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1 NATURE AND SIGNIFICANCE OF MANAGEMENT, MANAGEMENT, Management can be defined as,, the process of getting things done, with the aim of achieving, organizational goals effectively, and efficiently., , Management is defined as the, process of planning, organising, and controlling an organisation’s, operations in order to achieve the, target efficiently and effectively., It is essential for all organisations., , “Management is the process by, which a co-operative group, directs actions of others toward, common goals.”, , Concepts of Management, , Concepts of Management, , Traditional Concept, Management,  Traditional Concept Management is the art, of getting things done through others., , Efficiency, Efficiency (completing the work at low cost) means, doing the task correctly at minimum cost through, optimum utilization of resources, , Modern Concept, Management,  Modern Concept Management is defined as, the process (refers to the basic steps) to get, the things done with the aim of achieving, goals effectively and efficiently (effectiveness, refers to achievement of task on time and, efficiently implies optimum use of resources)., , Effectiveness, Effectiveness (Completing the work on time) is, concerned with end result means completing the, task correctly within stipulated time., , CONCLUSION: Although efficiency and effectiveness are different yet they are inter related. It is, important for management to maintain a balance between the two., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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Objectives of Management, Objectives of Management Objectives can be classified into organisational, social or personal, 1. Organisational Objectives,  Survival It exists for a long time in the competition market.,  Profit It provides a vital incentive for the continued successful operations.,  Growth Success of an organisation is measured by growth and expansion of activities., 2. Social Objectives,  creation of benefit for society.,  Use Eco- friendly method,  Generate employment opportunity., 3. Personal Objectives of employees,  good salary,,  promotion,,  social recognition,,  healthy working conditions., , Importance of Management, 1., , Management Helps Achieving Group Goals It integrates the objective of individual along with, organisational goal., , 2. Management Increases Efficiency It increases productivity through better planning, organising,, directing the activities of the organisation., 3. Management Creates a Dynamic Organisation have to survive in dynamic environment thus, manager keep changes in the organisation to match environmental changes., 4. Management Helps in Achieving Personal Objectives Through motivation and leadership,, management helps in achieving the personal objectives., 5. Management Helps in the Development of Society It provides good quality products and services,, creates employment, generate new technology in that sense it helps in the development of the, society., , Any thing – Management = Nothing / Failure / Zero, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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Features of Management, 1. Management is goal oriented process, Management always aims at achieving the organisational objectives., , , The functions and activities of manager lead to the achievement of organisational, objectives; for example, if the objective of a company is to sell 1000 computers then, manager will plan the course of action, motivate all the employees and organise all the, resources keeping in mind the main target of selling 1000 computers., , 2. Management is Pervasive, Management is a universal phenomenon. The use of management is not restricted to business firms only it, is applicable in profit-making, non-profit-making, business or non-business organisations; even a hospital,, school, club and house has to be managed properly. Concept of management is used in the whole world, whether it is USA, UK or India, , 3. Management is Multidimensional, Management does not mean one single activity but it includes three main activities, , , , , Management of work, Management of people, Management of operations, , 4. Management is a continuous process, Management is a continuous or never ending function. All the functions of management are performed, continuously, for example planning, organising, staffing, directing and controlling are performed by all the, managers all the time. Sometimes, they are doing planning, then staffing or organising etc. Managers, perform ongoing series of functions continuously in the organisation., , 5. Management is a group activity, Management always refers to a group of people involved in managerial activities., The management functions cannot be performed in isolation. Each individual, performs his/her role at his/her status and department, and then only management, function can be executed.Even the result of management affects every individual, and every department of the organisation so it always refers to a group effort and, not the individual effort of one person, , 6. Management is a dynamic function, Management has to make changes in goal, objectives and other activities according to changes taking, place in the environment. The external environment such as social, economic, technical and political, environment has great influence over the management., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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7. Intangible, Management function cannot be physically seen but its presence can be felt., The presence of management can be felt by seeing the orderliness and, coordination in the working environment. It is easier to feel the presence of, mismanagement as it leads to chaos and confusion in the organisation., For example, if the inventory of finished products is increasing day by day, it clearly indicates mismanagement of marketing and sales., , Functions of Management, Management refers to the activities, and often the group of people, involved in the four general functions:, 1., 2., 3., 4., 5., , Planning, Organizing, Staffing, Directing, Controlling, ,  PLANNING, It refers to deciding in advance what to do, how to do and developing a may of achieving goal, efficiently and effectively..,  ORGANIZING, Organizing is an essential function of management. It refers to the assigning of duties, grouping, tasks, establishing authority and allocating of resources required to carry out a specific plan.,  STAFFING, It is function in which qualified people are appointed to different posts relating to their skills and, strengths. The activities included in this function are recruiting, hiring, training, evaluating and, compensating.,  DIRECTING, Directing is a function that comes after staffing of the organization, it is the function in which the, management is supposed to lead, direct to a specific goal and motivate the employees for the, achievement of any objective, big or small.,  CONTROLLING, It is a function in which the performance of the organization is measured and then evaluated after, which the standard observed is determined to be either good or bad, which then in turn leads to, taking preventive and corrective measures, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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Levels of Management, , Top level Management, , Middle level Management, ,  They formulate the overall, organisational goals and, strategies.,  They are responsible for the, success and failure of the, organisation.,  They are responsible for all, the business activity and its, impact on society.,  They maintain contact with, outside world.,  They coordinate the activities, of different departments., ,  They serve as a link between, the top level and lower level, management.,  They are responsible for, implementation and, controlling plans and, strategies developed by top, management.,  They ensure that their, department has the necessary, staff.,  They motivate the peoples in, their department to achieve, desired objectives.,  They cooperate with other, departments for smooth, functioning of the, organisation., ,  Top Management It consists, of senior most executives who, are usually referred to as the, Chairman, Chief Executive, Officer, President and Vice, President., , Lower level Management, ,  They directly oversee the, efforts of the workforce.,  They serve a link between the, workers and middle level, management.,  They ensure availability of, resources and good quality of, output.,  They provide guidance and, training to workers.,  They ensure that good, working condition are, provides to the workers.,  They are usually the foremen, and supervisors who actually, carry on the work or perform, the activities., ,  Middle Management They, are usually division heads, who are the link between top, and lower level of, management., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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Nature of Management, , Management as Science, , Management as Profession, ,  Science is a systematic body, of knowledge pertaining to a, specific field of study that, contains general facts., ,  A profession may be defined, as an occupation that, requires specialized, knowledge and intensive, academic preparations to, which entry is regulated by a, representative body, ,  Art implies application of, knowledge & skill to trying, about desired results., , 1. Universally acceptance, principles, 2. Experimentation &, Observation, 3. Cause & Effect Relationship, 4. Test of Validity &, Predictability, , 1. Specialized Knowledge, 2. Formal Education &, Training, 3. Social Obligations, 4. Code of Conduct, 5. Representative Association, , 1., 2., 3., 4., 5., , Management is a social science., , Management does not meet the, exact criteria of a profession., , Management is a complete art., ,  It establishes cause and effect, relationship between two or, more variables,  These principles are, developed through scientific, method of observation and, verification through testing., , Management as Art, ,  An art may be defined as, Personalized application of, general theoretical principles, for achieving best possible, results., , Practical Knowledge, Personal Skill, Creativity, Perfection through practice, Goal-Oriented, , Co-ordination, , According to Mooney and Reelay, “Co-ordination is orderly arrangement of group efforts to provide unity, of action in the pursuit of common goals”, According to Charles Worth, “Co-ordination is the integration of several parts into an orderly hole to, achieve the purpose of understanding”., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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Essence and Characteristics of Co-ordination, Essence of Co-ordination, 1., , Co-ordination through Planning - Planning facilitates co-ordination by integrating the various, plans through mutual discussion, exchange of ideas. e.g. - co-ordination between finance budget, and purchases budget., , 2. Co-ordination through Organizing - Mooney considers co-ordination as the very essence of, organizing. In fact when a manager groups and assigns various activities to subordinates, and when, he creates department’s co-ordination uppermost in his mind., 3. Co-ordination through Staffing - A manager should bear in mind that the right no. of personnel in, various positions with right type of education and skills are taken which will ensure right men on, the right job., 4. Co-ordination through Directing - The purpose of giving orders, instructions & guidance to the, subordinates is served only when there is a harmony between superiors & subordinates., 5. Co-ordination through Controlling - Manager ensures that there should be co-ordination between, actual performance & standard performance to achieve organizational goals., From above discussion, we can very much affirm that co-ordination is the very much essence of, management. It is required in each & every function and at each & every stage & therefore it cannot be, separated., , Characteristics of Co-ordination, 1., 2., 3., 4., 5., , Co-ordination Integrates Group Efforts, Co-ordination ensure Unity of Action, Co-ordination is a Continuous Process, Co-ordination is an All Pervasive Function., Co-ordination is the Responsibility of All Managers., 6. Co-ordination is a Deliberate Function., , Importance of Co-ordination, 1., , Growth in Size When there is a growth in size, the number of people employed by the organisation, also increases. Thus to integrate the efforts, co-ordination is needed., , 2. Functional Differentiation In an organisation, there are separate department and different goals., The process of linking these activities is achieved by co-ordination., 3. Specialisation Modern organisation is characterised by a high degree of specialisation. Coordination is required among different specialists because of their different approaches, judgement, etc., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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SUMMARY OF CHAPTER FOR QUICK REVISION, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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LATEST CBSE QUESTIONS (CASE STUDY), Question 1:, Ashutosh Goenka was working in ‘Axe Ltd.’, a company manufacturing air purifiers. He found that the profits, has started declining from the last six months. Profit has an implication for the survival of the firm, so he, analysed the business environment to find out the reasons for this decline., Identify the level of management at which Ashutosh Goenka was working., State three other functions being performed by Ashutosh Goenka., Answer:, Ashutosh Goenka was working at top level of management. The three functions being performed by him at, this level are outlined below:,  He is responsible for formulating the overall organizational goals and strategies.,  He is responsible for all the business activities and its impact on society.,  He has to coordinate the activities of different departments in pursuit of common goals., , Question 2:, Rishitosh Mukerjee has recently joined AMV Ltd, a company manufacturing refrigerators. He found that his, department was under-staffed and other departments were not cooperating with his department for smooth, functioning of the organisation. Therefore, he ensured that his department has the required number of, employees and its cooperation with other departments is improved., Idenfity the level at which Rishitosh Mukerjee was working., Also, state three more functions required to be performed by Rishitosh Mukerjee at this level., Answer:, Rishitosh Mukerjee is working at middle level of the management. The three more functions that he has to, perform at this level are stated below:,  He has to assign duties and responsibilities to the people in his department.,  He has to motivate the people in his department to achieve the desired objectives.,  He has to interpret the policies framed by top management., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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Question 3:, Sridhar’s father is working as a section in-charge in a government office. Identify the level of management at, which he is working? State any five functions that he has to perform at this level., Answer: Sridhar’s father is working as a section in-charge in a government office. He is working at the lower, level of management., , , , , , , , He has to perform the following functions at this level of management:, He has to directly oversee the efforts of the workforce., He has to serve as a link between the workers and middle level managers., He has to ensure sufficient availability of resources and good quality of output., He has to provide guidance and training to workers., He has to ensure that good working conditions are provided to the workers., , Question 4:, Mega Ltd. manufactured water-heaters. In the first year of its operations, the revenue earned by the company, was just sufficient to meet its costs. To increase the revenue, the company analysed the reasons behind the less, revenues. After analysis, the company decided: to reduce the labour costs by shifting the manufacturing unit to, a backward area where labour was available at a very low rate. to start manufacturing solar water-heaters and, reduce the production of electric water- heaters slowly. This will not only help in covering the risks but also, help in meeting other objectives. Identify and explain the objectives of management discussed above. State any, two values which the company wanted to communicate to society., Answer:, The objectives of management discussed above are:, Organisational objectives: An organisation strives to achieve multiple organizational objectives in the interest of, its stakeholders like owners, employees etc. The main organizational objectives are survival, profit and growth., Social Objectives: It is the obligation of every organisation to undertake such activities which will benefit the, society at large like using eco-friendly methods, contributing towards weaker sections of the society, generating, employment opportunities, promoting literacy etc., The two values that the company wanted to communicate to the society are:,  Rural development,  Environment sustainability, , Question 5:, XYZ Power Ltd. set up a factory for manufacturing solar lanterns in a remote village as there was no reliable, supply of electricity in rural areas. The revenue earned by the company was sufficient to cover the costs and, the risks. As the demand of lanterns was increasing day- by-day, the company decided to increase production, to generate higher sales. For this/they decided to employ people from a nearby village as very few job, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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opportunities were available in that area. The company also decided to open schools and creches for the, children of its employees. Identify and explain the objectives of management discussed above. State any two, values which the company wanted to communicate to the society., Answer: The objectives of management discussed above are:, Organisational objectives: An organisation strives to achieve multiple organizational objectives in the interest of, its stakeholders like owners, employees etc. The main organisational objectives are survival, profit and growth., Social Objectives: It is the obligation of every organisation to undertake such activities which will benefit the, society at large like using eco-friendly methods, contributing towards weaker sections of the society, generating, employment opportunities, promoting literacy etc., The two values that the company wanted to communicate to the society are:,  Rural development,  Promoting literacy, , Question 6:, Your grandfather has retired as the Director of a manufacturing company. At what level of management was, he working? What functions do you think he was performing at that level? State any two,, Answer:, Since he has retired from the post of Director of a manufacturing company, he was working at the top level of, management. The main functions that he was performing at this level are outlined below:,  He was responsible for the success and failure of the organization.,  He was responsible for all the business activities and its impact on society.,  He had to coordinate the activities of different departments in pursuit of common goals., , Question 7:, Ritu is the manager of the northern division of a large corporate house. At what level does she work in the, organisation? What are her basic functions?, OR, Your grandfather has retired from an organisation in which he was responsible for implementing the plans, developed by the top management. At which level of management was he working? State one more function, performed at this level., OR, Deepak’s father has retired as a purchase manager of a company. At what level of management was he, working? What function do you think he was performing at that level of management?, OR, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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Dheeraj is working as an Operations Manager in Tifco Ltd. Name the managerial level at which he is working., State any four functions he will perform as the Operations Manager in this company., OR, Rajat is working as a Regional Manager in Tifco Ltd. Name the level at which he is working. State any four, functions he will perform as the Regional Manager in this company., Answer:, Ritu / grandfather / Deepak’s father / Deeraj / Rajat, all of them are working at the middle level of, management. The four functions that he will have to perform at this level are stated below:, , , , , , He has to ensure that his department has the necessary staff., He has to assign duties and responsibilities to the people in his department., He has to motivate the people in his department to achieve the desired objectives., He has to co-operate with the other departments for ensuring smooth functioning of the organization., , Question 8:, Vaibhav Garments Ltd/s target is to produce 10,000 shirts per month at a cost of ?150 per shirt. The, production manager could achieve this target at the cost of ?160 per shirt. Do you think the production, manager is effective? Give reasons for your answer., Answer:, Yes, the production manager of Vaibhav Garments Ltd. is effective as he could achieve the target to produce, 10,000 shirts in a month., , Question 9:, Mr.Nitin Singhania’s father has a good business of iron and steel. He wants to go to the USA for his MBA but, his father thinks that he should join the business. On the basis of emerging- trends, do you think that, Mr.Singhania should send his son to the USA? Give any three reasons in support of your answer., Answer:, Yes, according to me, Mr. Singhania should send his son to USA for his MBA because management is being, recognised as a profession to a great extent because of the following reasons:, Well defined body of knowledge: Management is considered to be a well-defined body of knowledge that can, be acquired through instructions. As a separate discipline, it contains a set of theories and principles, formulated by various management experts. Moreover, it is taught in various schools and colleges all over the, world., Ethical code of conduct: Management, in practice, like other professions, is bound by a code of conduct which, guides the behaviour of its members. Therefore, acquiring a degree in management will equip him with the, good managerial,, skills and approach., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 12

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Service motive: A good management course will provide him an insight into the multiple goals that an, organisation should pursue. This knowledge will help him to serve both the objectives of profit maximization, and social welfare effectively for his company., , Question 10:, Sooraj works as a salesman in a company selling pet accessories and food. He has been given a target of selling, 1200 units of the food packets in a month by offering a maximum of 10% discount to his customers. In order, to meet his monthly sales target, on the last two days of the month, he offers 15% discount to his customers., In the context of the above case:, Is Sooraj effective in his work? Explain by giving a suitable reason in support of your answer., Answer:, Yes, Sooraj is effective in his work as he has been able to meet his monthly sales target of selling 1200 units of, the food packets., , Question 11:, Sujata works as a designer in an export house. As per the terms of an order received by the export house, she, has to get 1000 units of denim jackets made in 15 days @ ?2000 per jacket. She is able to complete her target, production in 20 days because in order to complete the order in 15 days she would have made the workers, work over time. As a result, the cost of production per jacket may have increased by ? 100., In the context of the above case:, Is Sujata efficient in her work? Explain by giving a suitable reason in support of your answer., Answer:, Yes, Sujata is efficient in her work as she has been able to get 1000 units of denim jackets made @ ?2000 per, jacket., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 13

