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    Licensing is an arrangement between companies of different countries, a company allows another

    one to use its brand name, copyright, patent, technology, trademark or other assets in exchange foran amount (royalty) based on sales. Companies may choose to manufacture or sell their products

    under licensing when transportation or domestic production costs are too high, government

    regulations restrict business activities of foreign companies (usually in developing countries) or the

    company wants to simply produce and sell the same quality everywhere. For example, Starbucks all

    over the world sell its same-quality beverages in the same-looking stores under licensing contracts.

    Strategic Alliance and Joint Venture

    A strategic alliance is a cooperation of two or more companies for mutual gain. A special type of this

    is a joint venture when the partners mutually found a new company. This cooperation allows

    companies to share development and production costs, technologies and sales networks. For

    example, Motorola and Toshiba formed a strategic alliance to develop manufacturing processes for

    microprocessors. General Mills and Nestle formed a new company, Cereal Partners Worldwide, to

    produce and sell cereals.

    Direct Investment

    Foreign direct investment is a company's physical investment into building a plant in another

    country or acquisition of a foreign firm or subsidiary. Direct investments allow companies to access

    foreign markets and act as domestic businesses in that market with a full scale of activities, from

    manufacturing to selling. Not only can the investing companies benefit, but also the hosting

    countries through getting to know new products, services, technologies and managerial skills. For

    example, Volkswagen is building a factory in Tennessee to sell cars in the U.S. market, but it also

    contributes to develop new technologies at the local university.

    3) discuss a detailed note on ‘balance of payments’. 

    The balance of payments (BOP) is the method countries use to monitor all international monetary

    transactions at a specific period of time. Usually, the BOP is calculated every quarter and every

    calendar year. All trades conducted by both the private and public sectors are accounted for in the

    BOP in order to determine how much money is going in and out of a country. If a country has

    received money, this is known as a credit, and if a country has paid or given money, the transaction



    is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and

    liabilities (debits) should balance, but in practice this is rarely the case. Thus, the BOP can tell the

    observer if a country has a deficit or a surplus and from which part of the economy the discrepancies

    are stemming.

    The Balance of Payments Divided

    The BOP is divided into three main categories: the current account, the capital account and the

    financial account. Within these three categories are sub-divisions, each of which accounts for a

    different type of international monetary transaction.

    The Current Account

    The current account is used to mark the inflow and outflow of goods and services into a country.

    Earnings on investments, both public and private, are also put into the current account.

    Within the current account are credits and debits on the trade of merchandise, which includes goods

    such as raw materials and manufactured goods that are bought, sold or given away (possibly in the

    form of aid). Services refer to receipts from tourism, transportation (like the levy that must be paid

    in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from

    lawyers or management consulting, for example) and royalties from patents and copyrights. When

    combined, goods and services together make up a country's balance of trade (BOT). The BOT is

    typically the biggest bulk of a country's balance of payments as it makes up total imports and

    exports. If a country has a balance of trade deficit, it imports more than it exports, and if it has a

    balance of trade surplus, it exports more than it imports.

    Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded

    in the current account. The last component of the current account is unilateral transfers. These are

    credits that are mostly worker's remittances, which are salaries sent back into the home country of a

    national working abroad, as well as foreign aid that is directly received.

    The Capital Account

    The capital account is where all international capital transfers are recorded. This refers to the

    acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-

    produced assets, which are needed for production but have not been produced, like a mine used for

    the extraction of diamonds.



    The capital account is broken down into the monetary flows branching from debt forgiveness, the

    transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of

    ownership on fixed assets (assets such as equipment used in the production process to generate

    income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance

    taxes, death levies and, finally, uninsured damage to fixed assets.

    The Financial Account

    In the financial account, international monetary flows related to investment in business, real estate,

    bonds and stocks are documented. Also included are government-owned assets such as foreign

    reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund (IMF),

    private assets held abroad and direct foreign investment. Assets owned by foreigners, private and

    official, are also recorded in the financial account.

    The Balancing Act

    The current account should be balanced against the combined-capital and financial accounts;

    however, as mentioned above, this rarely happens. We should also note that, with fluctuating

    exchange rates, the change in the value of money can add to BOP discrepancies. When there is a

    deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or

    funded by the capital account.

    If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow.

