12 Businessstudy Eng SM 2024 PDF

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CHAPTER 1
NATURE AND SIGNIFICANCE OF MANAGEMENT
Class XII : Business Studies 1

Management is an art of getting things done with and through others. Management
can be defined as, the process of getting things done with the aim of achieving
organizational goals effectively and efficiently.
Basis of Difference Effectiveness Efficiency
1. Meaning It refers to completing It refers to completing

the job on time, no matter the job in the cost-
whatever the cost. effective manner.
2. Objective To achieve end result To conduct cost-benefit

on time. analysis.
3. Main Consideration Time Cost
Q.1 Rama Clothes ltd.’s target is to produce 20,000 shirts per month at a cost
of Rs.500/- per shirt. The production manager achieved this target at a
cost of Rs.450/- per shirt. Do you think the manager is effective and
efficient?
Ans. Yes, he completed the work on time and at a lower cost.
Characteristics of Management:
1. Goal oriented Process:It is a goal oriented process, which is undertaken

to achieve already specified and desired objectives by proper utilization of
available resources.
2. Pervasive: Management is universal in nature. It is used in all types of

organisations whether economic, social or political irrespective of its size,
nature and location and at every level.
2 Class XII : Business Studies

3. Multidimensional:It is multidimensional as it involves managementof work,
people and operations. Every organisation is established for doing some
work like school provides education, a factory produces goods etc. The
management has to ensure the participation, of its people in the realisation
of the organisation goal. Also management needs to conduct the various
operations such as production, sale, purchase etc.
4. Continuous:Management is not a process which can be performed once

and for all, but it is a continuous process. Functions of management like
planning, organising, staffing, directing and controlling continuously need to
be done.
5. Group Activity: It is a group activity since it involves managing and

coordinating activities of different people as a team to attain the desired
objectives.
6. Dynamic function:It is a dynamic function since it has to adapt itself according

to need, time and situation of the changing environment. In order to be
successful, an organisation must change itself and its goals. For example,
McDonalds made major changes in its ‘Menu’ to survive in the Indian market.
7. Intangible Force:Management is such a force that cannot be seen, only its

presence can be felt. When the goals of an organisation are being realised
in accordance with its plans, we can say that the management of the
organisation is good.
Q.2 An educational institution as well as a business organization both need to

be managed. Which characteristic of management is highlighted here?
(Pervasive)
Q.3 “In an organization, the employees are happy and satisfied, there is no
chaos and the effect of management is noticeable.” Which characteristic
of management is highlighted by this statement? (Intangible Force)
Q.4 In order to be successful an organisation must change its goals according

to the needs of environment. Which characteristic of management is
highlighted here? (Dynamic)

Q.5 Management is multi-dimensional. Give any 2 dimensions of it. (Work,
People and operations (any two)
Objectives of Management
Objectives can be classified into organistional objectives, social objectives
and personal or individual objectives. Management has to achieve these
objectives in an effective and efficient manner.
1. Organisational/Ecomonic objectives: Organisation should utilise
human and material resurces to the maximum possible advantage.
The Economic organisational objectives of business are survial, Profit
& growth.
 Survial– An organisation can survive when it earns enough revenue to
cover costs.
 Profit– After achieving the objective of survival, organisation should
move towards earning profit for covering costs & risks of business.
 Growth– Besides earning profits a business must grow in the long run
in order to remain in the industry. A business can grow by increasing
sales volume, no of employes, product & capital investment.
2. Social objectives: It involves fulfilling obligations towards society. This
includes.
 Creating employment opportunities for society.
 Providing/Producing good quality products & services.
 Protecting environment.
3. Personal objectives: Personal objectives are concerned with satisfying
needs of the employes such as:
 Giving competitive salary and perks to employees.
 Giving recognition to employees.
 Satisfying diverse needs of employess.
Q.6 One of the objectives of management is to consistently create economic value
for various constituents of the society. Give two examples of this objective.
Ans. Social objectives of management.

(i) Using environment friendly method of production.
(ii) Giving employment opportunities to disadvantaged sections of the
society.
Q.7. Sana Ltd. is a company producing Fans.The company’s profits are enough
for the survival and growth. The management of the company believes that
a satisfied employee creates a satisfied customer, who in turn creates profits
that lead to satisfied shareholders. So, it pays competitive salaries and perks
to all its employees. All the employees are happy working in the organisation
because of personal growth and development.
The company has a strong sense of social responsibility. It has set up an

Engineering College in which one-third of the students are girls to whom the
company gives 50% scholarship.
Is the management of Sana Ltd. fulfilling its objectives? Justify your answer
by giving reasons.
Ans. Yes, the management of Sana Ltd. is fulfilling all the objectives-
organisational objectives, social objectives and personal objectives
(For reasons students can quote the lines).
Importance of Management
1. Achieving Group Goals:Management creates team work and coordination

in the group. Managers give common direction to individual efforts in achieving
the overall goals of the organization.
2. Increases Efficiency:Management increases efficiency by using resources

in the best possible manner to reduce cost and increase productivity.
3. Creates Dynamic organization:Management helps the employees to

overcome their resistance to change and adapt as per changing situation to
ensure its survival and growth.
4. Achieving personal objectives:Management helps the individuals achieve

their personal goals while working towards organisational objectives.
5. Development of Society:Management helps in the development of society

by producing good quality products, creating employment opportunities and

adopting new technology.
Management as an Art
Art refers to skillful and personal application of existing knowledge to achieve desired
results. It can be acquired through study, observation and experience. The features
of art are as follows:
1. Existence of theoretical knowledge: In every art, systematic and organized

study material should be available compulsorily to acquire theoretical
knowledge.
2. Personalised application:The use of basic knowledge differs from person

to person and thus, art is a very personalised concept.
3. Based on practice and creativity: Art involves the creative practice of

existing theoretical knowledge.
In management also a huge volume of literature and books are available on

different aspects of management. Every manager has his own unique style
of managing things and people. He uses his creativity in applying management
techniques and his skills improve with regular application. Since all the features
of art are present in management so it can be called an Art.
Management as a Science
Science is a systematised body of knowledge that is based on general truths which

can be tested anywhere and anytime. The features of Science are as follows:
1. Systematized body of knowledge:Science has a systematized body of

knowledge based on principles and experiments.
2. Principles based on experiments and observation:Scientific principles

are developed through experiments and observation.
3. Universal validity:Scientific principles have universal validity and application.
Management has systematic body of knowledge and its principles are

developed over a period of time based on repeated experiments &
observations but since they deal with humans, their outcomes cannot be
accurately predicted. Also they cannot be called Universally valid because

they have to be modified according to a given situation.
Conclusion: -As the principles of management are not as exact as the principles
of pure science, so it may be called-an inexact science. The prominence of human
factor in the management makes it a Social Science.
Management as Profession
Profession means an occupation for which specialized knowledge and skills are
required and entry is restricted. The main features of profession are as follows:
1. Well-defined body of Knowledge:All the professions are based on well-

defined body of knowledge.
2. Restricted Entry:The entry in every profession is restricted through

examination or through some minimum educational qualification.
3. Professional Associations:All professions are affiliated to a professional

association which regulates entry and frames code of conduct relating to
the profession.
4. Ethical Code of Conduct:All professions are bound by a code of conduct

which guides the behaviour of its members.
5. Service Motive:The main aim of a profession is to serve its clients.
Conclusion:-Management does not fulfil all the features of a profession and thus it
is not a full-fledged profession because anybody can proclaim to be a manager;
prescribed compulsory educational degree or license is not required. Besides there
are not any formal ethical codes which are required to be observed.
Q.8 Give one feature of Profession (a) satisfied by management (b) not satisfied
by the management.
Ans. (a) Well defined body of knowledge.
(b) Restricted entry

Levels of Management: Top, Middle and Operational Levels
“Levels of management” means different categories of managers, the lowest to
the highest on the basis of their relative responsibilities, authority and status.

Top Level
Consists of Chairperson, Chief Executive Officer, Chief Operating Officer President,
Vice President or equivalent and their team.
Chief task is to integrate and to coordinate the various activities of the business,
framing policies, formulating organisational goals & strategies bearing the
responsibility for the impact of activities of the business on society.
Middle Level
Consists of Divisional or Departmental heads, Plant Superintendents and Operation

Managers etc.
Main tasks are to interpret the policies of the top management, to ensure the
availability of resources to implement policies, to coordinate all activities, ensure
availability of necessary personnel & assign duties and responsibilities to them.
Lower Level/Supervisory Level
Consists of Foremen and Supervisor etc.
Main task is to ensure actual implementation of the policies as per directions, bring
workers’ grievances before the management & maintain discipline among the
workers, maintain the quality of output and minimise wastage

Q.9 At which level of management, are the managers responsible for the welfare
and survival of the organization? (Top level)
Q.10 Managers at the top level spend more time doing this function of
Management. Name it. (Planning)
Q.11 Rakesh is working as Regional Manager in ABC Ltd. Name the level at
which he is working. (Middle Level)
Q.12 Name the level at which the managers are responsible for implementing
and controlling the plans and maintaining the quality of output (Supervisory
level).
Functions of Management / Elements of Management
(1) Planning implies setting goals and objectives in advance and developing a
way of achieving them.
(2) Organising is to assign duties, grouping tasks, establishing authority and
allocating resources required to carry out a specific plan.
(3) Staffing is finding the right people for the right job by following a series of
steps and includes training and development.
(4) Directing is leading, influencing and motivating employees to perform the
tasks assigned to them. It includes four activities: - Supervision,
Communication, Leadership and Motivation.
(5) Controlling is monitoring the organizational performance towards the
attainment of the organizational goals.
Q.13 Identify the functions of the management: —
a) Motivating employees and giving instructions to them to perform the
tasks assigned to them.
b) Recruitment and selection of the personnel.
c) Finding out deficiencies in implementation of plans.
d) Preparing a blueprint for future
e) Process of defining and grouping activity of an enterprise to establish
authority relationship.
Ans. (a) Directing; (b) Staffing; (c) Controlling (d) Planning (e) Organising.

Co-ordination
Coordination is to synchronise the various activities of an organisation. In the context

of business unit, the meaning of coordination is to balance its various activities
(purchase, sales, production, finance, personnel etc.) so that objective of business
can be easily achieved.
Lack of coordination results in overlapping, duplication, delay and chaos.
Characteristics of Coordination
1. Coordination integrates group efforts: It integrates diverse business

activities into purposeful group activity ensuring that all people work in one
direction to achieve organizational goals.
2. Coordination ensures unity of action: It directs the activities of different

departments and employees towards achievement of common goals and
brings unity in individual efforts.
3. Coordination is a continuous process: It is not a specific activity matter,

it is required at all levels, in all departments till the organization continues its
operations.
4. Coordination is all pervasive function: It is universal in nature. It

synchronizes the activities of all levels and departments as they are
interdependent to maintain organizational balance.
5. Coordination is the responsibility of all managers: It is equally important

at all the Three-Top, Middle and Lower levels of management. Thus it is the
responsibility of all managers that they make efforts to establish coordination.
6. Coordination is a deliberate function: Coordination is never established

by itself rather it is a conscious effort on the part of every manager.
Cooperation is voluntary effort of employees to help one another. Effective
coordination cannot be achieved without cooperation of group members.
Coordination is the Essence of Management.
Coordination is not a separate function of management. It is the force that binds all
the functions & thus, called the essence of management.
It is needed in all management functions:

Planning – Coordination between the master plan and departmental plan.
Organising – required between authority, responsibility and accountability
Staffing – Achieve balance between job requirement and qualities of personnel
Directing – Required between supervision, motivation and leadership.
Controlling – Ensure actual result conform to expected results.
Needed at all levels of management
Top level – needs coordination to integrate activities of the organisation for

accomplishing the organisational goals.
Middle level– Coordination of the efforts of different sections and sub-sections
Lower level – Coordination in the activities of workers to ensure work progresses

as per plans
NEED FOR COORDINATION
The reasons that bring out the importance or the necessity for coordination are:
• Growth in the size of the organisation results in the increase in varied

quality of manpower too with varied individual aspirations. Coordination seeks
to match the individual goals with the organisational goals.
• Functional Differentiation arising out of departmentalisation and division

brings forth a motive for achievement of individual objectives, in isolation
from other objectives leading to departmental clashes. Coordination seeks
to iron out these variations.
• Specialisation can give rise to feeling of superiority and prioritising of their

zone or activities. Coordination seeks to sequence and integrate all the
specialist of activities into a wholesome effort.
Q.14 Name the process that synchronises the activities of different

departments.(Coordination)
Q.15 “Co-ordination is responsibility of all the managers”. Explain. (Managers

perform it all levels to ensure that work proceed according to plans).

Key Terms to crack case studies
 It believes that a satisfied employee creates a satisfied customer —
management.
 A process of designing and maintaining an environment in which people
work together — management.
 It unites the efforts of individuals towards goals — management.
 A force that cannot be seen but noticeable where targets are met and
employees are happy — management.
 Coordination : removes chaos between various departments.
– implies team work and integrates efforts of all individuals, departments
and specialists.
– is a part of all functions of management like a thread in a garland.
– Synchronises the efforts of individuals, acts as the binding force between
departments, unifies diverse interests into group effort.
– force that binds all functions of management.
Multiple Choice Questions
1. The following is not an objective of management

(a) Earning profits
(b) Creating employment
(c) Satisfying diverse needs of employees
(d) Planning and controlling
2. Growth of a business can be measured by.
(a) Increase in sales volumes
(b) Increase in number of product produced
(c) Increase in capital investment
(d) All of the above.
3. Cordination is
(a) Function of management (b) An objective of management
(c) The essence of management (d) None of the above

4. Which of the following is not a characteristic of science.
(a) Systematised body of knowledge
(b) Based on experimentation and observation
(c) Universal validity
(d) Ethical code of coduct.
5. To oversee the efforts of the workforce is the function of:
(a) Operational or supervisory management
(b) Top level management
(c) Middle level management
(d) None of the above
6. Out of the given statements, select those which indicate characteristics of
Management:
(a) Management is a goal oriented process
(b) Management creates a Dynamic organisation
(c) Management is all pervasive
(d) Management increases efficiency
(e) Management is a Dynamic function
Choose the correct combination out of the following:
(a) A, B and C only
(b) A, B, C and D only
(c) A, C and E only
(d) A, C, D and E only
7. Arrange the following functions of management in a correct sequence.
(a) Organising
(b) Directing
(c) Planning
(d) Staffing
(e) Controlling

Choose the correct sequence.
(a) A, B, C, D, E
(b) B, A, C, E, D
(c) E, A, D, C, B
(d) C, A, D, B, E
8. Identify the point of significace of management illustrated by the following pic-
ture.
(a) Management helps in achieving group goals

(b) Management helps in achieving personal objectives
(c) Management helps in development of society
Fill in the blanks
(1) Management has three dimensions _____, _____ & _____.
(2) _____ level managers are responsible for the welfare & survival of the
organisation.
(3) _____ is the force that binds all the functions of management.
(4) Management as a process relates to _____ of management.
(5) _____ is an intangible force which creates productive relationships among
resources.

True/False (Give reason in support of your answer).
(1) Management is an intangible force.
(2) Management is a science like physics or chemistry.
(3) Managers at lower levels spend more time in planning and organising than
top level managers.
(4) Management is both art and science.
(5) Co-ordination is the responsibility of all the managers.
Ans. 1. d 2. d 3. c 4. d 5. a 6. c
7. d 8. a
Fill in the the blanks
1. Management of work, people and operations
2. Top
3. coordination
4. functions
5. Management
True/False
1. True because it cannot be seen but felt.
2. False because it is not a pure science but behavioural science.
3. False top level managers spend more time on planning & controlling.
4. True it combines the features of both.
5. True it is performed by managers at all levels.

QUESTIONS FOR PRACTICE
Q.1 “Planning, Organising, Staffing, Directing and Controlling” is the sequence

of functions in a process. Name it. (Management) (1)
Q.2 Production Manager of Kavya Ltd. tries to produce goods with minimum
cost. Name the concept which is being focussed by management. (Efficiency)
(1)
Q.3 In order to be successful, an organization must change it according to the

needs of the environment, which characteristic of management is highlighted
in the statement? (Dynamic) (1)
Q.4 Which force binds all other functions of management? (Coordination) (1)
Q.5 Radhika Ltd. uses environment friendly methods of production. Identify the
objective it is trying to achieve. (social objectives) (1)
Q.6 Your uncle is serving as a foreman in a factory. At what level of management

is he working? (Lower Level) (1)
Q.7 Why is it said that “management is a goal oriented process”? (Because it

helps in achieving organisational goals by unity of efforts. (1)
Q.8 Identify the nature of management when it is practiced as personalised

application of existing knowledge to achieve desired results. (Management
is an art) (1)
Q.9 “Success of an organisation largely depends upon its management” Explain

any five reasons to fortify the above statement. (Any five points of importance)
(1)
Q.10 The General manager- GM of ‘RadhaswamiKidswear Limited’, Mr. Sahil

Radhaswami, has divided all the employees of his company into three levels
(Top Level, Middle level and Lower Level). At the Top Level the General Manager
and Board of Directors themselves work. The Middle Level work is looked
after by the four Departmental managers like the Production Manager,
Purchase manager, Sales Manager and Finance Manager.

The Lower Level is constituted of one supervisor of each of the four
departments. These Supervisors look after the daily activities of their
subordinates. They also maintained the flow of inputs in the production process
to transform it to desired output.
Often, it is observed that the managers of all Levels remain busy sometimes
with the planning of their respective departments and sometimes with the
comparison of the desired and actual results. Similarly, sometimes they are
busy with the Recruitment, Selection and Training of the employees and
sometimes with their motivation.
Mr. Sahil knows it very well that the job of management cannot be done by a
single person alone, but when all join hands to work together the meaning of
management is realised. That is why he makes all his efforts to ensure
coordination in the activities of all his employees. All the employees are
working with the team spirit.
In the above paragraph features of management have been described.

Identify them by quoting the relevant lines and explain them.
((i) Continuous process (ii) Group activities (iii) pervasive (iv) Intangible force
(v) Multi-dimensional. (5)
Question based on Analysis, Evalution and Crreation

 Figgy, a food delivery start up was started in 2015. It turned out to be a
success with its Figgy app. Its delivery boys collected food from different
restaurent and provided it at the door step of the customer. Soon it started
its service in Hyderabad, Chennai, Banglore and Mumbai too. During the
covid pandemic, everything had to be stopped. To handle the situation and to
survive management initiated the concept of ‘zero contact deliveries’. It also
introduced pickup / drop service to get groceries and other essentials.
It also maintained its obligation towards its delivery staff by not removing
them from their jobs and also maintaining its quality services for its customers.
Q1. “Soon it started its services in Hyderabad...................Mumbai too” Identify
the objective of management is discussed above
(a) Profit (b) Survival
(c) Growh (d) None of these
Q2. “To Handle the situation............................deliveries” Identify the objective the
of management referred above
(c) Growh (d) Social objectives
Q3. “It also maintained its............................for its customers” Identify the objec
tive of management discussed above
(c) Growh (d) Social objective
Q4. “During the covid............................contact deliveries” Identify the importance
of management discussed above
(a) Developement of society
(b) Increase effeciency
(c) Create Dynamic organistion
(d) Achieving personal ojectives
Q5. Practicing managers in India have formed All India Management Association

where they have laid down a code of conduct to regulate the actives of are
these members. There is however no compulsion for, all managers to be its
members while all lawyers practicing in India have to be registred under Bar
Council of India.
Based on this information do you think that management is a Profession. Give
reasons to justify you answer (3)
Q6. “Principles of management are based on cause and effect relationship as in
the case of principles of science.
Do you agree with the statement? Also explain whether other features of
management have all the characteristics of Science.
Q7. There are various theories of management as propounded by many Thinkers,
which prescribe certain Universal principles. A good manager works through a
combination of practice, creativity, imagination, initiative and innovation. Iden-
tify the nature of management discussed above. Also explain two other char-
acteristics.

CHAPTER - 2
PRINCIPLES OF MANAGEMENT

Concept of Principles of Management
Principles of Management are the broad and general guidelines for managerial
decision making, behaviour and action.
The management principles are derived from observation, analysis, experimental

studies and personal experiences of the managers.
Nature of Principles of Management
The nature of principles of management can be described in the following points:
1. Universal applicability i.e. they can be applied in all types of organizations,

business as well as non-business, small as well as large enterprises.
2. General Guidelines:They are general guidelines to action and decision

making however they do not provide readymade solutions as the business
environment is ever changing or dynamic.
3. Formed by practice and experimentation:They are developed after

thorough research work on the basis of experiences of managers.
4. Flexible: They can be adapted and modified by the practicing managers as

per the demands of the situations as they are manmade principles.
5. Mainly Behavioural:Since the principles aim at influencing complex human

behaviour they are behavioural in nature.
6. Cause and Effect relationship:They intend to establish cause & effect

relationship so that they can be used in similar situations.
7. Contingent:Their applicability depends upon the prevailing situation at a

particular point of time. According to Terry, “Management principles are
‘capsules’ of selected management wisdom to be used carefully and
discretely”.

Significance of the Principles of Management
The significance of principles of management can be derived from their utility which
can be understood from the following points:
1. Providing managers with useful insights into reality:Management
principles guide managers to take right decision at right time by improving
their knowledge, ability and understanding of various managerial situations
and circumstances.
2. Optimum utilization of resources and effective administration:
Management principles facilitate optimum use of resources by coordinating
the physical, financial and human resources. They also help in better
administration by discouraging personal prejudices and adopting an objective
approach.
3. Scientific decisions: Decisions based on management principles tend to
be more realistic, balanced and free from personal bias.
4. Meeting the changing environmental requirements: Management

principles provide an effective and dynamic leadership and help the
organization to implement the changes.
5. Fulfilling social responsibility: Principles of management not only help in

achieving organizational goals but also guide managers in performing social
responsibilities. Example: “Equity” and “Fair” remuneration.
6. Management training, education and research: Management principles

are helpful in identifying the areas in which existing and future managers
should be trained. They also provide the basis for future research.
Q.1 How are management principles derived? (Formed by practice and

experimentation)
Q.2 “The principles of management are different from principles of science”.
How? (Principles of management are flexible but principles of science are
rigid).
Q.3 Give reasons, why principles of management are not rigid prescriptions?
(Hint: As they are directly concerned with human behaviour which is always
uncertain)

Q.4 How are Principles of management helpful for managers in fulfilling their
social responsibility? (By interpreting principles in their newer and
contemporary meaning with change in time)
Q.5 What is the role of principles of management for managers? (They serve
as guide to decision making).
Fayol’s Principles of Management

About Henry Fayol: Henry Fayol (1841-1925) got degree in Mining Engineering and
joined French Mining Company in 1860 as an Engineer. He rose to the position of
Managing Director in 1988. When the company was on the verge of bankruptcy. He
accepted the challenge and by using rich and broad administrative experience, he
turned the fortune of the company. For his contributions, he is well known as the
“Father of General Management”.
Principles of Management developed by Fayol
1. Division of work: Work is divided in small tasks/job and each work is done
by a trained specialist which leads to greater efficiency, specialisation,
increased productivity and reduction of unnecessary wastage and
movements.
2. Authority and Responsibility: Authority means power to take decisions
and responsibility means obligation to complete the job assigned on time.
Authority and responsibility should go hand in hand. Mere responsibility without
authority, makes an executive less interested in discharging his duties.
Similarly giving authority without assigning responsibility makes him arrogant
and there is fear of misuse of power.
3. Discipline: It is the obedience to organizational rules by the subordinates.
Discipline requires good supervisors at all levels, clear and fair agreements
and judicious application of penalties.
4. Unity of Command: It implies that every worker should receive orders and
instructions from one superior only, otherwise it will create confusion, conflict,
disturbance and overlapping of activities.
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Q.6 The production manager of Bharat Ltd., instructs a salesman to go slow in
selling the products whereas the marketing manager is insisting on fast
selling to achieve the target. Which principle of management is being violated
in this case. Write one of the consequences of violation of this principle.
(Unity of command, Reduces the efficiency)
5. Unity of Direction: Each group of activities having the same objective must
have one head and one plan. This ensures unity of action and coordination.
for e.g. if a company is producing motor cycle as well as cars then it should
have separate divisions for them.
Difference between Unity of Command and Unity of Direction
B a s is U n ity o f C o m m a n d U ni ty o f D ire c tio n
(1 ) M e a n in g O n e s u b o rd in a te sh o u ld E a c h g ro u p o f
re c e iv e o rd e rs a ct ivitie s
fro m & sh o u ld b e h a vin g s a m e
re s p o n s ib le to o n ly o b je ctive , m u st
o n e su p e rio r. h a ve o n e h e a d .
(2 ) A im P re ve n ts d u a l s u b o rd in a tio n . P re v e n ts
o v e rla p p in g o f
a c tiv itie s.
(3 ) Im p lica tio n s A ffe c ts a n in d ivid u a l A f fe cts th e e n tire
e m p lo ye e . o rg a n iza tio n .
6 Subordination of Individual Interest to General Interest: The interest of

an organization should take priority over the interest of any one individual
employee. Forex’ a manager cancels his pleasure trip to attend an important
meeting in the company.
7. Remuneration of Employees: Remuneration of employees should be just
and equitable so as to give maximum satisfaction to both the employees
and organisation.
The employees should be paid fair wages/salaries which would give at least
a reasonable standard of living. At the same time, it should be within the
paying capacity of the company.
8. Centralisation and Decentralisation: Centralisation means concentration
of decisions making authority in few hands at top level. Decentralisation
means evenly distribution of power at every level of management. Both should
be balanced as no organisation can be completely centralised or completely
decentralised.

Small organisations can have centralisation where owner has complete
authority over the business and no decision making power is given to the
subordinates. In large organisations top management takes only strategic/
important decisions and operational authority is given to middle and lower
level managers. The panchayat system in our country is a good example of
decentralisation where the government being the big organisation gives the
decision taking rights to its subordinates i.e., village Panchayat.
9. Scalar Chain: The formal lines of authority between superiors and

subordinates from the highest to the lowest ranks is known as scalar chain.
This chain should not be violated but in emergency employees at same level
can contact through Gang Plank by informing their immediate superiors. In
case of emergency a worker can even contact CEO directly.
A
B E
C F
D G
Gang Plank
10. Order: According to the principle of order, a right person should be placed at
the right job and a right material should be placed at the right place. According
to Fayol, every enterprise should have two different orders – material order
for physical resources and social order for human resources. In fact, order
indicate ‘a place for everything (everyone) and everything (everyone) at its
right place’.
11. Equity:The working environment of any organization should be free from all
forms of discrimination (religion, language, caste, gender, belief or nationality)
and principles of justice and fair play should be followed. No worker should
be unduly favoured or punished.
12. Stability of Personnel:According to this principle, employees once selected,

should be kept at their post/position for a minimum fixed tenure. They should
be given reasonable time to show results.

13. Initiative:Workers should be encouraged to develop and carry out their plan
for improvements. Initiative means taking the first step with self-motivation.
It is thinking out and executing the plan.
14. Espirit De Corps:Management should promote team spirit, unity and

harm ony am ong employees. T his encourag es m utual trust and
belongingness, which results in minimum need for using penalties.
Q.7 Rakesh and Rahim are employed in the same company. They are working
at same position and performing similar functions. But Rakesh is getting
more salary than Rahim. Which principle of management is being violated?
(Equity)
Q.8 In an organization employees are transferred frequently; which principle of
management is being over looked. (Stability of personnel)
Q.9 Name and explain the principle of management according to which a
manager should replace ‘I’ with ‘we’ in all his conversations with workers?
(Espirit De Corps.)
Q.10 State one positive effect of the Principle- “Unity of Command.” (The efficiency
of subordinate’s increases)
Q.11 Why did Fayol introduce Gang Plank in the principle of scalar chain? (to
contact with the employees of equal rank in case of emergency).
Q.12 Nikita and Salman completed their MBA and started working in a
multinational company at the same level. Both are working hard and are
happy with their employer. Salman had the habit of backbiting any wrong
reporting about his colleagues to impress his boss. All the employees in the
organization knew about it. At the time of performance appraisal, the
performance of Nikita was judged better than Salman. Even then, their boss,
Mohammad Sharif decided to promote Salman stating that being a female,
Nikita will not be able to handle the complications of higher post.
(i) Identify and explain the principle of management that was overlooked by
this multinational company.
(Hint. (i) Equity.

Taylor’s Scientific Management
Fredrick Winslow Taylor (1856-1915) was a person who within a very short duration
(1878-1884) rose from ranks of an ordinary apprentice to chief engineer in Midvale
Steel Company, U.S.A. Taylor conducted a number of experiments and came to
conclusion that workers were producing much less than the targeted standard task.
Also, both the parties - Management and workers are hostile towards each other.
He gave a number of suggestions to solve this problem and correctly propounded
the theory of Scientific Management to emphasize the use of scientific approach in
managing an enterprise instead of hit and trial method. For his contributions, he is
well known as the “Father of the Scientific Management”.
SCIENTIFIC MANAGEMENT
Meaning: Conduct of business activities according to standardised tools, methods

and trained personal so as to have increased output through effective and optimum
utilisation of resources. Hence it stresses that there is always one best way of
doing things.
According to F.W. Taylor, “Scientific management is the act of knowing exactly what
you want men to do and then seeing to it that they do it in the best and the cheapest
way.
Scientific Management attempts to eliminate wastes to ensure maximum production

at minimum cost.
Principles of Scientific Management
1. Science, not rule of Thumb:
There should be scientific study and analysis of each element of job rather
than using intuition, experience or adopting old rule of thumb approach on a
hit and miss method. Encourage “thinking before doing” and determining
standard output. Scientific approach make the work much simpler/easier
and it can be performed quicker.
2. Harmony, not discord:

There should be complete harmony and proper understanding between
management and workers in achieving the organisation goals. For this he
emphasised mental revolution i.e., a complete change in mental outlook and
attitude of workers and management towards one another from competition
to cooperation. The management should create pleasant working conditions
and workers should work with full loyalty. Instead of fighting over distribution
of profits, they must focus attention on increasing it.
3. Cooperation not individualism:
Taylor emphasised on the importance of cooperative group efforts between

the management and workers in achieving the organisation’s goal and not
individualism. Both should realise that they need each other. Any ideas given
by wokers for reducing cost and increasing production should be rewarded.
4. Development of workers to their greatest efficiency and prosperity:
The management should scientifically select the workers; assign job as per
their physical, mental and intellectual capabilities; and train them as per the
job requirement to increase their efficiency.
Q.13 Which principle of scientific management suggests the introduction of

scientific investigation and analysis of management practices?(Science not
rule of thumb)
Q.14 Which principle of scientific management suggest that management should

share its gains with workers and workers should be willing to embrace the
change for good of the company (Harmony not discord)
Techniques of Scientific Management

Taylor gave the following techniques for implementing the principles of scientific
management.
A. Functional Foremanship
• Supervision is to be divided into several specialized functions and each

function to be entrusted to a special foreman.

F ac to r y M an a g e r
P la n n in g In c h a rg e P ro d u c t io n I n c h a r g e
In s tr u c tio n R o u te T im e & c o st D isc ip lin a r ia n Speed G ang R e p a ir In s p e ct o r

C a r d c le r k C le r k c le r k Bos s Bos s Bos s
W o rk m a n
• Each worker will have to take orders from eight foreman in the related process
of function of production.
• Stress on separating planning function from execution function.
Planning Incharges :
1. Route Clerk to specify the exact sequence and route of production.
2. Instruction card clerk is responsible for drafting instructions for the workers.
3. Time and cost clerk to prepare time and cost sheet for the job.
4. Shop Disciplinarian to ensure discipline and enforcement of rules and

regulations among the workers.
Production Incharges:
1. Gang boss is responsible for keeping tools and machines ready for operation.
2. Speed boss is responsible for timely and accurate completion of job.
3. Repair boss to ensure proper working conditions of tools and machines.
4. Inspector to check quality of work.
Q.15 Name the technique of scientific management which focuses on separation

of planning and execution functions.(Functional Foremanship)

B. Standardisation and Simplification of work:
• Process of setting standards of every business activity to maximise

output is called standardisation.
• Simplification is eliminating unnecessary varieties, sizes and grades

of product manufactured in the organisation.
C. Method study:
• Finding one best way of doing a job.
• Critical analysis is made for plant layout, product design, material

handling and work processes using techniques like process chart,
operations research etc.
Q.16 In a Company, the Factory Manager appointed only one foreman for the
work of production, planning, execution and supervision of workers. However,
that foreman is not efficient in planning and execution.
(1) Which technique of scientific management is being violated here?

(Functional Foremanship.)
(2) Write one consequence of this violation.
D. Motion Study
• Making a thorough analysis of various motions being performed by a

worker while doing a particular task.
• Identifying and determining the ideal productive movements.
• Eliminate the unproductive movements and equipments.
E. Time study
• It is the technique used to determine the standard time taken by the

workmen with reasonable skills and abilities to perform a particular task.
• Here the job is divided into series of elements and the time required to
complete each element idealistically is recorded using a stop watch.

F. Fatigue study
• Determines the amount and frequency of rest intervals required in

completing a task.
G. Differential Piece Wage System
• Evolve a system wherein the efficient and inefficient workers are paid
at different rates. (as financial incentives act as motivators)
• First a standard task is established with the aid of time and motion
study, then two rates are established. Higher, when standard output is
produced and lower, when the standard is not met.
For example: Standard task is 10 units. Rates are: Rs 50 per unit for
producing 10 units or more and Rs 40 per unit for producing less than 10
units
• Worker A produces 11 Units; he gets Rs 550 (11 units’ x 50 per unit)
• Worker B produces 09 units; he gets Rs 360 (9 units’ x 40 per unit)
• This difference of Rs 190 will motivate B to perform better.
H. Mental Revolution
It involves a complete change in mental outlook and attitude of workers and

management towards one another from competition to cooperation. The
management should create pleasant working conditions & workers should
work with devotion and loyalty. Instead of fighting over distribution of profits,
they must focus attention on increasing it.
Q.17 Which technique of scientific management aims at elimination of superfluous

varieties sizes and dimensions of the product. (Simplification of work)
Q.18 Name the technique of Taylor which is one of the strongest motivator for a
worker to reach standard performance. (Differential piece wage system)
Q.19 Explain the technique of scientific management that is extension of “Principle

of Division of work” and specialisation? (Functional foremanship)

Fayol versus Taylor
TAYLOR V/S FAYOL

Basis Henry Fayol F.W Taylor
1. Basis of formation Personal Experience Observation
2. Focus Improvement in the Concentration on improving
overall administration the productivity
3. Applicability Universally applicable Applicable only to
specialised situations
4. Perspective Top level management Lower level-shop floor level
5. Personality Practitioner and Scientist and known as father

known as the father of scientific management
of General management
6. Human element More importance given More importance attached to

to human element; e.g. increasing the production
Principle of equity, than to the human element
stability of tenure
7. Emphasis Greater emphasis on Emphasis on principles and

tools and standardi- theory of general
sation of work i.e. administration i.e. Scientific
General Theory of Management
Administration
8. Unity of Command Staunch proponent that Did not feel that it is important
orders should be as under functional
received from one boss. foremanship a worker
received orders from
eight specialists.

SOME IMPORTANT POINTS TO REMEMBER
• Science not Rule of Thumb means discarding old methods of doing work
which were based on hunch or old practices and developing new techniques
based on experimentation.
• Mental revolution means drastic change in the thinking. Change is required
on three fronts :
a) In attitude towards each other (management and workers)
b) Towards work
c) Towards division of profit
Managers should realize the importance of workers.
• Revision of principles :
a) An employee breaks ‘No Smoking’ rule (violation of principle of discipline)
b) Management not giving increments and promotions to workers as per
agreement (violation of principle of discipline)
c) Management sharing gains with workers (harmony, not discord)
d) Sales manager welcoming suggestions of salesman (Initiative)
e) The purchase manager purchases raw material from the company
owned by his son at a rate more than the market price (violation of
subordination of individual interest to general interest)
f) Frequent transfers (violation of stability of tenure)
g) In case of an accident, first aid box could not be found in its place
(violation of principle of order)
h) Making arrangements for training and career development of workers
(development of each person to his/her greatest efficiency and
prosperity)

Multiple choice questions
1. Identify the principle of management followed in the following pictorial repre-

sentation.
(a) Cooperation, Not individualism (b) Harmony, not discord

(c) Discipline (d) Remuneration.
2. The applicability of principles of management depends upon the prevailing situ-
ation at a particular point of time. Identify the feature of principles of manage-
ment, highlighted from the statement:
(a) General guidelines (b) Contingent
(c) Flexible (d) All of these.
3. The following pictorial presentation highlights violation of one of the principles
of management.
Identify the principle not followed in the given picture.

(a) Initiative
(b) Subordination of individual interest to general interest
(c) Equity
(d) Cooperation not individualism

4. In a company there are four departments finance, marketing, production and
human resource development. Identify the principle of management used in
this company
(a) scalar chain (b) Discipline
(c) Unity of command (d) Division of work
5. Identify the principle of general management depicted in this pictorial
representation.
(a) Orders (b) Unity of direction

(c) Unity of command (d) Espirit De corps
6. Professional courses such as BBA also teach principles of management as a
part of their curriculum at the beginner’s level. Identify the significance of prin-
ciples of management highlighted from this statement.
(a) Management training, education and research
(b) Providing managers with useful insight into reality
(c) Effective administration
(d) Meeting changing environment requirements.
7. Select the principles of management given by Henri fayol.
(a) Discipline
(b) Harmony not discord
(c) Unity of command
(d) Espirit de corps
(e) Functional foremanship
Choose the correct combination out of the following:
(1) A, B, C and D only
(2) A, C, D and E only

(3) A, B and D only
(4) A, C and D only
8. Read the following statements.
Statement I : The principles of management are not flexible instead they are
pure like the principles of science.
Statement II : The principles of management are general guidelines the donot
provide readimade solutions to problems.
Select the correct alternative out of the given below alternatives.
(a) Statement I is correct and statement II is wrong
(b) Statement II is correct and statement I is wrong
(c) Both statements are correct
(d) Both statements are wrong
II. Fill in the blanks:
1.
2.

III. Match the following:
1. (i) Fatigue study (a) Aims to eliminate unnecessary
movements in doing a job
(ii) Motion study (b) Aims to differentiate between
efficient and inefficient workers
(iii) Differential piece wage system (c) Aims to determine rest intervals
(iv) Time study (d) Aims to determine standards
(a) (b) (c) (d)
(i) – c (i) – a (i) – b (i) – d
(ii) – a (ii) – c (ii) – c (ii) – b
(iii) – b (iii) – d (iii) – d (iii) – a
(iv) – d (iv) – b (iv) – a (iv) – c
2. (i) Equity (a) Encourage workers to develop
and carry out their plans
(ii) Stability of personnel (b) Judicious application of penalties
(iii) Discipline (c) Securing loyalty and devotion of
employees
(iv) Initiative (d) Points out the danger and costs
of unnecessarey labour turnover.
(a) (b) (c) (d)
(i) – b (i) – a (i) – d (i) – c
(ii) – a (ii) – d (ii) – c (ii) – d
(iii) – c (iii) – b (iii) – a (iii) – b
(iv) – d (iv) – c (iv) – b (iv) – a
3. (i) Speed boss (a) Timely completion of job
(ii) Gang boss (b) Proper working condition of

machines and tools
(iii) Repair boss (c) Check quality of work
(iv) Inspector (d) Keep machines and tools ready

for operation.

(a) (b) (c) (d)
(i) – b (i) – a (i) – c (i) – a
(ii) – a (ii) – d (ii) – b (ii) – c
(iii) – c (iii) – b (iii) – a (iii) – d
(iv) – d (iv) – c (iv) – d (iv) – b
4. State giving reasons, whether the statements are ‘True’ or ‘False’
(i) We should not have multiple bosses, as it will lead to divided responsibil-
ity
(ii) Simplification of work means process of setting standards for every busi-
ness activity.
(iii) Taylor’s principle of ‘science not rule of thumb’ stresses on scientific analysis
of each part of work
(iv) If authority exceeds responsibility, subordinate may misuse it.
(v) Unity of direction prevents dual subordination.
Answers
I. Multiple choice questions
(1) c (2) b
(3) b (4) d
(5) d (6) a
(7) b (8) b
II. Fill in the blanks”
1. (a) Science not rule of thumb
(b) Co-operation not individiualism
(c) Harmony not discard
(d) Development of each and every person to his or her greatest efficiency

(e) F.W. Taylor
2. (a) Instruction card clerk (e) Speed boss
(b) route clerk (f) Gang boss
(c) Time and cost clerk (g) Repair boss
(d) Disciplinarian (h) Inspector
(i) Workman
(1) a (2) d (3) b
IV. True/False
(i) True – Suboordinate can escape accountability if this is not followed
(ii) False – Standardisation refers to setting standards
(iii) True – There should be scientific study and analysis of each element of
a job
(iv) True – If authority exceeds responsibility, subordinate may misuse.
(v) False – Unity of command prevents dual subordination.

Q.1 Which principle of Henry Fayol does functional foremanship violate? (Unity
of command) (1)
Q.2 A sales person is asked to finalize a deal with customer. The marketing
manager allows him to give a discount of up-to 10% but the Finance Manager
allows him to give discount of upto 25%. Which principle is violated here?
(Unity of command) (1)
Q.3 Principles of Taylor and Fayol are mutually complementary. One believed
that the management should the gain with the workers while the other
suggested that employees compensation should depend upon the earning
capacity of the company and should give them a reasonable standard of
living. Identify and explain the principles of management by Tayol and Fayol
referred to in para? (1)
[Hint: Fayol – Remuneration, Taylor – Harmony not Discord (Mental

Revolution)]
Q.4 The production manager of an automobile company asked the foreman to

achieve a target production of 200 scooters per day. But he did not give him
the authority to requisition tool and materials from the stores department.
Can the production manager blame the foreman if he is not able to achieve
the desired target? Explain briefly the principle relating to the situation. (No,
Production Manager can’t blame the Foreman. Principle-Authorit and
Responsibility)
Q.5 Which principle of scientific managment suggests that management should

be open to constructive suggestions and workers should be taken into
confidence before taking importance decisions.
(Co-operation not individualism)

QUESTIONS BASED ON
Analysis, Evaluation and Creation
Q 1. Pentucky Fried Chicken, more commanly known by the initials PFC, is an

international food restaurant chain that specializes in fried chicken. The com-
pany has divided the total work into many parts all the employees perform a
particular job repeatedly. The company has mainly three units, each is headed
by a different individual and that individual controls and regulates the activities
in his own way. The employees are not fulfilling their commitment with the
company to work honestly for it, as they take leave without intimation. The
employees of the company are not happy about the pay package provided by
the company. Due to it, labour turnover in the company is on higher side. This
situation reflects poor management in the company.
1. Identify the principle of management applied at PSC mentioned in quoted line

The company has ........................................................................... repeatedly
(a) Authority and Responsibility (b) Discipline
(c) Unity of command (d) Division of work
2. “The company has .........................................................................own way.”

Identify Fayol’s principle highlighted in above quoted line
(a) Unity of command (b) Unity of direction
(c) Discipline (d) Division of work
3. “The employees ............................................... without intimation

Which principle is being violated here?
(a) Unity of command (b) Division of work
(c) Stability of tenure (d) Discipline
4. Which principle is being referred in these lines-
“Due to it ...................................... higher side”
(a) Stability of tenure (b) Fair remuneration
(c) Scalar chain (d) Equity
Anwer 1(d), 2(b), 3(d), 4(a)

Q 2. Ramesh works in a bulb manufacturing company Each bulb which is manu-
factured is of standard size and quality for the if there is any undeclared type of
bulb manufacturer then its production is shut down. Last month when the com-
pany came to know that 10 watt bulbs were no more preferred by customers
their production was stopped Ramesh is job to purchase the filaments re-
quired to make bulbs. This time when he purchased the filament he got the
instructions from the seller that some special care needs to be taken in fixing
the first batch of filaments inside the bulb. Ramesh knows this information
should be given immediately to the production department before the assem-
bling process stars. However he finds that his company's policies only allow
him to give the message to his immediate boss who will further pass the mes-
sage to his boss. This passing of message will continue till it reaches the
desired persons in the department.
1. Each bulb ..................................................................................... and quality

Identify the technique of management mentioned in quoted line
(a) Standardisation (d) method study
(c) simplification (d) Motion study
2. Which principle of management is followed in the company as per following

statement-
“However he finds ......................................................... to his boss”.
(a) Unity of command (d) Discipline
(c) Scalar chain (d) Order
3. Identify the technique of scientific management applied in the company as per

following statement-
Further if .............................................................. it is shut down.
(a) Time study (b) Fatigue study
(c) Standardization (d) simplification
3. Name the option which is now available to Ramesh as this in emergency situ-
ation as for this statement
Ramesh knows ............................................... process starts

(a) Initiative (d) Order
(c) Equity (d) Gang Plank
(1 x 4 = 4)
Answer 1. (a) 2. (b) 3. (d) 4. (d).
Q 3. Which principle of management should be followed strictly for orderly flow of

information in an organisation elaborate with table diagram figure.
[Hint: principle of solar chain] (4)
Q 4. Instructions card clerk draft instructions for the workers. If you would have
been and instructions card clerk how would you have drafted an “Instructions
card” for a workers in noodles factory. Draft and “Instruction card”.
[Ans- any suitable iInstructions card for noodles factory workers] (4)
SOME ADDITIONAL NEW QUESTIONS FOR PRACTICE

Q 5. 1. Jojo enterprises is facing huge losses. The owner of the company is an MBA
pass out even than many things in the organisation are happening which are
indicator of lack of proper management in the company. First of all there is no
specific sharing of work and any time any employee is asked to do anything.
2. There are no clear and fair agreement between the workers and the man-
agement. These are also no strict rules and regulations binding on the con-
duct of the workers.
3.The departmental heads who are the middle level managers in the company
and hold key position always favour their relatives. This has led to feeling of
resentment among the employees who are also demanding the special favours
and threatening strike in the coming days.
Identify the three principles of Fayol violated in the above case. (4)
Q 6. Dokia Ltd. Is a world renowned retail chain store. The customers here are very
much pleased with the products and services provided in the stores. The cus-
tomer satisfaction and internal efficiency of this organisation is rated best in
the industry. However these have been a few steps taken by the organisation
this edge. This organisation has used a special type of software which inte-
grates all the stores and brings uniformity in its bling and working pattern iden-
tify principle of scientific management mansions here. Explain it (3)

Q 7. In a huge manufacturing company, there was a constant training programing
running for the workers throughout the year. The workers were trained about
the machines as the management realized that management is all about the
relationship among workers and their proper handling of the machines. As the
size of the organisation increased, the management decided to release their
hold on day today activities of the organization. A more decentralized approach
was adopted where the workers could decide about the machines and the
amount of raw material required instead of traditional centralised approach as
per the needs. The management knew that is the external environment is dy-
namic. In order to meet the stiff competition they clarified to the workers that
they can exercise their on prosperity as per situation. Explain the nature of
principles of management highlighted in the above case by quoting lines. (6)
Q 8. Amit is the production manager in Zerolac Paints Pvt. Ltd. The company is
producing variety of paints. Various alternative methods are available which
can result in minimization of cost and maximization of output. On visiting his
factory he found that workers are in habit of keeping their tools here and there
and then waste their time in finding them. Similarly no place was fixed for the
repair clerk and route clerk. The workers kept on searching them in time of
need. He called a meeting of all the employees and informed them about this
findings. He fixed place for each and every tool and person in the factory. He
also gave directions regarding working hours, leave provisions and punish-
ments in case of disobedience.
Amit made use of two principles suggested by Fayol and some techniques
suggested by Taylor to systematize his factory. Identify and explain them. (6)

CHAPTER - 3
BUSINESS ENVIRONMENT
Business Environment
Sum total of all individuals, institutions and other forces that may affect the
performance of business enterprise but outside the control of business.
Features Dimensions/External forces Significance
Totality Economic Identifying opportunities and

Specific and general forces Social getting first mover advantages
Inter-relatedness Political Identify threats and early
Coping with warning signals
Dynamic nature Technological rapid changes
Uncertainty Legal Assisting in planning Tapping useful resources
Complexity and policy formation
Relativity Helps in improving performance.
BUSINESS ENVIRONMENT IN INDIA
Economic Impact of Govt. Policy changes Managerial Response to changes

Reforms on business and industry in Business Environment
in India
Increasing competition Mergers and acquisitions
Liberalisation More demanding customers
(Removing unnecessary Diversification
control and restriction Rapidly changing technological
Brand Building
from industry) environment
Necessity for change Customer oriented approach
Privatisation
(Reducing role of public Need for developing human Technological Developments
sector disinvestment) resources Better labour relations
Globalisation Market orientation
(Integration of Changes in capital structure
Loss of Budgetary
economies of the world) Mergers and acquisitions
support to public sector

Business environment means the sum total of the factors which influence the
business and over which the business has no control. The study of business
environment enables the managers to identify threats and opportunities.
Features of Business Environment
1. Totality of external forces: Business environment is the sum total of all

the forces/factors external to a business firm.
2. Specific and general forces: Business environment includes both specific

and general forces. Specific forces influence business firm directly while
general forces affect a business firm indirectly.
Components of Business Environment
Micro factors Internal/Specific External/General Macro factors

Affects all Factors Factors Affects all
business units Customers, Owners Economic, business units almost
differently and investors Environment Social in the same way.
e.g., Demand Suppliers, Creditors Environment Political e.g., General income
. the product
for Employees and trade Environment an employment
and employmentlevel
level
union, Competitors Technological in the economy.
Environment
Legal Environment
3. Inter-relatedness:All the forces/factors of a business environment are

closely interrelated. For example, increased awareness of health care has
raised the demand for organic food and roasted snacks and in turn changed
the life style of people.
4. Dynamic: Business environment is dynamic in nature which keeps on

changing with time. It may be change in technology, fashion and tastes etc.
5. Uncertainty: Business environment is uncertain as it is difficult to predict

the future environmental changes and their impact with full accuracy.
6. Complexity: Business environment is complex which is easy to understand

in parts separately but it is difficult to understand in totality.
7. Relativity:Business environment is a relative concept whose impact differs

from country to country, region to region and firm to firm. For example, demand

for ready to eat healthy food will be more in urban areas than in rural areas.
Q.1 Business Environment includes both specific and general forces. List any
two specific forces. (Any two- Investors, customers, owners, suppliers,
creditors, employees, trade unions.)
Q.2 Why is it said that business environment is dynamic in nature. (Because it
keeps changing with time)
IMPORTANCE OF BUSINESS ENVIRONMENT
1. Identification of opportunities to get first mover advantage:

Understanding of business environment helps an organisation in identifying
advantageous opportunities and getting their benefits prior to competitors,
thus reaping the benefits of being a pioneer.
2. Identification of threats and early warning signals: Correct knowledge

of business environment helps an organisation to identify those threats which
may adversely affect its operations. For example, Bajaj Auto made
considerable improvements in its two wheelers when Honda & other
multinational companies entered the auto industry.
3. Tapping useful resources: Business environment makes available various
resources such as capital, labour, machines, raw material etc. to a business
firm. In order to know the availability of resources and making them available
on time at economical price, knowledge of business environment is
necessary.
4. Coping with Rapid changes: Continuous study/scanning of business
environment helps in knowing the changes which are taking place and thus
they can be faced effectively by developing suitable course of action.
5. Assistance in planning and policy formulation: Understanding and analysis
of business environment helps an organisation in planning & policy
formulation. For example, ITC Hotels planned new hotels in India after
observing boom in tourism sector.
6. Helps in Improving performance: Correct analysis and continuous
monitoring of business environment not only helps an organisation in improving

its performance but also continue to succeed in the market for longer time.
DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT
1. Economic Environment: It represents the nature of an economy, its policy,

systems and all those forces that have bearing on business activities like.
Rate of interest, inflation rate, change in the income of people, monetary
policy, price level etc. are some economic factors which could affect business
firms.
Examples :
• Decline in tax rates raises the disposable income of people leading to
increase in demand for products.
• Rise in inflation increases the cost of raw material, machine, payment

of wages and salaries.
• Demonetization implemented by RBI.
• Changes in economic and fiscal policies have encouraged NRI’s and
foreign investors to invest in India.
• Make in India was launched for job creation and skill enhancement.
• RBI allowed commercial banks to reduce interest rates on loans to
tackle recession.
• The banks offering loans at reasonable interest rates with minimum
required formalities because of banking sector reforms.
2. Social Environment:It includes various social forces such as customs,

beliefs, literacy rates, educational levels, lifestyle, values etc. Changes in
social environment affect an organisation in the long run. Example: Now a
days people are paying more attention towards their health, as a result of
which demand for mineral water, Diet coke etc. has increased while demand
of tobacco, fatty food products has decreased.
Examples :
• Festivals like Diwali, Eid, Christmas, etc. lead to increase in demand
for greeting cards, sweets, gifts etc.

• Equal pay/pay scales to male and female workers for equal work.
• Demand for reservation in jobs for minority and women.
• ‘Beti Bachao, Beti Padhao’ movement started for encouraging education
of girl child.
• Swachh Bharat Abhiyaan introduced for welfare of society.
3. Technological Environment:It implies using new and advanced ways/

techniques of production. A businessman must closely monitor the
technological changes taking place in the industry as it helps in facing
competition and improving quality of the product. For Example, Digital watches
in place of traditional watches, booking of railway tickets on internet etc.
Examples :
• Payments through e-wallets, Paytm etc.
• Change from fountain pens to ball pens.

• Dematerialization of securities.
• Cable TV adversely affected radio industry.
• Introduction of artificial intelligence, like Siri in iPhones.
4. Political Environment: It includes political conditions and factors related to

government affairs and their impact on business. Political stability builds
confidence among business community while political instability and bad
law & order situation may bring uncertainty in business activities. Ideology of
the political party, attitude of government towards business, type of
g overnment-sing le party or coalition governm ent affects the
business.Example: Bangalore and Hyderabad have become the most
popular locations for IT due to supportive political climate.
Examples :
• Crash in share prices due to change in Vajpayee government in 1999.
• PM’s frequent visit to foreign countries for promoting business

relationships.

