MBA-101

Principles and Practices of Management

Q1. Explain briefly the common difficulties in decision-making?

Ans. Effective decision making is an art which obviously cannot be earned
overnight, hence, needs to be nurtured in time. However, even an effective leader
cannot remain oblivious to certain hurdles which chronicle his decision-making
capacity. An effective decision has positive effects on all the departments, and
equal damage is caused by an ineffective decision. Hence, he has to remain vigilant
about the repercussions caused by his decisions.

Sometimes, taking a decision can equal to cracking a hard nut. As a professional as

well as an individual, we face many situations in our professional as well as
personal lives, wherein it is quite tough to take a decision. A careful study of
various hurdles faced will lead you to take effective and better decisions in future.

Following are typical barriers faced by a manager while developing strategies.

Level of Decision Making Not Clear

Sometimes, there is ambiguity in the level of power a manager holds, whether he
holds the right to make modifications in the existing system. This often leads to
confusion in the minds of the manager, especially at a middle-level manager.

Lack of Time
Hasty decisions often lead to disastrous effects. However, businesses are subject
to emergencies and often, as a decision making authority, you need to take a call
in the limited time available. This can pose a most difficult hurdle for most leaders,
however, an effective leader has to go through these testing times.

Lack of reliable data

Lack of reliable data can be a major hindrance in making apt decisions. Ambiguous
and incomplete data often makes it difficult for them to make an appropriate
decision, which may not be the best suited for any organization.

Risk-Taking Ability
Any decision attracts a fair deal of risk of resulting into negative outcome.
However, it is necessary to take calculated risks for an effective decision. Also, at
the same time, casual attitude and completely ignoring risks will not result in
taking appropriate decisions.

Too Many Options

A manager can be in a dilemma if there are too many options for an effective
solution. Finding the appropriate one can be very difficult, especially if a particular
decision favours a department over the other.

Inadequate Support
A manager, however good he may be, cannot work without an adequate support
level from his subordinates. Lack of adequate support either from top level or
grass root level employees may result in a great jeopardy for the manager.

Lack of Resources
A manager may find it difficult to implement his decisions due to lack of resources-
time, staff, equipment. In these cases, he should look out for alternative
approaches which fit in the available resources. However, appropriate steps must
be taken in case he feels that lack of resources may stop the growth of the
organization.

Inability to Change
Every organization has its own unique culture which describes its working
policies. However, some policies are not conducive to managers who are looking
out for a change. The rigid mentality of top-level management and the
subordinates are the biggest hurdle, wherein a manager cannot make positive
amendments even if he wishes to do so.

Every experience is a big teacher, and managers should take a cue from their
previous experiences, and learn to boost their decision-making capacity. Big
businesses have benefited greatly from positive changes and results, which
implies that a manager should first and foremost improve his ability to deal with
risks to take a good decision.

Q2. What is effective management? How does effectiveness differ from

efficiency?

Ans. Efficiency means whatever you produce or perform; it should be done in a

perfect way. Although, Effectiveness has a broader approach, which means the
extent to which the actual results have been achieved to fulfill the desired outcome
i.e. doing accurate things. These are the metric used to gauge the performance of
an employee in an organization. Efficiency and Effectiveness are the two words
which are most commonly juxtaposed by the people; they are used in place of each
other, however they are different. While efficiency is the state of attaining the
maximum productivity, with least effort spent, effectiveness is the extent to which
something is successful in providing the desired result.

Take a read of the article to understand the difference between efficiency and
effectiveness in management.
Definition of Efficiency

Efficiency refers to the ability to produce maximum output from the given input
with the least waste of time, effort, money, energy and raw materials. It can be
measured quantitatively by designing and attaining the input-output ratios of the
company’s resources like funds, energy, material, labor, etc.

Efficiency is also considered a parameter to calculate the performance and

productivity by making comparisons between the budgeted output and the actual
outputs produced with the fixed number of inputs. It is the ability to do things in a
well-mannered way, to achieve the standard output.