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2 PRINCIPLES OF MANAGEMENT, PRINICIPLES OF MANAGEMENT, These are the statements of fundamental truth, they serve as a guide to thought and actions for, managerial decision actions and their execution, *(Principle It refers to a statement which reflects the fundamental truth about some phenomenon based, on cause and effect relationship.), , Types Principles of Management, , Principle of, Management, Fayols Principle of general, Management, , Taylor Principle of Scientific, Management, , Significance of Principles of Management, , , , , , , , , Providing managers with useful insight in to reality, Optimum utilisation of the resources, Scientific decisions, Help to meet the changing requirements., Meeting changing environment requirements, Fulfilling social responsibility, Management training, education and research, , Features of Principles of Management,  Universal Applicability: The principles of management are deemed to apply to all types and sizes, of organizations.,  General Guidelines: The principles are guidelines to action but do not provide readymade,, straitjacket solutions to all managerial problems as the real business situations are very complex, and dynamic and are a result of many factors., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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 Formed by practice and experimentation: The principles of management are formulated by the, management experts through observation and tested through repeated experimentation.,  Flexible: The principles of management are not rigid prescriptions, which have to be followed, absolutely. They are flexible and can be modified by the manager in the light of given situation so, as to achieve the desired goals.,  Mainly Behavioural: The principles of management aim at influencing behaviour of human beings, in a desired manner.,  Cause and effect relationships: The principles of management seek to establish relationship, between cause and effect so that they can be used in similar situations in a large number of cases.,  Contingent: The application of principles of management is contingent or dependent upon the, , prevailing situation at a particular point of time., , Nature of Principles of Management, , 1., , Universal Applicability The principles of management are universal in nature that means they can, be applied to all types of organisations irrespective of their size and nature., , 2. General Guidelines Management principle give guidelines to solve the problems, these principles do, not provide readymade solution for all the problems., 3. Formed by Practice and Experiments The management principles are developed only after deep, and through research work., 4. Flexibility These are not set of rigid statements. These can be modified by the managers who are, using them., 5. Mainly Behavioural Management principles are formed to guide and influence the behaviour of, employees., 6. Cause and Effect Relationship Management principles are based on cause and effect that means, these principles tell us if a particular principle is applied in a situation, what might be the effect., 7. Contingent Management principles are contingent or dependent upon the situation prevailing in, organisation., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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Principles of Management Developed by Henry Fayol, Henri Fayol, Born : 07/29/1841, Death : 11/19/1925, Birthplace : Turkey (France), , , Henri Fayol was born on July 29, 1841 in Istanbul, Turkey and died on November 19, 1925 in Paris,, France. Together with Frederick Winslow Taylor, he is considered the father of modern, management., ,  He began his career as an mining engineer and ended up as a director. As the first recognized the, five major functions of management - forecasting, organizing, commanding, coordinating and, controlling. He further focused on the theory of workers’ organization.,  In 1916 he published his book “Administration industrielle et générale” (in English “General and, Industrial Administration”), which was founded on personal experience with the job of manager., Henri Fayol in his book defined 14 key principles of management (administration) that are still valid, today, as follows:, , , , , , , , , , , , , , , , Division of work - Specialization encourages workers to improve skills and working methods, Authority - The right to give orders and the power to require obedience, Discipline - There shall be no loosening or softening of the rules, Unity of command - Each employee has a clearly designated supervisor, Unity of direction - Only one leader creates a unified plan, in which each worker plays his role, Subordination of individual interests to the general interest - only interests of the collective must be, monitored in the workplace, Remuneration - Employees must receive adequate remuneration, Centralization - Decision are made from above, Scalar chain - Command line runs from the top to bottom, as in the army, Order - All staff and all the material has a specified place and have to stay there, Equity - With all employees must be treated as equal, Stability of tenure of personnel - Minimum personnel replacement is desirable, Initiative - Personnel involved in planning must develop high effort, Esprit de corps (team spirit) - Between workers prevails coherence and harmony, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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Explanation of all these points :, 1., , Division of work: The whole organisation work, both managerial and technical, should be divided, into smaller jobs and the task involved in doing each such job should be determined. It leads to, specialization, speed, efficiency and accuracy of work., , 2. Discipline: It refers to the obedience to organizational rules and the employment agreement. It is, necessary for the systematic working of the organisation. It requires good superiors at all levels,, clear and fair agreements and judicious application of penalties., 3. Authority and Responsibility: There should always be a balance between the authority given and, responsibility entrusted to an employee. This is because if authority is more than responsibility, the, employees are likely to misuse it whereas if authority is less than responsibility, he/she will be, unable to do the desired work., 4. Unity of command: There should be one and only one boss for every individual employee from, whom he should receive orders and be responsible to. Dual subordination should be avoided., 5. Unity of Direction: All the units of an organisation should be moving towards the same objectives, through coordinated and focused efforts. Each group of activities having the same objective must, have one head and one plan., 6. Subordination of Individual Interest to General Interest: In all the situations, the interests of an, organisation should take priority over the interests of any one individual employee ., 7. Remuneration of Employees: The overall pay and compensation should be fair to both employees, and the organization. The employees should be paid fair wages, which should give them at least a, reasonable standard of living. At the same time it should be within the paying capacity of the, company i.e. remuneration should be just and equitable., 8. Centralisation and Decentralisation: The concentration of decision-making authority is called, centralisation whereas its dispersal among more than one person is known as decentralization., Large organizations have more decentralization than small organizations., 9. Scalar Chain: The formal lines of authority along which the communication flows from highest to, lowest ranks are known as scalar chain. Gang Plank is a shorter route that has been provided so, that communication is not delayed during emergencies. However, the superior has to be informed, later on., 10. Order: The people and materials must be in suitable places at appropriate time for maximum, efficiency i.e. ‘a place for everything (everyone) and everything in its place/, 11. Equity: It emphasizes kindliness and justice in the behaviour of managers towards workers. No, discrimination should be made by them on the basis of caste, creed, gender or otherwise caste,, creed., 12. Stability of Personnel: The employee turnover should be minimized to maintain organizational, efficiency. Personnel should be selected and appointed after due and rigorous procedure. After, placement, they should be kept at their post for a minimum fixed tenure so that they get time to, show results. Any aphorism in this regard will create instability/insecurity among employees. They, would tend to leave the organisation., 13. Initiative: Initiative means taking the first step with self-motivation. The workers should be, encouraged to develop and carry out their plans for improvement. Suggestion system should be, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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adopted in the organization., 14. Espirit De Corps: The management should promote a team spirit of unity and harmony among, employees. A manager should replace T with ‘We’ in all his conversations with workers., , Unity of Command, , Unity of Direction, ,  One subordinate should receive order from, and should be responsible to only one, superior.,  It prevents Dual subordination.,  It affects an individual employee., ,  Each group of activities having same, objective must have one head and one, plan.,  It prevents overlapping of activity.,  It affects the entire organisation., , Scientific Management, , Born : March 20, 1856 (USA), Died : March 21,, Known for "Father" of the Scientific, management& Efficiency Movement, Father of, Industrial Engineering,  Frederick Winslow Taylor (March 20, 1856 – March 21, 1915) was an American mechanical engineer, who sought to improve industrial efficiency. He was one of the first management consultants.,  Taylor summed up his efficiency techniques in his 1911 book The Principles of Scientific, Management, which in 2001 Fellows of the Academy of Management voted the most influential, management book of the twentieth century., , Scientific Techniques of Taylor, , Planning Department, , Operational Department, , ■ Route clerk, , ■ Gang boss & Speed boss, , ■ Instruction card clerk, , ■ Repair boss, , ■Time and cost clerk, , ■ Inspector, , ■ Disciplinarian, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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, , Standardisation and Simplification of Work: Standardisation output possible if standard is, maintained right from selection of tools, equipment and machine to use. Simplification emphasises, on elimination of unnecessary diversity of product, size and type., , , , Functional foremanship is an extension of the principle of division of work and specialisation to the, shop floor. Each worker is supposed to take orders from eight foremen in the related process or, function of production namely,  Instruction Card Clerk: He assigns work to all the employees.,  Route Clerk: He decides how work will progress regarding total productions. So that, production is on time.,  Time and Cost Clerk: He determines what will be the total cost and how much time each, job takes.,  Disciplinarian: He sees that there is discipline at work place.,  Speed boss: He ensures that the work is moving at a suitable pace.,  Gang Boss: He ensures sufficient availability of raw material, tools etc.,  Repair Boss: He sees that whenever some repair is involved in any work, the work is done, properly.,  Inspector: He sees that whether the quality of output is good or not., , , , Fatigue Study This technique of scientific management is conducted to find out,  The frequency of rest intervals,  The duration of rest intervals,  The number of rest intervals, , , , Method Study This technique find out the one best method or way of performing the job., , , , Time Study is the technique to determine the standard time taken by a worker of average skill, and knowledge to complete a standard task, The objectives of time study are:, , , , , , The standard time required to perform a job., Setting up the standard target of the workers., Determining the number of workers required to perform a job., Categorising the workers into efficient and inefficient employees., , , , Motion Study refers to the study of movements of limbs which are undertaken while doing a, typical job. This helps to eliminate unnecessary movements so that it takes less time to complete, the job efficiently., , , , Differential Piece Wage System This technique emphasis on paying different rate of wage for, efficient and inefficient employees., , , , Mental Revolution The objectives of mental revolution are,  Co-operation between workers and management.,  Change in mental attitudes of workers and management towards each other., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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Principles Scientific of Management, 1. Science not Rule of Thumb,  Taylor believed that there was only one best method to maximise efficiency which can be, developed through study and analysis and should substitute ‘Rule of Thumb’ or hit and, trial method throughout the organisation., 2. Harmony, Not Discord,  Taylor emphasised that there should be complete harmony between the management, and workers instead of a kind of class-conflict, the managers versus workers.,  To achieve this state, Taylor called for complete mental revolution on the part of both, management and workers., 3. Cooperation, Not Individualism,  This principle is an extension of principle of ‘Harmony Not Discord’,  There should be complete cooperation between the labour and the management instead, of individualism.,  Competition should be replaced by cooperation and there should be an almost equal, division of work and responsibility between workers and management.,  Also, management should reward workers for their suggestions which results in substantial, reduction in costs., 4. Development of Each and Every Person to His or Her Greatest Efficiency and Prosperity,  Taylor was of the view that the concern for efficiency could be built in right from the, process of employee selection.,  Each person should be scientifically selected and the work assigned should suit her/his, physical, mental and intellectual capabilities.,  To increase efficiency, they should be given the required training.,  Efficient employees would produce more and earn more. This will ensure their greatest, efficiency and prosperity for both company and workers., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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SUMMARY OF CHAPTER FOR QUICK REVISION, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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LATEST CBSE QUESTIONS (CASE STUDY), Question 1:, Explain ‘unity of command’ and ‘equity’ as principles of general management., (CBSE, Delhi 2017), Answer, Unity of command: According to Fayol, there should be one and only one boss for every individual, employee. Dual subordination should be avoided. Fayol felt that if this principle is violated “authority is, undermined, discipline is in jeopardy, order disturbed and stability threatened”., Equity: According to Fayol, “Good sense and experience are needed to ensure fairness to all employees,, who should be treated as fairly as possible.” This principle emphasizes on kindliness and justice in the, behaviour of managers towards workers. The managers should not discriminate against anyone on, account of gender, religion, language, caste, belief or nationality etc., , Question 2., Explain briefly ‘discipline’ and ‘scalar chain’ as principles of general management., (CBSE, Delhi 2017), Answer, Discipline: Discipline refers to the obedience to organisational rules and employment, agreement which are necessary for the working of the organisation. According to Fayol, discipline requires, good superiors at all levels, clear and fair agreements and judicious application of penalties. ., Scalar chain: According to Fayol the formal lines of authority from highest to lowest ranks are known as, scalar chain. He suggests that the,”Organisations should have a chain of authority and communication, that runs from top to bottom and should be followed by managers and the subordinates.” However in, order to ensure speedy communication during emergencies, Gang Plank is a shorter route that has been, provided . However, the superior has to be informed later on., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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cbse-class-12-case-studies-in-business-studies-principles-of-management-2, For example in the following case there is one head ‘A’ who has two lines of authority under her/ him., One line consists of B-C-D- E-F. Another line of authority under ‘A’ is L-M-N-O-P. If ‘E’ has to, communicate with ‘O’ who is at the same level of authority then she/he has to traverse the route E-D-CB-A-L-M-N-O. This is due to the principle of scalar chain being followed in this situation. However, if there, is an emergency then ‘E’ can directly contact ‘O’ through ‘Gang Plank’ as shown in the diagram. But they, should inform their superiors about it later on., , Question 3., Explain ‘order’ and ‘initiative’ as principles of general management., (CBSE, Delhi 2017), Answer, Order: According to Fayol, “People and materials must be in suitable places at appropriate time for, maximum efficiency.” The principle of order states that ‘A place for everything (everyone) and everything, (everyone) in its (her/his) place’. A sense of orderliness will lead to increased productivity and efficiency in, the organization., Initiative: Initiative means taking the first step with self-motivation. The workers should be encouraged to, develop and carry out their plans for improvement. Suggestion system should be adopted in the, organization., , Question 4., Explain briefly ‘Unity of Direction’ and ‘Order’ as principles of general mangement., (CBSE, OD 2017), Answer, Unity of direction: According to Fayol, each group of activities having same objective, must have one head and one plan. It prevents overlapping of activities. For example if a company is, manufacturing handmade carpets as well as machine made carpets there is likely to be a lot of, overlapping of activities. Therefore, there should be two separate divisions for both of them wherein each, division should have its own in charge, plans and execution resources., Order: According to Fayol, “People and materials must be in suitable places at appropriate time for, maximum efficiency.” The principle of order states that ‘A place for everything (everyone) and everything, (everyone) in its (her/his) place’. A sense of orderliness will lead to increased productivity and efficiency in, the organization., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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Question 5., Explain briefly ‘Initiative’ and ‘Esprit de Corps’ as principles of general management., (CBSE, OD 2017), Answer, Initiative: Initiative means taking the first step with self-motivation. The workers should’ be encouraged to, develop and carry out their plans for improvement. Suggestion system should be adopted in the, organization., Espirit de corps: According to Fayol, ‘Management should promote a team spirit of unity and harmony, among employees.” A manager should replace T with ‘We’ in all his conversations with workers to, promote teamwork. This approach is will give rise to a spirit of mutual trust and belongingness among, team members. It will also reduce the need for using penalties., , Question 6., What did Taylor want to communicate through mental revolution?, (CBSE, Sample Paper, 2017), Answer, Through the concept of mental revolution Taylor emphasized that there should be complete, transformation in the outlook of the management and workers towards each other. Managers should, share surplus with workers and the workers should work with full devotion instead of indulging in any, form of class conflicts., , Question 7., Nutan Tiffin Box service was started in Mumbai by the Mumbai Dabbawalas. The Dabbawalas who are, the soul of entire Mumbai aim to provide prompt and efficient services by providing tasty homemade, tiffin to all office goers at the right time and place. The service is uninterrupted even on the days of bad, weather, political unrest and social disturbances. Recently, they have started online booking system, through their website ‘mydabbawala.com’. Owing to their tremendous popularity amongst the happy, and satisfied customers and members, the Dabbawalas were invited as guest lecturer by top business, schools. The Dabbawalas operate in a group of 25-30 people alongwith a group leader. Each group, teams up with other groups in order to deliver the tiffins on time. They are not transferred on frequent, basis as they have to remember the addresses of their customers. They follow certain rules while doing, trade—no alcohol during working hours; no leaves without permission; wearing white caps and carrying, ID cards during business hours., Recently, on the suggestion of a few self-motivated fellow men, the dabbawalas thought out and, executed a plan of providing food left in tiffins by customers to slum children. They have instructed their, customers to place red sticker if food is left in the tiffin, to be fed to poor children later., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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State any one principle of management given by Fayol and one characteristic of management, mentioned in the above case., Give any two values which the Dabbawalas want to communicate to society., (CBSE, Sample Paper 2016), Answer, The relevant principle of management given by Fayol is:, Stability of Personnel: The employee turnover should be minimized to maintain organizational efficiency., Personnel should be selected and appointed after due and rigorous procedure. After placement, they, should be kept at their post for a minimum fixed tenure so that they get time to show results. Any, adhocism in this regard will create instability/insecurity among employees. They would tend to leave the, organisation., Management is goal oriented as it seeks to integrate the efforts of different individuals towards the, accomplishment of both organizational and individual goals., The two values that Dabbawalas want to communicate to society are:, , , , Concern for poor/ Humanity, Responsibility, , Question 8., Pawan is working as a Production Manager in CFL Ltd. which manufactures CFL bulbs. There is no classconflict between the management and workers. The working conditions are very good. The company is, earning huge profits. As a policy, the management shares the profits earned with the workers because, they believe in the prosperity of the employees., State the principle of management described in the above paragraph., Identify any two values which the company wants to communicate to society. (CBSE, OD 2014), Answer, , , The principle of management described in the above paragraph is ‘Harmony, not Discord’. Taylor, emphasised that there should be complete harmony between the management and workers, instead of a kind of class-conflict, the manager versus workers. To achieve this state, Taylor called, for complete mental revolution on the part of both management and workers. The prosperity for, the employer cannot exist for a long time unless it is accompanied by prosperity for the employees, and vice versa. He advocated paternalistic style of management should be in practice., , , , The two values that the company wants to communicate to the society are:,  Prosperity,  Sharing, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 12

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3 BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENT, The term ‘business environment’ means the sum total of all individuals, institutions and other forces that, are outside the control of a business enterprise but that may affect its performance., , Types of Forces which Affect Business Environment, , Forces Affect Business, Environment, External forces, , Internal forces, , Features/Characteristics of Business Environment, 1., , Totality of External Forces Business environment includes all the external forces so it is aggregative, in nature., , 2. Specific and General Forces Business environment includes both specific and general forces. Specific, forces such as investors, customers affect business directly. General forces such as social, political,, legal and technological conditions., 3. Inter-relatedness All the forces and factors of business are inter-related., 4. Dynamic Nature Business environment is dynamic in nature. It keeps on changing whether in terms, of technological improvements., 5. Uncertainty Business environment is uncertain and these changes are difficult to predict., 6. Complexity Business environment is difficult to understand. It can be understood easily in parts but, in totality it is difficult to understand., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 1

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Importance of Business Environment,  It enables the firm to identify opportunities and getting the first mover advantage instead of losing, them to its competitors.,  It helps the firm to identify threats and early warning signals which are likely to hinder a firm’s, performance and take timely actions.,  It helps in tapping useful resources as the enterprise designs policies that allow it to get the resources, that it needs so that it can convert those resources into outputs that the environment desires.,  It helps in coping with rapid changes as the managers are able to understand and examine the, environment and develop appropriate courses of action.,  It helps in assisting in planning and policy formulation as its understanding and analysis can be the, basis for deciding the future course of action or decision making.,  It helps in improving performance of an enterprise through continuous monitoring of the, environment and adopting suitable business practices which help to improve both their present, and future performance.,  It helps in improving performance of an enterprise through continuous monitoring of the, environment and adopting suitable business practices which help to improve both their present, and future performance, , Dimension of Business Environment, , 1., , Economic Environment It consists of Gross Domestic product, Income at National level and per, capita level. Profit earning rate, monetary and fiscal policy of the government etc., , 2. Social Environment It consists of the customs and traditions of the society in which business is, existing. It includes the standard of living, taste, preferences etc., 3. Political Environment It constitutes all the factors related to government affairs such as type of, government, power, attitude of government towards different groups of societies etc., 4. Legal Environment It constitutes the laws and various legislations passed in the parliament. Like as, Trade Mark Act, Essential Commodity Act, Weights and Measures Act etc., 5. Technological Environment It refers to changes taking place in the method of production, use of, equipment’s and machineries to improves the quality of product, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 2

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Economic Environment in India, Various Macro-level Factors of Economic Environment in India, , , , , , , , Stage of economic development of the country., The economic structure in the form of mixed economy which recognises the role of both public and, private sectors., Economic policies of the Government, including industrial, monetary and fiscal policies., Economic planning, including five year plans, annual budgets, and so on., Economic indices, like national income, distribution of income, rate and growth of GNP, per capita, income, disposal personal income, rate of savings and investments, value of exports and imports,, balance of payments, etc., Infrastructural factors, such as, financial institutions, banks, modes of transportation, communication facilities etc., , The Constituents of Economic Environment of Business in India at the time of, Independence, , , , , , , The Indian economy was mainly agricultural and rural in character., About 70% of the working population was employed in agriculture., About 85% of the population was living in the villages., Production was carried out using irrational, low productivity technology, Communicable diseases were widespread, mortality rates were high and there was no good public, health system., , NEW INDUSTRIAL POLICY OF 1991, Three Major Components of New Industrial Policy of 1991, 1. Liberalisation, 2. Privatisation, 3. Globalisation, The Broad Feature of New Industrial Policy, 1991, , , , , , , , The Government reduced the number of industries under compulsory licensing to six., Many of the industries reserved for the public sector under the earlier policy, were de reserved. The, role of the public sector was limited only to four industries of strategic importance., Disinvestment was carried out in case of many public sector industrial enterprises. Disinvestment, definition, Disinvestments refers to transfer from public sector enterprises to the private sector through, dilution of state of the Government in the public enterprise, The share of foreign equity participation was increased and in many activities 100 per cent, Foreign Direct Investment (FDI) was permitted., Automatic permission was now granted for technology agreements with foreign companies., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 3

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Liberalisation, These economic reforms signalled the new set of economic Globalisation means the end of the licencepermit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the, greater role to the private economies of the world Indian business and industry from all sector in the, nation building leading towards the unnecessary controls and restrictions. Simplifying procedures for, imports and exports., Key initiatives of the government:, , , , , , , , Abolishing licensing requirement in most of the industries except a short list., Freedom in deciding the scale of business activities, Removal of restrictions on the movement of goods and services., Freedom in fixing the prices of goods and services., Reduction in tax rates and lifting of unnecessary controls over the economy., Making it easier to attract foreign capital and technology to India., , Privatisation, The new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at, giving integration of the various and were aimed at liberalising the greater role to the private economies, of the world Indian business and industry from all sector in the nation building leading towards the, Unnecessary controls and restrictions. Process and a reduced role emergence of a cohesive to the public, sector., Key initiatives of the government:, , , , Adopted the policy of planned disinvestments of the public sector., Decided to refer the loss making and sick enterprises to the Board of Industrial and Financial, Reconstruction., , Globalisation, These economic reforms signalled the new set of economic Globalisation means the end of the licencepermit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the, greater role to the private economies of the world Indian business and industry from all sector in the, nation building leading towards the unnecessary controls and restrictions. process and a reduced role, emergence of a cohesive to the public sector global economy., Key initiatives of the government:, , , , Import liberalisation and export promotion through rationalisation of the tariff structure and, reforms with respect to foreign exchange., Increased level of interaction and interdependence among the various nations of the global, economy., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 4

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Impact of Government Policy Changes on Business and Industry, 1., , Increasing Competition There is a tough competition between multinationals and there is also, competitions between Indian enterprises and foreign enterprises., , 2. More Demanding Customers Customers today become more demanding because they are wellinformed., 3. World Class Technology Changes in government policy regarding business and industry has, provided us with world class technology., 4. Necessity for Change After 1991, the market forces have become turbulent as a result of which the, enterprises have to continuously modify their operations., 5. Need for Developing Human Resource The new market conditions requires people with higher, competence and greater commitment., 6. Market Orientation Today firms are market oriented. They research the market, need and wants, of consumers and then they produce good accordingly., 7. Loss of Budgetary Support to Public Sectors The government’s budgetary support for financing the, public sector has declined over the years., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 5

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SUMMARY OF CHAPTER FOR QUICK REVISION, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 6

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LATEST CBSE QUESTIONS (CASE STUDY), Question 1:, , Metlapp Networks and Technologies Ltd. is a leader in technology innovation in the United States, creating, products and solutions for connecting the world. It has,, a large research and development team which, invented the first smart watch, named as W-7. The watch besides showing the time, also monitors few health, parameters like heart beat, blood pressure etc., While in search of markets abroad, the company found that in India, the reform process was underway with, the aim of accelerating the pace of economic growth. The company decided to take advantage of simplified, export procedure and removal of quantitative as well as tariff restrictions in India., It set up its office in Jamnagar with a view to capture the Indian market. In a short span of time, the company, emerged as a market leader. Success of the company attracted many other players to enter the market., Competition resulted in reduction in prices, thereby benefiting the customers., 1. In the above paragraph, two major concepts related to government policy have been discussed. Identify, and explain these concepts., 2. Also, explain briefly any three impacts of these concepts on Indian business and industry., Answer, 1. Liberalisation and globalisation are the two major concepts related to government policy that have been, discussed.,  Liberalisation: These economic reforms signaled the end of the licence-pemit-quota raj and were, aimed at liberalising the Indian business and industry from all unnecessary controls and, restrictions.,  Globalisation: Globalisation means the integration of the various economies of the world leading, towards the emergence of a cohesive global economy., 2. The three impacts of reforms on Indian business and industry are outlined below:,  Increasing competition: The Indian firms are facing lot of competition due to changes in the rules, of industrial licensing and entry of foreign firms. This change is more apparent in the sectors, which were earlier reserved for private sector only like banking, insurance, telecommunications,, etc.,  More demanding customers: With the easy availability of wider choice in purchasing better, quality of goods and services due to high competition consumers have become more aware and, demanding. The growing expectations of the consumers have increased the pressure on the, business firms.,  Rapidly changing technological environment: With the entry of new firms which are far more, superior in terms of technology the small firms are facing a lot of challenges. Moreover, the firms, are constantly involved in innovating new products and upgrading present products with the help, of better technologies in order to satisfy the customers’ demands., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 7

