in the CMMI, that an informal (SCAMPI C) appraisal be performed,
and that process areas be prioritized for improvement. More modern approaches
that involve the deployment of commercially available, CMMI-compliant processes,

can significantly reduce the time to achieve compliance. SEI has maintained statistics
on the "time to move up" for organizations adopting the earlier Software CMM and
primarily using the traditional approach.[6] These statistics indicate that, since 1987,
the median times to move from Level 1 to Level 2 is 23 months, and from Level 2 to
Level 3 is an additional 20 months. These statistics have not been updated for the
CMMI.
The Software Engineering Institute’s (SEI) Team Software Process methodology and
the Capability Maturity Modeling framework can be used to raise the maturity level.
Applications
The SEI published that 60 organizations measured increases of performance in the

categories of cost, schedule, productivity, quality and customer satisfaction.[7] The
median increase in performance varied between 14% (customer satisfaction) and
62% (productivity). However, the CMMI model mostly deals with what processes
should be implemented, and not so much with how they can be implemented. These
results do not guarantee that applying CMMI will increase performance in every
organization. A small company with few resources may be less likely to benefit from
CMMI; this view is supported by the process maturity profile (page 10). Of the small
organizations (<25 employees), 70.5% are assessed at level 2: Managed, while 52.8%
of the organizations with 1001–2000 employees are rated at the highest level (5:
Optimizing).
Interestingly, Turner & Jain (2002) argue that although it is obvious there are large
differences between CMMI and agile methods, both approaches have much in
common. They believe neither way is the 'right' way to develop software, but that
there are phases in a project where one of the two is better suited. They suggest one
should combine the different fragments of the methods into a new hybrid method.
Sutherland et al. (2007) assert that a combination of Scrum and CMMI brings more
adaptability and predictability than either one alone. David J. Anderson (2005) gives
hints on how to interpret CMMI in an agile manner. Other viewpoints about using
CMMI and Agile development are available on the SEI Web site.
The combination of the project management technique earned value management

(EVM) with CMMI has been described (Solomon, 2002). To conclude with a similar
use of CMMI, Extreme Programming (XP), a software engineering method, has been
evaluated with CMM/CMMI (Nawrocki et al., 2002). For example, the XP
requirements management approach, which relies on oral communication, was
evaluated as not compliant with CMMI.
CMMI can be appraised using two different approaches: staged and continuous. The
staged approach yields appraisal results as one of five maturity levels. The
continuous approach yields one of six capability levels. The differences in these
approaches are felt only in the appraisal; the best practices are equivalent and result
in equivalent process improvement results
MB0049
Project Management
Assignment Set- 2
Q.1 Providing adequate resource is key to productivity-Comment.
Concept of PMO is gaining ground in Project Management because enterprises need

to optimize resources – especially knowledge and people – across many projects.
Economies are achieved and customer satisfaction gained resulting in more profits
and repeat contracts. The review of projects – their methodology and the important
of interpersonal relations will help in achieving the productivity of the personnel.
Productivity at the junior level can be assumed and controlled only if all other
supporting elements of business are well balanced. Higher productivity cannot be
expected if they are not motivated. Through one of the mail point is
Adequate availability of resources; otherwise frustration sets in and commitment is
lost;
Key elements of a Productivity Improvement Program:

Obtain Upper Management Support. Without top management support, experience
shows a PIP likely will fail. The Chief Executive Officer should issue a clear,
comprehensive policy statement. The statement should be communicated to
everyone in the company. Top management also must be willing to allocate
adequate resources to permit success.
2. Create New Organizational Components. A Steering Committee to oversee the
PIP and Productivity Managers to implement it are essential. The Committee should
be staffed by top departmental executives with the responsibilities of goal setting,
guidance, advice, and general control. The Productivity Managers are responsible for
the day-to-day activities of measurement and analysis. The responsibilities of all
organizational components must be clear and well established.
3. Plan Systematically. Success doesn't just happen. Goals and objectives should be
set, problems targeted and rank ordered, reporting and monitoring requirements
developed, and feedback channels established.
4. Open Communications. Increasing productivity means changing the way things
are done. Desired changes must be communicated. Communication should flow up
and down the business organization. Through publications, meetings, and films,
employees must be told what is going on and how they will benefit.
5. Involve Employees. This is a very broad element encompassing the quality of work
life, worker motivation, training, worker attitudes, job enrichment, quality circles,
incentive systems and much more. Studies show a characteristic of successful,
growing businesses is that they develop a "corporate culture" where employees
strongly identify with and are an important part of company life. This sense of
belonging is not easy to engender. Through basic fairness, employee involvement,
and equitable incentives, the corporate culture and productivity both can grow.
6. Measure and Analyze. This is the technical key to success for a PIP. Productivity
must be defined, formulas and worksheets developed, sources of data identified,
benchmark studies performed, and personnel assigned. Measuring productivity can
be a highly complex task. The goal, however, is to keep it as simple as possible
without distorting and depreciating the data. Measurement is so critical to success, a
more detailed analysis is helpful.
Q.2 Compare the following:

