Q1. Explain in brief the origins of Just In Time. Explain the different types of wastes that can be
eliminated using JIT
Ans. Just in Time (JIT) is a management philosophy aimed at eliminating waste and continuously improving
quality. Credit for developing JIT as a management strategy goes to Toyota. Toyota JIT manufacturing started
in the aftermath of World War II.
Although the history of JIT traces back to Henry Ford who applied Just in Time principles to manage
inventory in the Ford Automobile Company during the early part of the 20th Century, the origins of the JIT as
a management strategy traces to Taiichi Onho of the Toyota Manufacturing Company. He developed Just in
Time strategy as a means of competitive advantage during the post World War II period in Japan.
The post-World War II Japanese automobile industry faced a crisis of existence, and companies such as Toyota
looked to benchmark their thriving American counterparts. The productivity of an American car worker was
nine times that of a Japanese car worker at that time, and Taiichi Onho sought ways to reach such levels.
Two pressing challenges however prevented Toyota from adopting the American way:
1. American car manufacturers made “lots” or a “batch” of a model or a component before switching
over to a new model or component. This system was not suited to the Japanese conditions where a
small market required manufacturing in small quantities.
2. The car pricing policy of US manufacturers was to charge a mark-up on the cost price. The low
demand in Japan led to price resistance. The need of the hour was thus to reduce manufacturing costs to
To overcome these two challenges, Taiichi Onho identified waste as the primary evil. The categories of waste
inventory or waste associated with keeping dead stock
time spent by workers waiting for materials to appear in the assembly line
time spend on transportation or movement
workers spending more time than necessary processing an item
waste associated with defective items
Taiichi Onho then sought to eliminate waste through the just-in-timephilosophy, where items moved through
the production system only as and when needed.
Q2. What is Value Engineering or Value Analysis? Elucidate five companies which have
incorporated VE with brief explanation.
Ans. Value Engineering(VE), also known as Value Analysis, is a systematic and function-
based approach to improving the value of products, projects, or processes.VE involves a team of
people following a structured process. The process helps team members communicate across
boundaries, understand different perspectives, innovate, and analyze.
When to use it
Use Value Analysis to analyze and understand the detail of specific situations.
Use it to find a focus on key areas for innovation.
Use it in reverse (called Value Engineering) to identify specific solutions to detail problems.
It is particularly suited to physical and mechanical problems, but can also be used in other areas.
Quick X Long
Logical X Psychological
Individual X Group
How it works
Value Analysis (and its design partner, Value Engineering) is used to increase the value of
products or services to all concerned by considering the function of individual items and the
benefit of this function and balancing this against the costs incurred in delivering it. The task
then becomes to increase the value or decrease the cost.
Q3. Explain different types of Quantitative models. Differentiate between work study and
Ans. Quantitative models are needed for a variety of management tasks, including
(a) identi¯cation of critical variables to use for health monitoring,
(b) antici- pating service level violations by using predictive models, and
(c) on-going op- timization of con¯gurations.
Unfortunately, constructing quantitative models requires specialized skills that are in short supply. Even worse,
rapid changes in provider con¯gurations and the evolution of business demands mean that quantitative models
must be updated on an on-going basis. This paper de-scribes an architecture and algorithms for on-line
discovery of quantitativemodels without prior knowledge of the managed elements. The architecture makes
use of an element schema that describes managed elements using the common information model (CIM).
Algorithms are presented for selecting a subset of the element metrics to use as explanatory variables in a
quantitative model and for constructing the quantitative model itself. We further describe a prototype system
based on this architecture that incorporates these algo-rithms. We apply the prototype to on-line estimation of
response times for
DB2 Universal Database under a TPC-W workload. Of the approximately 500 metrics available from the DB2
performance monitor, our system chooses 3 to construct a model that explains 72% of the variability of
In production and operations management, models refer to any simple representation of reality in
different forms such as mathematical equations, graphical representation, pictorial representation, and
physical models. Thus a model could be the well known economic order quantity (EOQ) formula, a
PERT network chart, a motion picture of an operation, or pieces of strings stretched on a drawing of a
plant layout to study the movement of material. The models help us to analyze and understand the reality.
These also help us to work determine optimal conditions to for decision making. For example, the EOQ
formula helps us to determine the optimum replenishment quantities that minimize the cost of storing plus
replenishing.The number of different models we use in production and operations management run into
hundreds, or even more than a thousand. These are really too many to enumerate in a place like these. I
am listing below a random list of broad categories of models used in production and operations model.
Operations research models. This is actually a very broad classification and covers many of the other
categories in the list given here.
o Inventory models
o Forecasting models
o Network models
o Linear programming models
o Queuing models
o Production planning and control models
o Engineering drawings
o Photographs and motion pictures used in time and motion studies.
o Material movement charts
o Process flow diagrams
o Systems charts
o Statistical process control charts.
o Variance analysis
o Regression analysis
o Organization chart
o Fishbone chart
Work study and motion study
Work study includes a wide field of measurement tools and techniques. Motion study or method study is
concerned with analyzing individual human motions (like get object, put object) with a view to improving
Q1. Explain Logical process and Physical process modeling. What are the ingredients of Business
Business Process Modeling
A process is a coordinated set of activities designed to produce a specific outcome. There are processes for
saving a file, constructing a building, and cooking a meal. In fact, there is a process for almost everything we
do. A business process is a type of process designed to achieve a particular business objective.
Business processes consist of many components, including:
The data needed to accomplish the desired business objective
Individual work tasks that manipulate, review, or act upon the data in some way
Decisions that affect the data in the process or the manner in which the process is conducted
The movement of data between tasks in the process
Individuals and groups which perform tasks
Processes can be manual or automated, fully documented or simply knowledge in the minds of one or more
people. They can be simple or complex. They can be formal, requiring exact adherence to all details; or
flexible, provided the desired outcome is achieved.
Logical Process Modeling
Logical Process Modeling is the representation of a business process, detailing all the activities in the process
from gathering the initial data to reaching the desired outcome. These are the kinds of activities described in a
logical process model:
Gathering the data to be acted upon
Controlling access to the data during the process execution
Determining which work task in the process should be accomplished next
Delivering the appropriate subset of the data to the corresponding work task
Assuring that all necessary data exists and all required actions have been performed at each task
Providing a mechanism to indicate acceptance of the results of the process, such as, electronic
All business processes are made up of these actions. The most complex of processes can be broken down into
these concepts. The complexity comes in the manner in which the process activities are connected together.
Some activities may occur in sequential order, while some may be performed in parallel. There may be circular
paths in the process (a re-work loop, for example). It is likely there will be some combination of these.
The movement of data and the decisions made determining the paths the data follow during the process
comprise the process model. The contains only business activities, uses business terminology (not software
acronyms, technical jargon, etc.…), completely describes the activities of the business area being modeled, and
is independent of any individual or position working in the organization. Like its sibling, Logical Data
Modeling, Logical Process Modeling does not include redundant activities, technology dependent activities,
physical limitations or requirements or current systems limitations or requirements. The process model is a
representation of the business view of the set of activities under analysis.
Heretofore, many applications and systems were built without a logical process model or a rigorous
examination of the processes needed to accomplish the business goals. This resulted in applications that did not
meet the needs of the users and / or were difficult to maintain and enhance.
Problems with an unmodeled system include the following:
Not knowing who is in possession of the data at any point in time
Lack of control over access to the data at any point in the process
Inability to determine quickly where in the process the data resides and how long it has been there
Difficulties in making adjustments to a specific execution of a business process
Inconsistent process execution
. Ingredients of Business Process
1) Time: You must understand that time is money. In business, our objective is to make money. Period. But the
question is how productively you convert your time into money. Are you making full use of your time or you
just let the time pass by you?
How much you make depends on how good you are at converting time to money. If you are already
productive, then you may want to ask what are the things you can do to
improve further the ratio of dollar/second? If you are making $0.01/second, what you can do to make it
$0.02/second? Or even more. Remember time is the most valuable asset and once it’s gone, it’s gone. Also
time is also the fairest distribution of resources every human being receives.
2) People: To be successful in business, you must have people connections. I mean the right people. People
consist of customers, suppliers, partners, staff, and associates.
One thing that you must not leave out is your mentor or coach. Having genuine mentors or coaches is very
important and it can make a very big difference in your business.
To make sure that you have more profits, you must serve people well. Organize your database of people
connections. By simply knowing who does what, who supplies what, who needs what, where to get what make
you miles ahead of other people. To organize your connections, you can either use a paper folder or computer
3) Knowledge and Skills: When I talk about knowledge and skills, I am not referring to academic knowledge
that you find in schools or colleges. What’s more important to you
is knowledge and skills that can bring you results you want.
How many MBA holders that you know of have become business owners and have made tones of money?
That shows getting the right knowledge and skills is important. Don’t blindly go after knowledge that could
drown you. Go for knowledge and skills that are universally tested and proven.