    However, the sale of that fixed asset would be considered a current account inflow (earnings from

    investments). The current account deficit would thus be funded. When a country has a current

    account deficit that is financed by the capital account, the country is actually foregoing capital assets

    for more goods and services. If a country is borrowing money to fund its current account deficit, this

    would appear as an inflow of foreign capital in the BOP.

    Liberalizing the Accounts

    The rise of global financial transactions and trade in the late-20th century spurred BOP and

    macroeconomic liberalization in many developing nations. With the advent of the emerging market

    economic boom - in which capital flows into these markets tripled from USD$50 million to $150

    million from the late 1980s until the Asian crisis - developing countries were urged to lift restrictions

    on capital and financial-account transactions in order to take advantage of these capital inflows.

    Many of these countries had restrictive macroeconomic policies, by which regulations prevented

    foreign ownership of financial and non-financial assets. The regulations also limited the transfer of

    funds abroad.



    With capital and financial account liberalization, capital markets began to grow, not only allowing a

    more transparent and sophisticated market for investors, but also giving rise to foreign direct

    investment (FDI). For example, investments in the form of a new power station would bring a

    country greater exposure to new technologies and efficiency, eventually increasing the nation's

    overall GDP by allowing for greater volumes of production. Liberalization can also facilitate less risk

    by allowing greater diversification in various markets.

    The Bottom Line

    The balance of payments is divided into the current account, capital account, and financial account.

    Theoretically, the BOP should be zero.

    Assignment 2

    1)  Describe the objectives and functions of WTO.

    What are the Functions and Objectives of WTO ?



    Some of the important functions and objectives of WTO are :-

    Functions of WTO

    The former GATT was not really an organisation; it was merely a legal arrangement. On the

    other hand, the WTO is a new international organisation set up as a permanent body. It is

    designed to play the role of a watchdog in the spheres of trade in goods, trade in services,

    foreign investment, intellectual property rights, etc. Article III has set out the following five

    functions of WTO;

    (i) The WTO shall facilitate the implementation, administration and operation and further

    the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also

    provide the frame work for the implementation, administration and operation of the

    plurilateral Trade Agreements.

    (ii) The WTO shall provide the forum for negotiations among its members concerning their

    multilateral trade relations in matters dealt with under the Agreement in the Annexes to this




    (iii) The WTO shall administer the Understanding on Rules and Procedures Governing the

    Settlement of Disputes.

    (iv) The WTO shall administer Trade Policy Review Mechanism.

    (v) With a view to achieving greater coherence in global economic policy making, the WTO

    shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the

    International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.

    Objectives of WTO

    Important objectives of WTO are mentioned below:

    (i) to implement the new world trade system as visualised in the Agreement;

    (ii) to promote World Trade in a manner that benefits every country;

    (iii) to ensure that developing countries secure a better balance in the sharing of the

    advantages resulting from the expansion of international trade corresponding to their

    developmental needs;

    (iv) to demolish all hurdles to an open world trading system and usher in international

    economic renaissance because the world trade is an effective instrument to foster economic


    (v) to enhance competitiveness among all trading partners so as to benefit consumers and

    help in global integration;

    (vi) to increase the level of production and productivity with a view to ensuring level of

    employment in the world;

    (vii) to expand and utilize world resources to the best;

    (viii) to improve the level of living for the global population and speed up economic

    development of the member nations.

    3) Write a note on ‘Globalisation and HRD’.

    Globalization is a term in business that refers to the integration of an organization's operations,

    processes and strategies into diverse cultures, products, services and ideas. Because of its emphasis

    on diversity, globalization also has a deep impact on the way companies manage their employees.



    Understanding the effects of globalization on human resources can help managers to better equip

    their organizations for the increasingly global business environment.

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    Diversity Recruitment

    With the rise of globalization, companies of all sizes are now interacting with customers and

    stakeholders from diverse cultures, languages and social backgrounds. In response, many human

    resources managers seek to hire employees from equally diverse backgrounds. Companies engagingin this diversity recruitment recognize the value of having people on staff that their customers can

    relate to, and they know that having a team of diverse people contributes to the range of ideas and

    influences within the organization.

    Push for Professional Development

    A further effect of globalization on HR management is a push for professional development.

    Professional development is concerned with providing employees opportunities to achieve their

    career-related goals. Some organizations provide resources for their employees to earn a universitydegree, others send their employees to conferences or networking events and training days.

