Business Studies Class xii

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KENDRIYA VIDYALAYA SANGATHAN
SILCHAR REGION
STUDY/SUPPORT MATERIAL
FOR
CLASS -XII
BUSINESS STUDIES
UPDATED UNDER THE GUIDANCE OF SHRI A S THAKUR
PRINCIPAL KV PANISAGAR, TRIPURA
AND
REVISED UNDER THE GUIDANCE OF SH. R . SENTHIL KUMAR
ASSISTANT COMMISSIONER, KVS, SILCHAR REGION
MEMBERS PARTICIPATED IN THE REVISION AND UPDATION
OF
STUDY MATERIAL 2013-14
1. SH.VINOD KUMAR, PGT COMMERCE, KV, ONGC AGARTALA
2. SH. RAJINDER SINGH, PGT COMMERCE, KV KUNJABAN, AGARTALA

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TIPS FOR SCORING GOOD MARKS
Cracking an examination is a skill that can be acquired. As with studying, scoring
good marks too is a combination of managing one‟s time well and applying
the right method. Here are some guidelines that one can follow while attempting
to write an exam:-
• Answer the question as it is asked.
Read the question at least twice before answering. Be at guard for either/or
questions. Also make sure to tackle all sub-sections of a question.
• Use the marks as a guide
The examination paper mentions the marks each question carry. Use these mark
as a rough guide as to how long their answers ought to be. Do not expand an
answer more than is relevant. This will save a lot of time which can be used while
writing a Long- Answer question.
• Avoid writing irrelevant points
While writing an answer, focus on the nature of the question asked to maintain
focus. Answering something that is irrelevant to the question, no matter
how good a description it is, will not only waste time but also be given low
marks.
• Budget your time
Don‟t dwell too much on a particular question as remaining questions may get
little or no time if. Despite how much one writes, one can only score the
maximum marks allocated to that question. If facing difficulty in answering a
question, move on to other questions and return to the former later.
• Check and double-check
Always keep some time for revision while budgeting time. In the rush to complete
the paper, some basic spelling mistakes or forgotten, half-attempted questions
may spoil all the effort.
Believe in yourself. Set a goal for yourself.
Accordingly set a timetable for yourself.
Identify a limited number of direct questions which usually come in the
exams & prepare them well.
Apply FRT (Fast reading technique) i.e. to revise more in less time.
Presentation: Be particular about how you write the answers. It should
always be in points with a heading and a brief explanation.
Do not leave out any Questions.
Also be careful not to spend too much time on 1 question at the cost of
other questions.
Wherever any process is asked to be explained, write all the steps
involved, irrespective if the marks allotted to that question.
Draw a flowchart/diagram in support of your answer, wherever possible.

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Answer those questions first, which you know very well.
Underline all the sub-headings.
Draw small cartoons /diagrams with small captions wherever fits suitable.
Attempt „HOTS‟ questions at the last.
Utilize the QP paper reading time to plan writing strategies instead of
trying to write answers in advance.
While trying to understand „HOTS‟ questions keep in mind
chapter-wise allotment of marks for each chapter. Sometimes this helps to
guess the chapter from which the hots question is given.
Especially in case of Application Oriented Questions (HOTS), read Hindi
medium version also, it may give you some clue It also removes the
vagueness in the English language.
Maintain a separate small hand – book to write only sub-headings for
all the concepts in the subject. It helps as a ready- reckoner.
Read summaries given at the end of each chapter to get a
comprehensive idea about the given chapter. Hots can be given from
summaries also.
Refer latest CBSE sample question papers along with previous
year Board Question Papers.
Refer „High scoring students‟ answer sheets available in the CBSE web
site.

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XII BUSINESS STUDIES SYLLABUS CHANGES FOR THE BOARD EXAM 2014
Refer CBSE Senior School Curriculum 2013
Unit
No.
Topics deleted by the
CBS
E
Topics added by CBSE Old
marks
New
marks
1 No Change No Change 07 05
3 Economic Environment in
India
No Change 05 05
4 Features of planning .Single use and standing plan 07 06
6 No Change .On-the-job and off-the-job
training (Induction training,
Vestibule training,
Apprenticeship training And
Internship training)
08 06
7 Role Of supervisor
Qualities of good
leader
.Functions of a supervisor
.Leadership styles
.How to overcome the
barriers of effective
communication
10 08
8 Techniques of controlling:
Budgetary control
.Nature of controlling 06 06
9 Importance of Financial
management
.NO Change 12 12
10 Distinction Between
Capital Market and
money Market
NSEI and
OTCEI
.Depositary service and
D‟mat account
08 08
11 Role of marketing
Marketing and selling
Nature and
classification of
product
Function of channel
of distribution
Limitation of
advertising
importance of
personal selling
Merits and
limitations of sales
promotion
Publicity
.Qualities of a good
salesmen
.Public relations
14 14
12 NO change NO change 06 06
13 NO change .Project work 00 10
Total marks 100 100

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SYLLABUS
Annexure-'M'
BUSINESS STUDIES
CLASS XII
One Paper 3 Hours
90 Marks
Unit wise Weightage
Units
Part A : Principles and Functions of Management Periods Marks
1. Introduction to Management 12 5
2. Principles of Management 12 6
3. Business Environment 10 5
4. Planning 12 6
5. Organizing 16 8
6. Staffing 14 6
7. Directing 16 8
8. Controlling 14 6
TOTAL A 104 50
Part B: Business Finance and Marketing
9. Financial Management 22 12
10. Financial Markets 20 8
11. Marketing Management 30 14
12. Consumer Protection 16 6
TOTAL B 88 40
TOTAL (A+B) 192 90
Note: The Question Paper will include value based question(s) to the extent of 4 marks from any
of the units.
Part A: Principles and Functions of Management
Unit I: Nature and significance of Management (Periods 12)
• Management - concept, objectives and importance
• Management as Science, Art and Profession.
• Levels of management
• Management functions - planning, organizing, staffing, directing
and controlling.
• Coordination - concept, characteristics and importance.

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Unit 2: Principles of Management
(Periods 12)
• Principles of Management - concept, nature and significance
• Fayol‟s principles of management
• Taylor‟s Scientific Management - principles and techniques
Unit 3: Management and Business Environment
(Periods 10)
• Business Environment - concept and importance
• Dimensions of Business Environment - Economic, Social,
Technological, Political and Legal
• Impact of Government policy changes on business with special reference to
liberalization, privatization and globalization in India.
Unit 4: Planning
(Periods 12)
• Concept, importance and limitations
• Planning process
• Single use and Standing Plans - Objectives, Strategy, Policy,
Procedure, Method, Rule, Budget and Programme.
Unit 5: Organizing
(Periods 16)
• Concept and importance.
• Organizing Process.
• Structure of organization - functional and divisional.
• Formal and informal organization.
• Delegation: concept, elements and importance.
• Decentralization: concept and importance.
Unit 6: Staffing
(Periods 14)
• Concept and importance of staffing
• Staffing as a part of Human Resource Management
• Staffing process :
• Recruitment - sources
• Selection - process
• Training and Development - Concept and importance. Methods of training-
on the job and off the job- Induction training, vestibule training, apprenticeship
training and internship training.

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Unit 7: Directing (Periods 16)
• Concept and importance
• Elements of Directing
- Supervision - concept, functions of a supervisor.
- Motivation - concept, Maslow‟s hierarchy of needs; Financial and non-
financial incentives.
- Leadership - concept, styles - authoritative, democratic and
laissez faire.
- Communication - concept, formal and informal communication;
barriers to effective communication, how to overcome the barriers.
Unit 8: Controlling
(Periods 14)
• Concept, nature and importance
• Relationship between planning and controlling
• Steps in the process of control
Part B: Business Finance and Marketing
Unit 9: Financial Management
(Periods 22)
• Concept and objectives of financial management.
• Financial decisions: investment, financing and dividend and factors affecting.
• Financial planning - concept and importance.
• Capital Structure - concept and factors affecting.
• Fixed and Working Capital - concept and factors affecting
their requirements.
Unit 10: Financial Markets
(Periods 20)
• Financial Markets: concept and types.
• Money market and its instruments.
• Capital market and its types (primary and secondary).
• Stock Exchange - functions and training procedure. Depository Services and
D'mat Account.
• Securities and Exchange Board of India (SEBI) - objectives and functions.
Unit 11: Marketing Management (Periods 30)
• Marketing - concept and functions.
• Marketing management philosophies.
• Marketing Mix - concept
- Product - concept, branding, labeling and packaging.
- Price - factors determining price.
- Physical distribution- concept, channels of distribution: types, choice of
channels.

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- Promotion -concept and elements; advertising- concept,
role,
Objections against advertising, personal selling - concept and qualities
of a good salesman, sales promotion - concept and techniques, public
relations - concept and role.
Unit 12: Consumer Protection
(Periods 16)
• Concept and importance of consumer protection.
• Consumer Protection Act 1986
- Meaning of consumer and consumer protection.
- Rights and responsibilities of consumers
- Who can file a complaint and against whom?
- Redressal machinery.
- Remedies available.
• Consumer awareness - Role of consumer organizations and NGO's
Unit 13: Project Work
(Periods 16)

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DESIGN OF QUESTION PAPER
BUSINESS STUDIES (054)
CLASS-XII ( 2013-14)
Time-3 Hrs. Max. Marks – 90
The weightage to Content/Subject units
S.No. Content Unit Marks
Part A : Principles and Function of Management
1. Nature and Significance of Management 5
2. Principles of Management 6
3. Business Environment 5
4. Planning 6
5. Organizing 8
6. Staffing 6
7. Directing 8
8. Controlling 6
Total (A) 50
Part B : Business Finance and Marketing
9. Financial Management 12
10. Financial Markets 8
11. Marketing 14
12. Consumer Protection 6
Total (B) 40
Grand Total (A+B) 90

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B. Weightage to forms of Questions
S.No. Forms of Questions Marks for each
question
No. of question Total Marks
1. Very short answer
type (VSA)
1 12 12
2. Short answer type I
(SAI)
3 6 18
3. Short answer type II
(SAII)
4 4 16
4. Long answer type I
(LA I)
5 4 20
5. Long answer type II
(LA II)
6 4 24
6. Total 30 90
C. Scheme of Options
There will be no overall choice. However, there is an internal choice in every
question of 6 marks
D. Weightage to difficulty level of questions
S.No Estimated difficulty level of questions Percentage
1. Easy 30%
2. Average 50%
3. Difficult 20%
E. Typology of Questions
In order to assess different abilities related to the subject, the question paper is like to
include questions based on higher order skills, such as open-ended question based on
case-study, diagrams, and cartoons given in the text book.

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SAMPLE QUESTION PAPER
BUSINESS STUDIES
CLASS XII (2013-14)
Blue Print
Units/Marks Very Short
Answer (1)
Short Answer
Question(3,4)
Long Answer
I & II(5,6)
TOTAL
Unit-1(5) - - 5(1) 5(1)
Unit-2(6) - 3(2) - 6(2)
Unit-3(5) - - 5(1) 5(1)
Unit-4(6) - 3(2) - 6(2)
Unit-5(8) - 4(2) - 8(2)
Unit-6(6) 1(1) - 5(1) 6(2)
Unit-7(8) 1(2) - 6(1) 8(3)
Unit-8(6) 1(1) - 5(1) 6(2)
Unit-9(12) 1(2) 4(1) 6(1) 12(4)
Unit-10(8) 1(2) - 6(1) 8(3)
Unit-11(14) 1(2) 3(2) 6(1) 14(5)
Unit-12(6) 1(2) 4(1) - 6(3)
12(12) 34(10) 44(8) 90(30)
There will be value based question(s) carrying four marks from any of the units.

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SAMPLE QUESTION PAPER
BUSINESS STUDIES
Class – XII (2013-
14)
Max. Marks – 90 Time - 3
Hrs. General Instructions: -
1. Answers to questions carrying 1 mark may be from one word
to one sentence.
2. Answer to questions carrying 3 marks may be from 50 to 75 words.
3. Answer to questions carrying 4-5 marks may be about 150
4. Answer to questions carrying 6 marks may be about 200 words .
5. Attempt all parts of a question together.
Q1. What is meant by „Induction Training‟?
(1)
Q2.Give the meaning of „Democratic Style‟ of Leadership.
(1)
Q3. Rajat a Sales Manager, achieved his sales target one month in
advance.Thisachievement was displayed on the notice board and the CEO of
the Company awarded a certificate for the best performance to him. Name
the incentive provided to Rajat.
(1)
Q4. Which two steps in the process of control are concerned with compelling
events to confirm to the plan?
(1)
Q5. Define „Financial Management‟.
(1) Q6. State the primary objective of financial management.
(1) Q7. List any two characteristics of secondary
market. (1) Q8.
What is meant by financial market? (1)
Q9. Enumerate any two qualities of a good Salesman.
(1)
Q10. What is meant by „Promotion Mix‟?
(1)
Q11. What is meant by „Consumer Protection‟?
Q12. When can a consumer make an appeal in the Supreme Court under „The
Consumer Protection Act 1986‟?
(1)

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Q13. State any three characteristics of principles of management.
(3) Q14. Explain the following principles of Scientific Management:-
a) Science not rule of thumb
b) Co-operation not Individualism (3)
Q15. State the steps involved in the planning process. (3)
Q16.Explain the meaning of „Objectives‟ as a type of plan.
(3) Q17. State any three features of a good brand name.
(3)
Q18. Explain the following two functions of Marketing :-
i) Product Designing and
Development
ii) Marketing Planning
(3)
Q19. The Employees of Manik Ltd. , a software company, have formed a
dramatic
group for their recreation. Name the type of organisation so formed and state
its three features.
(4)
Q20. Distinguish between Functional and Divisional organisational structure on
the following basis:
i
Formation
ii Managerial
development
iii Responsibility
iv.Suitability
(4)
Q21. State any four factors which help in determining the working Capital requirements of
a Company. (4)

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Q22. Kayco LTD. is manufacturing detergents. They decide to launch a new range of
herbal products. As they are in a hurry, they have tested products on animals only.
The necessary information is missing on the package. The management also plans to
launch a new factory in a tribal area where the required products are easily available and
the labour-men, women and children are available for work at low wages in the absence
of development opportunities and schools.
a) Which values do you find disturbing in the above para?
b) Will the decision to install a new unit in a tribal area help society? Highlight the
social values involved in his decision. (4)
Q23. “Success of an organization largely depends upon its management” Explain any
five reasons to justify the statement. (5)
Q24. Explain with the help of one example each how do „Political Environment‟ and
„Legal Environment‟ affect the functioning of a business enterprise. (5)
Q25. Despite internal sources of recruitment being economical why do companies not
always use this source? State any five reasons. (5)
Q26. You are a management expert. You have been asked by a business firm to
make its managers understand the importance of controlling function of
management. How will you explain this to the manager?
(5)
Q27. Communication originally drafted in English has been very poorly translated
in Hindi. Name the type of barrier to effective communication and explain any
other five barriers of this type.
O
R
Identify the function of management which refers to the process of instructing, guiding,
counselling, motivating and leading people in the organisation to achieve
objectives. Explain the importance of this function of management.
(6)
Q28. You are the financial manager of a company. The Board of Directors has asked
you to design the capital structure of the company. State any six factors that you
would consider while doing so.
OR
Every manager has to take three major decisions while performing the
finance function. State these decisions. (6)
Q29. Explain the steps in the „Trading Procedure‟ of Stock Exchange
OR
Explain any four methods of floatation of new issues in the Primary Market.

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(6) Q30. Identify the method of sales-promotion in the following cases:
(i) A mobile company offers a discount of Rs. 1000 to clear off
excess inventory.
(ii) A customer gets Rs.5 off on return of an empty wrapper while
making a new purchase of the same product (iii) A Company offers a
pack of ½ kg. of sugar with the purchase of a 5 kg. bag of wheat flour
(iv) A company offers 40% of extra shaving cream in a pack of 500 gms. (v)
Scratch a card and get a gold coin with the purchase of a cold drink.
(vi) Purchase goods worth Rs. 50,000 and get a holiday package worth Rs.
10,000 free.
OR
„Various tools of communication are used by the marketers to promote their products.‟
Answer the following questions:
a) Why do companies use all tools at the same time?
b) Name and explain the most commonly used non-personal tool of promotion
which is paid for by the marketer.
c) Which tool of promotion will primarily be used for the following:
i) To promote or protect a company‟s image or its individual products.
ii) An existing product meant for mass usage by literate people.
iii) To introduce a new product to a particular class of people through
door-to-door visits. (6)

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Marking Scheme
1. Induction Training refers to the process of introducing the selected employees to
other employees and familiarizing him with the rules and policies of the
organisation. (1)
2. Democratic Style of Leadership is leadership in which, a leader consults with his
subordinates on proposed actions and decisions and encourages them to
participate in decision making. (1)
.3. The Incentive provided to Rajat is - „Recognition‟ (1)
.4.(i) Comparison of actual performance with standards.
(ii) Taking corrective action. (½ x 2 = 1)
5. Financial Management is concerned with management of flow of funds and
involves decisions relating to procurement of funds, investment of funds in long term
and short term assets and distribution of earnings to the owners.
OR
Financial Management may be defined as planning, organising, directing and controlling
the financial activities of an organisation. (1)
6. Wealth Maximisation is the Primary Objective of Financial Management which means
maximising the market value of investment in the shares of the company. (1)
7. Characteristics of Secondary Market (any two):
(i) It is a Market for purchase and sale of existing securities
(ii) Both Buying and Selling of Securities can take place here.
(iii) It is located at specified places
(iv) The price of securities is determined by demand and supply for the securities.
(½ +½=1)
8. A financial market is a market for the creation and exchange of financial assets. (1)
9. Qualities of a good salesman are: (i). Physical Attributes; (ii). Social Attributes; (iii).
Mental Attributes and (iv) Vocational Attributes. (any two)
OR
Qualities of a good salesman: (any two)

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(i). A good personality; (ii). Sound health and stamina; (iii).Presence of mind; (iv).
Imagination; (v). Quick observation and judgement; (vi). Self Confidence; (vii). Initiative;
(viii). Sharp memory and intelligence; (ix). Convincing conversationalist;
(x).Honest and of sound character;(xi). Cooperative and helpful; (xii).Tactful; (xiii).Inborn
aptitude and talent; (xiv). Ambitious; (xv) Enthusiastic;(xvi). Energetic;
(xvii). Disciplined and loyal. ( ½ + ½=1 )
10. Promotion mix refers to combination of promotion tools used by an organisation to
achieve its objectives. (1)
11 .Consumer Protection refers to the act of providing adequate protection to consumers
against the unscrupulous, exploitative and unfair trade practices of manufacturers and
service providers. (1)
12. An order passed by the National Commission in a matter of its original Jurisdiction is
appealable before the Supreme Court. (1 )
13. Characteristics of Principles of Management (any three) -
1. The Principles of Management have universal applicability in all types
of organisations, business as well as non-business, small as well as large, public
sector as well as private sector, manufacturing as well as the service sectors.
2. They are general guidelines to action but do not provide readymade straitjacket
solutions to all managerial problems.
3. They are formed by practice, experience, collective wisdom of managers
and experimentation.
4. They are flexible and can be modified by the manager when the situation demands.
5. They are aimed at influencing human behaviour to enable a better understanding
of human and material resources in accomplishing organisational purposes.
6. They intend to establish cause and effect relationship so that they can be used
in similar situations in a large number of cases.
7. The application of the principles is contingent or dependent upon the prevailing
situation at a particular point of time. (1x3=3)

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14. (i) Science, not Rule of Thumb:
Taylor believed that there was one best method of maximising efficiency. This method
could be developed through study and analysis. The Method so developed should
substitute the “Rule of Thumb” through the organisation. Scientific method involves
investigation of traditional methods through work study, unifying the best practices
and developing a standard method which would follow throughout the organisation. This
can result in tremendous saving of time and materials. In the present context the use of
internet has brought about dramatic improvement in internal efficiencies and consumer
satisfaction.
(ii) Cooperation, not Individualism
There should be complete cooperation between employees and management instead
of individualisation. It is an extension of Principle of harmony not Discord. Management
should not close its ears to constructive suggestion by employees but should reward
their suggestions which result in substantial reduction in costs. Workers should be a
part of management and a part of all important decisions. Workers on the other hand
should desist making unreasonable demands. When there is open communication
system and goodwill there will be no need for trade unions. There should be almost
equal division of work and responsibility between employees and management.
Management should help, encourage and smooth the way for employees.
(1 ½ + 1 ½=3)
15. The steps involved in the process of planning are:
i. Defining organizational objectives for the entire organisation and each department
or unit within the organisation.
ii. Developing planning premises or assumptions about the future, which are the base
material upon which plans are to be drawn.
iii. Listing the alternative ways of reaching objectives, which may be either routine or
innovative.
iv. Evaluating the pros and cons of each alternative in the light of the objective to be
achieved to choose the best alternative.
v. Formulating derivative plans to support the main plan.
vi. Putting the plans into action i.e., doing what is required and their follow-up to ensure
that objectives are achieved. (½ mark for each step= 6 x ½ = 3)
16. * Objectives are the desired future position that the management would like to
reach.

