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CONTENTS
UNIT TITLE Slide No.

MANAGEMENT I

II
INTRODUCTION TO MANAGEMENT

OPERATIONS AND MARKETING MANAGEMENT

7-139

140-
140-336

SCIENCE III

IV
HUMAN RESOURCES MANAGEMENT(HRM)

PROJECT MANAGEMENT(PERT/CPM)
337
337--416

417-
417-528

V STRATEGIC MANAGEMENT 529-

529-575

1 2

1. Define HRD 341-342

IMP. SHORT QUESTION 2. What is job evaluation 403-405
Unit QUESTION Slide No. 3. What is job analysis 353-354
III
1. Line and staff organization 108-11 4. What is performance appraisal 381-384
2. Functional organization 112-115 5. What is merit rating 385-386
3. Matrix organization 120-123 6. CMM Levels 415-416
I
4. Concept of organization 85-88 429
1. Distinguish between event and activity.
5. What is decentralization 38 434-436
2. CPM
6. Span of control 92-94 465-469
IV 3. PERT
1. What is plant layout 148-157 4. Project crashing 494-502
2. What is JIT 320 5. Cost analysis 503-504
II 3. What is job production 171 1. Bench marking 571-572
4. What is batch production 172 573-574
2. Balanced score card
5. What is EOQ 305 531-535
V 3. Mission
4. Goals and objectives 535-536
3
Contd…
Contd… 5. Strategy 540-541
4

IMP. LONG QUESTION 1. Explain functions of HR manager. 347-352

Unit QUESTION Slide No. 2. Evaluate analytical methods of job evaluation 406-414
1. Henry Fayol’s 14 principles of management 30-47 3. What are the objectives of good performance appraisal
2. Features of Taylor’s scientific management 20-29 system 381-384
III
3. Orgnization structures and their merits and demerits 103-135 4. What are the benefits of effective grievance handling
58-61 398-402
I 4. Explain Theory X and Theory Y. system
5. Explain different leadership styles 78-83
5. Explain methods of merit rating. 387-397
6. Explain Maslow’s theory of motivation 48-57
62-70 1. What is CPM & PERT Explain identification of critical path. 434-436;
7. Explain Herzberg’s Two Factor Theory
465-469
1. Explain principles of good plant layout. 152-153 IV
417-528
2. Practice all problems problems
2. Evaluate various types of plant layouts. 154-166 497-501
176-186 3. Explain significance of project crashing.
3. Features of work study and method study
4. What is inventory control?.Explain ABC control. 304 1. Explain corporate planning process. 543-549
330-333 2. What is SWOT analysis?. Explain generic strategic 554-567
II 5. What is product life cycle
6. Explain channels of distribution. 334-336 alternatives.
327-329 V
3. What is environmental scanning 550-557
7. Explain marketing functions.
217-269 4. Value chain analysis 568-570
8. Practice R-chart, C-chart, P-chart
305-310
9. Practice EOQ problems 5
5. Steps in strategy formulation and implementation 563-565
6
Contd…
Contd…

1

UNIT I
7 8
 Management is as old as man himself. As
civilization grew, human life became more and
more organized. As industrialization picked up,
business activity increased globally by leaps and
bounds.
 It had been that al those who were on the top
once, are today nowhere. Those who were
novice once upon a time are today o the
pinnacles of success. Why does this happen?.
 Management is what managers do.
9 10
Nature of Management
1)Management is a social process:- Social
process refers to the series of activities that
are performed in the society. These activities
are carried out by administrators, politicians,
economists, house wives, businessmen and so on.
Management helps everyone to carry out the
activities in the society effectively.
2)Body of people:- Management also denotes a
‘body of people’ involved in decision-making.
3)Management is omnipresent:- Management
principles are applied to every kind of
organization and also to every level in it.
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INTRODUCTION
TO
MANAGEMENT
Definitions
Henry Fayol defines “To manage is to forecast and plan,
to organize, to command, to coordinate and to control”.
Peter F Drucker defines “Management is concerned with
the systematic organization of economic resources and
its task is to make these resources productive”.
Koontz and O Donnel define “Management is an
operational process that can be dissected into five
essential managerial functions. They are: planning,
organizing, staffing, directing, and leading, and
controlling”.
Nature of Management
4) It is an inexact science:- Management principles are
not like those in science or maths where things are
fairly clear or exact.
5) It is complex:- Management functions call for a fairly
professional approach to manage a given situation.
6) Management is situational in nature:- The same style
of management cannot work for the same situation
every time.
7) Management is an art and also a science:- An art is
personal skill. The management skills are highly
individual oriented and can be sharpened with more
training and practice. It is a systematic body of
knowledge, its principles are universally acceptable. It
also establishes cause-and-effect relationship between
the given factors. It explains what happens if the
employees are not paid salaries on time.
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8) Management is a profession:- Profession
refers to vocation or a branch of advanced
learning such as engineering or medicine.
Managers are professional in their approach.
9) Management is inter-disciplinary:- The
subject of management is heavily dependent on
other disciplines such as economics, operations
research, statistics, sociology, Psychology and
mathematics etc.
10) Manager has 4 types of resources:- The 4
M’s Men, Money, Materials and Machines to
manage.
13
4) It ensures economy and efficiency:- Without
managers, it may be difficult to get the job
performed efficiently. It is the manager who plans,
coordinates, and monitors the progress of work and
suggests whether the work is satisfactorily done or
not.
5) It focuses on group efforts:- management is
needed to guide and direct group efforts.
6) It is the key to the economic growth:- Efficient
management is equally important for the nation in
terms of social and economic development. 15
3) Staffing: Staffing involves manning the various positions
created by the organizing process. It includes preparing
inventory of personal available and identifying the sources of
people, selecting people, training and developing them, fixing
financial compensation, appraising them periodically etc.
4) Directing: when people are available in the organization, they
must know what they are expected to do in the organization.
Superior managers fulfill this requirement by communicating
to subordinates about their expected behavior. Once
subordinates are oriented, the superiors have continuous
responsibility of guiding and leading them for better work
performance and motivating them to work with zeal and
enthusiasm. Thus, directing includes communicating,
motivating and leading.
5) Controlling: Controlling involves identification of actual
results, comparison of actual results with expected results
as set by planning process, identification of deviations
between the two, if any, and taking of corrective action so
that actual results match with expected results. 17
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Importance of Management
1) It facilitates the achievement of goals through
limited resources:- An organization, if well managed,
can accomplish its goals even though its resources are
limited.
2) It ensures smooth sailing in case of difficulties:-
Manager guides the organization, especially in
troubles.
3) It ensures continuity in the organization:- Continuity
is very important in the organization. Where there are
not proper guidelines for decision-making, continuity
cannot be guaranteed. 14
Functions of Management
1) Planning: Planning is the conscious determination of
future course of action. This involves why an action,
what action, how to take action, and when to take
action. Thus, planning includes determination of
specific objectives, determining projects and
programs, setting policies and strategies, setting rules
and procedures and preparing budgets.
2) Organising: Organising is the process of dividing work
into convenient tasks or duties, grouping of such duties
in the form of positions, grouping of various positions
into departments and sections, assigning duties to
individual positions, and delegating authority to each
positions so that the work is carried out as planned. It
is viewed as a bridge connecting the conceptual idea
developed in creating and planning to the specific
means for accomplishment these ideas.
16
•
Levels of Management
1) Top level management: Constitutes the CEO and the
Directors. At this level, the mission, goals and corporate
strategies are formulated.
2) Middle level management: It responsible for carrying
out the decisions and policies taken by the top
management.
3) Lower level management: It includes foremen,
supervisors and the like. Managers at this level
supervise the workers in their day-to-day task.
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SCIENTIFIC MANAGEMENT
F. W. Taylor

19 20

Taylor’s Contribution to
SCIENTIFIC MANAGEMENT
Management
• Frederick Winslow Taylor (20 March 1856-21 March
1915), widely known as F. W. Taylor, was an American • The systematic study of the relationships between
mechanical engineer who sought to improve industrial people and tasks for the purpose of redesigning
efficiency. the works process for higher efficiency.
• He is regarded as the father of scientific management, and
was one of the first management consultants.
• It is the art of knowing exactly what is to be done
in the best and the cheapest way.”
“In the past the man has been
first; in the future the system • In simple words it is just an application of science
must be first...
to management.

22
21

Principles of scientific management

1. Replace working by "rule of thumb," or
OBJECTIVE OF SCIENTIFIC MANAGEMENT
simple habit and common sense, and
instead use the scientific method to
• Its main objective is improving economic study work and determine the most
efficiency, especially labor productivity by efficient way to perform specific
analyzing and establishing workflow tasks.
processes.
2.Rather than simply assigning the job to
the workers, match workers to their
jobs(Division of Work) based on
capability and motivate and train them
to work at maximum efficiency.

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3. Monitor worker performance, and provide Principles of scientific management

instructions and supervision to ensure that
they're using the most efficient ways of ‘DUTIES OF
working. Wages are paid according to MANAGEMENT’

productivity.
‘PAY PER PIECE’
4. Allocate the work between managers and
workers so that the managers spend their time
Select the
planning and training, allowing the workers to ‘FIRST CLASS MEN’
perform their tasks efficiently. to do each job

Determine the
5. Mental revolution should be created that ‘ONE BEST WAY’
to do each job
involves change in the attitude of workers and
management towards each other. 25 26

Advantages of Scientific Management Disadvantages of Scientific Management

1. It is based upon one best way and is applicable for
1. Scientific selection and training of employees simple organizations than that for today’s dynamic and
leads to better workforce which ensures complex organization.
increase in efficiency. 2. It focuses on individual performance than group
2. Harmonious relationship between the workers efforts and divides the workers into efficient and
inefficient categories.
and the management.
3. It is focused on specialization and repetition of jobs
3. Opportunity for scientific training and to increase the productivity which reduces innovation
development to increase skills knowledge and and creativity and promotes monotony.
competency. 4. It neglects human factor because it motivates workers
4. Application of scientific methods and techniques to work for monetary benefits rather than human
in better working conditions to reduce fatigue. resource development and resources.
5. There is no scope for creativity of employees because
5. Higher wages to the workers for higher they are developed by manager which promotes
productivity. 27 frustration. 28

Criticism for scientific management

The main argument against Taylor is this reductionist approach
to work dehumanizes the worker.
• The allocation of work "specifying not only what is to be done
but how it is to done and the exact time allowed for doing it" is
seen as leaving no scope for the individual worker to excel or
think. HENRY FAYOL
• 1. The belief that increased output would lead to less workers.
2. Inefficiencies within the management control system such as
poorly designed incentive schemes and hourly pay rates not
linked to productivity.
3. Poor design of the performance of the work by rule-of-thumb.
4. it ignores management functions.
5. individual creativity is ignored.
6. worker is considered as a machine.
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PRINICIPLES OF MANAGEMENT PRINICIPLES OF MANAGEMENT

31
32

PRINICIPLES OF MANAGEMENT 1. Division of Work

Acronym to remember 14 principles of management

DAD U C USSR?. O I SEE….

1. Division of Work
2. Authority and Responsibility
3. Discipline
4. Unity of command
5. Centralization
6. Unity of Direction According to this principle, work should be divided into
7. Subordination
8. Scalar Chain
small tasks and each task is performed by a person who is
9. Remuneration specialist in that area. This will save the time and energy
10. Order needed to complete a task and also increase the speed,
11. Initiative accuracy and efficiency of work. According to Fayol, this
12. Stability of Tenure
13. Equity principle is applicable to both technical and managerial
14. Esprit de Corps 33 work. 34

2. Authority and Responsibility 3. Discipline

Authority is the power or right. Fayol proposed that for
every authority there should be a corresponding
responsibility. Then only, a person can work effectively
and get efficient results. In the same way, if a person is
given a responsibility without an adequate authority, he
will not be effective in getting the required results.
35
A good discipline is required at all levels for he smooth
functioning of an organization. It includes respect of
authority, obedience, proper conduct, fair clear rules and
regulations careful use of penalties. According to Fayol, a
good supervision at all levels helps to maintain discipline
in an organization.
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4. Unity of Command
Unity of Command employs that there should only one
boss for an employee i.e., an employee should be
answerable to only one superior and receive orders only
from him. This helps to avoid confusion regarding what
task is to be done, when it is to be done how it is to be
done.
37
6. Unity of Direction
This principle says that there should be one head and one
plan. All similar activities should be grouped together, be
supervised by one and have one plan of action. The
efforts of all the members of a group must be directed
towards the achievement of common goals.
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8. Scalar Chain
Under this principle, Fayol emphasized on having a formal chain of
command and communication from the top level management to
lower level. The chain should be strictly followed by all managers
and subordinators except in situations of emergency. Such
emergency is referred to by Fayol as Gang Plank. Under Gang
Plank , Same level managers can talk to each other without
following the regular chain of sequences for any decision making
in order to avoid any delay in communication . It shows the straight
line of authority from highest level to lower level for
communication.
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5. Centralization
It means the extent to which authority should be
concentrated in the hands of top level management.
It may be centralized or decentralized. There are
limitations of complete centralization & complete
decentralization. Therefore, there should be proper
balance between this two. 38
7. Subordination
In an organization individual interest should not be given
any importance. The manager should always keep
organizational interest before him & should determine
such policies which will be beneficial to entire group &
not just few personnel. It is responsibility to management
to create common understanding between all.
Individual interest is subordinated to organizational
interest.
40
9. Remuneration
According to this principle, employees should be fairly
compensated for their efforts in achieving organizational
objectives. The remuneration should be just and equitable
for both the employees and employer, it should be
determined based on the work allocated, cost of living,
market wage rate for similar work and financial position
of an organisation.
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10. Order 11. Initiative

This principle stresses on the orderliness of everything Fayol suggested that employees should be allowed to take
and everyone. This means that every one working in an initiative in work related matters without being
organization should be allocated a particular place of undisciplined.
work and he should be at that place during working
hours.
43 44

12. Stability of Tenure of Personnel 13. Equity

According to this principle, every one in an organization

Retaining productive employees should always be a high
priority of management. Recruitment and selection costs,
as well as increases product-reject rates are usually
associated with hiring new workers.
45
should be equal in the eyes of management. The
managers should neither favour any subordinate nor
neglect them; they should give them a fair treatment
without discriminating on the basis of gender, religion,
nationality and language. This will make employees more
devoted to work.
46

14. Esprit de Corps (Unity is strength)

This is a French term. It means manager is like a captain of a team

who is responsible to maintain high moral between all workers. It
may be possible by effective communication among all persons in
MASLOW’S HIERARCHY
organization. His understanding & differences in opinions should not OF NEEDS
be harmful. The best way of taking such situation is to establish
dialogue between parties. Participation of workers in the process of
decision making is important. The principle states that an
organization must make every effort to maintain group cohesion in
the organization.
This principle emphasizes on team work. Unity of staff is the
foundation of success.
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INTRODUCTION
 People will try to satisfy their most important
needs first. When a person succeeds in
satisfying an important need, he will then try to
satisfy the next important need.
 Human behavior is motivated in order to achieve
certain needs.
 According to humanist psychologist Abraham
Maslow, our actions are motivated in order to
achieve certain needs.
 Maslow first introduced his concept of a
hierarchy of needs in his 1943 paper "A Theory
of Human Motivation" and his subsequent
book "Motivation and Personality”. 49 50

Hierarchy of Needs
 This hierarchy suggests that people are motivated to
fulfill basic needs before moving on to other, more
advanced needs.

Higher the need

lower the priority

Lower the need

Higher the priority

51 52

Physiological Needs Safety Needs

Once physiological needs are satisfied, one's attention turns to safety
Physiological needs are those required to sustain life, such and security in order to be free from the threat of physical and
as: emotional harm. Such needs might be fulfilled by:
 Living in a safe area
 Air  Medical insurance
 Water  Job security
 Food Personal security
 Sleep  Financial reserves
 Clothing According to the Maslow hierarchy, if a person feels threatened,
 Fire needs further up the pyramid will not receive attention until that
need has been resolved.

According to Maslow's theory, if these fundamental needs

are not satisfied then one will surely be motivated to satisfy
them. Higher needs such as social needs and esteem are not
recognized until one satisfies the needs basic to existence.
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Social Needs Esteem Needs

These are also known as affiliation needs. Once a person has met Once a person feels a sense of "belonging", the need to feel
the lower level physiological and safety needs, higher level needs important arises. Esteem needs may be classified as internal or
awaken. The first level of higher level needs are social needs. Social external. Internal esteem needs are those related to self-esteem
needs are those related to interaction with others and may include: such as self respect and achievement. External esteem needs are
 Friendship those such as social status and recognition. Some esteem needs
Affection are:
Family  Self-respect
Intimacy
Respect from others
Belongingness
 Achievement
 Belonging to a group
 Giving and receiving love
 Attention
 Recognition
 Reputation
Independence
Status
Dominance
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prestige 56

Self-Actualization
Self-actualization is the summit of Maslow's hierarchy of
needs. These needs indicate strong desire to achieve
something. Suppose your desire is to become an engineer
in google company. This desire works as motivator to
achieve your goal. It is the quest of reaching one's full
potential as a person. Unlike lower level needs, this need is
Douglas McGregor’s
never fully satisfied; as one grows psychologically there
are always new opportunities to continue to grow.
Theory X and Theory Y
Self-actualized people tend to have needs such as:
 Truth
 Justice
 Wisdom
 Meaning
Seeking personal growth 57 58

Understanding the Theories
Your management style is strongly influenced by your beliefs and
assumptions about what motivates members of your team: If you
believe that team members dislike work, you will have an
authoritarian style of management; On the other hand, if you assume
that employees take pride in doing a good job, you will tend to adopt
a more participation style.
Douglas McGregor classified employees into two types.
1.X type of employees
2.Y type of employees
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Theory X
Theory X (Labeled as Positive Theory) assumes that employees
are naturally unmotivated and dislike working, and this
encourages an authoritarian style of management. According to
this view, management must actively intervene to get things done.
This style of management assumes that workers:
 Employees are inherently lazy. Dislike working.
 Avoid responsibility and need to be directed.
 Have to be controlled, coerced, forced, and threatened to deliver
what's needed.
 Need to be supervised at every step, with controls put in place.
 Need to be enticed to produce results; otherwise they have no
ambition or motivation to work.
 prefer to be led
 Are self centered and does not care about organizational goals.
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Theory Y
Theory Y (Labeled as Positive Theory)shows a participation style
of management that is de-centralized. It assumes that employees are
happy to work, are self-motivated and creative, and enjoy working
with greater responsibility. It assumes that workers:
 People are willing to work; work can be as natural as play and rest
 Take responsibility and are motivated to fulfill the goals they are
given.
 Seek and accept responsibility and do not need much direction.
 Are capable of self-direction and creativity
 Are committed to the objectives of the organization
 Consider work as a natural part of life and solve work problems
imaginatively.

61 62

Frederick Herzberg Frederick Herzberg was a psychologist interested in the

(18 April 1923 – 19 January 2000)
“Father of job enrichment principle”
In 1959, Frederick Herzberg, a behavioural
scientist, proposed two factor theory in his book
“ The Motivation to Work”.
1968 publication on motivation:
“One More Time,
How Do You Motivate Employees?”
1.2 million reprints in 1987
Most requested article from Harvard Business Review
63
correlation between employee attitude and workplace
motivation. He wanted to find out what made people feel
satisfied and unsatisfied when it came to the workplace. After
spending countless hours interviewing employees about what
made them feel both good and bad about their jobs, Herzberg
developed a theory of workplace motivation called the two-
factor theory. The two-factor theory is based on the
assumption that there are two sets of factors that influence
motivation in the workplace by either enhancing employee
satisfaction or hindering it. He identified two factors. Such as
1) Hygiene Factors 2) Motivators.
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1) Hygiene Factors (Dissatisfiers):- No, I am not talking about

the personal hygiene of your co-workers, though that can
certainly be questionable at times. Rather, Herzberg used the
term 'hygiene' to describe factors that cause dissatisfaction in
the workplace, are extrinsic (or independent of the work
itself), and are linked to things such as
 Compensation/Salary – should be reasonable
 Job security
 Organizational/company policies – should be flexible
 Working conditions(breaks, hours, vacation)
 Quality of leadership
 Relationships between supervisors subordinates and peers (no
conflict, no humiliation)
 Fringe benefits (medical reimbursement etc.)
65
According to Herzberg, these factors do not motivate
employees. However, when they are missing or inadequate,
hygiene factors can cause serious dissatisfaction. Just think
about how unhappy you would be in a job where you were
underpaid, were in fear of losing your job, dealt constantly
with gossip, lacked effective leadership, and were surrounded
by co-workers whom you despised. Hygiene factors are all
about making an employee feel comfortable, secure, and
happy. When hygiene factors are not fulfilled, it feels like
something is missing or not quite right, kind of how you would
feel if you couldn't shower, brush your teeth, or wash your
hands after using the bathroom.
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Look at this scenario.

2) Motivators (Satisfiers):- These are linked
Imagine that you are working in an organization where you are provided
to employee motivation and arise from intrinsic, poor working conditions like a computer is not working properly, no
ventilation, no AC, roof is leaking constantly etc. when the working
or dependent, conditions of the job itself. Factors
conditions are like this, you never seem to be able to catch up on your
for satisfaction include work because of these conditions. You may feel dissatisfied with these
conditions. These conditions will demotivate you towards work.
 Responsibility of work
Meanwhile, you are informed that you have been selected for an award
 Job satisfaction
 Recognition for your best performance which you will be receiving in the annual day
 Achievement meeting. However, you might be happy for a short a moment with this
 Opportunities for growth award which is a satisfier but when you return to your office, these
 Advancement/Improvement
working conditions will demotivate you and you are unhappy.
 Awards and Rewards
According to Herzberg, hygiene factors are important to employees.
67 68

A manager must be sure to provide sufficient

Maslow Herzberg
hygiene factors while at the same time building
Self-Actualization
satisfiers or motivators into employee jobs. In Needs
Esteem Motivators
essence, hygiene factors are necessary to be sure Needs
Social
a subordinate is not dissatisfied, and satisfiers are Needs

Safety Needs Hygiene

needed to motivate an employee to work towards Factors
Physiological
higher level of performance. Needs

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Leading
"Leading is the use of influence to motivate employees to achieve
organizational goals" (Richard Daft).
Leading in the words of Koontz and O’Donnel, is one of the
prominent functions of management.

Leadership Styles Managers must be able to make employees want to participate in

achieving an organization's goals. Three components make up the
leading function:

Motivating employees
Influencing employees
Forming effective groups.

The leading process helps the organization move toward goal

attainment.
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Leader Leadership
One who leads a given group or team of people is called leader. If you  Leadership is the process of influencing for the purpose of
can influence people to perform better in a given organizational achieving shared goals.
setting, that means you are a leader.
A true leader is one who shares success with followers and absorbs all  Leadership is the art of motivating a group of people to act
failures. He knows that this is the only way of maintaining a high- towards achieving a common goal.
morale among followers. A leader is identified with the traits he
possesses. The leader is characterized by his  The process of encouraging and helping others to work
enthusiastically towards objectives .
 Vision  Adaptability
 Ability to inspire followers  Aggressiveness  Leadership is a group phenomenon. It involves interaction
 Communication skills  Enthusiasm/eagerness/interest between two or more people.
 Charishma  Self-confidence
 Appearance maneuvering skills  Initiative  Alan Keith stated that, "Leadership is ultimately about creating a
 High energy levels  Strong capacity way for people to contribute to making something extraordinary
happen.
73 74

The difference between Leader and Manager as below:

below:

The words ‘Leader’ and ‘Manager’ are closely related. Leader
Shapes work culture
Today, organizations prefer to select such managers who
Influence followers
have strong bias for leadership and who can handle easily
Inspires
the tough situations. They don’t want employees, they Long term view
Takes high risk
want leaders who can take responsibility and deliver Position is not
necessary
results in times of uncertainty.
Driven by value
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Manager
1 Maintains works
culture
2 Directs subordinators
3 Controls
4 Short term view
5 Takes moderate risk
6 Position is necessary
7 Driven by task and
schedule
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Leadership Styles
8
Earns respect through his Earns respect through
achievement his authority Leaders can be differentiated into good or bad based on the styles
9
Concerned with the future Concerned with present
10
they adopt or how they choose to influence their followers. A leader
Asks what and why Asks how and when
11
Eyes on the horizon Eyes on the bottom- is not only to plan, organize, lead and control but also consider
line
12 human element in the followers. A good leader has to adopt such a
Challenges the status quo Accepts the status quo
13
Has followers Has subordinators style of working that takes care of people around him. There are
14
Followers follow the Subordinators obey the
also some leaders who do not care for people and who care more for
leader manager
the task completion. Based on use of authority the leadership styles

can be classified as follows: 78

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Autocratic Leadership Style: Democratic or Participative Leadership Style:

 Under the autocratic leadership style, all decision-  Leaders consult subordinates and involve them in decision
making powers are centralized in the leader, as making.
with dictator leaders.  They encourage discussion with group.
 They do not entertain any suggestions or initiatives  They believe in two-way communication.
from subordinates and almost top-down approach  They listen to followers
is seen.  Followers are involved in the process of planning and execution
 Leaders are more dogmatic and positive. of the work.
 They don’t allow any participation.
 They are authoritarian in their approach.
 They are concerned with the task and tell
followers what to do and how to do it.
 High degree of dependency on the leader.
 There is one way communication.
 May be valuable in some types of business where
decisions need to be made quickly and decisively. Perfect Example: Trump & Mahatma
79
Perfect Example: Hitler 80

Free-Rein Leadership Style:

 Also called Laissez-Fair leadership style.
 These leaders exercise little authority and give maximum
freedom to subordinates while making decisions.
 It is bottom-up approach.
 They give high freedom of independence to the subordinates in
their operations.
 Suggestions form the followers are encouraged and rewarded.
 Here, the role of the leader is to aid the operations of the
followers.