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Question 2:, Naman and Govind after finishing their graduation under vocational stream decided to start their own travel, agency which will book Rail Tickets and Air Tickets on commission basis. They also thought of providing, tickets within ten minutes through the use of internet. They discussed the idea with their Professor Mr. Mehta, who liked the idea and suggested them to first analyse the business environment which consists of investors’,, competitors and other forces like social, political etc. that may affect their business directly or indirectly. He, further told them about the technological improvements and shifts in consumer preferences that were taking, place and hence they should be aware of the environmental trends and changes which may hinder their, business performance. He emphasised on making plans keeping in mind the threat posed by the competitors,, so that they can deal with the situation effectively. This alignment of business operations with the business, environment will result in better performance., 1. Identify and state the component of business environment highlighted in the above Para., 2. State any two features of business environment as discussed by Professor Mehta with Naman and, Govind., 3. Also state two points of importance of business environment as stated by Professor Mehta in the above, situation., Answer:, 1. Technological Environment is the component of business environment highlighted in the above Para., Technological Environment includes forces relating to scientific improvements and innovations which, provide new ways of producing goods and services and new methods and techniques of operating a, business., 2. The two features of business environment as discussed by Professor Mehta with Naman and Govind, are as follows:,  Dynamic nature: It is dynamic in nature and keeps on changing due to technological upgradations,, shifts in consumer preferences or increase in competition in the market.,  Inter-relatedness: All the elements of business environment are closely interrelated. Therefore,, any change is one element may necessitate corresponding changes in the other elements as well., 3. The two points of importance of business environment as stated by Professor Mehta in the above, situation are described below:, , , It enables the firm to identify opportunities and getting the first mover advantage: The dynamic, business environment provides numerous opportunities for a business to evolve as per the, changing needs. Therefore, early identification of the forthcoming opportunities helps an, enterprise to be the first to exploit them instead of losing them to the competitors., , , , It helps the firm to identify threats and early warning signals: Sometimes the changes in the, external environment may pose as a threat and hinder a firm’s performance. An awareness about, the business environment helps the managers to identify such threats on time and take necessary, decisions and action., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 8

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Question 3:, With changes in the consumption habits of people, Neelesh, who was running a sweet shop, shifted to the, chocolate business. On the eve of Diwali, he offered chocolates in attractive packages at reasonable prices. He, anticipated huge demand and created a website chocolove. com for taking orders online. He got a lot of orders, online and earned huge profits by selling the chocolate., 1. Identify and explain the dimensions of business environment discussed in the above case., Answer:, The various dimensions of business environment being referred to in the above case are as follows:, , , , Social environment: Social Environment includes the social forces like customs and traditions, values,, social trends, society’s expectations from business, etc., Technological environment: Technological Environment includes forces relating to scientific, improvements and innovations which provide new ways of producing goods and services and new, methods and techniques of operating a business., , Question 4:, A recent rate cut in the interest on loans announced by the banks encouraged Amit, a science student of, Progressive School, to take a loan from State Bank of India to experiment and develop cars to be powered by, fuel produced from garbage. He developed such a car and exhibited it in the Science Fair organised by the, Directorate of Education. He was awarded the first prize for his invention., , , Identify and explain the dimensions of business environment discussed in the above case., , Answer:, The various dimensions of business environment being referred to in the above case are as follows:, Economic Environment: It comprises of factors that can affect management practices in a business enterprise, includes interest rates, inflation rates, changes in disposable income of people, stock market indices and the, value of rupee etc., Technological Environment: It includes forces relating to scientific improvements and innovations which, provide new ways of producing goods and services and new methods and techniques of operating a business., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 9

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Question 5:, ‘Accent Electronics Ltd.’ was operating its business in Malaysia. The company started exporting its products to, India when the Prime Minister announced relaxation in import duties on electronic items. The company, appointed retailers in India who had direct online links with the suppliers to replenish stocks when needed., , , Identify and explain the dimensions of business environment discussed in the above case., , Answer:, The various dimensions of business environment being referred to in the above case are as follows:, Political Environment: Political Environment includes political conditions such as general stability and peace, in the country and specific attitudes that elected government representatives hold towards business., Technological Environment: Technological Environment includes forces relating to scientific improvements, and innovations which provide new ways of producing goods and services and new methods and techniques of, operating a business., , Question 6:, Just after the declaration of the results of the Lok Sabha Elections, 2009, the Bombay Stock Exchange’s price, index (Sensex) rose by 2100 points in a day., , , Identify the environmental factor which led to this rise., , Answer:, Political environment has led to the rise in the sensex., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (ShivamDwivedi), , Page 10