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* They serve as the guide for overall planning and are usually set by the top
management.
* They need to be expressed in specific terms. (3)
17. Feature of a good brand name: (Any three)
(i)
(ii)
(iii)
(iv)
It should be short, easy to pronounce, spell, recognise and remember.
It should suggest the product‟s benefits and qualities.
It should be distinctive.
It should be adaptable to packaging or labelling requirement.
(v) It should be sufficiently versatile to accommodate new products which are
added to the product line.
(vi) It should be capable of being registered and protected legally.
(vii) It should not get out of date very soon. (3)
18. (i) Product Designing and Development
The decision of the product contributes to making the product attractive to the target
customers. A good design can improve performance of a product and also give it a
competitive advantage in the market. For example, when we plan to buy any product say a
motorbike, we not only see its features like cost, mileage etc. but also the design
aspects like shape, style etc
(ii) Marketing Planning
One important area of work of a marketeer is to develop appropriate marketing plans so that
the marketing objectives of the organisation can be achieved. For example, a
marketeer of colour TV having 10% of the current market share aims at enhancing his
market share to 20% in the next three years. He will have to develop a complete marketing
plan covering various important aspects including the plan for increasing the level of
production, promotion of products etc. and specify the action programmes to achieve these
objectives. (1 ½ x2=3)
19. The type of organisation formed by employees of Manik Ltd. is „Informal organisation‟
Features of Informal Organisation :(any three) (1+1x3=4)
(a) An informal organisation originates from within the formal organisation as a result of
personal interaction among employees.
(b) The standards of behaviour evolve from group norms rather than officially laid down
rules.
(c) Independent channels of communication without specified direction of flow of
information are developed by group members.
(d) It emerges spontaneously and is not deliberately created by the management

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20. Distinction between Functional and Divisional structures (1x4=4)
SNO Basis Functional Divisional
1 Formation It is based upon Functions It is based upon product lines
and is supported by functions
2 Managerial
Development
Difficult, as each functional
manager has to report to
manager
Easier Autonomy as well as the
chance to perform multiple
functions help in managerial
development
3 Responsibility Difficult to fix on any one
department
Easy to fix responsibility for
performance
4 Suitability Suitable for medium sized
firms having a single
product or small number of
related products
Suitable for large firms having
multiple product with distinct
Characteristics.
21. Factors which help in determining the working capital requirements of a company are :
(i) Nature of Business influences the working capital required. Eg: A trading firm requires
a smaller working capital as compared to a manufacturing firm.
(ii) An organisation operating on a higher scale of operation requires a large amount of
working capital as compared to the organisation which operates on a lower scale.
(iii) Different phases of business cycle affect the requirement of working capital by a firm.
In case of boom, larger amount of working capital is required as compared to depression.
(iv) Seasonal factors affect the level of activity and working capital requirement of a
business. In peak season, larger amount of working capital is required as compared to
lean season.
(v) The duration and the length of the production cycle affect the amount of funds required
for material and expenses and consequently affect the working capital requirement of
a firm. Firms with longer processing cycles lead to higher working capital requirement of a
business.
(vi) Credit Allowed affects the amount of debtors and consequently the working capital
requirement of a firm.
(vii) To the extent the firm avails credit on purchases, the working capital requirement is
reduced.
(viii) Operating Efficiency of a firm may reduce the level of raw materials, finished goods
and debtors resulting in lower requirement of working capital.
(ix) Difficulty in availability of raw material and larger lead time will make the firm store
larger quantity of material and larger shall be the amount of working capital required.
(or any other correct factor)

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22.(A) The disturbing value in the above para are: any two (½x2=1)
testing on animals is banned.
no information about the products on package is violation of Right to
Information.
Yes, the decision of installing a new unit in tribal area will definitely
help in the upliftment and development of tribal society (1 mark)
The tribal labour, men and women will get equal minimum wages to
earn their livelihood.
Child labour is banned so schools should be opened for them.
• School and other supportive activities will help in community-
development.
• Equal opportunity to grow.
• Proper utilisation of natural resources. Any two (1x2=2)
23. Success of an organisation largely depends upon its management. This can be
justified with the following reasons:
i. It helps in achieving group goals. ii. It increases efficiency.
iii It creates a dynamic organization iv. It helps in the development of socie
v It helps in achieving individual goals. vi It helps in optimum utilisation of
resources. Vii. It provides vision and foresight.(or any other correct reason)
(1/2 mark for reason +1/2 mark for explanation=1 mark) (1x5=5)
24. Political Environment includes political conditions like
● Stability
● Peace
● Attitude of elected government representatives that impact the business
entrepreneurs.
Example of Political Environment affecting the functioning of a business enterprise
is - Even after opening up of the Indian Economy in 1991, foreign companies
found it extremely difficult to cut through the bureaucratic red tape to get permits for
doing business in India, which discouraged them from investing in our country.
Legal Environment includes various
● Legislations
● Administrative orders
● Court judgement
● Decisions rendered by various agencies at every level of government
(centre, state or local)
Every Management is required to obey the law of the land.
Example of Legal Environment affecting the functioning of a business enterprise is-
Advertisements for packets of cigarettes must carry the Statutory Warning,
“Cigarette Smoking is Injurious to Health.” ((1 +1 ½)+(1 +1 ½)=5)

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25. The Companies do not always use internal Sources of recruitment despite of them
being economical because of the following reasons: (any five)
(i) It is an incomplete source as no organisation can fill all its vacancies from internal
sources.
(ii) The employees may become lethargic if they are sure of time bound
promotions.
(iii) Spirit of competition among the employees may be hampered.
(iv) Frequent transfers of employees may often reduce the productivity of the
organisation.
(v) Complete reliance on internal recruitment involves danger of „inbreeding‟ by
stopping „infusion of new blood‟ into the organisation.
(vi) A new enterprise cannot use internal source of recruitment.
(vii) There is limited choice of candidates when the vacancies are to be filled from
internal source of recruitment. (or any other correct reason) (1x5=5)
26. As a management expert the importance of controlling will be explained to the
managers as follows:
(i) Accomplishing organizational goals.
(iii) Enables managers to judge the accuracy of standards.
(iii) Ensures efficient use of resources.
(iv) Improving employees motivation.
(v) Ensures order and discipline.
(1/2 mark for the heading +1/2 mark for the explanation=1mark) (1x5=5)
27. Semantic Barriers (Faulty Translations).
(1mark) Other Semantic Barriers-
(i) Badly Expressed Messages
(ii) Symbols with different Meanings.
(iii) Unclarified Assumptions
(iv) Technical Jargon
(v) Body Language & gesture decoding
(1/2 mark for the heading +1/2 mark for the explanation=1mark) (1+1x5=6) OR
Directing (1 mark)

23
28. Factors affecting capital structure (any six) are:
(i) The size of the projected cash flows must be considered before deciding the
capital structure of the firm.
(ii) Higher the Interest coverage ratio which is calculated as follows: EBIT/
Interest, lower shall be the risk of the company failing to meet its interest
payment obligations.
(iii) A higher Debt service coverage ratio, in which the cash profits generated by the
operations are compared with the total cash required for the service of debt
and the preference share capital, the better will the ability of the firm to increase
debt component in the capital structure.
(iv) If return on investment of the company is higher, the company can choose to
use trading on equity to increase its EPS, i.e., its ability to use debt is greater.
(v) More debt can be used if cost of Debt is low.
(vi) A higher tax rate makes debt relatively cheaper and increases its attraction as
compared to equity.
(vii) If debt is used beyond a point, cost of equity may go up sharply and share price
may decrease inspite of increased EPS.
(viii) The floatation cost may affect the choice between debt and equity and hence the
capital structure
(ix) The total risk of business depends upon both the business risk and financial risk.
If a firm‟s business risk is lower, its capacity to use debt is higher and vice- versa.
(x) To maintain flexibility the company must maintain some borrowing power to take
care of unforeseen circumstances
(xi) (or any other correct factor) (1x6 = 6)
OR
Three major decisions are:
(i) Investment Decision which relates to how the firm‟s funds are invested in
different assets in the long term and the short term.
(ii) Financing Decision which relates to the quantum of finance to be raised from
various long term sources. It determines the overall cost of capital and financial risk of
the enterprise.
(iii) Dividend Decision relates to how much of the profit earned by the company
(after paying tax) is to be distributed to shareholders and how much of it
should be retained in the business. (2 x 3 = 6)

24
29. Trading Procedure of a Stock Market
Depository‟ is an institution/organisation which holds securities
eg: shares, debentures, bonds, mutual funds etc in electronic form, in which
trading is done.
DPS are agents – Stock brokers (R-Trading)
TRADING PROCEDURE ON A STOCK EXCHANGE
(1x3+3=6)
The procedure for purchase and sale of securities in a stock exchange involves
the following steps:
1. Selection of broker
The first step is to select a broker who will buy/sell securities on behalf of the
investor. This is necessary because trading of securities can only be done through
SEBI registered brokers who are the members of a stock exchange. Brokers
may be individual, partnership firms or corporate books. The broker charges
brokerage / commission for his services.
2. Opening demat account
The next step is to open a demat account. Demat (Dematerialised) account refers
to an account which an Indian citizen must open with the depository participant
(banks, stock, brokers) to trade in listed securities in electronic form.The securities
are held in the electronic form by a depository. At present, there are two
depositories in India NSDL (National Securities Depository Ltd.) and CDSL
(Central Depository Services Ltd.) Depository interacts with the investors through
depository participants. Your Depository Participant will maintain your securities
account balances and intimate to you the status of your holding from time to time.
3. Placing the order
The next step is to place the order with the broker. The order can be
communicated to the broker either personally or through telephone, cell phone, e-
mail etc. The instructions should specify the securities to be bought or sold and
the price range within which the order is to be executed. Only the securities of
listed companies can be traded on the stock exchange.
4. Executing the order
According to the instructions of the investor, the broker buys or sells securities.
The broker then issues a contract note. A copy of the contract note is sent to the
client. The contract note contains the name and the price of the securities, names
of the parties, brokerage charged. It is signed by the broker.

25
5. Settlement
This is the last stage in the trading of securities done by the brokers on behalf of
their clients. The mode of settlement depends upon the nature of the contract.
Equity spot market follow a T+2 rolling settlement. This means that any trade
taking place on Monday, gets settled by Wednesday. All trading on
stock exchanges takes place between 9:55 am and 3:30 pm. Indian Standard
Time, Monday to Friday. Delivery of shares must be made in dematerialized
form, and each exchange has its own clearing house, which assumes all
settlement risk.
OR
The methods of floating new issues in the Primary Market are : (Any 4)
1. Offer Through Prospectus
It is the Method of Floating new issues by inviting subscriptions from the public
through issue of Prospectus. A prospectus makes a direct appeal to investors to
raise capital, through advertisement in newspapers and magazines.
2. Offer For Sale
It is the method in which the Securities are not Issued directly to the Public but
through intermediaries like Issuing Houses or Stock Brokers. A company sells
securities en bloc at an agreed price to brokers who, in turn, resell them to the
investing public.
3. Private Placement
It refers to the allotment of securities by a company to institutional investors and
some selected individuals. Some companies cannot afford a public issue and
choose to use private placement.
4. Rights Issue
It is the privilege given to existing shareholders to subscribe to new issue of shares
in proportion to the number of shares they already hold. The shareholders are
offered the „right‟ to buy new shares in proportion to the number of shares they
already possess.
5. E-IPO
It refers to Issuing Securities through the online system of Stock Exchanges. The
company has to enter into an agreement with the stock exchange.
(1/2 mark for heading + 1 mark for explanation=1 ½ x4=6)

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30. (i)
(ii)
(iii)
(iv)
(v)
Rebate
Refund
Product - combination
Quantity - gift
Instant draws and assigned gift
(vi) Lucky Draw
OR
(1x6=6)
(a). The companies use all tools at the same time because of the nature of market,
nature of product, promotion budget and objectives of promotion being
different at different times.
(b). The most commonly used non-personal tool of promotion which is paid for by
the marketer is advertising. The explanation should include:
It is a paid and non-personal form having an identified sponsor to promote an idea.
(c) The tools of promotion used are
(i) Public Relations (ii) Advertisements (iii) Personal Selling (2x3=6)
***********************************************************************************************

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CHAPTER – I
NATURE AND SIGNIFICANCE OF MANAGEMENT
Linking of Class XI syllabus:
1. In sole proprietorship business, the owner him-self manages his business.
2. In Partnership business all partners or any one partner on behalf of other
partners can manage the business.
3. In HUF „Karta‟ manages the business.
4. But in a Joint Stock Company, it is managed by professionally qualified
managers. So in this context, the need for management arises.
CONCEPT MAPPING
Concept: Management is the process of planning, organising, staffing, directing
and controlling the resources efficiently and effectively for achieving the
organisational goals.
Characteristics: (a) goal oriented process, (b) pervasive, (c) multi-dimensional
(d) group activity, (e) continuous process, (vi) dynamic function,
(vii) intangible force
Objectives : (a) organisational (b) social, and (c) personal objectives
Importance: (a) achieves group goals (b) increases efficiency (c) creates dynamic
organization (d) helps achieve personal goals (e) development of society
Management as Art: Theoretical knowledge, personal application, based on
practice, creativity
Management as a Science : (a) Systematic body of knowledge (b) principles
based on application, (c) universal validity
Management as a Profession: (a) well define d body of knowledge
(b). restricted entry (c) professionall
association (d) ethical code of conduct
( Management fulfills some but not all of these
requirements)
Levels of management: (a) Top Level management (b) Middle Level management
(c) Supervisory or operational or lower level management
Functions of Management: Planning, organising, staffing, directing and controlling.
Coordination : The process of achieving unity of action among interdependent
activities and departments of an organisation. It is the essence of management as it is
required in all managerial function.

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KEY CONCEPTS IN NUTSHELL
1. MEANING/CONCEPT OF MANAGEMENT:
*Management can be defined as a process isthe process of getting things
done with the aim of achieving goals effectively and efficiently.
• Process: refers to the primary function like planning, organising, staffing,
directing and controlling performed by the management to get things done.
• Effectiveness: means completing the right task to achieve the deputed goal
within the time frame.
• Efficiency: means completion of task using minimum resources
2. DEFINITION OF MANAGEMENT:
“Management is the process of working with and through others to effectively
achieve the organisational objectives by efficiently using limited resources in the
changing environment.” Kreitner
3. Functions of management:
1. Planning - Setting objectives and targets and formulating an action plan of what is to
be done, how to be done and when to do it
2. Organising - Assignment of duties, task, establishment of authority and
responsibility relationships, allocating the resources required to perform the planned
task.
3. Staffing - Finding and placing the right person at the right job at the right time.
4. Directing - Leading, influencing, motivating the staff chosen to perform the assigned
task efficiently and effectively
5. Controlling - Ensuring/Monitoring the activities in an organisation are performed
as per the plan.
4. Nature of Management: As an art, As a science and As a profession
.
5. MANAGEMENT OBJECTIVES- Organisational Objectives (i)Survival:- Ensure that the
organisation survives and exists in the future.(ii) Profitability:- Earning adequate profit in
order to survive and grow.(iii) Growth:- Growth indicates how well it exploits the potential
opportunities.
Social Objectives:
• Producing quality products at reasonable rates,
• generating employment opportunities,
• Community progress and development by providing schools and crèches to
employees In fact most of the firms have taken upon themselves the concept of social
responsibility as one of the basic element of business objectives .
• Environmental friendly method of production

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Personal Objectives:
• Meeting the Financial needs like competitive salaries and perks
• Social and safety needs of the employee like peer recognition, self respect
and respect for colleagues
• Higher level needs like implementation and monitoring of policies for personal
growth and survival
• Reconcile personal goals with organisational objectives for harmony in the
organisation.
6. IMPORTANCE OF MANAGEMENT
• Aids in achievement of individual and organisational goals
• Increases efficiency
• Enhances optimum utilisation of resources
• Creates a dynamic organisation
• Promotes development of society
7. LEVELS OF MANAGEMENT
Top level: - Designations and Functions
• Comprises of CEO, Board of Directors, MD, GM, VP
• Conceptualising of organisational goal, policy and strategy formulation
• Organising , Controlling and Monitoring activities and resources
• Controlling the work performance
• Approving Budgets.
Middle Level:- - Designations and Functions
• Comprises of Departmental, Sub-Departmental and Divisional heads.
• Execution of plans, policies framed by the top level management
• Preparing organisational set up & appointing employees
• Issuing instructions and motivating employees
• Ensuring interdepartmental cooperation
Lower Level/ supervisory level: - Designations and Functions
• Forwarding suggestions and feedback to the top level

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• Comprise of Supervisors, Foremen and inspectors
• Maintain Morale, safety and discipline amongst the work force
• Oversee the work of the workers
• Assist the management in selection, training, placement & promotion of
workers.
8. NATURE OF MANAGEMENT -As an art:
• Existence of theoretical knowledge.
• Developed through Practical and creative process.
• Personalised application and skill
As a Profession:
• Well defined body of knowledge.
• Existence of code of conduct
• Professional association (AIMA)
• Restricted entry
• Fees as remuneration for their services
As a Science:
• Arranged, organised systematic body of knowledge
• Universal validity
• Principles arrived at after experimentation
9. COORDINATION:
Meaning: It is the synchronisation of various activities and efforts in an
organisation providing the required amount of quality, timing and
sequence; thus ensuring the achievement of the planned goal with
minimum content.
10. FEATURES OF COORDINATION:
• Integrates Group Effort: It is an orderly arrangement of group effort and not
individual effort
• Ensures unity of action: It is a binding force between departments and ensures
that all efforts are focussed towards achieving the organisational goal
• It is a Continuous Process never ending process as its needs are felt at all levels
and steps in the organisations. It begins at the planning stage and continues till
controlling.