    Professional development is important to globalization because it creates a win-win situation. The

    employees feel as though the organization is concerned with providing a range of skills and

    competencies for their employees. Likewise, the organization benefits from the added skills and

    connections that the employees who take advantage of professional development programs


    Related Reading: What Are the Five Main Functions of Global Human Resource Management?

    Greater Emphasis on Training

    Similar to professional development, a greater emphasis on training has resulted because of

    globalization in human resources management. Training, however, tends to be focused on the needs

    and professional competencies of groups of employees within the organization. The company might,

    for instance, host language classes to give its call center staff an edge in telephone sales. It might

    also teach its employees how to use a new global software platform. This emphasis on training seeks

    to give the company a competitive edge in the global marketplace by honing the employees'diversity emphasis.




    Management of Laws Across Jurisdictions

    A final effect of globalization on human resources management is the need for businesses to

    understand and apply the laws of many different jurisdictions to the particular business. The federalgovernment sets out a number of tax and labor laws that businesses operating in the United States

    must comply with, but there may also be local and regional laws that apply to companies that

    operate in different states or different countries. Selling products in Europe, for example, might

    mean that a company has to impose a Value-Added Tax on its goods. Hiring employees at branch

    locations in different locations might change the requirements on minimum wage, tax allowances or

    working hours. Understanding these laws is vitally essential to the organization because any breach

    of them will have a serious impact not only on the business's financial well-being but also on its


    Management control system

    Assignment 1

    1)  Explain the nature of management control.

    Zc z

    The Nature of Management Controls Systems

    Element of management control systems include strategic planning, budgeting, resource

    allocation, and transfer pricing. Management control systems must fit the firm’s strategy, and

    also some give perspective that strategies emerge through experimentation, which are

    influenced by the firm’s management systems. 

    Ø Basic concept


    Element of control systems:

    1. A detector, report what is happening throughout the organization.

    2. An assessor, compare this information with the desire state.

    3. An effectors, take corrective action once a significant difference between the actual state

    and the desired state has been perceived.

    4. A communication network, tells manager what is happening and how that compares to the

    desires state.




    The management control process is the process by which managers at all levels ensure that the

    people they supervise implement their intended strategies.


    A system is a prescribed and usually repetitious way of carrying out an activity or a set ofactivities. Systems are characterized by a more or less rhythmic, coordinated, and recurring

    series of steps intended to accomplish a specified purpose.

    Ø Boundaries of management control

    Strategy formulation is the least systematic of the three, task control is most systematic, and

    management control lies in between. Strategy formulation focuses on the long run, task control

    focuses on short-run activities, and management control is in between. Strategy formulation

    uses rough approximations of the future, task control uses current accurate data, and

    management control is in between. Each activity involves both planning and control, but the

    emphasis varies with the type of activity. The planning process is much more important in

    strategy formulation, the control process is much more important in task control, and planning

    and control are of approximately equal importance in management control.

    Management Control

    Management control is the process by which managers influence other members of the

    organization to implement the organization’s strategies. 

    Management control activities:

    1. Planning

    2. Coordinating

    3. Communicating

    4. Evaluating

    5. Deciding

    6. Influencing

    Goal Congruence

    Although systematic, the management control process is by no means mechanical; rather, it

    involves interactions among individuals, which cannot be described in mechanical way.

    Managers have personal as well as organization goals. The central control problem is to include

    them to act in pursuit of their personal goals in way that will help attain the organization’s goals

    as well.

    Tool for implementing strategy

    Management control focuses primarily on strategy execution. Management controls are onlyone of the tools managers use in implementing desired strategies.



    Financial and non financial emphasis

    The financial dimension focuses on the monetary “bottom line” - net income, return on equity,

    and so forth. But virtually all organizational subunits have nonfinancial objectives – product

    quality, market share, customer satisfaction, on-time delivery, and employee morale.

    Strategy Formulation

    Strategy formulation is the process of deciding on the goals of the organization and the

    strategies for attaining these goals. Goals are timeless; they exist until they are changed, and

    they are changed only rarely.

    Distinctions between strategy formulation and management control

    Strategy formulation is the process of deciding on new strategies; management control is the

    process of implementing those strategies. From the standpoint of system design, the most

    important distinction between strategy formulation and management control is that strategyformulation is essentially unsystematic.

