PGDBA Semester II

MB0044 – Production & Operations Management

Q1. Explain in brief the origins of Just In Time. Explain the different types of wastes that can be
eliminated using JIT

Ans. Just in Time (JIT) is a management philosophy aimed at eliminating waste and continuously improving quality. Credit
for developing JIT as a management strategy goes to Toyota. Toyota JIT manufacturing started in the aftermath of World
War II.

Although the history of JIT traces back to Henry Ford who applied Just in Time principles to manage inventory in the Ford
Automobile Company during the early part of the 20th Century, the origins of the JIT as a management strategy traces to
Taiichi Onho of the Toyota Manufacturing Company. He developed Just in Time strategy as a means of competitive
advantage during the post World War II period in Japan.

The post-World War II Japanese automobile industry faced a crisis of existence, and companies such as Toyota looked to
benchmark their thriving American counterparts. The productivity of an American car worker was nine times that of a
Japanese car worker at that time, and Taiichi Onho sought ways to reach such levels.

Two pressing challenges however prevented Toyota from adopting the American way:

1. American car manufacturers made “lots” or a “batch” of a model or a component before switching over to a new
model or component. This system was not suited to the Japanese conditions where a small market required
manufacturing in small quantities.
2. The car pricing policy of US manufacturers was to charge a mark-up on the cost price. The low demand in Japan
led to price resistance. The need of the hour was thus to reduce manufacturing costs to increase profits.

To overcome these two challenges, Taiichi Onho identified waste as the primary evil. The categories of waste identified
included

 overproduction
 inventory or waste associated with keeping dead stock
 time spent by workers waiting for materials to appear in the assembly line
 time spend on transportation or movement
 workers spending more time than necessary processing an item
 waste associated with defective items

Taiichi Onho then sought to eliminate waste through the just-in-time philosophy, where items moved through the
production system only as and when needed.

Q2. What is Value Engineering or Value Analysis? Elucidate five companies which have
incorporated VE with brief explanation.

Ans. Value Engineering(VE), also known as Value Analysis, is a systematic and function-based approach to
improving the value of products, projects, or processes.VE involves a team of people following a structured
process. The process helps team members communicate across boundaries, understand different perspectives,
innovate, and analyze.
 When to use it

Use Value Analysis to analyze and understand the detail of specific situations.

Use it to find a focus on key areas for innovation.

Use it in reverse (called Value Engineering) to identify specific solutions to detail problems.

It is particularly suited to physical and mechanical problems, but can also be used in other areas.

      X  
Quick  Long

X        
Logical  Psychologica
l

X        
Individual  Group

How it works

Value Analysis (and its design partner, Value Engineering) is used to increase the value of products or services
to all concerned by considering the function of individual items and the benefit of this function and balancing
this against the costs incurred in delivering it. The task then becomes to increase the value or decrease the cost.

Q3. Explain different types of Quantitative models. Differentiate between work study and
motion study.

Ans.  Quantitative models are needed for a variety of management tasks, including

(a) identi¯cation of critical variables to use for health monitoring,

(b) antici- pating service level violations by using predictive models, and

(c) on-going op- timization of con¯gurations.

Unfortunately, constructing quantitative models requires specialized skills that are in short supply. Even worse, rapid
changes in provider con¯gurations and the evolution of business demands mean that quantitative models must be updated
on an on-going basis. This paper de-scribes an architecture and algorithms for on-line discovery of quantitativemodels
without prior knowledge of the managed elements. The architecture makes use of an element schema that describes
managed elements using the common information model (CIM). Algorithms are presented for selecting a subset of the
element metrics to use as explanatory variables in a quantitative model and for constructing the quantitative model itself.
We further describe a prototype system based on this architecture that incorporates these algo-rithms. We apply the
prototype to on-line estimation of response times for

DB2 Universal Database under a TPC-W workload. Of the approximately 500 metrics available from the DB2 performance
monitor, our system chooses 3 to construct a model that explains 72% of the variability of response time.

In production and operations management, models refer to any simple representation of  reality in different forms such as
mathematical equations, graphical representation, pictorial representation, and physical models. Thus a model could be the well
known economic order quantity (EOQ) formula, a PERT network chart, a motion picture of an operation, or pieces of strings
stretched on a drawing of a plant layout to study the movement of material. The models help us to analyze and understand the
reality. These also help us to work determine optimal conditions to for decision making. For example, the EOQ formula helps us to
determine the optimum replenishment quantities that minimize the cost of storing plus replenishing.The number of different
models we use in production and operations management run into hundreds, or even more than a thousand. These are really too
many to enumerate in a place like these. I am listing below a random list of broad categories of models used in production and
operations model.

Operations research models. This is actually a very broad classification and covers many of the other categories in the list given here.

o    Inventory models

o    Forecasting models

o    Network models

o    Linear programming models

o    Queuing models

o    Production planning and control models

o    Engineering drawings

o    Photographs and motion pictures used in time and motion studies.

o    Material movement charts

o    Process flow diagrams

o    Systems charts

o    Statistical process control charts.

o    Variance analysis

o    Regression analysis

o    Organization chart

o    Fishbone chart

Work study and motion study

Work study includes a wide field of measurement tools and techniques. Motion study or method study is concerned with analyzing
individual human motions (like get object, put object) with a view to improving motion economy.
Q4. What is Rapid Prototyping? Explain the difference between Automated flow line and Automated assembly
line with examples.

Ans.  Rapid prototyping is the automatic construction of physical objects using additive manufacturing technology. The first
techniques for rapid prototyping became available in the late 1980s and were used to produce models and prototype parts. Today,
they are used for a much wider range of applications and are even used to manufacture production-quality parts in relatively small
numbers. Some sculptors use the technology to produce complex shapes for fine arts exhibitions.

Automated flow lines : When several automated machines are linked by a transfer system which moves the parts by using
handling machines which are also automated, we have an automated flow line. After completing an operation on a machine, the
semi finished parts are moved to the next machine in the sequence determined by the process requirements a flow line is
established. The parts at various stages from raw material to ready for fitment or assembly are processed continuously to attain the
required shapes or acquire special properties to enable them to perform desired functions. The materials need to be moved, held,
rotated, lifted, positioned etc. for completing different operations.
Sometimes, a few of the operations can be done on a single machine with a number of attachments. They are moved further to other
machines for performing further operations. Human intervention may be needed to verify that the operations are 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. One important consideration is to balance times that different machines
take to complete the operations assigned to them. It is necessary to design the machines in such a way that the operation times are
the same throughout the sequence in the flow of the martial. In fixed automation or hard automation, where one component is
manufactured using several operations and machines it is possible to achieve this condition – or very nearly. We assume that
product life cycles are sufficiently stable to invest heavily on the automated flow lines to achieve reduced cost per unit. The global
trends are favouring flexibility in the manufacturing systems. The costs involved in changing the set up of automated flow lines are
high. So, automated flow lines are considered only when the product is required to be made in high volumes over a relatively long
period. Designers now incorporate flexibility in the machines which will take care of small changes in dimensions by making
adjustments or minor changes in the existing machine or layout. The change in movements needed can be achieved by programming
the machines. Provision for extra pallets or tool holders or conveyors are made in the original design to accommodate anticipated
changes. The logic to be followed is to find out whether the reduction in cost per piece justifies the costs of designing, manufacturing
and setting up automated flow lines. Group Technology, Cellular Manufacturing along with conventional Product and Process
Layouts are still resorted to as they allow flexibility for the production system. With methodologies of JIT and Lean Manufacturing
finding importance and relevance in the competitive field of manufacturing, many companies have found that well designed flow
lines suit their purpose well. Flow lines compel engineers to put in place equipments that balance their production rates. It is not
possible to think of inventories (Work
In Process) in a flow line. Bottlenecks cannot be permitted. By necessity, every bottleneck gets focused upon and solutions found to
ease them. Production managers see every bottleneck as an opportunity to hasten the flow and reduce inventories. However, it is
important to note that setting up automated flow lines will not be suitable for many industries

Automated Assembly Lines : All equipments needed to make a finished product are laid out in such a way as to follow the
sequence in which the parts or subassemblies are put together and fitted. Usually, a frame, body, base will be the starting point of an
assembly. The frame itself consists of a construction made up of several components and would have been ‘assembled’ or ‘fabricated’
in a separate bay or plant and brought to the assembly line. All parts or subassemblies are fitted to enable the product to be in
readiness to perform the function it was designed to. This process is called assembly.
Methodologies of achieving the final result may vary, but the basic principle is to fit all parts together and ensure linkages so that
their functions are integrated and give out the desired output. Product Layouts are designed so that the assembly tasks are
performed in the sequence they are designed. You will note that the same task gets repeated at each station continuously. The
finished item comes out at the end of the line
The material goes from station 1 to 5 sequentially. Operation 2 takes longer time, say twice as long. To see that the flow is kept at the
same pace we provide two locations 2a and 2b so that operations 3, 4 an 5 need not wait. At 5, we may provide more personnel to
complete operations. The time taken at any of the locations should be the same. Otherwise the flow is interrupted. In automated
assembly lines the moving pallets move the materials from station to station and moving arms pick up parts, place them at specified
places and fasten them by pressing, riveting, screwing or even welding. Sensors will keep track of these activities and move the
assemblies to the next stage. An operator will oversee that the assemblies are happening and there are no stoppages. The main
consideration for using automated assembly lines is that the volumes justify the huge expenses involved in setting

Up the system.

Q5.Explain Break Even Analysis and Centre of Gravity methods. Explain Product layout and process
layout with examples.

Ans.  Break Even Analysis refers to the calculation to determine how much product a company must sell in order to break even on
that product. It is an effective analysis to measure the impact of different marketing decisions. It can focus on the product, or
incremental changes to the product to determine the potential outcomes of marketing tactics. The formula for a break even analysis
is:

Break even point ($) = (Total Fixed Costs + Total Variable Costs).
Total Variable Costs = Variable cost per unit x units sold
Unit contribution (contribution margin) = Price per unit – Variable cost per unit.

When looking at making a change to the marketing program, one can calculate the incremental break even volume, to determine the
merits of the change. This determines the required volume needed such

that there is no effect to the company due to the change.