31
• It remains the function and responsibility of every manager: the top level
coordinates the overall plan, middle level coordinates the efforts of the
different sections and subsections and lower level management coordinates the
activities of the workers
• A Deliberate function: It does not occur spontaneously nor is it achieved by
force it is a deliberate action taken.
• All pervasive function it is needed in all departments and at all levels.
Lack of coordination can lead to overlapping of activities.
11. NEED FOR COORDINATION:
The reasons that bring out the importance or the necessity for coordination are
• Growth in the Size of the organisation results in the increase in varied
quality of manpower too with varied individual aspirations. Coordination seeks
to match the individual goal with the organisational goal.
• Functional Differentiation arising out of departmentalisation and division brings
forth a motive for achievement of individual objectives, in isolation from other
objectives leading to departmental clashes. Coordination seeks to iron out these
variations.
• Specialisation can give rise to feeling of superiority and prioritising of
their zone of activities. Coordination seeks to sequence and integrate all the
specialists of activities into a wholesome effort.
12. IMPORTANCE OF COORDINATION
• Ensures unity of action
• Erases interdepartmental conflicts
• Promotes harmonious implementation of plans
• Helps in maintaining a high degree of morale amongst employees
13. COORDINATION IS THE ESSENCE OF MANAGEMENT.
Coordination is the management function of correlating and integrating the
diverse goals and activities in the organisational process. It is the essence
of management because:
It is needed at all Management functions (Coordination in Mgt. Functions)
Planning - Coordination between the master plan and departmental plan.
Organising - Required between authority, responsibility and accountability.
Staffing - Achieve balance between job requirement and qualities of personnel
Directing - Required between supervision, motivation and leadership.
Controlling - Ensures actual result conform to expected results.
Needed at all levels of Management-
Top level - needs coordination to integrate activities of the organisation for
accomplishing the organisational goal.
Middle level - Coordination of the efforts of different sections and sub-sections.
Lower level - Coordination in the activities of workers to ensure work progress as
per plan.

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VERY SHORT ANSWER TYPE QUESTIONS (1 MARK)
1. “Planning, Oraganizing, Staffing, Directing and controlling” is the
sequence of functions in a process. Name it.
Ans. Management
2. Name that intangible force which creates productive relationships among
resources of an organisation.
Ans. Management
3. What is the main objective of any organisation?
Ans. Main objective of any organisation is optimum utilisation of resources
4. Production manager tries to produce goods with minimum costs.
Name concept which is being focused by management?
Ans. Efficiency
5. What do you mean by effectiveness?
Ans. It means completing the task or achieving the goals within stipulated time
period.
6. "Management is a group activity". Give reasons for statement.
Ans. An organisation is a collection of diverse individuals with needs and purposes
but they work towards fulfilling the common organisational goals.
7. In order to be successful, an organization must change its according to the
needs of the environment. Which characteristic of management is highlighted in
the statement?
Ans. Management is a dynamic function.
8. Give one designation each of top and middle level management?
Ans. Top - CEO, Middle - Divisional Manager
9. Your Grand Father has retired as the director of a manufacturing company.
At what level of management was he working.
Ans. Top management.
10. Why is management called inexact science?
Ans. Management relates to human behaviour, whose cause and effect is not
certain, that‟s why it is called and inexact science.
SHORT ANSWER TYPE QUESTIONS (3 OR 4 MARKS)
1. Explain the meaning of management. What do you mean by managers?
Ans. Management is a process of getting things done with the aim of achieving
desired common goals effectively and efficiently persons engaged in performing the
functions of the management are known as managers. In other words, those managing
the organisational resources for releasing its goals are known as managers.

33
2. „Management is a process‟ Explain?
Ans. Management includes various steps such as planning, organising, staffing,
directing and controlling. This process begins with those at the top of the organization
and continues in varying d e g r e e s at almost every level of the organisation. These in
t e r -related steps help to achieve organisational goals in effective manner. That
is why management is known as process of employing and organising resources
to accomplish predetermined objectives.
3. „Management is multi-dimensional‟. Explain?
Ans. Management is a complex activity and involves following three main dimensions
-
i) Management of works:- In each and every organisation, certain type of work is to be
performed. In school, overall development of a child is to be done; in hospitals,
patients are treated etc. Management converts these works into goals and devises
the means to achieve them.
ii) Management of People:- Management is concerned with “getting things done through
people”, which is a very difficult task. All the employees have different personalities,
needs backgrounds and methods of work. Thus, it becomes management‟s job to make
them work as a group by giving common direction to their efforts.
iii) Management of operations:- In order to survive , each organisation has to
provide certain goods or services. This involves production process thus,
management of operations is inter linked with both the above dimensions viz.,
management of work and the management of people.
4. What are the personal objectives of the management?
Ans. Personal o b j e c t i v e s refer to the objectives which are related to the
employees of an organisation. They are as follows:
i) Financial needs like competitive salaries, incentives and other monetary
benefits.
ii) Social needs like recognition in the organisation.
iii) Higher level need which includes personal growth and development.
5. Enumerate the importance of management.
Ans. Following points are the importance of management.
i) Management helps in achieving group goals.
ii) Management increase efficiency
iii) Management creates a dynamic organisation.
iv) Management helps in achieving personal objectives. v) Management helps in
development of society.
6. What do you mean by level of management?
Ans . Levels of management means the hierarch y o f o rganisation
representing the relationships among m a n a g e r s and subordinates on the basis of
their relative authority, status and responsibility.

34
7. Define co-ordination. Enumerate the features of co-ordination?
Ans. Coordination is an orderly arrangement of group efforts
to maintain harmony among individuals‟ efforts towards the accomplishment of
common goals of an organisation.
Features of co-ordination
i) It integrates group efforts.
ii) It unifies the action.
iii) It is a continuous process.
iv) It is an all pervasive function
v) It is the responsibility of all managers.
vi) It is a deliberate function.
LONG ANSWER TYPE QUESTIONS (5 OR 6MARKS)
1. Explain any five features of management?
Ans. Any of the 05 features stated above in explanation.
2. Explain the organisational objectives of management.
Ans. ( Hint: Survival profit & growth. See in the explanation)
3. Explain the 'social objectives' of management.
Ans. Each organisation is a part of society and thus it has certain social
obligations to fulfill. Some of them are as follows:
(i) To supply quality goods and services
(ii) Providing basic amenities to the employees like schools and
creches for their children, m e d i c a l facilities e
(iii) To generate employment opportunities especially for the backward
classes.
(iv) To provide environment friendly methods of production.
(v) To provide financial support to society by donating for noble causes.
(vi) To organize educational, health and vocational training programmes.
(vii) To participate in social service projects of Government and Non –
Governmental Organisations (NGOs).
4. What Do you mean by' Personal Objectives' of management?
Enumerate personal objectives of management.
Ans. Personal Objectives refer to the objectives which are related
to the individual needs of the employees of an organisation. All
organisations are made up of people with different values,
experiences and objectives. People join an organisation to satisfy
their different needs. These are as follows:
i) Financial needs like competitive salaries, incentives and other monetary
benefits.
ii) Social needs like recognition in the organisation.
iii) Higher level need which includes personal growth and
development.

35
5. Explain five functions of top level management.
Ans. Top management performs the following f un c tio ns :-
i) Develops long-term objectives: Top-level managers develop the long - term
objectives like expansion of business, manpower planning etc.
ii) Framing of policies: They lay down guidelines for departmental head i.e.,
policies relating to p roduc t i o n , marketing, personnel, finance public relation
etc.
iii) Organizing : Top management organizes the business into
various sections and departments to achieve the desired organisational
objectives.
iv) Key appointments: Top-level authorities appoint the departmental heads
and some other key persons to develop the organisational structure for
profitable growth of the enterprises.
v) Controlling: Top-level managers periodically review the work of executives at
different levels to ensure that their performance is as per predetermined plans.
QUESTIONS WITH DIFFERENT DIFFICULTY LEVELS
1 .Give any one social o b j e c t i v e of management.
Ans. Either one of the following: - 1 Mark
i) Desired quality of products at reasonable price.
ii) Using environment friendly methods of production
iii) Generation of employment opportunities.
2.. Name any two designations given to first line managers.
Ans. Foremen and supervisors. - 1 Mark
3. Which force binds all other functions of management?
Ans. Coordination - 1 Mark
4. What do you mean by Management Hierarchy? - 1 Mark
Ans. The chain of authority - responsibility relationships from top to bottom is
called as management hierarchy.
5. How is management all pervasive? - 3 or 4 Mark
Ans. Activities involved in management are applicable to every type of
organisation whether economic, social or economic, social or political. For
example, a cricket team needs to be managed as much as a club or a hospital.
The activities of managers in India are similar to their activities in say U.K. or
USA. Thus it can be said that management is all pervasive.

36
6. „Management provides judgement and vision‟. Explain? - 3 or 4 Mark
Ans. Management keeps adjusting to the complex and ever-changing external
environment. It helps in decision making. As it visualizes the future and the
right course of action for same, sound decisions become possible. Thus, its
foresight provides judgment and vision.
7. Why is management considered as a discipline? - 3 or 4 Mark
Ans. Discipline refers to a subject, the study of which can be organized and taught.
Management is considered as a discipline because it is being
continuously researched and studied. Also, it emphasis on knowledge,
diversification, theory and practice, just like any other discipline.
8. Mr. Kunal is working as the Finance Manager of XYZ Ltd. At what level of
management is he working? State any two functions being performed by him?
- 3 or 4 Mark
Ans. He is working as a middle level manager.
His functions are as follows.
i) Deciding various sources from which required funds can be raised.
ii) Negotiating with banks, brokers, under-writers etc. for raising finance.
9. „Coordination is a continuous activity‟. Explain? - 3 or 4 Mark
Ans. Coordination is a continuous activity carried out by all mangers at all times. It
starts at the planning stage and continues with the other functions of management. It is a
never-ending process. It integrates all the activities and ensures the orderly
arrangement of individual and group efforts to ensure unity of action in the
realization of common objectives.
10. What is mean by Co-ordination? Explain how does coordination
‟integrates group efforts‟ and „ensures unity of action‟. (cbse 2012)
Ans: Meaning of Coordination and Explanation of relevant features.
11. Identify the nature of management when it is practiced as personal application of
existing knowledge to achieve desired results. (cbse 2012)
Ans: Management as an art.

37
CHAPTER - 2
PRINCIPLES OF MANAGEMENT
CONCEPT MAPPING
Concept : Principles of management are general guidelines which can be used
under certain situations.
Nature : (a) universal applicability (b) formed by practice (c) flexible (d)
mainly behavioural (e) cause and effect relationships (f) general guidelines contingent
Importance: (a) useful insights into reality (b) optimum utilisation of resources (c)
scientific decisions (d) meeting changing environment (e) management
training and research (f) fulfilling social responsibility
Principles of Scientific Management : (a) science not rule of thumb (b) harmony
not discord (c) cooperation not individualism (d) maximum not restricted
output (e) development of each person to greatest efficiency.
Techniques of Scientific Management: (a) functional foremanship (b) differential
piece rate system (c) work study- time study, motion study, fatigue
study, method study (d) standardisation and simplification of work.
Fayol's Principles : (a) division of work (b) authority and responsibility (c)
discipline (d) unity of command (e) unity of direction (f)
subordination of individual interest to common interest (g)
remuneration (h) centralisation and decentralisation (i) scalar chain
(j) order (k) equity (I) stability of tenure (m) initiative (n) esprit de corps
Taylor vs. Fayol : Their contributions are complementary in nature despite several
differences.
KEY CONCEPTS IN A NUTSHELL:
1. MEANING: - The principles are broad statement of fundamental truth
which provide guide lines for management decision and action. These
guidelines are derived through experimentation and observation

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2. NATURE OF PRINCIPLES OF MANAGEMENT
1. Universal application - can be applied to all kind of organisations,
irrespective of their size and nature.
2. General guidelines - the formulated guidelines to action which need to be
adjusted and used as per the demands of the situation.
3. Formed by practice and experimentation - derived through
experimentation and Observation.
4. Flexible - principles are not rigid like science but are modified according to the
business environment needs.
5. Behavioural - the principles aim to influence the unpredictable, complex and
dynamic human behaviour.
6. Cause and effect relation - they aid in predicting the outcome of management
actions.
7. Contingent - the management principles are dependent upon the prevailing
Conditions/situations at that particular time hence amended accordingly.
3. SIGNIFICANCE/ IMPORTANCE OF MANAGEMENT PRINCIPLES
i. Provides managers with useful insights into reality - through improved
knowledge, ability, understanding and improved guidance to the managers.
ii. Optimum utilisation of resources - and effective administration through
coordinated use of physical, financial and human resources.
iii. Scientific decision - they lend to be more realistic, thoughtful, justifiable
and free from personal bias.
iv. Meet the changing environmental requirements - by providing effective
and dynamic leadership in implementing changes.
v. Fulfils social responsibility - guides the manager in fulfilling the social
responsibility.
vi. Management training, education and research - the principles help in
increasing knowledge which is used as the basis for management training
and research.
4. FAYOL‟S PRINCIPLES OF MANAGEMENT
1. Division of labour - work could be divided into small specialised task and
performed by a trained specialist
2. Authority and responsibility - there must be a right balance between
authority (right to give orders) and responsibility (obligation to perform the
assigned task).

39
3. Discipline - obedience to organisation rules and employment agreement.
4. Unity of command - receive orders from one boss.
5. Unity of Direction - all the units of the organisation should aim and move
towards achieving the organisational goal.
6. Subordination of individual interest to general interest - the
organisation interest to be prioritised over individual interest.
7. Remuneration - pay should be fair and satisfying to both employee
and the organisation.
8. Centralisation and decentralisation - there should be a proper balance
between centralisation (concentration of decision making powers with top
management) and decentralisation (dispersal of decision making power
among more than one person).
9. Scalar chain - orders or communication should pass from top to bottom
and follow the official line of command.
10. Orders - A place for everything/ everyone and every one in its place
11. Equality - kindness, empathy and justice in the behaviour of manager towards
workers.
12. Tenure stability - frequent displacement of employee from their position
should be avoided. They should be given sufficient time to show their
results
13. Initiative - Employees to be encouraged to develop and carry out their
improvement plans
14. Espirit de corps - need for team work, spirit and harmony.
5. SCIENTIFIC MANAGEMENT:
Meaning:Conduct of business activities according to standardised tools,
methods and trained personal so as to have increased output through effective
and optimum utilisation of resources. Hence it stresses that there is always one
best way of doing things.
Principles of Scientific Management
1. Science not rule of thumb -
There should be scientific study and analysis of each element of job rather than
adopting old rule of the thumb approach on a hit and miss method.
Encourage “thinking before doing”.

40
2. Harmony not discord -
There should be complete harmony and proper understanding between
management and workers in achieving the organisation goals.
3. Cooperation not individualism -
Taylor emphasised on the importance of cooperative group effort
between the management and workers in achieving the organisation‟s goals
and not individualism.
4. Development of workers to their greatest efficiency and prosperity:
The management should scientifically select the workers; assign job
as per their physical, mental and intellectual capability and potential; and
train them as per the job requirement.
Techniques of scientific management
(a) Functional Foremenship:
• Supervision is to be divided into several specialized functions and each
function to be entrusted to a special foreman.
• Each worker will have to take orders from eight foremen in the related
process of function of production.
• Stress on separating planning function from executive function.
b) Standardisation and simplification of work
• Process of setting standards for every business activity to maximise output.
• Simplification is eliminating unnecessary varieties, sizes and grades of
product manufactured in the organisation.
c) Method study
• Finding one best way of doing a job.
• Critical analysis is made for plant layout, product design, material handling
and work processes using techniques like process charts, operations
research etc.
d) Motion study
• Making a thorough analysis of various motions being performed by a
worker while doing a particular task.
• Identifying and determining the ideal productive movement.
• Eliminate the unproductive movements and equipments.
e) Time study
• It is the technique used to determine the standard time taken by the workman
with reasonable skill and ability to perform a particular task.
• Here the job is divided into series of elements and the time required to
complete each element idealistically is recorded using a stop watch.

41
f) Fatigue Study
• Determines the amount and frequency of rest intervals required in
completing a task.
g) Differential Piece wage system
• Evolve a system wherein the efficient and inefficient workers are paid at
different rates, as financial incentives act as motivators.
• First a standard task is established with the aid of time and motion study,
then two rates are established. Higher when standard outputs is produced
and lower when the standard is not met
TAYLOR V/S FAYOL
Basis Henry Fayol F.W Taylor
1. Basis of formation Personal Experience Observations and
2. Focus Improvement in the
overall administration
Concentrates on improving
the productivity
3. Applicability Universally applicable Applicable only to
specialised situations
4. Perspective Top level management Lower level - shop floor level
5. Personality Scientist and known as father
of scientific management
Practitioner and known as the
father of General management
6. Human element More importance attached
to increasing the
production than to the
human element
More importance given to
human element; e.g. principle
of equity, stability of tenure
7. Emphasis Greater emphasis on tools and
standardisation of work i.e.
General Theory of
Administration
Emphasis on principles and
theory of general
administration i.e. Scientific
Management
8. Unity of
Command
Staunch proponent that orders
should be received from one
boss.
Did not feel that it is important as
under functional foremanship a
worker received orders from eight
specialists.

42
1. How are management principles derived?
Ans. Management principles are derived through observation and analysis of events.
2. Give anyone difference between Principle and Technique.
Ans. Principles are guidelines to take decision whereas techniques are methods
to take action.
3. What is meant by 'Universality of management principles'?
Or
Why is it said that management principles are universal?
Ans. This it means that they are applicable to all kinds of organizations.
4. The principles of management aren't rigid and can be modified when the
situation demands. Which nature of principles is being discussed here?
Ans. Flexibility.
5. Define scientific management.
Ans. Application of a scientific approach to managerial decision making.
6. List any two principle of 'Scientific Management' formulated by Taylor for
managing an organization scientifically.
Ans. (i) Science, not Rule of Thumb. (ii) Harmony, not Discord.
7. Factory owners or managers relied on personal judgment
in attending to the problems they confronted in the course of
managing their work. Which principle of Taylor is it referring to ?
Ans. 'Rule of thumb'
8. What do you mean by Mental Revolution?
Ans. Mental Revolution means revolutionary change in the attitude of both
workers and managers from competition to cooperation.
9. Principle of cooperation, not individualism, is an extension of
which principle given by Fayol?
Ans. Principle of Harmony, not discord.
10. What is the aim of Method study?
Ans. Aim is to find one best method of doing the job.
11. What is the aim of doing motion study?
Ans. The aim of this study is to eliminate unnecessary movements so as to ensure
timely completion of work.
12. What is the purpose of time study?
Ans. To estimate/ determine a fair day‟s work.

