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Industrial Engg & Mgmt Lecture Notes (Module 1)

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Page 1: Industrial Engg & Mgmt Lecture Notes (Module 1)

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MODULE 1 S6 EEE

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STIST DEPT OF MECHANICAL KSC

2NDUSTRIAL ENGINEERING AND MANAGEMENT S6E 2 8 SCHEME

the maximum material in a day, it was better to design a shovel which could be comfortablyused by the workers on a repetitive basis without tiring or injuring them at the end of the day.When his plan was implemented, he reduced the manpower by over 25%. Taylor was alsoconsidered to be the father of scientific management because he was a pioneer in improving

methods and establishing the incentive system for workers with the benefit of higher productivity to the owners and higher wages for the workers.

Frank Gilbreth, started working on motion studies soon after Taylor began his work. Gilbrethwas a construction contractor, who noticed that the industry lacked standardization of methods.Gilbreth and his wife Lilian, devoted their lives to motion studies.

Gilbreth’s famous discovery took place when he was doing apprenticeship as a b ricklayer; heobserved that there were no two men, who could lay bricks the same way. Consequently, theirquality and quantity of output varied. He improved the method of laying bricks by making anumber of changes. He provided a platform whose height could be adjusted, so that bricklayeris always at the same height in relationship to the bricks laid. A shelf for bricks and mortar was

built to save workers from bending down to pick up their material. He had bricks pre-stackedwith the best side facing in the direction of the workers to avoid workers from having to turnthe brick several times to find its best side just before laying.

These changes significantly reduced the number of motions in laying bricks, and resulted inhigher production with lower fati gue for the workers. Lilian Gilbreth, Frank’s wife, joined himin his pursuit for promoting scientific management by conducting research and applicationwork in studies of motion and methods.

Gilbreth’s work continued in motions using motion pictures for s tudying tasks and workers.He developed micro motion study, a breakdown of work into fundamental elements called“therbligs” (baed on Gilbreth spelled backwards).

Taylor’s concept of work element was broad, and based on time study requirements like “gettool”. Whereas Gilbreth’s work was based on breaking down the elements further into basicindividual therbligs, such as “reach for tool and pick up tool” instead of “get tool”.

There were many followers of Taylor and Gilbreth in the 1900s. They believed that Taylor’swork emphasized motion measurement whereas Gilbreth emphasized motion analysis. Withtime, it became clear that both approaches were necessary and were essentially interdependent.Ultimately what is important is the best of both of these efforts, namely, the right motions withthe minimum of time. Thus evolved a term “Methods engineering” which is an importantfunction of industrial engineering.

The concepts of time and motion studies developed by Taylor and Gilbreth are still the basisfor industrial engineering. Even today, over fifty percent of industrial engineering activities arerelated to this concept.

3. List the functions or activities of Industrial Engineering.

Most important functions of industrial engineering are: Development of time standards, costing and performance standards.

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Selection of processes and assembling methods. Selection and design of tools and equipment. Design of facilities including plant location, layout of building, machines and

equipment, material handling system raw materials and finished goods storage

facilities. Design and improvement of planning and control systems for production, inventory,quality and plant maintenance and distribution systems.

Cost control systems. Development and installation of job evaluation systems. Installation of wage incentive schemes. Design and installation of value engineering and analysis system. Operation research. Mathematical and statistical analysis.

Performance evaluation. Organization and methods. Supplier selection and evaluation.

4. List the areas of application of Industrial Engineering.

The main aim of tools and techniques of industrial engineering is to improve the productivityof the organization by optimum utilization of organizations resources: men, materials, andmachines. The major tools and techniques used in industrial engineering are:

1) Production planning and control.2) Inventory control.

3) Job evaluation.

4) Facilitates planning and material handling.

5) System analysis.

6) Linear programming.

7) Simulation.

8) Network analysis (PERT, CPM).

9) Queuing models.

10) Assignment.

11) Sequencing and transportation models.

12) Games theory and dynamic programming.

13) Group technology.

14) Statistical techniques.

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15) Quality control.

17) Decision making theory.

18) Replacement models.

19) Assembly line balancing.

20) MRP-JIT-ISO-TQM

5. List the objectives of Scientific Management

Ø Scientific utilization of various resources like human power, material etc.

Ø To provide trained and efficient work force.

Ø To provide standardize methods of work.

Ø To provide a scientific base for selecting material, and equipment.Ø To provide extra wages to the worker for higher production.

Ø Replace old rule of thumbs to new scientific methods.

Ø To develop a good rapport between management and workers.

Ø To achieve higher production, with reduce costs and maximum efficiency.

Ø Less wastage.

6. Which are the different kinds of partners in Partnership based organization?

A partnership firm can have different types of partners with different roles and liabilities. Anunderstanding of these types is important for a clear understanding of their rights andresponsibilities. These are described as follows:

(i) Active partner: An active partner is one who contributes capital, participates in themanagement of the firm, shares its profits and losses, and is liable to an unlimited extent to thecreditors of the firm. These partners take actual part in carrying out business of the firm onbehalf of other partners.

(ii) Sleeping or dormant partner: Partners who do not take part in the day to day activities ofthe business are called sleeping partners. A sleeping partner, however, contributes capital tothe firm, shares its profits and losses, and has unlimited liability.

(iii) Secret partner: A secret partner is one whose association with the firm is unknown to thegeneral public. Other than this distinct feature, in all other aspects he is like the rest of the

partners. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the creditors.

(iv) Nominal partner: A nominal partner is one who allows the use of his/her name by a firm, but does not contribute to its capital. He/she does not take active part in managing the firm,

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does not share its profit or losses but is liable, like other partners, to the third parties, for therepayments of the firm’s debts.

7. Explain the different functions of Managementa) Planning

Planning involves selecting missions and objectives and the actions to achieve them, it requiresdecision makin, that is, choosing future courses of action from among alternatives. No real planexists until a decision-a commitment of human or material resources or reputation has beenmade.

b) OrganizingOrganizing involves establishing an intentional structure of roles for people to fill in anorganization. It is intentional in the sense of making sure that all the tasks necessary toaccomplish goals are assigned and, it is hoped, assigned to people who can do them best.

c) StaffingStaffing involves filling and keeping filled the positions in the organization structure. This isdone by identifying work- force requirements; inventorying the people available; andrecruiting, selecting, placing, promoting, appraising, planning the careers of, compensating,and training or otherwise developing both candidates and current job holders so that tasks areaccomplished effectively and efficiently.

d) Leading

Leading is influencing people so that they will contribute to organization and group goals; it

has to do predominantly with the interpersonal aspect of managing. Leading involvesmotivation, leadership styles and approaches, and communication.

e) Controlling

Controlling is measuring and correcting individuals and organizational performance to ensurethat events conform to plans. It involves measuring performance against goals and plans,showing where deviations from standards exist, and helping to correct them.

f) Coordination

Coordination is the essence of manager ship, for it achieves harmony among individual effortstoward the accomplishment of group goals. Each of the managerial functions is an exercisecontributing to coordination.

8. What do you understand by Matrix Organization, mention advantages anddisadvantages of Matrix Organization?

In a matrix organization, the functional and project of product patterns of departmentation arecombined in the same organization structure.

This kind of organization occurs frequently in marketing (for example, planning and executingan advertising campaign for a major new product) in the installation of an electronic data

processing system, etc.

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Functional departments are permanent fixture of the matrix organization; they retain authorityfor the overall operation of their respective units. Product departments or project teams arecreated as the need arises for them, that is, when a specific programme requires a high degreeof technical skill in a concentrated period of time. Members of a project team are assembled

from the functional departments and are placed under the direction of a project team areassembled from the functional departments and are placed under the direction of a projectmanager. The manager for each project is responsible and accountable for its success and hasauthority over the other team members for the duration of the project. On the completion of the

project, the members of the team, including the project manager revert back to their respectivedepartments until the next assignment to a project.

Advantages:

The problem of coordination is minimized because the project manager acts as an integrator torelate personnel from diverse disciplines.

1. There is a reservoir of specialists which ensures availability of expertise to all projects on the basis of their need.

2. There is economy in the cost. Each project is assigned only the number of peopleit needs, avoiding unnecessary surplus.

3. There is an effective information decision system which enables members torespond quickly to the change in product needs.

4. Is oriented towards end results.

5. Professional identification is maintained.

6. Pinpoints product – profit responsibility.

Disadvantages

1. A state of conflict exists between functional and project managers, as bothcompete for limited resources.

2. Role conflict, role ambiguity, and role overload may result in stress for thefunctional and project managers as well as for the team members.

3. An imbalance of authority and power, as well as horizontal and vertical influenceof the project and functional managers, can also lead to problems in matrixorganization.

4. Because of the potential conflicts, managers may want to protect themselvesagainst blame by putting everything in writing, which increases administrationcost.

5. Matrix organization requires many time consuming meetings.

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9. Explain different types of Organization Structures.

Organisational structure is defined as the “Relatively enduring allocation of work roles andadministrative mechanisms that creates a pattern of interrelated work activities and allows theorganisation to conduct, co- ordinate and control its work activities”

To put it in simple words Organisational structure refers to the levels of management anddivision of responsibilities within an organisation.In an organization of any size or complexity, employees' responsibilities typically are defined

by what they do, who they report to, and for managers, who reports to them. Over time thesedefinitions are assigned to positions in the organization rather than to specific individuals. Therelationships among these positions are illustrated graphically in an organizational chart.

Types of Organisation Structure

Line Organisation

It is perhaps the oldest and the simples organisational structure. In this kind of structure everymanager exercise a direct authority over his subordinate who in turn directly reports to theirsuperiors.

There is a hierarchical arrangement of authority. Each department is self contained and works independently of other departments. Lines of authority are vertical i.e. from top to bottom. There are no staff specialists.

Advantages

Simple to establish and operate Promotes prompt decision making. Easy to control as the managers have direct control over their subordinates.

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Communication is fast and easy as there is only vertical flow of communication.

Disadvantages

Lack of specialisation Managers might get overloaded with too many things to do. Failure of one manager to take proper decisions might affect the whole organisation.

However, line structures are suitable for

small businesses where there are few subordinates organisations where there is largely of routine nature and methods of operations are

simple.

Functional Organisation

The organisation is divided into a number of functional areas. This organisation has groupingof activities in accordance with the functions of an organisation such as production, marketing,finance, human resource and so on.

The specialist in charge of a functional department has the authority over all other employeesfor his function.

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Advantages

Is logical and reflection of functions Follows principle of occupation specialisation Simplifies training Better control as the manger in charge of each functional department is usually an

specialist.

Disadvantages

Overspecialisation and narrow viewpoints of key personnel can limit the organisationgrowth.

Reduced coordination between functions. Conflicts between different functions could be detrimental for the organisation as a

whole. Difficult for general managers to coordinate different departments.

However, it is much suitable for large organisations where there is ample scope forspecialisation. Once harmony and proper coordination among different functions is achieved,it could lead to sure success for an organisation.

Line and Staff Organisation

It is a combination of line and functional structures. In this organisation a structure, the

authority flows in a vertical line and get the help of staff specialist who are in advisory. Whenthe line executives need advice, information about any specific area, these staff specialists areconsulted.For example Chief accountant has command authority over accountants and clerks in theaccounts departments but he has only advisory relationship with other departments like

production or sales.