If making changes to fixed costs (changing advertising expenditure etc.):
Incremental break even volume = change in expenditure / unit contribution.
Thus if a company increased its advertising expenditure by $1 million, and its unit contribution for the specific product is $20, then
the company would need to sell an additional 50,000 units to break even on the decision.
If making changes to the unit contribution (change in price, or variable costs):
Incremental break even volume = (Old Unit Volume x (Old Unit Contribution – New Unit Contribution)) / New Unit Contribution
Thus if a company increased its price from $15 to $20, and had variable costs of $10, it is increasing its unit contribution from $5 to
$10, assume also an old unit volume of 1 million. It could therefore reduce its volume by 500,000 to break even on the decision.
When making changes to a specific product, cannibalization of other products may occur. To calculate the effect of cannibalization,
the Break Even Cannibalization rate for a change in a product is:
New Product Unit Contribution / Old Product Unit Contribution.
New Product is the planned addition to a product line (or change to a product within a product line), Old Product is the product that
loses sales to the new product (or the product line that loses sales). The cannibalization rate refers to the percentage of new product
that would have gone to the old product, this must be lower than the break even cannibalization rate in order for the change to be
profitable.

In manufacturing, facility layout consists of configuring the plant site with lines, buildings, major facilities, work areas, aisles, and
other pertinent features such as department boundaries. While facility layout for services may be similar to that for manufacturing,
it also may be somewhat different—as is the case with offices, retailers, and warehouses. Because of its relative permanence, facility
layout probably is one of the most crucial elements affecting efficiency. An efficient layout can reduce unnecessary material
handling, help to keep costs low, and maintain product flow through the facility.
Firms in the upper left-hand corner of the product-process matrix have a process structure known as a jumbled flow or a
disconnected or intermittent line flow. Upper-left firms generally have a process layout. Firms in the lower right-hand corner of the
product-process matrix can have a line or continuous flow. Firms in the lower-right part of the matrix generally have a product
layout. Other types of layouts include fixed-position, combination, cellular, and certain types of service layouts.

PROCESS LAYOUT
Process layouts are found primarily in job shops, or firms that produce customized, low-volume products that may require different
processing requirements and sequences of operations. Process layouts are facility configurations in which operations of a similar
nature or function are grouped together. As such, they occasionally are referred to as functional layouts. Their purpose is to process
goods or provide services that involve a variety of processing requirements. A manufacturing example would be a machine shop. A
machine shop generally has separate departments where general-purpose machines are grouped together by function (e.g., milling,
grinding, drilling, hydraulic presses, and lathes). Therefore, facilities that are configured according to individual functions or
processes have a process layout. This type of layout gives the firm the flexibility needed to handle a variety of routes and process
requirements. Services that utilize process layouts include hospitals, banks, auto repair, libraries, and universities.

Improving process layouts involves the minimization of transportation cost, distance, or time. To accomplish this some firms use
what is known as a Muther grid, where subjective information is summarized on a grid displaying various combinations of
department, work group, or machine pairs. Each combination (pair), represented by an intersection on the grid, is assigned a letter
indicating the importance of the closeness of the two (A = absolutely necessary; E = very important; I = important; O = ordinary
importance; U = unimportant; X = undesirable). Importance generally is based on the shared use of facilities, equipment, workers or
records, work flow, communication requirements, or safety requirements. The departments and other elements are then assigned to
clusters in order of importance.

Advantages of process layouts include:

 Flexibility. The firm has the ability to handle a variety of processing requirements.
 Cost. Sometimes, the general-purpose equipment utilized may be less costly to purchase and less costly and easier to
maintain than specialized equipment.
 Motivation. Employees in this type of layout will probably be able to perform a variety of tasks on multiple machines, as
opposed to the boredom of performing a repetitive task on an assembly line. A process layout also allows the employer to use
some type of individual incentive system.
 System protection. Since there are multiple machines available, process layouts are not particularly vulnerable to
equipment failures.

Disadvantages of process layouts include:

 Utilization. Equipment utilization rates in process layout are frequently very low, because machine usage is dependent upon
a variety of output requirements.
 Cost. If batch processing is used, in-process inventory costs could be high. Lower volume means higher per-unit costs. More
specialized attention is necessary for both products and customers. Setups are more frequent, hence higher setup costs.
Material handling is slower and more inefficient. The span of supervision is small due to job complexities (routing, setups,
etc.), so supervisory costs are higher. Additionally, in this type of layout accounting, inventory control, and purchasing
usually are highly involved.
 Confusion. Constantly changing schedules and routings make juggling process requirements more difficult.

PRODUCT LAYOUT
Product layouts are found in flow shops (repetitive assembly and process or continuous flow industries). Flow shops produce high-
volume, highly standardized products that require highly standardized, repetitive processes. In a product layout, resources are
arranged sequentially, based on the routing of the products. In theory, this sequential layout allows the entire process to be laid out
in a straight line, which at times may be totally dedicated to the production of only one product or product version. The flow of the
line can then be subdivided so that labor and equipment are utilized smoothly throughout the operation.

Two types of lines are used in product layouts: paced and unpaced. Paced lines can use some sort of conveyor that moves output
along at a continuous rate so that workers can perform operations on the product as it goes by. For longer operating times, the
worker may have to walk alongside the work as it moves until he or she is finished and can walk back to the workstation to begin
working on another part (this essentially is how automobile manufacturing works).

On an unpaced line, workers build up queues between workstations to allow a variable work pace. However, this type of line does
not work well with large, bulky products because too much storage space may be required. Also, it is difficult to balance an extreme
variety of output rates without significant idle time. A technique known as assembly-line balancing can be used to group the
individual tasks performed into workstations so that there will be a reasonable balance of work among the workstations.

Product layout efficiency is often enhanced through the use of line balancing. Line balancing is the assignment of tasks to
workstations in such a way that workstations have approximately equal time requirements. This minimizes the amount of time that
some workstations are idle, due to waiting on parts from an upstream process or to avoid building up an inventory queue in front of
a downstream process.

Advantages of product layouts include:

 Output. Product layouts can generate a large volume of products in a short time.
 Cost. Unit cost is low as a result of the high volume. Labor specialization results in reduced training time and cost. A wider
span of supervision also reduces labor costs. Accounting, purchasing, and inventory control are routine. Because routing is
fixed, less attention is required.
 Utilization. There is a high degree of labor and equipment utilization.

Disadvantages of product layouts include:

 Motivation. The system’s inherent division of labor can result in dull, repetitive jobs that can prove to be quite stressful.
Also, assembly-line layouts make it very hard to administer individual incentive plans.
 Flexibility. Product layouts are inflexible and cannot easily respond to required system changes—especially changes in
product or process design.
 System protection. The system is at risk from equipment breakdown, absenteeism, and downtime due to preventive
maintenance.

PGDBA Semester II

MB0045 – Financial Management

Q1.  What are the 4 finance decisions taken by a finance manager.

Ans. A firm performs finance functions simultaneously and continuously in the normal
course of the business. They do not necessarily occur in a sequence. Finance
functions call for skilful planning, control and execution of a firm’s activities.
Let us note at the outset hat shareholders are made better off by a financial
decision that increases the value of their shares, Thus while performing the
finance function, the financial manager should strive to maximize the market
value of shares. Whatever decision does a manger takes need to result in
wealth maximization of a shareholder.
Investment Decision

Investment decision or capital budgeting involves the decision of allocation of

capital or commitment of funds to long-term assets that would yield benefits in
the future. Two important aspects of the investment decision are:
(a) the evaluation of the prospective profitability of new investments, and
(b) the measurement of a cut-off rate against that the prospective return of new
investments could be compared. Future benefits of investments are difficult to
measure and cannot be predicted with certainty. Because of the uncertain future,
investment decisions involve risk. Investment proposals should, therefore, be
evaluated in terms of both expected return and risk. Besides the decision for
investment managers do see where to commit funds when an asset becomes less
productive or non-profitable.

There is a broad agreement that the correct cut-off rate is the required rate of
return or the opportunity cost of capital. However, there are problems in
computing the opportunity cost of capital in practice from the available data and
information. A decision maker should be aware of capital in practice from the
available data and information. A decision maker should be aware of these
problems.

Financing Decision

Financing decision is the second important function to be performed by the

financial manager. Broadly, her or she must decide when, where and how to
acquire funds to meet the firm’s investment needs. The central issue before him
or her is to determine the proportion of equity and debt. The mix of debt and
equity is known as the firm’s capital structure. The financial manager must strive
to obtain the best financing mix or the optimum capital structure for his or her
firm. The firm’s capital structure is considered to be optimum when the market
value of shares is maximized. The use of debt affects the return and risk of
shareholders; it may increase the return on equity funds but it always increases
risk. A proper balance will have to be struck between return and risk. When the
shareholders’ return is maximized with minimum risk, the market value per share
will be maximized and the firm’s capital structure would be considered optimum.
Once the financial manager is able to determine the best combination of debt and
equity, he or she must raise the appropriate amount through the best available
sources. In practice, a firm considers many other factors such as control, flexibility
loan convenience, legal aspects etc. in deciding its capital structure.

Dividend Decision

Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distribute all profits, or retain them, or distribute
a portion and retain the balance. Like the debt policy, the dividend policy should
be determined in terms of its impact on the shareholders’ value. The optimum
dividend policy is one that maximizes the market value of the firm’s shares. Thus
if shareholders are not indifferent to the firm’s dividend policy, the financial
manager must determine the optimum dividend – payout ratio. The payout ratio is
equal to the percentage of dividends to earnings available to shareholders. The
financial manager should also consider the questions of dividend stability, bonus
shares and cash dividends in practice. Most profitable companies pay cash
dividends regularly. Periodically, additional shares, called bonus share (or stock
dividend), are also issued to the existing shareholders in addition to the cash
dividend.

Liquidity Decision

Current assets management that affects a firm’s liquidity is yet another important
finances function, in addition to the management of long-term assets. Current assets
should be managed efficiently for safeguarding the firm against the dangers of
illiquidity and insolvency. Investment in current assets affects the firm’s profitability.
Liquidity and risk. A conflict exists between profitability and liquidity while managing
current assets. If the firm does not invest sufficient funds in current assets, it may
become illiquid. But it would lose profitability, as idle current assets would not earn
anything. Thus, a proper trade-off must be achieved between profitability and
liquidity. In order to ensure that neither insufficient nor unnecessary funds are
invested in current assets, the financial manager should develop sound techniques of
managing current assets. He or she should estimate firm’s needs for current assets and
make sure that funds would be made available when needed.
It would thus be clear that financial decisions directly concern the firm’s decision to
acquire or dispose off assets and require commitment or recommitment of funds on a
continuous basis. It is in this context that finance functions are said to influence
production, marketing and other functions of the firm. This, in consequence, finance
functions may affect the size, growth, profitability and risk of the firm, and
ultimately, the value of the firm. To quote Ezra Solomon
The function of financial management is to review and control decisions to commit or
recommit funds to new or ongoing uses. Thus, in addition to raising funds, financial
management is directly concerned with production, marketing and other functions,
within an enterprise whenever decisions are about the acquisition or distribution of
assets.
Various financial functions are intimately connected with each other. For instance,
decision pertaining to the proportion in which fixed assets and current assets are
mixed determines the risk complexion of the firm. Costs of various methods of
financing are affected by this risk. Likewise, dividend decisions influence financing
decisions and are themselves influenced by investment decisions.