81 82

BASIC CONCEPTS
OF
ORGANIZATION

83 84

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Organizing Organization
Organizing is one of the functions of management. Organizing is Organization refers to the institution wherein the
the means to achieve the plans. If planning involves making a road
map for the chosen destination, then organization is the means by management functions are performed.
which you reach your chosen destination.
A social unit of people that is structured and managed to
Organization is a process of
 Determining, grouping and structuring the activities meet a need or to pursue collective goals. All organizations
 Creating roles for effective performance at work have a management structure that determines relationships
 Allocating necessary authority and responsibility for results
 Determining detailed procedures and systems for different between the different activities and the members, and
problems areas such as coordination, communication, decision-
making, motivation, conflict resolution, and so on. subdivides and assigns roles, responsibilities, and authority

Organizing function ends with creating a structure of relationships. to carry out different tasks. Organizations are open systems-
It explains who is responsible for a given task.
-they affect and are affected by their environment.
85 86

Organization may be formal, informal, or both. Informal organization refers to network of personal and

The formal organization is basically goal oriented social relationships (alliances, friendships) that arise as

entity that exists to accurate the efforts of individuals people associate with others people in a work environment.

and it refers to the structure of jobs and positions with

The chief executive calls his staff for a meeting at a given
clearly defined functions, responsibilities and
time and when the staff meets, it is formal organization.
authorities.
According to Chester Bernard, an organization is On the other hand, after the meeting is called off, when

formal when the activities are coordinated towards a some staff stay back to discuss their personal problems with

common objective. the chief executive, it is said to be an informal organization.

87 88

Organizational Hierarchy Authority and Responsibility

Authority is the power or right to give orders/commands
Hierarchy is system/structure in which members in an
and to use discretion vested in that particular position or job.
organization are ranked according to their status and
If the person is removed from the job, he or she loses the
authority. The hierarchy in a business refers to the layers of
authority.
management from the top management down to managers
or superiors of the lowest rank. Number of layers depend Responsibility is the obligation/duty on the part of
subordinates to complete the given ob. If a manager has only
upon the size of the organization.
authority, he may misuse it. As a control measure, the
Employees in a hierarchy have varying degrees of
employee is held responsible for the results also. Authority
authority. Higher levels in the hierarchy are characterized
can be transferred to lower positions but not responsibility.
by higher responsibility and authority. 89 90

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Delegation of Authority Span of management

The process of transferring authority form the top to the lower
levels in the organization is called delegation. Although a
task maybe delegated or passed down the chain of command
form a manager to a subordinate, the manager continues to be
responsible for making sure that his/her instructions are
carried out. The organization is said to be centralized when
the authority to take decisions is held by the corporate office.
If the authority is delegated to the regional offices, then the
organization is said to be decentralized.
91
It is also called span of control. It refers to the number of
subordinates that can be effectively controlled by the manager at a
given point of time. If the production manager has, say, five
employees under his direct control, it means his span is five.
V.A. Graicunas mentioned three types of Superior-Subordinate
relationships, viz.,
1. Direct Single Relationships,
2. Direct Group Relationships, and
3. Cross Relationships.
According to V.A. Graicunas, as the number of subordinates
increases arithmetically (like 1, 2, 3, 4, 5, 6, etc.) the number of
relationships which the superior has to control also increases almost
geometrically (like 1, 6, 18, 44, 100, 222, etc.). Therefore, a superior
can only control a limited number of subordinates, and anything
92
beyond this limit is very hard to control.

V.A. Graicunas Theory can be explained with the help of this simple
example.
For example, consider Gaurav (G) is a superior (boss) and Manoj (M)
and Sameer (S) are his subordinates (juniors or lower-grade
employees).
Therefore, total number of relationships which Gaurav (G) has to
control are:- 2 + 2 + 2 = 6 relationships.
Thus, when the number of subordinates is 2, the number of
relationships, which the superior (boss) has to control is 6. Similarly,
when the number of subordinates is 3, the number of relationships to
control will be 18.

V.A. Graicunas has explained his principle with the help of the this
According to V.A. Graicunas, Gaurav (G) has to control following formula:-
three types of relationships, with or among Manoj (M) and Sameer
(S):- No. of Subordinates No. of Relations
(a) Direct Single Relationships :- 1 1
G with M, and G with S, i.e. a total of 2 direct single relationships. Here, r = No. of relations
2 6
(b) Direct Group Relationship :- n = No. of subordinates
3 18
G with M in presence of S, and G with S in presence of M, i.e. a total 4 44
of 2 direct group relationships. 5 100
(c) Cross Relationships :- 6 222
M with S, and S with M, i.e. again a total of 2 cross relationships. 93 94

Flat and Tall Organizations

ADVANTAGES
Flat Organizational Structure
1.Lower supervision costs
(Horizontal Organizational Structure)
2.It creates fewer levels of management.
Flat structures have fewer management levels.
3.Quick decisions can be taken
Flat organizations are known by their wider span of 4.Clear communication is possible
control. In other words, each manager controls more
number of employees at a given point of time.
DISADVANTAGES
 Flat organizations focus on empowering employees in 1.There are chances of loose control
greater decision making rather than adhering to the chain 2.Discipline may not be good
of command.
3.It may not work as business expands
By encouraging autonomy and self-direction, flat 4.Experience superiors are required
structures attempt to tap into employees’ creative talents
and to solve problems by collaboration. 95 96

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Flat Organizational Structure

Tall Organizational Structure
Vertical Organizational Structure)
 Large, complex organizations often require a taller
Principal hierarchy.
 In its simplest form, a tall structure results in one long
HOD HOD HOD HOD chain of command similar to the military.
(CSE) (IT) (EEE) (MBA)
 As an organization grows, the number of management
levels increases and the structure grows taller. In a tall
In this structure, there are few or no levels of management
structure, managers form many ranks and each has a
between staff and executives.
small area of control.
Top management has direct contact with frontline employees.
Useful to small organizations.  Generally, the greater the height of the organization
97
chart, the smaller is the span of control, and vice versa.
98

Tall Organizational Structure

ADVANTAGES
1.Allows for tight control and supervision
Principal
2.Quality of performance will improve
3.The manager gets more time to plan and organize Vice
Principal
4.Easy communication is possible
HOD HOD HOD HOD HOD
(CSE) (CSE) (IT) (EEE) (MBA)

DISADVANTAGES
HOD HOD HOD HOD HOD
1.Delays in communication (CSE) (CSE) (CSE) (CSE) (CSE)

2.It is very costly

 Tall organizations have many levels of hierarchy.
3.Decisions are delayed
 Span of control is narrow.
4.Coordination among numerous managers becomes  Lines of communication are long.
difficult  There are many level of middle management between top
99 management and employees. 100

Principles of Organization Principles of Organization

1. Align departmental objectives to corporate goals 8. Ensure one employee, one superior
2. Cost-effective operations 9. One head and one plan
3. Optimum number of subordinates 10.Define responsibility
4. Specialization 11.Commensurate authority and responsibility
5. Define authority 12.Attain balance
6. Flow of authority 13.Ensure flexibility
7. Manage via exceptional cases 14.Provide for continuity

101 102

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 An organization can be classified on the basis of

authority relationship or on the basis of its
departments.

 The types of organization (Organization Structures)

based on authority relationships are:
a) Line organization
b) Line and Staff organization
TYPES OF ORGANIZATION c) Functional organization
d) Committee organization
e) Matrix organization

 The types of organization also based on its

departments
a) Functional departmentation
b) Product organization
c) Regional or Geographical organization
103 d) Customer organization 104

I. On the basis of Authority Relationship
1. Line Organisation
 Line organisation is the simple and oldest type of
organisation followed in an organisation. Under line
organisation, each department is generally a complete
self-contained unit.
 This type of organisation is followed in the army on
the same pattern. So, it is called military
organisation. Under this type of organisation, the
line of authority flows from the top to bottom
vertically. So it is called line organisation.

 A separate person will look after the activities of the

department and he has full control over the
department.

 The same level executives do not give or receive

orders amongst themselves. But they receive orders
from their immediate boss and give orders to their
subordinates. Hence, all the heads are responsible to
the general manager, the general manager, in turn, is
responsible to the shareholders who are the owners.105 106

2. Line and staff organisation

Merits of line Demerits of line
organisation organisation
 In this organization, we have both the line managers
1. Simplicity 1. Lack of specification
and the staff managers. The staff managers are
2. Division of authority 2. Over loading specially appointed to advise, suggest, or assist the
and responsibility line managers in their day to day matters. The word
3. Unity of control 3. Lack of initiative ‘staff’ means a stick for support.
4. Speedy action 4. Scope for favoritism
 The line officers have authority to take decisions and
5. Discipline 5. Dictatorial
implement them to achieve the objectives of the
6. Economical 6. Limited communication organisation.
7. Co-ordination 7. United administration
8. Direct communication 8. Subjective approach  The line officers may be assisted, advised, suggested
9. Flexibility 9. Instability in their day to day matters by the staff officers
while framing the policies and plans and taking
10. Lack of co-ordination decisions organisation.
107 108
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The authority flows from top level to the lower

Staff authority
level of the organisation through the line Line authority

officers while the staff officers attached to the

various departments advise the departments.

The staff officers are not in a position to compel

the line officers to follow the advice by them.
Each department is headed by a line officer who
exercises full authority regarding the planning.

109 110

Merits of line and staff Demerits of line and staff 3. Functional organization
organization organization  Under line organization, a single person is in charge of
1. It enhances the quality of 1. It may create more all the activities of the concerned department. The
decisions friction or conflict person in charge finds it difficult to supervise all the
between line and staff activities efficiently.
managers  Taylor observed that one single foreman was
2. There is great scope for 2. Staff suggestions are overburdened with all the operations such as task
advancement seldom implemented setting, time recording, quality inspection, disciplinary
3. It relieves the line 3. It is expensive to have jobs and so on. He divided this job into eight
managers both staff and line functional foremen-four dealing with the planning
managers task and four dealing with the implementation task.
4. It is mostly beneficial  The foremen involved in the planning task are:
where there is a line of 1. Route clerk (identify the route for materials to pass on)
command within staff 2. Instruction clerk
departments, as in the case 3. Time and cost clerk
of Armed forces 4. Shop disciplinarian
112
111

 The foremen involved in the implementation task are:

1. Gang Boss (Assembles the machinery needed for work)
2. Speed Boss
3. Repair Boss
4. Quality inspector
 Under functional organization, various specialists are
for various functions performed in an organization.
These specialists will attend to the work which is
common to different functions of various
departments.
 Workers, under functional organization, receive
instructions from various specialists.
 From this, it can be noted that the functional type of
organization violates the principle of one employee,
one superior. 113 114

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Merits of functional Demerits of functional 4. Committee organization

organization organization
1. Planned specialization 1. Ineffective control as
workers have more than one  A committee may be defined as a group of people
boss performing some aspects of Managerial functions.
2. Separates activities related 2. Very costly
to planning and control Definitions:
3. Facilitates large scale 3. Calls for more coordination “A committee consists of a group of people specifically
production through designated to perform some administrative work”
standardization W.H. Newman
4. The disciplinary controls are 4. Less appropriate when an
well defined organization diversifies “ A committee is a body of persons appointed or elected
5. Appropriate when there is a 5. No clear line of authority to meet on an organized basis for the consideration of
single product or service matters brought before it”.
6. Offers clear career paths
for functional specialists Allen
115 116

A committee is formed when two or more persons are

appointed to work as a team to arrive at a decision on MERITS DEMERITS
the matters referred to it. 1. Pooling of Knowledge 1. Slow decisions
2. Effective co-ordination is 2. Most Expensive
available 3. Difficult to maintain
It is intended to utilize the knowledge, skills, and
3. Effective Communication secrecy
experiences of all the concerned parties.
4. Motivation through 4. Compromise
 participation of
Particularly, in large organizations, problems are too employees
high to be handled by one single expert.

The committee studies the nature of the problem by

carefully scrutinizing the office records, rule position,
analysis of precedence (how such cases have been
dealt with in the past), and so on.

117 118

5. Matrix organization
This is also called as project organization.

Matrix organization structure is essentially a violation

of unity of command

Sales Committee A matrix organization is defined as an organization

where people have to report to more than one boss.
The first boss will be their functional manager and the
other can be a project manager.

Personnel are drawn from their respective functional

departments.

Each functional staff has two bosses his administrative

head and his project manager.
119 120

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The main objective of matrix organization is to secure

higher degree of coordination than what is possible
from the conventional organization structures such as
the line and staff.

In matrix organization there are two chain of

command one along functional lines (vertically) and the
other along the project line (horizontally).

The figure shows that the president has three vice

presidents for various departments and two project
managers for two locations A and B.

The figure reveals that both functional manager and

project manager exercise authority over the workers.

121 122

II. On the basis of Departments

MERITS DEMERITS
1. It offers operational 1. It calls for greater 1. Functional Departmentation
freedom & flexibility. degree of coordination.
 The process of classifying the organization on the
2.It focuses on end results. 2.It violates unity of basis of departments or similar activities in it is
command. called departmentation.
3.It maintenance professional
Identity. 3.Difficult to define  This is similar to the modern view of functional
authority & responsibility. structure of organizations.
4.It holds an employee
responsible for management 4.Employee may be de  Marketing, Production, Finance, Sales etc. are the
of resources. motivated. basic functions of manufacturing organization.
 It follows the specialization principle.

 Every department is viewed as a separate entity by

123 itself. 124

MERITS DEMERITS
1. It follows specialization 1. It delays decisions
2.Specialization enhances 2.Lack of coordination
quality 3.It is expensive
3.Reduces load on seniors 4.Not suitable for small
4.It offers better control organizations
5.Training needs can be well 5.Department objectives
identified are more focused than
6.It is suitable for medium and the corporate goals.
large organizations

125 126

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2. Product Organization
 The process of classifying the organization on the
basis of products is called product organization.

 The grouping of the production and sales efforts of

a business according to a particular line of goods or
services.

 The departments are based on the products

manufactured or services rendered.

 The product - based organization offers scope to

strengthen the manufacturing facilities, skills and
knowledge for every product or service.

 It can be used for growth and diversification.

127 128

MERITS DEMERITS 3. Geographical or Regional or

1. It strengthen the 1. Adequate number of Territorial Organization
manufacturing facilities qualified managers may  The process of classifying the organization on the basis
of regions is called geographical organization.
product-wise or process-wise not be available
 Organization is divided into territories or regions
2.It provides for growth and 2.Cost increases commonly used for the decentralization of responsibility
diversification 3.Controlling problem for over certain areas.

3.It ensures better customer
care
4.All facilities are available
under one roof
5.Responsibility can be fixed
top management  This method is popularly used in sales and production
function.
4.Proper coordination may
 This type of structure allows an organization's offices to
not exist operate individually while adhering to company policies and
values. Office locations can be local, national or
international.
 Geographic organizational structure allows for each
business unit or office to operate as its own entity based
129 on where it's located. 130

MERITS DEMERITS
1. Responsibility is fixed at the 1. It is difficult to top
territory level management to control
2.Local resources can be used territorial operations
3.It enhances the competitive 2.It may involve duplication
edge in terms of lower of costs
delivery times and lower 3.If qualified managers are
labour costs not available the
4.It creates jobs for local territorial activities may
community hinder
5.It reduces transportation
costs
131
132

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4. Customer Organization

 The process of classifying the

organization on the basis of customer
profile is called customer organization.

 All the activities of the enterprise are

grouped on the basis of the profile of its
customers. Each group is managed by one
department head.

 This type of organization is designed to cater

to the requirements of clearly defined
customer groups. 133 134

MERITS DEMERITS
1. It focuses on the specific 1. It calls for focused
needs of individual customers training programms to
2.It ensures better customer cater to the specific
care customer needs
3.It develops a competitive 2.It may be very costly
SOCIAL RESPONSIBILITY
advantage through core- 3.If customer group is
competence small, it is not useful
4.It is based on growing and 4.The customer
diversified needs of requirements keep
customer changing

135 136

4) Responsibility towards employees:- It is the

 Social responsibility refers to the process which
includes several activities ranging from providing
safe products and services to giving a portion of
the company’s profits to welfare organizations
with a philanthropic perspective.
1) Responsible towards shareholders:- The business
enterprise has the responsibility to provide fair
return on capital to the shareholders.
2) Responsibility towards consumers:- The
management has to provide quality goods and
services to the customer at reasonable prices.
137
responsibility of the management to provide good
working conditions to workers, to recognize their
unions, profit sharing, promotions, welfare etc.
5) Social responsibility towards creditors:- The
business has to repay the loans it has taken from
the financial institutions as per the repayment
schedule. The business has to live up to the ethical
and moral expectations of its creditors by fulfilling
its commitments.
6) Responsibility towards government:- The business
firm has to pay its taxes and be fair in its
endeavors. It should also support the Government
in community development projects. 138

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6) Responsibility towards competitors:- The business

firm should always maintain the highest ethical
standards and maintain cordial relations with each
of the competitors. It should not commit for
unethical trade practices (Advertisement fraud,
socially irresponsible gimmicks, patent/trademark
infringement etc.)

7) Responsibility towards general public:- Business

UNIT II
firms have tremendous responsibility towards the
general public to support the cause of community
development.
They should take initiative in building and
maintaining devotional or spiritual places and
gardens for people and sponsoring education to
poor meritorious students. 139 140

PLANT LOCATION
What is Plant Location?.
 Plant location refers to the choice of region and the
PLANT LOCATION selection of a particular site for setting up a business
or factory.
 “A plant should be located at a place where
AND inhabitants are interested in its success, the product
can be sold profitably and production cost is
minimum”. - Dr.M.Vishweshwaraya
LAYOUT
 But the choice is made only after considering cost and
benefits of different alternative sites. It is a
strategic decision that cannot be changed once taken.

141 142

 An ideal location is one where the cost of the product

Factors affecting Plant Location
is kept to minimum, with a large market share, the 1. Closeness to raw materials:- Normally the
least risk and the maximum social gain. It is the place proportion of cost of raw material to the cost
of maximum net advantage or which gives lowest unit of production is significant for every product.
cost of production and distribution. If the plant is located close to the supply points
of the raw material, the cost of procurement
 Dr.Vishweshwaraya says that the decision of plant
location is based on 10 M’s, viz:-
can be minimized, particularly if the raw
material is fragile, perishable, bulky, or heavy.
1. Man 6. Market For this reason, the rice mills are located close
2. Money 7. Motive to the paddy fields.
3. Material 8. Means of communication
4. Means of power 9. Management
5. Momentum to early start 10. Machinery 2. Nearness to markets:- If the plant is located
close to the markets, the cost of transportation
can be minimized.
143 144

24

3. Fuel and Power:- If the factory is dependent
on a particular fuel, it’s better to locate the
plant close to its availability. For instance, if
the factory is coal-based, the plant is better
located near coal mines.
4. Transport:- To ensure that the products reach
every nook and corner of the country, it is
advantageous to locate the plant at such a place,
which is well connected by different modes of
transport.
145
8. Government influence:- To encourage the
entrepreneurs in locating their plants in the
backward areas, it announces fiscal benefits.
9. Political interference:- This applies more in
case of location of public enterprises.
10.Other considerations:- License can be given
only when the industrial units are located in
places far from human habitation.
147
 It is concerned with the arranging
a. The departments in the factory site
b. The machinery within these departments
c. The layout of individual work places
A good layout results in comfort, convenience,
safety, efficiency, Compactness and finally in
profits to the organization.
 A poor layout results in congestion, wastes,
frustration, inefficiency and finally a lower
profit or a loss to an organisation
149
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5. Availability of labour:- Labour is mobile. Plant
location depends on availability of skilled labour.
Software firms are located in Hyderabad and
Bengalore in India because of availability of
software talent.
6. Agglomeration economies:- If an area
specialises in the production of a certain type
of good, all firms can benefit from various
factors such as: Good supply channels. Supply of
trained workers.
7. Natural and climate factors:- Location of
industry is simply the result of certain natural
factors. Ship building is located in
Vishakhapatnam.
146
PLANT LAYOUT
What is Plant Layout?.
 Plant layout refers to the arrangement of
physical facilities such as machinery, equipment,
furniture etc. with in the factory building in
such a manner so as to have quickest flow of
material at the lowest cost and with least
amount of handling in processing the product
form the receipt of material to the shipment of
the finished product.
 It can be defined as the process of determining
a spatial location for a collection of physical
production facilities suitable to manufacture a
product or provide a service. 148
Objectives of Plant Layout
1. Efficient utilization of available floor space
2. To ensure that work proceeds from one point
to another point without any delay
3. Provide enough production capacity.
4. Reduce material handling costs
5. Reduce hazards to personnel
6. Utilize labor efficiently
7. Increase employee moral.
150
25

8. Reduce accidents
9. Provide for volume and product flexibility
10.Provide ease of supervision and control
11. Provide for employee safety and health
12.Allow ease of maintenance
13.Allow high machine or equipment utilization
14.Improve productivity
151
5. Principle of flexibility:- Layout should be designed in
the manner that production facilities can easily be
rearranged when it becomes necessary in future on
account of expansion and technology advancement.
6. Principle of interdependence:- Interdependence
operations and processes should be located in close
proximity to each other.
7. Principle of overall integration:- All the plant facilities
and services should be fully integrated into a single
operating unit so as to maximize efficiency and minimize
costs of production.
8. Principle of minimum investment:- The layout should
yield savings in fixed capital investment through
optimum utilization of available facilities.
153
 Under this, machines are grouped in one
sequence. Therefore materials are fed into the
first machine and finished goods travel
automatically form machine to machine, the
output of one machine becoming input of the
next.
 This method is used for repetitive processing or
continuous processing.
Eg: Food Processing Unit; Paper mill
155
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Principles of Plant Layout
1. Principle of minimum movement:- As far as possible
materials and labour should be moved over minimum
distances.
2. Principle of flow:- The work areas should be arranged
according to the sequence of operations so that there is
continuous flow of materials without congestion. The
layout should allow for easy movement of materials
without interruption or delay.
3. Principle of space:- all available cubic should be
effectively used both vertically and horizontally.
4. Principle of safety:- there should be consideration for
safety and convenience of workers. There should be
built in provision for the safety and comfort. 152
TYPES OF PLANT LAYOUT
1. PRODUCT OR LINE LAYOUT(Assembly line/Continuous)
 Under this, machines and equipments are
arranged in one line depending upon the
sequence of operations required for the
product. The materials move form one
workstation to another sequentially without any
backtracking or deviation.
 Materials are fed into 1st machine and semi-
finished goods travel automatically from
machine to machine
 The output of one machine becoming input of
the next. 154
Product layout(line Layout) of Paper mill
156
26

Advantages:
1. Faster and cheaper production: Product layout
facilitates faster production, production time per unit is
lower.
2. Lower cost of material handling:- Since all the
departments are located close by, material handling costs
are lower.
3. Effective utilization of floor space:- Floor space can be
effectively utilized as all the production departments are
located at one point.
4. Easy monitoring:- Monitoring is made easier in the sense
that it requires few controls.
5. Team work benefits:- higher productivity is assured as
the workers act as a team.
157
2. PROCESS LAYOUT(Job shops/Batch)
 The process layout is particularly useful where low
volume of production is needed.
 In this type of layout, the machines are not arranged
according to the sequence of operations but are
arranged according to the nature or type of the
operations.
 This layout is commonly suitable for non repetitive jobs.
 Same type of operation facilities are grouped together
such as lathes will be placed at one place, all the drill
machines are at another place and so on. The figures
shows the movement of two –A and B.
 Therefore, the process carried out in that area is
according to the machine available in that area. 159
Advantages of Process Layout:
1. There will be less duplication of machines. Thus,
total investment in equipment purchase will be
reduced.
2. It offers better and more efficient supervision
through specialization at various levels.
3. There is a greater flexibility in equipment and man
power thus load distribution is easily controlled.
4. Better utilization of equipment available is possible.
5. Break down of equipment can be easily handled by
transferring work to another machine/work station.
6. There will be better control of complicated or
precision processes, especially where much
inspection is required.
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Disadvantages:
1. Threat of duplication:- There is possibility for
duplication of processing equipment and machine tools.
2. Huge capital outlay:- It calls for large investments.
3. Little flexibility:- There is little degree of flexibility to
switch over to a new product or change in the design.
4. Discontinuity in production likely:- Since all the machines
are arranged in the sequence, if there is a breakdown in
one machine the entire manufacturing activity comes to a
grinding halt.
5. Monitoring each worker made difficult:- The output of
one machine is the input of another machine. Hence, it is
likely that the efficiency of a particular worker cannot be
recognized. However, it encourages team effort and team
productivity. 158
Product A Product B
The product A requires the following operations as per their sequence:
Forging, Grinding, Milling, Drilling, Heat Treatment, Inspection and
Packaging. Product B requires the following operations: Foundry, Milling,
Grinding, Drilling, Heat Treatment, Inspection and Packing. 160
Disadvantages of Process Layout:
1. There are long material flow lines and hence the
expensive handling is required.
2. Total production cycle time is more owing to long
distances and waiting at various points.
3. Since more work is in queue and waiting for further
operation hence bottle necks occur.
4. Generally, more floor area is required.
5. Since work does not flow through definite lines,
counting and scheduling is more tedious.
6. Specialization creates monotony and there will be
difficult for the laid workers to find job in other
industries.
162
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3. FIXED LAYOUT
LAYOUT::
In this type of layout the major component remain in a
fixed location, other materials, parts, tools, machinery,
man power and other supporting equipment’s are
brought to this location.