Advantages

Line managers are provided by expert advice by these specialists.Staff managers provide specialist advice which can improve quality of decisions in variousdepartments.

Disadvantages

Line managers and staff managers might have conflicts on particular issues.Line and staff managers might not be clear as to what the actual area of operations is and whatis expected of them. Co-ordination may be a problem.Staff personnel are not accountable for the results and thus may not take tasks seriously.

However, Line and staff organisation is very suitable for large organisation.

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Project Organisation

The project structure consists of a number of horizontal organisational units to complete projects of a long duration. A team of specialists from different areas is created for each project. Usually this team is managed by the project manager. The project staff is separate fromand independent of the functional departments.

Advantages

Special attention can be provided to meet the complex demand of the project. It allows maximum use of specialist knowledge thus chances of failure are very less. Project staff works as a team towards common goal which results in high motivation

level for its members.

Disadvantages

As the project staff consists of personnel from diverse fields, it might be quite challenging forthe project manager to coordinate among them.

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Matrix Organisation

Matrix organisation combines two structures – functional departmentation and projectstructure.

Functional department is a permanent feature of the matrix structure and retainsauthority for overall operation of the functional units.

Project teams are created whenever specific projects require a high degree of technicalskill and other resources for a temporary period.

Project team form the horizontal chain and functional departments create a verticalchain of command.

Members of a particular team are drawn from the functional departments and are placedunder the direction of a project manager who has the overall responsibility of a

particular project.

Advantage

Is oriented towards end results. Professional identification is maintained Pinpoints product-profit responsibility

Disadvantages

Conflict in organisation authority exists. Possibility of disunity of command exists

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Requires manager effective in human relations

Matrix organisations is used in industries with highly complex product systems for example,aerospace industry where project teams are created for specific space or weapon systems.

10. What are the different forms of organisations? Explain Sole Proprietorship in detail.

If one is planning to start a business or is interested in expanding an existing one, an importantdecision relates to the choice of the form of organisation. The most appropriate form isdetermined by weighing the advantages and disadvantages of each type of organisation againstone’s own requirements. Various forms of business organisations from which one can choose the right one include:

(a) Sole proprietorship,(b) Partnership,(c) Cooperative societies, and(d) Joint stock company.

SOLE PROPRIETORSHIP

Sole proprietorship is a popular form of business organisation and is the most suitable form forsmall businesses, especially in their initial years of operation. Sole proprietorship refers to aform of business organisation which is owned, managed and controlled by an individual whois the recipient of all profits and bearer of all risks. This is evident from the term itself. The

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word “sole” implies “only”, and “proprietor” refers to “owner”. Hence, a sole proprietor is theone who is the only owner of a business. This form of business is particularly common in areasof personalised services such as beauty parlours, hair saloons and small scale activities likerunning a retail shop in a locality. payment of debts in case the assets of the business are not

sufficient to meet all the debts. As such the owner’s personal possessions such as his/her personal car and other assets could be sold for repaying the debt. Suppose the total outsideliabilities of XYZ dry cleaner, a sole proprietorship firm, are Rs. 80,000 at the time ofdissolution, but its assets are Rs. 60,000 only. In such a situation the proprietor will have to

bring in Rs. 20,000 from her personal sources even if she has to sell her personal property torepay the firm’s debts.

Sole trader is a type of business unit where a person is solely responsible for providing thecapital, for bearing the risk of the enterprise and for the management of business

J.L. Hansen

The individual proprietorship is the form of business organisation at the head of which standsan individual as one who is responsible, who directs its operations and who alone runs the riskof failure.

L.H. Haney

Features

Salient characteristics of the sole proprietorship form of organisation are as follows:(i) Formation and closure: Hardly any legal formalities are required to start a sole proprietary

business, though in some cases one may require a license. There is no separate law that governssole proprietorship. Closure of the business can also be done easily. Thus, there is ease information as well as closure of business.

(ii) Liability: Sole proprietors have unlimited liability. This implies that the owner is personally responsible for

(iii) Sole risk bearer and profit recipient: The risk of failure of business is borne all alone bythe sole proprietor. However, if the business is successful, the proprietor enjoys all the benefits.He receives all the business profits which become a direct reward for his risk bearing.

(iv) Control: The right to run the business and make all decisions lies absolutely with the sole proprietor. He can carry outhis plans without any interference from others.

(v) No separate entity: In the eyes of the law, no distinction is made between the sole traderand his business, as business does not have an identity separate from the owner. The owner is,therefore, held responsible for all the activities of the business.

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(vi) Lack of business continuity: Since the owner and business are one and the same entity,death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will havea direct and detrimental effect on the business and may even cause closure of the business.

Merits

Sole proprietorship offers many advantages. Some of the important ones are as follows:(i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making

business decisions. Further the decision making is prompt because there is no need to of his/herefforts as he/she is the sole recipient of all the profit. The need to share profits does not ariseas he/she is the single owner. This provides maximum incentive to the sole trader to work hard.consult others. This may lead to timely capitalisation of market opportunities as and when theyarise.

(ii) Confidentiality of information: Sole decision making authority enables the proprietor tokeep all the information related to business operations confidential and maintain secrecy. Asole trader is also not bound by law to publish firm’s accounts.

(iii) Direct incentive: A sole proprietor directly reaps the benefits

(iv) Sense of accomplishment: There is a personal satisfaction involved in working foroneself. The knowledge that one is responsible for the success of the business not onlycontributes to self-satisfaction but also instils in the individual a sense of accomplishment andconfidence i n one’s abilities.

(v) Ease of formation and closure: An important merit of sole proprietorship is the possibilityof entering into business with minimal legal formalities. There is no separate law that governssole proprietorship. As sole proprietorship is the least regulated form of business, it is easy tostart and close the business as per the wish of the owner.

Limitations

Notwithstanding various advantages, the sole proprietorship form of organisation is not freefrom limitations. Some of the major limitations of sole proprietorship are as follows:

(i) Limited resources: Resources of a sole proprietor are limited to his/her personal savingsand borrowings from others. Banks and other lending institutions may hesitate to extend a longterm loan to a sole proprietor. Lack of resources is one of the major reasons why the size of the

business rarely grows much and generally remains small.

(ii) Limited life of a business concern: In the eyes of the law the proprietorship and the ownerare considered one and the same. Death, insolvency or illness of a proprietor affects the

business and can lead to its closure.

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(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner hasunlimited liability. If the business fails, the creditors can recover their dues not merely fromthe business assets, but also from the personal assets of the proprietor. A poor decision or anunfavourable circumstance can create serious financial burden on the owners. That is why a

sole proprietor is less inclined to take risks in the form of innovation or expansion.

(iv) Limited managerial ability: The owner has to assume the responsibility of variedmanagerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual whoexcels in all these areas. Thus decision making may not be balanced in all the cases. Also, dueto limited resources, sole proprietor may not be able to employ and retain talented andambitious employees.Though sole proprietorship suffers from various shortcomings, many entrepreneurs opt for thisform of organisation because of its inherent advantages. It requires less amount of capital. It is

best suited for businesses which are carried out on a small scale and where customers demand

personalised services.

11. Explain Partnership based business organization. Mention the advantages andlimitations also.

The inherent disadvantage of the sole proprietorship in financing and managing an expanding business paved the way for partnership as a viable option. Partnership serves as an answer tothe needs of greater capital investment, varied skills and sharing of risks.

The Indian Partnership Act, 1932 defines partnership as “the relation between persons whohave agreed to share the profit of the business carried on by all or any one of them acting forall.”

Partnership is the relation between persons competent to make contracts who have agreed tocarry on a lawful business in common with a view to private gain.

L H Haney

Partnership is the relation which subsists between persons who have agreed to combine their

property, labour or skill in some business and to share the profits therefrom between them.

The Indian Contract Act

Features

Definitions given above point to the following major characteristics of the partnership form of business organisation.

(i) Formation: The partnership form of business organisation is governed by the Indian

Partnership Act, 1932. It comes into existence through a legal agreement wherein the termsand conditions governing the relationship among the partners, sharing of profits and losses and

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the manner of conducting the business are specified. It may be pointed out that the businessmust be lawful and run with the motive of profit. Thus, two people coming together forcharitable purposes will not constitute a partnership.

(ii) Liability: The partners of a firm have unlimited liability. Personal assets may be used forrepaying debts in case the business assets are insufficient. Further, the partners are jointly andindividually liable for payment of debts.

Jointly, all the partners are responsible for the debts and they contribute in proportion to theirshare in business and as such are liable to that extent. Individually too, each partner can be heldresponsible repaying the debts of the business. However, such a partner can later recover fromother partners an amount of money equivalent to the shares in liability defined as per the

partnership agreement.

(iii) Risk bearing: The partners bear the risks involved in running a business as a team. Thereward comes in the form of profits which are shared by the partners in an agreed ratio.However, they also share losses in the same ratio in the event of the firm incurring losses.

(iv) Decision making and control: The partners share amongst themselves the responsibilityof decision making and control of day to day activities. Decisions are generally taken withmutual consent. Thus, the activities of a partnership firm are managed through the joint effortsof all the partners.

(v) Continuity: Partnership is characterised by lack of continuity of business since the death,retirement, insolvency or insanity of any partner can bring an end to the business. However,the remaining partners may if they so desire continue the business on the basis of a newagreement.

(vi) M embershi p: The minimum number of members needed to start a partnership firm is two,while the maximum number, in case of banking industry is ten and in case of other businessesit is twenty.

Merits

The following points describe the advantages of a partnership firm.

(i) Ease of formation and closure: A partnership firm can be formed easily by putting anagreement between the prospective partners into place whereby they agree to carryout the

business of the firm and share risks. There is no compulsion with respect to registration of thefirm. Closure of the firm too is an easy task.

(ii) Balanced decision making: The partners can oversee different functions according to theirareas of expertise. Because an individual is not forced to handle different activities, this not

only reduces the burden of work but also leads to fewer errors in judgements. As a consequence,decisions are likely to be more balanced.

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(iii) More funds: In a partnership, the capital is contributed by a number of partners. Thismakes it possible to raise larger amount of funds as compared to a sole proprietor and undertakeadditional operations when needed.

(iv) Sharing of risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden and stress on individual partners.

(v) Secrecy: A partnership firm is not legally required to publish its accounts and submit itsreports. Hence it is able to maintain confidentiality of information relating to its operations.

Limitations

A partnership firm of business organisation suffers from the following limitations:(i) Unlimited liability: Partners are liable to repay debts even from their personal resources in

case the business assets are not sufficient to meet its debts. The liability of partners is both jointand several which may prove to be a drawback for those partners who have greater personalwealth. They will have to repay the entire debt in case the other partners are unable to do so.

(ii) Limited resources: There is a restriction on the number of partners, and hence contributionin terms of capital investment is usually not sufficient to support large scale businessoperations. As a result, partnership firms face problems in expansion beyond a certain size.

(iii) Possibility of conflicts: Partnership is run by a group of persons wherein decision makingauthority is shared. Difference in opinion on some issues may lead to disputes between

partners. Further, decisions of one partner are binding on other partners. Thus an unwisedecision by some one may result in financial ruin for all others. In case a partner desires toleave the firm, this can result in termination of partnership as there is a restriction on transferof ownership.