Examples of right knowledge and skills are where to get what from who, money making trends, marketing
strategies, art of dealing with people, negotiation skills, selling skills, skills of managing and growing money,
investment skills, universal laws of success, and more. Don’t waste time on unnecessary knowledge as I went
through that before. There’s only so much that you need to know and learn. Be sharp and focus when you
acquire knowledge and skills. Don’t follow what normal people do.
4) Personal Health: In fact, this is the most important ingredient of all. How can you run a business without a
healthy body? In order to maintain an optimum health, you have to provide your body with proper nutrients
and sufficient exercise. And also don’t forget about emotional well being. Don’t let anger and other negative
emotions control you.
This is where positive and empowering attitudes come into play. Maintaining your body is just like
maintaining your car. If you send your car to workshop for regular service and pump petrol regularly, why
don’t you do the same for your body? It’s something for you to think about. Don’t be stingy over spending
money for your own health because physical and mental health can cause you a lot of money in the long run if
your body is not taken care of properly.
5) Money: Let’s face it. It does take money to make money even you need a little. But you might not need a lot
of money to start a business because there are many ways to
start one with low capital.
I meet a lot of people who want to be rich but are not willing to invest the money. You must invest in
something in order to for you to get something. The law of sowing and
reaping is at work. Don’t expect something without investing anything. Money is one of the investments you
need to make.
Even though you don’t need to have a capital for your business, but at least you must be able to cover your
expenses while building your business. You also need money to buy products to stock up and other stuff. So,
you must at least come up with whatever amount that you have to start a business.
These are the five basic ingredients of business success. Do your best to acquire or grow or invest in these
ingredients. But the good thing is you don’t need to have a perfect combination of ingredients to get started.
You can still perfect the ingredients along the way. Somehow, get it started with what you’ve got.
Article Source: http://EzineArticles.com/24925
Q2. Explain Project Management knowledge areas. With an example explain work Breakdown
The Project management knowledge areas are described in the following.
Project integration management describes the processes and activities needed to identify, define, combine,
unify and coordinate the various project management elements within the project management process groups.
The project management processes are develop project charter, develop preliminary project scope statement,
develop project management plan, direct and manage project execution, monitor and control project work,
integrated change control and close project.
Project scope management describes the processes needed to ensure that the project includes all the work
required – and only the work required – to complete the project successfully. The project management
processes are plan scope, define scope, create work breakdown structure, verify scope and control scope.
Project time management describes the processes required to ensure on-time project completion. The project
management processes are define project activities, sequence activities, estimate activity resources, estimate
activity duration and develop and control project schedule.
Project cost management describes the processes involved in planning, estimating, budgeting and controlling
costs to ensure that the project is completed within the approved budget. The project management processes
are cost estimating, cost budgeting and cost control.
Project quality management describes the processes involved in assuring that the project will satisfy the
objectives for which it was undertaken. The project management processes are quality planning, perform
quality assurance and perform quality control.
Project human resource management describes the processes that organise and manage the project team. The
project management processes are human resource planning, acquire project team, develop project team and
manage project team.
Project communications management describes the processes concerning the timely and appropriate
generation, collection, dissemination, storage and ultimate disposition of project information. The project
management processes are communications planning, information distribution, performance reporting and
Project risk management describes the processes concerned with conducting risk management on a project.
The project management processes are risk management planning, risk identification, qualitative risk analysis,
quantitative risk analysis, risk response planning and risk monitoring and control.
Project procurement management describes the processes that purchase or acquire products, services or results
as well as contract management processes. The project management processes are plan purchases and
acquisitions, plan contracting, request seller responses, select sellers, contract administration and contract
Work Breakdown Structure
A work breakdown structure (WBS) in project management and systems engineering, is a tool used to
define and group a project‘s discrete work elements in a way that helps organize and define the total work
scope of the project.
A work breakdown structure element may be a product, data, a service, or any combination. A WBS also
provides the necessary framework for detailed cost estimating and control along with providing guidance for
schedule development and control. Additionally the WBS is a dynamic tool and can be revised and updated as
needed by the project manager.
Example of a product oriented work breakdown structure of anaircraft system
Q3.Take an example of any product or project and explain Project Management Life Cycle.
In industry, product lifecycle management (PLM) is the process of managing the entire lifecycle of
a product from its conception, through design and manufacture, to service and disposal. PLM integrates
people, data, processes and business systems and provides a product information backbone for companies and
their extended enterprise.
‘Product lifecycle management’ (PLM) should be distinguished from ‘Product life cycle management
(marketing)‘ (PLCM). PLM describes the engineering aspect of a product, from managing descriptions and
properties of a product through its development and useful life; whereas, PLCM refers to the commercial
management of life of a product in the business market with respect to costs and sales measures.
Product lifecycle management is one of the four cornerstones of a corporation’sinformation
technology structure. All companies need to manage communications and information with their customers
(CRM-Customer Relationship Management), their suppliers (SCM-Supply Chain Management), their
resources within the enterprise (ERP-Enterprise Resource Planning) and their planning (SDLC-Systems
Development Life Cycle). In addition, manufacturing engineering companies must also develop, describe,
manage and communicate information about their products.
One form of PLM is called people-centric PLM. While traditional PLM tools have been deployed only on
release or during the release phase, people-centric PLM targets the design phase.
Recent (as of 2009) ICT development (EU funded PROMISE project 2004-2008) has allowed PLM to extend
beyond traditional PLM and integrate sensor data and real time ‘lifecycle event data’ into PLM, as well as
allowing this information to be made available to different players in the total lifecycle of an individual
product (closing the information loop). This has resulted in the extension of PLM into Closed Loop Lifecycle
Documented benefits of product lifecycle management include:
Reduced time to market
Improved product quality
Reduced prototyping costs
More accurate and timely Request For Quote generation
Ability to quickly identify potential sales opportunities and revenue contributions
Savings through the re-use of original data
A framework for product optimization
Savings through the complete integration of engineering workflows
Documentation that can assist in proving Compliance for RoHS or Title 21 CFR Part 11
Ability to provide Contract Manufacturers with access to a centralized product record
Q4. Explain PIMS. What is the difference between key Success Factor (KSF) and Knowledge (K)
Factor? Explain with example.
Ans. Project Management Information System (PMIS) are system tools and techniques used in project
management to deliver information. Project managers use the techniques and tools to collect, combine and
distribute information through electronic and manual means. Project Management Information System (PMIS)
is used by upper and lower management to communicate with each other.
Project Management Information System (PMIS) help plan, execute and close project management goals.
During the planning process, project managers use PMIS for budget framework such as estimating costs. The
Project Management Information System is also used to create a specific schedule and define the scope
baseline. At the execution of the project management goals, the project management team collects information
into one database. The PMIS is used to compare the baseline with the actual accomplishment of each activity,
manage materials, collect financial data, and keep a record for reporting purposes. During the close of the
project, the Project Management Information System is used to review the goals to check if the tasks were
accomplished. Then, it is used to create a final report of the project close.
To conclude, the project management information system (PMIS) is used to plan schedules, budget and
execute work to be accomplished in project management
Key Success Factors
Definition: The factors that are a necessary condition for success in a given market.
When writing a business plan, it’s crucial to identify what will make your business a success. Think of
key success factors as the small towns you must pass through to reach your destination. If you don’t
consult a map to found out where those towns are, you may miss a turnoff and your destination. Key
success factors, also known as critical success factors, keep you and your employees on track to make
your business a success.
Increasing the sales of a product or service is a common key success factor, but it should be linked to a
measurable goal, such as “sales of product X will increase by 30 percent in the fourth quarter.”
Measuring the outcome of the goals related to your key success factors is essential to keeping your
business on target.
Almost all businesses can benefit from having the key success factor “attract new customers.” Decide
how many new customers your business needs to succeed, and set a related goal, such as “increase
walk-in traffic by 25 percent by offering samples at the door.” Other examples of common key success
factors are, “retain quality employees,” “increase profit margin” and “increase customer satisfaction.”
Some businesses are subject to more regulation than others. Manufacturing facilities must comply
with OSHA regulations, and they may want to develop a key success factor that addresses the
company’s compliance. For example, “Provide all employees with hazardous material training.”
Key success factors should always be relevant to the business you are in. An example of an industry
specific key success factor is “increase load factor relative to the industry average.” This key success
factor is specific to the airline industry, as referenced in “Airline Industry Key Success Factors” in the
Graziadio Business Report. Fleet management is essential to airlines, limousine companies and taxi
services, but it’s not relevant to the development of computer games.
The key success factor “Build a manufacturing facility to produce 80 percent of inventory” is an
example of what RapidBi.com calls temporal factors. According to the web site, temporal factors
“relate to short-term situations, often crises. These CSF’s may be important, but are usually short-
lived.” In this example, once the manufacturing facility is constructed and operational, the key success
factor is no longer needed and can be replaced by a currently relevant one.