    Task Control

    Task control is process of ensuring that specified tasks are carried out effectively and efficiently.

    Task control is transaction-oriented – that is, it involves the performance of individual tasks

    according to rules established in the management control process.

    2)  Discuss the different types of control.


    Management control describes the means by which the actions of individuals or groups within an

    organization are constrained to perform certain actions while avoiding other actions in an effort to

    achieve organizational goals. Management control falls into two broad categories—regulative and

    normative controls—but within these categories are several types.

    Table 1 Types of Control

    Table 1

    Types of Control

    Regulative Controls Normative Controls

    Bureaucratic Controls Team Norms

    Financial Controls Organizational Cultural Norms



    Quality Controls

    The following section addresses regulative controls including bureaucratic controls, financial

    controls, and quality controls. The second section addresses normative controls including team

    norms and organization cultural norms.


    Regulative controls stem from standing policies and standard operating procedures, leading some to

    criticize regulative controls as outdated and counter-productive. As organizations have become

    more flexible in recent years by flattening organizational hierarchies, expanding organizational

    boundaries to include suppliers in inventory management and customers in new product

    development, forging cooperative alliances with competitors, and developing virtual organizations in

    which employees are geographically dispersed and may meet only a few time each year, critics point

    out that regulative controls may prevent rather promote goal attainment.

    There is some truth to this. Customer service representatives at Holiday Inn are limited in the extent

    to which they can correct mistakes involving guests. They can move guests to a different room if

    there is excessive noise in the room next to the guest's room. In some instances, guests may get a

    gift certificate for an additional night at another Holiday Inn if they have had a particularly bad

    experience. In contrast, customer service representatives at Tokyo's Marriott Inn have the latitude

    to take up to $500 off a customer's bill to solve complaints.

    The actions of customer service representatives at both Holiday Inn and Marriott Inn must follow

    policies and procedures, yet those at Marriott are likely to feel less constrained and more

    empowered by Marriott's policies and procedures compared to Holiday Inn customer service

    representatives. The key in terms of management control is matching regulative controls such as

    policies and procedures with organizational goals such as customer satisfaction. Each of the three

    types of regulative controls discussed in the next few paragraphs has the potential to align or

    misalign organizational goals with regulative controls. The challenge for managers is striking the

    right balance between too much control and too little.


    Bureaucratic controls stem from lines of authority and this authority comes with one's position in

    the organizational hierarchy. The higher up the chain of command, the more an individual will have

    authority to dictate policies and procedures. Bureaucratic controls have gotten a bad name and

    often rightfully so. Organizations placing too much reliance on chain of command authority

    relationships inhibit flexibility to deal with unexpected events. However, there are ways managers

    can build flexibility into policies and procedures that make bureaucracies as flexible and able toquickly respond to customer problems as any other form of organizational control.




    Consider how hospitals, for example, are structured along hierarchical lines of authority. The Board

    Table 2 Definition and Examples of Regulative Controls

    Table 2

    Definition and Examples of Regulative Controls

    Type of Regulative Control Definition Example

    Bureaucratic Controls Policies and operating procedures Employee handbook

    Financial Controls Key financial targets Return on investment

    Quality Controls Acceptable levels of product or process variation Defects per million

    of Directors is at the top, followed by the CEO and then the Medical Director. Below these top

    executives are vice presidents with responsibility for overseeing various hospital functions such as

    human resources, medical records, surgery, and intensive care units. The chain of command in

    hospitals is clear; a nurse, for example, would not dare increase the dosage of a heart medication to

    a patient in an intensive care unit without a physician's order. Clearly, this has the potential to slow

    reaction times—physicians sometimes spread their time across hospital rounds for two or three

    hospitals and also their individual office practice. Yet, it is the nurses and other direct care providers

    who have the most contact with patients and are in the best position to rapidly respond to changesin a patient's condition.

    The question bureaucratic controls must address is: How can the chain of command be preserved

    while also building flexibility and quick response times into the system? One way is through standard

    operating procedures that delegate responsibility downward. Some hospital respiratory therapy

    departments, for example, have developed standard operating procedures (in health care terms,

    therapist-driven protocols or TDPs) with input from physicians.