(iv) Lack of continuity: Partnership comes to an end with the death, retirement, insolvency orlunacy of any partner. It may result in lack of continuity. However, the remaining partners canenter into a fresh agreement and continue to run the business.

(v) Lack of public confidence: A partnership firm is not legally required to publish itsfinancial reports or make other related information public. It is, therefore, difficult for anymember of the public to ascertain the true financial status of a partnership firm. As a result, theconfidence of the public in partnership firms is generally low.

12. Describe about Cooperative Society organization with its different features.

The word cooperative means working together and with others for a common purpose. Thecooperative society is a voluntary association of persons, who join together with the motive ofwelfare of the members. They are driven by the need to protect their economic interests in the

face of possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits. The cooperative society is compulsorily required to be registered under the Cooperative

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Societies Act 1912. The process of setting up a cooperative society is simple enough and at themost what is required is the consent of at least ten adult persons to form a society. The capitalof a society is raised from its members through issue of shares. The society acquires a distinctlegal identity after its registration.

Cooperative is a form of organisation wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of an economic interest for themselves.

E. H.

Calvert Cooperative organisation is “a society which has its objectives for the promotion ofeconomic interests of its members in accordance with cooperative principles.

The Indian Cooperative Societies Act 1912

Features

The characteristics of a cooperative society are listed below.

(i) Voluntary membership: The membership of a cooperative society is voluntary. A personis free to join a cooperative society, and can also leave anytime as per his desire. There cannot

be any compulsion for him to join or quit a society. Although procedurally a member is requiredto serve a notice before leaving the society, there is no compulsion to remain a member.Membership is open to all, irrespective of their religion, caste, and gender.

(ii) Legal status: Registration of a cooperative society is compulsory. This accords a separateidentity to the society which is distinct from its members. The society can enter into contractsand hold property in its name, sue and be sued by others. As a result of being a separate legalentity, it is not affected by the entry or exit of its members.

(iii) Limited liability: The liability of the members of a cooperative society is limited to theextent of the amount contributed by them as capital. This defines the maximum risk that amember can be asked to bear.

(iv) Control: In a cooperative society, the power to take decisions lies in the hands of an electedmanaging committee. The right to vote gives the members a chance to choose the memberswho will constitute the managing committee and this lends the cooperative society a democraticcharacter.

(v) Service motive: The cooperative society through its purpose lays emphasis on the valuesof mutual help and welfare. Hence, the motive of service dominates its working. If any surplusis generated as a result of its operations, it is distributed amongst the members as dividend inconformity with the bye-laws of the society.

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Merits

The cooperative society offers many benefits to its members. Some of the advantages of thecooperative form of organisation are as follows.

(i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperativesociety. Irrespective of the amount of capital contribution by a member, each member is entitledto equal voting rights.

(ii) Limited liability: The liability of members of a cooperative society is limited to the extentof their capital contribution. The personal assets of the members are, therefore, safe from beingused to repay business debts.

(iii) Stable existence: Death, bankruptcy or insanity of the members do not affect continuity

of a cooperative society. A society, therefore, operates unaffected by any change in themembership.

(iv) Economy in operations: The members generally offer honorary services to the society.As the focus is on elimination of middlemen, this helps in reducing costs. The customers or

producers themselves are members of the society, and hence the risk of bad debts is lower.

(v) Support from government: The cooperative society exemplifies the idea of democracyand hence finds support from the Government in the form of low taxes, subsidies, and lowinterest rates on loans.

(vi) Ease of formation: The cooperative society can be started with a minimum of tenmembers. The registration procedure is simple involving a few legal formalities. Its formationis governed by the provisions of Cooperative Societies Act 1912.

Limitations

The cooperative form of organisation suffers from the following limitations:(i) Limited resources: Resources of a cooperative society consists of capital contributions ofthe members with limited means. The low rate of dividend offered on investment also acts asa deterrent in attracting membership or more capital from the members.

(ii) Inefficiency in management: Cooperative societies are unable to attract and employ expertmanagers because of their inability to pay them high salaries. The members who offer honoraryservices on a voluntary basis are generally not professionally equipped to handle themanagement functions effectively.

(iii) Lack of secrecy: As a result of open discussions in the meetings of members as well asdisclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the

operations of a cooperative society.

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(iv) Government control: In return of the privileges offered by the government, cooperativesocieties have to comply with several rules and regulations related to auditing of accounts,submission of accounts, etc. Interference in the functioning of the cooperative organisationthrough the control exercised by the state cooperative departments also negatively affects its

freedom of operation.

(v) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints maylead to difficulties in decision making. Personal interests may start to dominate the welfaremotive and the benefit of other members may take a backseat if personal gain is given

preference by certain members.

13. Explain about Joint Stock Companies with its merits and demerits.

A company is an association of persons formed for carrying out business activities and has a

legal status independent of its members. The company form of organisation is governed by TheCompanies Act, 1956. A company can be described as an artificial person having a separatelegal entity, perpetual succession and a common seal. The shareholders are the owners of thecompany while the Board of Directors is the chief managing body elected by the shareholders.Usually, the owners exercise an indirect control over the business. The capital of the companyis divided into smaller parts called ‘shares’ which can be transferred freely from oneshareholder to another person (except in a private company).

Joint stock company is a voluntary association of individuals for profit, having a capital dividedinto transferable shares, the ownership of which is the condition of membership.

Prof. Haney

Features The definition of a joint stock company highlights the following features of a company.

(i) Artificial person: A company is a creation of law and exists independent of its members.Like natural persons, a company can own property, incur debts, borrow money, enter intocontracts, sue and be sued but unlike them it cannot breathe, eat, run, talk and so on. It is,

therefore, called an artificial person.

(ii) Separate legal entity: From the day of its incorporation, a company acquires an identity,distinct from its members. Its assets and liabilities are separate from those of its owners. Thelaw does not recognise the business and owners to be one and the same.

(iii) Formation: The formation of a company is a time consuming, expensive and complicated process. It involves the preparation of several documents and compliance with several legalrequirements before it can start functioning. Registration of a company is compulsory as

provided under the Indian Companies Act, 1956.

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(iv) Perpetual succession: A company being a creation of the law, can be brought to an endonly by law. It will only cease to exist when a specific procedure for its closure, called windingup, is completed. Members may come and members may go, but the company continues toexist.

(v) Control: The management and control of the affairs of the company is undertaken by theBoard of Directors, which appoints the top management officials for running the business. Thedirectors hold a position of immense significance as they are directly accountable to theshareholders for the working of the company. The shareholders, however, do not have the rightto be involved in the day-to-day running of the business.

(vi) Liability: The liability of the members is limited to the extent of the capital contributed bythem in a company. The creditors can use only the assets of the company to settle their claimssince it is the company and not the members that owes the debt. The members can be asked to

contribute to the loss only to the extent of the unpaid amount of share held by them. SupposeAkshay is a shareholder in a company holding 2,000 shares of Rs.10 each on which he hasalready paid Rs. 7 per share. His liability in the event of losses or company’s failure to paydebts can be only up to Rs. 6,000 — the unpaid amount of his share capital (Rs. 3 per share on2,000 shares held in the company). Beyond this, he is not liable to pay anything towards thedebts or losses of the company.

(vii) Common seal: The company being an artificial person acts through its Board of Directors.The Board of Directors enters into an agreement with others by indicating the company’sapproval through a common seal. The common seal is the engraved equivalent of an officialsignature. Any agreement which does not have the company seal put on it is not legally bindingon the company.

(viii) Risk bearing: The risk of losses in a company is borne by all the share holders. This isunlike the case of sole proprietorship or partnership firm where one or few persons respectively

bear the losses. In the face of financial difficulties, all shareholders in a company have tocontribute to the debts to the ext ent of their shares in the company’s capital. The risk of lossthus gets spread over a large number of shareholders.

Merits The company form of organisation offers a multitude of advantages, some of which arediscussed below.

(i) Limited liability: The shareholders are liable to the extent of the amount unpaid on theshares held by them. Also, only the assets of the company can be used to settle the debts,leaving the owner’s personal property free from any charge. This reduces the degree of risk

borne by an investor.

(ii) Transfer of interest: The ease of transfer of ownership adds to the advantage of investingin a company as the share of a public limited company can be sold in the market and as such

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can be easily converted into cash in case the need arises. This avoids blockage of investmentand presents the company as a favourable avenue for investment purposes.

(iii) Perpetual existence: Existence of a company is not affected by the death, retirement,resignation, insolvency or insanity of its members as it has a separate entity from its members.A company will continue to exist even if all the members die. It can be liquidated only as perthe provisions of the Companies Act.

(iv) Scope for expansion: As compared to the sole proprietorship and partnership forms oforganisation, a company has large financial resources. Further, capital can be attracted fromthe public as well as through loans from banks and financial institutions. Thus there is greaterscope for expansion. The investors are inclined to invest in shares because of the limitedliability, transferable ownership and possibility of high returns in a company.

(v) Professional management: A company can afford to pay higher salaries to specialists and professionals. It can, therefore, employ people who are experts in their area of specialisations.The scale of operations in a company leads to division of work. Each department deals with a

particular activity and is headed by an expert. This leads to balanced decision making as wellas greater efficie ncy in the company’s operations. Limitations The major limitations of acompany form of organisation are as follows:

(i) Complexity in formation: The formation of a company requires greater time, effort andextensive knowledge of legal requirements and the procedures involved. As compared to sole

proprietorship and partnership form of organisations, formation of a company is more complex.

(ii) Lack of secrecy: The Companies Act requires each public company to provide from time-to-time a lot of information to the office of the registrar of companies. Such information isavailable to the general public also. It is, therefore, difficult to maintain complete secrecy aboutthe operations of company.

(iii) Impersonal work environment: Separation of ownership and management leads tosituations in which there is lack of effort as well as personal involvement on the part of theofficers of a company. The large size of a company further makes it difficult for the owners

and top management to maintain personal contact with the employees, customers and creditors.

(iv) Numerous regulations: The functioning of a company is subject to many legal provisionsand compulsions. A company is burdened with numerous restrictions in respect of aspectsincluding audit, voting, filing of reports and preparation of documents, and is required to obtainvarious certificates from different agencies, viz., registrar, SEBI, etc. This reduces the freedomof operations of a company and takes away a lot of time, effort and money.

(v) Delay in decision making: Companies are democratically managed through the Board ofDirectors which is followed by the top management, middle management and lower levelmanagement. Communication as well as approval of various proposals may cause delays notonly in taking decisions but also in acting upon them.

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(vi) Oligarchic management: In theory, a company is a democratic institution wherein theBoard of Directors are representatives of the shareholders who are the owners. In practice,however, in most large sized organisations having a multitude of shareholders; the owners haveminimal influence in terms of controlling or running the business. It is so because the

shareholders are spread all over the country and a very small percentage attend the generalmeetings. The Board of Directors as such enjoy considerable freedom in exercising their powerwhich they sometimes use even contrary to the interests of the shareholders. Dissatisfiedshareholders in such a situation have no option but to sell their shares and exit the company.As the directors virtually enjoy the rights to take all major decisions, it leads to rule by a few.

(vii) Conflict in interests: There may be conflict of interest amongst various stakeholders ofa company. The employees, for example, may be interested in higher salaries, consumers desirehigher quality products at lower prices, and the shareholders want higher returns in the form ofdividends and increase in the intrinsic value of their shares. These demands pose problems in

managing the company as it often becomes difficult to satisfy such diverse interests.