43
13. Name the techniques of Taylor which is the strongest motivator for
a worker to reach standard performance.
Ans. Differential Piece Wage system.
14. The directors of XYZ limited, an organisation manufacturing computers,
want to double the sales and have given the responsibility to the sales
manager. The sales manager has no authority either to increase sales
expense or appoint new salesmen. Hence, he could not achieve this
target. Identify the principle violated in this situation.
Ans. Principle of Authority and Responsibility.
15. A company manufacturing motorcycles and cars should have
separate divisions for both, headed by separate divisional managers,
separate plans and resources. Identify the principle with the help of this
example.
Ans. Unity of Direction.
1. What do you mean by management principles?
Ans. Principles are statements of fundamental truths about some phenomena and
serve as a guide for thoughts and actions. They establish cause and effect
relationship. Management Principles are the fundamental statements of truth
that provide guidelines to the managers for decision making and actions. These
enable the managers to manage the enterprises in "3E way"
viz 'economically', 'effectively' and 'efficiently'. These act as guide for
managers and sharpen their skills and competence. For example, principle of
division of labour increases the efficiency of workers which ultimately leads to
economy and effectiveness in the organization.
2. How are management principles derived?
Or
"Management principles are evolutionary." Explain.
or
"Derivation of management principles may be said to be a matter of
science." Explain.
Ans. Management principles are not made in heavens; they have emerged
gradually, through an evolutionary process of combining deep observations and
experimental studies.
(i) Observation method:- Under this method, practical events are observed and
analyzed by managerial researchers to derive management principles.
For example, it was observed that by dividing the work into different units,
efficiency of employees improved. As a result, it led to formulation of principle of
'division of labour'

44
.(ii) Experimental method:- Under this method, experiments are conducted so
that management principles can be derived and their validity can be tested. For
example, two units, one unit involving one superior and one subordinate
and other unit involving two superiors and one subordinate, were taken. It
was found that unit having one superior and one subordinate performed better.
As a result, it led to formation of principle of "unity of command."
3. Give three points reflecting the nature of management principles.
Ans. Any three as stated above in explanation.
4. "Principles of management achieve results economically." Explain?
Ans. Management principles help in setting realistic objectives for the
business because the objectives are set with the participation of employees.
Hence, the employees work to their full potential and their commitment level
increases because objectives of organisation become their own objectives.
For example, the principle of maximum output rather than restricted one ensures
more output.More output lowers cost per unit and hence profit per unit increases.
5. Define scientific management and name any three of its principles.
Ans. Defintion & Principles as explained above.
6. Explain the objectives of standardization.
Ans. Standardisation is done for the following reasons:
(i) To ensure that a given product range has fixed types, sizes, characteristics
etc.
(ii) To bring about interchangeability, for manufactured parts, output,
developments etc. among various branches.
(iii) To set uniform standards of performance for men, machines etc.
7. Which technique of Taylor suggests that each worker should
be supervised by specialists? Give the designations of any four
specialists suggested by him.
Ans. The technique of functional foremanship suggests that each worker should
be supervised by specialists. These specialists' designations are follow.
(i) Instruction Card Clerk (ii) Route Clerk
(iii) Time and Cost Clerk (iv) Disciplinarian
8. „Discipline is double-edged tool‟ Comment.
Ans. Discipline is a double-edged tool. It is expected to strike a balance between
enforcing the discipline on one hand and motivating employees on the other.
Personnel entrusted with enforcing it are expected to be competent and
capable of achieving this balance. Employees must honor the commitment
made by them and management must meet its promises to increase wages

45
declaration of bonus etc. To achieve proper discipline, skilled superiors at all
levels, clear and fair agreements and judicious application of penalties etc. are
required.
9. Explain the principle of unity of direction.
Ans. This principle suggests that in an organization there should be one head
and one plan for a group of activities having the same objective. This helps in
bringing unity of action and coordination in an organization. If a company is
manufacturing two different products then it should have two separate divisions
or departments for both the products. Each division or department should have
their separate in-charge, plans and execution resources etc.
10. An organization follows the principles of management. What are the
adverse effects of each of the following principles of management on the
organization?
(i) Unity of Command
(ii) Order
(iii) Stability of tenure of personnel
Ans. Adverse effects of said principles are:
(i) Unity of Command: If this principle is followed, work gets delayed which
results in wastage of time and cost.
(ii) Order: It creates boredom among the employees due to rigidity
provided by this principle.
(iii) Stability of personnel: If employees are not rotated on different jobs
frequently, they can specialize only in a small part of the whole process of
production and thus can never become versatile.
11. Explain how principles of management (cbse 2012)
i) Help the managers in taking scientific decisions
ii) Provide the managers with useful insights into real world situations
Ans. Explanation of relevant sub-headings from significance of principles of
management.

46
LONG ANSWER TYPE QUESTIONS (5 OR 6 MARKS)
1. Explain the nature of management principles.
Ans. Nature of management principles can be described as follows:
(i) Universal Applicability: The principles of management are applicable to all
types of organisations irrespective of their size and nature.
(ii) General Guidelines: They are only guidelines for action and don't
provide direct or readymade solution for a managerial problem.
(iii) Formed by practice and experimentation: The principles of
management have been developed through experimentation as well as
experience and wisdom of managers.
(iv) Flexible: They are flexible i.e. they can be modified by the managers
according to a given situation.
(v) Mainly behavioural: They are mainly behavioural in nature since they are
devised to influence human behaviour.
(vi) Cause and effect relationship: The principles of management establish
relationship between cause and effect. They guide us as to what would be the
effect if a particular principle were to be applied in a given situation.
(vii) Contingent: The use of principles of management is contingent or
dependent upon the prevailing conditions.
2) Explain the importance of management principles.
Ans. The importance of management principles can be understood by considering the
following points:
(i) Provide useful insight to manage: Principles of management help in
increasing managerial efficiency by adding to their knowledge and ability to
understand the various situations more objectively.
(ii) Optimum Utilization of Resources and effective administration:
Management principles help in organizing various activities in such a way that
results in elimination of unwanted activities and consequent wastage.
Management principles help in managing organizations effectively.
For example, Unity of Command helps to avoid confusion and conflicts Unity
of Direction ensures unity of actions to facilitate coordination
(iii) Scientific decisions: They help the mangers in taking the decisions
based on the objective assessment of a situation. Thus decisions taken
are logical and free from any bias and prejudice
(iv) Meeting changing environment requirements: Though the principles are
only guidelines for action yet they can be modified according to the need of
changing situations. Thus principles of management help in meeting changing
requirements of the environment.
(v) Fulfilling social responsibilities: Principles of management have been
devised in such a way that they help in fulfilling social responsibilities.

47
Basis Taylor Fayol
1. Personality Taylor was a scientist Fayol was a practitioner
2. Perspective Taylor's principles &
techniques are based on
bottom upward approach
Fayol's principles are
based on top downward
approach
3. Scope and
Applicability
Taylor's principles &
techniques are relevant mainly
with respect to production
activities
Fayol's principles have
wider relevance in all
functional areas
4. Focus Taylor's' principles &
techniques are focused on
workers' efficiency and
production.
focused on improving
overall management
5.Modifications Taylor's techniques are more
specific in nature and should be
applied without any
modification and only
in specific conditions
more general in nature
& can be applied in
most of the organizations
with some
modifications.
6. Expression Taylor expressed his thoughts
and views under the theory of
scientific management
Fayol expressed his ideas
as the general theory of
management
(vi) Management training, education and research: Principles of
management are the fulcrum of management theory so that they are used as a
basis for management training, education and research.
3. Taylor's principles of scientific management and Fayol's
principles of management are mutually complementary." Do you
agree with this view? Give any four reasons in support of your
answer.
Ans. Yes, Taylor's principles of scientific management and Fayol's principles of
management are mutually complementary because of the following
reasons:

48
Basis of Difference Principle of Management Principles of Science
1. Nature They are flexible They are rigid.
1. „Principles of Management are different from those used in pure
science‟. Write any one difference. - 1 Mark
Ans.
2. Which principle does functional foremanship violate? - 1 Mark
Ans. Unity of command
3. Give any one effect of principle of division of work? -1Mark
Ans. Specialization, speed, accuracy.
4. A sales person is asked to finalize a deal with customer. The marketing
manager allows him to give a discount of up to 10% but the
Finance Manager allows him to give discount of upto 25%. Which
principle is violated here? - 1 Mark
Ans. Unity of Command.
5. “Workers should be encouraged to develop and carry out
their plans for development.” Identify the principle of management
formulated by Fayol. 1 Mark
Ans. Principle of Initiative
6. State any three reasons as to why proper understanding of management
principles is necessary. - 3 or 4 Mark
Ans. Proper understanding of management principles is necessary because of the
following reasons (any three):
(a) They provide managers with useful insight into reality.
(b) They help in optimal utilization of resources and effective administration.
(c) They help in meeting environment requirements.
(d) They are used as basis for management training, education and research.
7. How do management principles ensure optimum utilization
of resources and effective administration? - 3 or 4 Mark
Ans. In every organization, resources such as men, machine, material
and money play a vital role. Management principles are designed in such a
way that maximum benefits from t h e s e resources can be a c h i e v e
d w i t h m i n i m u m r e s o u r c e w a s t a g e . Along with this, the
principles of management also help in establishing effective a dm i
nistration by Manager

49
8. Explain briefly the technique of fatigue study? - 3 or 4 marks
Ans. Fatigue study determines the amount and frequency of rest in
tervals in completing a task. Workers cannot work at a stretch. A
fter putting in work for a certain periods of time, they reel tired which affects
their performance. If they are allow d rest intervals, they will re- gain their
stamina and will resume their work with greater efficiency.
9. Give positive effects of the principle of „discipline‟. - 3 or 4 marks.
Ans. Positive effects of the principle of „discipline‟ are as under:
i) Improves efficiency of the employees.
ii) Systematic work in the organisation.
iii) Ensuring that penalties are imposed judicially.
10. Explain the Principle of centralization and decentralization. -3or 4 marks.
Ans. Centralization means concentration of authority in the hands
of f ew people at the top, whereas decentralization means appropriate
distribution of power at every level of management. According to Fayol,
com pan y mus t b e pr o p e r l y balanced i.e. it should neither be completely
centralized nor d e c e n t r a l i z e d . There must be some element of both
depending upon the profile of the organization. The panchayat system
in our country is a very good example of decentralization at the national level.
11. Ms. Ritu and Mr. Mohit are Data Entry Operators in a campany
having same educational qualifications.
Ritu is getting Rs. 5,000 per month and Mohit Rs. 6,000 per month as
salary for the same working hours.
Which principle of management is violated in the case? Name and
explain the principle.
Ans. The principle of 'equity' is violated in this case. According to this principle,
employees should be given kind, fair and just treatment and there should not be
any discrimination based on caste, creed, colour, sex etc. Apparently, Ritu is
getting less in view of bring a female which is against this principle.
12. Explain the technique 'Functional Foremanship'. - 5 or 6 Marks
Ans. Functional foremanship is the extension of the principle of specialization. This
technique emphasises on the separation of planning from execution. To facilitate it,
Taylor suggested setting up of "planning in charge" and "production in charge"

50
FUNCTIONAL FOREMANSHIP
Planning Incharge: The main function of "planning in charge" is to plan
all aspects of a job to be performed. It consists of four positions:
(i) Route clerk: He determines the sequence to perform various
mechanical and manual operations.
(ii) Instruction card clerk: He issues instructions to the workers to be
followed by them.
(iii) Time and cost clerk: He is concerned with the framing of time schedule
on the basis of determined route. Also, he keeps the record of the cost of
operations.
(iv) Disciplinarian: He is concerned with the coordination in each job
from planning to successful execution. He enforces rules and regulations
and maintains discipline.
Production Incharge: It consists of following four specialists who
are concerned with the execution of plans.
(i) Speed Boss: He checks whether work is progressing as per schedule.
He ensures timely and accurate completion of jobs.
(ii) Gang Boss: He arranges machines, materials, tools, and
equipments properly so that workers can proceed with their work.
(iii) Repair Boss: He ensures that all machines, tools, equipments are in
perfect working order.
Inspector: He ensures that the work is done as per the standards of quality set
by planning department.
13. Name and explain that principle of Fayol which suggests
that communication from top to bottom should follow the official
lines of command. - 5 or 6
Marks
O
r
Explain the 'Principle of Scalar Chain' with an example.
Ans. In an organization, the formal lines of authority, from highest to lowest level of
all superiors and subordinates, are known as scalar chain. The principle of
scalar
chain suggests that there should be a clear line of authority from top to
bottom, linking superiors and subordinates at all levels. The scalar chain
serves as a chain of command as well as communication. In normal
circumstances, the formal communication is required to be made by
following this chain.
Example: The above figure shows the scalar chain linking managers at
lower levels with the top management. If D has to communicate with G,
The message should ordinarily move up through C and B to A, and then down
from A to E, F and G.To avoid delays and to remove hurdles in the exchange
of information, concept of Gang Plank has been suggested by Fayol, shown by
the dotted line joining D and G.
SCALAR CHAIN & GANK PLANK (For Diagram refer NCERT Book)

51
CHAPTER - 3
BUSINESS ENVIRONMENT
CONCEPT MAPPING
Meaning : The totality of all individuals, institutions and other forces that are
outside a business enterprise but that may affect its functioning and
performance.
Nature : (a) totality of external forces (b) specific and general forces
(c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity
(g) Relativity
Importance : (a) first mover advantage (b) early warning signal (c) tapping useful
resources (d) coping with rapid change (e) planning and policy
formulation (f) improving performance
Dimensions : (a) economic (b) social (c) technological (d) political (e) legal
Liberalisation : Liberating industry from licensing and other regulations.
Privatisation : transferring ownership and management of public enterprises to
private sector
Globalisation : integrating different economies into a world economy by removing
barriers to free flow of goods, services, capital, labour, etc. from one
country to another.
Impact of Policy Changes: (a) increasing competition (b) more demanding
customers (c) rapidly changing technology (d) necessity for change
(e) need to develop human resources (f) market orientation (g) loss of
budgetary support to public sector.
1. MEANING:
It is the sum total of all individuals or institutions comprising of
consumers, competitors, suppliers government, courts, media and also the forces
like economic, social, political, legal and technological that are outside the ambit
and control of business enterprise but that which can affect its performance.
2. FEATURES OF BUSINESS ENVIRONMENT:
i. Constitutes totally of external forces - it comprises of the sum total of
all forces that are external to the business firm which it must deal with.
ii. Specific and general forces - the forces present outside can be
divided into two parts Specific- these forces affect the firms of an
industry separately.
e.g. Customers, suppliers, competitive firms etc. General - these forces
affect all the firms of an industry equally e.g. Social, political.

52
iii. Inter- related - the different factors are co-related
e.g. Change in the import- export policy is a political change that gives rise to
economic change as well
iv. Uncertainty - business environment are susceptible to rapid changes, no
one can predict with certainty the changes in the factors.
e.g. change in technology and fashion.
v. Dynamic - business environment keeps on changing.
vi. Complex - it is difficult to know the extent of impact of the changes that
the factors can bring in.
vii. Relative - business environment is a relative concept as it differs from
country to country, region to region.
3. IMPORTANCE OF BUSINESS ENVIRONMENT:
i. Identify the opportunities and getting the first mover advantage - by
being aware of the changes in business environment, enterprises
can identify opportunity and strategize ways to capitalise on them.
ii. Identify threats and early warning signals - environment scanning helps in
detecting possible threats in future.
iii. Basis for planning and policy for formulation - identification of
threats and opportunity serves as basis for deciding the future course of
action.
iv. T a p p i n g useful resources - the resources are required to carry on
a successful business enterprise. These have to be procured from the
business environment.
v. Helps in coping with rapid changes - turbulent markets, less brand loyalty,
divisions and sub-divisions (fragmentation) of markets, more demanding
customers, rapid changes in technology and intense global competition
combined with complex business environment calls for a flexible planning to
cope with the changes.
vi. Improvement in organisation performance - continuous and constant
monitoring and adapting suitable business practices result in improved
business performance.

53
4. DIMENSIONS OF BUSINESS ENVIRONMENT:
The various dimensions of business environment in terms of general environment are:
Economic Environment :Refers to all those forces that have economic impact on the
business activity. Components of economic environment are GDP, Inflation rate, Interest
rate, Rupee value, Stock exchange index, Tax rate
Political Environment: includes political conditions such as political leadership, political
stability, practices of the ruling party and the nature of the government in power and their
level of interference Components of political environment are Constitution of the country,
Political ideology of the ruling party, nature and extent of government interference,
international relations.
Legal Environment: refers to the framework of laws and various legislations within
which the business activities take place Components of Legal Environment are
Government legislations, court judgements, Decisions of various commissions.
Social Environment: represents the customs and traditions, values, culture, social
trends, beliefs, norms and ethics of a society in which business enterprises operate.
Components of Social Environment are customs traditions, social expectations, lifestyles,
values, literacy level
Technological Environment: refers to the influence of the changes in the technology on
the business environment. Components of Technological Environment: new methods
and techniques of business operations, Scientific improvements and innovations,
As a part of economic reforms the Government of India announced New Industrial
Policy in July 1991 which emphasised on three major elements which were:
 Liberalisation - from the clutches of licensing policy. Therefore, removal of entry
and growth restrictions on the private sector enterprises.•
 Globalisation:- encouragement of foreign private participation in industrial
development. This step mainly intended at integrating the national economy with
the world economy through the removal of barriers on international trade and
capital movement.

54
• Privatisation - drastic reduction in the role of public sector. Further it aimed at
transfer of ownership ,management and control of the public sector enterprise to
the private sector.
The new industrial policy aimed at creating a more competent environment in the
economy so as to strengthen the process of industrialisation. Its features are as
follows
• Delicensing of all projects except six industries
• Decreased role of public sector to merely 4 industries
• Disinvestment: selling of a part or whole of the shares of the public sector
undertaking
• Liberalisation of Foreign capital
• Setting up of Foreign Investment board (FIPB)
• Liberal policy for technical collaborations
7. IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND
INDUSTRY:
• Increase in competition
• Demanding customers
• Technical change and increased investment in R and D
• Necessity of change
• Development of human resource
• Market orientation
• Loss of budgetary support to the public sector.
1. What is Business Environment?
Ans. Forces affecting the performance of an organisation but outside its control
are called as Business Environment.
2. How have customers benefited by increased competition after liberalisation
and globalisation?
Ans. While purchasing they get a better quality and wider choice of goods and
services.
3. How can the firms cope up with changing technological environment?
Ans. They have to develop new ways.
4. What do you mean by Globalisation?
Ans. When the various economies of the world integrate, it is known as
Globalisation.
5. Which policy of Indian Government has moved India towards globalisation?
Ans. The Industrial Policy of 1991.

