Abm 5221

Raj Mohini Devi Collage of Agriculture and Research Station (RMD CARS), Ambikapur
INDIRA GANDHI KRISHI VISHWAVIDYALAYA

RAJ MOHINI DEVI COLLAGE OF AGRICULTURE AND RESEARCH STATION (RMD
CARS), AMBIKAPUR, SURGUJA, CHHATTISGARH
LECTURE NOTES OF
COURSE CODE: ABM – 5221
COURSE TITLE: AGRI BUSINESS MANAGEMENT
PREPARED BY:
DR. SUNIL KUMAR SINGH,
ASSISTANT PROFESSOR,
AGRICULTURAL ECONOMICS
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 TRANSFORMATION OF AGRICULTURE INTO AGRIBUSINESS; VARIOUS

STAKEHOLDERS AND COMPONENTS OF AGRIBUSINESS:
TRANSFORMATION OF AGRICULTURE INTO AGRIBUSINESS:
Agriculture is undergoing a huge transformation. In the past, agriculture was seen as a
subsistence activity of farmers involving crop and livestock production. For centuries
agriculture was the same as farming, and most people lived on farms or nearby and
were largely self-sufficient. This is, however, changing substantially in the recent years.
Today, agriculture is rapidly turning into a technology and market oriented “industry”
which extends from agricultural production, to sophisticated agri-science and
agribusiness. It now connects strongly to the national and global economy. Many
people who work in agriculture actually do not work on farms but are engaged in
businesses of seed, fertilizer, agro-chemical, farm machinery, food-processing,
marketing and trade. Many are engaged in finance, research, distribution, and marketing
activities which provide services to the production agriculturalists. Agribusiness
provides inputs to the production agriculturalist (farmer), and the production
agriculturalists produce food, fiber and byproducts. Input agribusinesses provide
farmers with supplies and equipment needed to produce and protect their crops. Many
provide services to such as credit, insurance and information. The output is taken by
output agribusiness firms that process, market, and distribute the agricultural products.
Agribusiness traders and commodity organizations are engaged in buying and selling as
well as coordination, promotion, advertising, and even lobbying for agricultural products.
Many are engaged in food marketing and services. Research, education and extension
help improve the performance of agriculture and agribusinesses. Millions of people are
employed in agribusinesses, and people throughout the world depend on
agribusinesses, some for production needs and others for food and non-food
requirements. Agriculture has become a big business.
STAKEHOLDERS OF AGRIBUSINESS SYSTEM: Fundamentally, there are four
stakeholders in agribusiness system. These are:
1. Farmers
2. Researchers
3. Public sector
4. Business sector
1. Farmers: Farmers are the main actor in integrated agriculture information system.
They are the consumer of financial resources, information sources. The members
are the farmers, farmers union, farmers’ community, etc.
2. Researchers: Researchers act as sources of information, research and development.
The interaction between researchers and farmers help to develop new technology
for agribusiness. Researchers provide training to farmers about new technology and
new development in agriculture sector. Faculty members of agricultural science,
Faculty members of information technology and higher education researcher are
included in this group.
3. Public sector: Public sector provides information technology infrastructure, physical
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infrastructure like reservoirs, land; distribute fertilizer, seeds, farming tools and
equipment to the farmers; regulate prices of agricultural produce; provide
information and data related to agriculture. The members of this sector are Ministry
of Communication, Ministry of Public Workers, Ministry of Agriculture and Farmers’
Welfare, Local government, agricultural NGOs and welfare NGOs.
4. Business sector: Business sector provides financial service and insurance; produce
pesticides, fertilizers, farming tools and equipments; distribute and sell crops and
act as information sources in agriculture. Transportation and courier service
provider, fertilizers and pesticides manufacturers, distributors and suppliers of farm
equipments and tools, e-Commerce and e-channels, banking and financial
institutions, telecommunication providers/operators, cooperation, information
technology practitioners, retailer, general distributors, distributors of agricultural
products, distributors of agricultural derivatives products and suppliers of
agricultural equipments included here.
COMPONENTS OF AGRIBUSINESS SYSTEM: Agribusiness is made up of three

components mainly:
1. The agricultural input sector.
2. The production sector.
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3. The processing-manufacturing sector.
 IMPORTANCE OF AGRIBUSINESS IN THE INDIAN ECONOMY AND NEW

AGRICULTURAL POLICY:
IMPORTANCE OF AGRIBUSINESS IN THE INDIAN ECONOMY:
1. Share in National Income.
2. Largest Employment Providing Sector.
3. Contribution to Capital formation.
4. Providing Raw Material to industries.
5. Market for Industrial Products.
6. Provision of food grains.
7. Earner of foreign exchange.
NEW AGRICULTURAL POLICY:
The focus of the new agricultural policy is on efficient use of resources and technology,
adequate availability of credit to farmers and protecting them from seasonal and price
fluctuations. Over the next to decades, the policy aims to attain a growth rate in excess
of four per cent per annum in the agriculture sector. The new policy seeks to introduce
economically viable, technically sound, environmentally non-degrading and non-
hazardous and socially acceptable use of natural resources of the country for
promoting the concept of sustainable agriculture.
FEATURES OF NEW AGRICULTURAL POLICY:
 To achieve four percent growth rate per annum for next two decades.
 To do land reform to provide land for poor farmers.
 Consolidation of holdings in all states of nation.
 Promoting private instrument in agriculture.
 Provide insurance in crops.
 Promote biotechnology.
 Promoting research for developing new varieties and ensuring protection to them.
PURPOSE:
 Actualize the vast untapped growth potential of Indian agriculture.
 To strengthen rural infrastructure to support faster agricultural development.
 To promote value addition.
 To accelerate the growth of a agro-business.
 Create employment in rural areas.
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 Securing fair standard of living of farmers.

 Discouraging migration to urban areas.
 Face the challenges arising out of economic liberalization and globalization.
 DISTINCTIVE FEATURES OF AGRI-BUSINESS MANAGEMENT: IMPORTANCE AND
NEED FOR AGRI-BUSINESS INDUSTRIES
DISTINCTIVE FEATURES OF AGRI-BUSINESS MANAGEMENT: The important distinctive
features or the principle characteristics of agribusiness are as follows:
1. Management varies from business to business depending on the kind and type
of business.
2. Agri-business is very large and evolved to handle the products through various
marketing channels from producers to consumers.
3. Management varies with several million of farmers who produce hundreds of
food and livestock products
4. There is very large variation in the size of agri-business.
5. Most of the Agri-business units are conservative and subsistence in nature and
family oriented and deal with business that is run by family members
6. The production of Agri-business is seasonal and depends on farm production.
They deal with vagaries of nature.
7. Agri-business is always market oriented.
8. They are by far vertically integrated, but some are horizontally integrated and
many are conglomerated.
9. There is direct impact of govt. programmes on the production and performance
of Agribusiness.
INPORTANCE OF AGRI-BUSINESS INDUSTRIES:
1. Establishment of agro-based industries is based on the availability of raw
material.
2. Agro-based industries have to set up at rural areas where raw material may be
available in plenty – helps in the upliftment of the rural economy.
3. Provide rural population an opportunity for employment.
4. Generate income and thereby improve economic condition of people – which in
turn creates potential for demand based industries.
5. Provide an opportunity for the dispersal of industries instead of concentrating at
a particular place.
6. Solve the problem of exploitation of farming community by traders and
middlemen.
7. Farmers could be assured of better price for their produce.
8. Encourage to bring more and more areas under various crops – increase
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agricultural production and improve nation’s economy.

9. Transportation cost of agricultural products can be minimized – thereby help to
minimize cost of finished goods.
10. Avoid wastage of perishable agricultural products.
11. Help to develop backward areas based on their suitability for setting up agro-
industries.
12. Prevent migration of people from rural to urban areas.
NEED FOR AGRI-BUSINESS INDUSTRIES:
1. Suitable to rural areas as they are raw material oriented.
2. For upliftment of rural economy.
3. To solve the problem of unemployment.
4. To generate income and increase standard of living.
5. For decentralization and dispersal of industries.
6. To reduce disparity between rural and urban areas.
7. To encourage balanced growth between agriculture and industry.
8. To solve the problem of exploitation of farming community
9. To reduce transportation costs.
10. To give big push to agriculture and act as a source of demand and supply.
11. To avoid wastage of perishable agricultural products.
12. To prevent migration of rural people.
13. To develop suitable backward areas.
14. To improve infrastructural facilities.
 CLASSIFICATION OF INDUSTRIES AND TYPES OF AGRO-BASED INDUSTRIES,
INSTITUTIONAL ARRANGEMENTS, PROCEDURE TO SETUP AGRO BASED
INDUSTRIES
CLASSIFICATION OF INDUSTRIES: Industries are divided into four groups.
1. Resource based
2. Demand based
3. Skill based
4. Ancillary
TYPES OF AGRO-BASED INDUSTRIES: Agro-based industries are those industries which
have either direct / indirect link with agriculture. Industries which are based on
agricultural produce and industries which support agriculture come under agro-based
industries. There are four types of agro-based industries.
1. Agro-produce processing units: They merely process the raw material so that it
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can be preserved and transported at cheaper cost. No new product is

manufactured. Example: Rice mills, Dal mills, etc.
2. Agro-produce manufacturing units: Manufacture entirely new products. Finished
goods will be entirely different from its original raw material. Example: Sugar
factories, bakery, solvent extraction units, textile mills, etc.
3. Agro-inputs manufacturing units: Industrial units which produce goods either for
mechanization of agriculture or for increasing productivity come under this type.
Example: Agricultural implements, seed industries, pumpset, fertilizer and
pesticide units, etc.
4. Agro service centres: Agro service centres are workshops and service centres
which are engaged in repairing and servicing of pumpsets, diesel engines,
tractors and all types of farm equipment.
INSTITUTIONAL ARRANGEMENTS FOR PROMOTION OF AGRO BASED INDUSTRIES:
Following Ministries & Departments at the Centre and State level are at present looking
after development of agro based industries.
1. Ministry of Agriculture and Farmer’s Welfare: Deals with rice mills, oil mills,
sugar mills, bakeries, cold storage, etc.
2. Khadi and Village Industries Board: Covers traditional agro based industries like
„gur‟, handicrafts, khandasari, etc.
3. Director General of Trade and Development: Looks after the industries engaged
in the manufacture of tractors, power tillers, diesel engines, pump sets, etc.
4. Agro-industries Development Corporation: In each state mainly supply
agricultural machinery, inputs and agricultural advisory services to farmers.
Some corporations have also undertaken certain manufacturing activities in agro
-industries sector.
5. Small Industry Development Organization: Deals with small agro-industries like
hosiery, processing of food products, beverages, food and fruit preservation,
agricultural implements, pesticide formulations, etc.
PROCEDURE TO SETUP AGRO BASED INDUSTRIES: Following step are to be
followed to set up agro based industries:
1. Assessment of agricultural resource potential in the desired areas.
2. Qualification of agriculture output and inputs.
3. Present utilization of resources in existing units
4. Surplus produce left out.
5. Agricultural produce preserving requirements. Even for local consumption of
food grains, processing is necessary.
6. Selection of certain items of considerable importance.
7. Follow certain approach for actual location of the units to avoid wastage of
resources and maximize utilisation of existing infrastructure.
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8. Preparation of industrial profitable and feasibility studies

9. Identification of entrepreneurs.
10.Suggesting appropriate technology and imparting suitable training.
11.Finance and other problems.
12.Marketing assistance.
 CONSTRAINTS IN ESTABLISHING AGRO BASED INDUSTRIES:
1. Proper guidance is not available to entrepreneurs.
2. It involves some element of risk taking
3. Change in crops / cropping pattern
4. Change in variety of crop due to technological improvement
5. Failure of monsoon may hit the raw material supply.
6. Proper guidance, training for modern and sophisticated agro-industries are not
available.
7. As modern small industries are capital intensive, supply of finance will be a
considerable problem.
8. Promotional activities such as conducting, intensive campaigns, identifying
candidate industries and explaining to entrepreneurs about prospects are
inadequate.
9. Uncertainty about future market demands.
10.Absence of information about quantity and quality of market.
11.Multiplicity of agricultural produce and absence of suitable methodology to
select best suited industries to a given region.
12.Seasonal supply of agricultural produce may result in under utilization of capacity
of the units as the unit will not be working throughout the year. Ex: Sugarcane
13.Industries based on fruits and vegetables may not get the same variety
throughout the year, but they may get some other variety.
14.Absence of proper integration among the various agencies of development in the
district.
 AGRI VALUE CHAIN: UNDERSTANDING PRIMARY & SUPPORT ACTIVITIES AND
THEIR INTERLINKAGES:
AGRI VALUE CHAIN:
The term value chain was first popularized in a book published in 1985 by Michael
Porter to describe how companies could achieve “competitive advantage” by adding
value within their organization. Agricultural value chain includes: development and
dissemination of plant and animal genetic material, input supply, farmer organization,
farm production, post-harvest handling, processing, provision of technologies of
production and handling, grading criteria and facilities, cooling and packing
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technologies, post-harvest local processing, industrial processing, storage, transport,