In view of this, finance manager is expected to call upon the expertise of other
functional managers of the firm particularly in regard to investment of funds.
Decisions pertaining to kinds of fixed assets to be acquired for the firm, level of
inventories to be kept in hand, type of customers to be granted credit facilities,
terms of credit should be made after consulting production and marketing
executives.
However, in the management of income finance manager has to act on his own.
The determination of dividend policies is almost exclusively a finance function. A
finance manager has a final say in decisions on dividends than in asset
management decisions.

Financial management is looked on as cutting across functional even disciplinary

boundaries. It is in such an environment that finance manager works as a part of
total management. In principle, a finance manager is held responsible to handle all
such problem: that involve money matters. But in actual practice, as noted above,
he has to call on the expertise of those in other functional areas to discharge his
responsibilities effectively.

Q.2 What are the factors that affect the financial plan of a company?

Ans. To help your organization succeed, you should develop a plan that needs to be followed. This applies to starting the company,
developing new product, creating a new department or any undertaking that affects the company’s future. There are several factors
that affect planning in an organization. To create an efficient plan, you need to understand the factors involved in the planning
process.

 Priorities

In most companies, the priority is generating revenue, and this priority can sometimes interfere with the planning process of any
project. For example, if you are in the process of planning a large expansion project and your largest customer suddenly threatens to
take their business to your competitor, then you might have to shelve the expansion planning until the customer issue is resolved.
When you start the planning process for any project, you need to assign each of the issues facing the company a priority rating. That
priority rating will determine what issues will sidetrack you from the planning of your project, and which issues can wait until the
process is complete.

Company Resources

Having an idea and developing a plan for your company can help your company to grow and succeed, but if the company does not
have the resources to make the plan come together, it can stall progress. One of the first steps to any planning process should be an
evaluation of the resources necessary to complete the project, compared to the resources the company has available. Some of the
resources to consider are finances, personnel, space requirements, access to materials and vendor relationships.

Forecasting

A company constantly should be forecasting to help prepare for changes in the marketplace. Forecasting sales revenues, materials
costs, personnel costs and overhead costs can help a company plan for upcoming projects. Without accurate forecasting, it can be
difficult to tell if the plan has any chance of success, if the company has the capabilities to pull off the plan and if the plan will help to
strengthen the company’s standing within the industry. For example, if your forecasting for the cost of goods has changed due to a
sudden increase in material costs, then that can affect elements of your product roll-out plan, including projected profit and the
long-term commitment you might need to make to a supplier to try to get the lowest price possible.

Contingency Planning

To successfully plan, an organization needs to have a contingency plan in place. If the company has decided to pursue a new product
line, there needs to be a part of the plan that addresses the possibility that the product line will fail. The reallocation of company
resources, the acceptable financial losses and the potential public relations problems that a failed product can cause all need to be
part of the organizational planning process from the beginning

 ·Photo Credits

Q.3 Show the relationship between required rate of return and coupon rate on the value of a bond.

Ans. It is important for prospective bond buyers to know how to determine the price of a bond because it will indicate the yield
received should the bond be purchased. In this section, we will run through some bond price calculations for various types of bond
instruments.

Bonds can be priced at a premium, discount, or at par. If the bond’s price is higher than its par value, it will sell at a premium
because its interest rate is higher than current prevailing rates. If the bond’s price is lower than its par value, the bond will sell at a
discount because its interest rate is lower than current prevailing interest rates. When you calculate the price of a bond, you are
calculating the maximum price you would want to pay for the bond, given the bond’s coupon rate in comparison to the average rate
most investors are currently receiving in the bond market. Required yield or required rate of return is the interest rate that a security
needs to offer in order to encourage investors to purchase it. Usually the required yield on a bond is equal to or greater than the
current prevailing interest rates.

Fundamentally, however, the price of a bond is the sum of the present values of all expected coupon payments plus the present value
of the par value at maturity. Calculating bond price is simple: all we are doing is discounting the known future cash flows.
Remember that to calculate present value (PV) – which is based on the assumption that each payment is re-invested at some interest
rate once it is received–we have to know the interest rate that would earn us a known future value. For bond pricing, this interest
rate is the required yield. (If the concepts of present and future value are new to you or you are unfamiliar with the calculations,
refer to Understanding the Time Value of Money.)

Here is the formula for calculating a bond’s price, which uses the basic present value (PV) formula:

C = coupon payment
n = number of payments
i = interest rate, or required yield
M = value at maturity, or par value

The succession of coupon payments to be received in the future is referred to as an ordinary annuity, which is a series of fixed
payments at set intervals over a fixed period of time. (Coupons on a straight bond are paid at ordinary annuity.) The first payment of
an ordinary annuity occurs one interval from the time at which the debt security is acquired. The calculation assumes this time is the
present.

You may have guessed that the bond pricing formula shown above may be tedious to calculate, as it requires adding the present
value of each future coupon payment. Because these payments are paid at an ordinary annuity, however, we can use the shorter PV-
of-ordinary-annuity formula that is mathematically equivalent to the summation of all the PVs of future cash flows. This PV-of-
ordinary-annuity formula replaces the need to add all the present values of the future coupon. The following diagram illustrates how
present value is calculated for an ordinary annuity:

Each full moneybag on the top right represents the fixed coupon payments (future value) received in periods one, two and three.
Notice how the present value decreases for those coupon payments that are further into the future the present value of the second
coupon payment is worth less than the first coupon and the third coupon is worth the lowest amount today. The farther into the
future a payment is to be received, the less it is worth today – is the fundamental concept for which the PV-of-ordinary-annuity
formula accounts. It calculates the sum of the present values of all future cash flows, but unlike the bond-pricing formula we saw
earlier, it doesn’t require that we add the value of each coupon payment. (For more on calculating the time value of annuities, see
Anything but Ordinary: Calculating the Present and Future Value of Annuities and Understanding the Time Value of Money. )

By incorporating the annuity model into the bond pricing formula, which requires us to also include the present value of the par
value received at maturity, we arrive at the following formula:

Let’s go through a basic example to find the price of a plain vanilla bond.

Example 1: Calculate the price of a bond with a par value of $1,000 to be paid in ten years, a coupon rate of 10%, and a required
yield of 12%. In our example we’ll assume that coupon payments are made semi-annually to bond holders and that the next coupon
payment is expected in six months. Here are the steps we have to take to calculate the price:

1. Determine the Number of Coupon Payments: Because two coupon payments will be made each year for ten years, we will
have a total of 20 coupon payments.

2. Determine the Value of Each Coupon Payment: Because the coupon payments are semi-annual, divide the coupon rate in
half. The coupon rate is the percentage off the bond’s par value. As a result, each semi-annual coupon payment will be $50 ($1,000
X 0.05).

3. Determine the Semi-Annual Yield: Like the coupon rate, the required yield of 12% must be divided by two because the
number of periods used in the calculation has doubled. If we left the required yield at 12%, our bond price would be very low and
inaccurate. Therefore, the required semi-annual yield is 6% (0.12/2).

4. Plug the Amounts Into the Formula:

From the above calculation, we have determined that the bond is selling at a discount; the bond price is less than its par value
because the required yield of the bond is greater than the coupon rate. The bond must sell at a discount to attract investors, who
could find higher interest elsewhere in the prevailing rates. In other words, because investors can make a larger return in the
market, they need an extra incentive to invest in the bonds.

Accounting for Different Payment Frequencies

In the example above coupons were paid semi-annually, so we divided the interest rate and coupon payments in half to represent the
two payments per year. You may be now wondering whether there is a formula that does not require steps two and three outlined
above, which are required if the coupon payments occur more than once a year. A simple modification of the above formula will
allow you to adjust interest rates and coupon payments to calculate a bond price for any payment frequency:

Notice that the only modification to the original formula is the addition of  “F”, which represents the frequency of coupon payments,
or the number of times a year the coupon is paid. Therefore, for bonds paying annual coupons, F would have a value of one. Should a
bond pay quarterly payments, F would equal four, and if the bond paid semi-annual coupons, F would be two.

Q.4 Discuss the implication of financial leverage for a firm.

Ans.  The financial leverage implies the employment of source of funds, involving fixed return so as to cause more than a
proportionate change in earnings per share (EPS) due to change in operating profits. Like the operating leverage, financial leverage
can be positive when operating profits are increasing and can be negative in the situation of decrease in such profits. In view of
these, financial leverage will affect the financial risk of the firm. An important analytical tool for financial leverage is the indifference
point at which the EPS/market price is the same for different financial plans under consideration.

The objective of this study was to provide additional evidence on the relationship between financial leverage and the market value of
common stock. Numerous empirical studies have been done in this area, and, concurrently, many theories have been developed to
explain the relationship between financial leverage and the market value of common stock. Because of the methodological
weaknesses of past studies, however, no conclusions can be drawn as to the validity of the theories. Theories on financial leverage
may be classified into three categories: irrelevance theorem, rising from value indefinitely with increase in financial leverage, and
optimal financial leverage. Empirical implications of these categories along with the consequences of serious confounding effects are
analyzed. The implications are then compared with evidence from actual events involving financial leverage changes, and
distinguished from each other as finely as possible, using simple and multiple regression analyses, normal Z-test, and a simulation
technique. The evidence shows that changes in the market value of common stock are positively related to changes in financial
leverage for some firms and negatively related for other firms. This evidence is consistent with the existence of an optimal financial
leverage for each firm, assuming that financial leverages of firms with a positive relationship are below the optimum and those of
firms with a negative relationship are above the optimum. The results of the study do not depend upon the definition of the market
portfolio, the definition of the event period, or the choice of financial leverage measure. Betas estimated from equally weighted
market portfolios were generally higher than those estimated from value weighted market portfolios during 1981-1982. However,
the results of the study were the same for both portfolios. Abnormal returns were computed for seven and two day event periods,
and the results were the same for both periods. Seven different definitions of financial leverage were tested, and the results were the
same for all measures.

PGDBA -Semester II
 MB0046 – Marketing Management

Q.1 What is Marketing Information System? Explain its characteristics, benefits and information types.

Ans. A Marketing Information System can be defined as ‘a system in which marketing information is formally gathered, stored,
analysed and distributed to managers in accord with their informational needs on a regular basis’.