55
6. What do you mean by disinvestment?
Ans. When the private sector takes over public sector, it is called disinvestment.
7. Give one measure taken by Indian Government to introduce liberalisation.
Ans. Abolishing licensing requirements.
8. What do you mean by first mover advantage?
Ans. Early identification of opportunities.
9. What are Values?
Ans. Concepts held by a society in high esteem are values.
10. Which of the sector was given importance after independence?
Ans. Public sector.
11. What was the responsibility given to private sector after
independence?
Ans. Developing consumer goods industry was the responsibility gives to
private sector.
12. What do you mean by Liberalisation?
Ans. It means reduction in government controls and restrictions
13. Which two factors are included in Technological Environment?
Ans. Scientific Improvement and Innovations.
14. What is meant by opportunities?
Ans. It refers to the positive external trends that help an enterprise to improve its
performance.
15. What do you mean by Innovation?
Ans. Producing goods and services by new methods is called as Innovation.
16. Name the economic reforms introduced to free Indian business from
unnecessary controls and restrictions.
Ans. Liberalisation.

56
1. Define Business Environment. State two important concerns
of business environment.
Ans. As explained above ..
2. Explain the specific and general forces of business environment ?
Ans. Business environment comprises of both specific and general forces. Specific
forces refer to those forces that are having direct effect on the day to day
working of the business viz. customers, competitors, investors etc. General
forces refer to social, political, legal and other forces which are having
an indirect effect on the operations of a business.
3. Enumerate the benefits of understanding business environment.
Ans. Any 04 points explained above.
4. What are the main dimensions of business environment ? What does
environment consist of?
Ans. The main dimensions of business environment are
(i) Economic, (ii) Social, (iii) Technological, (iv) Political, (v) Legal Economic
environment consists of the factors having economic dimensions such as fiscal policy,
monetary policy, industrial policy etc.
5. Explain the role of political environment in shaping the business.?
Ans. Business functions within the framework of political environment. Generally,
government's policies change with the change of guard in power. Business is required to
understand and follow such changes and also respect the orders that judiciary gives
from time to time.
For example , after globalization , Government of India allowed man y
companies to enter the Indian market for giving boost to the different industries like food
processing industry etc. That paved the way for entry of multinationals in India on a
large scale.
6. Explain the concept of technological environment.
Ans. It includes new approaches, new procedures, and new equipments to
transform inputs into outputs. It facilitates an organization's efficiency and effectiveness
so that it can try to remain at par with the best in the world. Technological changes
provide opportunities for some enterprises and become threats for some others.
For example, digital watches killed the business prospects of traditional watches; TV has
adversely affected radio & cinema industry; mobile phones have taken over the market
from landline phones.
7. What do you understand by legal environment? Give two examples which
protect consumers' interests.
Ans. Definition as given above..
Two examples protecting consumers' interests:
(i) Advertisement of alcoholic beverages is prohibited.
(ii) Packets of cigarettes should mention the statutory warning 'Cigarette smoking is
Injurious to health'.
.

57
8. List the various changes initiated by the Government of India since 1991.
Ans. Various changes initiated by the Government of India since 1991 are
as follows:
(i) New industrial policy
(ii) New trade policy
(iii) Fiscal reforms
(iv) Monetary policy
(v) Capital market reforms
(vi) Phasing out of Subsidies and Price controls
9. List some important factors that influence the working of a business
enterprises?
Ans. Following are the important factors that influence the working of a business
enterprise:- (i) Changes in economic policies. (ii) Political uncertainty in the
country. (iii) Increase in the rate of competition. (iv) Changes in fashion.
LONG ANSWER TYPE QUESTIONS ( 5 OR 6 MARKS)
1. What do you mean by business environment? Explain the
key components of business environment.
Ans. Business environment is the sum total of all external factors that influence the
functioning of a business enterprise.
The components of general environment are:
(i) Economic environment:
Economic environment consists of factors having economic dimensions
such as fiscal policy, monetary policy, industrial policy etc.
Impact: Banking sector reforms have led to attractive deposit avenues and
easier credit policy. Likewise reforms in leasing & financial institutions are
also catalyzing company's economic growth.
(ii) Social environment: It discriminates characteristics of the society in
which an enterprise exists. It consists of literary rates, educational levels,
customs and demographic distribution etc.
Impact : Equal pay for equal work for both male and female workers,
reservation of jobs for minorities etc.
(iii) Political environment
It consists of the political forces responsible for the management of public affairs
and their influence on business.
Impact : Government allowed Pepsi to enter Indian market again for giving
boost to the food processing industry.

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(iv) Technological environment
It comprises of the various processes, techniques, approaches etc.
by which an organization transforms inputs into output.
Impact : Digital watches have pushed out traditional
watches.
(v) Legal Environment : It characterises various governmental rules,
regulations and legislations etc. that all members of business community must
follow.
Impact : Removal of control on foreign exchange and liberalization of
foreign direct investments.
2. What do you understand by economic environment? List the
main aspects of economic environment.
Ans. Economic environment consists of factors likes inflation rates, interest rates,
consumer‟s incomes, economic policies, market conditions etc. which affect
the performance of a business firm.
Following are the main aspects of economic environment:
(i) The role of public and private sector in the existing structure of the economy.
(ii) The rate of increase in GNP and per capita income both at current and
constant prices. (iii) Quantum of exports and imports of different products.
(iv) Increase in transportation and
communication facilities. (v) Trends in agricultural
and industrial productions.
(vi) Amount of savings and investments.
3. Social environment of business is important for a business
enterprise". Explain ?
Ans. A business is a part of the society in which it operates. The buying and
consumption habits of the people, their languages, customs, preferences,
tastes etc. are the factors that influence the business. Businessmen should be
alert enough to visualize the factors that directly or indirectly affect their
organization. Cooperation between business and society will see
business boom and will help growth of professional managers. The failure of any
business organization in adapting to changes in the social environment will lead
to dissatisfaction amongst its customers and rejection of its products. This shift of
demand can even endanger the very survival of a business.
For example, equal pay for male and female workers, demand for
reservation in jobs for minorities and women etc.

59
4. Enumerate negative impacts of liberalization and globalisation.
Ans. The negative impacts of liberalization and globalization are as follows;
(i) Threats from Multinational Companies (MNCs).
(ii) Corporate vulnerability.
(iii) Increased competition. (iv)
Fast changing technology.
(vi) High obsolescence of material resources.
(vii) High labour turnover.
(vii) Threat to indigenous culture and values.
5. Enumerate any ten Positive impacts of liberalization and globalization.
Ans. The positive impacts of liberalization and globalization are as follow:
(i) Opportunities for new entrepreneurs.
(ii) Latest technology becoming available.
(iii) Opening up of foreign markets.
(iv) Easy imports of capital goods.
(v) Direct investment by Indian companies abroad
.(vi) Changed attitude of labor unions,
(viii) Easy inflow of foreign capital.
(ix) Freedom to expand and diversify.
(x) Restructuring of industries.
(x) Widening of product choices for consumers.
6. Explain any five negative impacts of liberalization and globalization.
Ans. Following are the negative effects of liberalization and globalization.
(i) Threats from multinational companies (MNCs)
With the arrival of multinationals it is becoming difficult for small
and medium business units to even survive. The massive entry and
consolidation to multinationals in the Indian markets is a challenge that has
already forced some business enterprises to take the exit route.
(ii) Destabilization of protected environment
With easier entry of multi-national companies, Indian business
environment is fast losing its protective shield. The new entrepreneurial freedom
is creating problems for the existing players. Even manufacturers of Maruti car
could not retain their market share and had to remodel their products and
announce heavily price reductions from time to time.
(iii) Decline in public sector Public sector is losing markets and their capacity
utilization has declined, hampering thereby pace of country's technological and
economic growth

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(iv) Sellers' market turned into buyers' market
With the entry of foreign goods .and services, shortage of goods, which is
boon for the sellers, has now turned into surplus. Resultantly, sales/margin to
many sellers have come down substantially. Buyers are now free to buy any
product of their choice at a price they can afford.
(v) Fall in the value of rupee
Indian rupee has been devaluing against DOLLAR, EURO and many
other foreign currencies. This phenomenon has forced even some established
exporters to encash their stake partly/fully.
1. Why is business environment uncertain? - 1 Mark
Ans. Future happenings are very difficult to predict.
2. What is meant by Market Orientation? - 1 Mark
Ans. The firms produce goods after analysing the market needs.
3. How can environment awareness help managers? - 1 Mark
Ans. Various threats are identified in time.
4. How can political stability be beneficial to the economy? - 1 Mark
Ans. Confidence among the business people is built up to invest and take up
new ventures.
5. What was the immediate cause of economic reforms in 1991? - 1 Mark
Ans: High Government deficit.
6. What is meant by threats?- 1 Mark
Ans. It refers to those environmental trends which hinder the performance of an
enterprise
7. Give one of the most important objectives of Indian
development programmes at the time of independence. -
1 Mark
Ans. Rapid Economic Growth
8. 'Environment provides both constraints and opportunities." Comment.
Ans. Business environment provides both constraints and opportunities. Some of the
constraints are economic conditions, customs, government regulations,
availability of natural resources etc. Inspite of many initiatives, FDI is not picking
up in India due to political and bureaucratic hurdles. On the other hand,
environment also offers various opportunities which include changing needs
of customers, technological advances etc. For example, the growing demand
for A.C. has attracted many new players, domestic (Godrej, Kirloskar) as well
as multinationals (LG Electronics) to this industry. 3 o r 4 Marks

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9. Business environment or Environmental Scanning helps in
the identification of threats and early warning signals." Explain?-3or4
Marks
Ans. Environmental scanning helps an enterprise to recognize
qualitative information in advance, which can be used to prepare
it for facing likely challenges. For example, if any new multinati
onal company is entering the Indian market, the manager of an
Indian
firm dealing with same product, as that of the multinational
company, should take it as a warning signal. He should take measures
like improving the quality of his product, heavy advertisement etc. to face the
challenge.
10. What is meant by liberalization? List the impact of changes in government
policy On business and industry. - 3 or 4 Marks
Ans. Indian economy has gradually become more liberal and global since
1991. Liberalization refers to the removal of various outdated rules, regulations etc.
and providing more helpful norms for the business to grow, particularly in the fields
of exports and imports.
Some of the impacts of changes in government policy on business and industry
are as under:
(i) Increasing competition.
(ii) More demanding Customers
(iii) Rapidly changing technological environment
(iv) Necessity for change.
(v) Need for developing human resource.
(vi) Market orientation.
(vii) Loss of budgetary support to the public sector.
11. Explain the meaning of the term Privatisation? List any two reforms
made under Privatisation. - 3 or 4
Marks
Ans. Privatisation refers to reducing the role of public sector and increasing the role
of private sector for rapid development of the nation.

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Two reforms made under Privatisation:
(i) Loss making or sick public sector enterprises were either closed or
handed over to Board of Industrial and Financial Reconstruction.
(ii) Disinvestment of public sector enterprises.
12. Enumerate the various ways in which managers respond to changes in
business environment. - 3 or 4
Marks
Ans. Following are the ways in which managers respond to changes in
business environment:
(i) Strategic alliances, mergers and acquisitions of businesses.
(ii) Diversification.
(iii) Collaboration with multinationals.
(iv) Brand building.
(v) Restructuring of business activities.
(vi) Capital restructures.
(vii) Customer focus.
(viii) Latest technology.
(ix) Compensation levels and incentive schemes.
13. Mention four examples of acquisitions and mergers. - 3 or 4 Marks
Ans. Four examples of mergers and acquisitions are:
(i) SRF buy Ceat's Rayon Tyre Cord.
(ii) Parle's take-over by Coke.
(iii) Godrej has bought over Goodnight.
(iv) Hutch by Vodafone.
14. Explain the changes initiated by the Government of India since 1991.
- 5 or 6 Marks
Ans. Following changes have been observed since 1991:
(i) New Industrial Policy:
• Government has begun disinvesting in public sector undertakings.
• There are new schemes to attract Foreign Direct Investment (FDI).

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• There is prompt clearance of foreign investment proposals.
• Tax concessions are given to units in Special Economic Zones (SEZs).
• There is broadband facility in telecom sector.
• Abolition of industrial registration schemes.
(ii) New Trade Policy:
• There is liberalization of import policy.
• Deemed exporters are entitled to special import licenses.
• There are greater concessions to Export Oriented Units (EOU) and units in
Export Promotion Zones (EPZ).
• Credit is now less expensive and many imports are duty free.
• Simplification of procedures related to export promotion.
• Removal of export quotas & reduction in import duties.
(iii) Fiscal Reforms
• Measures have been taken to bring down fiscal deficit.
• Tax reforms have been initiated to increase revenue and tax compliance.
• Reduction in direct and indirect taxes.
• Decrease in subsidies.
(iv) Monetary Reforms
• Phased reduction of statutory liquidity ratio (SLR).
• Private sector banks allowed to set up new branches.
• Banks have now been allowed to access capital market for raising capital.
• Permission for disinvestment (up to 49% of total equity).
(v) Capital Market Reforms
• Ceiling on rate of interest on debentures and bonds abolished. FIIs can
access capital markets.
• Private sector can set up mutual funds.
• Bonus issues have been made more liberal.
• Security and Exchange Board of India (SEBI) has been made a statutory body

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15. 'Explain 'fiscal reforms' and 'monetary reforms' as per economic change
initiated by Government of India since 1991. - 5 or 6 Marks
Ans. (i) Fiscal Reforms
• Measures have been taken to bring down fiscal deficit.
• Tax reforms have been initiated to increase revenue and tax compliance
• Reduction in direct and indirect taxes.
• Decrease in subsidies.
(ii) Monetary Reforms
• Phased reduction of statutory liquidity ratio (SLR).
• Private sector banks allowed to set up new branches.
• Banks have now been allowed to access capital market for raising capital.
• Permission for disinvestment (up to 49% of total equity).
16. Explain any five ways in which managers have responded to changes in
business environment. - 5 or 6
Marks
Ans. Following are the ways in which managers have responded to changes
in businessmen environment:
i) Strategic alliance, mergers and consolidation of businesses
To achieve the objectives of market dominance, market entry, product ranges
etc., the Indian business enterprises are also indulging in
mergers, acquisitions, amalgamations and takeovers. Initiative for same has
naturally come from managers of such enterprises.
ii) Diversification spree: Managers are leading diversification of their
companies into various fields.
For example, Reliance is now also in the business of communications, retail
chains etc. Likewise, they are bold enough to diversify into other nations too if
need be.
iii) Consolidation of multinationals: Many multinational companies have
entered India through new joint ventures. For example, General Motors' entry through a
joint venture with Hindustan Motors.
iv) Brand Building: Companies are becoming more aggressive towards brand
building. Their managers are spending huge amounts on same. Focus is on securing
prime positions for their brands, through creative media-mix, in the minds of
consumers.
v) Labour : Managers are changing their behaviour towards labour. Labour is
also benefitted through higher wages and other facilities like training to upgrade their
skills and job enrichment.

65
CONCEPT MAPPING
CHAPTER - 4
PLANNING
Concept : Deciding in advance what to do and how to do it. It
involves setting objectives and developing an appropriate
course of action to achieve these objectives.
Importance : (a) provides direction (b) reduces risks of uncertainty (c)
reduces overlapping and wasteful activities (d) promotes
innovation (e) facilitates decision making (f) provides standards
for controlling
Limitations : (a) rigidity (b) reduces creativity (c) huge costs (d) time
consuming (e) does not guarantee success (f) may
not work in dynamic environment
Process : (a) setting objectives (b) developing premises (c) identifying
alternatives (d) evaluating a l t e r n a t i v e s (e) selecting
an alternative (f) implement the plan (g) follow up action
Types : (a) objectives (b) strategy (c) policy (d) procedure (e) method
(f) rule (g) programme (h) budget
Meaning - It is the process of setting objectives and targets for a given time
period and formulating an action plan to achieve them effectively and
efficiently. It concerns itself with both ends and means that is what is to
be done and how it is to be done.
Present
Position
Here we
are
Planning
Bridges this gap
Future position
where we want
to reach

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Definition -
“Planning seeks to bridge the gap between where we are and where we want
to go. Planning is a trap to capture the future.
Importance of planning.
i) Provides direction- By stating in advance the future course of action of what is to
be done and how it is to be done. By stating in advance it facilitates unity of
direction.
ii) Reduces the risk of uncertainty- By predicting future events and preparing
the organization to anticipate the future and face unexpected events.
iii) Facilitates decision making-planning helps the manager to look into the future
and make a sound judgment or choice from among the various alternatives.
iv) Reduces overlapping and wasteful activities-Through elimination and
minimization of useless and redundant activities facilitating clarity.
v) Promotes innovative ideas- Through better new methods, ideas and procedures
to reach the objectives and goals of the enterprise. It induces the management to
predict the changes in the environment and accordingly plan the strategies for
the same .
vi. E s t a b l i s h e s standard for controlling- “control is blind without planning”.
It helps provide standard against which the actual performance are compared
and evaluated to estimate the deviations.
Limitations of planning:
i. Planning does not work in a dynamic environment - Planning also has
to work amidst the influence of external environment which can render even the
most effective plan inoperative.
ii. Planning is a time consuming process as it requires collection of information,
its analysis and interpretation. It becomes a difficult exercise in times of
unexpected emergencies.
iii. It involves huge cost in its formulation. As a lot of money needs to be
expended in the collection, analysis and interpretation of data
iv. I t creates rigidity in the mode of functioning. As the employees are required
to function as per the dictates of the predetermined policy.
v. It does not guarantee success, as a wrong or a misconceived plan or a
well drawn plan when not implemented can lead to failure.
vi. It reduces creativity as the middle level managers and the other decision
makers have to only follow and are not allowed to deviate from the plans.
vii. The human element can give way to errors or mistakes through wrong
assumptions.
viii. It is prone to external influences which can reduce its impact like natural
calamity, technology changes, policy changes, competition.

67
Steps in planning process
i. Setting up objectives: The process begins with identifying and setting up of
objectives.
It determines where to reach. The organizational objectives arrived at should
be measurable, understandable, clear and attainable.
ii. Developing planning premises - Premises involve making
assumptions relating to future conditions. It provides relevant facts and information
relating to future conditions. Hence sound estimates or forecast need to be made.
iii. Identifying alternative course of action : The planner now arrives at the
various alternatives for performance of a task and evaluate the probable
consequence of each option.
iv. Evaluating the alternative course - The positive and negative impact of each
option in light of cost, risk and benefits is worked out.
v. Selecting the best alternative - This is actually the stage of decision making
where the most suitable course of action is selected .The selected alternative is
obviously the one which is most feasible, profitable and has least negative
impact.
vi. Implementing the plan : The plan is transformed into action by activating the
other managerial function involving organizing various resources and securing
cooperation and participation of other members of the organization.
vii. Follow up plan : This final culminating step involves reviewing the existing
plan for its relevance and effectiveness.