14. Explain the different types of Cooperative Societies.

Various types of cooperative societies based on the nature of their operations are described below:

(i) Consumer’s cooperative societies: The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers desirous of obtaininggood quality products at reasonable prices. The society aims at eliminating middlemen toachieve economy in operations. It purchases goods in bulk directly from the wholesalers andsells goods to the members, thereby eliminating the middlemen. Profits, if any, are distributedon the basis of either their capital contributions to the society or purchases made by individualmembers.

(ii) Producer’s cooperative societies: These societies are set up to protect the interest of small producers. The members comprise of producers desirous of procuring inputs for production ofgoods to meet the demands of consumers. The society aims to fight against the big capitalistsand enhance the bargaining power of the small producers. It supplies raw materials, equipment

and other inputs to the members and also buys their output for sale. Profits among the membersare generally distributed on the basis of their contributions to the total pool of goods producedor sold by the society.

(iii) Marketing cooperative societies: Such societies are established to help small producersin selling their products. The members consist of producers who wish to obtain reasonable

prices for their output. The society aims to eliminate middlemen and improve competitive position of its members by securing a favourable market for the products. It pools the outputof individual members and performs marketing functions like transportation, warehousing,

packaging, etc., to sell the output at the best possible price. Profits are distributed according toeach member’s contribution to the pool of output.

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(iv) Farmer’s cooperative societies: These societies are established to protect the interests offarmers by providing better inputs at a reasonable cost. The members comprise of farmers whowish to jointly take up farming activities. The aim is to gain the benefits of large scale farmingand increase the productivity. Such societies provide better quality seeds, fertilisers, machinery

and other modern techniques for use in the cultivation of crops. This helps not only inimproving the yield and returns to the farmers, but also solves the problems associate with thefarming on fragmented land holdings.

(v) Credit cooperative societies: Credit cooperative societies are established for providingeasy credit on reasonable terms to the members. The members comprise of persons who seekfinancial help in the form of loans. The aim of such societies is to protect the members fromthe exploitation of lenders who charge high rates of interest on loans. Such societies provideloans to members out of the amounts collected as capital and deposits from the members andcharge low rates of interest.

(vi) Cooperative housing societies: Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lowercosts. The aim is to solve the housing problems of the members by constructing houses and

giving the option of paying in instalments. These societies construct flats or provide plots tomembers on which the members themselves can construct the houses as per their choice.

15. Explain the factors which decide the choice of form of business organization.

After studying various forms of business organisations, it is evident that each form has certainadvantages as well as disadvantages. It, therefore, becomes vital that certain basicconsiderations are kept in mind while choosing an appropriate form of organisation. Theimportant factors determining the choice of organisation are discussed below:

(i) Cost and ease in setting up the organisation: As far as initial business setting-up costs areconcerned, sole proprietorship is the most inexpensive way of starting a business. However,the legal requirements are minimum and the scale of operations is small. In case of partnershipalso, the advantage of less legal formalities and lower cost is there because of limited scale of

operations. Cooperative societies and companies have to be compulsorily registered. Formationof a company involves a lengthy and expensive legal procedure. From the point of view ofinitial cost, therefore, sole proprietorship is the preferred form as it involves least expenditure.Company form of organisation, on the other hand, is more complex and involves greater costs.

(ii) Liability: In case of sole proprietorship and partnership firms, the liability of theowners/partners is unlimited. This may call for paying the debt from personal assets of theowners. In joint Hindu family business, only the karta has unlimited liability. In cooperativesocieties and companies, however, liability is limited and creditors can force payment of theirclaims only to the extent of the company’s assets. Hence, from the point of view of investors,the company form of organisation is more suitable as the risk involved is limited.

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(iii) Continuity: The continuity of sole proprietorship and partnership firms is affected by suchevents as death, insolvency or insanity of the owners. However, such factors do not affect thecontinuity of business in the case of organisations like joint Hindu family business, cooperativesocieties and companies. In case the business needs a permanent structure, company form is

more suitable. For short term ventures, proprietorship or partnership may be preferred.

(iv) Management ability: A sole proprietor may find it difficult to have expertise in allfunctional areas of management. In other forms of organisations like partnership and company,there is no such problem. Division of work among the members in such organisations allowsthe managers to specialise in specific areas, leading to better decision making. But this maylead to situations of conflicts because of differences of opinion amongst people. Further, if theorganisation’s operations are complex in nature and require professionalised mana gement,company form of organisation is a better alternative. Proprietorship or partnership may besuitable, where simplicity of operations allow even people with limited skills to run the

business. Thus, the nature of operations and the need for professionalised management affectthe choice of the form of organisation.

(v) Capital considerations: Companies are in a better position to collect large amounts ofcapital by issuing shares to a large number of investors. Partnership firms also have theadvantage of combined resources of all partners. But the resources of a sole proprietor arelimited. Thus, if the scale of operations is large, company form may be suitable whereas formedium and small sized business one can opt for partnership or sole proprietorship. Further,

from the point of view of expansion, a company is more suitable because of its capability to

raise more funds and invest in expansion plans. It is precisely for this purpose that in ouropening case Neha’s father suggested she should consider switching over to the company formof organisation.

(vi) Degree of control: If direct control over operations and absolute decision making poweris required, proprietorship may be preferred. But if the owners do not mind sharing controland decision making, partnership or company form of organisation can be adopted. The addedadvantage in the case of company form of organisation is that there is complete separation ofownership and management and it is professionals who are appointed to independentlymanage the affairs of a company.

(vii) Nature of business: If direct personal contact is needed with the customers such as in thecase of a grocery store, proprietorship may be more suitable. For large manufacturing units,however, when direct personal contact with the customer is not required, the company form oforganisation may be adopted. Similarly, in cases where services of a professional nature arerequired, partnership form is much more suitable. It would not be out of place to mention herethat the factors stated above are inter-related. Factors like capital contribution and risk varywith the size and nature of business, and hence a form of business organisation that is suitable

from the point of view of the risks for a given business when run on a small scale might not be

appropriate when the same business is carried on a large scale. It is, therefore, suggested that

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all the relevant factors must be taken into consideration while making a decision with respectto the form of organisation that should be adopted.

16. Explain different types of Joint Stock companies.

Public Limited CompanyA public limited company is a voluntary association of members which is incorporated and,therefore has a separate legal existence and the liability of whose members is limited. Its mainfeatures are :-

The company has a separate legal existence apart from its members who compose it. Its formation, working and its winding up, in fact, all its activities are strictly governed

by laws, rules and regulations. The Indian Companies Act, 1956 contains the provisionsregarding the legal formalities for setting up of a public limited company. Registrars ofCompanies (ROC) appointed under the Companies Act covering the various States andUnion Territories are vested with the primary duty of registering companies floated inthe respective states and the Union Territories.

A company must have a minimum of seven members but there is no limit as regardsthe maximum number.

The company collects its capital by the sale of its shares and those who buy the sharesare called the members. The amount so collected is called the share capital.

The shares of a company are freely transferable and that too without the prior consentof other shareholders or without subsequent notice to the company.

The liability of a member of a company is limited to the face value of the shares he

owns. Once he has paid the whole of the face value, he has no obligation to contributeanything to pay off the creditors of the company.

The shareholders of a company do not have the right to participate in the day-to-daymanagement of the business of a company. This ensures separation of ownership frommanagement. The power of decision making in a company is vested in the Board ofDirectors, and all policy decisions are taken at the Board level by the majority rule. Thisensures a unity of direction in management.

As a company is an independent legal person, its existence is not affected by the death,retirement or insolvency of any of its shareholders.

Advantages Continuity of existence Larger amount of capital Unity of direction Efficient management Limited liability

Disadvantages

Scope for promotional frauds Undemocratic control

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Scope for directors for personal profit Subjected to strict regulations

Private Limited CompanyA private limited company is a voluntary association of not less than two and not more than

fifty members, whose liability is limited, the transfer of whose shares is limited to its membersand who is not allowed to invite the general public to subscribe to its shares or debentures. Itsmain features are :-

It has an independent legal existence. The Indian Companies Act,1956 contains the provisions regarding the legal formalities for setting up of a private limited company.Registrars of Companies (ROC) appointed under the Companies Act covering thevarious States and Union Territories are vested with the primary duty of registeringcompanies floated in the respective states and the Union Territories.

It is relatively less cumbersome to organise and operate it as it has been exempted from

many regulations and restrictions to which a public limited company is subjected to.Some of them are :-

it need not file a prospectus with the Registrar. it need not obtain the Certificate for Commencement of business. it need not hold the statutory general meeting nor need it file the statutory report. restrictions placed on the directors of the public limited company do not apply

to its directors.

The liability of its members is limited. The shares allotted to it's members are also not freely transferable between them. These

companies are not allowed to invite public to subscribe to its shares and debentures. It enjoys continuity of existence i.e. it continues to exist even if all its members die or

desert it.Hence, a private company is preferred by those who wish to take the advantage of limitedliability but at the same time desire to keep control over the business within a limited circle andmaintain the privacy of their business.

Advantages Continuity of existence

Limited liability Less legal restrictions

Disadvantages Shares are not freely transferable Not allowed to invite public to subscribe to its shares Scope for promotional frauds Undemocratic control

17. List the objectives of Personnel Management

The objectives of personnel management/HRM in any industrial organization can besummarized as under.

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(1) To attain maximum individual development (self-development) of the members of anorganization and also to utilize available human resources (with the organization) fully andeffectively.(2) To mould effectively the human resources.

(3) To establish desirable working relationships between employer and employees and between groups of employees.(4) To ensure satisfaction to the workers so that they are freely ready to work.(5) To improve the service rendered by the enterprise to the society through better employeemorale, which leads to more efficient individual and group performance.(6) To establish and maintain a productive and self respecting relationship among all themembers of an organization.(7) To ensure the availability of a competent and willing workforce to the organization forits progress and prosperity.(8) To help organization to achieve its goals by providing well trained, efficient and properlymotivated employees.(9) To maintain high morale and good human relations within the organization for the benefitof employer and employees.(10) To secure the integration of all the individuals and groups with the organization byreconciling individual/group goals with those of an organization.

18. State some standard definitions of Personnel Management.

The term personnel management is defined in different ways. The following definitions areworth noting:

(1) According to Edwin Flippo" Personnel management is the planning, organizing,directing, and controlling of the procurement, development, compensation, integration,maintenance, and separation of human resources to the end that individual, organizationaland societal objectives are accomplished".

(2) According to George R. Terry, "Personnel management is concerned with the obtainingand maintaining of a satisfactory and satisfied, work force".

(3) According to Walter D. Scott, "Personnel management is concerned with the attaining ofmaximum individual development; desirable working relationship between employer and

employees, and an effective moulding of human resources as contrasted with physicalresources".

(4) According to British Institute of Personnel Management, London, "PersonnelManagement is that part of management which is concerned with the people at work and withtheir relationship within an enterprise".