Efficiency is an essential element for resource utilisation, as they are very less in
number, and they have alternative uses, so they must be utilised in the
best possible way.

Definition of Effectiveness

Effectiveness refers to the extent to which something has been done, to achieve
the targeted outcome. It means the degree of closeness of the achieved objective
with the predetermined goal to examine the potency of the whole entity.

Effectiveness has an outward look i.e. it discloses the relationship of the business
organisation with the macro environment of business. It focuses on reaching the
competitive position in the market.

Conclusion

Efficiency and Effectiveness both have a prominent place in the business

environment which must be maintained by the organisation because its success
lies on them. Efficiency has an introspective approach, i.e. it measures the
performance of operations, processes, workers, cost, time, etc. inside the
organisation. It has a clear focus on reducing the expenditure or wastage or
eliminating unnecessary costs to achieve the output with a stated number of
inputs.

In the case of Effectiveness, it has an extroverted approach, that highlights the

relationship of the business organisation with the rest of the world to attain a
competitive position in the market, i.e. it helps the organisation to judge the
potency of the whole organisation by making strategies and choosing the best
means for the attainment result.

Effectiveness is result oriented that shows how excellently an activity has been
performed that led to the achievement of the intended outcome which is either
accurate or next to perfect.
Q4. Differentiate between formal and informal organization?

Ans. An organization is a collection of people who work together to attain specified

objectives. There are two types of organization structure, that can be formal
organization and informal organization. An organisation is said to be formal
organisation when the two or more than two persons come together to accomplish
a common objective, and they follow a formal relationship, rules, and policies are
established for compliance, and there exists a system of authority. On the other
end, there is an informal organisation which is formed under the formal
organisation as a system of social relationship, which comes into existence when
people in an organisation, meet, interact and associate with each other. In this
article excerpt, we are going to discuss the major differences between formal and
informal organisation. Definition of Formal Organization

By the term formal organisation, we mean a structure that comes into existence
when two or more people come together for a common purpose, and there is a
legal & formal relationship between them. The formation of such an organisation
is deliberate by the top level management. The organisation has its own set of
rules, regulations, and policies expressed in writing.

The basic objective of the establishment of an organisation is the attainment of the

organisation’s goal. For this purpose, work is assigned, and authorities
are delegated to each member and the concept of division of labour and
specialisation of workers are applied and so the work is assigned on the basis of
their capabilities. The job of each is fixed, and roles, responsibilities, authority and
accountability associated with the job is clearly defined.

In addition to this, there exists a hierarchical structure, which determines a logical

authority relationship and follows a chain of command. The communication
between two members is only through planned channels.

Types of formal organization structure

 Line Organization
 Line and Staff Organization
 Functional Organization
 Project Management Organization
 Matrix Organization

Definition of Informal Organization

An informal organisation is formed within the formal organisation; that is a system

of interpersonal relationships between individuals working in an enterprise, that
forms as a result of people meet, interact and associate with one another. The
organisation is created by the members spontaneously, i.e. created out of socio-
psychological needs and urge of people to talk. The organisation is featured by
mutual aid, cooperation, and companionship among members.

In an informal organisation, there are no defined channels of communication, and

so members can interact with other members freely. They work together in their
individual capacities and not professional.

There is no defined set of rules and regulations that govern the relationship
between members. Instead, it is a set of social norms, connections, and interaction.
The organisation is personal i.e. no rules and regulations are imposed on them,
their opinions, feelings, and views are given respect. However, it is temporary in
nature, and it does not last long.

Conclusion

An informal organisation is just opposite of a formal organisation. The principal

difference between these two is that all the members of a formal organisation
follow a chain of command, which is not in the case of an informal organisation.
Moreover, there exists a superior-subordinate relationship (status relationship) in
the former, whereas such relationship is absent in the latter because all the
members are equal (role relationship).