a. Traditional Vs. Projectised Organization.
b. Bottom-up Vs. Top-down estimation
A. Traditional Vs. Projectised Organization.
Traditional organizations: These have the formal organisation structure, with

departments, functions, sections having an hierarchy of managers and their
assistant. All of them function on a continuous basis catering to a series of
requirements issued by the planning department. An assembly of various units of
their production forms a products and a variety of such products make up the
business of the company. No one particular member or a department or a team is
responsible for the completion of any particular product. Their creativity and
innovation is particular respect of jobs. Most of them do not get exposed to other
areas of operations in the organisation. They will become specialists and be insular.
Projectised organizations: These have teams comprising members who are

responsible for completing one completely deliverable product. They will have all the
resources required to do all jobs or operations to complete it. Most importantly,
they have a time schedule within which all the elements of the projects have to be
completed. It has been found that a sense of ‘ownership’ of the project motivates
them for being creative, cooperate among themselves to achieve high productivity.
Traditional Organisations Projectised Organisations

They have the formal organisation structure, They have teams comprising members
with departments, functions, sections having a who are responsible for completing one
hierarchy of managers and their assistants. entire deliverable product.
All of the managers function on a continuous The teams will have all the resources
basis catering to a series of requirements required to finish the jobs.
issued by the planning department.
An assembly of various units of their They have a time schedule within which
production forms a products and a variety of all the elements of the projects have to
such products make up the business of the be completed.
company.
No particular member or a department or a There is greater accountability among
team is responsible for the completion of any team members and everyone is
particular product. Their creativity and responsible for the delivery.
innovation is in particular respect of their jobs.
Most of the members do not get exposed to It is found that a sense of ‘ownership’
other areas of operations in the organisation. of the project motivates team members
They become specialists and insular. to be creative, cooperative among
them to achieve high productivity.
B. Bottom-up Vs. Top-down estimation
Estimation Approaches There are two types of estimation approaches:

Bottom up approach
The bottom up approach consists of the following
Project manager first divides the product under development into major
modules
Each module is subdivided into smaller units
Project manager defines a standard for manufacturing and self-testing as
o Identify modules in the system and classify them as simple, medium

or complex.
o As much as possible, use either the provided standard definitions or

definitions from past projects
o If a project specific baseline exists, get the average build effort for
simple/medium/complex (S/M/C) programs from the baseline.
o If a project specific baseline does not exist, use project type,

technology, language and other attributes to look for similar projects
in process database. Use data from these projects to define the build
effort of S/M/C program.
o If no similar project exist in the process database and no project

specific baseline exist refine the estimates based on project specific
factors.
Top-Down Approach
The top down approach consists of the following
Get the estimate of the total size of the product in function points
Using the productivity data from the project specific capability baseline from
the general process capability baseline, or from similar projects, fix the
productivity level for the project
Obtain the overall effort estimate from the productivity and size estimates.
Use effort distribution data from the process capability baselines or similar
projects to estimate the effort for the various phases. Refine the estimates
taking project specific factors into consideration.
Q.3 List out the macro issues in project management and explain each.
Macro issues in project management
Evolving Key Success Factors (KSF) Upfront: In order to provide complete stability to
fulfillment of goals, one needs to constantly evaluate from time to time , the
consideration of what will constitute the success of completing a project and
assessing its success before completion. The KSF should be evolved based on a basic
consensus document (BCD). KSF will also provide an input to effective exit strategy
(EES). Exit here does not mean exit from the project but from any of the drilled down
elemental activities which may prove to be hurdles rather than contributors. Broad
level of KSF should be available at the conceptual stage and should be firmed up and
detailed out during the planning stage. The easiest way would be for the team to
evaluate each step for chances of success on a scale of ten. KSF should be available
to the management duly approved by the project manager before execution and
control stages. KSF rides above normal consideration of time and cost – at the levels
encompassing client
expectation and management perception – time and cost come into play as
subservient to these major goals.
Empowerment Title (ET): ET reflects the relative importance of members of the