The major component or body of the product remains

in a fixed position because it is too heavy or too big and
as such it is economical and convenient to bring the
necessary tools and equipment’s to work place along with
the man power.

This type of layout is used in the manufacture of

boilers, hydraulic and steam turbines, aircrafts and
ships etc.

163 164

Advantages of Fixed Layout: Disadvantages of Fixed Layout:

1. Material movement is reduced. 1. Highly skilled man power is required.

2. Capital investment is minimized. 2. Movement of machines and equipments to production

centre may be time consuming.
3. The task is usually done by gang of operators, hence
continuity of operations is ensured. 3. Complicated fixtures may be required for positioning
of jobs and tools. This may increase the cost of
4. Production centres are independent of each other. production.
Hence, effective planning and loading can be made.
Thus total production cost will be reduced.

5. It offers greater flexibility and allows change in

product design, product mix and production volume.

165 166

What is Production?.
Production?
 Production refers to the actual amount of goods and
services produced.
 Production is a process of transforming (converting)
inputs (raw-materials) into outputs (finished goods).
So, production means the creation of goods and
services. It is done to satisfy human wants. Thus,
METHODS OF PRODUCTION production is a process of transformation.

Machines

Labour
Production
Output
Function
Materials

Technology
167 168

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What is Productivity?. Factors affecting productivity

product
Productivity is a measure of efficiency of a person,
machine, factory etc. in converting inputs into output.
 In effective productive design
To economists, productivity is the efficiency with  Improper machines and cutting tools
which firms, organisations, industry, and the economy
as a whole, convert inputs (labour, capital, and raw  Poor layout
materials) into output.  Shortage of inputs

Productivity grows when output grows faster than  Frequent breakdowns

inputs, which makes the existing inputs more  Lack of motivation
productively efficient.
 Poor working conditions
Productivity does not reflect how much we value the  Poor quality of training
outputs — it only measures how efficiently we use our
resources to produce them.
169 170

1. JOB PRODUCTION 2. BATCH PRODUCTION

A manufacturing process in which single products are To state in simple terms, batch production is a
produced for a particular customer. production methodology in which products are
Job production is typically performed by skilled manufactured in groups called batches rather than in a
experts to a high standard and usually allows for continuous fashion.
considerable flexibility and customization in the
finished product. Here, all the products manufactured under a batch are
similar in terms of type, cost, efforts, consumption of
It may involve special machinery and special training
materials or the specifications.
for the labour. Jobs are done according to customers
requirements.
One-off or small number of items are produced. Examples:
1. Pharmaceuticals
Examples:
1. Ship builders 2. Readymade garments
2. Road builders 3. Paints
3. Printers 4. Mineral bottles, etc.
4. Repairs shops
5. Tailor shops, etc. 171 172

3. MASS PRODUCTION Differences

To Mass production refers to the process of JOB BACTCH MASS
producing large numbers of similar goods efficiently 1. Number Every time, only Every time, a few It is continuous
of units one say, 100 or 1000 are production process
in factories. produced product/service produced
can be produced
"Mass production", "flow production" or "continuous
2. Design The design The design differs There is no change
production" is the production of large amounts
differs from from batch to batch in design
of standardized products, including and especially product to
on assembly lines. product
3. Cost Per CPU changes from CPU is relatively CPU is likely to be
The production or manufacture of goods in large Unit job to job lower as compared lowest
quantities, especially by machinery. to job production,
but keep on
Examples: changing from
1. News papers batch to batch
2. TVs 4.Material/e These costs are Moderately lower Significantly lower
3. Cars quipment high as different
handling equipments are
4. Air conditioner costs used to different
5. Cool drinks etc. 173 jobs 174

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JOB BACTCH MASS

5. Plant Process type Process type Product type
layout
6. Work in Likely to be large Likely to be high Likely to be
progress smaller
7. Time Every time, job Less time Once machines are
needed to changes, so set, the production
set up setting time is continuous
machines more new WORK STUDY
machines
8. Degree of Moderate degree High degree of Meticulous planning (Techniques for improving productivity)
planning of planning planning is required
9. Degree of Control needs to Control needs to be Simplified to a
control be exercised in a exercised at every large extent
greater detail critical point of
manufacturing
10. Accuracy Tend to be Likely to be good Likely to be very
of product satisfactory high
quality
175 176

 “The greatest production results when each worker
is given a definite talk to be performed in a definite
time in a definite manner”. – F.W.Tailor
 Optimizing profits through enhanced productivity
has been the undercurrent of all industrial and
business operations. How do we ensure enhanced
productivity?. It can be ensured when the work is
done in its best way that is, designed on the basis
of scientific principles. The principles of work study
come handy here.
177
 Work study refers to the method study and work
measurement which are used to examine human
work in all its contexts by systematically
investigating into all factors affecting its
efficiency and economy to bring forth the desired
improvement.
 The systematic examination of the method of
carrying on activities so as to improve the effective
use of resources and to set up standards of
performance for the activities being carried out.
 The principal aim of work study is to bring
efficiency and economy by making improvements in
the method of doing the job. In the process, all
unnecessary movements are done away with.
Wastage in terms of movements or resources is
178
reduced to bare minimum.

 Work study is more concerned with human manual

work. It deals with the efficient design and
execution of manual work.

 Work study strives to establish better standards

of performance by identifying the essential
movements (in other words, eliminating all
 Motion study is a qualitative analysis of a work station
unnecessary movements) in the process of carrying
leading to the design or improvement of an operation. It is
out the job and determining the standard time for a a process of examining the job and finding more efficient
given job. method to perform the job.

 Work study has two parts: method study ( also  Time study is quantitative analysis leading to the
called Motion Study) and work measurement (also establishment of a time standard. It is process of
called Time Study) determining the necessary time to perform a job and its
elements.
179 180

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Benefits:
1. Work study leads to standardization of job
process
2. It determines the cost of the work performed 5. Monitor and Evaluate
1. Conduct a Method Study
3. It minimizes the time by eliminating Changes in Conditions
unnecessary movements
4. It enhances productivity of workers and
machines Work
5. It helps to evaluate performance against Study
4. Establish 2. Standardize Processes
targets Standard Time and Procedures
6. It enables workers to get incentives
7. It contributes to cost savings
8. It enhances employee morale 3. Conduct
9. It facilitates the organization to plan work a Time Study
targets 181 182

METHOD STUDY Method Study Procedure/Stages:

Procedure/Stages:
 Methods study or Work methods analysis is a scientific
technique of observing, recording and critically
1. Select: The task or work to which the method study
examining the present method of performing a task or
job operation with the aim of improving the present principles are to be applied is to be indentified and the
method and developing a new and cheaper method.
underlying objectives, such as saving the costs, increasing
 Method study is to simplify the work and develop more
productivity, or eliminating unnecessary motions by the
economical methods of doing it.
 Method study is a technique to reduce the work content worker, and so on, are to be specified.
mainly by eliminating unnecessary movements by
workers, materials, or equipment.
2. Record: The current process of doing the job has to be
 Method study attempts to answer the questions of the
type: What? When? How? Who? and Where?. recorded. While doing so every detail has to be identified.

 Its main aim is to develop better working methods. The present process of doing job is recorded using
 Motion study is designed to determine the best way to process chart symbols indicated below:
complete a repetitive job. 183 184

Event/Motion Symbol explanation

Operation means an action/doing something. It is one of the
steps in the procedure. Any operation making, altering or
Operation changing the job is said to be an operation;
Ex: Cutting and shaping the wood in the manufacture of
furniture.
Movement or travel of workers or materials from one
Transport location to another.
Ex: Steel rods being sent to machine shops from stores.
Delay means the process has stopped due to some reason. It
Delay is a temporary halt/storage.
Ex: Power failure, machine breakdown, waiting for lift.
It represents checking for quality and quantity of the items.
Inspection
Ex: Weight check or quantity of check, quality check.
It is the stage of a finished good or raw material waiting for
Storage an action.
Ex: A finished product in a stock room.
Operation cum
Inspection is taking place during the production process`
Inspection
Operation cum Washing a product when it being transported.
transportation Packing is done when it is being transported.
Fig: Process chart symbols used to record the process of doing the job 185
3. Examine: The recorded events are to be critically
examined.
 Who does this job? Why not others?. Why alone does?
 Why is it to be done?
 When is it to be done?
 How is it done?
4. Develop and define: Based on the recorded data, the
alternative methods of doing the same job more
effectively are to be identified and evaluated. From these
alternatives, the best one should be selected. Then the
alternative is defined clearly.
5. Install: the new method so developed is to be installed in a
phased manner. In case of undesirable results, it should be
examined afresh.
6. Maintain: Once new method starts yielding the desired
results, it is necessary to maintain the new method
without any changes for sometime. Complaints and
improvements in productivity should be registered. 186

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Recording Techniques of Method Study 1. OUTLINE PROCESS CHART

PROCESS CHART
 The current process of doing the job has to be
recorded. While doing so every detail has to be identified.
 The recording of the facts about the job or operation in a
process chart is done by using standard symbols.
 A chart may be a diagram, a picture or a graph which gives
an overall view of the situation, say a process.
 A process chart records graphically or diagrammatically in
sequence the operations connected with a process.
 All the details about the existing method/ process are
recorded and represent in chart. This is done by directly
observing the work.
 Symbols are used to represent the activities like
operation, inspection, transport, storage and delay.
187
It is also called Operational Process Chart. It is process
chart giving an overall picture by recording in sequence only
the main operations and inspections.
This chart outlines the main events sequence-wise
considering only operations and inspections in the given job.
An operation process chart is a graphic representation of
the sequence of all operations and inspections taking place
in a process.
It gives a bird‘s eye view of the overall activities.
The advantage of this chart is that it describes essential
elements in a sequential order in a simplified way using two
symbols. However, it does not consider the other process
chart symbols which can be well used for better results.
188

Work/Task : Repair of punctured Jack up scooter

Procedure to be followed in preparing the chart Scooter tyre
Chart begins : Scooter ready for Remove
Remove hub-cap
hub-cap of
of wheel
wheel
1. Write title at the top of the chart. jacking up
Chart ends : Tube ready after repair Loosen nut and place properly
2. Begin the chart from the right hand side top corner.
to mount on tyre
3. Represent the main component at the right extreme. Charted by : Remove wheel
4. Represent the sequence of operations and inspections by Date :
their symbols. Connect them by vertical flow lines. Remove outer cover
5. the brief description of the activity to the right side of
Remove the tube
the symbols.
6. Note down the time for each activity to the left of the
Locate the puncture in tube
symbol.
7. Number all operations in one serial order. Start from the Make the puncture
right hand top (from number 1). Summary
Repair the puncture and
8. Similarly number all inspections in another serial order Activity No. of activities
Remove nails, if any
(starting from 1). Operations 8
9. Continue numbering, till the entry of the second component. Inspections 2 Recheck

189 Fig: Outline Process Chart 190

2. TWO-
TWO-HANDED PROCESS CHART Work/Task: Nail Hitting
Left Hand Right Hand
 It is the process chart in which the activities of two hands Sl. Sl. Description of
of the operator are recorded. Description of activities Symbols Symbols
No No activities
1 Pick up nail 1 Pick up the hammer
 It is common to find the operator using both hands for
Fix the nail at the
certain jobs such as typing, watch repair, nail hitting, 2
required point in the box
2 Idle
cooking etc.
3 Hold 3 Strike
4 Idle 4 Inspect
 Motions of both hands of worker are Right hand-Left hand
chart recorded independently.
Left Hand Summary Right Hand Summary
 It shows whether the two hands of the operator are idle or Activity No. of activities Activity No. of activities
moving in relation to one another, in a timescale. Operations 2 Operations 2
Storage 1 Storage 1
 The purpose of this chart is to depict the existing method Delay 1 Delay 0
of doing the job.
Inspection 0 Inspection 1
191 192
Fig: Two-handed Process Chart

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3. FLOW PROCESS CHART Work/Job/Task: Conducting Management Science Class

Distance
Step Time in
A flow process chart is a graphical representation of Description of Activities in
No. minutes
meters
the sequence of all the activities (operation, inspection, 1 Coming to class from staff room  25 4
transport, delay and storage) taking place in a process. 2 Bringing the projector from office  10 2
It is the detail version of outline process chart 3 Wait for arranging projector  5
recording all the event. 4 Taking class  35
Process chart symbols are used here to represent the 5 Checking the students  4
activities. 6 Setting the projector in the bag  5
The modern flow process chart provides information 7 Keeping the projector in office  10 2
about the time taken for all the events and the 8 Going from class to staff room  25 4
distance involved for movement of work, materials,
Summary
machinery, and men.
The flow process chart can be of three types: man Operation Transport Inspection Delay Store
type(Records only what the man does), material type No. of steps 1 3 1 2 1
(records only what happens to materials), or equipment Time in minutes 35 10 4 10 2
type (records only what happens to the equipment). 193 Distance in meters - 60 - - 10 194

WORK MEASUREMENT
 Method study eliminates unnecessary
activities/movements Work Measurement is determination of the length of
 Work measurement eliminates inactive times in total time it should take to complete a job
time. It is to determine how long the work should be
carried out.
Work measurement is also called as time study which is a Time study is a direct and continuous observation of
method of direct observation. A trained observer
watches the job and records data as the job is being a task, using a timekeeping device (e.g., decimal
performed over a number of cycles. minute stopwatch, computer-assisted electronic
Work measurement refer to the estimation of standard stopwatch, and videotape camera) to record the time
time, that is the time allowed for completing one piece of
job using the given method. This is the time taken by an taken to accomplish a task and it is often used when:
average experienced worker for the job with provisions
for delays beyond the workers control (allowance for
fatigue and for personal and unavoidable delays). 195 196

 Objectives : Terms used

1. Estimating material machinery and equipment
1. Observed Time/Actual Time:- is the time that a
requirements. particular employee actually takes to perform a
particular job operation/element.
2. Estimating the production cost per unit
3. Preparation of budgets Ex: When time taken by each element is recorded on
a continuous basis through a stopwatch, the actual
4. Determination of selling price
time taken for each element is calculated as below:
5. Make or buy decision
6. Estimating manpower requirements. Element Time read in Actual time for an
No. seconds element in seconds
7. Estimating delivery schedules and planning the work
1 15 15
8. Balancing the work of operators working in a group. 2 40 25 (40-15)
3 70 30 (70-40)
9. Estimating performance of workers and use as basis
for incentive payment 197 198

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2. Normal Time/Basic Time:- is the time needed to

3. Standard Time: is the amount of time a qualified
complete an operation by an employee working at
worker should spend to complete a specified task,
100% efficiency having no delays.
working at sustainable rate, using given methods,
Rating the job enables a normal basic time to be tools and equipment, raw material and workplace
established using the following formula:
Standard time is the time needed to complete an
Normal Time = Observed time × Rating ÷ 100 operation by an employee working at 100%
efficiency with unavoidable delays.
For example: If an employee’s time for a particular
element is observed to be 0.20 minutes, and he is
For each and every element, standard time is
rated as 120%, then his basic time will be as follows:
determined and then these are added together to
give the standard time for a cycle. Because one
Normal Time = Observed time × Rating ÷ 100
piece is produced per cycle.
= 0.20 x 120/100 = 0.24 minutes
It means he should be given 24 seconds time but he
has completed the job within 20 seconds. 199 200

In order to find the standard time for the job, a
number of allowances such as personal relaxation,
fatigue, delay in collection of materials and tools, and
other contingencies are added to the normal time/basic
time.
Standard Time = Normal Time + Allowance of time
Standard Time = Normal Time x (1 + % of Allowance Time)
In the above example Normal Time = 0.24 minutes, if
allowances time 0.06 minutes is added to normal time the
standard time will be as follows:
Standard Time = Normal Time + Allowances
= 0.24 + 0.06 = 0.30 minutes 201
4.Performance Rating:- Performance Rating which is also
called Performance levelling is the step in the work
measurement in which the analyst observes the worker's
performance and records a value representing that
performance relative to the analyst's concept of
standard performance.
Rating is technique used to assess the speed and
“effectiveness” of an operator.
Performance rating helps people do their jobs better,
identifies training and education needs, assigns people to
work they can excel in, and maintains fairness in salaries,
benefits, promotion, and hiring. Most workers want to
know how they are doing on the job. Workers need
performance feedback to work effectively. Accessing an
employee timely, accurate, constructive feedback is key
to effective performance.
202

There are several methods of performance rating. The

simplest and most common method is based
on speed or pace. Dexterity and effectiveness are also
important considerations when assessing performance.
Standard performance is denoted as 100. A performance
rating greater than 100 means the worker's performance
is more than standard, and less than 100 means the
worker's performance is less than standard.
Rating is subjective and relies on the skill of the
observer carrying out the rating exercise and the
observer’s concept of the rate of working relative to a
standard of 100%
It is most difficult and controversial step in time study.
It requires analyst’s judgment.
This factor is calculated by an experienced worker who is
trained to observe and determine the rating.
203 204

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Illustration: An operator manufactures 50 jobs in 6 hours

and 30 minutes. If this time includes the time for setting
his machine.
Calculate the operator’s efficiency.
Standard time allowed for the job was:
Setting time = 35 min
Allowed time per piece = 8 min
Solution:
Standard time = Set up time + Time per piece × No. of
pieces produced
∴ Standard time for manufacturing 50 jobs = 35 + 8 × 50
= 435 min
= 7 hours and 15 min.
Time taken = 6 hors 30 minutes = 390 minutes
Performance Rating (Efficiency of operator) =

205 206

Stop watch study: The steps involved in time study are:

Generally applied for continuous direct or indirect labour studies
(Example: performing a time study on machine operator to determine
the cycle time)
There are two methods of timing using a stop watch. They are
1. Fly back or Snap back method: Here, the stop watch is started at
the beginning of the first element. At the end of the element the
reading is noted in the study sheet. At the same time, the stop
watch hand is snapped back to zero. This is done by pressing down
the knob, immediately the knob is released. The hand starts
moving from zero for timing the next element. In this way the
timing for each element is found out. This is called observed
time(OT).
2. Continuous or Cumulative method: Here, the stop watch is started
at the beginning of the first element. The watch runs continuously
throughout the study. At the end of each element the watch
readings are recorded on the study sheet. The time for each
element is calculated by successive subtraction. The final reading
of the stop watch gives the total time. This is the observed
207
time(OT).
1. Break the job into observable and distinct elements (An
element is a distinct part of a specified job (work cycle)
selected for convenient of observation, measurement and
analysis and a work cycle is the sequence of elements which
are required to perform a job)..
2. Choose acceptable operator/s for study
3. Make direct observations of the work elements while the
operator is actually performing the job and record the time
of each element.
4. Make a statistically adequate number of repeated
measurements and record the time of each element.
5. Rate Performance of each element and record
6. Calculate the normal time (also called Basic Time).
7. Establish allowances
8. Compute the standard time.
208

Illustration: 2
Illustration 1: Assuming that the total observed time for Observed
an operation of assembling an electric switch is 1.00 min. If Performance
Job Element Time
the rating is 120%, find normal time. If an Rating
1 2 3 4 5
allowance of 10% is allowed for the operation, determine Typing a Letter 8 10 9 11 11 120%
the standard time. Print Name and
105%
Address 2 3 2 1 3
Solution:
Putting letter in the
Observed time (or) selected time = 1.00 min 110%
cover and Sealing it 2 1 3 2 1
Rating = 120%
Allowance factor = 14%
Allowance = 10%
Normal time = Observed time × Rating % ÷ 100 Calculate Standard Time
= 1.00 ×120 ÷10=1.20min Solution:
Steps for calculating Standard Time
Allowance @ 10% = 1.20 ×10 ÷ 100 = 0.12 min 1. Calculate average observed time of each job element.
∴ Standard time = Normal time + Allowances Average Time = Sum of observed time of each element
= 1.20 + 0.12 = 1.32 min. No. of readings
209 210

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2. Calculate Normal Time of each job element. Work sampling

Normal Time of each element =Average time x Rating Work sampling study: Generally applied to study non-
3. Calculate total normal time of the job. repetitive tasks with long cycle times (Example: To
4. Calculate standard time of the job.
determine the utilization of maintenance operator,
Average support personal, etc)
Observed Time of Performanc Normal
Job Element
observed e Rating Time
1 2 3 4 5 time It is done to find out for how much time the worker
Typing a Letter 8 10 9 11 11 9.8 1.20 11.76 is actually on the job. It checks how long he is
Print Name and working and how much time he is not working (idle
2 3 2 1 3 2.2 1.05 2.31
Address time).
Putting letter in the 2 1 3 2 1 1.8 1.10 1.98
cover and Sealing it Work sampling method does not involve stop watch
measurement. The purpose of work sampling
Total normal time of the job 16.05
technique is to estimate what proportion of a
Standard time = Normal time x (1+ % of Allowance Time) worker’s time is devoted to work-related activities.
= 16.05 x (1+0.14) = 18.30 minutes. 211 212

Work sampling method involves following three main

steps: Determination of Standard Time in Work Sampling
1) Deciding what activities are defined as ’working’.
Non-working are those activities which are not
defined as working.
2) Observe the worker at selected intervals and record
(write down) whether he is working or not.
3) Calculate the portion of time (P), a worker is working.
a = Total working time or study time in minutes
A portion of time (P) a worker is working equals to
’Number of observations during which working
b = Percent working time/100
occurred’ divided by ’Total Number of
observations.’
c = Average performance rating/100
The above calculation is used as a performance
standard. d =Total production during the observation period

213 214

Illustration 1: An operator was kept under observation

for five days. He was found working on 400 occasions and
abstaining idle 100 times. He produced 100 jobs during
these days. The observation per day was five hours only c = Performance rating = 130%
and the total number of observations were 500. Take 130
as the performance rating for the operator and 30% d =Total production = 100 units
allowance. Calculate the standard time.

Solution:

a = Total working time x 5 days x 5 hours x 60 minutes

= 1500 minutes

215 216

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What is quality?
 Quality means the standard of something as measured
against other things of a similar kind; the degree of
excellence of something.
 Quality means what everybody wants, but only a few
dare to pay for it.
STATISTICAL QUALITY CONTROL  In general, the quality can be defined as degree of
customer satisfaction and fitness for use.
 Quality control is a management tool. It is used to
produce quality goods.
 Quality refers to any measurable characteristics of a
particular product or service. It is necessary that the
products manufactured should be free of defects.
 Quality is inversely proportional to variability.
 The quality is affected by assignable causes and chance
217 218
causes.

What is Statistical Quality Control?.

What is quality improvement?
improvement?..
 Quality improvement is the reduction
variability in processes and products.
Control?.
of  The process of applying statistical principles to solve
the problem of controlling the quality control of a
product or service is called statistical quality control.

 Alternatively, quality improvement is also seen

 “Statistical quality control should be viewed as a kit
as “waste reduction”. of tools which may influence decisions to the
functions of specification, production or inspection.

 The term used to describe the set of statistical tools

used by quality professionals to evaluate
organizational quality.

219 220

STATISTICAL PROCESS CONTROL Mean/Average

 Inspecting a random sample of an output from process
whether or not the process is functioning properly.
 Under this, the quality of the products is controlled Marks of 10 Students in Management Science
while the products are in the process of production.
 If a process consistently produces items with 70 75
acceptable or tolerable range of specifications, it is said
to be statistically under control. 60 65
 The process control is achieved with the technique of 50 70
control charts. 80 30
 They ensure that whether the products confirm to the
specified quality standard or not. 40 20
 A process is considered in statistical control if it has no
assignable causes, only natural variation.
 Statistical process control help to determine the amount
of variation.
 No two items are exactly alike.
 This difference in characteristics known as variation.
222
221

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Range Variance
A measure of the spread of the recorded values on a
The spread, or the distance, between the lowest and variable. A measure of dispersion.
highest values of a variable.
The larger the variance, the farther the individual cases
To get the range for a variable, you subtract its lowest are from the mean.
value from its highest value.

Marks of 10 Students in Management Subject

Mean
70 75
The smaller the variance, the closer the individual
scores are to the mean.
60 65
50 70
80 30
40 20
Mean
Calculating variance starts with a “deviation.” A
Range of Marks = Highest marks – Smallest marks
deviation is the distance away from the mean of scores.
= 80 – 20 = 60
223 224

Standard Deviation
To convert variance into something of meaning, let’s
create standard deviation.
The square root of the variance reveals the average
deviation of the observations from the mean.

1. Larger s.d. = greater amounts of variation around

the mean.
2. s.d. = 0 only when all values are the same (only when
you have a constant and not a “variable”)
Review:
1. Deviation
2. Deviation squared
3. Sum of squares
4. Variance
225 5. Standard deviation 226

CONTROL CHARTS
 Any production process is subject to variability(lack of
consistency). Essentially, this variability falls into two
categories called chance causes and assignable causes.

 A production process exhibiting only chance causes is

usually described as being ‘in control’ or ‘in statistical
control’ whereas a production process exhibiting
assignable causes is described as being ‘out of control.’

 The basic aim of control charts is the improvement of

production processes via the detection of variability due
to assignable causes. It is then up to people such as
process operators or managers to find the underlying
cause of the variation and take action to correct the
process.
227 228

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 A process is out of control when a plot of data

 A graph that shows reveals that one or more samples fall outside the
whether a sample of control limits.
data falls within the  A typical control chart has control limits set at
common or normal values such that if the process is in control, nearly all
range of variation points will lie between the upper control limit (UCL)
and the lower control limit (LCL).

 A control chart has

upper and lower control
limits that separate
common from
assignable causes of
variation.