Set of procedures and practices employed in analyzing and assessing marketing information, gathered continuously from sources
inside and outside of a firm. Timely marketing information provides basis for decisions such as product development or
improvement, pricing, packaging, distribution, media selection, and promotion.

Characteristics of MIS

Philip Kotler defines MIS as “a system that consists of people, equipment and procedures to gather,

sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision

makers.

Its characteristics are as follows:

1. It is a planned system developed to facilitate smooth and continuous flow of information.

2. It provides pertinent information, collected from sources both internal and external to the company, for use as the basis of
marketing decision making.

3. It provides right information at the right time to the right person.

A well designed MIS serves as a company’s nerve centre, continuously monitoring the market

environment both inside and outside the organization. In the process, it collects lot of data and stores

in the form of a database which is maintained in an organized manner. Marketers classify and

analyze this data from the database as needed.

Benefits of MIS(Marketing Information System)

 
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.

Types of Marketing Information

A Marketing Information System supplies three types of information.

1. Recurrent Information is the data that MIS supplies periodically at a weekly, monthly, quarterly,

or annual interval. This includes data such as sales, Market Share, sales call reports, inventory levels, payables, and receivables etc.
which are made available regularly. Information on customer awareness of company’s brands, advertising campaigns and similar
data on close competitors can also be provided.

2. Monitoring Information is the data obtained from regular scanning of certain sources such as trade journals and other
publications. Here relevant data from external environment is captured to monitor changes and trends related to marketing
situation. Data about competitors can also be part of this category. Some of these data can be purchased at a price from commercial
sources such as Market Research agencies or from Government sources.

3. Problem related or customized information is developed in response to some specific requirement related to a marketing
problem or any particular data requested by a manager. Primary Data or Secondary Data (or both) are collected through survey
Research in response to specific need. For example, if the company has developed a new product, the marketing manager may want
to find out the opinion of the target customers before launching the product in the market. Such data is generated by conducting a
market research study with adequate sample size, and the findings obtained are used to help decide whether the product is accepted
and can be launched.

Q.2 a. Examine how a firm’s macro environment operates. 

b. Mention the key points in Psychoanalytic model of consumer behaviour.

Ans.  The term micro-environment denotes those elements over which the marketing firm has control or which it can use in order
to gain information that will better help it in its marketing operations. In other words, these are elements that can be manipulated,
or used to glean information, in order to provide fuller satisfaction to the company’s customers. The objective of marketing
philosophy is to make profits through satisfying customers. This is accomplished through the manipulation of the variables over
which a company has control in such a way as to optimise this objective. The variables are what Neil Borden has termed ‘the
marketing mix’ which is a combination of all the ‘ingredients’ in a ‘recipe’ that is designed to prove most attractive to customers. In
this case the ingredients are individual elements that marketing can manipulate into the most appropriate mix. E Jerome McCarthy
further dubbed the variables that the company can control in order to reach its target market the ‘four Ps’. Each of these is discussed
in detail in later chapters, but a brief discussion now follows upon each of these elements of the marketing mix together with an
explanation of how they fit into the overall notion of marketing.

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:

 Political
 Economic
 Social
 Technological

The acronym PEST (or sometimes rearranged as “STEP”) is used to describe a framework for the analysis of these
macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

    Environmental Scan

          /
  \

    Internal
External Analysis
Analysis

/                       \

Macroenvironment  Microenvironment 

  P.E.S.T.

Political Factors

Political factors include government regulations and legal issues and define both formal and informal rules under which the firm
must operate. Some examples include:

 tax policy
 employment laws
 environmental regulations
 trade restrictions and tariffs
 political stability

Economic Factors

Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. The following are examples of
factors in the macroeconomy:

 economic growth
 interest rates
 exchange rates
 inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer needs
and the size of potential markets. Some social factors include:

 health consciousness
 population growth rate
 age distribution
 career attitudes
 emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions.
Some technological factors include:

 R&D activity
 automation
 technology incentives
 rate of technological change

External Opportunities and Threats

The PEST factors combined with external micro environmental factors can be classified as opportunities and threats in a SWOT
analysis.

The Psychoanalytical Model: The psychoanalytical model draws from Freudian Psychology.

According to this model, the individual consumer has a complex set of deep-seated motives which drive him towards certain buying
decisions. The buyer has a private world with all his hidden fears, suppressed desires and totally subjective longings. His buying
action can be influenced by appealing to these desires and longings. The psychoanalytical theory is attributed to the work of eminent
psychologist Sigmund Freud. Freud introduced personality as a motivating force in human behavior.

According to this theory, the mental framework of a human being is composed of three elements, namely,

1. The id or the instinctive, pleasure seeking element. It is the reservoir of the instinctive impulses that a man is born with and whose
processes are entirely subconscious. It includes the aggressive, destructive and sexual impulses of man.

2. The superego or the internal filter that presents to the individual the behavioral expectations of society. It develops out of the id,
dominates the ego and represents the inhibitions of instinct which is characteristic of man. It represents the moral and ethical
elements, the conscience.

3. The ego or the control device that maintains a balance between the id and the superego. It is the most superficial portion of the id.
It is modified by the influence of the outside world. Its processes are entirely conscious because it is concerned with the perception
of the outside world.

The basic theme of the theory is the belief that a person is unable to satisfy all his needs within the bounds of society. Consequently,
such unsatisfied needs create tension within an individual which have to be repressed. Such repressed tension is always said to exist
in the subconscious and continues to influence consumer behavior.

4. The Sociological Model: According to the sociological model, the individual buyer is influenced by society or intimate groups
as well as social classes. His buying decisions are not totally governed by utility; He has a desire to emulate, follow and fit in with his
immediate environment.

5. The Nicosia Model: In recent years, some efforts have been made by marketing scholars to build buyer behavior models totally
from the marketing man’s standpoint. The Nicosia model and the Howard and Sheth model are two important models in this
category. Both of them belong to the category called the systems model, where the human being is analyzed as a system with stimuli
as the input to the system and behavior as the output of the system. Francesco Nicosia, an expert in consumer motivation and
behavior put forward his model of buyer behavior in 1966.

The model tries to establish the linkages between a firm and its consumer – how the activities of the firm influence the consumer
and result in his decision to buy. The messages from the firm first influence the predisposition of the consumer towards the product.
Depending on the situation, he develops a certain attitude towards the product. It may lead to a search for the product or an
evaluation of the product. If these steps have a positive impact on him, it may result in a decision to buy. This is the sum and
substance of the ‘activity explanations’ in the Nicosia Model. The

Nicosia Model groups these activities into four basic fields. Field one has two subfields the firm’s attributes and the consumer’s
attributes. An advertising message from the firm reaches the consumer’s attributes. Depending on the way the message is received
by the consumer, a certain attribute may develop, and this becomes the input for Field Two. Field Two is the area of search and
evaluation of the advertised product and other alternatives. If this process results in a motivation to buy, it becomes the input for
Field Three. Field Three consists of the act of purchase. And Field Four consists of the use of the purchased item.

Q.3 Explain the key roles played and various steps involved in organizational buying.

Ans.
Point 1 – Introduction.

The need for an understanding of the organizational buying process has grown in recent years due to the many competitive
challenges presented in business-to-business markets. Since 1980 there have been a number ofkey changes in this area, including
the growth of outsourcing, the increasing power enjoyed by purchasing departments and the importance  given to developing
partnerships with suppliers.

Point 2 – The organizational buying behaviour process.

The organizational buying behaviour process is well documented with many models depicting the various phases, the members
involved, and the decisions made in each phase. The basic five phase model can be extended to eight; purchase initiation;
evaluations criteria formation; information search; supplier definition for RFQ; evaluation of quotations; negotiations; suppliers
choice; and choice implementation (Matbuy, 1986).

Point 3 – The buying centre. The buying centre consists of those people in the organizational who are  involved directly or indirectly
in the buying process, i.e. the user, buyer influencer, decider and gatekeeper to who the role of ‘initiator’ has also been added. The
buyers in the process are subject to a wide variety and complexity of buying motives and rules of selection. The Matbuy model
encourages marketers to focus their efforts on who is making what decisions based on which criteria.

Point 4 – Risk and uncertainty –

The driving forces of organizational buying behaviour. This is concerned with the role of risk or uncertainty on buying behaviour.
The level of risk depends upon the characteristics of the buying situation faced. The supplier can influence the degree of perceived
uncertainty by the buyer and cause certain desired behavioural reactions by the use of information and the implementation of
certain

actions. The risks perceived by the customer can result from a combination of the characteristics of various factors: the transaction
involved, the relationship with the supplier, and his position vis-a-vis the supply market.

Point 5 – Factors influencing organizational buying behaviour.

Three key factors are shown to influence organizational buying behaviour, these are, types of buying situations and situational
factors, geographical and cultural factors and time factors.

Point 6 – Purchasing Strategy.

The purchasing function is of great importance because its actions will  impact directly on the organization’s profitability.
Purchasing strategy aims to evaluate and classify the various items purchased in order to be able to choose and manage suppliers
accordingly. Classification is along two dimensions: importance of items purchased and characteristics of the supply market. Actions
can be taken to influence the supply market. Based on the type of items purchased and on its position in the buying matrix, a
company will develop different relationships with suppliers depending upon the number of suppliers, the supplier’s share,
characteristics of selected suppliers, and the nature of customer-supplier relationships. The degree of centralization of buying
activities and the missions and status of the buying function can help support purchasing strategy. The company will adapt its
procedures to the type of items purchased which in turn will influence relationships with suppliers.

Point 7 – The future.

Two activities which will be crucial to the future development of organizational buying behaviour will be information technology and
production technologies.

Point 8 – Conclusion.

Organizational buying behaviour is a very complex area, however, an understanding of the key factors are fundamental to marketing
strategy and thus an organization’s ability to compete effectively in the market place.

Q.4 Explain the different marketing philosophies and its approach.

Ans. Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and
freely exchanging products and services of value with others.

According to the American Marketing Association, “Marketing is the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goods”

There are six competing philosophies under which organizations conduct marketing activities “the production concept, product
concept, selling concept, marketing concept, customer concept; and societal concept.

1) The Production Concept: The production concept is one of the oldest concepts in business. The production concept holds that
consumers will prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate
on achieving high production efficiency, low costs and mass distribution.

They assume that consumers are primarily interested in products availability and low prices. This philosophy makes sense in
developing countries, where consumers are more interested in obtaining the product than its features. It is also used when a
company wants to expand the market.

2. The product Concept – Product concept holds that consumer will favour these products that offer the most quality,
performance and innovative features. Managers in these organizations focus on making superior products and improving them over
time. They assume that buyers admire well-made products and can evaluate quality and performance product oriented companies
often trust that their engineers can design exceptional products. They get little or no customer input, and very often they will not
even examine competitor’s products.