finance, and feedback from markets. Agri – Value Chain normally refers to the whole
range of goods and services necessary for an agricultural product to move from the
farm to the final customer or consumer.
Definitions:
World Bank’s “the term ‘’value chain’’ describes the full range of value adding activities
required to bring a product or service through the different phases of production,
including procurement of raw materials and other inputs.
UNIDO’s (United Nations Industrial Development Organization) “actors connected
along a chain producing, transforming and bringing goods and services to end-
consumers through a sequenced set of activities”.
CIAT’s (International Center for Tropical Agriculture) “a strategic network among a
number of business organizations”.
PRIMARY & SUPPORT ACTIVITIES: Most organizations engage in hundreds, even
thousands, of activities in the process of converting inputs to outputs. These activities
can be classified generally as either primary or support activities that all businesses
must undertake in some form.
1. Primary activities:
According to Porter (1985), the primary activities are:
i. Inbound Logistics: Inbound logistics involve relationships with suppliers and
include all the activities required to receive, store, and disseminate inputs.
ii. Operations: These are all the activities required to transform inputs into outputs
(products and services).
iii. Outbound Logistics: Outbound logistics include all the activities required to
collect, store, and distribute the output
iv. Marketing and Sales: These activities inform buyers about products and services,
induce buyers to purchase them, and facilitate their purchase.
v. Service: It includes all the activities required to keep the product or service
working effectively for the buyer after it is sold and delivered.
2. Support/secondary activities:
i. Procurement: It is the acquisition of inputs, or resources, for the firm.
ii. Human Resource management: It consists of all activities involved in recruiting,
hiring, training, developing, compensating and (if necessary) dismissing or laying
off personnel.
iii. Technological Development: Technological development pertains to the
equipment, hardware, software, procedures and technical knowledge brought to
bear in the firm's transformation of inputs into outputs.
iv. Infrastructure: It serves the company's needs and ties its various parts together,
it consists of functions or departments such as accounting, legal, finance,
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planning, public affairs, government relations, quality assurance and general

management.
LINKAGES BETWEEN TO PRIMARY & SUPPORT ACTIVITIES: The primary and support
activities are closely interlinked with each other. The support activities help to perform
primary activities more effectively and efficiently. The support activity like procurement
helps to perform inbound logistic primary activity. Similarly, technological development
leads to the new technique of performing various operations. Thus, primary and support
activities of agri-value chain are closely interrelated with each other.
 BUSINESS ENVIRONMENT: PEST & SWOT ANALYSIS
PEST ANALYSIS:
Apart from the company’s internal resources and industry factors, there are several
other macro-economic factors that can have a profound impact on the performance of
a company. In particular situations such as new ventures or product launch ideas, these
factors need to be carefully analyzed in order to determine how big their role in the
organization’s success would be. One of the most commonly used analytical tools for
assessing external macro-economic factors related to particular situation is PEST
Analysis.
WHAT IS PEST ANALYSIS?
PEST is an acronym for Political, Economic, Social and Technological. This analysis is
used to assess these four external factors in relation to business situation. Basically, a
PEST analysis helps to determine how these factors will affect the performance and
activities of a business in the long-term. It is often used in collaboration with other
analytical business tools like the SWOT analysis and Porter’s Five Forces to give a clear
understanding of a situation and related internal and external factors.
Elements of a PEST Analysis:
1. Political – Here government regulations and legal factors are assessed in terms
of their ability to affect the business environment and trade markets. The main
issues addressed in this section include political stability, tax guidelines, trade
regulations, safety regulations, and employment laws.
2. Economic – Through this factor, businesses examine the economic issues that
are bound to have an impact on the company. This would include factors like
inflation, interest rates, economic growth, the unemployment rate and policies,
and the business cycle followed in the country.
3. Social – With the social factor, a business can analyze the socio-economic
environment of its market via elements like customer demographics, cultural
limitations, lifestyle attitude, and education. With these, a business can
understand how consumer needs are shaped and what brings them to the
market for a purchase.
4. Technological – How technology can either positively or negatively impact the
introduction of a product or service into a marketplace is assessed here. These
factors include technological advancements, lifecycle of technologies, the role of
the Internet, and the spending on technology research by the government.
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SWOT ANALYSIS:
A study undertaken by an organization to identify its internal strengths and weaknesses,
as well as its external opportunities and threats.
SWOT analysis is a framework used to evaluate a company's competitive position by
identifying its strengths, weaknesses, opportunities and threats.
SWOT analysis is a foundational assessment model that measures what an
organization can and cannot do, and its potential opportunities and threats.
Ana1ysing the key factors of the environment and the fundamental internal strengths
and weaknesses of the organization will help dictate the strategies appropriate to the
firm.
The SWOT analysis is also referred to as the TOWS Matrix.
Elements of a SWOT Analysis:
1. Strengths: It describe what an organization excels at and separates it from the
competition: a strong brand, loyal customer base, a strong balance sheet, unique
technology and so on. For example, a hedge fund may have developed a proprietary
trading strategy that returns market-beating results. It must then decide how to use
those results to attract new investors.
 What advantages does your organization have?
 What do you do better than anyone else?
 What unique or lowest-cost resources can you draw upon that others can't?
 What do people in your market see as your strengths?
 What factors mean that you "get the sale"?
 What is your organization's Unique Selling Proposition (USP)?
 Weaknesses: Weaknesses stop an organization from performing at its optimum
level. They are areas where the business needs to improve to remain competitive:
higher-than-industry-average turnover, high levels of debt, an inadequate supply
chain or lack of capital.
 What could you improve?
 What should you avoid?
 What are people in your market likely to see as weaknesses?
 What factors lose you sales?
2. Opportunities: It refers to favorable external factors that an organization can use to
give it a competitive advantage. For example, a car manufacturer can export its cars
into a new market, increasing sales and market share, if a country cuts tariffs.
 What good opportunities can you spot?
 What interesting trends are you aware of?
Useful opportunities can come from such things as:
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 Changes in technology and markets on both a broad and narrow scale.

 Changes in government policy related to your field.
 Changes in social patterns, population profiles, lifestyle changes, and so on.
 Local events.
3. Threats: Threats refer to factors that have the potential to harm an organization. For
example, a drought is a threat to a wheat-producing company, as it may destroy or
reduce the crop yield. Other common threats include things like rising costs for
inputs, increasing competition, tight labor supply and so on.
 What obstacles do you face?
 What are your competitors doing?
 Are quality standards or specifications for your job, products or services
changing?
 Is changing technology threatening your position?
 Do you have bad debt or cash-flow problems?
 Could any of your weaknesses seriously threaten your business?
SWOT Analysis matrix:
Maxi-Maxi In this segment the organization is playing from its strengths to an

Exploit opportunity and hence the business objectives are generally to
segment reduce internal weaknesses and overcome external threats in order
to focus upon this segment.
Mini-Maxi The strategy appropriate for this segment would be one that
Search minimises weaknesses and maximises the opportunities. The
segment opportunity exists but requires strength where the organisation
currently has a weakness. Without strategic action to remove this
weakness the opportunity must go to competitors.
Mini-Mini The strategy for this segment is one that will reduce both the
Avoid weakness and the threat. This is the precarious segment and so
segment organisations should adopt strategies that avoid it.
Maxi-Mini The indicated strategy for this segment is one that uses the
Confront strength of the organisation in order to deflect the threat. Care must
segment be taken to avoid unnecessary competitive battles, and strategic
options that circumvent the threat are to be preferred.
 MANAGEMENT FUNCTIONS: ROLES AND ACTIVITIES:
MANAGEMENT: Management can be viewed as a group effort towards a common goal
in which team behaviour plays the important role. According to this view the material
resources and external environment are common to all management; what makes for
effectiveness and success of one group relative others is management - that is the
human element - behaving in group and leading the business to its determined goal.
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Management may in short be called a science of decision-making or a science of choice.

A farmer has to make judicious decisions on the use of scarce resources, having
alternative uses to obtain the maximum profit and family satisfaction on a continuous
basis from the farm as a whole. In other words, management seeks to help the farmer
in deciding problems like what to produce, how much to produce and when to buy and
sell and in organization and managerial problems relating to these decisions.
Definitions:
According to Harold Koontz, “management is an art of getting things done through and
with people in formally organized groups.”
According to Koonts and O’Donnell, “Management is the creation and maintenance of
an internal environment in an enterprise where individuals, working in a groups, can
perform efficiently and effectively toward the attainment of groups goal.”
According to William Spriegel, “management is that function of an enterprise, which
concerns itself with the direction, and control of the various activities to attain business
objectives. Management embraces all functions that relate to the initiation of an
enterprise – its financing, the establishment of all major policies, the provision of all
necessary equipment, the outlining of the general form of organization under which the
enterprise is to operate and the selection of the principal officers”.
According to H. L. Sisk, “Management is the coordination of all resources through the
process of planning, directing and controlling in order to attain stated goals.”
ROLE OF MANAGEMENT: Mintzberg has identified ten roles of a manager which are
described below.
1. Figurehead: In this role manager performs symbolic duties required by the status of
his office. Making speeches, bestowing honours, welcoming official visitors, distributing
gift to retiring employees are examples of such ceremonial and social duties.
2. Leader: This role defines the manager’s relationship with his own subordinates. The
manager sets an example, legitimize the power of subordinates and bring their needs in
record with those of his organization.
3. Liaison: It describes manager’s relationship with outsiders. A manager maintains
mutually beneficial relations with other organizations, governments, industry groups, etc.
4. Monitor: It implies seeking and receiving information about his organization and
external events. Example: Picking up a rumour about his organization.
5. Disseminator: It involves transmitting information and judgments to the members of
the organization. The information relates to internal operations and external
environment. Example: A manager calling a meeting after a business trip.
6. Spokesman: A manager has to speak for his organization. He lobbies and defends
his enterprise. Example: A manager addressing trade union.
7. Entrepreneur: It involves initiating change or acting as a change agent. Example: A
manager decides to launch a feasibility study for setting up a new plant.
8. Disturbance handler: This refers to taking charge when the organization faces a
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problem or crisis. A manger handles conflicts, complaints and competitive actions.

Examples: A strike, feud between subordinates, loss of an important customer.
9. Resource allocator: Manager approves budgets and schedules, sets priorities and
distributes resources.
10. Negotiator: As a negotiator, a manger bargains with suppliers, dealers, trade unions,
agents, etc.
MANAGEMENT FUNCTIONS: A manger has to perform several functions in the
organization. The various function preformed by a manager can be grouped into two
categories viz., main functions and subsidiary functions.
A. Main function: These are:
a. Planning
b. Organizing
c. Staffing
d. Directing
e. Controlling
f. Co-ordinating
g. Motivating
B. Subsidiary functions:
a. Communication
b. Decision making
c. Innovation
 ORGANIZATIONL CULTURE, PLANNING, MEANING, DEFINITION, TYPES OF PLANS:
ORGANIZATIONL CULTURE: It refers to the common perception shared by the
members of an organization. It is a descriptive term. Every organization has an unique
and distinct culture of its own.
According to Campbell, et. al., “Organizational culture is concerned with how employees
perceive the basic characteristics like, individual, autonomy, structure, reward, conflict
and consideration.”
PLANNING: Planning is the process by which a manager looks to the future and
discovers alternate courses of action. Planning describes the adoption of specific
programme in order to achieve desired results. It means the selection from among
alternatives of future courses of action for the enterprise as a whole and each
department within it. It is determining goals, policies and courses of action and it
involves the processes like work scheduling, budgeting, setting up procedures, setting
goals or standards, preparing agenda and programming.
Definitions:
According to Haimann, “Plannig is the function that determines in advance what should
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be done. It consist of selecting enterprise objectives, policies, programmes, procedures

and other means of achieving these objectives.”
In the words of Koontz and O’Donnell, “Planning involves selecting enterprise ojectives,
departmental goals, and programmes and determining the ways of reaching them.
Planning thus provides a rational approach”.
Characteristics of planning:
1) Planning is an intellectual exercise: It is concerned with thinking in a creating way as
to how the existing combination of resources may be adjusted and adapted to match
the emerging opportunities. Planning enables the management to make decisions
regarding
i. What is to be done?
ii. How it is to be done?
iii. When it is no done? and
iv. By whom it is to be done?
2) Planning and Forecasting: Forecasting describes what one expects to happen if no
changes are made to escape that happening. Planning describes what one wants to
happen.
3) Accomplishment of Group Activity: Planning is essential to any goal directed activity.
It enables people with divergent perceptions and motivations to work together to
achieve common goals.
4) Choice between Alternatives: Planning seeks to adjust and adapt the existing mix of
resources to meet the emerging opportunities.The first choice to be made by
management is with regard to objectives of the business, i.e., profitability, growth,
consumer satisfaction, man power development, prestige, and so on. The next
choice is in respect of the strategy to be adopted to accomplish the objectives. Then
comes the operational part, i.e. determining the time frame, assignment of tasks and
other resources for the accomplishment of the objectives.
5) Pervasiveness of Planning: Involvement of managers at levels is essential to the
success of planning.
6) Flexibility: Successful running of an organization involves matching of its resources
with the emerging opportunities in the business environment.
7) Integrated Process: Planning involves selection of achievable objectives, and
formulation of simple and realistic policies, programmes, procedures etc., for the
accomplishment of that objective. Effective planning takes care of the conflicting
views and settles for a course of action that is in the maximum interest of the
organization, besides being satisfying to the personnel involved.
Importance of Planning:
1. Selection of “Optimum” Goals: Planning involves rational thinking and decision –
making concerning a proposed course of action.
2. Tackling Increasing Complexities: An organization is a heterogeneous group of
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human beings who differ from one another in many respects. It is unlikely that they will
work effectively and harmoniously in the interest of the organization, unless they have a
plan.
3. Meeting Environmental Changes: Business environmental changes more rapidly in
terms of social values, competition, new product discoveries and consumer’s tastes
and preferences – and these changes will upset any organization. Only proper and
effective planning can help the management by adjusting and adapting the inputs and
transformation process to suit the environmental changes.
4. Safeguard against Business: Failure Business failures are blamed on cut-throat
competition, unpredictability of consumer tastes and preferences, rapid technological
changes and abrupt economic and political development. However, in many cases,
failure is caused due to rash and unscientific decision – making. Planning cannot avert
all business failures. But it forces the management to assess and evaluate each
emerging business opportunity and problem, and examine the various courses of action
to meet it effectively.
5. Effective Co-ordination and Control: Planning makes it easy to exercise control and
co-ordination. The work to be done, the persons and the departments which have to do
it, time limit within which it is to be completed and the cost to be incurred, are all
determined in advance.
Types of planning:
A. On the basis of time span:
i. Long-Range Planning: Long-Range planning covers a long period in future, e.g., five or
ten years, and, sometimes even longer. It is concerned with the functional areas of
business such as production, sales, finance and personnel. It also considers long-
term economic, social and technological factors which affect the long-range
objectives of the enterprises. All enterprise activities are directed to achieve the
targets set by long-range planning. Long-rang planning is also called strategic
planning, because it is concerned with preparing the enterprise to face the effects of
long-term changes in business environment, such as envoy of new products, new
competitors, and new production techniques and so on.
ii. Medium-term: or intermediate planning: Such planning covers a period of more than
one year but less than five years. It is more detailed and specific than long range
planning. It is also known as tactical planning. These plans are designed to
implement long range plans bu coordination the work of different departments.
Examples: a tactical plan may be drawn ut to meet a sudden slump in demand,
shortage of power, etc.
iii. Short-Range Planning: Short-range planning, also called tactical planning, covers a
short period, usually one year. It deals with specific to be undertaken to accomplish
the objectives set by long-range planning. Thus, it relates to current functions of
production, sales, finance and personnel.
B. On the basis of scope:
Group or sectional planning: It refers to planning for specific groups or sections within a
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department or division. These plans are prepared to implement departmental or