19. List the purposes and importance of Recruitment

The general purpose of recruitment is to provide a pool of potentially qualified job candidates.Specifically, the purposes are to:

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Determine the present and future requirements of the organization in conjunction withits personnel planning and job analysis activities

Increase the pool of job candidates at minimum cost Help increase the success rate of the selection process by reducing the number of

visibly, under qualified or overqualified job applicants Help reduce the probability that job applicants, once recruited and selected, will leavethe organization only after a short period of time

Meet the organizations legal and social obligations regarding the composition of itsworkforce

Begin identifying and preparing potential job applicants who will be appropriatecandidates

Increase organizational and individual effectiveness in the short term and long term Evaluate the effectiveness of various recruiting techniques and sources for all types of

job applicants20. What are the merits and demerits of external recruitment?

The merits are- The organization will have the benefit of new skills, new talents and new

experiences, if people are hired from external sources. The management will be able to fulfill reservation requirements in favour of the

disadvantaged sections of the society. Scope for resentment, heartburn and jealousy can be avoided by recruiting from

outside.The demerits are-

Better motivation and increased morale associated with promoting own employeesre lost to the organization.

External recruitment is costly. If recruitment and selection processes are not properly carried out, chances of right

candidates being rejected and wrong applicants being selected occur.

High training time is associated with external recruitment.

21. What are the objectives of Training and Development Training and development programs are designed to keep an organization at the front of itsindustry maximize performance and energize every level of the organization. Training andDevelopment is also seen to strengthen the tie between employee development and strategicoperation objectives.

The objectives of Training and Development are as follows: - Efficiency: Employees become efficient after undergoing training. Efficient employees

contribute to the growth of the organization.

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Fewer accidents: Accidents, scrap and damage to machinery and equipment can be avoidedor minimized through training. Even dissatisfaction, complaints, absenteeism, and turnovercan be reduced if employees are trained well.

Meeting manpower needs: Future needs of employees will be met through training and

development programmes. Training serves as an effective source of recruitment. Trainingis an investment in human resource with promise of better returns in future. Improves quality: Better-informed workers are likely to make less operational mistakes.

Quality of products or services will definitely increase. This can be well measured throughthe reduction in rejections.

Personal growth: Training programmes also deal with personality development of theemployees (through goal setting, motivation, leadership skills, etc.) thus they personallygain through exposure to training programmes.

Obsolescence prevention: Training and development programs foster the initiative and thecreativity of the employees and help to prevent the manpower obsolescence, which may bedue to age, temperament, or the inability of the person to adapt himself to technologicalchanges.

Versatility in operations: Training makes the employees versatile in operations. Allrounders can be transferred to any job. Flexibility is therefore ensured. Growth indicates

prosperity, which is reflected in profits every year. Employee stability: Training contributes to employee stability in at least 2 ways.

Employees become efficient after undergoing training. Efficient employees contribute tothe growth of the organization. Growth renders stability to the work force. Further trainedemployees tend to stay with the organization.

22. Explain the Recruitment process

Recruitment is a process of finding and attracting capable applicants for employment. The process begins when new recruits are sought and ends when their applications are submitted.The result is a pool of applicants from which new employees are selected. A well-planned andwell-managed recruiting effort will result in high quality applicants, whereas a haphazard and

piecemeal effort will result in a mediocre once. Several factors such as external factors likesupply an demand unemployment rate, labour markets and political and legal considerations,internal factors like recruiting policy, size, cost of recruiting etc govern the recruiting process.

The process comprises of 5 inter related stages: -

1. Planning2. Strategy development3. Searching4. Screening5. Evaluation and control

I PlanningThe first stage in recruitment process is planning. Planning involves translation of likely jobvacancies and information about the nature of these jobs into a set of objectives or targets thatspecify the number and the type of applicants to be contacted.

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Number of contacts: organisations always plan to attract more applicants than they plan to hire.Some of those contacted will be uninterested unqualified or both. Each time a recruitment

process is contemplated, one task is to estimate the number of applicants necessary to fill allthe vacancies with qualified people.

Type of contacts: this refers to the type of people to be informed about the job openings. Thetypes of people depend on the tasks and responsibilities involved and the qualifications andexperience expected. These details are available through job description and job specification.

II Strategy developmentOnce it is known how many and what type of recruits are required, consideration needs to begiven to make or buy employees, technical sophistication of recruitment and selection devices,geographic distribution of labour markets comprising job seekers, sources of recruitment, andsequencing the activities in the recruitment process.

Make or buy refers to hire less skilled employees ad to invest in training and education programmes or hire skilled professionals. The second decision in strategic relates to themethods used in recruitment and selection. The advent of computers has made it possible foremployers to scan national and international applicants qualifications. It has also made possiblefor job seekers to gain better access. In order to reduce costs, companies look into the nationalmarkets for managerial employees, regional or local markets for technical employees, and localmarkets for clerical and blue-collar employees.

The sources for recruitment may be internal or external. The internal sources would be presentemployees, referrals given by the employees, former employees or previous applicants.

Whereas the external sources would be consultants, headhunters, advertisements, employeeexchanges, campus recruitment, contractors, displaced persons, radio and television,acquisitions and mergers, competitors, international recruitment etc. then both the sources ofrecruitment are evaluated. Both have their own advantages and disadvantages.

III SearchingOnce a recruitment plan and strategy are worked out, the search process can begin. It involvestwo steps:

1. Source aviation2. Selling1. Source Aviation:

Typically sources and search methods are activated by issuances of an employee requisition.This means that no actual recruiting takes place until line managers have verified that a vacancydoes exist or will exist. If the organisation has planned well and done a good job of developingits sources and search methods, activation soon results in a flood of applications and/orresumes. The application received must be screened. Those who pass have to be contacted, andinvited for interview. Unsuccessful applicants must be sent letters of regret.

2. Selling

The second issue to be addressed in the searching process concerns communication. Here,contacts are tightrope. On tone hand they want as many applications and on the other hand they

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must resist overselling of their virtues. In selling the organisation both message and the medianeed attention. Selection of medium or media has to be done with lot of care.

IV ScreeningScreening of applicants can be regarded as an integral part of recruiting process. The selection

process will begin after the applicants have been scrutinized and short-listed. Applicationsreceived in response to advertisement are screened and only the eligible applicants are calledfor interview.

The purpose of screening is to remove from the recruiting process, at an early stage thoseapplicants who are visibly unqualified for the job. Effective screening can save a great deal oftime and money. Care must be taken that potentially good employees are not lost and womenand minorities receive full and fair consideration.

In screening, clear job specifications are invaluable. Applications are judged on the basis of

their knowledge, skills, abilities, and interests required to do the job. The techniques used toscreen applicants vary depending on the candidate sources and recruiting methods used.Interviews and application blanks are used to screen walk ins. Campus recruiters and agencyrepresentative’s use in interviews and resumes. References checks are also useful in screening.

V Evaluation and controlEvaluation and control is necessary as considerable costs are incurred in the recruitment

process. The costs generally incurred are

Salaries for recruiters Management and professional time spent on preparing job description, job

specification, advertisements, agency liaison, and so forth The cost of advertisement and other recruitment methods like agency fees Cost of producing supporting literature Recruitment overheads and administrative expenses Cost of overtime and outsourcing while the vacancies are remain unfilled Cost of recruiting unsuitable candidates for selection process

Questions should always be asked as to whether the recruitment methods used are valid andwhether the recruitment process itself is valid. Statistical information on the cost ofadvertisements, time taken for the process etc should be gathered and evaluated. However,

exercises seem to be seldom carried out in practice.

Evaluation of recruitment process:

The recruitment process has the objective of searching for and obtaining applications from jobseekers in sufficient numbers and quality. Keeping in mind these objectives, the evaluationmight include:

Return rate of application sent out Number of suitable candidates for selection Retention and performance of the candidates selected

Cost of recruitment process Time lapsed data

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Comments on image projected

23. Explain the Selection process.

Selection is the process of picking individuals with requisite qualifications and competence to

fill jobs in the organization. A formal definition of selection is it is the process of differentiating between applicants in order to identify those with a greater likelihood of success.

Selection is significant as it has its impact on work performance and employee cost. Selectionis generally done by the HR department often in consultation with the line managers.

Selection Process

Selection is a long process, commencing from the preliminary interview of theapplicants and ending with the contract of employment. In practice, the process differs among

organizations and between two different jobs within the same organization. Selection procedure for senior managers will be long-drawn and rigorous, but it is simple and short whilehiring shop-floor workers.

Environmental Factors Affecting Selection

Selection is influenced by several factors. More prominent among them are supply anddemand of specific skills in the labour market, unemployment rate, labour-market conditions,legal and political considerations, company’s image, company’s policy, HRP, and cost ofhiring. The last three constitute the internal environment and the remaining form the external

environment of the selection process.

1. Preliminary Interview

The applications received from job seekers are subject to scrutiny so as to eliminate unqualifiedapplicants. This is usually followed by a preliminary interview the purpose of which is moreor less the same as scrutiny of applications, that is, elimination of unqualified applications.Scrutiny enables the HR specialists to eliminate unqualified jobseekers based on theinformation supplied in their applications forms. Preliminary interview, on the other hand,helps reject misfits for reasons, which did not appear in the application forms. Besides,

preliminary intervie w, often called ‘courtesy interview’, is a good public relations exercise.

2. Selection Tests

Job seekers who pass the screening and the preliminary interview are called for tests. Differenttypes of tests may be administered, depending on the job and the company. Generally, tests areused to determine the applicant’s ability, aptitude and personal ity. Ability tests assist indetermining how well an individual can perform tasks related to the job. An excellent exampleof this is the typing test given to a prospective employee for a secretarial job. An aptitude testhelps to determine a person’s pote ntial to learn in a given area. An example of such a test is theGeneral Management Aptitude Test which many business students take prior to gainingadmission to a graduate business school programme.

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Personality tests are given to measure a prospective emp loyee’s motivation to function in a particular working environment.

There are various tests designed to assess a candidate’s personality. The Bersenter PersonalityInventory, for example, measures one’s self -sufficiency, neurotic tendency, sociability,introversion and extroversion, locus of control, and self-confidence. The ThematicApperception test (TAT) assesses an individual’s achievement and motivational levels. Other

personality tests, such as the California Psychological Inventory (CPI), the ThurstoneTemperament Survey (TTS), Minnesota Multiphasic Personality Inventory (MMPI), andGuildford-Zimmerman Temperament Survey, have been designed to assess specific

personality traits.

Aptitude tests indicate the ability or fitness of an individual to engage successfully in anynumber of specialized activities. They cover such areas as clerical aptitude, numerical aptitude,

mechanical aptitude, motor-coordination, finger dexterity and manual dexterity.

Interest tests are used to measure an individual’s activ ity preferences. These tests are particularly useful for students considering many careers or employees deciding upon careerchanges.

Graphology test is designed to analyse the handwriting of an individual. It has been said thatan individual’s handwriting can suggest the degree of energy, inhibitions and spontaneity, aswell as disclose the idiosyncracies, and elements of balance and control. For example, bigletters and emphasis on capital letters indicate a tendency towards domination and

competitiveness. A slant to the right, moderate pressure and good legibility show leadership potential. Employers usually consult graphologists to supplement their usual personnelrecruitment procedures. Polygraph tests are designed to ensure accuracy of the informationgiven in the applications. Department stores, treasury offices and jewellery shops – that is thosehighly vulnerable to theft or swindling – may find polygraph tests useful.

3. Employment Interview

The next step in the selection process is employment interview. An interview is conducted atthe beginning and at the end of the selection process. The emphasis here is on the latter.