3. The Selling Concept: The selling concept holds that consumers and businesses, if left alone, will ordinarily not buy enough of
the organization’s products. The organization most, therefore, undertakes an aggressive selling and promotion effort. This concept
assumes that consumers typically show buying inertia or resistance and must be coaxed into buying. It also assumes that the
company has a whole battery of effective selling and promotion tools to stimulate more buying. The selling concept is epitomized by
the thinking that “The purpose of marketing is to sell more stuff to more people for more money in order to make more profit

Most firms practice the selling concept when they have over capacity. Their aim is to sell what they make rather then make what
market wants.

4. The Marketing Concept: The marketing concepts hold that the key to achieving its organizational goals consists of the
company being more effective then competitors in creating, delivering and communicating superior customer value to its chosen
target markets.

The marketing concept rests on four pillars: target market, customer needs, integrated marketing and profitability. There is a
contrast between selling and marketing concepts:

“Selling focuses on the needs of the seller; marketing on the needs of the buyer”.

Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the ideas of satisfying the needs of the
customers by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.

5. The customer Concept: Under customer concept, companies shape separate offers, services and messages to individual
customers. These companies collect information on each customer’s past transactions, demographics, psychographics and media
and distribution preferences. They hope to achieve profitable growth through capturing a larger share of each customer’s
expenditures by building high customer loyalty and focusing on customer lifetime value.

The ability of a company to deal with customers are at a time become practical as a result of advances in factory customization,
computers, the internet and database marketing software.

6. The Societal Marketing Concept: The societal marketing concept holds that the organization’s goal is to determine the needs,
wants and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a
way that preserves or enhances the consumer’s and the society’s well being.

The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They
must balance and juggle the often-conflicting criteria of company profits, consumer want satisfaction and public interest.

Companies see cause-related marketing as an opportunity to enhance their corporate reputation, raise brand awareness, increase
customer loyalty, build sales and increase press coverage. They believe that consumers will increasingly look for signs of good
corporate citizenship that go beyond supplying rational and emotional benefits.

Q. 5 What are the various stages involved in decision process when a consumer is buying new product? Also,
explain the adoption process.

Ans. Stages of the Consumer Buying Process

Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not
all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of
complexity…discussed next.

The 6 stages are:

1. Problem Recognition(awareness of need)–difference between the desired state and the actual condition. Deficit in
assortment of products. Hunger–Food. Hunger stimulates your need to eat.
Can be stimulated by the marketer through product information–did not know you were deficient? I.E., see a commercial for
a new pair of shoes, stimulates your recognition that you need a new pair of shoes.
2. Information search–
 Internal search, memory.
 External search if you need more information. Friends and relatives (word of mouth). Marketer dominated
sources; comparison shopping; public sources etc.
A successful information search leaves a buyer with possible alternatives, the evoked set.

Hungry, want to go out and eat, evoked set is

 chinese food
 indian food
 burger king
 klondike kates etc
3. Evaluation of Alternatives–need to establish criteria for evaluation, features the buyer wants or does not want.
Rank/weight alternatives or resume search. May decide that you want to eat something spicy, indian gets highest rank etc.

If not satisfied with your choice then return to the search phase. Can you think of another restaurant? Look in the yellow pages etc.
Information from different sources may be treated differently. Marketers try to influence by “framing” alternatives.

4. Purchase decision–Choose buying alternative, includes product, package, store, method of purchase etc.
5. Purchase–May differ from decision, time lapse between 4 & 5, product availability.
6. Post-Purchase Evaluation–outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made the right
decision. This can be reduced by warranties, after sales communication etc.
After eating an indian meal, may think that really you wanted a chinese meal instead.

Adoption Process

Adoption is an individual’s decision to become a regular user of a product. How do potential customers learn about new
products, try them, and adopt or reject them? The consumer adoption process is later followed by the consumer loyalty process,
which is the concern of the established producer. Years ago, new product marketers used a mass market approach to launch
products. This approach had two main drawbacks: It called for heavy marketing expenditures, and it involved many wasted
exposures. These drawbacks led to a second approach, heavy user target marketing. This approach makes sense, provided that heavy
users are identifiable and are early adopters. However, even within the heavy user group, many heavy users are loyal to existing
brands. New product marketers now aim at consumers who are early adopters.

The theory of innovation diffusion and consumer adoption helps marketers identify early adopters.

An innovation is any good, service, or idea that is perceived by someone as new. The idea may have a long History, but it is an
innovation to the person who sees it as new. Innovations take time to spread through the social system. The Innovation diffusion
process is defined as “the spread of a new idea from its source of invention or creation to its ultimate users or adopters. The
consumer adoption process is the mental process through which an individual passes from first hearing about an innovation to final
adoption.

Adopters of new products have been observed to move through five stages:

1. Awareness : The consumer becomes aware of the innovation but lacks information about it.
2. Interest : The consumer is stimulated to seek information about the innovation.
3. Evaluation: The consumer considers whether to try the innovation
4. Trial: The consumer tries the innovation to improve his or her estimate of its value.
5. Adoption : The consumer decides to make full and regular use of the innovation.

Q. 6 Explain briefly the marketing mix elements for an automobile company giving sufficient examples.

Ans.  Marketing mix is the combination of elements that you will use to market your product. There are four elements: Product,
Place, Price and Promotion. They are called the four Ps of the marketing mix.

The objectives of this lesson about marketing mix is to give you:

-The tools you need for establishing your detailed marketing plan and forecasting your sales.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

1-CHALLENGE

You have gotten a rough idea about the market situation and the possible positioning of your product. Of course, it’s
far to be sufficient. Now, you must write your detailed planning. It means that brainstorming is ended and that you have to go to the
specifics in examining and checking all the hypothesis you had made in the preceding chapters. You will use the marketing mix.

Some people think that the four Ps are old fashionable and propose a new paradigm: The four Cs! Product becomes customer
needs; Place becomes convenience, price is replaced by cost to the user, promotion becomes communication. It looks like a joke but
the Cs is more customer-oriented.

2-PRODUCT

A good product makes its marketing by itself because it gives benefits to the customer. We can expect that you have
right now a clear idea about the benefits your product can offer.

Suppose now that the competitors products offer the same benefits, same quality, same price. You have then to differentiate your
product with design, features, packaging, services, warranties, return and so on. In general, differentiation is mainly related to:

-The design: it can be a decisive advantage but it changes with fads. For example, a fun board must offer a good and fashionable
design adapted to young people.

-The packaging: It must provides a better appearance and a convenient use. In food business, products often differ only by
packaging.

-The safety: It does not concern fun board but it matters very much for products used by kids.

-The “green”: A friendly product to environment gets an advantage among some segments.

In business to business and for expensive items, the best mean of differentiation are warranties, return policy,
maintenance service, time payments and financial and insurance services linked to the product

3-PLACE-DISTRIBUTION

A crucial decision in any marketing mix is to correctly identify the distribution channels. The question ” how to reach the
customer” must always be in your mind.

-Definition: The place is where you can expect to find your customer and consequently, where the sale is realized.
Knowing this place, you have to look for a distribution channel in order to reach your customer.

In fact, instead of “place” it would be better to use the word “distribution” but the MBA lingo uses “place” to memorize the 4 Ps of
the marketing mix!

4-PRICE

Price means the pricing strategy you will use. You have already fixed, as an hypothesis a customer price fitted to your
customer profile but you will have now to bargain it with the wholesalers and retailers. Do not be foolish: They know better
the market than you and you have to listen their advices.

5-PROMOTION

Advertising, public relations and so on are included in promotion and consequently in the 4Ps. Sometimes, packaging becomes a
fifth P. As promotion is closely linked to the sales, I will mention here the most common features about the sale strategy.

-Definition: The function of promotion is to affect the customer behavior in order to close a sale.

Of course, it must be consistent with the buying process described in the consumer analysis.

Promotion includes mainly three topics: advertisement, public relations, and sales promotions.

-Advertisement:

It takes many forms: TV, radio, internet, newspapers, yellow pages, and so on. You have to take notice about three important
notions:

Reach is the percentage of the target market which is affected by your advertisement. For example, if you advertise on radio you
must know how many people belonging to your segment can be affected.

Frequency is the number of time a person is exposed to your message. It is said that a person must be exposed seven times to the
message before to be aware of it. Reach*frequency gives the gross rating point. You have to evaluate it before any advertisement
campaign.

Message: Sometimes, it is called a creative. Anyway, the message must: get attraction, capture interest, create desire and finally
require action that is to say close the sale.

Down-earth-advice:

There are some magical words that you can use in any message:

-Your-You–I-Me-My–Now-Today

-Fast-Easy-Cool-New-Fun-Updated-Free-Exciting-Astonishing
-Success-Love-Money-Comfort-Protection-Freedom-Luck.

-Public relations:

Public relations are more subtle and rely mainly on your own personality. For example, you can deliver public speeches on subjects
such as economics, geo-economics, futurology to several organizations (civic groups, political groups, fraternal organizations,
professional associations)

6-SALES STRATEGY

Sales bring in the money. Salesmen are directly exposed to the pressure of finding prospects, making deals, beating competition and
bringing money.

PGDBA Semester II

MB0047 – Management Information Systems

Q1. What is MIS? Define the characteristics of MIS? What are the basic Functions of MIS? Give some
Disadvantage of MIS?

Ans. Definition :
Organized approach to the study of information needs of a management at every level in making operational, tactical, and strategic
decisions. Its objective is to design and implement man-machine procedures, processes, and routines that provide suitably detailed
reports in an accurate, consistent, and timely manner. Modern, computerized systems continuously gather relevant data, both from
inside and outside the organization. This data is then processed, integrated, and stored in a centralized database (or data
warehouse) where it is constantly updated and made available to all who have the authority to access it, in a form that suits their
purpose.

Characteristics of MIS:
MIS is mainly designed to take care of the needs of the managers in the organization.
MIS aids in integrating the information generated by various departments of the organization.
MIS helps in identifying a proper mechanism of storage of data.
MIS also helps in establishing mechanism to eliminate redundancies in data.
MIS as a system can be broken down into sub systems.

The role and significance of MIS in business and its classification is explained. It is possible to understand the various phases of
development in MIS based on the type of system required in any organization.

Functions of MIS

1. Data processing
It includes the collection, transmission, storage, processing and output of data. It simplifies the statistics and reduces to the lowest
cost by supplying an unified format.
2. Function of prediction
It predicts the future situation by applying modern mathematics, statistics or simulation.