organization at three levels:
Team members empowered to work within limits of their respective

allocated responsibilities – the major change from bureaucratic systems is an
expectation from these members to innovate and contribute to time and
cost.
Group leaders are empowered additionally to actindependently towards
client expectation and are also vested with some limited financial powers.
Managers are empowered further to act independently but to maintain a
scientific balance among time, cost, expectation and perception, apart from
being a virtual advisor to the top management.
Partnering Decision Making (PDM): PDM is a substitute to monitoring and control. A

senior with a better decision making process will work closely with the project
managers as well as members to plan what best can be done to manage the future
better from past experience. The key here is the active participation of members in
the decision making process. The ownership is distributed among all irrespective of
levels – the term equally should be a\voided here since ownership is not
quantifiable. The right feeling of ownership is important. This step is most difficult
since junior members have to respond and resist to being pushed through sheer
innovation and performance – this is how future leaders would emerge. The PDM
process is made scientific through:
i. Earned value management system (EVMS)

ii. Budgeted cost of work scheduled (BCWS)
iii. Budgeted cost of work performed (BCWP)
iv. Actual cost of work performed (ACWP)
Management By Exception (MBE): “No news is good news” . If a member wants help
he or she locates a source and proposed to the manager only if such help is not
accessible for free. Similarly, a member should believe that a team leaders silence is
a sign of approval and should not provoke comments through excessive seeking of
opinions. In short leave people alone and let situation perform the demanding act.
The bend limit of MBE can be evolved depending on the sensitivity of the nature and
size of the project. MBE provides and facilitates better implementation of
effectiveness of empowerment titles .MBE is more important since organizations are
moving toward multi skilled functioning even at junior most levels.
Q.4 Describe the traits of a professional manager in details?
Traits of the professional manager:
The following traits enable a manager to be effective in his functioning. Endowed

with these it will be easy to be effective. The top management will look for these in a
person who they want to employ for project management.
Leadership – These managers lead by exhibiting the characteristics of

leadership. They know what they should do, know why they are doing it,
know how to do it and have the courage and will to do it.They have the
power of taking along with them others.
People Relationships - Any leader without followers cannot be successful.

They have excellent human relationship skills. The manager builds up his
team based on the core values of sincerity, objectivity and dedication. He
ensures that his subordinates get opportunities for growth based on
performance. He makes them a part of the decision making process, thus
ensuring cooperation and commitment during implementation. He delegates
freely and supports them.
Integrity - Highest levels of trust, fairness and honesty are expected while
dealing with people both within an outside the organisation. This includes the
customers, shareholders, dealers, employees, the government and society at
large. They ensure that functioning is clean. Their transactions will be
transparent. Ethics is something they practice diligently.
Quality – The quality philosophy should not cover only the product quality,
but every process that has gone into making it. Economy of words when
instructions are given, acknowledging compliance, arriving on time,
remembering the promises and above all a keen eye for details and patience
tomake others know what they want are components of quality
Customer Orientation - It is now recognized that every organized two sets of

customers. Internal customers are people in the organisation – employees,

directors, team members – any person who needs your services, whose
needs of demands you satisfy. External customers – clients and all members
of society we come in contact in connection with our business. They need our
solutions for their problems. So, the manager’s thinking about any problem is
– what can I do for him and all actions will be in that direction.
Innovation and creativity - Professional managers think beyond the obvious.