Measurable Key Success Factors
General Key Success Factors
Regulatory Key Success Factors
Industry Specific Key Success Factors
Temporal Key Success Factors
India may be a brain bank to the world. but it doesn’t help if other countries cash in on this more frequently
than india itself. The state of Indian higher education is the weak link in this chain it’s the reason why Indians
spend $3 billion annually seeking education abroad.
Those who study abroad tend to stay on abroad, while according to a NASSCOM-Mckinsey estimate only 10-
25 per cent of those earning a college degree in India are employable.
Now the National Knowledge Commission (NKC) has written to the prime minister stating that raising the
number of indian universities from 350 to 1,500 is critical if India’s growth is to be sustained.
As NKC Chairman Sam Pitroda notes, only 7 per cent of India’s population aged 18-24 enters higher
education, which is half the Asian average. China has created 1,250 new universities within just the last three
India’s percentage of youth enrolled in college has to be brought up to at least asian levels while at the same
time enhancing academic standards.
The only way such a sweeping revamp can be carried out is if today’s centrally managed education mono-
polies are dismantled, and education is depoliticised and debureaucratised.
Q5. Explain the seven principles of supply chain management. Take an example of any product in the
market and explain the scenario of Bullwhip effect.
Ans. There is many steps which involved in SCM implementation are- Business Process, sales and marketing.
Logistics, costing, demand planning, trade- off analysis, environmental requirement, process stability,
integrated supply, supplier management, product design, suppiers, customers, material specifications, etc.
Some important aspect of SCM-
The level of competition existing in the market and the impact of competitive forces on the product
Designing and working on a strategic logic for better growth through value invention. Working out new value
curve in the product development along with necessary break point.
Using it to analyses markets and the economies in product design. Tine, customer, quality of product and the
concept of survival of fittest.
Steps of SCM principals:
Group customer by need: Effective SCM groups, customer by tietinct service meeds those particular segment.
Customize the logistics networks: In designing their logistics network, companies need to focus on the service
requirement and profit potential of the customer segments identified.
Listen to signals of market demand and plan accordingly- sales and operations planners must monitor the
entire supply chain to detect early warning signals of changing customer demand and needs.
Differentiate the product closer to the customer-companies today no longer can afford to stock pile inventory
to compensate for possible forecasting errors, instead, they need to postpone product differentiation in the
manufacturing. Process closer to actual customer demand.
Strategically manage the source of supply-by working closely with their key suppliers to reduce the overall
casts of owning materials and services; SCM maximizes profit margins both for themselves, and their supplies.
Develop a supply chain wide technology strategy- as one of the cornerstones of successful SCM information
technology must be able to support multiple levels of decision making.
Adopt channel spanning performance measures- Excellent supply performance measurement systems do more
than just monitor internal functions. They apply performance criteria that embrace bathe service and financial
metrics, including as such as each accounts true profitability.
Q1. Discuss the objective of Profit maximization Vs Wealth maximization.
Ans. The financial management come a long way by shifting its focus from traditional approach to modern
approach. The modern approach focuses on wealth maximization rather than profit maximization. This gives a
longer term horizon for assessment, making way for sustainable performance by businesses.
A myopic person or business is mostly concerned about short term benefits. A short term horizon can fulfill
objective of earning profit but may not help in creating wealth. It is because wealth creation needs a longer
term horizon Therefore, Finance Management or Financial Management emphasizes on wealth maximization
rather than profit maximization. For a business, it is not necessary that profit should be the only objective; it
may concentrate on various other aspects like increasing sales, capturing more market share etc, which will
take care of profitability. So, we can say that profit maximization is a subset of wealth and being a subset, it
will facilitate wealth creation.
Giving priority to value creation, managers have now shifted from traditional approach to modern approach of
financial management that focuses on wealth maximization. This leads to better and true evaluation of
business. For e.g., under wealth maximization, more importance is given to cash flows rather than profitability.
As it is said that profit is a relative term, it can be a figure in some currency, it can be in percentage etc. For
e.g. a profit of say $10,000 cannot be judged as good or bad for a business, till it is compared with investment,
sales etc. Similarly, duration of earning the profit is also important i.e. whether it is earned in short term or
In wealth maximization, major emphasizes is on cash flows rather than profit. So, to evaluate various
alternatives for decision making, cash flows are taken under consideration. For e.g. to measure the worth of a
project, criteria like:
“present value of its cash inflow – present value of cash outflows” (net present value) is taken. This approach
considers cash flows rather than profits into consideration and also use discounting technique to find out worth
of a project. Thus, maximization of wealth approach believes that money has time value.
An obvious question that arises now is that how can we measure wealth. Well, a basic principle is that
ultimately wealth maximization should be discovered in increased net worth or value of business. So, to
measure the same, value of business is said to be a function of two factors – earnings per share and
capitalization rate. And it can be measured by adopting following relation:
Value of business = EPS / Capitalization rate
At times, wealth maximization may create conflict, known as agency problem. This describes conflict between
the owners and managers of firm. As, managers are the agents appointed by owners, a strategic investor or the
owner of the firm would be majorly concerned about the longer term performance of the business that can lead
to maximization of shareholder’s wealth. Whereas, a manager might focus on taking such decisions that can
bring quick result, so that he/she can get credit for good performance. However, in course of fulfilling the
same, a manager might opt for risky decisions which can put on stake the owner’s objectives.
Hence, a manager should align his/her objective to broad objective of organization and achieve a tradeoff
between risk and return while making decision; keeping in mind the ultimate goal of financial management i.e.
to maximize the wealth of its current shareholders.
Q2. Explain the Net operating approach to capital structure.
Ans. net operating income approach examines the effects of changes in capital structure in terms of net
operating income. In the net income approach discussed above net income available to shareholders is obtained
by deducting interest on debentures form net operating income. Then overall value of the firm is calculated
through capitalization rate of equities obtained on the basis of net operating income, it is called net income
approach. In the second approach, on the other hand overall value of the firm is assessed on the basis of net
operating income not on the basis of net income. Hence this second approach is known as net operating income
The NOI approach implies that (i) whatever may be the change in capital structure the overall value of the firm
is not affected. Thus the overall value of the firm is independent of the degree of leverage in capital structure.
(ii) Similarly the overall cost of capital is not affected by any change in the degree of leverage in capital
structure. The overall cost of capital is independent of leverage.
If the cost of debt is less than that of equity capital the overall cost of capital must decrease with the increase in
debts whereas it is assumed under this method that overall cost of capital is unaffected and hence it remains
constant irrespective of the change in the ratio of debts to equity capital. How can this assumption be justified?
The advocates of this method are of the opinion that the degree of risk of business increases with the increase
in the amount of debts. Consequently the rate of equity over investment in equity shares thus on the one hand
cost of capital decreases with the increase in the volume of debts; on the other hand cost of equity capital
increases to the same extent. Hence the benefit of leverage is wiped out and overall cost of capital remains at
the same level as before. Let us illustrate this point.
If follows that with the increase in debts rate of equity capitalization also increases and consequently the
overall cost of capital remains constant; it does not decline.
To put the same in other words there are two parts of the cost of capital. One is the explicit cost which is
expressed in terms of interest charges on debentures. The other is implicit cost which refers to the increase in
the rate of equity capitalization resulting from the increase in risk of business due to higher level of debts.
Optimum capital structure
This approach suggests that whatever may be the degree of leverage the market value of the firm remains
constant. In spite of the change in the ratio of debts to equity the market value of its equity shares remains
constant. This means there does not exist a optimum capital structure. Every capital structure is optimum
according to net operating income approach.
Q.3 What do you understand by operating cycle.
Ans. An operating cycle is the length of time between the acquisition ofinventory and the sale of that
inventory and subsequent generation of a profit. The shorter the operating cycle, the faster a business gets
a return on investment (ROI) for the inventory it stocks. As a general rule, companies want to keep their
operating cycles short for a number of reasons, but in certain industries, a long operating cycle is actually the
norm. Operating cycles are not tied to accounting periods, but are rather calculated in terms of how long goods
sit in inventory before sale.
When a business buys inventory, it ties up money in the inventory until it can be sold. This money may be
borrowed or paid up front, but in either case, once the business has purchased inventory, those funds are not
available for other uses. The business views this as an acceptable tradeoff because the inventory is an
investment that will hopefully generate returns, but keeping the operating cycle short is still a goal for most
businesses so they can keep their liquidity high.
Keeping inventory during a long operating cycle does not just tie up funds. Inventory must be stored and this
can become costly, especially with items that require special handling, such as humidity controls or security.
Furthermore, inventory can depreciate if it is kept in a store too long. In the case of perishable goods, it can
even be rendered unsalable. Inventory must also be insured and managed by staff members who need to be
paid, and this adds to overalloperating expenses.