3. Function of plan
It arranges reasonably the plans of each functional department in accordance with the restrictions afforded by enterprises and
provides the appropriate planning reports according to different management.

4. Function of control
It monitors and inspects the operation of plans and comprises with the differences between operation and plan in accordance with
the data afforded by every functional department, and be assistant to managers to control timely each method by analyzing the
reasons why the differences comes into being.

5. Function of assistance
It derives instantly the best answers of related problems by applying to various of mathematics’ mode and analyzing a plentiful data
stored in computers in the hope of using rationally human resource, financial resource, material resource and information resource
for relative abundant economic benefits.

Disadvantages of MIS

1.highly senstive requires constant monitoring.

2.buddgeting of MIS extremely difficult.
3.Quality of outputs governed by quality of inputs.
4.lack of flexiblity to update itself.
5.effectiveness decreases due to frequent changes in top management
6.takes into account only qualitative factors and ignores non-qualitative factors like morale of worker, attitude of worker etc..

Q2. Explain Knowledge based system? Explain DSS and OLAP with example?

Ans. Knowledge-based system focuses on systems that use knowledge-based techniques to support human decision-making,
learning and action it is a computer system that is programmed to imitate human problem-solving by means of artificial intelligence
and reference to a database of knowledge on a particular subject. Also it based on the methods and techniques of artificial
intelligence and their core components are the knowledge base and the inference mechanisms.
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

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.

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.

Q3.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:-

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.

Q4. Explain DFD & Data Dictionary? Explain in detail how the information requirement is determined for an
organization?

Answer:-

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 an 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.
Q5. 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:-

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).

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

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

Q 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:-

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.

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.’

Decision Analysis by Analytical Modelling

Based on the methods discussed, a decision is made but such decision needs to be analysed for conditions and assumptions
considered in the decision model. The process is executed through analytical modelling of problem and solution. The model is
analysed in four ways.

What if analysis • Goal Seeking Analysis

Sensitivity analysis • Goal Achieving analysis

PGDBA SEMESTER II

MB0048 –Operation Research

Q1. a. Explain how and why Operation Research methods have been valuable in aiding executive decisions.

b. Discuss the usefulness of Operation Research in decision making process and the role of computers in this
field.

Ans.

Churchman, Aackoff and Aruoff defined Operations Research as: “the application of scientific methods, techniques and tools to
operation of a system with optimum solutions to the problems”, where ‘optimum’ refers to the best possible alternative.

The objective of Operations Research is to provide a scientific basis to the decision-makers for solving problems involving
interaction of various components of the organisation. You can achieve this by employing a team of scientists from different
disciplines, to work together for finding the best possible solution in the interest of the organisation as a whole. The solution thus
obtained is known as an optimal decision.

You can also define Operations Research as “The use of scientific methods to provide criteria for decisions regarding man,
machine, and systems involving repetitive operations”.OR “Operation Techniques is a bunch of mathematical techniques.”

b. “Operation Research is an aid for the executive in making his decisions based on scientific methods analysis”.
Discuss the above statement in brief.

Ans.
“Operation Research is an aid for the executive in making his decisions based on scientific methods analysis”.

Discussion:-

Any problem, simple or complicated, can use OR techniques to find the best possible solution. This section will explain the scope of
OR by seeing its application in various fields of everyday life.

i) In Defense Operations: In modern warfare, the defense operations are carried out by three major independent components
namely Air Force, Army and Navy. The activities in each of these components can be further divided in four sub-components
namely: administration, intelligence, operations and training and supply. The applications of modern warfare techniques in each of
the components of military organisations require expertise knowledge in respective fields. Furthermore, each component works to
drive maximum gains from its operations and there is always a possibility that the strategy beneficial to one component may be
unfeasible for another component. Thus in

defense operations, there is a requirement to co-ordinate the activities of various components, which gives maximum benefit to the
organisation as a whole, having maximum use of the individual components. A team of scientists from various disciplines come
together to study the strategies of different components. After appropriate analysis of the various courses of actions, the team selects
the best course of action, known as the ‘optimum strategy’.

ii) In Industry: The system of modern industries is so complex that the optimum point of operation in its various components
cannot be intuitively judged by an individual. The business environment is always changing and any decision useful at one time may
not be so good some time later. There is always a need to check the validity of decisions continuously against the situations. The
industrial revolution with increased division of labour and introduction of management responsibilities has made each component
an independent unit having their own goals. For example: production department minimises the cost of production but maximise
output. Marketing department maximises the output, but minimises cost of unit sales. Finance department tries to optimise the
capital investment and personnel department appoints good people at minimum cost. Thus each department plans its own
objectives and all these objectives of various department or components come to conflict with one another and may not agree to the
overall objectives of the organisation. The application of OR techniques helps in overcoming this difficulty by integrating the
diversified activities of various components to serve the interest of the organisation as a whole efficiently. OR methods in industry
can be applied in the fields of production, inventory controls and marketing, purchasing, transportation and competitive strategies.

iii) Planning: In modern times, it has become necessary for every government to have careful planning, for economic development
of the country. OR techniques can be fruitfully applied to maximise the per capita income, with minimum sacrifice and time. A
government can thus use OR for framing future economic and social policies.

iv) Agriculture: With increase in population, there is a need to increase agriculture output. But this cannot be done arbitrarily.
There are several restrictions. Hence the need to determine a course of action serving the best under the given restrictions. You can
solve this problem by applying OR techniques.

v) In Hospitals: OR methods can solve waiting problems in out-patient department of big hospitals and administrative problems
of the hospital organisations.

vi) In Transport: You can apply different OR methods to regulate the arrival of trains and processing times minimise the
passengers waiting time and reduce congestion, formulate suitable transportation policy, thereby reducing the costs and time of
trans-shipment.

vii) Research and Development: You can apply OR methodologies in the field of R&D for several purposes, such as to control
and plan product introductions.

Q2. Explain how the linear programming technique can be helpful in decision-making in the areas of Marketing
and Finance.

Ans.

Linear programming problems are a special class of mathematical programming problems for which the objective function and all
constraints are linear. A classic example of the application of linear programming is the maximization of profits given various
production or cost constraints.

Linear programming can be applied to a variety of business problems, such as marketing mix determination, financial decision
making, production scheduling, workforce assignment, and resource blending. Such problems are generally solved using the
“simplex method.”

MEDIA SELECTION PROBLEM.

The local Chamber of Commerce periodically sponsors public service seminars and programs. Promotional plans are under way for
this year’s program. Advertising alternatives include television, radio, and newspaper. Audience estimates, costs, and maximum
media usage limitations are shown in Exhibit 1.

If the promotional budget is limited to $18,200, how many commercial messages should be run on each medium to maximize total
audience contact? Linear programming can find the answer.

Q3. a. How do you recognise optimality in the simplex method?

b. Write the role of pivot element in simplex table?

Ans.  Simplex method is used for solving Linear programming problem especially when more than two variables are involved
SIMPLEX METHOD

1.     Set up the problem. 

That is, write the objective function and the constraints.

2.     Convert the inequalities into equations.

This is done by adding one slack variable for each inequality.

3.     Construct the initial simplex tableau.

        Write the objective function as the bottom row.

4.     The most negative entry in the bottom row  identifies a column.

5.     Calculate the quotients.  The smallest quotient identifies a row.  The element in the intersection of the column
identified in step 4 and the row identified in this step is identified as the pivot element.
The quotients are computed by dividing the far right column by the identified column in step 4.   A quotient that is a zero, or a
negative number, or that has a zero in the denominator, is ignored.

6.    Perform pivoting  to make all other entries in this column zero.

        This is done the same way as we did with the Gauss-Jordan method.

7.     When there are no more negative entries in the bottom row, we are finished; otherwise, we start again from
step 4.

8.     Read off your answers.

Get the variables using the columns with 1 and 0s.  All other variables are zero.  The maximum value you are looking for appears in
the bottom right hand corner.

Example

Niki holds two part-time jobs, Job I and Job II.  She never wants to work more than a total of 12 hours a week.  She

has determined that for every hour she works at Job I, she needs 2 hours of preparation time, and for every hour

she works at Job II, she needs one hour of preparation time, and she cannot spend more than 16 hours for

preparation.  If she makes $40 an hour at Job I, and $30 an hour at Job II, how many hours should she work per

week at each job to maximize her income?

Solution: In solving this problem, we will  follow the algorithm listed above.

1.Set up the problem.  That is, write the objective function and the constraints.

Since the simplex method is used for problems that consist of many variables, it is not practical to use the variables x, y, z etc.  We
use the symbols x1, x2, x3, and so on.

Let x1 = The number of hours per week Niki will work at Job I.

and x2 = The number of hours per week Niki will work at Job II.

It is customary to choose the variable that is to be maximized as Z.

The problem is formulated the same way as we did in the last chapter.
Maximize         Z = 40×1 + 30×2

Subject to:       x1  +  x2  ≤  12

2×1 + x2  ≤  16

x1 ≥ 0;  x2  ≥  0

2.  Convert the inequalities into equations.   This is done by adding one slack variable for each inequality.

For example to convert the inequality x1  +  x2  ≤  12 into an equation, we add a non-negative variable y1, and we get

x1  +  x2  +  y1  = 12

Here the variable y1 picks up the slack, and it represents the amount by which x1  +  x2  falls short of 12.  In this problem, if Niki
works fewer that 12 hours, say 10, then y1 is 2.  Later when we read off the final solution from the simplex table, the values of the
slack variables will identify the unused amounts.

We can even rewrite the objective function Z = 40×1 + 30×2 as  – 40×1 – 30×2 + Z = 0.

After adding the slack variables, our problem reads

  Objective function:      – 40×1 – 30×2  +  Z = 0

Subject to constraints:   x1  +  x2  +  y1  = 12

2×1 + x2  +  y2  =  16

x1 ≥ 0;  x2  ≥  0

3.  Construct the initial simplex tableau.   Write the objective function as the bottom row.

Now that the inequalities are converted into equations, we can represent the problem into an augmented matrix called the initial
simplex tableau as follows.

x2 y1 y2 Z C
x1

1 1 1 0 0 12

2 1 0 1 0 16
 – – 0 0 1 0
40 30

Here the vertical line separates the left hand side of the equations from the right side.  The horizontal line separates the constraints
from the objective function.  The right side of the equation is represented by the column C.