Interview is a formal, in-depth conversation con ducted to evaluate the applicant’s acceptability.It is considered to be an excellent selection device. Its popularity stems from its flexibility.Interview can be adapted to unskilled, skilled, managerial and professional employees. Itallows a two-way exchange of information, the interviewers learn about the applicant, and theapplicant learns about the employer.

However, interviews do have shortcomings. Absence of reliability is one limitation. No twointerviewers offer similar scoring after interviewing an applicant. Lack of validity is anotherlimitation. This is because, few departments use standardized questions upon which validationstudies can be conducted. Finally, biases of interviewers may cloud the objectivity ofinterviews.

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The employment interview can be one-to-one, sequential or panel. In one-to-one interview,there are only two participants – the interviewer and the interviewee. This can be the same asthe preliminary interview discussed earlier. The sequential interview takes the one-to-one astep further and involves a series of interviews, usually utilizing the strength and knowledge-

base of each interviewer, so that each interviewer can ask questions in relation to his subjectarea of each candidate, as the candidate moves from room to room.

The panel interview consists of two or more interviewers and the figure may go up to as manyas 15. Any panel interview is less intimate and more formal than the one-to-one, but if handledand organized well, it can provide a wealth of information. If not handled carefully, the panelinterview can make the candidate feel ill at ease and confused about whose question to answerand whom to address. Interviewers themselves are likely to experience nightmare, not knowingwho will ask which question and in what order.

4. Reference & Background Checks

Many employers request names, addresses, and telephone numbers of references, for the purpose of verifying information and perhaps, gaining additional background information onan applicant. Although listed on the application form, references are not usually checked untilan applicant has successfully reached the fourth stage of a sequential selection process. Whenthe labour market is very tight, organizations sometimes hire applicants before checkingreferences.

Previous employers, known public figures, university professors, neighbours or friends can act

as references. Previous employers are preferable because they are already aware of theapplicant’s performance. But, the problem with the reference is the tende ncy on the part of the

previous employer to over- rate the applicant’s performance just to get rid of the person.

Organizations normally seek letters of references or telephone references. The latter isadvantageous because of its accuracy and low cost. The telephone reference also has theadvantage of soliciting immediate, relatively candid comments, and attitudes can sometimes

be inferred from hesitations and inflections in speech.

It may be stated that the information gathered through references hardly influence selectiondecisions. The reasons are obvious:

The candidate approaches only those persons who would speak well about him. People may write favourably about the candidate in order to get rid of him. People may not like to divulge the truth about a candidate, lest it might damage or ruin

his career.In several cases, references are a formality and are seldom verified by the employer.

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5. Selection Decision

After obtaining information through the preceding steps, selection decision – the most criticalof all the steps – must be made. The other stages in the selection process have been used tonarrow the number of candidates. The final decision has to be made from the pool of individualswho pass the tests, interviews and reference checks.

The views of the line manager will be generally considered in the final selection because it ishe who is responsible for the performance of the employee. The HR manager plays a criticalrole in the final selection.

6. Physical Examination

After the selection decision and before the job offer is made, the candidate is required toundergo a physical fitness test. A job offer is, often, contingent upon the candidate beingdeclared fit after the physical examination. The results of the medical fitness test are recordedin a statement and are preserved in the personnel records. There are several objectives behinda physical test. Obviously, one reason for a physical test is to detect if the individual carriesany infectious diseases. Secondly, the test assists in determining whether an applicant is

physically fit to perform the work. Third, the physical examination information may be usedto determine if there are certain physical capabilities which differentiate successful and lesssuccessful employees. Fourth, medical check-up protects applicants with health defects fromundertaking work that could be detrimental to themselves or might otherwise endanger theemployer’s property. Finally, such an examination will protect the employer from workers’

compensation claims that are not valid because the injuries or illnesses were present whenemployee was hired.

7. Job Offer

The next step in the selection process is job offer to those applicants who have crossed all the previous hurdles. Job offer is made through a letter of appointment. Such a letter generallycontains a date by which the appointee must report on duty. The appointee must be givenreasonable time for reporting. This is particularly necessary when he is already in employment,in which case the appointee is required to obtain a relieving certificate from the previous

employer. Again, a new job may require movement to another city which means considerable preparation and movement of property.

The company may also want the individual to delay the date of reporting on duty. If the newemployee’s first job upon joining the company is to go on training, the organization mayrequest that the individual delays joining the company until perhaps a week before such training

begins. Naturally this practice cannot be abused especially if the individual is unemployed anddoes not have sufficient finances.

Decency demands that the rejected applicants be informed about their non-selection. Theirapplications may be preserved for future use, if any. It needs no emphasis that the applicationsof selected candidates must also be preserved for future references.

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8. Contracts of Employment

After the job offer has been made and the candidates accept the offer, certain documents needto be executed by the employer and the candidate. One such document is the attestation form.This form contains certain vital details about the candidate which are authenticated and attested

by him. Attestation form will be a valid record for future reference. There is also a need for preparing a contract of employment. The basic information that should be included in a written

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contract of employment will vary according to the level of the job, but the following checklistsets out the typical headings.

Job Title Duties, including a phrase such as “The employee will perform such duties and

will be responsible to such a person as the company may from time to timedirect.”

Date when continuous employment starts and the basis for calculating service Rate of pay, allowances, overtime and shift rates, method of payments Hours of work including lunch break and overtime and shift arrangements Holiday arrangements Length of notice due to and from employee Grievance procedure Disciplinary procedure Work Rules Arrangements for terminating employment Arrangements for union membership Special terms relating to rights to patents and designs, confidential information

and restraints on trade after termination of employment Employer’s right to vary terms of the contract subject to proper notification

being given

Alternatively called employment agreements or simply bonds, contracts of employment serve

many useful purposes. Such contracts seek to restrain job hopers, to protect knowledge andinformation that might be vital to a company’s health bottom line, and to preve nt competitorsfrom poaching highly valued employees.

Great care is taken to draft the contract forms. Often, services of law firms are engaged to getthe forms drafted and finalized.

Most employers insist on agreements being signed by newly hired employees. But highemployee turnover sectors such as software, advertising and media are more prone to use suchcontracts.

The drawback with the contracts is that it is impossible to enforce them. A determined employeeis bound to leave the organization, contract or no contract. The employee is prepared to paythe penalty for breaching the agreement or the new employer will provide compensations. It isfor this reason that several companies have scrapped the contracts altogether. Lintas and Ogilvyand Mather are examples.

Concluding the Selection Process

Contrary to popular perception, the selection process will not end with executing theemployment contract. There is another step – a more sensitive one- reassuring those candidates

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who have not been selected. Such candidates must be told that they were not selected not because of any serious deficiencies in their personalities, but because their profiles did notmatch the requirements of the organization. They must be told that those who were selectedwere done purely on relative merit.

24. What are the Sources of Recruitment?

The sources of recruitment can be broadly categorized into internal and external sources-

(I) Internal Recruitment – Internal recruitment seeks applicants for positions from withinthe company. The various internal sources include a. Promotions and Transfers –

Promotion is an effective means using job posting and personnel records. Job posting requires notifying vacant positions by posting notices, circulating publications orannouncing at staff meetings and inviting employees to apply. Personnel records help

discover employees who are doing jobs below their educational qualifications or skilllevels. Promotions has many advantages like it is good public relations, builds morale,encourages competent individuals who are ambitious, improves the probability of goodselection since information on the individual’s performance is readily available, is cheaperthan going outside to recruit, those chosen internally are familiar with the organization thusreducing the orientation time and energy and also acts as a training device for developingmiddle-level and top-level managers. However, promotions restrict the field of selection

preventing fresh blood & ideas from entering the organization. It also leads to inbreedingin the organization. Transfers are also important in providing employees with a broad-based

view of the organization, necessary for future promotions. b. Employee referrals-

Employees can develop good prospects for their families and friends by acquaintingthem with the advantages of a job with the company, furnishing them with introduction andencouraging them to apply. This is a very effective means as many qualified people can bereached at a very low cost to the company. The other advantages are that the employeeswould bring only those referrals that they feel would be able to fit in the organization basedon their own experience. The organization can be assured of the reliability and the characterof the referrals. In this way, the organization can also fulfill social obligations and create

goodwill.c. Former Employees-

These include retired employees who are willing to work on a part-time basis,individuals who left work and are willing to come back for higher compensations. Evenretrenched employees are taken up once again. The advantage here is that the people arealready known to the organization and there is no need to find out their past performanceand character. Also, there is no need of an orientation programme for them, since they arefamiliar with the organization.

e. Dependents of deceased employees-

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Usually, banks follow this policy. If an employee dies, his / her spouse or son ordaughter are recruited in their place. This is usually an effective way to fulfill socialobligation and create goodwill.

(II) External Recruitment – External recruitment seeks applicants for positions from sources

outside the company. They have outnumbered the internal methods. The various externalsources include

a. Professional or Trade Associations – Many associations provide placement service to its members. It consists of

compiling job seeker’s lists and providing a ccess to members during regional ornational conventions. Also, the publications of these associations carry classifiedadvertisements from employers interested in recruiting their members. These are

particularly useful for attracting highly educated, experienced or skilled personnel.Also, the recruiters can zero on in specific job seekers, especially for hard-to-filltechnical posts.

b. Advertisements -It is a popular method of seeking recruits, as many recruiters prefer

advertisements because of their wide reach. Want ads describe the job benefits, identifythe employer and tell those interested how to apply. Newspaper is the most commonmedium but for highly specialized recruits, advertisements may be placed in

professional or business journals.

Advertisements must contain proper information like the job content, workingconditions, location of job, compensation including fringe benefits, job specifications,growth aspects, etc. The advertisement has to sell the idea that the company and job are

perfect for the candidate. Recruitment advertisements can also serve as corporateadvertisements to build company’ image. It also cost effective.

c. Employment Exchanges-Employment Exchanges have been set up all over the country in deference to

the provision of the Employment Exchanges (Compulsory Notification of Vacancies)Act, 1959. The Act applies to all industrial establishments having 25 workers or moreeach. The Act requires all the industrial establishments to notify the vacancies beforethey are filled. The major functions of the exchanges are to increase the pool of possibleapplicants and to do the preliminary screening. Thus, employment exchanges act as alink between the employers and the prospective employees. These offices are

particularly useful to in recruiting blue-collar, white collar and technical workers.

d. Campus Recruitments-Colleges, universities, research laboratories, sports fields and institutes are

fertile ground for recruiters, particularly the institutes. Campus Recruitment is goingglobal with companies like HLL, Citibank, HCL-HP, ANZ Grindlays, L&T, Motorolaand Reliance looking for global markets. Some companies recruit a given number of

candidates from these institutes every year. Campus recruitment is so much soughtafter that each college; university department or institute will have a placement officer

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to handle recruitment functions. However, it is often an expensive process, even ifrecruiting process produces job offers and acceptances eventually. A majority leavethe organization within the first five years of their employment. Yet, it is a majorsource of recruitment for prestigious companies.

e. Walk-ins, Write-ins and Talk-ins-The most common and least expensive approach for candidates is direct

applications, in which job seekers submit unsolicited application letters or resumes. Directapplications can also provide a pool of potential employees to meet future needs. Fromemployees’ viewpoint, walk -ins are preferable as they are free from the hassles associatedwith other methods of recruitment. While direct applications are particularly effective infilling entry-level and unskilled vacancies, some organizations compile pools of potentialemployees from direct applications for skilled positions. Write-ins are those who sendwritten enquiries. These jobseekers are asked to complete application forms for further

processing. Talk-ins involves the job aspirants meeting the recruiter (on an appropriateddate) for detailed talks. No application is required to be submitted to the recruiter.

f. Contractors-They are used to recruit casual workers. The names of the workers are not entered

in the company records and, to this extent; difficulties experienced in maintaining permanent workers are avoided.

g. Consultants-They are in the profession for recruiting and selecting managerial and executive

personnel. They are useful as they have nationwide contacts and lend professionalism to

the hiring process. They also keep prospective employer and employee anonymous.However, the cost can be a deterrent factor.

h. Head Hunters-They are useful in specialized and skilled candidate working in a particular

company. An agent is sent to represent the recruiting company and offer is made to thecandidate. This is a useful source when both the companies involved are in the same field,and the employee is reluctant to take the offer since he fears, that his company is testing hisloyalty.

i. Radio, Television and Internet-Radio and television are used to reach certain types of job applicants such as

skilled workers. Radio and television are used but sparingly, and that too, bygovernment departments only. Companies in the private sector are hesitant to use themedia because of high costs and also because they fear that such advertising will makethe companies look desperate and damage their conservative image. However, there isnothing inherently desperate about using radio and television. It depends upon what issaid and how it is delivered. Internet is becoming a popular option for recruitmenttoday. There re specialized sites like naukri.com. Also, websites of companies have aseparate section wherein; aspirants can submit their resumes and applications. This

provides a wider reach.