229 230

Causes of variations in quality

 The quality of production process may be

affected by assignable causes or
chance/random causes.

 Variation is natural; inherent in the world

around us. No two products or service
experiences are exactly the same. With a fine
enough gauge, all things can be seen to differ

231 232

1. Assignable Causes  The primary objective of a control chart is to

 It refers to those changes in the quality of the detect assignable causes of variation in the
products which can be assigned or attributed to any manufacturing process. The assignable causes lead
particular causes like defective materials, defective to unusual degree of variations and can be best
labour, power fluctuations, etc. described by normal distribution.

 These causes can be identified and specified.

 The control chart helps to identify the different
ways in which the assignable causes can affect the
manufacturing process.
 Assignable causes are said to act upon the
production process when the process variation
exceeds the control limits. At this stage, the
process should be investigated carefully to identify
the causes of excess variation.
 Assignable causes can be detected and controlled.
233
 Quality controllers define limits within which
variations are acceptable. Such limits are called
control limits.
 For example, in normal distribution, it is expected
that 99.73% of all chance/usual variations would
occur within limits placed three standard deviations
larger, and smaller than the mean value of variables.
Therefore any variation beyond such limits is due to
some other unusual or assignable cause and would
immediately call for detailed investigation. 234

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2.. Chance Causes

Process Capability
These causes take place as per chance or in a random
fashion as a result of the cumulative effect of a
multiplicity of several minor causes which cannot be The capability of a process is the ability of the process
identified. These causes are inherent in every type of to meet the specifications.
production. These may not affect the manufacturing
process.
A process is capable of meeting the specification limits
For example, the length of a screw may be specified as
2” but the exact length of each manufactured screw may if at least 99.73% of the product falls within the
be 1.98” or 2.01”. It is physically impossible to specification limits.
manufacture all the components exactly of 2”. It is but
natural to find a slight variation. The buyer gives his In other words, process capability = 6 standard
requirements in limits such as 2.00” ± 0.02”. These are deviation. Since 99.7% area is the normal curve is
called specification limits or tolerance limits.
between -3 standard deviation to +3 standard deviation,
This variation is due to the chance causes operating on therefore, process capability is equal to 6 standard
the manufacturing process. Ideally, only chance causes
should be present on a process. The control chart of such deviation.
a process has all of the data points within the statistical
control limits. 235 236

 Capable process, where the

output of the process lies well
within the specification limits.

 A process which is not capable,

where some of the output of the
process is going outside of the
allowed specification limits.

237 238

Uses of process capability information Control Limits

1. It helps to predict the extent of variability the
process will exhibit.
2. It helps to choose the most appropriate process for
the tolerance to be met.
3. It assists in analyzing how the sequential processes are
inter-related.
4. It provides a basis to establish a schedule of periodical
process control checks and necessary adjustments.
5. It serves as a basis to specify the requirements for
quality performance for new machines.
239
 These are found in control charts.
 There are two control limits: Upper Control Limit(UCL)
and Lower Control Limit(LCL).
 These are determined based on the principles of normal
distribution.
 When all the measurements fall within control limits, the
variation is marginal or small. If they cross control limits,
it is an indication of the presence of an assignable cause
and this calls for and immediate action to set the process
under control.
 Control limits are calculated by means of standard
deviation (σ).
 ±1σ covers 68% data, ±2σ covers 95% data and ±3σ covers
99.7 data.
 For plotting control charts, ±3σ limits are selected and
termed as control limits.
240

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Example
 In the investigation of the length of the screw produced,
it is found that the mean length of (X-bar) is 4 cm.
Standard deviation (σ) is 0.2 cm. Set up a control chart
with a mean of 4 cm and control limits of plus and minus 3
standard deviations. From this chart it can be discovered
that the process is initially in control but later on it is
running out of control. Due to assignable causes one
sample goes beyond UCL and one goes below LCL.
Length of Screw (cm)

4.6 UCL=3σ

X 4 Central Line

3.4 LCL=3σ

Sample Number 241 242

Control Charts for Variables

 The control chart is a graph used to study how a process
changes over time. Data are plotted in time order. A
control chart always has a central line for the average, an
upper line for the upper control limit and lower line for
the lower control limit. These are determined from
historical data.
 Control charts for variables are three types 1. X-bar
chart, R-Chart and S-Chart(Standard deviation chart).
 Control charts for variables are used to monitor
characteristics that can be measured e.g. length, weight,
hardness, thickness, diameter, time etc.
 A variable is one whose quality measurement change from
unit to unit.
 The control charts for variables are drawn using the
principle of normal distribution.
 A quality characteristic that is measured on a numerical
243
scale is called a variable. 244

X-bar CHART & R-

R-CHART Constants for X-bar chart and R chart
Guidelines for X Bar and R Chart:
 An X-bar and R chart is a pair of control charts used with
processes. X-bar and R charts help determine if a process
is stable and predictable. The X-bar chart shows how the
mean or average changes over time and the R chart shows
how range of the sub groups changes over time.
 X-bar chart and R-bar chart are studied together.
 The R chart is examined first before the X bar chart.
 If the R chart indicates the sample variability is in
statistical control, the X bar chart is examined to
determine if the sample mean is also in statistical control.
 If the sample variability is not in statistical control, then
the entire process is judged to be not in statistical
control regardless of what the X bar chart indicates. 245 246

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Steps in Constructing the X Bar Chart Steps in Constructing an R chart

1.Find the mean of each subgroup and the grand mean 1. Select k successive subgroups.
of all sub-groups.
2. Find the range of each subgroup.
R =biggest value - smallest value for each subgroup
2. Find the UCL and LCL
3. Find the centreline for the R chart, denoted by
x Chart Control Limits
R =∑R/n
UCL = x + A 2 R 3. Find the UCL and LCL
LCL = x - A 2 R R Chart Control Limits
UCL = D4 R
3. Plot the LCL, UCL, centerline, and subgroup means
LCL = D3 R
4. Determine if the process is in control.
4. Plot the subgroup data and determine if the process
247 is in statistical control. 248

Example 1: Five sample are collected every day for ten Solution
days. Determine if the process is in control by considering Day Weight(g) R
the below data with the help of X-bar chart and R chart. 1 496 504 496 505 509 13 502
2 501 492 510 496 521 29 504
3 501 498 510 499 482 28 498
4 493 490 506 506 505 16 500
5 477 460 460 478 490 30 473
6 503 495 493 505 499 12 499
7 495 494 481 490 510 29 494
8 502 528 520 490 505 38 509
9 509 502 502 489 503 20 501
10 499 492 503 506 490 16 498
Total 231 4978

249 250

520
510 UCL =511.1

500 CL =497.8
Mean Weight

490
LCL =484.5
480
470
460
450
1 2 3 4 5 6 7 8 9 10

Number of Samples

We can see that the sample mean for day five is clearly below the
lower control limit. Therefore, the process mean is not in
statistical control or out of control. As a result, we would
recommend that day five activity is investigated and take
251 252
necessary corrective action.

42
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60
50 UCL = 48.83

Mean Weight
40
30
CL = 23.1
20
10
UCL = D4 R  2.114(23.1)  48.83
0 LCL = 0
1 2 3 4 5 6 7 8 9 10
LCL = D3 R  0(23.1)  0
Number of Samples
 Examine the R chart first because the process variation
must be in control to control to correctly interpret the X-
bar chart. The R chart is based on the range of the items in the given
 The X-bar chart shows the mean or average of each sub- sample. It highlights the changes in the process variability. It
group. It is used to analyse central location. is a good measure of spread or range. It shows better results
when read along with the x chart. As sample points are within
 The R chart shows how the data is spread it is used to study
253 the control points, the process is in control. 254
system variability.

Example 2: Construct X-bar chart and R-charts from the Solution

following information and state whether the process is in Interval X-bar R
control. For each of the following, X-bar has been 1 20 23
computed from a sample of 5 units drawn at an interval of 2 34 39
half an hour from an ongoing manufacturing process. 3 45 14
4 39 5
Interval X-bar R 5 26 20
1 20 23 6 29 17
2 34 39 7 13 21
3 45 14 8 34 11
4 39 5 9 37 40
5 26 20 10 23 10
6 29 17 Total 300 200
7 13 21
8 34 11
9 37 40
10 23 10
255 256

50

40 UCL = 41.6

30 CL = 30
Mean

20 LCL = 18.4

10

0
1 2 3 4 5 6 7 8 9 10

Number of Samples

257 258

43
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45
UCL = 48.83
Control Charts for Attributes
40
35  Attributes are discrete events; yes/no, pass/fail
30
Mean

25  Control charts for attributes are used to monitor

20 CL = 23.1 characteristics that have discrete values and can be
15 measured e.g. % defective, # of defects in a
10 product, etc.
5
0 LCL = 0  The control charts for attributes are ‘C’ chart and ‘P’
1 2 3 4 5 6 7 8 9 10 chart.
Number of Samples
 ‘P’ chart is used to monitor the proportion of defects
in a sample.
The X-bar chart and the R-chart reveal that sample
number 3 and 7 indicate of some assignable cause, and  ‘C’ chart is used to monitor the number of defects
hence, the process is out of control at these points. per unit.
259 260

C - CHART Steps in Constructing the ‘C’ Bar Chart

Guidelines for ‘C’ Chart 1. First calculate C-bar.

 The c-chart or the c-bar chart is designed to control

the number of defects per unit.
 A ‘C’ chart, or Count chart, is an attribute control 2. Find UCL
chart that displays how the number of defects, or
nonconformities, for a process or system is changing
over time. The c chart is an indicator of the
consistency and predictability of the level of defects 3. Find LCL
in the process.
 In case of mirror-glass , even there is one scratch, it is
not considered to be a quality mirror. Each scratch is 4. Construct the ‘C’ chart.
considered as a defect. Every mirror containing
defects is called defective. Note 1:-
261 2:- if LCL is negative, zero should be considered.
262

Example 1: From the following data, construct ‘C’ chart

No. of defects per each sampled unit

and suggest if the process is in control.

20
Shift 1 2 3 4 5 6 7 8 9 10 18 UCL = 17.4
Defects 3 5 4 8 9 7 10 13 12 15 16
14
Solution:- 12
10
Shift Defects CL = 8.6
8
1 3
2 5 6
3 4 4
4 8 2
0 LCL = 0
5 9
6 7 1 2 3 4 5 6 7 8 9 10
7 10 Number of Samples
8 13
9 12
If we look at the above ‘C’ chart, we can see here that we have a
10 15 positive trend that is the number of defects is increasing on
Total 86 average over time. This suggests that the performance of process
263 is decreasing over time. Therefore, the process is out of control.264

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Steps in Constructing the ‘C’ Bar Chart

P - CHART
1. First calculate P-bar.
The percent defective chart is also called a
p-chart or the p-bar chart. It graphically shows the
proportion of the production that is not acceptable. 2. Find UCL

3. Find LCL

4. Calculate Proportion/percentage per each day

265 5. Construct the ‘P’ chart. 266

Solution:-
Example 1: From the following data, construct ‘P’ chart No. of Sample
Days Proportion
and suggest if the process is in control. defects size
1 10 224 0.045
2 12 287 0.042
Days 1 2 3 4 5 6 7 8 9 10 3 13 180 0.072
No. of defects 10 12 13 15 9 12 11 12 13 12 4 15 250 0.060
Sample size 227 287 180 250 294 203 277 249 120 165 5 9 294 0.031
6 12 203 0.059
7 11 277 0.040
8 12 249 0.048
9 13 120 0.108
10 12 165 0.073
119 2249

267 268

0.120 ACCEPTANCE SAMPLING

Proportionate of defects

0.100 UCL = 0.093

0.080

0.060
CL = 0.053
0.040

0.020
LCL = 0.008
0.000
1 2 3 4 5 6 7 8 9 10
Day Number

We can see here that the proportion of defects for day 9 is

higher than the upper limit. Therefore, the process is out of
control. We recommend checking for the cause of this unusually
high value. 269 270

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Acceptance sampling  Similarly, inspection can also be done on finished goods

 Acceptance sampling is a method used to accept or
reject product based on a random sample of the
product.
 The purpose of acceptance sampling is to accept or
reject lots rather than to estimate the quality of a lot.
 Acceptance sampling is defined as sampling inspection in
which decisions are made to accept or reject products
or services.
 For example, inspection may be performed on incoming
raw material, to decide whether to keep it or return it
to the vendor if the quality level is not what was agreed
on. 271
before deciding whether to make the shipment to the
customer or not.
 It is widely used in buying food products such as rice,
wheat, and other agricultural produce. before buying,
random samples drawn from the bags of, say, rice or
wheat, are tested. If the quality of the samples drawn
looks good or free from defects, then according to the
requirement the entire bag or a part of it can be
bought. If the quality is not good, one would shift to
another bag. In other words, the entire bag is rejected
on the basis of the results of the samples drawn.
 However, performing 100% inspection is generally not
economical or practical, therefore, sampling is used
instead.
272

Example:
The Single
Sampling
Procedure

Statistical Inference is made on the quality of the lot by

inspecting only the small sample drawn from the lot.

273 274

Acceptance Sampling The process of acceptance sampling

 The buyer makes it clear to the seller that he can buy

the entire lot only if the number of defectives in the
Advantages Disadvantages sample taken, say, of 50 units, is two or less than two.
1. Less handling damages 1. Risk included in chance In other words,
2. Fewer inspectors to put of bad lot “acceptance”  If the number of defectives is zero, buyer will accept
on payroll and good lot “rejection” the lot.
2. Sample taken provides  If the number of defectives is one, he will accept the
3. 100% inspection costs lot.
are to high less information than
 If it is two, he will accept.
4. 100% testing would take 100% inspection  If the number of defectives is three, he will reject
to long the entire lot.
 Thus based on the results of the sample drawn, the
decision is taken either to accept or reject the entire
lot. The probability of accepting a lot (entire population
i.e., N) is high in case the number of defectives is
275 276
lower.

46

Sampling Terms 3) Sampling Risks:
1) Acceptance quality level (AQL): The smallest
percentage of defectives that will make the lot
definitely acceptable. The percentage of defects in lot
at which consumers are willing to accept lots as “good”.
Max. acceptable percentage of defectives defined by
producer.
2) Lot tolerance percent defective (LTPD) or (RQL):
The quality level that is unacceptable to the customer.
The upper limit of the percentage of defective items
consumers are willing to tolerate. It means percentage
277
defectives that define consumer’s rejection point.
b) Consumer’s Risk refers to the probability of accepting a
bad lot (This is denoted by β (Beta) and 10% is common)
where:
LTPD (Lot Tolerance Percent Defective) or
RQL(Rejection Quality Level) - The numerical definition
of a bad lot described by the ANSI/ASQC standard as
“the percentage or proportion of nonconforming items or
defects in a batch for which the customer wishes the
probability of acceptance to be a specified low value.
In other words, consumer’s risk means the probability\
chance that a lot contained defectives exceeding the
LTPD will be accepted.
279
Operating Characteristic Curve
(OC Curve)
 The Operating Characteristic Curve is typically used
to represent the four parameters.
1. Producers Risk
2. Consumers Risk
3. AQL (Acceptance Quality Level)
4. LTPD (Lot Tolerance Percent Defective) or RQL
 Note: If the sample is less than 20 units the binomial
distribution is used to build the OC Curve otherwise
the Poisson distribution is used.
281
11/2/2017
As mentioned acceptance sampling can reject “good” lots
and accept “bad” lots. More formally:
a) Producer’s risk refers to the probability of rejecting a
good lot (This is denoted by α (Alpha) and 5% is common
in the industry). In order to calculate this probability,
there must be a numerical definition as to what
constitutes “good”
The probability/chance that a lot containing the
acceptable quality level (AQL) will be rejected
AQL (Acceptable Quality Level) - The numerical
definition of a good lot. The ANSI/ASQC standard
describes AQL as “the maximum percentage or proportion
of nonconforming items or number of nonconformities in a
batch that can be considered satisfactory as a process
average”
278
Single sampling
 A plan in which inspector is forced to make a
decision concerning acceptability of a lot or
batch on the basis of inspection of units in one
sample taken from that lot.
 It can be described in terms of 3 constants.
 N, the lot size
 n, the sample size
 c, the acceptance number (c = cut of point)
 c, is the maximum allowable defects in
sample
 If sample contains ‘c’ or fewer defectives,
lot will be accepted & if it contains more
than ‘c’ lot will be rejected.
280
 It is a probability curve that shows the
probabilities of accepting lots with various
proportions/percentages of defectives in lot.
 Shows probability of accepting lots of different
quality levels for a specific sampling plan.
 Assists management to discriminate between good
and bad lots.
 Exact shape and location of the curve is defined by
the sample size (n) and acceptance level (c) for the
sampling plan.
282
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Some Specific Points on the OC Curve These points correspond to specific values of lot quality and
Because sampling doesn’t allow the ideal OC curve, we
they have a variety of names. The point associated with 1 – α is
need to consider certain risks. The first risk is that the
consumer will reject a lot that satisfies the established often called the Acceptable Quality Limit or AQL. This is not
conditions, i.e., the process quality is acceptable, but, by necessarily the same AQL used to describe the ideal OC curve.
the luck of the draw, there are too many nonconforming
For an α of 5% this means a
items in the sample. This is called the producer’s risk,
and is denoted by the Greek letter α. The second risk is process operating at the AQL will have 95% of its lots
that the consumer will accept a lot that doesn’t meet the accepted by the sampling plan. Similarly, the point associated
conditions, i.e., by the luck of the draw there are not
many nonconforming items in the sample, so the lot is with β is often called, in contrast, the Rejectable Quality Limit
accepted. This is the consumer’s risk and is denoted by or RQL. A process operating at the RQL will have 5% of its
the Greek letter β. The literature contains a variety of
lots accepted by the sampling plan. Lastly, some authors
typical values for α and β, but common values are 5% and
10%. When we locate these values on the OC curve, consider the process quality where the lots have a 50%
expressed in terms of probability of acceptance, we probability of acceptance. This is called the Indifference
actually locate 1 – α. 283 284
Quality Limit or IQL.

The Perfect/Ideal OC Curve

An OC Curve Keep whole
shipment
100 – 100 –

P(Accept Whole Shipment)

95 –
 = 0.05 producer’s risk for AQL

75 –
75 – Return whole
50 –
shipment
Probability of
Accepting 50 –
a lot (Pa) 25 –
Cut-Off
25 –
0 |– | | | | | | | | | |

10 – 0 10 20 30 40 50 60 70 80 90 100
 = 0.10 Percent
0 |– | | | | | | | | % Defectives in Lot
0 1 2 3 4 5 6 7 8 defective
AQL LTPD When the process percent nonconforming is below the prescribed
Consumer’s risk level, 10% in this example, the probability of acceptance is 100%.
Good Indifference
for LTPD (RQL) Bad lots
lots zone For quality worse than this level, higher than 10%, the probability
% defectives in lot (p) of acceptance immediately drops to 0%. The dividing line between
100% and 0% acceptance is called the Acceptable Quality Level
285 286
(AQL).

The only way to

realize the ideal OC
Similarly, as
curve is 100%
inspection. With the
Probability of Accepting Lot (Pa)

sampling, we can acceptance

number, c,
Probability of Accepting Lot (Pa)

come close. In general,

as the sample size gets larger
increases, keeping the for a given
acceptance number sample size,
proportional, the OC
curve approaches the
n, the OC
ideal, as shown in this curve
figure. approaches
 In theory it is the ideal.
obtainable by 100% This figure
inspection IF illustrates
inspection were error
% Defectives in Lot (p) the
free.
Obviously, ideal OC relationship. % Defectives in Lot (p)
As ‘n’ increases the OC Curve Approaches the Ideal
curve is unobtainable As ‘c’ increases for fixed ‘n’ the OC Curve Approaches the Ideal
in practice.
287 288

48
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Solution
Example  This type of sampling is called attribute sampling
Sims Software purchases DVDs from DVD because the sampled item, a DVD in this case, is
International. The DVDs are packaged in lots of 1,000 classified as acceptable or unacceptable.
each. Todd Sims, president of Sims Software, has
agreed to accept lots with 10 percent or fewer
 Let  represent the actual proportion defective in the
defective DVDs. Todd has directed his inspection
population.
department to select a random sample of 20 DVDs and
examine them carefully. He will accept the lot if it has The lot is good if  ≤ .10.
two or fewer defectives in the sample. Develop an OC The lot is bad if  > .10.
curve for this inspection plan.
What is the probability of accepting a lot that is 10  Let X be the number of defects in the sample. The
percent defective? decision rule is:
Accept the lot if X ≤ 2.
Reject the lot if X ≥ 3.
289 290

The binomial distribution is used to compute the various

values on the OC curve. Recall that the binomial has OC Curve - Computation Example
four requirements:
1. There are only two possible outcomes. Here the DVD
is either acceptable or unacceptable.
2. There is a fixed number of trials. In this instance the
number of trials is the sample size of 20.
3. There is a constant probability of success. A success
is finding a defective DVD. The probability of success
is assumed to be .10.
4. The trials are independent. The probability of
obtaining a defective DVD on the third one selected is
not related to the likelihood of finding a defect on the
fourth DVD selected.

291 292
292

To begin we determine the probability of accepting a lot

that is 5 percent defective. This means that = .05, c =
2, and n = 20. From the Excel output, the likelihood of
selecting a sample of 20 items from a shipment that
OC Curve - Computation Example
contained 5 percent defective and finding exactly 0
defects is .358. The likelihood of finding exactly 1
defect is .377, and finding 2 is .189. Hence the likelihood
of 2 or fewer defects is .924, found by .358 +.377 +
.189. This result is usually written in shorthand notation

P(x≤ 2 |  = .05 and n = 20) = .358 + .377 + .189 =

.924

The likelihood of accepting a lot that is actually 10 percent

defective is .677.
P(x≤ 2 |  = .10 and n = 20) = .122 + .270 + .285 =
.677

The complete OC curve in the next slide shows the

smoothed curve for all values of between 0 and about 30 294
percent. 293

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DEMING’S 14 POINTS
1) Create constancy of purpose:- Plan for quality in the long
term. Works towards improvement of a product and service
with a plan to become competitive and stay in business.
2) Adopt the new philosophy:- Minimize the levels of delays,
mistakes, defective materials, and defective workmanship.
3) Don’t depend anymore on mass inspection:- Focus more on
DEMING’S 14 POINTS preventing defects and defectives rather than wasting time
on detecting defects.
4) Meaningful measures of quality along with the price:- Let
not the price be the deciding factor any more, depend more
on quality, meaningful measures of quality along with the
price.
5) Find problems to focus on appropriate solution:- As a
member of the management team, work continually on the
system focusing on design, incoming materials, composition
of materials, maintenance, training, supervision and so on.
295 296

6) Institute latest methods of training:- let your on-the- 10)Provide support at every level:- Don’t create numerical
job training method be a modern and latest as possible. goals, posters, slogans for the workforce, asking for
new levels of productivity if you cannot train employees
7) Let the foreman speak on the quality:- If the in that direction.
foreman speaks about the barriers to quality instead of 11)No numerical quotas in work standards:- Eliminate
sheer number of products good or defective, the focus work standards that prescribe quotas based on
is not on quality. Letting him speak about quality will numbers.
automatically improve productivity. 12)Remove barriers:- Take all the measures that remove
barriers between the hourly worker and his right of
8) Drive out fear:- Instill confidence that the pride of workmanship.
organization is working for their future. Let them not 13)Focus on retraining:- Institute a vigorous program of
worry about retrenchments, lay-offs, lockouts, etc. education and retraining.
14)Facilitating organization structure:- Create a
9) Integrate the organization into one:- break down structure in top management that facilitates or pushes
barriers among departments. See that people in various the organization every day towards the achievement of
departments work as team. the above principles.
297 298

Purchase Function
 Purchasing is specialized job. Stores manager is
authorized to look after this function. Purchase
department looks after the purchasing of materials
MATERIALS etc.
 The buying function is said to be centralized when
MANAGEMENT the entire responsibility of procurement of inventory
lies with one single person.
 On the other hand, the buying function is said to be
decentralized when other department say production,
engineering, marketing, finance directly buy
inventories.