    TDPs usually have branching logic structures requiring therapists to perform specific tests prior to

    certain patient interventions to build safety into the protocol. Once physicians approve a set of

    TDPs, therapists have the autonomy to make decisions concerning patient care without further

    physicians' orders as long as these decisions stay within the boundaries of the TDP. Patients need

    not wait for a physician to make the next set of rounds or patient visits, write a new set of orders,

    enter the orders on the hospitals intranet, and wait for the manager of respiratory therapy to

    schedule a therapist to perform the intervention. Instead, therapists can respond immediately

    because protocols are established that build in flexibility and fast response along with safety checks

    to limit mistakes.




    Bureaucratic control is thus not synonymous with rigidity. Unfortunately, organizations have built

    rigidity into many bureaucratic systems, but this need not be the case. It is entirely possible for

    creative managers to develop flexible, quick-response bureaucracies.


    Financial controls include key financial targets for which managers are held accountable. These types

    of controls are common among firms that are organized as multiple strategic business units (SBUs).

    SBUs are product, service, or geographic lines having managers who are responsible for the SBU's

    profits and losses. These managers are held responsible to upper management to achieve financial

    targets that contribute to the overall profitability of the corporation.

    Managers who are not SBU executives often have financial responsibility as well. Individual

    department heads are typically responsible for keeping expenses within budgeted guidelines. These

    managers, however, tend to have less overall responsibility for financial profitability targets than

    SBU managers.

    In either case, financial controls place constraints on spending. For SBU managers, increased

    spending must be justified by increased revenues. For departmental managers, staying within

    budget is typically one key measure of periodic performance reviews. The role of financial controls,

    then, is to increase overall profitability as well as to keep costs in line. To determine which costs are

    reasonable, some firms will benchmark other firms in the same industry. Such benchmarking, while

    not always an "apples-to-apples" comparison, provides at least some evidence to determine

    whether costs are in line with industry averages.


    Quality controls describe the extent of variation in processes or products that is consideredacceptable. For some companies, zero defects—no variation at all—is the standard. In other

    companies, statistically insignificant variation is allowable.

    Quality controls influence the ultimate product or service outcome offered to customers. By

    maintaining consistent quality, customers can rely on a firm's product or service attributes, but this

    also creates an interesting dilemma. An overemphasis on consistency where variation is kept to the

    lowest levels may also reduce response to unique customer needs. This is not a problem when the

    product or service is relatively standardized such as a McDonald's hamburger, but



    Table 3 Definition and Examples of Normative Controls

    Table 3

    Definition and Examples of Normative Controls

    Type of Normative Control Definition Example

    Team Norms Informal team rules and responsibilities Task delegation based on team member


    Organizational Cultural Norms Shared organizational values, beliefs, and rituals Collaboration may

    be valued more than individual "stars"

    may pose a problem when customers have nonstandard situations for which a one-size-fits-all

    solution is inappropriate. Wealth managers, for example, may create investment portfolios tailored

    to a single client, but the process used to implement that portfolio such as stock market transactionswill be standardized. Thus, there is room within quality control for both creativity; e.g., wealth

    portfolio solutions, and standardization; e.g., stock market transactions.


    Rather than relying on written policies and procedures as in regulative controls, normative controls

    govern employee and managerial behavior through generally accepted patterns of action. One way

    to think of normative controls is in terms how certain behaviors are appropriate and others are less

    appropriate. For instance, a tuxedo might be the appropriate attire for an American business awardsceremony, but totally out of place at a Scottish awards ceremony, where a formal kilt may be more

    in line with local customs. However, there would generally be no written policy regarding

    disciplinary action for failure to wear the appropriate attire, thus separating formal regulative

    controls for the more informal normative controls.


    Teams have become commonplace in many organizations. Team norms are the informal rules that

    make team members aware of their responsibilities to the team. Although the task of the team may

    be formally documented and communicated, the ways in which team members interact are typically

    developed over time as the team goes through phases of growth. Even team leadership be

    informally agreed upon; at times, an appointed leader may have less influence than an informal

    leader. If, for example, an informal leader has greater expertise than a formal team leader, team

    members may look to the informal leader for guidance requiring specific skills or knowledge. Team

    norms tend to develop gradually, but once formed, can be powerful influences over behavior.