There are cases where a long operating cycle in unavoidable. Wineries and distilleries, for example, keep
inventory on hand for years before it is sold, because of the nature of the business. In these industries, the
return on investment happens in the long term, rather than the short term. Such companies are usually
structured in a way that allows them to borrow against existing inventory or land if funds are needed
to finance short-term operations.
Operating cycles can fluctuate. During periods of economic stagnation, inventory tends to sit around longer,
while periods of growth may be marked by more rapid turnover. Certain products can be consistent sellers that
move in and out of inventory quickly. Others, like big ticket items, may be purchased less frequently. All of
these issues must be accounted for when making decisions about ordering and pricing items for inventory.
Q.4 What is the implication of operating leverage for a firm.
Operating leverage: Operating leverage is the extent to which a firm uses fixed costs in producing its goods
or offering its services. Fixed costs includeadvertising expenses, administrative costs, equipment and
technology, depreciation, and taxes, but not interest on debt, which is part of financial leverage. By using fixed
production costs, a company can increase its profits. If a company has a large percentage of fixed costs, it has a
high degree of operating leverage. Automated and high-tech companies, utility companies, and airlines
generally have high degrees of operating leverage.
As an illustration of operating leverage, assume two firms, A and B, produce and sell widgets. Firm A uses a
highly automated production process with robotic machines, whereas firm B assembles the widgets using
primarily semiskilled labor. Table 1 shows both firm’s operating cost structures.
Highly automated firm A has fixed costs of $35,000 per year and variable costs of only $1.00 per unit, whereas
labor-intensive firm B has fixed costs of only $15,000 per year, but its variable cost per unit is much higher at
$3.00 per unit. Both firms produce and sell 10,000 widgets per year at a price of $5.00 per widget.
Firm A has a higher amount of operating leverage because of its higher fixed costs, but firm A also has a
higher breakeven point—the point at which total costs equal total sales. Nevertheless, a change of I percent in
sales causes more than a I percent change in operating profits for firm A, but not for firm B. The “degree of
operating leverage” measures this effect. The following simplified equation demonstrates the type of equation
used to compute the degree of operating leverage, although to calculate this figure the equation would require
several additional factors such as the quantity produced, variable cost per unit, and the price per unit, which are
used to determine changes in profits and sales:
Operating leverage is a double-edged sword, however. If firm A’s sales decrease by I percent, its profits will
decrease by more than I percent, too. Hence, the degree of operating leverage shows the responsiveness of
profits to a given change in sales.
Implications: Total risk can be divided into two parts: business risk and financial risk. Business risk refers to
the stability of a company’s assets if it uses no debt or preferred stock financing. Business risk stems from the
unpredictable nature of doing business, i.e., the unpredictability of consumer demand for products and
services. As a result, it also involves the uncertainty of long-term profitability. When a company uses debt or
preferred stock financing, additional risk—financial risk—is placed on the company’s common shareholders.
They demand a higher expected return for assuming this additional risk, which in turn, raises a company’s
costs. Consequently, companies with high degrees of business risk tend to be financed with relatively low
amounts of debt. The opposite also holds: companies with low amounts of business risk can afford to use more
debt financing while keeping total risk at tolerable levels. Moreover, using debt as leverage is a successful tool
during periods of inflation. Debt fails, however, to provide leverage during periods of deflation, such as the
period during the late 1990s brought on by the Asian financial crisis.
Q.1 What is product mix? What are the strategies involved in product mix and product line?
The product mix of a business includes product lines and individual products. A product line is a set of
products in the product mix that are closely interrelated either because they serve in a similar way, sold to the
similar client groups or have same price range. A product is a unique component in the product line that is
different in size, cost, look, or some other attribute. Product choices at these levels are normally of 2 sorts:
Those that have variety and range of the product line and those that are modified in the product mix occur over
Product Mix is the total number of product choices a company offers their customer. If you make muffins, and
you offer Blueberry and Cranberry, your product mix has 2 choices. The product mix grows as the number of
features on the product grows. A true evaluation of the mix can ONLY be done with a feature/option level
analysis. That is because customers buy features and options. The strength of the mix is based on how well
the feature choices are capturing sales and market demand.
Strategies involved in Product Mix and Product Line
When the product is a part of product-mix, there are five kinds of strategies involved:
I. Product Line Pricing In product line pricing, management must decide on the price steps to set between
various products in a line. This should take into account the differences in products features, customer
evaluations, competitor’s prices etc.
II. Optional-Product Pricing The pricing of optional or accessory products along with the main product. For
example, a car buyer may choose to order a CD changer as an optional product.
III. Captive-Product Pricing Setting a price for products which must be used along with the main product. For
example, HP makes printers and cartridges. It makes very low margins on its printer (the main product) but
very high margins on cartridges .
IV. By-Product Pricing Setting a price for the by-products. Like in processing meats, petroleum products,
chemicals etc. Using by-product pricing, the manufacturer will find a market for the by-products and should
accept any price that covers more than the cost of storing and delivering them. For example, at Alba, water is
obtained as a by-product while manufacturing aluminum. This water can now be sold to the market.
V. Product Bundle Pricing Combining several products and offering the bundle at a reduced price. For
example, fast food restaurants bundle a burger, French fires and soft drink at a combo price.
Q.2 What is a distribution channel? Explain the factors to be considered while setting up a distribution
Definition: Path or ‘pipeline‘ through which goods and services flow in onedirection (from vendor to
the consumer), and the payments generated by them flow in the opposite direction (from consumer to the
vendor). A distributionchannel can be as short as being direct from the vendor to the consumer or
mayinclude several inter-connected (usually independent but mutually dependent)intermediaries such
as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point
and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of
distribution or marketing channel.
Channel of Distributions
A channel of distribution or trade channel is defined as the path or route along which goods move from
producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution
network through which producer puts his products in the market and passes it to the actual users. This channel
consists of :- producers, consumers or users and the various middlemen like wholesalers, selling agents and
retailers(dealers) who intervene between the producers and consumers. Therefore, the channel serves to bridge
the gap between the point of production and the point of consumption thereby creating time, place and
A channel of distribution consists of three types of flows:-
Downward flow of goods from producers to consumers
Upward flow of cash payments for goods from consumers to producers
Flow of marketing information in both downward and upward direction i.e. Flow of information on
new products, new uses of existing products,etc from producers to consumers. And flow of information
in the form of feedback on the wants,suggestions,complaints,etc from consumers/users to producers.
An entrepreneur has a number of alternative channels available to him for distributing his products. These
channels vary in the number and types of middlemen involved. Some channels are short and directly link
producers with customers. Whereas other channels are long and indirectly link the two through one or more
These channels of distribution are broadly divided into four types:-
Producer-Customer:- This is the simplest and shortest channel in which no middlemen is involved
and producers directly sell their products to the consumers. It is fast and economical channel of
distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has
full control over distribution. A producer may sell directly to consumers through door-to-door
salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution
costs and to sell industrial products of high value. Small producers and producers of perishable
commodities also sell directly to local consumers.
Producer-Retailer-Customer:- This channel of distribution involves only one middlemen called
‘retailer’. Under it, the producer sells his product to big retailers (or retailers who buy goods in large
quantities) who in turn sell to the ultimate consumers.This channel relieves the manufacturer from
burden of selling the goods himself and at the same time gives him control over the process of
distribution. This is often suited for distribution of consumer durables and products of high value.
Producer-Wholesaler-Retailer-Customer:- This is the most common and traditional channel of
distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer
sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to
the ultimate consumers. This channel is suitable for the producers having limited finance, narrow
product line and who needed expert services and promotional support of wholesalers. This is mostly
used for the products with widely scattered market.
Producer-Agent-Wholesaler-Retailer-Customer:- This is the longest channel of distribution in
which three middlemen are involved. This is used when the producer wants to be fully relieved of the
problem of distribution and thus hands over his entire output to the selling agents. The agents distribute
the product among a few wholesalers. Each wholesaler distribute the product among a number of
retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of
various industrial products.
An entrepreneur has to choose a suitable channel of distribution for his product such that the channel chosen is
flexible, effective and consistent with the declared marketing policies and programmes of the firm. While
selecting a distribution channel, the entrepreneur should compare the costs, sales volume and profits expected
from alternative channels of distribution and take into account the following factors:-
Product Consideration:- The type and the nature of products manufactured is one of the important
elements in choosing the distribution channel. The major product related factors are:-
Products of low unit value and of common use are generally sold through middlemen.
Whereas, expensive consumer goods and industrial products are sold directly by the producer
Perishable products; products subjected to frequent changes in fashion or style as well as
heavy and bulky products follow relatively shorter routes and are generally distributed directly
to minimize costs.