299 300

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Steps in the Purchasing Process
1. Requisitioning purchases:- The purchase department
collects all the requisitions for purchase of materials
from the departments.
2. Exploring the sources of supply:- Purchase department
has to prepare a list of the suppliers of every type of
material.
3. Issuing of tenders and quotations:- It is the function of
the purchase department to issue tenders to invite
quotations from the selected suppliers.
4. Opening tender/quotations:- It is customary to announce
the date of opening the tender and open the quotations
and orders are placed with those suppliers who offer the
best quality of materials at the best price.
5. Negotiations:- The purchase department and supplier
negotiate or bargain to arrive at a consensus regarding
the purchase price and the term of delivery. 301
6. Placing purchase order:- Once there is consensus
between the buyer and the supplier on matters
regarding to price and the terms of delivery, the buyer
releases the purchase order.
7. Receiving the material:- Then the goods are supplied
with a delivery note.
8. Checking inward invoice:- invoice is statement showing
the particulars of the supplier, the buyer of the goods
supplied, the details of the material supplied.
9. Inspecting materials:- The purchase department links up
with the stores department to check up the physical
condition, quality, and quantity of the material received.
10.Forward materials to stores:- After inspection, the
goods received are forwarded to stores.
11.Passing bills for payment:- After the stores
department certifies the invoice, the accounts
department passes the invoice for the payment. 302

STORE RECORDS ABC ANALYSIS

 ABC analysis is a technique items and category C of the
1. Material requisition note:- Whenever materials are required
of exercising selective least costly items.
by the department, this form has to be filled.
control over inventory items.
2. Purchase order:- The purchase officer will release the The technique is based on
purchase order which contains the details of materials. the assumption that a firm
3. Invoice:- It is a statement sent by the seller mentioning the should not exercise the same
details of the goods supplied. degree of control on items
4. Goods received note:- The goods received note furnished the which are less costly as
particulars of the suppliers, purchase order number, and job compared to those items
for which the goods are received. which are more costly.
5. Goods returned note:- This note is prepared when goods are According to this approach,
returned to the suppliers. the inventory items are
divided into three categories
6. Stores ledger account:- This ledger is maintained to provide
i.e., A,B,C.
the details of the quantity, price, and amount of the receipts,
issues, and balance of stocks on a day-day-basis.  Category A may include more
costly items, while category
7. Bin card:- Bin card is the slip or tag attached to the bin
B may consist of less costly
where goods are stocked.
303 304

ECONOMIC ORDER QUANTITY (EOQ) Illustration 1:- The financial department of a corporation
 The quantity to be purchases neither be small nor big because provides the following information.
costs of buying and carrying materials are very high. EOQ is 1. The carrying costs per unit of inventory are Rs 10
the size of the lot to be purchased which is economically viable.
EOQ is the point at which inventory carrying costs are equal to 2. The fixed cost per order are Rs 20
order costs. In determining EOQ, it is assumed that cost of 3. The number of units required is 30000 per year.
managing inventory is made up solely of two parts i.e., ordering determine the Economic Order Quantity (EOQ), the
costs and carrying costs. total number of orders to be placed in a year and the
1. Ordering costs:- These costs are also known as buying costs. time gap between two orders.
These costs include requisition costs, ordering costs, receiving
costs, transportation costs etc.
Solution:-
2. Carrying costs:- These are the costs for holding inventories.
The ordering and carrying costs have a reverse relationship.
These costs include interest on capital locked up/blocked in
inventory, storage, insurance, obsolescence and taxes.
A= Annual Consumption/usage
0 = Cost per order
C = Carrying cost per unit per annum
305 306

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Illustration 2: In the above case, the company has to place 25 orders to

optimize its ordering and carrying costs. The same can be
A biscuit manufacturing company buys a lot of 10,000 bags
verified form the following table:
of wheat per annum. The cost per bag is Rs. 500 and the
ordering cost is Rs. 400. the inventory carrying cost is No. of Order size in Average Carrying cost @ Ordering cost Total cost
orders bags inventory Rs.50 per bag @ Rs. 400 per year
estimated at 10% of the price of the wheat. Determine per year (order size/2) (c x Rs.50) per order (d + e)
Economic Order Quantity (EOQ). (a x Rs. 400)
a b c d e f
Solution:
1 10,000 5,000 2,50,000 400 2,50,400
Annual demand (A) = 10,000 bags 20 10,000/20=500 250 12,500 8,000 20,500
Ordering cost per order = Rs. 400 25 10,000/25=400 200 10,000 10,000 20,000
Carrying cost per unit (C) = 10% of Rs. 500 = Rs. 50 30 10,000/30=333.3 166.65 8,333 12,000 20,333
40 10,000/40=250 125 6,250 16,000 22,250
The table shows that we can optimize the total costs
(ordering and carrying costs) at Rs. 20,000 if the size of
each order is 400 bags. It is economical for the company to
place 25 orders during the year to meet the annual
307 requirement of wheat. 308

Illustration 3:
The following information is about the shock absorbers used by an
automobile workshop.
Annual demand: 4800 units
Unit price: Rs. 300
Cost of placing an order: Rs. 50
Storage cost: 3% per annum
Interest rate: 15% per annum
Calculate EOQ and also find the number of orders to be placed.22
Solution:
Annual demand(A) = 4800 units
Ordering costs per order (O) = Rs. 50
Carrying cost per unit(C) = Storage cost 3% + Interest 15%
= 18% p.a. of the unit cost
= 300 x 0.18 = 54

309 310

METHODS OF PRICING 2. Last In First Out (LIFO):- This method is quite

1. First In First Out (FIFO):- In this method, the opposite to the FIFO method. In this method, the
material received first will be issued first at the price material received last will be issued first at the price at
at which it is received. The balance of stock, at any which it is received. The balance of stock, at any time,
time, is from the most recently procured stock. It is is from the old stock. It is valued according to its price.
valued according to its price.
Advantages Disadvantages
Advantages Disadvantages
1) It easy to calculate and 1) Since goods are issued
1) It easy to calculate 1) There is danger that
understand in the reverse order
2) Closing stock is valued job/products are
2) Goods are issued at the from that in which they
by most recent price charged low price and
latest prices are received, it looks
3) It is good in times of stock is valued at a high
illogical
fall in prices price when prices of
2) Closing stock is not
materials is in increasing
valued at the recent
trend
prices
2) This method shows high
profits when price of
materials increase 311 312

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3. Simple average price method:- In this method, the
stocks are issued at an average price. The average price
is determined by dividing the sum of the prices (at
which the goods are received) by the number of prices
available.
4. Weighted average price method:- This method is an
improvement over simple average price. While
calculating the average price, the quantities of each of
the receipts is considered.

Advantages Disadvantages Where, w1, w2, w3 refer to quantities and p1,p2, p3 refer
1) It easy to calculate and 1) It considers only the to prices.
understand prices, not the
Advantages Disadvantages
2) This method quantities of the stocks
1) The extreme 1) It is difficult to
neutralizes the price 2) When there are large
fluctuations in the calculate and understand
differences. The stock fluctuations, the
prices are neutralized 2) The prices at which
is valued at the average average price is not
2) It realistic as it issues and stocks are
price close to any of the
considers quantities of valued are different
prices available
receipts from the actual prices

313 314

Perpetual Inventory Control (Continuous Stock Taking) STOCK LEVELS

The system of recording balances at the end of each
of the receipts and issues is called perpetual inventory
control. This is also called ‘continuous stock staking’. It
facilitates the regular checking of the stocks. The
stores ledger account and bin cards are the valuable
documents that facilitate this process. The balance as
per the store ledger account should necessarily agree
with the physical quantity of stocks. The stock
verification is done on a day-to-day basis, and hence,
the store need not be closed for stock verification or
stock taking. 315
1. Maximum level:- Materials need not be stored beyond
the maximum level. In other words, the factory does not
require more materials than this level considering its
rate of present consumption. The maximum level should
be as low as possible. The higher the maximum level,
higher is the need for working capital for material.
Maximum level = Reorder level + EOQ-Minimum quantity of
anticipated usage x Lead time
2. Minimum level:- Minimum level represents the level below
which the stocks should not normally be allowed to fall.
If the materials fall below this level, it may lead to a
break in the production schedule for want of stocks. The
minimum level is determined as follows:
Minimum level = Reorder level –Average usage for
average lead time 316

Illustration 1:
3. Reorder level:- At this level, the process of placing
The following data relates to a particular component.
orders for repurchase should be initiated. This level is Normal usage 220 units per day
higher than the minimum level to cover any sudden Minimum usage 100 units per day
Maximum usage 280 units per day
increase in the rate of consumption or unexpected
Lead time 10 – 20 days
delays in replacing the stocks. This level should be It is observed that EOQ for this component is 3000 units.
lesser than maximum level to prevent carrying out
Solution:
excess stocks.
Reorder level = Max. usage x Max. lead time = 280 x 20 = 5600
Reorder level = Maximum usage x Maximum lead time units
Min. level = Reorder level – Average usage for average lead time
= 5600 – (220 x 15) = 2600 units
Max. level = Reorder level + EOQ – Min. quantity of anticipated
4. Lead Time:- Lead time means time needed to get the
usage x lead time
material from the supplier. = 5600 + 3000 – (100 x 10) = 7600 units
317 318

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MODREN TECHNIQUES IN
MATERIAL MANAGEMNET
1. Just In Time (JIT) The normal system is to keep the
raw materials, WIP and finished goods to meet the
requirements of production or sales. However, keeping
such stocks results in costs. Such costs or losses can
be minimized by keeping inventories at the lowest
possible level. JIT aims to achieve this objective. This
system envisages that all inventories are received in
time, i.e., raw-materials are received just in time to be
assembled into products and products are completed
just in time to be shipped to customers. Toyota first
introduced this technique in 1950’s in Japan.
319 320

2. Materials requirement planning (MRP) systems:- MRP is an 3. Vendor rating and development:- The venders are
internal production process designed to ensure that the rated on the basis of their reliability in terms of
materials and parts are available as and when required. The quality, quantity, price, and consistency in the quality.
quantity and timing requirements of a derived or dependent
Such selected vendors are given special training and
demand are determined for the materials used in the
facilities for better performance. For example
manufacturing operation, which has an autonomous demand.
providing financing of cold storages, transport
For example, the demand for a scooter is autonomous or
vehicles etc.
independent. The resultant demand for its components and
spare parts for assembly is called derived demand. By
estimating the demand for the scooters at different points
of time, we can estimate the need for the spares and other
components at any given point of time.
321 322

4. Value Engineering or Value Analysis:- Value analysis 5. Supply chain management:- Supply chain management

is essentially a cost reduction technique. It is defined (SCM) is the oversight of materials, information, and

as the process of determining the functional finances as they move in a process from supplier to
manufacturer to wholesaler to retailer to consumer. Supply
value/worth in relation to the cost of a given product
chain management involves coordinating and integrating
or service. It focuses on eliminating the unnecessary
these flows both within and among companies. It is said
costs. It is also called as value engineering because it
that the ultimate goal of any effective supply chain
involves a systematic effort to drop unnecessary costs
management system is to reduce inventory (with the
from the total cost of a given product. assumption that products are available when needed).

SCM is a total system approach to manage flow of

information, materials and services from raw materials
suppliers through factories and warehouses to the end
323 324
consumer.

54

MARKETING
325
MARKETING - FUNCTIONS
1. Buying and assembling:- Buying is one of the primary
functions of marketing. Buying raw materials as
required by the specifications of the customer’s
requirements or assembling the spare parts as per the
needs of the customer is the essential step in the
marketing process. Different intermediaries carry out
this function till the product reaches the customer.
The producer buys the raw materials, the wholesaler
buys the finished goods from the producer, the
retailer buys form the wholesaler and so on.
2. Selling:- It involves transfer of title of goods. Selling
may be personal selling and impersonal selling. In
personal selling, one finds a sales person speaking
about the product and why one should buy it. In
impersonal selling, it is the advertisements hoardings,
and others that speak about the products or services. 327
6. Risk-taking:- Risk is an integral part of business, and
thus, without risk, there is no business at all. The
businessman prefers to minimize the risks associated
with the business activity, particularly, when economy
is associated with innumerable risks.
7. Standardization and grading:- A standard is measure
of fixed value. The standard could be based on color,
weight, quality, number of items, price, or any other
parameter. Grading is the process of sorting the goods.
The price varies with grade of the goods.
8. Market information and research:- Modern marketing
requires a lot of information accurately, adequately,
and promptly. This information becomes basis for the
decision-making. Where to sell, how much to sell, when
to sell, what price, in what form, how other
competitors are selling – all these are strategic issues.
329
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What is Marketing?
Marketing?..
“Marketing is the activity, set of institutions, and processes
for creating, communicating, delivering, and exchanging
offerings that have value for customers, clients, partners,
and society at large.” — American Marketing Association
“Marketing is the social process by which individuals and
groups obtain what they need and want through creating and
exchanging products and value with others.” — Philip Kotler
Marketing is a group of activities such as production,
storing, transportation, promotion, financing, advertising etc.
which facilitate to move the goods from producer to
consumer. 326
3. Transportation:- This function provides place utility
for the products by transporting the goods wherever
they are required. Particularly, where the markets are
dispersed and the manufacturing points are
concentrated around the supply points of raw
materials, transportation function has a significant role
to play.
4. Storage and warehouses:- warehouses can be set up at
the points of production. FCI, for example, set up
warehoused or godowns in each district to store the
produce from the crops closer to all the production
points through out the country.
5. Financing:- The marketing/production activity may be
financed by own funds or borrowed funds. It is money
that keeps the marketing activity going. The
producers, wholesalers, retailers and even customers
need finance to buy.
328
PRODUCT LIFE CYCLE
The sales vary over a period of time. In most of the
cases, sales levels will grow up to a particular point of
time, and remain static at some level, beyond which the
sales start declining particularly when a new product that
satisfies the customer’s needs.
The concept of product life cycle describes these
common patterns of sales growth and decline, that can be
observed over the lifetime of a product.
330
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Stages in product life cycle:

3. Maturity:- When the product’s sales growth slows
1. Introduction:- This stage follows just after the launch of
down, it is called maturity. Due to this slow down,
the product. At this stage, the sales are likely to be very
the industry as a whole suffers from overcapacity.
slow. Most of the buyers don’t come forward as the product
is new.
4. Decline:- when sales of the product tend to fall,
2. Growth:- A new product enters the stage of growth when it
satisfies the needs of the customers. The sales start such a stage is called decline.

picking up with repeat purchases and also by a word of

mouth publicity, coupled with continued promotion outlay
from the manufacturer’s side. As new customers get
attracted to the product for the first time, sales soar,
sales revenues increase faster than costs and profits start
331 332
accruing.

CHANNELS OF DISTRIBUTION

The channels of distribution refer to the ways and means

of reaching the customer through the intermediaries such
as wholesalers, retailers, and other agencies, if any.
Sales

The channel intermediaries involve the transfer of goods

from the seller at a given place to the buyer in a different
place.

Product Life Cycle A distribution channel can have several stages depending on
how many organizations are involved in it:
333 334

Looking at the diagram above:

Channel 1 contains two stages between producer and consumer -
a wholesaler and a retailer. A wholesaler typically buys and stores
large quantities of several producers' goods and then breaks into
bulk deliveries to supply retailers with smaller quantities. For small
retailers with limited order quantities, the use of wholesalers makes
economic sense.

Channel 2 contains one intermediary. In consumer markets, this is

typically a retailer. The consumer electrical goods market in the UK
is typical of this arrangement whereby producers such as Sony,
Panasonic, Canon etc. sell their goods directly to large retailers such
as Comet, Tesco and Amazon which then sell onto the final
consumers.
Channels of Distribution Channel 3 is called a "direct-marketing" channel, since it has no
intermediary levels. In this case the manufacturer sells directly to
customers. An example of a direct marketing channel would be a
factory outlet store. Many companies also market direct to
consumers, bypassing a traditional retail intermediary - the travel
335 336
agent. Ex: Bata Show Room

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HUMAN RESOURCE MANAGEMENT(HRM)

 Human resources are the people who work for the
organization. It is an asset to the organization like
factory, machinery and cash.

 HRM is concerned with management of people from

UNIT III recruitment to retirement.

 Human Resource management is the body of knowledge

and a set of practices that define the nature of work and
regulate the employment relationship. HRM is the
function within an organization that focuses on
recruitment, management and providing direction for the
337 people who work in the Organization. 338

 HRM refers to the process of acquiring, training,

appraising and compensating employees and of attending HR Planning
strategic HR planning;
to their labour relations, health and safety and faireness job design
concerns. Retaining
employees Attracting
 The HRM process consists of planning, attracting, compensation; employees
maintenance; labor recruiting; selecting
developing, and retaining the human resources relations; separation

(employees) of an organization. Developing

employees
training & development;
performance appraisal

HUMAN RESOURCE MANAGEMENT

339 340

HUMAN RESOURCE DEVELOPMENT

Organizations have many opportunities for human
 Human Resource Development (HRD) is the
resources or employee development, both within and
framework for helping employees develop their
outside of the workplace.
personal and organizational skills, knowledge, and
Human Resource Development can be formal such as
abilities.
in classroom training, a college course, or an
 Human Resource Development includes such
organizational planned change effort.
opportunities as employee training, employee career
Or, Human Resource Development can be informal as
development,performance management and
in employee coaching by a manager or internal
development, coaching, mentoring, succession planning,
training and development classes taught by internal
key employee identification, tuition assistance, and
staff or a consultant. Mentoring by more
organization development.
experienced employees is also recommended for
 The focus of all aspects of Human Resource
employee development.
Development is on developing the most superior
It is especially useful as employees become more
workforce so that the organization and individual
senior within your organization.
employees can accomplish their work goals in service
to customers. 341 342

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PERSONAL MANAGEMENT AND Definition::-Flippo Defines personnel management

INDUSTRIAL RELATIONS
 Personal management is a process of managing people
enabling them to contribute their best for the
attainment of organizational goals. A personal manager
is primarily concerned with taking care of the human
relationships in the organization.
 Industrial relations refer to the relations between the
employees and the management. One of the measures of
ensuring industrial peace and productivity, in not only
the organization but also in the country as a whole, is to
maintain cordial industrial relations.
 Personal management often focuses on managing a work
force from an administration stand point. The function
is to ensure people are hired, pain on time and have
their complaints and needs addressed. 343
Definition
as the planning, organizing, and controlling of the
procurement, development, compensation,
integration and maintenance of people for the
purpose of contributing to the organizational goals.
Features of Personal Management
Management::-
1. Personnel management is concerned with
managing people at all level in the organization
2. It is concerned with employees both as
individuals and as a group
3. It is a method of helping the employees to
identify and develop their potential.
4. It is a method of channelizing this potential for
the attainment of organizational goals. 344

PERSONAL MANAGEMENT VS HUMAN RESOURCE

MANAGEMENT Management
BASIS FOR HUMAN RESOURCE Transactional Transformational
PERSONNEL MANAGEMENT Role
COMPARISON MANAGEMENT
Communicatio
The branch of Indirect Direct
n
The aspect of management that
management that is focuses on the most Labor Collective Bargaining
Individual Contracts
concerned with the effective use of the Management Contracts
work force and their manpower of an Initiatives Piecemeal Integrated
Meaning Management
relationship with the entity, to achieve the Procedure Business needs
entity is known as organizational goals Actions
Personnel is known as Human Decision
Slow Fast
Management. Resource Making
Management. Job Design Division of Labor Groups/Teams
Approach Traditional Modern Treat manpower of
Primarily on mundane
Treatment of the organization as
Machines or Tools Asset activities like employee
manpower Focus valued assets, to be
hiring, remunerating,
Type of valued, used and
Routine function Strategic function training, and harmony.
function preserved.
Performance
Basis of Pay Job Evaluation
Evaluation 345 346

FUNCTIONS OF HRM 2. Organizing:

I. Managerial Functions:
Functions: After objectives have been established and plans been
1. Planning: developed then personnel manager must design and
develop organisation structure to carry out various
Planning is necessary to give the organization its goals and
operations. Such as-
directions to establish best procedure to reach the goals. • Grouping of personnel activity
• Assignment of different groups of activities to
Planning staff levels requires that an assessment of present
different individuals
and future needs of the organization be compared with • Delegation according to task assigned
present resources and future predicted resources. • Co-ordination of activities of different individuals.

Appropriate steps then be planned to bring demand and 3. Directing:

supply into balance. The directing function of the personnel manager involves
encouraging people to work willingly and effectively for
For HRM, planning includes anticipating vacancies, planning the goals of the orgainsation.
job requirements, job descriptions, job specifications,
347 348
sources of recruitments.

58

4. Controlling:
Controlling helps to evaluate and control the performance
of the department in terms of various operative functions.
Controlling includes comparing results with standards and
corrections of deviations.
5. Staffing:
Staffing comprises these are functions induction,
transfer/promotion, Manpower development and training.
6. Motivation:
Motivating comprises these are the functions payment
recreation, communication, health and safety. 349
4. Training and Development - This function of human
resource management helps the employees to acquire skills
and knowledge to perform their jobs effectively.
5. Wage and Salary Administration - Human resource
management determines what is to be paid for different
type of jobs. Human resource management decides
employees compensation which includes - wage
administration, salary administration, incentives,
bonuses, fringe benefits, and etc,.
6. Employee Welfare - This function refers to various
services, benefits, and facilities that are provided to
employees for their well being.
7. Maintenance - Human resource is considered as asset
for the organisation. Employee turnover is not considered
good for the organisation. Human resource management
always try to keep their best performing employees with
the organisation. 351
JOB ANALYSIS
job?:- A job is described as a collection of
What is a job?:
tasks assigned to a position in an organization
structure.
Analysis?::- Job Analysis is the process
What is Job Analysis?
of studying and collecting information relating to the
operations and responsibilities of a specific job. The
immediate products of this analysis are job
description and job specification.
Job analysis is the systematic study of jobs to
determine what activities and responsibilities they
include, their relative importance in comparison with
other jobs. The personal qualifications necessary for
performance of the jobs and the conditions under
which the work is performed.
353
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II.
II. Operational Functions:
Functions:
1. Recruitment and Selection - Recruitment of
candidates is the function preceding the selection, which
brings the pool of prospective candidates for the
organisation so that the management can select the right
candidate from this pool.
2. Job Analysis and Design - Job analysis is the process
of describing the nature of a job and specifying the
human requirements like qualification, skills, and work
experience to perform that job. Job design aims at
outlining and organising tasks, duties, and responsibilities
into a single unit of work for the achievement of certain
objectives.
3. Performance Appraisal - Human resource
professionals are required to perform this function to
ensure that the performance of employee is at
acceptable level. 350
8. Labour Relations - This function refers to the
interaction of human resource management with employees
who are represented by a trade union. Employees comes
together and forms an union to obtain more voice in
decisions affecting wage, benefits, working condition, etc,.
9. Personnel Research - Personnel researches are done by
human resource management to gather employees' opinions
on wages and salaries, promotions, working conditions,
welfare activities, leadership, etc,. Such researches helps in
understanding employees satisfaction, employees
turnover, employee termination, etc,.
10. Personnel Record - This function involves recording,
maintaining, and retrieving employee related information
like - application forms, employment history, working hours,
earnings, employee absents and presents, employee turnover
and other data related to employees. 352
Job Analysis steps:
steps:-
1) Collecting and recording job information
2) Checking the job information for accuracy
3) Writing job description based on information
4) Using the information to determine the skill,
abilities and knowledge
5) Updating the information from time to time
JOB ANALYSIS
Job Description Job Specification
354
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JOB DESCRIPTION JOB SPECIFICATION

Description?:- A list of job’s duties,
What is Job Description?: Specification?:- A list of job’s “human
What is Job Specification?:
responsibilities, reporting relationship, working requirements” that is, the requisite education, skills,
conditions, and supervisory responsibilities. personality and so on.

Job Description contents: Job Specification contents:

 Job Title  Education

 Location  Experience
 Job summary  Training
 Duties  Initiative
 Machine tools etc  Physical effort
 Material etc  Responsibilities
 Supervision  Communication skills
 Working condition  Emotional characteristics
 Hazards  Attitude
355 356

LABOUR TURNOVER Reasons for Labour Turnover:

Turnover?:- It refers to the number
What is Labour Turnover?: 1. Rude behavior
2. The job did not meet expectations
of employees leaving the organization as against the
3. Feeling undervalued
total number of employees on the pay roll per year. It is 4. Coaching and feedback are lacking
measured in terms of percentage as follows: 5. Decision-making ability is lacking
6. People skills are inadequate
7. Organizational instability
Labour Turnover Rate 8. Lack of faith and confidence
9. Lack of promotions
10.Lack of growth opportunities
11.Bad working conditions
12.No welfare measures
13.Irregular payments
357 14.Lack of self-respect 358

MANPOWER PLANNING Manpower planning means the process of deciding how

Manpower: Workers are sometimes referred to as
Manpower:
manpower when they are being considered as a part of
the process of producing goods or providing services.
Manpower planning is the process of reviewing an
organization’s employee, or manpower, needs and then
selecting the best people for certain jobs. The end goal
of successful manpower planning is a smoothly running
operation, and the long-term result of manpower
planning is a company able to achieve its goals, because
its employees fill the right places within the
organization. Manpower planning typically falls under the
human resources department and it's not something
that occurs quickly. Instead, it is a process that
requires careful analysis and consideration to achieve
the desired outcome. 359
many people will be needed for a particular job or
project and how they should be used. It consists of
putting right number and right kind of people in the
right place.
Definition::- Manpower Planning may be defined as a
Definition
rational method of assessing the requirements of
human resources at different levels in the organization.
It ends with proposals for recruitment, retention, or
even dismissal, where necessary.
360

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RECRUITMENT
Importance of Manpower Planning:
Planning It is the process of finding and attracting capable
1. Making correct estimate of manpower requirement applicants for employment. The process begins when
new recruits are sought and ends when their
2. Managing the manpower according to the need of applications are submitted. The result is pool of
enterprises applicants from which new employees are selected.
Prior to initiating a recruitment procedure, the
3. Helps in recruitment and selection following matters should be considered:
1. Clarification of the scope and skill sets required to
4. Maintaining production level successfully perform the duties of the position
2. Review of the Job Fact Sheet or Position Description
5. Making employees development programme effecting to ensure that the skills and abilities required
6. Establishing industrial peace coincide with the current expectations of the
position. If they do not, then a position evaluation
7. Reduction in labour costs should be undertaken.
3. Review of the compensation available to the position
8. Minimization of labour costs. (i.e. salary and benefit plans, etc.)
4. Analysis of the impact that the hiring will have on the
361 362
budget.

SELECTION
SOURCES OF RECRUITMENT The process of identifying the most suitable persons
for the organization is called selection.
The main purpose of selection is to choose the right
person for the right job.
INTERNAL EXTERNAL
The job analysis, job description, and job
specifications are carried out before the position is
• Current Employee • Advertising advertised. These provide adequate insight about
• References from present • Employment agencies
• employee • Temporary help nature of the job, its description, and its
• Databank of former • Executive recruiters specifications, and further focus on what type of
• Referrals and walk
walk--ins
• applicants
• College recruiting person is to be selected for a given position.
• Retired Employee
• Former employee • Company’s web site The selection of a candidate with the right
• Free and fee
fee--paying
• Transfers
• Website services
combination of education, work experience, attitude,
• Promotions
• deputation • Labour unions and creativity will not only increase the quality and
• Labour contractors
• Outsourcing
stability of the workforce, it will also play a large role
in bringing management strategies and planning to
363 364
fruition.