    In addition to team norms, norms based on organizational culture are another type of normative

    control. Organizational culture involves the shared values, beliefs, and rituals of a particular

    organization. The Internet search firm, Google, Inc. has a culture in which innovation is valued,

    beliefs are shared among employees that the work of the organization is important, and teamwork

    and collaboration are common. In contrast, the retirement specialty firm, VALIC, focuses on

    individual production for its sales agents, de-emphasizing teamwork and collaboration in favor of

    personal effort and rewards. Both of these example are equally effective in matching norms with

    organizational goals; the key is thus in properly aligning norms and goals.

    The broad categories of regulative and normative controls are present in nearly all organizations, but

    the relative emphasis of each type of control varies. Within the regulative category are bureaucratic,

    financial, and quality controls. Within the normative category are team norms and organization

    cultural norms. Both categories of norms can be effective and one is not inherently superior to the

    other. The managerial challenge is to encourage norms that align employee behavior with

    organizational goals.

    Read more: http://www.referenceforbusiness.com/management/Log-Mar/Management-


    Assignment 2

    2) Describe management control process


    4 main steps in control process in management are:

    Control as a management function involves the following steps:

    1. Establishing Standards:




    Standards are criteria against which results are measured. They are norms to achieve the goals.

    Standards are usually measured in terms of output. They can also be measured in non-monetary

    terms like loyalty, customer attraction, goodwill etc. Some of the standards are as.

    a. Time standards:

    The goal will be set on the basis of time lapse in performing a task.

    b. Cost standards:

    These indicate the financial expenditures involved per unit, e.g. material cost per unit, cost per

    person, etc.

    c. Income standards:

    These relate to financial rewards received due to a particular activity like sales volume per month,

    year etc.

    d. Market share:

    This relates to the share of the company's product in the market.

    e. Productivity:

    Productivity can be measured on the basis of units produced per man hour etc.

    f. Profitability:

    These goals will be set with the consideration of cost per unit, market share, etc.




    2. Measuring Performance

    Measurement involves comparison between what is accomplished and what was intended to be

    accomplished. The measurement of actual performance must be in the units similar to those of

    predetermined criterion. The unit or the yardstick thus chosen be clear, well-defined and easily

    identified, and should be uniform and homogenous throughout the measurement process.

    The performance can be measured by the following steps:

    (a) Strategic control points:

    It is not possible to check everything that is being done. So it is necessary to pick strategic control

    points for measurement. Some of these points are:

    (i) Income:

    It is a significant control point and must be as much per unit of time as was expected. If the income

    is significantly off form the expectation then the reasons should be investigated and a corrective

    action taken.

    (ii) Expenses:

    Total and operational cost per unit must be computed and must be adhered to. Key expense data

    must be reviewed periodically.

    (iii) Inventory:

    Some minimum inventory of both the finished product as well as raw materials must be kept in stock

    as a buffer. Any change in inventory level would determine whether the production is to be

    increased or decreased.




    (iv) Quality of the product:

    Standards of established quality must be maintained especially in food processing, drug

    manufacturing, automobiles, etc. The process should be continuously observed for any deviations.

    (v) Absenteeism:

    Excessive absenteeism of personnel is a serious reflection on the environment and working

    conditions. Absenteeism in excess of chance expectations must be seriously investigated.

    (b) Meclzanised measuring devices:

    This involves a wide variant of technical instruments used for measurement of machine operations,

    product "quality for size and ingredients and production processes. These instruments may be

    mechanical, electronic or chemical in nature.

    (c) Ratio analysis:

    Ratio analysis is one of the most important management tools. It describes the relationship of one

    business variable to another.

    The following are some of the important ratios:

    i) Net sales to working capital:

    The working capital must be utilised adequately. If the inventory turnover is rapid then the same

    working capital can be used again and again. Hence for perishable goods, this ratio is high. Any

    change in ratio will signal a deviation from the norm.



    ii) Net sales to inventory:

    The greater the turnover of inventory, generally, the higher the profit on investment.

    iii) Current ratio:

    This is the ratio of current asset (cash, receivables etc.) to current liabilities, and is used to determine

    a firm's ability to pay the short term debts.

    iv) Net profits to net sale:

    This ratio measures the short-run profitability of a business.

    v) Net profits to tangible net worth:

    Net worth is the difference between tangible assets (not good will, etc) and total liabilities. This ratio

    of net worth is used to measure profitability over a long period.

    vi) Net profits to net working capital:

    The net-working capital is the operating capital at hand. This would determine the ability of the

    business to finance day-to-day operations.

    vii) Collection period on credit sales:

    The collection period should be as short as possible. Any deviation from established collection period

    should be promptly investigated.

    viii) Inventory to net working capital:




    This ratio is to determine the extent of working capital tied up in inventory. Generally, this ratio

    should be less than 80 per cent, ix) Total debt to tangible net worth: This ratio would determine the

    financial soundness of the business. This ratio should remain as low as possible.