• Hyderabad has become the IT hub due to political support.
• Compensation given by government for acquiring property for building
infrastructure facilities, like metro construction.
• GST introduced and implemented in place of VAT.
5. Legal Environment:It constitutes the laws and legislations passed by the
Government, administrative orders, court judgements, decisions of various
commissions and agencies. Example: Advertisement of Alcoholic products
is prohibited and it is compulsory to give statutory warning on advertisement
of cigarettes.
Examples :
• Supreme Court issuing orders to seal unauthorised shops and
constructions.
• Law ensuring green dot for every vegetarian eatable products and red
dot for non-vegetarian products.
• Supreme Court passing an order to close the iron factories around Taj
Mahal to avoid air pollution affecting it.
Q.3 Identify the type of dimension of business environment related to the
following:
(i) Banks reducing interest rate on housing loans.
(ii) An increasing number of working women.
(iii) Booking of air tickets through internet.
(iv) Alcohol beverages are prohibited to be advertised on Doordarshan.
(v) A stable government has built up confidence among the firms to invest
in big project.
[(i)economic, (ii)Social, (iii)Technological, (iv)Legal, (v) political]
Economic Environment in India (Not to be covered for Session 2023-2024)
As a part of economic reforms, the Government of India announced New Economic
Policy in July 1991. This policy has sought to liberate industry from restrictions of
licencing system (liberationsation), drastically reduce the Govt. controls to accelerate
the role of private sector and to integrate India economy with world economics. It
main purpose was to bring India out of economic crises and to accelerate its

economic growth.
The main objective of New Industrial Policy was to promote Liberalization, Privatization
and Globalization.
1. Liberalisation: It means freeing of Indian Industry from all unnecessary

government controls and restrictions. Abolishing licensing requirements;
Freedom in deciding the scale of business; removals of restriction on
movements of goods and service; reduction in tax rates; freedom in fixing
prices; simplifying procedures; making it easier to attract foreign investment.
2. Privatization: Giving greater role to private sector in the nation building

process and reduced role of public sector; Disinvestment in many Public
Sector undertaking which would result in converting public sector undertakings
to private sector hence diluting governemnt ownership by less than 51%., It
aimed at improving efficiency and performance of government undertakings,
reducing budgetary deficit & better utilization of national resources.
3. Globalization: It means integration of various economies of the world leading

to the emergence of cohesive global economy. The measures taken by the
Government include trade liberalization which includes import liberalization;
Export Promotion through rationalization of tariff structure; Foreign exchange
liberalization; increased interaction among global economies under the aegis
(protection/support) of World Trade Organization. It resulted in addition of
Export duty, Reduction of import.
Q.4 State how business environment helps in coping with rapid change. (by
knowing in advance & developing suitable course of action)
Q.5 State any two reasons why managers should understand business
environment (Any two points of importance; starting with it helps the
managers....)
Q.6 Can the effect of various factors of business environment on business be
recognised separately? (No, as the factors are related to each other)
IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND

INDUSTRY (Not to be covered for Session 2023-2024)

1. Increasing Competition:Delicencing and entry of foreign firms in Indian
market has increased the level of competition for Indian firms. It benefitted
consumers by availability of large variety of goods at reasonable prices.
2. More Demanding Customers: Now customers are more aware and they
keep maximum information of the market as the result of which, now market
is customer/buyer oriented. Now products are produced keeping in mind the
demands of the customers.
3. Rapidly Changing Technological Environment:Rapid Technological

advancement has changed/improved the production process as a result of
which maximum production is possible at minimum cost but it leads to tough
challenges in front of small firms.
4. Necessity for Change:After New Industrial Policy, the market forces

(demand & supply) are changing at a very fast rate. Change in the various
components of business environment has made it necessary for the business
firms to modify their policies & operations from time to time.
5. Need for Developing Human Resources:The changing market conditions

require people with higher competence and greater commitment. Hence
there is a need for developing human resources which could increase their
effectiveness and efficiency.
6. Market Orientation:Earlier selling concept was famous in the market now

its place is taken by the marketing concept. Today firms produce those goods
& services which are required by the customers. Marketing research,
educational advertising, after sales services have become more significant.
7. Reduction in budgetary Support to Public Sector:The budgetary support

given by the government to the public sector is reducing thus the public
sector has to survive and grow by utilising their own resources efficiently.
Managerial response to changes in business environemnt (Not to be covered
for Session 2023-2024) : The impact of changes in economic policy of government
has made managers aware of various areas where they have to focus to keep their
business environment help them to take decision regarding increasing competition,
the demands of customers and their expectations (consumer is the king), rapidly
changing technological environment, necessity to adapt to change and need for

developing human resources.
1. Mergers and Acquisitions: Many firms are merging to take technological
and economic benefit of each other, Powerful business units are acquiring
small firms to reduce competition among themselves.
2. Diversification: Firms are diversifying into wide range of new product lines
to capture new market segments.
3. Brand Building: Aggresive marketing tools are exercised by firms to
establish the identity of their brands in the minds of consumers.
4. Customer Oriented Approach: Niche marketing concept is used and needs
of each and every consumers are adhered to.
5. Technological Developments: Firm s are updating them selves
technologically to face competition.
6. Better Labour Relations: Relations with labour trade-unions are harmonious
to bring team effect.
7. Changes in Capital Structure: Debt Component is more used now
comparatively to take the benefit of trading on equity.
Q.1 It is the process by which government control over the industry is being
loosened. Give the term to which this statement is trying- to indicate.
(Liberalisation) (1)
Q.2 “The understanding of business environment enables the firm to identify

opportunities.” What is meant by ‘opportunities’ here? (Possibility to start a
new venture or launch a new product to earn more than competitors.) (1)
Q.3 “It may be difficult to know the extent of the relative impact of the social,
economic, political, technological or legal factors on change in demand of a
product in the market.” Which feature of business environment is highlighted
by this point? (Complex) (1)

DEMONETIZATION
Concept
Demonetization is the withdrawal of a particular currency from circulation.
Demonetization refers to the process by which Govt. of a country withdraws some

currency (some specific currency like notes of ` 500 and ` 1000 in India) from the
circulation of economy. The demonetised notes cease to be accepted as legal
currency for any kind of transaction.
In India, it was introduced by the government on November 8, 2016, in which `1000

and ` 500 notes were no longer accepted as medium of exchange. A new `2000
note was introduced as a legal tender. It led to loss of liquidity in India for some time.
Its aim was to :
• Curb corruption
• Reduce accumulation of black money, and
• Counterfeit the use of high denomination notes for illegal activities
Features
1. Tax administration: People with black money had to declare their

unaccounted wealth and pay taxes at a penalty rate.
2. Channelizing savings: Banks offered new deposit schemes in which people

invested heavily. This led to increased liquidity in banks.
3. Cashless economy: It encouraged digital transactions or e-transactions,

thus leading to cashless economy.
4. Elimination of terror funding: It will help in fighting against terror funding

and smuggling by reducing the use of high value currency notes.
Conclusion
Though it created a temporary shortage of cash and rush at banks, but it will have
a positive impact on GDP in the long run.

1. Out of the following, select the combination of importance of Business Envi-

ronment.
(a) It helps in idenfifying opportunities and taking first mover advantages
(b) It helps in tapping useful resournces
(c) It helps in identifying threat and provides early warning signals
(d) It consists of specific and general forces.
(e) It is uncertain and complex.
Choose the correct combination out of the following.
(a) A, B and C only
(b) A, B and D only
(c) C, D and E only
(d) B, C and D only
2. Identify the dimenstion of Business Environment indicated by the following
picture.
(a) Economic (b) Technological

(c) Political (d) Social

3. What is indicated by the following picture relating to Business Environment.
(a) Characteristics (b) Importance

(c) Dimension (d) Dangers
4. Arrange the following statemetns related to demonetisation in a correct
sequance.
(a) ` 500 and ` 1000 notes were withdrwing from circulation.
(b) People start replacing old notes with the new notes.
(c) Demonetisation was announcoal on november 8, 2016
(d) Denonetisation helps in pronoting digital payments and creating loss-cash
economy.
Choose the correct sequence
(a) A, B, C, D
(b) A, C, B, D
(c) C, A, B, D
(d) C, D, A, B
5. India is good example of _________ economy.
(a) Socialist (b) Mixed
(c) Capitalist (d) Communist.

6. Economic growth can be measured by _________.
(a) CPI (b) CBI
(c) GDP (d) MPC
7. Globalisation of markets has brought about economies of ________.
(a) Scale of production (b) Distribution and marketing
(c) Management (d) All Business operations
8. A valid definition of a business purpose is to ________.
(a) Create a customer (b) Maximize profits
(c) Serve the society (d) All of the above
Fill in the Blanks

1. Business environment includes both ________ and ________ forces.
2. Business environment is _________ as it is difficult to predict the future envi-
ronment changes and their impact with full accuracy.
3. Business environment is a _______ concept whose impact differ from country
to country, region to region and firm to firm.
4. The Government of India announced New Economic Policy on _____ _______
for taking out the country out of economic difficulty and speeding up the devel-
opment of the country.
5. _________ is integrating the economy of a country with the economies of other
countries to facilitate free flow of trade, capital, person and technology across
borders.
Match the following
1. (i) Customers (a) External environment
(ii) Political (b) Internal environment
(iii) Social factors (c) External environment
(iv) Creditors (d) Internal environment

(a) (b) (c) (d)
(i) – a (i) – d (i) – c (i) – b
(ii) – b (ii) – d (ii) – d (ii) – a
(iii) – c (iii) – b (iii) – a (iii) – c
(iv) – d (iv) – a (iv) – b (iv) – d
2. (i) Liberalisation (a) Relaxation in tarrifs
(ii) Globalisation (b) Disinvestment in public sector
(iii) Privatisation (c) World level production
(a) (b) (c) (d)
(i) – a (i) – c (i) – a (i) – b
(ii) – b (ii) – b (ii) – c (ii) – a
(iii) – c (iii) – a (iii) – b (iii) – c
3. (i) Reduction in bank rate (a) Social environment
(ii) Increasing number of working women (b) Legal environment
(iii) Prohibition of alcohol advertisements (c) Ecomonic environment
(iv) On-line flight booking (d) Technological environment
(a) (b) (c) (d)
(i) – a (i) – b (i) – c (i) – b
(ii) – b (ii) – c (ii) – a (ii) – d
(iii) – c (iii) – d (iii) – b (iii) – a
(iv) – d (iv) – a (iv) – d (iv) – c
4. (i) Internal environment (a) Affects all business units almost
in same way.
(ii) Micro environment (b) Controllable factors.
(iii) External environment (c) Affects all business units differently
(iv) Macro environment (d) Uncontrollable factors
(a) (b) (c) (d)
(i) – a (i) – d (i) – b (i) – d
(ii) – b (ii) – c (ii) – c (ii) – a
(iii) – c (iii) – b (iii) – d (iii) – b
(iv) – d (iv) – a (iv) – a (iv) – c

5. Match the impact of demonetisation.
(i) Digitisation (a) Risen
(ii) Real Estate (b) Increased
(iii) Tax collection (c) Decreased
(iv) Interest rates on savings (d) Prices declined
(a) (b) (c) (d)
(i) – a (i) – d (i) – b (i) – d
(ii) – b (ii) – c (ii) – d (ii) – b
(iii) – c (iii) – b (iii) – a (iii) – a
(iv) – d (iv) – a (iv) – c (iv) – c
True/False (suggest with reasons)
(i) Withdrawal of the status of ‘legal tender’ to the currency in cirulation is called
demonetisation. (T/F)
(ii) Change in health and fitness trend and going to gym among urban dwellers is
part of technological environment. (T/F)
(iii) Introduction of NEP has resulted in “Less Demanding Customers” (T/F)
(iv) Budgetary support to public sector is reducing. (T/F)
(v) Globalisation is integrating the economy with the rest of the world. (T/F)
Answers
Multiple Choice Questions:
1. a 2. d
3. c 4. c
5. d 6. d
Fill in the blanks:
1. Specific, General 2. Uncertain
3. Relative 4. July 1991
5. Globalisation

Match the Following:
1. d 2. c
3. c 4. c
5. c
True/False
1. T 2. F
3. F 4. T
5. T
Q.1 It is the process by which government control over the industry is being
loosened. Give the term to which this statement is trying- to indicate.
(Liberalisation) (1)
Q.2 “The understanding of business environment enables the firm to identify

opportunities.” What is meant by ‘opportunities’ here? (Possibility to start a
new venture or launch a new product to earn more than competitors.) (1)
Q.3 “It may be difficult to know the extent of the relative impact of the social,
economic, political, technological or legal factors on change in demand of a
product in the market.” Which feature of business environment is highlighted
by this point? (Complex) (1)
Q.4 Government of India announced a new economic policy in July 1991 which
provided greater role to private sector in nation building. Identify and explain
the concept.
Q.5 Just after declaration of Lok Sabha Elections 2014 results, the Bombay Stock
Exchanges price index (Sensex) rose by 1000 points in a day. Identify the
environmental factor which led to this rose giving reason. Also, explain any

two other dimensions of business environment. (Political and any two form
economic, technical, legal and social environments) (3)
Q.6 Explain : “uncertainity” and “Complexity” as features of business environment.
(Difficulty in predicting future, numerous inter-related dynamic conditions

and forces) (3)
Q.7 ‘Understanding of environment by business managers enables them not

only to identify and evaluate, but also to react to the forces external to their
firms.’ In the light of this statement, explain by giving any five points why in
the present day competitive market, it is essential for a business enterprise
to remain alert and aware of its environment. (Importance of business
environment)
Q.8 The court issued the order that it is essential for the vehicles to be smokeless
and that any one violating this order shall have to pay a heavy fine. Abiding
by this order was necessary for the health of people. Making this strict order
of the court as the base; ‘Gyan Motors Limited’ resolved to manufacture
such vehicles by using modern technology as should not produce any smoke
at all. The government should also announce to provide help in several
ways to set up such industrial units.
Identify the three dimensions of Business Environment described in the

paragraph above by quoting the relevant lines. (5)

QUESTION BASED ON
ANALYSIS EVALUATION AND CREATION
Read the following text and answer question number 1 to 4 on the basis of the
same
For the past few months, countless manufacturers worldwide have retooled to
make safety gears for general public, health care workers and first responders in
their battle against the covid-19 pandemic.
In late March’ 2020 Gord Motor Co and Genuine Motors Corp, shut down car
production and redeployed their factories and workers to produce ventilators. Gord
was expected to achieve a production level of about 1500 ventilators by the end of
May. Genuine motors brought its first group of 100 project workers into training in
early April and was capable of producing 10,000 units per month.
Thereafter the company Ventured into manufacturing face masks, face Shields,
Safety visors, nasal swabs PPE kits, Test kits and hand sanitizers. The company
was able to scan the environment at an early stage to get ma ximum benefit and
leave their competitors behind. Timely understanding of environment helped their
managers in making suitable changes in the products manufactured by the enter-
prise. The managers adopted new methods made scientific improvements and inno-
vations for producing goods having wide demand across the globe during pandemic.
1. Identify the component of business environment highlighted in the above case
(a) Economic environment (b) Social environment
(c) Technological environment (d) Political environment
2. The feature of business environment discussed in the case is ______________
(a) Complexity (b) Relativity
(c) Inter relatedness (d) Dynamic

3. Identify the point of importance of business environment not highlighted in the
above case
(a) It enables the firm to identify opportunities and getting the first mover ad-
vantage
(b) It helps the firm to identify threats and early warning signals
(c) It helps in tapping useful resources
(d) It helps in coping with rapid changes
4. Management that responds to environmental changes is likely to be more suc-

cessful. True/false
[Ans- 1 (c) 2 (d) 3 (c) 4 True]
Case:-
Mesla has made its debut in India on January 08, 2021 with the company named
mesla India motors and Energy in Bengaluru. US electric car maker is known to be
doing R and D in association with at least one of the auto engineering companies in
Bengaluru. The company would also be selling electric battery vehicle in India
Electric vehicles hold the key to permanent solutions of a better, cleaner and
greener India. It is the need of the hour especially in India as all fossil fuel vehicles
are responsible for nearly 29% of pollution. Electric vehicles are rechargeable in-
volving zero waste of energy. They do not have any harmful effect on human health
and ecology
Karnataka Chief Minister that tweeted Mesla would soon start operations in
India. Karnataka industries ministers also said that the government in prepared to
extend full support to the firm.
While Mesla cars will be outside the reach of most in India due to the high price
coupled with heavy import duty, the company's presence has the potential to accel-
erate the drive towards electric mobility

1. “Karnataka chief ............................................................................ firm”.
Identify the dimension of business environment highlighted above
(a) Economic environment (b) Social environment
(c) Political environment (d) Technological environment
2. “The US electric car makers ................................................. vehicle in India”

Identify the dimension of business environment highlighted above:-
(a) Economic environment (b) Technological environment
(c) Social environment (d) All of the above
3. “Electric vehicle hold .................................................. 29% of pollution”

Which feature of business environment is highlighted by the statement:-
(a) Inter relatedness (b) Totality of external forces
(c) Complexity (d) Relativity
4. “While Mesla cars .................................................. electric mobility”

Which component of economic environment is discussed in the statement?
(a) Changes is disposable income of people
(b) Money Supply in the economy
(c) Rates of saving and investment
[Ans- 1 (c), 2 (b), 3 (d), 4 (a)]

ADDITIONAL QUESTIONS FOR PRACTICE
Q.1 Energetics Ltd has been producing various electronic products and has attianed
a prominent position in the electronics market. Recently the company has
manufactured Garment steamers and Inverter based refrigerators with 4 star
bee label. It has come to this position by analysing the needs of customers
before other electronics manufacturers did it and by providing new and im-
proved products to its consumers. It has procured the best of technology from
France and keeps the processes up to date. Whenever a better technology is
brought about in the field, it is adopted by the company.
Its top level Mangers are quite aware and alert about external environment
changes and they incorporate them in the working of the company in a timely
manner.
Suggest how proper understanding of business environment would help Ener-

getics Ltd. perform better in future. (4)
Q.2 With the change in the consumption habits of people Ram Singh Tomar, who
was running a sweet shop shifted to bakery business. On the eve of Raksha v
f vbandhan, he offered biscuits and cakes in attractive packaged at reason-
able prices. He anticipated huges demand and created a website giftideas.com
for taking online orders. He got lot of orders online and earned huge profits by
selling baked products.
Identify and suggest which dimension of business environment helped him

cope with changing environment. (4)
Q.3 On July 01, 2020, the Railway Ministry of India announced that 151 trains will
be operated by private sectors. They will invest Rs 30,000 crores. Only the
driver and guard will be railway employees; all other employees will be of
private company; who is operating the train. The private companies are free
to procure train and locomotives from any source of its choice.
(i) Name and explain the economic reform related to this decision of
government.

(ii) Name and explain other two reforms recommended in New Economic
policy. (5)
Q.4 Two big banner movies were scheduled to be relesed on the same date. On
the last moment, release of one of the movies had to be postponed because
of opposition by group of people due to controversial content related to their
tribe being portrayed in the movie.
The other movie released on time and made huge profit as there was no
compelition. The movie which was postponed suffered huge losses as it
could not be released on time.
(i) Which feature of business enviroment is highlighted in the above case?
(ii) Identify and explain the dimension of business environment, which delayed
the release of movie. (3)
Q.5 Crops agro Ltd started a new venture for distribution of organically grown
food products. These food products will be free from synthetic chemicals
such as pesticides, fertilizers and will not contian GMO (Genetically modified
organisms). The product range will initially include fresh fruits and vegetables
only.
They conducted a survey to find out customer preferences for such products.
They found that 90% of consumers were concerned about the harmful
chemicals being used in growing food products. Most of the respondents
wanted to shift to alternative organic brands.
The company contacted hired agricultural experts from Australia to lay down
the procedure for growing organic fruits and vegetables by the farmers. They
decided to use new innovative methods to train farmers in growing organic
produce.
Identify and explain by quoting lines from above case, the two dimensions of
business environment highlighted in the above para. (4)
Q.6 India’s craft heritage is surviving because of its customs and traditions. Craft
products made by craftsment of Rajasthan, Gujarat, Assam, etc. are not
only used in the counrty but are also exported to USA, Germany, UK, France

and other countries of the world. The volume of exports of these products
gives India an advantage in balance of payments and the much needed foreign
exchange. The Prime Minister desires that the handicraft industry should be
explanded by linking it with technology. Focus should be on changing the
manufacturing process, ensuring durability and adopting innovations.
Quoting the lines from the above paragraph, explain any four dimensions of
the business environment. (6)
Q.7 In an environment of rising petroleum prices and a large middle class

population in India, KV Motors Ltd, recognized the need for small cars in
India. It created a product far superior than their competitiors not only in
terms of quality but also in terms of overall driving experience. It soon became
the leader in the small car market.
KV Motors further expanded its service network and quality creating an entry
barrier for the competitiors. It depicted its strengths through various brand-
building activities. As a result, the market share of KV Motors is refusing to
go down in spite of all major automakers as its competitors.
(a) Identify the economic reforms highlighted in the above case.
(b) Quoting the lines, explain any two points of importance of Business
Environment being highlighted in the above case. (4)

EVALUATION QUESTIONS
UNIT-I
Q1. X Ltd. was manufacturing water heaters. In the first year of its operations,
the revenue earned by the company is less. The Co. analysed the reasons
of less revenue. After analysing the company decided: -
(a) to reduce the labour cost by shifting the manufacturing unit to a backward
area where labour was available at a very reasonable rate.
(b) to start manufacturing solar water heaters and reduce production of

electric water heaters slowly.
(i) Which functions of management are indicated here? [Hint: Planning &
Controlling]. (1)
(ii) Which dimension of business environment is applied here? [Social]
(1)
Q2. XYZ Ltd. Co., manufacturing cosmetics and enjoying a predominant position
in the industry has grown in size. Its business was very good till 1991. But
after that new liberalized environment has seen the entry of many MNCs in
this sector with the result that market share of XYZ has declined. The
company followed a very centralised business model with directors and
divisional heads making even minor decisions.
(a) Which function of management is being indicated here? (Organising)
(b) What dimension of environment is implicit in this case? Indicate by

quoting the lines from above para. (b) Political]
Q3. Meera, Chairperson of Sunshine Ltd. feels that she is the only one responsible
for the successful management of company because other persons are
just following what is told to them and she has to see to it that only the
organisation’s goals are important. No other thing matters.
(a) Do you agree with her belief?

(b) Which feature of management is lacking here?
(c) Which principle of management is being ignored here? Explain briefly.
[Hint: (a) No. (b) Management is group activity (c) Espirit De corps]
Q4. A.R. Rehman is the first Indian to win the oscar award for his composition
“Jai Ho”. His composition of music is unique and different as he has used
the singing notes in a manner that is entirely his own interpretation. Like A.R.
Rehman, Nandan, a general manager in Expert Sales Ltd. uses his knowledge
of management in a unique and different manner and all the employees
working under his guidance are happy and satisfied. He rewards the employee
who came to office in time.
(a) Identify the nature of management highlighted above. Give reason.
(2)
(b) Which Principle of Management are reflected by Nandan’s behaviour?
(2)
[Hint : (a) Management as an art
(b) Harmony, not Discord
Q5. Mr. Singh owner of leather garments factory sends his marketing head to
Europe every quarter to understand the changes in fashion. This helps to
prepare his latest range in line with customers’ demands and expectations.
(a) Identify the characteristic of management indicated here?
(b) Which dimension of business environment is indicated here? Give any
two impacts of it on business.
[Hint: (a) Dynamic (b) Social environment]
Q6. Mr. Bali, the Production manager of classic Ltd. is successfully running his
department. He has created such an environment that no one becomes
hurdle in anybody’s work, but all of them are ready to help each other. Mr.
Bali has been observing a change in market for last few days. In the past
they used to produce goods according to their will and with a little bit of effort
could sell them. But now they have to produce goods as desired by the
people. When Mr. Bali investigated to know the reasons for this change, he

came to know that on account of positive policies of the govt., running the
business had become easy. Due to this, several new people have entered
the business. Consequently, competition has increased and now the control
of the market had slipped out of the hands of producers into the hands of
customers.
(a) Identify the concept of management described here? Give two points of
its importance. (2)
(b) Identify the business environment dimension and the concept there of.
(2)
[Hint: (a) Co-ordination and its importance (any two) (b) Economic
environment and Liberalisation].
Q7. The Govt. has been watching for some time that the performance of industry
in the Public sector is not coming up to the level of standardisation. Several
efforts have been put in, but because of no improvement in it, the Govt.
decided to increase the role of Private sector in some areas of Public sector.
This would bring about improvement in the level of performance. The reason
for the Govt. to make this decision was that the different departments of an
industrial unit in Public sector do not work with each other. The situation in
private sector is entirely opposite to it.
(a) Identify the concept of Management which shows the failure of Public
sector. Give its importance also.
(b) Which concept of business environment has been described in above

case? Identify it and give its meaning.
[Hint: (a) Co-ordination (b) Privatisation]
Q8. Mr. Singh is working as the General Manager in a chain of hotels. Keeping a
watch over the business environment is included in his routine. For the last
few days Mr. Singh has been observing that the Govt. is taking special interest
in Tourism Industry. The receipt of foreign exchange and employment
promotion are its reasons. On the basis of this news he decided to set up
hotels at several tourist places. They established several hotels before other
companies considered this issue. Very soon, their hotels became well-known

in the market. Behind the fame of this company another reason was that this
company was giving its employees not only the responsibility but also the
authority of completion of work. The environment being to their liking now
they had started meeting their managers with the latest ideas, which are
taken by the company.
(a) Identify the importance of business environment described here by

quoting the relevant lines.
(b) Identify the principles of Management being used in the Company.
(c) On which level is Mr. Singh working. Write any two more functions
performed at that level.
[Hint: (a) (i) Assisting in planning & Policy formation –
The Govt. Istaking.........
(ii) Dynamic - They establish several ......................
(b) (i) Principle of Authority & Responsibility
(ii) Principle of Initiative
(c) Top level Management.]
Q9. In a reputed Co., for the last few days, differences have cropped up between
management and workers. The workers were demanding more bonus. This
matter has aggravated so much that the attention of both the parties has
been diverted from production to division of profits. Consequently, the profits
of the company began to fall down.
In order to assess the situation of Co.’s rapidly falling profits, a team of specialists
was invited. After investigation, besides the differences, one more fact was revealed.
That fact was the Purchase Manager of the company was purchasing raw material
from the co. run by his own brother at a price more than market price. So, with the
increase in cost, profit was reduced.
Due to poor performance, many employees also left the company.
(a) Which principle of scientific management will be suitable for the company to

be followed and why?
(b) Which principle of management given by Henry Fayol is being ignored by the
co.? Explain briefly.
(c) Which factors of Business environment are affecting the Co? Identify the
type and factors.
[Hint: (a) Harmony not discord.
(b) Principle of Subordination of Individual Interest to General interest.
(c) Internal Factors - Employees].

CHAPTER – 4
PLANNING
Features
• Focuses on achieving objectives
• Primary function of management
• Pervasive function
• Continuous function
• Futuristic involves looking ahead.
• Involves decision making
• Mental exercise
Limitations
Importance • Leads to rigidity
• Provides directions Planning • May not work in a dynamic environment
• Reduces the risks of uncertainty It is deciding in • Reduces creativity
• Reduces overlapping and advance what to do • Involves huge cost
wasteful activities • Time consuming process
and how to do.
• Promotes Innovative ideas • Does not guarantee success.
• Facilitates decisions making
• Establishes standards for controlling.
Process
• Setting objectives
• Developing premises
• Identifying alternative courses of action
• Evaluating alternative courses
• Selecting an alternative
• Implementing the plan
• Follow-up action
Single use Plans Types Standing Plans

of • Policies
• Budgets
• Programmes Plans • Procedures
• Projects • Methods
• Rules
Others
• Strategy
• Objectives

Concept
Planning is deciding in advance what to do, how to do when to do, and who is to do
it. Planning bridges the gap from where we are to where we want to go. It is one of
the basic managerial functions. Planning involves setting objectives and developing
appropriate courses of action to achieve these objectives. Thus, it is closely
connected with creativity and innovation.
Importance of Planning
1. Planning provides directions:By stating in advance how the work is to be

done, planning provides direction for action. If there was no planning,
employees would be working in different directions and the organization would
not be able to achieve its goals efficiently.
2. Planning reduces the risk of uncertainty:Planning is an activity which

enables a manager to look ahead, anticipate changes, consider the impact
of changes and develop appropriate responses.
3. Planning reduces wasteful activities:Planning serves as the basis of

coordinating the activities and efforts of different departments and individuals
whereby useless and redundant activities are reduced.
4. Planning promotes innovative ideas:Planning is the first function of

management. Managers get the opportunity to develop new ideas and new
ideas can take the shape of concrete plans.
5. Planning facilitates decision making: Under planning targets are laid down.
The manager has to evaluate each alternative and select the most viable
option. Thus planning facilitates decision making.

6. Planning establishes standards for controlling: Planning provides the
standards against which the actual performance can be measured and
evaluated. Controlling is blind without planning. Thus planning provides the
basis for controlling.
Q.1 Which function of management bridges the gap between where we are
and where we want to go? (1)
Q.2 It is the managerial function which enables a manager to look ahead and
anticipate changes. Identify the function and explain its importance. (5)
Limitations of Planning
1. Planning leads to rigidity: Planning decide the future course of action

and managers may not be in a position to change it. Such situation do
not allow managers to make changes according to changing business
environment. Thus detailed planning may create a rigid framework in
the organization. and subordinates are supposed to work as per already
laid plans only.
2. Planning may not work in dynamic environment:Planning is based

on anticipation of future happenings and since future is uncertain and
dynamic, therefore, the future anticipations are not always true.
3. Planning involves huge costs: When plans are drawn up, huge cost
is involved in their formulation in terms of money and efforts.
4. Planning is time consuming: Sometimes plans to be drawn up take

so much of time that there is not much time left for their implementation
and it is not feasible in emergencies.
5. Planning does not guarantee success: The success of an enterprise

is possible only when plans are properly drawn and implement.
Sometimes managers depend on previously tried successful plans,
but it is not always true that a plan which has worked before will work
effectively again.

6. Planning reduces creativity:In planning, work is to be done as per
pre-determined plans. It is decided in advance what is to be done, how
it is to be done and who is going to do it. Moreover, planning is done by
top management which leads to reduction of creativity of other levels of
management. as they are neither allowed to deviate from plans nor are
they permitted to act on their own. Planning discourages individual’s
initiative & creativity.
Q.3 X.Ltd. Company does not consider ideas and thoughts of employees and
acts according to earlier formulated plan. Identify the above limitation of
planning and explain other limitations too. (6)
OR
Q.4 Rahul is working as a manager in Alpha Ltd. Inspite of his best efforts,
organisational planning failed to achieve its target. Identify and explain the
causes of failure of planning. (6)
1
7
6 3
5
4

Planning Process
1. Setting Objectives: The first and foremost step is setting objectives.
Objectives may be set for the entire organization and each department.
2. Developing premises: Planning premises are the assumptions about the
likely shape of events in future. It forecasts the obstacles, problems or
limitations in the path of the effective planning because of which the plans
may deviate. Planning premises supply relevant facts & information already
to future.
3. Identifying alternative courses of action: Once objectives are set and
premises are developed, the next step would be to act to achieve them. All
the alternative courses of action should be identified, to achieve already set
objectives.
4. Evaluating alternative Courses: The next step is to weigh pros and cons
of each alternative. Each course will have many variables which have to be
weighed against each other. Example: Cost-Benefit analysis.
5. Selecting an alternative: After comparison and evaluation, the best
alternative is chosen for reaching organizational objectives. On the basis of
merits, demerits, resources and consequences, the best plan has to be
adopted, which must be the most feasible, profitable and with least negative
consequences.
6. Implementing the plan: Once the plans are developed they are put into
action. Successful implementation of the plan ensures understanding and
whole-hearted cooperation of all the employees.
7. Follow up action: To see whether plans are being implemented, activities
are performed according to schedule. In case of any deviations, changes
are made in the plans.
Q.5 The director of Infra Ltd. set the target to increase current year sale by
‘500 cr. For increasing the sales of the current year, he also kept in mind
future forecast and assumptions. Then he searched different ways to
increase sale such as sales promotion, network marketing and other
activities. After that he held meeting with sales manager and made
necessary changes to achieve target. Identify the different stages of
planning process quoting the relevant lines. (6)

TYPES OF PLAN
Standing plan or Repeatedly used plan:

The name suggests these plans are formulated once and repeatedly used. These
plans continuously guide the manager. That is why it is said that a standing plan is
a standing guide to recurring problems.
Types of Standing Plans
1. Objectives:Objectives are defined as ends for the achievement of which
an organization goes on working. They may be designed as the desired
future position that the management would like to reach. The first and foremost
step of the planning process is setting organizational objectives. Examples
increasing sales by 10%, Getting 20% return on Investment etc. Objectives
should be clear and achievable, numerically expressed and time bounded.
2. Strategy: Strategies refer to future decisions defining the organizational
directions and scope in long run. It is comprehensive plan which includes:
(i) Long term objectives, (ii) Adopting a particular course of action, (iii)
Allocating resources necessary to achieve the objectives. It is a plan prepared
to counter act the probable moves of opponent. Initially it was used with
reference to war. A strategy is generally made to fight the changing business
environment specially competition e.g., marketing strategy.
3. Policy:Policies refers to the general guidelines (for thinking) which brings
uniformity in decision-making for achievement of organizational objectives.
They provide directions to the managers of an organization. They are flexible
as they may be changed as per requirement. Example, selling goods on
cash basis only, reserving some post for women in the organization.
4. Procedure: Procedures are those plans which determine the sequential
steps to carry out some work/activity. They indicate which work is to be done
in which sequence/way. They help in the performance of work. Procedures
are guides to action. Example: Process adopted in the Selection of Employees.
5. Rule: Rules provide guidlines for actions. It is a specific statement that tell
what is to be done and what not to be done in a specified situation. They help
in indicating which points are to be kept in mind while performing task/work.
Rules are rigid which ensure discipline in the organization. Example: ‘No
smoking in the office premises’. Violation of rules may invite penalty.

6. Method:Methods are standardized ways or manner in which a particular
task has to be performed. There may be many ways/methods of completing
a task but that method/way must be selected by which work can be done
early at the minimum possible cost. Methods are flexible. Example, various
methods of training are adopted by an organization to train its employees
like apprenticeship training, vestibule training etc.
SINGLE USE PLAN:
These plans are connected with some special problems. After having been used
once there is no importance of these plans in future.
Types of Single Use Plan
1. Programme: A programme is a single use plan containing detailed statements
about project; outlining the objectives, policies, procedures, rules, tasks,
physical and human resources required to implement any course of action.
E.g., cleanliness programme in the organisation.
2. Budget: A budget is a statement of expected result expressed in numerical
terms for a definite period of time in the future. Budgets are of many types
like: Cash budget, sales budget etc.
1) Difference between Single Use and Standing Plans
asis of Single Use Plans Standing Plans
1. Meaning A single-use plan in a A standing plan in a business

Differece business refers to plans refers to plans developed for
developed for a one-time using over and over ag ain
project or event that has because they focus on
one specific objective. organisational situations that
occur repeatedly.
2. Objective Single use plan is Standing plan however is

developed to carry out a developed for activities that
course of action that is not occur regularly over a period of
likely to be repeated in time.
future time.

3. Scope Single use plans generally Standing plans g enerally
encompass a narrow encompass a wider scope
scope targeting a specific involving more than one
project or event. departm ent or business
function.
4. Stability Single use plans are Standing plans are relatively

discarded when the stable and used over and over
situation, project or event ag ain with necessary
is over. modification or updations.
5. Example A new cash budget is Recruitment and selection

prepared every year in the procedure for a particular post
organisation in the company.
2) Differentiate between Objective &Strategy: -
Basis of difference Objective Strategy
1. Meaning An objective is the end A strategy is a

towards which all comprehensive plan
activities of the organi- formulated to achieve an
sation are directed. objective.
2. Main element An objective need to The business
be expressed in environment needs to be
measurable terms and taken into consideration
is to be achieved within whenever a strategy is
a given time period. formulated.
3) Difference between objectives and policy
Basis of difference Objectives Policy

1. Meaning Objective is that end Policy are the means of
point which is to be achievement for
reached or obtained. objective.
2. Need No organisation can Their formulation is not so
be established without important. They can be or
objectives, so they are cannot be laid down.
very important.

4) Difference between Policy and Procedure
Basis of difference Policy Procedure
1. Meaning Here it is explained as These ensure the

to how work is to be sequence of work
done in order to performance in respect of
achieve the objective activities determined
of the organisation. under the policy.
2. Need These are the guide to These are guide to action.
thinking and decision
making.

1. Identify the general plan prepared by top management outlining resource allo-
cation, priorities and takes into consideration the business environment.
(a) Objectives (b) Budget
(c) Programme (d) Strategy.
2. In addition to budget and project which of the following is included in single use
plan.
(a) Policy (b) Rule
(c) Programmes (d) Procedure.
3. While selecting the best possible course of action, what manager will have to
apply?
(a) Pros, cons (b) Thinking, understanding
(c) Permutations, combinations (d) Innovative ideas, decision making
4. “Plans decide the future course of action and managers may not be in a posi-
tion to change it.” Identify the limitation of planning indicated here.
(a) Planning reduces creativity
(b) Planning does not guarante success
(c) Planning may not work in a dynamic environment
(d) Planning leads to rigidity.

5. While doing work, an idea struck to Rajender, which will not only reduce the
time of work but would also reduce the cost but he was neither allowed to
deviate from plans nor permitted to act on his own.
Choose the limitation of planning described in above para.
(a) Planning leads to rigidity
(b) Planing reduces creativity
(c) Plannng does not guarantee success
(d) Planning involves huge cost.
6. Arrange the following steps of planning process in the required sequence
(1) Evaluating alternative courses
(2) Developing premises
(3) Identifying alternative courses of action.
(4) Selecting an alternative.
(a) 1, 2, 3, 4 (b) 2,1, 3, 4
(c) 1, 3, 2, 4 (d) 2, 3, 1, 4
7. Select the feature of planning out of the following.
(a) Primary function. (b) Pervasive
(c) Futuristic (d) All of these
8. What may be prepared to show the number of workers required in the factory
at peak production times? Select the oppropiate word out of the following.
(a) Objective (b) Programme
(c) Budget (d) Policy
9. What are general forms of standing plans that specify the organisations re-
sponse to a certain situation like the basis on which admission are done in an
educational institution.
(a) Rules (b) Strategies
(c) Policies (d) Procedures
10. Which activity will be a futile exercise if it is not acted upon or implemented.
(a) Management (b) Coordination
(c) Directing (d) Planning

11. Assertion (A) : Planning is a time-consuming process.
Reason (R) : Planning does not guarantee success.
Real the above statements—Assertion (A) and Reason (R) and choose the
correct alternative out of the given below:
(a) Both Assertion (A) and Reason (R) are true and (R) is the correct explana-
tion of (A)
(b) Both Assertion (A) and Reason (R) are true But (R) is not the correct ex-
planation of (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) and Reason (R) both are false.
12. Statement I : Planning is a continuous process
Statement II : Planning does not involve decision making
Read the above statement I and Ii and choose the correct option out of follow-
ing
(a) Statement I is correct but statement II is incorrect
(b) Statement I is incorrect but statement II is correct
(c) Both the statement are correct
(d) Both the statements are incorrect
13. Identify the charactersistic of planning displayed in the picture and choose the
correct option.
(a) Planning is futuristic
(b) Planning is continuous
(c) Planning focuses on achieving objectives
(d) Planning is pervasive
Source NCERT

Ans. 1. (d) 2. (c)
3. (c) 4. (d)
5. (b) 6. (d)
7. (d) 8. (c)
9. (c) 10. (d)
11. (b) 12. (a)
13. (c)
Giving reason in support of your answer, state whether the following are True or
False.
1. Planning involves decision Making.
2. Rules do not allow for any flexibility or discretion but penalty are not imposed on
their violation.
3. Procedure provide the prescribed ways or manner in which a task has to be
performed.
4. Planning reduces overlapping and wasteful acitivities.
5. Planning guarantee success.
Ans. 1. True 2. False
3. False 4. True
5. False
Fill in the blanks
1. _______ lays down the base for other functions of management.
2. Planning is basically on ________ activity of thinking rather than doing.
3. Middle management and other decision makers are neither allowed to devi-
ate from _______ nor are they permitted to act on their own.
4. _______ describe steps to be followed in particular circumstances while
_______ provide the manner in which a task has to be performed.
5. _______ define the broad parameters with in which a manager may function
and Manager may use his/her discretion to interpret and apply them.
Ans. 1. Planning 2. Intellectual

3. Plans 4. Procedure, method
5. Policies.

Match the following and select the oppropiate option.
1. (i) Rule (i) Flexible
(ii) Policy (ii) Chronolgical order
(iii) Procedure (iii) Prescribed manner
(iv) Method (iv) Invite penalty
(a) (b) (c) (d)
(i) – (i) (i) – (iv) (i) – (iii) (i) – (iv)
(ii) – (ii) (ii) – (i) (ii) – (i) (ii) – (ii)
(iii) – (iii) (iii) – (ii) (iii) – (ii) (iii) – (i)
(iv) – (iv) (iv) – (iii) (iv) – (iv) (iv) – (iii)
2. (i) Importance of planning (i) Developing premises
(ii) Feature of planning (ii) Rigidity
(iii) Limitation of planning (iii) Mental exercise
(iv) Step of process of planning (iv) Provide standards
(a) (b) (c) (d)
(i) – (iv) (i) – (ii) (i) – (iv) (i) – (iv)
(ii) – (iii) (ii) – (i) (ii) – (ii) (ii) – (i)
(iii) – (ii) (iii) – (iv) (iii) – (i) (iii) – (ii)
(iv) – (i) (iv) – (iii) (iv) – (iii) (iv) – (iii)
3. (i) Setting objectives (i) Assumption about future
(ii) Developing Premises (ii) Monitoring the plans
(iii) Evaluating alternatives (iii) Increase in sales by 20%
(iv) Follow-up action (iv) Weigh the pros and cors
(a) (b) (c) (d)
(i) – (iii) (i) – (iv) (i) – (iv) (i) – (iii)
(ii) – (i) (ii) – (ii) (ii) – (iii) (ii) – (i)
(iii) – (ii) (iii) – (i) (iii) – (i) (iii) – (iv)
(iv) – (iv) (iv) – (iii) (iv) – (ii) (iv) – (ii)

4. (i) Strategy (i) Specific statements
(ii) Policy (ii) General statements
(iii) Rule (iii) Broad contours
(iv) Proocedure (iv) Routine steps.
(a) (b) (c) (d)
(i) – (ii) (i) – (iv) (i) – (iii) (i) – (iii)
(ii) – (iii) (ii) – (i) (ii) – (ii) (ii) – (i)
(iii) – (i) (iii) – (ii) (iii) – (i) (iii) – (ii)
(iv) – (iv) (iv) – (iii) (iv) – (iv) (iv) – (iv)
5. (i) Primary function (i) New plan to be drawn after a
period
(ii) Pervasive (ii) An intellectual activity
(iii) Mental exercise (iii) Required at all departments
(iv) Continuous (iv) Precedes other functions
(a) (b) (c) (d)
(i) – (iii) (i) – (iv) (i) – (iii) (i) – (ii)
(ii) – (i) (ii) – (iii) (ii) – (ii) (ii) – (i)
(iii) – (ii) (iii) – (ii) (iii) – (iv) (iii) – (iv)
(iv) – (iv) (iv) – (i) (iv) – (i) (iv) – (iii)
Ans. 1. (b) 2. (a)

3. (d) 4. (c)
5. (b)
Q1. “We do not sell on credit”. This statement is related to which type of plan.
(Policy) (1)
Q.2 Planning strangulates the initiatives of the employees and compels them to
work in an inflexible manner. Which limitation of planning is highlighted here.
(Planning leads to rigidity) (1)

Q.3 Identify the type of plan which is time bound and linked with measurable
outcome? (Hint- Budget) (1)
Q.4 A company is manufacturing garments. The manager wants to increase

profits by purchasing new high speed machines or increasing the sale price
or using waste materials in manufacturing stuffed toys. He decided that “using
waste material” is the best solution for him.
(a) Identify the concept of management involved. (Planning)
(b) Mention the steps involved in the above process by quoting the lines
from the question. (3)
Q.5 In Chak De movie, Shahrukh Khan becomes the coach of the girl’s hockey
team. He knows that he has to prepare the girls for the international hockey
matches and win the cup. For this he prepares a long term plan and thinks of
ways of how to beat the opponent team. He coaches the girls to play in
different ways like defensive, offensive, etc.
At the outset of the match, he explains who will open the match, and how the
ball will be passed by one player to another step by step.
Identify all the types of plans mentioned above State them along with lines
which refer to them in the above paragraph. (Objective, strategy, procedure,
method) (4)
Q.6 The production manager of a company received the complaint that the quality
of the goods was not good. After investigation it came to light that the
machines had become very old. That is why they were unable to achieve
standardised quality. The production manager developed several options by
way of solution to this problem. Example, getting the machines repaired,
purchasing new local machines, purchasing new imported machines, if
possible taking machines on rent etc. The CEO of the company wanted the
list of options to be smaller, so that a thorough study could be made for
them. In order to make the list of optional ways smaller, he decided to give
up all those options which required the investment of more than 10 crores.
(a) Identify the concept described in the paragraph given above. (Planning
Process)

(b) What do you understand from the fact of company fixing the maximum
investment limit on options? (Developing Premises) (1+2=3)
Q.7 Procter and Gamble Ltd. is offering a free bucket on every purchase of Tide
washing powder. In response to this Hindustan Unilever Ltd. started a new
scheme of giving free one kg of Rin Washing Powder with every purchase of
five kg of Rin washing powder. Identify the plan stated in above paragraph
and explain it. (Strategy) (3)
Q.8 “KOHINOOR FOODS Ltd. has banned smoking in the factory premises.”
- Identify the plan stated in above lines. (Rule)
- State ANY TWO features of this plan.

- Differentiate between policy and this plan. (any two) (5)
Q.9 PK Ltd. has been well known for delay in decision making and overlapping of
work done. Identify management function lacking in the organisation and
state importance of this function? (Planning) (6)
Q.10 Rahul, a worker is given a target of assembling two computers per day. Due
to his habit of doing things differently, an idea struck him, which would not
only reduce the assembling time of computer but also reduce the cost of
production. But instead of appreciating his idea his supervisor scolded him
and asked him to complete the work as per prescribed technique. Identify &
describe the limitation of planning stated here? (3)
Q.11 A company gave its sales executives, the directives that they would sell goods
on credit but told the employees to strictly inform the customers that if they will
not make payment within 1 month they will have to pay an interest of 10% per
annum. In the above given paragraph 2 types of plans have been mentioned.
Identify them and explain them with their features. (policy, Rule) (5)
Q.12 If you fail to plan, you plan to fail. “Do you agree? Give any three reasons.
(Importance of Planning) (3)
Q.13 Identify and explain the types of plans.
(a) A plan to achieve 30%. Return on Investment. (Objective)
(b) A plan used in defence to combat the plan of opponent. (Strategy)
(c) A plan which does not allow for any discretion. (Rule) (1×3)

Q.14 Identify explain the steps involved in planning process formt he following :
(a) Certain assumptions are made about the future events. (developing
premises).
(b) Selection of combination of different alternatives. (selection of best
alternative).
(c) Monitoring the plans to ensure that objectives are achieved. (follow up
action. (2×3)
Q.15 Debtors Turnover Ratio of Quinea Ltd. depicted slow collection of debt from
debtors. To improve the position, Company decided to follow some
standardised steps for speedy collection of debt as—
— Ist reminder to debtor - On 55th day of sales
— 2nd reminder to debtor - On 65th day
— Legal proceedings - 70th day
It helped the company, and ultimately debtors turnover ratio of company

improved due to speedy recovery of debts. Company followed the same
steps every following year.
(a) Name and explain the plan mentioned in about case- Procedure (1+2) = 3
(b) Identifiy the type of plan mentioned in (a) Standing use Plan (1)
Planning
Q.16. Identify the type of plans from the following statements :
1. A company needs a detailed plan for its new project, “Construction of a
shopping mall.”
2. Spending `10-12 crores for building public toilets under Swachh Bharat
Abhiyaan.
3. 10% jobs reserved for women in every department.
4. While making its plan, the company takes into consideration the
business environment.
5. Visitors to the factory must obtain valid entry passes.
6. A company decides to launch new models of a product to take on
competition.

7. No entry for employees in the office after 10:00 am.
8. For imparting training, lectures and seminars are organised.
9. To tackle competition, MNC Ltd. sets sales targets.
10. Strict penal actions against anyone who uses office stationary for
personal use.
11. LIbrary will issue the books for 7 days.
Answers
1. Programme 2. Objective
3. Policy 4. Strategy
5. Procedure 6. Strategy
7. Rule 8. Method
9. Budget 10. Rule
11. Policy
Questions based on Analysis, Evaluation and Creation
Q.1 Vaccine Institute Pvt. Ltd. is one of the biggest manufacturers by volume in
the world. With outbreak of Corona Pandemic, its CEO Mr. Ranjan Sitaram decided
the company had to play a crucial role by leveraging its capacities. According to
him, “He had to decide what to do and how to do really fast. He decided to allocate
270 million of his company’s money to increase the company manufacturing capacity
from 1.5 billion to 2.5 billion doses a year. In the midst of global lockdown last April,
long before he knew whether a vaccine would be forth coming, he agreed to produce
one billion doses of vaccine prepared by XYZ research team. It was a huge gamble
as chances of any vaccine being licensed was little more than 30% only. To hedge
his bots he sturck similar agreements with 3 other companies pursuing Covid-19
vaccines.
He took a bigger risk when he actually started manufacturing it in September
even before the license was approved so that they could provide it to the public
around the world timely.

1. “He had to decide what to do and how to do really fast” Identify the function of
management which was essential at this stage as discussed above
(a) Planning (b) Organising
(c) Directing (d) Staffing
2. He decided to allocate `270 million of his company’s money as well as take

support of `250 million from B & M foundation to increase the company’s manu-
facturing capacity from 1.5 billion doses to 2.5 billion doses a year, “Which
type of plan has been discussed here?
(a) Strategy (b) Budget
(c) Policy (d) Programme

3. It was a huge gamble as chances of any vaccine being licensed was little
more than 30% only”. Identify the limitation of the function of management
referred above.
(a) It involves huge cost (b) It is time consuming
(c) It doesnot guarantee success (d) It leads to rigidity
4. He took a bigger risk when he actually started manufacturing it in September
even before the license was approved “Identify the feature of function of man-
agement mentioned in this line.
(a) It is continuous (b) It is pervasive
(c) It is futuristic (d) None of the above
Q.2 SSS Commercials ltd is a big commercial vehicle co. in India. It undertook a
inter and intra firm analysis vis-a-vis its competitors
Domestic auto sales performances
Dec. 2020 Dec. 2019 % change
SSS commercials Ltd. 29,885 31,469 -5
ABC supers Ltd. 11,857 10,378 14
LMN Com. Ltd. 2,865 5372 -47
FXO Ltd. 5726 1591 260

It analysed its position and felt that due to excessive competition they had to
make some major revamps in their approach. They developed a comprehen-
sive plan of
(1) Expanding its business in African countries like Guyana, Ethopia and
Rwanda which have high growth rate as businesses are increasing manifold
there.
(2) Joint ventures with major companies of these countries was along with
decided
(3) Along with allocating 200 million in these markets.
A target of controlling 10% of their market in the year 2020-21 was set. This
whole process took about three months to be developed but still there was lot
of uncertanity involved as this was a new market, they were venturing.
Q 1. Identify the function of management undertaken by SSS commercial Ltd.
(a) Directing (b) Organising
(c) Planning (d) Controlling
Q 2. They developed a comprehensive plan of expanding its business in African

countries ........................................ along with allocating 200 million in these
markets Identify which type of plan has been referred here?
(a) Programme (b) Strategy
(c) Policy (d) Objective
Q 3. “The whole process took about three months .................................... they were
venturing”. Identify which limitation of the function of managements has been
referred above?
(a) It leads to rigidity
(b) It may not work in dynamic environment
(c) It reduces creativity
(d) Both a & c

Q 4. They developed .............. these markets. Here, which type of plan is being
initiated:
(a) Programme (b) Strategy
(c) Policy (d) Objectives
Answers
I (1) a (2) a (3) c (4) c
II (1) c (2) b (3) d (4) b

CHAPTER – 5
ORGANISING

Meaning of Organising
Organising can be defined as a process that initiates implementation of plans by

clarifying jobs, working relationships and effectively deploying resources for
attainment of identified and desired results. Therefore, it is a process, which
coordinates human efforts, assembles resources and integrates both into a unified
whole to be utilized for achieving specified objectives.
Organising as a function fo manangement leads to—
• Creation of organisational structure with suitable personnel.
• Designing specific roles to eliminate ambiguity.
• Defining inter-relationship among personnel for productive cooperation.
• Clarifying authority and responsibility for results and logical grouping of

activities.
Organising process
Steps Involved in the Process of Organising
In order to complete the organising function of management, the following steps

are taken:
1. Identification and division of work.
2. Departmentalisation.
3. Assignment of duties.
4. Establishing reporting relations.
1. At this step, the total work is divided into various activities, for eg. various
activities of a shoe manufacturing company can be purchase of raw material,
production, stocking of goods, research, advertisement, sales etc.
2. The activities of the same nature are grouped together and assigned to a
particular department. It is known as grouping, for e.g., advertisement and
sales can be given to the markating department.

3. At this stage, the responsibility of each individual or post is decided. For e.g.,
the purchase manager will be given the task of purchasing goods, the sales
manager will be given the work of sale of goods etc. while assigning
duties, it is important to match nature of the work and the capabilities of the
person to whom the work is given.
4. Each individual should also know from whom he has to take orders and to
whom he is accountable. It helps in coordination among various departments.
Q.1 It is the function of management which establishes relationship and deploys
resources. Identify the concept and explain the steps involved in the process
of the concept. (Hint- Organising; process of organising)
Q.2 Identify the function of management which coordinates human efforts and
physical resources to achieve organisational goals. (Hint- Organising)
Importance of Organising
1. Benefits of specialization:In organizing every individual is assigned a part
of total work and not the whole task. This division of work into smaller units
and repetitive performance leads to specialization. Thus organizing promotes
specialisation which in turn leads to efficient & speedy performance of tasks.
2. Clarity in working relationship:It helps in creating well defined jobs and
also clarifying the limits of authority and responsibility of each job. The superior-
subordinate relationship is clearly defined in organizing.
3. Effective Administration:It provides a clear description of jobs and related
duties which helps to avoid confusion and duplication. Clarity in working
relationships enables proper execution of work which results in effective
administration.
4. Optimum utilization of resources:The proper assignment of jobs avoids
overlapping/duplication of work. This helps in preventing confusion and
minimizing the wastage of resources and efforts.
5. Adoption to Change: A properly designed organizational structure is flexible

which facilitates adjustment to changes in workload caused by change in
external environment related to technology, products, resources and markets.