Selection process involves the following stages: INDUCTION (Orientation)

 The main idea of this function is to share the information
about the facts of the company with the new employee so
1. Initial screening/Short listing that they feel proud of their association with the company.
At the time of getting inducted into the organization, the
2. Comprehensive application/bio data screening
personnel manager provides orientation to the new
3. Aptitude or written rests employees about the profile of the organization, its
business, its departments, and their job. This process is
4. Group discussion also called orientation or indoctrination because the new
recruits are taught a particular belief or attitude with the
5. Personal interviews aim that they would only accept that belief or attitude
exclusively.
6. Medical examination  The process of induction includes
includes::
 Familiarizing the new employees with the vision, mission, and
7. Employment offer letter goals of the organization.
 Providing certain insights into the organizational culture,
values and personal policies, code of conduct, terms and
conditions of service, future growth opportunities, grievance
365 366
handling, disciplinary procedures and so on.

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TRAINING AND DEVELOPMENT
TRAINING?:- Training is short-term process
What is TRAINING?:
of utilizing systematic and organized procedure by which
the staff acquires specific technical knowledge and
functional skills for a definite purpose. The focus of
training is the job or task.
Training means organized activity aimed at imparting
information/instructions to improve the recipients’
performance.
367
Methods of Training:
Training:
A) On
On- methods It is learning by
-the job training methods:
physically doing the work. The focus here is to
provide specific skills in a real situation. These
methods include:
training:: This is a method used for
1) Job instruction training
such jobs which can be performed with relatively
low skill. Here, the trainees systematically acquire
skills by following routine instructions in key
processes from a qualified instructor.
Doing) This is a
2) Experiential learning (Learning By Doing):
modern approach to the learning process. This
method is more used for training the senior
executives. It is a technique, which empowers the
manager-trainee with the freedom of choice to act
upon and the capacity to initiate, rather than simply
369
respond, to circumstances.
B) Off-
Off-the job training methods:
methods provide a
relatively broad idea relating to a given job or task.
These are meant for developing an understanding of
general principles, providing background knowledge,
or generating an awareness of comparative ideas
and practice. These methods include:
1) Lectures/talks and class room instructions:
instructions:
These techniques are designed to communicate
specific interpersonal, technical, or problem-
solving skills. Here, the trainer can maintain a
tight control over learning. However, this method
restricts the trainee's freedom to develop
his/her own approaches to learning.
371
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.What
What is the need for Training?
Training?::-
 High turnover among the new recruits
 Increase in wastage of materials
 Increase in the number of rejected units of
production
 Increase in the number of customer complaints
 Increase in the accident rate
 Reduced productivity levels
 Increase in machine breakdowns
368
Demonstration: Here, the work procedures are
3) Demonstration:
demonstrated to the trainees. Each of the trainees is
asked to carry out the work, on a sample basis, based
on his/her observation and understanding of the
demonstration.
training: It is a combination of on the
4) Apprentice training:
job and class-room training wherein the workers get
the knowledge about job in the class-room and then
they are required to perform the same in the work
place for a brief period ranging from three months to
one year, depending upon the complexity of the
training. Those who show good progress in this
training are likely to be absorbed in the same
organization. Those who complete apprentice training
are likely to get good jobs outside also.
370
2) Conferences: Conferences refer to get-
Conferences:
together of the experts from different areas of
a given topic. These experts present their views
based on their work experience and research
results. When employees participate in such
events they get a feel of the real world.
Seminars:: Seminars are held periodically by the
3) Seminars
professional organisations for the benefit of all
the practicing managers by taking into
consideration the recent advances in a
specialized area.
discussions:: This technique develops team
4) Team discussions
spirit among the executives from different
departments. It also enables them to understand
and appreciate each other's problems.
372
62

study:: This technique helps to provide an
5) Case study
understanding of what has gone wrong in a
particular case, such as Kingfisher Airlines(Vijay
Malya) case. Similarly, what are the factors
responsible for the success of organizations
such as Reliance or Hindustan Lever. Case study
technique is a very good method of learning the
principles and concepts.
6) Role
Role- playing:: The participants are assigned
-playing
roles and are asked to react to one another, as
they would do in their managerial jobs. These
roles are eventually exchanged.
373
exercises: Simulate means to do or
8) Simulation exercises:
make something that looks real but is not real.
Simulation is the process of designing a model of a
real system and conducting a series of repeated
trial and error experiments with this model for the
purpose of understanding the system. These
exercises include interactive exercises in which
trainees practice their skills on working models or
in mock situations based on real-life situations.
9) Group decision- making:: Group decision-making
decision-making
refers to the process of making decisions based on
the opinions expressed by all the concerned — may
be subordinates, peers, or outside consultants.
375
PLACEMENT
Placement?::- After training, the employee is
What is Placement?
placed in his/her position under the charge of a
manager. Placement is a process of assigning a specific
job to each of the selected candidates. It involves
assigning a specific rank and responsibility to an
individual. It implies matching the requirements of a
job with the qualifications of the candidate.
The personnel manager is to administer
promotion/demotion or transfer among the workforce
as per the needs of the organization.
Promotion: Promotion refers to the advancement of
a) Promotion:
an employee to a job with a higher authority and
responsibility. It may also carry a better
compensation package. 377
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instruction:: It is a system of
7) Programmed instruction
instruction within which pre-established subject
matter is broken into small, discrete steps and
carefully organized into logical sequence in which, it
can be learned by the trainee. Each step is built
upon the previous one. The programmed instruction
techniques can be in the form of programmed tests
and manuals, or video displays.
For instance, withdrawal of money through
automatic teller machines (ATMs) involves
responding to programmed instructions; working on
a personal computer or internet involves responding
to a series of programmed instructions.
374
What is DEVELOPMENT?
DEVELOPMENT?::
 Lots of time, training is confused with development, both are
different in certain respects yet components of the same
system. Development implies opportunities created to help
employees grow. It is more of long term or futuristic in nature
as opposed to training, which focus on the current job. It also is
not limited to the job avenues in the current organisation but
may focus on other development aspects also.
 Many organisations choose certain employees preferentially for
programs to develop them for future positions. This is done on
the basis of existing attitude, skills and abilities, knowledge and
performance of the employee. Most of the leadership programs
tend to be of this nature with a vision of creating and nurturing
leaders for tomorrow.
 The major difference between training and development
therefore is that while training focuses often on the current
employee needs or competency gaps, development concerns
itself with preparing people for future assignments and
responsibilities. 376
Demotion:: Where an employee is not in a position to
b) Demotion
perform a given job, he may be demoted or transferred
to a position with a lower authority and salary. In other
words, demotion is a punishment.
Transfer: It is a lateral shift that moves an
c) Transfer:
individual employee from one position to another. It may
be in the same department, or to a different
department or location. This does not involve any
changes in the duties, responsibilities, or skills needed.
The salary benefits also may remain the same.
378
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WAGE AND SALARY ADMININSTRATION

d) Separation
Separation:: Separation refers to
Wage and salary administration is the process of fixing
termination/dismissal of employment. In case of wage/ salary for different jobs in the organization
through job evaluation , negotiations with the unions.
misconduct or misbehaviour, when the employee is not
When wage is paid on the basis of the time spent in the
in a position to improve his performance despite notice, organization, it is called time wage system. It is
followed when service of the employees cannot be
his/her employment is terminated. valued exactly.
Absenteeism: Absenteeism refers to the practice
e) Absenteeism: When wage is paid on the basis of units produced/sold,
it is called piece wage system.
of an employee who does not report to work for any
Salary constitutes: 7. Medical reimbursement
particular reason. Absenteeism affects the 1. The basic pay 8. PF
2. DA 9. Gratuity
productivity adversely. As a measure of control, the 3. HRA 10. Pension
employees are not allowed to be absent without prior 4. Other allowances 11. Group insurance
5. Bonus 12. Educational allowances
permission from the management. 379 6. LTC 380
13. Accident compensation

PERFORMANCE APPRAISAL Why should we appraise the performance?

Performance appraisal is the process of measuring
and evaluating the performance or accomplishments.
"Performance appraisal is the systematic description
of an employee's job relevant strengths and
weaknesses.“
In a Performance appraisal, the employee's merits
such as initiative, regularity, loyalty, personality, etc.,
are compared with others. Then each employee is
rated or ranked. That is, he is given a particular rank
such as First Rank, Second Rank, etc. So if an
employee has the best attendance then he is given
First Rank in attendance and so on.
381
performance?..-
1. To assess the employee's present level of performance
2. To identify the strengths or weaknesses of individual
employee
3. To provide feedback to the employee so that he can
improve his/her performance
4. To provide an objective basis for rewarding the
employees for their performance
5. To motivate those employees who perform
6. To check and punish those employees who fail to
perform
7. To identify the gaps in performance, and thus, assess
training and development needs
8. To provide a basis for many other decisions such as
fixation of incentives or increment, regularization or
confirmation of the services of the employee,
promotion, transfer or demotion. 382

Steps in performance Appraisal

Appraisal:: Basis/measures of performance Appraisal
Appraisal::

1. Create set up performance standards 1. Volume of production/sales

2. Mutually set identifiable and measurable 2. Total revenue generated
3. Measure present level of performance 3. Return on investment
4.Compare and appraise present level of performance 4. Operating cost
with standard 5. Time saved
5. Discuss the appraisal with employee 6. Debt recoveries
6. Identify and initiate the corrective action 7. Loan advances
8. Deposits mobilized
9. Number of customer complaints processed
383 384
10. Consumer satisfaction level

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MERIT RATING Objectives of Merit Rating

(Performance Appraisal)
Merit Rating is also known as performance appraisal
or performance evaluation. It is a systematic process
for measuring the performance of the employees in
terms of job requirements.
It utilizes various rating techniques for comparing
individual employees in a work group in terms of
personal qualities or deficiencies and the
requirements of their respective jobs.
Definition:- According to Scot and Spriegel: “Merit-
Definition:
rating of an employee is the process of evaluating the
employee’s performance on the job in terms of the
requirements of the job”.
385
Rating::
1. To determine salary increments
2. To decide who has to be transferred, promoted,
or demoted
3. To discover the workers needs for retaining and
advanced training
4. To unfold the exceptional skills among the
employees based on their innate potentials
5. To guide and monitor the performance of those
who are lagging behind.
6. To provide a basis for comparison to segregate
efficient and inefficient workers.
386

METHODS OF MERIT RATING

2. Paired comparison method: Here, every employee
(Methods of Performance Appraisal)
method:: Ranking Method is simplest,
1. Ranking method is compared with all others in a particular cadre in the
oldest and most conventional method of merit department. By comparing each pair of employees, the
rating.
rater can decide which of the employees is more
In this method, a list is prepared for ranking
the workers in order of their performance so valuable/better to the organization.
that an excellent employee is at the top and the
worst at the bottom. This technique is used in The maximum number of pairs is obtained by the
enterprises where there are few workers. formula:

Example: If there are ten workers in the working

group, the most efficient worker is ranked as
number one and the least efficient worker is
ranked as number ten.
387
Where N = Total No. of employees to be evaluated.
For example, if there are 4 employees, the total
number of pairs will be 4(4-1)/2 = 6.
388

Example: If there are 4 employees to be

compared, A’s performance is first compared with
B to determine who has better performance, then,
A is compared with C,D and E and performance is
recorded. Later, B is compared to C,D and E since
he has been already compared with A. Afterwards,
C is compared with D and E and so on. These
comparison results are tabled and rank is assigned
There are 6 comparisons (or pairs) among A,B,C,D
to each employee. employees.

389

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Paired Comparison Matrix scale:: A rating scale is a set of factors

3. Rating scale
designed to elicit information about
As compared a quantitative or a qualitative attribute.
A B C D
to
A + - - Under rating scale, certain features like analytical
B - - - ability, cooperativeness, dependability, job
C + + + knowledge etc are selected for evaluation.
D + + - The employees are given grades according to the
judgment of the rater.
B ranks highest here The grades may be such as A-Outstanding, B-Very
good, C- Good, D-Average etc.
Note: ‘+’ means better than, ‘-’ means worse than. In the
above chart add up the number of ‘+’s in each columns to The actual performance of every employee is
get the highest ranked employee. rated with various grades in the mind of the rater.
392

For example: method: Some evaluators

4. Forced distribution method:
Performance suffer from a constant error i.e., either they rate
Level Very all workers as good, average are poor. They don’t
Poor Average Good Excellent
Work Good evaluate the employees properly. This system
Dimension
minimises rater’s bias so that all employees are not
equally rated. This system is based on the
Attendance 
presumption that all employees can be divided into
Behavior 5 categories i.e., Poor, Below average, Average,
towards  Good and Excellent. The main aim in this system is
subordinates to spread ratings in a number of grades.
It is useful only when the group of employees is
Sincerity  large. The rater may be asked to rate all the
employees as follows:
Dependability  Poor 10%, Below average 20%, Average 40%, Good
20%, Excellent 10%. 394

method: In this method, the

5. Narrative or essay method:
supervisor writes a detailed description about the
employee’s performance, output, behaviours and traits etc.
according to his perception. He may include in his report
the strengths, weaknesses, and potential of the employee.

6. Management by objectives (MPO):(MPO): Management by

Forced Distribution Method
objectives (MBO) is a tool for performance management.
The MBO technique requires the supervisor and the
employee to develop and agree on realistic, achievable and
measurable objectives; to determine how those objectives
will be met; and to agree on how results will be measured.
In a true MBO plan, strategic objectives are established
for the organization and are then broken into divisional and
departmental objectives, and finally into individual
objectives. In this method, actual performance is
evaluated.
396

66

Define Organizational
goals
Performance appraisals Define Organizational
(Rewards &Punishments)
MBO
Continuous monitoring of
Providing feedback
performance and progress
Performance
evaluation and reviews
Stages in setting up a grievance
machinery:
machinery:
1.Conference among the aggrieved employee,
supervisor, and union representative:- The
employee and /or the union representative shall
present the grievance to the most immediate
supervisor who has the authority to make
adjustments in the matter within 4 days of the
alleged grievance or knowledge thereof.
2.Conference with middle management and middle
union leadership:- If a satisfactory settlement is
not reached in stage 1, the employee/union
representative may present the grievance to the
department head. The grievance shall be settled
within 5 days of submission of the written grievance.
399
Objectives of Grievance Handling system:
system:
1. To enable the employee to air their grievance
2. To clarify the nature of the grievance
3. To investigate the reasons for dissatisfaction
4. To obtain a speedy resolution to the problem
5. To take appropriate actions
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GRIEVANCE HANDLING
Grievance means a complaint or a strong feeling that
you have been treated unfairly. A complaint from
employees, when ignored, takes the form of a
goals grievance. Grievance is a complaint genuine or
otherwise, about any issue relating to the job such as
about supervisor, wages, working conditions and so on.
It is necessary to create an in-build mechanism to
redress the grievances, at the earliest, at the
departmental level. If the individual grievances are
ignored, they may take the form of industrial disputes.
398
redressal 3.Conference among the top management and the
top union leadership:- If a satisfactory settlement
is not reached in stage 2, the employee/union
representative may present the grievance to the
Director. The director shall schedule a meeting to he
held within 14 days of the receipt of the grievance by
the director for the purpose of attempting to resolve
the grievance. If the grievance still continues, it is
referred to arbitration.
4 Arbitration:- Arbitration is a committee comprises
of usually three persons; one representing union, one
from management and third one is an impartial
person. Whatever decision taken by arbitration
committee, both the parties: employer and employee
should abide by.
400
Benefits of Grievance Handling system
system::
1. It encourages employees to raise concerns without
fear of reprisal.
2. It provides a fair and speedy means of dealing with
complaints.
3. It prevents minor disagreements developing into
more serious disputes.
4. It serves as an outlet for employee frustrations
and discontents.
5. It saves employer’s time and money as solutions
are found for workplace problems.
401 402
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JOB EVALUATION Advantages of Job Evaluation:

Job evaluation is an assessment of
the value of various jobs on the basis
of qualifications and skills required.
It is the process of establishing the
value/worth of jobs in a job
hierarchy.
The objective of job evaluation is to
determine which jobs should get
more pay than others.
Job evaluation begins with job
analysis and ends at that point where
the worth of a job is ascertained for
achieving pay equity between jobs.
403
Evaluation:
1. It is simple and inexpensive
2. It streamlines responsibility levels
3. It ensures the hiring of the right people
4. It is easily understood and easily administered
5. It helps setting better rates than the arbitrary
rates based purely an judgment and experience
6. Same unions prefer it, because it leases more
room for bargaining.
404

Differences between Job Evaluation and

Performance appraisal
Point Job Evaluation Performance Appraisal
Meaning Finding the Finding the worth
relative worth of of a jobholder.
job.
Aim Determine wage Determining
rates of incentive and
different jobs. rewards for
superior
performance.
Shows How much a job is How well an
worth. individual is doing
an assigned work. 405 406

1. Ranking Method
Method::
For example:
 Possibly the simplest method of job evaluation is the
Rank Monthly Salary
ranking technique. According to this method, jobs
1. Accountant Rs. 3,000
are arranged from highest to lowest, in order of 2. Accounts Clerk Rs. 1,800
their worth or merit to the organization. Jobs may 3. Purchase
Rs. 1,700
also be arranged according to the associative Assistant
4. Machine Operator Rs. 1,400
difficulty in performing them.
5. Typist Rs. 900
6. Office Boy Rs. 600
 The following table is a supposed illustration of
Order of jobs is judged in terms of duties and
ranking of jobs.
responsibilities.
407

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2. Classification Method (Grading Method):

Method):
For example:
 Under classification method, job classes or grades
are established by an authorized committee Class Employees
appointed for this purpose. Managing Director,
 A job grade is defined as a group of different jobs Executives Directors, Principal,
of similar difficulty or requiring similar skills to Vice-Principal
perform them.
HODs, Professors,
 Job grades are determined on the basis of Skilled Workers
Associate Professors.
information derived from job analysis.
Asst.Professor,
 One the grades are established, each job is then
placed into its appropriate grade or class depending
Semi-skilled workers mentors,
upon how will its characteristics fit in a grade. In Superintendent.
this way, a series of job grades is created. Then Lab Assistants, PAs,
different wage/salary rate is fixed for each grade. Less skilled workers Clerks, Office boys,
etc.
409 410

3. Factor Comparison Method:

Method: For example:
 Under this method, instead of ranking complete jobs, Daily Physical Mental Respon Working
each job is ranked according to a series of factors. These Key Job Skill
Wage Rate Effort Effort sibility Condition
factors include mental effort, physical effort, skill
needed, responsibility, working conditions etc. Electrician 60 11(3) 14(1) 15(1) 12(1) 8(2)
 First of all the key and benchmark jobs are selected as Fitter 50 14(1) 10(2) 9(2) 8(2) 9(1)
standards. Welder 40 12(2) 7(3) 8(3) 7(3) 6(3)
 The factors common to all jobs are indentified,
selected and defined precisely, usually they may be Cleaner 30 9(4) 6(4) 4(5) 6(4) 5(4)
physical, mental, skills, working conditions, Labour 25 8(5) 4(5) 6(4) 3(5) 4(5)
responsibility. Suppose the job of a painter is found to be similar to
 Once key jobs and factors are identified, then, the key
Electrician in skill (15), to Fitter in mental effort (10),
jobs are ranked in terms of the selected common
factors. to Welder in physical effort (12), to Cleaner in
 Then determine base rate (fair), and allocate the base responsibility (6) and to Labour in working conditions
rate among the five common factors. (4).
 Final step is to compare and evaluate the remaining The wage rate for this job would be (15+10+12+6+4)
jobs in the organization. 411 47. 412

4. Point Method
Method:: For example:
 Under point method, jobs are broken down based on Weights Factors Degrees
various identifiable factors such as skill, efforts, 40% Skills Required 1 2 3 4 5
training, knowledge, hazards, responsibility etc.
30% Efforts Required 1 2 3 4 5
 Thereafter, points/degrees are allocated to each of 20% Responsibility 1 2 3 4 5
these factors. 10% Working Conditions 1 2 3 4 5
Here, in this example, a job ‘X’’s 240 point may result from:
 Weights are given to factors depending on their
importance to perform the job. Points so allocated to 2 Degrees of skills required = 2 x 40 = 80
various factors of a job are then summed up. 3 Degrees of efforts required = 3 x 30 = 90
3 Degrees of responsibility required = 3 x 20 = 60
 Then, the jobs with similar total of points are placed 1 Degree of working conditions = 1 x 10 = 10
in similar pay grades. Total Points = 240
Once the worth of the job in terms of total points is expressed, the points are
413 converted into money values keeping in view the hourly/daily wage rates. 414

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CAPABILITY MATURITY MODEL
CMM?:- Capability maturity Model (CMM)
 What is CMM?:
is a collection of instructions an organization can
follow with the purpose to gain better control over
its software development process.
 The CMM ranks software development organizations
in a hierarchy of five levels each with a
progressively greater capability of producing quality
software. Each level is described as a level of
maturity. Those 5 levels are equipped with
different number of instruction to follow.
415
Level – 1 - Initial : At maturity level-1 processes are usually
ad hoc and the organization usually does not provide a stable
environment.
Level – 2 - Repeatable
Repeatable: At this maturity level-2, software
development successes are repeatable. The organization may
use some basic project management to track cost and
schedule.
Level – 3 - Defined
Defined: A maturity level-3, processes are well
characterized and understood, and are described in
standards procedure, tools, and methods.
Level - 4 - Managed
Managed: Using precise measurement,
management can effectively control the software
development effort. In particular, management can identify
ways to adjust and adopt. the process to particular projects
without measurable losses of quality or deviations from
specifications.
Level – 5 - Optimizing
Optimizing: This maturity level focuses on
continually improving process performance through both
incremental and innovative technological improvement. 416

NETWORK ANALYSIS
UNIT IV

417 418

What is project?. Features of project:

1. It has unique purpose
A project is an interrelated set of activities
2. It is temporary
which are to be executed in a certain order
before the entire task is completed. It has 3. It requires resources
definite starting and ending point. 4. It involves uncertainty
5. It has starting and ending point
The activities are interrelated in a logical Examples of project:
sequence which is known as precedence
1. Planning a wedding
relationship.
2. Hosting a holiday party
3. Performing a surgery
A project is represented in the form of a 4. Conducting a seminar
network for the purpose of analytical treatment
to get solutions for scheduling and controlling its 5. Replacing a drainage pipe
activities. 6. Constructing a building, etc.
419 420

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421 422

What is network?.
A network is a graphical diagram consisting of certain
configuration of “arrows” and “nodes” for showing the
logical sequence of various tasks to be performed to
achieve the project objective.
What is network analysis?.
Network analysis is the general name given to certain
specific techniques which can be used for the planning,
managing and controlling of projects.

