UNIT - V MANAGEMENT OF SMALL

BUSINESS
Monitoring and Evaluation of Business - Business Sickness - Prevention and
Rehabilitation of Business Units - Effective Management of small Business -
Case Studies.

Table of Contents

1.1 Monitoring and Evaluation of Business ----------------------------------

1.2 Business Sickness
1.3 Prevention and Rehabilitation of Business Units---------------------------
1.4 Effective Management of Small Business ---------------------------------
Monitoring and Evaluation of Business

Monitoring is the systematic collection and analysis of information as a project

progresses. It is aimed at improving the efficiency and effectiveness of a
project or organization. It is based on targets set and activities planned during
the planning phases of work. It helps to keep the work on track, and can let
management know when things are going wrong.

Efficiency

Efficiency informs that the input into the work is appropriate in terms of the
output. This could be input in terms of money, time, staff, equipment and so on.
In case of a project are concerned about its reliability or about going to scale,
then it is very important to get the efficiency element right.

Effectiveness

Effectiveness is a measure of the extent to which a development programmes

or project achieves the specific objectives it set.

Reasons for Monitoring and Evaluation

In many organizations, monitoring and evaluation requirement of donor rather

than a management Tool. Donors are certainly entitled to know whether their
money is being properly spent, and whether it is being well spent. But the
primary use of monitoring and evaluation should be for the organization or
project itself to see how it is doing against objectives, whether it is having an
impact, whether it is working efficiently, and to learn how to do it better.
Monitoring and evaluation are both tools which help a project or organization
know when plans are not working, and when circumstances have changed.

Monitoring and evaluation can

• Help to identify problems and their causes;

• Suggest possible solutions to problems;
• Raise questions about assumptions and strategy;
• Provide you with information and insight;
 • Encourage to act on the information and insight;
• Increase the likelihood that will make a positive development difference.

Monitoring involves the following

• Establishing indicators of efficiency, effectiveness and impact;

• Setting up systems to collect information relating to these indicators;
• Collecting and recording the information;
• Analysing the information;
• Using the information to inform day-to-day management.
• Monitoring is an internal function in any project or organization.

Evaluation involves

• It looks at the project or organization intended to achieve and the

difference did it want to make. The impact did it want to make, assessing
its progress towards it wanted to achieve, its impact on targets.
• It looks at the strategy of the project or organization and the effectiveness
in following its strategy, to achieve the objectives.
• It looks at the working techniques, efficient use of resources, Cost of
Opportunity Sustainability of the project or organization works. Its
implications for the various stakeholders in the way the organization
works.

Methods of Evaluation
There are many different ways of doing an evaluation.

Self-evaluation: This involves an organization or project holding up a mirror to

itself and assessing how it is doing, as a way of learning and improving practice.
It takes a very self-reflective and honest organization to do this effectively, but it
can be an important learning experience.

Participatory evaluation: This is a form of internal evaluation. The intention is

to involve as many people with a direct stake in the work as possible. This may
mean project staff and beneficiaries working together on the evaluation. If an
outsider is called in, it is to act as a facilitator of the process, not an evaluator.

Rapid Participatory Appraisal: Originally used in rural areas, the

same
methodology can, in fact, be applied in most communities. This is a qualitative
way of doing evaluations. It is semi-structured and carried out by an
interdisciplinary team over a short time. It is used as a starting point for
understanding a local situation and is a quick, cheap, useful way to gather
information. It involves the use of secondary data review,

direct observation, semi-structured interviews, key informants, group interviews,

games, diagrams, maps and calendars. It allows one to get valuable input from
those who are supposed to be benefiting from the development work. It is
flexible and interactive.

External evaluation: This is an evaluation done by a carefully chosen outsider

or outsider team.

Interactive evaluation: This involves a very active interaction between an

outside evaluator or evaluation team and the organization or project being
evaluated. Sometimes an insider may be included in the evaluation team.

Advantages and Disadvantages of Internal and External

Evaluations Advantages of Internal Evaluations

• The evaluators are very familiar with the work, the organizational culture
and the aims and objectives.
• Sometimes people are more willing to speak to insiders than to outsiders.
• An internal evaluation is very clearly a management tool, a way of self-
correcting, and much less threatening than an external evaluation. This
may make it easier for those involved to accept findings and criticisms.
• An internal evaluation will cost less than an external evaluation.