They exhibit a keenness to go behind a problem and attempt to find the root
cause of the problem. They will draw from their experience from diverse
fields, seek further information and consider all possible alternatives and
come out with some new and unique solution. This happens when they have
open minds. A saying goes the human mind is like a parachute, it is useful
only when it is open. Such a work culture is very conducive for problem
solving – which is the aim of all creativity. Their persistence will reward them.
Such actions observed by their team members enthuse them and a spirit of
adventure will bring about better solutions faster.
Performance Management The professional manager not only ensures that

his performance is at peak all times, but motivates his entire team to do it.
This comes by appreciation and encouragement. If there any shortfalls he
arranges for training them so that their performance improves. Thus the
team members know that they are expected to perform, that they get help to
do so and their effort is recognized. This is the simple path of performance
management. The following seven step model will be useful:
• Objectives/Performance standards are set.
• These are communicated to the employees.
• Review/monitor the above.
• Check actual performance Vs. Standards set.
• Identify gaps.
• Jointly decide on corrective action, if needed.
• Reset objectives for next period
Objectives/Performance standards are set.
To mange any criterion, it is necessary to measure the factors that were

responsible for ‘what is’. The quality of the input, their quantity and their
intended usage. Then measures of the utilizationthe processes used, their
suitability, and the difficulties faced in utilization and how they were
resolved.
Then the outcomes – are they as they were expected. Performance closer or
beyond expectation is the degree of quality. For every employee the level of
achievement is set in terms of quantities and extent to which the
performance approached the standard. This is the basis for evaluating
performance.
These are communicated to the employees

This procedure ensures that they know what is expected of them and help
them to adjust their activities in such a way as to meet them. This enables
them to seek help, consult their colleagues or bosses, learn– so that they will
meet the expectations. It is possible that some objectives cannot be met at
all. The communication to his boss, may help in reallocating the job, so that
there will be no hiccups at the end of the period
Review/monitor the above

Review helps in resetting the goals when they cannot be achieved for various
reasons – shortage of resources, time etc. By monitoring, the shortfalls can
be made up with the allocation of extra resources, or even diverting the
operation.
Check actual performance Vs. Standards set

This is the evaluation phase. Comparison on every detail is made. Differences
are recorded. Particular areas are chosen for improvement.
Identify gaps
Gaps mean the shortfall in performance standards. The immediate supervisor
is also involved. The extent to which they affect the functions of the job itself
are identified
Jointly decide on corrective action, if needed

There is a possibility that the performance has exceeded the set standards.
But if performance is not good the reasons and extent having been identified,
the course of action for effecting corrections are decided. Giving extra
responsibilities, training, relocation is considered.
Reset objectives for next period

The targets are revised either upward or downward depending on the
conclusion of the appraisal process.
Identification with the organisation A sense of pride and belonging goes with
the “ownership” of the job, the project, team members and organisation.
This is brought about by the culture and communication system in the
organisation. Information sharing brings in trust and promotes
belongingness. The tendency seen is that most managers strongly identify
with their own departments, units or divisions and they lack a sense of
organisation.
In the light of increased competition and ever changing strategies to develop

business orientation, which in effect means every manager should be aware
of the company’s plans, products and policies. An obvious corollary to this is
that the organization’s communication policy too should be conducive to
such information sharing. Today, many organizations are using interventions
such as team building, survey feedback, and other activities, to ensure that
employees build up a strong sense of identity and pride in the organisation
they work for.
Empowering employees: The professional manager should possess the ability

to empower his employees down the line. Many managers are not even
ready to delegate their authority to subordinates and end up only delegating
responsibility. Empowerment is the process by which employees are
encouraged to take decisions pertaining to their area of work. Empowerment
ensures execution of his duties. This leads employees developing a sense of
pride in their jobs. But managers often hesitate to empower their
subordinates as they feel insecure and show a sense of uncertainty. The
professional manager practices empowerment and encourages employees to
grow and develop in their positions.
Coping with changes: It is often said – ‘The only constant in this world is
change’. A professional manager has the ability and capacity to cope with
change. He accepts the fact that change is inevitable and is ready to
implement change at the workplace. To implement change successfully, it is
essential that employees are involved in the implementation of change.
Further the positive and negative consequences of change need to be
discussed and understood before implementation. Thus a professional
manager has the attitude to accept change as a way of life and takes it in his
stride
Q.5 List the major participants of project review process. Also highlight roles and
responsibilities of each.
The following is a list of key participants and their responsibilities in the Project
Management Review Process.
Chief Information Officer (CIO) – conduct project senior management