68
Types of plans:
(A) Standing or Repeatedly used Plans: As their name indicates that these plans
are formulated once and they are repeatedly used. These plans continuously
guide the managers. That is why it is said that a standing plan is a standing
guide to recurring problems. These plans include :
1. Objectives
2. Strategies
3. Policies
4. Procedures
5. Methods and
6. Rules
(B) Single –use or Special or Adhoc Plans: These plans are connected with
some special problem. These plans end the moment the problems are solved.
After having been used once there is no importance of these plans and in
future, whenever they are needed they are re-created. These plans include
1. Budget and
2. Programme.
Differences between Standing and Single-use Plans
Basis Standing Plans Single-use Plans
1. Period
These plans are formulated
for a long period
These plans are for a short period
and are repeatedly formulated in
case of need.
2. Object
These plans are formulated to
bring uniformity in decisions
These plans are designed to run
successfully some particular
activities
3.Types
They are of six types i.
Objectives ii. Strategies iii.
Policies iv. Procedures
They are of two types i. Budgets
and ii. Programmes

69
v. Methods and vi. Rules
4.Scope
They guide the managers in
particular matters like price policy
and sales policy
These plans guide in matters of
daily routine.
5. Basis
They are based on the
main objectives of the
organisaton
They are based on the standing
plans of the oorganisation.
1) Objectives - Are the ends which the management seeks to achieve by its operation.
• Represent the end point of management.
• Set by top management.
• Defines the future state of affairs.
• Guides the overall business planning.
• Can be expressed in specific terms. They can be measured .
2) Strategy - Provides broad shape of organization‟s business, refers to the future
decisions defining the organization‟s directions and scope in the long run.
• It involves a comprehensive plan which covers the determination of long term
objectives, adoption of a particular course of action and allocation of resources.
3)
4)
Policies - are general statements which guide thinking in decision making.
• They are based on objectives.
• They guide managerial action and decisions.
• They exist at all levels and departments of the organization.
Procedures - Are a chronological sequence of routine steps on how to carry an
activity.
They detail the exact manner in which the work is to be performed.
• It is meant for the insiders to follow.
• Policies and procedures are interlinked.
5) Rules - Are specific statements that inform what is to be done.
• Reflects managerial decision.
• Simplest plan. • They are to be enforced rigidly.
6) Methods - Are standardized ways or manners in which a task has to be
performed considering the objectives.
• Selection of a proper method saves time, money and effort.
7) Programmes - Detailed statements which are combination of goals, policies,
procedures, rules tasks, human and physical resources required and the budget to
implement any course of action.. All these plans together form a programme.
8) Budget - Is a statement of expected results expressed in numerical terms for a
definite period of time in the future.

70
• It quantifies future facts and figures.
• Serves as a standard for measuring actual performance.
• It is prepared for various groups of activities.
1. What is planning?
Ans. Planning is deciding in advance as to what needs to be done in future.
2. Which function of management bridges the gap between where we are and
where we want to go to?
Ans. Planning.
3. Name the primary function of management.
Ans. Planning.
4. One of the functions of Management is considered as base' for all
other functions.
Name that function.
Ans. Planning
5. What all qualities are required for doing planning?
Ans. Intelligence, Imagination, Foresight, Sound Judgment.
6. Name the feature of planning which says planning is a forward
looking function?
Ans. Planning is futuristic.
7. How does planning create rigidity?
Ans. Planning creates rigidity by putting adverse effect on initiative taken by the
managers.
8. What is the basis for creating future course of action?
Ans. Forecasts.
9. Give one limitation of planning function.
Ans. Planning does not guarantee success.
10. Which is the most crucial step in planning process?
Ans. Setting objectives.
11. Define 'Objective'?
Ans. Objectives are desired future position that the management would like to reach.
12. Define 'Strategy'.
Ans. A strategy refers to future decision action, defining the organisation's direction and
scope in the long run.
13. Define 'Policy'.
Ans. Policy is a general statement which guides decision making in a given set of situations
14. Define 'Rules'.
Ans. Rules are specific guidelines for behavior and action.
15. Give anyone example of 'budget'.
Ans. Cash budget.

71
SHORT ANSWER TYPE QUESTIONS (3 OR 4 MARK)
1. What do you mean by planning?
Ans. Planning is deciding in advance about work to be done in future. It is that
function of management which lays down the objectives and various actions to be
taken for the achievement of those objectives.
According to Koontz and O'Donnel "Planning is an intellectual process, the
conscious determination of courses of action, the basing of decision on purpose, facts
and considered estimated".
2. What do you mean by a plan?
Ans. A plan is a formulation of certain steps and actions which are essential
for achieving certain specific results. Plans can be classified on the basis of what they
focus to achieve and the methods adopted viz. objectives, strategy, policy etc.
For example, if the planned output for a week is 1,000 units and actual output is
580 units only, the planners have to critically review their plans and modify: them, if
need be, so as to achieve the planned output.
3. Enumerate six points of importance of planning.
Ans. Any 06 points as stated above.
.
5. How is planning a pervasive function of management?
Ans. Planning is not the function of top management or any particular department only.
It is required at all the levels of management and in all departments of an organisation.
However the scope and nature of planning is different at different levels and in different
departments. For example the top management lays down the plans for the
organisation as a whole. Middle level management has to make plans for each
department and the plans regarding the daily operations of an organisation are laid
down by operational management.
6. How is planning forward looking?
OR
Planning is futuristic' explain?
Ans. Planning is always for the future and never for the past. It involves peeping in to
future, analyzing and preparing plans accordingly. Thus, planning is futuristic as it helps
in meeting likely future events effectively and efficiently to best advantage of the
organisation.
For example, on the basis of sales forecasts, annual plans for production and sales
are drawn

72
.7. Planning involves decision making". Explain.
Ans. Planning is essentially a process of making choice from among
various alternatives.There will be no need for planning, if there is only one
course of action, because there will be no choice. Hence need for planning
depends on the availability of alternatives. A manager, after examining and
evaluating the various alternatives, chooses the most appropriate one.
8. 'Planning reduces creativity'. How?
Ans. Usually in an organisation, planning function is performed by the top
management and the rest of the members are required to implement these
plans. As a result, middle management and other members are neither
allowed to deviate from plans nor are they granted authority to act on their
own. Hence most of the initiative and creativity in them gets reduced.
9. 'Planning does not guarantee success'. Comment.
Ans. An organisation is successful only when the plans are effectively drawn and
implemented. A plan must be converted into action otherwise it becomes meaningless.
Generally, it is seen that managers are in the habit of depending on previously tried and
tested successful plans. But this practice sometimes does not work and may actually lead
to failure instead of success.
10. Enumerate the steps involved in the planning process.
Ans. Steps of planning are as follows:
(i) Setting up of objectives
(ii) Developing premises.
(iii) Identifying alternative courses of action.
(iv) Evaluating alternative courses
(v) Selecting an alternative.
(vi) Implementation of
plan. (vii) Follow up
11. What do you mean by objectives?
Ans. Objective can be defined as a position where the management wants to
reach in the future. These are the ends which an organisation wants to achieve
through its operations. They are measurable in quantitative terms.
For example, one objective of an organisation may be to increase sales
by 20% and return on investment by 10% in the forthcoming year.
12. Explain the meaning of policies.
Ans. A policy can be defined as a general statement that provides
guidelines for constructive thinking. They act as a guide to managerial
actions and decisions in implementing the strategy. A well defined policy
helps in solving the complex problems easily.

73
13. What is meant by procedures?
Ans. Procedures are routine steps framed to carry out activities. These are plans
that determine the order of any work performance. Procedures are generally
meant for insiders and define the chronological sequence of doing any work for
attaining predetermined objectives.
14. What do you mean by methods?
Ans. Methods are standard ways of doing planned jobs for attaining the objectives. They
are more detailed than procedures. Methods are helpful in simplification,
standardization and systematization of work. For doing different jobs, different
methods can be adopted.
For example, for imparting training to employees at different levels, different
methods of training can be used viz for higher level lectures or seminars and for
supervisory level on the job training can be used.
15. What do you mean by rules?
Ans. Rules can be defined as statements that tell us what is to be done and what is not
to be done. Deviations from rules are not permitted unless a policy decision is
taken. They enforce rigidity and there is fine or penalty if they are not followed.
For example, prohibition on sale of tobacco within certain radius of an
educational institution is a rule to be followed by all.
16. What do you mean by programmes?
Ans. Programmes are a solid combination of goals, policies, procedures,
rules, tasks, assignments, steps to be taken, resources to be employed and other
elements necessary to carry out a given course of action. Programmes
interlink the objectives, policies and procedures. They work out even the minutest
detail within broad policy framework of the organisation.
17. What is meant by budget?
Ans. Budget is a plan in numerical terms which quantifies desired facts and figures. It
is a statement of expected results expressed in quantitative terms. For example, a
sales budget helps in forecasting the sales of a particular product in different areas
during a particular month. Similarly, a budget may be prepared to show the
number of workers required in factory at the time of packing the products.
LONG ANSWER TYPE QUESTIONS (5 OR 6 MARKS)
1. Defining 'organizational objectives' is the first step in the process of planning.
Explain, in brief, the other steps of this
process. Or
Explain the steps involved in the process of planning.
Ans. It has been rightly said that defining organizational objectives is the first step in the
process of planning. Other steps in the process of planning a as follows:
(i) Establish planning premises

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Basis Procedures Rules
1. Meaning Procedure is a guide for action in
a given situation.
Rule is a code of conduct
governing or restricting
flexibility or discretion
2. Nature Procedures are specified in
chronological order.
Rules do not place activities in
chronological order
3. Purpose The purpose of procedure is to
facilitate and simplify the operation
and eliminate duplication.
The purpose of rule is to
s maintain discipline in an
organisation.
4. Scope The scope of procedures is wide
because it has Its own rules and
regulations.
A rule has no procedure.
This step involves the establishment of planning premises in which plans
are, expected to operate. Planning premises are assumptions relating to future
conditions and events which are likely to have an effect on achievement of goals
(ii) Identifying alternative courses of action
Under this step, various possible alternatives for reaching objectives should be
identified by managers.
(iii) Evaluating Alternative Courses
This step involves deep evaluation of various alternative courses of action in
light of the various objectives to be achieved. The positive and negative aspect of each
alternative is evaluated.
(iv) Selecting an alternative
This step involves the selection of the most optimum and realistic plan with
least negative results.
(v) Implement the plan
Under this step the best selected plan is put in to action.
(vi) Follow up
Under this step, it is monitored whether the plans are being implement and
whether the activities are being performed according to the schedule.
2. Differentiate between procedures and rules.
Ans.
DIFFERENCE BETWEEN PROCEDURES AND RULES
1. How does planning reduce the risk of uncertainty? - 1 Mark
Ans. Planning reduces the risk of uncertainty by visualizing/assessing future events and
providing remedies/ courses of action for such kinds of events to the extent possible.

75
Ans.
Programme - 1 Mark
5.
Ans.
Give anyone difference between Policy and Rule.
Policy is flexible whereas rule is rigid.
- 1 Mark
2. A company wants to increase sales; the alternatives may be reducing price
hanging packaging, improving packaging, etc. Which step of planning process
relates with the above example? - 1 Mark
Ans. Identifying alternative courses of action.
3. Write anyone difference between policies and procedures. - 1 Mark
Ans. Procedures consist of series of steps whereas policies are guidelines for decision
making.
4. A company needs a detailed plan for its new project? „Construction of a
Shopping Mall'. What type of plan is it?
6. "These are general statements that guide thinking and channelize
energise towards a particular direction and help in solving routine problems”.
Identify the type of plan. - 1M
Ans. Policy
7. 'Planning promotes innovative ideas‟. Explain? - 3 or 4 Marks
Ans. Planning considered to be the most, challenging function of the management as it guides
all Future actions and facilitates growth and prosperity of the business organisation. Planning
encourages managers to think creatively generate innovative ideas; improve methods for
Work execution etc. Dealing with uncertainties of future, planning is the most challenging
function, which provides basis for growth and Prosperity of the business enterprise
8. 'Planning focuses on achieving objectives'. Explain. - 3 or 4 Marks
Ans. Planning is a goal oriented process which helps in defining objectives, and preparation of
necessary action plans to achieve goals. Thus, planning is focused on clarifying what is to be done
and how is that to be done. The planning holds no purpose if it does not focus on achievement of
preset organizational or corporate objectives.
9. 'Planning is the basic function on of management'. Comment. - 3or4 Marks
Ans. Every management starts with planning. All other functions like organizing, staffing,
directing and controlling are based on planning. It precedes the execution of all other
managerial functions and allows mangers to organized, staff, direct and control the
activities in a better way so as to achieve organizational goals. All the activities are created in
such a way that plans are easily carried out. This is also referred to as primacy of planning.
10. Why is planning considered as a mental exercise? - 3 or 4 Marks
Ans. Planning is an intellectual activity requiring application of the mind, imagination and sound
judgment. It is a thinking function rather than a doing function as it determines the actions to be
taken. Moreover, planning requires logical and systematic thinking based on the analysis of facts
and figures.

76
11. Give an example each of any three limitations of planning which are beyond the
control of an organization. -3or4 Marks
Ans. Limitations of planning on which the organization does not have a significant control
are as follows:
S.No. Limitations Examples
1
.
Planning may not work
in dynamic environment.
Frequent changes in the political or
economic environment may upset in
the financial plans.
2 Planning leads to rigidity Following a pre-decided plan when
circumstances have changed.
3
.
Planning involves huge
costs
Incidental expenses such as expenses
on boardroom meetings and discussions
with professional experts involve huge
cost.
12. How can (i) Political climate and (ii) Policies of competitors obstruct planning?
-3or4 Marks
Ans. (i) Obstruction in planning due to political climate
When the government regulates the business practices or introduces new trade policies,
the plans of business enterprises may get upset. Also political instability affects business
plans For example, change in the taxation policy.
(ii) Obstruction in planning due to policies of competitors
The policies of competitors may lead to change in business policies.For example, discounting
policies of the competitors may lead to change in pricing policy of a business enterprise.
13. What do you mean by planning premises? - 3 or 4 Marks
Ans. Planning premises are assumptions relating to future conditions and events which are
likely to have an effect on achievement of goals. These are the bases upon which the
entire structure of planning is built. Every plan is drawn with certain assumptions. To make
planning effective, it is necessary that the premises should be based on accurate forecasts,
existing plans or any past information about policies
etc.
14. 'Though planning is an important tool of management, yet it is not a remedy for all
types of problems", Do you agree with this statement? Give any five reasons in
support of your answer. - 5 or 6 Marks
Why do plans fail in spite of the best efforts of management?
Ans. Yes we agree with the statement. In this part limitation of planning can be explained.

77
2. Nature Policy lays down the broad areas
of action in an organisation.
Rule lays down any
specific sequence of
actions in an
3. Objective Policy is framed to achieve
objectives of the organisation.
Rules are used to
maintain discipline and
command in any
4. Manager’s
Discretion
Policy provides some scope for the
manager’s discretion in his course of
action
Rules provide no scope for
manager’s discretion and
they are binding for all.
15. Distinguish between Policies and Rules. - 5 or 6 Marks
Ans. DIFFERENCE BETWEEN PROCEDURES AND RULES
Basis Procedures Rules
1. Meaning A policy is a guide for thinking. A rule is a specific
statement, which
restricts the fflflexibility

78
Concept Mapping:-
1. Concept and importance.
2. Organizing Process.
CHAPTER -5
ORGANISING
3. Structure of organization – functional and divisional
4. Formal and informal organization.
5. Delegation: concept, elements and importance.
6. Decentralization: concept and importance.
KEY CONCEPT IN NUTSHELL
Organizing is the process of defining and grouping, activities and establishing
authority relationships among them.
Process: the process of organizing consists of the following
steps:
(a).Identification and division of work (b).Departmentalization (c).Assignment of Duties
(d).Establishing reporting relationships.
Importance: Organising is considered important because it leads to division of work,
clarity in reporting relationships, optimum utilization of resources, growth, better
administration and greater creativity.
Organisational structure is the framework within which managerial and operating tasks
are performed. It can be functional or divisional.
Span of management is the number of subordinates under a superior.
Functional structure groups activities on the basis of functions. The advantages of such
a structure are specialization, better control, managerial efficiency and ease in training
employees. The disadvantages are functional empires, conflict of interest, inflexibility and
restriction in managerial development.
Divisional structure groups activities on the basis of Product. The
advantages are integration, product specialization greater accountability, flexibility,
better coordination and more initiative .The disadvantages are departmental conflicts,
costly process, ignoring of organizational interests, and increase in requirements of
general managers.
Formal organization is designed by the management to achieve organizational goals.
Its advantages are fixation of responsibility, clarity of roles, unity of command and
effective accomplishment of goals. Its disadvantages are procedural delays, inadequate
recognition of creativity, limited in scope.

79
Informal organization arises out of interaction among people at work. Its advantages are
speed, fulfillment of social needs, fills inadequacies of formal structure. Its disadvantages
are disruptive force, resistance to change and priority to group interests.
Delegation is the transfer of authority from superior to subordinate. It has three
elements: Authority, Responsibility and Accountability. Importance of delegation is
that it helps in effective management, employee development, motivation, growth and
coordination. Decentralization is delegation of authority throughout the organization.
Importance of decentralization is that it helps in development of managerial talent,
quick decision making burden on top management, development of initiative, growth and
better control.
KEY CONCEPTS QUESTIONS WITH ANSWERS
1).Name the organization which is deliberately created? 1M
A: Formal Organisation
2).Enumerate the steps in the process of organizing? 3M
A: 1) Identification and division of work 2) Grouping Jobs and Departmentalisation
3) Assignment of duties 4) Establishing authority relationship
3).Organizing helps in optimum utilization of resources. Which type of resources
does it refer? 1M
A: All material, financial and human resources.
4).Give any one importance of organizing? 1M
A: Development of personnel.
5).Divisional structure is more suitable for the firms having several products and
each product has distinct features. Do you agree? 1M
A: Yes, I do agree.
6).Distinguish between functional structure and divisional structure. 4M
Basis Functional Structure Divisional Structure.
Formation It is based on functions It is based on product lines
Specialisation Functional Specialisation Product Specialisation
Responsibility Difficult to fix on a
departments
Easy to fix responsibility
Cost Economical Costly
Co ordination Difficult for multi product
company
Easy, because all functions related
to a particular product are
integrated in one
department.