Disadvantage

• The evaluation team may have a vested interest in reaching positive

conclusions about the work or organization. For this reason, other
stakeholders, such as donors, may prefer an external evaluation.
• The team may not be specifically skilled or trained in evaluation.
• The evaluation will take up a considerable amount of organisational time
– while it may cost less than an external evaluation, the opportunity costs
may be high.
Advantages of External Evaluation

• The evaluation is likely to be more objective as the evaluators will have

some distance from the work.
• The evaluators should have a range of evaluation skills and experience.
Sometimes people are more willing to speak to outsiders than to insiders.

• Using an outside evaluator gives greater credibility to findings, particularly

positive findings.

Disadvantage

• Someone from outside the organization or project may not understand

the culture or even what the work is trying to achieve.
• Those directly involved may feel threatened by outsiders and be less likely
to talk openly and cooperate in the process.
• External evaluation can be very costly.
• An external evaluator may misunderstand the expectation from the
evaluation and not give needed information.

Selecting an External Evaluator or Evaluation Team

The following qualities will be considered for an external evaluator or evaluation

• An understanding of development issues.

• An understanding of organizational issues.
• Experience in evaluating development projects, programmes or
organizations.
• A good track record with previous clients.
• Research skills.
• A commitment to quality.
• A commitment to deadlines.
• Objectivity, honesty and fairness.
• Logic and the ability to operate systematically.
• Ability to communicate verbally and in writing.
• A style and approach that fits with the organization.
• Values those are compatible with the organization.
• Reasonable rates / fees.
Industrial Sickness
Definition: Industrial Sickness, as the name suggests is the state of industrial
weakness or illness, i.e. the company fails to earn a reasonable profit. It is the
continuous disproportion in the debt-equity ratio and falsification of the
financial status of the industrial unit.

Industrial Sickness is a state in which the firm performs badly, incurs

continuous losses for many years, raises money for its survival from outside
sources, and also unable to make repayment of the debt obligation.

Industrial Sickness represents a stage wherein the firm is not in a position to

generate a surplus on a regular basis and requires external credit, to survive in
the market. When a unit is sick, it is not able to finance itself by way of regular
operations.

Industrial sickness is a hurdle in the process of industrial growth and

development. When a unit is sick it shows signs of financial distress in the form
of short term liquidity issues, revenue and operating losses, overuse of external
funds until it gets to a position where the company is overburdened with
indebtedness and is not able to make enough money to discharge obligations.
Symptoms of Industrial Sickness
Some of the common symptoms of industrial sickness are included the
following

• Little to no movement of inventory

• Decrease in the company’s sales
• Decline in capacity utilization
• Shortage of cash to meet the day to day obligations
• Frequent proposals to extend the credit limit
• Deteriorating financial ratio
• Continuous fall in the prices of shares
• Non-payment or delay in the payment of dues like taxes, interest,
dividends, salaries, etc.
• Delay in the audit of accounts.
• Disparities among various levels of management.
• Decline in technological innovations
 • Irregularity in the maintenance of books of accounts.
• Overdependence on external funds
• Continuous losses

Causes of Industrial

Sickness

Industrial sickness is not caused by a single factor, rather the collective impact
of multiple factors results in industrial sickness. The factors causing industrial
sickness are

classified into two groups – Internal Causes and External Causes, which are
discussed below

Internal Causes
The causes which are under the control of the enterprise are regarded as
internal causes. It may be a result of some internal insufficiency or shortcoming,
in different areas of business. Some of these causes are listed below

1. Technical feasibility

• Inadequate Technical Knowhow

• Inappropriate choice of technology
• Obsolete production process
• Poor information system
• Wrong or defective idea of industry

2. Economic Viability

• High cost of inputs

• High break-even point
• Excessive investment in fixed assets
• Non-flexibility of fixed assets
• Underestimation of financial requirements.