6. Development of Personnel: Sound organization encourages initiative and
relative thinking on part of the employees. When managers delegatetheir
authority, it reduces their workload so they can focus on more important
issues related to growth & innovation. This also develops the subordinates’
ability and helps them to realize their full potential.
7. Expansion and growth: It helps in growth & diversification of an enterprise
by adding more job positions, departments, product lines, new geographical
territories etc.
Q.3 A manager is responsible to solve conflicts regarding authority and
responsibility amongst employees and create fruitful environment to work
as a unit. Identify the function of management and explain its importance.
(Hint- Organsing)
Organizational Structure
Organisational structure refers to that specific pattern of relationship which is created
during organising process. The structure provides a basis or frame work for
manager and other employees for performing their functions.
It may be defined as a ‘system of job positions, the jobs assigned to them and the
authority relationship among them.
Relationship between span of management and organisation structure:
It refers to the number of subordinates that can be effectively controlled by a manager/
superior. It gives shape to the organisational structure and determines levels
of management.
Narrow span of management:
Results in tall structure whereas wider span of management results in flat structure.
TYPES OF ORGANISATION STRUCTURE
A. Functional structure
B. Divisional structure
(A) Functional Structure: In functional structure activities are grouped and
departments are created on the basis of specific functions to be performed.
For example, all the jobs related to production are grouped under production
department, sales activities are grouped under sales department etc.

Managing Director
Personnel Marketing Research & Purchasing

Development
Suitability
(1) Large organizations producing one line of product.
(2) Organizations which require high degree of functional specialization with
diversified activities.
Advantages:
1. Specialisation:Better division of labour takes place which results in
specialization of functions and its consequent benefits.
2. Coordination is established:Allthepersons working within a department
are specialists of their respective jobs. It makes the co-ordination easier at
departmental level.
3. Helps in increasing managerial efficiency:Managers of one department
perform same type of function again and again which makes them
specialized and improves their efficiency.
4. Minimises cost: It leads to minimum duplication of efforts which results in
economies of scale and thus lowers cost.
Disadvantages:
1. Ignorance of organizational objectives: Each departmental head works
according to his own wishes. They always give more weight to their
departmental objectives. Hence overall organizational objectives suffer.
2. Difficulty in Inter-Departmental Coordination: All departmental heads work
as per their own wishes which leads to coordination within the department
easier but it makes inter-departmental coordination difficult.
3. Hurdle in complete development of employees: because each employee
specializes only in a small part of the whole job.
4. Inflexibility : It may lead to inflexibility as people with same skills and
knowledge base may develop a narrow perspective.

(B) Divisional Structure
Dividing the whole enterprise according to the major products to be
manufactured (like metal, plastic, cosmetics etc.) is known as divisional
organization structure. Each unit of this structure has a divisional manager
responsible for performance and who has authority over it. Each division is
self contained and multi functional because within each division functions
like production, marketing, finance, purchase etc are performed.
Suitability:
1. For the enterprises where large varieties of products are manufactured using
different productive resources. (Multi-product) Example- Tata, Reliance.
2. When an organisation grows and needs to add more employees, more
departments or introduce new level of management.
Advantages
1. Quick decision-making: Divisional manager can take any decision regarding
his division independently which makes decisions quick and effective.
2. Divisional results can be assessed: Divisional results (profit/loss) can be
assessed easily. On this basis any unprofitable division can be closed.

3. Growth and Expansion: It facilitates growth and expansion as new divisions
can be added without disturbing existing departments.
Disadvantages
1. Conflicts among different divisions on allocation of resources.
2. Duplicity of Functions: Entire set of functions is required for all divisions. It
gives rise to duplicity of efforts among divisions & increases cost.
3. Selfish Attitude: Every division tries to display better performance and
sometimes even at the cost of other divisions. This shows their selfish
attitude.
Q.4 Vimal cloth Ltd. was manufacturing only fabrics. After having great success
in fabric business the directors of Vimal cloth Ltd. acquired three new
manufacturing units and started selling multi-products in domestic market.
(Electronics, Mobile phone, Cements) They decided that an individual who
has capability and competence to handle responsibility would head each
unit.
(A) State the type of organisation structure Vimal cloth Ltd. have followed
as a producer of single product.
(B) Suggest which type of organisational structure Director must adopt
now and explain its advantages.
[Hint- (A) Functional structure (B) Divisional structure]
Q.5 Rohan a sole proprietor was running food catering business in North Delhi.
He got great success and profit margin in this business. Due to excess
demand in the market he expanded his business and separated departments
as Purchase, Production, Finance and marketing.
Which type of organisational structure would you suggest him? Enumerate
its two benefits. [Fucntional structure; Benefits- Specialisation Minimises
Cost]

Basis Functional Structure Divisional Structure
Formation Formation is based on function Form ation is based on

product lines and is
supported by functions
Specialisation Functional specialisation Product speacialisation
Responsibility Difficult to fix on a department Easy to fix responsibility for

performance
Managerial Difficult, as each functional Easier, autonomy as well as

Development manager has to report to the top the chance to perform
managment multiple functions helps in
managerial development
Cost Function are not duplicated Duplication of resources in

hence economical various departments, hence
costly
Coordination Difficult for a multi-product Easy, because all functions

company related to a particular product
are integ rated in one
department
FORMAL ORGANISATION
This structure is designed by the management to achieve organizational goals in
which the responsibilities, authority and mutual relationships among all the
employees working in an enterprise are clearly defined. It can be functional or
divisional.
Features
1. It is deliberately created by the top management.
2. It is based on rules and procedures which are in written form.
3. It is impersonal i.e. does not take into consideration emotional aspect.
4. It clearly defines the authority and responsibility of every individual.
5. It is created to achieve organizational objectives.

Advantages
1. Easier to fix responsibility since mutual relationships are clearly defined.
2. No overlapping of work – because things move according to a definite plan.
3. Unity of command through an established chain of command.
4. Easy to achieve objectives - because coordination and optimum use of human

and material resources.
5. Stability in the organisation – because behaviour of employees can be fairly

predicted since there are specific rules to guide them.
Disadvantages
1. The Work is based on rules which causes unnecessary delays.
2. Lack of initiative: The employees have to do what they are told to do and
they have no opportunity to show their creativity.
3. Limited in scope: It is difficult to understand all human relationships in an

enterprise as it places more emphasis on structure and work.
INFORMAL ORGANISATION
An informal organization is that organization which is not established deliberately

but comes into existence because of common interests, tastes and religious and
communal relations. The main purpose of this organization, structure is getting
psychological satisfaction. For example, employees with similar interest in sports,
films, religion etc. may form their own informal groups.
Features
1. It originates from within the formal organization as a result of personal

interaction among employees.
2. It has no written rules and procedures.
3. It does not have fixed lines of communication.
4. It is not deliberately created by the management.
5. It is personal means the feelings of individuals are kept in mind.

Advantages
1. Speed: Prescribed lines of communication are not followed which leads to

faster spread of information.
2. Fulfilment of social needs – enhances job satisfaction which gives them a

sense of belongingness in the organization.
3. Quick solution of the problems – because the subordinates can speak

without hesitation before the officers, it helps the officers to understand the
problems of their subordinates.
Disadvantages
1. It creates rumours: All the persons in an informal organization talk in a

careless way and sometimes a wrong thing is conveyed to the other persons.
2. It resists changes and lays stress on adopting the old techniques.
3. Priority to group interests: Pressurises members to conform to group

expectations.
Difference between Formal Informal organisation
Basis Formal Organisation Informal Organisation
1. Meaning If refers to the structure It refers to the network of

of well-defined authority social relationships which
and responsibility. develop automatically.
2. Nature Rigid & Stable Flexible and unstable
3. Authority Arises by virtue of Arises out of personal

position in management. qualities.
4. Adherence Violation of rules No such punishments.

to rules may lead to penalties
and punishments.
5. Flow of Takes place through Not through a planned

communication thescalar chain. route. It can take place in
any direction.

6. Purpose To achieve planned To satisfy social and
organizational cultural needs and fulfil
objectives common interest.
7. Formation/origin Deliberately planned Emerges spontaneously as

andcreated by a result of social interaction
management. among employees.
8. Structure Well-defined structure No clear-cut structurer

of tasks& relationships. because of complex
network of relationships.
9. Flow of authority Authority flows from Authority flows vertically

top tobottom i.e. aswell as horizontally.
downwards.
10. interdependence Independent. Depends on formal structure.
Q.6 The employees of a software company have formed a dramatic group for
their entertainment and recreation. Name the type of organisation so formed
and state its features. [Hint- Informal organisation] Features: (i) Originates
itself (ii) No rules (iii) Personal
Q.7 The Principal of SPS Public School ordered the staff that they will be allowed
to sit in the staffroom situated in their block. No teacher will be allowed to
sit in another staffroom. During school’s hours, teachers can meet teachers
of their department only for work related matters. He wants each teacher to
strictly work as per rules and directions given by him.
Identify the type of organisation in this and state disadvantages of such

organisation.
[Hint- Formal Organisation]
Disadvantages: (i) Unnecessory delay, (ii) Lack of initiative, (iii) Limited Scope.
Delegation of Authority
Meaning: It means the granting of authority to subordinates to operate within the

prescribed limits. The manager who delegates authority holds his subordinates

responsible for proper performance of the assigned tasks. To make sure that his
subordinates perform all the works effectively and efficiently in expected manner
the manager creates accountability.
Process/Elements of Delegation
1. Authority: The power of taking decisions in order to guide the activities of

others. Authority is that power which influences the conduct of others.
2. Responsibility: It is the obligation of a subordinate to properly perform the

assigned duty. When a superior issues orders, it becomes the responsibility
of the subordinates to carry it out.
3. Accountability: When a superior assigns some work to a subordinate, he

is answerable to his superior for its success or failure.
Principle of Absoluteness of Accountability: Authority can be delegated but

responsibility/accountability cannot be delegated by a manager. The authority granted
to a subordinate can be taken back and re-delegated to another person. The manager
cannot escape from the responsibility for any default or mistake on the part of his
subordinates. For example, If the chief executive asks Marketing Manager to achieve
a sales target of sale of 100 units/day. The marketing manager delegates this task
to deputy sales manager, who fails to achieve the target. Then marketing manager
will be answerable for the work performance of his subordinates. Thus, accountability
is always of the person who delegates authority.
Assigning Granting Fixing

Responsibility Authority Accountability
Difference between Authority, Responsibility and Accountability
Basis Authority Responsibility Accountability
1. Meaning Right to Obligation to task Answerability for

command perform an outcome of the
assigned assigned task.
2. Origin Arises from Arises from Arises

formal position delegated authority from responsibility

3. Flow Downward – from Upward – from Upward – from
Superior to Subordinate Subordinate
Subordinate to Superior to Superior
4. Withdrawal Can be with- Cannot be Cannot be

drawn any time withdrawn withdrawn once
by giving notice. once created. created.
Importance of the Delegation of Authority
1. Reduction of Executives’ work load: It reduces the work load of officers.

They can thus utilize their time in more important and creative works instead
of works of daily routine.
2. Employee development: Employees get more opportunities to utilize their

talent which allows them to develop those skills which will enable them to
perform complex tasks.
3. Quick and better decision are possible: The subordinates are granted
sufficient authority so they need not to go to their superiors for taking decisions
concerning the routine matters.
4. High Morale of subordinates: Because of delegation of authority to the

subordinates they get an opportunity to display their efficiency and capacity.
5. Better coordination: The elements of delegation – authority, responsibility

and accountability help to define the powers, duties and answerability related
to various job positions which results in developing and maintaining effective
coordination.
6. Basic of management hierarchy: The extent of delegated authority decides

the power of each job position. It establishes superior-subordinate relationship
i.e. who has to report to whom.
Decentralisation
It is defined as even and systematic distribution of authority at every level and all
departments of management. Under this, the authority is transferred to the level
where it is to be exercised, so the number of centres for taking decisions’ increases.
It should be noted that ‘Decentralisation’ is an extension of delegation.

Centralization and Decentralization: represents the pattern of authority among
managers at different levels. Centralisation of authority means concentration of
power of decision making in a few hands. In such an organization very little authority
is delegated to managers at middle and lower levels. No organization can be
completely centralized or decentralized. They exist together and there is a need for
a balance between the two. As the organization grows in size, there is tendency to
move towards decentralization. Thus, every organization is characterized by both.
Importance of Decentralisation
1. Develops initiative amongst subordinates: It helps to promote confidence

because the subordinates are given freedom to take their own decisions.
2. Quick and better decisions: The burden of managerial decisions does not
lie in the hands of few individuals but gets divided amongst various persons
which helps them to take better and quick decisions.
3. Relieves the top executives from excess workload: The daily managerial
works are assigned to the subordinates which leaves enough time with the
superiors which they can utilize in developing new strategies.
4. Managerial Development: It means giving authority to the subordinates

upto the lower level to take decisions regarding their work. In this way the
opportunity to take decisions helps in the development of the organization.
5. Better Control: It makes it possible to evaluate performance at each level

which results in complete control overall the activities.
6. Develops managerial talent for future: It gives a chance to employees to

prove their abilities and creates a reservoir of qualified manpower, who can
be considered to fill up more challenging positions through promotions.

Difference between – Delegation & Decentralization
Basis Delegation Decentralization
1. Nature It is a compulsory act. It is an optional policy.
2. Freedom of action Less freedom to take More freedom of action due

decisions due to more to less control by the top
control by the superiors. management.
3. Status It is process of sharing It is the result of policy

tasks and authority. decisions taken by top
management.
4. Scope Narrow – as it is confined Wide – It includes extension

to a superior and his of delegation to all the levels
immediate subordinate. of management.
5. Purpose To reduce the burden To increase the role and the

of manager. autonomy of lower level of
management.
Q.1 A steel manufacturing company has the following main jobs:

(i) Manufacturing (ii) Finance (iii) Marketing (iv) Personnel and (v)
Research and development.
(a) Which type of organisational structure will you choose for this type of
a comapany and why?
(b) State any two advantages that this structure offers to an organisation.
(4)
[Hint- (a) Functional Structure; it has functionally specialised departments,
(b) (i) Specialisation (ii) Minimises Cost
Q.2 Resham started a telecommunication company Vilrja Ltd. to manufacture
economical mobile phones for the Indian rural market with 15 employees.
The company did very well in its initial years. As the product was good and
marketed well, the demand of its product went up. To increase production
the company decided to recruit additional employees. Resham Gupta who
was earlier taking all the decisions of the company had to selectively disperse
the authority. He believed that subordinates are competent, capable and
resourceful and can asssume responsibility for effective implementation of

their decisions. This paid off and the comapny was not only able to increase
its production but also expanded its product range.
(a) Identify the concept used by Resham through which he was able to
steer his company to greater heights.
(b) Also explain any three points of importance of this concept. (4)
[Hint- (a) Delegation of authority, (b) Reduction of workload, Employee
development, quick decision making]
Key Terms to Crack Case-Studies
S.No. Phrase Topic/ function Sub-Topic/

Concept
1. Identification and grouping of Organising —

activities
2. Assebling physical, financial and Organising —

human resources
3. Defining inter-relationship between Organising Type of organi-

different roles sation formal
4. Creation of organisational structure Organising do
5. Initiates implementation of plans Organising do

by classifying jobs and working
relationship.
6. Defining the work of different job Organising Process of

position and accordingly allocating organising 2nd
to various employees step Assign-
ment of duties
7. Framework within which managerial Organising Organisation

and operating tasks are performed structure
8. It detrmines the reporting relations. Organising process —
9. Number of subordinates that can be Organising structure Span of

effectively managed by superior management

10. It brings occupational specialisation Organisation Functional
Structure Structure
11. It minimises duplication of efforts Organisation Functional

Structure Structure
12. Within each division a functional Org. Divisional

structure is adopted. Structure structure
13. It brings product specialisation/ Organisation Divisional
Making departments on the basis of Structure Structure
products.
14. Conflicts among departments. Organisation Divisional
Structure Structure
15. It suits to a company which produces Organisation Divisional
more categories/ lines of products, Structure Structure
adding number of employees,
introducing more departments.
16. It is deliberately designed to clarify Type of Fomral
the relationships among diff. job Organisation Organisation
positions.
17. It leads to procedural delays due to do do
prescribed lines of communication
spontaneously.
18. This organisation develops itself do Informal
without putting any special efforts. Organisation
19. Downward transfer of work selec- Organising Delegation of
tively to reduce workload of authority
managers.
20. It increases employees reputation do do
21. Scattering powers to all levels or Organising Decentrali-
on same level to everyone (vertical sation
or horizontal or both)
22. It leads to increase in role and do do
importance of subordinates

23. This philosophy is highly productive do do
if numerous decisions are to be
taken at lower level.
24. It increases the morale of employees do Delegation of
as they are entrusted with the work authority
of higher level.
Mutliple Choice Questions
1. What is the correct order of organising process?

(a) Assignment of Duties
(b) Departmentalisation
(c) Identification and Division of work
(d) Establishing reporting relationships.
1) d,b,a,c 2) c,b,a,d
3) b,a,c,d 4) a,c,b,d
2. 1) Importance of organisation a) Functional and Divisional
2) First step of organising process b) Benefits of Specialisation
3) Types of organisation structure c) Formal and informal
4) Forms of Organisation d) Identification & division of work.
Tick the correct Match.
1. i) b 2. i) d 3. i) c 4. i) a
ii) d ii) b ii) d ii) c
iii) a ii) c ii) b ii) b
iv) c ii) a ii) a ii) d
3. 1) Formal Organisation a) Refers to network of social
relationships
2) Functional Structure is Suitable b) Where organisation is large and
producing only one category of
product.

3) Informal organisation c) when an organisation grows and
decides to add product line.
4) Divisional structure is suitable d) refers to the organisation which
is deliberately designed.
Tick the corrcet Match.
1. i) b 2. i) c 3. i) d 4. i) d
ii) c ii) d ii) b ii) a
iii) d ii) b ii) a ii) c
iv) a ii) a ii) c ii) b
4. Span of management refers to.
(a) No. of subordinates at lower level
(b) Total no. of managers.
(c) no. of subordinates under a superior.
(d) no. of levels in the organisation.
5. Form of Organisational structure in which it is easy to fix responsibility

(a) Functional Organisation (b) Formal Organisation
(c) Informal Organisation (d) Divisional Organisation
6. Assertion (A) : Organising removes ambiguity in transfer of information and

instructions.
Reason (R) : The establishment of working relationship under organising
clasifies lines of communication.
Read the above statements—Assertion (A) and Reason (R) and choose the
correct alternative out of the following:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true But Reason (R) is not the
correct
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) and Reason (R) both are false

7. Statement I : Functional structure is economical
Statement II : In a functional structure functions are duplicated
Read the above statements I and II and choose the correct option from the
following:
(a) Statement I is correct but statement II is incorrect.
(b) Statement I is incorrect but statement II is correct
(c) Both the statements I and II are correct
(d) Both the statements I and II are incorrect
8. Identify the concept of management shown in the picture and choose the
correct option:
(a) Decentralisation
(b) Centsalisation
(c) Delegation of authority
(d) Controlling
Source: NCERT
9. Identify the concept of management shown in the picture and choose the cor-
rect option:
(a) Centralisation
(b) Planning
(c) Decentralisation
(d) Controlling

SOME ADDITIONAL QUESTIONS FOR PRACTICE
1. Which of these is not an advantage of formal organisation?
(a) No overlapping of work (b) Easier to fix responsibility
(c) Speed in communication (d) Stability in the organisation
2. The power of taking decisions in order to guide the activities of other is called
................
(a) Accountability (b) Authority
(c) Responsibility (d) Delegation
3. Upward flow of communication is there in the following :-
(a) Authority and responsibility (b) Authority and Accountability
(c) Responsibility and accountability (c) None of these.
Fill in the Blanks.
I. __________ form of organisation spreads rumours.

II. Downward transfer of authority from a superior to a subordinate is know as
____________.
III. Three elements of delegation are ______ , ______ and _______.
IV. Dispersal of decision making authority to all levels is know as__________.
V. Concentration of decision making power at top level is know as_________.
State True/False and give reason in support of your ans.
I. Informal organisation exists with in formal set up.
II. Span of management should be large at top level.
III. Centralisation gives more autonomy to subordinates.

IV. Decentralisation reduces the burden of top management.
V. Delegation does not mean abdication.

Ans. 1. (b) 2. (a), 3. (c), 4. (c), 5. (d), 6. (a), 7. (a), 8. (c), 9. (a) 10. (c), 11. (b),
12. (c)
Fill in the Blanks.
(1) Informal (2) delegation (3) Authority, Responsibility and Accountability

(4) decentralisation (5) Centralisation.
True/False
I. True because with in formal set up people interact with each other which
given rise to a network of social relationships called informal organisation.
II. False because the work is complex at top level making difficult for a manager
to manage a large no. of subordinates.
III. False as the decision making power is with superior only.
IV. True as the work and decision making power both are dispersed.
V. True because the manager shall still be accountable for the performance of
the assigned tasks.
1 MARK QUESTIONS
Q.1 “If we delegate authority, we multiply by two, if we decentralise it we multiply

it by many”. Name any one concept to which this statement is related.
Q.2 Name the function of management which coordinates the physical, financial
and human resources and establishes productive relations among them for
achievement of specific goals.
Q.3 ‘Identifying and dividing the work’ is the first step in the process of one of the
functions of management. Identify the function.
3-6 MARKS QUESTIONS
Q1. A Manager increased the production target from 500 units to 700 units per
month but the authority to draw raw material was not given by him. The
employees were not able to meet the new target. Who should be held
responsible for this and which principle has been violated here? Explain. (4)

Q2. A company is manufacturing washing machines. There is a well-defined
system of jobs which is clear and defines authority, responsibility and
accountability in the company. But people are not allowed interact beyond
their officially defined roles. As a result, the company is not able to adopt the
changing business environment. The work force is also not motivated due to
lack of social interaction. The company is facing problems of procedural
delays and inadequate recognition to creative talents.
I. Suggest how the organisation can overcome the problems faced by it.
II. Give any two benefits it will derive from your suggestion. (4)
Q3. Ishita Ltd. is manufacturing female wears only. Now company wants to expand
its business and also wants to manufacture male wear and kids wear for
different market segments. Which type of organizational structure should it
adopt to achieve its target? Give arguments in support of your answer. (3)
Q4. Manager of XYZ Ltd. is over burdened with routine work and is unable to
concentrate on its objectives and other important issues of the firm. To solve
this problem which management concept should be followed by manager?
Also explain the related function. (3)
Q.5 A truck manufacturing company has its registered office in Delhi,

manufacturing unit at Gurgaon and marketing department is located at
Faridabad. The company manufactures different type of trucks. Which type
of organisational structure should it adopt? Give reason. State any three
advantages of this organisation structure. (2+3= 5)
Q.6 “The responsibility of a firm should be divided among various levels such as
top level, middle level, and lower level”. Identify the concept of management
and state its importance. (2+3= 5)
Q.7 Lalita Food Limited is a famous company making different food materials. Ms.
Lalita is the managing director of the company. She is fully attached to the
employees of her company. This is the very reason that before taking every
decision she consults all the concerned employees. A suggestion box has also
been provided in the company. It is opened once a week. The employees giving
positive suggestions are rewarded. Besides, all the employees of the company

also enjoy full freedom to communicate with any senior officer any time,
concerning matters of both types related to their jobs or their personal lives.
Identify the form of organisation, described in the paragraph given above and
write about two of its advantages.
Answers/Hints
1 Mark Questions Answers—
1. Decentralisation
2. Organising
3. Organising
3-6 Marks Questions : Answers—
1. Manager; Principle of authority and responsibility.
2. (i) By developing/ giving space for informal organisation.
(ii) Quick solution to problems.
Fulfillment of social needs of employees.
3. Divisional structure, as —
— Co. is going to produce multi-products.
— More employees and further more departments would be needed.
4. Delegation of authority
— Related function of mgt :— Organising
5. Functional structure : As the company needs functional specialisation.
Advantages :
Specialisation, Better, Coordination, Increase in managerial efficiency,
Minimises cost.
6. Decentralisation
Importance : Develops initiative amongst subordinates.
Quick and better decisions
Relieves the top executives from excess work load.
Informal Organisation
Advantages : Fulfillment of social needs
Quick solution of the problems.

QUESTION BASED ON
Evaluation, Analysis and Creation
Alpha private limited is a software service provide company. With expansion in

its business organisation, structure designed for it was not working.There was am-
biguity in the reporting relations as the span of management had become very tall.
It was resulting in delay in decision making. The target of the organisation was not
being met Alpha private limited consulted Rainbow International to suggest ways to
improve competitiveness Rainbow International suggested elimination of a layer of
middle management as well separating production, sales and marketing depart-
ments. This lead to specialisation of function and coordination easier within the
department. The overall cost were minimised. Though special care was needed to
maintain inter departmental coordination.
1. Identify the type of span of management opted by Alpha private limited?
(a) Narrow span (b) wider span
(c) both a and b (d) none of the above
2. Rainbow international suggested elimination of a layer of middle level man-

agement as well as separating production sales and marketing department.
Identify the organisation structure opted by Alpha private ltd.
(a) Divisional structure (b) Formal organisation
(c) Functional structure (d) Informal organisation
3. Identify the advantage of the structure not discussed above
(a) Specialisation
(b) Coordination is established
(c) Minimises cost
(d) Helps in increasing managerial efficiency

4. Identify the disadvantage of the organisation structure discussed above.
(a) Hurdle in complete development of employees
(b) Ignorance of organisational objectives
(c) Difficulty in inter departmental coordination
(d) Minimises cost
II. Trot the Globe Private Limited is an adventure sport company. It provides its
clients an exciting but safe experience around the world. To maintain the qual-
ity of experience, the company concentrated the power of decision making in a
few hands. This at times led to delay in decision making. Also the top level
management was finding difficulty in focusing on critical expanding opportuni-
ties. It finally decided to evenly and systematically distribute authority at every
level region wise. This promoted confidence among the subordinates as they
got freedom to take their own decision. In this manner organisation was able
to grow and expand better.
Q 1. To maintain the quality of experience in the company concentrated the power

of decision making in a few hands. Identify the type of organisational structure
followed by Trot the Globe Private Limited here.
(a) Functional structure (b) Divisional structure
(c) Centralisation (d) Decentralization
Q 2. It finally decided to evenly and systematically distribute authority at every level

region wise. Identify the choice made by the company above.
(a) Decentralisation (b) Centralisation
(c) Delegation of authority (d) None of these
Q 3. “This promoted confidence among the subordinate as they got freedom to

take their own decision”. Identify this importance of the choice finally made by
the company here

(a) Quick and better decisions
(b) better control
(c) develop initiative amongst subordinates
(d) Relieve the top executive from excess workload
Q 4. As the organisation grows in size which form of organisation is generally bet-

ter?
(a) Centralisation (b) Decentralization
(c) Delegation (d) Functional structure

Answers/Hints
I 1 (b) 2 (c) 3 (d) 4 (c)
II 1 (c) 2 (a) 3 (c) 4 (b)

CHAPTER – 6
STAFFING

It is necessary for every organisation that they must appoint the Right person at the
right position. Manpower is the most important asset in the organisation. Staffing
function is concerned with bringing right and efficient people in the organisation.
Thus, “Staffing consists of Manpower planning, recruitment, Selection, training,
compensation, promotion and Maintenance of Managerial personnel.”
Need and Importance of Staffing
1. Obtaining Competent Personnel: Proper staffing helps in discovering and

obtaining competent personnel for various jobs.
2. High Performance: Proper staffing ensures higher performance by putting

right person on the right job.
3. Continuous Growth: Proper staffing ensures continuous survival and growth

of the enterprise through succession planning for managers.
4. Optimum Utilization of Human Resources: It prevents underutilization of

personnel and high labour costs by avoiding over-staffing. It also avoids
disruption of work by indicating in advance the shortages of personnel.
5. Improves Job Satisfaction: It improves job satisfaction and morale of

employee through objective assessment and fair reward of their contribution.
Human Resource Management (HRM)
The function of Human Resource Management is to provide skilled human elements

to the enterprise. Therefore big enterprises create a separate department called
HRD. This department works under H.R. Managers.
Definition: Human Resource management is the recruitment, selection,

development, utilization, compensation and motivation of human resources of the
organization.

Staffing as a part of Human Resource Management
Staffing
Human Resource
Manegement
Staffing Human Resource Mgt
Staffing includes
– Estimating man power requirements Staffing
– Recruitment +
– Selection
– Placement and orientation – Maintaining labour relations and
union managment relations.
– Performance Appraisal – Handling grievances and
complaints
– Compensation of employees. – Providing for social security
and welfare of employees.
– Defending the company in law
suits in legal matters.
Conclusion :
HRM is a broader concept than staffing. Staffing is both a line as well as a

staff activity because staffing is a function of management like planning,
organising, directing and controlling as well as distinct functional area of
management (i.e. HRM) just as Marketing Mgt. and Financial Mgt.

Q.1 “It is process of appointment of Right person on the right position.” Identify
this function of Management and explain its importance. (5)
[Hint- Staffing; Importance; Competent personnel, High performance,

continuous growth, Improves Job Satisfaction]
PROCESS OF STAFFING
1. Estimating Manpower Requirement: It involves the following:
Means understanding how many personas are needed and of what type
(i.e., skills required) in the organisation.
Understanding the manpower requirements necessitates—
• Workload Analysis : It would enable an assessment of the number

and types fo human resources necessary for the performance of various
jobs and accomplishment of organisational objectives.
• Workforce Analysis : It estimates the number and type of human

resources available. It would reveal whether the organisation is under-
staffed, over-staffed or optimally staffed. Neither over-staffing nor under-
staffing is a desirable situation.
2. Recruitment: Recruitment is the process of searching for prospective

employees and stimulating then to apply for jobs in the organisation. There
are two types of sources of recruitment namely-Internal sources and External
sources. Internal sources include promotions and transfer whereas external
souces include casual causes, campus recruitment, labour contractors etc.
3. Selection: Selection is the process of choosing and appointing the right

candidates for various jobs. Selection process ensure that the orgtanisation
gets the best among the available. It enhances the self esteem and prestige
of those selected. Various interviews and tests like-Interest Test, Personality
Test, Intelligence Test are conducted to choose the best candidate. Selected
candidates are offered an employment contract which contains the offer of
employment, the terms and conditions and the date of joining.

4. Placement and Orientation:When a new employee reports for duty, he is
to be placed on the job for which he is best suited. Placement is very important
process as it can ensure “Right person for right job”.
Orientation/Induction is concerned with the process of introducing a new employee

to the organization. The new employees are familiarized with their units, supervisors
and fellow employees. They are also to be informed about working hours, procedure
for availing leave, medical facilities, history and geography of organization and rules/
regulations relating to their wages etc.
5. Training and Development: Traning means enhancing the skills of

employees to improve productivity. Training can be “on the job and off the
job” On the job Training method includes:
Whereas off the job includes vestibule training. Development involves growth
of an employee in all respects. Training and Development strengthen the
competencies of employees which further improves efficiency and
effectiveness of employees. Employees perform the job perfectly and feel
motivated. By offering the development opprtunities for career advancement
to their members, organisations are able to attract and retain its talented
people.
6. Performance Appraisal:Performance appraisal means evaluating an

employee’s current and/or past performance as against certain per
determined standards. The employee is expected to know what the standards
are and the superior is to provide the employee feedback on his performance.
The performance appraisal process therefore, will include defining the job,
appraising performance and providing feedback.
7. ‘Promotion and career planing’: Managers activities to serve employees

long term interests also. They must encourage employees to grow and realise
their full potential. Promotions are an integral part of people is career. People
are placed in positions of increased responsibility. Promotions usually mean
more pay, responsibility and job satisfaction.
8. Compensation: Compensation refers all form of pay or rewards going to

employees. It may be in the form of direct financial payments like wages,

salaries, incentives, commissions and bonuses and indirect payments like
employer paid insurance and vacations.
Direct financial
Incentives
Time Based Performance

Incentives: Based Plans
Salary and wages are paid either It means salary or wages are paid
daily, weekly or montly. according to piece work.
Q. A Company AB Ltd. started a New Plant for manufacturing solar based

Motor Bikes in India. India is highly competitive and has cost effective
production base in this sector. AB Ltd. is planning to capture 30% of the
market in India and also aims to Export Motor Bikes worth Rs. 5 Cr. in next
two years. To achieve these targets, it requires highly trained and motivated
work force. Mr. X is appointed by the company to advise in this matter.
Briefly explain the process of staffing which the company has to follow.
(5)
[Hints- (1) Estimating man power requirements, (2) Recruitment, (3]

Selection, (4) Placement and Orientation, (5) Performance Appraisal, (6)
Compensation of Employees]

Aspects of Staffing
Recruitment Selection Training and

Development
RECRUITMENT
(A) Recruitment:Recruitment may be defined as the process of searching for

prospective employees and stimulating them to apply for jobs in the
organisation.
(B) Sources of Recruitment
(A) Internal Sources
(B) External Sources
(A) Internal Sources of Recruitment
Internal sources refer to inviting candidates from within the organisation.

Following are important sources of internal recruitment: -
1. Transfers:It involves the shifting of an employee from one job to another,

from one department to another or from one shift to another shift. It can
be used for training of employees for learning different jobs.
2. Promotion:It refers to shifting an employee to a higher position carrying

higher responsibilities, prestige, facilities and pay. Promotion is vertical
shifting of employees. It improves motivation, loyalty and satisfaction
level of employees.
Advantages of Internal Sources Recruitment: -
(1) Employees are motivated to improve their performance.
(2) Internal recruitment also simplifies the process of selection & placement.
(3) No wastage of time on the employee training and development.
(4) Filling of jobs internally is cheaper.

Limitation of Internal Sources
(1) The scope for induction of fresh talent is reduced, which may lead to
inbreeding.
(2) The employee may become lethargic if they are usre of time bound
promotions.
(3) The spirit of competition among the employees may be hampered.
(4) Frequent transfers of employees may often reduce the productivity of the
organisation.
(5) A new enterprise cannot use internal source of recruitment.
External Sources of Recruitment
When the candidates from outside the organisation are invited to fill the vacant job
position then it is known as external recruitment. The common methods of external
sources of recruitments are:
1. Campus recruitment: Colleges and Institutes of Management and
Technology have become a popular source of recruitment for technical,
professional and managerial jobs. Many big organisations maintain a close
link with them to recruit qualified personnel for various jobs.
2. Management consultants and placement agencies: Management
consultants help the organisations to recruit technical, professional and
managerial personnel. They specialise in middle level and top level executive
placements. They maintain data of persons with different qualifications and
skills. Placement agencies compile bio-data of a large number of candidates
and recommend suitable names to their clients. They charge fee for their
services.
3. Employment exchanges: Employment exchanges run by the government
help to match personnel demand and supply by serving as link between job-
seekers and employers. It is suitable for unskilled and skilled operative jobs.
4. Advertisements (Newspapers, Journals): Most of the senior positions of
industry and commerce are filled b'y this method. Advertisement in
newspapers.or trade journals is generally used when a wider choice is
required.

5. Direct recruitment: A notice is placed on the noticeboard of the enterprise
specifying the details of the jobs available. Job-seekers assemble outside
the premises of the organisation on the specified date and selection is done
on the spot.
The practice of direct recruitment is followed usually for casual vacancies of
unskilled or semiskilled jobs. Such workers are known as casual workers.
They are paid remuneration on daily wage basis.
Suitability: It is suitable for filling casual vacancies when there is a rush of work or
when some permanent workers are absent.
6. Labour contractors: Labour contractors (who are themselves employees
of the organisation) maintain close contacts with labourers. On payment of
commission, they can provide the required number of unskilled workers at
short notice.
7. Casual callers: A company may keep a database of unsolicited applicants
as and when the vacancy arises, the company makes use of such
applications/applicants.
Advantage: It reduces the cost of recruiting workforce in comparison to
other sources.
8. Advertising on Television: Detailed requirements of the job and the qualities
required to do it are publicised alongwith the profile of the organisation where
vacancy exists over television.
9. Recommendations of employees: Many firms encourage their employees
to recommend the names of their relatives and friends for employment. Such
applicants are likely to be good-employees because their background is
sufficienctly known.
10. Web publishing: Internet is becoming a common source of recruitment.
There are certain websites specifically designed for the purpose of providing
information about job-seekers and job providers, e.g., www.naukri.com,
www.jobstreet.com, etc.
Merits of External Sources
1. Qualified Personnel:By using external sources of recruitment the
management can attract qualified and trained people to apply for the vacant
jobs in the organisation.

2. Wider Choice:The management has a wider choice in selecting the people
for employment.
3. Fresh Talent:It provides wider choice and brings new blood in the
organisation.
4. Competitive Spirit:If a company taps external sources, the staff will have
to compete with the outsiders.
Limitations of External Sources of Recruitment
1. Dissatisfaction among existing employees: Recruitment from outside may

cause dissatisfaction among the employees. They may feel that their
chances of promotion are reduced.
2. Costly process:A lot of money has to be spent on advertisement therefore

this is costly process.
3. Lengthy Process:It takes more time than internal sources of recruitment.

Q. Rohan the Director of Petro Chemical Company wants from produce Bio
Gas from waste garbage and useless material. He decides that this
manufacturing unit will be set up in rural and backward area of Bihar where
people are suffering from poverty and unemployment. Rohan wants to
deploy people from local surrounding areas. He also wants to give
opportunity to the persons qualified from technical institutions to join his unit.
1. Identify the function of Management which is concerned with deployment of
personnel in his unit.
2. Identify the sources of recruitment used quoting the lines from above para.
[Hints- (1) Staffing, (2) Direct Recruitment :— Rohan ..................... areas.
Campus Recruitment “He ............... unit”.
SELECTION
Selection is the process of discovering the most suitable and promising candidates
and eliminating the least promising ones to fill up the vacant positions. It is a negative
process.

PROCESS OF SELECTION
Process of Selection
Preliminary Selection Employment Reference Selection Medical Job Contract of

Screening Test Interview Check Decision Exam Offer Employment
The successive stages in selection process are:
1. Preliminary Screening: After applications have been received, they are

properly checked as regarding qualification etc. by screening committee. A
list of candidates to be called for employment tests is made and unsuitable
candidates are rejected altogether. Preliminary interviews help reject misfits
for reasons which did not appear in the application form.
2. Selection Tests: Tests attempt to measure certain characteristics of

individuals.
Types :
(i) Intelligence test: It measures the level of intelligence quotient of an

individual. It is an indicator of a person's learning ability or the ability to make
decisions and judgements. (Example: used for selecting a school teacher.)
(ii) Aptitude test: It is a measure of individual's potential for learning new

skills. It indicates the person's capacity to develop. (Example: used for
selecting a computer engineer or a chartered accountant.)
(iii) Personality test: Personality tests provide clues to a person's emotions,

reactions, maturity, value system, etc. These tests judge the overall
personality. (Example: used for selecting a public dealing officer.)
(iv) Trade test: These tests measure the existing skills (professional
knowledge and proficiency) of the individual. (Example: used for selecting a
computer operator.)
(v) Interest test: Interest tests are used to know the pattern of interest or
involvement of a person (Example: used for selecting an interior decorator.)

3. Employment Interviews: The main purpose of interview is
(a) to find out suitability of the candidates.
(b) to seek more information about the candidate.
(c) to give the candidate an accurate picture of job with details ofterms and
conditions.
4. Reference Checks:Prior to final selection, the prospective employer makes

an investigation of the references supplied by the applicant. He undertakes a
thorough search into candidate’s family background, past employment,
education, police records etc.
5. Selection Decisions:A list of candidate who clear the employment tests,

interviews and reference checks is prepared and then the selected candidates
are listed in order of merit. The views of concerned manager will be generally
considered in the final selection.
6. Medical/Physical Examination:A qualified medical expert appointed by

organization should certify whether the candidate is physically fit to the
requirements of a specific job. A proper physical exam will ensure higher
standard of health & physical fitness of employees thereby reducing
absenteeism.
7. Job Offer:After a candidate has cleared all hurdles in the selection procedure,
he is formally appointed by issuing him an Appointment Letter which confirm
his acceptance. SUch a letter generally contians a date by which the appointee
must be given reasanable time for reporting.
8. Contract of Employment: After getting the job offer candidate has offer,
certaiin documents need to be executed by the employer and the candiate.
One such document is the attestation form. This form contains cetain vital
details about the candidate, which are authenticated and attested by him.
Attestation form is a valid record for future reference. A contract of employment
is prepared. Both employer and employee will sign a contract of employment
which contains terms and conditions, pay scale, leave rules, hours of work,
mode of termination of employment etc.

Q. Nishant wants to set a unit in rural area where people have very few job
opportunities and labour is available at a low cost.
For this he wants four different heads for Sales, Accounts, Purchase and
Production. He gives an advertisement and shortlists some candidates
after conducting selection tests.
Identify and state the next three steps for choosing best candidates. (3)
[Hint- Employement Interview, Reference Checks, Selection Decision]
Training
Training is the act of increasing the knowledge. Technical skills and abilities of an
employee for doing a particular job efficiently and effectively. Both existing employees
and new employees get acquainted with their jobs and this increases their current
job related skills.
Development
Development is overall growth of the employee. It seeks to prepare employees for

handling more responsible and challenging jobs and developing their hidden talents
and qualities. It helps in shaping attitude of the employees.
Benefits of Training
(A) To the Organisation
(i) Systematic Learning: Training is a systematic process of learning. It

is better than hit and trial method which leads to wastage of money &
efforts.
(ii) Higher Profits: Increases employees productivity both in terms of

quantity and quality learning to higher profits.
(iii) Reduce absenteeism and employee Turnover: Training increases

employee’s capability and morale. Employees do not think of leaving
the organisation as they know that they can perform their job better.
(iv) Minimises the need of Supervision: It increases the efficiency and

skills of employees thus reducing the need of supervision and control.

(B) To the Employees
(i) Better Career Options: Improved skills and knowledge due to training
lead to better career options of the employees.
(ii) Better Earning Capacity: Better performance by an employee help

him to earn more.
(iii) Increases morale of employees: It increases the satisfaction level

and morale.
(iv) Check Accidents: It makes the employees more efficient to handle the
machines. Thus, they are less prone to accidents.
Comparison of Training and Development
Basis Training Development
1. Definition It means imparting It means growth of an employee

skills and knowledge in all respects.
for doing a particular job.
2. Purpose It is concerned with It seeks to develop competence

maintaining and improving and skills for future
current job performance. performance.
3. Methods It is imparted through on It is imparted through off the job

the jobmethods. methods.

4. Initiative The boss takes the The individual takes the initiative
initiative for imparting for self-growth and
training to his subordinates. development.
5. Duration Training programmes Development takes place over

are organisedfor a larger period of time.
short term.
6. Nature Job oriented Career oriented.
7. Level of Non-managerial personnel Managerial personnel

person
involved
Training Methods
(A) On the Job Method:It refers to the methods that are applied at the work
place, where the employee is actually working. It means “learning while
doing”.It is economical and less time consuming.
The following are the methods of On-the job training:
1. Apprenticeship Training:Under this, the trainee is placed under supervision
of an experienced person (master worker) who imparts him necessary skills
and regulates his performance. The trainee is given stipend while learning
so that he/she can enjoy “earn while you learn” scheme.
2. Internship Training:Under this method an educational institute enters into
an agreement with industrial enterprises for providing practical knowledge to
its students by sending them to business organizations for gaining practical
experience.
(B) Off the Job Method: They are used away from the place of work. It means
“learning before doing”. It is provided by experts either from within or from
outside the organisation. It is more expensive and more time consuming.
Vestibule Training: The training is given a classroom, where actual work
environment is simulated wherein employees are trained on dummy models
instead of using original equipment. This method is extremely useful when
employees are required to handle expensive, delicate and sophisticated
equipment.

EXERCISE
I. Multiple Choice questions.

1. Ramesh is working under the guidance of Harish, a carpenter, for the last
there years to learn the different skills of this job. List is the method of training
which Ramesh is undergoing.
(a) Orientation (b) Apprenticeship Training

(c) Vestibule Training (d) Internship Training
2. This test aims to identify the areas in which candidate has special liking.
(a) Interest test (b) Trade test

(c) Intelligence test (d) Personality test
3. NAUKRI.COM
India’s No.1 Job site
____________ is an example of.
(a) Placement agencies (b) Web Publishing

(c) Advertisement (d) all of these
4. Identify the managerial decision making process as to predict which job
applicants will be successful if hired
(a) Recruitment (b) Orientation

(c) Training (d) Selection
5. What refers of the learning opportunities designed to help employees
grow?
(a) Development (b) Training

(c) Performance appraisal (d) Induction
6. It is a face to face conversation between employer and applicant
(a) Selection (b) Interview

(c) Recruitment (d) Staffing

7. Vinod is working as plant supervisor in Cargo Ltd. Noida. His place of work
was changed to Gurugram without any change in his position in the
hierarchy, Identify the concept.
(a) Promotion (b) Lay off

(c) Training (d) Transfer
8. Sehaj is working as Human Resource Manager in Flora Ltd. He is assigned
the work to find out the number and type of personnel available so that he
could decide and recruit the required number of persons for each department
Identify the concept involved.
(a) Recruitment (b) all of these

(c) work force analysis (d) work load analysis
9. Staffing function begins with which step?
(a) Selection
(b) Training
(c) Estimating manpower requirements
(d) Promotion
10. Staffing is very important function these days because of following.
(a) Survival and growth

(b) Optimum utilisation of human resources
(c) Better performance (d) all of these
II. Fill in the Blanks.
1. ____________ tests provide clues to a person’s emotions, reactions, maturity
etc
(a) Aptitude (b) Trade
(c) Personality (d) Interest
2. ____________ tests measure the existing skills of the individual
(a) Aptitude (b) Trade
(c) Personality (d) Interest

3. _____________ is a joint programme of training between educational
institutions and business firms.
(a) Coaching (b) Vestibule training

(c) Apprenticeship programme (d) Internship
4. _____________ help the organisations to recruit technical, professional and
managerial personnel.
(a) Casual callers (b) Employment exchange

(c) Management consultants (d) Campus recruitment
5. _____________ is the process of choosing from among the pool of prospective
job candidates.
(a) Selection (b) Recruitment

(c) Staffing (d) Placement
III. Match the Follwing.
1. 1) Promotion a) Assigning post to the selected
employee
2) Orientation b) Higher position, Higher
responsibilities
3) Performance appraisal c) Evaluation of employee’s
performance
4) Placement d) Familiarising selected employee
to the organisation
(a) (b) (c) (d)
i) b i) a i) d i) c
ii) d ii) b ii) a ii) b
iii) c iii) d iii) c iii) a
iv) a iv) c iv) b iv) d
2. 1) On the Job training a) Create a pool of applicants for
job
2) Recruitment b) Learning by doing

3) Off the Job Training c) Negative Process
4) Selection d) Leaning before doing
(a) (b) (c) (d)
i) d i) b i) b i) b
ii) a ii) d ii) a ii) a
iii) b iii) a iii) c iii) d
iv) c iv) c iv) d iv) c
3. 1) Casual Callers a) Agents for hiring unskilled and

semi - Skilled workers
2) Employment exchange b) Notice - board of the enterprise
3) Direct - recruitment c) Unsolicited applications
4) Labour contractors d) Run by government
(a) (b) (c) (d)
i) d i) c i) c i) c
ii) c ii) d ii) b ii) d
iii) b iii) b iii) d iii) a
iv) a iv) a iv) a iv) b
IV. State giving reasons, whether the following statements are True/False.
a) Internal sources of recruitment prevent induction of fresh talent.
b) ‘Selection tests’ is the second step in the process of selection.
c) Recruitment is a complex process as candidated are required to cross
several hurdles.
d) Training shapes the attitude while development increases job skills.
e) Vestibule Training is an off the job training method.

V. Arrange the following steps related staffirng process in a correct sequence.
(A) Selection
(B) Placement and Orientation
(C) Estimating the manpower requirements
(D) Recruitment
(E) Training & development
(a) E, C, B, A, D
(b) C, D, A, B, E
(c) C, D, A, E, B
(d) D, C, A, B, E
2. Assertion (A) : Introducing a selected employee in a job with other employees
and familiarising him with rules and policies of the organisation is important.
Reasoning (R) : It may have a lasting impact on his decision to stay and on
his job performance.
(a) Both (A) & (B) are true and (R) is the correct explanation of (A)
(b) Both (A) & (R) are true and (R) is not the correct explanation of (A)
(c) (A) is true both (R) is false
(d) (A) is false but (R) is true
3. Statement I : Advertisement in newspaper is generally used when a limited
choice is required.
Statement II : The advantage of advertising vacanes in newspaper is that
more information about the organisation and job can be given in it.
Choose the correct option from the following :
(a) Statement I is true and II is false
(b) Statement II is true and I is false
(c) Both the statements are true
(d) Both the statements are false

4.
Identify the source of recuirment illustrated above:

(a) Campus recruitment
(b) Placement agencies and management consult
(c) Direct recuriment
(d) Employment exchange
Answer Key:
I. Multiple Choice Question.
(1) b (2) a (3) b (4) d (5) a
(6) b (7) d (8) c (9) c (10) d
II. Fill in the Blanks:

1. (c) Personality
2. (b) Trade Test
3. (d) Internship Training.
4. (c) Management consultants.
5. (a) Selection

(1) a (2) d (3) b
IV. True/False
1. True - They stop infusion of new blood.
2. True - Tests are conducted after preliminary screening.
3. False - Selection is a complex process.
4. False - Development shapes the attitude while training increases job
skills.
5. True - This training is conducted away from place of work.
V. 1. (b) 2. (a) 3. (b) 4. (a)
1 MARK QUESTIONS
Q.1 “Our assets walk out of the door each evening. We have to make sure that
they come back the next morning”. This statement is related to which function
of management? 1
Q.2 What is performance appraisal? 1
Q.3 Providing of social security and welfare of employees’ is one of the specialised
activities performed by Human persource management. Mention any two
other specialised activities of Human persource management. 1
Q.4 Name the type of staff which is generally recruited through management
consultants. 1
3-6 MARKS QUESTIONS
Q.5 What kind of tests will primarily be used while selecting these people in an
organisation. Give reasons:
(a) A public dealing officer (b) A computer operator
(c) A school teacher (d) An interior decorator (4 Marks)
Q.6 Resolutions Pvt. Ltd. is a publishing company. Its book on business studies

for class XII is in great demand. As a result, employees in the marketing
department have to work overtime and on holidays to cater to the demand.
Managers in this department are under stress as they have to handle more
than two territories. The work stress has led to dissatisfaction among the
employees and managers.
(a) Name and explain the step of staffing process which has not been
performed porperly.
(d) State the next two stages immediately following the step identified in
part (a). (4)
Q.7 Manu a Chief Engineer in a Co. The company uses highly sophisticated
machines and equipments. So, he wants that every employee should be
fully trained before using those machines and equipments. Suggest and
describe the best method of training that Manu can use. (3)
Q.8 An accountant is sent to learn the new software for accounting to prepare
the books of accounts faster and accurately. He was further sent for
orientation to improve his motivational and conceptual skills.
(a) Identify and explain the two concepts explained above.
(b) Differentiate these concepts on the basis of suitability, method used
and nature. (5)
Q.9 Under this method employee “learn by doing”. Employees are trained while
they are performing the job and senior worker or mentors provides them
technical knowledge. But the biggest disadvantage of this method is wastage
of material and accidents.
(a) Identify the method of training stated in above lines.
(b) Explain any two techniques used in above said method of training. (6)
Q.10 The General Manager of ‘Indemnity Ltd’ was addressing employees during
‘employee recognition program’ function. He stressed: “employees should
make all efforts to increase their market value. To achieve this objective,
they should increase their capacity and efficiency. They should also make
endeavour as to get job satisfaction. Not only that it is equally essential that
they should concentrate on minimizing the accidents”.
Which concept of management was the General Manager stressing in the

function? Explain the importance of the concept by quoting lines. (4)
Q.11 Based on “Performance Appraisal Report (2016).”, the HR manager of

‘Gamma Ltd’ adopted the following ways of training for improving the quality
of output and providing more job satisfaction to the employees:
a) Mr. Ganesh- was in the company so that he could practice the theoretical
knowledge acquired by him from his college.
b) Mr. Rahul- was provided a dummy model of machinery to do practice

on it.
c) Mr. Shekhar- was asked to work with an expert for specific period of
time so that he learns by observation.
Identify the technique of training discussed in above cases (a, b, c). (3)
Q.12 ‘Pure Energy Ltd’ imported a new hi-tech machine from Japan for
manufacturing high quality and low cost solar panels in India. After a month,
the report of Production Manager reflected a decline in quantity and quality of
production. On investigation, it was found that there was lack of technical
knowledge and skills amongst the employees for using these hi-tech
machines. This resulted in high-overhead charges as well as frequent visits
of engineers was required from Japan.
(i) Suggest what should be done to increase the quality and quantity of
production. (1)
(ii) Also state, how the employees will be benefited from your suggestion.
(1)
(iii) Identify the functions of management discussed above. (1)
Q.13 Teja Ltd. received 22,495 applications for the post of fifty supervisors.
Preliminary, screening was done and 3,545 applications were filtered. Various
steps of selection process were taken and finally fifty candidates were
selected. They were directly posted to their respective posts. After one-month
performance appraisal of these candidates was conducted. It was found
that out of 50, eight were not able to perform as per standards as they were

facing practical problems while handling machines.
(a) In your opinion, what should be done to improve the performance of
these eight supervisors.
(b) How an organisation can be benefited by improving the skill level of
employees. (5)
Q.14 The workers of ‘Vyam Ltd’ are unable to work on new and hi-tech machines
imported by the company to fulfil the increased demand. Therefore, the
workers are seeking extra guidance from the supervisor. The supervisor is
overburdened with the frequent calls of workers. Suggest how the supervisor,
by increasing the skills and knowledge of workers, can make them handle
their work independently? Also state any three benefits that the workers will
derive by the decision of the supervisor. (4)
Q.15 A company has its own recruitment policy to fill the vacant posts with suitable
employee.
a. Top most positions are being filled by contacting specialised agencies
so as to attract the most capable work force from competitive
organisation.
b. To foster the spirit of loyalty and motivate the employees the middle
level positions are filled from within the organisation.
i) Identify the sources of recruitment referred above? (2)
ii) Also give any one method of each source. (2
Q.16 Orient Ltd. expanding its business operations. All the departmental heads
were asked to fill up “Manpower Requisition form and estimate the annual
requirement of – skilled and unskilled workers”
All the departmental heads submitted the requisition forms to HR Manager.