80
Managerial Difficult, as each functional Easier, autonomy as well as the
7).What are the advantages and disadvantages of divisional structure? 5/6
M A): Advantages:
1).All activities associated with one product. It can be easily integrated.
2).Decision making is faster.
3).Performance can be easily assessed remedial action can be taken
4). It facilitates expansion and growth as new divisions can be added.
Disadvantages:
1).This gives rise to duplication of effort among its divisions.
2).Manages in each department focus on their own product without thinking the rest of the
organization.
3).There may not be full utilization of different equipments
4).Conflict may arise among different division.
8) Name the type of organization in which: 1m
a. Friendly relationship exists among the members.
b. Official relationship exists among the members.
A: a) Informal Organisation b) Formal Organisation.
9).Distinguish between formal and informal organizations on the basis of 5/6M
a) Formation b. Purpose c. structure d. Behavior of members e. stability
and f. adherence to rules.
.Ans:
B
a
si
s
Functional Structure Divisional Structure.
Formation Deliberately Planned Emerges Spontaneously
among people
Purpose To achieve organizational
goals
To satisfy social and cultural
needs
Structure Well defined structure Does not have a clear-cut
structure
Behavior of members Standards of behavior Mutual consent among
members
Stability It is stable Neither stable nor predictable.
Adherence to rules Violation of rules may lead
to penalties
No such punishment.

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10). Which term denotes “The number of subordinates that can be effectively
managed by a superior? 1M
Ans: -Span of control.
11) What are the elements of delegation of authority? 1M
Ans: Responsibility, Authority, Accountability.
12) Distinguish between authority and responsibility on the basis of: 3M
a. Direction of flow b. Delegation c. Origin
Basis Authority Responsibility
Direction of flow Authority flows
downwards
Responsibility flows
upwards
Delegation Authority can be delegated Responsibility is absolute
and cannot be delegated.
Origin Arises from law Arises from authority.
13) “A manager is of the view that he is not responsible for the quality of work
that he has delegated to his subordinate”. Do you agree with his view points?
Justify your answer by giving arguments. 4M
A: No I do not agree with managers view point.
The reasons are as follows:
i) Principle of delegation by results expected.
ii) Principle of parity of authority and responsibility iii) Principle of absolute responsibility.
Iv )Authority level principle
14) Scope of decentralization of authority is wider than delegation. Why? 1M
A: Decentralization implies extension of delegation to the lowest level of
management.
15) Distinguish between „delegation‟ and „decentralisation‟ of authority on the basis of
i) purpose ii) parties involved and iii) withdrawal of authority.
Ans:
Basis Delegation Decentralisation
Purpose It means getting
things done
through
subordinates
To prepare the organization for
handling
major expansion of its activitiesParties
involved
It is confined with
manager and
his immediate
subordinate
It indicates relationship between top
management and various
other departments
Withdrawal
of authority
The delegated
authority can be
withdrawn by the
delegator
Withdrawal of authority is difficult

82
1. Name of the function of management which co-ordinates the physical, financial
and human resources and establishes productive relations among them
for achievement of specific goals. 1M
A: o r g a n i z i n g .
2. Name and explain the two steps in the process o organizing which come
after „Identification and division of work‟ and „Departmentalization‟. 3M
A: Identification and division of work: Dividing the total work into jobs is necessary because
the entire work cannot be done by individual (ii)Departmentalisation: In this step combine
or group similar jobs into larger units called departments.
3. Organising leads to a systematic allocation of jobs amongst the workforce.
Which importance of organizing is stated here? 1 M
A: Benefits of specialisation .
4. Organising clarifies lines of communication and specifies who is to report to
whom. Mention the importance of organizing indicated here. 1 M
A: Clarity in working relationships.
5. Aman Ltd. Is manufacturing toys and has production, sales, Purchase and
Finance Departments. Which type of organization structure would you suggest to
them? State any three advantages of this organization structure. 3M
A: I would suggest functional structure for Aman Limited. Advantages of this structure:
i. Supervision is facilitated.
ii. Coordination with in the department is easier.
6. Hindustan Ltd. , is manufacturing computers, soaps and textiles. Which type
of organizational structure would suit the requirements of such organization?
State any three advantages of this organization structure. 4 M
A: Divisional structure would shoot the requirements of Hindustan limited.
Advantages:
i. All activates associated with one product can be easily integrated.
ii. Decision making is faster and effective.
iii. Performance of individual product can be easily assessed.
7. It is a network of personal and social relations not established or required by
the formal organization but arising spontaneously as people associate with one
another. Name this organization and give its three advantages. 4M
A: Informal organization:
Advantages: 1. It brings feeling of belongingness.
2. Informal organization satisfies social and cultural needs.

83
3. It provides useful channel of communication.
8. It merely means the granting of authority to subordinates to operate within
prescribe limits. Mention the concept referred here. 1M
A: Delegation of Authority
9. Delegation provides a ready workforce to take up leading positions in new
ventures. Which importance of delegation is stated here?
A: Facilitation of growth 1M
10. “Authority can be delegated but accountability cannot.” Explain the
statement. 3M
A: According to the principle of absolute responsibility, authority can be delegated but
responsibility cannot be delegated by a manager. The manager remains responsible to
his own superior for the task which he may assign to his subordinates. Every superior is
responsible for the acts of this subordinates to whom he delegates authority for any
work.
11. The Marketing Manager of an organization has been asked to achieve a target
sales of 100 generators per day. He delegates the task to 10 sales managers
working under him. Two of them could not achieve their respective targets. Is the
marking manager responsible? Briefly explain the relevant principle in support of
your answer. 4 M
A: Yes, Marketing manager is responsible for the non-achievement of the
target sales to his superior.The principle related to this statement is absolute responsibility.
It states that authority can be delegated but responsibility cannot be delegated by
manager. The manager remains responsible are accountable to this own superior for the
task which he may have assigned to his subordinate.
12. It refers to the systematic delegation of authority from top management to
the lower level managers. Mention it. 1M
A: Decentralization of authority.

84
CHAPTER -6
STAFFING
6 Marks
CONCEPT MAPPING:
1. Concept and importance of staffing.
2. Staffing as a part of Human Resource Management.
3. Staffing process:
a. Recruitment –sources
b. Selection – process
4. Training and development – concept and importance.
5. Methods of training – on the job and off the job – induction training, vestibule
training, apprenticeship training and internship training.
KEY CONCEPT IN NUTSHELL
MEANING OF STAFFING:
Staffing has been described as the managerial function of filling and keeping filled, the
positions in an organization structure. Staffing is identifying the requirement of
workforce followed by recruitment, selection, placement, promotion, appraisal and
development of personnel, to fill the roles designed into the organization structure.
NEED AND IMPORTANCE OF STAFFING:
In any organization, there is a need for people to perform work. The staffing function of
management fulfills this requirement and finds the right people for the right job. The staffing
function has assumed greater importance these days because of rapid advancement of
technology, increasing size of organization and complicated behavior of human beings. The
ability of an organization to achieve its goals depends upon the quality of its human
resources.
Staffing as a part of human resource management:
Staffing is a function which all managers need to perform. It is a separate and
specialized function and there are many aspects of human relations to be considered.
It is the responsibility of all managers to directly deal and select people to work for the
organization. When the manager performs the staffing function his role is slightly limited.
In small organizations managers may perform all duties related to employees salaries,
welfare and working conditions.
Bus as organizations grow and number of persons employed increases, a separate
department called the human resource department is formed which has specialists in the
field to manage people. Human resource management includes many specialized activities
and duties which the human resource personnel must perform.
RECRUITMENT:
Recruitment refers to the process of finding possible candidates for a job or function. It
has been defined as „the process of searching for prospective employees and stimulating
them to apply for jobs in an organisation.‟

85
Process of Recruitment :
The various activities involved with the process of recruitment includes
(a) identification of the different sources of labour supply,
(b) assessment of their validity,
(c) choosing the most suitable source or sources, and
(d) inviting applications from the prospective candidates, for the vacancies
SOURCES OF RECRUITMENT:
1) Internal Sources
2) External Sources
INTERNAL SOURCES:
Transfers: It involves shifting of an employee from one job to another, one
department to another or from one shift to another, without a substantive change in
the responsibilities and status of the employee
Promotions: Promotion leads to shifting an employee to a higher position, carrying
higher responsibilities, facilities, status and pay. Promotion is a vertical shifting of
employees
MERITS OF INTERNAL SOURCES:
Employees are motivated to improve their performance
Simplifies the process of selection and placement
Transfer is a tool of training the employees to prepare them for higher jobs.
Shifting workforce from the surplus departments to those where there is shortage of
staff
Cheaper as compared to getting candidates from external sources.
Limitations of Internal Sources:
When vacancies are filled through internal promotions, the scope for induction of fresh
talent is reduced.
Employees may become lethargic if they are sure of time bound promotions
Enterprise cannot use internal sources of recruitment.
Spirit of competition among the employees may be hampered.
Frequent transfers of employees may often reduce the productivity of the organization
External Sources:
Direct Recruitment: The direct recruitment, a notice is placed on the notice board. of the
enterprise specifying the details of the jobs available. Job seekers assemble outside the
premises of the organisation on the specified date and selection is done on the spot
recruitment.
Such jobseekers can be a valuable source of manpower. A list of such jobseekers can be
prepared and can be screened to fill the vacancies as they arise.

86
Advertisement: The advantage of advertising vacancies is that more information
about the organisation and job can be given in the advertisement. Advertisement gives
the management a wider range of candidates from which to choose. disadvantage is
that it may bring in a flood of response, and many times, from quite unsuitable
candidates.
Employment Exchange: Employment exchanges run by the Government are regarded
as a good source of recruitment for unskilled and skilled operative jobs. Disadvantage of it
is that is may be uptodate and many of the candidates referred by them may not be found
suitable.
Placement Agencies and Management Consultants:
These provide a nationwide service. These agencies compile biodata of a large number
of candidates and recommend suitable names to their clients. Such agencies charge fee
for their services and they are useful.
Campus Recruitment: organisations maintain a close liaison with the universities,
vocational schools and management institutes to recruit qualified personnel for various
jobs.
Recommendations of Employees: Applicants introduced by present employees, or their
friends and relatives may prove to be a good source of recruitment. Such applicants are
likely to be good employees because their background is sufficiently known
Labour Contractors: Workers are recruited through labour contractors who are
themselves employees of the organisation. The disadvantages of this system are that if
the contractor himself decides to leave the organisation, all the workers employed
through him will follow suit.
Advertising on Television: generally advertised through television and newspaper
The detailed requirements of the job and the qualities required to do it are publicised
along with the profile of the organisation where vacancy exists.
Web Publishing: There are certain websites specifically designed and dedicated for
the purpose of providing information about both job seekers and job opening.
Merits of External Source:
Qualified Personnel
Wider Choice
Competitive Spirit
Limitations of External Sources:

87
Selection:
Selection is the process of identifying and choosing the best person out of a number of
prospective candidates for a job. Towards this purpose, the candidates are required to
take a series of employment tests and interviews.
Process of Selection:
Preliminary Screening: Preliminary screening helps the manager eliminate unqualified
or unfit job seekers based on the information supplied in the application forms.
Selection Tests: An employment test is a mechanism (either a paper and pencil test or
an exercise) that attempts to measure certain characteristics of individuals. These
characteristics range from aptitudes, such as manual dexterity, to intelligence to
personalities.
Important Tests Used for Selection of Employees
Intelligence Tests
Aptitude Test
Personality Tests
Trade Test
Interest Test
Employment Interview: The role of the interviewer is to seek information and that of
the interviewee is to provide the same. Though, in present times, the interviewee also
seeks information from interviewer.
Reference and Background Checks: Many employers request names, addresses,
and telephone numbers of references for the purpose of verifying information and,
gaining additional information on an applicant.
Selection Decision: The final decision has to be made from among the candidates
who pass the tests, interviews and reference checks.
Medical Examination: After the selection decision and before the job offer is made,
the candidate is required to undergo a medical fitness test.fit candidates are give the
job.
Job Offer: job offer is made through a letter of appointment/confirm his acceptance.
Such a letter generally contains a date by which the appointee must report on duty.
Basic information that should be included in a written contract of employment will vary
according to the level of the job, but the following checklists sets out the typical
headings: Job Title, Duties, Responsibilities, Date when continuous employment
starts and the basis for calculating service, rates of pay, allowances, hours of work,
leave rules, sickness, grievance procedure, disciplinary procedure, work rules,
termination of employment.

88
Training And Development:
Training and Development is an attempt to improve the current or future employee
performance by increasing an employee‟s ability to perform through learning, usually by
changing the employee‟s attitude or increasing his or her skills and knowledge.
Importance of Training and Development :
The rapid changes taking place during the last quarter century in our highly
sophisticated and complex society have created increased pressures for organisations
to readapt the products and services produced, the manner in which products and
services are produced and offered, the types of jobs required and the types of skills
necessary to complete these jobs.
Benefits to the organisation:
wastage of efforts and money is minimised.
leading to higher profits.
increases employee morale and reduces absenteeism and employee turnover.
It helps in obtaining effective response to fast changing environment.
Benefits to the Employee:
Improved skills and knowledge
Increased performance and help in earning more money.
Training makes the employee more efficient.
Training increases the satisfaction and morale of employees.
Training, Development and Education:
Training: is any process by which the aptitudes, skills and abilities of employees to
perform specific jobs are increased. It is a process of learning new skills and
application of knowledge. It attempts to improve their performance on the current job or
prepare them for any intended job.
Education: is the process of increasing the knowledge and understanding of
employees. It is the understanding and interpretation of knowledge. It does not
provide definite answers, but rather develops a logical and rational mind that can
determine relationships among pertinent variables and thereby understand a
phenomenon.
Development: refers to the learning opportunities designed to help employees
grow. It covers not only those activities which improve job performance but also
those which bring about growth of the personality, help individuals in the progress
towards maturity and actualization of their potential capacities so that they
become not only good employees but better men and women.

89
KEY CONCEPTS QUESTIONS WITH ANSWERS
1) “Staffing makes for higher performance by putting right person on the right job”.
Is this statement true or false? 1M
A) True
2)“There is no need of human resource planning as so many people are available in
the market these days.” Do you agree with this statement? Give reasons. 3M
A) No, I don‟t agree with this statement. There is a great need of man power planning due
to the following reasons. :
1. Organisation needs man power planning: To meet the demands of changing job
requirements due to change of technology.
2. Man power requires forecasting: Provides a basis of recruitment, transfer and
training employees.
3) Human resource management is a part of staffing. Do you agree? 1 M
A) No.
4) “The present day human resource management is a broader concept.” Explain 4 M
A) The present day human resource management includes the following activites:
a. Helps the organization to achieve its goals
b .Employees the skills and knowledge of employees efficiently and effectively. C
.Enhance job satisfaction.
d. Maintain high morale and good human relations within the organization.
5) Why is induction is not required in the internal source of recruitment. 1M
A) Because employees are already well familiar with the organization.
7) Describe briefly the steps involved in the process of staffing. 5/6M
A) Man power Planning: The organization estimate the total man power requirement by
considering all the departments of the organization.
Recruitment: The second step after man power planning is recruitment and selection
Recruitment aims at attracting job applicants preposition in the organization.
Selection: Selection consists of making choice among applicants. Placement and
Orientation: It refers to placing the right person on the right job. Induction: it is concerned
with the process of introduction of a new employee to the
organization.

90
Training and development: It is more accurately considered as a process of skill
formation and behavioral change.
Performance appraisal
Promotion and career
planning Compensation
8) Name two websites which are commonly visited both by the prospective
employees and the organizations searching for suitable people. 1M
A) www.naukari.com; www.jobstreet.com
9) „Internal sources of recruitment are better than external sources of recruitment.‟
Do you agree with this statement? Give any two reasons in support of your answer.
3M
A) Yes, I agree with this statement.
Advantages: 1. It will assist in developing high moral of employees.
2. The candidates already working in the organization can be evaluated more
economically as the expenditure is relatively less.
10) Name the concept which relates to the following:
a)Searching of prospective candidates.
b) Streamlining the attributes of a person required for doing a job.
Ans) a. Recruitment b. Selection.
11)List the different types of tests used in selection process.
A) i. Intelligence test ii. Aptitude test iii Personality test.iv. Trade test v. Interest test
12) What is meant by „Selection‟? Explain any five steps involved in the process of
selection of employees. 6M
A)Selection is the process of carefully screening the candidates who offer
themselves for appointment so as to choose the most appropriate person for the
job.
Steps : 1. The preliminary screening : A brief screening interview is conducted
as the first step in the selection process.
2. Selection test: Each candidate appears for employment test.
3. Employment Interview: Interview is a phase of testing on the basis of face to
face interaction between the interviewer and the applicant.

91
4. Reference and background checking: Gather more information about the
candidates from indirect personal sources.
5. Selection decision: After candidates process the tests and interview final
decision for selection is made after considering the view of concerned manager.
6. Medical Test: The selection process is not complete without the medical test.
7. Job offer: Letter of appointment mentioning the date by which a candidate
has to report on duty is handed over to the appointee.
8. Contract of employment: It includes various details such as pay, allowances,
work rules etc.
13) Training and Development are one and the same thing. Do you agree?
A) No they are different
14) Distinguish between training and development. 4M
Ans)
Training Development
It is used to add skills abilities
of the workers
Development involves improving
the
capacities and capability
of the managerial
personnel.The term training is generally
used to impart specific skills
among operative workers
It is associated with the over all
growth
of the executives.
it is to enable the employee to
do the job better
It is to enable the overall growth of
the
employee
It is a job oriented process It is a carrier oriented process.
15) State the benefits of employee‟s training. 4M
A) Benefits to the organization:
a) Economic operations: Trained personal will make economic and efficient use of
resources.
b) Increases productivity; It improves the quality and quantity of the production
B)Benefits to the employees:
a) Acquisition of new skills: A trained employee acquires new skills.
b) Higher Earnings: Trained employees can perform better and there by earn more.

92
16) What do you meant by „on the job training‟? Explain any three methods
of „off the job‟ training. 6M
A) On the job training: Learning by doing by the subordinates under the
supervision of superiors at the actual work place.
B) Methods: i. Apprenticeship Programme: It is designed for higher levels of
skills. It ensures on the job training and is explained with classroom instruction in a
particular subject.
ii. Coaching: At lower levels the coaching may simply consist of trainee
observing his supervisor so as to develop the basic skills necessary for
operating machine.
iii. Internship training: Technical institutes and business organizations jointly impart
training to their members.
iv. Job rotation: It is a method of training which serves the purpose of employees‟
development through provision of diversified training.
1. It is described as the managerial function of filling and keeping filled the
positions in the organization structure. Which function of management is referred
here? 1M
A: Staffing
2. It is recruitment, selection, development, utilization, compensation and
motivation of human resources of the organization. Give the name of the concept
mentioned here.
A: Human Resource Management.
3. It implies introducing the selected employee to other employees and
familiarizing him with the rules and policies of the organization. Name it.
A. Orientation.
4. What is the next step after selection?
Placement and Orientation.
5. It seeks to attract suitable applicants to apply for available jobs. Give the
term. 1M
A: Recruitment.
6. These are run by the Government as a source of recruitment for unskilled
and skilled operative jobs. What is being referred here? 1M
A: Employment exchanges.
7. Which type of personnel is recruited by management consultancy firms?
A: Management consultancy firms help the organization to recruit technical,
professional and managerial personnel.