3. Production Management

• Underutilization of production capacity

 • Huge wastage of raw materials and supplies
• Poor maintenance and replacement of plant and machinery
• Wrong location or layout
• Poor quality maintenance

4. Labour Management

• Poor performance and productivity of labour

• Huge workforce, than required.
• Lack of skilled labour
• Unreasonably high wage structure.
• Poor handling of labour
• Inadequate training

5. Marketing Management

• Lack of market research and feedback

• Unsound pricing policy
• Inappropriate product mix
• Improper demand forecast
• Small customer base
• Poor marketing strategies
• Absence of horizontal and vertical integration

6. Financial Management

• Shortage of working capital

• Lack of funds
• Defective Capital structure

7. Administrative Management

• Huge expenditure on Research and Development

• Incompetent Management
• Lack of timely diversification.

External Causes
The causes which are beyond the control of the enterprise come under external
causes, which affects the industry as a whole.
 1. General Issues

• Improper supply or non-availability of important raw material, or

availability at higher prices
• Improper supply of critical inputs like power, water and
transportation
• Chronic Power storage
• High production cost
• Ignorance of potential market

2. Government controls and policies

• Sudden unfavourable change in the policies of the government

• Taxes and duties
• Price control

3. Market Constraints

• Innovative technological changes, due to which products turn out as

obsolete.
• Recessionary trend in the entire economy, affecting the
performance of the firms

4. Extraneous factors

• Natural Calamities, like an earthquake, floods, etc

• Political Situation
• Industrial Strikes
• War between countries

Meaning of Sick Companies

Sick companies can be understood as the industrial units which suffered cash
losses in the past, i.e. for two financial years in a row, and are expected to
suffer losses in future also. Further, the accumulated losses of the firm tallies
or surpasses its net worth, by the end of the second year, provided that the
company is registered for 5 years or more.
Also, the company defaults in repayment of debt within any three straight
quarters, on-demand made in written form by a creditor for its repayment.
Types of Sick Companies

• Born Sick: Industrial Sickness is not necessarily an after-birth

characteristic. This means that some industrial projects are sick right
from their inception on account of poorly-conceived projects, the wrong
idea of industry, wrong choice of location, inexperienced promoters, long
gestation period, unproductive capital assets, inadequate market surveys,
wrong selection of product, etc.
• Become Sick: There are some projects which are not sick by birth, rather
they turn out to be sick, in their later stages, due to internal causes like
poor management or mismanagement, faulty management policies,
deliberate diversion of funds, etc.

• Made Sick: Some industrial projects are neither sick by birth nor they turn
out as sick, rather sickness is thrust upon them due to various external
causes which are not in the control of the company’s management.

Prevention and Rehabilitation of Sick Units

The rehabilitation of sick units or restoring them to normal health is a matter of
great urgency in view of the serious social, economic and political
consequences of industrial illness.
The following measures may be suggested
(I) Cooperation between Term-Lending Institutions and Commercial
Banks
Since commercial banks provide working capital, they are in a position to know
about the working of industrial concern. But assistance from term-lending
institutions is also essential for rescue operations.
(II) Coordination between Various Government Agencies
All government agencies, both regulatory and promotional, must join hands to
restore sick units to health.
(III) Full cooperation from various suppliers,’ unsecured creditors and
other stakeholders particularly from the employees, is also essential to take
the concern out of the difficulties in which it is involved.
(IV)
Willing Cooperation and Clear Understanding with the Project
Promoters Generally there is a lack of trust and confidence among the
various interests concerned. It is found that government agencies and dealing
institutions are more worried about their money and are anxious to recover
them instead of curing of the health of the sick units.
(V) Checking Over-Valuation of Inventories:
The banks should verify on a regular basis the valuation of inventories both in
terms of quantity and price. This would prevent over-borrowing on the
hypothecation of inventories.
(VI) Marketing
There should be well organised and scientific marketing by the project
promoters otherwise launching of a project will be a leap in the dark. Good
marketing arrangements will prevent industrial sickness.