Q5. Define organization?

Ans. Organisation is the backbone of management because without an efficient

organization no management can perform its functions smoothly.
In the management process this organization stands as a second state which tries
to combine various activities in a business to accomplish pre-determined goals.
It is the structural framework of duties and responsibilities required of personnel
in performing various functions with a view to achieve business goals.
In other words, organization is simply people working together for a common goal.
It is a group of people assembling or congregating at one place and contributes
their efforts to achieve a common goal.
Hence, it is coordinates different activities for running the business enterprise
efficiently so that the common goal can be achieved.
Learn about:-
1. Definitions of Organisation 2. Meaning and Concept of Organisation 3. Scope 4.
Characteristics 5. Nature

6. Objectives 7. Elements 8. Analysis 9. Steps in Organisation Process 10.

Requirements.
11. Functions 12. Principles 13. Parts 14. Types 15. Importance

16. Simon’s Theory 17. Process of Designing 18. Policies, Procedures, Guidelines
19. Advantages 20. Problems.

Organisation is the backbone of management because without an efficient

organization no management can perform its functions smoothly. In the
management process this organization stands as a second state which tries to
combine various activities in a business to accomplish pre-determined goals. It is
the structural framework of duties and responsibilities required of personnel in
performing various functions with a view to achieve business goals. In other
words, organization is simply people working together for a common goal. It is a
group of people assembling or congregating at one place and contributes their
efforts to achieve a common goal. Hence, it is coordinates different activities for
running the business enterprise efficiently so that the common goal can be
achieved.
Alike ‘management’ the term ‘organization’ has also been defined in a number of
ways such as a process, as a structure of relationship, as a group of persons and as
a open dynamic system and so on. So some quotable definitions are enlisted below
to understand the term organization in its totality.

Organisation is the process of identifying and grouping work to be performed,

defining ad delegating responsibility and authority and establishing relationships
for the purpose of enabling people to work most effectively together in
accomplishing objectives.” In the words of Allen, organization is an instrument for
achieving organizational goals. The work of each and every person is defined and
authority and responsibility is fixed for accomplishing the same. “Internal
organization is the structural framework of duties and responsibilities required of
personnel in performing various functions within the company, it is essentially a
blue print for action resulting in a mechanism for carrying out function to achieve
the goals set-up by company management”. In Wheeler’s view, organization is a
process of fixing duties and responsibilities of persons in an enterprise so that
organizational goals are achieved.

The establishment of authority relationships with provision for co-ordination

between them, both vertically and horizontally in the enterprise structure. These
authors view organization as a coordinating point among various persons in the
business.

“Organisation is the process so combining the work which individuals or groups

have to perform with the facilities necessary for its execution, that the duties so
performed provide the best channels for the efficient, systematic, positive and
coordinated application of the available effort”. Organization helps in efficient
utilization of resources by dividing the duties of various persons.

Q9. What is forecasting?

Ans. Forecasting is a technique that uses historical data as inputs to make
informed estimates that are predictive in determining the direction of future
trends.

Businesses utilize forecasting to determine how to allocate their budgets or plan

for anticipated expenses for an upcoming period of time. This is typically based
on the projected demand for the goods and services offered.

Investors utilize forecasting to determine if events affecting a company, such as

sales expectations, will increase or decrease the price of shares in that company.
Forecasting also provides an important benchmark for firms, which need a long-
term perspective of operations.

Equity analysts use forecasting to extrapolate how trends, such

as GDP or unemployment, will change in the coming quarter or year. Finally,
statisticians can utilize forecasting to analyze the potential impact of a change in
business operations. For instance, data may be collected regarding the impact of
customer satisfaction by changing business hours or the productivity of
employees upon changing certain work conditions. These analysts then come up
with earnings estimates that are often aggregated into a consensus figure. If
actual earnings announcements miss the estimates, it can have a large impact on
a company's stock price.