Industrial products requiring demonstration, installation and after sale service are often sold
directly to the consumers. While the consumer products of technical nature are generally sold
An entrepreneur producing a wide range of products may find it economical to set up his own
retail outlets and sell directly to the consumers. On the other hand, firms producing a narrow
range of products may their products distribute through wholesalers and retailers.
A new product needs greater promotional efforts in the initial stages and hence few
middlemen may be required.
Market Consideration:- Another important factor influencing the choice of distribution channel is
the nature of the target market. Some of the important features in this respect are:-
If the market for the product is meant for industrial users, the channel of distribution will not
need any middlemen because they buy the product in large quantities. short one and may as they
buy in a large quantity. While in the case of the goods meant for domestic consumers,
middlemen may have to be involved.
If the number of prospective customers is small or the market for the product is
geographically located in a limited area, direct selling is more suitable. While in case of a large
number of potential customers, use of middlemen becomes necessary.
If the customers place order for the product in big lots, direct selling is preferred. But, if the
product is sold in small quantities, middlemen are used to distribute such products.
Other Considerations:- There are several other factors that an entrepreneur must take into account
while choosing a distribution channel. Some of these are as follows:-
A new business firm may need to involve one or more middlemen in order to promote its
product, while a well established firm with a good market standing may sell its product directly
to the consumers.
A small firm which cannot invest in setting up its own distribution network has to depend on
middlemen for selling its product. On the other hand, a large firm can establish its own retail
The distribution costs of each channel is also an important factor because it affects the price
of the final product. Generally, a less expensive channel is preferred. But sometimes, a channel
which is more convenient to the customers is preferred even if it is more expensive.
If the demand for the product is high, more number of channels may be used to profitably
distribute the product to maximum number of customers. But, if the demand is low only a few
channels would be sufficient.
The nature and the type of the middlemen required by the firm and its availability also affects
the choice of the distribution channel. A company prefers a middlemen who can maximize the
volume of sales of their product and also offers other services like storage, promotion as well as
after sale services. When the desired type of middlemen are not available, the manufacturer will
have to establish his own distribution network.
All these factors or considerations affecting the choice of a distribution channel are inter-related and
interdependent. Hence, an entrepreneur must choose the most efficient and cost effective channel of
distribution by taking into account all these factors as a whole in the light of the prevailing economic
conditions. Such a decision is very important for a business to sustain long term profitability.
Q.3 Discuss the communication development process with examples.
Ans. Everyone communicates. Some better than others. Understanding the communication process can help
improve communication at home, at work and with friends.
Communication seems so natural and one generally assumes that there is no need of working on it. It is so
untrue. Most fights or arguments with spouses, children or friends are the result of bad communication. How
much of an argument is caused by ineffective communication? How much of what is said is taken in the wrong
context? How much of the meaning was changed or lost? How much was totally misunderstood or came out
wrong? All of those are examples of broken communication.
Development Communication designs communication strategies for development projects and reform
programs, economic and sector work, Country Assistance Strategies and Poverty Reduction Strategies.
Building on the communication audit, which provides an understanding of the social, cultural and political
nuances and assessment of local communication capacity, theDevelopment Communication division works
with task teams and government counterparts to prepare communication strategies with the objective of
promoting constituencies for support and putting in place a transparent and inclusive development process.
segmenting audiences based on their positions,
framing the issues,
preparing appropriate messages to mobilize support and address the right concerns,
finding the most effective mix of channels to reach audiences,
creating communication capacity on the ground to implement the process,
building consensus, and
designing mechanisms for supervision and evaluation.
Development Communication is creating a repository of knowledge based on its own experience and
international best practices in development communications. This intellectual base of Development
Communicationoperational and capacity building work is continually updated and customized to meet
country-specific needs. The division also maintains a database of communication professionals around the
world and their market costs so their expertise can be harnessed when needed.
Q.4. Select any mobile handset and mobile company and then evaluate its positioning strengths or
weakness in terms of attributes, benefits, values, brand name and brand equity.
Ans. Strength or Weakness of HTC Mobile Handset
HTC is one of the leading manufacturers of PDAs and smart phones around the world. It is one of the fastest
growing companies in the world and maximizing its market share rapidly.
SWOT is the tool to see that where organization stands, which areas required improvement, which areas
required serious consideration, which would be the source of growth, which things need avoidance and so on.
The SWOT of HTC will help to understand the position of HTC in the market.
It is the leading maker of PDAs smart phones in the world. It is establishing in the world rapidly and attracting
more and more customers from all around the world.
It has successfully recognized its brand name and has got the good image about the product quality. Its
products are considered as reliable products and its gaining more and more success rapidly.
The research and development in HTC has been given more importance as it is the way to know what
There is the strong set up of research and development in HTC.
The portfolio of HTC is quite wide it has made 42 smart phones product up till now.
The customer base of HTC is also very wide as it caters the customer national and international both and the
no. of customers also increasing as the time passes.
As its weakness, HTC is not a very much recognized brand in the market. Its competitors, which are Nokia,
Blackberry, Apple etc. are way much popular and have acquired a big share of market.
Another weakness is that, they got a very small range of cell phones models as compared to their competitor,
Nokia, which has got a huge variety of smart phones, from cheapest to most expensive one.
HTC is providing Touch Screen Cell Phones, which are very much in demand these days, most of the people,
who use expensive cell phones, goes for Touch Screen. On the other side, Since HTC collaborated with
Google and launched their cell phones with Google Android OS install in it, their market also got increased. It
is also said that, because of the name of Google, HTC got popularity. Google popularity plays a huge role in
the success of HTC.
3G technology has been launched all over the world, and is getting launched in other countries as well. Since
HTC cell phones have got 3G technology support, so it is an opportunity for HTC company that where ever the
3G technology launches, HTC’s cell phones demands would raise their.
The major threat to HTC, or any other Smartphone company, is a very much popular and highly in-demand
brand, Apple iPhone. It is a big hindrance in the demand of HTC cell phones.
Apart from that, the financial crunch could also be the threat for the company. That’s because HTC smart
phones are expensive and are not affordable for many of the smart phones users. On the other side Nokia’s
smart phones are way cheaper, and are providing the same characteristics, which a Smartphone should have.
So lot of people prefers Nokia on HTC.
Q. 5 What is retailing? Explain the functions and different types of retailing with its key features.
Retailing involves selling products and services to consumers for their personal or family use. Department
stores, like Burdines and Macy’s, discount stores like Wal-Mart and K-Mart, and specialty stores like The Gap,
Zales Jewelers and Toys ‘R’ Us, are all examples of retail stores. Service providers, like dentists, hotels and
hair salons, and on-line stores, like Amazon.com, are also retailers.
Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and consumers. In
this context, they perform various functions like sorting, breaking bulk, holding stock, as a channel of
communication, storage, advertising and certain additional services.
Manufacturers usually make one or a variety of products and would like to sell their entire inventory to a few
buyers to redu7ce costs. Final consumers, in contrast, prefer a large variety of goods and services to choose
from and usually buy them in small quantities. Retailers are able to balance the demands of both sides, by
collection an assortment of goods from different sources, buying them in sufficiently large quantities and
selling them to consumers in small units.
The above process is referred to as the sorting process. Through this process, retailers undertake activities and
perform functions that add to the value of the products and services sold to the consumer. Supermarkets in the
US offer, on and average, 15,000 different items from 500 companies. Customers are able to choose from a
wide range of designs, sizes and brands from just one location. If each manufacturer had a separate store for its
own products, customers would have to visit several stores to complete their shopping. While all retailers offer
an assortment, they specialize in types of assortment offered and the market to which the offering is made.
Westside provides clothing and accessories, while a chain like Nilgiris specializes in food and bakery items.
Shoppers’ Stop targets the elite urban class, while Pantaloons is targeted at the middle class.
Breaking bulk is another function performed by retailing. The word retailing is derived from the French word
retailer, meaning ‘to cut a piece off’. To reduce transportation costs, manufacturers and wholesalers typically
ship large cartons of the product, which are then tailored by the retailers into smaller quantities to meet
individual consumption needs.
Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an inventory that
allows for instant availability of the product to the consumers. It helps to keep prices stable and enables the
manufacturer to regulate production. Consumers can keep a small stock of products at home as they know that
this can be replenished by the retailer and can save on inventory carrying costs.
Retailers ease the change in ownership of merchandise by providing services that make it convenient to buy
and use products. Providing product guarantees, after-sales service and dealing with consumer complaints are
some of the services that add value to the actual product at the retailers’ end. Retailers also offer credit and
hire-purchase facilities to the customers to enable them to buy a product now and pay for it later. Retailers fill
orders, promptly process, deliver and install products. Salespeople are also employed by retailers to answer
queries and provide additional information about the displayed products. The display itself allows the
consumer to see and test products before actual purchase. Retail essentially completes transactions with
Channel of Communication
Retailers also act as the channel of communication and information between the wholesalers or suppliers and
the consumers. From advertisements, salespeople and display, shoppers learn about the characteristics and
features of a product or services offered. Manufacturers, in their turn, learn of sales forecasts, delivery delays,
and customer complaints. The manufacturer can then modify defective or unsatisfactory merchandise and
Transport and Advertising Functions
Small manufacturers can use retailers to provide assistance with transport, storage, advertising and pre-
payment of merchandise. This also works the other way round in case the number of retailers is small. The
number of functions performed by a particular retailer has a direct relation to the percentage and volume of
sales needed to cover both their costs and profits.