divisional plans. This plan is also called unit planning. It is a action oriented. These
plans are prepared at the operating level of management and approved by higher
authority. Example: the advertisement section may prepare a sectional plan to execute
the sales plan of the company.
Departmental of Divisional planning: The plans prepared for different departments or
divisions of an enterprise are called departmental or divisional planning. It determines
the scope and activities of a particular department. These plans are also known as
functional plans. Example: Sales budget, production budget, finance budget, etc.
Corporate planning: Planning for the company as a whole is known as corporate
planning. It lays down objectives, strategies and policies for the organization as a whole.
It is less detailed and specific than sectional and divisional planning. It is very broad and
general in nature. These plans are prepared at the top level of management. Example:
Increasing the company market share by ten per cent in next five years, becoming
technological leader in industry, earning a 25 per cent rate of return on investment, etc.
Types of plans: Depending on their use management plans can be grouped into
following categories:
1. Purpose or mission
2. Goals or objectives
3. Strategies.
4. Policies.
5. Procedures.
6. Rules.
7. Programmes.
8. Budget.
 PURPOSE OR MISSION, GOALS OR OBJECTIVES, STRATEGIES, POLICIES,
PROCEDURES, RULES, PROGRAMME, BUDGET:
1. Purpose or Mission: Mision is a broad term reflecting idealism. It represents the
overall philosophy of an organization. It indicates the end which is to be achieved over
the whole life of an organization or at least over a long period. It serves as the reason
(raison detre) for the existence of an organization. It indicates the line of business of an
enterprise and its long-term commitments.
2. Goals or Objectives: A goal is a desired state of affairs which an organization wants
to realize. Goals are collective ends towards which organizations direct their energies
and activities. Goals legitimize the role of an organization in society and provide a
motive for its activities.
3. Strategies: Strategy is the complex plan for bringing the organization from a given
posture to a desired position in future period of time. It is essentially a response to
external environmental forces. A strategy provides answer to following questions:
i. What business are we in?
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ii. What should be our business?

iii. Who are our customers?
iv. What do they buy and why?
v. Why should society accept us?
4. Policies: A policy is a broad statement formulated to provide guidance in decision
making at lower level of management. It defines the area or limits within which decision
can be made. A policy reflects the intention of top management. According to
McFarland, “Policies are planned expressions of the company’s official attitudes
towards the range of behavior within which it will permit or desire its employee to act.”
Example: A policy that promotions will be based on merit only tells that while deciding
promotions merit criteria is to be adopted.
5. Procedures: It is a chronological sequence of steps to be undertaken to enforce a
policy and to achieve an objective. It lays down the specific manner in which a task is to
be performed. It is planned sequence of steps for performing repetitive activities in a
uniform manner. According to George R. Terry, “A procedure is a series of related tasks
that make up the chronological sequence and the established way of performing the
work to be accomplished.”
6. Rules: Rules are prescribed guides for conduct of action. They specify what should
be done or not done in given situations. A rule is rigid and definite plan leaving no scope
for discretion or deviation. Rules are established authoritatively and enforced rigorously.
Rules help to ensure desired behavior on the part of employees and make actions
predictable. They facilitate discipline and uniformity of action in the organization. Rules
serve as detailed instructions to regulate day-to-day conduct of affairs.
7. Programmes: A programme is a comprehensive plan designed to implement the
policies and accomplish the objectives. It spells out clearly the steps to be taken,
resources to be use, and the time period within which the task is to be completed. It
also indicates who should do what and how. Example: Training programme, advertising
programme, etc.
8. Budget: A budget is plan which states expected results of a given future period in
numerical terms. It is a plan of action or blueprint designed to achieve a specific goal. It
may be expressed in time, money or other unit. It is a projection defining the anticipated
costs, returns and the allocation of resources. It expresses organizational objectives in
financial and physical units. A budget may reflect capital outlay, cash flows, production
and sales targets.
 STEPS IN PLANNING AND IMPLEMENTATION: Following steps are followed in the
planning.
1. Identification of the Opportunity or Problem: Planning must facilitate the
organization to suit it to its environment. The constraints and opportunities provided by
the environment may be in the form of government regulations, existing cultural norms,
limited financial resources in the capital market, changing technology, production of
goods and services as per customer preferences etc. Hence, correct identification of
opportunity or problem is the first step of planning.
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2. Collection and Analysis of Relevant Information: Effective planning depends on the

quality, relevance and validity of the information on which it is based. The sources of
information may be classified as external and internal. External source will include
suppliers, customers, professional people, trade publications, newspapers, magazines,
conferences, etc. Internal sources will comprise meetings, reports, and contacts with
superiors, same ranks and subordinates.
3. Establishment of Objectives: Establishment of objectives points out the desired
outcome that an organization may aim at stability of operations, growth, a higher rate of
return, market leadership and so on.
4. Determination of Planning Premises or Limitations: Planning has to take into
account numerous uncertainties in its environment. Important components of the
internal environmental are:
a) Technology,
b) Structural relationship and organization design,
c) Employee attitude and morale; and
d) Managerial decision-making process.
Internal environment is within the control of management which can appropriately
adjust and adapt it to the requirements of the external environment. Uncertainties
relating to the environment are beyond the control of management. These may be in
respect of
a) Fiscal policies of the government,
b) Economic condition;
c) Population trends;
d) Consumer tastes and preferences;
e) Competitor’s plans and activities; and
f) Personal practices.
Only those factors which are to critically affect the enterprise plans should be identified
and evaluated.
5. Examining alternative course of action: Often, there will be more than one action plan
to achieve a desired objective. For example, if the objective is to maximize profits and
there are no limits to increasing production, the objective can be achieved through,
either tapping unexpected markets, or intensifying sale efforts in the existing markets,
or increasing the price, or diversifying production. The number of alternative plans
prepared by a manager would depend on this imagination, skill and experience.
6. Weighing Alternative Courses of Action: Evaluation of each alternative action-plan
will have to be from different points of view, namely,
a) Its effectiveness in contributing to the accomplishment of organizational
objectives;
b) Its ability to withstand the effects of environmental changes; and c) its
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integration with ongoing action plans.

7. Selecting a Course: Whether the evaluation of various alternatives is directed by
individual preferences and prejudices, or it is based on mathematical and statistical
techniques, the course of action is to be optimum, or the best under the circumstances.
Selection of the best course of action depends on resource availability, objectives,
efficiency and economy.
8. Determining Secondary Plans: Secondary plans flow from the basic plan. These are
meant to support and expedite the achievement of the basic plans. For example, once
the basic plan is decided upon, a number of secondary plans dealing with purchase of
raw materials and machines, hiring and training of workers and so on would have to be
prepared to facilitate execution of the basic plan.
9. Providing for Future Evaluation: In order to ascertain if plans selected for the
purposes are proceeding along right lines, it is necessary to devise a system for
continuous evaluation of plan.
 ORGANIZATION, STAFFING, DIRECTING, AND MOTIVAITON, ODERING, LEADING,
SUPERVISON, COMMUNICATION, CONTROL:
ORGANIZATION: The term organization is used in management literature in two
different ways:
i. Organization as a structure.
ii. Organization as a process.
i. Organization as a structure: It refers to the network of relationship among jobs and
positions in an organization. It is the skeleton framework of an enterprise designed to
achieve its common goal. According to McFarland, organization is “an identifiable group
of people contributing their efforts towards the attainment of goals.” Thus, as a
structure organization is the structural framework within which the efforts of different
people are coordinated and related to each other.
ii. Organization as a process: It is the process of determining, arranging, grouping and
assigning the activities to be performed for the attainment of objectives. Organizing
involves identifying the work to be done, dividing the work and coordinating the efforts
to accomplish goals. According to Haimann, “Organization is the process of defining
and grouping the activities of the enterprise and establishing the authority relationship
among them. In performing the organizing function, the manager defines,
departmentalizes and assigns activities so that they can be most effectively executed.”
Nature or Characteristics of an Organization:
1. Division of Labour: It is the root of any organization structure. In order to improve the
efficiency of any organization, the total efforts of persons who joined together for
common purpose have to be divided into different functions. These functions are
further divided into sub-functions each to be performed by different persons. After the
division of the total effort into functions and sub-functions, the next step is to group the
activities on the basis of similarity of work. For example, in a manufacturing enterprise,
its total activities may be divided and grouped under
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a) Production,
b) Marketing,
c) Finance and
d) Personnel.
Even within each of these groups or departments, one or more sub-departments or
sections may be created to look after particular activities.
2. Co-ordination: An organization has to adopt suitable methods to ensure proper co-
ordination of the different activities perform at various work spots. This implies that
there must be proper relationship between:
a) An employee and his work,
b) One employee and another and
c) One department or sub-department and another.
3. Objectives: Objectives of a business cannot be accomplished without an organization;
similarly an organization cannot exist for long without objectives and goals.
4. Authority: Responsibility Structure For successful management, positions of
personnel are so ranked that each of them is subordinates to the one above it, and
superior to the one below it. Management authority may be defined as the right to act,
or to direct the actions of others.
5. Communication: For successful management, effective communication is vital
because management is concerned with working with others, and unless there is proper
understanding between people, it cannot be effective. The channels of communication
may be formal, informal, downward, and upward to horizontal.
Process of Organization: The important steps in organization process are as follows:
1. Determining the Activities to be performed: The first step in this process is to divide
the total effort into a number of functions and sub-function each to be performed,
preferably, by a single individual or a group of individuals. Thus, specialization is a
guiding principle in the division of activities.
2. Assignment of Responsibilities: It involves selection of suitable persons to take
charge of activities to be performed at each work point. Also, the tasks to be performed
by each member or group should be clearly defined.
3. Delegation of Authority: Along with the assignment of duties, there should be proper
delegation of authority. It would be unrealistic to expect an individual to perform his job
well if he lacks the authority to secure performance from his subordinates.
4. Selecting Right Men for Right Jobs: Before assigning a particular task to an
individual, his technical competence, interests, and aptitude for the job should be tested.
If the individual concerned lacks the technical ability to do his job, he cannot perform it
to the best of his ability.
5. Providing Right Environment: It involves provision of physical means like machines,
furniture, stationery etc. and generation of right atmosphere in which employees can
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perform their respective tasks.

Principles of Organization:
The structure of the organization should be designed such that it achieves the stated
goals. The basic principles of an organization are:
1. Objectives: The objectives of an organization are decisive in the determination of its
structure. Does it plan to produce a single product to begin with, and then go on adding
to its product-line as the financial resources permit? Does it want to produce quality
product? Does it plan to retain customer goodwill by providing after sales services? All
these questions will influence the organization structure.
2. Unity of Command: The unity of command stipulates that each is responsible to only
one superior. If subordinates are made to follow the orders from more than one boss,
they will be in a perpetual dilemma and not know whose orders should be carried out
first, how to allocate his time between different bosses, so as to satisfy them all and
displease none, and what to do in case of conflicting orders.
3. Span of Control: The span of control refers to the number of subordinate managers
reporting to a single senior manager stationed above them in the management pyramid.
The span of control should be legitimate (neither too wide nor too narrow) without split
in the line of control. The optimum span must be determined for each enterprise taking
into account all the variables – organizational and human – the nature of enterprise, its
traditions, tasks and ambitions. The span of control will differ from level to level; the
optimum span should be determined individually for the different levels of management.
4. Scalar pattern: This principle is sometimes, known as the chain of command. The
line of authority from the chief executive at the top to the first line supervisor at the
bottom must be clearly defined. The authority chain travels down the scalar line. Each
position or level in the chain of command (authority) reports to the next superior and
the process is repeated till the top is reached. Each such position enjoys formal
authority depending upon the
i) Position in the scalar chain and
ii) Status of centralization or decentralization in the organization.
5. Clear Definition of Authority and Responsibility: Authority may be defined as the
power to make decisions which guide the actions of another. Responsibility is the
obligation of subordinates to whom a superior has assigned a task, to perform the
service as required. Duty or responsibility may be in terms of functions, or in terms of
targets or goals. The authority and responsibility of each manager should be clearly
defined in writing such that he knows what is expected of him and the limits of his
authority to get it done.
6. Balance between Authority and Responsibility: If any responsibility assigned to a
manager is not matched by the authority delegated to him, he will not be able to get the
desired performance from his subordinates.
7. Absolute Responsibility of Managers for Acts of Subordinates: While authority can
be delegated, responsibility is not. The manger continues to be as responsible as the
subordinates concerned for what the latter has done, or failed to do.
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8. Power: It is the ability of a person to influence another person to perform an act.