HR Manager, compiled all such requisition forms as:
Requirement of skilled workers – 89
Requirement of unskilled workers – 265
After this, Recruitment and further selection procedure was followed.
Name and explain the methods of recruitment (three each) for each category

which would be most appropriate in the above case. (6)
Hints
1. Staffing
2. Evaluating the performance of employees.
3. Handling grievances and complaints.
4. Middle and top level staff.
5. (a) Personality Test (b) Aptitude Test
(c) Intelligence Test (d) Interest Test
6. (a) Estimating man power requirements.
(b) Recruitment, selection.
7. Vestibule Training.
8. (a) Off the Job Training, on the Job Training
(b) Basis of Diff. On the Job Training Off the Job Training
Suitability To handle less To handle sophisticated
shophisticated equipment.
equipment
Methods 1. Apprenticeship
2. Internship Vestibule Training
3. Induction
Nature Learning while doing Learning before doing.
9. (a) On the Job Training

(b) Apprenticeship Training
Induction Training
10. (i) Training
(ii) (a) Better earning capacity
employees ........................................ efficiency

(b) They should ............................................ satisfaction.

Increases morale of employees
(c) Not only .............................................. accidents.
Check Accidents.
11. (a) Internship training — On the job trainning
(b) Vestibule Training — Off the job training
(c) Apprenticeship Traning — On the job training
12. (i) Vestibule traning
(ii) Better career options
(iii) Better earning capacity
13. (a) Training should be provided
(b) Systematic learning
– Higher Profits
– Reduce absenteeism and employee turnover
– Minimise the need of supervision.
14. Superior can arrange vestibule training for workers. (By suggesting to HR
Mgr)
Benefits to workers :
(i) Check accidents
(ii) Increases morale of employees
(iii) Better earning capacity
(iv) Better career options.
15. (i) External source in ‘a’ Internal source in ‘b’
(Mgt. consultant) (Promotions)
(ii) External Source — Campus recruitment

Internal source — Transfers.
16. For Skilled Workers For Unskilled Workers
1. Advertisements 1. Labour Contractors
2. Casual callers 2. Direct Recruitment
3. Recommendations of employees 3. Employment Exchange

Concept
1. It deals with discovering and Staffing —

obtaining competent personnel.
2. Right person on the right job. Staffing —

3. It is required for continues survival Staffing —
and growth of an enterprise
4. Handling grievances and complaints HRM —
5. Providing for social security and HRM —

welfare of employees
6. Maintaining union — Mgt. relations HRM —

and defending the company in low
suits.
7. This source of recruitment is not Staffing Recruitment

suitable for newly established Internal
enterprise. sources.
8. It provides a wider choice to choose Staffing Recruitment

for fresh talent External
source
9. This selection test measures the Selection test Intelligence

ability of candidate to make decisions Test

and judgements
10. This selection test measures the Selection test Aptitude test
ability to learn new skills.
11. This test measures the existing Selection test Trade test
skills (professional knowledge and
proficiency) of candidate.
12. This test checks the involvement Selection test Interest test
of a person in work.
13. Under this method, trainee is placed Methods of training On the job
under supervision of an experienced Apprenticeship
person/ master worker.
14. Students from educational institutes On the job training Internship

are sent to b usiness organisations Training
for gaining work experience.
15. New employee is made familiar with On the job training Induction
company’s policies and objectives Training
16. Employees are trained on dummy Off the job training Vestibule
models before handling the actual Training
sophisticated machines.
17. It is a career oriented process to Staffing Development

develop competence and skills
for future performance.

QUESTIONS BASED ON ANALYSIS, EVALUATION AND CREATION
Read the following text and answer questions no. 1 to 4 from it.
Mr Rajiv recently joined XYZ Limited, Where he was required to perform the managerial
function of filling and keeping filled the positions in the organisation structure. He
assigned the work of assessment of the number and types of human resources
required for various jobs in the organisation. Mr. Rajesh and the work to reveal the
number and type of human resources available to Mr. Rakesh, who were his juniors.
Mr. Rajiv evaluated the performance of Mr. Rajesh and Mr. Rakesh on the basis of
the work performed by them and rewarded accordingly.
1. “Mr. Rajiv was required to perform the managerial function of filling and keeping
filled the positions in the organisation structure.”
The function fo management required to be performed by Mr. Rajiv is
(c) Staffing (d) Directing
2. He assigned the work of assessment of the number and types of human
resources required for various jobs to Mr. Rajesh”.
Identify the work assigned to Mr. Rajesh.
(a) Selection (b) Workload Analysis
(c) Workforce Analysis (d) Training
3. The work to reveal the number and type fo human resources available was
assigned to Mr. Rakesh.
Which of the followign work was assigned to Mr. Rakesh?
(a) Selection (b) Workload Analysis
(c) Workforce Analysis (d) Training
4. Mr. Rajiv evaluate the performance of Mr. Rajesh and Mr. Rakesh on the
basis of the work performed by them.
Identify the step of one of the function of management undertaken by Mr.
Rajiv.
(a) Evaluation (b) Career planning
(c) Compensation (d) Performance Appraisal
Ans. [1(c), 2(b), 3(c), 4(d)]

Read the following text and answer questions no. 5 to 8 from it.
H ltd., a Noida based apparel manufacturing company was doing well until corona
virus pandemic hit the country. The management of the company, to run the business
operations and tide through the hard times diversified its business into manufacturing
PPE Kits, N95 Masks, face shields etc to meet the rising demand for such products
in the country. For this H Ltd decided to use the available staff of the organisation
except Mr. Prasad who was searched out from www.jobstreet.com website. To
enable the employee’s to do the new work, the company undertook the process of
increasing their knowledge and skills.
H ltd. also decided to change the compensation method to performance based
from monthly payment basis.
5. “H ltd decided to use the available staff of the organisation”. Based on this
identify which source of recruitment H ltd used.
(a) External (b) Internal
(c) Both a and b (d) None of these
6. “Mr Prasad was searched out from www.jobstreet.com website.” What is
the merit of the source of recruitment by which Mr. Prasad was searched
out.
(a) Qualified personnel (b) Wider choice
(c) Fresh Talent (d) All of these
7. “To enable the employees to do the new work, the company undertake the
process of increasing their knowledge and skills”.
Identify the concept referred here
(a) Education (b) Development
(c) Training (d) None of these
8. “H ltd change the compensation method to performance based from monthly
payment basis.” Which method of compensation was replaced by H ltd.
(a) Time based (b) Performance based
(c) Piece work based (d) None of these
(Ans. 5 b 6 d 7c 8a)

Q.1 “External sources of recruitment can attract qualified and trained people. It
provides wider choice and brings new blood in the organisation, still it is not
assumed to be good always for the organisation.”
Do you agree? Give reasons in support of your answer.
Q.2 The workers of a factory are unable to work on new machines and always
demand for help of supervisor. On investigation it was observed that most of
the workers were not fully aware of the proper operation of the machines.
Suggest the remedy which could help in solving the problem.
Q.3 A newly appointed Head fo the Organisation is of the view that there is no
need for training the workers as it waste the time and resources and also
adds to the cost. As the training Incharge of the same organisation, how will
you convince the Head about the importance of training.
Q.4 Mr. Ravi is working as a personnel manager in a company, who is having

experience of more than 10 years. He always promotes an efficient employee
to a higher post and demotes inefficient employee to a lower vacant post.
Identify the source of recruitment used by Mr. Ravi to fill the vacant posts.
Also suggest him the other source of recruitment along with its benefits.
Joseph Bros. was a firm manufacturing jute lamp shades. It uses left over
jute pieces from various jute factories to manufacture economical lamp shade
which are supplied to various hotels in nearby towns. It employs men and
women from nearby villaes as workers for creating good lamp shade designs.
Joseph Bros. is not able to meet its targets. Namish, the supervisor of the
company, was told to analyse the reasons for the poor performance. Namish
found following problems and suggested certain solutions in the working of
the business. The number of workers employed was less than what was
required for the work. As a result, the existing workers were overburdened.
The firm decided to search for new workers and it asked the present

employees to introduce candidates or recommend their friends and relatives
to the firm. This enabled the firm in “putting people to jobs” and assured
attainment of objectives according to plans.
(a) Identify the fucntions of management being performed by the firm in the
above situation.
(b) Name the concept and its source used by the firm to attract more workers
for the firm.

CHAPTER – 7
DIRECTING

Meaning
Directing as a function of management, refers to the process of instructing, guiding,

counselling, motivating and leading people in the organisation to achieve its
objectives. It is the force which gives the life to the organisational structure.
Directing comprises of:
a) Issuing orders by a superior to his subordinates.
b) Supervising the employees when they are performing job.
c) Motivating them to perform more effectively.
d) Leading them towards the achievement of overall goals of the concern.
Features:
1. Directing initiates action:The other functions of management prepare a

set-up base for action, but directing initiates action in the organisation.
2. Directing takes place at every level of Management (Pervasive): Every

manager from top executive to supervisor performs the function of directing.
3. Directing is a continuous process of supervision, communication,

leadership and motivation. It continues throughout the life of the organisation.
4. Directing flows from top to bottom:It is initiated at the top level and flows
to the bottom through organisational hierarchy and flow of authority.
Importance
1. Initiates Action: It helps to initiate action by the people in the organisation

towards attainment of desired objectives. The employees start working only
when they get instructions and directions from their superiors. It is the directing
function which starts actual work to convert plans into results.
2. Integrates Employee’s Efforts: All the activities of the organisation are

interrelated so it is necessary to coordinate all the activities. It integrates the
activities of subordinates by supervision, guidance and counselling.

3. Means of motivation:It motivates the subordinates to work efficiently and
to contribute their maximum efforts towards the achievement of organisational
goals by satisfying their needs.
4. Facilitates change:Employees often resist changes due to fear of adverse

effects on their employment and promotion. Directing facilitates adjustment
in the organization to cope with changes in the environment. Directing instills/
inculcates the spirit of cooperation and commitment among work force.
5. Stability and balance in the organisation:Managers while performing

directing function instruct, guide, supervise and inspire their subordinates in
a manner that they are able to strike a balance between individual and
organisational interests.
Q.1 A nationalised Indian bank is going to introduce some major changes in
accordance with directions of RBI. Workers under influence of Trade Union
are showing resistance as they fear losing their job. Which function of
management can remedy the situation? (1)
Q.2 ‘Look Good Cosmetics Ltd’ offers commission to its sales manager in
addition to the fixed salary. To earn more commission, the manager wants
to increase sales. He recommends management to introduce the scheme
of “one nail paint free when buying three lipsticks.” But higher officials reject
the scheme as this may cause loss to the firm. Which function of
management can solve the clash? (1)
[Hints- (1) Directing, (2) Directing]
Elements of Direction
Su p ervis io n M otivatio n
E le m e nts o f
D i re ct ing
L ead e rs h ip Co m m u n ic atio n

1. Supervision:It means observing the subordinates at work to see that they
are working in accordance with plans and to help them in solving their
problems. The important thing in supervision is that it involves face to face
contact between superiors and subordinates. Supervisor’s position is
immediately above the worker.
2. Motivation: In the context of an organisation motivation means stimulating
employees of all levels to work with greater enthusiasm and more efficiency
for the accomplishment of the objectives of the enterprises. It involves
arousing needs and desires in people so as to initiate and direct their behaviour
in a purposive manner.
3. Leadership:Leadership is the activity of influencing people to strive willingly
for organisational goals. Leadership indicates the ability of an individual to
maintain good interpersonal relations with followers and motivate them to
contribute for achieving organisational objectives. Managers at all levels are
expected to be the leaders of their subordinates.
4. Communication:It is the process of exchange of information between two
or more persons to reach common understanding.
Q.3 Mr. Khanna has recently joined an ‘Interior Decoration’ firm after completing
MBA from America. He feels human resources are the most important
resources in the company. So,
(i) It is important to develop mutual understanding amongst them to inculcate
the sense of co-operation and coordination.
(ii) There is a need to monitor their progress and guide them
(iii) They need to be induced and stimulated to act in desired manner.
a) Identify which function of management is referred above.
b) Name the elements of function (in (a)). (2)
[Hints- (a) Directing, (b) Supervision, Motivation Leadership & Communication]

II. Motivation
Meaning:It is the process of stimulating people to act to their best ability to

accomplish desired goals.
Motivation means inspiring the employees to work with greater enthusiasm and
more efficiency for the accomplishment of the objectives of the enterprise. It involves
arousing needs and desires in people so as to initiate and direct their behaviour in
a purposive manner.
Infact motivation help in bridging the gap between ability to do a certain work and
willingness to do a certain work.
Features
1. Motivation is an Internal feeling:Motivation is an internal feeling which

means it cannot be forced on employees. The internal feeling such as need,
desire, aspiration etc. influence human behaviour to behave in a particular
manner.
2. Goal Directed Behaviour:It induces people to behave in such a manner

so that they can achieve their goals. A motivated person works towards the
achievement of desired goals.
3. Motivation can be either positive or Negative:Positive motivation means

inspiring people to work better and appreciating a work that is well done e.g.,
pay increase, promotion, recognition. Negative motivation means forcing
people to work by threatening or punishing them. e.g., issue of memo,
demotion, stopping increments etc.
4. Complex Process:It is a complex and difficult process. Individuals differ in

their needs and wants and moreover human needs change from time to
time.
5. Continuous Process:Human needs are unlimited and so they keep on
changing continuously, satisfaction of one need gives rise to another. As
soon as one need is satisfied another need arises. So managers have to
continuously perform the function of motivation.

The importance of motivation can be pointed out by the following
benefits:
a) Motivation helps to improve performance levels of employees as well as the

organisation.
b) Motivation helps to change negative attitudes of employee to positive attitudes.
c) Motivation helps to reduce employee turnover.
d) Motivation helps to reduce absenteeism in the organisation.
e) Motivation helps managers to introduce changes smoothly without resistance

from employees.
Maslow’s Need Hierarchy-Theory of Motivation: Maslow’s Theory focuses on

the needs as the basis for motivation. It classifies human needs into five categories.
It helps managers to realise that need level of employees should be identified to
provide motivation to them. It is based on the following assumptions:
(i) People’s behaviour is based on their needs.
(ii) People’s needs are in hierarchical order.
(iii) A satisfied need can no longer motivate a person.
(iv) A person moves to the next higher level of hierarchy only when the lower
need is satisfied.
Organisational examples
Pyramid representing Maslow’s Need Hierarchy

Financial and Non-Financial Incentives: Incentive means all measures which
are used to motivate people to improve performance.
Financial Incentives (which can be calculated in terms of money)
1. Pay and allowances: Salary is the basic monetary incentive. It includes

basic pay, dearness allowance and other allowances. Salary system consists
of regular increments in the pay every year. Increment may be linked to
performance.
2. Productivity linked wage incentives: Aims at linking payment of wages to

increase in productivity. Greater the productivity higher the wages.
3. Bonus: An incentive offered over and above the wages/salary.
4. Profit sharing: It means to provide a share to employees in the profits. It

creates a feeling of ownership to employees.
5. Co-partnership/Stock option: Employees are offered company’s share at

a price which is lower than market price. It creates a feeling of ownership
among empolyees.
6. Retirement benefits: Such as provident fund, pension and gratuity etc.

These provide financial security to employees after retirement.
7. Perquisites: Such as car allowance, medical help etc.these measures help

to provide motivation to the employees.
Non-Financial Incentives (which cannot be calculated in terms of money)
1. Status: Status means ranking of positions in the organisation. Psychological,

social and esteem needs of an individual are satisfied by the status given to
their job. The authority, responsibility, rewards, recognition, perquisities and
prestige of job indicates status given to a person.
2. Organisational climate: Employees can be motivated with favourable

atmosphere. Organisational climate indicates the characteristics like
individual autonomy, consideration to employees etc.

3. Career advancement opportunity: Works as a tonic and encourages
employees to exhibit improved performance. Manager should provide
opportunity to employees to improve their skills and be promoted.
4. Job enrichment: If jobs are enriched and made interesting, the job itself
becomes a source of motivation to the employees as it provides variety of
work content more autonomy and responsibility.
5. Employees recognition programmes: Most employees feel that what they

should be recognised by the higher authorities. Recognition means
acknowledgment wiht a show of appreciation like by giving for certificated for
best performance.
6. Job security: Employees want their job to be secured and it is a strong
motivator but on the other hand it makes the employees lazy. When
employees are certain about future income they work with zeal.
7. Employee participation: It means involving employees in the decision making
of the issues related to them like in joint management committees work
committees, canteen committees.
8. Employee empowerment: Means giving more autonomy and powers to
subordinates.
Q.6 Rahul is an engineer in Jacob Ltd. He works very hard and it is observed by
Production Manager. But he never appreciates the efforts of Mr. Rahul. Name
the element of Direction not exercised by production Manager.
Q.7 Zumroo was working as a clerk in Hindustan Ltd. since last three and a half
years. He was working with full diligence. His boss noticed his performance
and gave him “Confirmation letter”. Which kind of Zumroo’s need was
satisfied?
[Hints- (6) Motivation, (7) Security Needs]
III. Leadership
Leadership is the activity of influencing people to strive willingly for mutual objectives.
Managers at all levels are expected to be the leaders of their subordinates.

Leadership indicates the ability of an individual to maintain good interpersonal
relations with followers and motivate them to contribute for achieving organisational
objectives.
Features of leadership
a) Leadership indicates ability of an individual to influence others.

b) Leadership tries to bring change in the behaviour of others.
c) Leadership indicates interpersonal relations between leaders and followers.
d) Leadership is exercised to achieve common goals of the organistion.
e) Leadership is a continuous process.
Styles of Leadership.
A leader may use all styles over a period of time but one style tends to predominate
as his normal way of using power.
Different types of leadership style are as follows:
l. Autocratic or Authoritarian Leader
An autocratic leader gives orders and insists that they are obeyed. He determines
the policies for the group without consulting them.
He does not give information about future plans but simply tells the group what
immediate steps they must take.
Under this style, all decision making power is centralized in the leader. He does not
give the subordinates any freedom to influence his decisions.
It is like “bossing people around.” This style should normally be used on rare occasion.
A
B C D
A is the leader – (Boss – Centered – Leadership)

When should authoritarian leadership be applied?
• It is best applied to situations where is little time for group decision making.
• Or where the leader is the most knowledgeable member of the group.
Q.8 Mr. Khanna, Manager (Operation) is always bossing people around. He never
consults his team and does not pay head to their problems, which style of
leadership is he following?
Q.9 Charu says leadership is required only for less efficient subordinates while
chanda says that leadership is required for all. Who is correct? Why?
[Hints- (a) Autocratic Style, (b) Chanda, even efficient subordinates needs
direction.
2. Democratic or Participative Leader
Democratic leader gives order only after consulting the group and works out the
policies with the acceptance of the group.
He never asks people to do things without working out the long term plans on which
they are working. He favours decision making by the group as shown in the diagram.
This improves the attitude of the employees towards their jobs and the organization
thereby increasing their morale.
Using this style is of mutual benefit - it allows them (subordinates) to become part
of the team and helps leaders (seniors) to make better decisions.
A is the leader (Group Centered-Leadership)

When should Participative/democratic leadership be applied?
• It works best in situations where group members are skilled and eager to
share their knowledge.
• It is also important to have plenty of time to allow people to contribute, develop

a plan and then vote on the best course of action.
This style should NOT be used:
In situations where roles are unclear or time is of the essence, democratic leadership
can lead to communication failures and incompleted projects.
3. Laissez Faire or Free Rein Leader
Free rein leader gives complete freedom to the subordinates. Such a leader avoids
use of power. He depends largely upon the group to establish its own goals and
work out its own problems. Group members work themselves as per their own
choice and competence. The leader exists as a contact man with the outsiders to
bring information and the resources which the group requires for accomplishing
the job.
Note: This is also known as laissez faire which means no interference in the affairs
of others. [French laissez means to let/allow fair means to do].
A
B C
D E
A is th e le a d e r
(Subordinate - Centered - Leadership)
When should laissez faire/free rein leadership be applied This is an effective

style to use when:
• Followers are highly skilled, experienced and educated.

• Followers have pride in their work and the drive to do it successfully on their
own.
• Outside experts, such as staff specialists or consultants are being used.
• Followers are trustworthy and experienced.
This style should NOT be used when:
• Followers feel insecure at the non - availability of a leader.
• The leader cannot or will not provide regular feedback to his followers.
Q.10 In Manik Ltd., selection process is very fair, scientific and standardised.
Competent, laborious employees with good work culture are selected. As a
result, subordinates are efficient, responsible and take initiative in every
activity. Which kind of leadership style would be suitable in Manik Ltd. and
why?
Q.11 Pramod was a supervisor at ‘Annapurna Aata’ factory. The factory was
producing 200 quintals of aataevery day. His job was to make sure that the
work goes on smoothly and there was no interruption in production. He
was a good leader who would give orders only after consulting his
subordinates and work out the policies with the acceptance of the group.
Identify and describe the leadership style being adopted by Pramod. (3)
Q.12 Alok is supervisor of Ram, Rahim and Khan. He consults all his subordinates
while framing work schedules. They provide suggestions and Alok considers
such suggestions if they are productive. Which leadership style is followed
by Alok? What would be the benefits of such leadership style to the
organisation. (3)
Q.13 Ekta is a very strict foreman. She punishes late comers by reporting
negatively in observation reports of workers. Due to which the wages of
those workers who come late, decline considerably. W hich kind of
motivation is applied by Ekta? Do you think, by doing so, the late comers
can be regulated? Explain. (3)
[Hints- (10) Laissez Faire, (11) Democratic Style, (12) Democratic, Increases
morale, better decisions, (13) Negative motivation. No because positive motivation
is more effective]

Communication
It is the process of exchange of information between two or more persons to reach

common understanding.
Communication plays key role in the success of a manager. Directing abilities of

manager mainly depend upon his communication skills. That is why organization
always emphasizes on improving communication skills of managers as well as
employees. Communication is important for the directing function because all other
elements of directing become possible only when there is adequate communication.
Elements of Communication Process
1. Sender: Who conveys his thoughts or ideas.
2. Message: Ideas, feelings, suggestions, order etc.
3. Encoding: Converting the message into communication symbols such as

words/pictures etc.
4. Media: Path/Channel through which encoded message is transmitted to

receiver e.g., face to face, phone call, internet etc.
5. Decoding: Converting encoded symbols of the sender.
6. Receiver:Who receives communication of the sender.
7. Feedback:All those actions of receiver indicating that he has received and

understood the message of the sender.
8. Noise: Some obstruction or hindrance to communication like poor telephone

connection, inattentive receiver.

Importance of Communication
1. Acts as basis of coordination: It provides coordination among departments,

activities and persons in the organisation.
2. Helps in smooth working of an enterprise: communication is basic to an

organisation existence right from its birth through its continuing life.
3. Act as basis of decision making: Communication provides needed

information for decision making.
4. Increases managerial efficiency: Communication is essential for quick

and effective performance of managerial functions.
5. Promotes cooperation and Industrial Peace:The two-way communication

promotes cooperation and mutual understanding between the management
and workers and brings peace in the organisation.
6. Establishes effective leadership:Effective communication helps to

influence subordinates. While influencing, a leader should possess good
communication skills.
Q14. You are working as Human Resource Manager. General Manager sent a
message to you, which you received and understood well. Is the
communication process complete? Give reason. (1)
Q15. Give one example of ‘Noise’ in the process of communication. (1)
[Hints- (14) No, feedback should be given, (15) Poor telephone connection]
Communication taking place within the organisation may be broadly classified

into two categories:-
I. Formal Communication:refers to official communication which takes place

following the chain of command. Classification of formal communication-
1. Vertical Communication: Flows vertically i.e., upwards or downwards

through formal channels.

(i) Downward Communication: Higher to lower level like plans, policies,
rules etc.
(ii) Upward Communication: Subordinate too superior like suggestions,

grievances, reports etc.
2. Horizontal/lateral Communication:between persons holding positions at

the same level of the organisation e.g., production manager may contact
marketing manager about product design, quality etc.
Merits and demerits of formal communication
Merits :
1. Orderly flow of information
2. Easy knowledge of source of information
3. Fixation of responsibility
4. Easy in control
Demerits:
1. Slow process 3. Rigidity
2. Lack of personal interest 4. Overload of work
II. Informal Communication:Communication that takes place without following

the formal lines of communication is said to be informal communication.
There is no fixed direction or path for the flow of information. It is based on
informal relations and arises out of personal and social needs of the
employees.
Merits and demerits of Informal communication
Merits :
1. Fast communication

2. Improved relation
3. Social satisfaction
4. Fill the gaps
Demerits :
1. Misrepresentation of messages
2. Carry rumours
3. Unorganised and irregular
4. Leakage of important facts
Difference between Formal & Informal Communication
Basis Formal Communication Informal Communication
1. Meaning Follows the official chain Between individuals and groups

of command which are not officially
recognised.
2. Channel Through a definite path No definite path.
3. Speed Slow: because all information Very fast - Cuts across allthe
has to pass through an official channels.
established scalar chain.
4. Nature More rigid and cannot be Flexible and varies from

modified individual to individual.
5.Expression It is mostly expressed in It mostly tends to be oral.

written form.
6. Purpose Achieve organisation goals. Meet personal and social needs

of employees.


Category Sub category/
Element
1. This function of management Directing —

initiates action.
2. Guiding the efforts of employees. Directing Supervision.
3. Stimulating people to action. Directing Motivation
4. Influencing the behaviour of people Directing Leadership

by making them strive voluntarily.
5. Decision in consultation with sub- Leadership Democratic

ordinates. style.
6. This leader is dogmatic Leadership Autocratic leader
7. High degree of freedom to subordi- Leadership Laissez-Faire

nates to take decisions. Leadership
8. Exchange of ideas, facts, feelings Directing Communication

etc.
9. Translating the message into words, Communicaton Encoding

symbols, gestures etc.
10. Translating the encoded message Communication Decoding

into language understandable by
the receiver.
11. Receiver’s response to the message Communication Feedback

sent by the sender
12. Poor connectivity on internet, Faulty Communication Noise

decoding, inattentive receiver, group
of people talking nearby, letter being
lost in the mail.

13. This communication satisfies social Directing Informal
psychological and emotional needs Communication
of employees.
14. This communication takes place Directing Formal

though scaler chain only and causes Communication
delays.
15. Rule of only written communcation Organisational Organisational

in the organisation. Barriers Policy
16. Use of high level/ subject specific Linguistic/ Technical Jargon.

terminology in manage. Semantic Barriers
17. Use of wrong words, omission of Semantic Barriers Badly Expressed

needed words, inadequate voca- Message.
bulary.
18. Subordinates do not listen carefully Psychological Lack of Attention/

to the message of superior. Barriers Poor listening
19. Supervisor sends message to two Psychological Poor Retention

workers but forgets to convey to Barriers
third one.
20. Superior neither talks to subordi- Organisation Status

nates nor wishes to hear them. Barriers
21. Nodding the heading while saying Semantic Barriers Body language
’NO’ and gesture
decoding.
22. Superior and subordinate do not Emotional Barriers Distrust

trust each other.
23. Complicated communication proce- Organisational Rules and Regu-

dures. Barriers lations.
24. This leadership suits where emplo- Direction Leadership style

yees are highly skilled, experienced Laissez Faire
and educated.

25. This leadership works where group Direction Leadership style
members are skilled and eager to Democratic style
share their knowledge.
26. This leadership style works wheres Direction Leadership style

leader is the most knowledgeable Autocratic style
member of the group.
I. Multiple Choice questions.

1. Directing is ___________ function of menagement.
(a) 3rd (b) 1st (c) 4th (d) 5th

2. One of the following is not an element of Directing.
(a) Communication (b) Motivation

(c) Leadership (d) Division of work
3. Out of the following, identify non-financial incentive.
(a) Bouns (b) Organisational Climate
(c) Profit sharing (d) Perquisites
4. Cheena wants to have her own house. Which type of need is it?
(a) Esteem (b) Safety

(c) Physiological (d) Social
5. Out of the following, who advocated need— Hierarchy theory in 1943.
(a) Peter F. Drucker (b) Philip Kotler

(c) Abraham Harold Maslow (d) Koontz O’ Donnell
6. Bhawna is very bossy and does not listen to any suggestion given by her
subordinates. Which type of leader is Bhawna.
(a) Democratic (b) Autocratic

(c) Laiseez Faire (d) None of the above
7. Out of the following which is not an example of Noise.
(a) Crossing of a vehicle

(b) Telephone lines going dead in between conversation

(c) Group of people talking nearby
(d) More number of organisational levels
8. Understanding the forms of symbols or diagrams correctly is known as—
(a) Encoding (b) Transmission

(c) Decoding (d) feedback
9. Identify a ‘Semantic Barrier’ out of the following—
(a) Rules and Regulation

(b) Distrust
(c) Technical Jargon
(d) Complex organisational structure
10. Directing ____________ action.
(a) Initiates (b) Ends

(c) Supports (d) None of the above
11. ______________ is an Internal Driving Force Experience.
(a) Communication (b) Motive
(c) Trust (d) Command
12. A sense of ownership is provided in one of the following.
(a) Bonus (b) Perquisities
(c) Co-partnership (d) Profit-sharing
III. Match the Follwing.
1. 1) Motivation a) Overseeing juniors
2) Supervision b) Sharing ideas
3) Communication c) Stimulating People
4) Leadership d) Influencing the followers
(a) (b) (c) (d)
i) c i) a i) d i) b
ii) a ii) b ii) c ii) d

iii) b ii) c ii) b ii) c
iv) d ii) d ii) a ii) a
2. 1) Physiological Needs a) Friendship
2) Safety and security b) Status
3) Esteem needs c) Confirmed job
4) Social needs d) Food
(a) (b) (c) (d)
i) a i) d i) d i) b
ii) b ii) c ii) c ii) a
iii) c ii) b ii) a ii) d
iv) d ii) a ii) b ii) c
3. 1) Autocratic a) Complete freedom to

subordinates for decesion-making
2) Democratic b) Leader tends to run the show all

by himself
3) Laiseez Faire c) The Leader consutts with his

subordinates before making any
final decision.
(a) (b) (c) (d)
i) a i) c i) b i) c
ii) b ii) b ii) c ii) a
iii) c ii) a ii) a ii) b
4. 1) Financial Incentive a) Stock option
2) Non-Financial Incentive b) Job Enrichment
3) Financial Incentive c) Profit Sharing

4) Non-Financial Incentive d) Job Security
(a) (b) (c) (d)
i) a i) d i) b i) a
ii) b ii) c ii) c ii) c
iii) c ii) b ii) d ii) b
iv) d ii) a ii) a ii) d
5. 1) Badly Expressed Message a) Emotional Barriers
2) Distrust b) Organisational Barriers
3) Organisational Policies c) Semantic Barriers
4) Lack of Confidence in d) Personal Barriers
Subordinates
(a) (b) (c) (d)
i) a i) d i) b i) c
ii) b ii) c ii) a ii) a
iii) c ii) b ii) c ii) b
iv) d ii) a ii) d ii) d
Fill in the Blanks:
1. Directing flow from _____________ to ___________.

(a) Top, Bottom (b) Bottom, Top
(c) Upward, vertical (b) Downword, Upward
2. ______________ is the process that excites people to work for the attainment
of desired objective.
(a) Leadership (b) Motivation
(c) Supervision (b) Communication

3. ______________ refers of the need for affection, belongingness and
friendship.
(a) Safety (b) Esteem needs
(c) Social rised (b) Physiological need
4. ______________ Incentives are effective in case of managers.

(a) Monetary (b) Non-Monetary
(c) Vertical (b) None fo these
5. ______________ communication is within an organisation but not officially

sanctioned.
(a) Formal (b) Horizontal
(c) Vertical (b) Informal
Suggest True/False With Reasons
1. Process of communication is never complete without feedback. (T/F)
2. A Supervisor does not facilitates control. (T/F)
3. Esteem needs are needs for respect, outonomy, status, recognition and
attention. (T/F)
4. Autocratic leadership style is not suitable for uneducated and inexperienced

subordinates. (T/F)
5. Leadership emerges out of informal authority and managership emerges
out of formal authority. (T/F)
Sequencing/Assertion Based/Statement Based Question
1. Statement I : The main reason for high rate of employee turnover it lot of
motivation.
Statement II : High rate of employee turnover compels management to go
for new recuirment and training.
Choose the correct option from the following:

(c) Both the statement are true
2. Arrange the needs given by Maslow from bottom to top in a correct sequence:
A Safety need
B Steem need
C Social need
D Self actualisation need
E Physiological need
(a) A, B, C, D, E
(b) A, C, B, E, D
(c) E, C, A, B, D
(d) E, A, C, B, D
3. Assertion (A) : Motivation helps to reduce absentism in the organisation
Reasoning (R) : With motivation, work become a source of pleasure and

workers attend to the work regulary
(a) Both (A) & (R) are true and (R) is the correct explantion of (A)
(c) (A) is true both (R) is false

ANSWERS
MCQS Fill Ups Matching Ture/False
1. C (a) Top, bottom 1. A 1. True
2. D (b) Motivation 2. B 2. False
3. B (c) Social Needs 3. C 3. True
4. C (b) Non-monetary 4. A 4. False
5. C (e) Informal 5. D 5. True
6. B
7. D
8. C
9. C
10. A
11. B
12. C
Sequencing/Assertion Based/Statement Based
1. b
2. d
3. a

Q.1 Following communications indicate barriers to effective communication.

Identify them and also mention the measures to be taken to improve the
effectiveness of communication:
a) The National Sales Manager during his visit to the southern zone, spoke
to the sales managers in Hindi.
b) During a meeting, the manager was addressing to the problem of

competitors pricing policy. The two executives were busy talking to
each other about their plans for the upcoming long weekend. The
manager got distracted and forgot to inform the major changes in
company’s pricing policy.
c) Mohit prefers to stay away from his boss. He is always scared of, what
if his boss does not approve his suggestions.
d) The sales manager while addressing to fresh graduates explained the

threats and opportunities company was facing. He used lot of technical
words which he had learnt in his MBA classes.
e) Sonu Garments Ltd. follows scalar chain very strictly. No employee,

(whatsoever may be the emergency) is allowed to divert from the defined
path of communications. (5)
Q.2 Subermanyam is a newly appointed Human Resource Manager in Times

Ltd. in Punjab. He is a Tamilian basically. He is good in Tamil and English.
Most of his subordinates belong to Punjab and they are not very much fluent
in English. He feels it much difficult to make them understand his
instructions.
1. Identify the concerned communication barrier.
2. State the category of such barrier.
3. Explain any other barrier of same category.
Q.3 Neeraj, a sales representative of ‘Omida Ltd’ has changed seven jobs in the

last one year. He is a hard working person but is not able to finalise deals
with the customers due to his inadequate vocabulary and omission of needed
words. Sometimes he uses wrong words because of which intended meaning
is nor conveyed. All this creates a misunderstanding between him and his
clients.
1. Identify the communication barrier discussed above.

2. State the category of this communication barrier.
3. Explain any other communication barrier of the same category.(3)
Q.4 Raju is good orator, but he lacks good listening skills. Due to it, he does not
listen the instructions given by supervisor carefully and completely. Therefore,
he doesn’t complete the work as her given instructions.
1. Identify the concerned communication barrier.

2. State the category of such barrier.
3. How such barriers can be mitigated? (3)
Q.5 ‘Dr. Plus Ltd.’ a company manufacturing pharmaceuticals organised a seminar

for the lower level team of “Production Department”. The resource person
emphasized on the following points:
In order to realize organisational goals, the supervisor must have the ability
of influencing people to strive willingly for mutual objectives. He should
possess the art of transferring facts, ideas, feelings etc from one person to
another and making them understand them. He needs to monitor the progress
of routine work of the subordinates and guide them properly. He has to identify
what excites people to work for the attainment of a desired objective so as to
induce them to act in a desired manner.
1. Which functionsof management are referred in the above? (1)

2. Identify quoting lines, the elements of one of the functions referred in
above para. (4)
Q.6 ‘Rose Ltd’ is manufacturing- Textiles, Cosmetics and Kitchenware item. The
company has recruited all female fresher’s directly from a Management
Institute located in the city. Each product is headed by different female
manager.
Ms Pooja is looking after Textile. She believes in decentralisation and takes
decisions regarding different work by consulting her subordinates.
Ms Mona, head of cosmetics, takes little interest in managerial functions and

the subordinates are left on their own.
Ms Anu is heading Kitchenware items. She has kept all the authority in her
own hands and makes employees perform the work exactly as per her orders.
1. Which kind of organisational structure has the company adopted? (1)
2. State the specific source of recruitment used by the company? (1)
3. Identify the leadership styles practised by the 3 heads. (3)
Q.7 The psychology lecture of MBA students of ‘Ikon Institute’ was going on. The
lecturer discussed that
(a) Some employees have the desire for status or ego of self-respect and
recognition.
(b) Some have the desire to be what they want to be.
(c) Some aspire for acceptance and sense of belongingness.
(d) Some need defence against unexpected problems in future.
1. Identify the topic of psychology lecture. (1)
2. Identify the desires of employees discussed above along with, how can
a manager fulfil such desires respectively. (4)
Q.8 ‘E.Com Ltd’ recently ventured into cosmetics business. They took help of
professional recruiters for filling their managerial position, who charged fees
for it.
The company appointed the necessary personnel and started the work. All
the workers/officials used official channels of communication, which are as
follow:
• Mr. Arun, the marketing manager co-ordinates all his activities with
production manager.

• Mr. Am it (finance m anager) has prepared cash budg et and
communicated it to his two accountants.
• Mr. Rakesh (store manager) has requested/ suggested the purchase

manager - Mr. Ankush that special temperature controlled warehouse
is required to keep chemicals and cosmetics.
• The marketing manager Mr. Arun has given feedback to production

supervisor, Mr. Ved regarding complaints in recently launched bleach
cream.
1. Which specific source of recruitment is used by the company(1)
2. Identify different forms of communication referred in above paragraph

(4)
Q.9 Anju and Manju work as Supervisor and clerk in Production and Finance
Dept. respectively. They’re close friends and have lunch together. One noon
while having lunch Anju shared with Manju that twenty employees will be
transferred to the foreign branch next month.
1. Which kind of communication took place between Anju and Manju.
2. Write any two limitations of such communication. (3)
Q.10
NOTICE
A meeting of all supervisor
is scheduled on18th May,
2014
This Notice Board was placed in reception area of ABC Ltd. The notice placed
here did not mention clear specification regarding the time. This resulted in
ambiguity of message. Which barrier of communication is ‘referred to’ here?
Explain any three other forms of barriers of effective communication. (4)

Q.11 Kareena is working in an MNC’ She has been given an option to buy the
shares of the company at an amount less than the market price because of
her performance as an incentive. Katrina has been awarded “Employee of
the month” award. Which forms of incentive is being referred here. Explain
the incentives along with any other three incentives. (4)
Q.12 You are a soft skill trainer who trains people in their speaking & writing skills.
What ideas can you give to the trainees about improving their communication
effectiveness? (4)
Q.13 Manoj is working as a supervisor in Galaxy Ltd. He listens to worker’s

suggestions and grievances. He rewards the workers for good suggestions
and handles the grievances timely. He insists on free flow of communication
to solve the conflict among mgt. and workers. While scheduling the duties,
he also consults the workers.
Explain functions performed by Manoj as supervisor by quoting lines from

the above paragraph.
HINTS :
1. Barriers to communication Measures to improve

communication
(a) Semantic Barriers — Use of proper language according

Faulty translations to the needs of receiver.
(b) Psychological Barriers — Receiver should pay attention by

Lack of attention being a good listener.
(c) Personal Barriers — Boss should motivate the sub-

Fear of challenge to authority ordinates to communicate.
(d) Semantic Barriers — Use of words and language as per

Technical Jargon the needs and understanding level
of receiver.
(e) Organisational Barriers — Use of gang plank in emergency,

Complexity in organisation structure making org. structure simpler.

2. 1. Faulty Translations
2. Semantic Barrier
3. Technical Jargon
3. 1. Badly expressed message
2. Semantic Barrier
3. Technical Jargon
4. (1) Communication (2) Category (3) How such barriers

Barrier can be mitigated
Lack of attention/ Poor Psychological/ By developing good liste-

listening Emotional barriers ning skill among emplo-
yees.
5. 1. Staffing, directing
2. Leadership
The supervisor ....................................... objectives.
Communication
He should .......................................... them.
Supervision
He needs .......................................... properly.
Motivation
He has ............................................ manner.
6. 1. Divisional structure
2. Campus recruitment
3. Ms Pooja — Democratic style
Ms. Mona — Free Rein
Ms. Anu — Authoritative

7. 1. Human Nees, Motivation
2. Needs How to fulfill
(a) Esteem Needs Promotion, Job title.
(b) Self-actualisation. Achievement of goals.
(c) Social Needs Cordial relations in format and informal

organisation.
(d) Safety/ security Needs Job confirmation, PF and Pension

Plan.
8. 1. Management Consultants
2. Mr. Arun — Horizontal communication
Mr. Amit — Vertical [downward] communication
Mr. Rakesh — Vertical [upward] communication
Mr. Arun to Ved — Diagonal communication
9. 1. Informal Communication
2. Carry rumours
Unorganised and irregular
10. (i) Semantic Barrier — Badly Expressed message.
(ii) (a) Emotional Barrier — Lack of attention.
(b) Organisationa Barriers — Rules and Regulations
(c) Personal Barriers — Lack of proper incentives.
11. For Kareena — Financial Incentive — Co. partnership
For Katrina — Non-financial Incentive — Employee Recongnition Program
Other Three Incentives —
Financial Incentive — Bonus Profit Sharing
Non-financial Incentive — Job Enrichment, good Organisational Climate

12. Be a patient listener
Classify the ideas before communication.
Ensure proper feedback
Communicate according to the needs of receiver.
13. (i) Feeback — He listens .................................... grievances.
(ii) Motivation — He rewards ........................................ timely.
(iii) Link between workers and management
He insists ........................................... workers.
(iv) Ensures issuing instructions.
While scheduling .................................................... workers.

Questions Based on Analysis, Evaluation and Creation
Read the follwing text and answer questions no. 1 to 4 from it.
Ravi M is the CEO of ‘Great Hospitals’ a leading chain of Hospitals in India. He alongwith
his team of doctors work day & night since covid-19 panemic hit India. He provide
boarding and lodging facilities in hotels near to their work place to all his team members,
He also involve them in decision making process in the issues related to them.
Ravi M decided to reward the good work of the doctors of his organisation during
the peak of covid-19 pandemic. For this he instituted a ‘Corona Warriors Trophy’ to
acknowledge and appreciate the tireless efforts of the doctors who rendered their
services to the patients. Everyone appreciated Ravi M for his efforts as it will not
only recognise the work done by the real front line corona warriors attitude among
the employees towards organisation.
1. “Ravi M involve his team members in decision making process in the issues
related to them.”
Which incentive Ravi M provided to his team members?
(a) Status (b) Recognition

(c) Participation (b) Security
2. ‘Corona Warriors Trophy’ to acknowledge and appreciate the efforts of the

doctors is a part of which incentive to employees?
(a) Status (b) Employee Recognition

(c) Employee Participation (b) Career Advancement
3. “Ravi M help in inculcating positive attitude among the employees towards

organisation”.
(a) Supervision (b) Leadership

(c) Communication (b) Motivation
4. Identify the category of incentives given in the text.
(a) Non Financial (b) Financial

(c) Both A and B (b) None of these
Ans. [1.C, 2.B, 3.D, 4.A]

Read the following text and answer questions no. 5 to 8 on the basisof text:
Ram, Rahim and Mary were close friends since their school times. All three of
them were working as supervisors in different organisations. Recently they met
after a long time. During their meeting, Ram said that he consults all his subordinates
while framing work schedules and he also considers their suggestions. Rahim told
that he him self decide about the work schedules for his subordinates and they
simply follow the orders given to them. Mary disclosed that she is of different view
from both of them. She gives complete freedom to her subordinates and they work
themselves as per their own choice and competence.
5. “Ram said that he consults all his subordinates while framing work schedules
and also consider their suggestions.”
Identify the leadership style of Ram
(c) Laissez faire (b) None of these
6. “Rahim told that he himself decide about the work schedules for his
subordinates and they simply follow the orders.”
Which leadership style is Rahim following?
7. “Mary gives complete freedom to her subordinates and they work themselves
as per their own choice and competence.”
Mary follows which style of leadership?
8. The given text is about the different forms of an element of one of the functions
of management.
Identify that function.
(c) Staffing (b) Directing

Q.1 In an organisation employees are free to approach anyone for minor queries
and problems. This has resulted in inefficiency in the office and also leaked
confidential information due to lack of secrecy. W hich system of
communication do you think the manager should adopt to improve
communication. Give reasons in support of your answer.
Q.2 The workers of Oye Ltd always try to show their inability when any extra or
new work is given to them. Due to sudden rise in demand, the firm wants to
meet excess orders. The supervisor is finding it difficult to cope up with the
situation. Suggest ways for the supervisor to handle the problem.
Q.3 At present apart from the basic pay and allowances as a part of compensation
the employees and employers contribute 12% of basic wages each towards
employees Provident Fund Scheme and employees pension fund scheme.
A proposal to reduce the contribution by employers and employees to 10%
of basic pay and dearness allowance was listed on the agenda for a recent
meeting of employees Provident Fund Organisation held. The stakeholder
expressed their reservations about it and they feel that it should be continued
at 12%. Explain any two needs as suggested by Maslow’s Theory, which will
not be satisfied by the incentives discussed above.
Q.4 Prateek is working in a multinational company in Noida. He was running
temperature for the last many days. When his blood was tested, he was
found positive for malaria. He was admitted in the hospital and a blood
transfusion was advised by the doctors as his condition was very serious
One of his colleagues sent a text message to his superior ‘Mr. B. Chatterjee’.
Mr. B. Chatterjee, immediately sent a text message to the employees of the
organisation requesting them to donate blood for Prateek. When the Gneeral
Manager came to know about it he ordered for fumigation in the company
premises and for cleaning the surroundings.
(a) From the above para quote lines that indicate formal and informal
communication.
(b) State any two features of informal communication.

CHAPTER – 8
CONTROLLING
Controlling
features
• Goal oriented function
• Pervasive function
• Continuous function
• Both backward and forward looking
Relationship between planning

Controlling process
and Controlling
• Setting performance standards
• Planning provides standard and
• Measuring actual performance
controlling check accuracy of
• Comparing actual performance
standards
with standards
• Planning is prescriptive while
• Analysing deviations
controlling is evaluative
• Taking corrective action
• Both are backward looking
• Both are forward looking
Importance Limitations
• Accomplishing organisational goals • Difficulty in setting quantitative
• Judging accuracy of standards standards
• Efficient use of resources • Little control on external factors
• Improve employee motivation • Resistance from employees
• Ensure order and discipline • Costly affair
• Facilitating and coordination.

Meaning & Definition
Controlling means ensuring that activities in an organization are performed as per

the plans. Controlling also ensures that an organisation’s resources are being used
effectively and efficiently for the achievement of predetermined goals.
It can be defined as comparison of actual performance with the planned
performance.
The controlling functions finds out how far actual performance deviates from
standards, analyses the causes of such deviations and attempts to take corrective
actions based on the same.
Nature of Controlling/Features of Controlling
1. Controlling is a goal oriented function:Controlling as a function of
management which ensures that the overall directions of individuals and
groups are consistent with short and long range plans of the organization.
So it is completely a goal oriented function.
2. Controlling is an all pervasive function:Controlling is a function which is

applicable to all types of organizations business and non-business and at all
managerial levels.
3. Controlling is a continuous function: Controlling is not a one time activity.

Rather, it is a dynamic process that involves constant analysis of actual and
planned performance. The resultant deviations, if any, are corrected as per
the need of the situation.
4. Controlling is both a backward looking as well as forward looking
function: Under controlling past performance is analysed, therefore controlling
is backward looking. On the basis of this past performance analysis, remedial
action is taken to make future performance better, in this way controlling is
forward looking.
5. Controlling is a dynamic process: Since controlling requires taking

reviewable methods, changes have to be made wherever possible.
6. Controlling is a positive process: George Terry says, the function of

controlling is positive – it is to make things happen, i.e. to achieve the goal
within stated constraints, or by means of the planned activities. Controlling

should never be viewed as being negative in character – as a hurdle in getting
objectives won. Controlling is a managerial necessity and a help, not an
impediment or a hindrance.
Importance of Controlling
1. Controlling helps in achieving organizational goals:The controlling

function measures progress towards the organizational goals and brings to
light the deviations, if any and indicates corrective action.
2. For Evaluating/Judging accuracy of standards:A good control system

enables management to verify whether the standards set are accurate or
not by careful check on the changes taking place in the organizational
environment.
3. Making efficient use of resources: By the process of control, a manager

seeks to reduce wastage of resources.
4. Improves employee’s motivation: A good control system ensures that

employees know well in advance what they are expected to do & also the
standard of performance. It thus motivates & helps them to give better
performance.
5. Facilitating Coordination in action: In controlling each department and

employee is governed by predetermined standards which are well coordinated
with one another. Control provides unity of direction.
6. Ensuring order and discipline: Controlling creates an atmosphere of order

and discipline in the organization by keeping a close check on the activities
of its employees.
Q.1 If planning is done carefully and accordingly other functions of management
are going in the right direction, then there is no need of the controlling function
of management. Do you agree with this statement? Give reasons in support
of your answer.
[Hint- Controlling is still required to check whether performance is as per

plans or not.]

Controlling Process
Controlling Process
1. Setting Performance Standards:Standards are the criteria against which

actual performance would be measured. Thus standards become basis for
comparison and the manager insists on following of standards.
Standards can be set in both quantitative as well as qualitative terms. It is

important that standards should be flexible enough to be modified whenever
required. Standards should be SMART as:
S – Simply Expressed
M – Measurable
A – Attainable
R – Reasonable
T – Time bounded
2. Measurement of Actual Performance: Performance should be measured

in an objective and reliable manner which includes personal observation,
sample checking. Performance should be measured in same terms in which
standards have been established, this will facilitate comparison.
3. Comparing Actual Performance with Standard: This step involves

comparison of actual performance with the standard. Such comparison will
reveal the deviation between actual and desired performance. If the
performance matches the standards it may be assumed that everything is
under control.

4. Analysing Deviations: The deviations from the standards are assessed
and analysed to identify the causes of deviations.
Deviations are analysed in the light of pre-determined deviation tolerance
limit and key result areas.
a) Critical point control (CPC): It is neither economical nor easy to have
a check on all the activities of an organisation. Hence, the manager
should pay more attention on those activities which are important and
critical to the success of an organisation. These are known as Key
Result Areas- KRA’s.
Example: 2% increase in stationery cost is not critical. But 2% increase
in wages Salaries is critical.
b) Management by Exception (MBE): A manager should take corrective
action only when there is exceptional deviation i.e. when they cross the
permissible limit or acceptable range. Deviations within acceptable range
are ignored.
Example: Wastage within Normal Wastage Range may be ignored. But
if wastage crosses this limit and becomes Abnormal then management
should control.
5. Taking Corrective Action: The final step in the controlling process is taking
corrective action. No corrective action is required when the deviations are
within the acceptable limits. But where significant deviations occur corrective
action is taken.
Q.2 “Comparing the actual performance with laid standard, finding out deviations
and taking corrective action is an important process of a function of
management.” Name the process.
[Hint- Controlling Process]
Relationship between Planning and Controlling
Planning and controlling are interrelated and infact reinforce each other in the sense
that-
1. Planning is pre-requisite for controlling. Plans provide the standard for
controlling. If the standards as the first step in controlling process are not set
in advance managers have nothing to control.

2. Planning is meaningless without controlling. It is fruitful when control is
exercised. It discovers deviations and initiates corrective measures.
Controlling ensures that work has been done according to planning.
3. Effectiveness of planning can be measured with the help of controlling.
4. Planning and controlling both are forward looking: Planning is a future
oriented function as it involves looking in advance and making plans based
on forecasts about future conditions.
Controllingis referred to as looking forward because the corrective action in
controlling is taken to prevent the recurrence of the deviations in future.
5. Planning and controlling are both looking back: Planning is looking back
because new planning is guided by the problem identified in the past.
Controlling is looking back as it compares the actual past performance with
standards. This involves scrutinising the events after they have taken place.
Thus, planning and controlling cannot be separated. The two are
supplementary function which support each other for successful execution.
Planning makes controlling effective whereas controlling improves future
planning.
S. No. Phrase Topic/ function Sub-Topic/
1. It is the process of ensuring that Controlling —
actual activities conform to planned
activities.
2. Control should be focused on key Analysing Critical point
Result Area (KRAs) which are Deviations control.
Critical to the success of an
Organisation.
3. If you try to control everything. You do Mgt. / control by
may end up controlling nothing. exception.
4. Company could not meet production Process of Taking remedial
targets, due to machinery failure, Controlling action.
therefore new machinery was
imported to achieve production
standards.

5. 10% increase in postage exp. is not do Analysing devia-
so harmful as 2% increase in labour tions — critical
cost. So labour cost needs to be point control.
controlled quickly.
6. Normal wastage standard is 3% of do Analysing devia-

Input tions— Mgt. by
Actual wastage comes 5% hence it exception.
must be controlled now.
II. Multiple Choice questions.

1. Which function of managment bring back the manangement cycle back to
the planning function.
(a) Directing (b) Organising (c) Controlling (d) Staffing

2. A good control system helpls an organisatioin to.
(a) Accomplishes organisational gools.

(b) Judges accuracy of standerds.
(c) Ensure order and discipline
(d) All of the above.
3. Under which step of controlling process certain pieces are checked at
random for quality as sample checking.
(a) Measurement of actual performance
(b) Comparing actual performance with standards
(c) Analysing Deviations
(d) Taking corrective action.
4. The plans lay down 2% increase in labour cost as an acceptable range of
deviation in a manufacturing organisation, only increase in labour cost
beyond 2% Should be brought to the notice of the management.
Which method of controlling deviations is mentional above.
(a) Budgetary control (b) Critical point control

(c) Management by exception (d) Inventory control.

5. “Employees might object when they are kept under a strict watch with the
help of CCTVs.” Which Limitation of controlling is indicated here’
(a) Control through CCTVs is as costly affair

(b) Organisation have little control on external factors.
(c) Selection of CCTVs instalation points is difficult and time consuming.
(d) Resistance from employees.
6. In case the deviation cannot be corrected through managerial action, what
should be done.
(a) Standards may have to be revised.

