This project talks about how limiting factors affect the decision making process of a business organisation, along with steps to reduce the effects and illustrations.

1. LIMITING FACTOR
BY TILIKA CHAWDA C50
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2. WHAT IS LIMITING FACTOR
• Limiting factors also known as key factors or principle budget factors or governing factors is
what puts a limit to the capacity of an organization and stand in the way of accomplishing a
desired object.
• It also prevents indefinite expansion or unlimited profits
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3. TYPES OF LIMITING FACTORS
QUALITATIVE QUANTITATIVE
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4. TYPES OF QUALITATIVE LIMITING FACTORS
1. Customers
2. Employees
3. Competitors
4. Legal constraints
5. Creditors / suppliers
• Most of the Qualitative factors can’t be anticipated and controlled by the management.
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5. TYPES OF QUANTITATIVE LIMITING FACTOR:
1. Shortage of material due to non-availability of required quality of material, crop failure, legal or
trade restrictions arising from quotas, etc.
2. Shortage of labour which may be of general nature or of a specific type of labour, overtime
restrictions etc.
3. Shortage of plant capacity due to non-availability of machines or machine hours, machine
breakdown, lack of finance to expand production facilities.
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6. 4. Shortage of factory space i.e. lack of physical space to accommodate production facilities.
5. Lack of market demand due to ineffective or insufficient advertising, insufficient sales team,
lack of customer demand for particular products, availability of better or cheap substitutes,
shortage of delivery vans etc.
6. Shortage of finance which may be of general nature or of a specific type of fund.
TYPES OF QUANTITATIVE LIMITING FACTOR:
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7. Shortage of Raw Material:
(a) Search for additional sources of raw materials.
(b) Reduce the dependency on a particular raw material by changing product design and therefore
raw material requirements.
Shortage of Skilled Labour:
(a) Recruit skilled labour by giving incentives for skilled labor to move to the company, e.g.,
increased rates of pay, paying removal costs, etc.
(b) Encourage personnel to move from elsewhere by advertising vacancies.
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REDUCING EFFECT OF LF IN DECISION MAKING

8. Shortage of Production Capacity (e.g. machinery, machine hours):
(a) Purchase additional production machinery.
(b) Sub-contract some work to outside companies.
Shortage of Factory Space
(a) Increase factory space by building an extension.
(b) Purchasing an additional factory.
(c) Subcontracting work to outside companies.
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REDUCING EFFECT OF LF IN DECISION MAKING

9. Shortage of Finance:
(a) New investment by the owner.
(b) Borrowings from bank or other financial institutions
Lack of Customer Demand for Particular Products:
(a) Increase sales levels by price changes.
(b) Advertising campaigns or giving sales incentives to staff and or customer.
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REDUCING EFFECT OF LF IN DECISION MAKING

10. STEPS IN LFM
• Step 1 - Establish if a constraint actually exists.
• Step 2 - Establish the contribution per unit.
• Step 3 - Establish contribution per limiting factor and rank in order of the highest contribution
per limiting factor.
• Step 4 - Establish the optimum plan.
• Step 5 - Calculate the profit based on this plan.
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11. SITUATION 1
SINGLE LIMITING FACTOR
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18. SITUATION 2
MAKE OR BUY
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22. SITUATION 3
RESTRICT FREEDOM OF ACTION
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28. ASSUMPTIONS OF LM
1. A single quantifiable objective. In reality, there may be multiple objectives.
2. Each product always uses the same quantity of the scarce resource per unit.
3. The contribution per unit is constant. However, the selling price may have to be lowered to
sell more ; discounts may be available as the quantity of materials needed increases.
4. We focus on the short term, therefore ignoring fixed costs.
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29. Conclusion.
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30. THANK YOU
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