Q. 6 a. What is CRM? What are its objectives? (2 marks)
b. Write a short note on Brand development. (8 marks)
Ans. CRM stands for Customer Relationship Management. It is a process or methodology used to learn
more about customers’ needs and behaviors in order to develop stronger relationships with them. There are
many technological components to CRM, but thinking about CRM in primarily technological terms is a
mistake. The more useful way to think about CRM is as a process that will help bring together lots of pieces of
information about customers, sales, marketing effectiveness, responsiveness and market trends.
CRM helps businesses use technology and human resources to gain insight into the behavior of customers and
the value of those customers.
Objectives of CRM
CRM, the technology, along with human resources of the company, enables the company to analyze the
behavior of customers and their value. The main areas of focus are as the name
suggests: customer , relationship , and the management of relationship and the main objectives to implement
CRM in the business strategy are:
To simplify marketing and sales process
To make call centers more efficient
To provide better customer service
To discover new customers and increase customer revenue
To cross sell products more effectively
The CRM processes should fully support the basic steps of customer life cycle . The basic steps are:
Attracting present and new customers
Acquiring new customers
Serving the customers
Finally, retaining the customers
A plan to improve the performance of a particular product or service. For example, as part of brand
development a firm may initiate a new advertising campaign that includes free samples.
Q1. How hardware & software support in various MIS activities of the organization? Explain the
transaction stages from manual system to automated systems?
Ans. Generally hardware in the form of personal computers and peripherals like printers, fax, machines,
copier, scanners etc are used in organization to support various MIS activities of the organization. Computers
are widely used to support in MIS activities. Some of the types commonly used in business are desktop
computer, notebook computer, PDA etc.
Advantage of PC in Organization for MIS activities
Speed: A PC can process data at a very high speed. It can process millions of instructions within fractions of
Storage: A PC can store large amount of data in a small space. Information can easily transform from one
place to another place.
Communication: PC with internet is used as a powerful tool of communication for every business activity.
Accuracy: A PC is highly reliable in the sense that it could be used to perform calculations continuously for
hours with a great degree of accuracy.
Conferencing: A PC with internet offers facility of video conferencing worldwide. Business people across the
globe travel a lot to meet their business partner, colleague and customer etc to discuss about business activities.
Software support in MIS activities
MS-Windows: Windows is an operating system. It supports various applications like MS-Office, Lotus Smart
Suite, Outlook etc.
MS-Excel: It is used to make charts, graphs, pivot tables and MIS reports etc.
MS-WORD: It is used for letter drafting.
MS-Power Point: Power point is used for presentation
Q2. Explain the various behavioral factors of management organization? As per Porter, how can
performance of individual corporations be determined?
Ans. The value of Information is not present day discovery. We have always observed that the Information is
the asset of any organization. The existence of information is since the Big bang happened and then on it went
on. But the value of information is being used only after the industrial revolution. Before, it was only in the
record which we are using now in an efficient way. The first information was binary. Information is generated
by interactions; information is
by interaction, as without comparison, without a context, without interaction, there is nothing.
Traditional information systems are said to contain data, which is then processed. The processed data is called
information. The processing of data takes place by selecting the required fact and organizing it in a way to
form meaningful information which is used for some organizational needs.
In Manual systems, a series of action takes which may be similar as well as different to
processing in traditional systems. For instance, in hospital information systems the patient details
can be viewed by the administrator as well as patient. But the views perceived by these are
different. One may view it as a record to take print and other may be the source of his ailment
description. What is common to the two systems is the idea of transformation. Transformation
occurs when systems participants are faced with cues from their environment, which may be data
or situations, and the participants then define and redefine what to do next, either processing data
or developing a situation, altering the system each time to transform it to a state closer to the
participants goal or objective. When a fact from either type of system is presented for
manipulation, a transformation can occur. Thus, transformation is common to both types of
A transformation had to necessarily go through the following stages ±
a) appraisal of the procedures b) types of documents c) storage systems d) formulations and coding e)
verification and validation f) review g) documentation
After the industrial revolution slowly manual systems were transformed into digital form by
means of computer and related instrument
Q2. Explain the various behavioral factors of management organization? As per Porter, how can
performance of individual corporations be determined?
The implementation of computer based information systems in general and MSS in particular is affected by the
way people perceive these systems and by how they behave in accepting them. User resistance is a major
behavioral factor associated with the adoption of new systems. The following are compiled by Jiang et al.
(2000); reasons that employees resist new systems:
· Change in job content
· Loss of status
· Change in interpersonal relationships
· Loss of power, Change in decision making approach
· Uncertainty or unfamiliarity or misinformation
· Job security
The major behavioral factors are
a) Decision styles symbolic processing of AI is heuristic; DSS and ANN are analytic
b) Need for explanation ES provides explanation, ANN does not, DSS may provide partial explanation.
Explanation can reduce resistance to change
c) Organizational climate ± some organizations lead and support innovations and new
technologies whereas others wait and lag behind in making changes
d) Organizational expectations ± over expectation can result in disappointments and termination
of innovation. Over expectation was observed in most early intelligent systems.
e) Resistance to change can be strong in MSS because the impacts may be significant.
Out of many possible interpretations of a strategy an organization adopts in business, it is found
that a majority is concerned with competition between corporations. Competition means
cultivating unique strengths and capabilities, and defending them against imitation by other
firms. Another alternative sees competition as a process linked to innovation in product, market,
or technology. Strategic information systems theory is concerned with the use of information
technology to support or sharpen an enterprises competitive strategy. Competitive strategy is an
enterprises plan for achieving sustainable competitive advantage over, or reducing the edge of,
its adversaries. The performance of individual corporations is determined by the extent to which
they manage the following (as given by Porter)
a) the bargaining power of suppliers b) the bargaining power of buyer c) the threat of new entrants;
d) the threat of substitute products; and e) Rivalry among existing firms.
Porters Forces Driving Industry Competition (Porter 1980)
There are two basic factors which may be considered to be adopted by organization in their
a) low cost
b) product differentiation
Enterprise can succeed relative to their competitors if they possess sustainable competitive advantage in either
of these two. Another important consideration in positioning isµ competitive scope, or the breadth of the
enterprises target markets within its industry, i.e. the range of product varieties it offers, the distribution
channels it employs, the types of buyers it serves, the geographic areas in which it sells, and the array of
related industries in which it competes. Under Porters framework, enterprises have four generic strategies
available to them whereby
they can attain above-average performance.
a) cost leadership b) differentiation c) cost focus d) focused differentiation.
Q 3. Compare various types of development aspect of Information System? Explain the various stages of
Development of Information Systems
a) Development and Implementation of the MIS
Once the plan for MIS is made, the development of the MIS, calls for determining the strategy of
development. As discussed earlier, the plan consists of various systems and subsystems. The
development strategy determines where to begin and in what sequence the development can take
place with the sole objective of assuring the information support.
The choice of the system or the sub-system depends on its position in the total MIS plan, the size of the
system, the users understanding of the systems and the complexity and its interface with other systems. The
designer first develops systems independently and starts integrating them with other systems, enlarging the
system scope and meeting the varying information needs.
Determining the position of the system in the MIS is easy. The real problem is the degree of
structure, and formalisation in the system and procedures which determine the timing and
duration of development of the system. Higher the degree of structured-ness and formalisation,
greater is the stabilization of the rules, the procedures, decision-making and the understanding of
the overall business activity. Here, it is observed that the users and the designers interaction is
smooth, and their needs are clearly understood and respected mutually. The development
becomes a method of approach with certainty in input process and outputs.
b) Prototype Approach
When the system is complex, the development strategy is Prototyping of the System. Prototyping is a process
of progressively ascertaining the information needs, developing methodology, trying it out on a smaller scale
with respect to the data and the complexity, ensuring that it satisfies the needs of the users, and assess the
problems of development and implementation.
This process, therefore, identifies the problem areas, inadequacies in the prototype vis-à-vis
fulfillment of the information needs. The designer then takes steps to remove the inadequacies.
This may call upon changing the prototype of the system, questioning the information needs,
streamlining the operational systems and procedures and move user interaction.
In the prototyping approach, the designers task becomes difficult, when there are multiple users of the same
system and the inputs they use are used by some other users as well. For example, a lot of input data comes
from the purchase department, which is used in accounts and inventory management.