reviews, monitor project progress, facilitate resolution of related project
issues.
Chief Financial Officer – Approve investments in corporate / major

information systems projects.
Systems Owners – develop or approve project deliverable, present project

status, facilitate resolution of project issues.
Program Managers – develop or approve project deliverables, approve

changes to project scope, ensure project reporting, present project status,
conduct project management reviews, manage project funding and authorize
work activities.
Project Managers - performs day to day project management, develop

project deliverables, prepare project management review and senior
management review presentations, present project status, manage
resolution of project issues.
Corporate management Investment process Program staff – Evaluate major

information systems which receive CMIP funding and prepare report to the
top.
Program Manager – review and comment on project deliverables and work

products, schedule and support the review meetings, provide support to
systems owners and project managers, advise the CIO and associate CIO’s.
Key project stake holders and other invited participants – attend the review
meeting, participate in discussion, provide input as appropriate.
Q.6 ABC organization has been in software business since last 20 years. The senior
management feels that although they are making profits, but the profit on an
average is the same each year. They decide that they would make some additions
to the business and decided to go ahead with development of some high
technology for better profits. Can you suggest some guidelines, which the
management should follow in this venture?
Ans. Every business aims to commence its activities in the foreign market. The
foreign market provides with both opportunities and risks. Therefore some prefer
to enter in to strategic relationships and one such is the Joint Ventures.
A Joint Venture is an entity formed between two or more parties to undertake

economic activity together. The JV parties agree to create, for a finite time, a new
entity and new assets by contributing equity. They then share in the revenues,
expenses, and assets and the control of the enterprise. Therefore the basic
characteristics of joint venture can be summed up as:
1) Based on a Contractual Agreement.
2) Specific limited purpose and duration.
3) Joint Property Interest
4) Common Financial and Intangible goals and objectives.
5) Shared profits, losses, management and control.
Reasons for setting Joint Ventures abroad

The reasons for setting up joint ventures can be contributed to three main factors
and they are:
1. Internal Reasons.
2. Competitive Goals.
3. Strategic Goals.
1. The Internal reasons are as follows:

• Building on company’s strength.
• Spreading on costs and risks.
• Improving access to financial resources.
• Economies of scale and advantages of size.
• Access to new technologies and customers.
• Access to innovative managerial practices.
2. The Competitive Goals are as follows:

• Influencing structural evolution of the industry.
• Defensive response to blurring industry boundaries.
• Creation of stronger competitive units.
• Speed to market.
• Improved Agility.
3. The Strategic Goals are as follows:

• Diversification
• Synergies.
• Transfer of technology/skill
Indian Joint Ventures Abroad

India started opening its economy a decade ago to integrate with global economy.
The business ventures abroad are not a new phenomenon in the independent
India. The initiatives were taken way back in the 1960s with the first ventures of
Birlas in Ethopia in the year 1964. However, it has assumed specific significance
after the Indian government started economic reforms in the year 1991, making
globalization of Indian business an integral part of economic reforms.
Significance of Indian Joint Ventures Abroad

International trade is considered to be imperative for economic development.
Economic borders of various countries have been opened on this premise under the
aegis of world trade organization. In countries, whose economy has moved from
the level of necessity to comforts and luxuries levels, there are increasing
pressures for newer, better and superior products with consistent quality, high
reliability and attractive finish etc. Further, with the labour becoming increasingly
costly, the firms have to go for development of capital intensive technologies. The
huge investments in new product and technology development demands higher
levels of production to ensure operations of the firms above the breakeven point.
The scale of operations required over a period of time reaches a level that is well
above the entire domestic demand in most of the developed countries, which
generally have small population.
The firms thus face the problem of searching new markets and cheaper
sources of raw material, labour and other resources. Their growth and
development, thus, depends upon internationalization of the business.
Advantages and Disadvantages