Forecasting addresses a problem or set of data. Economists make assumptions

regarding the situation being analyzed that must be established before the
variables of the forecasting are determined. Based on the items determined, an
appropriate data set is selected and used in the manipulation of information. The
data is analyzed, and the forecast is determined. Finally, a verification period
occurs when the forecast is compared to the actual results to establish a more
accurate model for forecasting in the future. Forecasting Techniques
In general, forecasting can be approached using qualitative techniques or
quantitative ones. Quantitative methods of forecasting exclude expert opinions
and utilize statistical data based on quantitative information. Quantitative
forecasting models include time series methods, discounting, analysis of leading
or lagging indicators, and econometric modeling that may try to ascertain causal
links.

Qualitative Techniques
Qualitative forecasting models are useful in developing forecasts with a limited
scope. These models are highly reliant on expert opinions and are most beneficial
in the short term. Examples of qualitative forecasting models include interviews,
on-site visits, market research, polls, and surveys that may apply the Delphi
method (which relies on aggregated expert opinions).

Gathering data for qualitative analysis can sometimes be difficult or time-

consuming. The CEOs of large companies are often too busy to take a phone call
from a retail investor or show them around a facility. However, we can still sift
through news reports and the text included in companies' filings to get a sense of
managers' records, strategies, and philosophies.

Time Series Analysis

A time series analysis looks at historical data and how various variables have
interacted with one another in the past. These statistical relationships are then
extrapolated into the future to generate forecasts along with confidence
intervals to understand the likelihood of the actual outcomes falling within that
scope. As with all forecasting methods, success is not guaranteed.

The Box-Jenkins Model is a technique designed to forecast data ranges based on

inputs from a specified time series. It forecasts data using three
principles: autoregression, differencing, and moving averages. Another method,
known as rescaled range analysis, can be used to detect and evaluate the amount
of persistence, randomness, or mean reversion in time series data. The rescaled
range can be used to extrapolate a future value or average for the data to see if a
trend is stable or likely to reverse.

Most often, time series forecasts involve trend analysis, cyclical fluctuation
analysis, and issues of seasonality.

Econometric Inference

Another quantitative approach is to look at cross-sectional data to identify links

among variables—although identifying causation is tricky and can often be
spurious. This is known as econometric analysis, which often employs regression
models. Techniques such as the use of instrumental variables, if available, can
help one make stronger causal claims.

For instance, an analyst might look at revenue and compare it to economic

indicators such as inflation and unemployment. Changes to financial or statistical
data are observed to determine the relationship between multiple variables. A
sales forecast may thus be based on several inputs such as aggregate demand,
interest rates, market share, and advertising budget (among others).
Choosing the Right Forecasting Method
The right forecasting method will depend on the type and scope of the forecast.
Qualitative methods are more time-consuming and costly but can make very
accurate forecasts given a limited scope. For instance, they might be used to
predict how well a company's new product launch might be received by the
public.

For quicker analyses that can encompass a larger scope, quantitative methods are
often more useful. Looking at big data sets, statistical software packages today can
crunch the numbers in a matter of minutes or seconds. The larger the data set and
more complex the analysis, however, the pricier it can be.

Thus, forecasters often make a sort of cost-benefit analysis to determine which

method maximizes the chances of an accurate forecast in the most efficient way.
Furthermore, combining techniques can be synergistic and improve the forecast's
reliability.

The biggest limitation of forecasting is that it involves the future, which is

fundamentally unknowable today. As a result, forecasts can only be best-guesses.
While there are several methods of improving the reliability of forecasts, the
assumptions that go into the models, or the data that is inputted into them, has to
be correct. Otherwise, the result will be garbage-in, garbage-out. Even if the data
is good, forecasting often relies on historical data, which is not guaranteed to be
valid into the future, as things can and do change over time. It is also impossible
to correctly factor in unusual or one-off events like a crisis or disaster.