There are five types of power: reward, coercion, reference, expertise, and legitimacy
9. Accountability: The subordinate is accountable for his actions and omissions. The
accountability improves his responsibility and there by his performance. Every position
in the organization structure should be assigned specific tasks, as also individuals or
groups who are accountable for the accomplishment of those tasks. Care should be
taken to see that people who are accountable for the performance of the given tasks
have the required ability and information to carry out those tasks.
10. Delegation: The three elements i.e., assignments of duties, delegation of authority
and accountability for the performance of duties and responsibilities and exercise of
authority are together termed as delegation. The entire process of delegation involves
the determination of results expected, the assignment of tasks, the delegation of
authority for accomplishment of these tasks, and the exaction of responsibility of their
accomplishment.
11. Job Range and Depth: The job range refers to the manageable size of the work
while the depth refers to the extent of the job rectification or perfection. Job Range: A
weaving master can manage, for example, 10 weaving units. Job Depth: Day to day
rectification of mechanical failure, major trouble in weaving machine has to be attended
by the mechanical/textile manager.
12. Specialization: Specialization is acquired when a person (or a department or
division) devotes his time to the performance of single leading operation. It is the key
to efficiency and effectiveness. Specialization is concerned with delegation of authority
horizontally rather than vertically.
13. Distinction between Line and Staff Functions: Line functions are concerned with
the accomplishment of the main objectives of the organization. In a manufacturing unit,
for example, production and sales are the line functions which are basic to the
organization. As against this, staff functions are those which are of an advisory nature
and auxiliary to the line functions. Departments concerned with purchases, advertising,
public relations, legal services only provide advice and aid to the line departments. Staff
personnel do not generally have authority to implement any change. They only offer
advice or recommendation which may not be accepted by the line personnel.
14. Flexibility: Flexibility in the organization structure is necessary to enable it to adjust
and adapt itself to any change in its environment, e.g., conditions of booms, depression,
political instability etc.
15. Simplicity: The organization structure should be simple i.e., with as few levels of
authority as possible, such that there is free communication between persons operating
at different levels, thus making for effective coordination
STAFFING: Staffing is that part of the process of management which is concerned with
obtaining, utilizing and maintaining a satisfactory and satisfied workforce. It is the
process of identifying, assessing, placing, evaluating and developing individuals at work.
The staffing function involves the procurement, development, compensation, integration
and maintenance of personnel in the organization. According to Koontz and O’Donnell,
“The managerial function of staffing involves manning the organizational structure
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through proper and effective selection, appraisal and development of personnel to fill
the roles designed into the structure.’
Elements of staffing: Staffing or human resource process consists of a series of steps
which are given below:
1. Procurement: Employment of proper number and kind of personnel is the first
function of staffing. This involves:
i. Manpower planning: It is the process of determining current and future manpower
needs in terms of the number and quality of the personnel.
ii. Recruitment: It implies locating sources of acceptable candidates.
iii. Selection: It involves choice of right type of people from the available candidates.
This requires evaluating various candidates and selecting those that match the needs of
the organization.
iv. Placement: It means assigning specific jobs to the selected candidates.
2. Development: Proper development of personnel is essential to increase their skill in
the proper performance of their jobs. Development involves orientation, training and
counseling of personnel. Development means preparing the employees for additional
responsibility or advancement.
3. Compensation: It means determining adequate and equitable remuneration of
personnel for their contributions to the organizational goals. Both monetary and non-
monetary rewards are decided keeping in view human needs, job requirements, wage
laws, prevailing wage levels, organization capacity to pay, etc. Compensation involves
job evaluation, performance appraisal, promotion etc.
4. Integration: It involves developing a sense of belonging to the enterprise. Effective
machinery is required for the quick and satisfactory redressal of all problems and
grievances of employees.
5. Maintenance: It involves provision of such facilities and services that are required to
maintain the physical and mental health of employees. These include measures for
health, safety and comfort of employees. Various welfare services may consist of
provision of cafeteria, restroom, counseling, group insurance, recreation club, education
of children of employees, etc.
Promoting Providing
Requisitioning Recruiting Selecting Training Appraising and miscellaneou
compensati s services
Pre-employment Post-employment
ti iti
ti iti Directing is concerned with telling subordinates
DIRECTING: what to do and seeing that
they do it as best they can. It includes assigning tasks and duties, explaining
procedures, issuing orders, providing on-the-job instructions, monitoring performance,
and correcting deviations. According to J. L. Massie, “Directing concerns the total
manner in which a manager influences the actions of subordinates. It is the final action
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of a manager in getting others to act after all preparations have been completed.”
According to Urwick and Brech, “Directing is the guidance, the inspiration, the
leadership of those men and women that constitute the real core of the responsibilities
of management.”
Process of directing: It consists of following steps:
i. Issuing orders and instructions that are clear, complete and within the capabilities of
subordinates.
ii. Continuing guidance and supervision to ensure that the assigned tasks are carried
out effectively and efficiently.
iii. Maintaining discipline and rewarding those who perform well.
iv. Inspiring subordinates to work harder for the achievement of predetermined targets.
Elements of directing: The main elements of directing are:
a. Motivation.
b. Leadership.
c. Communication.
d. Supervision.
a. Motivation: Variation in individual effort and performance is attributable to the extent
to which a person feels motivated to expand mental and physical effort to accomplish
the given task. Motivation refers to goal-directed behaviour. It means what a person
will choose to do when several alternatives are available to him. It also refers to the
strength of his behaviour after he has exercised the choice, and the persistence with
which he will engage in such behaviour.
b. Leadership: Leadership is the ability of a superior to influence the behaviour of his
subordinates and persuade them to follow a particular course of action. Leadership is
the activity of influencing people to strive willingly for mutual objectives. Leadership is a
means of direction, is the ability of management to induce subordinates work towards
group ideas with confidence and keenness.
c. Communication: Communication means sharing ideas in common. It means a verbal
or written message, an exchange of information, a system of communicating, and a
process by which meanings are exchanged between individuals through a common
system of symbols. It also means a technique for expressing ideas effectively.
d. Supervision: The aim of supervision is to ensure that sub-ordinates work efficiently to
accomplish the tasks assigned to them. Directing and supervising are similar in the
sense that both seek to motivate the subordinate staff and provide leadership so that
the predetermined goals are effectively accomplished. However, only the lowest level
managers are designated as supervisors. One reason for this is that while all other
levels of management have sub-ordinates who are managers themselves, the
supervisory staff deals with workers who are engaged in basis operations.
Techniques of directing: Several techniques are used by the superior to direct their
subordinates effectively. Some of these techniques are:
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i. Delegation: The delegation of authority implies that a superior give his subordinates
with certain rights or powers. Manager assigns a part of his work to the subordinate and
authorizes him to do the work. Delegation is a useful technique of directing. It is a
means of sharing authority with a subordinate and providing him an opportunity to learn.
ii. Supervision: It implies expert overseeing of people at work in order to ensure
compliance with established palns and procedures. The supervisor is in direct touch
with the works. He teaches proper work methods, maintains discipline and work
standards and solves workers’ grievances and problems.
iii. Orders and instructions: Issuing orders and instructions is essential to direct the
subordinates so that they may work efficiently and effectively for the realization of
predetermined objectives. The giving of orders and instructions to subordinates is an
indispensable component of directing and no manager can get things done without
them.
MOTIVAIOTN: The term motivation has derived from Latin word ‘movere’ which means
‘to move’. Motivation is the process of steering a person’s inner drives and actions
towards certain goals and committing his energies to achieve these goals. It involves a
chain of reaction starting with felt needs, resulting in motives which give rise to tension
(unfulfilled desires) which causes action towards goals. It is the process of stimulating
people to strive willingly towards the achievement of organizational goals. Motivation
may be defined as the work a manager performs in order to induce subordinate to act in
the desired manner by satisfying their needs and desires. According to E. F. L. Brech,
“Motivation is a general inspirational process which gets the members of the team to
pull their weight effectively, to give their loyalty to the group, to carry out properly the
tasks that they have accepted and generally to play an effective part in the job that the
group has undertaken.”
Characteristics of Motivation:
1. A psychological concept: Even workers with extraordinary abilities will not be able to
perform as desired until they are effectively (psychologically) motivated.
2. Motivation is total, not piecemeal: Workers cannot be motivated in piece meal or
parts.
3. Motivation is determined by human needs: Once a particular need is satisfied for
good, he may lose interest in the activity that provides him satisfaction of the said need.
In such a case, he will have to be provided awareness of satisfaction of his other needs
so that he continues to be inclined to pursue the said activity.
4. Motivation may be financial or non-financial.
a. Financial rewards: They include salary or wage increase, overtime and holiday
payments, bonus, payment made under profit sharing plans, fringe benefits like
amenities and facilities at concession rates.
b. Non-financial rewards: Free conveyance facility to residential areas and place of
work, free lunch, provision of own secretary, servants at home, furnished rent free
accommodation.
5. Motivation is a constant process: Human needs are infinite. No sooner a person
26 | P a g e
has satisfied one need than he seeks to satisfy another.

6. Motivation is the result of interactions among three groups of factors, namely,
i) Influences operating within the individual
ii) Influences operating with the organization and
iii) Influences operating in the external environment.
Importance of motivation: Motivation has been called ‘the core of management’. High
motivation provides the following advantages:
1. Higher efficiency: Motivated employees give greater performance than demotivated
ones. Motivation is an effective instrument to maximize efficiency of operations. A
worker may be very competent but no activity can take place until the individual is
willing to perform that activity.
2. Optimum utilization of resources: Motivation inspires employees to make best
possible use of different factors of production. They work whole-heartedly to apply their
abilities in minimizing waste and cost.
3. Reduction in labour turnover: High motivation leads to the job satisfaction of workers.
Opportunities for need satisfaction make employees loyal and committed to the
organization. As a result labour absenteeism and turnover are low.
4. Better industrial relations: Motivational schemes create integration of individual
interest with organizational objectives. There arise a sense of belonging and mutual
cooperation at all levels.
5. Easier selection: An enterprise that offers abundant financial and non-financial
incentives enjoys reputation in the labour market. Therefore, it can easily attract
competent persons for filling various vacancies.
6. Facilitates change: High motivation helps to reduce resistance to change. Properly
motivated employees accept, introduce and implement these changes keeping the
organization effective.
ORDERING: Generally, the terms order, instruction, directive and command are used
interchangeably in management literature. An order, directive or command is a means
of initiating, modifying or stopping an activity. It is a primary tool of directing by means
of which activities are started, altered, guided and terminated. According to Koontz an
O’Donnell, ‘As a directional technique, an instruction is understood to be a charge
(command) by superior requiring a subordinate to act of refrain from acting in a given
circumstances.”
LEADING: Leadership is the process of influencing the behavior of others towards the
accomplishment of goals in a given situation. According to George R. Terry, “leadership
is the activity of influencing people to strive willingly for group objectives.” Koontz and
O’Donnell have defined leadership as “Influencing people to follow the achievement of
common goal. It is the ability to exert inter-personal influence by means of
communication towards the achievement of a goal.”
Types of leadership: The leadership may be classified into three groups which are as
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follow:
1. Autocratic or authoritarian leadership: An autocratic leader exercises complete
control over the subordinates. He centralizes power in himself and takes all the
decisions without consulting the subordinates. He dominates and drives his group
through coercion and command. He loves power and never delegates authority. The
leader gives orders and expects the subordinates to follow them ungrudgingly and
unquestioningly. He uses rewards and holds threat of penalties to direct the
subordinates.
S
S S
S L S
S S
S
2. Democratic or participative leadership: A democratic leader takes decisions in
consultation and participation with the subordinates. He decentralizes authority and
allows the subordinates to share his power. The leader does what the group wants and
follows the majority opinion. He keeps the followers informed about matter affecting
them. A democratic leader provides freedom of thinking and expression. He listens to
the suggestions, grievances and opinions of the subordinates.
S L S
S
3. Free-rein or laissez-faire leadership: It involves complete delegation of authority so
that subordinates themselves take decisions. The free-rein leader avoids power and
relinquishes the leadership position. He serves only as a contact to bring the
information and resources needed by the subordinates.
S
S S
L
S
S S
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Qualities of Leadership: According to Henry Fayol, the qualities that a leader must
possess are:
1. Health and physical fitness.
2. Mental vigour and energy.
3. Courage to accept responsibility.
4. Steady, persistent, thoughtful determination.
5. Sound general education.
6. Management ability embracing foresight and the art of handling men.
7. Sense of judgment.
8. Understanding or empathy.
9. Motivation.
10. Communicating skill.
SUPERVISION: Supervision means observing the subordinates at work to ensure that
they are working according to the plans and policies of the organization. It involves
direct face-to-face contact between the supervisor and his subordinates. The aim of
supervision is to ensure that subordinates work efficiently and effectively to accomplish
the organization objectives. It involves inter-personal relationship in day-to-day work.
Qualities of a Good Supervisor:
1. Knowledge about the organization.
2. Technical competency.
3. Ability to instruct and explain.
4. Ability to listen to others to information, to solve problems, to share experiences
etc.
5. Ability to secure co-operation.
6. Ability for orderly thinking.
7. Ability to judge people.
8. Patience.
9. Ability to improve worker’s morale.
10. Ability to enforce discipline.
11. Ability to delegate the work among his sub-ordinate.
COMMUNICATION: The term communication has been derived from Latin word
‘cummunis’ which means ‘common’. Communication may be defined as an exchange of
facts, ideas, opinions or emotions to create mutual understanding. It is the sum total of
directly or indirectly, consciously or unconsciously, transmitted words, attitudes, gesture,
actions or feelings. The communication is the sum of all the things one person does in
order to create understanding in the mind of others. It is the systematic and continuous
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process of making oneself understood by others and of understanding others.