The two most frequently used forms of network planning

are:
1. CPM (Critical Path Method). It uses one time
estimate.
2. PERT (Program Evaluation Review Technique). It uses
three time estimates.
423 424

425 426

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Example 3: Draw a Gantt Chart for the program of conducting a

campus interview:
Collect the final year B.Tech students profile 2 Weeks
Print the profile 1 Week
Contact the potential employers 4 Weeks
Fix the dates for interview 2 Weeks
Prepare the students by mock interview 3 Weeks
Conduct the interviews 1 Week
Solution:
Collect the profile
Print the profile
Contact the potential employers
Fix the dates for interview
Prepare students by mock interview
Conduct the interviews
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Duration in Weeks
427

429 430

431 432

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433 434

 It is single time estimate

435 436

Number Activity Predecessor

Example Example 2: Find the critical path.
1 Design house and obtain financing --
1: Activities 2 Lay foundation 1
for house 3 Order and receive materials 1 Activity Depend Duration
building 4 Build house 2,3 ency (Days) 4
project 5 Select paint 2, 3 A - 4
6 Select carper 5 B - 3 2
7 Finish work 4, 5 C A 2
5
3 D A 5 1 7 8
Lay E B 2
foundation Dummy F C 3 3 E2
6
Build house Finish work G D 2
1 2 4 6 7 H E 1
Order
Designing house materials I F,G,H 3 1) A-C-F-I = 4+2+3+3 = 12 Days
Select
And obtaining
Select 2) A-D-G-I = 4+5+2+3 = 14 Days
finance paint
carpet 3) B-E-H-I = 3+2+3+3 = 9 Days
5

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Example 3: From the below information, draw a Example 4:

network diagram and find the Critical path. Consider a project consisting of nine jobs with the following
precedence relations and average time estimates.
Activity Predece Time 1. Draw the project network. Note:- No two activities start and
ssors (Days) 2. Identify the critical path. end at same nodes because they
need different times and
A - 2 Job Predece Time Solution: resources. then dummy activity is
B - 3 2 ssor (Days)
used.
5 1
C - 4 A - 30
D A 1 1 3 7 8
B - 20 1
E B 2 6 C A,B 20 1
F B 5 4 D A,B 20 1
G C 7 E B 10 I 30
H D,E 2 1 1 1
F D,E 10
I F,G 3 1) A-D-H-J = 2+1+2+1 = 6 Days G C,F 40
J H,I 1 A-C-G-I = 30+20+40+30 = 120 Days
2) B-E-H-J = 3+2+2+1 = 8 Days H D,E 20 B-C-G-I = 20+20+40+30 = 110 Days
3) B-F-I-J = 3+5+3+1 = 12 Days I G,H 30 B-D-F-G-I = 20+20+10+40+30 = 120 Days
B-D-H-I = 20+20+20+30 = 90 Days
4) C-G-I-J = 4+7+3+1 =15 Days B-E-H-I = 20+10+20+30 = 80 Days

Example 5: From the below information, draw a Calculation of Float Time/Slack time
network diagram and find the critical path. Terminology:
Activity Predece Time 5 1.Forward Pass:- Calculation of Early Start Time (ES) and
ssors (Days) Early Finish Time (EF) of all the activities from left to
A - 7
8 right in the network is called forward pass.
B A 10 3 6
C A 12
D B 3 9 11
2.Backward Pass:- Calculation of Late Start Time (LS) and
E B 8
F B 7
7 Late Finish Time (LF) of all the activities from right to
2
G F 2
1 left in the network is called backward pass.
H D,E 5
I C 13 4 10

J C 6 3.Early Start Time (ES):- Es is the starting time of an

1) A-B-D-H-K = 7+10+3+5+14 = 39 Days
K H 14 2) A-B-E-H-K = 7+10+8+5+14 = 44 Days activity. For the first activity/activities, Es is always zero.
L D,E,F 5 3) A-B-E-L = 7+10+8+5 = 30 Days ES of current activity is the EF of preceding activity. If
4) A-B-F-L = 7+10+7+5+14 = 29 Days the current activity has two or more preceding activities,
5) A-B-F-G = 7+10+7+2 = 26 Days the latest (maximum) EF of preceding activities is the ES
6) A-C-I = 7+12+13 = 32 Days
of current activity. 442
7) A-C-J = 7+12+6 = 25 Days

4. Early Finish Time (EF):- EF is the finishing time of an
activity. It is calculated as below.
EF = ES + Activity Duration
5. Late Finish Time (LF):- LF means how much late an
activity can finish. For the last activity, LF is always EF
of the last activity because it doesn’t have following
activities. If the last activities are two or more, the
latest (maximum) EF of last activities is the LF of all the
last activities.
The LF of current activity is the LS of preceding
activity. If the current activity has two or more
preceding activities, the earliest (minimum) LS of
preceding activities is the LF of current activity.
6. Late Start Time (LS):- LS means how much late an
activity can start. It is calculated as below.
LS = LF – Activity Duration 443
7. Total Float (TF):- Total Float is the amount of time that
an activity can be delayed from its early starting date
without delaying the project finishing date. On the critical
path, total float is zero. Total Float is often known as
slack.
8. Free Float (FF):- Free Float is the amount of time that
an activity can be delayed without delaying the ES of any
succeeding activity/following activity/next activity.
FF = ES of succeeding activity – EF of current activity
If the current activity has two or more following
activities, the earliest (minimum) ES of
succeeding/following activities is considered to calculate
FF of current activity.
Free float can only occur when two or more activities
merge at common node.
TF belongs to the project whereas FF belongs to activity.
444
FF is less than or equal to TF.

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Example 1: Solution: Activity Start End Completion

node node time (Days)
The table below defines the activities within a small project. EF = ES + Activity duration A 1 2 2
1. Draw a network diagram. TF B 1 3 3
LS = LF - Activity duration
2. Calculate minimum overall project completion time. ES EF C 1 4 2
TF (Total Float) = LF – EF or LS - ES D 2 5 3
3. Calculate float time and identify critical activities. LS LF E 3 6 7
F 4 6 5
Activity Start node End node Completion time 10 G 5 7 4
(Days) 2 5 H 6 7 9
A 1 2 2 10 1215 I 7 8 3
D3
B 1 3 3 0 2 2 5 10
1012 0 5 9 0
C 1 4 2 0
0
0 3 3 10 1519 1922
D 2 5 3 3 10 1019 1922
0 3
E 3 6 7 1
B3 E7 H9 1019 I3
3 6 7 8
F 4 6 5 3
G 5 7 4 0 2
3 5
H 6 7 9 3 A-D-G-I = 2+3+4+3 = 12 Days
2 7 B-E-H-I = 3+7+9+3 = 22 Days
I 7 8 3 4 C-F-H-I = 2+5+9+3 = 19 Days
5 10

Example 2:
Various activities and their floats Consider the details of a project as shown in the table.
Normal Earliest Time Latest Time Total 1. Draw a network diagram.
Activity 2. Find slack time.
Time ES EF LS LF Float
3. Identify the critical path.
A 2 0 2 10 12 10
B 3 0 3 0 3 0 Activity Predecessors Time(Days)
C 2 0 2 3 5 3 A - 8
D 3 2 5 12 15 10 B - 10
C - 8
E 7 3 10 3 10 0 D A 10
F 5 2 7 5 10 3 E A 16
G 4 5 9 15 19 10 F D,B 17
G C 18
H 9 10 19 10 19 0
H C 14
I 3 19 22 19 22 0 I F,G 9

EF = ES + Activity duration Activity Predecessors Time(Days)

TF
LS = LF - Activity duration A - 8
ES EF B - 10
Various activities and their floats
TF (Total Float) = LF – EF or LS - ES C - 8
Solution:-
Solution:- LS LF D A 10 Normal Earliest Time Latest Time Total
Activity
0 20 E A 16 Time ES EF LS LF Float
8 24 F D,B 17
0 8 2 G C 18
0 8 2844 H C 14
A 8 0 8 0 8 0
0
8 18 I F,G 9 B 10 0 10 8 18 8
8 18 0
8 C 8 0 8 9 17 9
1835 0
0 10
1835 3544
1
B=10 8 18
3544 I=9
D 10 8 18 8 18 0
F=17
3 5 6
9 E 16 8 24 28 44 20
0 8 22 F 17 18 35 18 35 0
9 17 9 8 22
8 26 3044 G 18 8 26 17 35 9
1735
H 14 8 22 30 44 22
I 9 35 44 35 44 0
4
Critical path = A-D-F-I = 8+10+17+9=44 Days

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Example 3:

451
452

Example 4:
Various activities and their floats Consider the details of a project as shown in the table.
Normal Earliest Time Latest Time Total Activity Predecessor Time (Months)
Activity A - 2
Time ES EF LS LF Float
B - 5
A 4 0 4 0 4 0 C - 4
B 3 D B 5
0 3 1 4 1
E A 7
C 5 4 9 4 9 0 F A 3
D 1 G B 3
0 1 11 12 11 H C,D 6
E 5 9 14 9 14 0 I C,D 2
J E 5
F 2 1 3 12 14 11 K F,G,H 4
G 5 14 19 14 19 0 L F,G,H 3
M I 12
H 6 19 25 19 25 0 N J,K 8
1. Construct the CPM network.
2. Determine critical path and total flaot.

Various activities and their floats

Normal Earliest Time Latest Time Total
Activity
Time ES EF LS LF Float
A 2 0 2 6 8 6
B 5 0 5 0 5 0
C 4 0 4 6 10 6
D 5 5 10 5 10 0
E 7 2 9 8 15 6
F 3 2 5 13 16 11
G 3 5 8 13 16 8
H 6 10 16 10 16 0
I 2 10 12 14 16 4
J 5 9 14 15 20 6
K 4 16 20 16 20 0
L 3 16 19 25 28 9
M 12 12 24 16 28 4
455 N 8 20 28 20 28 0

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Example 5: Solution: TF Activity Predece Duration

Determine Total Float and Free Float. ES EF ssor (Days)
LS LF A - 5
B A 4
Activity Duration (Days) FF C A 5
Predecessor
A - 5 D B 6
0 E C 3
B A 4 0 F D,E 4
C A 5 9 15
0 5 9 0
D B 6 9 15
0 5 5 9 15 19
E C 3 3 0
0 5 0 15 19
F D,E 4
0 0
A5 F4
1 2 5 6

2 2
5 10 4 10 13
7 12 12 15
0 2

Various activities and their floats Example 6:

Normal Earliest Time Latest Time Total Free
Activity The maintenance of machine consists of the following jobs.
Time ES EF LS LF Float Float
The precedence relationship of these jobs are listed with
A 5 0 5 0 5 0 0 the help of their nodes numbers.
B 4 5 9 5 9 0 0 Draw an arrow diagram for the project and calculate EST,
C 5 EFT, LST, LFT, Total slack and Free slack.
5 10 7 12 2 0
D 6 9 15 9 15 0 0
Jobs 1-2 2-3 2-4 3-5 3-6 4-6 4-7 5-8 6-8 7-8
E 3 10 13 12 15 2 2
Duration(Days) 2 3 5 4 1 6 2 8 7 4
F 4 15 19 15 19 0 0
Activity E has two days free float. If this activity is delayed
by two days, it doesn’t affect the ES of next
activity/succeeding activity/following activity i.e., Activity
F.
Suppose activity is C is delayed by one day, it affects the
ES of activity E. So it doesn’t have free float i.e., zero.

Solution: TS
ES EF
Various activities and their floats
3
5 9 LS LF Normal Earliest Time Latest Time Total Free
8 12 Activity
3 FF Time ES EF LS LF Float Float
3 0
9 17
2 5 4 1-2 2 0 2 0 2 0 0
3 5 1220
0 5 8 0
0 2 0 7 2-3 3 2 5 5 8 3 0
0 2 5 6 0
1320 2-4 5 2 7 2 7 0 0
0 1213
0 7 1320 3-5 4 5 9 8 12 3 0
2 0 8
1 2 7 13
7 13 6
3-6 1 5 6 12 13 7 7
0 0 4-6 6 7 13 7 13 0 0
2 7 7
2 7 2 7 9 13 4-7 2 7 9 14 16 7 0
0 4 7 1620
7 9 0 5-8 8 9 17 12 20 3 0
1416 6-8 7 13 20 13 20 0 0
0
7-8 7 9 13 16 20 7 0

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Importance of Float (Slack) and Critical Path

1. Slack or Float shows how much allowance of time
each activity has, i.e how long it can be
delayed without affecting completion date of
project.
2. Critical path is a sequence of activities from start
to finish with zero slack. Critical activities are
activities on the critical path.
3. Criticalpath identifies the minimum time to
complete project.
4. If any activity on the critical path is shortened
or extended, project time will be shortened or
extended accordingly.
463 464

PERT

465 466

467 468

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Example 1:

469 470

Example 2:
Consider the following table summarizing the details of a
project.
Duration (weeks) 1. Find the expected
Activity Predecessors
duration and variance
A - 5 6 7 of each activity.
B - 1 3 5 2. Draw the network and
find expected project
C - 1 4 7
completion time.
D A 1 2 3 3. What is the probability
E B 1 2 9 of completing the
F C 1 5 9 project on or before
G C 2 2 8 22 weeks?.
H E,F 4 4 10
I D 2 5 8
J H,G 2 2 8
471

1. Find the expected duration and variance of each 2. Draw the network and find expected project
activity. completion time.
Duration
Activity Predecessors (weeks) 2 5

A - 5 6 7 0.11 6 8
B - 1 3 5 0.44 3 1 3 6
C - 1 4 7 1.00 4
D A 1 2 3 0.11 2 J=3
E B 1 2 9 1.78 3 4 7
F C 1 5 9 1.78 5
G C 2 2 8 1.00 3
H E,F 4 4 10 1.00 5 A-D-I = 6+2+5 = 13 Weeks
B-E-H-J = 3+3+5+3 = 14 Weeks
I D 2 5 8 1.00 5 C-F-H-J = 4+5+5+3=17 Weeks
J H,G 2 2 8 1.00 3 C-G-J = 4+3+3 = 10 Weeks

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3. What is the probability of completing the project on or Now, we need to find the probability with the help of
before 22 weeks?. standard normal distribution table.
In order to find out the probability of completing the In the left hand side of the table, z (pronounce as ‘g’) value is
project on or before 22 weeks, we need to have three types given.
of information.
In the left hand side of the table, you take 2.2
Activity on the Mean duration Variance for the
In the upper side of the table, you take 0.08
critical path of critical path critical path Our value 2.28
C 4 1.00
F 5 1.78
H 5 1.00 Now, we have to find the intercepting point value of 2.2 and
J 3 1.00 0.08 which is called as probability of completing the project.
TOTAL 17 4.78
Now, we have to apply the formula, in order to find out the
probability of completing the project on or before 22 weeks.

This value is obtained from the standard normal distribution

table. Therefore, the probability of completing the project
on or before 22 weeks is 0.9887 i,e,. 98.87%.

Example 3: Draw the suitable network diagram and

identify the critical path. What is the duration of the
project that will have 50% chance of completion.

Duration (weeks)
Activity Predecessors

A - 1 2 3
B - 2 3 4
C A 1 2 3
D B 2 4 6
E C 1 4 7
F C 1 2 9
G D,E 3 4 11
H F,G 1 2 3

Solution:
Duration (weeks)
Activity Predecessors

A - 1 2 3 0.11 2
B - 2 3 4 0.11 3 C=2
2 4
C A 1 2 3 0.11 2
D B 2 4 6 0.44 4 1 6 7
E C 1 4 7 1.00 4 5
F C 1 2 9 1.78 3
3 A-C-F-H = 2+2+3+2 = 9 Weeks
G D,E 3 4 11 1.78 5 A-C-E-G-H = 2+2+4+5+2 = 15 Weeks
H F,G 1 2 3 0.11 2 B-D-G-H = 3+4+5+2 = 14 Weeks

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What is the duration of the project that will have 50%

chance of completion. Now let x be the project duration.
In order to find out the duration of the project that will
have 50% chance to complete, we need to have three types
of information.
Activity on the Mean Variance for the
critical path duration critical path
A 2 0.11
C 2 0.11
E 4 1.00
G 5 1.78
H 2 0.11 X – 15 = 0 x 1.76
TOTAL 15 3.11

X = 15 + 0
At 50% (0.50) completion of the project, z value is 0 (look at
the normal distribution table). X = 15 Weeks

So, there is 50% chance that the project will be completed in 15 weeks.

Example 4:
An R & D project has a list of tasks to be performed whose
time estimates are given in the below table:
Duration (Days) 1. Draw the project
Activity Activity Name
network and find the
1-2 A 4 6 8 critical path.
1-3 B 2 3 10 2. Calculate the Time
Earliest and the time
1-4 C 6 8 16
Latest.
2-4 D 1 2 3 3. Find the probability
3-4 E 6 7 8 that the project is
3-5 F 6 7 14 completed in 19 days.
4-6 G 3 5 7 If the probability is
less than 20%, find the
4-7 H 4 11 12
probability of
5-7 I 2 4 6 completing it in 24
6-7 J 2 9 10 days.

Solution:--
Solution:
1. Draw the project network and find the critical path.
6
Activity 2
Duration Activity
Activity Name
Activity (weeks)
Name 1-2 A 6
1-3 B 4
1-2 A 4 6 8 0.44 6 C=9 H=10
1-4 C 9 1 4 7
1-3 B 2 3 10 1.78 4
2-4 D 2
1-4 C 6 8 16 2.78 9
3-4 E 7
2-4 D 1 2 3 0.11 2
3-5 F 8
3-4 E 6 7 8 0.11 7
4-6 G 5 5
3-5 F 6 7 14 1.78 8 3
4-7 H 10
4-6 G 3 5 7 0.44 5
5-7 I 4 A-D-G-J = 6+2+5+8 = 21 Days
4-7 H 4 11 12 1.78 10
6-7 J 8 A-D-H = 6+2+10 = 18 Days
5-7 I 2 4 6 0.44 4 C-G-J = 9+5+8 = 22 Days
6-7 J 2 9 10 1.78 8 B-E-G-J = 4+7+5+8 = 24 Days
B-E-H = 4+7+10 = 21 Days
B-F-I = 4+8+4 = 16 Days

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2. Calculate time earliest and time latest 3. Find the probability that the project is
EF = ES + Activity duration
TS completed in 19 days.
LS = LF - Activity duration
ES EF In order to find out the probability of completing the
TS (Total Slack) = LF – EF or LS - ES project in 19 days, we need to have three types of
LS LF
information.
Activity on the Mean Variance for the
0
3 3 6 critical path duration critical path
11 16 0
0 6 2 6 8 B 4 1.78
11 16 16 24
3 9 9 11 E 7 0.11
2 16 24
0 9 3 G 5 0.44
2 11 11 21 J 8 1.78
C=9 H=10 14 24 TOTAL 24 4.11
1 4 7
0 Now, we have to apply the formula, in order to find out the
4 11 8 8
0 4 12
probability of completing the project in 19 days.
4 11 12 16
0 4 12 20 20 24
0 4 5
3

Now, we need to find the probability with the help of

standard normal distribution negative table.
In the left hand side of the table, z (pronounces as ‘g’) value
is given.
In the left hand side of the table, you take 2.4
In the upper side of the table, you take 0.06
Our value 2.46

Now, we have to find the intercepting point value of 2.4 and

0.06 which is called as probability of completing the project.

This value is obtained from the standard normal distribution

negative table. Therefore, the probability of completing the
R & D project in 19 days is 0.0069 i,e,. 0.69%.

Since the probability of competing the project in 19 days

is less than 20% as in the question, we find the
probability of completing it in 24 days.

Now, we have to find the intercepting point value of 0 (zero)

which is called as probability of completing the project.

This value is obtained from the standard normal distribution

positive table. Therefore, the probability of completing the R
& D project in 24 days is 0.5000 i,e,. 0.50%.

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Differences between CPM and PERT

PROJECT
CRASHING

Compressing the project

493 494

The total cost of a project is made up of a two Time-Cost Tradeoff

components. Minimum cost = optimal project time

Total cost
1) Direct Cost:- It includes labour, material and Indirect cost
any other cost directly related to the project
activity.
Cost (Rs)

2) Indirect Cost:- It includes overhead costs,

facilities costs and so on. Ex: Supervisors
salaries, Rent, Interest on loans, Depreciation,
Fixed charges etc. so, this is the variable cost Direct cost

which can be avoided by reducing the total

project time. The shorter the project time CT OT NT Time
the lower would be the indirect cost. This Crashing
Project Duration
cost is apportioned among the activities. 495 496

Let’s see you are the CEO of the company and So, you are the CEO of the company feel strongly
your company has found out that your rival that in order to beat the competitor, you need to
company is launching a new product on 1st of launch the product as early as possible. So, you ask

January. Now, you would like to launch your the project manager to come with analysis of what it

product before your competitor launches. You takes to complete the project before 1st of January.

approach the project manager in your company who

The project manager is frequently confronted with
is responsible for launching your product. Your having to reduce the scheduled completion time of a
project manager has come up with the schedule project to meet a deadline. In other words, the
according to which your company will be able to manager must finish the project sooner than
launch the product on 7th of January. indicated by the CPM/PERT network analysis.
497 498

83

Project duration can often be reduced by assigning
more labor to project activities, in the form of
overtime, and by assigning more resources
(material, equipment, and so on). However,
additional labor and resources increase the project
cost.
Thus, the decision to reduce the project duration
must be based on an analysis of the trade-off
between time and cost. We attempt to “crash”
some “critical” events by allocating more resources
to them, so that the time of one or more critical
activities is reduced to a time that is less than the
normal activity time.
499
 This reduction in the normal activity time is referred to
as crashing. Crashing is achieved by devoting more
resources to the activities to be crashed.
 The objective of project crashing is to reduce project
duration while minimizing the cost of crashing.
 Now, let us get back to analyses that the project
manager of your company is doing. So, in order to assess
whether crashing of activities would be beneficial from
either cost or schedule perspective. The project
manager decides to find out some time and cost for the
activities as below.
501
Example: An activity takes 3 weeks to complete
at a normal cost of Rs. 30,000. If it is possible to
complete the activity in 1 week with crash cost of
Rs. 34,000, show the figure indicating normal cost,
crash cost, normal time and crash time.
503
11/2/2017
 Crashing Technique is a schedule (time line)
compression technique in which cost and schedule
trade-offs are analyzed to determine how to
obtain the greatest amount of compression at the
least incremental cost.
 Project crashing is a method for shortening the
project duration by reducing the time of one (or
more) of the critical project activities to less
than its normal activity time.
500
Crashing Terminology:
1) Normal time:- This is the time to complete that
activity under normal conditions. Normal time is
also same as the expected time ( ).
2) Normal cost:- This is the cost associated with
this normal time. So, how much it will cost if the
activities are performed in the normal time.
3) Crash time:- This is the shortest possible time to
complete the activity.
4) Crash cost:- This is the activity cost associated
with the crash time.
5) Cost slope:-It is defined as the additional direct
cost for reducing one unit of time (day, week etc.).
502
Example Figure:
504
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Procedure for Crashing Example 1:

Identify critical path for the following network. Show
Step 1: Draw the network diagram how far the project can be crashed. Also show the
extent of increase in normal costs with every stage of
Step 2: Find the critical path and other paths crashing.

Preceding Time (weeks) Cost(Rs)

Activity
Step 3: Reduce most cost effective activity Activity Normal Crash Normal Crash
A - 6 4 5,000 6,200
Step 4: Look for critical path changes B - 4 2 3,000 3,900
C A 7 6 6,500 6,800
Step 5: Crash next activity D A 3 2 4,000 4,500
E B,C 5 3 8,500 10,000

Here, it is assumed that normal costs include overheads.

505 506

Solution:
2. Let us work out the cost slope for all the
1. Let us draw a network.
activities to ascertain the priority for crashing.

Preceding Time (weeks) Cost(Rs) Cost Slope

2 Activity Remarks
4
Activity Normal Crash Normal Crash
A (1-2) - 6 4 5,000 6,200 600 (II)
1
3 Not under
B (1-3) - 4 2 3,000 3,900 450
Path 1 = A-D = 6+3=9 Weeks.
CP
Path 2 = A-C-E = 6+7+5=18 Weeks.
Path 3 = B-E = 4+5=9 Weeks.
C (2-3) A 7 6 6,500 6,800 300 (I)
Not under
D (2-4) A 3 2 4,000 4,500 500
CP
The above network shows the critical path as A-C-E whose E (3-4) B,C 5 3 8,500 10,000 750 (III)
duration is 18 weeks and its total normal cost is Rs.27,000.

507 508

3. Let us crash activity 2-3 by one week.

Note:-Only activities on the critical path should be 4. Let us further crash activity 1-2 by two weeks which
crashed. First crash the activities whose costs Rs. 600 per week.
crash cost is least.

2
2 4
4
1
1 3
3
Fig: Network after crashing 1-2 by
two weeks
Fig: Network after crashing 2-3 by
one week

After crashing (activity 2-3), there is no change in the
critical path. However, it duration is 17 weeks. The total
normal cost is Rs. 27,000. Total normal cost after crashing
activity 2-3 is 27,300 (27,000+300).
509
After crashing (activity 1-2), there is no change in the
critical path. However, it duration is 15 weeks. Total normal
cost after crashing activity 1-2 is 28,500 (27,300+1200).
510

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Example 2:
5. Let us further crash activity 3-4 by two weeks which From the following particulars,
costs Rs. 750 per week. a) Draw the network
b) Prepare a crashing statement and assume that the
project has a fixed overhead cost of Rs. 600 per
2 day.
4
c) Find out the optimum duration and cost of the
1 project
3 Time (days) Cost(Rs)
Activity
Fig: Network after crashing 3-4 by Normal Crash Normal Crash
two weeks.
1-2 3 2 10,000 11,000
1-3 6 3 6,000 8,400
After crashing (activity 3-4), there is no change in the
critical path. However, it duration is 13 weeks. Total normal 2-3 9 3 9,000 12,000
cost after crashing activity 3-4 is 30,000 (28,500+1500). 2-4 7 4 5,000 7,800
3-4 3 2 3,000 3,400
511 512

Solution: b). Let us prepare crashing statement.

a). Let us draw a network.
Time (days) Cost(Rs) Cost Slope Priority of
Activity
Normal Crash Normal Crash Crashing
1-2 3 2 10,000 11,000 1,000 V
2 1-3 6 3 6,000 8,400 800 IV
4
2-3 9 3 9,000 12,000 500 II
1 2-4 7 4 5,000 7,800 700 III
3 CP = 15 Days
3-4 3 2 3,000 3,400 400 I
Fig: Network Diagram Total 33,000

Total cost of the project = Direct cost + Indirect cost

The critical path is always the longest path. So,
= 33,000+(15 days x Rs. 600 per day)
critical path is 1-2-3-4. = 33,000+9,000 = Rs. 42,000
514
513

(b) i, Let us crash activity 3-4 by one day. (b) ii, Let us crash activity 2-3 by 6 days.
Cost slope indicates that the 3-4 activity can be
crashed first by only one day as it has least cost.
2
4
2
4 1
3 Path 1 = 1-2-4 = 3+7=10 days.
Path 2 = 1-2-3-4 = 3+3+2=8 days.
1
Path 3 = 1-3-4 = 6+2=8 days.
3
Fig: Network after crashing 2-3 by 6
days.

Fig: Network after crashing 2-3 by

one day.

After crashing (activity 3-4), there is no change in the

critical path. However, it duration is 14 days.
Total cost of the project = Direct cost + Indirect cost
= 33,000+ 400+(14 days x Rs. 600 per day)
= Rs. 41,800 515
After crashing activity 2-3 by 6 days, the new critical path
is 1-2-4. Even 2-3 is reduced by 6 days, the project duration
is reduced by 4 days only. So, let us reduce the 2-3 by 4
days.
516

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For further crashing, consider jobs 1-2 and 2-4. As

2 per cost slope, crashing 2-4 is cheaper. Since, both
4

1
1-2-4 and 1-2-3-4 have same critical path, crashing
3 Path 1 = 1-2-4 = 3+7=10 days.
Path 2 = 1-2-3-4 = 3+5+2=10 days. of job 2-4 will reduce only the duration of 1-2-4
Path 3 = 1-3-4 = 6+2=8 days.
only. It doesn’t reduce the duration of the other
Fig: Network after crashing 2-3 by 4
days.
critical path 1-2-3-4. Thus, crashing of 2-4 will not
be useful. However, we can consider crashing of the
Total cost of the project = Direct cost + Indirect cost other job 1-2, which is common to both of these
= 33,400+ 2,000+(10 days x Rs. 600 per day)
= Rs. 41,400 paths.