(VII) Recovery of Outstanding

Every effort should be made to realize outstanding advances so that the
concern is able to gather funds to avoid sickness.
(VIII) Modernization of Machinery
If the sick unit is to be restored to health, old and obsolete machinery and
outdated technology should be discarded at the earliest.
(IX) Improving Labour Relations
Restrictive labour and unreasonable trade unions are great obstacles. Improving
labour relations will go a long way in curing industrial sickness.
(X) Efficient Management:
If necessary inefficient management should be replaced. The key to industrial
health lies in alert and efficient management. The management should show a
calm approach, patience and perseverance, courage and ability to steer in bad
weather.
(XI) Performance Incentives:
It is necessary to offer performance incentives to the executives and the
workers to induce them to put in their best efforts. This will be quite helpful in
curing industrial sickness.
(XII) Sympathetic Government Attitude:
During periods of industrial illness the government agencies should adopt a
sympathetic and understanding attitude so that the problem is not aggravated
but moves towards a solution instead.
(xiii) Austerity and Economy:
Austerity and disciplines should be enforced at all levels. Every effort should be
made in raising funds internally through the sale of excess assets, surplus
machinery, etc. Uncalled for tours, lavish entertainments, unnecessary personal
expenses should be ruthlessly cut down.

Effective Management of Small Business

Business in a lay man’s language is “an exchange of goods and services for
money with the main aim to earn profits, which involves risk and investment of
time, ideas and finances”.
Whether small-scale, micro business, large-scale, or an online business, any
business cannot be run without proper management of time, human resources,
finance /money,

updated technology, new and creative ideas, and co-operation, among

everything mentioned.
An efficient businessman not only lures new customers but also maintains
his/her old customers so that he can make maximum profits by providing the
best of goods and services according to the current demands and needs of his
customers. Losing a customer can be a setback because one unhappy
customer can turn down a lot more customers and the risk of losing loyal
customers, which leads to fewer profits and ultimately lowering the market
share and value.
The ideas of planning, directing, controlling, etc. might be perfect and give the
picture of achieving great results by optimum utilization of resources involved;
however, if the employees are unhappy and not satisfied inside the organization,
the implementation of those planned ideas can go in the opposite direction as
well.
Therefore, business does not imply with producing goods and services,
exchanging them for money and earning profits. It involves great risk, and a
businessman needs to be dynamic and flexible to accept the changing needs
and demand patterns according to the diversification experienced with each
new day keeping in mind the most important fact, which is providing the
customer with the best product or service and after-service at an economical
cost which retains the customers as well as makes good profits, making it a win
-win situation for the business.
The business can be run effectively by proper planning and strategy, healthy
relationship with the resources or the 4 Ms, viz., Men, Money, Materials and
Machinery, and pre-defined short and long term objectives with a futuristic
approach aimed towards the common goal of earning profits and retaining and
making more customers, which further leads to increased market share and
development of the economy.

1. Effective Communication
Communication is the key to any business. Proper communication is necessary
in order to deliver the best results; therefore, it should be made sure that the
message conveyed to the last person is exactly the same as it was sent by the
sender and has not been tampered with. Direct communication is the most
effective way, which makes the message clear and creates a sense of trust,
responsibility, and belonging in the employee, thus making him deliver better
results.
Communication is a two-way process. While discussing the plan and delegating
responsibilities, everybody is on the same page, which means everyone should
have the exact same perception about the plan and its implementation,
2. Timely Brainstorming
Brainstorming is an activity which involves getting ideas from all the employees
in a business. In the case of hierarchy, it’s done at different levels in the form of
mini teams, and finally, ideas are discussed with the top management. And in
small businesses, the businessman can organize a meeting with all its
employees and get ideas about a specific situation.
This leads to getting new innovative ideas by all the employees, be it
experienced employees or the fresh new talent, giving each of them a sense of
confidence and belongingness, further doing their efforts towards the best of
the company.

3. Dynamic Environment
Any business that is static or closed to the changing environment of the world
cannot expect to develop itself or retain the same market position as it had
when it began because adapting the latest trends keeps going can able to cope
up with the demands of the customers or the end users.
Therefore, it is necessary for the business to adapt to change, be it in
technology, product line, and demand patterns of the customers, or anything
that might affect the business. Any business, large or small, should be flexible
and dynamic in order to manage a business effectively. The human resources
should be trained from time to time with the upcoming new trends or updated
technology.
 4. Authority and Responsibility
Business can prove fruitful only when there is an appropriate delegation of
authority and responsibility. In case the authorized person does not delegate
the responsibilities constructively, it can create a loophole in the entire working
system because with authority comes great responsibility. The authorized
person is also accountable and answerable for any obligation, trust, debt, or any
kind of bridge gap between expected and delivered.
It’s very important to delegate some authority to the person who are delegating
responsibility to, as it gives them the power to make necessary decisions rather
than running here and there to take permission from the seniors. At the same
time, it also gives them the liberty and confidence to make decisions, hence
developing them as better employees.