    (d) Comparative statistical analysis:

    The operations of one company can be usefully compared with similar operations of another

    company or with industry averages. It is a very useful performance measuring device.

    (e) Personal observation:

    Personal observation both formal and informal can be used in certain situation as a measuring

    device for performances, specially, the performance of the personnel. The informal observation is

    generally a day-to-day routine type. A manager may walk through a store to have a general idea

    about how people are working.

    3. Comparing the Actual Performance with Expected Performance

    This is the active principle of the process. The previous two, setting the goals and the measurement

    format are the preparatory parts of the process. It is the responsibility of the management to

    compare the actual performance against the standards established.

    This comparison is less complicate if the measurement units for the standards set and the

    performance measured are the same and quantified. The comparison becomes more difficult when

    these require subjective evaluations

    Ralph C. Davis identifies four phases in the comparison.

    1. Receiving the raw data.



    2. Accumulation, classification and recording of this information.

    3. Periodic evaluation of completed action to date.

    4. Reporting the status of accomplishment to higher line authority.

    At the third phase, deviations if any are noted between standards and performance. If clear cut

    deviations are there, then management must study the:-

    (i) Causes for deviation

    (ii) Effect of deviation

    (iii) Size of deviation

    (iv) Positive or negative deviation.

    4. Correcting Deviations:

    The final element in the process is the taking corrective action. Measuring and comparing

    performance, detecting shortcomings, failures or deviations, from plans will be of no avail if it does

    point to the needed corrective action.

    Thus controlling to be effective, should involve not only the detection of lapses but also probe into

    the failure spots, fixation of responsibility for the failures at the right quarters, recommendation of

    the best possible steps to correct them. These corrective actions must be applied when the work is

    in progress. The primary objective should be avoidance of such failures in future.

    The required corrective action can be determined from the qualified data as per the standards laid

    out and the performance evaluation already done. This step should be taken promptly, otherwise

    losses may be cumulative and remedial action will be all the more difficult to take.




    Corrective action must be well balanced, avoiding over controlling and at the same time letting not

    things to drift.

    3)  Write a brief note on M.I.S for management control


    Role of the Management information system

    The role of the MIS in an organization can be compared to the role of hear in the body. The

    information is the blood and MIS is the heart. In the body the heart plays the role of supplying pure

    blood to all the elements of the body including the brain. The heart works faster and supplies more

    blood when needed. It regulates and controls the incoming impure blood, processes it sends it to the

    destination in the quantity needed. It fulfills the needs of blood supply to human body in normal

    and also in crisis.

    The MIS plays exactly the same role in the organization. The system ensures that an appropriate

    data is collected from the various sources, processed, and sent further to all the needy destinations.The system is expected to fulfill information needs of an individual, a group of individuals, the

    management functionaries; the managers and the top management.

    The MIS satisfies the diverse needs through a variety of systems such as Query Systems, Analysis

    Systems, Modeling Systems and Decision Support Systems. The MIS helps in Strategic Planning,

    Management Control Operational Control and Transaction Processing.

    The MIS helps the clerical personnel in the transaction processing and answers their queries on the

    data pertaining to the transaction, the status of a particular record and references on a variety of

    documents. The MIS helps the junior management personnel by providing the operational data for

    planning, scheduling and control, and helps them further in decision making at the operations level

    to correct an out of control situation. The MIS helps the middle management in short term planning,

    target setting and controlling the business functions. It is supported by the use of the management

    tools of planning and control. The MIS helps the top management in goal setting, strategic planning

    and evolving the business plans and their implementation.



    The MIS plays the role of information generation, communication problems and helps in the process

    of decision making. The MIS, therefore, plays a vital role in the management, administration and

    operations of an organization.

    Public relations management

    Assignment 1

    1)  Describe the nature of public relations