The reader needs to observe that the last four columns of this matrix look like the final matrix for the solution of a system of
equations.  If we arbitrarily choose x1 = 0 and x2 = 0, we get

Which reads

y1 = 12

y2 = 16

Z   = 0

The solution obtained by arbitrarily assigning values to some variables and then solving for the remaining variables is called the
basic solution associated with the tableau.  So the above solution is the basic solution associated with the initial simplex tableau.  
We can label the basic solution variable in the right of the last column as shown in the table below.

x2 y1 y2 Z
x1

1 1 1 0 0 12 y1

2 1 0 1 0 16 y2

– – 0 0 1 0 Z
40 30

4.  The most negative entry in the bottom row  identifies a column.

x1 x2 y y2 Z The most negative entry in the bottom row is –40, therefore the column 1 is
1

identified.

1 1 1 0 0 12 y1
 

2 1 0 1 0 16 y2

– – 0 0 1 0 Z
40 30
 

Q4. What is the significance of duality theory of linear programming? Describe the general rules for writing the
dual of a linear programming problem.

Ans.Linear programming (LP) is a mathematical method for determining a way to achieve the best outcome (such as maximum
profit or lowest cost) in a given mathematical model for some list of requirements represented as linear relationships. Linear
programming is a specific case of mathematical programming.

More formally, linear programming is a technique for the optimization of a linear objective function, subject to linear equality and
linear inequality constraints. Given a polytope and a real-valued affine function defined on this polytope, a linear programming
method will find a point on the polytope where this function has the smallest (or largest) value if such point exists, by searching
through the polytope vertices.

Linear programs are problems that can be expressed in canonical form:

where x represents the vector of variables (to be determined), c and b are vectors of (known) coefficients and A is a (known) matrix
of coefficients. The expression to be maximized or minimized is called the objective function (cTx in this case). The equations Ax ≤ b
are the constraints which specify a convex polytope over which the objective function is to be optimized. (In this context, two vectors
are comparable when every entry in one is less-than or equal-to the corresponding entry in the other. Otherwise, they are
incomparable.)

Linear programming can be applied to various fields of study. It is used most extensively in business and economics, but can also be
utilized for some engineering problems. Industries that use linear programming models include transportation, energy,
telecommunications, and manufacturing. It has proved useful in modeling diverse types of problems in planning, routing,
scheduling, assignment, and design.

Duality: Every linear programming problem, referred to as a primal problem, can be converted into a dual problem, which
provides an upper bound to the optimal value of the primal problem. In matrix form, we can express the primal problem as:

Maximize cTx subject to Ax ≤ b, x ≥ 0;

with the corresponding symmetric dual problem,

Minimize bTy subject to ATy ≥ c, y ≥ 0.

An alternative primal formulation is:

Maximize cTx subject to Ax ≤ b;

with the corresponding asymmetric dual problem,

Minimize bTy subject to ATy = c, y ≥ 0.

There are two ideas fundamental to duality theory. One is the fact that (for the symmetric dual) the dual of a dual linear program is
the original primal linear program. Additionally, every feasible solution for a linear program gives a bound on the optimal value of
the objective function of its dual. The weak duality theorem states that the objective function value of the dual at any feasible
solution is always greater than or equal to the objective function value of the primal at any feasible solution. The strong duality
theorem states that if the primal has an optimal solution, x*, then the dual also has an optimal solution, y*, such that cTx*=bTy*.

A linear program can also be unbounded or infeasible. Duality theory tells us that if the primal is unbounded then the dual is
infeasible by the weak duality theorem. Likewise, if the dual is unbounded, then the primal must be infeasible. However, it is
possible for both the dual and the primal to be infeasible

 
 

 
  

PGDBA Semester II

MB0049- Project Management

Q.1 Describe in detail the various phases of Project management life cycle.

Ans. Projects too have to chore through their life-cycles adhering to a system. Every project irrespective of its size, scope has to adapt
a system. A system in the project management refers to the existence of interrelationship of activities in a project. The absence of a
system makes a project die.

No matter what project it is that you’re preparing for, the project management life cycle can assist you in narrowing your focus,
keeping your objectives in order and finishing said project on time, on budget and with a minimum of headaches. Every project
management life cycle contains five steps: Initiation, Planning, Execution, Monitoring/Control and Closure. No one step is more
important than the other and each step plays a crucial role in getting your project off the ground, through the race, down the stretch
and across the finish line.

Phases of Project management life cycle

1) Initiation: In this first step you provide an over-view of the project in addition to the strategy you plan on using in order to
achieve the desired results. During the Initiation phase you’ll appoint a project manager who in turn will — based on their
experience and skills — select his team members. And lest you think you need to be a Bill Gates or Donald Trump in order to see
your project take on a life of it’s own, fear not: there are some great technological tools available to get you through the Initiation
phase of the project management life cycle.

2) Planning: The all-important second step of any successful project management life cycle is planning and should include a
detailed breakdown and assignment of each task of your project from beginning to end. The Planning Phase will also include a risk
assessment in addition to defining the criteria needed for the successful completion of each task. In short, the working processis
defined, stake holders are identified and reporting frequency and channels explained.

3 & 4) Execution and Control :Steps Three and Four take you into deeper water. When it comes to the project management
cycle, execution and control just may be the most important of the five steps in that it ensures project activities are properly
executed and controlled. During the Execution and Control phases, the planned solution is implemented to solve the problem
specified in the project’s requirements. In product and system development, a design resulting in a specific set of product
requirements is created. This convergence is measured by prototypes, testing, and reviews. As the Execution and Control phases
progress, groups across the organization become more deeply involved in planning for the final testing, production, and support.

5) Closure

By the time you reach Step Five — Closure — the project manager should be tweaking the little things to ensure that the project is
brought to its proper conclusion. The Closure phase is typically highlighted by a written formal project review report which contains
the following elements: a formal acceptance of the final product (by the client), Weighted Critical Measurements (a match between
the initial requirements laid out by the client against the final delivered product), lessons learned, project resources, and a formal
project closure notification to higher management.

The Project Management Cycle saves time and keeps everyone on the team focused. Fortunately, modern technology provides a
variety of templates that will take you from A-to-Z (or in this case from Start-to-Finish) making the Project Management Cycle user
friendly no matter what your level of management experience!

Q.2 List and explain the various aspects of programme management.

Ans.

Project Management

Project management is the planning, organizing, directing, and controlling of company resources.

It is clear from this definition that project management is concerned with the dynamic allocation, utilization, and direction of
resources (both human and technical), with time — in relation to both individual efforts and product delivery schedule — and with
costs, relating to both the acquisition and consumption of funding. As a corollary, it is safe to say that without the direction project
management provides, work would have to proceed via a series of negotiations, and/or it would not align with the goals, value
proposition, or needs of the enterprise.

Within a program, these same responsibilities (i.e., allocation, utilization, and direction) are assigned to people at three levels in the
management hierarchy; the higher the level, the more general the responsibilities. For example, at the bottom of the management
hierarchy, project managers are assigned to the various projects within the overall program. Each manager carries out the
management responsibilities we described above.

At the middle of the hierarchy is the program manager/director, whose major responsibility is to ensure that the work effort
achieves the outcome specified in the business and IT strategies. This involves setting and reviewing objectives, coordinating
activities across projects, and overseeing the integration and reuse of interim work products and results. This person spends more
time and effort on integration activities, negotiating changes in plans, and communicating than on the other project management
activities we described (e.g., allocating resources, ensuring adherence to schedule, budget, etc.).

At the top of the program management hierarchy are the program sponsor(s) and the program steering committee. Their major
responsibility is to own and oversee the implementation of the program’s underlying business and IT strategies, and to define the
program’s connection to the enterprise’s overall business plan(s) and direction. Their management activities include providing and
interpreting policy, creating an environment that fosters sustainable momentum for the program (i.e., removing barriers both inside
and outside the enterprise), and periodically reviewing program progress and interim results to ensure alignment with the overall
strategic vision.

These individuals receive periodic summary reports and briefings on funding consumption, resources and their utilization, and
delivery of interim work products and results. Typically, they will focus on these reports only if there is significant deviation from the
plan.

So, let’s return to the questions we posed at the start of this section: What is program management? Is it really management at all?

If you think of management activities strictly as those we defined for project management, then the answer to the second question is
“No,” or maybe “Partly.” At the project level, managers do still perform these activities, but the program manager/director addresses
a different set of program goals or needs, which requires a different “bag of tricks” as well as a different view of what is happening
and what needs to get done. And at the top of the hierarchy, the executive leaders who set goals and oversee the program certainly
do not perform the same detailed activities as project managers
Q.3 Write a short note on the following: 

a. Project progress control tools and mechanisms

 b. Process in bringing about a change in project management.

Ans.  Project progress control tools and mechanism

Project monitoring and control also provides information to support status reporting, progress measurement, forecasting and
updating current cost and schedule information. During this process, it is also important to ensure that implementation of approved
changes are monitored when and as they occur.

As for tools and techniques used in facilitating project monitoring and control, automated project management information systems
and Earned Value are among the most commonly used. Both are also used to update information. Earned Value also provides a
means for forecasting future performance based upon past performance.

Status reports are used for communicating project progress and status. Variance Analysis reports are typically used to identify
variances and the information often used as a basis for determining corrective actions.

The ideal suite of project management tools would provide fully integrated functionality such that:

 tools share the same communication medium to the team (eg Web, Intranet, Exchange server, EMail, Client/Server)
 information can be automatically transferred to other tools, or, better still, be held only once (eg team names, task lists,
EMail addresses, distribution lists)
 efficiency and effectiveness is supported by automatic messaging and workflow control – the applications will always
prompt those responsible for action.

The tools that are used in project planning are

1. 1.     Project organization

Skills and activities

Process

 Prepare an outline project justification, plan and project budget

 Selection and briefing of the project team, assigning roles and organization
Initiation  Feasibility study- risk and key success factors

 Project definition and project plan

Planning  Communicate to the team

 Allocating and monitoring the work and cost

 Ensuring work and team cohesion
Execution  Reporting progress

Control  Monitoring progress and managing changes

  Helping the team to solve project problems

 Satisfactory delivery
Close  Compiling lessons from project experience

1. 2.     Project structure

Development plan, project tracking and oversight.

1. 3.     Project Key personnel – Identify those business areas that are within the scope or directly interface with the scope
boundary and list them in the “Business area” column of the project assignment worksheet

Identify the key personnel for each area and list them in the “Person” column of the project assignment worksheet.

1. 4.     Project management team

It is a senior management team, which will be accountable for the project.

 Identify project sponsor, client representative and technical representative.

 Stage managers- who will plan and manage the project on a day-to-day basis for this stage
 Project coordinators- client coordinator and technical coordinator
 Clearly define these coordination, control activities and identify the brief suitable personnel to carry them out

1. 5.     Key stakeholders

Identify management level personnel who are critical to the success of the project.