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j. Competitors-This method is popularly known as “poaching” or “raiding” which involves

identifying the right people in rival companies, offering them better terms and luringthem away. For instance, several executives of HMT left to join Titan Watch Company.

There are legal and ethical issues involved in raiding rival firms for potentialcandidates. From the legal point of view, an employee is expected to join a neworganization only after obtaining a ‘no objection certificate’ from his/ her presentemployer. Violating this requirement shall bind the employee to pay a few months’salary to his/ her present employer as a punishment. However, there are many ethicalissues attached to it.

k. Mergers and Acquisitions-When organizations combine, they have a pool of employees, out of whom some

may not be necessary any longer. As a result, the new organization has, in effect, a pool

of qualified job applicants. As a result, new jobs may be created. Both new and old jobsmay be readily staffed by drawing the best-qualified applicants from this employee pool. This method facilitates the immediate implementation of an organization’sstrategic plan. It enables an organization to pursue a business plan, However, the needto displace employees and to integrate a large number of them rather quickly into a neworganization means that the personnel-planning and selection process becomes criticalmore than ever.

24. Explain different methods and techniques of training.

A multitude of techniques are used to train employees. Training techniques represent the

medium of imparting skills and knowledge to employees. Training techniques are meansemployed in the training methods. They are basically of two types.

1. Lectures: It is the verbal presentation of information by an instructor to a largeaudience. The lecturer is presumed to possess knowledge about the subject. A virtue inthis method is that it can be used for large groups and hence the cost of training peremployee is very low. However, this method violates the principle of learning by

practice. Also this type of communication is a one-way communication and there is nofeedback from the audience because in case of very large groups it is difficult to haveinteractive sessions. Long lectures can also cause Boredom.

2. Audi o Visuals: This is an extension of the lecture method. This method includes slides,OHPs, video tapes and films. They can be used to provide a range of realistic examplesexamples of job conditions and situations in the condensed period of time. It alsoimproves the quality of presentation to a great extent.

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Methods and Techniques of Training

3. On- the – Job- Train ing: It is used primarily to teach workers how to do their present jobs. Majority of the industrial training is on the job training. It is conducted at the worksite and in the context of the job. Often, it is informal, as when experienced workershows a trainee how to perform tasks. In this method, the focus of trainer’s focus is onmaking a good product and not on good training technique. It has several steps, thetrainee first receives an overview of the job, it’s purpose and the desi red outcomes. Thetrainer then demonstrates how the job is to be performed and to give trainee a model tocopy. And since a model is given to the trainee, the transferability to the job is veryhigh. Then the employee is allowed to mimic the trainer’s exam ple. The trainee repeatsthese jobs until the job is mastered.

4. Programmed I nstru ction (PI ): In this method, training is offered without theintervention of the trainer. Information is provided to the employee in blocks, in formof books or through teaching machine. After going through each block of material, thetrainee goes through a test/ answers a question. Feedback in the form of correct answersis provided after each response. Thus PI involves:

Presenting questions, facts, and problems to the learner. Allowing the person to respond Providing feedback on the accuracy of the answers If the answers are correct, he proceeds to the next block or else, repeats the

same.

However it is an impersonal method and the scope of learning is less as compared toother methods of training. Also the cost of preparing books, manuals and machineryis very high.

5. Computer A ssisted I nstru ction (CAI ): This is an extension of the PI method. In this method,the learner’s response determines the frequency and difficulty level of the next frame. This is

possible thanks to the speed, memory and the data manipulation capabilities of the computer.

6. Simulation: It is any equipment or technique that duplicates as nearly as the possiblethe actual conditions encountered at the job. It is an attempt to create a realistic fordecision-making. This method is most widely used in Aeronautical Industry.

On the Job Techniques Off the Job Techniques

Methods applied in theworkplace while theemployee is working.

Away from theworkplace

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7. Vestibul e Tr aini ng: This method utilizes equipment which closely resemble the actualones used in the job. It is performed in a special area set aside for the purpose and notat the workplace. The emphasis is placed on learning skills than on production. It ishowever difficult to duplicate pressures and realities of actual situations. Even though

the kind of tension or pressure may be the same but the employee know it is just atechnique and not a real situation. Also the employees behave differently in realsituations than in simulations. Also additional investment is required for the equipment.

8. Case study: It is a written description of an actual situation in the business, which provokes the reader to think and make decisions/ suggestions. The trainees read thecase, analyse it and develop alternative solutions, select the best one and implement it.It is an ideal method to promote decision making skills. They also provide transferenceto an extent. They allow participation through dicussion. This is the most effectivemethod of developing problem solving skills.

The method /approach to analysis may not be given importance. Many a timesonly the result at the end of the case may be considered and not the line of thinking toapproach it. This is a major disadvantage since case studies must primarily be used toinfluence or mend the attitude or thinking of an individual.

9. Role Playing and Behavior M odeli ng: This method mainly focuses on emotional(human relation) issues than other ones. The essence is on creating a real life situationand have trainees assume parts of specific personalities (mostly interchanged roles of

boss and subordinate to create empathy for one another). The consequence is betterunderstanding of issues from the other’s point of view. Concept of BehaviorModeling:

Fundamental psychological process by which new patterns of behavior can beacquired and existing ones can be altered.

“ Vicarious process” learning takes place not by own experience but byobservation or imagination of others’ action.

It is referred to as “copying”, “observational learning” or “imitation” implyingthat it a behavior is learned or modified through observation of othe r’sexperiences.

This change may be videotaped and showed to the trainee and he can review

and critique it. It also helps him see the negative consequences that result from not using the behavior as recommended.

10. Sensiti vity Traini ng: it uses small number of trainees usually less than 12 in a group.They meet with a passive trainer and get an insight into their own behavior and that ofothers. These meetings have no agenda and take place away from the workplace. Thediscussions focus on why participants behave the way they do and how others perceivethem. The objective is to provide the participants with increased awareness of their own

behavior, the perception of others about them and increased understanding of group

process. Examples: Laboratory training, encounter groups. Laboratory training is aform of group training primarily used to enhance interpersonal skills. It can be used to

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develop desired behaviors for future job responsibilities. A trained professional servesas a facilitator. However once the training is over employees get back to being the waythey are.

11. Apprenticeships and Coaching: It is involved learning from more experienced

employee/s. This method may be supplemented with other off-the-job methods foreffectiveness. It is applied in cases of most craft workers, carpenters, plumbers andmechanics. This approach uses high levels of participation and facilitatestransferability. Coaching is similar to apprenticeships. But it is always handled by asupervisor and not by the HR department. The person being trained is calledunderstudy. It is very similar to on the job training method. But in that case, more stressis laid on productivity, whereas here, the focus is on learning.

25. Explain Break even analysis

The break-even level or break-even point (BEP) represents the sales amount — in either unit orrevenue terms — that is required to cover total costs (both fixed and variable). Total profit at the

break-even point is zero. Break- even is only possible if a firm’s prices are high er than itsvariable costs per unit. If so, then each unit of the product sold will generate some“contribution” toward covering fixed costs.

In economics and business, specifically cost accounting, the break-even point (BEP) is the point at which total cost and total revenue are equal: there is no net loss or gain, and one has"broken even." A profit or a loss has not been made, although opportunity costs have been"paid," and capital has received the risk-adjusted, expected return. In short, all costs that needsto be paid are paid by the firm but the profit is equal to 0.

The main purpose of break-even analysis is to determine the minimum output that must be

exceeded in order to make profit. It also is a rough indicator of the earnings impact of amarketing activity.

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The break-even point is one of the simplest yet least used analytical tools in management. Ithelps to provide a dynamic view of the relationships between sales, costs, and profits. Forexample, expressing break-even sales as a percentage of actual sales can give managers achance to understand when to expect to break even (by linking the percent to when in the

week/month this percent of sales might occur).

The break-even point is a special case of Target Income Sales, where Target Income is 0(breaking even). This is very important for financial analysis.

To calculate the break-even point in terms of revenue (a.k.a. currency units, a.k.a. sales proceeds) instead of Unit Sales (X), the above calculation can be multiplied by Price, or,equivalently, the Contribution Margin Ratio (Unit Contribution Margin over Price) can becalculated:

R=C, Where R is revenue generated, C is cost incurred i.e. Fixed costs + Variable Costs or Q* P (Price per unit) = TFC + Q * VC (Price per unit), Q * P - Q * VC = TFC, Q * (P - VC) =TFC, or, Break Even Analysis Q = TFC/c/s ratio=Break Even

26. Explain different types of costs.(A) Actual Cost

Actual cost is defined as the cost or expenditure which a firm incurs for producing oracquiring a good or service. The actual costs or expenditures are recorded in the books ofaccounts of a business unit. Actual costs are also called as "Outlay Costs" or "AbsoluteCosts" or "Acquisition Costs".

Examples: Cost of raw materials, Wage Bill etc.

(B) Opportunity CostOpportunity cost is concerned with the cost of forgone opportunities/alternatives. In otherwords, it is the return from the second best use of the firms resources which the firmsforgoes in order to avail of the return from the best use of the resources. It can also be saidas the comparison between the policy that was chosen and the policy that was rejected. Theconcept of opportunity cost focuses on the net revenue that could be generated in the next

best use of a scare input. Opportunity cost is also called as "Alternative Cost".

If a firm owns a land, there is no cost of using the land (ie., the rent) in the firms

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account. But the firm has an opportunity cost of using the land, which is equal to the rentforgone by not letting the land out on rent.

(C) Sunk Cost

Sunk costs are those do not alter by varying the nature or level of business activity. Sunkcosts are generally not taken into consideration in decision - making as they do not varywith the changes in the future. Sunk costs are a part of the outlay/actual costs. Sunk costsare also called as "Non-Avoidable costs" or "Inescapable costs".Examples: All the past costs are considered as sunk costs. The best example is amortizationof past expenses, like depreciation.