The attitudes of various users and their role as the originators of the data need to be developed
with a high degree of positivism. It requires, of all personnel, to appreciate that the information is
a corporate resource, and all have to contribute as per the designated role by the designer to fulfil
the corporate information needs. When it comes to information the functional, the departmental,
the personal boundaries do not exist. This call upon each individual to comply with the design
needs and provide without fail the necessary data inputs whenever required as per the
specification discussed and finalised by the designer.
Bringing the multiple users on the same platform and changing their attitudes toward informa-
tion, as a corporate resource, is the managerial task of the system designer. The qualification,
experience, knowledge, of the state of art, and an understanding of the corporate business, helps
considerably, in overcoming the problem of changing the attitudes of the multiple users and the
originators of the data.
Stages of SDLC
System development cycle stages are sometimes known as system study. System concepts which are important
in developing business information systems expedite problem solving and improve the quality of decision-
making. The system analyst has to do a lot in this connection. They are confronted with the challenging task of
creating new systems an planning major changes in the organization. The system analyst gives a system
development project, meaning and direction.
The typical breakdown of an information systems life cycle includes a feasibility study,
requirements, collection and analysis, design, prototyping, implementation, validation, testing
and operation. It may be represented in the form of a block diagram as shown below:
a)Feasibility study: It is concerned with determining the cost effectiveness of various alternatives in the
designs of the information system and the priorities among the various system components.
b) Requirements, collection and analysis: It is concerned with understanding the mission of the information
systems, that is, the application areas of the system within the enterprise and the problems that the system
c) Design: It is concerned with the specification of the information systems structure. There are two types of
design: database design and application design. The database design is the design of the database design and
the application design is the design of the application programs.
d) Prototyping: A prototype is a simplified implementation that is produced in order to verify in practice that
the previous phases of the design were well conducted.
e) Implementation : It is concerned with the programming of the final operational version of the information
system. Implementation alternatives are carefully verifies and compared.
f) Validation and testing: It is the process of assuring that each phase of the development process is of
acceptable quality and is an accurate transformation from the previous phase.
Q4. Compare & Contrast E-enterprise business model with traditional business organization
model? Explain how in E-enterprise manager role & responsibilities are changed? Explain how
manager is a knowledge worker in E-enterprise?
Managing the E-enterprise
Due to Internet capabilities and web technology, traditional business organisation definition has
undergone a change where scope of the enterprise now includes other company locations,
business partners, customers and vendors. It has no geographic boundaries as it can extend its
operations where Internet works. All this is possible due to Internet and web moving traditional
paper driven organisation to information driven Internet enabled E-business enterprise. E-
business enterprise is open twenty-four hours, and being independent, managers, vendors,
customers transact business anytime from anywhere.
Internet capabilities have given E-business enterprise a cutting edge capability advantage to
increase the business value. It has opened new channels of business as buying and selling can be
done on Internet. It enables to reach new markets across the world anywhere due to
communication capabilities. It has empowered customers and vendors / suppliers through
secured access to information to act, wherever necessary. The cost of business operations has
come down significantly due to the elimination of paper-driven processes, faster communication
and effective collaborative working. The effect of these radical changes is the reduction in
administrative and management overheads, reduction in inventory, faster delivery of goods and
services to the customers.
In E-business enterprise traditional people organisation based on µCommand Control¶ principle
is absent. It is replaced by people organisations that are empowered by information and
knowledge to perform their role. They are supported by information systems, application
packages, and decision-support systems. It is no longer functional, product, and project or matrix organisation
of people but E-organisation where people work in network environment as a team or work group in virtual
E-business enterprise is more process-driven, technology-enabled and uses its own information and knowledge
to perform. It is lean in number, flat in structure, broad in scope and a learning organisation. In E-business
enterprise, most of the things are electronic, use digital technologies and work on databases, knowledge bases,
directories and document repositories. The business processes are conducted through enterprise software like
ERP, SCM, and CRM supported by data warehouse, decision support, and knowledge management systems.
Today most of the business organisations are using Internet technology, network, and wireless
technology for improving the business performance measured in terms of cost, efficiency,
competitiveness and profitability. They are using E-business, E-commerce solutions to reach
faraway locations to deliver product and services. The enterprise solutions like ERP, SCM, and
CRM run on Internet (Internet / Extranet) & Wide Area Network (WAN). The business
processes across the organisation and outside run on
E-technology platform using digital technology. Hence today¶s business firm is also called E-
enterprise or Digital firm.
The paradigm shift to E-enterprise has brought four transformations, namely:
a) Domestic business to global business. b) Industrial manufacturing economy to knowledge-based service
economy. c) Enterprise Resource Management to Enterprise Network Management d)· Manual document
driven business process to paperless, automated, electronically transacted business process.
These transformations have made conventional organisation design obsolete. The basis of
conventional organisation design is command & control which is nowcol l aborat es& cont rol .
This change has affected the organisation structure, scope of operations, reporting mechanisms,
work practices, workflows, and business processes at large.
In E-enterprise, business is conducted electronically. Buyers and sellers through Internet drive
the market and Internet-based web systems. Buying and selling is possible on Internet. Books,
CDs, computer, white goods and many such goods are bought and sold on Internet. The new
channel of business is well-known as E-commerce. On the same lines, banking, insurance,
healthcare are being managed through Internet E-banking,
E-billing, E-audit, & use of Credit cards, Smart card, ATM, E-money are the examples of the E-
The digital firm, which uses Internet and web technology and uses E-business and E-commerce solutions, is a
reality and is going to increase in number.
MIS for E-business is different compared to conventional MIS design of an organisation. The
role of MIS in E-business organization is to deal with changes in global market and enterprises.
MIS produces more knowledge-based products. Knowledge management system is formally
recognized as a part of MIS. It is effectively used for strategic planning for survival and growth,
increase in profit and productivity and so on.
To achieve the said benefits of E-business organisation, it is necessary to redesign the organisa- tion to realize
the benefits of digital firm. The organisation structure should be lean and flat. Get rid of rigid established
infrastructure such as branch office or zonal office. Allow people to work from anywhere. Automate processes
after re-engineering the process to cut down process cycle time. Make use of groupware technology on Internet
platform for faster response processing.
Another challenge is to convert domestic process design to work for international process, where
integration of multinational information systems using different communication standards,
country-specific accounting practices, and laws of security are to be adhered strictly.
Internet and networking technology has thrown another challenge to enlarge the scope of
organisation where customers and vendors become part of the organisation. This technology
offers a solution to communicate, co-ordinate, and collaborate with customers, vendors and
business partners. This is just not a technical change in business operations but a cultural change
in the mindset of managers and workers to look beyond the conventional organisation. It means
changing the organisation behaviour to take competitive advantage of the E-business technology.
The last but not the least important is the challenge to organise and implement information
architecture and information technology platforms, considering multiple locations and multiple
information needs arising due to global operations of the business into a comprehensive MIS.
Q5. What do you understand by service level Agreements (SLAs)? Why are they needed? What is the
role of CIO in drafting these? Explain the various security hazards faced by an IS?
Ans. A service level agreement (frequently abbreviated as SLA) is a part of a service contractw here the level
of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery
time (of the service) or performance. As an example, internet service providers will commonly include service
level agreements within the terms of their contracts with customers to define the level(s) of service being sold
in plain language terms (typically the (SLA) will in this case have a technical definition in terms ofM TTF,M
TT R, various data rates, etc.)
A service level agreement (SLA) is a negotiated agreement between two parties where one is the customer and
the other is the service provider. This can be a legally binding formal or informal “contract” (see internal
department relationships).Contracts between the service provider and other third parties are often (incorrectly)
called SLAs as the level of service has been set by the (principal) customer, there can be no “agreement”
between third parties (these agreements are simply a “contract”). Operating LevelAgreements or OLA(s),
however, may be used by internal groups to support SLA(s).