According to Koontz and O’Donnell, “Communication is an intercourse by words, letters,
symbols or messages and is a way that one organization member shares meaning and
understanding with other.”
Nature of communication:
1. Communication is a pervasive function.
2. Communication is a continuous process.
3. Communication creates mutual understanding and cooperative human relationship.
4. Communication is a two-way process.
Process of Communication: The communication process consists of the following
elements:
1. Sender: It is the person who sends a message or an idea. He is the source and
initiates the process of communication. Sender may be a speaker, writer or actor.
2. Message: Message is what is conveyed by the sender. It consists of the words, facts,
ideas, opinions, etc.
3. Encoding: It is the use of appropriate verbal or non verbal language for transmitting
the message. In order to transmit the idea, the sender translates the idea into a
language (words, symbols, gestures) known to both the parties.
4. Channel: It is the medium or route through which the message is passed from the
sender to the receiver. It may be face-to-face talk, telephone, letter, radio, television, etc.
5. Receiver: Receiver or communicate is the person or group who is supposed to
receive the message. He may be a listener, a reader or an observer.
6. Decoding: It means translating the message into words for the purpose of
understanding. The receiver intercepts the message to derive its meaning.
7. Feedback: It refers to the reaction, reply, response which the receiver sends to
acknowledge his understanding of the message. It may consist of words, actions or
facial expression.
CONTROL: Controlling may be defined as the process of ensuring that activities are
producing the desired results. According to Koontz and O’Donnell, “Managerial control
implies the measurement of accomplishment against the standard and the correction
of deviations to assure attainment of objectives according to plans.” In the words of
Robert N. Anthony, “Management control is the process by which managers assure that
resources are obtained and used effectively and efficiently in the accomplishment of an
organization’s objectives.
Nature of control:
i. Control process is universal.
ii. Control is a continuous process
iii. Control is a forward looking.
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iv. Control involves measurement.

v. Control is an influence process.
vi. Management control is a system.
Need for Control: A control system is needed for three purposes which are given below:
A. To measure progress
B. To uncover deviation
C. To indicate corrective action
A. To measure progress: The control process measures progress towards those goals.
In an undertaking, control consists in varying whether everything occurs in
conformity with plan adopted, the instructions issued and principles established.
B. To uncover deviations: Once a business organization is set into motion towards its
specific objectives, events occur that tend to pull it ‘off target’. Major events which
tend to pull on organization ‘off target’ are as follows:
i. Changes
ii. Complexity
iii. Mistakes
iv. Delegation
C. To indicate corrective action: Controls are needed to indicate corrective actions.
They may reveal that plans need to be redrawn or goals needed to be modified or
there is need for reassignment or clarification of duties or additional staffing.
Steps in a control process: There are three basic steps in control process:
1) Establishing standards
2) Measuring and comparing actual against standards
3) Taking corrective action
1) Establishment of standards: Establishing standards against which results to be
measured. Identify key areas for establishing standards like profitability, market
position, productivity etc.
i. Physical standards
a) Labour hours per unit of output
b) Level of production per machine hour
ii. Cost standard: Direct and indirect costs per unit produced, material cost per unit,
selling cost per unit of sale etc.
iii. Revenue standard: Average sales per customer, sales per capita in a given
market area etc.
iv. Capital standard: Rate of return on capital invested Current asset / current
liabilities = current ratio.
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v. Intangible standard: Competence of manager and employees. Standards should

emphasis the achievement of result more than conformity to rules to methods.
2) Measuring and comparing actual results against standards: Measurement of
performance can be done by personal observation while they are engaged in work
and by a study of summaries of figures, reports, charts and statements.
i. Desirable variations: Output above the standard or expenses below the standard.
ii. Undesirable variations: A variation in the delivery schedule agreed upon with the
customer, or variations in diesel consumption by vehicles.
iii. Who to introduce a control system: Whether measurement and comparison are
to be done at stages in the total process or at the end. It depends upon purpose.
If the purpose of control is to catch trouble while it is forming, then this should be
done at various strategic points before the end of the process.
3) Taking corrective action: Compare actual performance with prescribed standards
and find deviations. Corrective action should be taken without wasting of time so
that normal position can be restored quickly. Identify the causes for deviations like
inadequate and poor equipment and machinery, inadequate communication system,
lack of motivation of subordinates, defective system of training and selection of
personnel, defective system of remuneration etc.
Types of control: Depending upon the time at which corrective action is taken, controls
are of three kinds:
1) Historical or feedback control
2) Concurrent control
3) Feedfarward control
1) Historical or feedback control: It involves checking a completed activity and learning
from mistakes. Under this, results are measured after the performance. Such
measurement provides information about how goals have been achieved. This
information is known as feedback and on this basis corrective action is taken.
Example: By monitoring complaints from discharge patient about billing errors, a
hospital can learn about past performance.
2) Concurrent control: It is known as real time or steering control. It involves
monitoring and adjusting ongoing activities and processes to ensure compliance
with standards. Concurrent control occurs while an activity is still taking place.
Example: The navigator of a ship adjusts its movements depending upon the
direction of destination, control chart of an industry, etc.
3) Feedforward control: It is also known as predictive control. This control system
anticipates the problems that the management is likely to encounter in future and
identifies the steps to be taken to overcome them. It attempts to anticipate
deviations in advance of the problem. It is more aggressive approach to control
because correction can be made before the system output is affected. Example:
Preventive maintenance programme of an industry.
Important Devices or Tools of Control:
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1. Traditional Devices
a) Budgeting or budgetary control
b) Cost control
c) Production control
d) Inventory control
e) Break-even point analysis
f) Profit or loss control
g) Statistical Data Analysis
h) External and Internal Audit
2. Modern Devices
a) Return on Investment Control
b) Programme Evaluation and Review Technique (PERT)
c) Management Information System (MIS)
d) Cybernetics
e) Management Audit
1. Traditional Devices:
a) Budgetary Control: A budget is a financial plan for a definite period time.
Budgetary control evolves a course of action that would make the realization of the
budgeted targets possible. Zero-based budgeting as a method of budgeting under
which all activities are reevaluated each time a budget is formulated.
b) Cost Control: It refers to control of all the costs of an undertaking, both direct and
indirect, in order to achieve cost effectiveness in business operations.
c) Production Control: Production control is the process of planning production in
advance of operations, establishing the exact route of each individual item, part or
assembly, setting, starting and finishing dates for each important item, assembly
and the finished product; and realizing the necessary orders as well as initiating
the required follow up to effect the smooth functioning of the enterprise.
d) Inventory Control: It refers to controlling the kind, amount, location, movement,
and timing of the various commodities used in and produced by the industrial
enterprises.
e) Break – Even Point Analysis: The break-even point may be defined as the point
when sales revenue is equal to total cost (fixed and variable). In other words, it
represents the level of activity when there is neither any profit nor loss.
f) Profit and Loss Control: Profit and Loss Control refers to a control system under
which sales, expenses, and hence profits of each branch or “product division” are
compared with those of other branches and product divisions, as well as with
historical trends, with a view to measuring deviations and taking necessary
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corrective action.
g) Statistical Analysis: Comparison of ratios, percentages, averages etc. of different
periods can be done to monitor – deviations and their causes.
h) External and Internal Audit: External audit is enforced by law in respect of all joint
stock companies, co-operatives etc. Its objective is to safeguard the interest of
the share holder against the malpractices of management. Firms may also have
internal audit under which staff members of the company may verify financial
transactions and financial records for analyzing the overall control system of the
organization.
 CAPITAL MANAGEMENT AND FINANCIAL MANAGEMENT OF AGRIBUSINESS:
Capital is not an original factor like land, but it is the result of man-made efforts. Man
makes the capital goods to produce other goods and services, which provides income.
Capital is produced means of production. Ex: Machinery, raw material, transport
equipment, dams etc.
Characteristics of Capital:
1. Capital is not a free gift of nature. It is the resultant of the man-made efforts.
2. Capital is productive, as it helps in enhancing the overall productivity of all the
resources employed in the production process. Invested capital provides interest for
its productive capacity. Farm machinery, when used with skilled labourers enhances
the productivity of land. Irrigation dam, by providing water can bring out
complementary effect on the productivity of other resources like fertilizers, seeds etc.,
3. Capital is prospective, as its accumulation reward income in future. Ex: Savings and
investment in the economy leads to growth and development of the economy due to
accumulation of capital over time.
4. Capital is highly mobile among factors of production. Ex: Tractor
5. Capital is supply elastic, as its supply can be altered according to the need. Based
on demand, supply of the capital goods can be changed.
The capital of a business consists of those funds used to start and run the business.
Capital may be of two types:
1. Fixed capital.
2. Working capital.
1. Fixed capital: It refers to items bought once and used for a long period of time. This
includes such things as land building, fixtures and equipment.
2. Working capital: Working capital is also called as circulating capital. It is the type of
funds, which is needed for carrying out day to day operations of the business
smoothly. The management of working capital is no less important than the
management of ‘long term financial investment’. It is regarded as the life blood of a
business, because its efficient management will lead to success of business and its
inefficient management will lead to failure of the business. Working capital can be
defined as that portion of the assets in a business which is used to meet the day to
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day / current operations of the business. The assets formed due to the working
capital are relatively temporary in nature. In accounting, working capital is defined
as difference between inflow and out flow of funds. It is otherwise called as net cash
flow per year.
Net cash flow / Yr = Cash in-flow – Cash out-flow.
Working capital is the excess of current assets over current liabilities of a business.
It is otherwise called as net current assets or net working capital / year.
Net working capital per year = Current assets – Current liabilities
Working capital may also be defined as total current assets employed before
operating the business. It is also called gross working capital.
Types of working capital:
1. Net working capital: Net working capital is the difference between the current assets
and current liabilities of a business. This concept enables a firm to determine how
much is left for operational requirements.
Net working capital per year = Current assets – Current liabilities
2. Gross working capital: It is the total amount of the funds invested in the business or
the total current assets employed in the business. It helps to plan and control the funds
usage in the business and also helps in identifying the prioritized areas of investment.
3. Permanent working capital: This is the minimum amount of current assets which is
needed to conduct a business even during the dull / slack season of the year. It is the
amount of the funds required to produce the goods and services which are necessary to
satisfy demand at a particular point. It represents the current assets which are required
on a continuous basis over the entire year. It is maintained as the medium to carry on
operations at any time.
4. Temporary working capital: It represents the additional assets which are required at
different times during the operating year like additional inventory, extra cash etc.,
5. Balance sheet working capital: The working capital that is calculated from the items
appear in the balance sheet is called balance sheet working capital. Ex: Gross working
capital and Net working capital.
6. Cash working capital: This will be calculated from the items appear in profit & loss
account. It will show the real flow of money at a particular point of time and hence it is
considered as most realistic approach in working capital management. It forms the
basis for operational cycle concept and gained more important in the financial
management. The major reason is that cash working capital indicates the adequacy of
the cash flow in the business, hence considered as prerequisite of the business.
7. Negative working capital: It arises when current liabilities are more than current
assets. Such situation arises when firm is nearing a crisis of some magnitude.
Working Capital Management:
Significance of working capital: Every running business needs working capital. Even a
business which is fully equipped with all types of fixed assets required is sure to fail
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without:
i. Adequate supply of raw materials for processing.
ii. Cash to pay wages, power and other costs.
iii. Creating a stock of finished goods to feed the market demand continuously.
iv. The ability to grant credit to customers. .
All these require working capital. Thus working capital is the lifeblood of a business
without which a business will be unable to function. No business will be able to carry on
day to day activities without adequate working capital.
Components of working capital: The working capital has following components, which
are in several forms of current assets. The basis for assigning value to each component
is shown against each.
a) Stock of cash
b) Stock of raw materials
c) Stock of finished goods
d) Value of debtors
e) Miscellaneous current assets like short term investment loans and advances etc
Each constituent of the working capital is valued on the basis of valuation enumerated
above of the holding period estimated. The total of all such valuation becomes the total
estimated working capital requirement.
Factors influencing working capital requirement: The important factors that influence
the working capital requirements of business are furnished below.
1. Nature of business.
2. Seasonality of operations.
3. Production policy.
4. Market condition.
5. Conditions of supply.
6. Growth and expansion.
7. Price level changes.
8. Manufacturing cycle.
Tests of working capital policy: There are four tests of working capital policy.
1. Level of working capital: It is the test to be done in a careful manner by observing the
movements of working capital in a firm in successive periods of production activity. If a
management can develop a pattern of flow of working capital in these movements, this
pattern would serve as a guide to its changing requirements in relation to certain
decisions which are made from time to time.
2. Structural Health: The relative health of the various components of the working
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capital should be considered from the point of view of liquidity. It is necessary to draw
structural relationships in respect of each component constituting the current assets.
3. Circulation: This is one of the important features of the liquid position and involves
the natural activity cycle of an enterprise. Ratios may be calculated to show the average
period required for the conversion of raw materials into finished goods into sales, and
sales into cash.
4. Liquidity: A more comprehensive test to measure liquidity may be adopted by using
the following ratios by expressing them in the percentages of
a) Working capital to current assets.
b) Stocks to current assets.
c) Liquid resources to current assets.
Planning financial needs: Planning the financial needs of a business is very important.
The owner or manager needs to be able to ask the following questions.
Why do I need the money? The general area of need for money is:
i. Starting a new business
ii. Inventory
iii. Expansion
iv. Remodeling
v. Improving working capital
How much money will I need?
It is important to be able to specify how much money you will need. It is advisable when
doing any financing to be able to stipulate the amount of money that you will be using
and to specify if it is to purchase inventory, pay salaries or wages or even to be used to
purchase a new equipment.
When I will be able to repay the money?
Friends, bankers, and business associates are always interested in knowing when and
how you anticipate repaying the loans. The majority of loan repayments come from
sales of merchandise, inventory and payments received for services rendered
Where will I obtain money?
Compare the advantages and disadvantages of obtaining money from different sources
in terms of interest payment and control over business
Sourcing of capital for business: There are two major forms of financing any business;
1. Equity financing
2. Debt financing
1. Equity financing: Equity capital (ownership) may come from personal savings, from
partnership or by selling stock in a corporation. Equity financing involves giving up
ownership to the investors of the business. It also involves dividing of the business
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ownership among the various investors. That is instead of repaying an investor or one is
giving money to the business, the investor now becomes an owner and receives money
from business primarily through dividend or profit sharing system.
2. Debt capital: Source of debt capital are commercial banks, co-operative banks,
mutual funds, vendors, equipment manufacturers and distributors, factors, private
investors, special type of finance lending institutions.
 FINANCIAL STATEMENTS AND THEIR IMPORTANCE:
The term financial statement refers to two basic statements that an accountant
prepares at the end of a specified period of time for a business enterprise.
1. Balance sheet: It is a statement of financial position of a firm at a particular point of
time.
2. Income statement: It is also called profit-loss statement. It shows firm’s earnings for
the period covered, usually half yearly or yearly.
1. BALANCE SHEET/NET WORTH STATEMENT:
The balance sheet indicates the account of total assets and total liabilities of the farm
business revealing the financial solvency of the business. In other words, it is a
statement of the financial position of the farm business at a particular time, showing its
assets, liabilities and equity. If the assets are more than the liabilities it is called net
worth or equity and if the assets are less than the liabilities it is known as net deficit.
The typical balance sheet shows assets on the left side and liabilities and equity on the
right side. Both sides are always in balance hence called balance sheet. It can be
prepared at any point of time to know the financial position of the farm business. To
prepare a balance sheet the prime requisites are total assets and total liabilities of the
farm.
Assets: These are those which are owned by the farmers. Assets are of three kinds,, viz.
Current assets, Intermediate or working assets and long term or fixed assets.
1. Current assets: They are very liquid or short term assets. They can be converted into
cash, within a short time, usually one year. Examples are cash on hand, agricultural
produce ready for disposal, etc.
2. Intermediate or working assets: These assets take 2-5 years to convert them into
cash form. Examples: Machinery, equipments, livestock, tractor, etc.
3. Long-term or fixed assets: These assets take longer time to convert them into cash
due to verification of records, legal transactions, etc. Examples: Land, farm building, etc.
Liabilities: These refer to all things which are owed to other by the farmers. Liabilities
are also of three type viz. current liabilities, intermediate liabilities and long-term
liabilities.
1. Current liabilities: Debts that must be paid in the short term or in very near future.
Examples: crop loans, other loans, cost of maintenance of cattle, cost of cultivation of
crops, etc.
2. Intermediate liabilities: These loans are due for repayment within a period of 2- 5
38 | P a g e
years. Examples: livestock loans, machinery loans, etc.