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4. PLANNING, PLANNING, Planning can be defined as “thinking in advance what is to be done, when it is to be done, how it is to be, done and by whom it should be done.”, According to Fayol, “Planning is chalking out plan of action, i.e., the result envisaged in the line of action, to be followed, the stages to go through the methods to use., , Features of Planning, 1., , Planning Focuses on Achieving Objective Planning is purposeful. It has no meaning unless it, contributes to the achievement of predetermined organisational goals., , 2. Planning is a Primary Function of Management Planning is the primary or first function to be, performed by every manager. No other function can be executed by the manager without, performing planning function., 3. Planning is Pervasive Planning is essential for every sort of business activities. Every department, whether, purchase, sales accounts, auditing, marketing etc. needs systematic planning., 4. Planning is Continuous Planning is a never ending or continuous process because after making, plans also one has to be in touch with the changes in changing environment and in the selection of, one best way., 5. Planning is Futuristic Planning always means looking ahead; it is never for the past. All the, managers try to make predictions and assumptions for future. ,, 6. Planning Involves Decision Making Planning choice making of the best possible alternative out of, various alternative., , PLANING is most important part for, Achieving Goal., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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Importance of Planning, , 1., , Planning Provides Directions Planning provides the directions to the efforts of employees. Planning, makes clear what employees have to do, how to do etc., , 2. Planning Reduces the Risk Uncertainty Planning helps the manager to face the uncertainty, because planners try to force the future by making some assumptions. The plans are made to, overcome uncertainties., 3. Planning Reduces Over Lapping and Wasteful Activities Planning evaluates the alternatives uses of, the available and prospective resources of the business and makes their must appropriate use., 4. Planning Promotes Innovative Ideas Planning requires high thinking and it is an intellectual process., So it makes the managers innovative and creative., 5. Planning Facilitates Decision Making Planning helps the managers to look in to the future and, make a choice from amongst various alternative courses of action., 6. Planning Establishes Standards for Controlling It has predetermined goal with which the actual, performances are compared to find out deviation and suggest remedial measures., , Limitations of Planning,  Planning Leads to Rigidity Once plans are made to decide the future course of action the, manager may not be in a position to change them.,  Planning May Not Work in a Dynamic Environment Business environment is very dynamic as, there are continuously changes. It becomes very difficult to forecast these future changes. Plans, may fail if the changes are very frequent.,  Planning Reduces Creativity With the planning the managers of the organisation start working, rigidly and they become the blind followers of the plan only.,  Planning Involves Huge Costs Planning process involves lot of cost because it is an intellectual, process and companies need to hire the professional experts to carry onthis process.,  Planning is a Time Consuming Success Lot of time is needed in developing planning premises, .,  Planning does not Guarantee Success Planning only provides a base for analysing future. It is not, a solution for future course of action., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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Planning Process, 1., , Setting Objectives In planning function manager begin with setting up of objectives because all, the policies, procedures and methods are framed for achieving objectives only., , 2. Developing Premises Premises refers to making assumptions regarding future. The assumptions, are made on the basis of forecasting. Forecast is the technique of gathering information., , 3. Identifying Alternative Courses of Action After setting up of objectives the managers make a list, of alternatives through which the organisation can achieve its objectives., , 4. Evaluating Alternative Courses After making the list of various alternatives along with the, assumptions supporting them the manager starts evaluating each and every alternative., , 5. Selecting an Alternative The best alternative is selected but as such there is no mathematical, formula to select the best alternative. Sometimes instead of selecting one alternative a, combination of different alternatives can also be selected., , 6. Implementing the Plan This is the step where other managerial functions also come in to the, picture. The step is concerned with putting the plan into action i.e., doing what is required., , 7. Follow-up Action Planning is a continuous process so the manager’s job does not get over simply, by putting the plan into action. The manager monitors the plan carefully while it is implemented., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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Types of Plans, , On the basis of use and duration, , , Single use plans are the ones that are formulated to deal with new or non-repetitive situations, that may arise in an organisation from time-to-time. For example- programmes, budgets and, projects., , , , Standing plans refer to the another type of plans which once formulated may be used for a long, period of time in similar or repetitive situations that may prevail in an organisation. For, example—objectives, strategies, policies, methods, procedures and rules., , On the basis of what a plan seeks to achieve, , , Objectives are the end results of the activities that an organisation seeks to achieve through its, existence., , , , Strategy is a comprehensive plan for achieving the objectives of the organisation., , , , Policy is a set of general guidelines that help in managerial decision making and action., , , , Method refers to the prescribed ways or manner in which a task has to be performed considering, the objective., , , , Procedure refers to a series of specific steps to be performed in a chronological order to carry out, the routine activities., , , , Budget refers to a financial plan that is expressed in numerical terms., , , , Rule is a specific statement relating to the general norms in terms of Do’s and Don’ts that guide, the behaviour of people. It commands strict obedience and a penalty is likely to be imposed on, its violation., , , , Programme is a comprehensive plan that contains detailed statements about a project which, outlines the objectives, policies, procedures, rules and method and the budget to implement any, course of action., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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SUMMARY OF CHAPTER FOR QUICK REVISION, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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LATEST CBSE QUESTIONS (CASE STUDY), Question 1., State any three points of importance of planning function of management., (CBSE, Delhi 2017), Answer:, The three points indicating the importance of planning is described below:, 1. Reduces the risk of uncertainty: Planning relates to deciding in advance about the tasks to be, performed in future. This enables a manager to anticipate changes and devise the way to deal, with changes and uncertain events effectively., 2. Planning promotes innovative ideas: Planning is one of the basic managerial functions. Before, doing something, the manager must formulate an idea of how to work on a particular task. Thus,, planning is closely connected with creativity and innovation. It is the most challenging activity for, the management as it guides all future actions leading to growth and prosperity of the business., , 3. Avoiding overlapping and wasteful activities: Planning ensures clarity in thought and action and, serves as the basis of coordinating the activities and efforts of different individuals and, departments. Therefore, by curtailing useless and redundant activities it helps in smooth working, of the organisations work is without interruptions. Moreover, it makes detection of inefficiencies, easier so that timely corrective measures may be taken to avoid them in future., , Question 2., Give the meaning of ‘objectives’ and ‘budget’ as types of plans., (CBSE, Delhi 2017), Answer:, , , Objectives: Objectives are the end results of the activities that an organisation seeks to achieve, through its existence. All other activities within the organisation are directed towards achieving, these objectives. Objectives are based on the mission or philosophy of the organisation. Objectives, are determined by top level management. For example, the objectives of a newly started business, is to earn 30% profit go the amount invested in the first year., , , , Budget: A budget refers to a financial plan that is expressed in numerical terms. For example, the, marketing manager prepared an area wise sales target for different products for the forthcoming, quarter. It is a type of single use plan., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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Question 3., State any three limitation of planning., (CBSE, Delhi 2017), Answer:, The three limitations of planning are described below:, 1. Planning may not work in a dynamic environment: The business environment is dynamic in, nature. Every organisation has to constantly adapt itself to changes in its environment in order to, survive and grow. However, it difficult to anticipate all the likely future changes in the, environment with utmost accuracy. Hence, even with planning everything cannot be foreseen., 2. Planning reduces creativity: The top management undertakes planning of various activities, whereas the other members are expected to merely implements these plans. This restricts the, creativity of the middle managers as they are neither allowed to deviate from plans nor are they, permitted to act on their own., 3. Planning involves huge costs: The process of planning involves huge cost in terms of time and, money as detailed planning is based on a series of scientific calculations. Moreover it may include a, number of related costs as well, like expenses on boardroom meetings, discussions with professional, experts and preliminary investigations to find out the viability of the plan. As a result the expenses, on planning may turn out to be much more than benefits derived from it., , Question 4, Laxmi Chemicals Ltd., a soap manufacturing company, wanted to increase its market share from 30% to, 55% in the long-run. A recent report submitted by the Research & Development Department of the, company had predicted a growing trend of herbal and organic products. On the basis of this report, the, company decided to diversify into new variety of soaps with natural ingredients having benefits and, fragrances of Jasmine, Rose, Lavender, Mogra, Lemon Grass, Green Apple, Strawberry etc. The Unique, Selling Proposition (USP) was to promote eco-friendly living in the contemporary life style. The company, decided to allocate t 30 crores to achieve the objective., , , Identify the type of one of the functions of management mentioned above which will help the, company to acquire dominant position in the market., (CBSE, Sample Paper 2016), , Answer:, Strategy is the type of plan which will help the company to acquire dominant position in the market., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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Question 5., Suhasini, a home science graduate from a reputed college, has recently done a cookery course. She, wished to start her own venture with a goal to provide ‘health food’ at reasonable prices. She discussed, her idea with her teacher (mentor) who encouraged her. After analysing various options for starting her, business venture, they short listed the option to sell ready made and ‘ready to make’ vegetable shakes, and sattu milk shakes. Then, they weighed the pros and cons of both the short listed options., , , Name the function of management being discussed above and give any one of its characteristics., Also briefly discuss any three limitations of the function discussed in the case., (CBSE, Sample Paper 2016), , Answer:, Planning is the function of management which is being discussed above., , , Planning involves decision-making: Planning essentially involves application of rational thinking, to choose the best alternative among the various available alternatives in order to achieve the, desired goals efficiently and effectively., , The limitations of planning are described below:, , , Planning may not work in a dynamic environment: The business environment is dy¬namic in, nature. Every organisation has to constantly adapt itself to changes in its environment in order to, survive and grow. However, it is difficult to anticipate all the likely future changes in the, environment with utmost accuracy. Hence, even with planning, everything cannot be foreseen, , , , Planning reduces creativity: The top management undertakes planning of various activities, whereas the other members are expected to merely implement these plans. This restricts the, creativity of the middle level managers as they are neither allowed to deviate from plans nor are, they permitted to act on their own., , , , Planning involves huge costs: The process of planning involves huge cost in terms of time and, money as detailed planning is based on a series of scientific calculations. Moreover, it may include, a number of related costs as well, like expenses on boardroom meetings, discussions with, professional experts and preliminary investigations to find out the viability of the plan. As a result,, the expenses on planning may turn out to be much more than benefits derived from it., , Question 6, Two years ago, Madhu completed her degree in food technology. She worked for sometime in a company, that manufactured chutneys, pickles and murabbas. She was not happy in the company and decided to, have her own organic food processing unit for the same. She set the objectives and the targets and, formulated an action plan to achieve the same., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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One of her objectives was to earn 10% profit on the amount invested in the first year. It was decided that, raw materials like fruits, vegetables, spices, etc. will be purchased on three months credit from farmers, cultivating only organic crops. She also decided to follow the steps required for marketing of the products, through her own outlets. She appointed Mohan as the Production Manager who decided the exact, manner in which the production activities were to be carried out. Mohan also prepared a statement, showing the number of workers that will be required in the factory throughout the year. Madhu informed, Mohan about her area wise sales target for different products for the forthcoming quarter. While working, on the production table, a penalty of ? 100 per day for not wearing caps, gloves and apron was, announced., , , Quoting lines from the above paragraph, identify and explain the different types of plans, discussed., (CBSE, Delhi 2016), , Answer:, The different types of plans discussed above are listed below:,  Objectives: Objectives are the end results of the activities that-an organisation seeks to achieve, through its existence. All other activities within the organisation are directed towards achieving, these objectives., “One of her objectives was to earn 10% profit on the amount invested in the first year.”,  Policy: A policy is a set of general guidelines that helps in managerial decision making and action., “It was decided that the raw materials like fruits, vegetables, spices, etc. will be purchased on three, months credit from farmers cultivating only organic crops.”,  Procedure: A procedure contains a series of specific steps to be performed in a chronological order, to carry out the routine activities., “She also decided to follow the steps required for marketing of the products through her own, outlets.”, “The exact manner in which the production activities are to be carried out.”,  Rule: A rule is a specific statement relating to the general norms in terms of Do’s and Don’ts that, guide the behaviour of people. It commands strict obedience and a penalty is likely to be imposed, on its violation., “While working on the production table, a penalty of? 100 per day for not wearing caps, gloves, and aprons were announced.”,  Budget: A budget refers to a financial plan that is expressed in numerical terms., “Mohan also prepared a statement showing the number of workers different products for the, forthcoming quarter.”, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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Question 7., Two years ago, Mayank obtained a degree in food technology. For some time, he worked in a company, that manufactured bread and biscuits. He was not happy in the company and decided to have his own, bread and biscuits manufacturing unit. For this, he decided the objectives and the targets, and, formulated an action plan to achieve the same., One of his objectives was to earn 50% profits on the amount invested in the first year. It was decided that, raw materials like flour, sugar, salt, etc. will be purchased on two months credit. He also decided to follow, the steps required for marketing the products through his own outlets. He appointed Harsh as the, Production Manager who decided the exact manner in which the production activities were to be carried, out. Harsh also prepared a statement showing the requirement of workers in the factory throughout the, year. Mayank informed Harsh about his are a wise sales target for different products, for the forthcoming, quarter. While working on the production table, a penalty of ?150 per day was announced for not, wearing the helmet, gloves and apron by the workers., , , Quoting lines from the above paragraph, identify and explain the different types of plans, discussed., (CBSE, OD 2016), , Answer:, The different types of plans discussed above are listed below:,  Objectives: Objectives are the end results of the activities that an organisation seeks to achieve, through its existence. All other activities within the organisation are directed towards achieving, these objectives., “One of her objectives was to earn 50% profit on the amount invested in the first year.”,  Policy: A policy is a set of general guidelines that help in managerial decision making and action., “It was decided that the raw materials like flour, wheat, sugar, etc. will be purchased on two months, credit.”,  Method: A method refers to the prescribed ways or manner in which a task has to be performed, considering the objective., “..decided the exact manner in which production activities were to be carried out.”,  Procedure: A procedure contains a series of specific steps to be performed in a chronological order, to carry out the routine activities., “He also decided to follow the steps required for marketing of the products through his own outlets.”,  Rule: A rule is a specific statement relating to the general norms in terms of Do’s and Dont’s that, guide the behaviour of people. It commands strict obedience and a penalty is likely to be imposed, on its violation., “While working on the production table, a penalty of Rs. 150 per day was announced for not wearing, helmets, gloves and aprons by the workers.”, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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Question 8:, Rahul, a worker, is given a target of assembling two computers per day. Due to his habit of doing things, differently, an idea struck him which would not only reduce the assembling time of computers but would, also reduce the cost of production of the computers. Instead of appreciating him, Rahul’s supervisor, ordered him to complete the work as per the methods and techniques decided earlier as nothing could be, changed at that stage. The above paragraph describes one of the limitations of the planning function of, management. Name and explain that limitation. (CBSE, Delhi Comptt. 2011), Answer:, The limitation of the planning function of management described in the above paragraph is that, ‘planning reduces creativity.’ The top management undertakes planning of various policies and, procedures whereas the other members are expected to merely implement these plans. This restricts the, creativity of the middle level managers as they are neither allowed to deviate from plans, nor permitted, to act on their own., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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5. ORGANISING, ORGANIZING, Organizing : Definition, Organizing is the process of defining and grouping the activities of the enterprise and, establishing authority relationships among them for the realization of the desired goals., Hierarchy: Definition, Hierarchy is the ranking of job positions on the basis of relative roles and responsibilities., , Types of Organizations, , , Formal organization refers to the, organization structure which is designed by, the management to accomplish a particular, task., , , , Informal organization emerges from within, the formal organization when people interact, beyond their officially defined roles, , Steps Involved In The Process Of Organization,  Identification and division of work is done in accordance with predetermined plans to avoid, duplication of activities and ensure that the burden of work is being shared among the employees.,  Departmentalization involves grouping of similar activities into departments, units, sections etc., using several criteria as a basis to facilitate specialization.,  Assignment of duties is done to the members as per their job positions. Once departments have, been created, each of them is placed under the charge of an individual.,  Establishing reporting relationships While assigning jobs, each member is told that from whom, he/she has to take orders and to whom he/she will be accountable. The establishment of such clear, reporting relationships help to create a well defined hierarchical structure., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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IMPORTANCE OF ORGANIZING, 1., , Organizing offers benefits of specialization as it leads to a systematic, allocation of jobs amongst the workforce as the specific employees, are assigned specific job on a regular basis., , 2. It brings clarity in working relationships by establishing a hierarchical order, thereby enabling the fixation of responsibility and specification of the extent, of authority to be exercised by an individual., 3. It leads to optimum utilization of resources through proper allocation of jobs,, and minimizing the wastage of resources and efforts., 4. It facilitates adaptation to change and helps to create a stable organization, by incorporating changes in the organization structure as per the needs of the, changing environment., 5. It leads to effective administration by providing a clear description of jobs and, related duties which helps to avoid confusion and duplication., 6. It fosters development of personnel as delegation helps to build the ability of, the subordinate to deal effectively with challenges and helps them to realize, their full potential., 7. It leads to expansion and growth of an enterprise by enabling it to deviate from, existing norms and taking up new challenges., , ORGANISATIONAL STRUCTURE, The organizational structure can be defined as the framework within which managerial and operating tasks, are performed, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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TYPES OF ORGANISATIONAL STRUCTURE, 1. Functional Structure, 2. Divisional Structure, , Features of Functional Structure, 1., , A functional structure is an organizational, design that groups similar or related jobs, together on the basis of functions like, production, finance etc., , 2. Each department has a functional manager, responsible for performance and who has, authority over the department., 3. All departments are under the charge of a, coordinating head., 4. These departments may be further divided, into sections., , Features of Divisional Structure, 1., , Different products manufactured in the, organization. Structure comprise of separate, business units or divisions., , 2. Each department has a divisional manager, responsible for the profit or loss of his division., 3. Each division is multi-functional because within, each division functions like production,, marketing, finance, purchase etc., are, performed together to achieve a common, goal, , ADVANTAGES OF FUNCTIONAL AND DIVISIONAL STRUCTURE, Advantages of Functional Structure, 1., , A functional structure emphasizes on specific, functions and ensures that different functions, get due attention., , 2. Due to the similarity in the tasks being, performed, it promotes control and, coordination within a department., 3. It results in increased profit with the, improvement in managerial and operational, efficiency., 4. By focusing only on a limited range of skills, it, facilitates the training of employees., 5. It leads to minimal duplication of effort and, leads to economies of scale thereby reducing, cost, , Advantages of Divisional Structure, 1., , Product specialization helps a divisional, manager to gain experience in all functions, related to a particular product and this, prepares him for higher positions., , 2. It provides a proper basis for performance, measurement and also helps in fixation of, responsibility in cases of poor performance of, the division as revenues and costs related to, different departments can be easily identified., 3. It leads to faster decision making, promotes, flexibility and initiative because each division, functions as an autonomous unit., 4. It facilitates expansion and growth as new, divisions can be added just by adding another, divisional head and staff for the new product, line without interrupting the existing, operations, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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DISADVANTAGES OF FUNCTIONAL AND DIVISIONAL STRUCTURE, Disadvantages of Functional Structure, 1., , It gives less emphasis to overall enterprise, objectives than the objectives pursued by a, functional head., , Disadvantages of Divisional Structure, 1., , There may be conflicts among the different, division heads, as in pursuit of higher profits,, each of them may seek maximum allocation of, resources at the cost of other divisions., , 2. It may lead to problems in coordination., 2. The cost is high as each division is provided with, separate set of similar functions., 3. It may lead to conflict of interests if two or, more departments are not compatible., 4. It may lead to inflexibility as the functional, heads do not get training and experience in, diverse areas., , 3. It provides the managers with the authority to, supervise all activities related to a particular, division , such a manager may gain power and, in a bid to assert his independence may ignore, organizational interest., , Difference between Functional and Divisional Structure, Basis, Functional Structure, Divisional Structure, , S.No, 1, , Formation, , It is based on functions., , 2, , Responsibility, , It is difficult to fix on a department, , 3, 4, , Specialization, Managerial, Development, , 5, , Cost, , 6, , Coordination, , Functional specialization, It is difficult, as each functional, manager has to report to the top, management, It is economical as the functions are, not duplicated., It is difficult for a multiproduct, company., , 7, , Suitability, , It is most suitable when the size of the, organization is large, has diversified, activities and operations require a, high degree of specialization., , It is based on product lines and is, supported by functions., It is easy to fix responsibility for, performance., Product specialization, It is easier, autonomy as well as the, chance to perform multiple functions, helps in managerial development, It is costly as there is duplication of, resources in various departments, It is easy, because all functions related, to a particular product are integrated, in one, It is suitable for those business, enterprises where a large variety of, products are manufactured using, different productive resources., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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FORMAL ORGANISATION, Features of Formal Organization, , , , , , , It specifies the reporting relationships among various job positions., It is a means to achieve the organizational objectives., It seeks to coordinate the efforts of various departments., It is deliberately created by the top management to facilitate smooth functioning of the organization., It places more emphasis on work to be performed rather than interpersonal relationships, among the employees., , Advantages of Formal Organization, , , , , , , It is easier to fix responsibility since reporting relationships are clearly specified., The role and duties of each employee are clearly defined., Unity of command is maintained through an ^ established chain of command., It leads to effective accomplishment of goals by providing a framework for the efficient operations., It provides stability to the organization as the behavior of the employees is guided by rules and, regulations of the organization., , Limitations of Formal Organization, , , , , It may lead to procedural delays as all communication has to take place through scalar chain only., It restricts the creativity and ^ recognisation of employees as it does not allow any deviations from, rigidly laid down polices., It does not provide a complete picture of how an organization works as it is difficult to understand all, human relationships in a formal structure., , INFORMAL ORGANISATION, Features of Informal Organization, , , , , , , It originates from within the formal organization as a result of personal interaction among employees., Instead of the official rules and regulations, the standards of behavior evolve from group norms., The group members create independent channels of communication without specified direction of, flow of information., It emerges spontaneously and is not deliberately created by the management., It is a complex network of social relationships among members and has no definite structure., , Advantages of Informal Organization, , , , , It leads to faster spread of information as well as facilitates quick feedback., It helps to fulfill the social needs of the members by giving them a sense of belongingness in the, organization and enhances their job satisfaction., It contributes towards the fulfillment of organizational objectives by compensating for inadequacies in, the formal organization, , Disadvantages of Informal Organization, , , , , It may work against the interest of the formal organizations it leads to spreading of rumors., Sometimes it may restrict growth of the organization by strongly opposing to the proposed change., As it creates a peer pressure among the members to conform to group expectations, it can be harmful, to the organization., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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S.No, 1, 2, 3, 4, 5, 6, 7, , Difference between Formal Organization and Informal Organization, Basis, Formal Organization, Informal Organization, Meaning, , The structure of authority relationships, created deliberated by the, management to achieve its objectives., Origin, It arises as a result of company rules, and policies, Authority, It arises by the virtue of position in the, organization., Behavior, It is directed by rules of the, organization., Flow of, The communication takes place, Communication through the scalar chain., Nature, Leadership, , It is rigid., Managers are leaders., , It is a network of social relationships, arising out of the interaction among, employees within an organization., It arises as a result of social interaction., It arises out of personal qualities of the, members., There is no set behavior pattern for the, members., The communication can take place in, any direction as its flow does not follow a, set pattern., It is flexible., Leaders are chosen by the group so they, may or not be the managers., , Delegation of Authority, Delegation of authority merely means the subdivision and sub-allocation of powers to the subordinates in, order to achieve effective results, , Elements of Delegation, 1., , Authority, , 2. Responsibility, , 3. Accountability, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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Importance of Delegation, 1., , It leads to effective management as by relieving the employees from doing routine work, it provides, them with time to excel in new areas., , 2. It promotes employee development as they are entrusted with more opportunities to utilize their, talent, perform complex tasks and assume those responsibilities which are likely to improve their, career prospects., 3. It helps to motivate employees as when a subordinate is entrusted with a task, it is not merely the, sharing of work but involves trust on the superior’s part and commitment on the part of the, subordinate., 4. It facilitates the growth of an organization as it seeks to enrich the quality of manpower and widens, the scope of using internal recruitment by providing them with training and experience through, exposure to varied jobs., 5. It provides the basis of management hierarchy as it establishes superior-subordinate relationships,, which are the basis of hierarchy of management, 6. It facilitates better coordination amongst the departments, levels and functions of management by, providing clarity in reporting relationships., , S.No., , Difference between Authority, Responsibility and Accountability, Basis, Authority, Responsibility, Accountability, , 1, , Meaning, , Authority refers to the right, of an individual to, command his subordinates, and to take action within, the scope of his position., , Responsibility is the, obligation of a, subordinate to properly, perform the assigned, duty., , 2, , Delegation Can be delegated., , Accountability implies, being answerable for the, final outcome, one, authority has been, delegated and, responsibility accepted, one, cannot deny accountability., Cannot be delegated at all, , 3, , Origin, , Arises from responsibility., , 4, , Flow, , Cannot be entirely, delegated., Arises from formal position in Arises from delegated, the organization, authority., Flows downward from, Flows upward from, superior to subordinate, subordinate to superior., , Flows upward from, subordinate to superior, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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Decentralization, Decentralization refers to systematic dispersal of authority to the lowest level, except that which can be, exercised at central points., , Caution in implementing a Decentralization Policy, 1., , Decentralization must always be balanced with centralization in areas of major policy decisions., , 2. Complete centralization would imply concentration of all decision making functions at the apex of the, management hierarchy find would eliminate the need for a management hierarchy., 3. Complete decentralization can lead to organizational disintegration as the departments may start, operating on their own guidelines which may be contrary to the interest of the organization., , Need of Decentralization, As an organization grows in size and complexity, the departmental or branch heads are directly and closely, involved with certain operations and are likely to have more knowledge about them as compared to the, top management which may be associated with individual operations only indirectly., , , , , , , , , , Reduce the burden of the top executive, Facilitate diversification, Permits quicker and better decisions, Management development, Environmental adaptation, Improved teamwork, Motivation, Effective supervision and control, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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Importance of Decentralization, 1., , It seeks to develop initiative in the subordinates by promoting self-reliance and confidence amongst, them and also helps to identify those executives who have the necessary potential to become, dynamic leaders., , 2. It provides relief to top management as the subordinates are allowed to operate independently, within their area of jurisdiction. Consequently, the need for direct supervision is reduced., 3. It facilitates quick decision making as the employees are allowed to act independently within there, are a jurisdiction without consulting others., 4. It develops managerial talent for the future by providing the employees with the necessary training, and experience through exposure to varied challenging jobs and also facilitates identification of those, employees who may and those who may not be successful in assuming greater responsibility., 5. It facilitates growth of the organization by increasing its productivity and profitability through, assigning greater autonomy to the lower levels of management as well as divisional or departmental, heads., 6. It facilitates better control by ensuring continuous evaluation of performance at each level and the, contribution of each department so that they can be individually held accountable for their results., , S.No, , Difference between Delegation of Authority and Decentralization, Basis, Delegation of Authority, Decentralization, , 1, , Nature, , It is a compulsory act because no, individual can perform all tasks on his, own., The subordinates have less freedom to, take own decisions as there is more, control is exercised by the superiors, It is a process followed to share tasks., , 2, , Freedom of, action, , 3, , Status, , 4, , Scope, , 5, , Purpose, , It has narrow scope as it is limited to, superior and his immediate, subordinate., To lessen the burden of the manager., , 6, , Withdrawal, of authority, , Easy, as only two persons are involved, in the process, , It is an optional policy decision and is only, implemented at the discretion of the top, management., The control over executives is less hence, they have a greater freedom of action., It is the result of the policy decision of the, top management., It has wide scope as it implies extension of, delegation to the lowest level of, management, To increase the role of the subordinates in, the organization by giving them more, autonomy., Difficult, as it involves the extension of, delegation to the lowest level of, management., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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SHORT SUMMARY OF THE ORGANIZATION, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., Ramdas, aged 49 is working in an aviation company. He is the senior most employee in his division. He is, even senior to the division manager, Kanaputti. Ramdas is considered one of the most committed, capable, and hard-working employees. As a result of his abilities and seniority, he generally received the work, assignments of his choice. Although there was no formal designation of various „special’ projects assigned to, Ramdas, he handled them as a matter of routine. A problem developed when an able and intelligent person, Nagarjuna, aged 33, was appointed by Kanaputti. Nagarjun’s previous three years’ experience in the closely, related work, made it possible for him to catch on to the routine work of his new job more rapidly than was, customary for a new employee. On several occasions, Kanaputti noticed the tension developing between the, two employees. However, he didn’t want to get involved in their personal issues as long as the work was, completed effectively and efficiently by them. One day, the tension between them reached the boiling point, and Ramdas complained to, Kanaputti stating that his duties were being largely taken over by Nagarjun. Kanaputti issued the order, stating the clear allocation of the jobs and related duties between the two. He further clarified the working, relationship between them by specifying who was to report to whom. This helped in reducing the workload,, enhancing productivity and removing ambiguity., (CBSE, Sample Paper, 2017), 1., , Identify and state the step of organizing process which has not been carried out properly and, contributed to this problem., 2. State the two steps of the organizing process which have been taken by Kanaputti to respond to the, complaint of Ramdas., 3. Also state two points of importance of organizing as reflected in the above case., Answer:, 1., , The step of organizing process which has not been carried out properly and contributed to this, problem is Assignment of duties., Assignment of Duties: Once departments have been created each of them is placed under the charge, of an individual and then jobs are allocated to the members as per their job positions., 2. The two steps of the organizing process which have been taken by Kanaputti to respond to the, complaint of Ramdas are listed below:,  Assigning the duties,  Establishing reporting relationship., 3. The two points of importance of organizing as reflected in the above case are described below:, , , Optimum utilization of resources: Organizing ensures best possible use of all forms of resources, i.e. physical, financial and human resource. It ensures systematic assignment of jobs thereby, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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, , curbing overlapping of work and avoiding possibilities of duplication of work. This helps in, preventing confusion and minimizing the wastage of resources and efforts., Adaptation to change: The process of organizing provides stability to the enterprise as it can, then continue to survive and grow inspire of changes in the business environment. It enables the, organization structure to be suitably modified and the revision of inter-relationships amongst, managerial levels to pave the way for a smooth transition., , Question 2., , “Shan Spices Ltd.” are the manufacturer of different food specific spices like Rajmaa Masala, Cholley Masala,, Aaloo Parantha Masala etc. Mr. Raghav, the owner of the company has created different departments for, purchase, production, marketing, finance and human resource. There are thirty employees working in the, organisation. Planning is of paramount importance to the company as Mr. Raghav believes that effective, planning leads to achievement of organisational objectives. So in order to make employees focus on, objectives, he issued instructions that during working hours only official matters will be discussed. He made, certain rules and code of conduct for the employees to follow, according to which employees are not allowed, to visit and talk to the employees of other departments except for official work. He emphasised on work, performance which resulted in smooth functioning of the organisation., 1. Identify and state the type of organisation mentioned in the above para., 2. State one feature of the concept identified in part (a) as mentioned in the above para., 3. What was the purpose behind the formulation of rules for the employees that restricted their personal, communication with the employees of other departments?, 4. State two values violated by Mr. Raghav., (CBSE, Sample Paper, 2017), Answer:, 1., , Formal organisation is the type of organisation mentioned in the above paragraph. Formal, organisation refers to the organisation structure which is deliberately created by the management to, accomplish a particular task. It clearly defines the boundaries of authority and responsibility and, facilitates systematic coordination among the various activities to achieve organisational goals., , 2. One feature of formal organisation is that it clarifies who has to report to whom by specifying the, relationships among various job positions and the nature of their interrelationship., 3. The purpose behind the formulation of rules for the employees that restricted their personal, communication with the employees of other departments is to ensure discipline at workplace and, avoid wastage of time. This is help to curb the emergence of informal organisation to a certain extend, and increase work efficiency., 4. The two values violated by Mr. Raghav are :,  Liberty to employees,  Fulfilment of emotional needs, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 12

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Question 3., , Kiran Industries is a company dealing in office furniture. The company chose to diversify its operations to, improve its growth potential and increase market share. As the project was important, many alternatives, were generated for the purpose and were thoroughly discussed amongst the members of the organisation., After evaluating the various alternatives, Sukhvinder, the Managing Director of the company, decided that, they should add ‘Home Interiors and Furnishings’ as a new line of business activity., 1., , Name the framework, which the diversified organisation should adopt, to enable it to cope with the, emerging complexity? Give one reason in support of your answer., 2. State any two limitations of this framework, (CBSE, Sample Paper, 2015-16), Answer:, 1., , Divisional structure should be adopted by the diversified organisation to enable it to cope with the, emerging complexity., Reason: It leads to faster decision making, promotes flexibility and initiative because each division, functions as an autonomous unit., 2. The two limitations of divisional structure are as follows:,  There may be conflicts among the different divisions heads as in pursuit of higher profits, each, of them may seek maximum allocation of resources at the cost of other divisions.,  The cost is high as each division is provided with separate set of similar functions., , Question 4., Rajeev, the owner of Pathways Constructions, decided to start a campaign to create awareness among, people for developing clean surroundings in their area. He formed a team of 10 members to list the different, ways for cleaning the surroundings. One suggested to take the help of local residents, another suggested that, they may involve school-going children in their venture. One more suggestion was to take the help of the, unemployed youth. On evaluation of different ways, it was decided to take the help of local residents. To, achieve the desired goal, various activities are identified like, , , , , Purchase of necessary items like dustbins, garbage bags, brooms, etc.;, Collection of garbage;, Disposal of garbage, etc., , After identification of different activities, the work was allocated to different members., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 13

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1., , Identify the concepts of management involved in the above situation and quote the lines which help, in their identification., 2. Also identify the values which the company wants to communicate to society., (CBSE, Sample Question Paper 2015, Answer:, 1., , The concepts of management involved in the above situation are outlined below:,  Planning: ” One suggested to take help of local residents, another suggested that they may, involve school going children in their venture. One more suggestion was to take the help of the, unemployed youth. On evaluation of different ways, it was decided to take help of the local, residents.”,  Organising: ” To achieve the desired goal, various activities are identified like,  Purchase of necessary items like dustbins, garbage bags, brooms etc.,  Collection of garbage,  Disposal of garbage, etc., After identification of different activities, the work was allocated to different members.”, The values which the company wants to communicate to society are:,  Cleanliness,  Responsibility, , Question 5., , Alliance Ltd. is engaged in manufacturing plastic buckets. The objective of the company is to manufacture, 100 buckets a day. To achieve this, the efforts of all departments are coordinated and interlinked and, authority-responsibility relationship is established among various job positions. There is clarity on who is to, report to whom. Name the function of management discussed above., (CBSE, 2015), , Answer: Organising, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 14