Role of CIO in drafting SLAS
One of the major responsibilities of the CIO is to establish the credibility of the systems organization. The
systems department should not only focus on providing better service to the various lines of business but also
help businesses operate better. If the CIO wants to be taken seriously, he needs to do what other executives do
and have his own business metrics and performance measurements, so that he can effectively measure his
performance. Other business departments have them, but CIOs generally do not because IT has always been
viewed as a cost center. Measurements in IT tend to be vague and lacking in context. For example, ‘I had 14
projects last year, and I did them well.’ But there is no real business measurement there. How many projects
should the manager have had? Did he really have the capacity to handle 14 projects? ACIO should explore
running their area more like a service operation rather than a cost center, and develop metrics that track the
performance of the information systems staff, as well as the equipment comprising the applications,
infrastructure, and networks under the CIO’s control. The first step, they say, is to implement service level
agreements (SLAs) with business units. It sets the expectation on the technical areas of theCIO’s operations.At
a minimum, they should set up what is expected and what levels of service the equipment will provide. The
underlying SLAs should be some sort of a chargeback system with business units, particularly when it comes
to apportioning staff time. If information systems are now providing a service, the staff needs to understand
where the service is being used to be properly remunerated or to demonstrate where the value is. The second
part of the IT operations equation is computer equipment, and CIOs must have a firm
handle on how that equipment is being used. There are softwares to help with the people picture, and there are
other products that can monitor hardware performance, such as network and server uptime. One of the major
roles of the CIO is to make the organization information systems savvy and increase the technological maturity
of the information systems organization.A major part of the CIO’s job is to make the users aware of the
opportunities arising as a result of technical innovations, how this can help them perform better, and
familiarizing them with computers and information systems applications. The information systems
management also has the job of helping the end users adapt to the changes caused by information systems, and
to encourage their use. Finally, CIOs need to institute life cycle management with their applications and
computer equipment. Most IT organizations do not have any idea of the life cycle of an application how
long they want it to last, and when it needs to be refurbished, replaced, or
disposed of. Lacking this knowledge, it is easy for applications to linger long after they should be gone, and for
companies to spend far too much money on maintaining ailing applications.
Security Hazards faced by an Information system:
Security of the information system can be broken because of the following reasons:
i)Malfunctions: In this type of security hazard, all the components of a system are involved. People, software
and hardware errors course the biggest problem. More dangerous are the problems which are created by human
beings due to the omission, neglect and incompetence.
ii) Fraud and unauthorized access: This hazard is due to dishonesty, cheating or deceit. This can be done
a) Infiltration and industrial espionage
b) Tapping data from communication lines
c) Unauthorized browsing through lines by online terminals, etc.
iii) Power and communication failure: In some locations they are the most frequent hazards than any other else
because availability of both of them depends upon the location. Sometimes communication channel are busy or
noisy. There are power cuts and sometimes high voltage serge destroys a sensitive component of the computer.
Q6. Case Study: Information system in a restaurant.
Ans. CASE SUMMARY
A waiter takes an order at a table, and then enters it online via one of the six terminals located in the restaurant
dining room. The order is routed to a printer in the appropriate preparation area: the cold item printer if it is a
salad, the hot-item printer if it is a hot sandwich or the bar printer if it is a drink. A customers meal check-
listing (bill) the items ordered and the respective prices are automatically generated. This ordering system
eliminates the old three-carbon-copy guest check system as well as any problems caused by a waiters
handwriting. When the kitchen runs out of a food item, the cooks send out an out of stock message, which
will be displayed on the dining room terminals when waiters try to order that item. This gives the waiters faster
feedback, enabling them to give better service to the customers. Other system features aid management in the
planning and control of their restaurant business. The system provides up-to-the-minute information on the
food items ordered and breaks out percentages showing sales of each item versus total sales. This helps
management plan menus according to customers tastes. The system also compares the weekly sales totals
versus food costs, allowing planning for tighter cost controls. In addition, whenever an order is voided, the
reasons for the void are keyed in. This may help later in management decisions, especially if the voids
consistently related to food or service. Acceptance of the system by the users is exceptionally high since the
waiters and waitresses were involved in the selection and design process. All potential users were asked to give
their impressions and ideas about the various systems available before one was chosen
Q1. What are the essential characteristics of Operation Research? Mention different phases in an
Operation Research study. Point out some limitations of O.R?
Ans. Characteristics of
Operations research, an interdisciplinary division of mathematics and science, uses statistics, algorithms and
mathematical modeling techniques to solve complex problems for the best possible solutions. This science is
basically concerned with optimizing maxima and minima of the objective functions involved. Examples of
maxima could be profit, performance and yield. Minima could be loss and risk. The management of various
companies has benefited immensely from operations research.
Operations research is also known as OR. It has basic characteristics such as systems orientation, using
interdisciplinary groups, applying scientific methodology, providing quantitative answers, revelation of newer
problems and the consideration of human factors in relation to the state under which research is being
o This approach recognizes the fact that the behavior of any part of the system has an effect on the system as
a whole. This stresses the idea that the interaction between parts of the system is what determines the
functioning of the system. No single part of the system can have a bearing effect on the whole. OR attempts
appraise the effect the changes of any single part would have on the performance of the system as a whole. It
then searches for the causes of the problem that has arisen either in one part of the system or in the interrelation
o The team performing the operational research is drawn from different disciplines. The disciplines could
include mathematics, psychology, statistics, physics, economics and engineering. The knowledge of all the
people involved aids the research and preparation of the scientific model.
Application of Scientific Methodology
o OR extensively uses scientific means and methods to solve problems. Most OR studies cannot be
conducted in laboratories, and the findings cannot be applied to natural environments. Therefore, scientific and
mathematical models are used for studies. Simulation of these models is carried out, and the findings are then
studied with respect to the real environment.
New Problems Revealed
o Finding a solution to a problem in OR uncovers additional problems. To obtain maximum benefits from
the study, ongoing and continuous research is necessary. New problems must be pursued immediately to be
resolved. A company looking to reduce costs in manufacturing might discover in the process that it needs to
buy one more component to manufacture the end product. Such a scenario would result in unexpected costs
and budget overruns. Ensuring flexibility for such contingencies is a key characteristic of OR.
Provides Quantitative Answers
o The solutions found by using operations research are always quantitative. OR considers two or more
options and emphasizes the best one. The company must decide which option is the best alternative for it.
o In other forms of quantitative research, human factors are not considered, but in OR, human factors are a
prime consideration. People involved in the process may become sick, which would affect the company’s
PHASES OPERATIONS RESEARCH
· Formulate the problem: This is the most important process, it is generally lengthy and time consuming.
The activities that constitute this step are visits, observations, research, etc. With the help of such activities, the
O.R. scientist gets sufficient information and support to proceed and is better prepared to formulate the
problem. This process starts with understanding of the organizational climate, its objectives and expectations.
Further, the alternative courses of action are discovered in this step.
Develop a model: Once a problem is formulated, the next step is to express the problem into a
mathematical model that represents systems, processes or environment in the form of equations,
relationships or formulas. We have to identify both the static and dynamic structural elements, and
device mathematical formulas to represent the interrelationships among elements. The proposed model
may be field tested and modified in order to work under stated environmental constraints. A model may
also be modified if the management is not satisfied with the answer that it gives.
Select appropriate data input: Garbage in and garbage out is a famous saying. No model will work
appropriately if data input is not appropriate. The purpose of this step is to have sufficient input to
operate and test the model.
Solution of the model: After selecting the appropriate data input, the next step is to find a solution. If
the model is not behaving properly, then updating and modification is considered at this stage.
Validation of the model: A model is said to be valid if it can provide a reliable prediction of the
system’s performance. A model must be applicable for a longer time and can be updated from time to
time taking into consideration the past, present and future aspects of the problem.
Implement the solution: The implementation of the solution involves so many behavioural issues and
the implementing authority is responsible for resolving these issues. The gap between one who provides
a solution and one who wishes to use it should be eliminated. To achieve this, O.R. scientist as well as
management should play a positive role. A properly implemented solution obtained through O.R.
techniques results in improved working and wins the management support.
Dependence on an Electronic Computer: O.R. techniques try to find out an optimal solution taking
into account all the factors. In the modern society, these factors are enormous and expressing them in
quantity and establishing relationships among these require voluminous calculations that can only be
handled by computers.
Non-Quantifiable Factors: O.R. techniques provide a solution only when all the elements related to a
problem can be quantified. All relevant variables do not lend themselves to quantification. Factors that
cannot be quantified find no place in O.R. models.
Distance between Manager and Operations Researcher: O.R. being specialist’s job requires a
mathematician or a statistician, who might not be aware of the business problems. Similarly, a manager
fails to understand the complex working of O.R. Thus, there is a gap between the two.
Money and Time Costs: When the basic data are subjected to frequent changes, incorporating them
into the O.R. models is a costly affair. Moreover, a fairly good solution at present may be more
desirable than a perfect O.R. solution available after sometime.
Implementation: Implementation of decisions is a delicate task. It must take into account the
complexities of human relations and behaviour.
Q2. What are the common methods to obtain an initial basic feasible solution for a transportation
problem whose cost and requirement table is given? Give a stepwise procedure for one of them?
Transportation Problem & its basic assumption
This model studies the minimization of the cost of transporting a commodity from a number
of sources to several destinations. The supply at each source and the demand at each
destination are known. The transportation problem involves m sources, each of which has
i (i = 1, 2, …..,m) units of homogeneous product and
n destinations, each of which requires
bj (j = 1, 2…., n) units of products. Here a
i and bj are positive
integers. The cost cij of transporting one unit of the product from the
ith source to the
jth destination is given for each
i and j
. The objective is to develop an integral transportation schedule that meets all demands
from the inventory at a minimum total transportation cost.It is assumed that the total supply
and the total demand are equal.i.e.