3. Long-term liabilities: The duration of loan repayment is 5 or more years. Examples:
Tractor loan, orchard loan, land development loan, etc.
Test ratios: The test ratios, viz. current ratio, intermediate ratio, net capital ratio, quick
ratio, current liability ratio, debt-equity ratio and equity-value ratio can be derived from
balance sheet.
1. Current ratio (CR): This ratio indicates the capacity of the farmer to meet immediate
financial obligations. Current ratio indicates the liquidity within one year’s time. A ratio
of more than one indicates a favourable run of farm business. Current ratio can be
computed using the formula given below:
Total current assets
CR =
Total current liabilities
2. Intermediate or working ratio (WR): This indicate the liquidity position of the farm
business over and= intermediate period of time, ranging from 2-5 years. This ratio
should also be more than one to indicate sound running of the farm business. The
formula of Intermediate or working ratio is as follows:
Total current assets + Total intermediate assets
WR =
Total current liabilities + Total intermediate liabilities
3. Net capital ratio (NCR): It indicates the long term liquidity position of the farmers. If
the net capital ratio is more than one, the funds of institutional agencies are safe. A
consistently increasing ratio over the years indicates the sound financial growth of farm
business.
Total assets
NCR =
Total liabilities
4. Acid test or quick ratio (QR): this ratio reflects the adequacy of cash and income
surplus to cover all current liabilities during the period of 1 to 2 years. If there is no
difference in income position of a farmer within that period, current ratio and acid test
ratio reflect the same position.
Cash receipts + account receivable+ marketable securities
(bonds, share, etc.) available in more than one year.
QR =
Total current liabilities
5. Current liability ratio (CLR): This ratio indicates the farmer’s immediate financial
obligations against the net worth. A ratio of less than one indicates a healthy
performance of the farm business. Over the years, this ratio should become smaller and
smaller to reflect a consistently good performance.
Total current assets
CLR =
Owner’s equity
6. Debt-equity ratio (Leverage ratio): This indicates the capacity of the farmer to meet
the lon-term commitments. A consistently falling ratio indicates a very heartening
performance of farming and ability of the farmer to reduce dependence on borrowings.
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Total debts
LR =
Owner’s equity
7. Equity-value ratio (DVR): This ratio highlights the productivity gained by the farmer in
relation to the assets he has. The improvement in the ratio over the years indicates the
increased strength in financial structure of the farm business.
Owner’s equity
DVR =
Value of assets
A typical form of balance sheet is presented below.
S. Assets Value Liabilities Value
No (Rs.) (Rs.)
.
A Current assets A Current liabilities
1 Cash on hand xx 1 Crop loans to be repaid to xx
institutional agencies
2 Savings in bank xx 2 Account payable xx
3 Value of grains ready for xx 3 Hands loans xx
disposal
4 Livestock products (eggs, birds, xx 4 Money owned to input xx
etc. suppliers
5 Fruits, vegetables, fodder and xx 5 Annual installments on MT xx
feed ready for sale and LT loans
6 Value of bonds and shares to be xx
realized in the same year
Sub-total xx Sub-total xx
B Intermediate assets B Intermediate liabilities
1 Dairy cattle xx 1 Livestock loan (outstanding xx
amount)
2 Bullocks xx 2 Machinery loan xx
(outstanding amount)
3 Poultry birds xx 3 Unsecured loans xx
(outstanding amount)
4 Machinery and equipments xx
5 Tractor xx
Sub-total xx Sub-total xx
C Lon-term assets C Lon-term liabilities
1 Land xx 1 Tractor loan (outstanding xx
amount)
2 Farm buildings xx 2 Orchard loan (outstanding xx
amount)
xx 3 Unsecured loans (land xx
development)
Sub-total xx Sub- total xx
Total assets Total liabilities xx
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Net worth or equity = Total xx

assets – Total liabilities
2. INCOME STATEMENTS/PROFIT AND LOSS ACCOUNT:
Income statement could be defined as a summary of receipts and gains minus
expenses and losses during a specified period. It is prepared for the entire farm for one
agricultural year. In income statement the items included are receipts, expenses, gains
and losses. Income statement basically constitutes three items, viz. receipts, expenses
and net income. The monetary values are assigned to inputs and output for preparing
the income statement. It helps to know the success or failure of a business farm over
time.
Receipts: they mean the return obtained from the sale of crop produce and other
supplementary products like milk and eggs, wages, gift, etc. Gain in the form of
appreciation in the value of asserts is also included in the receipts.
Expenses: Operating and fixed costs are recorded here. Losses in the form of
depreciation on the asset value are included under the expenditure item.
Net income: It constitutes net cash income, net operating income and net farm income.
Net cash income: it gives the position of cash receipts minus cash expenses only
during the period for which income statement is prepared.
Net cash income = Gross cash income – Total operation expenses
Net operating income: It is arrive at by deducting operating expenses from the gross
income. Operation expenses include crop loans.
Net operating income = Gross income – Total operation expenses
Net farm income: Net farm income equals net operating income les fixe costs. Other
way of arriving at net farm income is to deduct gross expenses from gross income.
Net farm income/Net income = Net operating income– Total fixed expenses
or
Gross income – Gross expenses
Financial test ratios: The two sets of financial ratios are used to assess the
performance of farm business. These are:
A. Expense- income ratios: Income expense ratios can be obtained directly from the
income statement. These ratios include:
1. Operation ratio: This ratio explains the relationship of operating cost to gross income.
This ratio underlines the magnitude of working expenditure incurred for a rupee of gross
income.
Total operation expenses
Operation ratio =
Gross income
2. Fixed ratio: This ratio indicates the relationship between fixed expenses and gross
income. It depicts the amount of fixed expenses incurred to realize a rupee of gross
income.
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Total fixed expenses

Fixed ratio =
Gross income
3. Gross ratio: This ratio indicates the relationship between gross expenses (total
operating expenses plus total fixed expenses) and gross income. It depicts the amount
of expenses incurred on fixed resources and variable resources to realize a rupee of
gross income. This can be called input-output ratio.
Gross expenses
Gross ratio =
Gross income
B. Investment-income ratios: These ratios are obtained by taking one component from
income statement i.e., income levels and comparing against capital investment made
on the farm business. These ratios indicate the income generating capacity of the
investment and hence called investment-income ratios. Following two are the ratios
which fall under this category.
1. Capital turnover ratio: This ratio gives the gross income obtained for each rupee of
capital invested over the year.
Gross income
Capital turnover ratio =
Average capital investment
The average capital investment is computed by adding the value of assets at the
beginning of the agricultural year and at the end of the agricultural year and then
dividing by two i.e.,
Value of assets at the beginning of the agricultural
year+ Value of assets at the end of the
agricultural year
Average capital investment =
2
2. Rate of return on investment: This ratio gives the net return on capital for every rupee
of average capital invested.
Net return to capital
Rate of return on investment =
Average capital investment
Net return to capital is calculated by adding bank interest paid (interest on borrowed
funds plus interest paid on term loans) to the net farm income and then deducting
unpaid family labour for farm and livestock operations and management i.e.,
Net return to capital = Net farm income + Interest on borrowed funds + Interest paid
on term loans - Unpaid family labour
A typical form of profit and loss account is given below:
S. No. Particulars Value (Rs.)
A Receipts
i Returns from the sale of crop output xx
ii.a Returns from milk and milk products xx
ii.b Returns from poultry enterprise xx
Returns from supplementary enterprises xx
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iii Gifts xx
Gross cash income xx
iv Appreciation on the value of assets xx
Gross income xx
B Expenses
1 Operating expenses
i Hired human labour xx
ii Bullock labour xx
ii Machine labour xx
iv Seeds xx
v Feeds xx
vi Manure and fertilizers xx
vii Plant protection measures xx
viii Veterinary aid xx
ix Irrigation xx
x Miscellaneous xx
xi Interest on working capital xx
Total operating expenses xx
2 Fixed expenses
i Depreciation xx
ii Land revenue xx
iii Interest on fixed capital (excluding value of land) xx
iv Rental value of owned land xx
Total fixed costs xx
Net income xx
Cash flow statement: The cash flow statement is a measure of changes in cash the
business has on hand from month to month. It records or projects all cash receipts less
all cash disbursements. A business may use the cash flow statement as a record of
what has occurred to cash or as a projection into the future to determine future needs
for cash or as both. The cash flow statement is accurate when it is a record of past
receipts and disbursements and an estimate when it is projected for future months.
The cash flow statement is usually calculated on a monthly basis for an entire year.
Importance of financial statements:
Financial analysis is one of the roots of management used to carry out its controlling
function. Proper interpretation of data presented by the financial statement helps in
judging the profitability of operations during given time periods, in determining the
soundness of financial condition at a specific date, in determining future potential to
meet existing or anticipated credit obligations and in developing performance trends to
be used as a basis for future decision making. At regular period public companies must
prepare documents called financial statements.
Financial statements show the financial performance of a company. They are used for
both internal and external purposes. When they are used internally, the management
and sometimes the employees use it for their own information. Managers use it to plan
ahead and set goals for upcoming periods. When they use the financial statements that
were published, the management can compare them with their internally used financial
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statements. They can also use their own and other enterprises‟ financial statements for
comparison with macro-economical data and forecasts, as well as to the market and
industry in which they operate in.
 MARKETING MANAGEMENT: SEGMENTATION, TARGETING AND POSITIONING
MARKETING MANAGEMENT: Marketing management refers to distribution of the firm’s
product or service to the customers in order to satisfy their needs and to accomplish
the firm’s objectives. It includes developing the product or service, pricing, distribution,
advertisement, merchandising, doing personal selling, promoting and directing sales
and service to customers. Marketing management is an essential function because
unless the firm has a market, or can develop a market, for its product or service, other
functions of staffing, producing and financing are futile.
MARKET SEGMENTATION: Market segmentation is the process of dividing a
heterogeneous market of a product into segments where each segment is
homogeneous with respect to predetermined parameters. Market segmentation
enables business firms to choose such market which he can serve better given the
limited amount of resources available with the firm. Example: Dividing a cloth market
into male and female cloth markets.
Methods of market segmentation: The goal of market segmentation is to separate the
general market into categories, which can then be targeted and marketed to most
effectively. There are four general types of market segmentation:
1. Geographic segmentation separates a market into different geographical boundaries
which can impact the marketing mix of product, price, promotion and channel to market.
For instance, you may not sell many down comforters in Arizona, but the market in
Michigan is pretty good. Ever been to Hawaii? The price of goods is substantially higher
than the continental United States. And the way you promote and sell a product in
southern California will be quite different from Vermont.
2. Demographic segmentation separates a market by demographic indicators including
gender, age, household type, education level and income. Simply put, the type of
products we buy, how much we spend, and how we buy them are largely determined by
demographic factors.
3. Psychographic segmentation separates a market by lifestyle as well as values and
beliefs. There are large target markets which fit psychographic segmentation, such as
outdoor recreation and fitness.
4. Behavioural segmentation separates a market by shopping and buying behaviors.
Are you an online shopper or do you prefer to handle products in the store? How often
do you shop? Do you research a purchase carefully before making a decision, or do you
tend to buy on impulse? All of these factors determine how consumers are segmented
and marketed to.
MARKET TARGETING: The segments the company wants to serve are called the target
market, and the process of selecting the target market is referred as market targeting.
Market targeting is a process of selecting the target market from the entire market.
Target market consists of group/groups of buyers to whom the company wants to
satisfy or for whom product is manufactured, price is set, promotion efforts are made,
44 | P a g e
and distribution network is prepared.
Total
Available
Market Served
Available Target
Market
market
Procedure of market targeting:

1. Evaluating market segments: Evaluation of market segments calls for measuring
suitability of segments. The segments are evaluated with certain relevant criteria to
determine their feasibility.
2. Selecting market segments: When the evaluation of segments is over, the company
has to decide in which market segments to enter. That is, the company decides on
which and how many segments to enter. This task is related with selecting the target
market. Target market consists of various groups of buyers to whom company wants to
sell the product; each tends to be similar in needs or characteristics. Philip Kotler
describes five alternative patterns to select the target market. Selection of a suitable
option depends on situations prevailing inside and outside the company.
MARKET POSITIONING: Market positioning refers to the process of establishing the
image or identity of a brand or product so that consumers perceive it in a certain way.
Example: A car maker may position itself as a luxury status symbol, a battery maker
may position its batteries as the most reliable and long-lasting, etc.
 MARKETING MIX AND MARKETING STRATEGIES, CONSUMER BEHAVIOUR
ANALYSIS:
MARKETING MIX: The marketing mix refers to the set of actions, or tactics, that a
company uses to promote its brand or product in the market. The 4Ps make up a typical
marketing mix - Price, Product, Promotion and Place. However, nowadays, the
marketing mix increasingly includes several other Ps like Packaging, Positioning, People
and even Politics as vital mix elements. In considering the needs of their customers,
companies must think in terms of the product itself, the price of the product and the
place where the customer needs it, while making sure that the existence of the product
is known through effective promotion. These various components are described in
more detail below:
A. Price: refers to the value that is put for a product. It depends on costs of production,
segment targeted, ability of the market to pay, supply - demand and a host of other
direct and indirect factors. There can be several types of pricing strategies, each tied
in with an overall business plan. Pricing can also be used a demarcation, to
differentiate and enhance the image of a product.
B. Product: refers to the item actually being sold. The product must deliver a minimum
45 | P a g e
level of performance; otherwise even the best work on the other elements of the
marketing mix won't do any good.
C. Place: refers to the point of sale. In every industry, catching the eye of the consumer
and making it easy for her to buy it is the main aim of a good distribution or 'place'
strategy. Retailers pay a premium for the right location. In fact, the mantra of a
successful retail business is 'location, location, location'.
D. Promotion: this refers to all the activities undertaken to make the product or service
known to the user and trade. This can include advertising, word of mouth, press
reports, incentives, commissions and awards to the trade. It can also include
consumer schemes, direct marketing, contests and prizes.
Product Price
Marketi
ng mix
Place
Promoti
on
MARKETING STRATEGY: A marketing strategy refers to a business's overall game plan

for reaching prospective consumers and turning them into customers of the products or
services the business provides. A marketing strategy contains the company’s value
proposition, key brand messaging, data on target customer demographics, and other
high-level elements. Some important marketing strategies are:
 Cause Marketing.
 Direct Selling.
 Co-Branding and Affinity Marketing.
 Earned Media/PR.
 Point-of-Purchase (POP) Marketing.
 Internet Marketing.
 Paid Media Advertising.
 Word of Mouth Advertising.
CONSUMER BEHAVIOUR ANALYSIS: Consumer behaviour analysis is the study of how
people make purchase decisions with regard to a product, service or organisation.
Studying consumer behaviour would allow you to answer several questions, such as:
 How consumers feel about alternatives to their preferred brands?
 How consumers choose between the alternatives?
 How consumers behave while shopping?
 How consumer behaviour is swayed by their surrounding environment?
46 | P a g e
 How marketing campaigns can be improved to more effectively influence

customer behavior?
Factors affecting consumer behaviour: These are:
i. Psychological: This is considered to be the most important factor that affects
consumer behaviour. Traits like perception, motivation, personality, beliefs and
attitude are important to decide why a consumer would buy a product.
ii. Personal: These are characteristics that are applicable to individuals and may not
relate to other people in a group. These factors can include age, occupation,
financial situation and lifestyle.
iii. Social: Social characteristics play an important role in consumer behaviour, and it
can include family, communities and social interaction. These factors are difficult to
assess while preparing marketing plans.
iv. Geographical: The location of consumers also play a role in how they purchase
products. For example, a person living in warmer weather would be less likely to
purchase winter clothing compared to someone living in temperate climates.
Advantages of consumer behavior analysis:
Consumer behaviour has significant bearing on decisions related to public relations and
marketing; and studying it provides you with vital information regarding the thought
process of consumers. It can also help you understand several factors:
i. Attitudes: Consumer attitudes often affect their beliefs regarding specific products.
Understanding customer attitudes using consumer behaviour models helps
marketers tune their campaigns to strike a chord with the consumers, resulting in a
greater market reach.
ii. Cultures: Constantly evolving cultures impact the designing of marketing campaigns.
Studying consumer psychology can help you understand cultural nuances and
determine the target market for your product.
iii. Perceptions: Studying consumer perceptions about your brand might help you
uncover negative opinions, which you can then work on to improve your offering.
iv. Lifestyle: Comprehending consumer lifestyles would allow you to tune your products
to meet their specific requirements.
 PRODUCT LIFE CYCLE: When a product enters the market, often unbeknownst to the
consumer, it has a life cycle that carries it from being new and useful to eventually
being retired out of circulation in the market. This process happens continually -
taking products from their beginning introduction stages all the way through their
decline and eventual retirement. The product life cycle is the process a product goes
through from when it is first introduced into the market until it declines or is removed
from the market. The life cycle has four stages - introduction, growth, maturity and
decline.
Stages of the product life cycle: Generally, there are four stages to the product life cycle,
from the product's development to its decline in value and eventual retirement from the
market. These are:
47 | P a g e
1. Introduction.
2. Growth.
3. Maturity.
4. Decline.
1. Introduction: Once a product has been developed, the first stage is its introduction
stage. In this stage, the product is being released into the market. When a new
product is released, it is often a high-stakes time in the product's life cycle - although
it does not necessarily make or break the product's eventual success. During the
introduction stage, marketing and promotion are at a high - and the company often
invests the most in promoting the product and getting it into the hands of consumers.
It is in this stage that the company is first able to get a sense of how consumers
respond to the product, if they like it and how successful it may be. However, it is also
often a heavy-spending period for the company with no guarantee that the product
will pay for itself through sales. Costs are generally very high and there is typically
little competition. The principle goals of the introduction stage are to build demand
for the product and get it into the hands of consumers, hoping to later cash in on its
growing popularity. Marketing strategies used in introduction stages include:
 Rapid skimming - launching the product at a high price and high promotional
level
 Slow skimming - launching the product at a high price and low promotional level
 Rapid penetration - launching the product at a low price with significant
promotion
 Slow penetration - launching the product at a low price and minimal promotion
During the introduction stage, firm should aim to:
 Establish a clear brand identity
 Connect with the right partners to promote your product
 Set up consumer tests, or provide samples or trials to key target markets
 Price the product or service as high as you believe you can sell it, and to reflect
the quality level you are providing
2. Growth: By the growth stage, consumers are already taking to the product and
increasingly buying it. The product concept is proven and is becoming more popular -
and sales are increasing. Other companies become aware of the product and its
space in the market, which is beginning to draw attention and increasingly pull in
revenue. If competition for the product is especially high, the company may still
heavily invest in advertising and promotion of the product to beat out competitors. As
a result of the product growing, the market itself tends to expand. The product in the
growth stage is typically tweaked to improve functions and features. As the market
expands, more competition often drives prices down to make the specific products
competitive. However, sales are usually increasing in volume and generating revenue.
Marketing in this stage is aimed at increasing the product's market share. Marketing
48 | P a g e
strategies used in the growth stage mainly aim to increase profits. Some of the
common strategies to try are:
 Improving product quality
 Adding new product features or support services to grow your market share
 Enter new markets segments
 Keep pricing as high as is reasonable to keep demand and profits high
 Increase distribution channels to cope with growing demand
 Shifting marketing messages from product awareness to product preference
 Skimming product prices if your profits are too low.
3. Maturity: When a product reaches maturity, its sales tend to slow or even stop -
signaling a largely saturated market. At this point, sales can even start to drop.
Pricing at this stage can tend to get competitive, signaling margin shrinking as prices
begin falling due to the weight of outside pressures like competition or lower demand.
Marketing at this point is targeted at fending off competition, and companies will
often develop new or altered products to reach different market segments. Given the
highly saturated market, it is typically in the maturity stage of a product that less
successful competitors are pushed out of competition - often called the "shake-out
point." In this stage, saturation is reached and sales volume is maxed out. Companies
often begin innovating to maintain or increase their market share, changing or
developing their product to meet with new demographics or developing technologies.
The maturity stage may last a long time or a short time depending on the product.
Common strategies that can help during this stage fall under one of two categories:
 Market modification - This includes entering new market segments, redefining
target markets, winning over competitor’s customers, converting non-users
 Product modification - For example, adjusting or improving your product’s features,
quality, pricing and differentiating it from other products in the marking
4. Decline: Although companies will generally attempt to keep the product alive in the
maturity stage as long as possible, decline for every product is inevitable. In the
decline stage, product sales drop significantly and consumer behavior changes as
there is less demand for the product. The company's product loses more and more
market share, and competition tends to cause sales to deteriorate. Marketing in the
decline stage is often minimal or targeted at already loyal customers, and prices are
reduced. Eventually, the product will be retired out of the market unless it is able to
redesign itself to remain relevant or in-demand. For example, products like
typewriters, telegrams and muskets are deep in their decline stages (and in fact are
almost or completely retired from the market). At this stage, firm can adopt following
strategies:
 Reduce your promotional expenditure on the products
 Reduce the number of distribution outlets that sell them
 Implement price cuts to get the customers to buy the product
49 | P a g e
 Find another use for the product

 Maintain the product and wait for competitors to withdraw from the market first
 Harvest the product or service before discontinuing it
 Sell the brand to another business
 Significantly reduce the price to get rid of all the inventory
X
Growt Maturit Declin
Introduction
h y
Sales
X
Time
 PRICING POLICY AND PRICING METHODS:

PRICING POLICY: It refers to a systematic approach of pricing of different products in
different markets to evolve an appropriate pattern of prices in long-run. It is the
philosophy regarding price that guides price fixing in actual practice. Some of the
important pricing policies which business firms follow in practice are describe below:
1. Skimming-the-cream-pricing: This refers to the strategy of charging high prices in
the initial stages of the life of a product. The initial high price serves to skim the
cream of inelastic market demand and initial investment is recovered quickly. The
manufacturer sets high price of his produce to obtain high immediate profits for fear
of competition at latter stage. The skin-the-cream price is set as high as the market
will bear. This strategy is useful in the case of new and specialty product.
2. Penetrating pricing: The price policy involves setting a low initial price to attract as
many buyers as possible. Prices are fixed below the competitive to maximize the
market share and to make the brand popular quickly. The manufacturer seeks to sell
to the masses. This policy results in the higher sale volume during the initial stage of
product life cycle. This is an aggressive pricing policy and helps in developing brand
50 | P a g e
preference among consumers.