517 518

(b) iii, Let us crash activity 1-2 by one day. (c) Find out the optimum duration and optimum cost of the
project.

2
4 Direct Indirect Cost
Jobs Days Project Total Cost
Cost (Rs.600 per
Crashed Saved Duration (Rs.)
1 (Rs.) day)
3 Path 1 = 1-2-4 = 2+7=9 days. None 0 15 33,000 9,000 42,000
Path 2 = 1-2-3-4 = 2+5+2=9 days.
Path 3 = 1-3-4 = 6+2=8 days. 3-4 1 14 33,400 8,400 41,800
2-3 4 10 35,400 6,000 41,400
Fig: Network after crashing 1-2 by 1
day. 1-2 1 9 36,400 5,400 41,800

The above table reveals that the optimum duration is 10 days

After crashing activity 1-2 by 1 day, the new critical paths which costs Rs. 41,400 which is optimum cost of the project.
are 1-2-4 and 1-2-3-4.
Total cost of the project = Direct cost + Indirect cost
= 35,400+ 1,000+(9 days x Rs. 600 per day)
= Rs. 41,800 519 520

Example 3: Solution:
a). Let us draw the network.
From the following particulars, identify the
critical path for the following network. Determine
the incremental increase in the normal cost for 3
each stage of crashing. Here, normal cost includes
overheads(indirect costs). 1
10
2 5

Preceding Time (days) Normal Cost 4 Path 1 = 1-2-3-5 = 10+21+0=31 days.

Activity Path 2 = 1-2-4-5 = 10+8+15=33 days.
Activity Normal Crash Cost(Rs) Slope
A (1-2) - 10 6 50,000 1,500
Fig: Network showing Critical Path
B (2-3) A 21 14 10,000 700
C (2-4) A 8 6 15,000 2,500 In the above network, the critical path is 1-2-4-5 whose
D 4-5) C 15 12 20,000 1,000 duration is 33days. Dotted arrow is dummy activity
which connects to last node and its duration is zero.
Total 95,000
521 522

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b). Let us prepare crashing statement. c). Let us crash activity 4-5 by 3 days.
Cost slope indicates that the 4-5 activity can be
Preceding Time (days) Normal Cost Priority crashed first as it has least cost.
Activity
Activity Normal Crash Cost(Rs) Slope Crashing
A(1-2) - 10 6 50,000 1,500 II 3

B(2-3) A 21 14 10,000 700 Not under 10 5

1 2
CP
C(2-4) A 8 6 15,000 2,500 III
4 Path 1 = 1-2-3-5 = 10+21+0=31 days.
D4-5) C 15 12 20,000 1,000 I Path 2 = 1-2-4-5 = 10+8+12=30 days.

Total 95,000
Fig: Network after crashing 4-5 by 3
days

Total cost of the project = Direct cost and Indirect cost After crashing activity 4-5 by 3 days, the new critical path
is 1-2-3-5. However, its duration is 31 days. Even it is
= 95,000
crashed by 3 days, the project duration is reduced by 2
523 days only(33-31). Let us crash this activity by 2 days only.
524

Let us crash activity 4-5 by 2 days only. d). Let us crash activity 1-2 by 4 days.
Note:- Now crashing of either of activities 2-3 or 2-4 does
not help in reducing the duration of both critical paths. So,
3 activity 1-2 will benefit both critical paths.

10 5
1 2
3

4 Path 1 = 1-2-3-5 = 10+21+0=31 days.

Path 2 = 1-2-4-5 = 10+8+13=31 days. 6 5
1 2

Fig: Network after crashing 4-5 by 2 4 Path 1 = 1-2-3-5 = 6+21+0=27 days.

days Path 2 = 1-2-4-5 = 6+8+13=27 days.
Crashing of activity 4-5 by 2 days results in two critical
paths: 1-2-3-5 and 1-2-4-5; both with 31 days. Fig: Network after crashing 1-2 by 4 days

Total cost of the project = Direct cost and Indirect cost
= 95,000 + 2,000(1,000x2 Days) = 97,000
525
After crashing (activity 1-2), the new critical paths are 1-2-
3-5 and 1-2-4-5 with 27 days.
Total cost of the project = Direct cost and Indirect cost
= 97,000 + 6,000(1,500x4 days) = 1,03,000
526

e). Let us crash activity 2-3 and 2-4 together by 2 days. f). Statement showing the total cost at various crashing
Note:- If activity 2-3 and 2-4 are crashed independently, project cost stages.
increases but project duration does not decrease. So, we crash both activities
by 2 days together.
Jobs Project Total Cost
Days Saved
Crashed Duration (Rs.)
3
None 0 33 95,000
6 4-5 2 31 97,000
1 2 5
1-2 4 27 1,03,000
2-3 & 2-4 2 25 1,09,400
4 Path 1 = 1-2-3-5 = 6+19+0=25 days.
Path 2 = 1-2-4-5 = 6+6+13=25 days.

Fig: Network after crashing 2-3 and 2-4 by 2 days

After crashing (activities 2-3 and 2-4), the critical paths

continue to be the same as 1-2-3-5 and 1-2-4-5 with 25 days
each.
Total cost of the project = Direct cost and Indirect cost
=1,03,000+1,400(700x2days)+5,000 (2,500x2 days) = 1,09,400
528
527

88

UNIT V
529
Mission
 Mission is also called ‘overall objective’ or ‘overall
goal’
 Mission statement defines the basic reason for the
‘existence of organization’ .
 A mission statement defines why the organization
exists. It describes the customer needs, both
present and future.
 A mission
 Is a short statement that explains an
organization’s purpose.
 Identifies the scope of its operations.
a) What kind of product or service it provides.
b) Its primary customers or market.
c) Its geographical region
531
4) It should focus on limited number of goals:- The
mission statement has to prioritize its preferences and
put forward what it wants to achieve in the year to come.
5) It is a facilitator:- A mission statement spells out the
major policies and values the top management is committed
to.
6) It provides for shared vision:- Mission statement has to
be communicated down to the lowest levels in the
organisation. When the executives are involved in the
vision building process, they develop a shared vision.
7) It should be flexible:- No mission statement can ever be
rigid and hard. It should be flexible. If the company finds
that the mission is achieved for the present mission does
not hold relevant any more, it is free to modify its mission
statement.
8) It also identifies the core principles to guide decision
making
533
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Corporate
Planning Process
530
Characteristics
1) It must be clear enough to trigger action:- A
clear statement mission facilitates clear
understanding among the employees. This in turn
leads an action.
2) It focuses on customer needs and utilities, not
products:- A mission statement should define the
broad scope of activities within which the company
will operate competitively. It may specify the
details of the range of industries, products, and
their markets.
3) It should be capable of being measured in terms
of specific targets:- Organizations must establish
specific targets so that the performance can be
exactly measured.
532
The Difference between Vision & Mission
Vision - The Future
• Definition: The way in which one sees or conceives
something; a mental image; An overall statement of
the goal of the organization.
• Vision should describe what will be achieved in the
wider sphere if the organization and others are
successful in achieving their individual missions.
Mission - The Present
• Definition: An assignment one is sent to carry out; a
self-imposed duty. A mission statement identifies the
reason for the existence of the organization. The
statement should be linked to the overall operations
and business of the organization
• A Mission statement is more specific to what the
enterprise can achieve itself.
89

Goals
• Goals are the overall objectives of a department or an
organization.
Definition::- Goal is defined as what an organization
Definition
wants to achieve during or by the end of a given period.
Significance::-
Significance
1) It helps to define the organization in
environment.
2) It helps in coordinating decisions
3) Goals are more tangible targets.
4) It facilitates performance appraisal
Policy
 Policy is a broad guideline set by the top
management for the purpose of making decisions
at different levels in the organization. Once the
corporate objectives are established, policies can
be formulated.
4) It provides discretion to managers:- They also
provide certain amount of discretion to the
managers. The managers can use their discretion
in the best interest of the organization.
5) It creates and sustains good conduct and
character:- Policies are meant for creating and
sustaining good conduct and character among the
employees at different levels in the organization.
6) Policies can be of different kinds based on
their purpose:- Some policies are based on
ethical and philosophical considerations. Some
focus on functional aspects of business, say,
marketing, finance and so on.
11/2/2017
Objectives
Objectives explain why one should do the given job. For
example, ‘why should I do this work now?. ‘What shall I
have to achieve?.
A specific result that a person or system aims to achieve
within a time frame and with available resources.
In general, objectives are more specific and easier to
its measure than goals. Objectives are basic tools that
underlie all planning and strategic activities. They serve as
the basis for creating policy and evaluating performance.
Some examples of business objectives include minimizing
535
expenses, expanding internationally, or making a profit.
536
Features of policy
policy::-
1) It expresses organizational culture:- Policy
statement is an expression of organizational
culture and commitment to the given mission.
2) It is a guide to managerial performance:- It is
intended to help the managers in their routine.
Whenever there is any confusion n conducting
organizational matters, the managers refer to
what is stated in the policy.
3) It brings out uniformity in action:- Policies are
designed to bring uniform in the managerial
performance. Policies cause managers to take
action n a defined way.
537 538
Strategy
Strategy is plan of action chosen to bring about a
desired future, such as achievement of a goal or
solution to a problem. The art and science of
planning and marshalling resources for their most
efficient and effective use. The term ‘strategy’ is
drawn from armed forces.
539
540
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Strategy is all about:

about:- Programs
 Where does the business want to go? (direction)
Programmes refer to the logical sequence of
 In which markets should a business compete and
what kind of activities are involved in such markets? operations to be performed in a given project based
(markets; scope)
on a set of goals, policies, procedures, rules and task
 How can the business perform better than the
competitors? (advantage)? assignments. They are used to carry out a given
 What resources are required ? (skills, assets, course of action.
finance, relationships, technical competence,
facilities) (resources)?
A plan of action aimed at accomplishing a
 What external, environmental factors affect the
businesses' ability to compete? (environment)? clear business objective, with details on what work is
 What are the values and expectations of those who to be done, by whom, when, and what means or
have power in and around the business?
(stakeholders) resources will be used.
542
541

Corporate planning Steps of Corporate Planning Process

1)Identifying Corporate Mission: Identify what the
The top level planning associated with organization wants to achieve to start with for the
realization of the goals is called ‘corporate
purpose of it is necessary that all concerned parties
planning’.
understand the overall purpose of the organization
Definition:- can be defined as the process of
Definition: and the methods of attaining them.
formulating the corporate mission, scanning
the business environment, evolving strategies, 2)Formulate strategic objectives: By preparing
creating necessary infrastructure and statements of mission, policy, strategy, and goals,
assigning resources to achieve the given
mission. the top management established the frame work
within which its divisions or departments prepare
543 their plans. 544

4) Develop and evaluate alternative strategies:

3) Appraise internal and external environment: To
There could be some alternative strategies to
evolve alternative strategies to achieve these
pursue a given goals. If the goal is to expand the
goals, a detailed appraisal of both the internal and
business, the following could be the three
external environment is carried out. The appraisal
alternatives.
of internal environment reveals the strengths and
a) Sold new products to the existing product line
weakness of the firm. The appraisal of external
b) Finding new markets, a part from the present
environment reveals the opportunities and threats
market territories.
for the firm. It is popularly called as SWOT
c) Manufacturing the components within the
analysis
organization
545 546

91

5) Select the best strategy: For the firm to be
more successful, it is necessary to focus its
strategies around its strengths and opportunities.
It is a prerequisite that the numbers of the
organization agree on the strategic plan. Such a
plan, which has been generally agreed upon, is
normally considered as the best strategy.
6) Establish strategic business units (SBUs): It is
more strategic to define a business unit in terms
of customer groups, needs and/or technology and
set up the business unit accordingly. Most of
companies define their businesses in term of
products.
547
9) Monitor performance: The results of the
operating plans should be will monitored from
time to time. In the case of poor performance,
check up with the members of the team to find
out their practical problems and sort these out.
Also, it is essential to verify whether there are
any gaps in formulating the operating/tactical
plans.
10)Revise the operating plans, where necessary:
It is necessary to rise the operational plans
particularly when the firm does not perform as
well as expected. The planes can be revised in
terms of focus, resource or time frame.
549
Environmental Scanning
Environmental Analysis
Environmental Diagnosis
External Internal
Environment Environment
Opportunities and Strengths and
Threats Weaknesses
Fig:-
Fig:- Environmental Scanning Process 551
11/2/2017
7) Fix target allot resources to each SBU: The
development of SBUs based on appropriate finding
the top level management knows that its portfolio
has certain old, established relatively new, and brand
new products. Resources should be allocated based
on market growth rate and relative market share of
SBUs. Here resources mean executive talent money
and time.
8) Developing operating plans: The operating plan
explain how the long-term goals of the organization
can be met, the corporate plans reveal how much the
projected sales and revenue are where the top
management finds a significance gap between the
targeted sales and actual sales, it can either develop
the existing business or acquire a new one to fill the
gap. 548
Environmental
Scanning
550
Environmental Scanning
 Corporate planning process starts with
deciding objectives, allocating resources and
implementing planned program to achieve
desired objectives. Environmental scanning is
preliminary step for effective
implementation of strategy.
 Environmental scanning is the process of gathering,
analyzing, and dispensing information of the influence
environmental factors in which organization is operating.
One must prepare strategy keeping in mind these factors.
 For example, if some one is planning to develop a product
plant, he must choose the site in legislative permissible
area, where access to raw materials, market is easy and
other infrastructure like power, transport labour are
available. 552
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Why Environmental Scanning?. Environmental Analysis

Analysis::-
1) To study the existing environment
Refers to the process of analyzing the environment,
2) To have effective strategies
3) To help in reading the future component-wise or sector-wise to provide a basis for
4) To help in converting threats into opportunities further diagnosis. It interrelates the formation of
5) To narrow down alternatives objectives, generation of alternative strategies, and
6) Strategic management starts with
Environmental Scanning other related issues.
7) To help in decision making
8) To identify SWOT
9) To optimum utilization of resources
10)To increase in sales, profits and growth of a
firm
553 554

Environmental diagnosis
diagnosis::- External Environment:
Environment:-
Comprises the managerial decisions based on the Business environment consists of all those factors
that have a bearing on the business. The term
perceived opportunities and threats of the firm. In ‘business environment’ implies those external
effect, it helps to determine the nature of the forces, factors that are beyond the control of
individual business organizations and their
impending tasks to take advantage of opportunity or management and affect the business enterprise.
to effectively manage threat.
These factors are customers, creditors,
competitors, government, socio-cultural
organizations, political parties national and
international organizations etc. some of those
factors affect the business directly while some
others have indirect effect on the business.
555 556

SWOT Analysis
Internal Environment:
Environment:-
SWOT analysis is defined as the rational and overall
The internal environment is the environment that evaluation of a company’s strength, weakness,
opportunities, and threats which are likely to affect the
has a direct impact on the business. Here there strategic choice significantly.
are some internal factors which are generally
controllable because the company has control
over these factors. It can alter or modify such
factors as its personnel, physical facilities, and
organization and functional means, like marketing,
to suit the environment.

557 558

93

Strength:: -
Strength
It is not necessary that a business organization has to
correct all its weakness nor that its propagate its
strength. The big question is whether the business
should limit itself to those opportunities, where its
possesses the required strength or should it consider
better opportunities where it might have to develop
certain strength.
 Distinctive competence
 Adequate financial resources
 Good competitive skills
 Access to economies of scale
 Cost advantages
 Competitive advantages
 Product innovation abilities
 Proven management
Opportunities::-
Opportunities
It necessary should identify what opportunities
are available to it to focus upon. The latest
technology, deregulated or free markets,
liberalized rules and regulations and other may
make a lot of difference for a business
organization provided.
 Enter new markets and segments
 Add to product line
 Diversity into related products
 Add complementary products
 Faster market growth
 Complacency rival firms
Strategy Formulation
and Implementation
11/2/2017
Weakness::-
Weakness
Some times the company may not do well not
because its departments lack the required
motivation but because they do not work together as
a team.
 No clear strategic direction
 A deteriorating competitive position
 Obsolete facilities
 Lack of managerial talent
 Internal operating problems
 Too narrow product line
 Weak brand image
559  Competitive disadvantages 560
Threats::-
Threats
Some development in the external environment represents
threats. A threat is a challenge posed by an unfavourable
trend or a development that results in the loss of sales or
profit till a defensive marketing action is initiated. A few
example of threat could be outlined as change in
government policy such as liberalization privatization and
globalization, changing technology changing value systems
environmental constraints law and order.
 Likely entry of new competitors
 Rising sale of substitute products
 Slower market growth
 Adverse government policies
 Changing buyer needs and tastes
 Adverse demographic changes
 Growing bargaining power of customers or suppliers.
561
562
Strategy Formulation and
Implementation
 Stages:
1. Identification of mission and objectives
2. Environmental scanning
3. Generic strategy alternatives
4. Strategy variations
5.
6.
Strategic choice
Allocation of resources and formulation of
organizational structure
7. Formulation of plans, policies, programs and
administration
8. Evaluation and control
(Write some descriptive matter about above points)
563 564
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Generic Strategy Alternatives

Environmental Strategy Strategy Evaluation
1.Expansion strategy:- This strategy can be adopted
Scanning Formulation Implementation and Control

External Mission in the case of highly competitive and volatile

Reason for
Societal
existence
Environment
General Forces
Objectives
What results
industries, particularly, if they are in the
to
Task Strategies
accomplish

introduction stage of product/service life cycle.

Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for
2.Stability strategy:- This strategy is better choice
Structure Programs Process
decision
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish

when the firm is doing well, the environment is

Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
Competencies,
Knowledge
of steps
needed to
do the job Performance
relatively less volatile, and the product/service has
reached the stability or maturity stage of the life
Feedback/Learning

Strategic Management Model cycle.

565 566

3. Retrenchment strategy:- This strategy is the

Value Chain Analysis
obvious choice when the firm is not doing well in It is necessary to separate the business system
terms of sales and revenue and finds greater
returns elsewhere, or the product/service is in the into a series of activities which create value to the
finishing stage of the product life cycle. customers and through which a firm develops a
4.Combination strategy:- It is not a new strategy as
competitive advantage and shareholder value.
it combines the other strategies. if a firm realizes
that some of its main product lines have outlived  Porter introduced a generic value chain model
their lives, it may not be any more profitable to
continue investment with the same product. The that comprises a sequence of activities which are
firm may choose to withdraw its resources from common to all the firms.
this area(this strategy is here called retrenchment)
and follow an expansion strategy in a new product
area.
567 568

Porter identified primary and support activities .

 the goal of below activities is to offer the Human Resources

Supporting
Activity

Technology
customer a level of value that exceeds the cost of
Strategy
the activities, thereby resulting in a profit margin.
Profit

Research & Development

 the value chain model is a useful analysis tool for

Primary

Production
Activity

Inbound & Outbound Marketing

Operations Service
defining a firm’s core competencies and the Logistics Logistics &
Sales

activities in which it can pursue a competitive

advantage . Porter’s Generic Value Chain

569 570

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Bench Marking
In short – comparing methods against the
Bench Marking is a process of searching for,
best to identify changes.
identifying, and using ides, techniques and
A quality management tool that includes a
improvement of other companies/situations in
set of practices aimed at improving
its own activities.
product and service quality

Definition::- A systematic and ongoing process of

Definition Bench marking involves measuring the
improving performance by measuring a product, performance of the organization, team or
service or process against a partner that has individuals against the best practice for the
mastered it. industry, function or particular activity.
571 572

Balanced Scorecard
The balanced scorecard was first introduced by
accounting academic Dr. Robert Kaplan and
business executive and theorist Dr. David Norton.

A balanced scorecard is a performance metric

used in strategic management to identify and
improve various internal functions of a business
and their resulting external outcomes. It is used to
measure and provide feedback to organizations.
Data collection is crucial to providing quantitative
results, as the information gathered is interpreted
by managers and executives, and used to make
better decisions for the organization.

573 574

Prepared By:

Dr. B. MADHUSUDHAN REDDY

M.Com.,
M.Com., M.A.(Eng)., M.B.A.,M.Phil.,
M.Phil., Ph.D., PGDCA
Gold Medalist
Dept. of MBA
Guru Nanak Institute of Technology
575

96
Standard Normal Cumulative Probability Table

Cumulative probabilities for NEGATIVE z-values are shown in the following table:

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
-3.4 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0002
-3.3 0.0005 0.0005 0.0005 0.0004 0.0004 0.0004 0.0004 0.0004 0.0004 0.0003
-3.2 0.0007 0.0007 0.0006 0.0006 0.0006 0.0006 0.0006 0.0005 0.0005 0.0005
-3.1 0.0010 0.0009 0.0009 0.0009 0.0008 0.0008 0.0008 0.0008 0.0007 0.0007
-3.0 0.0013 0.0013 0.0013 0.0012 0.0012 0.0011 0.0011 0.0011 0.0010 0.0010

-2.9 0.0019 0.0018 0.0018 0.0017 0.0016 0.0016 0.0015 0.0015 0.0014 0.0014
-2.8 0.0026 0.0025 0.0024 0.0023 0.0023 0.0022 0.0021 0.0021 0.0020 0.0019
-2.7 0.0035 0.0034 0.0033 0.0032 0.0031 0.0030 0.0029 0.0028 0.0027 0.0026
-2.6 0.0047 0.0045 0.0044 0.0043 0.0041 0.0040 0.0039 0.0038 0.0037 0.0036
-2.5 0.0062 0.0060 0.0059 0.0057 0.0055 0.0054 0.0052 0.0051 0.0049 0.0048

-2.4 0.0082 0.0080 0.0078 0.0075 0.0073 0.0071 0.0069 0.0068 0.0066 0.0064
-2.3 0.0107 0.0104 0.0102 0.0099 0.0096 0.0094 0.0091 0.0089 0.0087 0.0084
-2.2 0.0139 0.0136 0.0132 0.0129 0.0125 0.0122 0.0119 0.0116 0.0113 0.0110
-2.1 0.0179 0.0174 0.0170 0.0166 0.0162 0.0158 0.0154 0.0150 0.0146 0.0143
-2.0 0.0228 0.0222 0.0217 0.0212 0.0207 0.0202 0.0197 0.0192 0.0188 0.0183

-1.9 0.0287 0.0281 0.0274 0.0268 0.0262 0.0256 0.0250 0.0244 0.0239 0.0233
-1.8 0.0359 0.0351 0.0344 0.0336 0.0329 0.0322 0.0314 0.0307 0.0301 0.0294
-1.7 0.0446 0.0436 0.0427 0.0418 0.0409 0.0401 0.0392 0.0384 0.0375 0.0367
-1.6 0.0548 0.0537 0.0526 0.0516 0.0505 0.0495 0.0485 0.0475 0.0465 0.0455
-1.5 0.0668 0.0655 0.0643 0.0630 0.0618 0.0606 0.0594 0.0582 0.0571 0.0559

-1.4 0.0808 0.0793 0.0778 0.0764 0.0749 0.0735 0.0721 0.0708 0.0694 0.0681
-1.3 0.0968 0.0951 0.0934 0.0918 0.0901 0.0885 0.0869 0.0853 0.0838 0.0823
-1.2 0.1151 0.1131 0.1112 0.1093 0.1075 0.1056 0.1038 0.1020 0.1003 0.0985
-1.1 0.1357 0.1335 0.1314 0.1292 0.1271 0.1251 0.1230 0.1210 0.1190 0.1170
-1.0 0.1587 0.1562 0.1539 0.1515 0.1492 0.1469 0.1446 0.1423 0.1401 0.1379

-0.9 0.1841 0.1814 0.1788 0.1762 0.1736 0.1711 0.1685 0.1660 0.1635 0.1611
-0.8 0.2119 0.2090 0.2061 0.2033 0.2005 0.1977 0.1949 0.1922 0.1894 0.1867
-0.7 0.2420 0.2389 0.2358 0.2327 0.2296 0.2266 0.2236 0.2206 0.2177 0.2148
-0.6 0.2743 0.2709 0.2676 0.2643 0.2611 0.2578 0.2546 0.2514 0.2483 0.2451
-0.5 0.3085 0.3050 0.3015 0.2981 0.2946 0.2912 0.2877 0.2843 0.2810 0.2776

-0.4 0.3446 0.3409 0.3372 0.3336 0.3300 0.3264 0.3228 0.3192 0.3156 0.3121
-0.3 0.3821 0.3783 0.3745 0.3707 0.3669 0.3632 0.3594 0.3557 0.3520 0.3483
-0.2 0.4207 0.4168 0.4129 0.4090 0.4052 0.4013 0.3974 0.3936 0.3897 0.3859
-0.1 0.4602 0.4562 0.4522 0.4483 0.4443 0.4404 0.4364 0.4325 0.4286 0.4247
0.0 0.5000 0.4960 0.4920 0.4880 0.4840 0.4801 0.4761 0.4721 0.4681 0.4641
Standard Normal Cumulative Probability Table

Cumulative probabilities for POSITIVE z-values are shown in the following table:

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879

0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389

1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319

1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767

2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936

2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986

3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990
3.1 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993 0.9993
3.2 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.3 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997
3.4 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9998