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6. STAFFING, STAFFING, , Staffing is concerned with obtaining, utilizing and maintaining a satisfactory and satisfied work force., , Importance of Staffing, 1., , It helps in discovering and obtaining competent personnel for various jobs within an organization., , 2. By putting right person on the right job, it leads to a higher performance of the employees., 3. It ensures the continuous survival and growth of the enterprise through the succession planning for, managers., 4. It helps to ensure optimum utilization of the human resources., 5. It improves job satisfaction and morale of the employees through objective assessment and fair, rewarding for their contribution., , Steps Involved in the Staffing Process,  Estimating the manpower requirements on the basis of workload analysis and workforce analysis., ,  Recruitment is the process of searching for prospective employees and stimulating them to apply for, jobs in the organization., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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 Selection is the process of choosing from among the pool of the prospective job candidates developed, at the stage of recruitment., ,  Placement and Orientation is done by giving the charge of the post to the employee for whom he has, been selected. It also includes introducing him to the other employees and familiarizing him with the, rules and policies of the organization., ,  Training and development is done in order to ensure continuous learning of their employees so that, they contribute effectively and efficiently towards the realization of the organizational goals. Training, is given to make a person job fit whereas development seeks to increase their potential for higher, level jobs., ,  Performance appraisal is undertaken to evaluate the worth of an employee to the organization., ,  Promotion and career planning are an integral part of people’s career and enhance their job, satisfaction., ,  Compensation refers to all forms of pay or rewards going to employees., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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HUMAN RESORCES MAMNGEMNT, Human Resource Management refers to the process of managing the employees within an organisation as, human factor is recognised as the most important instrument of success in an organisation., Staffing is considered to be an inherent part of human resource management as it deals with the human, element of management and is concerned with obtaining, utilising and maintaining a satisfactory and, satisfied work force., , Scope of Human Resources Management, 1., 2., 3., 4., 5., 6., 7., 8., , Recruitment, Analyzing jobs, collecting information about jobs to prepare job descriptions., Developing compensation and incentive plans., Training and development of employees for efficient performance and career growth., Maintaining labor relations and union management relations., Handling grievances and complaints., Providing for social security and welfare of employees., Defending the company in law suits and avoiding legal complications, , RECRUITMENT, Recruitment may be defined as the process of searching for prospective employees and stimulating them to, apply for jobs in the organization., Source of Recruitment can be divided into 2 types:- Internal Recruitment and External Recruitment, , Internal Recruitment, , , , Promotion, Transfer, , External Recruitment, , , , , , , , , , , Direct Recruitment, Casual Callers , Web Publishing, Advertisement, Employment Exchange, Consultants, Placement Agencies and Management, Campus Recruitment, Recommendations of Employees, Labor Contractors, Advertising on Television, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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SELECTION, Selection is the process of choosing the best candidate from a pool of applicants for the job., , Important Tests Used for Selection of Employees, , , Intelligence Tests include important psychological tests used to measure the level of intelligence, quotient of an individual., , , , Aptitude Test is a measure of an individual’s potential for learning new skills., , , , Personality Tests give an insight into a person’s emotions, reactions, maturity and value system etc., , , , Trade Test seeks to measure the existing skills of the individual., , , , Interest Tests are used to know the pattern of interests or involvement of a person., , Steps in the Process of Selection, 1., , Preliminary Screening- of the applications is done to eliminate those applicants who do not fulfill the, minimum requirements of the job., , 2. Selection Tests- help in an objective assessment of certain characteristics of individuals and is free from, personal bias., 3. Employment Interview -is a face-to- face interaction between the interviewer(s) and prospective, candidate., 4. Reference and Background check- is carried out for the purpose of verifying information and gaining, additional information about an applicant., 5. Selection Decision- is made from among the candidates who pass the tests and interview., 6. The selected candidates- are asked to undergo a medical examination before the job offer is made., 7. Job Offer- is made to those applicants who have passed all the previous tests., 8. Contract of Employment- is issued to the selected candidate and includes information like job title,, duties, responsibilities, date of joining, pay and allowances, etc. if the applicant accepts the job offer ., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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S.No, , Basis, , Difference between Recruitment and Selection, Recruitment, Selection, , 1, , Meaning, , Recruitment may be defined as the, process of searching for prospective, employees and stimulating them to, apply for jobs in the organization., , Selection is the process of choosing the, best candidate from a pool of, applicants for the job., , 2, , Process, , It is a positive process, , It is a negative process., , 3, , Sequence, , It precedes selection, , It follows recruitment., , TRAINING AND DEVELOPMENT, Training: Definition, Training is the process of increasing the knowledge and skill of the employees to perform specific jobs., Development: Definition, Development is the process of the overall growth of a person in all aspects., , Benefits of Training to the Organization,  Training imparts systematic learning to, employees thereby helping to avoid wastage, of efforts and money and is considered better, than the hit and trial method.,  It increases the employees’ productivity both, in terms of quantity and quality, leading to, higher profits.,  Training increases the morale of the, employees and reduces absenteeism and, employee turnover.,  It helps in obtaining effective response to fast, changing environment – technological and, economic., , Benefits of Training to the Employee,  Training leads to better career of the, individual due to improved skills and, knowledge during training.,  It helps an individual earn more due to, increased productivity.,  It makes the employee more efficient in, handling machines and less prone to, accidents.,  It increases the satisfaction and morale of, employees., ,  Training equips the future manager who can, take over in case of emergency., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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Methods of Training, 1., , Internship Training is a method for providing on the job training to the employees through a joint, program in which educational institutions and business firms cooperate. The learners carry on with, their regular studies for the prescribed period. They also work in some factory or office to acquire, practical knowledge and skills related to their specific field of expertise., , 2. Vestibule training is a popular method for providing off the job training through which the trainees, learn their jobs on the equipment they will be using at their actual work place. This is usually done, when employees are required to handle sophisticated machinery and equipment, , 3. Induction training is given to the new employees in order to familiarize them with the key employees, of the organization and give information about the working of the organization., 4. Apprenticeship training is provided to the people seeking to enter skilled jobs like plumbers,, electricians or iron workers. They are provided training under the guidance of a master worker., , S.No, , Basis, , 1, , Meaning, , 2, , Purpose, , 3, 4, , Scope, Level of, employees, , Difference between Training and Development, Training, Development, It is a process of increasing knowledge, and skills., It is to enable the employee to do the, job better., It is a job oriented process., It is suitable for the employees at the, lower level., , It is a process of learning and growth., It is to enable the overall growth of the, employee., It is a career oriented process., Developmental program are designed, for middle and top level managers., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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SHORT SUMMARY OF THE CHAPTER, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Resolutions Pvt. Ltd. is a publishing company. Its book on Business Studies for class XII is in great demand. As, a result, the employees in the marketing department are always racing against time. The employees have to, work overtime and on holidays to cater to the demand., Managers in the marketing department are under stress as they have to handle more than two territories., The work stress has led to dissatisfaction among the employees and managers.,  Name and explain the step of staffing process which has not been performed properly.,  State the next two stages immediately following the step identified in part ‘a’., (CBSE, Sample Paper, 2017), Answer:, 1., , The step of staffing process which has not been performed properly is Estimation of manpower, requirements: It is the first step in the staffing process and is carried out with the help of workload, analysis (assessment of the number and types of human resources necessary for the performance of, various jobs and accomplishment of organizational objectives) and work force analysis (assessment of, the number and type available)., , 2. The next two stages immediately following the step Estimation of manpower requirement are as, follows:,  Recruitment: Recruitment may be defined as the process of searching for prospective, employees and stimulating them to apply for jobs in the organization.,  Selection: Selection is the process of choosing the best candidate from a pool of applicants., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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Question 2., , Joseph Bros is a firm manufacturing jute lampshades. It uses leftover jute pieces from various jute factories to, manufacture economical lampshades which are supplied to various hotels in nearby towns. It employs men, and women from nearby villages as workers for creating good lampshade designs., Joseph Bros, is not able to meet its targets. Namish, the supervisor of the company, was told to analyse the, reasons for the poor performance. Namish found the following problems and suggested certain solutions in, the working of the business. The number of workers employed was less than what was required for the work., As a result, the existing workers were overburdened. The firm decided to search for new workers and it asked, the present employees to introduce candidates or recommend their friends and relatives to the firm. This, enabled the firm to ‘put people to jobs’ and assured the attainment of objectives according to plans.,  Identify the functions of management being performed by the firm in the above situation.,  Name the concept and its source used by the firm to attract more workers for the firm.,  State any two values being followed by Jacob Bros., (CBSE, Sample Paper 2016), Answer:, 1. The ‘Staffing’ function of management is being performed by the firm., 2. Recruitment is the concept used by the firm to attract more workers to the firm., 3. The firm is planning to use the external source of recruitment i.e ‘Recommendation of present, employees’ to attract more workers to the firm., The two values that are being followed by Jacob Bros are:,  Generating employment,  Optimum utilisation of resources., , Question 3., Aakansha, Nikita and Parishma are the owners of a handicraft unit in the urban area of Dibrugarh in, Assam, which is involved in the manufacturing and marketing of Sital Pati, traditional mats and Jappi (the, traditional headgear). They decided to shift this manufacturing unit to a rural area with an objective of, reducing the cost and providing job opportunities to the locals., They followed the functional structure in this organisation with a view to increasing managerial and, operational efficiency. They assessed and analysed the type and number of employees required, keeping in, mind that they had to encourage the women and the people with special needs belonging to the rural area., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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State the next three steps that they will have to undertake for obtaining a satisfied workforce for their, handicraft unit., (CBSE, Sample Paper 2016), Answer:, The next three steps that they will have to undertake for obtaining a satisfied workforce for their handicraft, unit are as follows:, , 1., , Recruitment: Recruitment may be defined as the process of searching for prospective employees and, stimulating them to apply for jobs in the organisation., , 2. Selection: Selection is the process of choosing the best candidate from a pool of applicants., 3. Placement and Orientation: Placement refers to the process of giving the charge of the job for which, the employees have been appointed. Orientation may involve a series of activities related to, introducing the new employee to other employees and familiarising him with the rules and policies of, the organisation. Moreover, he is taken around the workplace and made aware of the fire safety, policy, canteen, conference room etc., , Question 4., Mrs. Rajlaxmi is working as the Human Resource Consultant in a firm that manufactures cosmetics, which is, facing a problem of high employee turnover. The CEO of the company has invited suggestion from her for, retaining the talented employees and reducing the employee turnover. Mrs. Rajlaxmi recommends that the, good employees be rewarded in a way that it creates a feeling of ownership among the employees and at, the same time, makes them contribute towards the growth of the organisation., Identify the incentive and explain its type which has been suggested by Mrs. Rajlaxmi to the CEO of the, company., Also explain any two other incentives of the same type., (CBSE, Sample Paper 2016), Answer:, 1., , Co-partnership / stock option, which is a type of financial incentive, has been suggested by Mrs., Rajlaxmi to the CEO of the company., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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2. The two other financial incentives are described below:,  Retirement Benefits: An organisation may provide several retirement benefits to its employees, after their retirement such as provident fund, pension and gratuity which provide financial, security. These benefits serve as an incentive when they are in service in the organisation.,  Perquisites: In many companies perquisites and fringe benefits are offered over and above the, , salary such as car allowance, housing, medical aid, and education to the children etc., , Question 5., , Zenith Ltd. is a highly reputed company and many people wanted to join this company. The employees of, this organisation are very happy and they discuss how they came in contact with this organisation., Aman said that he was introduced by the present Sales Manager, Mr. John. Benu said that he had applied, through the newspaper and was appointed as the H.R. Manager., Vaibhav said that he was neither related to any employee of the organisation nor was there any, advertisement in the newspaper, even then, he was directly called from IIM Ahmedabad from where he was, about to complete his MBA., 1., , The above discussion is indicating an important function of management. Name the function of, management., , 2. The management function identified in part (1) follows a particular process. Explain the step of this, process which is being discussed in the above paragraph., (CBSE, Sample Paper 2015), , Answer:, 1., , The function of management being referred to in the above lines is ‘Staffing’., , 2. Recruitment is the step in the staffing process which is being discussed in the above paragraph., Recruitment may be defined as the process of searching for prospective employees and stimulating, them to apply for jobs in the organisation., The various sources of recruitment mentioned in the above paragraph are:,  Aman: Recommendation of present employee.,  Benu: Advertisement in newspaper Vaibhav: Campus recruitment., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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Question 6., Blue Heavens Ltd. purchased a new machinery from Germany for manufacturing some auto components. It, was a cost-effective and quality production machine but during the production process, manager observed, that the quality of the production was not as per standards. On investigation, it was found that there was, lack of knowledge of using these hi-tech machines. So, frequent visits by engineers were required from, Germany but this resulted in high overhead charges., Suggest what can be done to develop the skills and abilities of employees for producing quality products by, using these hi-tech machines. Also state how the employees or the organisation will be benefited by your, suggestion., (CBSE, Sample Paper 2015), , Answer:, Training should be provided to the employees to develop their skills and abilities for producing quality, products by using these hi-tech machines., The benefits of imparting training to the employee are as follows:, 1., , Better career: Training leads to better career opportunities for the employees as it helps to improve, their skills and knowledge of doing the job., 2. Increased earnings: Training leads to increased performance by the employees thereby helping them, to earn more., 3. Increased efficiency: Training makes the employees more efficient in handling machines and less prone, to accidents., 4. Improved motivation: Training increases the satisfaction and morale of employees thereby motivating, them to work with greater enthusiasm., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 12

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7. DIRECTING, DIRECTING, Directing refers to the process of instructing, guiding, counseling, motivating and leading people in the, organization for the purpose of achieving organizational goals, , Instructing, , Guiding, , Counseling, , Motivating, , Leading, people, , Importance of Directing,  Directing helps to initiate action by people in the organization towards attainment of desired, objectives.,  Directing integrates employees’ efforts in the organization in such a way that it contributes to the, organizational performance.,  Directing guides employees to fully realize their potential through effective communication,, motivation and leadership.,  Directing facilitates introduction of needed changes in the organization as it helps to reduce, employees’ resistance and develop an environment which is conducive to introducing changes in the, organization.,  Effective directing helps to bring stability and balance in the organization since it encourages, cooperation and commitment., , Features of Directing, 1., , Directing initiates action in the organisation as it is an executive function of management., , 2. Directing takes place at every level of management wherever superior – subordinate relations exist., 3. Directing is a continuous process and is carried on till an organisation ceases to exist., 4. Directing flows from top to bottom as it is first initiated at top level and flows to the bottom through, organisational hierarchy, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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Elements of Directing, 1., 2., 3., 4., , Supervision, Motivation, Leadership, Communication, , 1. SUPERVISION, Supervision: Definition, Supervision is the process of overseeing the work of a subordinate by his superior., Importance of Supervision, 1., 2., 3., 4., , A good supervisor acts as a guide, friend and philosopher to the workers., Supervisor acts as a link between workers and management., Supervisor plays a crucial role in maintaining group unity among workers placed under his control., Supervisor ensures performance of work according to the targets set and motivates the workers, effectively., 5. Supervisor provides good on-the-job training to the workers and employees., 6. A supervisor with good leadership qualities can build up high morale among workers., 7. A good supervisor analyses the work performed and gives feedback to the workers., , 2. MOTIVATION, Motivation: Definition, Motivation is the process of stimulating people to action to accomplish desired goals., Importance of Motivation, 1. Motivation helps to improve the performance of both the employees as well as the organisation., 2. Motivation helps to mould negative or indifferent attitudes of employees into positive attitudes for, the benefit of the organisation., 3. Motivation helps to reduce the employee turnover and leads to reduction in the cost to be incurred on, new recruitment and training., 4. Motivation helps managers to introduce changes within the organisation smoothly without much, resistance from their subordinates., 5. Motivation helps to reduce absenteeism in the organisation as work becomes a source of pleasure and, workers attend to the work regularly., Features of Motivation, 1., 2., 3., 4., , Motivation is an internal feeling as it relates to the urge, drives, desires, or needs of human beings., Motivation produces goal directed behaviour., Motivation can be either positive or negative., Motivation is a complex process as the individuals may differ in their perceptions and reactions., expectations,, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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Motivation can be done by giving some Incentives plan to the Employees, , Employer, , Employee, INCENTIVES, , Incentive: Definition, Incentive means all measures which are used to motivate people to improve performance, Types of Incentives, , , , Financial incentives - refers to incentives which are in direct monetary form., Non-financial incentives - mainly focus on psychological, social and emotional needs., , Types of Financial Incentives, , , , , , , , , Pay and allowances, Productivity linked wage incentives, Bonus, Profit Sharing, Co-partnership/ Stock option, Retirement Benefits, Perquisites, , Types of Non-financial Incentives, 1., 2., 3., 4., 5., 6., 7., 8., , Status, Organizational Climate, Career Advancement Opportunity, Job Enrichment, Employee Recognition program, Job security, Employee participation, Employee Empowerment, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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Abraham Maslow’s Needs Hierarchy Theory of Motivation, 1., , Basic Physiological Needs- refer to the needs that are most basic in the hierarchy like hunger, thirst,, shelter etc. which can be fulfilled by basic salary., , 2. Safety/Security Needs- refer to the needs to get security and protection from physical and emotional, harm which can be fulfilled through job security, stability of income, pension plans etc., , 3. Affiliation/Belonging Needs- refer to the needs that relate to affection, sense of belongingness,, acceptance and friendship which can be fulfilled through team work, kindness etc., , 4. Esteem Needs -include factors such as self-respect, autonomy status, recognition and attention which, can be fulfilled by giving praise and recognition, offering promotions etc., , 5. Self-Actualisation Needs -refer to the drive to become what one is capable of becoming which can, be fulfilled by providing challenging work and giving them flexibility and autonomy in their jobs, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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3. LEADERSHIP, Leadership: Definition, Leadership is the process of influencing the behaviour of people by making them strive voluntarily towards, achievement of organisational goals., , Importance of Leadership, 1., 2., 3., 4., 5., , It helps to bring about a positive change in the behaviour of the employees for the benefit Of the, organisation., It helps to maintain good personal relations and also helps the followers in fulfilling their needs., It helps to introduce the required changes in the organisation smoothly., It helps to resolve the conflicts within the organisation effectively without leading to any disruptions in, working of the organisation., It facilitates training of subordinates by the leader., , Features of Leadership, 1., 2., 3., 4., 5., , Leadership shows the ability of an individual to influence others., Leadership seeks to bring about a desired change in the behavior of others., Leadership reflects the interpersonal relations between leaders and followers., Leadership is an effective tool to achieve common goals of the Organisation., Leadership is a continuous process, , Styles of Leadership, , , , , Autocratic leadership: the leader tells his or her employees what to do and how to do it, without, getting their advice, Democratic leadership: the leader includes one or more employees in the decision making process,, but the leader normally maintains the final decision making authority, Delegative OR Laissez-faire : the leader allows the employees to make the decisions, however, the, leader is still responsible for the decisions that are made, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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COMMUNICATION, Communication: Definition, Communication is defined as a process of Exchange of ideas, Views, Facts, Feelings etc. between or among, people to create common understanding., Importance of Communication, 1. Acts as basis of coordination among departments, activities and persons in the organization, 2. Helps in smooth working of an enterprise as all organisational interactions depend on communica, tions., 3. Acts as basis of decision making as it provides the information needed for decision making., 4. Increases managerial efficiency as it lubricates the entire organisation and keeps the organisation at, work with efficiency, 5. Promotes cooperation and industrial peace as the two ways communication promotes cooperation, and mutual understanding between the management and workers., 6. Effective communication helps to establish effective leadership., 7. Boosts morale and provides motivation to the employees and managers to achieve higher goals., Elements Involved in Communication Process, 1. Sender refers to a person who conveys his thoughts or ideas to the receiver., 2. Message is the content of ideas, feelings, suggestions, order etc., intended to be communicated., 3. Encoding refers to the process of converting the message into communication symbols such as words,, pictures, gestures etc.,, 4. Media is the path through which encoded message is transmitted to receiver through a face to face, interaction, phone call, internet, 5. Decoding is the process of converting encoded symbols of the sender., 6. Receiver refers to the person who receives communication of the sender., 7. Feedback includes all those actions of receiver indicating that he has received and understood, message of sender., 8. Noise means some obstruction to communication, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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Types of Formal Communication Networks, 1., , Formal communication : Formal communication refers to interchange of information officially This, makes it possible for the information to reach the desired place without any hindrance, at a little cost, and in a proper way. This is also known as ‘Through Proper Channel Communication.’, , , , , Vertical,  Upwards (from subordinate to his superior),  Downward (formal superior to his subordinate), Horizontal, Takes place between one division and another, , 2. Informal Communication : Informal communication is generally referred to as the ‘Grapevine’, because it spreads throughout the organization with its branches going out in all directions in, complete disregard to the levels of authority., , Formal Communication Network, 1., , Chain Communication: Chain communication refers to the communication between a superior and, a subordinate. All the people in an organization from top to bottom are linked with the help of a, scalar chain as has been shown in diagram, Example :- A is placed at the highest rank, B is a subordinate of A, C is the subordinate of B, D is the, subordinate of C and E is the subordinate of D., , 2. Wheel Communication: In this form of communication, all the subordinates of a superior talk to one, another through his medium. The superior works as a hub of a wheel., Example :- A is the superior and B, C, D and E are the subordinates. All the four subordinates, communicate through the medium of A., , 3. Circular Communication: This communication takes place among the members of a group. Every, member of a group can communicate with the nearest two members., Example :- A can have communication with B and E. Similarly, B can have communication with A and, C. The same applies to all the members of the group. In this case the communication moves at a slow, speed., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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4. Free Flow Communication: This form of communication also takes place among the different, members of the group. Its special feature is that every member of the group can talk to all the other, people in the group., Example :- A can talk directly to B, C, D, E. In the same way B can talk directly to A, C, D, and E. The, same applies to all the members of the group. In this case, the communication moves at a rapid pace., , 5. Inverted ‘V’ Communication: In this form of communication, a subordinate is permitted to, communicate with the boss of his boss. In this form of communication the messages move at a rapid, speed,, Example :- C and D are the subordinate of B who, in turn, is a subordinate of A. Here C and D can talk, directly to A who happens to be the boss of B., , Grapevine Network, 1., 2., 3., 4., , Single strand Network :- a person communicates with the other in sequence, Gossip Network :- a person communicate with all on non-selective basis., Probability Network :- a person communicates randomly with other., Cluster Network :- a person communicates with only those people whom he/she trust., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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BARRIER TO COMMUNICATION IN THE ORGANISATION, Semantic Barriers, , , , , , , , , Badly expressed massage, Symbols with different meanings, Faulty translations, Un clarified assumptions, Technical jargon, Body language and gesture decoding, Organisational Barriers, , Organisational policy, , , , , , Rules and regulations, Status, Complexity in organisation structure, Organisational facilities, , Psychological Barriers, , , , , , Premature evaluation, Lack of attention, Loss by transmission and poor retention, Distrust, , Personal Barriers, , , , , , Fear of challenge to authority, Lack of confidence of superior on his subordinates, Unwillingness to communicate, Lack of proper incentives, , Ways of Improving Communication Effectiveness, , , , , , , , , , Clarifying the ideas before communication, Communicate according to the needs of receiver, Consult others before communicating, Be aware of languages, tone and content of message, Convey things of help and value to listeners, Ensure proper feedback, Follow up communications, Be a good listener, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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SHORT SUMMARY OF THE CHAPTER, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 10