(b) Control through CCTVS should be ensured
(c) Existing controlling process should be changed/modified
(d) Sample checking should be done.
7. In a manufacturing organisation an increase of 5% in the labour cost may
be more troublesome than a 15% increase in postal charges.
Which method of controlling Deviations is mentioned in above example.
(a) Budgetary control (b) Management by exception

(c) Critical point control (d) Inventory control
8. “Controlling improves future planning by providing information derived from
past experience. “This, controlling function of an organisation based on given
feature is.
(a) Forward looking

(b) Backward looking
(c) Forward as well as backward looking
(d) None of the above.
9. Identify the basis of controlling that are provided by planning.
(a) Actual performance (b) Key Result areas

(c) order and discipline (d) Standard performance

10. Which function of management not only helps in keeping a track on the
progress of activities but also ensures that activities conform to the standards
set in advance.
(a) Planning (b) Directing

(c) organising (d) controlling
Answer :
(1) c (2) d (3) a (4) c (5) d
(6) a (7) c (8) c (9) d (10) d
True/False
Giving reason in support of your answer, state whether the following are
True or False.
1. Critical point control is an important principle of managment control based
on the belief that an attempt to control everything results in controlling nothing.
2. Sometime situation may arise when deviation cannot be corrected through
managerial action then in such situations the standards may have to be
revised.
3. Controlling process is evaluative in nature as it checks whether decisions
have been translated into desired action.
4. Planning and controlling reinforce each other as planning improves future by
providing information derived from past experiences while controlling based
on facts makes planning easier.
5. Once a plan becomes operational, controlling is not neccessary as events
will conform to plans automatically.
Answer :
(1) False (2) True (3) True (4) False (5) False
Fill in the blanks with most appropiate word.

1. After identifying the deviations that demand managerial attention these
deviations need to be ____________ for their causes.
a) Studied b) ignored
c) analysed d) interpreted

2. Corrective action might involve ___________ of employees if the production
target could not be met.
a) Counselling b) Inducement
c) Influencing d) Training
3. ____________ checks whether decisions have been translated into desired
action due to which it is evaluative in nature.
a) Planning b) Controlling
c) Directing d) Organising
4. Planning and controlling are inseparable _____________ of managment.
a) Functions b) Activities
c) Twins d) Processes
5. Controlling creates an atmosphere of ______________ and __________.
a) order, discipline b) order, clarity
c) order, happiness d) order, peace
Answer :
(1) c (2) d (3) b (4) c (5) a
Match the Follwing and select the most appropiate opption.
1. Canses of deviation Corrective action
1) Defective Material a) Technological upgradation
2) Defective Machinery b) Ouality specification changes
3) Obsolete Machinery c) Improve surrounding
4) Defective conditions of work d) Repair or replace
(a) (b) (c) (d)
i) d i) b i) b i) d
ii) a ii) a ii) d ii) b
iii) b ii) d ii) a ii) a
iv) c ii) c ii) c ii) c

2. Functional Areas Standards
1) Production a) Individual
2) Marketing b) Labour absenteeism
3) HRM c) Inventories
4) Finance d) Individual Job
(a) (b) (c) (d)
i) a i) c i) b i) d
ii) b ii) d ii) c ii) a
iii) c ii) a ii) d ii) d
iv) d ii) b ii) a ii) c
3. Select the correct seqvence of controlling process.
1) Setting standards
2) Measurement of actual performance
3) Analysing Deviations
4) Taking Corrective action.
5) Comparison
a) 1-2-3-4-5 b) 1-2-4-3-5
c) 1-2-5-3-4 d) 1-2-5-4-3
4. 1) Function of management a) Little control on external factors
2) Feature b) Judging accuracy of standards
3) Limitation c) Forward & backward looking
4) Importance d) Controlling
(a) (b) (c) (d)
i) d i) d i) d i) d
ii) c ii) b ii) a ii) c
iii) a ii) a ii) c ii) b
iv) b ii) c ii) b ii) a
5. 1) Critical point control a) Controlling
2) Management by Exception b) Planning
3) Evaluative Function c) Key result Areas

4) Prescriptive Function d) Deviations beyond the
permissible limit should be
brought to the notice of
management
(a) (b) (c) (d)
i) c i) c i) d i) d
ii) d ii) d ii) c ii) c
iii) b ii) a ii) a ii) b
iv) a ii) b ii) b ii) a
Answer :
(1) c (2) d (3) c (4) a (5) b

Q.1 Prakash Jha wishes to fix- standard production for worker along with standard
time to complete the job. Under which function of management, standards
are fixed? (1)
Q.2 Jindal Ltd. could not achieve the target production of 15,000 cars p.a. It could
produce only 14,125 cars - While analysing the reasons for deviations, it was
found that workers were not efficient. Training programmes were organised
and next year, company was able to produce 15,000 units. Production
Manager is of the opinion, that with this, management ends at controlling. Do
you agree? Give reason to support our answer. (3)
Q.3 Suppose you are the manager of ABC Clothing Ltd. It comes to your knowledge
that postal expenses have increased by 15% over the standard price and
cost of labour and raw materials has increased by 3%. Which of the two
situations is more critical according to you? (1)
Q.4 ‘Tricom Ltd’ a computer hardware manufacturing company imported a new

machinery for manufacturing latest technology based computer systems.
The human resource manager determined that for operating the new
machines, the company required the necessary workers through placement
agency.
After 3 months, it was reported by the production manager that the workers
were not able to meet the target production. The General Manager got annoyed
and ordered inquiry for the same. It was reported that the newly recruited
workers possessed the necessary skills and abilities but lacked the
willingness to do work.
(i) Name the functions of management involved above (3)
(ii) Name the relevant concept of functions identified in (i) (2)
(iii) Which concept of management will help the company in meeting the
target production (1)

Q.5 Mr. Ankit is the chief manager in a well-known MNC, producing shoes. He
called the production manager of his unit and told him to keep a constant
watch on all the activities of his respective unit so that there is no possibility
of adverse results. As long as the company runs its operation employees at
all levels will adopt it to achieve results.
1. Identify the function of management referred above. (1)
2. Describe its three features quoting lines from the para. (3)
Q.6 Polycons Ltd. is a firm manufacturing paper bags in Orissa. It has employed
female workers in the company and manufactures paper bags from recycle
paper and there after sells them to various firms at economic rates.
Since last 1 month, its customers(firms) are reporting of complaints received

from the users that these paper bags are unable to manage heavy weight
and get torn easily.
1. Which function of management has been ignored above? (1)
2. Discuss the steps to be undertaken in respect of the ignored function to

remedy the situation. (4)
Q.7 Mr. Sandhu worked as a manager in a company manufacturing stationary

items for 10 years. Later he thought of starting his own business as he had
acquired the skills and expertise in past years. He started his own venture.
He divided the organisation into six major departments- Production,
Purchase, Marketing, Legal, Human resource and Finance. After a month,
he called upon the meeting of all the departmental heads in his office and told
the production marketing and finance department managers to be very vigilant
as their departments are critical to the success of the business. Short
comings in Purchase, Personnel or Legal department would not affect much
the success of business. Therefore, Mr. Sandhu determined deviation
tolerance limits for the critical departments.
1. Identify the two functions of management referred above. (1)
2. Describe the relevant concept of the identified functions. (3)

Q.8 One day, the management instructor of BBA classes organised a “Panel
Discussion” on important topics of management. The students were given
the following clues for discussion. Each student was given 3 minutes for
elaborating on the clues given below:
Clue 1: They are inseparable twins.
Clue 2: They are inter-dependent, inter-related and reinforce each other.
Clue 3: They both are forward as well as backward looking.
1. Identify the functions of management written in clues above.
2. Elaborate on the 3 clues.
Hints
1. Planning
2. No, because analysis of deviations may leads to revise the standards

next year.
3. Increase in cost of labour and raw materials.
4. (i) (ii)
1. Staffing Recruitment
2. Controlling Comparing actual performance
3. Directing Analysiing causes of deviations.
(iii) Motivation
5. 1. Controlling
2. Goal oriented “So that .................................. adverse results.
Continuous Process “As long ..................................... co. runs”
Pervasive function “Employees at all levels”

6. 1. Controlling
2. Measuring actual performance
Comparing Actual performance with standards
Analysis Deviations
Taking corrective measures
7. (1) (2)
Organising Departmentalisation
Controlling Critical point control

Controlling by Exception
8. 1. Planning and Controlling
2. Explain relationship between planning and controlling relevant to

questions.
9. Col. Pratap Singh retired from Army and joined Jacob Ltd. as General Manager.
He is very strict disciplinarian and makes everybody to meet deadlines. He
doesn’t listen any suggestion and doesn’t pay any heed to worker’s problems.
Although targets are achieved in time, yet working atmosphere is deteriorating
day by day. Workers do not get any opportunity to interact with each other for
satisfaction of social and emotional needs. Labour Turnover Rate is
increasing.
(i) Which kind of leadership style, has Mr. Pratap been adopting (1)
(ii) Which kind of communication is not taking place among employees.

Describe. (2)
Ans. (Hints) (i) Autocratic (ii) Informal Communication meaning.

10. Shalu is a student of Class XI. She got 70% marks in Class X. Her brother
motivated her to study well and try to get 100% marks to seek admission in
SRCC. In first unit test, she got 78% marks. She made a list of reasons for
deviation of 22% she found that reasons were -
- Writing speed
- Lack of practice for different kind of questions, especially multi-unit

questions.
She practiced more mock tests at home with time-check and searched for
variety of questions on internet. In next unit test, she got 85% marks. Again
she made a list of such causes and improve upon and so on.....................
(i) Identify element of direction discussed in first paragraph. (1)
(ii) By which function of management Shalu was trying to regulate her result.
(1)
(iii) Explain first three steps of the process of such management function.
(3)
Ans. Hints (i) Motivation
(ii) Controlling
(iv) First three steps of controlling
11. On Annual day of the company, all departmental heads were having dinner
with their terms. Production Manager Mr. Siddharth and his supervisor Mr.
Allahrakaha were also there. Mr. Allarakha told Mr. Siddharth about the
problems faced by workers due to the bad condition of machines. According
to him major repairs and replacements of worn out parts were required. Later
on, Production Manager made efforts to find out the actual position and found
the same situation as described by Mr. Allahrakha. He conveyed the matter
to higher authorities who went for overhauling of machinery. As a result,
productivity increased by almost 20%.
Top management awarded a cash prize of Rs. 25000/- to Mr. Allahrakha on
the next Annual day.
1. Identify the kind of communication which took place between Mr. Siddarth
and Mr. Allaharakha. (1)

2. What step was taken by top mgt. to improve the situation. (1)
3. Name & explain the kind of incentive which was given to Mr. Allahrakha.
(2)
Ans. Hints: (1) Informal Communication
(2) Remedial Action - repair/Replacement/overhauling
(3) Monetary Incentive
12. In Jagdama Ltd., all the activities were divided into seven department as
Purchase, Marketing, Production, Personnel, Finance, Accounting and
correspondence. General Manager Sh. Ram Niwas analysed and concluded
that marketing, production and finance were the departments on which
success of the business is dependent. Short comings in other departments,
would not affect much the success of the business. He also decided deviation
tolerance limits of these three main departments. If deviation goes beyond
these tolerance limits, then only the same will be brought to the notice of Sh.
Ram Niwas.
(1) Identify functions of management referred in the above paragraph. (2)
(2) Describe the relevant concepts of identified function by quoting lines

from the above paragraph. (4)
Ans. (i) Organising, Controlling
(ii) Critical Point Control Management by Exception
13. Directors of Panorma Ltd. gave complete freedom to departmental heads to

frame departmental policies and get the work done. But departmental heads
neither consulted each other nor did they take guidance and final approval
from Managing Director. They framed individual isolated policies and did not
check timely the problems. At the end of the year, they faced huge
departmental losses.
(1) Which leadership style was adopted by Director. (1)
(2) Which functions of management were performed poorly? (2)
Ans. (i) Free rein (ii) Direction and Controlling

14. Production manager set the annual production target as -
“Huge amount of Production”.
Superiors checked the workers at work regularly and they made the workers
do their best by encouraging them.
At the end of the year, it was found that actual production was 1,65,000 units.
General Manager was not satisfied with the performance as last year 1,90,000
units were produced. But Production Manager was of the opinion that they
have achieved the target of -”Huge amount of production.”
(i) What was missing in determining the production standards? Explain
by highlighting qualities of Good Standard. (Any two) (3)
(ii) Name two elements of direction mentioned in the paragraph. (2)
Ans. (i) Standards should be determined in numbers. Standards should
be: Attainable, Measurable, Time bound etc. (Any Two)
(ii) Supervision, Motivation
15. A company was manufacturing ‘LED bulbs’ which were in great demand. It
was found that the target of producing 300 bulbs a day was not met by the
employees. On analysis, it was found that the workers of the company were
not able to achieve the set targets and alternative arrangements were needed.
To meet the increased demand, the company assessed that approximately
88 additional workers were required out of which 8 would work as heads of
different departments and 10 would work as subordinates were also enlisted.
It was also decided that necessary relaxation should be given to encourage
women, persons from backward and rural areas and persons with special
abilities to assume responsible positions in the organisation. All efforts were
made to match the ability of the applicants with the nature of work.
a) Identify the functions of management discussed above.
b) State the steps in the process of each function discussed in the above
para. (5)
Hint-
(a) (b)
1. Staffing Estimating man power requirements
2. Controlling Comparing actual performance with standards
Finding deviations

Questions Based on Analysis, Evaluation and Creation
Read the follwing text and answer questions no. 1 to 4 from it.
X ltd was not performing well as it continuously failed to meet quality standard. It
was decided It was decided by it’s management to introduce TQM Programme to
solve this problem. It was also decided that in marketing progress of work was to
be measured on the basis of increase in market share and significant deviations
which goes beyond the permissible limit were requried to be brought to the notice
of Mr. Sunil, who was the overall incharge of TQM programme.
To minimize the dishonest behaviour on the part of the employees a close check on
their activities was started for which CCTVs were installed in the factory and office
premises.
Mr. Pramod, the production manager was also allowed to undertake required steps
to solve the problem of absolute machinery.
1. “Management introduce TQM programme to solve the problem”.

Which function of management is performed to solve the problem.

(c) Controlling (d) Directing
2. “Marketing progress was to be measured on the basis of increase in market

share.”
Identify the step of one of the management function process of indicated here.
(a) Performance Appraisal (b) Setting objectives

(c) Developing Premises (d) Measurement of performance
3. To solve the problem of obsolete machinery, what step production manager

should undertake?
(a) Repair the Machine (b) Replace the Machine

(c) Upgradation of Machine (d) Not to use Machine

4. In the above text an important principle of management control is discussed,
identify that principle.
(a) Management by control (b) Control by exception

(c) Critical point control (d) Budget Control
[Ans. 1.C, 2.D, 3.C, 4.B]
Q: BTC Ltd. has diversified business ranging from foods, Lifestyle retail, personal
care, Hotels, E-choupal to information technology. To ensure good quality of
products. It has set up research and development centres and has implemented
ISO 9001:2001 standards. Under its E-Waste management policy it has de-
cided that 30% to 40% of its energy consumption will be met from renewable
sources. Direct supervision and observation by managers helped in correcting
the miskates on the spot only. Auditing further reduced the chances of recur-
ring of any error.
Continuous checks helped a lot in taking corrective action in time to achieve
the targets. But E-Waste management could provide only 22% of energy con-
sumption so quick action was requied in that case.
Q.1 Which function of management is highlighted in the above paragraph?
(a) Directing (b) Controlling
(c) Planning (d) Staffing
Q.2 “But E-waste management ................... that case.” Which concept of man-
agement needs to be applied in this case?
(a) Coordination (b) Management by exception
(c) Motivation (d) None of the above
Q.3 “To ensure .......................... ISO 9001:2001 standard.” Identify same in the
process of planning and controlling:
(a) Finding deviations (b) Measuring actual performance
(c) Taking corrective (d) Setting performance standards
Q.4 Direct supervision and auditing are methods/techniques of—
(a) Planning (b) Controlling
(c) Organising (d) Management
Answer: 1. (b) 2. (b)
3. (d) 4. (b)

Assertion based/Statement based Question
1. Statement I : Planning based on facts makes controling easer and effective.
Statement II : Controlling improves future planning by providing information
derived from past experiences.
(c) Both the statements are true
2. Assertion (A) : When we try to control everything, we end up controlling noth-
ing
Reasoning (R) : Only significant deviations which go beyond the permissible
limit should be brought to the notice of managements.
(a) Both (A) & (R) are true and (R) is the correct explantion of (A)
(c) (A) is true but (R) is false
3. Identify the process of management being undertaken in the above illustration.
(c) Controlling (d) Directing

4. Assertion : As far as possible, performance should be measured in sami
units in which standards are set.
Reasoning (R) : This results in comparism being easy
(a) Both (A) & (R) are true and (R) is the correct expanation of (A)
5. KMP Limited installed cameras in its factory to keep a check on the activities
of its workers.
‘Which function of manangement is being perfomed by KMP limited here?
Answer
1. (c) 2. (b) 3. (c) 4. (a) 5. Controlling
Additional Questions for Practice
Q.1 Ms. Geeta is the manager of Z ltd. It was brought to her notice that postal
expenses have incresed by 15% while raw material cost of the fire increased
by 5%. Which of the two according to you, is more critical for the firm which
Ms. Geeta must pay attention? Give reason in support of your answer.
Q.2 In the process of controlling actual performance is compared with standard

performance to find deviations, which may be positivie or negative. Suggest
which of the two deviations i.e. positive or negative is bad for an organisation
along with reason.
Q.3 High Tech Machines was a renowned name for quality sewing machines since
1950. The owner of the company was worried as the production had declined
during the last three months. He directed the production manager to find out
the reason. The production Manager ordered the different supervisors to pre-
pare a performance report of the workers working under them. What purpose
performance report of the workers will serve? Explain

Q.4 A.S. Ltd. is a large company engaged in assembly of air-conditioners. Re-
cently the company had conducted the ‘Time’ and ‘Motion’ study and concluded
that on an average a worker can assemble ten air-conditioners in a day. The
target volume of the company in a day is assembling of 1,000 units of air-
conditioner. The company is providing attractive allowances to reduce labour
turnover and absenteeism. All the workers are happy, Even then the assembly
of air-conditioners per day is 800 units only. To find out the reason the company
compared actual performance of each worker and observed through C.C.T.V.
that some of the workers were busy in gossiping.
(a) Identify the function of management discussed above.
(b) State those steps in the process of the function identified which are dis-
cussed in the above paragraph.

CHAPTER – 9
FINANCIAL MANAGEMENT
Objective: To Maximizes Shareholders Wealth
FINANCIAL MANAGEMENT
Financial Management is concerned with decisions relating to

1. Procurement of funds (financing decisions)
2. Investment of funds (investing decisions)
3. Distribution of earnings (dividend decision)
Investment Decisions Decisions Dividend Decisions
Long term Stort term

Investment Profit to Profit to
Investment be retained be distributed
Decisions or Decisions or Financing Decisions
Capital Budgeting Working Capital Retained earning Dividend

decisions decisions
Debt Equity
– debentures – equity share capital

– Long term loans – Preference Share Capital
– Retained earnings
Capital Structure Financial leverage
Proportions of Debt & Equity Proportion of Debt in total Capital

Factors Affecting
Investment decision Financing decisions Dividend decision
– Cash flow of the Project

– Rate of Return
– Investment Criteria innolved
Investment – Trading on Equity – Earnings

– Cash flow position – Stability of dividends
– Interest coverage ratio – Growth Prospects
– Return on investment – Cash flow positions
Fixed Assets Net Current Assets – Floatation cost – Preference of shareholders
– Control – Taxation Policy
– Tax Rate – Stock market reaction
Factors affecting – Cost – Legal constraints
– Risk
– Period of finance
– Nature of business – Nature of business

– Scale of operations – Scale of operations
– Choice of techniques – Business cycle
– Technology up gradation – Seasonal factors
– Diversification – Credit allowed
– Financing alternatives – Credit availed
– Collaboration – Inflation/Deflation

Introduction
Money required for carrying out business activities is called business finance. Finance
is needed to establish a business, to run it, to modernize it, to expand or diversify it.
Meaning of Financial Management : Financial management is the operational

activity of a business that is responsbile for obtaining and effectively utilizing the
funds necessary for efficient operation. Financial management is the activity
concerned with the planning, raising, controlling and administering of funds used in
the business. It is concerned with optimal procurement as well as usage of finance.
It aims to reduce the cost of funds. It also aims at ensuring availability of enough
funds whenever required as well as avoiding idle finance.
Objectives of Financial Management
(A) Primary Objective:
• Wealth Maximisation: The main objective of Financial management is to

maximise shareholder's wealth maximisation means to increase the capital
invested in the business by the shareholders. Market price of the shares is
the index of the capital invested. If the market price of the shares increases it
can be said that capital invested (wealth) by the shareholders has been
appreciating. Example- If Mr. X purchases 100 shares @ ` 100 of ABCLtd,
his wealth in company’s is ` 10,000/-. After some time, the market price of
share increases to ` 130/-. Therefore, his wealth would be ` 13,000/-. His
wealth increases by ` 3,000/-. If the market price of the share decreases to
` 90/- he loses his wealth by ` 1,000/-
The wealth of the shareholders i.e. the market price of a company shares is
linked to three basis financial decisions and shareholder's wealth
maximisation.
Wealth of shareholders = number of shares × market price per share.
(B) Other objectives:
1. To procure sufficient funds for the organisation:Adequate and regular

supply of funds is to be maintained for smooth operations of the business.

2. To ensure effective utilisation of funds. The available funds should be used
effectively and their wastage should be minimised.
3. To ensure safety of funds : The chances of risk in investments should be

minimum possible.
Financial Decisions:
Financial
Decisions
FINANCING DECISION
Decision is taken at two stages:
I STAGE 2nd STAGE
FINANCIAL CAPITAL
PLANNING STRUCTURE
1. Estimating overall requirement

of funds.
2. Deciding different sources

of finance.

Equity
Debt
Deciding how much amount is to be arranged from which source.
FINANCIAL PLANNING (THE PREPARATIN OF A FINANCIAL BLUEPRINT OF

AN ORGANISATION’S FUTURE OPERATIONS)
The process of estimating the fund requirement of a business and specifying the
sources of funds is called financial planning. It ensures that enough funds are
available at right time so that a firm could honour its commitments and carry out its
plans.
It includes the exploration of different alternatives of source of finance, selection of
the best alternative and implementation of financial plans and policies. In layman’s
language we can say that financial planning means deciding in advance how
much to spend, on what to spend, according to the funds at your disposal.
Following are the tasks which come under financial planning:
(i) Determination of Financial Objectives.
(ii) Formulation of Financial Policies and Rules.
(iii) Forecasting the Needs of Finance.
(iv) Developing Alternative sources of Finance.
(v) Selection of Best Alternative.
(vi) Implementing Financial Plans and Policies.

Financial planning includes both short term as well as long term planning. Short
term planning is usually in the form of annual budgets. Long term planning takes the
form of capital budgets.
Importance of Financial Planning
1. To ensure availability of adequate funds whenever required to meet day to

day expenses and to acquire long term assets.
2. To see that the firm does not raise funds unnecessarily. If funds remain idle,
then it leads to increase in cost of the firm.
3. To achieve a balance between inflow and outflow of funds and to enusre
adequate liquidity throughout the year.
4. The serves as the basis of financial control by helping management to ensure
utilization of funds in tune with the financial plans.
Importance of Financial Management of Financial Planning
1. It helps in forecasting what may happen in future under different business

situations.
2. It helps in avoiding business shocks and surprises & helps the company in
preparing forthe future.
3. It tries to link between investment and financing decisions on a continuous
basis.
4. It tries to link the present with the future.

5. It helps in co-ordinating various business functions e.g. sales and production
functions by providing clear policies and procedures.
The main sources of funds are owner's funds i.e. equity/shareholder's funds and
the borrowed funds i.e. Debts. Borrowed funds have to be repaid at a fixed time and
thus some amount of financial risk (i.e. risk of default on payment) is there in debt
financing. Moreover interest on borrowed funds has to be paid regardless of whether
or not a firm has made a profit. On the other hand, shareholder's fund involves no
commitment regarding payment of returns or re-payment of capital. A firm mixes
both debt and equity in making financing decisions.

Capital structure refers to the optimal mix between owner’s funds and borrowed
funds. It will be said to be optimal when the proportion of debt and equity is such that
it results in an increase in the value of the equity share. The proportion of debt in the
overall capital of a firm is called Financial Leverage or Capital Gearing. When
the proportion of debt in the total capital is high then the firm will be called highly
levered firm but when the proportion of debts in the total capital is less, then the firm
will be called low levered firm.
Debt
Financial leverage =
Equity
Factors affecting Capital structure or financing decision
1. Trading on Equity: It refers to the increase in profit earned by the equity

shareholders due to the presence of fixed financial charges like interest.
Trading on equity happens when the rate of earning of an organisation is
higher than the cost at which funds have been borrowed and as a result
equity shareholders get higher rate of dividend per share. The use of more
debt along with the equity increases EPS as the debt carries fixed amount of
interest which is tax deductible. Let us understand with an example-
Company X Company Y Company Z
Equity share cap. 10,00,000 5,00,000 2,00,000

(of Rs 10 each)
12% preference share —— —— 3,00,000
Debenture @10% —— 5,00,000 5,00,000
Total Capital 10,00,000 10,00,000 10,00,000
Company X Company Y Company Z
Earning before int. 2,50,000 2,50,000 2,50,000

and taxes(EBIT)
@25% p.a.
Less interest on debt —— (50,000) (50,000)

Profit after tax 2,50,000 2,00,000 2,00,000
(available for equity &
pref. Share holders).
Tax @ 40% (1,00,000) (80,000) (80,000)
Profit available 1,50,000 1,20,000 1,20,000

for equity +
preference
shareholders
Less preference
dividend. —— —— 36,000
Profit for 1,50,000 1,20,000 84,000

equity shareholders
No. of equity shares 1,00,000 50,000 20,000
Earnings per share ` 1.50 ` 2.40 ` 4.20
Thus the EPS of company Y and Z is higher than company X because of application
of ‘Trading on Equity’
2. Cash Flow Position: In case a company has strong cash flow position then
it may raise finance by issuing debts, as they are to be paid back after some
time and interest has to be paid on debt.
3. Interest Coverage Ratio: It refers to the number of times earning before

interest and taxes of a company covers the interest obligation. High interest
coverage ratio indicates that company can have more of borrowed funds.
Formula for calculating ICR = EBIT/interest.
4. Return on Investment: If return on investment is higher than the rate of

interest on debt then it will be beneficial for a firm to raise finance through
borrowed funds.
5. Floatation Cost: The cost involved in issuing securities such as brokers

commission, under/writer’s fees, cost of prospectus etc. is called floatation

cost. While selecting the source of finance, floatation cost should be taken
into account.
6. Control: When existing shareholders are ready to dilute their control over
the firm then new equity shares can be issued for raising finance but in reverse
situation debts should be used.
7. Tax Rate: Interest on debt is allowed as a deduction; thus in case of high tax
rate, debt is preferred over equity but in case of low tax rate more preference
is given to equity.
8. Cost: The cost of raising funds from different sources are different. The
cheapest source should be selected.
9. Risk: The risk associated with different sources is different. More risk is
associated with borrowed funds as compared to owner’s fund as interest is
paid on it and it is to be repaid also, after a fixed period of time or on expiry of
its tenure
10. Period of Finance: For permanent capital requirement, Equity shares must
be issued as they are not to be paid back and for long and medium term
requirement, preference shares or debentures can be issued.
Q.1 State the formula for calculating financial leverage. (1)

[ Hint: Debt/ Equity]
Q.2 What is the impact of business risk on Capital structure. (1)
[Increase in risk will decrease use of debt]
Q.3 Under what situation, will an increase in debt decrease the EPS?
(i) When rate of return is less than rate fo interest.
(ii) Decrease in earnings.
Q.4 ‘Cost of debt’ is lower that the ‘Cost of equity share capital’. Give reason,
why even then a company cannot work only with debt. (3)
(Because equity share capital is a permanent source of capital & provides
risk capital). (1)
Q.5 What is favourable financial leverage? (1)
When capital structrue has more debt than equity as return on investment
higher than cost of debt.

Q.6 Amita Ltd. does not have any debt in its capital structure but Kajal Ltd. has
debt @ 15% in its capital structure. Rate of return of both companies is
20%. Which company enjoys the benefits of trading on equity and why?
(3)
[Hint: Kajol Ltd. because interest is a tax deductible item.]
INVESTMENT DECISION
It relates to how the firm’s funds are invested in different assets. Investment decision
can be long-term or short-term. Long term investment decision is called capital
budgeting decision as they involve huge amounts of funds and are irreversible except
at a huge cost. These decisions influence overall business risks of the firms short
term investment decisions are called working capital decisions, which affect day to
day working of a business. These decisions affect the liquidity as well as profitability
of a business.
Factors affecting Investment Decisions
1. Cash flows of the project : The series of cash receipts and payments over
the life of an investment proposal should be considered and analysed for
selecting the best proposal. Example-
Investment proposals
No.1 No. 2 No.3
Net cash inflow during 5,00,000 7,00,000 2,00,000

life time of investment.
Life time of investment. 10 years 10 years 10 years
Investment should be made in proposal No. 2 as net cash inflow is more.
2. Rate of Return : The expected returns from each proposal and risk involved
in them should be taken into account to select the best proposal.
Details NO.1 No.2 No.3
Rate of return =
Total return during lifetime of investment
×100 13% 24% 15%
Initial investment

Investment Proposal No. 2 should be selected.
3. Investment Criteria Involved : The various investment proposals are
evaluated on the basis of capital budgeting techniques. These involve
calculations regarding investment amount, interest rate, cash flows, rate of
return, risk involved in project etc.
If the key criteria to be considered while choosing the investment channel is
RISK., In that case, the investment channel with LEAST RISK should be
chosen.
Q.1 Name the financial decision which will help a businessman in opening a
new branch of its business? (Investment decision) (1)
Q.2 A company wants to open a new unit which will require machinery worth
15 crores. Identify the financial descision involved? (Investment decision)
(1)
Q.3 Name the financial decision in which a businessman uses huge amount of
funds for using advanced technology in business. (Investment decision)
(1)
INVESTMENTS
Fixed Assets Net Current Assets
Fixed Capital
Fixed capital refers to investment in long-term assets. These are Investment in

fixed assets like land, plant and machinery for longer duration. They must be financed
through long-term sources of capital. Decisions relating to fixed capital involve huge
capital and are not reversible without incurring heavy losses.
Factors Affecting Requirement of Fixed Capital

1. Nature of Business : Manufacturing concerns require huge investment in
fixed assets & thus huge fixed capital is required for them but trading concerns
need less fixed capital as they are not required to purchase plant and
machinery etc.
2. Scale of Operations : An organisation operating on large scale requires

more fixed capital as compared to an organisation operating on small scale.
For Example - A large scale steel enterprise like TISCO requires large
investment as compared to a mini steel plant.
3. Choice of Technique : An organisation using capital intensive techniques

requires more investment in plant & machinery as compared to an organisation
using labour intensive techniques.
4. Technology upgradation : Organisations using assets which become

obsolete faster require more fixed capital as compared to other organisations.
5. Growth Prospects : Companies having more growth plans require more

fixed capital. In order to expand production capacity more plant & machinery
are required.
6. Diversification : In case a company goes for diversification then it will require

more fixed capital to invest in fixed assets like plant and machinery.
7. Financing alternatives: When an asset is taken on lease, the firm pays

lease rent and uses it. So, fixed capital requirements are low since the firm
can avoid funds required to purchase it.
8. Collaboration : If companies are under collaboration, Joint venture, then

they need less fixed capital as they share plant & machinery with their
collaborators.
Working Capital
Working Capital refers to the capital required for day to day working of an
organisation. Apart from the investment in fixed assets every business organisation
needs to invest in current assets, which can be converted into cash or cash

equivalents within a period of one year. They provide liquidity to the business. Working
capital is of two types - Gross working capital and Net working capital. Investment in
all the current assets is called Gross Working Capital whereas the excess of current
assets over current liabilities is called Net Working Capital.
Networking Capital = Current Assets- Current Liabilities
Basis Fixed Capital Working Capital
1. Nature The amount of fixed capital The amount of working capital

remains blocked in business. revolves around in the
business.
2. Purpose Buy fixed assets. Buy current asset.
3. Main Sources Shares, debentures, Commercial banks, public

loans and retained earnings. deposits etc.
4. Time Period Required for long term use. Required for short-term use.
Factors affecting requirement of working capital:
Name of the factor Requirement of More working Requirement of Less

capital working capital
Nature of business Manufacturing concern Trading concern because of no

because of processing work. production.
Scale of operation Large scale operation because Small scale operations

of huge inventory. because of small inventories.
Business Cycle During boom period because During depression period

of more production. because of less production.
Seasonal factors Peak season because of Lean season, because of low

more demand. demand.
Credit allowed to Sales on ‘credit basis’ Sales on ‘cash basis’

customers
Credit availed from Purchase on ‘cash basis’ Purchase on ‘Credit basis’

suppliers.

Inflation Vs Deflation During inflation, due to high During deflation, due to low
price level for raw material, price level.
wages etc.
Operating cycle/ Long operating

Long operating cycle.
cycle. Short operating cycle.
Turnover of working
capital. It is the time Raw
material
period from purchase
work in
Cash
of raw material to progress
realisation from Operating
debtors. cycle Stock of
Debtors
finished
& B/R
product
Credit
sales
Higher lead time to acquire raw

Availability of raw Higher so
material, lead timestock
higher to acquire
of raw Lower lead time, so less stock
material would be needed.
material raw material, so higher stock of raw material would be
of raw material would be needed. needed.
Growth prospects High growth prospects. Low growth prospects.
Level of competition High competition would Low competition would require

require high amount of stock less amount of stock keeping.
keeping.
Production cycle Long production cycle. Short production cycle
Q.1 ‘Fixed capital decisions are irreversible’. Why? (Huge funds involved). (1)
Q.2 Name any two seasonal industries.
(Woolen industry, ice-cream industry) (1)
Q.3 How is operating cycle related to requirement of working capital? (1)

(Longer operating cycle require more working capital)
Dividend Decision
Dividend refers to that part of the profit which is distributed to shareholders. A

company is required to decide how much of the profit earned by it should be
distributed among shareholders and how much should be retained. The

decision regarding dividend should be taken keeping in view the overall
objective of maximising shareholder’s wealth.
Total Profit
Retained
Earnings
Dividend
Factors affecting Dividend Decision
1. Earnings : Companies having high and stable earning can declare high rate
of dividends as dividends are paid out of current and past earnings.
2. Stability of Dividends : Good companies generally follow the policy of stable

dividend. The dividend per share is not altered/changed in case earnings
change by small proportion or increase in earnings is temporary in nature.
3. Growth Prospects : In case there are growth prospects for the company in
the near future then it will retain its earning and thus, no or less dividend will
be declared.
4. Cash Flow Positions: Dividends involve an outflow of cash and thus,

availability of adequate cash is foremost requirement for declaration of
dividends.
5. Preference of Shareholders : In case shareholders desire for dividend

then company may go for declaring the same. There are always some
shareholders who depend upon a regular income from their investments.
6. Taxation Policy : A company is required to pay tax on dividend declared by it.

If tax on dividend is higher, company will prefer to pay less by way of dividends

whereas, if tax rates are lower then more dividends can be declared by the
company.
7. Stock market reaction: Increase in dividend is good news for investors and
hence market price of the shares increases in the stock market. Decrease
in dividend reduces the market price of share.
8. Legal constraints : Under provisions of Companies Act, all earnings can’t

be distributed and the company has to provide for various reserves. This
limits the capacity of company to declare dividend.
Q. A Decision is taken to distribute certain parts of profit to shareholders after

paying tax. What is this decision called? (1)
(Dividend decision)
Q. Which type of company is in a position to declare high dividends? (1)
[Hint: Company with good profits and reserves, steady return]
Q. A company is earning good amount of profits since last twelve years. It has
good amount of reserves also. But fixed cost burden is also high. Due to
credit sales policy, it does not have sufficient amount of cash. Can it declare
good rate of dividend? Give reason in support of your answer. (1)
[Hint: No, due to lack of availability of cash]
Key terms to Crack Case Studies
Financial Management
1. Financial blueprint of operations — Financial planning.

2. Decisions affecting liquidity and profitability of a business — Short term
investment decisions.
3. Decisions affecting financial risk and profitability of a business — Capital
structure decisions.
4. Long term investment decisions — Capital budgeting decisions
5. Proportion of debt and equity — Capital structure
6. Cheapest source of finance — Debt
7. Riskfree source of finance — Equity

8. Decisions relating to disposal of profits — Dividend decision
9. Decision relating to quantum of funds to be raised from varions long term
sources — Financing decision
10. Most suitable combination of owners funds and borrowed funds to generate
higher EPS — Trading on equity/Financial leverage.
I. Match the following.
1. Capital budgeting decision (a) allocation of funds to different

projects/Assets.
2. Financial management (b) Proportion of debt and equity
3. Investment decision (c) Optimal procurement and
usuage of finance
4. Financing decision (d) Long term investment decision
1. – (c) 1. – (d) 1. – (b) 1. – (d)
2. – (b) 2. – (c) 2. – (d) 2. – (a)
3. – (d) 3. – (a) 3. – (a) 3. – (b)
4. – (a) 4. – (b) 4. – (c) 4. – (c)
II. 1. Net Working Capital (a) how much of profits will be distributed
2. Dividend decision (b) Proportion of debt in total capital
3. Financial leverage (c) excess of current assets over current
liabilities.
4. Trading on equity (d) Increase in shareholders wealth due to
debt/loan in capital employed.
1. – (c) 1. – (b) 1. – (a) 1. – (d)
2. – (a) 2. – (c) 2. – (d) 2. – (b)
3. – (b) 3. – (a) 3. – (b) 3. – (c)
4. – (d) 4. – (d) 4. – (c) 4. – (a)
III. ROI of a company is 12%. To finance its project, it has two borrowing
options.
(a) Rate of interest 9%

(b) Rate of interest 13%

Which option is better. Give reason.
IV. Higher debt equity ratio results in

(a) Lower financial risk (b) higher operating risk
(c) higher financial risk (d) higher EPS
V. 1. Fixed capital requirement is more (a) If production cycle is longer

2. Fixed capital requirement is less (b) If credit is availed by the firm
3. Working capital requirement is (c) If it is trading concern
more
(d) Working capital requirement is less(d) If it is capital intensive concern
1) 1. – (a) 2) 1. – (b) 3) 1. – (c) 4) 1. – (d)
2. – (b) 2. – (a) 2. – (d) 2. – (c)
3. – (c) 3. – (d) 3. – (b) 3. – (a)
4. – (d) 4. – (c) 4. – (a) 4. – (b)
True/False, give reason in support of your answer.
1. Companies with higher growth potential pay lower dividends.
2. An ‘Advertising agency’ needs to have large working capital.
3. Trading on equity takes place when ROI is less than the rate of interest.
4. Capital budgeting decisions are very crucial for any business.
5. If cash flow position of a company is weak more debt financing is not

recommended.
Fill in the blanks.

1. Current assets get converted into cash within a period of ________.
2. Inflation will result in an increase in ________ capital requirements.
3. Objective of financial management is ________
4. An increase in debt raises ________ risk.
5. As the financial leverage increases, the cost ________ but risk ________.

Answers
MCQ
I. – 2, II. – 1, III – Option A, IV. – c, V. 4.
True/False
1. True because it needs funds for expansion/growth of company.
2. False because it is a service Co. & need not maintain any inventory.
3. False because E.P.S. will be low. ROI should be more than rate of interest.
4. True because they are irreversible.
5. True. It will be difficult for a company to pay interest on time, hence more
risk.
Fill in the blanks:
1. 1 year
2. Working
3. maximisation of shareholders wealth
4. Finanical
5. decreases, increases
Read Assertion (A) & Reason (R) Choose the correct alternative.
(i) Both assertion (A) & Reason (R) are correct and Reason (R) is correct
explantion of (A).
(ii) Both assertion (A) & Reason (R) are correct, but (R) is not correct explanation
of (A).
(iii) Assertion (A) is True & Reason (R) is False
(iv) Assertion (A) is False & Reason (R) is True.
Q1. Assertion (A) : Using fixed cost capital (i.e. debt) cost is relatively lower when
the rate of tax is high.
Reason (R) : The use of debt will deduct taxable profit.
Ans. Option (i)

Q.2. Assertion (A) : Dividend payable in growth comparies should be less.
Reason (R) : Retained earnings should not be used in investing activity as
perferable source of growth companies.
Ans. Option (iii)
3. Assertion (A) : A travelling agency requires more working capital.
Reason (A) : Requirement of working capital is less in service company as
they normally deals on cost basis.
Ans. Opiton (iv)
4. Factor effecting the dividend decision
(i) Cash flow position
(ii) Tax Rate
(iii) Accountant
(iv) Growth opportunities
Options : (a) (i) (ii) (b) (i) (ii) (iv
(c) (ii) (iii) (d) (ii) (iii) (iv)
Ans. Option (B)
5. Financial planning includes
(i) Estimation of funds
(ii) Identitying sources of funds
(iii) motion study
(iv) clarity in working relationship of factory
(v) Utilisation of funds.
Options
(a) (i) (ii) (iii) (b) (ii) (iv) (v)
(c) (ii) (iii) (v) (d) (i) (ii) (v)
Option (d)

6. Which financial decision is this:
Sangam bus service
Ans. Investment decision

Q.1 HCL Company’s finance manager has decided to retain its entire profit to
meet financial requirement for its growth. Name the type of decision
involved.(Dividend) (1)
Q.2 Tata sons has debt equity ratio of 4:1 and Bajaj has 1:1 debt equity ratio.
Name the advantage, Tata sons may have over Bajaj.(Trading on equity
(1)
Q.3 Dabur India has decided to increase credit limit and duration of credit to its
customers to boost its sales. Name the type of decision involved. (working
capital) (1)
Q.4 Bharti Ltd. is a leading mobile company. It is planning to acquire Queen Ltd’s
(its close competitor) business worth Rs. 1,000 crore. Which financial
decision is involved in it? Explain it.(Investment) (3)
Q.5 Chandra Ltd. is a manufacturer of Laptops. It made a profit of 1000 crores.

The director have proposed a dividend of 38%. As a finance manager of the
company. What factors would you consider while formulating a dividend policy
of the company? (Any four) (4)
Q.6 Pankaj is engaged in Warehousing Business. Identify the working capital

requirements of Pankaj stating the reason in support of your answer. Pankaj
is also planning to start his Transport business. Explain any two factors that
will affect his fixed capital requirements. (2+2)
Q.7 How is overall finanial risk calculated? (1)
Q.8 How does financial management help in maximisation of shoreholders’ wealth?

(Taking right financial decisions) (1)
Q.9 How does ‘Trading on Equity’ affect the Capital structure of a company?
Explain with the help of a suitable example. (5)
Q.10 “During annual general meeting of Prakash Ltd. CEO, Mr. Rajnesh put the
expansion plan for the coming year before shareholders and asked for suitable
source of finance to finance manager. Finance manager Mr. Kant proposed

issue of debentures than equity with a plan that they can be paid back whenever
requirement of funds is over”
In the above paragraph, which component affecting financing decision has

been highlighted? Explain the component. (Flexibility) (3)
Q.11 Jai Bharat Company Ltd. is an auto part supplier company in Guru Gram,
Haryana. Its business is spread over several cities. The CEO of company
wants to open a factory in Gujrat near Tata Motors Ltd. but due to recession
for the last two years, its business is facing slow down. Company needs
capital. Rakesh Gupta is CA and financial advisor of the company. He opines
that during recession profit falls and investors prefer to invest indebentures
to earn fixed income. Therefore, the company should issue debentures.
In this paragraph, which factor affecting financing decision has been

highlighted? Explain (State of capital market). (3)
Q.12 How will increase in number of creditors affect the working capital
requirements of a company? (1)
Q.13 “Tax benefits are available only in case of payment of interest and not on the
payment of preference dividend.” Why? (Interest is an expense while dividend
is an appropriation) (1)
Q.14 “Ranbaxy Ltd. has been earning handsome profits since last 15 years.
Company enjoys fair goodwill in the market, so company can easily arrange
debt as well equity from the market, whenever needed. Therefore company
decided to declare dividend with a hike of 15% from, last year.”
Which two components affecting dividend decision have been highlighted in

the above paragraph. (2+2)
(i. Stability of earning ii. Access to capital markets)
Q.15 ‘REI Agro Food Ltd ‘is a famous multinational company. Mr. S.K.Nagi is its
finance manager. He is making efforts to increase the market value of capital
invested by the equity shareholders. He already knew it could be possible
only when price of the shares increases and price of shares increase only if

QUESTION BASED ON
Analysis Evaluation and Creation
Read the following text and answer question No 1-4 on the basis of the same:-
Drug Institute (DI) is an Indian biotechnology and pharamaceutical company. It is
now the world’s largest vaccines manufacturer by the number of doses produced
which include polio vaccines and immuno biological vaccines such as Tetanus
Taxoid, Diptheria, Measles, Mumps, Rubella nd Hepatitis-B.
DI has established the most modern laboratories with high-tech machinery and com-
puterised equipment for the production and testing of its life saving biologicals. The
production facilities are continuously upgraded to ensure compliance with CGMP
regulations and have been accredited by the world health organisation, Geneva.
The drug maker has crossed many milestones in technological advancements and
has the flexibility to produce vaccines in more than one plant. Thus facilitating pro-
duction of large number of doses in the shortest time frame.
In the year 2020, the company partnered with an International drug maker for devel-
oping and producing safe and effective vaccine to fight coronavirus infection.
They invested $200 million for producing several million doses of this vaccine and
has imported several expensive manufacturing equipments to build its production
capacity.
Their USP is simple– “High on volume and low on costs”.
1. “They invested $200 million ...................... production capacity”.

Which decision is referred in the above statement? (1)
(a) Financing decision (b) Capital budgeting decision

(c) Dividend decision (d) Working capital decision
2. The fixed and working capital requirement of the company referred in above
case would be ___ (Loss/more). (1)
3. “In the year 2020 ........................ fight coronavirus infection”. (1)

(a) Growth prospects (b) Financing alternatives
(c) Technological upgradations (d) Level of collaboration

4. Factor affecting working capital requirements of Drug Institute not referred to
in the above case is_____
(a) Scale of operations (b) Production cycle
(c) Seasonal factors (d) Nature of business
[Answer 1 (b), 2 (More), 3 (d), 4 (c)]

QUESTION BASED ON
Read the following text and answer question No 1-4 on the basis of the same:-
Online ticketing platform Hook My Show an Indian startup caters to customers who
want to attend everything from movies to plays to sporting events. Customers can
purchase gift cards, receive offers based on bank patronage, and use the mobile
app to by their tickets.
After raising 60,00,000 in June 2014, the company has been growing yearly at 70%
and operates in 2500 of the 10,000 screens across India. Having secured the tick-
eting rights to both the IP2 and Twenty 20 world cup, Hook My show is expanding
quickly with a presence in the UAE and New Zealand this Indian startup is looking at
internationalization more seriously now.
It had a share capital of 60,00,000 in 2014. The earning per share in the previous
year was 20.50. For diversification it required additonal capital of 40,000,00 the
company raised funds by issuing 8% debentures for the same during the current
year the company earned profit of 8,00,000 on capital employed. It paid tax @40%
(Assume that the face value of a share is `10)
*as interest paid on debentures is a tax deductable.
1. Identify the financial decision highlighed above. (1)
(a) Capital budgeting decision (b) Financing decision

(c) Dividend decision (d) Working capital decision
2. State whether the shareholders gained or lost in respect of earning per share
on diversification. (1)
(a) Gain (b) Loss
(c) No Gain, No loss (d) None of the above
3. What is the reason for the gain/loss to the shareholders? (1)

(a) The shareholders of the company lost in terms of EPS because EPS fell
from `0.50 to `0.40 with the use of debt. It is because RoI of the company
is less than the cost of debt.

(b) The shareholders of the company gained in terms of EPS because EPS
rose from `0.50 to `0.60 with the use fo debt It is because ROI of the
company is more than the cost of debt.
(c) The shareholders of the company neither gained nor lost because EPS
remained the same with the use of debt. It is because ROI of the company
is equal to the cost of debt.
4. Identify the factor that favours the issue of debentures by the company as a
part of its capital structure. (1)
(a) Control (b) Tax rate
(c) Cash Flow position (d) Cost of debt.
[Answer 1 (b), 2 (b), 3 (a), 4 (b)]

Q:- Exee Ltd, is a company manufacturing steel utensils. Recently, due to
increased awareness of consumers and their preference for by copper utensils for
their health related benefits, the company has decided to start manufacturing cop-
per utensils in Madhya Pradesh. Madhya Pradesh is the leading producer of copper
concentrates in India.
Suggest, how the decision related to scale of operations and availablity of raw
materials can help Exee Ltd in ensuring less capital investment in working capital
requirements.
Q:- Manpreet Brar is the Sarpanch (Head) of Gurdaspur district in Punjab. She is
keen on employing the rural women of her village in some useful occupation as the
female artisans of her district are highly skilled.
She has decided to collect small savings of local people and start manufacturing
“Punjabi Juttis” and phulkaris which are famous all around the world Since, She
has limited resources, she wants to make less investment in fixed capital.
Suggest how the decisions related to scale of operations and choice of techniques
can help Manpreet Brar in ensuring a lesser investment in fixed capital.
Q. ‘Smart Stationery Ltd.’ wants ro raise funds of `40,00,000 for its new project,
The management is considering the following mix of debt and equity to raise this
amount.
Capital Alternative
structure I (`) II (`) III (`)
Equity 40,00,000 30,00,000 10,00,000
Debt 0 10,00,000 30,00,000
Other details are as follows:
Interest Rate on Debt 9%
Face Value of Equity Shares ` 100 each
Tax Rate 30%

Earning Before Interest and Tax (EBIT) ` 8,00,000
(a) Under which of hte three alternatives will the company be able to take advan-
tage of Trading on Equity?
(b) Does Earning Per Share always rise with increase in debt? (4)
2. ‘G. Motors’ is the manufacturer of sophisticated cranes. The Production man-

ager of the company, reported to the Chief Executive Officer, Ashish Jain that
one of the machines used in manufacturing sophisticated cranes had to be
replaced to compete in the market, as other competitors were using auto-
matic machines for manufacturing cranes. After a detailed analysis, it was
decided to purchase a new automatic machine having the latest technology. It
was also decided to finance this machine through long term sources of fi-
nance, Ashish Jain compared various machines and decided to invest in the
machine which would yield the maximum returns to its investors.
(a) Identify the financial decision taken by Ashish Jain.
(b) Explain any three factors affecting the decision identified in (a) above. (3)
3. Indian equity markets are going throgh a phase of boom. There is a huge growth
potential for innovative technologies. This has resulted in lots of new ventures
Trying for a market share and old enterprises trying to keep up with the pace
with which changes are taking place in the Economy. This technological inno-
vation has helped even smaller businesses to compete on a global scale.
Identify and explain the three factors highlighted above which affect the work-
ing capital requirements of such enterprises. (3)
4. Koby Ltd. is an 87-year-old reputed consumer goods company. It is known for

offering good quality electronic products at reasonable prices. It has branches
all over India. It has a large shareholder base. The shareholders desire that
some dividend is paid every year on their investments. Company’s manage-
ment understands that it is important ot keep the shareholders happy and sat-
isfied. As a matter of policy, they declare a certain amount of dividend every
year out of profits rather than reinvesting the whole as retained earnings.
Identify the factor affecting dividend decision being highlighted in the above
situation. (1)

CHAPTER – 10
FINANCIAL MARKETS

There are two major alternative mechanisms through which allocation of funds can
be done via banks or via financial markets. Household can deposit their surplus
funds with banks or they can buy the shares and debentures offered by companies
using financial markets.
Financial Market is a market for creation and exchange of financial assets like
shares, bonds etc. It helps in mobilising savings and channelizing them into the
most productive uses. It helps to link the savers and the investors by mobilizing
funds between them. The persons or institutions by which allocation of funds is
done are called Financial Intermediaries. They bring together borrowers and lenders
and make funds available to those willing to pay for their use,
Functions of Financial Markets
1. Mobilisation of Savings and channeling them into the most productive

uses : Financial market facilitates the transfer of savings from savers to
investors and thus helps to channelize surplus funds into the most productive
use.
2. Helps in Price Determination : Financial Market helps in interaction of savers

and investors which in turn helps in the determination of prices of the financial
assets such as shares, debentures etc.
3. Provides Liquidity to Financial Assets : Financial market facilitates easy

purchase and sale of financial assets. Thus, it provides liquidity to them so
that they can be easily converted into cash whenever required.
4. Reduces the Cost of Transactions : Financial market provides valuable

information about securities which helps in saving time, efforts and money
and thus it reduces cost of transactions.

Types of Financial Markets
Financial Markets
Capital Market Money Market

(for long term requirement) (for short term requirement)
Market Instruments
Primary Market Secondary
market
1. Treasury Bill
(for new (Issued 2. Com. Paper
Issues of securities
3. Call Money
Shares and are traded)
4. Certificate of Deposits
Deb.) 5. Commercial Bill
Participants: Bank, Investor, Participants: R.B.I. Com. Bank,

Mut. Fund. LIC and others Investor, LIC & others
Controlled by SEBI
Money Market
It is a market for short term funds/securities whose period of maturity is upto one
year. The major participants in the money market are RBI, Commercial Banks,
Non-Banking Finance Companies, State Government, Large Corporate Houses and
Mutual Funds. The main instruments of money market are as follows: (Not in
syllabus for 2022-23).
1. Treasury Bills:They are issued by the RBI on behalf of the Central

Government to meet its short-term requirement of funds. They are issued at
a price which is lower than their face value and are repaid at par. The difference
between the price at which they were issued and their redemption value is
the interest received by the investor which is called discount. They are available

for a minimum amount of Rs. 25000 and in multiples thereof. They are also
known as Zero Coupon Bonds as no interest is paid on them. They are
negotiable instruments i.e. they are freely transferable.
2. Commercial Paper: They are short term unsecured promissory notes
issued by large and credit worthy companies to raise short term funds at
lower rates of interest than market rates. They are negotiable instruments
transferable by endorsements. They have a maturity period of 15 days to one
year. It is an alternative to bank borrowing which is sold at a discount and
redeemed at par.
This source is usually used for-
(i) Working Capital requirements
(ii) Seasonal needs

(iii) Bridge financing i.e. for arranging brokerage, underwriting commission,
printing of prospectus and advertising etc.
3. Call Money: It is short term finance repayable on demand, with a maturity
period of one day to 15 days, used for interbank transactions. Call Money is a
method by which banks borrow form each other to maintain the cash reserve
ratio as per RBI. The interest rate paid on call money loans is known as the
call rate which is highly volatile that varies from day to day and sometimes
even from hour to hour. A rise in call money rates makes other sources
cheaper.
4. Certificate of Deposit: It is an unsecured instrument issued in bearer form
by Commercial Banks & Financial Institutions. They can be issued to
individuals, Corporations and companies for raising large amount of money
for a short period ranging from 91 days to one year.
5. Commercial Bill: It is a bill of exchange used to finance the working capital
requirements of business firms. A seller of the goods draws the bill on the
buyer when goods are sold on credit. When the bill is accepted by the buyer
it becomes marketable instrument and is called a trade bill. These bills can
be discounted with a bank if the seller needs funds before the bill maturity.
When a trade bill is accepted by commercial bank it is known as commercial
bill.