A business while deciding upon whether to go for a joint venture should make a
thorough analysis on its business goals.
Advantages
• Financial resources can be shared.
• Allows for Investor diversification.
• Reduces local Friction.
• Reduce Fixed costs per product.
• Direct management of business activities.
• Competitive strengths of two parties can be combined.
• A local JV partner knows the market.
• Economic incentives add value to JVs.
Disadvantages
• JV profits are shared.
• Shared technologies can be used beyond JV.
• Local Management of a JV can be unknown
Broadly there are two schemes under which an Indian Party can set up a JV
abroad, namely the Automatic Route and the Normal Route/Approval Route.
Automatic Route
Under the Automatic Route, an Indian Party does not require any prior approval
from the Reserve Bank for setting up a JV abroad (in case of investment in the
financial sector, however, prior approval is required from the concerned regulatory
authority both in India and abroad).
The criteria for direct investment under the Automatic Route are as under:
• The total µfinancial commitment of the Indian Party in JVs in any
country other than Nepal, Bhutan and Pakistan is up to 100% of its net worth and
the investment is in a lawful activity permitted by the host country
• The Indian Party is not on the Reserve Banks exporters caution list /
list of defaulters to the banking system published/ circulated by the Credit
Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the
Enforcement Directorate or any investigative agency or regulatory authority;
• The Indian Party routes all the transactions relating to the
investment in a JV through only one branch of an authorized dealer to be
designated by it.
N ormal Route
Proposals not covered by the conditions under the automatic route require
the prior clearance of the Reserve Bank for which a specific application in form ODI
with the documents prescribed therein is required to be made to RBI.
Requests under the normal route are considered by taking into account
inter alias the prima facie viability of the proposal, business track record of the
promoters, experience and expertise of the promoters, benefits to the country, etc

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www.BeginWithDisbelief.

Production management encompasses all activities which go into conversion of a

Opportunities exist at all stages of the workflow.

The entire system of introduce measures for increasing productivity. However in

Communication, effective review processes and innovative methods will ensure

Computers in design and manufacturing applications make it possible to remove

CAD is particularly valuable in space programs, where many unknown design

CAM, commonly utilized in conjunction with CAD, uses computers to

Computer integrated manufacturing (CIM), a term popularized by Joseph

Industry best practice:

• Financial benchmarking - performing a financial analysis and comparing the

• Benchmarking from an investor perspective- extending the benchmarking

• Performance benchmarking - allows the initiator firm to assess their

• Product benchmarking - the process of designing new products or upgrades to

• Strategic benchmarking - involves observing how others compete. This type is

• Functional benchmarking - a company will focus its benchmarking on a single

• Operational benchmarking - embraces everything from staffing and

In fixed automation or hard automation, where one component is manufactured

Prototyping is a process by which a new product is developed in small number so

Prototypes do meet the specification of the component that enters a product

volumes of different time. Flexibility is also needed to be able to develop new

Quality Control (QC) is a system of routine technical activities, to measure and

Provide routine and consistent checks to ensure data integrity,

Cause and Effect Diagram

Deming’s approach is summarized in his 14 points.

Crosby’s Absolutes of Quality

His absolutes can be listed as under.

The ingredients are:

Project Cycle – A project cycle basically consists of the various activities of

Definition of “Project Management”:

Project Management Definition

As per DIN 69901 (German Organization for Standardization):

Before knowing the reasons of failure we have to know about project.

Now, the reasons are project failure:

Overview of information and communication Technologies (ICT) project:

The important tasks of this phase are as follows:

o Feasibility study: To analyze whether the project is technically,

o Trade off analysis: To understand and examine the various

o Estimation: To estimate the project cost, effort requires for the

o System design: Choose a general design that can fusil the

o Project evolution: Evaluate the project in terms of expected profit,

The phase which involve in the above are:

The project management life cycle:

Necessity and objectives of SCM:

SCM is required by and enterprise as a tow to enhance management

Enhancement of participation level and empowerment level:

Better utilization of resources- men, material, equipment and money.

Steps involved in the implementation of SCM:

Some important aspect of SCM:

Steps of SCM principals:

Customize the logistics networks: In designing their logistics network, companies

Develop a supply chain wide technology strategy: as one of the cornerstones of

Adopt channel spanning performance measures- Excellent supply performance

Facility Planning Process

Planning is the most important function of management. It is important especially,

1. Planning the location of the plant

2. Planning the manufacturing facility layouts

Planning the location of the plant

Figure: Factors influencing plant location

Below are the factors influencing plant location:

1. Availability of land: Availability of land plays an important role in determining the

· Near to the raw material source when there is no loss of weight

· At the market place when there is a loss of weight in the material

· Close to the market when universally available, so as to minimise the transportation