(D) Incremental CostIncremental costs are addition to costs resulting from a change in the nature of level of

business activity. As the costs can be avoided by not bringing any variation in the activityin the activity, they are also called as "Avoidable Costs" or "Escapable Costs". More everincremental costs resulting from a contemplated change is the Future, they are also calledas "Differential Costs"Example: Change in distribution channels adding or deleting a product in the product line.

(E) Explicit CostExplicit costs are those expenses/expenditures that are actually paid by the firm. Thesecosts are recorded in the books of accounts. Explicit costs are important for calculating the

profit and loss accounts and guide in economic decision-making. Explicit costs are also

called as "Paid out costs"Example : Interest payment on borrowed funds, rent payment, wages, utility expenses etc.

(F) Implicit CostImplicit costs are a part of opportunity cost. They are the theoretical costs ie., they are notrecognised by the accounting system and are not recorded in the books of accounts but arevery important in certain decisions. They are also called as the earnings of those employedresources which belong to the owner himself. Implicit costs are also called as "Imputedcosts".Examples: Rent on idle land, depreciation on dully depreciated property still in use, intereston equity capital etc.

(G) Book CostBook costs are those business costs which don't involve any cash payments but a provisionis made in the books of accounts in order to include them in the profit and loss account andtake tax advantages, like provision for depreciation and for unpaid amount of the intereston the owners capital.

(H) Out Of Pocket Costs

Out of pocket costs are those costs are expenses which are current payments to the outsidersof the firm.

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All the explicit costs fall into the category of out of pocket costs.Examples: Rent Payed, wages, salaries, interest etc

(I) Accounting Costs

Accounting costs are the actual or outlay costs that point out the amount of expenditure thathas already been incurred on a particular process or on production as such accounting costsfacilitate for managing the taxation need and profitability of the firm.Examples: All Sunk costs are accounting costs

(J) Economic CostsEconomic costs are related to future. They play a vital role in business decisions as thecosts considered in decision - making are usually future costs. They have the nature similarto that of incremental, imputed explicit and opportunity costs.

(K) Direct CostDirect costs are those which have direct relationship with a unit of operation likemanufacturing a product, organizing a process or an activity etc. In other words, directcosts are those which are directly and definitely identifiable. The nature of the direct costsare related with a particular product/process, they vary with variations in them. Thereforeall direct costs are variable in nature. It is also called as "Traceable Costs"Examples: In operating railway services, the costs of wagons, coaches and engines aredirect costs.

(L) Indirect CostsIndirect costs are those which cannot be easily and definitely identifiable in relation to a

plant, a product, a process or a department. Like the direct costs indirect costs, do not varyie., they may or may not be variable in nature. However, the nature of indirect costs dependupon the costing under consideration. Indirect costs are both the fixed and the variable typeas they may or may not vary as a result of the proposed changes in the production processetc. Indirect costs are also called as Non-traceable costs.Example: The cost of factory building, the track of a railway system etc., are fixed indirectcosts and the costs of machinery, labour etc.

27. Explain the functions of Financial Management.

Financial management performs different function for the effective management of funds ofany organization. Financial management is concerned with the supervision of the capitalinvested in the business enterprise, allocation of finance to resources and overall increase in thevalue of business.

Financial Decision- Financing decision of an enterprise includes decision for short term capitaland long term capital requirement. Financing decision include decision upon the needs andsource of new outside financing and caring on negotiations for new outside financing.

Financing means procurement of finance at most convenient and economic rates.

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Investment Decisions - Funds acquired from different sources are to be invested in profitable projects so that maximum profit can be earned and the value of the wealth becomes maximum.Long term funds are invested for the acquisition of fixed assets and current assets also. Theinvestment of funds in different projects should be made carefully so that the funds can beutilized in the maximum possible ways. Capital budgeting techniques is used or makinginvestment decisions. Investment decision considers the management of current assets such ascash, marketable securities, etc. Capital budgeting which includes identification, selection,implementation of capital projects, etc. and management of mergers, reorganization,disinvestment, etc.

Dividend Decisions- The financial managers takes dividend decisions. For taking decision inrespect of dividend, the factor to be consider include- availability of cash, tax position of the

shareholders, trend of earnings, requirements of funds for the future, etc. Dividend decisionconsiders the allocation of net profit. Dividend decision gives emphasis on the checking onfinancial performance. The financial manager takes initiatives to take proper dividenddecisions as to the amount of dividend to be paid and the time of payment of dividend. He triesto set balance between dividend retention and distribution. Dividend decisions are takenconsidering the overall liquidity and profitability of the enterprise. Dividend decisions are takentaking into account the disposition of profits between dividend and retained earnings.

28. What is Financial Management?

Financial management is the planning of the requirement of capital investment with theobjective of earning higher return incurring the least cost and efficient management of thefinancial management of the financial affairs of any business enterprise.

According to the J.J Hampton "Financial management is an applied field of businessadministration."

Financial management may be defined as, "Financial management is the integral part of generalmanagement engaged in raising of finance, allocation and utilization of finances or funds and

other managerial function for the overall growth of the enterprise."

Financial management has some basic features. Financial management is an applied form ofgeneral management. It concerned with the procurement and conversation of capital funds tomeet the financial needs of the business enterprise and to achieve the overall objectives of thefirm.

29. List the objectives of Financial Management.

Financial management is the integral part of general management having the objective of

maximization of wealth of the business enterprise. Another objective of financial management

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2. Net Working Capital Under this concept we use net working capital. For this, we first deduct all our current liabilitiesfrom our current assets. Excess of current assets over current liabilities will be current assets.We have to maintain minimum level of working capital in our business for operation of

business activities. This concept is also used for preparation of balance sheet. In the verticalform of balance sheet, we show excess of current assets over current liabilities.

33. Explain the factors affecting working capital.

1. Small or Large Business

It is the first determinant of working capital that it is affected with the nature of business.Business may be small or large. In small business, company need high working capital because,small business is relating to trading of goods, for starting small business, you need very small

fixed capital but need high working capital for paying day to day expenses. But in large business, we require more fixed capital than working capital for purchasing fixed asset.2. Small or Large Demand

Nature of demand also absolutely affects the working capital need. Some product can be easilysold by businessman, in that business; you need small amount of working capital because yourearned money from sale can easy fulfill the shortage of working capital. But, if demand is veryless, it is required that you have to invest large amount of working capital because your allfixed expenses must be paid by you.For paying fixed capital you need working capital.

3. Production Policy

Production policy is also main determinant of working capital requirement. Different companymay different production policy. Some companies stop or decrease the production level in offseasons, in that time, company may also reduce the number of employees or decrease the

purchasing of new raw material, so, it will certainly decrease the amount of working capital buton the side, some company may continue their productions in off season, in that case, they needdefinitely large amount of working capital.

4. Credit Policy

Credit policy is relating to purchasing and selling of goods on credit basis. If company purchases all goods on credit and sells on cash basis or advance basis, then it is certainlycompany need very low amount of working capital. But if in company, goods are purchased oncash basis, and sold on credit basis, it means, our earned money will receive after sometimeand we require large amount of working capital for continuing our business.

5. Dividend Policy

Dividend policy also effect working capital requirement. Company can distribute major part ofnet profit. But, if there is no reserve, we have to invest large amount in working capital because,

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lacking of reserve will affect on adversely on fulfill our liabilities. In that case, we have to yieldworking capital by taking short term loan for paying uncertain liability.

6. Working Capital Cycle

Working capital cycle shows all steps which starts from cash purchasing of raw material andthen this converted into finished product, after this it is converted into sale, if it is credit sale,debtors will also the part of working capital cycle and when we gets money from our debtors,it is the final part of working capital cycle. If we receive fastly from our debtors, we need smallamount working capital. Otherwise, for purchasing new raw material, we need more amount ofworking capital.

7. Manufacturing Cycle

Manufacturing cycle means the process of converting raw material into finished product. Longmanufacturing cycle will create the situation in which we require large amount of workingcapital. Suppose, we have to construct the building, for constructing colony of buildings, itmay consume the time more than 5 years, so according to this we need working capital.8. Business Cycle

There are two main part of business cycle, one is boom and other is recession. In boom, weneed high money or working capital for development of business but in recession, we need onlylow amount of working capital.

9. Price Level Changes

If there is increasing trend of products prices, we need to store high amount of working capital, because next time, it is precisely that we have to pay more for purchasing raw material or otherservice expenses. Inflation and deflation are two major factors which decide the next level ofworking capital in business.

10. Effect of External Business Environmental Factors

There are many external business environmental factors which affect the need of workingcapital like fiscal policy, monetary policy and bank policies and facilities.

34. Explain different types of working cycle.

1. Gross working capital

Total or gross working capital is that working capital which is used for all the current assets.Total value of current assets will equal to gross working capital.2. Net Working Capital

Net working capital is the excess of current assets over current liabilities.

Net Working Capital = Total Current Assets – Total Current Liabilities

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This amount shows that if we deduct total current liabilities from total current assets, then balance amount can be used for repayment of long term debts at any time.3. Permanent Working Capital

Permanent working capital is that amount of capital which must be in cash or current assets for

continuing the activities of business.

4. Temporary Working Capital

Sometime, it may possible that we have to pay fixed liabilities, at that time we need workingcapital which is more than permanent working capital, then this excess amount will betemporary working capital. In normal working of business, we don’t need such capital.

35. What is Working Capital Cycle?

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets

and current liabilities into cash. The longer the cycle is, the longer a business is tying up capitalin its working capital without earning a return on it. Therefore, companies strive to reduce itsworking capital cycle by collecting receivables quicker or sometimes stretching accounts

payable.

36. What is mean by Depreciation?

Definition: The monetary value of an asset decreases over time due to use, wear and tear orobsolescence. This decrease is measured as depreciation.

Description: Depreciation, i.e. a decrease in an asset's value, may be caused by a number ofother factors as well such as unfavorable market conditions, etc. Machinery, equipment,

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Annuity depreciation

Annuity depreciation methods are not based on time, but on a level of Annuity. This could bemiles driven for a vehicle, or a cycle count for a machine. When the asset is acquired, its lifeis estimated in terms of this level of activity.

Sum-of-years-digits method

Sum-of-years-digits is a depreciation method that results in a more accelerated write-off thanthe straight line method, and typically also more accelerated than the declining balance method.Under this method the annual depreciation is determined by multiplying the depreciable cost

by a schedule of fractions.

Sum of the years' digits method of depreciation is one of the accelerated depreciation

techniques which are based on the assumption that assets are generally more productive whenthey are new and their productivity decreases as they become old. The formula to calculatedepreciation under SYD method is:

SYD Depreciation = Depreciable Base x (Remaining Useful Life/Sum of the Years' Digits)Depreciable Base = Cost - Salvage Value

Units-of-production depreciation method

Under the units-of-production method, useful life of the asset is expressed in terms of the total

number of units expected to be produced:

Units of time depreciation

Units of time depreciation is similar to units of production, and is used for depreciationequipment used in mining or natural resource exploration, or cases where the amount the assetis used is not linear year to year.

Group depreciation method

Group depreciation method is used for depreciating multiple-asset accounts using straight-line-depreciation method. Assets must be similar in nature and have approximately the same usefullives.

Composite depreciation method


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