5. Effectual Planning
Planning is an art which is futuristic and goal-oriented. It becomes very
important for a businessman to have at least two to three best plans so that any
plan proves to be incapable or a businessman needs to change a course of
action in between he has an alternative plan ready, producing optimum
maximum results.
Planning processes can lead to better productivity, higher accuracy, and faster
turnaround for essential business tasks. The goal of planning as a process is to
improve and streamline the business methods of a company. This would have
results like:

• Lower costs due to fewer staff needed to complete the same process.
• Increased efficiency by eliminating problematic process steps like loops
and bottlenecks.
• Higher accuracy by including checkpoints and success measures to make
sure process steps are completed accurately.
• Greater understanding by all staff of what they need to do to meet their
department objectives.

6. Team Work
A team is a group of people with different backgrounds, experience levels,
knowledge status and thought-process. The effectiveness of a business is
determined by the outcome of the action of employees and managers. If they
demonstrate effectiveness in their workplace, it will definitely help in producing
high-quality outcomes. Customer Satisfaction and a company’s reputation are
often dictated by a team’s effectiveness, which includes the way they put
forward the company’s service or product.
It’s very likely that the team members work together towards the same goal and
put forward their best foot. This can only be possible if there is co-operation,
absolute understanding, a thorough flow of communication and a positive
atmosphere among the team members. There might be a possibility that
different ideas might create conflicts in a team, but a trait of a strong and
productive team is to develop coherence and come out as plausible and
advantageous.

7. 4 M’s of Business
The four M’s of business are Men, Materials, Money and Machinery. These are
the most important resources any organization must possess and utilize in an
optimum way. Men contribute the human resources both inside and outside the
business, which

include employees-labourers, stakeholders, retailers-wholesalers, customers,

and everyone involved directly or indirectly. It’s very essential to retain and take
care of the needs and demands of each and every human resource that is a part
of the business.
The next M is Materials. This includes raw materials, work-in-progress, finished
products and services. Timely management of materials is pivotal as they are
the initial products that will further decide on how the final products will need to
deliver to our end consumers.
The next and very crucial M is Money or the funds. A business starts with the
correct usage and allocation of finances and cost management. Therefore, it is
the most significant resource to run or upgrade any business. Hence, a
business should have a trustworthy source of finance and maintain healthy
relations with financial sources like Banks, Financial Institutions, Stakeholders,
etc.
In this concept, money does not only stand for the funds available but also the
costs involved. Thus, the wider concept of managing finances is also important
for a business to cut costs without compromising the quality of product or
service demanded by the customer.
The last M is the Machinery or the technology. For any business to survive in
the long run, the essential factor is to be updated with the newest technology by
training the employees and also being aware of the changing trends in the
market. Thus, running ahead of time is of utmost importance, as it will help the
business to be on the top of the market and create a benchmark for other
organizations in the industry.
Managing a business is a task that requires a person to have a great deal of
knowledge about their specific industry and knowledge of general business
practices and people skills. It is a learning process where the practices and
approaches can change many times over the span of a career. However, the
basic principles of business management that always remain the same include
the abilities to successfully motivate and lead employees, increase business
growth, smoothly operate the business, and follow business laws.
Time management is of key importance in running a business effectively as it
plays a vital role in every business activity from planning to proper
implementation of these plans, thus further producing effective results:

• Preparing the best plan which produces optimum results with minimum
utilization of resources.
• Arrangement of funds not only for the execution of the plan and day-to-
day functioning of the business but any unforeseen and uncertain activity.

• Effective marketing strategy involving market research, advertising,

promotion, sales and after-sales service.
• Allocation of proper resources to various activities involved.
• Changing market scenarios and upgrading technologies
• Venturing into new business lines or investing in new strategies.

Time management and the above-mentioned points help a businessman

manage their business excellently and efficiently, thereby producing
extraordinary results by making higher profits and customer base.