Q.1 List any two participants of money market. (1)
[Banks, LIC]
Q.2 What is the minimum amount of Treasury bill? (1)
[` 25,000]
Q.3 Who is borrower of call money? (1)
[Banks]
Q.4 Which bearer certificate is issued by banks against the deposits kept by
companies and institutions for short period?[Hint: Certificate of deposits]
(1)
Q.5 What is other name of Zero Coupon Bonds? [Hint: Treasury bill] (1)
Q.6 What is near money? [Hint: All short term securities] (1)
Capital Market
It is a market for long term funds where debt and equity are traded. It consists
of development banks, commercial banks and stock exchanges. The capita
market can be divided into two parts:
1. Primary Market
It deals with the new securities which are issued for the first time. It is also
known as the New Issue Market. The investors in this market are banks,
financial institutions, insurance companies, mutual funds and individuals. It
has no fixed geographical location and only buying of securities takes place
in the primary market.
Methods of Floatation of New Issues in Primary Market (Not in syllabus for

2022-23).
1. Offer through Prospectus/ Initial Pubic Offer : lt involves inviting

subscription from the public through issue of prospectus. A prospectus
makes a direct appeal to investors to raise capital through an advertisement
in newspapers and magazines. The issues may be underwritten and listed
on at least one stock exchange.

2. Offer for Sale: Under this method securities are offered for sale through
intermediaries like issuing houses or stock brokers. The company sells
securities to intermediary/broker at an agreed price and the broker resells
them to investors at a higher price.
3. Private Placements: It refers to the process in which securities are allotted

to institutional investor and some selected individuals. It helps to raise capital
more quickly than a public issue. Moreover companies who cannot afford a
public issue may choose to use private placement.
4. Rights Issue : It refers to the issue in which new shares are offered to the
existing shareholders in proportion to the number of shares they already
possess.
5. e-IPOs : It is a method of issuing securities through an on-line system of
stock exchange. A company proposing to issue capital to the public through
the on-line system of the stock exchange has to enter into an agreement with
the stock exchange. This is called an e-initial public offer. SEBI’s registered
brokers have to be appointed for the purpose of accepting applications and
placing orders with the company.
Q.1 Identify the method of floatation highlighted in each statement:
a) Offer the entire new issue to life insurance company. (1)
[Private placement)
b) Issue a prospectus to invite public to apply for share. (IPO) (1)
c) Use on line system of stock exchange. (e-IPO) (1)
d) First ask existing shareholders to apply for new shares as it is
compulsory requirement under companies Act. (Rights issue) (1)
Q.2 What is prospectus?
Q.3 Pranjal has 500 shares of L&T. L&T comes out with a fresh issue of shares
and Pranjal received on offer to buy 1 share of L&T for every 5 shares held
by her. Which method of floating new issue is indicated in this case? (3)
[Rights issue)
2. Secondary Market
It is also known as the stock market or stock exchange where purchase and

sale of existing securities takes place. They are located at specified places
and both the buying as well as selling of securities takes place.
Difference between Primary and Secondary Market
Basis Primary Market Secondary Market
1. Securities Only new securities Existing securities are traded.
are traded.
2. Price of securities Prices of securities are Prices are determined by the
determined by the forces of demand and
management of the supply of the securities.
company.
3. Purchase and Securities are sold to Investor exchange ownership

sale. investors directly by the of securities.
company or through
intermediary.
4. Place of market There is no fixed Located at specified places.

geographical location.
5. Buying/selling Only buying of securities Both buying and selling of

takes place. securities can take place.
Q.1 Identify the markets highlighted in following statements:

1. This market directly contributes to capital market. (Primary market)
2. This market deals in instruments whose maturity is upto one year.
(Money market)
3. It deals in medium and long term securities. (Capital market)
4. It is also known as Stock Exchange and deals in sale and purchase of
previously issued securities. (Secondary market)
5. It requires less investment as value of securities is generally low.
(Capital market)

Q.2 Dinesh has 1000 equity shares of a company. He wants to sell 500 of these
shares. Which market should he approach? Write any three advantages of
selling through such a market. (4)
[Hint: Secondary Market (any three advantages)]
Q.3 Why are money market instruments more liquid as compared to capital
market instruments? (3)
[Hint: Reliable participants and duration of investment is less]
Stock Exchange/Share Market
A Stock Exchange is an institution which provides a platform for buying and selling
of existing securities. It facilitates the exchange of a security i.e. share, debenture
etc. into money and vice versa. Following are some of the important functions of a
Stock Exchange:-
1. Providing liquidity and Marketability to Existing Securities : Stock

Exchange provides a ready and continuous market for the sale and purchase
of securities.
2. Pricing of Securities : Stock Exchange helps in constant valuation of
securities which provide instant information to both buyers and sellers and
thus helps in pricing of securities which is based on the forces of demand &
supply.
3. Safety of Transaction : The members of a stock exchange are well regulated,

who are required to work within the legal framework. This ensures safety of
transactions.
4. Contributes to Economic Growth : Stock exchange provides a platform by

which savings get channelised into the most productive investment proposals,
which leads to capital formation & economic growth.
5. Spreading of Equity Culture : Stock exchange helps in educating public

about investments in securities which leads to spreading of Equity culture.
6. Providing Scope for Speculation : Stock exchange provides scope within
the provisions of law for speculation in a restricted and controlled manner.

Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are
famous stock exchanges in India.
Trading and Settlement Procedure on a Stock Exchange
1. Selection of Broker: In order to trade on a Stock Exchange first a broker is
selected who should be a member of stock exchange as they can only trade
on the stock exchange.
2. Opening Demat Account with Depository.
3. Placing the order:After selecting a broker, the investors specify the type
and number of securities they want to buy or sell.
4. Executing the order:The broker will buy or sell the securities as per the
instructions of the investor.
5. Settlement:Any trade taking place gets settled within 2 days of the trade
date.
Q. 1 The directors of a company want to modernise its plant and machinery by
making a public issue of shares. They wish to approach the stock exchange,
while the finance manager prefers to approach a consultant for the new
public issue of shares. Advise the directors whether to approach the stock
exchange or a consultant for new public issue of shares and why. Also
advice them about different methods which the company may adopt for the
new public issue of shares.(Ans. Consultant) (3)
Difference between Capital and Money Market.
S.No. Basis Capital Market Money Market
1. Participants Financial Institutions, RBI, Banks, Financial

Banks, Corporate Institutions &
Entities, foreign finance ecompanies
investors and
individuals
2. Instruments Traded Equity shares, Treasury Bills, Tradebills,

bonds, preference commercial paper,
shares and call money etc
debentures.

3. Outlay Investment Does not necessarily Entail huge sums of
require a huge financial money as the instruments
outlay. are quite expensive.
4. Duration Deals in medium & Deals in short term funds
long-term securities having maturity period
having maturity period upto one year.
of over one year.
5. Liquidity Securities are less Money market instruments
liquid as compared to are highly liquid.
money market
securities.
6. Expected return High return Low return
7. Safety Capital Market Money market instruments

instruments are riskier are generally much safer
both with respect to with a minimum risk of
return and repayment. default.
Depository Services and DEMAT Accounts: Keeping in the mind the difficulties
to transfer of shares in physical form, SEBI has developed a new system in which
trading in shares is made compulsory in electronic form. Depository services system
and Demat Account are very basis of this system.
1. Depository Services: ‘Depository is an institution/organization which holds

securities (e.g. shares, debentures, bonds, mutual funds etc.) in electronic
form, in which trading is done. The services provided by a Depository are
termed as ‘Depository Services’. At present there are two depositories in
India: NSDL. (National Securities Depository Ltd.) and CDSL (Central
Depository Services Ltd.).
Services provided by Depository
(i) Dematerialisation (usually known as demat) is converting physical certificates

to electronic form.

(ii) Rematerialisation, known as remat, is reverse of demat, i.e getting physical
certificates from the electronic securities.
(iii) Transfer of securities, change of beneficial ownership.
(iv) Players in Online Trading: Settlement of trade is done on exchange connected
to the Depository. Now a days on-line paper-less trading in shares of the
company is compulsory in India. Depository services is the name of that
mechanism. In this system transfer of ownership in shares take place by
means of book entry without the physical delivery of shares. When an investor
wants to deal in shares of any company he has to open a Demat account.
There are four players who participate in this system.
1. The Depository : A depository is an institution which holds the securities of
an investor in electronic form.
2. The Depository Participant : He opens the account of Investor and maintains

securities records. Generally banks work as depository participant.
3. The Investor : He is the person who wants to deal in securities whose

name is recorded.
4. The Issuing Company: That organisation which issues the securities. This
issuing company sends a list of the shareholders to the depositories.
Benefits of Depository Services
• Sale and Purchase of shares and stocks of any company on any stock
Exchange.
• Saves time.
• Lower transaction costs
• Ease in trading.
• Transparency in transactions.
• No counterfeiting of security certificate

• Physical presence of investor is not required in stock exchange.
• Risk of mutilation and loss of security certificate is eliminated.
2. Demat Account
Demat account is the abbreviation of ‘Dematerialized Account’. Dematerialized

account refers to an account which an Indian citizen must open with the
depository participant (banks, stockbrokers) to trade in listed securities in
electronic form wherein one can hold shares of various companies in the
Dematerialized {electronic} form. Access to De-mat account requires an
internet password and a transaction password. Transfer and purchase of
securities can then be initiated. Purchase and sale of securities on the De-
mat account are automatically made once transaction is confirmed and
completed.
Opening of Demat Account
A Demat account is opened on the same lines as that of a bank account. Prescribed
account opening forms available with the DP, need to be filled in. Standard agreement
is to be signed by the client and the DP, which details the rights and obligation of
both parties. Along with the form, the client is required to attach photograph, attested
copies of residence proof, PAN card number mandatory documents and proof of
identity need to be submitted.
Benefits of Demat Account
1. Reduces paper work.
2. Elimination of problems on transfer of shares such as loss, theft and delay.
3. Exemption of stamp duty when transfer of shares.
4. The concept of odd lot stand abolished.
5. Increase liquidity through speedy settlement.
6. Attract foreign investors and promotes foreign investment.

7. A single demat account can hold investments in both equity and debt
instruments.
8. Traders can work from anywhere.
9. Automatic credit into demat account for shares arising out of bonus/split/
consolidation/merger.
10. Immediate transfers of securities.
11. Change in address recorded with a DP gets registered with all companies in
which investor holds securities, eliminating the need to correspond with each
of them.
Securities and Exchange Board of India (SEBI)
SEBI was established by Government of India on 12 April 1988 as an interim

administrative body to promote orderly and healthy growth of securities market and
for investor protection. It was given a statutory status on 30 January 1992 through
an ordinance which was later replaced by an Act of Parliament known as the SEBI
Act, 1992. It seeks to protect the interest of investors in new and second hand
securities.
Objectives of SEBI
1. To regulate stock exchange and the securities market to promote their orderly
functioning.
2. To protect the rights and interests of investors and to guide & educate them.
3. To prevent mal-practices in trade such as insider trading.
4. To regulate and develop a code of conduct and fair practices by intermediaries
like brokers, merchant bankers etc.
Functions of SEBI
The SEBI performs three important functions:-

1. Regulatory functions: These functions are performed by SEBI to regulate
the business in stock Exchange.

2. Developmental functions: These functions are performed by SEBI to
promote and develop activities in stock market.
3. Protective functions: These functions are performed by SEBI to protect

the interest of investors and provide safety of investments.
Functions of SEBI
F U NC T IO N S O F S E B I
Re gu lato ry F unc tions Developmental

D ev elo pm en t FFunctions
u nc tion s P r ot ec tiv e F unc t ions
1. Framing Rules & 1. Training of 1. Prohibiting of

Regulations intermediaries fraudulent & unfair
trade practices.
2. Registration of brokers 2. Conducting
Research & 2. Check on insider
& sub-brokers.
Publishing useful trading.
3. Registration of information. 3. Ensure investors
collective investment 3. Undertaking protection.
schemes & mutual measures to develop 4. Promote fair
funds. capital practices & code of
4. Regulation of stock market by adopting conduct in securities
flexible approach market.
broker, port folio
exchanges, under 4. Educating Investors 5. Check on price
to broaden their rigging.
writers
understanding 6. Check on preferential
& merchant bankers
5. Permitting Internet allotment.
5. Regulation of take trading through
over bids by registered stock
companies. brokers
Levying fee or other
charges as per act.

• Check on Price Rigging: Making manipulations with sole objective of
inflating or depressing the market price of securities is called ‘Price Rigging’.
Such practices are prohibited by law because they can defraud or cheat
investors.
• Check on Unfair Trade Practices: SEBI does not allow the companies to
make misleading statements in prospectus which are likely to induce the
sale or purchase of securities by any other person.
• Check on Insider Trading: SEBI prohibits ‘insider trading’ and imposes

penalties for such practices. An insider is any person connected with the
company who is having price sensitive information (in respect of securities
of the company), which is not available to the general public. Directors,
promoters, etc. are the insiders. When such directors, promoters, etc. of
the company use inside information to make individual profits, it is referred to
as ‘insider trading’.
Q.1 Name the organisation which has been established in India to regulate stock
exchanges and to protect the rights and interest of investors. (SEBI)
(1)
Q.2 Expand the following-CDSL, NSDL, DEMAT (3)
Q.3 Shabnam wants to invest her savings in share market. What is the base
requirement for this? (DEMAT Account) (1)
Q.4 Julie wants to get her share certificates in electronic form. What is the
name of service provided by depository? (Dematerialisation) (1)
Q.5 Bandhu Limited is a real estate company, which was formed in 1960. In
about 55 years of its existence, the company has managed to carve out a
niche for itself in this sector. In order to establish itself in India, the company
decided to list its securities on BSE, in order to raise money through Indian
market.
State the functions performed by SEBI that make investors comfortable
and secured in dealing with Bandhu Ltd. (3)
(Regulatory, Developmental and Protective Functions)

Exercise
I. Multiple choice questions.
1. Instruments with a maturity period of less than one year are traded in the
................... .
(a) capital market (b) Bombay stock exchange
(c) money market (d) National stock exchange
HOUSEHOLDS BUSINESS FIRMS

2. (SAVERS) (INVESTORS)
(a) Business (b) Customers

(c) Government (d) Financial markets
3. Which of the following money market instruments are also known as zero
coupon bond?
(a) Treasury bills (b) Certificates of deposits
(c) Commercial papers (d) Call money
4. Primary and secondary markets ....................... .
(a) Compete with each other
(b) Complement each other
(c) Function independently
(d) Control each other.
5. Which of the following is not a function of SEBI?
(a) Registration of brokers and sub-brokers
(b) Undertaking measures to develop finanical markets
(c) Prohibition of insider trading
(d) Holding securities in electronic form.
6. Hari has 200 shares of Reliance industries. Reliance comes out with a
fresh issue of share and Hari received an offer to buy 1 more share of
Reliance for every two shares held by him. Which type of issue is discussed
here:
(a) e-IPO’s (b) Rights issue
(c) Private placement (d) Offer for sale
7. ......................... is the full form of CDSL.
(a) Central Depository Securities Ltd.
(b) Control Delhi Services Ltd.
(c) Central Deposit Services Ltd.
(d) Central Depository Services Limited.

8. ......................... are the business hours of stock exchange
(a) 9:00 am to 4:00 pm
(b) 9:55 am to 3.30 pm
(c) 9.30 am to 3.30 pm
(d) 9.30 am to 4.30 pm
9. ......................... is a process where securities held by the investor in the
physical form are cancelled and the investor is given an electronic entry.
(a) Dematerialisation (b) Depository
(c) Demat account (d) all of these.
10. In which year was the SEBI established by the Government of India?
(a) 1980 (b) 1988
(c) 1992 (d) 1993
1. Treasury bills are available for a minimum amount of ......................... and
in multiples there of.
2. ......................... is a market for the creation and exchange of financial assets.
3. ......................... ......................... is short term finance used for inter bank
transactions.
4. ......................... is an institution which provides a platform for buying and
selling of existing securities.
5. In India, there are ......................... depositories.
(i) Offer for sale (a) Issue of capital to public through
online system of stock exchange
(ii) Private placement (b) Privilege given to existing
shareholders
(iii) e-IPO’s (c) Issue of securities through
intermediaries like issuing
houses
(iv) Rights issue (d) Allotment of securities to
institutional investors and some
selected individuals.
IV. State giving reasons. Whether the following statements are True/False
1. Conducting inspections and inquiries is a developmental function of SEBI.
2. T+3 basis, settlement period is followed in Indian stock exchanges.
3. Mobilising savings and channelising them into most productive uses is

called allocative function.
4. Money market instruments are less liquid as compared to capital market
securities.
5. Commercial papers have a maturity period of 30 days to one year.
ANSWER KEY

1. (b) 2. (d) 3. (a) 4. (b) 5. (d)
6. (c) 7. (d) 8. (c) 9. (a) 10. (b)
1. 25,000 2. Financial market 3. Call money
4. Stock exchange 5. two (2)
1. – (c) 2. – (d) 3. – (a) 4. – (b)
IV. State giving reasons. Whether the following statements are True/False
1. False: It is regulatory function of SEBI.
2. False: T+2, settlement period is followed in Indian stock exchange.
3. True: They facilitate transfer of savings from savers to investors.
4. False: Capital market securities are less liquid.
5. False: The maturity period is from 15 days to one year.

Q1. Sudha Ltd. has sold 1 lakh equity shares of Rs. 10 each at Rs. 12 per share
to an investment banker, who offered them to the public at Rs. 20 each.
Identify the method of floation.(offer for sale) (1)
Q2. ‘Primary market contributes to capital formation directly. Whereas secondary

markets do so indirectly’. Explain? (2)
Q3. Mohan wants to sell 50 shares of Tata Motors. Explain the trading procedure
of shares. (5)
Q4. Charu is a charactered accountant in Prakash Ltd. During the course of

meeting with directors she came to know that as against the previous years,
this year company is going to declare handsome dividend offer. It is observed
that when such news becomes public then the share-market jumps up.
Considering it, charu purchased large number of company’s shares before
this news reached the public.
(1) Identify type of malpractice used by charu. (1)
(2) Name the authority which regulates such behaviour. Write any three
other functions of this authority. (4)
Q5. A company wants to set up a new branch in Chennai. For additional capital
company is planning to issue equity shares to public as there is boom period
in capital market and public will prefer to invest in shares.
While analysing the issue, finance manager found that floatation costs of the
issue would be high and company is already in liquidity crunch. Company
deemed it proper to depend on money market instruments for about six
months.
(i) Identify the method of flotation of capital, mentioned above.(IPO) (1)
(ii) Besides above shares issue method, mention two other methods. (2)
(iii) Use of what kind of instrument will be appropriate for the money market.
Clarify.(commercial papers) (2)

Q.6 Name the institution which is a body of individuals, whether incorporated or
not, constituted for the purpose of assisting, regulating and controlling the
business of buying and selling or dealign in securities. Explain any of its three
functions.
Q.7 The Director of Pico Limited decided to declare bonus issue of equity shares
to the shareholders in its Annual General Meeting. Immediately one of the
Director purchases 20,000 shares from market @ 30 per share and sold
them @ 100 share as bonus issue was declared and made capital gain from
it.
(a) Name the practice used by the Director taking the benefits of internal
information. (Insider Trading) (1)
(b) How does SEBI prohibit such practices? (2)
Q.8 Name the financial instrument which may be used in the following situations:
(a) A company needs funds to meet floatation cost in order to issue equity
shares in the market.
Ans. Commercial paper
(b) The instrument that is issued during the period of tight liquidity when the
deposit growth of bank is slow but demand for credit is high.
Ans. Certificate of deposit
(c) These are also known as zero coupon bonds and are issued by RBI on
the behalf of central government.
Ans. Treasury bill
(d) It is used by one bank having surplus funds to meet the funds
requirements of another bank facing shortage of funds. (4)
Ans. Call money
Q.9 Kajal has 1000 equity shares of a company. She wants to sell 500 of these
shares. Which market should she aproach? Give reason in support of your
answer. (1)
Q.10 Jain Ltd. has sold 1 lakh equity shares of ` 10 each at ` 12 per share to an
investment banker, who offered them to the public at ` 20 each. Identify the
method of floatation. (1)

FINANCIAL MARKET
Read Assertion (A) & Reason (R) Choose Correct Alternative:
(a) Both assertion (A) & Reason (R) are true and Reason (R) is the currect
explantion of (A)
(b) Both are true and Reason (R) is not correct explanation of (A)
(c) Assertion (A) is true and Reason (R) is false
(d) Assertion (A) is false & Reason (R) is true
Q.1 Assertion (A) : The process of which association of fund is done is called
financial intermediation.
Reason (R) : Funds can be allocated from household to business firms
through (i) Banks (ii) Financial markets.
Ans. Option (a)
Q.2 Assertion (A) : The depository particiapant is an intermediary between investor
and depository.
Assertion (B) : Two depositories in India NSDL and CDSL
Ans. Option (b)
Q. Assertion (A) : Capital market instruments are more risky than money market.
Assertion (B) : Long term funds are raised and invested.
Ans. Option (A)
Q.3 Instruments of money market.
(a) Commerical bill
(b) Commercial paper
(c) Shares
(d) Call money
(e) Bonds
Option: (i) a, b, d (ii) a, b, c (iii) b, c, e (iv) c, d, e
Ans. a, b, d

Q.4 Development function of SEBI are:
(a) Check on price rigging
(b) Training of intermediaries
(c) Framing Rules & Regulation
(d) Conducting Reaserch & publishing useful information
Option: (i) a, b, c (ii) b, d, e (iii) a, d, b (iv) c, d, b
Ans. Option (ii)

QUESTION BASED ON
Read the following text and answer questions no 1 to 4 on the basis of the same:-
Fast foodies is Indias fastest growing quick service restaurant chains. It is the
second largest fast food burger brand having 216 restaurants and 8 sub franchised
restaurants.
It has an exclusive unit to establish develop and operate fast food restaurant in
India. It aims to cater to the Indian tastes and preferences through adding new food
offering to its product portfolio.
Fast foodies came up with IPO (Initial Public Offer) on December 02, 2020. It
offered equity shares as follows:-
Face Value - `10 per equity shares
IPO Price - `59 to 60 per equity share
Listing at - BSE, NSE
Issue size - 135,000,000 eq shares of `10
Fresh issue - 75,000,000 eq shares of `10
Offer for sale - 60,000,000 eq shares of `10
Fast food issued prospectus containing information mandated by SEBI. Links in

Time India was the registrar of Fast foodies IPO. Investors who had applied for
shares in the IPO could cheek the share allocation status on the website of Link
Intime India. The investors could apply for its IPO by making payment through UPI.
1. Fast foodies offered shares to public in _________ (1)

(a) Money market (b) Primary market
(c) Registrar (d) SEBI
2. Under e-IPO method of floating new issue, the company appointed ____ the
issue havign electronic connectivity with the stock exchange. (1)
(a) Broker (b) Registrar
(c) Sub-broker (d) Underwriter

3. Identify the method of floatation of new issue, not used by fast foodies (1)
(a) Offer for sale (b) Private placement
(c) E-IPO (d) Offer through prospectus
4. Full form of IPO is “Indian Public Offer” True/ False______ (1)

QUESTION BASED ON
Read the following text and answer questions no 1 to 4 on the basis of the same:-
SEBI established in 1988 by the Government of India was given staturoty powers
by passing SEBI Act, 1992. the main purpose of setting up SEBI was to safeguard
the rights and interests of the investors, reduce malpractices and promote healthy
functioning of stock exchange.
Securities and Exchange Board of India (SEBI) in january 2021, imposed a fine of
Rs 25 crores on Zeliance Industries and Rs 15 crore on its chairman, Mansukh
Lalwani, for manipulating shares of Zeliance energy Ltd. (ZEL) in November 2007.
The issue relates to manipulation during the sale and purchase of Zeliance energy
Ltd. shares in cash in November 2007. The market regulating with a view of safe-
guarding interests of investors found that Mr. Mansukh was the managing director
of ZEL and was responsible for the manipulative activities of ZEL.
“Another major breakthrough in the chain of capital market reforms SEBI has intro-
duced new pledging rules for brokers and investors”. The new reforms will bring in
some key changes to the existing system by making laws more stringent.
1. SEBI Act was pssed in 1988. True/False______ (1)
2. Which function of SEBI is/are discussed in the above case? (1)

(a) Protective function (b) Development function
(c) Regulatory function (d) both (a) and (c)
3. “The market regulator ....................... activities of ZEL”

which function of SEBI is highlighted from the above statement. (1)
(a) Protective function (b) Development function
(c) Regulatory function (d) both (a) and (c)
4. Another major breakthrough ....................... more stringent”.

These new rules have affected players in the market.
(a) Underwriters (b) Mutual funds
(c) Brokers (d) Merchant bankers

Q1. ‘Snacko Ltd’ is a company engaged in production of potato chips since 1992.
Over this period a large number of competitors have entered the market and
are putting a tough challenge to Snacko Ltd. its consumers have shifted their
preferences to baked or oil free chips instead of fried chips. To face this chal-
lenge and increase its market share the company has decided to purchase
new machinery with an estimated cost of 75 crores. To raise the finance the
company decided to issue 7% preferance shares. The finance department of
the company has estimated that the cost of issuing the 7% preferance shares
will be 10,00,000. The company wents to meet its floatation costs.
Suggest with reason, which instruments of financial market should the com-
pany use to meet its floatation costs.
Q2. Nitin Desai, the CEO of ‘Texus Ltd’ and Amit Kumar the finance Manager were
discussing about the avenues of investing the idle funds of the company. Nitin
Desai was of the opinion that money should be invested in the capital market
whereas Amit Kumar, being more conservative felt that it would be better if the
investment was made in the money market since the economy was buoyant
the CEO tried to convince. Amit that they should take advantage of it and invest
the idle funds in the capital market.
(i) Suggest, giving reason, which part of financial market is expected to give a
better return in a buoyant economy
(ii) Also suggest what kind of instruments should the company buy?
(iii) Why and how safe are the securities in capital market as compared to the
money market.

1. Nayar is working as a P.G.T. Commerce in a CBSE affiliated school of Kerala.

One day he was teaching about capital market in the class. He informed the
class that during 1980's the capital market in India witnessed a tremendous
growth because of increasing participation of the public. This ever increasing
investors' population and market capitalisation led, to a variety of malpractices
on the part of the companies, brokers,. merchant bankers, investment consult-
ants and others involved in the securities market. These malpractices and un-
fair trading practices eroded investors' confidence and multiplied investors'
grievances. The Government of India and the stock exchanges were helpless
in redressing the investors' problems because of lack of proper penalty provi-
sions in the existing legislation. In view of this the Government'of India decided
to set up a regulatory body.
(a) Name the regulatory body which the Government of India decided to set up.
(b) Also state any three objectives of the regulatory body identified in part (a)
above. (4)
2. Stock exchange acts as a regulator of the securities market. It creates a con-

tinuous market where the securities are bought and sold. It gives investors -
the chance„ to disinvest and reinvest. Through this process of disinvestment
and reinvestment, savings get channelized into their,most productive invest-
ment avenues. To ensure; that the investing public gets a safe and fair deal in
the market, the membership of the stock exchange is well regulated and its
dealings are well defined according to the existing- legal framework. It also'
ensures wider share of ownership by regulating new issues, better trading'
practices,and taking effective steps in educating the public -about investments.
Various functions performed by the Stock Exchange are discussed in, the 'abore
'para. By quoting lines from the above para, state any four functions of stock
exchange. (4)

3. Financial market is a market for creation and exchange of financial assets, It
helps to link the savers with the investors and directs available funds into their
most productive investment opportunity. It also facilitates easy purchase and
sale of financial assets through the stock exchange. The stock exchange not
only facilitates buying and selling of existing securities but also educates public
about how their investments in the financial market can yield good returns.
(a) State two functions performed by financial market in the above case.
(b) Explain two more functions of the stock exchange, other than those stated
in the above case

UNIT 4
Q.1 Pavco Ltd. was declared as a SICK UNIT as it was suffering from losses
since last 5 years. To rehabilitate the UNIT, overall financial restructuring of a
company was initiated. Mr. Rahul was appointed as new Finance Manager of
the company. Mr. Rahul analysed and found that company was suffering due
to scarcity of capital. He organised new issue of 1,00,000 equity shares of
Rs. 1,000 each. Issue was fully subscribed with arranged capital. Mr. Rahul
replaced the old plant with new one which was technologically updated and
as per the industry demand. Its payback period was 3 years and it was
promising a good rate of return. Just after two years, company was turned
into a profitable venture.
(a) Which two decisions are taken by Mr. Rahul as finance manager. Explain
them. (2+2)
(b) In which capital market, shares are issued? Explain. (2)
(a) Financing decision, Investment decision (b) Primary market.
Q.2 Managing director of a company was reviewing the newly designed capital
structure of company which was framed by Finance Manager. He found that
debt component was less than equity. Company was earning good return
with sound and stable earnings since last 12 years. MD discussedwith Finance
Manager, that by having comparative less debt component, earning per share
have reduced.
(i) Name the concept of Financial Management, mentioned here.Explain it
with the help of a suitable example. (1+3)
(ii) In which market, will the New debentures be issued by company.Write
any two features of such market. (1) Trading on Equity (2) Primary
market) (1+1)
Q.3 SABU Ltd. is facing liquidity crunch. Working capital is in shortage and it is
finding difficult to pay the suppliers in time. Credit period which is allowed by

suppliers is two months. Finance Manager is of the opinion that for at least
three months, company will not have sufficient funds to pay off creditors.
Although, it has good financial reputation in market.
(i) Which short-term financial instrument company should use? (1)
(ii) In which market short-term financial instruments are issued? (1)
(iii) Explain any three factors affecting requirement of working capital? (3)
[(i) Commercial Paper
(ii) Money market]
Q.4 GETO Ltd. is a company that produces school bags. Now it wants to produce
water bottles also. For such diversification it needs additional capital of Rs.
50 crores, So company decided to float capital by way of equity shares issue
to the general public as it is boom period in market. But company’s cash
position is not favourable. In order to arrange working capital, company wants
to use some money market instruments. It will help in meeting floatation
costs.
(i) Identify the method of floatation of capital as mentioned in the above

paragraph. (1)
(ii) Besides above share issue method, mention two other methods. (2)
(iii) Which money market instruments will be appropriate? Clarify. (3)
Ans. Hints: (i) Offer through prospectus
(ii) — Offer for sale, private placement
— Commercial Paper - used for bridge financing (explanation)
Q.5 A student asked teacher - “How can a company arrange for fixed capital
which is to be used in long - term projects?”
Teacher explained as
“If company wants to have funds, it can issue shares directly to public or it
can sell the whole issue to intermediaries. After subscribing the shares,

shareholders are not bound to keep it with them. They can sell it in the market
and get them encased.
In the above paragraph, two kinds of capital markets are highlighted. Name
them and write two features of each kind of markets. (2+4)
(Primary market, secondary market)

Q.6 In 2nd five year plan, “Industrialisation” was the “Main Focus”. But the major
problem was saving and Investment-Household used to invest in GOLD &
Property only. Government had to take initiative for establishing Infrastructure
and other basic industries. With pace of economic development, small
savings were promoted by establishing an organised market. This market is
regulated by SEBI and has attributed a lot in economic development.
(i) Identify the market. (1)
(ii) Name two functions of this market. (2)
(iii) (i) Secondary market
(ii) Promoting Savings, Economic development.
Q.7 XYZ Ltd. invited public to subscribe for equity shares of Rs. 100 each. Before
the issue MD of the company had a deal with foreign company to amalgamate
just after this issue. MD did not disclose this important fact in prospectus. It
was highly objected by shareholders. Concerned Regulating Authority took
action and MD was punished and penalised as per regulations.
(i) Identify the kind of capital market referred above. (1)
(ii) Name the Regulatory Body, mentioned above. (1)
(iii) Name any three other functions performed by the Regulatory Body. (3)
Ans. (Hints) (i) Primary Market
(ii) Securities Exchange board of India
(iii) To call for information.

- having fee or other charges.
- Training of intermediaries or (Any other)

Q.8 Avantika and Aanchal are close friends. They did their MBA together and got
good placement from college campus as finance manager and production
manager respectively in highly reputed companies.
Immediately after joining, Avantika found that her company was in dire need
of additional production capacity. She arranged funds by issue of debentures
and purchased a new plant with - higher production capacity.
- good rate of return.
- Low pay back period.
- less cost & Good pollution control technology.
On the other hand, Aanchal put the workers for production for more hours of
work. She did not listen to the workers suggestions and grievances. She did
not pay any incentive for good performance.
(i) Name two financial decisions mentioned in para 2. (2)
(ii) Quote the factors from above. Which affect the decision to purchase,
fixed assets. (Any Two) (2)
Ans. (Hints) (i) Financing and Investing Decision.
(ii) Rate of Return, Payback period.
Q.9 Talco Ltd. is launching a new range of snacks which are 100% Fat free.
Keeping in mind, the health concious segment of market, company produced
these cholestrol free snacks. For financing the production of snacks, company
issued 10% debentures. Company was already burdened with fixed cost of
salaries, Rent and 8% debentures interest.
(i) In which market, were the debentures issued? (1)
(ii) Do you think, issue of debentures was a wise choice Y/N. Justify your
answer. (1+2)
(iii) What could be the other sources of finance available to Talco Ltd.
(Hints) (i) Primary Market
(ii) No Company was already burdened with fixed cost.

(iii) - Shares (Equity or Preference)
- Retained Earnings.
Q.10 Ravi was a trader dealing in woolen garments. His business flourished and
he maintained a good reserve of retained earnings. Ravi expanded his
business and started production of “shawls”. Operating cycle period of shawls
was quite long as Ravi made a policy for “Credit allowed” of four months to
attract more customers. He was able to produce a good number of shawls
with good quality and hand work.
(i) Name the market, through which working capital needs are satisfied.
(1)
(ii) What quantum of working capital was required when he was trader? As
a producer how his need for working capital requirement has changed?
(2)
(iii) Apart from working capital, explain any three other factors, affecting
requirements of working capital. (3)
[(i) Money Market, (ii) As a trader less, as a producer-more]
Q.11 State Electricity Board under the ownership of state government was privatized
in 2001. The company allotted securities to some selected individuals and
institutions as this was a faster way of raising funds in public issue without
any need for issuing a formal prospect. The company has since then been
in operation for 15 years as a private sector company. The company has
shown remarkable growth as indicated by rise in revenues, operating profit,
profit after tax, resulting into maximisation of wealth of its shareholders. It
has increased its assets base by buying fixed assets. As a private sector
company, it has paid dividends in accordance with the policies stated in its
articles.
a) Identify and explain, by quoting the lines, the decisions taken by the
management in achievement of objectives of financial management
after privatisation.
b) Identify the method of floatation opted by the State Electricity Board.

c) How has the company maximised the wealth of its shareholders?
Hint:
a) 1. “The Company allotted……...Formal prospectus.
Financing Decision
2 “It has increased...............fixed assets.”
Investment decision
3. “As a private sector...............articles.”
Dividend Decision
b) Private placement
c) By taking balanced finance decision i.e. Financing, Investment and
Dividend decision as indicated by- rise in revenue, operating profit.
Q.12 The Trading procedure on Stock Exchange has been replaced by online screen
based electronic trading system. This is mainly done to eliminate problems
like theft, fake forged transfers, transfer delays and paper work associated
with share certificates or debentures in physical form. This is a process
where securities held by the investor in the physical form are cancelled and
the investor is given an electronic entry or number so that he/she can hold it
in an electronic balance in an account. This has increased the equity cult
among the people.
a) Identify and state the process mentioned above. (1)
b) What is the most important requirement for the process identified in(a)?
State. (1)
[(a) Dematerialisation (b) DEMAT account (c) Transparency, efficiency]
Q.13 Sakshi Ltd, a well known real estate company has managed to carve a niche
for itself in this sector. Recently, it was revealed that the directors of the
company have used price sensitive information for their own personal interest
Adequate public disclosures were also not made. SEBI is considering action
against these directors
Name the term used for trading malpractice done by the directors of this
company.

Ans. Insider trading
Q.14 Bombay Stock Exchange was established in 1815 and was Asia’s first stock
exchange. About 6000 companies are listed on this exchange. Where
investors purchase and sell their securities as shares, debentures and bonds.
Price of the securities is determined by forces of demand and supply. The
members of exchange are called brokers. They provide safe and fair deal to
their customers. The Sensex launched in 1986 is made of 30 companies
and represents 13 sectors of the economy. The change in Sensex saw the
growth of economy. Explain the functions of Stock Exchange, highlighted
above (3)
Ans. Hints
(1) Platform for purchases and sale of securities
(2) Price Discovery
(3) Economic Growth

CHAPTER – 11
MARKETING MANAGEMENT

Market: If refers to a place where the buyers and sellers meet and conduct buying
and selling activities. In the traditional sense, the market means a place where buyers
and sellers gather to enter into transaction involving the exchange of goods and
services but today business can be conducted on telephone, through mail, internet
etc. In modern marketing sense the term market has a broad meaning. It refers to a
set of actual and potential buyers of a product or service.
Marketer or Seller: If a customer is the seeker of satisfaction the marketer is the

provider of satisfaction. Marketer can be a person or an organisation who makes
available the products or services and offers them to the customer with an intention
of satisfying the customer needs and wants.
Marketing
Marketing is a social process whereby people exchange goods & service for money
or for something of value to them. Anything that is of value to the other can be
marketed e.g.
1. Physical Products - T.V., Mobile phone etc.
2. Services - Insurance, education etc.
3. Person - Selection for different posts.
4. Place-visit - Agra, Taj Mahal, etc.
5. Events - Fashion show, Films Festivals
Important Features of Marketing
1. Needs and wants:
Need: A state of felt deprivation or feeling of being deprived of something. If it

left unsatisfied, it leaves a person unhappy and uncomfortable.
Example: A basic need for food may take various forms such as want for
dosa for a south India chapti for a North Indian person
Marketer’s Job: Identify needs and fulfil them.

2. Creating a market offering : Complete offer for a product of service.
3. Customer value : greatest benefit or value for the money.
4. Exchange mechanism : Exchange of products/services for money/for

something of value to them.
Q1. Name the social process by which individuals and groups obtain what they
need and want through creating offers.
Meaning and concept of Marketing Management
Marketing management means management of the marketing functions. It is the

process of planning, organising, directing and controlling the activities related to
marketing of goods and services to satisfy customers’ needs & achieve organisational
goals.
Thus, marketing management process involves:
1. Choosing a target market: e.g., a manufacturer may choose to make ready-

made garments upto the age of 5 years for children.
2. Creating demand and attracting more customers in target market : To

increase the number of customers by analysing their needs, wants etc.
3. Creating superior value: To make the product better than competitors

products for customers.
Marketing Management Philosophies
1. Production concept: Emphasis on Quantity initiated at the time of industrial

revolution.
Focus: Availability and Affordability and improving the production & distribution
efficiency.
2. Product Concept: Emphasis on Quality
Focus: Continuously improving quality, incorporating new factors, product

improvement.

3. Sales Concept: Emphasis on Sales volume it.
Focus: Attracting and persuading customers, aggressive promotional

techniques.
4. Marketing Concept: Identify a need and satisfying.
Focus: Customer satisfaction: The products and services and bought not
merely because of their quality, packaging or brand name, but because they
satisfy a specific need of a customer.
5. Societal Marketing Concept: Extension of marketing concept i.e. customer

satisfaction with welfare of the society like taking care of issues like
environmental production, deforestation, shortage of sources etc. Consider
social, ethical and ecological aspects of marketing.
Differences in the Marketing Management Philosophies

Philosophies/ Production Product Selling Marketing Societal
Bases Concept Concept Concept Concept Concept
1. Starting Point Factory Factory Factory Market Market

Society
2. Main Focus Quantity of Quality, Existing Customer Customer

product performance, Product need needs and
features of society’s
product well being
3. Means Availability Product Selling Integrated Integrated

and affordability improvements and marketing marketing
of product promotion
4. Ends Profit through Profit through Profit Profit Profit

volume of product quality through through through
production sales customer customer
volume satisfaction satisfaction
and society
welfare

Q.1 Raman, Joginder, John, Iqbal and Shreya are friends. They are operating
different business. Each one has his/her own concept regarding operating
their business.
Raman believes in producing products at a large scale. Thereby decreasing
the average cost of the products and selling it at a reasonable price.
Joginder focuses on providing best quality products because he believes
that a customer always wishes to buy a good quality product. The price of
the product is secondary, John is of the belief that most important aspect of
business is sales and so he undertakes aggressive selling & promotional
effort.
Iqbal believes that his firm can achieve its goals only by identifying the needs
of the customer & satisfying them better than the competitors.
Shreya on the other hand feels that her firm has a responsibility towards
the society as well. So she provides customer satisfaction along with using
techniques which are environmental friendly.
a) What are the Marketing concepts followed by each of them?
b) Raman’s concept is successful for him because he is into
manufacturing & selling iodised salt under the brand ‘Healthy salt, this
product has a ready market and vast consumer base, also the products
is standarised so he can focus on production at a large to cut down
the cost per unit. Write any business which can be successfully run
by the others using their concepts.
(Joginder-, John-, Iqbal-, Shreya )
Functions of Marketing/Marketing activities
1. Marketing research : Gathering and analyzing marketing information i.e.
what the customers want to buy, when they are likely to buy, in what quantities
do they buy, from where do they buy etc.
2. Marketing planning: Specific plan for increasing the level of production,
promotion of the products etc. and specify the action programmes to achieve
these objectives.

3. Product designing and development: Marketer must take decision like,
what-product, which model/size, brand name, Packaging, quality level, will
attracts the target customers.
4. Standardisation and Grading: Standardisation refers to producing goods

of predetermined specifications which help in uniformity and consistency. It
reduces the need of inspection, testing and evaluating the products.
Grading refers to the process of classifying the products into different groups.
Grading is done for goods which cannot be produced according to
predetermined specifications i.e. agricultural products.
5. Packaging and Labeling: Packaging refers to designing the package for

the product. It protects the product and also serves as promotional tool.
Sometimes the quality of product is assessed by packaging labels provide
detailed information about the products, its contents and methods of use etc.
6. Branding: Creating a distinct identity of the product from that of competitors

e.g. LG washing machine, Usha Fans, Lux Soap etc.
7. Pricing of products: setting pricing objectives, determining pricing

strategies, price level etc.
8. Customer support service: After sales services like handling customers

complaints be maintenance services.
9. Promotion: Informing the customer about the product and persuading the
customer to buy the product using sales promotions, advertising, personal
selling and publicity.
10. Physical distribution: Decision regarding channels of distribution and

physical movement of products from where it is produced to the consumer
by managing inventory, storage and transportation.
11. Transportation: Physical movement of goods.
12. Storage and Warehousing: Necessary to maintain smooth flow of production

and supply.

Q.1 Which function of marketing requires gathering & analysis of marketing
information?
Q.2 Before buying a thing a customer analyses its cost and the satisfaction that
he is to get from it. He will buy the thing only when he feels that its satisfaction
will be more than its cost. Seller is to make the thing while keeping in mind
this tendency of the buyer. A seller, who does not pay heed to the importance
that the buyer gives to the product, certainly lags behind in competition.
Which feature of marketing has been highlighted in the above paragraph?
(1)
Marketing mix
A set of marketing tools used by a firm to pursue its marketing objectives in a target
market. Product, Price, Place and Promotion are the important elements of marketing
mix which are popularly known as Four P’s of marketing.
Product Price
Mix Mix
Place Promotion
Mix Mix
Elements of Marketing Mix

I- PRODUCT MIX
Meaning and Concept of Product: Product is anything that can be offered to a
market to satisfy a want or need.
Product mix refers to a combination of various features relating to the product or
service like quality, size, range, package, warranty etc.
PRODUCT MIX – Three components of Product mix are - Branding, Packaging,
Labelling.
1. Branding- Giving a name/a sign; a symbol etc. to a product eg.:
Pepsi.
Nike:

BRANDING
BRANDING
Distinct Identication
Distinct Identication of
of aaProduct
Product
Brand
Brand Name
Brand Mark
Trade Mark/Brand registered under Trade Mark Act, 1999 with Government of India
Trade Mark Brand registered under Trade Mark Act, 1999 with Government of India
Qualities of a Good Brand Name
1. Simple and Short : A brand name should be simple and short as Tata, Bata
2. Easily Pronounceable : A brand names should be easily pronounceable as
Lux, Dalda.
3. Suggestive : Brand name should be self explanatory, suggesting the inherent
quality of the product as Ujjala suggests more whiteness.
4. Distinctive: Brand name should be so distinctive that it highlights itself in
the group of other brand names such as : Tide, Perk.
5. The brand name should be sufficiently versatile to accommodate nevv product
which are added to product line eg. Phillips bulb, Phillips Music System.
6. It should be capable of being registered and protected legally.
Q.1 You have come up with a brand name 'Yummy Yummy' for your noodles
brand. What qualities do you think are associated with it?
Q2. State the advantage of registering trade mark'.
2. Packaging- Act of designing and producing the container or wrapper of a

product. Good packaging often helps in selling the product so it is called a
silent salesman.
Levels of Packaging
1. Primary Package : refers to the product's immediate container e.g. toffee in
a wrapper, a match box and a tooth paste tube.

2. Secondary Package: refers to additional layers of protection that are kept till
the product is ready for use e.g. a Colgate toothpaste usually comes in a
card board box.
3. Transportation Package: refers to further packaging components necessary

for storage, identification and transportation e.g. package of toffees are put
into corrugated boxes for storing at a manufacturer’s warehouse and for
transportation.
PACKAGING
Group of activities related to the designing
and production of the container in which
the product is packed.
it can be different levels:
Primary Packaging
Secondary Packaging
Transportation Packaging
Functions of Packaging
1. Product identification: Packaging helps in identification of the product.
2. Product Protection: The main function of the packing is to provide protection
to the product from dirt, insects and breakage.
3. Convenience: It provides convenience in carriage, stocking and in
consumption e.g. packaging of medicines, tooth pastes tube help convenient
usage of the product.
4. Product promotion : An attractive colour scheme or photograph may be
used to attract the attention of people at the point of purchase.
5. Seif Servicing outlets : Major cities have self servicing outlets where the
packaging severs as the promotional tool for the sale of product.
Importance/Advantages of Packaging
1. Rising standards of Health and Sanitation : The people are becoming
health conscious so they like to buy packed goods. The reason is that the
chances of adulteration in such goods are minimised.

2. Innovational Opportunity: With the increasing use of packaging more
innovational opportunity becomes available in this area for e.g. tetra packs
for milk has increased its shelf life.
3. Product Differentiation: Packaging is helpful in creating product
differentiation. The colour, material and size of the package makes differences
in the perception of consumers about quality of the product as compared to
other product.
Q. Which function of packaging is emphasized in case of Cadbury chocolates
by using purple packaging on all its chocolates? What according to you are
advantages of such packaging?
3. Labelling: Labelling means putting identification marks on the package. Label
is a carrier of information & provides information like - name of the product,
name of the manufacturer, contents of the product, expiry and manufacturing
date, general information for use, weight etc.
Labels perform following functions:
1. Identify the product: - It helps the customers to identify the product from the
various types available. For example: We can easily identify a Cadbury
chocolate from the various chocolates by purple colour of its label.
2. Describe the product and specify its contents: The manufacturer prints all
the information related to the product.
3. Grading of products: With the help of label, products can be graded in different
categories for example: Brook Bond Red Label, Brook Bond Yellow Label,
Green Label etc.

4. Helps in promotion of products :- Attractive and colourful labels excite the
customers and induce them to buy the products. For example :- 40% extra
free mentioned on detergent etc.
5. Providing information required by law :- There is legal compulsion to print

batch no., contents, max retail price, weight/volume on all the products and
statutory warning on the packet of cigarettes, “Smoking is injurious to health”:
In case of hazardous/poisonous material appropriate safety warnings need
to be put.
Q1. ‘An important task in the marketing of goods relates to designing the label
as it provides useful and detailed information about the products”. In the
light of this statement, draw a label for “Tea” and highlight the important
information to be provided on it. (3)
Q2. One manufacturer of electronic product produces such products which

need special care while using it. But the company has not given the
instructions to consumers. If you were the manager of the company what
steps you would take?
II. PRICE MIX
Meaning and concept of Price: Price may be defined as the amount of money
paid by a buyer (or received by a seller) in consideration of the purchase of a product
or a service. Pricing is crucial for manufacturers, customers and intermediaries. A
customer will buy a product only when he perceives that value or a product is at
least equal to value of money, which he has to pay in the form of price. Before
framing any pricing policy following factors should be considered:
1. Pricing Objectives
(a) Attaining product quality leadership : Normally higher prices are charged
to cover high quality and high cost of research & development.
(b) Obtain large share of the market i.e., by maximising sales it will charge
lower price.
(c) Firm is operating in the competitive market it may charge low price for
its products or try to sel its products at discount.

2. Cost of Production : The cost sets the minimum level at which a product
can be sold. Cost refers to sum total of fixed, variable & semi-variable.
3. Demand : High Demand and less supply may permit increase in price while
low demand and more supply may not allow increase in price.
4. Competition in Market : Prices of competitors need to be considered before

fixing prices.
5. Government Policies: Products regulated by government pricing regulations

need to be priced as per government policies.
6. Marketing methods used: Price is also offered by elements like choice of

distribution system, quality f salesman employed, quality & amount of
advertising etc.
Q. ABC Ltd. is introducing a new car in the market. Which factors shall it consider
while pricing the car?
III. Place Mix/Physical Distribution Mix
Covers all the activities required to physically move goods from manufacturers
to the customers Important activities include:-
1. Order Processing : Accurate & speedy order processing leads to profit &
goodwill & vice versa.
2. Transportation : Add value of the goods by moving them to the place where
they are required.
3. Inventory control : Additional demand can be met in less time, if appropriate
inventory control is there the need for inventory will also be low inthis manner.
4. Warehousing : Warehousing satisfies the need arises to fill the gap between
the time when the product is produced & time when it is required for
consumption.
Channels of Distribution
Direct Channel — Manufacturer-Customer (Zero level)
Indirect Channel —
1. Manufacturer-Retailer-Customer. (One level)

2. Manufacture-wholesaler-Retailer-customer. (Two level)
3. Manufacture ! Agent ! Wholesaler ! Retailer ! Customer (Three Level)
Direct Channel
IV. Promotion Mix
It refers to combination of promotional tools used by an organisation to communicate

and persuade customers to buy its products.
Elements of Promotion Mix
Advertising Personal Selling
Prom otion M ix
Sales Promotion Public Relation
Tools/Elements of Promotion Mix
1. Advertising: It is the most commonly used tool of promotion. It is an

impersonal form to communication, which is paid by the marketers (sponsors)
to promote goods and services. Common mediums are newspaper,
magazine, television & radio.

Features of Advertising:
1. Paid form : The sponsor has to bear the cost of communicating with the
prospects.
2. Impersonality: There is no direct face to face contact between the advertiser
and the prospective customer.
3. Identified sponsor : Advertising is done by a particular individual or company
who bears the cost.
Importance of Advertising
1. Enhancing customer satisfaction and confidence.
2. Mass Reach : Helpful in increasing the demand of existing product and so
increases the market share.
3. Expensiveness : With use of art, computers, graphics, advertising has
become a forceful communication medium.
4. Economy: Advertising has a wide reach and so per unit cost become low.
Q.1 You have an advertising agency. A manufacturer of consumer product like
Soap, Tooth Paste has come to you to help him in promotion of his products.
Convince him how advertising can assist in giving boost to his sales?
2. Personal Selling
Personal selling consists of contacting prospective buyers of product
personally i.e face to face interaction between seller and buyer for the purpose
of sale.
Features of the Personal Selling
1. Personal form : Personal contact is established between seller and the
buyer.
2. Development of Relationship : A personal relationship is developed with
the prospective customers because of which chances of sales increase.
3. Flexibility: The sales presentation can be adjusted to fit the specific needs
of the individual customers in case of personal selling.
4. Direct feedback : As there is direct face-to-face communication the
customers feedback can be taken instantly.

5. Minimum wastage : The wastage of efforts is minimised here as company
can decide the target customers before making contact with them.
Sales Promotion
Short term incentives designed to encourage the buyers to make immediate
purchase of a product/service.
Merits of Sales promotions
1. Attention value: People are attracted because of use of incentives.
2. Useful in new product launch : It helps inducing people to break away
from their regular buying behavior and try the new product.
3. Synergy in total promotional effects : It supplements persona! selling
and advertising.
Examples:
(i) Free sample of shampoo pouch with a fairness cream.
(ii) Upto 50% off on most items.
(iii) Tooth brush free with Tooth paste.
(iv) Buy 3 packs of 1 litre juice and get another free.
(v) Scratch the card and dial a number to win a car.
Public Relations
"The Chartered Institute of Public Relations" defines Public Relations as 'a
strategic management function that adds value to an organization by helping it to
manage its reputation'
Public relations covers a wide range of tactics, usually involve providing information
to independent media sources in the hope of gaining favorable coverage. It also
involves a mix of promoting specific products, services and events and promoting
the overall brand of an organization, which is an ongoing tact. Public Relation tools
include:
1. Press Release: A press release is an announcement of an event,
performance, or other newsworthy item that is issued to the press by a public
relations professional of an organization.
It is written in the form of a story with an attractive heading so that the media
quickly grasp and circulates the message through newspaper/radio/television/
internet.

2. It is a comprehensive package of information outlining a
P re s s K its :
company’s products and services most frequently sent to members of the
press. It includes
• A brief company biography.
• Information of senior management.
• Comments from customers.
• Reprints of newspaper and magazine articles.
• Photos of products.
3. Corporate communication : Communicating with public and employees
through.
a) Brochures: It is a booklet published by the organization which contains the
organization's background, its ethics, vision, mission, its past, present and
future projects, its CISP, etc. E.g.: brochure given to new employees.
b) Newsletter: It is a printed publication produced at regular intervals focussing
on a particular set of people. The content of a newsletter is presented in a
writing style that is less formal and letter-like. For example, a newsletter
published by a college consists of information about activities conducted
during a particular period, special achievements by students or teachers,
etc.
4. Lobbying : The organisation has to deal with govt, officials & different ministers
incharge of corporate affairs, industry. The PR department has to pro actively
promote or decode regulation that affect them.
5. Counseling : The public relations department advises the management on
general issues which affect the public eg. issues like environment, children's
regents etc.
Good Public Relations helps in achieving following marketing objectives :-
a) Building awareness: About the product in markets results in higher sales.
b) Builds credibility : When news about a product comes in media people
believe in the product.
c) Stimulates sales force : It becomes easier for sales force to deal with the
retailers & dealers.
d) Lowers promotion cost: It costs less than advertising.