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Prateek is working in a multinational company in Noida. He was running a temperature for the last many, days. When his blood was tested, he was found to be positive for malaria. He was admitted in a hospital and, a blood transfusion was advised by the doctors as his condition was very serious. One of his colleagues sent a, text message to his superior, Mr. B. Chatterjee. Mr. B. Chatterjee immediately sent a text message to the, employees of the organisation requesting them to donate blood for Prateek. When the General Manager, came to know about it, he ordered for fumigation in the company premises and cleaning the surroundings., , , , , From the above paragraph, quote lines that indicate formal and informal communication., State any two features of informal communication., Identify any two values that are being communicated to society in the above case., (CBSE, OD 2016), , Answer:, , , Informal communication: “One of his colleagues sent a text message to his superior, Mr. B. Chatterjee., Mr. B. Chatterjee immediately sent a text message to the employees of the organisation requesting, them to donate blood for Prateek.”, , , , Formal communication: “When the general manger came to know about it, he ordered for, fumigation in the company premises and cleaning surroundings.”, , , , The features of informal communication are as follows:, , , , , , , The grapevine/ informal communication spreads very fast and sometimes gets distorted., It is very difficult to detect the source of such communication., The two values that are being communicated to the society are:, Humanity, Cleanliness, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 13

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Question 2., , Mr. Shubhendu Bose is the owner of Bikmac Enterprises carrying on the business of manufacturing various, kinds of biscuits. There was a lot of discontentment in the organisation and the targets were not being met., He asked his son, Naval, who had recently completed his MBA, to find out the reason., Naval found that all the decision-making of the enterprise were in the hands of his father. His father didn’t, believe in his employees. As a result, both the employer and the employees were not able to understand, each others’ messages in the same sense. Thus, the employees were not happy and targets were not met., , , , Identify any two communication barriers because of which Bikmac Enterprises was not able to, achieve its target., State one more barrier each of the types identified in (1) above., (CBSE, Delhi 2016), , Answer:, , , The two communication barriers because of which Bikmac Enterprises was not able to achieve its, targets are:,  Organisational barriers: If the organisational policy, is not supportive to free flow of, communication, it may hamper effectiveness of communications. Like in the above case, Naval found that all the decision making power of the organisation was highly centralised as, it was in hands of his father only.,  Psychological barriers: Distrust :- Sometimes if there is lack of trust between the parties, they, cannot understand each other’s message in the same sense. Like in the above case Naval, found out that his father didn’t believe in his employees., , , , Organisational barriers:,  Status: Sometimes a status conscious manager also may not allow his subordinates to express, their feelings freely. This kind of an attitude may create psychological distance between him, and his subordinates.,  Psychological barriers: Premature evaluation: Sometimes people tend to evaluate the, meaning of message even before the sender completes his message on the basis of their own, judgement, experience etc., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 14

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Question 3., , Mr. Fernandes is the owner of Unibie Enterprises, carrying on the business of manufactur¬ing electrical, appliances. There is a lot of discontentment in the organisation and targets are not being met. He asked his, son, Michel, who has recently completed his MBA to find out the reason., Michel found that all the decision-making of the enterprise were in the hands of his father. Moreover, his, father did not have confidence in the competency of the employees. Thus, the employees were not happy.,  Identify any two communication barriers because of which Unibie Enterprise was not able to achieve, its target.,  State one more barrier each of the types identified in part (1) above., (CBSE, OD 2016), Answer:, The two communication barriers because of which Bikmac Enterprises was not able to achieve its targets are:, , , Organisational barriers: If the organisational policy, is not supportive to free flow of communication,, it may hamper effectiveness of communications. Like in the above case Michel found that all the, decision making power of the organisation was highly centralised as it was in hands of his father only., , , , Personal barriers: :- Lack of confidence of superior in the subordinate: The personal factors of both, sender and receive may exert influence on effective communication and they may not be able to, understand each other’s message in the same sense. Like in the above case Michel found out that his, father didn’t have confidence in the competency of the employees., , , , Organisational barriers: Status: Sometimes a status conscious manager also may not allow his, subordinates to express their feelings freely. This kind of an attitude may create psychological distance, between him and his subordinates., , , , Personal barriers: :-Pear of challenge to authority: If a superior may withhold or suppress the, communication that he may perceive is likely to have an adverse affect on his authority., , Question 4., Jaideep recently joined as the Managing Director of Tivori Ltd., an apparel designing company. He observed, that the company had a number of experienced fashion designers on its payroll. They regularly offered useful, suggestions which were neither appreciated nor rewarded by the company. Instead, the company outsourced, its services to some renowned fashion designers and paid them a good compensation for their services., Because of this, the employees felt disheartened and stopped giving useful suggestions., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 15

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1. Identify the communication barrier discussed above., 2. State the category of this communication barrier., 3. Explain any other communication barriers of the same category., (CBSE, OD 2015), Answer:, 1. The communication barrier discussed in the above paragraph is Lack of proper incentives, 2. It is a type of personal barrier., 3. Some of the types of personal barriers are described below:, Fear of challenge to authority: If a superior may withhold or suppress the communication which he perceives, is likely to adversely affect his authority.., Lack of confidence of superior on his subordinates: A superior may not seek the advice or opinions of their, subordinates if he / she do not have confidence on their competency., Unwillingness to communicate: Sometimes, subordinates may deliberately with hold any communication, with their superiors, if they perceive that it may adversely affect their personal interests., , Question 5., , Neeraj, a sales representative of Omida. Ltd. has changed seven jobs in the last one year. He is a, hardworking person but is not able to finalise deals with customers due to his inadequate vocabulary and, omission of needed words. Sometimes, he uses wrong words because of which the intended meaning is not, conveyed. All this creates a misunderstandings between him and his clients., 1. Identify the communication barrier discussed above., 2. State the category of this communication barrier., 3. Explain any other communication barriers of the same category., (CBSE, Delhi 2015), , Answer:, 1. The communication barrier discussed above is badly expressed message., 2. This kind of barrier falls in the category of semantic barriers., 3. Semantic barriers are concerned with problems and obstructions in the process of encoding and, decoding of message into words or impressions. A few of these are discussed below:,  Symbols with different meanings: Sometimes, a word may have several meanings. The, communication will be effective only if the receiver perceives it in the same manner as intended by, communicator., Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 16

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, , Faulty translations: Many a times it has been noted that if the translator is not proficient with both, the languages, mistakes may creep in causing different meanings to the communication., , , , Technical jargon: It is usually seen that specialists use technical jargon while explaining something. If, the persons with whom they are communicating are not specialists in the concerned field, they may, not be able to understand the actual meaning of many such words., , , , Body language and gesture decoding: While speaking, one may tend to move his/her body in a, certain manner. If there is no match between what is said and what is expressed in body movements,, communications may be wrongly perceived by the receiver, , Question 6., , Pramod was a supervisor at ‘Annapurna Aata’ factory. The factory was producing 200 quintals of aata, every day. His job was to make sure that the work went on smoothly and there was no interruption in, production. He was a good leader who would give orders only after consulting his subordinates and workout the policies with the acceptance of the group., Identify and describe the leadership style being adopted by Pramod. (CBSE, Delhi 2015), Answer:, As a supervisor of ‘Annapurna Atta/ Pramod has adopted the democratic style of leadership., Democratic leadership is also known as participative leadership. In this type of leadership style, the members, of the group take a more participative role in the decision-making process., Everyone is given the opportunity to participate, ideas are exchanged freely, and discussion is encouraged. It, is one of the most effective style of leadership and leads to higher productivity, better contributions from, group members, and increased group morale., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 17

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7. CONTROLLING, CONTROLLING, Controlling means ensuring that activities in an organization are performed as per the plans, , Importance of Controlling,  It helps in accomplishing organizational goals by constantly monitoring the performance of the, employees and bringing to light the deviations, if any, and taking appropriate corrective action.,  It helps the business managers to judge the objectivity and accuracy of the standards.,  It seeks to make efficient use of resources.,  It seeks to motivate the employees and helps them in giving a better performance.,  It creates an atmosphere of order and discipline in the organization.,  It facilitates coordination in action by providing direction to all activities within and among, departments., , Features of Controlling, 1., , It is a goal-oriented function., , 2. It is a pervasive function as it is used in the organizations of varying types and sizes., 3. It is considered to be a forward looking function as it helps to improve the planning by providing, valuable feedback for reviewing and revising the standards., 4. It is considered to be a backward looking function as it is like the post mortem of the past activities to, ascertain the deviations if any., 5. It is not the last function of management as it brings the management cycle back to the planning, function., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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Steps Involved in the Controlling Process, 1., , Setting performance standards in clear, specific and measurable terms., , 2. Measurement of actual performance as far as possible in the same units in which standards are set., 3. Comparing actual performance with standards to identify deviations if any., 4. Analyzing deviations through critical point control and management by exception approaches to, identify the causes for their occurrence., 5. Taking corrective action whenever the deviation occurs beyond the permissible limits so that it does, not reoccur in future., , Relationship between Planning and Controlling, 1., , Planning without controlling is useless and controlling without planning is blind., , 2. Planning provides the basis of controlling by setting the standards in advance. In the absence of these, standards, managers will not know what all activities have to be controlled., 3. Planning is prescriptive in nature whereas, controlling is evaluative., 4. Thus, planning and controlling are interrelated and interdependent. As planning is based on facts, it, makes controlling easier and effective whereas controlling helps to improve future planning by, providing valuable information derived from the past experiences., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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SHORT SUMMARY OF THE CHAPTER, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Hina Sweets is a renowned name for quality sweets since 1935. Harsh the owner of Hina Sweets was worried, as the sales had declined during the last three months. When he enquired from the Sales Manager, the Sales, Manager reported that there were some complaints about the quality of sweets. Therefore Harsh ordered for, sample checking of sweets., Identify the step taken by Harsh that is related to one of the functions of management., (CBSE, Delhi 2017), Answer:, Measurement of actual performance is the step in controlling process being described., , Question 2., , ‘If anything goes wrong with the performance of key activities, the entire organisation suffers. Therefore, the, organisation should focus on them.’ Explain the statement with a suitable example., (CBSE, Sample Paper 2015-16), Answer:, The given statement refers to the importance of ‘Critical Point Control’ in order to ensure effective, performance of key activities in an organisation., Critical Point Control: It may not be either economical nor easy to monitor each and every activity in the, organisation. Therefore, every organisation identifies and states its specific Key Result Areas (KRAs) or critical, points which require tight control and are likely to have a significant effect on the working of the business., Any deviations on these points are attended to urgently by the management. For example, if in an, organisation, the expenditure on stationery goes up by 10%, it can be ignored but if the production cost goes, up by 5%, it may call for managerial action, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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Question 3., Mr. Nath, a recently appointed production manager of Suntech Ltd., has decided to produce jute bags, instead of plastic bags as these are banned by the government. He set a target of producing 1000 jute bags, a day. It was reported that the employees were not able to achieve the target. After analysis, he found that, employees were demotivated and not putting in their best for achieving the target. Mr. Nath’s behaviour is, good towards the employees. His attitude is always positive. So, he announced various incentive schemes for, the employees like:, 1. Installing awards or certificates for best performance, 2. Rewarding an employee for giving valuable suggestions, 3. Congratulating the employees for good performance, Identify the functions of management highlighted in the above paragraph., , , , State the incentive under which the employee are motivated., State any two values which the production manager wants to communicate to society by his work, and behaviour., (CBSE, Sample Paper 2015), , Answer:, 1., , The functions of management highlighted in the above paragraph are Controlling and Directing., , 2. The employees are motivated under Employee recognition programmes which is a non-financial, incentive. Employee recognition programmes helps to fulfill the need of due consideration and, appreciation of the people working in an organisation. It boosts their self-esteem and motivates them, to work with greater zeal and enthusiasm., 3. The two values that the manager wants to communicate to the society through his work and, behaviour are:,  Respect for employees,  Concern for environment, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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2019, Business Studies, for class 12th, CA Shivam, Dwivedi, , Business Studies, (PART – A), By CA Shivam Dwivedi, (Well qualified CA, CS, MBA, CFP), , [ECONOMICS EASY HAI], Full video lecture of Economics and Business studies ,

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9. FINANCIAL MANAGEMENT, FINANCIAL MANAGEMENT, Financial Management is concerned with optimal procurement as well as usage of finance, , Objective of Financial Management, ✓ The prime objective of financial management is to maximize shareholder’s wealth by maximizing the, market price of a company’s shares., , ✓ To ensure regular and adequate supply of funds to the concern., , ✓ To ensure adequate returns to the shareholders which will depend upon the earning capacity, market, price of the share, expectations of the shareholders, , ✓ To ensure optimum funds utilization. Once the funds are procured, they should be utilized in, maximum possible way at least cost., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 1

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✓ To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of, return can be achieved., , ✓ To plan a sound capital structure-There should be sound and fair composition of capital so that a, balance is maintained between debt and equity capital., , Scope of Financial Management, Financial Decisions Involved in Financial Management, •, •, •, 1., , Investment Decision, Financing Decision, Dividend Decision, , Investment decisions - includes investment in fixed assets (called as capital budgeting). Investment in, current assets are also a part of investment decisions called as working capital decisions., , 2. Financial decisions - They relate to the raising of finance from various resources which will depend, upon decision on type of source, period of financing, cost of financing and the returns thereby., 3. Dividend decision - The finance manager has to take decision with regards to the net profit, distribution. Net profits are generally divided into two:, •, •, , Dividend for shareholders- Dividend and the rate of it has to be decided., Retained profits- Amount of retained profits has to be finalized which will depend upon, expansion and diversification plans of the enterprise., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 2

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Role of Financial Management, 1. To determine the capital requirements of business, both long-term and short-term., 2. To determine the capital structure of the company and determine the sources from where required, capital will be raised keeping in view the risk and return matrix., 3. To decide about the allocation of funds into profitable avenues, keeping in view their safety as well., 4. To decide about the appropriation of profits., 5. To ensure efficient management of cash in order to ensure both liquidity and profitability., 6. To exercise overall financial controls in order to promote safety, profitability and conservation of, funds., , INVESTMENT DECISION, ➢ It seeks to determine as to how the firm’s funds are invested in different assets, ➢ It helps to evaluate new investment proposals and select the best option on the basis of associated, risk and return., ➢ Investment decision can be long-term or short-term., ➢ A long-term investment decision is also called a Capital Budgeting decision., , Types of Investment Decision, 1., , Working Capital/Short-term Investment Decision, •, •, •, , It refers to the amount of capital required to meet day- to-day running of business., It relates to decisions about cash, inventory and receivables., It affects both liquidity and profitability of business., , 2. Capital Budgeting Decision/Fixed Capital /Long-term Investment Decision, •, •, , It refers to the amount of capital required for investment in fixed assets or long term projects, which will yield return and influence the earning capacity of business over a period of time., It affects the amount of assets, competitiveness and profitability of business., , 3. Factors Affecting Capital Budgeting Decision/Long- term Investment Decision, •, •, •, , The expected cash flows from the proposed project should be carefully analyzed., The expected rate of return should be carefully studied in terms of risk associated from the, proposed project., Different types of ratio analysis should be done to evaluate the feasibility of the proposed, project as compared to similar projects in the same industry., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 3

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FINANCING DECISION, Financing decision relates to determining the amount of finance to be raised from different sources of, finance. This decision determines the overall cost of capital and the financial risk of the enterprise., , Types of Sources of Raising Finance, , Owned Sources, ➢ Equity shares, ➢ Preference shares, ➢ Retained earnings, , Borrowed Sources, ➢, ➢, ➢, ➢, , Debentures, Bonds, Loan from bank or financial institutions, Public deposit, , Considerations Involved in the Issue of Debt, •, •, •, , Interest on borrowed funds has to be paid regardless of whether or not a business has made a profit., Likewise, borrowed funds have to be repaid at a fixed time., There is some amount of financial risk in debt financing., The cost of debt is less than equity as the degree of risk assumed by the investors is less and the, amount of interest paid by the company is tax deductible., , Considerations Involved in the Issue of Equity, •, •, •, , Shareholders do not expect any commitment regarding the payment of returns or repayment of, capital., The floatation cost on raising equity capital is high., The shareholders expect higher returns in return for assuming higher risks., , Factors Affecting Financing Decision, •, •, •, •, •, •, •, , The source of finance which involves the least cost should be chosen., The risk involved in raising debt capital is higher than equity., The sources involving high flotation cost require special consideration., if the cash flow position of a business is good, it should opt for debt else equity., if the fixed operating cost of a business is low, it should opt for debt else equity., The issue of equity capital dilutes the control of existing shareholders over business whereas financing, through debt does not lead to any such effect, If there is boom in capital market it is easy for the company to raise equity capital, else it may opt for, debt., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 4

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DIVIDEND DECISION, Dividend Decision relates to disposal of profit by deciding the proportion of profit which is to be distributed, among shareholders and the proportion of profit which is to be retained in the business for meeting the, investment requirements., , Factors Affecting Dividend Decision, •, •, •, •, •, •, •, •, •, •, •, , If the earnings of the company are high, dividends are paid at a higher rate., If the earnings of a company are stable, it is likely to pay higher dividends., A company is more likely to maintain a stable dividend rate over a period of time, unless there is a, significant change in its earnings., A company planning to pursue a growth opportunity is likely to pay lower dividends., The dividends are paid in cash, therefore if the cash flow of the company is good, it is likely to pay, higher dividends., If the shareholders prefer regular income in form of dividends, the company is likely to maintain a, dividend payout rate, If the tax rate is high, the company is likely to pay less dividend., If a company wants positive reactions at stock market, It Is likely to pay higher dividends., A large company can access funds easily from capital market as per its requirements, therefore, it is, likely to retain lesser profits and is likely to pay higher dividends., The legal constraint should be considered at the time of dividend payment by a company., The contractual constraints may also affect the dividend payment by a company., , A good Decision makes overall Growth of a Company, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 5

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FINANCIAL PLANNING, Financial Planning: Definition, The process of estimating the funds requirement of a business and specifying the sources of funds is called, financial planning. It basically involves preparation of a financial blueprint of an organization’s future, operations., , Objectives of Financial Planning, •, •, •, •, , To ensure availability of funds as per the requirements of business., To see that the enterprise does not raise resources needlessly., Generating capital structure:, Avoiding unnecessary funds, , Importance of Financial Planning, •, , It ensures smooth running of a business enterprise by ensuring availability of funds at the right time., , •, , It helps in anticipating future requirements of funds and evading business shocks and surprises., , •, , It facilitates co-ordination among various departments of an enterprise, like marketing and, production functions, through well-defined policies and procedures., , •, , It increases the efficiency of operations by curbing wastage of funds, duplication of efforts, and gaps in, planning., , •, , It helps to establish a link between the present and the future., , •, , It provides a continuous link between investment and financing decisions., , •, , It facilitates easy performance as evaluation standards are set in clear, specific and measurable terms., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 6

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CAPITAL STRUCTURE, Capital Structure: Definition, Capital Structure refers to the amount of debt and/or equity employed by a firm to fund its operations and, finance its assets. The structure is typically expressed as a debt-to-equity or debt-to-capital ratio., OR, It refers to the mix between owners and borrowed funds., , SOME BASIC TERM, Financial Risk: Definition, It refers to a situation when a company is unable to meet its fixed financial charges like payment of interest, on debt capital., Trading on Equity: Definition, It refers to the increase in the earnings per share by employing the sources of finance carrying fixed financial, charges like debentures (interest is paid at a fixed rate) or preference shares (dividend is paid at fixed rate)., Financial Leverage: Definition, The proportion of debt in the overall capital is called financial leverage. It is computed as D/E or D/D+E,, where D is the Debt and E is the Equity., Working Capital: Definition, The funds needed to meet the day-today operations of the business is called working capital., Fixed Capital: Definition, It refers to investment in long-term assets., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 7

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FACTOR AFFECTING THE CHIOCE OF CAPITAL, S.NO, 1, , FACTORS, Cash flow position, , 2, , Interest coverage ratio, , 3, 4, , Debt service coverage, ratio, Return on investment, , 5, , Cost of debt, , 6, , Cost of equity, , 7, , Tax rate, , 8, , Floatation costs, , 9, 10, , Financial risk, consideration, Flexibility, , 11, , Control, , 12, , Stock market conditions, , USE SOURCE OF DEBT CAPITAL, If the cash flow position is good the, business may use debt., If the interest coverage ratio is high, the business may use debt., If the debt service coverage ratio is, high the business may use debt., If the return on investment is high, the business may use debt., If the cost of debt is low the, business may use debt., The company may use debt up to, a certain limit so that shareholders, do not expect higher returns on, equity., , USE SOURCE OF OWN CAPITAL, If the cash flow position is poor the, business may use equity., If the interest coverage ratio low, the business may use equity., If the debt service coverage ratio is, low the business may use equity., If the return on investment is low, the business may use equity., If the cost of debt is high the, business may use equity., Shareholders expect higher returns, when the company uses debt, beyond a point due to increase in, the financial risk, so the cost of, equity increases., If the tax rate is high the business, If the tax rate is low the business, may use debt, may use equity., The floatation cost is lesser on using The floatation cost is higher on, debt, using equity., If the financial risk is low the, If the financial risk is high the, business may use debt., business may use equity., Too much use of debt reduces, If the business doesn’t want to, flexibility to raise more debt., restrict its flexibility, it may issue, equity., Issue of debt doesn’t affect control Issue of equity dilutes the control of, of existing shareholders., the existing shareholders, If there is recession in the stock, If there is boom in the stock, market, the business may issue, market, the business may issue, debt capital., equity., , Note : Regulatory framework: The business will choose the option where it can easily fulfill the norms of the, concerned regulator like a bank or SEBI., Note: Capital structure of other companies: The business must know what the industry norms are, whether, they are following them or deviating from them and adequate justification must be there, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 8