93
8. Hamish is working as a supervisor in a company. Due to his hard work he is
promoted to the post of Production Manager. Now the post of supervisor is
vacant and no one can be transferred or promoted to this post. Name the
sourceof recruitment the company will use to fill up this post. State any three
advantages of using this source of recruitment. 4M
A: The Company will use external source of recruitment.
Advantages: i. Fresh talent ii. Wider choice iii. Qualified personnel
9.It is the process of identifying and choosing the best person out of a number
of prospective candidates for a job. Name it. 1 M
A: Selection.
10. Name the test which is used as a measure of individual‟s potential for learning
new skills. 1 M
A: Aptitude test.
11. Which step in the process of selection helps the manager eliminate
unqualified or unfit job seekers based on the information supplied in the
application forms? 1M
A: Preliminary Screening
12. what is formal, in-depth conversation conducted to evaluate the applicant‟s
suitability for job called. 1M
A: Employment interview.
13. Why is selection considered as negative process? 1M
A: Because it is a process in which a person is selected and the others are rejected.
14. It is a test used for selection of employees to measure individual‟s potential for
learning new skills. Mention its name and explain two other tests also. 1 M
A: Aptitude.
Other Tests: a) Personality Test: These tests are used judge the psychological makeup of
a person. b) Interest Test: These tests identify individual likes and dislikes in relation to
work.
15.It is the process of increasing the knowledge and skills of an employee for doing
a particular job. Which process is referred to here? 1M
A: Training
16.Which of type of training is a joint programme of training in which educational
institutions and business firms cooperate? 1M
A: Internship training
17. Trainee is put under the guidance of a master worker to acquire a higher level of
skill, for example to become plumber, electrician, etc. Which method of training is
referred here? 1M
A: Apprenticeship programme.

94
CHAPTER -7
DIRECTING
CONCEPT MAPPING:
Concept and importance
Elements of Directing
- Supervision-concept, functions of a supervisor.
- Motivation-concept, Maslow‟s hierarchy of need: Financial and non-financial
incentives.
- Leadership-concept, styles-authoritative, democratic and laissez faire.
- Communication- concept, formal and informal communication; barriers to
effective communication, how to overcome the barriers.
Key Concepts in Nutshell
Meaning of Directing: It refers to instructing, guiding, communicating and inspiring
people in the organisation .
Importance of Directing: (1). It initiates action. (2).It integrates employees‟ efforts.
(3)It is the means of motivation. (4)It facilitates implementing changes.
(5)It creates balance in the organization.
Elements of Directing: (1)Supervision (2)Communication (3)Leadership
(4)Motivation
Concept of Supervision: Supervision refers to monitoring the progress of work of one‟s
subordinates and guiding them properly.
Functions of a Supervisor:(1)Facilitates control (2)Optimum utilization of
resources(3)Maintenance of discipline (4)Feedback (5)Improves communication
(6)Improves motivation
Motivation- Motivation process of stimulating people to accomplish desired goals. It
depends up on satisfying the needs of people.
M a sl ow ‟s Hiera rch y of Needs: - According to Maslow, man does every work to
satisfy his need. A man has various needs and their order can be determined. The
needs of a human being serve as a motivation for him. On the basis of priority human
needs can be divided into five parts (i) Physiological needs, (ii) Safety needs,
(iii).Affiliation or social needs, (iv) Esteem needs and (v) Self-actualization needs.
Financial or Monetary Incentives: Financial incentives are those incentives which
are evaluated in terms of money. These are helpful to satisfy Physiological and Safety
Needs. It includes the following (i) Pay and allowances, (ii) Productivity-linked wage

95
Incentives, (iii) Bonus, (iv) Profit sharing, (v) Co-partnership (iv) Suggestions, (vi)
Retirement benefits, (vii) Perquisites.
Non-financial or Non-monetary Incentives: Non-financial incentives are not directly
related with money. These incentives help in the satisfaction of top hierarchy needs
like social, esteem and self-actualization. It includes the following (i).Status (ii)
Organizational climate (iii) Career advancement opportunity (iv) Job enrichment (v)
Employee recognition programmes (vi) Job security (vii) Employee participation (viii)
Employee empowerment.
Meaning of Leadership : It refers to influence others in a manner to do what the
leaders wants them to do.
Leadership Styles:
I. Autocratic Leadership Style:-
(a).Meaning: It refers to that leadership style in which the leader tends to run the
show all by him-self.
(b).Characteristics: (i) Centralized Authority, (ii) Single –man Decision, (iii) Wrong Belief
Regarding Employee, (iv) Only Downward Communications.
(c). Advantages: (i) Quick and Clear Decisions, (ii) Satisfactory Work, (iii) Necessary for
Less
Educated Employees.
(d).Disadvantages: (i) Lack of Motivation, (ii) Agitation by Employees, (iii) Possibility of
Partiality.
II. Democratic Leadership Style :-
(a). Meaning: It refers to that leadership style in which the leader consult with his
sub ordinates before making any final decisions.
(b).Characteristics: -(i)Cooperative Relations,(ii)Belief in Employees, (iii) Open
Communication.
(c ).Advantages : (i) High Morale, (ii)Creations of More Efficiency and Productivity,
(iii) Availability of Sufficient Time for Constructive Work.
(d).Disadvantages: (i) Requirement of Educated Subordinates, (ii) Delay in Decisions,
(iii)Lack
of Responsibility in Managers.
III. Laissez-faire or Free-rein Leadership Style: -
(a). Meaning : It refers to that leadership style in which the leader gives his sub
ordinates complete freedom to make decisions.
(b)Characteristics (i)Full faith in subordinates, (ii) Independent Decision-making
system,(iii) Decentralisation of Authority (iv)Self-Directed Supervisory and Controlled.

96
(c). Advantages.(i)Development of Self-confidence in Sub ordinates, (ii) High-level
Motivation,(iii)Helpful in Development and Extension of the Enterprise.
(d). Disadvantages.(i).Difficulty in Cooperation, (ii)Lack of Importance of Managerial Post,
(iii) Suitable only for Highly Educated Employees.
Communication: Communication refers to process of exchange of ideas between or
among persons and creates understanding. Communication process involves the
elements of source, encoding, channel, receiver, decoding and feedback.
Formal Communications refers to all official communications in the form of orders,
memos, appeal, notes , circular, agenda, minutes etc.
Informal Communications are usually in the form of rumours, whispers etc. They
are unofficial, spontaneous, unrecorded, spread very fast and usually distorted.
Barriers may exist for effective communications. Some of these barriers include-
semantic barriers, organizational barriers, language barriers, transmission barriers,
psychological barriers and personal barriers.
Manager should take appropriate measures to overcome these barriers and
promote effective communication in the organization such as
Improving communication effectiveness:
i. Clarify the ideas before communication ii. Communicate according to the needs of
receiver. iii. Consult others before communicating iv. Be aware of language v. Convey
things of help and value to listeners vi. Ensure proper feedback vii. Communicate for
present as well as future viii. Follow up communications and ix. Be a good listener.
KEY CONCEPT QUESTIONS WITH ANSWERS
Q1) What is meant by Directing? Explain the importance of directing? 6M
Ans: Directing is telling people what to do and seeing that they do it to the best of their
ability. It includes making assignment, explaining procedures, seeing their mistakes are
corrected, providing on the job instructions and issuing orders.
Importance of Directing: -
1. It initiates action
2 It integrates employees‟ efforts
3. It is the means of motivation
4. It facilitates implementing changes.
5. It creates balance in the organization

97
Q2) Mention the elements of directing? 1M
Ans: 1) supervision 2) motivation 3) leadership 4) communication
Q3) Explain how directing is a pervasive function of management 1M
Ans: Directing is a pervasive function as every manager from top executive to
superior performs it.
Q4).„Directing is the least important function of management.‟ Do you agree with
this statement? Give any two reasons in support of your answer. 4 M
A: No, I don‟t agree with this statement.
Importance of direction: Direction may be regarded as the heart of the management
process. It is explained under the following parts:
a).Initiates action: All organizational activates are initiated through direction.
b).Integrates employees‟ efforts: At all levels of management the subordinates
under the managers.
Managers integrate the work of subordinates.
c).Means of motivation : Directing helps in motivating employees towards
organizational goals
Q5).“The post of supervisor should be abolished in the hierarchy of managers”.
Do you agree? Give any three reasons in support of your answer. 6M
A).No, I don‟t agree, because a supervisor performs the following functions to achieve
organization goals.
Functions of the supervisor:
a).Planning the work. The supervisor has to determine work schedule for every job.
b).Issuing orders: Supervisor issues orders to the workers for achieving coordination in
his work.
c).Providing guidance and leader ship: The supervisor leads the workers of his
department. d).Explains the policies and programmes of the organization to his sub
ordinates and provide guidance
e).Make necessary arrangement for supply of materials and ensure they are
efficiently utilized.
f). Deviations from the target if any are to be rectified at the earliest.
g). To help the personnel departments in recruitment and selection of workers.
Q6).What is meant by „Esteem needs‟ and „Self-actualization needs‟ in relation to
motivation of the employees? 4M
A: i. Esteem Needs: these needs are needs for self esteem and need for other esteem
.For Example: Self-respect, self-confidence etc.
ii. Self-actualization Needs: This is the needs to be what one is capable of
becoming and includes needs for optimal development.

98
Q7).It is through motivation that managers can inspire their subordinates to give
their best to the organisation‟. In the light of this statement, explain, in brief, the
importance of motivation. 5/6M
A: Importance of motivation:
i. Motivation sets in motion the action of people: Motivation builds the will to work
among employees and puts them into action.
ii. Motivation includes the efficiency of work performance: Performance of
employees dependence not only on individual abilities but also on his willingness.
iii. Motivation ensures achievement of organizational goals: If employees are not
motivated, no purpose can be served by planning organizing and staffing.
iv. Motivation creates friendly relationships: Motivation creates friendly and
supportive relationships between employer and employees.
V .Motivation leads to stability in the employees: Motivation helps in reducing
absenteeism and turnover.
vi. Motivation helps to change negative / indifferent attitudes of an employee
Q8).“All managers are leaders, but all leaders are not managers.” Do you agree
with this statement?Give any three reasons in support of your answer. 3/4 M
A: Yes, I agree with this statement.
Difference between leadership and management :
Basis Leadership Management
Origin Leadership originates
out of
individual influence
Management
originates out
of official power and
rights.
Formal Rights A leader has no formal
rights
A manager has
certain
formal rights
Follower &
subordinates
A leader has followers A manager has
subordinates
Q9) Explain the various leadership styles? 6M
Ans):Autocratic leadership style: This style is also known as leader centered style. The
leader keeps all the authority and employees have to perform the work exactly as per his
order. He does not decentralizes his authority. The responsibility of the success or the
failure of the management remains with the manager.

99
Democratic leadership: This style is also known as group centered leadership style.
Managerial decisions are not taken by the manager in consultation with employees.
This leadership style is based on decentralization. Managers respect the
suggestions made by his sub ordinates.
Laissez-faire leadership style: this style as leadership is also known as free brain
leadership or individual centered style. The manger takes little interest in managerial
functions and the sub ordinates are left on their own. Manager explain over all objectives;
help subordinates in determining their own objectives. They provide resources. They
also advise the employees.
Q10) Mention the characteristics of autocratic leadership style. 3M
Ans).1.Centralized authority 2.Single man decisions 3.Wrong belief regarding employees
4 .Only downward communication.
Q11). Explain three advantages and three disadvantages of autocratic leadership
style. 6M
Ans).Advantages: 1.quick and clear decisions 2.Satisfactory work 3.Necessary
for less educated employees
Disadvantages: 1.lack of motivation 2.Agitation by employees 3.Possibilities of partiality.
Q12). Explain three advantages and three disadvantages of democratic leadership
6M
1) Ans: Advantages:1.Democratic leadership style advantages,2.Morale,3.Creation of
more efficiency and productivbity,4.Availability of sufficient time for constructive work
2) Disadvantages:1.Requirement of educated sub ordinates 2.Delay in decisions
3.Lack of responsibility and managers
Q13). Mention features of democratic leadership style? 3M
Ans: 1) co operative relations 2).Relief in employees 3).Open communication
Q14). Mention the characteristics of laissez-faire leadership style 3M
Ans: Full faith in subordinates 1).Independent decision making system
2).Decentralization of authority
3).Self directed
Q15). Mention three advantages and three disadvantages of laissez-faire 6M
Ans: -1.Development of self confidence in sub ordinates, 2.High level motivation,
3.Help in development of extension and enterprise
Disadvantages: 1.Difficulty in co operation, 2.Lack of importance of managerial post,
3.Suitable only for highly educated employees

100
Q16). “Managerial functions cannot be carried out without an efficient system of
communication.” Do you agree? Give any three reasons in support of your
answer. 4M A:
Yes, I agree with this statement.
Communication is important because of the following reasons.i. Communication facilitates
planning in a number of ways
ii. Communication helps management in arriving at vital decisions
iii .Communication is necessary in creating unity of action of action
Q17). Mention one barrier to effective communication. 1M
A: Poor listening skills of people.
Q18). Give any one measure to improve communication. 1M
A: Communicate according to the needs of receiver.
Q19). What do you mean by grapevine? Explain two types of grapevine
along with diagram.
A: Grapevine: The network or pathway of informal communication is known as grade
point communication.Two types of grapevine communication
Gossip Single Strand
Q20). Explain any three measures to overcome the barriers to
improve communications effectiveness.
Ans. 1.Clarify the areas before communication: Before communicating to employees a
manager should make an analysis of the subject matter.
2. Consult others before communication: A manager should encourage
participation of subordinates which will ensure their support and cooperation.
3. Communicate according to the needs of receiver: The manager should make
adjustments according to the needs of the receiver.
1).It is concerned with instructing guiding and inspiring people in the organization
to achieve its objectives. Name it. 1 M
A: Directing
2) Every manager from top executive to superior performs the function of
directing. Which characteristic of directing is referred here? 1M
A) Directing takes place every level of management.
3) It means overseeing the subordinates at work. Which element of directing
is referred to? 1M
A: Supervision.

101
4) Supervisor acts as a link between workers and management. How? 1M
A: Supervisor conveys management ideas to the workers on one hand and workers
problems to the management on the other.
5) It refers to the way in which urges, drives, desires, aspirations, strivings or
needs direct control and explain the behavior of human beings. Which element of
directing is indicated here? 1M
A: Motivation.
6) Motivation can be either positive or negative. Give two examples of
negative motivation. 1M
A) a) Stopping increments b) Treating
7) .Which need in the hierarchy theory of motivation refers to affection,
acceptance and friendship? 1M
A: Belonging needs
8) It is an incentive offered over and above the wages/salary to the
employees. Name the type of financial incentive referred here. 1M
A) Bonus
9) Name the incentive which refers to „give more autonomy and powers to
subordinates‟ and how are people affected by this incentives? 1M
A) Employee Empowerment : Due to this incentive people start feeling that their jobs
are important and they contribute positively to use their skills and talent in the job
performance.
10 It is defined as a process of influencing other people to work willingly for
group objectives. Mention this element of directing. 1 M
A) Leadership
11) It is process by which people create and share information with one
another in order to reach common understanding. Which element of directing
is referred here? 1M
A) Communication.
12) Which element in communication process relates to the process of
converting encoded symbols of the sender? 1M
A) Decoding
13 In which kind of communication network, a subordinate is allowed to
communicate which his immediate superior as well as his superior‟s superior?
1M
A) Inverted V.

102
14) Amit and Mikki are working in the same organization but different
departments. One day at lunch time Mikki informed Amit that due to
computerization many people are going to be retrenched soon from the
organization. 4M
A) It is an example of informal communication.
Limitations of informal communication:
Messages tend to be distorted.
It often carries rumors.
It is unsystematic.
15) There are some barriers in communication which are concerned with the
state of mind of both the sender and the receiver. State any three such barriers.
3/ 4 M
A) It refers to physiological barriers: i. premature evaluation ii. Loss by transmission
and poor retention. Iii .Lack of attention.

103
Process of Controlling
CHAPTER – 8
CONTROLLING
(06Marks)

104
Key Concepts in nutshell:
1. Meaning of controlling: Comparing actual performance with standards and finding
deviations if any and taking corrective action.
Actual Performance = Standards = No deviation
Features/Nature of Controlling:
• Controlling is pervasive
• Controlling is a primary function
• Controlling is a continuous process
• Controlling is a goal oriented function.
2. Process of Controlling:
1. Setting performance standards: Standards are the Criteria against which actual
performance would be measured. Standards serve as bench marks. They can be set in
both quantitative as well as qualitative.
2. Measurement of actual performance: Performance should be measured in an objective
and reliable manner.
3. Comparing actual performance with standards:
4. Analyzing deviations: Major deviation or minor deviation and analyzing the causes of
deviation.
a) Critical point control: Focus only on Key Result Areas (KRAs).
b) Management by Exception: Concentrate only on major deviations only.
5. Taking corrective action: When deviations go beyond the acceptable range, especially in
the important areas, it demands immediate managerial attention so that deviations do not
occur again and standards are accomplished.
Conclusion: In case the deviation cannot be corrected through managerial action, the
standards may have to be revised.

105
IMPORTANCE OF CONTROLLING
Controlling ensures order and discipline by fixing standards in advance which
leads to improved employee motivation, it also facilitates efficient use of resources,
judging the accuracy of standards, facilitates coordination in action which will result
into accomplishment of organizational goals.
LIMITATIONS OF CONTROLLING:
1. Difficulty in setting quantitative standards: It is difficult to set standards for all types of
activities this makes measurement of performance and their comparison with standards a
difficult task.
2. Little control on external factors: Business environment is ever changing. The firm has
no control on external factors such as government policies, technological changes,
competition etc.

106
3. Resistance from employees: Employees oppose controlling measures taken by
any organisation.
4. Costly affair: It is a costly affair as it involves a lot of expenditure, time and effort.
Especially small organizations cannot afford.
RELATIONSHIP BETWEEN PLANNING AND CONTROLLING:
Planning and controlling are inseparable twins of management. Planning initiates the
process of management and controlling completes the process. Plans are the basis of
control and without control the best laid plans may go astray.
Planning is clearly a prerequisite for controlling. It is utterly foolish to think that
controlling could be accomplished without planning.
Planning is prescriptive and controlling is evaluative
It is often said that planning is looking ahead while controlling is looking back.
However, the statement is only partially correct.Plans are prepared for future and
involve looking ahead. On the contrary, controlling is like a postmortem of past activities
to find out deviations from the standards. In that sense controlling is a backward looking
function. However, it should be understood that planning is guided by past experiences
and the corrective action initiated by control function.

Business Studies Class xii

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Business Studies Class xii