Publicity: It is non-personal form of communicationb ut it is a non-paid form
of communication. It has more credibility.
Exercise
1. Identify the main focus of selling philosophy/concept of marketing

management.
(a) Profits (b) Factory
(c) Selling & Promotion (d) Existing product
2. What can improve performance of a product and also give it a competitive

advantage in the market.
(a) Standardisation (b) Branding
(c) Design (d) Promotion
3. Which element of marketing mix includes after sales services offered to

the customers.
(a) Product (b) Price
(c) Place (d) Promotion
4. In addition to product differentiation, differential pricing and introduction of

new product, what advantage Branding do have to the marketers.
(a) Product identification (b) Status symbol
(c) Advertising product (d) Ensures quality
5. The advertisement of a travel agency states the following ‘Visit Agra the
city of love’, ‘Udaipur-the city of lakes’ and ‘Mysore-the city of Gardens’.
What is being marketed by the agency through the advertisement?
(a) Product (b) Place
(c) Service (d) Cities

6. Which tool of promotion is an impersonal form of communication, which is
paid for by the marketers to promote some goods or service.
(a) Personal selling (b) Publicity
(c) Advertisment (d) Sales promotion
7. Direct channel, is the most simple and the shortest mode of distribution,
by which the goods are made directly available by the manufacturers to
customers. Identify the other name of the Direct Channel of distribution.
(a) Zero level (b) One level
(c) Two level (d) Three level
8. Ranjit purchased a bottle of tomato-sauce from the local grocery shop.
The information provided on the bottle was not clear. He fell sick on
consuming it. He filed a case in the District Forum and got the relief. Which
important aspect was neglected by the marketer in the above case.
(a) Branding (b) Labelling
(c) Packaging (d) Publicity
9. Ram a Bag manufacturer decides to add a water bottle holder to the existing
design of school bags. Identify the marketing management philosophy
adopted by Ram.
(a) Product (b) Production
(c) Selling (d) Marketing
10. Assertion (A) : Packaging is considered as one of the pillars of marketing.
Reason (R) : Packaging is important not only for protection of the products
but also serves as a promotional tool.
Read the above statements—Aisertion (A) and Reason (R). Choose the correct
alternative out of the given below:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Aisertion (A).
(b) Both Assertion (A) and Reason (R) are true but (R) is not the correct
explanation of Aisertion (A)
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) and Reason (R) both are incorsect

11. Identify the level of packaging displayed in the picture at serial number
one.
(a) Secondary package
(b) Transportation package
(c) Primary package
(d) Card board package
12. Which ‘P’ of marketing mix is displayed in the picture.
(a) Product
(b) Place
(c) Price
(d) Promotion
13. Statement I : The production concept of marketing was based on the

notion that profit could be maximised by producing at large scale.
Statement II : Dusing the earlier days of industrial revalution demand for
products exceeded the supply.
Read the above statements I and II and choose the correct option out of
the following:
(a) Statement I is correct but II is incorrect
(b) Statement I is incorrect but II is correct
(c) Both the statements are correct

14. Which element of Promotion Miscis displayed in the picture.
(a) Public Relations
(b) Advertising
(c) Sales promotio
(d) Personal selling
Source : NCERT

1. Sales promotion refers to short-term incentives, which are designed to
encourage the buyers to make immediate ....................... of a product or
service.
(a) Sale (b) Demand
(c) Supply (d) Purchase
2. Advertising is an ....................... form of communcation which is paid for
by the sponsors.
(a) Personal (b) Impersonal
(c) Formal (d) Informal

3. When the demand of a product is inelastic, the firm is in a better position to
fix ....................... prices.
(a) Higher (b) Lower
(c) Similar (d) Competitive prices.

4. ....................... are useful in providing detailed information about the product,
its contents, method of use etc.
(a) Brands (b) Packages
(c) Labels (d) Design

5. ....................... is described as the set of marketing tools that a firm uses
to pursue its marketing objectives in a target market.
(a) Product Mix (b) Price Mix
(c) Promotion mix (d) Marketing Mix
III. Giving reason in support of your answer state whether the following are
True or False
1. Grading ensures the buyers that goods confirm to the predetermined

standards of quality, price and packaging and reduces the need for
inspection testing and evaluation of the products.
2. Place mix include activities that communicate availability features, merits,
etc. of the products to the target customers and persuade them to buy it.

3. Products which are sold by generic names by the marketers could not be
distinguish from the products of the competitors.
4. A tube of Shaving cream usually comes in a card board box which is kept
till the consumer start using the shaving cream and it ensure its
transportation from place to place easily.
5. Publicity involve a variety of programmes designed to promote or protect a
company’s image and its individual products in the eyes of the public.
IV. Match the following and selct the most appropriate option.
1. 1. Brand name 1. Tag
2. Packaging 2. Devil of Onida
3. Label 3. Card board box
4. Brand Mark 4. Bata
(a) 1 – 4 (b) 1 – 2 (c) 1–1 (d) 1 – 3
2–3 2–3 2–3 2–1
3–1 3–1 3–4 3–4
4–2 4–4 4–2 4–2
2. 1. Direct channel 1. Paid form of communication
2. Indirect channel 2. Zero level
3. Publicity 3. Two level
4. Advertisement 4. Non-paid form of communication
(a) 1 – 3 (b) 1 – 2 (c) 1–2 (d) 1 – 3
2–2 2–3 2–3 2–2
3–4 3–1 3–4 3–1
4–1 4–4 4–1 4–4
3. 1. Production concept 1. Quality of product
2. Product concept 2. Customer needs
3. Selling concept 3. Quantity of product
4. Marketing concept 4. Increase in existing product
(a) 1 – 3 (b) 1 – 3 (c) 1–2 (d) 1 – 3
2–1 2–4 2–1 2–1
3–2 3–1 3–4 3–4
4–4 4–2 4–3 4–2

4. 1. Sales promotion 1. Flexible tool
2. Personal selling 2. Confuses the buyers
3. Advertising 3. Utility and demand
4. Pricing 4. spoils product image
(a) 1 – 2 (b) 1 – 4 (c) 1–1 (d) 1 – 3
2–1 2–1 2–2 2–4
3–4 3–2 3–3 3–2
4–3 4–3 4–4 4–1
ANSWER KEY

1. (d) 2. (c) 3. (a) 4. (c) 5. (b)
6. (c) 7. (a) 8. (b) 9. (a) 10. (a)
11. (b) 12. (b) 13. (c) 14. (c)
1. (d) 2. (b) 3. (a) 4. (c) 5. (d)
III. True/False
1. False 2. False 3. True 4. False 5. False
V. Multiple choice questions.
1. (a) 2. (c) 3. (d) 4. (b)
Q.1 ‘Various tools of communication are used by the marketers to promote their
products.’
(a) Why do companies use all tools at the same time?
(b) Name and explain the most commonly used non-personal tool of
promotion which is paid for by the marketer.
(c) Which tool of promotion will primarily be used for the following?
(i) To promote or protect a company’s image or its individual

products.
(ii) An existing product meant for mass usage by literate people.

(iii) To introduce a new product to a particular class of people through
door-to-door visits.
(iv) To attract attention of the people by using incentives. (6)
Q.2 As a project work in Business Studies subject, the Commerce students of

“Knowledge School’ thought of setting up a recycling plant to recycle all the
waste papers from the school and prepare registers and exercise books to
be used by the school students. They approached their Principal who not
only appreciated the idea of the students but also gave them consent for the
same. The school also decided to donate 50% of the revenue generated
from the sale of registers and excercise books to a nearby blind school.
(a) State the product related decisions which the children have to take.
(b) Suggest any two factors the children should keep in mind while choosing
the right name for their exercise books and registers.
Q.3 Innovators Ltd. is business from manufacturing water purifier. It has already
been manufacturing water purifiers since last 10 years. Now it has come up
with a latest innovation in the field of RO purifiers which will avoid wastage of
water. It knows that there are many competitors in the field as Whirlpool,
Aquaguard, Zero B, Kent, Eureka Forbes, LG etc.
(i) Suggest which factors should it keep in mind while fixing the price of
purifier (any 3) (3)
(ii) Which channel of distribution should the company adopt? (1)
(iii) Which is the most appropriate sales promotion methods for this. (1)
Q.4 Mr. Akshay is the Sales Manager of Nova Ltd. Since last few months,
performance of his department has failed to reach the acceptable level. It is
a matter of concern for the General Manager. He is keen to mend this dismal
situation at any cost. Mr. Akshay made efforts to find out the causes of this
situation. He found that the members of his team lacked training and that
giving incentive to the buyers was absolutely necessary. To impart training to
his team members he set up a training center and appointed a trainer for this

purpose. The trainer imparted them necessary training keeping in mind the
actual situation. Besides Mr. Akshay launched a scheme for the customers.
Under this scheme, a coupon is to be issued to that consumer who buys
goods to a specified date. Later on, draw will be taken by a given date and will
be distributed among the winners.
Identify the said training and sales promotion methods. (3)
HOW TO CRACK CASE STUDIES
 At first read the question asked in the case study.

 Now read the given case carefully and identify the points which will direct
you to solve the given case.
 Tips to identify the points to case:
– If something about variety, after sale service and availability is
mentioned that means PRODUCT is being discussed.
– In relation to Marketing Management philosophy:
* When production/distribution is at large scale (Production
concept)
* When quality is improved or features are added to existing
product (Product concept)
 Enhancing Public Image (Public relation)
 Measures used for increasing the sale of product (Promotion mix)
Q.1 ‘Beauty Products Ltd’ is a natural and ethical beauty famous for offering organic
beauty products for men and women. The company uses plant based
materials for its products and is the No. 1 beauty brand in the country. Identify
the marketing management philosophy being following by ‘Beauty Products
Ltd.’
Ans. Social marketing concept.
Q.2 A company was marketing water purifiers which were very popular due to
their quality and after sales services provided to the customers. The company
was a leading company in the market and earning huge profits. Because of

huge profits, the company ignored the after sales services. As a result, its
relationship with customers got spoiled and the image of the company was
damaged in the public. The top management became concerned when the
profits for the current quarter fell steeply. On analysis, it was revealed that
igonring the afer sales services was its reasons. Therefore, the company
took all possible measures to protect and promote its favourable image in
the eyes of the public. As a result, the goodwill of the company improved in
the society.
(a) Name and state the communication tool used by the marketer in the
above case to improve its image.
(b) Also explain role of the tool as identified in part (a)
Ans. (a) Public Relations is being used as a promotional tool by the marketer. It
refers to the practice of manageing communication between an
organization and its publics in order to create the maintain a positive
image about itself and its products.
(b) The role of public relations as a promotional tool is described below:
1. Public relations helps to create a positive image about the

company in the eyes of various interest holders like consumers,
government, suppliers etc.
2. It helps in launching new products as they may be accepted easily

because of good reputaion of business.
3. It helps the business to reinstate itself in the wake of controversies
or prejudices etc.
Q.3 Unilever has found a new way to make ice creams by using an ingredient
called ‘ice structuring protein’ which is widely found in nature especially, in
fishes which allows them to survive in freezing arctic waters. Combining ISP
with stabilizer technology allows to make ice creams that don’t melt so easily
thereby making it more convenient for small children and consumer in hot
countries.
In the context of above case:

1. Identify the component of marketing mix being into consideration by the
company.
2. Explain briefly the function of marketing highlighted here.
Ans. 1. The component of marketing mix being taken into consideration by the
company is ‘Product’.
2. Product designing and development: Every marketer strives to
achieve his marketing objecives by creating offering to satisfy a need or
a want. Thereore one of the core functions of marketing is to develop
the product in the most effective and efficient way. Every marketer
endeavours to add value to his product by introducing constant
innovations in the product to enhance both its utility and attractiveness
in the eyes of the potential buyers and gain a competitive edge.
Q.4 Raj is a small entrepreneur involved in the manufacturing of hair wax. He
finds that cost of production of 100 gm of hair wax is Rs. 80. He has decided
to keep a margin of 20% as profit moreover, he has assessed that there is a
cut throat competition in this product segment. In the context of above case:
1. Identify the function of marketing being performed by Raj.
2. State briefly the two factors that he is taking into consideration while
performing the function as identified in part (a)
Ans. 1. Pricing is the function of marketing being perfomed by Raj.
2. The two factors that he is taking into consideration while performing the
pricing function are as follows.
1. Cost of product:
2. Degree of competition:

QUESTION BASED ON
Q 1. Narle–G a household name since 1938, achieved a unique milestone of selling

the maximum number of biscuits during the lockdown. This 5 rupees a pack
cookie came handy for many migrants who trekked hundreds of kilometers to
get back home. Narle products the makers of Narle-G have grown overall market
share by nearly 5% and 80-90% of this growth has come from Narle-G sales.
Enhanced distribution reach especially in rural areas has been main booster
for sales during the pandemic. Narle-G falls in the below Rs.100 per kg afford-
able value category-which accounts for one-third of overall industry revenues
and accounts for over 50% of sales volume. Narle Products do exercise non-
sales communication for good reputation.
1. “Narle-G” signifies–
(a) Product (b) Brand Name

(c) Trademark (d) Brand mark
2. Identify relevent ‘P’ of marketing mix in–

Enhanced distribution ........................... pandemic.
(a) Price (b) Place

(c) Promotion (d) Product
3. “Narle-G falls ............................................................... volume”.

As per this statement, credit for high revenue goes to–
(a) Good Product (b) Low Price

(c) Heavy Promotion (d) Good distribution
4. “Narle Products do ............................................................... reputation”

Which component of promotion is highlighted here-
(a) Advertising (b) Public Relations

(c) Sales Promotion (d) Personal Selling
Answer:- [1.b, 2.b, 3.b, 4.b]

Q2. India's drugs regulator has granted emergency use authorisation to Terum
Institute of India's Covld-19 Vaccine. SHIELD and Nora Biotech's VAXIN Au-
thorities have readied some 29.000 cold storage facilities across the country
and large scale vaconatior. drug-runs have been conducted in 125 districts
encompassing all states From these cold storages vaccines will be moved to
different state-level stores From there, the shots will be moved by road to
hundreds of districts, where local officials will vaccinate pre-registered health
care workers at designated facilities Price for vaccine is set considering ex-
penditure made on research
1. SHIELD and VAXIN are-fa) Brand names (b) Treademarks (c) Brand marks
(d) Name of these
2. Authorities have..............................................across the country Identify the

concept of marketing in abvoe mentioned line
(a) Product (b) Price

(c) Physical distribution (d) Promotion
3. Identify the factor affecting price in -
“Price for vaccine...........................................................research”.
(a) Pricing Objectives (b) Product Cost
(c) Utility and Demand (d) Govt and Legal regulations
4. "From there.........................................................hundreds of districts'
Identify the component of place mix-fa) Order Processing (b) Warehous-

ing
(c) Transportation (d) Inventory Control
Answer:- [1a. 2c. 3b, 4c]
Q3. What information is generally placed on a package of a food product?

Design a label for “Noodles” of your choice.
Ans. MRP. expiry date, batch no., date of manufacture etc (Any suitable label)

Q4. For buyers of cars, what 'Customer care services' would your plan as a
marketing manager of new firm, introducing a new brand of car.
Ans. (Any Suitable Answer)
Q5. JTM Ltd launched 'Buddyline', an exercise book and comprehensive sta-
tionery brand name comprising of ball pens, gel pens and geometry boxes
after identifying the target market and understanding the needs and wants
of the consumers of that market. All their products were of good quality
and ecofriendiy but expensive. They wanted to distinguish their product
from that of their competitors. They spent lot of effort, time and money in
creating the brand name, as they knew that without a brand name, they
can only create awareness for the generic product and can never be sure
of the sale of their products. The effort paid off and the demand for the
products started growing. The customers liked the brand and became
habitual of it. They did not mind paying a higher price.
Over a period of time, it became a status symbol to buy 'Buddyline' brand

because of its quality. The consumers felt pride in using them.
(i) Identify the marketing management philosophy followed by JTM Ltd.
(ii) Explain the advantages of branding to the marketers highlighted in the

above case.
Q.6 It has been observed that some advertisements show new lifestyles, which
don't have social approval. Moreover the advertising expenditure is
ultimately passed on to the buyers. Different competitive brands make it
difficult for prospective buyers to decide about the brand to be purchased.
Some advertisements are quite offensive and poor in taste. Identify and
explain the various objections to advertising mentioned above by quoting
lines.
Q.7 Mehwish Dar is a recognized top business women of her generation in

Ganderbal district in Jammu and Kashmir. She is a role model for family
business especially for women within them. She attributes much of her
success to her grandmother and founder of the company. Her business
deals in a wide variety of export quality handicraft iike Hand woven shawls.
Mufflers and jackets and other handicrafts. She keeps on refining her
marketing mix from time to time to make it more appealable and competitive.
Keeping in view the specific nature of business she wants to make it sure

that her products should be available at right time and at right place to the
consum ers. Considering Mehwish's business explain different
components involved in physical handling and movement of goods from
place of production to place of consumption. (6)
Q.8 The announcement of a nationwide lockdown in March 2020 in India due

to the spread of Covid-19 dealt a blow to many businesses that were left
grappling for their very survival amidst the crisis. But MD, T.S. Bodhi at
Milo Ltd. saw an opportunity in the crisis. He was of the view that this was
the time for 'Milo' to spruce up its supply chain and marketing activities in
order to reach people who were forced to stay indoors 'Milo' ensured a
steady supply of milk and milk products across the country during the
lockdown by strenghtening its supply chain and distribution network,
Consumers trusted 'Milo' brand over loose milk. It went ahead with
reinventing its 'items' portfolio and launching a range of immunity boosting
products such as turmeric, tulsiand ginger milk. To seize the market
oppportunity, 'Milo' decided to souble its marketing expenditure spent on
advertising and brand building.
Identify and explain, components of marketing mix of 'Milo' by quoting

relevant lines. (6)

CHAPTER -12
CONSUMER PROTECTION

Protecting consumers from unfair trade practices, adopted by the producers and
sellers of goods and services is termed as consumer protection. It not only includes
educating consumers about their rights and responsibilities, but also helps in getting
their grievances redressed. Generally consumers are explaited by (1) Adulteration
(2) Poor quality etc.
Importance of Consumer Protection
(from Consumer’s point of view)
1. Consumers’ Ignorance : Majority of consumers are not aware of their rights
and reliefs available to them as a result of which they are exploited.
In order to save consumers from exploitation, consumer protection is needed.
2. Unorganised Consumers : In India consumers are still unorganised and
there is lack of consumer organisations also, thus consumer protection is
required.
3. Widespread Exploitation of Consumers : Consumers are exploited on
large scale by means of various unfair trade practices and consumer protection
is required to protect them from exploitation.
Importance of Consumer Protection
(from the point of view of Business)
Traditional Approach
Caveat Emptor
(Let the buyer beware)
Modern Approach
Caveat Venditor
Caveat
venditor (Let the seller beware)
Market–Consumer=Zero
1. Long term Business Interest : It is always in the interest of the business to

keep its customer satisfied. Global competition could be won only after
satisfying customers. Satisfied customers lead to repeat sales and help in
increasing customer base of business.

2. Moral Justification : It is the moral duty of any business to take care of
consumer interest & avoid any form of their exploitation & unfair trade practices
like defective & unsafe products, adulteration, false and misleading advertising,
hoardings, black marketing etc.
3. Business uses resources of society: Every business uses the resources

of the society and thus it is their responsibility to work in the interest of the
society.
4. Social Responsibility : A business has social responsibilities towards various
groups like owners, workers, government, customers etc. Thus, customers
should be provided qualitative goods at reasonable prices.
5. Government Intervention : If a business engages in any form of unfair
trade practices then government takes action against it, which adversely
affects its goodwill.
CONSUMER PROTECTION ACT, 2019

— Consumer protection Act, 2019 seeks to protect & promote the consumer's
interest through speedy & inexpensive redressal of their grievances.
— It extends to the whole of India
— It is applicable to all types of business (a manufacture/trade/ e-commerce
firms)
CONSUMER AS PER CONSUMER PROTECTION ACT, 2019
Is a person who buys, any goods or avails services for a consideration, which has
been paid or promised, or partly paid or partly promised or under any scheme of
differed payments.
It includes both offline and online transactions through electronic means or direct
selling orteleshopping or multilevel marketing.
WHO IS NOT TREATED AS A CONSUMER AS PER CONSUMER
PRODUCTION ACT. 2019
Any person who obtains goods or avails services for resale or commercial
purpose.

Rights of a Consumer
Consumer Protection Act, 1986 has provided six rights to the consumers, which
are as follows:
1. Right to Safety:Consumer has the right to be protected against products, &

services which are hazardous to health & life (should use ISI marked electronic
devices.
2. Right to be Informed:Consumer has right to have complete information

about the product before buying it.
Manufacturing Date (20th Aug., 2016)
Price (Rs. 35)
Quantity (330 ml)
Expiry Date (Best before Jan., 2017)
3. Right to choose:Consumer has a right to choose any product out of the

available products as per his own decision making.
4. Right to be heard: Consumer has the right to file a complaint to be heard in

case of dissatisfaction with goods or services (use of grievance cell)
5. Right to Seek Redressal:Consumer has the right to get relief in case the
product or service falls short of his expectations or is dangerous. He may be
provided with replacement/removal of defect or compensation for any loss.
Various redressal forums are set up by the Govt. at National and State level.
6. Right to consumer education: Consumer has the right to acquire knowledge

and to be well informed throughout life. He should be made aware of his
rights and reliefs available to him in case of the product or service falls short
of his expectations. The Govt. of India has included consumer education in

the school curriculum & is making use of media to make consumers aware
of their rights.
Responsibilities/Duties of a Consumer
1. Consumer must exercise his rights:Consumers must be aware of their

rights with regard to the products or services they buy from the market.
2. Consumer must be a Cautious consumer:While buying a product or

services, a consumer should read labels carefully.
3. Consumer must file a complaint in an appropriate forum in case of any

shortcoming in product/service availed.
4. Consumer must insist on cash memo i.e a proof of purchase is required to

file a complaint.
5. Consumer must be quality conscious. He should ask/look for ISI mark on

electric goods. FPO mark on food products, Hall mark on jewellery etc.
6. Assert yourself to ensure that you get a fail deal.
C O NS UM E R M US T BE Q U AL IT Y C O N S C IO US
H a llm ar k is A gm ar k is
s tan da rd f or s tan dar d for
ac c ur at e pr es c r ib ed
d ete r m in ation agr ic ult ur al
of th e pr ec ious c om m odities
m et al an d liv e bloc k .
F P O aim s at
s tan da rd f or IS I is a
m an uf ac tur e of s tan d ar d f or
fr uit & elec tr ic al
ve ge tab le g oods .
pr odu c ts .

C ON S U M E R M U S T B E Q U A L IT Y C O N S C IO U S
E a rth e n p itc h e r s ig n ifie s t h e

p ro d u ct s a re e n v iro n m e n t
f rie n d ly.
6. Consumer must bring the discrepancy in the advertisement to the notice of

the sponsor.
7. Consumer must exercise his legal right. If any of these rights is violated by
manufacturer or seller, the consumers must file a complaint with the legal
machinery constituted under CPA, 1986.

Q1. Sonu purchased a medicine from ‘Alpha Medical stores’ for his wife who
had stomach pain. But even after giving the medicine, wife’s condition did
not improve and she had to be admitted to a nearby hospital for treatment.
Doctors on examination found that the medicines given to sonu’s wife were
spurious. Sonu complained about this to “Alpha Medical Store’. As a result
Alfa medical decided to file a complaint against the manufactures in the
consumer court. Can Alpha Medical store lodge the complaint?Give reason.
(No, Alpha stores is purchasing medicines for re-sale) (1)
Q2. Neha’s elder brother purchased “I Phone 6 - Apple” mobile phone for Rs.
65,000 without cash memo from one of his friend-an authorised dealer with
a guarantee that the mobile phone will be replaced with a new one if any of
its parts become defective within 1 year from the date of purchase. Within
1 month, the mobile stopped working. When Neha’s brother approached
his friend for replacement of mobile, he refused. Name the redressal agency
under the consumer protection act where Neha’s elder brother can file the
complaint. (No, because he did not take a cash memo) (1)
Q3. Rama, who was a vegetarian, went to a bakery and bought a vanilla cake.
On reaching home. She found that it had non-vegetarian content. Neither
the advertisement nor the packaging of the product displayed that the product
had non-vegetarian content. Will Raman be able to claim compensation?
Which right is violated here? (Yes, Right to be informed) (1)
THE SALIENT FEATURES AND PROVISIONS OF

CONSUMER PROTECTION ACT, 1986
Who Can File A Complaint Under CPA, 1986
A complaint before the appropriate consumer forum can be made by:
1. Any consumer.
2. Any registered consumer association.
3. The central or state government.
4. One or more consumers on behalf of numerous consumers having same
interest.
5. A legal heir or representative of a deceased consumer.

Against whom can a complaint be filed?
Consumer Protection Act, 1986 is applicable to all types of undertakings, whether

big or small, private or public, or in co-operative sector, manufacturer or a trader,
wholesaler or retailer, supplying goods or providing services.
Thus, a complaint can be filed against:
1. The seller, manufacturer or dealer of defective goods. Defect means any

fault, imperfection or shortcoming in the quality, quantity or purity of goods.
2. The provider of services if they are deficient in any manner. Deficiency means
any imperfection, shortcoming or inadequacy in the quality, nature and manner
of performance of services.
REDRESSAL AGENCIES UNDER CONSUMER PROTECT ACT, 1986

REDRESSAL AGENCIES
District forum State Commission National

Commission
Set Up By state Govt By state Govt. By central Govt.
President = 1
Memebrs other members =2 President =1 President = 01 other
(atleast one member other members = members = atleast
should be woman) atleast two) (Atleast four (Atleast one
one member should member should be
be female) female)
Value of complaint Upto Rs. 20 lakh More than Rs. 20 More than Rs. one
(Direct appeal) lakh and upto Rs. 01 crore
crore
Complain handling Receiving complaint Same procedure as Same procedure as

procedure Information to in district forum in District forum
opposite party 
sending sample of
goods to laboratory
for test
 If goods are
defective 
Appropriate
redressal to
aggrieved party in
form of replacement,
compensation etc.
Re-appeal Within 30 days of Within 30 days of Within 30 days of

decision to state decision to national decision to supreme
commission commission court

Note: Only those cases can be reappealed before Supreme Court which were
originally filed in national commission and amount of claim is more than ` 1 crore.
Q.1 Mukul purchased a diesel for Rupees 30 lakhs from an Automobile company
company and found it being defective. Despite many complaints the defect
was not rectified. He filed a complaint in the state commission but was not
satisfied with the order. Where can be appeal and in how many days.
Ans. National Commission within 30 days of passing of the order of State
Commission.
Q.2 Prabhakar purchased an ISI Mark electric Iron from Bharat Electricals. While
using he found that it was not working properly. He approached the seller and
complaint for the same. The seller asks the manufacturers to replace this
Iron. The manufacturer refused to do so and Bharat Electricals decides to
file a complaint in the Consumer Court.
(i) Can Bharat Electricals do this? Why?
(ii) Who can file a complaint in this case?
(iii) Name the Consumer right that can be exercised.
(No, it has purchased for resale) (Prabhakar, who is the real consumer)
(Right to be heard)
Q3. Name the Consumer Court where the complaint will be filed by the consumer.
` 35/-
Claiming
compensation Cold
Ans. District Forum

Q4. Naresh purchased a ‘BMW’ car for Rs. 50,00,000 on instalments. He found
that the engine of the car was defective. Despite many complaints to ‘BMW
Motors’, the defect was not rectified. He filed a complaint in state commission
but was not satisfied with its order. Where can he appeal and within how
many days?
Ans. To National Commission, within 30 days of decision of state Commission.
Q5. A farmer purchased seeds worth Rs. 20,000 from Bharat Fertilisers” for
agricultural purposes. The seeds were very costly as they were of hybrid
variety. After 6 months he noticed that the agricultural produce was not upto
expected standard. He reported this matter to the seller, but he refused to
accept the liability. Mention the redressal agency in which he can file a
complaint.
Ans. District Forum
Q6. On securing 95% marks in class XII, Ram’s father gifted him a gold chain.
But after 2 months, Ram noticed that the gold chain was loosing the shine.
He checked the mark on chain and found that it was not a proper hall mark
(BIS). He lodged a complaint in the district forum, which rejected it. Not satisfied
by the decision of district forum, he was very much disturbed and after 45
days, he decided to appeal further.
Can Ram appeal against the decision of the district forum? Give reasons in
support of your answer.
Ans. No, he did not check BIS mark while purchasing. (Reason More than 30 days
have passed since decision of district forum.)
REMEDIES AVAILABLE TO CONSUMERS
1. To remove the defect in goods or services.
2. To replace the defective product with new one free from defect.
3. To refund the price paid for the product/service.
4. To pay compensation for the loss or injury suffered by the consumer due to
product/service.
5. To discontinue the unfair trade practice and not to repeat them.
6. To withdraw the hazardous goods from sale.
7. To pay any amount (not less than 5% of value of defective goods) to any
person, consumer organisation.

8. To issue corrective advertisement to neutralise the effect of a misleading
advertisement.
Some important consumer organization and NGO’s engaged in protecting

consumer interests are:
1. Consumer coordination council, Delhi.
2. Voluntary organisation in Interest of Consumer Education, Delhi.
3. Mumbai Grahak Panchayat, Mumbai.
4. Consumer Association, Kolkata.

CGSI
5. Consumer Unity and Trust Society Jaipur.
Role of Consumer organisations and NGO’s
1. Educating the general pubic about consumer rights by organising training

programmes, seminars and workshops.
2. Publishing periodical & other publications to educate consumers.
3. Providing legal assistance to consumers by providing legal advice etc.
4. Producing films or cassettes on food adulteration, misuse of drugs etc.
5. Filing complaints in appropriate consumer courts on behalf of consumers.
6. Encouraging consumers to take on action against unfair trade practices.
7. Taking an initiative in filing cases in consumer courts on behalf of consumers.
Scope of Consumer Protection Act
The Act applies to all goods and services of any kind other than for commercial
purposes provided by any sector - private, public or co-operative. It also covers
public utility services.
Any ultimate consumer or registered association of consumers, state and central

government can file a complaint under the Act. Complain can be filed either personally
or by post. There is no fee for filing a complaint.

The complaint may relate to defect in the goods, deficiency in service, price variation
and unfair trade practice.
Ways and Means of Consumer Protection
1. Government:Protects the interest of consumers by enacting various

legislations like CPA, 1986, Sale of Goods Act 1930, Bureau of Indian Standard
1986 etc. Consumer Protection Act provides for a three-tier machinery at the
district, state & national level for speedy & inexpensive redressal of consumer
grievances.
2. Consumer Organisation:Force business firms to avoid mal practices &

exploitation of consumers.
3. Business Association:The associations of trade, Commerce & business

like federation of Indian Chambers of Commerce (FICCI), Confederation of
Indian Industries (CII) have laid down their code of conduct for their members
in their dealings with the customers.
Q1. Geeta’s mother bought a facial streamer from “Nova Electricals”. Her mother
got electric shock while using the steamer and she had to be taken to a
doctor. Which remedy is available to her? (Compensation) (1)
Q2. Sohan’s maid gifted a refrigerator worth Rs. 18,500 to her daughter on her
marriage which was later found defective. She being poor and illiterate does
not know how to forward her complaint in consumer court. Suggest her,
whom can she approach for forwarding her case. (Consumer association)
(1)
HOW TO CRACK CASE STUDIES
 Only affected consumer can file complaint against seller/manufacturer.

 For filling complaint consumer must fulfill his responsibility, i.e., take bill,
check dates, etc.
 If case mentions something about making consumers aware (Right to
consumer education)

Exercise
1. Golu bought an iron from ‘Sidhu Electricals.” She got an electric shock
while using the iron. Which consumer right has been violated here.
(a) Right to be heard (b) Right to seek redressal
(c) Right to safety (d) Right to choose.
2. Caveat Venditor implies
(a) Let the buyer beware (b) Let the seller beware
(c) Let the Producer beware (d) None of the above.
3. Who cannot be a consumer?
(a) A buyer of goods/services for considerations.
(b) A buyer of goods/services for resale.
(c) A person who is purchasing goods for other.
(d) None of the above.
4. Consumer has the right to file a complaint in case of disatisfaction with

goods or services in grievance cell. Which consumer right is it.
(a) Right to seek redressal (b) Right to be heard
(c) Right to be informed (d) None of the above.
5. Consumers are suffering due to unfair trade practice, therefore consumer

protection is required, implies—
(a) Consumers’ ignorance
(b) Unorganised consumers
(c) Widespread exploitation of consumers

6. Look at the picture and find, where
the consumer would have complained
at first—
(a) Session court
(b) District Forum
(c) State commission
(d) National Commission
7. Government is actively advertising for

‘Jago Grahak Jago’ which consumer
right is hig hlig hted in the given
statement.
(a) Right to be heard
(b) Right to consumer education

(c) Right to seek redressal
(d) Right to be informed.
8. W hich consum er rig ht is being

highlighted in the following picture:
(a) Right to safety
(b) Right to choose
(c) Right to be informed
(d) Right to seek redressal

9. Pooja purchased a car worth ` 18 lacs from an automobile company and
found its engine defective. She filed a complaint in District Forum. But she
was not satisfied with the orders of distric forum and decided to appeal
further. Suggest her the final highest authority where she could appeal if
not satisfied again by the decision of the next highest authority.
(a) State Commission (b) High Court
(c) National Commission (d) Supreme Court
10. Mention the quality mark which a consumer should look for while purchasing
jewellery.
(a) ISI Mark (b) FSSAI Mark
(c) Eco Mark (d) Hall Mark
II. Match the following:
CASE RIGHT
1. (i) File a complaint (a) Right to safety
(ii) Selecting the most suitable product (b) Right to be informed
(iii) Checking the pure vegetarian sign (c) Right to be heard
(iv) Safe and secure life. (d) Right to choose.
(a) (i) – (c) (b) (i) – (b) (c) (i) – (a) (d) (i) – (d)
(ii) – (d) (ii) – (a) (ii) – (b) (ii) – (c)
(iii) – (b) (iii) – (c) (iii) – (d) (iii) – (a)
(iv) – (a) (iv) – (d) (iv) – (c) (iv) – (b)
2. (i) (a) Food products
(ii) (b) Electrical appliances
(iii) (c) Agricultural products

(iv) (d) Environment friendly products
(v) (e) Jewellery
(a) (i) – (a) (b) (i) – (d) (c) (i) – (e) (d) (i) – (a)
(ii) – (b) (ii) – (c) (ii) – (d) (ii) – (c)
(iii) – (c) (iii) – (e) (iii) – (c) (iii) – (b)
(iv) – (d) (iv) – (a) (iv) – (b) (iv) – (d)
(v) – (e) (v) – (b) (v) – (a) (v) – (e)
3. Consideration Forum
(i) more than 1 core upto 10 cr. (a) National Commission
(ii) Upto 1 crore (b) State Commission
(iii) More than 10 crore (c) District Forum
(a) (i) – (a) (b) (i) – (a) (c) (i) – (b) (d) (i) – (c)
(ii) – (b) (ii) – (c) (ii) – (c) (ii) – (b)
(iii) – (c) (iii) – (b) (iii) – (a) (iii) – (a)
4. (i) FICCI (a) Government
(ii) VOICE (b) Business Association
(iii) State Forum (c) Consumer Organisation
(a) (i) – (a) (b) (i) – (c) (c) (i) – (a) (d) (i) – (b)
(ii) – (b) (ii) – (b) (ii) – (c) (ii) – (c)
(iii) – (c) (iii) – (a) (iii) – (b) (iii) – (a)
5. (i) Satisfied consumers bring (a) Business is trustee of
repeat sales resources
(ii) Business uses society’s (b) Long-Term interest of busiuness
resources
(iii) Supply good quality products (c) Social responsibility
at resonable prices

(a) (i) – (b) (b) (i) – (c) (c) (i) – (a) (d) (i) – (a)
(ii) – (a) (ii) – (b) (ii) – (b) (ii) – (c)
(iii) – (c) (iii) – (a) (iii) – (c) (iii) – (b)
1. Consumer protection Act 1986, applies to all goods and services of any
kind other than for ....................... proposes.
2. A consumer has the right to file ....................... and to be ....................... in

case of ....................... with a good or service.
3. Caveat Emptor means ....................... .
4. Consumer Rights Day is observed on ....................... .
5. Only those cases can be appealed in Supreme Court in which claim amount
exceeds ` ....................... and aggrieved party is not satisfied with the order
of ....................... .
III. True/False Suggest with reasos.
1. If a party is not satisfied with the decision of state commision it can appeal
in National Commission.
2. A consumer should get a cash memo while purchasing.
ANSWER KEY

1. (c) 2. (b) 3. (b) 4. (b) 5. (c)
6. (b) 7. (b) 8. (a) 9. (c) 10. (d)
II. Match the Column
1. (a) 2. (b) 3. (c) 4. (d) 5. (a)
III. Fill in the blanks:
1. Commercial 2. Complaint, heard, dissatisfaction
3. Let the buyer beware 4. 15th March
5. 1 crore, national commission.
III. True/False
1. False 2. False

Q.1 Himesh after completing his graduation started working with a multinational
company in Delhi. But due to ill health of his parents he had to go back to his
village. There he noticed that the villagers were literate but ignorant about
their rights. Many vegetable vendors were using stones as weights to sell
their vegetables. Some shopkeepers were selling food items without having
‘FPO mark’. Villagers did not find anything wrong wih these practices. So to
create awareness among villagers Himesh decided to publish a weekly journal
‘Jan Jagriti’. State the ‘Right’ which Himesh has exercised by doing so.
Ans. Right to consumer education.
Q.2 Manan purchased a house for Rs. 30 lakhs from a housing company and
found it being defective. Despite many complains, the defect was not rectified.
He field a complaint in state commission but was not satisfied with its order.
Where can he appeal and within how many days?
Ans. National Commission, within 30 days of the passing of the order of the State
Commission.
Q.3 Subu purchased a car for Rs. 1.1 crore and found its engine defective. Despite
many complaints, the defect was not rectified. She field a complaint in National
Commission but was not satisfied with its order. Suggest her the appropriate
authority where she can appeal.
Ans. The Supreme Court

Q.4 Name the right of a consumer related in each statement.
(a) The producer should not use aggressive selling techniques to sell his
products. Ans. Right to be informed
(b) No seller can sell products which are hazardous to life.
Ans. Right to safety
(c) In case a consumer has suffered a loss he can get monetary

compensation for the loss.
Ans. Right to seek redressal

(d) ICICI bank has published a series of advertisements enlightening the
consumers about use of credit cards, and hidden conditions in seeking
loans. Ans. Right to be informed
(e) Packet of Haldiram’s chips carry a phone number on which a consumer
can file a complaint. Ans. Right to be informed
(f) The butter paper wrap on Mc Donald’s burger indicates whether it is
vegetarian or non-vegetarian. Ans. Right to be informed
Q.5 Which responsibility of a consumer has not been fulfilled in the following
cases?
(a) Despite it was written on the cover of the face cream that it should be
used only after a patch test, Rina applied it on her face and developed
an allergy. Ans. She did not follow instructions
(b) The loose spices purchased by Aditi were adulterated.
Ans. She did not purchase standardised products
(c) Sahil found a worm in a chocolate but did not tell anyone as he thought
it is small amount, so there is no point in making a complaint.
Ans. She did not exercise right to be heard
(d) Neeta desperately wanted to watch the movie so purchased the tickets
from a black marketeer.
Ans. She did not purchase tickets from right source
(e) Rohit did not take cash memo for his mobile to save GST.
Ans. He did not get cash memo.
Q.6 Rita wants to buy a packet of juice. As an aware consumer, how can she be
sure of the quality of juice she plans to buy?
Ans. By checking FPO (FSSAI) mark, AGMARK.
Q.7 A shopkeeper sold you some spices claiming that they were pure. Later,
tests showed that they were adulterated. What precautions should you have
taken before buying and what remedies are available to you now.
Ans. 1. Purchase only branded products
2. Replacement, refund

3 MARKS QUESTIONS
Q1. On the occasion of “Dhan Teras” Mr. Aakash went to market for purchasing
utensils. He bought pressure cooker from a shop. The shop was over -
crowded on the festival, so he did not obtain the cash - memo for the purchase
and did not check its certification. Next day, his wife used the cooker, which
bursted and his wife suffered injuries.
Identify and explain the consumer liabilities which have not been discharged
by Mr. Aakash.
Ans. He did not check ISI mark. He did not Get a cash memo.
Q2. Tanya purchased some household goods from a “General Store’ On reaching
home, she found that one face cream, (Rs. 250) had not been billed. She
became happy that, she got it without paying for. After checking the expiry
date and other details, she started using it. Her face burnt due to the use of
cream.
Where should Tanya file the complaint for the for the cream?Justify.
Ans. She can not file a complain, as she does not have a proof for purchase.
Q3. Smriti purchased a hand blender from an electronic store and got the cash
memo of Rs. 1500 which she paid for the blender. Later, she found that the
actual price of the blender was Rs. 1200 but the shopkeeper had pasted a
stricker of Rs. 1500 on the original price. Can Smriti recover the extra money
that she paid? What other options are available to her against the shopkeeper?
Ans. Yes, She can recover (Option: Discountinue the unfair trade practice.)
4 MARKS QUESTIONS
Q1. Sehaj bought Teak wood furniture for his drawing room from “Akshay Decors”
of Kirti Nagar, Delhi for Rs. 4 lakhs. At the time of purchase the firm assured
Sehaj about the best quality of the said furniture and gave 2 years warranty
stating that if anything goes wrong, the firm shall replace it with a new one or
refund the purchase amount. But the dining table and chairs started developing
cracks at various places and the polish’ became very dull within 30 days of
purchase. Sehaj reported the matters to the firm and requested a number of
times to replace the furniture. The firm neither paid attention to these requests

nor replaced the furniture.
(1) Identify the consumer rights which have been violated by the furniture
manufacturer.
(2) Where can Sehaj lodge complaint for this?
Ans. (1) Right to seek Redressal.
(2) District Forum
Q2. Name the products to which the following quality certification marks are
associated.
Ans.
Electrical
(Food Agricultural (Eco Friendly
Products
Products) products Products)

QUESTION BASED ON
Q1. Jadav Kumar purchased a Nata Niago YZ a car manufactured by Nata Motors
Ltd. from Foncorde Motors on Dec 4, 2019. Jadav availed a loan of Rs.4 lakhs
for the purchase and made an excess payment of Rs. 40,000 which he was
entitled to be refunded as subsidy, being a defence employee. He asked multiple
times to Foncorde Motors to refund the excess amount. While the firm initially
said that they would inform him about the status of the refund, On April 4, 2020
he was informed that no excess payment was received on purchase from him
by Foncorde Motors. Alleging that the firm intentionally did not refund a subsidy
even after a lapse of four months from the date of purchase, Jadav filed a
complaint with consumer court. The bench noticed that Foncorde Motors’
representatives have expressed their regret via mails sent to Jadav, for the
delay in refund on more than one occasion and tendered an apology before
April 4, 2020. Bench gave verdict– “refund of Rs. 40,000 by Foncorde Motors
to Jadav.”
1. Keeping in view below mentioned lines, identify the level, where jadav would
have filed a complaint.
“Jadav availed .................................................. excess amount”.
(a) District availed (b) National forum

(c) State forum (d) Supreme Court
2. “Alleging that ................................................................... with consumer court.”

Identify the consumer right exercised by Jadav in above mentioned statement.
(a) Right to safety (b) Right to be heard

(c) Right to seek redressal (d) Right to be informed
3. Identify the consumer right in-

“Bench gave ...................................... to Jadav”.
(a) Right to be heard (b) Right to seek redressal

(c) Right to consumer education (d) Right to be informed
Answer: 1. a, 2. b, 3. b

Q2. Dev visited ‘food Baazar’ in city mall in Puna and Purchased some items in-
cluding two packed ZEN apple Juice of 01 litre each: MRP per bottle was Rs.
80/-. Before leaving the Mall, Dev planned to purchase one more pack, he
picked and checked and found that ZEN apple juice ‘best before use’ had passed
even then they were still selling the juice. Dev immediately checked his al-
ready purchased juices which were already expired and best before use date
had elapsed. Dev got surprised and shocked that how the branded shop was
selling the defective goods to the customers which are hazardous to health.
Dev filed a written complaint on the same day and case was produced before
District Forum. District Forum directed ‘Food Baazar’ to pay a sum of Rs.
50,000/- towards compensation for mental agony, Rs. 10,000/- towards com-
pensation for pain, and Rs. 10,000/- towards advocate fees and cost of litigaiton
to the complainant.
1. As per following quoted line, which responsibility of a consumer is borne by

Dev-
Dev immediately .................................................. had elapsed.
(a) Beware of false advertisement (b) Do not by in hurry

(c) Cautious Consumer (d) Consumer must exercise his rights.
2. Which consumer right is violated as per following-

“Dev got ........................................................ to health.”
(a) Right to consumer education (b) Right to seek redressal

(c) Right to safety (d) Right to choose
3. “Dev filed ...................................... District Forum”.

Which consumer responsibility is fulfilled by Dev as per above mentioned
statement.
(a) Cautious Consumer (b) Do no forget to get receipt

(c) Consumer must be quality conscious (d) Consumer must exercise his legal
rights

4. Identify the relief remedies offered by District Forum to Dev, by quoting
relevant line.
“District forum .......................................................... complainant”.

Answer: 1. c, 2. c, 3. d, 4. Award of compensation
Q3. Vaidehi's daughter Rangoli got first position in 12th CBSE examination. To cel-
ebrate the success. Vaidehi' bought Vanilia and chocolate flavour icecreams
from "Cool Ice Parlour". Her daughter was very happy and the all family mem-
bers enjoyed the ice-cream at night. Following morning, almost every family
member complained about stomach pain and Rangoli was severely sick and
taken to doctor. Doctor diagnosed it as food poisoning. Vaidehi went to "Cool
Ice parlour, for complaining, but the parlour owner sent her back saying that
they are just traders of ice-creams and not manufacturers. Incidentally after
one week when Rangoli recovered, Vaidehi visited her sister-in-law alongwith
Rangoli, where she listened "Jago grahak Jago" on Radio. She came to know
about different NGO's and consumer associations which could help her in
many ways. Suggest how such associations could help Vaidehi?
[Hint:- Education about consumer rights, carrying out testing of Ice-cream,
providing legal assistance, encouraging consumers to file complaint]
Q4. Mannu purchased a photostate machine for Rs. 80 lakh and found it very poor
in photostate quality. He complained it to dealer. Dealer sent the mechanic for
repair, but the defect was not fully rectified. He filed a complaint in the state
commission but was not satisfied with the decision. Suggest him, where he
can reappeal further and in how many days
[Hint:- National Commission, 30 days of decision of State Commission]
SOME NEW ADDITIONAL QUESTIONS FOR PRACTICE
Q5. The RBI has issued the gudielines on behalf of the government limiting consum-
ers' liability to zero in case of unauthorised transactions that have taken place
from their mobile wallets. As per the guidelines, prepaid payment Instrument
issuers will be required to provide a contact number and email ID in the transac-
tion alert SMS through which consumers can report the unauthorised transac-
tions or notify objections. Prepaid payment Instruments issuers such as Paytm,
Amazon pay, Phone pe and so on must ensure that their customers mandatorily
register for SMS alerts and also register for email in order to get timely informa-

tion about electronic payment transaction done using their mobile wallets. It will
help in reducing unscrupulous, exploitative and unfair trade practices.
(a) Identify the means of consumer protection highlighted above.

(b) Explain two other ways and means of consumer protection other
than identified in (a).
Q6. Suman wanted to purchase a sandwich toaster. She checked about the vari-
ous sandwich toasters available online and compared the prices so that an
intelligent and wise choice could be made. Then she went to a nearby market
to buy the sandwich toaster. Being an informed consumer, she looked for the
correct standardisation mark. The shopkeeper showed her different toasters
but was quoting a higher price than the price she had checked online. After
negotiating with the shopkeeper, she was able to bring the price down. As a
responsible consumer, she asked for a cash memo, against the amount paid
for the product and took the toaster home. On opening the package, she found
an instruction booklet, which she read carefully. Then she followed all instruc-
tions step-by-step and made nicely toasted paneer sandwiches for her family.
(a) State any two responsibilities, which have been discharged by Suman,
besides asking for a cash memo.
(b) Explain the two rights being discussed in the above case. (4)
Q7. 'VOICE' is an an important consumer organisation. It organised workshops in

the months of December in Delhi/ NCR for consumers. The theme was 'Or-
ganic Food -From Farm to Plate' to spread awareness on the importance of
organic farming and to encourage consumers to switch from conventional
food that contains chemicals and pesticides to organic food. Expert speakers
from farmers' community explained the harmful effects of usage of pesticides
in farming and the importance of organic food. People were informed that the
organisation regularly tests samples to detect adulteration like presence of
heavy metals or pesticides. The results of the tests are published in their
monthly magazine' Consumer Voice' to make people aware of quality of differ-
ent products. It also provides aid and legal advice to the consumers in seeking
a remedy.
State the functions performed by the Consumer Voice for the protection and
promotion of consumer interest by quoting lines from the above para.

Q.8 Mansi booked a flat on 7th floor in 'Basera' project in Chandigarh by depositing
a booking amount of Rs 30 lakhs. The builder did not tell Mansi that the upper
floors after 5th floor were not approved by Chandigarh Development Authority.
Mansi came to know about this fact from her friend. When she inquired the
builder about it, the builder said that approval will come within next three months
Just after one month the builder called her asking for remaining payment of
Rs. 40 lakhs failing which she would be charged interest for late payment.
However, these facts were not disclosed in the contract of purchase and sale.
Mansi filed a case for hiding the information against the builder in the con-
sumer redressal agency and was satisfied with th order passed by the court.
(a) Explain the consumer rights exercised by Mansi.
(b) Name the consumer redresal agency which Mansi must have ap-
proached to file her case.
(c) In case, she is not satisfied with the order passed by the concerned
redressal agency, will she allowed to make a further appeal against the order?
Explain. (2+1+2)

CONSUMER PROTECTION
Read assertion (A) and Reason (R) choose the correct alternative.
(a) Both assertion (A) & Reason (R) are correct and (R) is correct explanation
of (A)
(b) Both assertion (A) & Reason (R) are correct but (R) is not correct explanation
of (A)
(c) Assertion (A) is true & Reason (R) is False.
(d) Assertion (A) is False & Reason (R) is True
Q.1 Assertion (A) : Seller should not bind the customer to buy a particular brand.
Reason (R) : According to right to assured/choose every consumer has the

right to choose from a variety of goods & services at competitive prices.
Ans. Option A
Q.2 Assertion (A) : A consumer can file complain in state commission if value of
goods or services paid as consideration execeds 1 crore but does not
exceeds 10 crore.
Reason (B) : Appeal against order of state commission to National

commission made within a period of 45 days from the date of order.
Ans. (c)
Q.3 Who can file a complain in consumer form.
(i) A consumer who purchases goods
(ii) A consumer who purchases services
(iii) A person who obtains goods for resale
(iv) A person who avail services with approval of buyer
(v) Any person who obtains gods without any consideration options
(a) (i) only (b) (i), (ii) only (c) (i), (ii), (iv) (v) only
(d) (i), (ii), (iii), (iv) only (e) (i), (ii), (v) only
Ans. (e)

Q.4 Consumer Responsibilities are:
(i) Consumer must be quality conscious
(ii) Consumer must assert himself to ensure that he get a fair deal
(iii) Right to safety
(iv) Use of products safety
Options
(a) (i), (ii), (iii), (iv) only (b) (iii) only
(c) (i), (ii), (iv) only (d) (ii), (iii), (iv) only
Ans. Option (c)
Q.5 Which consumer right is shown here
Ans. Right to choose/Assured

UNIT 4
Q 1. Samir and Kabir while pursuing MBA degree became very good friends. After
completion of MBA, they started a partnership firm of manufacturing readymade
garments. They employed 02 female handicapped managers for their firm also.
They worked very with full dedication and also motivated their workers towards
efficient and effective performance.They used intermediaries to sell their prod-
ucts in the market. They established their brand name well in the market.
They planned to expand their business and changed their form of business
from partnership to company (Public Ltd.) by issuing shares in capital market.
Now they want to eliminate the intermediaries from the chain of distribution.
(i) Which channel of distribution were they partners using to sell the readymade
garments. (1)
(ii) Name the market which they used to tap financial resources for expansion.
(1)
(iii) Which channel of distribution are they planning to adopt now? Explain.
Q2. Ashok Kumar, marketing manager of a newly established firm dealing in deter-
gent powder was asked to design marketing strategy for promoting sales of
the product.
He called the advertising team, discussed the medium and cost of media,
competitors advertising media etc. and finally planned the advertisement for
the product.
He also discussed the introductory sales Promotion offers so as to attract
potential customers.
But he thought that advertisement and sales promotion techniques won't be
successful without personal selling. So he along with Personnel Manager of
the firm was assigned the task of interviewing candidates for the job of sales-
man.
Name and explain any six traits which they should look for in the candidates.
(6)

Q3. In the Annual General Meeting of the company with share holders. The manag-
ing Director of the company stressed that the business unit should establish
best possible understanding with customers, suppliers, community because
it is an important lubricant for making the wheel of marketing run smoothly.
Hence, the marketing manager should pay special attention to it.
Discuss the variety programmes which would be undertaken to promote and

protect the image of the company and its products as decided in the AGM of
the company. (5)
[Hint: Public Relations]
Q4. Government always endeavours to protect the interests of the consumers.

That is why government has passed various legislations from time to time.
Some years ago an Act was passed. It protects the consumers against defec-
tive goods, deficient services, unfair trade practices and consumers exploita-
tion. Similarly measures have been taken to protect the consumers against
the losses suffered by them due to such antisocial activities as profitering,
hoarding, black-marketing etc. Not only that, provisions have also been made
to protect the consumers against the consumption of adulterated food prod-
ucts.
(i) In the above paragraph mention has been made of three acts related to the
protection of consumer's interest. Quoting the lines, identify them.
(ii) Also identify two values dedicated to the society as mentioned in the para-
graph. (4)
Q5. A class of final year students of Delhi School of Commerce pursuing a

programme on “Entrepreneurship was going on the Lecturer - Mr. Singh thought
of making the classroom teaching interesting and more practical. He came up
with an innovative idea. He told the students to mark and read chapter No. 14
on ‘Entrepreneurial Marketing Strategies” on which they have to prepare a PPT
and give demonstrative role play also.
Role plays of sample 5 students were as follows:
Student-A:- I will manufacture high quality products because customers favour

those products which are superior in quality.