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SHORT SUMMARY OF THE FINANCIAL MANAGEMENT, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 9

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Shalini, after acquiring a degree in Hotel Management and Business Administration, took over her family, food processing company of manufacturing pickles, jams and squashes. The business had been established by, her great grandmother and was doing reasonably well. However, the fixed operating costs of the business, were high and the cash flow position was weak. She wanted to undertake modernization of the existing, business to introduce the latest manufacturing processes and diversify into the market of chocolates and, candies. She was very enthusiastic and approached a finance consultant, who told her that approximately ?, 50 lakh would be required for undertaking the modernization and expansion program . He also informed, her that the stock market was going through a bullish phase., •, •, , Keeping the above considerations in mind, name the source of finance Shalini should not choose for, financing the modernisation and expansion of her food processing business. Give one reason in support, of your answer., Explain any two other factors, apart from those stated in the above situation, which Shalini should, keep in mind while taking this decision., (CBSE, OD 2016), , Answer:, •, , •, , Shalini should not choose debt capital for financing the modernization and expansion of her food, processing business because the fixed operating cost of the company is high. It cannot take the, additional burden of fixed commitments in terms of payment of interest and repayment of capital by, issuing debt., The other two factors that Shalini must keep in mind while taking this decision are stated below:, ✓ Risk: Financial risk refers to a situation when a company is unable to meet its fixed financial, charges. Financial risk of the company increases with the higher use of debt. This is because issue, of debt involves fixed commitment in terms of payment of interest and repayment of capital., ✓ Flexibility: Too much dependence on debt reduces the firm’s ability to raise debt during, unexpected situations. Therefore, it should maintain flexibility by not using debt to its full, potential., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 11

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Question 2., , Radhika and Vani who are young fashion designers, left their job vyith a famous fashion designer chain to, set-up a company ‘Fashionate Pvt. Ltd.’ They decided to run a boutique during the day and coaching classes, for the entrance examination of National Institute of Fashion Designing in the evening. For the coaching, centre, they hired the first floor of a nearby building. Their major expense was the money spent on, photocopying of notes for their students. They thought of buying a photocopier knowing fully that their scale, of operations was not sufficient to make full use of photocopier., In the basement of the building of Fashionate Pvt. Ltd, Praveen and Ramesh were carrying on a printing, and stationery business in the name of ‘Neo Prints Pvt. Ltd.’ Radhika approached Praveen with the proposal, to buy a photocopier jointly which could be used by both of them without making separate investment., Praveen agreed to this., •, , Identify the factor affecting the fixed capital requirements of Fashionate Pvt. Ltd., (CBSE, Delhi 2016), , Answer:, The factor affecting the fixed capital requirement of Fashionable Pvt. Ltd. is the level of collaboration. This, kind of arrangement of using the resources jointly helps to reduce the fixed capital requirements of the, business firms., , Question 3., Kay Ltd. is a company manufacturing textiles. It has a share capital of ? 60 lakhs. In the previous year, its, earning per share was ? 0.50. For diversification, the company requires an additional capital of ? 40 lakhs., The company raised funds by issuing 10% debentures for the same. During the year, the company earned a, profit of ? 8 lakhs on the capital employed. It paid tax @ 40%., •, •, , State whether the shareholders gained or lost, in respect of earning per share on diversification. Show, your calculations clearly., Also state any three factors that favour the issue of debentures by the company as part of its capital, structure., (CBSE, OD 2016), , Answer:, ✓ Let us presume that the share capital of Rs. 60 lakh is made up of Rs. 6 lakh equity shares, assuming that the face value of each share is Rs.10, , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 12

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*0.50 x 6,00,000 = 3,00,000 Consequently EBT/EBIT in situation 1 = Rs. 5,00,000 Thus, on diversification, the, earning per share fell down from Rs. 0.50 to Rs. 0.40., ✓ The three factors that favour the issue of debentures by the company as part of its capital, structure are as follows:, ✓ Tax deductibility: Debt is considered to be a relatively cheaper source of finance as the amount, of interest paid on debt is treated as a tax deductible expense., ✓ Flotation cost: The money spent by the company on raising capital through debentures is less, than that spent on equity., ✓ Control: The issue of debentures doesn’t affect the control of the equity shareholders over the, business as the debenture holders do not have the right to participate in the management of, the business., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 13

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Question 4., Rizul Bhattacharya, after leaving his job, wanted to start a Private Limited Company with his son. His son, was keen that the company may start manufacturing mobile-phones with some unique features. Rizul, Bhattacharya felt that mobile phones are prone to quick obsolescence and a heavy fixed capital investment, would be required regularly in this business. Therefore, he convinced his son to start a furniture business., ✓ Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya choose, the furniture business over mobile phones., (CBSE, OD 2016), Answer:, The factor affecting the fixed capital requirements which made Rizul Bhattacharya choose the furniture, business over mobile phones is technological up gradation, , Question 5., Tata International Ltd. earned a net profit of Rs. 50 crores. Ankit, the finance manager of Tata International, Ltd. wants to decide how to appropriate these profits. Discuss any five factors which will help him in taking, this decision., (CBSE, Delhi 2015), , Answer:, The five factors which will help Ankit, in taking the dividend decision are described below:, , 1., , Earnings: Since the dividends are paid out of current and past earnings, there is a direct relationship, between the amount of earnings of the company and the rate at which it declares dividend. If the, earnings of the company are high, it may declare a higher dividend or vice-versa., , 2. Cash flow position: Since the dividends are paid in cash, if the cash flow position of the company is, good it may declare higher dividend or vice-versa., 3. Access to capital market: If the company enjoys an easy access to capital market because of its credit, worthiness. It does not feel the need to depend entirely on retained earnings to meet its financial, needs. Hence, it may declare higher dividend or vice-versa., 4. Growth prospects: If the company has any forthcoming investment opportunities, it may like to retain, profits to finance its expansion projects. This is because retained profits is considered to be the cheapest, Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 14

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source of finance as it doesn’t involve any explicit costs. Hence, it may declare lower dividend or viceversa., 5. Preferences of the shareholders: The companies paying stable dividends are always preferred by small, investors primarily if they want regular income in the form of ‘stable returns’ from their investments., Large shareholders may be willing to forgo their present dividend in pursuit of higher profits in future., Therefore, the preferences of the shareholders must be taken into consideration., , Question 6., , Yogesh, a businessman, is engaged in the purchase and sale of ice-creams. Identify his working capital, requirements by giving reasons to support your answer. Now, he is keen to start his own ice-cream factory., Explain any two factors that will affect his fixed capital requirements., (CBSE, OD 2012), Answer:, 1., , The working capital requirements of Yogesh will be less as he is engaged in trading business., , 2. The two factors that will affect his fixed capital requirements when he will start his own ice-cream, factory are described below:, ✓ Level of collaboration: If Yogesh gets an opportunity to set up his factory in collaboration with, another enterprise, his fixed capital requirements will reduce considerably else his fixed capital, requirements will be more., ✓ Financial alternatives available: If Yogesh is able to get the place to start the factory and, machinery on lease, his fixed capital requirements will reduce considerably. Whereas if he, decides to purchase them, his fixed capital requirements will be more., , Economics Easy Hai – SUBSCRIBE , HIT LIKE and Do COMMENT (Shivam Dwivedi), , Page 15

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10. FINANCIAL MARKET, FINANCIAL MARKET, Financial Market: Definition, A financial market is a market for the creation (new issue of securities) and exchange (sale of existing, securities) of financial assets, Financial Markets: Purpose, Financial market serves as an intermediary between the surplus sector (households which have savings) and, deficit sector (business firms which needs funds), , Functions of Financial Market, ✓ It performs the allocative function, ✓ by mobilization of savings and channelizing them into the most productive avenues., ✓ It helps to determine the price for the financial asset in a particular financial market through the, market forces of demand and supply., ✓ It provides liquidity to the financial assets by providing ready markets wherein the securities can be, easily converted into cash or vice versa., ✓ It provides a common platform for exchange of securities thereby reducing the cost of transactions by, saving time, effort and money spent by the buyers and sellers in locating each other, , Financial Intermediation, Definition, Financial intermediation refers to the process through which allocation of funds is done by the savers, in the household sectors through two main mechanisms; banks and financial markets., Types / Segments of Financial Market, 1. Capital Market, 2. Money Market, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 1

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CAPITAL MARKET, Capital Market: Definition, Capital Market refers to facilities and institutional arrangements through which long term funds, both, debt and equity, are raised and invested., Capital market is a segment of financial market., Features of Capital Market, •, •, •, •, •, , It is a market for long term funds., The main participants in capital market are banks, financial institutions, corporate bodies,, foreign investors and retail investors., Since the cost of securities may be low, investment can be made in the capital market with less, capital., The securities in capital market enjoy good liquidity., The instruments in capital market carry high risk as the expected return on them is high., , Main Instruments in Capital Market, •, •, •, •, , Equity Shares, Preference Shares, Debentures, Bonds, , Types / Segments of Capital Market, •, •, , Primary Market, Secondary Market, , Constituents of the Capital Market, •, •, •, , Development Banks, Commercial Banks, Stock Exchanges, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 2

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PRIMARY MARKET, Primary Market: Definition, •, , Primary market is also known as new issue market as the securities are issued for the first time, by the companies through this market. Primary Market is a segment of capital market., , Features of Primary Market, •, •, •, •, •, , It is the new issue market., Only buying of securities takes place., Prices of the securities are determined by the company., It involves dealings between the company and investors., There is no fixed location of primary market., , Instruments of Primary Market, •, •, •, , Shares, Debentures, Bonds, , Methods of Floatation in Primary Market, 1., 2., 3., 4., 5., , Offer through Prospectus (The company approaches the members of the general public directly, by issuing a prospectus), Offer For Sale (The company approaches members of the general public indirectly through, intermediaries like issuing houses, stock brokers etc.), Private Placement (The company can raise finance by allotting securities to selective individuals, and institutions only), e-IPOs (The investors may subscribe to the securities of a company online), Rights Issue (It is a pre-emptive right given only to the existing shareholders to subscribe to the, securities of the company as per its terms and conditions), , SECONDARY MARKET, Secondary Market: Definition, It is a market for old or existing securities, It is a segment of capital market., Features of Secondary Market / Stock Exchanges, •, •, •, •, •, , It is the market for old/existing securities., Both buying and selling of securities takes place., Prices of the securities are determined by the forces of demand and supply., It involves dealings between two investors., Stock exchanges exist at fixed location, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 3

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MONEY MARKET, Definition of Money Market, The money market is a market for short term debt instruments whose period of maturity is upto one year., It is a segment of financial market., Features of Money Market, •, •, •, •, •, , It is a market for short term funds., The main participants are institutional investors., Since the cost of securities may be high, investment in the money market may require huge capital, outlay., The money market enjoys high liquidity as The Discount Finance House of India works as a, compulsory market maker for it., The instruments in money market carry low risk as the expected return is low on, , INSTRUMENTS IN MONEY MARKET, Call Money, , Commercial, Paper, , •, •, •, •, •, , Certificate of, Deposit, , •, •, •, •, •, •, , Treasury Bills, , •, , Commercial, Bill, , •, •, •, •, •, •, •, •, , Call money is a short term money market instrument through which one bank may, borrow money from another bank to maintain its cash reserve ratio as per the, guidelines of RBI., It’s maturity period may range from a single day to a fortnight., The rate at which the interest is paid on call money is called call rate., Commercial Papers are the short term money market instrument issued by large and, credit worthy companies., The instrument is in the form of an unsecured promissory note and is freely, transferable by endorsement., Its maturity period may range from a fortnight to a year., It is sold at discount and redeemed at par., It is used for bridge financing., Certificate of deposit is a short term money market instrument issued by commercial, banks and development financial institutions., It is an unsecured and negotiable instrument in bearer form., It may be issued to individuals, corporations and companies when banks need cash to, meet credit needs, Treasury bills are short term money market instrument which are issued by Reserve, bank of India on behalf of the Government of India., They are issued in the form of promissory notes and are very safe instruments., They are sold at discount and redeemed at par., They are also known as zero-coupon-discount bonds., The minimum value of their purchase is ? 25,000 and in multiples thereof., Commercial bill is a short term money market instrument., A business firm may draw a bill of exchange in favour of another in lieu of credit, purchases., On acceptance by the drawee (buyer) it becomes a trade bill., When the trade bill is accepted by a commercial-bank for discounting it is called, commercial bill., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 4

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•, •, , A bill of exchange is a freely negotiable instrument., It is usually drawn for a period of 3 months., , STOCK EXCHANGE, Stock Exchange: Definition, According To Securities Contracts (Regulation) Act 1956, “Stock Exchange means any body of individuals,, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of, buying and selling or dealings in securities.”, Functions of Stock Exchange, ✓ Ensures liquidity and marketability of existing securities by a providing a ready and continuous, market for the sale and purchase of securities., ✓ Helps in determining the prices of the securities through the forces of demand and supply., ✓ It promotes the habit of saving and investment among the general public., ✓ It provides a legal framework for fair and safe dealings., ✓ It helps the companies in raising finance thus facilitating capital formation and economic growth., It provides scope for healthy speculation in a controlled and restricted way., , Some important Definition, Dematerialization: Definition, Dematerialization refers to the process of holding securities in electronic form., Depository: Definition, Depository is the organization with which an investor has to open a D-Mat account to hold securities in, electronic form., In India there are two depositories:, 1. National Securities Depository Limited (NSDL), 2. Central Depository Services Limited (CDSL), The depository participant serves as a link between the investor and the depository i.e. either NSDL or CDSL., Screen Based Trading: Definition, Screen-based trading refers to the process of buying or selling securities on-line., Advantages of Screen-based Trading, ✓ As the investors get an access to the stock market during real time, there is complete transparency, and in the dealings., ✓ It provides a common platform for exchange of securities thereby increasing the efficient transactions, by saving time, effort and money., ✓ This virtual market has a very wide reach hence it increases its liquidity., Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 5

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STEPS IN THE TRADING AND SETTLEMENT PROCEDURE, 1., , The investor approaches a registered broker or sub-broker for trading. The investor has to sign a, broker-client agreement and a client registration form., • The investor has to furnish certain details and information about himself including PAN number, which is mandatory, date of birth, bank account details, income details etc., • A broker acts as an intermediary between the buyers and sellers., • After the completion of the above formalities, the broker opens a trading account in the name of, the investor., , 2. The investor has to open a demat account with a depository participant and a bank account for, trading transactions in cash., 3. The investor then places an order to buy or sell shares with the broker:, •, •, •, , By giving clear instructions about the desired quantity and price., The broker will then make the investor aware about the feasibility of the order., The broker will issue an order confirmation slip to the investor., , 4. The broker will then execute the order through screen based trading by considering the best available, deal., 5. The broker will issue a trade confirmation slip to the investor., 6. Within 24 hours after the deal is executed the broker issues a contract note., • A contract note contains details about the deal i.e. the number of securities bought/sold, price,, date and time of transaction etc., • The contract note includes a unique order code generated by the stock exchange for that, transaction., • A contract note is a legal which may be used to settle the claims between the investor and the, broker., 7. Since the settlement cycle is T +2 therefore, within two days of receiving the Contract Note, the, investor has to pay cash or deliver shares sold as the case may be. The broker can then forward it to, the exchange. This is called pay-in-day., 8. On the T+2 day, cash will be paid or shares will be delivered as the case may be by the exchange to, the other broker. This is called pay-out-day. Then, in case of sale of shares, the broker has to make, the payment to the investor within 24 hours., 9. However, in the case of purchase of securities, the amount will be transferred electronically to the, , investor’s demat account., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 6

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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI), The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India., 1., , It was established in the year 1988 by the Government of India. It was to function under the overall, administrative control of Ministry of Finance of the Government of India., 2. It was given statutory powers on 30th January 1992 through an ordinance., 3. The ordinance was later on replaced by an Act of Parliament known as the SEBI Act, 1992., The Organization Structure of SEBI, •, •, •, •, •, •, , The various activities undertaken by SEBI are now divided into five operational departments., Each department is headed by an executive director., The head office of SEBI is located at Mumbai., Besides, regional offices have been set up in Kolkata, Chennai and Delhi to attend to consumers, complaints and maintain liaison with the issuers, intermediaries and stock exchanges in the concerned, regions., SEBI has also formed Primary Market Advisory Committee and Secondary Market Advisory, Committee to assist in the process of SEBI’S policies formation., These two committees consist of the market players, the investor’s association recognized by SEBI and, the eminent persons in the capital market., , Objectives of SEBI, 1. To prevent trading malpractice in these securities markets., 2. To protect the rights and interest of investors, and to guide and educate them., 3. To regulate and develop a code of conduct and fair practices by intermediaries like brokers,, merchant bankers, etc. with a view to making them competitive and professional., 4. To regulate stock exchanges and the securities market to promote their orderly functioning., Purpose and Role of SEBI, SEBI has to be responsive to the needs of three groups, which constitue the market namely:, •, •, •, , The issuers of securities so as to provide them a platform for raising capital in an easy, effective and, efficient manner., The investors so as to protect their interests in securities by keeping them abreast about the, developments through true and appropriate information., The market intermediaries in order to provide them a framework so as to enable them to perform, their functions effectively and efficiently., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 7

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Objectives of Advisory Committees Formed by SEBI, 1., 2., 3., 4., 5., , To advise SEBI on matters relating to regulation of intermediaries for ensuring investor protection in, the primary market., To advise SEBI on issues related to development of primary market in India., To advise SEBI on matters required to be taken by for changes in legal framework to introduce, simplification and transparency in the primary market., To advise SEBI on disclosure requirements for companies., To advise the board in matters relating to the development and regulation of secondary market in, the country., , FUNCTIONS OF SEBI, Protective Functions of SEBI, •, •, •, •, , SEBI prohibits fraudulent and unfair trade practices in the securities market, Promotion of fair practices and code of conduct in securities market, Undertaking steps for investor protection, Controlling insider trading and imposing penalties for such malpractices., , The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities, and Exchange Board of India as “…to protect the interests of investors in securities and to promote the, development of, and to regulate the securities market and for matters connected therewith or incidental, thereto”, Developmental Functions of SEBI, 1. Ensuring training of intermediaries of securities market, 2. Conducting research and publishing information useful to all market participants, 3. Facilitating flexibility in the working of capital markets., Regulatory Functions of SEBI, ✓, ✓, ✓, ✓, , Registration and regulation of brokers, sub-brokers and other players in the financial market., Registration of collective investment schemes and Mutual Funds., Conducting enquiries and audits of stock exchanges & intermediaries., Regulation portfolio exchanges, underwriters, merchant bankers and the dealings in the stock, exchanges., ✓ Regulation of takeover bids by the companies, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 8

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SHORT SUMMARY OF THE FINANCIAL MARKET, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 9

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Meca Ltd. a reputed automobile manufacturer needs Rupees ten crores as additional capital to expand its, business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On the other hand the, Finance Manager, Nimi Sahdev said that the public issue may be expensive on account of various, mandatory and non-mandatory expenses. Therefore, it was decided to allot the securities to institutional, investors., Name the method through which the company decided to raise additional capital., (CBSE, Delhi 2017), Answer:, Private placement is method through which the company decided to raise additional capital., Question 2., These days, the development of a country is also judged by its system of transferring finance from the sector, where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is, undertaking measures to develop the capital market. In addition to this there is another market in which, unsecured and short-term debt instruments are actively traded everyday. These markets together help the, savers and investors in directing the available funds into their most productive investment opportunity., 1. Name the function being performed by the market in the above case., 2. Also, explain briefly three other functions performed by this market., (CBSE, Delhi 2017), Answer:, 1., , Mobilisation of funds is the function being performed by the financial market in the above case. It, performs the allocative function by mobilisation of savings and channelising them into the most, productive avenues., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 11

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2. The other three functions being performed by the financial market are outlined below:, ✓ It helps to determine the price for the financial asset in a particular financial market through the, market forces of demand and supply., ✓ It provides liquidity to the financial assets by providing ready markets wherein the securities can, be easily converted into cash or vice versa., ✓ It provides a common platform for exchange of securities thereby reducing the cost of transactions, by saving time, effort and money spent by the buyers and sellers in locating each other., , Question 3., These days, the development of a country is also judged by its system of transferring finance from the sector, where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is, undertaking measures to develop the capital market. In addition to this, there is another market in which, unsecured and short-term debt instruments are actively traded every day. These markets together help the, savers and investors in directing the available funds into their most productive investment opportunity., 1. Name the function being performed by the market in the above case., 2. Name the market segment other than the capital market segment in which unsecured and shortterm debt instrument are traded. Also, give any three points of difference between the two, (CBSE, OD 2016), Answer:, 1., , Mobilization of funds is the function being performed by the financial market in the above case. It, performs the allocative function by mobilization of savings and channelizing them into the most, productive avenues., 2. Money market is the other segment of market., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 12

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Question 4., ABC Ltd. issued prospectus for the subscription of its shares for Rs. 500 crores in 2008. The issue was, oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis. Later SEBI, inspected the prospectus and found some misleading statement about the management of the company in, it. SEBI imposed a penalty of Rs. 5 crores and banned its three executive directors for dealing in securities, market for three years. Identify the function and its type performed by SEBI in the above case., (CBSE, OD 2016), Answer:, Protective function has been performed by SEBI in the above case. And the type of Protective function is, Prohibition of fraudulent and unfair trade practices., , Question 5., “Unicon Securities Pvt. Ltd” was established to deal in securities. It was registered as a stock broker with, National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these, exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its, business successfully. After that the composition of Board of Directors changed. Some customers complained, to the customer care centre of the company that shares purchased by them and for which the payment has, been duly made, were not transferred to their D’mat Accounts by “Unicon securities Pvt. Ltd” . The executive, of customer care centre promised the aggrieved customers that their shares will be transferred to their, respective D’mat Accounts very soon. But the company delayed the matter and didn’t transfer the shares of, the customers to their D’mat Accounts. This eroded investors confidence and multiplied, their grievances., 1., , Identify the step of trading procedure in a stock exchange which has not been followed by “Unicon, Securities Pvt. Ltd” ., 2. Name the Apex statutory body of capital market to whom customer can complain to redress their, grievances., 3. Write two values not followed by Unicon Security Pvt. Ltd., (CBSE, Delhi 2015), , Answer:, 1., , The step of trading procedure in a stock exchange which has not been followed by “Unicon Securities, Pvt. Ltd” is settlement i.e. the delivery of shares through the D’mat Account of the broker to D’mat, account of the investors., 2. The Securities and Exchange Board of India (SEBI) is the Apex statutory body of capital market to, whom customer can complain to redress their grievances., Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 13

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3. The two values not followed by Unicon Security Pvt. Ltd are’:, ✓ Truthfulness, ✓ Fair practices, Question 6., , Reshu’s father has gifted her the shares of a large cement company with which he had been working. The, securities were in physical form. She already has a bank account and does not possess any other forms of, securities., She wished to sell the shares and approached a registered broker for the purpose. Mention one mandatory, detail which she will have to provide with the broker., (CBSE, sample paper 2016), Answer:, Reshu will have to give her Permanent Account Number (PAN) to the broker as it is mandatory as per law., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 14

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11. MARKETING MANAGEMENT, MARKETING MANAGEMENT, Marketing: Definition, Marketing is a social process by which individual groups obtain what they need and want through creating, offerings and freely exchanging products and services of value with others. – Philip Kotler, Marketing management is “the art and science of choosing target markets and getting, keeping, and, growing customers through creating, delivering, and communicating superior customer value”., , Discuss about Marketing, Market: Definition, A market consists of all the potential customers who have both the ability and willingness to buy a product, or service to satisfy their needs or wants, Features of marketing, •, •, •, •, , It seeks to provide what individuals or groups need or want, A market offering is created by the marketer., It adds value to a product by increasing its utility, It is facilitated through the exchange mechanism, , What can be Marketed?, ❖, ❖, ❖, ❖, ❖, ❖, ❖, ❖, ❖, ❖, , Physical product, Services, Ideas, Persons, Place, Experience, Properties, Events, Information, Organizations, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 1

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Functions of Marketing, 1., , Gathering and analysing market information is done to know the taste and preference of the target, market., , 2. Marketing planning is needed to meet the marketing objectives of the firm effectively and efficiently., 3. Product designing and development is carried out to make the product innovative and attractive., 4. Packaging and labeling are needed for product protection, product identification and product, differentiation., 5. Branding helps to create a unique identity of the products., 6. Customer support services help to create a good image of the marketer in the eyes of consumers., 7. Pricing of product is a crucial decision as it may greatly influence the demand for a product., 8. Promotion helps to boost the sales of a product., 9. Physical distribution ensures the availability of the product at the right place, at the right time and in, right condition so as to facilitate its purchase., 10. Transportation creates place utility through movement of goods from the production of goods to the, place of distribution., 11. Warehousing creates time utility by providing for the storage during the time gap between the, production and distribution of goods ., 12. Standardization helps to produce goods as per predetermined specifications and grading facilitates, their classification into groups on the basis of some criterion like quality, size etc., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 2

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MARKETING MANAGEMENT PHILOSOPHIES/CONCEPTS, , Basis, , The, Production, Concept, , The Product, Concept, , The Selling, Concept, , The, Marketing, Concept, , The Societal, Marketing, Concept, , Starting, point, Main, focus, , Factory, , Factory, , Factory, , Market, , Quantity of, product, , Quality, performance,, features of, product, , Existing, product, , Customer, needs, , Means, , Availability, and, affordability of, product, Profit through, volume of, production, , Product, improvements, , Selling and, promoting, , Integrated, marketing, , Integrated, market, , Profit through, product quality, , Profit, through sales, volume, , Profit through, customer’s, satisfaction, , Profit through, customer’s, satisfaction and, social welfare, , Ends, , Market and, society, Customer needs, and society’s, welfare, , PRODUCT, Product: Definition, A product is anything of value i.e. a product or service offered to a market to satisfy needs or wants., Important product decisions include, •, •, •, •, , Determining its layout, features, quality, design etc., Branding, Labelling, Packaging, , A Product includes, •, •, •, •, , Physical produc, After sale services, Handling grievances, Replacement of parts etc., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 3

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Types of utilities offered by a product, 1. Functional utility, 2. Psychological utility, 3. Social utility, , PACKAGING, , Packaging: Definition, Packaging is the process of designing a suitable wrapper or container for a product., Importance of Packaging, •, •, •, •, , Rising standards of health and sanitation, Useful in self service outlets, Innovative packaging adds value to a product, Facilitates product differentiation, , Levels of Packaging, •, •, •, , Primary package refers to the immediate container of a product., Secondary packaging refers to the additional protection provided besides primary package., Transportation packaging refers further packaging that helps in storage, identification of, transportation of the product., , Functions of Packaging, •, •, •, •, , Helps in product identification, Provides protection to the product, Facilitates the use of product, Assists in promotion of the product, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 4

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PRIMARY MARKET, Primary Market: Definition, •, , Primary market is also known as new issue market as the securities are issued for the first time, by the companies through this market. Primary Market is a segment of capital market., , Features of Primary Market, •, •, •, •, •, , It is the new issue market., Only buying of securities takes place., Prices of the securities are determined by the company., It involves dealings between the company and investors., There is no fixed location of primary market., , Instruments of Primary Market, •, •, •, , Shares, Debentures, Bonds, , Methods of Floatation in Primary Market, 1., 2., 3., 4., 5., , Offer through Prospectus (The company approaches the members of the general public directly, by issuing a prospectus), Offer For Sale (The company approaches members of the general public indirectly through, intermediaries like issuing houses, stock brokers etc.), Private Placement (The company can raise finance by allotting securities to selective individuals, and institutions only), e-IPOs (The investors may subscribe to the securities of a company online), Rights Issue (It is a pre-emptive right given only to the existing shareholders to subscribe to the, securities of the company as per its terms and conditions), , SECONDARY MARKET, Secondary Market: Definition, It is a market for old or existing securities, It is a segment of capital market., Features of Secondary Market / Stock Exchanges, •, •, •, •, •, , It is the market for old/existing securities., Both buying and selling of securities takes place., Prices of the securities are determined by the forces of demand and supply., It involves dealings between two investors., Stock exchanges exist at fixed location, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 5

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MONEY MARKET, Definition of Money Market, The money market is a market for short term debt instruments whose period of maturity is upto one year., It is a segment of financial market., Features of Money Market, •, •, •, •, •, , It is a market for short term funds., The main participants are institutional investors., Since the cost of securities may be high, investment in the money market may require huge capital, outlay., The money market enjoys high liquidity as The Discount Finance House of India works as a, compulsory market maker for it., The instruments in money market carry low risk as the expected return is low on, , INSTRUMENTS IN MONEY MARKET, Call Money, , Commercial, Paper, , •, •, •, •, •, , Certificate of, Deposit, , •, •, •, •, •, •, , Treasury Bills, , •, , Commercial, Bill, , •, •, •, •, •, •, •, •, , Call money is a short term money market instrument through which one bank may, borrow money from another bank to maintain its cash reserve ratio as per the, guidelines of RBI., It’s maturity period may range from a single day to a fortnight., The rate at which the interest is paid on call money is called call rate., Commercial Papers are the short term money market instrument issued by large and, credit worthy companies., The instrument is in the form of an unsecured promissory note and is freely, transferable by endorsement., Its maturity period may range from a fortnight to a year., It is sold at discount and redeemed at par., It is used for bridge financing., Certificate of deposit is a short term money market instrument issued by commercial, banks and development financial institutions., It is an unsecured and negotiable instrument in bearer form., It may be issued to individuals, corporations and companies when banks need cash to, meet credit needs, Treasury bills are short term money market instrument which are issued by Reserve, bank of India on behalf of the Government of India., They are issued in the form of promissory notes and are very safe instruments., They are sold at discount and redeemed at par., They are also known as zero-coupon-discount bonds., The minimum value of their purchase is ? 25,000 and in multiples thereof., Commercial bill is a short term money market instrument., A business firm may draw a bill of exchange in favour of another in lieu of credit, purchases., On acceptance by the drawee (buyer) it becomes a trade bill., When the trade bill is accepted by a commercial-bank for discounting it is called, commercial bill., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 6

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•, •, , A bill of exchange is a freely negotiable instrument., It is usually drawn for a period of 3 months., , STOCK EXCHANGE, Stock Exchange: Definition, According To Securities Contracts (Regulation) Act 1956, “Stock Exchange means any body of individuals,, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of, buying and selling or dealings in securities.”, Functions of Stock Exchange, ✓ Ensures liquidity and marketability of existing securities by a providing a ready and continuous, market for the sale and purchase of securities., ✓ Helps in determining the prices of the securities through the forces of demand and supply., ✓ It promotes the habit of saving and investment among the general public., ✓ It provides a legal framework for fair and safe dealings., ✓ It helps the companies in raising finance thus facilitating capital formation and economic growth., It provides scope for healthy speculation in a controlled and restricted way., , Some important Definition, Dematerialization: Definition, Dematerialization refers to the process of holding securities in electronic form., Depository: Definition, Depository is the organization with which an investor has to open a D-Mat account to hold securities in, electronic form., In India there are two depositories:, 1. National Securities Depository Limited (NSDL), 2. Central Depository Services Limited (CDSL), The depository participant serves as a link between the investor and the depository i.e. either NSDL or CDSL., Screen Based Trading: Definition, Screen-based trading refers to the process of buying or selling securities on-line., Advantages of Screen-based Trading, ✓ As the investors get an access to the stock market during real time, there is complete transparency, and in the dealings., ✓ It provides a common platform for exchange of securities thereby increasing the efficient transactions, by saving time, effort and money., ✓ This virtual market has a very wide reach hence it increases its liquidity., Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 7

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STEPS IN THE TRADING AND SETTLEMENT PROCEDURE, 1., , The investor approaches a registered broker or sub-broker for trading. The investor has to sign a, broker-client agreement and a client registration form., • The investor has to furnish certain details and information about himself including PAN number, which is mandatory, date of birth, bank account details, income details etc., • A broker acts as an intermediary between the buyers and sellers., • After the completion of the above formalities, the broker opens a trading account in the name of, the investor., , 2. The investor has to open a demat account with a depository participant and a bank account for, trading transactions in cash., 3. The investor then places an order to buy or sell shares with the broker:, •, •, •, , By giving clear instructions about the desired quantity and price., The broker will then make the investor aware about the feasibility of the order., The broker will issue an order confirmation slip to the investor., , 4. The broker will then execute the order through screen based trading by considering the best available, deal., 5. The broker will issue a trade confirmation slip to the investor., 6. Within 24 hours after the deal is executed the broker issues a contract note., • A contract note contains details about the deal i.e. the number of securities bought/sold, price,, date and time of transaction etc., • The contract note includes a unique order code generated by the stock exchange for that, transaction., • A contract note is a legal which may be used to settle the claims between the investor and the, broker., 7. Since the settlement cycle is T +2 therefore, within two days of receiving the Contract Note, the, investor has to pay cash or deliver shares sold as the case may be. The broker can then forward it to, the exchange. This is called pay-in-day., 8. On the T+2 day, cash will be paid or shares will be delivered as the case may be by the exchange to, the other broker. This is called pay-out-day. Then, in case of sale of shares, the broker has to make, the payment to the investor within 24 hours., 9. However, in the case of purchase of securities, the amount will be transferred electronically to the, , investor’s demat account., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 8

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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI), The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India., 1., , It was established in the year 1988 by the Government of India. It was to function under the overall, administrative control of Ministry of Finance of the Government of India., 2. It was given statutory powers on 30th January 1992 through an ordinance., 3. The ordinance was later on replaced by an Act of Parliament known as the SEBI Act, 1992., The Organization Structure of SEBI, •, •, •, •, •, •, , The various activities undertaken by SEBI are now divided into five operational departments., Each department is headed by an executive director., The head office of SEBI is located at Mumbai., Besides, regional offices have been set up in Kolkata, Chennai and Delhi to attend to consumers, complaints and maintain liaison with the issuers, intermediaries and stock exchanges in the concerned, regions., SEBI has also formed Primary Market Advisory Committee and Secondary Market Advisory, Committee to assist in the process of SEBI’S policies formation., These two committees consist of the market players, the investor’s association recognized by SEBI and, the eminent persons in the capital market., , Objectives of SEBI, 1. To prevent trading malpractice in these securities markets., 2. To protect the rights and interest of investors, and to guide and educate them., 3. To regulate and develop a code of conduct and fair practices by intermediaries like brokers,, merchant bankers, etc. with a view to making them competitive and professional., 4. To regulate stock exchanges and the securities market to promote their orderly functioning., Purpose and Role of SEBI, SEBI has to be responsive to the needs of three groups, which constitue the market namely:, •, •, •, , The issuers of securities so as to provide them a platform for raising capital in an easy, effective and, efficient manner., The investors so as to protect their interests in securities by keeping them abreast about the, developments through true and appropriate information., The market intermediaries in order to provide them a framework so as to enable them to perform, their functions effectively and efficiently., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 9

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Objectives of Advisory Committees Formed by SEBI, 1., 2., 3., 4., 5., , To advise SEBI on matters relating to regulation of intermediaries for ensuring investor protection in, the primary market., To advise SEBI on issues related to development of primary market in India., To advise SEBI on matters required to be taken by for changes in legal framework to introduce, simplification and transparency in the primary market., To advise SEBI on disclosure requirements for companies., To advise the board in matters relating to the development and regulation of secondary market in, the country., , FUNCTIONS OF SEBI, Protective Functions of SEBI, •, •, •, •, , SEBI prohibits fraudulent and unfair trade practices in the securities market, Promotion of fair practices and code of conduct in securities market, Undertaking steps for investor protection, Controlling insider trading and imposing penalties for such malpractices., , The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities, and Exchange Board of India as “…to protect the interests of investors in securities and to promote the, development of, and to regulate the securities market and for matters connected therewith or incidental, thereto”, Developmental Functions of SEBI, 1. Ensuring training of intermediaries of securities market, 2. Conducting research and publishing information useful to all market participants, 3. Facilitating flexibility in the working of capital markets., Regulatory Functions of SEBI, ✓, ✓, ✓, ✓, , Registration and regulation of brokers, sub-brokers and other players in the financial market., Registration of collective investment schemes and Mutual Funds., Conducting enquiries and audits of stock exchanges & intermediaries., Regulation portfolio exchanges, underwriters, merchant bankers and the dealings in the stock, exchanges., ✓ Regulation of takeover bids by the companies, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 10

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SHORT SUMMARY OF THE FINANCIAL MARKET, , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 11

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LATEST CBSE QUESTIONS (CASE STUDY), , Question 1., , Meca Ltd. a reputed automobile manufacturer needs Rupees ten crores as additional capital to expand its, business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On the other hand the, Finance Manager, Nimi Sahdev said that the public issue may be expensive on account of various, mandatory and non-mandatory expenses. Therefore, it was decided to allot the securities to institutional, investors., Name the method through which the company decided to raise additional capital., (CBSE, Delhi 2017), Answer:, Private placement is method through which the company decided to raise additional capital., Question 2., These days, the development of a country is also judged by its system of transferring finance from the sector, where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is, undertaking measures to develop the capital market. In addition to this there is another market in which, unsecured and short-term debt instruments are actively traded everyday. These markets together help the, savers and investors in directing the available funds into their most productive investment opportunity., 1. Name the function being performed by the market in the above case., 2. Also, explain briefly three other functions performed by this market., (CBSE, Delhi 2017), Answer:, 1., , Mobilisation of funds is the function being performed by the financial market in the above case. It, performs the allocative function by mobilisation of savings and channelising them into the most, productive avenues., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 13

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2. The other three functions being performed by the financial market are outlined below:, ✓ It helps to determine the price for the financial asset in a particular financial market through the, market forces of demand and supply., ✓ It provides liquidity to the financial assets by providing ready markets wherein the securities can, be easily converted into cash or vice versa., ✓ It provides a common platform for exchange of securities thereby reducing the cost of transactions, by saving time, effort and money spent by the buyers and sellers in locating each other., , Question 3., These days, the development of a country is also judged by its system of transferring finance from the sector, where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is, undertaking measures to develop the capital market. In addition to this, there is another market in which, unsecured and short-term debt instruments are actively traded every day. These markets together help the, savers and investors in directing the available funds into their most productive investment opportunity., 1. Name the function being performed by the market in the above case., 2. Name the market segment other than the capital market segment in which unsecured and shortterm debt instrument are traded. Also, give any three points of difference between the two, (CBSE, OD 2016), Answer:, 1., , Mobilization of funds is the function being performed by the financial market in the above case. It, performs the allocative function by mobilization of savings and channelizing them into the most, productive avenues., 2. Money market is the other segment of market., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 14

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Question 4., ABC Ltd. issued prospectus for the subscription of its shares for Rs. 500 crores in 2008. The issue was, oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis. Later SEBI, inspected the prospectus and found some misleading statement about the management of the company in, it. SEBI imposed a penalty of Rs. 5 crores and banned its three executive directors for dealing in securities, market for three years. Identify the function and its type performed by SEBI in the above case., (CBSE, OD 2016), Answer:, Protective function has been performed by SEBI in the above case. And the type of Protective function is, Prohibition of fraudulent and unfair trade practices., , Question 5., “Unicon Securities Pvt. Ltd” was established to deal in securities. It was registered as a stock broker with, National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these, exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its, business successfully. After that the composition of Board of Directors changed. Some customers complained, to the customer care centre of the company that shares purchased by them and for which the payment has, been duly made, were not transferred to their D’mat Accounts by “Unicon securities Pvt. Ltd” . The executive, of customer care centre promised the aggrieved customers that their shares will be transferred to their, respective D’mat Accounts very soon. But the company delayed the matter and didn’t transfer the shares of, the customers to their D’mat Accounts. This eroded investors confidence and multiplied, their grievances., 1., , Identify the step of trading procedure in a stock exchange which has not been followed by “Unicon, Securities Pvt. Ltd” ., 2. Name the Apex statutory body of capital market to whom customer can complain to redress their, grievances., 3. Write two values not followed by Unicon Security Pvt. Ltd., (CBSE, Delhi 2015), , Answer:, 1., , The step of trading procedure in a stock exchange which has not been followed by “Unicon Securities, Pvt. Ltd” is settlement i.e. the delivery of shares through the D’mat Account of the broker to D’mat, account of the investors., 2. The Securities and Exchange Board of India (SEBI) is the Apex statutory body of capital market to, whom customer can complain to redress their grievances., Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 15

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3. The two values not followed by Unicon Security Pvt. Ltd are’:, ✓ Truthfulness, ✓ Fair practices, Question 6., , Reshu’s father has gifted her the shares of a large cement company with which he had been working. The, securities were in physical form. She already has a bank account and does not possess any other forms of, securities., She wished to sell the shares and approached a registered broker for the purpose. Mention one mandatory, detail which she will have to provide with the broker., (CBSE, sample paper 2016), Answer:, Reshu will have to give her Permanent Account Number (PAN) to the broker as it is mandatory as per law., , Business Studies by Shivam Dwivedi , for further detail about classes contact :- 8506098360, , Page 16