3. Competitive pricing: It is also known as market level pricing or going rate pricing. It
implies selling a product at a going market rate. When the market is highly
competitive and product is not differentiated significantly from the competitive
product this policy is quite useful. Under perfect competition, prices are determined
by the forces of demand and supply. Every firm tend to follow the current market
price because products are standardized and no firm has control over the market
and buyers and sellers are well informed about market condition.
4. Follow the leader pricing: This policy is also known as price leadership or pattern
pricing. In some industries, there are a few firms but one of them controls so large
shares of the market that change in its supply will affect the market price. Such a
dominant firm acts as the price leader. The leader sets the price of the product and
all other firms follow that price. This price policy is generally adopted under oligopoly
market in which small firms cannot dare to disturb the the price set by the leader.
When the leader fixes a high price to protect its small competitors, it is known as
umbrella pricing.
5. Leader pricing: Under this, a firm or producer sells his product at the price below
cost to attract customers and to promote the sale of other goods. Such firm or
producer is known as loss leader and strategy involving the use of loss leader is
called leader pricing. The items are frequently purchased consumer items like bread,
soap, tooth paste, etc.
6. Price lining: Price lining refers to the policy of selling different quantities of a
products at different prices. Many retailers’ offers a good, better, best assortment of
merchandise at different prices. Examples: A retailer of jeans may sell them at three
prices, i.e., Rs. 100, Rs. 250 and Rs. 500.
7. Price discrimination: In this pricing policy, same produce is sold at different prices
to different consumers depending upon the elasticity of demand. The consumers
are divided into different groups based on their demand elasticity. Generally, each
consumer is charges different prices for the same product but in some cases, a
common price is charged by one group of people and other group of people pays
other price for same product.
8. Keep out pricing: This pricing policy seeks to discourage the competitive firms to
offer substitutes and prevent the entry of new firms in the industry. It is a pre-
emptive pricing policy involving the fixation of low prices. This policy can be adopted
by big firms which have huge resources at their command.
9. Fixed price versus variable price policy: In case of fixed price policy or single price
policy, a product is sold at the same price per unit to all customers irrespective of
the amount of the purchase. However, the price may vary according to the quantity
purchased. Whereas, under variable price policy, the same quantities of product are
sold to similar buyers at different prices.
10.Psychological pricing: Under this pricing policy, a seller has to decide whether to
charge even price i.e., Rs 100 per unit or odd prices e.g., Rs. 99 per unit. Odd prices
hasve a favourable psychological influence on the buyers.
51 | P a g e
11.Unit pricing:
PRICING METHODS: The technique of fixing prices depend upon the pricing objectives
and policy of the firms some of the important method of pricing are describe below:
1. Cost plus or full cost pricing: It is the most common pricing method used by
business firms. Under this method, selling price of a product is determined adding a
margin of profit to the estimated cost of product. The margin may be a fixed amount
per unit or a percentage of cost. The margin is known as ‘mark up’ and therefore,
costs plus pricing is also known as ‘mark-up pricing’. Following formula is generally
used to fix prices under this approach.
Selling price = Total cost per unit + desired profit per unit
Advantages:
a) It is most widely used technique of pricing.
b) It is safe approach to pricing.
c) It ensures full coverage of costs and helps in achieving a reasonable returns of
capital employed.
d) It discourages cut-throat competition in the market.
Disadvantages:
a) It is difficult to determine accurately the cost per unit due to common overheads
and joint products.
b) The method ignores the nature and level of demand.
c) It fails to reflect competition in the market.
d) The mark-up on the cost of the product is not fixed but may change with change in
demand.
2. Marginal cost pricing: under this method, price of products are fixed on the basis of
marginal cost involved in producing the product. Marginal cost is the change in total
cost which arises due to change in volume of production by one unit. Marginal cost
pricing technique is used to sell the product during certain condition like depression,
change in fashion, severe competition, under utilization of production capacity.
Advantages:
a) It is helpful in quoting the price of the product for special orders.
b) It helps in taking decision whether to sell below total cost or to stop production
during the depression.
3. Intuitive pricing: Some times, a manufacture may set the price of his product simply
by estimating how much the consumers will be willing to pay and without regard to
cost. This method of pricing is subjective and unscientific. It may be used in case of
fashion.
4. Break-even analysis: It is an important technique for determine the price of a product.
It is based upon forecasted demand and actual cost of operations. It involves the
52 | P a g e
division of costs into the two categories, namely fixed cost and variable cost. By
assuming a certain selling price tables or charts are prepared for different volumes of
production. Expected profit of loss is estimated for each level of production and
sales. The volume of sale at which total cost is equal to total revenue is known as
break-even point or the point of no profit and no loss. The price at which total revenue
is greater than total cost is selected as a price of product.
Fixed cost
Break - even point =
seeling price-variable per unit
 PROJECT MANAGEMENT: DEFINITION, PROJECT CYCLE, IDENTIFICATION
FORMULATION, APPRAISAL, IMPLEMENTATION, MONITORING AND EVALUATION:
PROJECT: Meaning, Definition
Projects are cutting edges of development. They are meant for increasing the output
from the given resources. The World Bank has recognized six important aspects of
project preparation. They are technical, administrative, organization, commercial,
financial and economic.
Project is an investment activity wherein capital resources are spent to create a
productive asset for realizing benefits over time. Generally, “Project is an activity on
which money is spent in expectation of returns, which lends itself to planning, financing
and implementation as a unit. It also refers to the specific activity, with specific starting
point and specific end point to achieve a specific objective. It should be measurable in
costs and returns. It must have priorities for area development and reach specific
clientele group.
In sum, “It is an investment activity meant for providing the returns for specific clientele
group for specific activity, specific objective and specific area development. It should
facilitate analysis in planning, financing, implementation, monitoring, controlling and
evaluation.
PROJECT CYCLE: Project is considered as a cycle because, each phase not only grows
out of the preceding one, but leads into the subsequent phase and it is a self-renewing
cycle. The important phases in project cycle are:
1. Identification or conception.
2. Formulation or preparation of the project.
3. Appraisal or analysis.
4. Implementation.
5. Monitoring.
6. Evaluation.
1. Identification of conception: At this stage, the various costs like project costs,
associate costs, primary or direct costs, secondary or indirect costs, real costs and
nominal costs and social costs involved in the project must be assess properly.
Apart from the costs, the benefits that are expected from the project must also be
assessed most accurately. The tangible and intangible benefits that the project is
53 | P a g e
expected to provide is ascertained at this stage.

2. Formulation or preparation of project: Following points are considered while
formulating the project. The location and site of the project based on technical
analysis and technical feasibility of the project. The location of the project depends
upon available physical resources, market condition, marketing facilities, alternative
investment prospects, administrative experience, farmers’ objectives, technical skill,
motivations, demand for the project, etc. Technical analysis must take into
consideration of all aspect of technology to be used in the project and account for
all inputs of goods and services. Due consideration is to be given to all the aspects
such as technical, financial, commercial, managerial, organizational, economic,
social, etc. in the formulation of the project.
3. Appraisal or analysis: Appraisal should take place before the implementation of the
project. It is done independently by specialists. At this stage, it is important to know
whether the project is technically feasible according to the data available.
Managerial aspects such as new skill and information gained by the farmers
including adoption of new technology should also be studied.
4. Implementation: This is most crucial phase of the project cycle. The secret of
successful implementation depends upon the extent of realism put into the plans
drawn beforehand. The project implementation can be divided into three periods, viz.,
investment period, development period and full production period. Investment period
may range from few months to few years depending upon the nature of assets to be
acquired. Development period consumes more time. Full production period is the
time during which the beneficiaries start reaping the benefits of the project.
5. Monitoring: It is the timely collection and analysis of data on the progress of a
project, with the objective of identifying constraints, which impede successful
implementation. Monitoring has to be done continuously to offset various
shortcomings that crop up from time to time with regard to various aspects of
implementation.
6. Evaluation: This is the last phase of the project cycle. Evaluation can be done
several times during the life of a project. Evaluation helps to know that how far the
objectives of the project are achieved. Evaluation process is to be completed in
three phases. They are midcourse, concurrent and ex-post evaluation. In midcourse
evaluation, evaluation is attempted before any change occurs in the existing
situation. This is primarily meant to assess economic feasibility of the projects. In
concurrent evaluation, evaluation is carried out while activity is going on. Concurrent
evaluation is basically meant for identifying and analyzing the pitfalls in the
execution of the project. Ex-post evaluation is carried out after the project is
completed in all its phases. Ex-post evaluation is primarily meant to assess the
achievement of ends or objective of the project.
 PROJECT APPRAISAL AND EVALUATION TECHNIQUES:
Broadly, there are two methods of project appraisal, viz., discounted measures and
undiscounted measures. Undiscounted measures include payback period, ranking by
inspection, proceeds per rupee of outlay, average annual proceeds of rupee outlay, etc.
54 | P a g e
Under discounted measures, net present worth (NPW), benefit cost ratio (B:C ratio),
internal rate of return (IRR) and profitability index are prominent.
A. Undiscounted measures: These are the naïve methods of choosing among the
alternative projects. The methods listed under these measures often mislead in
ranking of the projects and hence, choices go wrong.
1. Ranking by inspection: It is base on size of costs and length of cash-flow stream.
Suppose if the two projects are with the same investment and the same net value of
production, but with difference in the length of period, then the project with the
longer duration is preferred to the one with shorter period time. This leads to bias in
the choice obviously due to the absence of more elaborate and appropriate analysis.
2. Payback period: Payback period is the length of time required to get back the
investment on the project. The payback period of the project is estimated by using
the formula:
I
P=
E
Where,
P = Payback period of the project in years.
I = Investment of the project in Rs.
E = Annual net cash revenue in Rs.
The project with shortest payback period is given preference for implementation
over other projects.
3. Proceeds per rupee of outlay: This is worked out by dividing the total proceeds with
the total amount of investment and a given project is ranked based on the highest
magnitude of the parameter.
Total receipts
Proceeds per rupee of outlay =
Investment
4. Average annual proceeds of rupee outlay: In this method, total receipts are first
divided by the project life span and the average proceeds obtained per year are
further divided by the initial investment on the project. The project with highest
average annual proceeds per rupee outlay is selected for implementation.
Total receipts
Annual proceeds =
life span of project
Annual proceeds
Average annual proceeds per rupee of outlay =
Inintial investment
B. Discounted measures: Cash flows are the yearly net benefits accrued from the
project. If they are weighted by discount rate, they become discounted cash flows.
These discounted cash flows are the best estimates to decide on the worth of the
project. This approach will give the ne present worth of the project. The present
55 | P a g e
worth of the costs is subtracted from the present worth of the benefits in order to
arrive at the net present worth of the project every year.
1. Net present worth (NPW): It is also called Net Present Value (NPV). It is the present
worth of the cash flow stream. The selection criteria of the project depend on
positive value of NPW when discounted at eh opportunity cost of the capital. NPW is
an absolute measure, but not relative. The NPW of a project is estimates as below:
P1 P2 Pn
Present worth = t1 + t2 + ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ + tn -C
(1+r) (1+r) (1+r)
Where,
P1 = Net cash flow in first year.
r = Rate of discount.
t = Time period.
C = Initial cost of the investment.
Project with positive NPWs are given preference in the selection compared to those
with negative NPWs.
2. Benefit-cost ratio (B-C ratio): In B-C ratio, present worth of costs is compared with
present worth of benefits. Following formula depicts the estimation of B-C ratio.
n
Bt
∑
t=1
(1+r)t
B - C ratio = n
Ct
∑
t=1
(1+r)t
Where,
Bt = Net cash flow.
r = Rate of discount.
t = Time period.
Ct = Investment.
The projects with more than one B-C ratios are preferred for implementation and project
with highest B-C ratio is selected for implementation.
3. Internal rate of return (IRR): The IRR is known as marginal efficiency of capital or
yield on the investment. It is the rate of discount at which the present worth of the
net cash flows are just equal to zero i.e.,
NPW = 0
The IRR is found out by trial and error method with some approximation. In the working
procedure, an arbitrary discount rate is assumed and its corresponding NPW is
computed. The positive NPW value of the project indicates that IRR is still higher and
the next assumed arbitrary discount rate must be comparatively higher than the initial
56 | P a g e
level. This process is continued until NPW becomes negative. Then by interpolation
method the exact IRR is found out using the following equation.
[ ]
NPWr
IRR = (rl) + (rh-rl)× l
(NPWr -NPWr )
l h
Where,
rl = Lower rate of discount.
rh = Higher rate of discount.
NPWrl = Present worth of cash flow at lower discount rate.
NPWrh = Present worth of cash flow at higher discount rate.
The projects with IRR value higher than the cost of capital are given weightage in the
selection compared to projects with IRR value lower than cost of capital. The project
with highest IRR value is selected for implementation.
57 | P a g e

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Raj Mohini Devi Collage of Agriculture and Research Station (RMD CARS), Ambikapur

INDIRA GANDHI KRISHI VISHWAVIDYALAYA

COURSE CODE: ABM – 5221

COURSE TITLE: AGRI BUSINESS MANAGEMENT

 TRANSFORMATION OF AGRICULTURE INTO AGRIBUSINESS; VARIOUS

COMPONENTS OF AGRIBUSINESS SYSTEM: Agribusiness is made up of three

3. The processing-manufacturing sector.

 IMPORTANCE OF AGRIBUSINESS IN THE INDIAN ECONOMY AND NEW

 Securing fair standard of living of farmers.

agricultural production and improve nation’s economy.

can be preserved and transported at cheaper cost. No new product is

8. Preparation of industrial profitable and feasibility studies

technologies, post-harvest local processing, industrial processing, storage, transport,

planning, public affairs, government relations, quality assurance and general

 Changes in technology and markets on both a broad and narrow scale.

Maxi-Maxi In this segment the organization is playing from its strengths to an

Management may in short be called a science of decision-making or a science of choice.

problem or crisis. A manger handles conflicts, complaints and competitive actions.

be done. It consist of selecting enterprise objectives, policies, programmes, procedures

department or division. These plans are prepared to implement departmental or

ii. What should be our business?

2. Collection and Analysis of Relevant Information: Effective planning depends on the

integration with ongoing action plans.

perform their respective tasks.

8. Power: It is the ability of a person to influence another person to perform an act.

has satisfied one need than he seeks to satisfy another.

process of making oneself understood by others and of understanding others.

iv. Control involves measurement.

v. Intangible standard: Competence of manager and employees. Standards should

years. Examples: livestock loans, machinery loans, etc.

Net worth or equity = Total xx

Total fixed expenses

and distribution network is prepared.

Procedure of market targeting:

MARKETING STRATEGY: A marketing strategy refers to a business's overall game plan

 How marketing campaigns can be improved to more effectively influence

 Find another use for the product

 PRICING POLICY AND PRICING METHODS:

preference among consumers.

expected to provide is ascertained at this stage.

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