Document the responsibilities of stakeholders

6.   Stage teams

Identify appropriate personnel required for the stage, define the team structure and appoint team leaders

Document the time commitment and responsibilities to be performed by the team members.

1. 7.   Key resources

Individuals assigned to a key resource role may work towards gathering “Business key resources” and “Technical key resources”.
They are project coordinators and team invitees.

1. 8.   Work Breakdown Structure (WBS)

The entire process of a project may be considered to be made up on number of sub process placed in different stage called the Work
Breakdown Structure (WBS).
A typical example of a work breakdown structure of a recruitment process is indicated below :

This is the technique to analyze the content of work and cost by breaking it down into its component parts.

Project key stages form the highest level of the WBS, which is then used to show the details at the lower levels of the project. Each
key stage comprises many tasks identified at the start of planning and later this list will have to be validated.

WBS is produced by Identifying the key elements, breaking each element down into component parts and continuing to breakdown
until manageable work packages have been identified. These can then be allocated to the appropriate person.The WBS does not
show dependencies other than a grouping under the key stages. It is not time based- there is no timescale o the drawing.

1. 9.             Task duration

Identifying lead and lag times helps in working out task duration.

            Lead time: An amount of time, which a successor task can overlap with its predecessor task, i.e. the time before the
completion of the predecessor at which the successor can start.

            Lag time: An amount of time, between a predecessor and a successor task, i.e. the time after the completion of the
predecessor that the start of the successor is delayed

Q.4 Describe in brief the various phases of the quality control process.

Ans.

The definition of the ISO 8204 for quality:

“Totality of characteristics of an entity that bears on its ability to satisfy stated and implied needs.”

This means that the Software product conforms to requirements defined.

Description of Phases:

Software Quality Management (SQM) describes the processes that ensure that the Software Project would reach its goals i.e. meet
the client’s expectations.

Any phase of SDLC has its own independent stages of planning, execution, monitoring, control & reporting. Likewise Software
Quality Management has the following three categories or key phases:

1.     Quality Planning

2.     Quality Assurance

3.     Quality Control

Quality Planning:

Quality Planning is one of the most important parts of Software Quality Management. It is the start activity of SQM. Through proper
planning we can ensure that the processes that make a product are audited correctly to meet the overall project objective. The
staring of Quality Planning process is followed differently by different Organization. It has been described in different Quality Policy
and Documentation across various Organizations.

Other industry standards related to the Software Project can be referred to Planning phases when needed. These act as Standard
inputs for some specific projects. The Planning stage is having following inputs:-

1.     Quality Policy of a Company

2.     Organization Standards

3.     Referencing Industry Standards

4.     Regulatory compliances

5.     Statement Of Work

6.     Project specific Requirements

Quality planning process can ensure that standards are as per client’s expectations. The outcomes of Quality Planning process are as
follows:-

1.     Standards defined for the project

2.     Quality Plan

Various tools and techniques are used to create the quality plan. Few of these tools and techniques are briefly described in this
article. Here are some over views:-

 Benchmark:  Deciding on the present product standards by comparing with the performances of similar products which is already
exist in the market.
 Cost of Quality: The total cost of quality is a summation of prevention, appraisal and failure costs.

 Design of Experiments:  Statistical data can be used to determine the factors influencing the Quality of the product.

 Other tools: There are various tools used in the Planning process such as  Cost Benefit Analysis, Cause and Effect Diagrams, System
Flow Characteristics.

All of the above key points aids in the formation of a Quality Management Plan for a particular project.

Quality Assurance:

Quality Plan which is created during planning is the input to Quality Assurance Process. The Assurance stage is having the following
inputs:

1.     Quality Audits

2.     Various Techniques used to evaluate performance of project

Quality Assurance Process helps us to ensure that the Project is following the Quality Management Plan. The tools and techniques
which are used in Planning Process such as System Flow Charectistics, Design of Experiments, Cause and Effect Diagrams can be
implemented here too, as per requirements.

Quality Control:

The next step to Quality Assurance Process is Quality Control. The Control stage is having following inputs:

1. Quality Management Plan.

2. Quality Standards for the Project.
3. Actual Observations and Measurements of the work done or work in Progress.

The Quality Control Processes use various tools to Observe and Measure if the work done or not. If the Work done and it is found
that the deliverable is not satisfactory then it can be sent back to the development team for fixes.

If the work done meets the requirements as defined then it is accepted and released to the clients.

Q.5 Write short note on the following Project Management tools:

a. Quality Certification

b. Strategic inflection point

c. Force field analysis

d. Information risk management

Ans.

Quality Certification

Quality certification has become extremely important in competitive markets and especially in gaining foothold in exports. To avail
the certification of ISO-9000, a unit has to undertake significant costs; the small scale industries have been found wanting mainly
on account of resource crunch to implement quality systems to obtain this certification. However, as a paradigm shift, SSI must
make ‘Quality’ a way of life.

It has been decided to push the quality upgradation programme in the SSI Sector in a big way.

A scheme has been launched to give financial incentive to those SSI units who acquire ISO-9000 certification, by reimbursing 75%
of their costs of obtaining certification, subject to a maximum of Rs. 0.75 lacs per unit.

In order to promote modernization and technology up gradation in SSI, the units are assisted in improving the quality of their
products.

A new scheme has been launched to assist SSI units in obtaining ISO-9000 or an equivalent international quality standard. Subject
to an upper ceiling of Rs. 075 lacs, each unit is given financial assistance equal to 75% of the costs incurred in acquiring the quality
standard.

The SSI units are also encouraged to participate in quality awareness and learning programmes organised specially for their benefit.

Strategic inflection point

Point at which a corporation facing a new situation must alter the path it is on and adapt, or fall into decline. The term was coined by
Hungarian-born US computer entrepreneur Andy Grove, chairman of microprocessor company Intel. Grove believes strategic
inflection points occur when a company’s competitive position goes through a transition. The idea concerns how companies
recognize and adapt to paradigm changes. At a strategic inflection point the way a business operates, and the concept of it as a
business, undergoes a change.

Force field analysis

Force field analysis is an influential development in the field of social science. It provides a framework for looking at the factors
(forces) that influence a situation, originally social situations. It looks at forces that are either driving movement toward a goal
(helping forces) or blocking movement toward a goal (hindering forces). The principle, developed by Kurt Lewin, is a significant
contribution to the fields of social science, psychology, social psychology, organizational development, process management, and
change management.

Lewin, a social psychologist, believed the “field” to be a Gestalt psychological environment existing in an individual’s (or in the
collective group) mind at a certain point in time that can be mathematically described in a topological constellation of constructs.
The “field” is very dynamic, changing with time and experience. When fully constructed, an individual’s “field” (Lewin used the term
“life space”) describes that person’s motives, values, needs, moods, goals, anxieties, and ideals.

Lewin believed that changes of an individual’s “life space” depend upon that individual’s internalization of external stimuli (from the
physical and social world) into the “life space.” Although Lewin did not use the word “experiential,” (see experiential learning) he
nonetheless believed that interaction (experience) of the “life space” with “external stimuli” (at what he calls the “boundary zone”)
were important for development (or regression). For Lewin, development (or regression) of an individual occurs when their “life
space” has a “boundary zone” experience with external stimuli. Note, it is not merely the experience that causes change in the “life
space,” but the acceptance (internalization) of external stimuli.

Lewin took these same principles and applied them to the analysis of group conflict, learning, adolescence, hatred, morale, German
society, etc. This approach allowed him to break down common misconceptions of these social phenomena, and to determine their
basic elemental constructs. He used theory, mathematics, and common sense to define a force field, and hence to determine the
causes of human and group behavior.

Information risk management

Information Risk Management follows information as it is created, distributed, stored, copied, transformed and interacted with
throughout its lifecycle.

Three Pillars to an Information Risk Strategy

1) Information-centric approach: Begin by understanding what information is critical to key business initiatives, such as
growth through acquisitions or expanding partnerships. Then diligently ‘follow the data’ to gain a more holistic view of all the places
where it exists across the organization, where the points of vulnerability are, and what events could put your business at risk.”

2) Risk/Reward analysis: Security investments should be prioritized, based on the amount of risk a given activity entails relative
to the potential business reward, and in keeping with the organization’s appetite for risk.

3) Ensuring repeatability: Once enterprise information has been located and a risk assessment performed, the next step is to
implement controls — including policies, technologies, and tools — to mitigate that risk. Here, organizations often turn to
frameworks like ISO 27002 and the PCI Data Security Standard.

Q.6 List and describe in brief the various types of review used for improving performance of a project.

Ans.                                                     Performance

Measurement
Most of us have heard some version of the standard performance measurement cliches: “what gets measured gets done,” “ if you
don’t measure results, you can’t tell success from failure and thus you can’t claim or reward success or avoid unintentionally
rewarding failure,” “ if you can’t recognize success, you can’t learn from it; if you can’t recognize failure, you can’t correct it,” “if you
can’t measure it, you can neither manage it nor improve it,” but what eludes many of us is the easy path to identifying truly strategic
measurements without falling back on things that are easier to measure such as input, project or operational process measurements.

Performance Measurement is addressed in detail in Step Five of the Nine Steps to Success® methodology. In this step, Performance
Measures are developed for each of the Strategic Objectives. Leading and lagging measures are identified, expected targets and
thresholds are established, and baseline and benchmarking data is developed. The focus on Strategic Objectives, which should
articulate exactly what the organization is trying to accomplish, is the key to identifying truly strategic measurements.

Strategic performance measures monitor the implementation and effectiveness of an organization’s strategies, determine the gap
between actual and targeted performance and determine organization effectiveness and operational efficiency.

Good Performance Measurement

 Focus employees’ attention on what matters most to success

 Allow measurement of accomplishments, not just of the work that is performed
 Provide a common language for communication
 Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and
thresholds
 Are valid, to ensure measurement of the right things
 Are verifiable, to ensure data collection accuracy

Problems in Performance Appraisals:

 discourages teamwork

 evaluators are inconsistent or use different criteria and standards

 only valuable for very good or poor employees

 encourages employees to achieve short term goals

 managers has complete power over the employees

 too subjective

 produces emotional anguish

Solutions

 Make collaboration a criterion on which employees will be evaluated

 Provide training for managers; have the HR department look for patterns on appraisals that suggest bias or over or under
evaluation
 Rate selectively(introduce different or various criteria and disclose better performance and coach for worst performer
without disclosing the weakness of the candidate) or increase in frequency of performance evaluation.
 Include long term and short term goals in appraisal process
 Introduce M.B.O.(Management By Objectives)
 Make criteria specific and test selectively{Evaluate specific behaviors or results}
 Focus on behaviors; do not criticize employees; conduct appraisal on time.