Student B : His role play portrayed that he will achieve profit maximisation by
identifying customer needs and satisfying them better than competitors.
Student C : He showed that he will attract and convince customers by pushing

the sale of product and using aggressive selling and promotional efforts.
Student D : His act reflected that he will identify the needs and wants of the
customers and deliver the desired satisfaction in the long termwill being of
customers as well as the society.
Student E : He said that I will produce on large scale, reduce the per unit cost
of production because customers favour those products which are widely avail-
able at affordable prices.
1. Identify the marketing management orientations discussed above quoting

lines from the above case. (5)
2. Which orientation according to you is the best one and why? (1)
Q6. “Beta Ltd." a company manufacturing metal products and plastic products
was divided on the basis of products and various divisions were established in
the company. The heads of divisions looked after all the functions connected
with that product i.e. purchase, sales, advertising, production, finance etc. All
these activities were performed separately by different divisions set up in back-
ward hilly areas of India and employing 60% women as workers. (4)
One day an urgent meeting (on request of Finance Manager) was called by
General Manager of Beta Ltd. to discuss certain important decisions related to
the revenue producing variable of marketing such as.
(i) Determination of trade and cash discount.
(ii)Credit policy, i.e. whether goods to be sold on credit or not.
(iii) Period of credit and procedure to be adopted in case of non-receipt of
payment even after the expiry of credit period.
(i) Which the function of management discussed above?
(ii)Name the type of organisational structure adopted by Beta Ltd. (1)

(iii) Which variables of marketing is referred above?
(iv) Discuss any 3 factors which affect the determination of such variables.
Q7. Kamal is a student of 12th class commerce stream. He listened attentively

and understood the lecture on consumer protection act delivered by the teacher.
His teacher remarked that currently consumers enjoy several rights. In case,
goods purchased by him/her cause harm to health and property, there is a
provision for compensating him/her. Besides, this Act has also some expecta-
tions from consumers - that during the course of his/her purchase, he/she
should keep certain things in mind. Briefly, provisions of the Act can protect the
consumer only when he/she has complied with certain fundamental things.
The same day in the evening, while watching TV, he was attracted towards a
shaving cream which claimed certain added features compared to competi-
tive brands. After 02 days, he went to the market to buy the product but it was
not available on any shop in the market. After a week, a sales man from the
company (authorised with I-Card) approached his house with an "Introductory
price offer" on the shaving cream. He bought the cream & used itthe nextday in
the morning and got scars on his face.
1. Identify the right and responsibility of the consumer referred to in the above
paragraph. (1)
2. Which elements of 'Promotion Mix' have been referred above? (3)
3. Which variable of Marketing has been ignored by the company? (1)
4. Can kamal claim any relief in the above case? (1)
[Hints: (2) Advertising, personal selling, sales promotion techniques, 3) Place

mix.]
Q8. Rajesh is a salesman working in 'Swad Foods Ltd.' the company considering
the increasing interest of consumers towards healthy foods, has manufac-
tured a new brand of wheat flour which includes all organic fibre rich ingredi-
ents. The price of flour is 5 times higher, compared to basic flours available in
market.
One day in canteen during lunch hours, the Area Sales Manager noticed Rajesh
and other salesman were very much worried, as they were unable to achieve

the target sales assigned to them. Area Sales Manager enquired the matter. All
the salesmen requested him (Sales Manager) to request the Top & Middle
level mangers to introduce some short term temporary offers for wheat flour to
stimulate sales. Area Sales Managers whole heartedly accepted and forwarded
their request to higher level, which was accepted and implemented.
1. Which style of leadership is being practised by Area Sales Managers? (1)
2. Which types of communication took place above? Explain quoting lines from
para. (2)
3. Which pricing strategy was the company adopting for selling wheat flour?
(1)
4. What according to you can the options for stimulating sales temporarily?(Any
2)? (2)
Hints: [(1) Democratic of style, (2) Formal & Informal Communication, (3) Skim-
ming price strategy.]
Q9. Vyas learnt the art of Ayurveda from his father. He kept practising it under his
father's guidance. After reseraching for 2 hrs, he developed a hair oil using
natural herbs which could turn grey hair to black again and also aid in promot-
ing hair growth. Slowly and gradually his successful formula gained a lot of
popularity. ln order to avoid rice in his clinic, he made the hair oil available at
chemist shops in his market.
But a leading hair oil selling company copied his formula and started selling of
hair oil under their own name umbrella.
1. Which identify the important product related decision did Vyas forget?
2. Explain the benefits, Vyas would have desired by making such decision
well in time? (4)
(Branding, Trademark)
Q10.During the month of June 2015, in a train 'Pooja Express" going to Holy Shrine
- Mata Vaishno Devi; few people in AC coach were evaluating. The success of
the Central Government, their reforms, market scenario, Indian economy etc.
Following are the extracts of their discussion: -

The First said, "Competition is on the rise in the market. To face this problem,
his company has launched a Sales Promotion Scheme. According to this
scheme, a customer who purchases goods worth Rs. one lakh or more at one
time will be given free a holiday package valued at rupees ten thousand."
The second drew their attention towards exploitation of the consumer in the
market. He said, "Till this day, the sellers have been exploiting the consumers
in more than one way. I feel that the main cause of it was not raising any
collective voice by the consumer against exploitation. But now the Consumer
Protection Act has made consumers aware of it and this problem is almost
over."
Then, the third (who was a businessman) said, "We are also under the pres-
sure of consumer satisfaction. We observe that those businessmen who feel
this pressure are getting its advantages.'
Finally, the Fourth said, "It is the duty of the businessman to keep the satisfac-
tion of the consumers in mind, because business is run by the lies resources
made available to them by the society."
Answer the following questions concerning the discussion referred to in the

above paragraph:
(i) Which dimensions of business environment have been discussed above?
(ii)Identify the sales promotion scheme launched by the Co.
(iii) Identify the importance of Consumer Protection Act from the point of view
of consumers. Give one point.
(iv)Identify the importance of Consumer Protection Act from the point of view
of business. Give two points.

SAMPLE QUESTION PAPER 2023-24
BUSINESS STUDIES (054)
CLASS-XII
Time allowed: 3 hours Maximum Marks-80
General Instructions:
1. This question paper contains 34 questions.
2. Marks are indicated against each question.
3. Answers should be brief and to the point.
4. Answers to the questions carrying 3 marks may be from 50 to 75 words.
5. Answers to the questions carrying 4 marks may be about 150 words.
6. Answers to the questions carrying 6 marks may be about 200 words.
7. Attempt all parts of the questions together.
1. The Board of directors of Medex Pharma Ltd. decided to issue debentures

worth ` 40 lakhs in order to finance a major Research and Development
project. T his would increase the Debt Equity ratio from 1:1 to 2:1.However,
at the same time it would increase the Earnings per share. 1
The reason that will justify the above situation is:
(a) Unfavourable financial leverage, as the financial risk will be higher.
(b) Unfavourable financial leverage, as return on investment is lower than

the cost of debt.
(c) Favourable financial leverage as debt is easily available
(d) Favourable financial leverage, as return on investment is higher lhan

cost of debt

2. A bottle of And- dandruff shampoo mentions ‘Clean your hair and get rid of
dandruff in one squeeze’ The product related decision involved is- 1
a) Branding b) Product quality
c) Packaging d) Labelling
3. With the presence of women in the workforce, there has been a shift towards
formal wear, increased demand of electronic gadgets and increase in
demand of cosmetics. 1
The related dimension of business environment referred in the above lines

is:
a) Technological environment. b) Social environment
c) Political environment d) Economic environment
4. Name the function of marketing which is effective in bringing repeat sales

from the customers and developing brand loyalty for a product. 1
a) Standardization and grading
b) Promotion
c) Customer support services
d) Packaging and labelling
5. SEBI calls for information and issues a show cause notice to stock exchange
and its officials seeking explanation and conducting audit and enquiry. Which
function is SEBI performing? 1
a) Regulatory function b) Development function
c) Protective function d) Both a) and c)

6.
Identify the point of significance of management illustrated in the picture.
a) Management helps in achieving group goals
b) Management helps in achieving personal objectives
c) Management helps in development of society
d) Management increases efficiency
7. The allocative function of Financial market helps in______________
a) Bringing transparency in trading procedure
b) Earning higher rate of return to household sector
c) Better functioning of depository
d) Determining the prices of securities
8. IND Dyechem Ltd. is a chemical manufacturing company producing dyes

and pigments both for domestic and international market. It has enjoyed a
considerable market share but lately, it has been facing problems in terms of
target sales and customer satisfaction. This is due to the reason that new
entrants have emerged with better technology and competitive pricing. The
Chairman of the company addressed this issue in the departmental meeting.

The production head, Mr. Kamble, advised the Chairman to revamp the
system and lake immediate necessary actions to rectify the problem so that
sales are achieved as per the plans.
Identify the relevant function of management being discussed here.
a) Organising b) Staffing
b) Controlling d) Planning
9. Choose the incorrect statement about pricing objectives as a factor affecting

the price of a product. 1
a) If a firm’s objective is to maximize profits in the short run, it should

charge maximum price for its products.
b) If a firm’s objective is to capture market share, it should keep low price

of its product.
c) If a firm wants to attain product quality leadership, it should charge lower

prices.
d) If a firm is facing problems in survival due to stiff competition, it may

offer discount on its products.
10. Read the following statements: Assertion (A) and Reason(R). Choose the
correct alternative from those given below: 1
ASSERTION (A): Management is concerned with efficient use of resources.
REASONING (R): For management both efficiency and effectiveness need

to be balanced.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

11. Concentration of decision making functions at the apex of management
hierarchy is called______ 1
a) Decentralisation b) Delegation
c) Organisational structure d) Centralisation
12. Some employees have been assigned the job of measuring the output in an
objective and reliable way. They are applying different techniques for achieving
this aim. Some of these are personal-observation, sample checking etc.
They are also keeping the units of measurement same as that of the units in
the standards 1
Name the step of Controlling process applicable in the above paragraph.
a) Analysing deviations
b) Comparing actual performance with standards.
c) Establishing standards.
d) Measurement of actual performance
13. Statement I: Tor products requiring long term storage like agricultural
products, the warehouses are located near to the market 1
Statemenl II : Higher the level of inventory, higher will be the level of service
to customers but the cost of carrying the inventory will also be high.
a) Statement I is true and II is false
b) Statement II is true and I is false
c) Both the statements are true
d) Both the statements arc false

14. Mr. Vivek is working as the General Manager of Oshin Hotels Ltd. Mr. Vivek
observed that Government was taking a special interest in the Tourism industry
as this sector is an important source of foreign exchange and employment
promotion. On the basis of this news, the company decided to set up hotels
at several tourist places. Oshin Hotels Ltd. established 50 hotels before other
companies considered this issue. Very soon, this brand Oshin Hotels Ltd.
became well known in the market. Identify the importance of business
environment described here. 1
a) It enables the firm to identify opportunities and getting the first mover
advantage.
b) It helps the firm to identify threats and early warning signals.
c) It helps in tapping useful resources.
d) It helps in improving performance.
15. Name the function of management that acts as a means for translating plans
into action. 1
a) Planning b) Directing
c) Organising d) Controlling
STATEMENT I: Electronic holdings can be converted into physical certificates

with the process of dematerialisation. 1
STATEMENT II: There is no danger of theft, loss or forgery of share certificates

in dematerialisation.
a) Statement I is true and II is false
b) Statement II is true and I is false
c) Both the statements are true
d) Both the statements are false

17. Pace.’ is a reputed Chartered Accountant firm which renders services to big
MNC’s. The Chartered Accountants of the firm are required to travel to Delhi
and NCR for which they use company’s cars. The firm decided to convert its
Petrol cars to Electric cars in order to improve the quality of life of people.
Identify the dimensions of business environment. -
a) Political and Legal environment
b) I egal and Social environment
c) Technological and Political environment
d) Social and Technological Environment
18. Match the following tools of promotion with their explanation and choose the
correct option
A. It is undertaken by some identified 1 Personal selling
person /company who makes
efforts and bears the cost of it.
B. It plays an important role at the 2 Sales Promotion

awareness stage and develops
product preferences with the aim
of making sale.
C. It helps in managing public opinion 3 Advertising

and company’s relation with the
public on regular basis.
D. It uses tools specifically designed 4 Public Relations

to promote to custom ers,
middlemen and to salespersons.
a) A (3), B(1), C(4), D (2)
b) A(1).B(3).C(4).D(2)
c) A(2). B(3).C(4),D(1)
d) A (2), B (4), C (1), D (3)

19. From the following which is not a relevant feature of management as science:
1
a) Principles are based on the basis of experimentation
b) Systematized body of knowledge
c) Based on practice and creativity
d) Universal Validity
20. The aim of demonetisation was not to__________
a) Curb corruption
b) Reduce the prices of real estate
c) Withhold the accumulation of black money generated by undeclared

income
d) Counterfeit the use of high denomination notes for illegal activities
21. Captcha Ltd is a construction company in which all the employees learn
various ways of dealing with diverse situations from their seniors. Company
provides financial as well as non-financial incentives. This helps the
employees to grow and develop their abilities. The organisation behaves as
a responsible constituent of society and always creates good quality products.
It has a positive image in the market. The training modules are excellent and
the employees always try to find unique ways of providing solutions in the
context of rapidly changing business environment. This has helped the
organisation to adjust smoothly. 3
Identify and state three points of importance of management being highlighted

here.
22. Slate any three reasons as to why controlling is regarded as an indispensable

function of management. 3
OR
Enumerate any three advantages of Management by Exception which is

used by manager in analysing deviations. 3

23. Resolutions Pvt. Ltd. is a publishing company. Its book on Business Studies
for class XII is in great demand. As a result, the employees in the marketing
department are always racing against time as they have to work overtime
and on holidays as well to cater to the demand. The work stress has led to
dissatisfaction among the employees of the marketing department. 3
1. Name and explain the step of staffing process which has not been
performed properly.
2. Also, explain the immediate next step in the process of staffing.
24. State any three functions of Stock Exchange. 3
OR
State the first three steps involved in the screen-based trading for buying
and selling of securities. 3
Explain the following features of Directing 4
a) Directing initiates action
b) Directing is a continuous process
OR
Explain the following leadership styles: 4
a) Autocratic leadership
b) Laisse/ Faire leadership
26. State any four limitations of using internal sources of recruitment.
OR
State any four commonly used sources of recruiting employees from outside
the organisation.
Mr. Akshay, a 20 year old college student purchased a book online from XYZ
Pvt Ltd and when it was delivered, he noticed that there was no MRP
mentioned on it. He browsed the internet and found that the book was sold at
different prices in different places. He filed a case in District forum against
the publisher. The court held in favour of Akshay and awarded a compensation
of `10,000. 4

a) ldentify and state the consumer right violated in the above case.
b) Name and explain the right exercised by Mr. Akshay.
28. Explain the following factors affecting the dividend decision of the company
a) Taxation Policy
b) Cash Flow Position
29. Identify and state the various elements of communication highlighted in the
4 following cases:
(i) Department ‘A’ has sent an encoded message to department ‘B’ through
internet. What is the role of internet here?
(ii) Madhur is making gestures so that he can send a message to Ranbhir.

What is Madhur doing here?
(iii) Ranbhir is trying to understand the message sent by Madhur by reading

his gestures. What is Ranbhir doing here?
(iv) Kamesh picks up his phone and finds a message on it. He reads the
message carefully. What is the role of Kamesh here?
30. Dhaval Acharya, after acquiring a bachelor’s degree in Hotel Management

joined his father’s chain of vegetarian restaurants in Ahmcdnagar. Being
young and enterprising, he suggested his father to add a new section of
vegetarian bakery items which required an investment of ` 5 crores. His
father Mr. Aariketh Acharya suggested him to take the decision with caution
and understood everything comprehensively as bad decision may damage
the financial fortune of business.
Identify the decision suggested by Mr. Aariketh Acharya. State by giving any
three reasons as to why he must have advised his son to take decision with
caution. 4
31. 1) Explain any two techniques of Scientific Management from the following:
a) Method study
b) Motion study
c) Time study
2) Differentiate between Unity of Command and Unity of Direction on any
three basis. 3+3=6
OR
1) Explain any two principles of Fayol from the following: 3+3=6
a) Discipline
b) Order
c) Initiative
2) Differentiate between contributions made by F.W.Taylor and Henry Fayol

on any three basis.
32. Explain the stops that arc required to be performed by a manager before
evaluating all possible courses of action in planning process. 6
OR
Explain how planning: 6
a) Reduces overlapping and wasteful activities
b) Establishes standards for controlling
c) Facilitates decision making
33. Read the statements given in point 1 and 2. answer the questions that follow:
3×3=6
1) Tea is produced in Assam but is carried to customers not only in

this state but also in other parts of the country.
a) Identify and explain the function of marketing that enables the marketer
to achieve its goals.
b) Enumerate any two factors that marketer should take into consideration
in order to analyse the identified needs.
2) Paddy is grown during summer season but its demand and sale
takes place throughout the year.
a) Name and state the function of marketing which should be undertaken

to reduce the gap between production and consumption of Paddy.

b) State by giving two reasons as to why proper discharge of this function
is important.
34. Diligent developers, a website design company in Bangalore is a startup

initiative of Mr. Maniraj which aims at achieving a profit margin of 10% in its
first year. Mr. Maniraj appointed Mr. Advait as the Digital marketing Head. Mr.
Kiyansh as the head of Backend department and Mr. Nirved headed the
Graphics Designing Department. Since each head was specialised in specific
skills, it resulted in increased efficiency and better coordination. 6
However, problems arose when Mr. Advait started considering group

objectives superior to organisational objectives and stopped exchanging
information with Mr. Kiyansh and Mr. Nirved. The company had to bear the
brunt of lack of coordination and was unable to achieve its objectives.
a) Identify and state the organisational structure adopted by the company.
b) State two benefits and two limitations of the identified structure highlighted
in the above case.

MARKING SCHEME
BUSINESS STUDIES (054)
Class XII (2023-24)
Answers: Marks
1. d) Favourable financial leverage as return on investment is higher than

cost of debt 1
2. d) Labelling 1
3. b) Social environment 1
4. c) Customer support services 1
5. a) Regulatory function
6. a) Management helps in achieving group goals 1
7. b) Earning higher rate of return to household sector 1
8. c) Controlling 1
9. c) If firm wants to attain product quality leadership, it should charge lower

prices 1
10. b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A). 1
11. d) Centralisation 1
12. d) Measurement of actual performance 1
13. b) Statement II is true and I is false 1
14. a) It enables the firm to identify opportunities and getting the first mover
advantage. 1
15. c) Organising
16 b) Statement II is true and I is false 1
17 d) Social and Technological Environment 1

18. a) A (3), B(1), C(4), D (2) 1
19. c) Based on practice and creativity 1
20. b) Reduce the prices of real estate 1
21. The importance of management highlighted:
1. Helps in achieving personal objectives- A manager motivates and leads
his team in such a manner that individual members are able to achieve
personal goals while contributing to the overall organizational goals.
2. Helps in the development of society- The organisation tries to behave
as responsible constituent of society and always creates good quality
products.
3. Creates a dynamic organisation- Organisations have to function in a
constantly changing environment. Management helps people adapt to
the changes so that organisation is able to maintain a competitive edge.
(1/2 mark each for identification and stating 3 identified points)
22. Importance of controlling: (Any Three) 1 mark each for stating any 3 points
1. The controlling function measures progress towards the organisational
goals and brings to light the deviations, if any, and indicates corrective
action.
2. A good control system enables management to verify whether the
standards set are accurate and objective.
3. By exercising control, a manager seeks to reduce wastage and spoilage
of resources. Each activity is performed in accordance with
predetermined standards and norms.
4. A good control system ensures that employees know well in advance
what they are expected to do and what are the standards of performance
on the basis of which they are appraised.
5. Controlling creates an atmosphere of order and discipline in the
organisation.
6. Controlling provides direction to all activities and efforts for achieving
organizational goals.
OR

ADVANTAGES OF MANAGEMENT BY EXCEPTION:
1) It saves the time and efforts of managers as they deal with only significant
deviations
2) It focuses managerial attention on important areas. There is better utilization

of managerial talent.
3) The routine problems arc left to the subordinates. Thus, it facilitates delegation
of authority and increases morale of employees.
4) It identifies critical problems which need timely action to keep the organisation
in right direction.
(1 mark each for stating any 3 points)
23. The step of staffing process which has not been performed properly is:
(i) Estimation of manpower requirements: Operationally, understanding
the manpower requirements would necessitate workload analysis on
the one hand and workforce analysis on the other.
(ii) The next stage immediately following the step Estimation of manpower
requirement is as follows:
Recruitment: Recruitment may be defined as the process of searching
for prospective employees and stimulating them to apply for jobs in the
organisation.
(1 mark for identification and I mark for
explanation + 1 mark for explaining next step)
24. Functions of Stock Exchange (1 mark each for stating any 3 points)
1. Stock exchange provides liquidity and marketability to existing securities
by creating a continuous market where securities are bought and sold.
It gives them the chance to invest and disinvest
2. A stock exchange is a mechanism of constant valuation through which
the prices of securities are determined by the market forces of demand
and supply.
3. The membership of a stock exchange is well regulated and well defined
according to the existing legal framework, thereby ensuring a safe and
fair deal to investors in the market

4. Through the process of disinvestment and reinvestment savings get
channelised into the most productive investment avenues leading to
capital formation and economic growth.
5. Stock exchange ensures wider share ownership by regulating new
issues, better trading practices and taking effective steps in educating
the public about investment.
6. Stock exchange provides sufficient scope for speculative activity in
restricted and controlled manner.
OR
The first 3 steps in screen-based trading in securities
(1 mark each for stating each step)
1. Investor has to first approach a registered broker and enter into agreement.
He has to open a broker- client agreement and a client registration form
before placing the order. He has to provide few details like PAN number, date
of birth and address, educational qualification and occupation, Residential
status,Bank account details, Depository account details,name of any other
broker with whom registered, client code number in the client registration
form. The broker opens a trading account in the name of investor.
2. The investor has to open a demat account or beneficial owner account with
a depository participant for holding and transferring securities in the demat
form.
3. The investor places an order with the broker to buy or sell shares. Clear
instructions have to be given about the number of shares and price at which
shares can be bought or sold. The broker will go ahead with the deal to
mention the best price available. Order confirmation slip is issued to the
investor by the broker.
25 a) Directinp.initiates action-Directing is a key managerial function. A

manager has to perform this function along with planning, organizing,
staffing and controlling while discharging his duties in the organization.
(2 marks each for explaining points)

b) Directing is a continuous activity- It takes place throughout the life of
organization irrespective of people occupying managerial positions.
(2 marks each for explaining leadership styles)
OR
a) Autocratic or Authoritarian leadership stylc-An autocratic leader gives

orders and expects his subordinates to obey those orders. This
leadership style is effective in getting productivity in many situations like
in a factory where the supervisor is responsible for production on time
and has to ensure labour productivity. Quick decision making is also
facilitated.
b) Laisscz fair or Free-rein leader-Such a leader does not believe in the

use of power unless it is absolutely essential.The followers are given
high degree of independence to formulate their own objectives or ways
to achieve them. The manager is only there to support them and supply
them the required information to complete the task assigned.
26. Limitations of using internal sources of recruitment are as follows:
(1 mark each for stating any 4 limitations)
1. When vacancies are filled through internal promotions, the scope for
induction of fresh talent is reduced. Hence, complete reliance on internal
recruitment involves danger of ‘inbreeding’ by stopping ‘infusion of new
blood’ into the organization.
2. The employees may become lethargic if they are sure of time bound
promotions;
3. A new enterprise cannot use internal sources of recruitment. No

organisation can fill all its vacancies from internal sources;
4. The spirit of competition among the employees may be hampered; and
5. Frequent transfers of employees may often reduce the productivity of

the organisation.

OR
Commonly used sources of recruiting the employees from outside the organization
(any 4) (1 mark each for stating any 4 external sources)
Direct recruitment- A notice is placed on the notice board of the enterprise specifying
the details of the jobs available. Job-seekers assemble outside the premises of the
organisation on the specified date and selection is done on the spot. It is suitable for
filling casual vacancies when there is a rush of work or when some permanent
workers are absent.
Casual Callers - Many reputed business organizations keep a database of

unsolicited applicants in their offices. A list of such job-seekers can be prepared
and can be screened to fill the vacancies as they arise. Most of the senior positions
of industry as well as commerce are filled by this method. The advantage of
advertising vacancies is that more information about the organization and job can
be given in the advertisement.
Employment exchange- Employment exchange run by a government are a good

source of recruitment for unskilled and skilled operative jobs. They help to match
personnel demand and supply by serving as a link between job-seekers and
employers.
Placement Agencies and management consultants- Placement agencies

provide a nationwide service in matching personnel demand and supply.
Management consultancy firms help the organization to recruit technical,
professional and managerial personnel.
Campus recruitment-Many big organisations maintain a close liaison with the

universities, vocational schools and management institutes to recruit qualified
personnel for various jobs.
Recommendation of employees - Applicants introduced by present employees,

or their friends and relatives may prove to be a good source of recruitment. Such
applicants are likely to be good employees because their background is sufficiently
known.
Labour Contractors - Labour contractors maintain close contacts with labourers

and they can provide the required number of unskilled workers at short notice.

Advertising on Television- The detailed requirements of the job and the qualities
required to do it are publicized along with the profile of the organization where vacancy
exist.
Web publishing- Internet is becoming a common source of recruitment these

days. There are certain websites specifically designed and dedicated for the purpose
of providing information about both job-seekers and job opening.
27. a) Right to be informed: Every consumer has a right to have complete

information about the product he intends to buy including its ingredients,
date of manufacture, price, quantity, directions for use etc.
b) Right to seek redressal: This states that every consumer has the
right to get relief in case the product or service falls short of expectations.
(1 Marks each of identification + 1 mark each for explanation)
28. Taxation policy: If tax on dividend is higher, it is better to pay less by way of
dividends. Though dividends are free of tax in the hands of shareholders, a
dividend distribution tax is levied on companies. Under the present tax policy,
shareholders are likely to prefer higher dividends.
(2 Marks each for explaining)
Cash flow position: The payment of dividend involves an outflow of cash.

Availability of enough cash in the company is necessary for declaration of
dividend.
29. 1. Media- It is the path through which encoded message is transmitted to

receiver. The channel maybe in the written form, face to face, phone
call, internet. (½ mark each for identification and
½ mark for stating)
2. Encoding- It is a process of converting the m essag e into

communication symbols like words, pictures, gestures etc.
3. Decoding- It is a process of converting encoded symbols of the sender.
4. Receiver- The person who receives communication of the sender.

30. Mr Aariketh Acharya has suggested capital budgeting decision.
Reasons why he must have advised this decision are:
(1 mark for identification + 1 mark each for stating any 3 points)
1. These decisions have bearing on the long-term growth. They affect the
future prospects of the business.
2. These decisions result in large portion of funds being blocked in long

term projects, these investments are planned after a detailed analysis.
3. These decisions affect the returns of the firm, therefore influence the
overall business risk complexion of the firm.
4. These decisions once taken, are not reversible without incurring heavy
losses. Abandoning a project after heavy investment is costly in terms
of waste of funds.
31. a) Method Study: The objective of method study is to find out one best
way of doing the job. There are various methods of doing the job. To
determine the best way there are several parameters. Right from
procurement of raw materials till the final product is delivered to the
customer every activity is part of method study. The objective of the
whole exercise is to minimise the cost of production and maximise the
quality and satisfaction of the customer. For this purpose, many
techniques like process charts and operations research etc.. are used.
(1½ marks each for explaining any 2 techniques

+ 1 mark each for any 3 differences)
b) Motion Study: Motion study refers to the study of movements like lifting,
putting objects, sitting and changing positions etc., which are undertaken
while doing a typical job. Unnecessary movements are sought to be
eliminated so that it takes less time to complete the job efficiently. On
close examination of body motions, for example, it is possible to find
out: (i) Motions which are productive (ii) Motions which are incidental
(e.g., going to stores) (iii) Motions which are unproductive.

c) Time Study: It determines the standard time taken to perform a well-
defined job. Time measuring devices are used for each element of task.
The standard time is fixed for the whole of the task by taking several
readings. The method of time study will depend upon volume and
frequency of the task, the cycle time of the operation and time
measurement costs. The objective of time study is to determine the
number of workers to be employed; frame suitable incentive schemes
and determine labour costs.
b) BASIS UNITY OF UNITY OF DIRECTION

COMMAND
One subordinate Each group of activities having
1. Meaning should receive sail objective must have one
orders from and head and one plan
should be
responsible to only
one superior.
2. Aim It prevents dual It prevents overlapping of

subordination.
3. Implications It a fleets activities

an individual It affects the entire
employee organisation.
OR
a. Discipline: Discipline is the obedience to organisational rules and

employment agreement which are necessary for the working of the
organisation. According to Fayol. discipline requires good superiors at
all levels, clear and fair agreements and judicious application of penalties.
b. Order. According to Fayol, “People and materials must be in suitable

places at appropriate time for maximum efficiency.” The principle of
order states that ‘A place for everything (everyone) and everything
(everyone) in its (her/his) place’ If there is a fixed place for everything

and it is present there, then there will be no hindrance in the activities of
business/ factory This will lead to increased productivity and efficiency.
1½ marks each for explaining any 2 principles +

1 mark each for any 3 differences
c. Initative: Workers should be encouraged to develop and carry out their

plans for improvements according to Fayol. Initiative means taking the
first step with self-motivation. It is thinking out and executing the plan.
Initiative should be encouraged. But it does not mean going against the
established practices of the company for the sake of being different. A
good company should have an employee suggestion system whereby
initiative/ suggestions which result in substantial cost/time reduction
should be rewarded.
II.
Basis of Difference Henri layol F.W Taylor
Perspective Top level of Shop floor level of a
Management factory.
Unity of Command Staunch Proponent Did not feel that it is
important as under
functional forcmanship a
worker receives
orders from eight
specialists
Applicable to
Applicability Applicable specialized
Universally situations
Observation and
Basis of Formation Personal Experience Experimentation
Increasing
Focus Improving Overall Productivity
administration
Personality Practitioner Scientist
Expression General theory of Scientist

Administration Scientific Management

32. Steps in planning process
1. Setting objectives: Objectives or goals specify what the organisation

wants to achieve. They give direction to all departments and must be
stated clearly. They may be set for the entire organisation and each
department within the organisation
2. Developing premises: Planning is concerned with future which is

uncertain, therefore manager has to make certain assumptions about
future. Assumptions are base material upon which plans are drawn
which may be in the form of forecasts, existing plans or past information
about policies.
3. Identifying alternative courses of action: Once objectives are set

and assumptions are made, next step is to identify alternative courses
of action. The course of action may be routine or innovative. An innovative
course may be adopted by involving more people and sharing their ideas.
(2 marks each for explaining first 3 steps)
OR
1) Planning reduces overlapping and wasteful activities
Planning serves as a basis of coordinating the activities and efforts of

different divisions, departments and sections. Since planning ensures
clarity in thought and action, work is carried out smoothly without
interruptions.
2) Planning establishes standards of controlling
Planning provides the goals against which actual performance is

measured. Through comparison, managers can know whether they
arc actually able to achieve the goals. Deviations, if any can be corrected.
Thus planning is a prerequisite for controlling. The nature of deviations
depends upon the extent of deviations from the standard.
(2 marks each for explaining 3 points)

3) Planning facilitates decision making
Planning helps managers to look into the future and make a choice
from amongst various alternative courses of action. The manager has
to evaluate each alternate and select the most viable proposition.
33. a) The function of marketing that enables the marketer to achieve its goals
is Transportation.
It involves physical movement of goods from one place to another. Since

the user of products are wide spread and geographically separated
from the place where they are produced it is necessary to move them
to the place where they are needed for consumption.
b) The factors that should be taken into consideration to analyse the

marketing needs are nature of the product, cost and location of target
market.
c) The function of marketing that reduces the gap between production

and consumption of paddy is Storage or Warehousing.
Due to irregular demand or supply, there may be time gap between production
of goods and their sale. Storage helps in reducing the time gap between
production and consumption and provides time utility.
Importance of warehousing:
1. To ensure smooth flow of products in the market
2. To protect against any unavoidable delays in delivery or meet

contingencies in demand.
[(a)1 mark for identification +1 mark for stating by/2 mark each
for enumerating any 2 points (c) 1 mark for identification + 1
mark for stating + 1/2 mark each for stating any 2 points]
34. (a) The organisational structure adopted by Diligent Developers is Functional

structure . Functional structure is an organisational design that groups
similar or related jobs together.
(b) Benefits of functional structure:

(a) 1 mark for identification + 1 mark for stating
1) It leads to occupational specialization since emphasis is placed on

specific functions.This promotes efficiency in utilization of manpower
as employees perform similar tasks within a department and are able
to improve performance.
2) It promotes control and coordination within a department because of

similarity in the tasks being performed.
Limitations of functional structure:
(a) A functional structure places less emphasis on overall enterprise

objectives than the objectives pursued by a functional head. Such
practices may lead to functional empires wherein the importance of a
particular function may be overemphasised. Pursuing departmental
interests at the cost of organisational interests can also hinder the
interaction between two or more departments.
(b) It may lead to problems in coordination as information has to be

exchanged across functionally differentiated departments
(a) 2 marks each for stating 2 points of benefits and limitations.
(b) 1 marks for identification + 1 mark for stating.

SAMPLE QUESTION PAPER-1
1. Long term investment decisions which are irreversible and involve which
are irreversible and involve hugs cost. These decisins are known as?
(a) Capital budgeting decision (b) Money market
(c) Divident decision (d) Working capital decision
2. When the demand of a product is inclastic, the firm is in a better position to
fir .................... prices.
(a) Higher (b) Lower
(c) Similar (d) Competitive prices
3. Increase in awareness for healthcare among people have increased the
demand for various health products like diet coke, fat-free cooking oil and
gyms which feature of business environment is highlighted by the above
statement?
(a) Specific and general forces
(b) Dynamic nature
(c) Inter-relatedness
(d) Totality of external forces
4. ..................... is described as the set of makreting tools that a firm uses to
pursue its marketing objectives in a target market.
(a) Product mix (b) Price mix
(c) Promotion mix (d) Marketing mix
5. Name the institution which hold the securities of an investor in electronic
form.
(a) SEBI (b) RBI
(c) Depository (d) Depository Services
6. Identify the Fayol’s principle of managment that is indicated by the following
figure
(a) Scalar chain
(b) Discipline
(c) Unity of direction
(d) Equity

7. Which of the following is not a function of SEBI.
(a) Regulatory functions (b) Depository service functions
(c) Development functions (d) Protective functions
8. Assertion (A) : When we try to control everything, we end up controlling

nothing”
Reasoning (R) : Only significant deviations which go beyond the permissible

limit should be brought to the notice of management
(a) Both (A) & (R) are true and (R) is the correct explanation of (A)
9. Choose the correct statement—
(a) Selling is broader than marketing
(b) Marketing aims profits through customer satisfaction
(c) Transportation is an element of product mix
(d) In zero level channel there is only one intermediary between producer
10. Read the following statements: Assertion (A) and Reason (R). Choose the
correct alternative from those given below
Assertion (A) : Coordination is ithe responsibility of all managers
Reason (R) : Coordination sysnchronises the various activities of an

organisation
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
(c) Assertion (A) is true but Reason (R) is flase
(d) Assertion (A) is false but Reason (R) is true

11. No. of subordinates under a superior is called ....................
(a) Informal organisation
(b) Divisional structure
(c) Formal organisation
(d) Span of management
12. Assertion : As far as possible, performance should be measured in same
units in which standards are set
Reason (R) : This results in comparison being easy
(a) Both (A) & (R) are true and (R) is the correct explanation of (A)
(b) Both (A) & (B) are true and (R) is not the correct explanation of (A)
13. Statement I : Standardisation reduces the need for inspection, testing and
evaluation of the products.
Statement II: Standardisation ensures the buyers that goods confirm to the
predetermined standards of quality, price packaging etc.
(b) Statement II is correct but I is incorrect
14. In today’s material world not everything is true. People today are eager to
purchase the new models of smartphores ad and when they are launched.
Infact, iphones are regarded today as a status symbol and thus many
people want to purchase them wheter they are within their reach or not.
Companies are also exploiting this situation for their maximum benefits
and thus launch a new series of phone after sometime with one or two
advance features only.
Identify the dimensions of business environment not reflected from above
para.
(a) Social and technological (b) Technological and Economic
(c) Legal and Political (d) Economic and Social

15. Objective of ________ is to increase the role of subordinates in the
organisation by providing them autonomy.
(a) Centralisation (b) Decentralisation
(c) Delegation of authority (d) Management
16. Getting physical certificates from electronic securities is known as _______
and this service is provided by depository institution.
(a) Dematerialisation (b) Re-materialisation
(c) Right issue (d) Private placement
17. “The components of business environment keep on changing due to
changes in various circumstances.”
Which feature of business environemnt is indicated here?
(a) Dynamic (b) Uncertain
(c) Complex (d) Relative
18. Match the following concepts with explanation and choose the correct option:
1. Production concept 1. Quality of product
2. Product concept 2. Customer needs
3. Selling concept 3. Quality of product
4. Marketing concept 4. More promotional efforts
(a) 1-3, 2-1, 3-2, 4-4 (b) 1-3, 2-4, 3-1, 4-2
(c) 1-2, 2-1, 3-4, 4-3 (d) 1-3, 2-1, 3-4, 3-2
19. Ravi, the production manager of ‘Z Ltd.’ Succeded in achieving the target
assigned to him within time but at a little extra cost.
What could be concluded about Ravi.
(a) Efficient
(b) Effective
(c) Both efficient and effective
(d) Neither efficient nor effective
20. Identify which of the following is not a general factor of business environment:
(a) Economic (b) Customer
(c) Social (d) Technological

SECTION B
21. Identify the concept that may be defined as the process by means of which
the purpose and objectives of a particular human group are determined,
clarified. Also explain its two importance.
22. Justify the importance of controlling in terms of
(a) Improving employee motivation
(b) Facilitating coordination in action (3)
OR
Explain any three limitabions of controlling
23. Highway king Ltd, a food chain decided to set standards with regard to
time taken by a customer to get for a table, for placing his/her order and to
be served by a waiter. By doing so, they were assessing the customer
satisfication. The managers were assigned the task to personally observe
the process, they critically observed and compared the actual time taken.
Which is the process being referred to in the above case?
Quote & Explain the first two steps mentioned here. (3)
24. “Registration of brokers & SUb-brokers” which kind of SEBI function is
this. Provide two more function of SEBI under this head. (3)
OR
Write a short note on stock exchange.
SECTION-C
25. Mr. singh, the Operations Manager of Com 75 Ltd used the terms like ‘We’,
‘Together’, ‘Discuss’. Which style of leadership do you think he is using?
Explain its three advantages. (4)
OR
Ms Rama Aiyenger is Sales Manager in ABC Ltd, she like to direct her
subordinates without taking their opinion. She doesn’t like to be contradicted.
What do you think is her style of leadership. Explain the limitations
associated with it. (4)
27. Differentiate between training and development.
OR

Differentiate between workload analysis and work force analysis. (4)
27. Garmia bought a oven of a reputed brand for Rs 20000 (ful filling all the
consumer responsiblities). The company had a policy of providing demo
to new buyers where they provide instructions about “how to use, clean,
cook, etc.”
But when Garima called for demo there was no response from service
providing team. And was not provided with any demo.
She started using it and got an electric shock and got hospitalised. After
getting discharge from hospital she filed a complaint against the company.
(i) What two rights of Garmia are being violated here.
(ii) Against which consumer right does she have the remedies available.
(iii) In which consume forum Garima should file a complaint.
SECTION-D
29. Mr Ravinder kumar, HR Manager in Excel Ltd had to short list prospective
employees for the following job profites.
Profile 1 : He needs an confident individual who had the ability to make
decisions & judgement.
Profile 2 : He needs an individual who had a potential for learning new
skills.
Identify and explain the tests which will be apt for selection of the right
persons for the given profiles. (4)
30. Explain how, Debt can be used only upto a level, for maximisation of
shareholder’s wealth.
Explain two more factors affecting the choice of capital. (2+2)
31. Explain following techniques of scientific management.
(1) Functional Foremanship with diagram.
(2) Differential piece wage system with example.
OR
Explain following principles of management.
(1) Espirit de corps (2) Scalar chain
(3) Equity

SECTION-D
32. Explain the steps that are required to be performed by a manager after
eyaluating all possible courses of action in planning process.
Or
Explain how planning
(a) Provides direction
(b) Reduces the risk of uncertainity
(c) Reduce wasteful activities
33. Read the statements given in point 1 and 2 and answer the question that
follow:
(1) Marketer has to create a distinct identity of the product from that of
competitors.
(b) Identify and explain the function of marketing that enables the marketer
to create such a distinct identity of his product.
(b) State any two qualities of such a distinct identity of the product
(2) Marketer has to inform the customer about the product and persuade
the customer to buy the product.
(a) Identify and explain the function of marketing required to be performed
in above case.
(b) Name and explain any two elements which help in performing the function
identified in ‘a’.
34. Alpha Private limited is a software company with expansion in its business,
organisation, structure designed for it was not working. There was ambiguity
in the reporting relations as the span of management has become very
tall. Organisation was failing in achieving targets. The company consulted
prism International to suggest way to improve competitiveness. Prism
International suggested elimination of a layer of middle management and
to separate production, sales and warketing departments. This lead to
specialisation of function and coordination became casier. Overall cost
was also minimised. Though special care was required to maintain inter
departmental coordination.
(a) Identifiy the state the organisation structure suggested by prism international.
(b) State two benefits and tow limitations of structure identified in ‘a’.

SAMPLE PAPER NO. 1
Hints to Answer
1. (a) Capital budgeting decision
2. (a) Higher
3. (c) Inter relatedness
4. (d) Marketing Mix
5. (c) Depository
6. (a) Scalar chain
7. (b) Depository services
8. (b)
9. (b) Marketing aims profit through customer satification
10. (a)
11. (d) Span of management
12. (a)
13. (c) Both the statements are correct
14. (d) Economic and Social
15. (b) Decentralisation
16. (b) Re-materialisation
17. (a) Dynamic
18. (d) 1-3, 2-1, 3-4, 4-2
19. (b) effective
20. (b) Customer
21. Management (any two points of importance)
22. any suitable answer
23. Controlling
(i) Setting up standads
(ii) Measuring actual performance
24. Any appropriate answer

25. Democratic
OR
Autocratic
27. (i) Right to consumer education, Right to safety
(ii) Right to seck redreesal
(iii) District commission
29. Profile 1: Personality Test
Profile 2: Aptitude Test
32. 1. Selecting an alternative
2. Implementing the plan
3. Follow up action.
(with suitable explanation)
33. 1. (a) Branding
(b) Simple and short, suggestive
2. (a) Promotion
(b) Sales promotion, Advertising
34. (a) Functional structure
(b) Any two benefits and two limitations of functional structure.

SAMPLE PAPER - 2
Q1. Financial planning includes
(i) Estimation of funds
(ii) Identifing sources of funds
(iii) Motion study
(iv) Clarity in working relationship of factory
(v) Utilisation of funds
(a) (i) (ii) (iii), (b) (ii) (iv) (v), (c) (ii) (iii) (v), (d) (i) (ii) (v)
2. _________ are useful in providing detailed information about the product its
contents, method of use etc.
(a) Brands (b) Packages
(c) Labels (d) Design
3. As plastic utensil are harmful from health point of view, people are looking for
different alternatives and have started using glass utensils, which can be
cleaned and reused numerous times.
Which dimension of Business Environmetn is discussed in above para?
(a) Economic (b) Social
(c) Technological (d) Political
4. Which tool of promotion is an impersonal form of communication, which is
paid for by the marketers to promote some goods or service.
(a) Personal selling (b) Publicity
(c) Advertisement (d) Sales Promotion
5. Identify the reason which makes management important in the light of the fact
that it is generally seen that individuals in an organization resist change, as a
change often means moving from a familar, secure environment into a newer
and a more challenging one.
(a) Management helps in achieving group goals.
(b) Managemetn creates a dynamic organization
(c) Management increases effeciency
(d) Management helps in the development of society

Q6. Ravi and Kavi are both working in Uno Ltd. Ravi is the head of department A
having 20 subordinates under him, who are not happy at all. Due to their dissat-
isfaction, his department fails to achieve its targets most of the time. While
Kavi is the head of department B having 30 subordinates under him, who are
happy and satisfied. They perform their duties very well leading to achievement
of their department objectives timely. Select the characteristic of management
discussed above.
(a) Management is a goal-oriented process
(b) Management is a dynamic function
(c) Management is a intargible force
(d) Management is a continuous process
Q7. Development function of SEBI are:
(a) Check on price rigging
(b) Training of intermediaries
(c) Educating investors
(d) Conducting research & publishing useful information
(i) A, b, c, (ii) b, d, e, (iii) a, d, b, (iv) c, d, b,
Ans. Option (ii)
Q8. Statement I : Planning based on facts makes controlling easier and effective.
Statement II : Controlling improves future planning by providing information de-
rived from pass experience.
(c) Both the statement are true
(d) Both the statements are false,
Q9. Choose the correct statement—
(a) Starting point of selling concept is Market
(b) Other name of Direct channel is zero level channel

(c) After sale services are included in Promotion Mix
(d) Warehousing is not an element of place mix.
Q10. Management not only helps in providing quality goods to cusomer, it also pro-
vide employment opportunities and leads to growth and development of people.
Identify the importance of management highlighted by above para:
(a) Management helps in achieving group goods
(b) Management creates a dynamic organisation
(c) Management helps in the development of society
Q11. ______________ form of organisation spreads rumours.
(a) Formal (b) Divisional
(c) Functional (d) Informal

Q12. KMP Ltd installed cameras in its factory to keep a check on the activities of its
workers. Which function of management is being performed by KMP Ltd. here.
Q13. Statement I : Marketing is not merely a post production activitity.
Statement II : Marketing includes many activities that are performed even be-
fore goods are actually produced.
(b) Statement II is correct but I is incorrect
Q14. Since environment is a source of both opportunities and threats for a business
eneterprise, its understanding and analysis can be the basis for deciding the
future course of action or training guideliens for decision making. From the
following identify the important of Business environment highlighted.
(a) It helps the firm to identify threats and early warning signal.
(b) It helps in tapping useful resources.

(c) It helps in coping with rapid changes
(d) It helps in assisting in planning and policy formulation
Q15. Which function of management is based on the principle of division of work?
(a) Planning (b) Directing
(c) Organising (d) Staffing
Q16. Assertion (A) : Shores are easily sold even at higher price in bullish market
Assrtion (B) : Investors are optimistic about their investment in bullish market.
(a) Both A & B are correct
(b) Assertion A is correct but B is wrong
(c) Assertion A is wrong B is correct
(d) Assertion A & B both are wrong
Q17. Attitudes towards product innovations, lifestyles, occupational distrib ution

is one of the elevement of which dimension of business environment?
(a) Economic
(b) Social
(c) Technological
(d) Political
Q18. Mathc the following and select the most appropriate option
1. Brand name 1. Tag
2. Packaging 2. Devil of Onida
3. Label 3. Card board box
4. Brand mark 4. Bata
(a) 1-4, 2-3, 3-1, 4-2 (b) 1-1, 2-3, 3-1, 4-4
(c) 1-1, 2-3, 3-4, 4-2 (d) 1-3, 2-1, 3-4, 4-2

Q19. Demonetisation led to what percent of the money in circulation involid?
(a) 85 (b) 86
(c) 87 (d) 88
Q20. Mathc List-I and List-II
List-I (factor) List-II (Impact of Demonetisation)
(a) Public sector wealth (i) Rise
(b) Tax collection (ii) Decline
(c) Interest rates (iii) No effect
(1) (a) (i), (b) (i), (c) (iii)
(2) (a) (ii), (b) (i), (c) (iii)
(3) (a) (iii), (b) (i), (c) (ii)
(4) (a) (iii), (b) (ii), (c) (i)
Q21. After completing his MBA , Rajesh joined a MNC. His job was to integrate
diverse element and corrdiante all the activities of the business. His job
requires long hower, and it was full of stress.
(a) Identify the level of management at which Rajesh joined the compary
(b) State any two functions to be perfomed by Rajesh other than those
discussed in the para.
Q22. Maxfort Ltd, a manufacturing clothing line company focuses on its labour
cost as key result area, Accordingly they have decided that if it increases
more that 5% then if is important that it needs to be brought to the notice of
managemtent. Identify and explain whcih method is being followed here to
analyse the deviations? (3)
OR
Mr. Ahmed, Production manager of Sun Pharma Ltd. says that controlling
without planning is complete foolishness. Do you agree with the statement
justify your opinion.

Q23. Write short note on: (3)
(a) Vestibule Training
(b) Internship
Q24. Give three factors affecting investment decision in financial management.
Q25. Explain any four semantic barriers of communication.
OR
Explain any four organisational barriers of communication. (4)
Q26. Mr. Ramesh joined Bright futures Ltd as production manager. He realised
that the workers lazy and evasive, Identofy the element of directing he should
focus on to get the workers to the targets, Also explain three incentives that
can be provided to encourgate them. (4)
OR
Why do you think dirctign is so important for an organisation? (4)
Q27. Explain any four consumer rights. (4)
Q28. Bharti Ltd. is a mobile company. It is planning to acquire Arti Ltd, for which it
requires Rupees 1000 crore. Identify the decisino explained above and explain
any three factors assecting it.
Q29. Rubina is a senior execuitive in Fickle Ltd. It is an organisation which gives

individual autonomy and has seward orientation. Rubina’s designation has
changed to team leader because of her good performance in the past two
year. Now, she can work on greater variety of work, and requires higher lovel
of knowledge & skill. If she gives best performance among other for three
centinous months, her name will appear on the notice board as “Best team
header of the Quarter”.
Identify the quote which incentives are being given by Fickle Ltd. (4)
Q30. It refers to the new issue market. Identify the market. How it is different from
stock exachange, give any 3 difference. (4)

Q31. Explain the following nature of principles of management:
(i) General quidelines
(ii) Flexible
(iii) Contingent (6)
OR
(a) Explain following principles of management given by. Herri fayol
(i) Unit of direction
(ii) Initiative
(b) Explain Fatigue study as a technique of scientific management.
Q33. Zeba Ltd. company does not consider ideas and thoughts of employees and
acts according to earlier formulated plain. Identify and explain the above
limitation of planning. Explain any four other limitations of planning.
OR
Explain the following:
1. Budget
2. Policy
3. Method
Q34. Read the statements given in point 1 and 2 and answer the questions that
follow:
(1) This function of marketing deals in taking decisions regarding channels

of distributino and movement of gods from where it is produced to the
place of consumption.
(a) Identify and explain the function of marketing.
(b) State two necessary elemetns of the function identified above in ‘a’.
(2) Before buying an item a customer analyses its cost and the satisfaction
that he gets from it. He will buy the item only when he feels that its satisfaction
will be more than its cost. Producer has to keep this tendency of buyer in

mind while producing the items.
(a) Which function of marketing has been highlighted here. Explain.
(b) State any two factors which affect the function identified in ‘a’. (6)
Q34. Globe Private Limited is an adventure sport company. It provides its clients
an exiciting but safe experience aoudn the world. To maintain the quality of
experience, the company cancentrated the power of decision making in a
few hands. This at times led to delay in decision making. Also the top level
management was finding difficulty in focusing n critical opportunities for
expansion. It finally decided to evenly and systematically distrib ute authority
at every level, region wise. This promoted confidence among the subordinates
as they got freedom to take their decision. It thismanner organisation was
able to grwo and expand better.
(a) Identify the concept of management applied by Globe Pvt. Ltd. and
explain.
(b) Explain and fair points of importance of this applied concept.

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Production Team

Class XII : Business Studies 1

Basis of Difference Effectiveness Efficiency

1. Meaning It refers to completing It refers to completing

2. Objective To achieve end result To conduct cost-benefit

3. Main Consideration Time Cost

Ans. Yes, he completed the work on time and at a lower cost.

1. Goal oriented Process:It is a goal oriented process, which is undertaken

2. Pervasive: Management is universal in nature. It is used in all types of

2 Class XII : Business Studies

4. Continuous:Management is not a process which can be performed once

5. Group Activity: It is a group activity since it involves managing and

6. Dynamic function:It is a dynamic function since it has to adapt itself according

7. Intangible Force:Management is such a force that cannot be seen, only its

Q.2 An educational institution as well as a business organization both need to

Q.4 In order to be successful an organisation must change its goals according

Class XII : Business Studies 3

Ans. Social objectives of management.

4 Class XII : Business Studies

The company has a strong sense of social responsibility. It has set up an

1. Achieving Group Goals:Management creates team work and coordination

2. Increases Efficiency:Management increases efficiency by using resources

3. Creates Dynamic organization:Management helps the employees to

4. Achieving personal objectives:Management helps the individuals achieve

5. Development of Society:Management helps in the development of society

Class XII : Business Studies 5

1. Existence of theoretical knowledge: In every art, systematic and organized

2. Personalised application:The use of basic knowledge differs from person

3. Based on practice and creativity: Art involves the creative practice of

In management also a huge volume of literature and books are available on

Science is a systematised body of knowledge that is based on general truths which

1. Systematized body of knowledge:Science has a systematized body of

2. Principles based on experiments and observation:Scientific principles

3. Universal validity:Scientific principles have universal validity and application.

Management has systematic body of knowledge and its principles are

6 Class XII : Business Studies

1. Well-defined body of Knowledge:All the professions are based on well-

2. Restricted Entry:The entry in every profession is restricted through

3. Professional Associations:All professions are affiliated to a professional

4. Ethical Code of Conduct:All professions are bound by a code of conduct

5. Service Motive:The main aim of a profession is to serve its clients.

Ans. (a) Well defined body of knowledge.

(b) Restricted entry

Class XII : Business Studies 7

Consists of Divisional or Departmental heads, Plant Superintendents and Operation

Lower Level/Supervisory Level

Consists of Foremen and Supervisor etc.

8 Class XII : Business Studies

Class XII : Business Studies 9

Coordination is to synchronise the various activities of an organisation. In the context

Lack of coordination results in overlapping, duplication, delay and chaos.

1. Coordination integrates group efforts: It integrates diverse business

2. Coordination ensures unity of action: It directs the activities of different

3. Coordination is a continuous process: It is not a specific activity matter,

4. Coordination is all pervasive function: It is universal in nature. It

5. Coordination is the responsibility of all managers: It is equally important

6. Coordination is a deliberate function: Coordination is never established

Coordination is the Essence of Management.

It is needed in all management functions: