The document provides an overview of key concepts in hotel administration and management. It covers 5 units: management principles and theories; human resources; financial accounting; sales and marketing; and entrepreneurship. Some of the main topics discussed include the roles and functions of managers, human resources planning, accounting fundamentals, the marketing mix, and types of entrepreneurship. The goal is to provide postgraduates with a comprehensive foundation in managing hotel operations.

1. HOTEL
ADMINISTRATION
FOR
POST GRADUATE DIPLOMA IN
HOTEL MANAGEMENT
COMPILED
BY
SANGESH

2. SYLABUS
Unit I:
Management - Definition - General Manager Duties and Responsibilities -
Difference Between Administration and Management - Planning - organization -
Direction - Co-ordination - Motivation (Maslow Theory) - Communication.
Unit II:
Human Resource Department - Role and Function of HRD- Human Resources
Planning - Job Analysis (Specification & Description) - Recruitment, Selection
and Training - Wages and Salary administration.
Unit III:
Financial & Management Accounting - Basic Accounting concept. Financial
statement, Fund flow analysis - Cash flow Analysis (Basic concept, Advantage,
Disadvantage) Budgetary Control -Meaning - Classification -( simple problem in
cash budget & flexible Budget - Cost - Costing - Cost accounting - Classification
- Cost Sheet.
Unit IV:
Sales & Marketing - Concept of Marketing - Marketing Mix - Product - Product
Planning & Development - Product Life Cycle - Pricing - Types of Pricing -
Factors affecting Pricing- channel of distribution & Types - advantage and
Disadvantage - Promotion - Objectives Of Promotion activity - Marketing
Strategy.
Unit V:
Entrepreneurship - Types - Classification - Entrepreneurship Development -
Project Report - Institutional Finance to Entrepreneurs (ICICI, IDBI, IFCI, UTI,
NARBAD etc.)

3. Unit - I
Management in all business and human organization activity is the act of getting people together to
accomplish desired goals and objectives.
Management comprises planning, organizing, staffing, leading or directing, and controlling an
organization (a group of one or more people or entities) or effort for the purpose of
accomplishing a goal. Resourcing encompasses the deployment and manipulation of human
resources, financial resources, technological resources, and natural resources.
Management can also refer to the person or people who perform the act(s) of management.
Management (Traditional Interpretation)
There are a variety of views about this term. Traditionally, the term "management" refers to the
activities (and often the group of people) involved in the four general functions listed below.
(Note that the four functions recur throughout the organization and are highly integrated):
1) Planning:
including identifying goals, objectives, methods,
resources needed to carry out methods,
responsibilities and dates for completion of tasks.
Examples of planning are strategic planning,
business planning, project planning, staffing
planning, advertising and promotions planning.
2) Organizing resources
to achieve the goals in an optimum fashion.
Examples are organizing new departments, human
resources, office and file systems, re-organizing
businesses, etc.
3) Leading,
including to set direction for the organization, groups and individuals and also influence people
to follow that direction. Examples are establishing strategic direction (vision, values, mission and
/ or goals) and championing methods of organizational performance management to pursue that
direction.
4) Controlling, or coordinating,
the organization's systems, processes and structures to reach effectively and efficiently reach
goals and objectives. This includes ongoing collection of feedback, and monitoring and
adjustment of systems, processes and structures accordingly. Examples include use of financial
controls, policies and procedures, performance management processes, measures to avoid risks
etc.

4. Another common view is that "management" is getting things done through others. Yet another
view, quite apart from the traditional view, asserts that the job of management is to support
employee's efforts to be fully productive members of the organizations and citizens of the
community.
To most employees, the term "management" probably means the group of people (executives and
other managers) who are primarily responsible for making decisions in the organization. In a
nonprofit, the term "management" might refer to all or any of the activities of the board,
executive director and/or program directors.
Management Quotations
Management is efficiency in climbing the ladder of success; leadership determines whether the
ladder is leaning against the right wall.
Stephen Covey
When a management with a reputation for brilliance tackles a business with a reputation for bad
economics, it is the reputation of the business that remains intact.
Warren Buffett
Management is doing things right; leadership is doing the right things.
Peter Drucker
Most of what we call management consists of making it difficult for people to get their work
done.
Peter Drucker
Management by objective works - if you know the objectives. Ninety percent of the time you
don't.
Peter Drucker
The most efficient way to produce anything is to bring together under one management as many as
possible of the activities needed to turn out the product.
Peter Drucker
So much of what we call management consists in making it difficult for people to work.
Peter Drucker
Definition of “Management”
• “A set of management functions directed at the efficient and effective utilization of
resources in the pursuit of organization goals.” - By Griffin.
• “Management is the process of designing and maintaining an environment in which
individuals working together in groups, efficiently accomplish selected aims.”- By
Koontz and Weihrich.

5. 1. Skills needed for managers:
Technical skill
It refers to the ability to the tools, equipment procedure and techniques.
Effective supervision and co-ordination of the work a group members or subordinates.
Human skill
1. It refers to the ability of the manager to work effectively as group members and to build
co-operative effort in team leaders.
2. Needed to understand people.
Conceptual skill
1. It is also called as design and problem
2. To see the organization and the various component of it as whole
3. To understand how its various parts and functions mesh together.
2. Management level and functions.
1. Top-level management
2. Middle level management
3. Lower level management
Top level management functions
1. To formulate goals and policies
2. To formulate budgets
3. To appoint top executives
Middle level management functions.
1. To train motives &develop supervisory level
2. To monitor and control the operations performance
Low level management
1. To train &develop workers
2. To assign job
3. To give orders and instructions
4. To report the information about the workers

6. Functions of Management:
1.Planning in organizations and public policy is both the organizational process of creating and
maintaining a plan; and the psychological process of thinking about the activities required to
create a desired goal on some scale. As such, it is a fundamental property of intelligent behavior.
This thought process is essential to the creation and refinement of a plan, or integration of it with
other plans, that is, it combines forecasting of developments with the preparation of scenarios of
how to react to them.
The term is also used to describe the formal procedures used in such an endeavor, such as the
creation of documents diagrams, or meetings to discuss the important issues to be addressed, the
objectives to be met, and the strategy to be followed. Beyond this, planning has a different
meaning depending on the political or economic context in which it is used.
Two attitudes to planning need to be held in tension: on the one hand we need to be prepared for
what may lie ahead, which may mean contingencies and flexible processes. On the other hand,
our future is shaped by consequences of our own planning and actions.
Planning is a process for accomplishing purpose. It is blue print of business growth and a road map
of development. It helps in deciding objectives both in quantitative and qualitative terms. It is
setting of goals on the basis of objectives and keeping in view the resources.
What should a plan be?
A plan should be a realistic view of the expectations. Depending upon the activities, a plan can be
long range, intermediate range or short range. It is the framework within which it must
operate. For management seeking external support, the plan is the most important document and
key to growth. Preparation of a comprehensive plan will not guarantee success, but lack of a sound
plan will almost certainly ensure failure.

7. Purpose of Plan
Just as no two organizations are alike, so also their plans. It is therefore important to prepare a plan
keeping in view the necessities of the enterprise. A plan is an important aspect of business. It serves
the following three critical functions:
• Helps management to clarify, focus, and research their business's or project's
development and prospects.
• Provides a considered and logical framework within which a business can develop and
pursue business strategies over the next three to five years.
• Offers a benchmark against which actual performance can be measured and reviewed.
Importance of the planning Process
A plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities.
Preparing a satisfactory plan of the organization is essential. The planning process enables
management to understand more clearly what they want to achieve, and how and when they can
do it.
A well-prepared business plan demonstrates that the managers know the business and that they
have thought through its development in terms of products, management, finances, and most
importantly, markets and competition.
Planning helps in forecasting the future, makes the future visible to some extent. It bridges
between where we are and where we want to go. Planning is looking ahead.
Essentials of planning
Planning is not done off hand. It is prepared after careful and extensive research. For a
comprehensive business plan, management has to
1. Clearly define the target / goal in writing.
1. It should be set by a person having authority.
2. The goal should be realistic.
3. It should be specific.

8. 4. Acceptability
5. Easily measurable
2. Identify all the main issues which need to be addressed.
3. Review past performance.
4. Decide budgetary requirement.
5. Focus on matters of strategic importance.
6. What are requirements and how will they be met?
7. What will be the likely length of the plan and its structure?
8. Identify shortcomings in the concept and gaps.
9. Strategies for implementation.
10. Review periodically.
2. Organizing (also spelled organising) is the act of rearranging elements following one or more
rules.
Anything is commonly considered organized when it looks like everything has a correct order or
placement. But it's only ultimately organized if any element has no difference on time taken to find
it. In that sense, organizing can also be defined as to place different objects in logical
arrangement for better searching.
Organizations are groups of people frequently trying to organize some specific subject, such as
political issues. So, even while organizing can be viewed as a simple definition, it can get as
complex as organizing the world's information.
Nature of organization
The following are the important characteristics of organisation.
Division of work or specialization
The entire philosophy of organisation depends on the concept of specialization. In specialization,
various activities are assigned to different people who are specialists in that area. Specialization
improves efficiency. Thus, organisation helps in division of work and assigning duties to
different people.

9. Orientation towards goals
Every organisation has its own purposes and objectives. Organizing is the function employed to
achieve the overall goals of the organisation. Organisation harmonies the individual goals of the
employees with overall objectives of the firm.
Composition of individuals and groups
Individuals form a group and the groups form an organisation. Thus, organisation is the
composition of individual and groups. Individuals are grouped into departments and their work is
coordinated and directed towards organizational goals.
Differentiated functions
The organisation divides the entire work and assigns the tasks to individual in-order to achieve the
organizational objectives each one has to perform a different task and tasks of one
individuals must be coordinated with the tasks of others.
Continues process
An organization is a group of people with defined relationship to each other that allows them to
work together achieve the goals of the organisation. This relationship do not come to end after
completing a task. Organisation is a never ending process.
Purpose or importance of organization
Helps to achieve organizational goal
Organization is employed to achieve the overall objectives of business firms. Organization
focuses attention of individual’s objectives towards overall objectives.
Optimum use of resources
To make optimum use of resources such as men, material, money, machine and method, it is
necessary to design an organization properly. Work should be divided and right people should be
given right jobs to reduce the wastage of resources in an organization.
To perform managerial function
Planning, Organizing, Staffing, Directing and Controlling cannot be implemented without proper
organization.

10. Facilitates growth and diversification
A good organization structure is essential for expanding business activity. Organization structure
determines the input resources needed for expansion of a business activity similarly organization is
essential for product diversification such as establishing a new product line.
Human treatment of employees
Organization has to operate for the betterment of employees an must not encourage monotony of
work due to higher degree of specialization. Now, organization has adapted the modern concept of
systems approach based on human relations and it discards the traditional productivity and
specialization approach.
Applications
Organizing, in company’s point of view, is the management function that usually follows after
planning. And it involves the assignment of tasks, the grouping of tasks into departments and the
assignment of authority and allocation of resources across the organization.
Structure
The framework in which the organization defines how tasks are divided, resources are deployed,
and departments are coordinated.
1. A set of formal tasks assigned to individuals and departments.
2. Formal reporting relationships, including lines of authority, decision responsibility,
number of hierarchical levels and span of managers control.
3. The design of systems to ensure effective coordination of employees across departments.
Work specialization
Work specialization (also called division of labour) is the degree to which organizational tasks are
sub-divided into individual jobs. With too much specialization, employees are isolated and do
only a single, tiny, boring job. Many organizations enlarge jobs or rotate assigned tasks to provide
greater challenges.
Chain of command
The chain of command is the unbroken line of authority that links all individuals in an
organization, and specifies who reports to whom.
•
o Unity of Command - one employee is held accountable to only one supervisor o
Scalar principle - clearly defined line of authority in the organization that
includes all employees

11. Authority, responsibility, and accountability
• Authority is a manager's formal and legitimate right to make decisions, issue orders, and
allocate resources to achieve organizationally desired outcomes.
• Responsibility means an employee's duty to perform assigned task or activities.
• Accountability means that those with authority and responsibility must report and justify
task outcomes to those above them in the chain of command.
Delegation
Delegation is the process managers use to transfer authority and responsibility to positions below
them. Organizations today tend to encourage delegation from highest to lowest possible levels.
Delegation can improve flexibility to meet customers’ needs and adaptation to competitive
environments. Managers often find delegation difficult
Types of authority (and responsibility)
Line authority managers have the formal power to direct and control immediate subordinates. The
superior issues orders and is responsible for the result—the subordinate obeys and is
responsible only for executing the order according to instructions.
Functional authority is where managers have formal power over a specific subset of activities. For
instance, the Production Manager may have the line authority to decide whether and when a new
machine is needed but the Controller demands that a Capital Expenditure Proposal is
submitted first, showing that the investment will have a yield of at least x%; or, a legal
department may have functional authority to interfere in any activity that could have legal
consequences. This authority would not be functional but it would rather be staff authority if such
interference is "advice" rather than "order".
Staff authority is granted to staff specialists in their areas of expertise. It is not a real authority
in the sense that a staff manager does not order or instruct but simply advises, recommends, and
counsels in the staff specialists' area of expertise and is responsible only for the quality of the
advice (to be in line with the respective professional standards etc) It is a communication
relationship with management. It has an influence that derives indirectly from line authority at a
higher level.
Span of management
Factors influencing larger span of management.
1. Work performed by subordinates is stable and routine.
2. Subordinates perform similar work tasks.
3. Subordinates are concentrated in a single location.
4. Subordinates are highly trained and need little direction in performing tasks.
5. Rules and procedures defining task activities are available.
6. Support systems and personnel are available for the managers.
7. Little time is required in non-supervisory activities such as coordination with other
departments or planning.
8. Managers' personal preferences and styles favour a large span.

12. Tall versus flat structure
• Tall - A management structure characterized by an overall narrow span of management
and a relatively large number of hierarchical levels. Tight control.
• Flat - A management structure characterized by a wide span of control and relatively few
hierarchical levels. Loose control. Facilitates delegation.
Centralization, decentralization, and formalization
• Centralization - The location of decision making authority near top organizational
levels.
• Decentralization - The location of decision making authority near lower organizational
levels.
• Formalization - The written documentation used to direct and control employees.
Departmentalization
The basis on which individuals are grouped into departments and departments into total
organizations.
Approach options include;
1. Functional - by common skills and work tasks
2. Divisional - common product, program or geographical location
3. Matrix - combination of Functional and Divisional
4. Team - to accomplish specific tasks
5. Network - departments are independent providing functions for a central core breaker
Importance of organizing
• Organizations are often troubled by how to organize, particularly when a new strategy is
developed
• Changing market conditions or new technology requires change
• Organizations seek efficiencies through improvements in organizing.
3. DIRECTING is said to be a process in which the managers instruct, guide and oversee the
performance of the workers to achieve predetermined goals. Directing is said to be the heart of
management process. Planning, organizing, staffing has got no importance if direction function
does not take place.
Directing initiates action and it is from here actual work starts. Direction is said to be consisting
of human factors. In simple words, it can be described as providing guidance to workers is doing
work. In field of management, direction is said to be all those activities which are designed to

13. encourage the subordinates to work effectively and efficiently. According to Human, “Directing
consists of process or technique by which instruction can be issued and operations can be carried out
as originally planned” Therefore, Directing is the function of guiding, inspiring, overseeing and
instructing people towards accomplishment of organizational goals.
Direction has got following characteristics:
1. Pervasive Function - Directing is required at all levels of organization. Every manager
provides guidance and inspiration to his subordinates.
2. Continuous Activity - Direction is a continuous activity as it continuous throughout the
life of organization.
3. Human Factor - Directing function is related to subordinates and therefore it is related to
human factor. Since human factor is complex and behaviour is unpredictable, direction
function becomes important.
4. Creative Activity - Direction function helps in converting plans into performance.
Without this function, people become inactive and physical resources are meaningless. 5.
Executive Function - Direction function is carried out by all managers and executives at
all levels throughout the working of an enterprise, a subordinate receives instructions
from his superior only.
6. Delegate Function - Direction is supposed to be a function dealing with human beings.
Human behavior is unpredictable by nature and conditioning the people’s behavior
towards the goals of the enterprise is what the executive does in this function. Therefore, it
is termed as having delicacy in it to tackle human behavior.
Importance of Directing Function
Directing or Direction function is said to be the heart of management of process and therefore, is
the central point around which accomplishment of goals take place. A few philosophers call
Direction as “Life spark of an enterprise”. It is also called as on actuating function of
management because it is through direction that the operation of an enterprise actually starts.
Being the central character of enterprise, it provides many benefits to a concern which are as
follows:-

14. 1. It Initiates Actions - Directions is the function which is the starting point of the work
performance of subordinates. It is from this function the action takes place, subordinates
understand their jobs and do according to the instructions laid. Whatever are plans laid,
can be implemented only once the actual work starts. It is there that direction becomes
beneficial.
2. It Ingrates Efforts - Through direction, the superiors are able to guide, inspire and
instruct the subordinates to work. For this, efforts of every individual towards
accomplishment of goals are required. It is through direction the efforts of every
department can be related and integrated with others. This can be done through
persuasive leadership and effective communication. Integration of efforts bring
effectiveness and stability in a concern.
3. Means of Motivation - Direction function helps in achievement of goals. A manager
makes use of the element of motivation here to improve the performances of
subordinates. This can be done by providing incentives or compensation, whether
monetary or non - monetary, which serves as a “Morale booster” to the subordinates
Motivation is also helpful for the subordinates to give the best of their abilities which
ultimately helps in growth.
4. It Provides Stability - Stability and balance in concern becomes very important for long
term sun survival in the market. This can be brought upon by the managers with the help
of four tools or elements of direction function - judicious blend of persuasive leadership,
effective communication, strict supervision and efficient motivation. Stability is very
important since that is an index of growth of an enterprise. Therefore a manager can use
of all the four traits in him so that performance standards can be maintained.
5. Coping up with the changes - It is a human behavior that human beings show resistance
to change. Adaptability with changing environment helps in sustaining planned growth
and becoming a market leader. It is directing function which is of use to meet with
changes in environment, both internal as external. Effective communication helps in
coping up with the changes. It is the role of manager here to communicate the nature and
contents of changes very clearly to the subordinates. This helps in clarifications, easy
adoptions and smooth running of an enterprise. For example, if a concern shifts from
handlooms to power looms, an important change in technique of production takes place.
The resulting factors are less of manpower and more of machinery. This can be resisted

15. by the subordinates. The manager here can explain that the change was in the benefit of
the subordinates. Through more mechanization, production increases and thereby the
profits. Indirectly, the subordinates are benefited out of that in form of higher
remuneration.
6. Efficient Utilization of Resources - Direction finance helps in clarifying the role of
every subordinate towards his work. The resources can be utilized properly only when
less of wastages, duplication of efforts, overlapping of performances, etc. doesn’t take
place. Through direction, the role of subordinates become clear as manager makes use of
his supervisory, the guidance, the instructions and motivation skill to inspire the
subordinates. This helps in maximum possible utilization of resources of men, machine,
materials and money which helps in reducing costs and increasing profits.
From the above discussion, one can justify that direction, surely, is the heart of management
process. Heart plays an important role in a human body as it serves the function pumping blood
to all parts of body which makes the parts function. In the similar manner, direction helps the
subordinates to perform in best of their abilities and that too in a healthy environment. The
manager makes use of the four elements of direction here so that work can be accomplished in a
proper and right manner. According to Earnest Dale, “Directing is what has to be done and in
what manner through dictating the procedures and policies for accomplishing performance
standards”. Therefore, it is rightly said that direction is essence of management process.
General Manager
General Manager (sometimes abbreviated GM) is a descriptive term for certain executives in a
business operation. It is also a formal title held by some business executives, most commonly in the
hospitality industry.
In hotels, the General Manager is the executive manager responsible for the overall operation of a
hotel establishment. The General Manager holds ultimate authority over the hotel operation and
usually reports directly to a corporate office or hotel owner.

16. Common duties of a General Manager include hiring and management of a management team,
overall management of hotel staff, budgeting and financial management, creating and enforcing
business objectives and goals, managing projects and renovations, management of emergencies and
other major issues involving guests, employees, or the facility, public relations with the media,
local governments, and other businesses, and many additional duties.
The extent of duties of a hotel General Manager vary significantly depending on the size of the hotel
and company; for example, General Managers of smaller hotels may have additional duties such as
accounting, human resources, payroll, purchasing, and other duties that would usually be handled by
other managers or departments in a larger hotel.
A hotel General manager is responsible for the day-to-day management of a hotel and its staff and
has commercial accountability for planning, organising and directing all hotel services, including
front-of-house (reception, concierge, and reservations), food and beverage operations and
housekeeping. In larger hotels, managers often have a specific remit (guest services,
accounting, and marketing) and make up a general management team.
While taking a strategic overview and planning ahead to maximize profits, the manager must
also pay attention to the details, setting the example for staff to deliver a standard of service and
presentation that meets guests' needs and expectations. Business and people management are
equally important elements.
Typical work activities
Typical work activities vary depending on the size and type of hotel, but may include:
• Planning and organising accommodation, catering and other hotel services;
• Promoting and marketing the business;
• Managing budgets and financial plans and controlling expenditure;
• Maintaining statistical and financial records;
• Setting and achieving sales and profit targets;
• Recruiting, training and monitoring staff;
• Planning work schedules for individuals and teams;
• Meeting and greeting customers;
• Dealing with customer complaints and comments;

17. • Addressing problems and troubleshooting;
• Ensuring events and conferences run smoothly;
• Supervising maintenance, supplies, renovations and furnishings;
• Dealing with contractors and suppliers;
• Ensuring security is effective;
• Carrying out inspections of property and services;
• Ensuring compliance with licensing laws, health and safety and other statutory
regulations.
The manager of a large hotel may have less contact with guests but will spend time meeting
heads of department to coordinate and monitor the progress of business strategies. In a smaller
establishment, the manager is much more involved in the hands-on day-to-day running of the
hotel, which may include carrying out reception duties or serving meals if the need arises.
A significant number of hotel managers are self-employed which often results in a broader set of
regular responsibilities, from greeting guests to managing finances.
Difference between Administration /Management
Administration can be defined as the universal process of efficiently organizing people and
resources so to direct activities toward common goals and objectives. Administration is
both an art and a science (if an inexact one), and arguably a craft, as administrators are
judged ultimately by their performance. Administration must incorporate both leadership
and vision.
Management is viewed as a subset of administration, specifically associated with the technical
and mundane elements within an organization's operation. It stands distinct from executive
or strategic work.
Management is closer to the employees. Administration is over the management and more over
the money of the organization and licensing of an organization.
Management manages employees. Administration manages the outside contacts and the facility
as a whole. As a manger, you can also be administrator but as an administrator, you may
not be a manager.

18. Administration is the paper work. Management is how you deal with the people or people
management.
There are many factors according to which administration can be distinguished from
management. These are as follows:
Nature of work
Administration: It is concerned about the determination of objectives and major policies of an
organization.
Management: It puts into action the policies and plans laid down by the administration.
Type of function
Administration: It is a determinative function.
Management: It is an executive function.
Scope
Administration: It takes major decisions of an enterprise as a whole.
Management: It takes decisions within the framework set by the administration.
Level of authority
Administration: It is a top-level activity.
Management: It is a middle level activity.
Nature of status
Administration: It consists of owners who invest capital in and receive profits from an
enterprise.
Management: It is a group of managerial personnel who use their specialized knowledge to
fulfill the objectives of an enterprise.
Nature of usage
Administration: It is popular with government, military, educational, and religious
organizations.
Management: It is used in business enterprises.

19. Decision making
Administration: Its decisions are influenced by public opinion, government policies, social, and
religious factors.
Management: Its decisions are influenced by the values, opinions, and beliefs of the managers.
Main functions
Administration: Planning and organizing functions are involved in it.
Management: Motivating and controlling functions are involved in it.
Abilities
Administration: It needs administrative rather than technical abilities.
Management: It requires technical activities
Management handles the employers.

20. Motivation
INTRODUCTION
MOTIVATION IS THE MOST IMPORTANT CONCEPT IN UNDERSTANDING THE
BEHAVIOUR OF THE INDIVIDUAL.
EVERY ORGANISATION HAS PEOPLE WITH OUTSTANDING ABLITIES WHO
PERFORM BETTER THAN THE OTHERS.
WE TRY TO ANSWER THE QUESTION BY UNDERSTANDING THE MEANING OF
MOTIVATION.
MEANING:
THE TERM MOTIVATION WAS GENERATED FROM THE LATIN WORD ‘MOVERE’
WHICH MEANS “TO MOVE”.
DEFINITION:
MOTIVATION REFERS TO THE WAY IN WHICH URGES (A strong restless desire),
DRIVES, DESIRES, ASPIRATIONS (A cherished desire) NEEDS DIRECT, CONTROL OR
EXPLAIN THE BEHAVIOUR OF HUMAN BEINGS. BY DALTON.
MOTIVATION IS THE WILLINGNESS TO EXERT HIGH LEVELS OF EFFORT
TOWARDS ORGANISATIONAL GOALS, CONDITIONED BY THE EFFORTS ABLITY TO
SATISFY SOME INDIVIDUAL NEED. BY STEPHEN P.ROBBINS.
THE DEFINITION OF MOTIVATION INCLUDES THE FOLLOWING:
THE FACTORS TO INFLUENCE HUMAN BEHAVIOUR ARE PSYCHOLOGICAL,
SOCIOLOGICAL, ECONOMIC AND MANAGERIAL.
THE EFFICIENCY OF SUCH BEHAVIOUR - THIS MAY BE TESTED BY THE
RESULTANT ACTION. WHETHER THIS BEHAVIOUR HAS DIRECTED, CONTROLLED OR
IMPLEMENTED THE DESIRED ACTION.
MOTIVATION PROCESS:
UNSATISIFED TENSION  DRIVES  SEARCH BEHAVIOUR 
SATISIFACTION OF NEED  REDUCTION OF TENSION.

21. THEORIES OF MOTIVATION
CONTENT THEORIES
• MASLOW’S HIERARCHY OF NEEDS.
• THEORY ‘X’ & ‘Y’.
• CLAYTON ALDERFER’S “E R G” THEORY.
PROCESS THEORIES:
• VROOM’S EXPECTANCY MODEL.
• PORTER-LAWER’S MODEL.
• ADAM’S EQUITY THEORY.
CLAYTON ALDERFER’S “E R G” THEORY
ALDERFER IDENTIFIED AND RE WORKED THREE GROUPS ARE CORE NEEDS:
• EXISTENCE NEEDS  E
• RELATEDNESS NEEDS  R
• GROWTH NEEDS  G
E  PHYSIOLOGICAL &SAFETY NEEDS.
R  INTERPERSONAL & SOCIAL NEEDS.
G  HIGHER LEVEL NEEDS IS NOT SATISFIED, THE DESIRE TO SATISFY A
LOWER-LEVEL NEEDS INCREASES.

25. VROOM’S EXPECTANCY MODEL
• VICTUR VROOM (1964) PRESENTED THIS THEORY AS AN ALTERNATIVE
TO CONTENT THEORIES.
• THIS MODEL HAS BEEN EXPANDED AND REDEFINED BY PORTER AND
LAWLER (1968).
• VROOM’S MODEL IS BUILT AROUND CONCEPTS OF VALENCE AND
EXPECTANCY AND IS COMMONLY CALLED AS “VIES “THEORY.
• MOTVATION FORCE IS A PRODUCT OF VALENCE AND EXPECTANCY.
 MOTIVATION FORCE= VALENCE x EXPECTANCY.
• [STRENGTH OF DRIVE TOWARDS ACTION]
• [STRENGTH OF ONE’S DESIRE FOR SOMETHING]
• [PROBABLITY OF GETTING IT WITH A CERTAIN ACTION]
PORTER-LAWLER MODEL
THERE ARE VARIOUS ELEMENTS IN THIS MODEL ARE:
EFFORT-THE AMOUNT OF EFFORT THAT EMPLOYEE WILL PUT.
PERFORMANCE - ABLITY.
REWARDS - LEVEL OF PERFORMANCE.
SATISFACTION - REWARD & PERFORMANCE.
IMPORTANCE OF PORTER-LAWLER MODEL:
MATCHES THE ABLITIES OF THE INDIVIDUAL TO THE REQUIREMENT OF THE
JOB.
EXPLAIN THE ROLES OF THE EMPLOYEES.
EXPLAIN THE EXPECTED LEVEL OF PERFORMANCE TO THE EMPLOYEE.
MAKES SURE THAT THE REWARDS ARE THE VALUED BY THE EMPLOYEE.

26. Communication
Communication is a process of transferring information from one entity to another.
Communication processes are sign-mediated interactions between at least two agents which
share a repertoire of signs and semiotic rules. Communication is commonly defined as "the
imparting or interchange of thoughts, opinions, or information by speech, writing, or signs".
Although there is such a thing as one-way communication, communication can be perceived
better as a two-way process in which there is an exchange and progression of thoughts,
feelings or ideas (energy) towards a mutually accepted goal or direction (information).
Communication is a process whereby information is enclosed in a package and is channeled
and imparted by a sender to a receiver via some medium. The receiver then decodes the
message and gives the sender a feedback. All forms of communication require a sender, a
message, and a receiver. Communication requires that all parties have an area of
communicative commonality. There are auditory means, such as speech, song, and tone of
voice, and there are nonverbal means, such as body language, sign language, paralanguage,
touch, eye contact, and writing.
Process of Communication:

27. Types of Communication
Communication can occur via various processes and methods and depending on the channel used
and the style of communication there can be various types of communication.
Types of Communication Based on Communication Channels
Based on the channels used for communicating, the process of communication can be broadly
classified as verbal communication and non-verbal communication. Verbal communication
includes written and oral communication whereas the non-verbal communication includes body
language, facial expressions and visuals diagrams or pictures used for communication.
• Verbal Communication
Verbal communication is further divided into written and oral communication. The oral
communication refers to the spoken words in the communication process. Oral
communication can either be face-to-face communication or a conversation over the
phone or on the voice chat over the Internet. Spoken conversations or dialogs are
influenced by voice modulation, pitch, volume and even the speed and clarity of
speaking. The other type of verbal communication is written communication. Written
communication can be either via snail mail, or email. The effectiveness of written
communication depends on the style of writing, vocabulary used, grammar, clarity and
precision of language.
• Nonverbal Communication
Non-verbal communication includes the overall body language of the person who is
speaking, which will include the body posture, the hand gestures, and overall body
movements. The facial expressions also play a major role while communication since the
expressions on a person’s face say a lot about his/her mood. On the other hand gestures like
a handshake, a smile or a hug can independently convey emotions. Non verbal
communication can also be in the form of pictorial representations, signboards, or even
photographs, sketches and paintings.

28. Types of Communication Based on Style and Purpose
Based on the style of communication, there can be two broad categories of communication,
which are formal and informal communication that have their own set of characteristic features.
• Formal Communication: Formal communication includes all the instances where
communication has to occur in a set formal format. Typically this can include all sorts of
business communication or corporate communication. The style of communication in this
form is very formal and official. Official conferences, meetings and written memos and
corporate letters are used for communication. Formal communication can also occur
between two strangers when they meet for the first time. Hence formal communication is
straightforward, official and always precise and has a stringent and rigid tone to it.
• Informal Communication: Informal communication includes instances of free
unrestrained communication between people who share a casual rapport with each other.
Informal communication requires two people to have a similar wavelength and hence
occurs between friends and family. Informal communication does not have any rigid
rules and guidelines. Informal conversations need not necessarily have boundaries of
time, place or even subjects for that matter since we all know that friendly chats with our
loved ones can simply go on and on.
Other Methods of Communication
In addition to manual language, people with hearing problems can use several other
communication strategies. The amount of hearing loss and the age at which it occurs, often
influences which strategies are most appropriate.
For infants and young children with severe-to-profound hearing loss, the choice of
communication strategy taught during key “windows of opportunity” early in life may influence the
skill sets that can be mastered later in life.

29. Auditory / oral - The auditory-oral method teaches children to: Use the child's hearing through
amplification and to employ auditory and lip reading training. To talk, use their hearing as much as
they can, read lips. Use other clues to understand what people are saying. It excludes teaching
manual language (sign language). The goal is to “mainstream” children with hearing problems to
live independently in the hearing world.
Auditory / verbal - The auditory-verbal (AV) method teaches children to:
Use whatever hearing they have (residual hearing) to listen. Lip reading is discouraged. The
belief is that by listening to other people, children can learn to speak better by listening to other
people. Children practice with therapist and use hearing aids, cochlear implants or other devices.
Cued Speech - A visual system to make speech (lip) reading easier. Eight handshapes (cues) in four
positions represent different sounds of speech that look the same on lips (such as "p" and "b"). Often
used to help children learn speech reading or for those who may not fully understand speech with
the use of hearing aids.
Finger spelling - A method in which hand positions represent each letter of the alphabet. Words
are spelled out one letter at a time. In some countries, like the United States, the finger spelling
alphabet is represented with one hand; in other countries, such as Australia, finger spelling uses
two hands.
Signed Exact English (SEE) - A technique developed in 1972 in which manual gestures (signs)
create an exact word-for-word representation of spoken English. One of the most common uses of
SEE has been the translation of classic children’s books. A combination of SEE and ASL (American
Sign Language) is called Pidgin Signed English (or PSE).
Speech Reading (Lip Reading) - A “listener” watches a speaker's lip movements, facial
expressions, and body language to determine what they are saying. This technique can be useful
for Deaf people and for those who may not fully understand speech with the use of hearing aids.
Total Communication - A technique that uses all means of communication for teaching
children with severe-to-profound hearing loss. In a classroom, this usually means a teacher using
signed and spoken languages at the same time. This is also called signed supported English or
signed supported speech. Some feel this method broadens communication and learning skills.

30. UNIT II
Human resources: Human resources are a term used to refer to how people are managed by
organizations. The field has moved from a traditionally administrative function to a strategic
one that recognizes the link between talented and engaged people and organizational
success.
The field draws upon concepts developed in Industrial/Organizational Psychology and System
Theory. Human resources have at least two related interpretations depending on context. The
original usage derives from political economy and economics, where it was traditionally
called labor, one of four factors of production although this perspective is changing as a
function of new and ongoing research into more strategic approaches at national levels.
This first usage is used more in terms of 'human resources development', and can go beyond just
organizations to the level of nations.
The more traditional usage within corporations and businesses refers to the individuals within a
firm or agency, and to the portion of the organization that deals with hiring, firing, training,
and other personnel issues, typically referred to as 'human resources management'.
Key functions of Human Resource Management:
1. Recruitment and Selection
2. Redundancy
3. Industrial and Employee Relations
4. Record keeping of all personal data
5. Total Rewards: Employee benefits and compensation
6. Confidential advice to internal 'customers' in relation to problems at work
7. Career development
8. Competency Mapping (Competency mapping is a process an individual uses to identify
and describe competencies that are the most critical to success in a work situation or
work role.)
9. Time motion study is related to HR Function
10. Performance Appraisal.

31. Role of Human Resource Department
Human Resources are exactly it says: resources for humans - within the workplace! Its main
objective is to meet the organizational needs of the company it represents and the needs of the
people hired by that company. In short, it is the hub of the organization serving as a liaison
between all concerned.
1. Organizational Development: To ensure its success, a company must establish a
hierarchal reporting system. The funnel of responsibility is critical to the efficiency of a
smoothly operating business entity in which there is a clearly defined understanding of
who is responsible for what.
They provide consultation to a company's management team to identify what the company's core
business and culture is about, and proceeds to plan and map the company's organizational
infrastructure to support those needs.
2. Employee Recruitment and Selection Process: There are many steps to recruiting and
selecting qualified employees. First, a department head must inform the HR manager of
an opening in their department.
Then the HR manager must obtain the job description to formulate a Job Description Sheet for
publication either internally, publicly, or both. Then HR must field the (many) responses to that job
announcement to weed out the qualified from the unqualified applicants.
Once that is completed, the interview process must be coordinated. They prepare the job
description, contact the newspaper, run the ad, field the calls, compile a list of potential
candidates, submit that list to the department's hiring manager for approval and selection, contact the
chosen candidates to set up preliminary interviews, and interview the candidates!
Although most interviews are with the hiring manager or their associates, not all applicants get to
meet with the department's hiring manager right away. It is not uncommon for a company to
filter out those who fail to impress the HR manager first. For those select few who make it
through, the HR manager schedules interviews between the department's hiring manager and
potential candidates, and follows up with the hiring process to establish the new hire with the
company.

32. 3. Employee Training & Development: As a company and the requirements of a position
evolve, a company needs to take certain measures to ensure a highly skilled workforce is in
place.
The Human Resources Department oversees the skills development of company's workforce,
acting as an in-house training center to coordinate training programs either on-site, off-site, or in
the field. This might include on-going company training, outside training seminars, or even
college, in which case an employee will receive tuition reimbursement upon earning a passing
grade.
4. Employee Compensation Benefits: This covers salaries, bonuses, vacation pay, sick leave
pay, Workers' Compensation, and insurance policies such as medical, dental, life, and 401k.
The Human Resources Department is responsible for developing and administering a benefits
compensation system that serves as an incentive to ensure the recruitment and retainment of top
talent that will stay on with the company.
When an employee is hired, the company's Benefits Coordinator is required to meet with
employees one-on-one or in small group settings to explain their benefits package. This often
requires an employee to make an informed decision and to provide their signature for processing
purposes
5. Employee Relations: With the increased rise in unethical practices and misbehaviors taking
place in today's workplace such as age, gender, race, and religion discrimination and sexual
harassment, there needs to be mandatory compliance with governing rules and regulations to
ensure fair treatment of employees. In short, employees need to know they have a place to turn
when a supervisor abuses his or her authority in anyway.
Whether corporate or union, the HR Department will get involved to act as arbitrator and liaison
between legal entities, regulatory agencies such as Human Rights, supervisors (who might be
falsely accused), and employees to properly address and resolve the issue at hand.

33. 6. Policy Formulation:
Regardless of the organization's size, company policies and procedures must be established to
ensure order in the workplace. These policies and procedures are put in place to provide each
employee with an understanding of what is expected of them.
Similarly, these policies and procedural guidelines will assist hiring managers in evaluating their
employee's performance. These policies can be established company-wide or used to define each
department's function. It is Human Resource's responsibility to collaborate with department
managers on the formulation of these policies and regulations to ensure a cohesive organization. A
common practice is the development and implementation of an Employee Procedure Manual or
Employee Handbook that is either distributed to each employee at the time of hire or a master copy
allocated one to a department.
7.The Human Resources Information Systems:
keeps track of the vast amount of data, a human resources department must have a good HRIS in
place to automate many functions such as planning and tracking costs, monitoring and evaluating
productivity levels, and the storing and processing of employee records such as payroll, benefits, and
personnel files.
It is very important that you, the job seeker, understand how the HR function works -
specifically in the area of candidate recruitment.
If you are considering a career in human resources, you can choose to become a Generalist or a
Specialist. Whether a job seeker or a HR professional, research a company well before applying for
a position.

34. Human Resource planning
Human Resource Planning: an Introduction was written to draw these issues to the attention of HR
or line managers. We address such questions as:
What is human resource planning?
How do organisations undertake this sort of exercise?
What specific uses does it have?
In dealing with the last point we need to be able to say to hard pressed managers: why spend
time on this activity rather than the other issues bulging your in tray? The report tries to meet this
need by illustrating how human resource planning techniques can be applied to four key
problems. It then concludes by considering the circumstances are which human Resourcing can
be used.
1. Determining the numbers to be employed at a new location
If organisations overdo the size of their workforce it will carry surplus or underutilized staff.
Alternatively, if the opposite misjudgment is made, staff may be overstretched, making it hard or
impossible to meet production or service deadlines at the quality level expected. So the questions
we ask are:
• How can output be improved your through understanding the interrelation between
productivity, work organisation and technological development? What does this mean for
staff numbers?
• What techniques can be used to establish workforce requirements?
• Have more flexible work arrangements been considered?
• How are the staffs you need to be acquired?
The principles can be applied to any exercise to define workforce requirements, whether it be a
business start-up, a relocation, or the opening of new factory or office.

35. 2. Retaining your highly skilled staff
Issues about retention may not have been to the fore in recent years, but all it needs is for
organisations to lose key staff to realize that an understanding of the pattern of resignation is
needed. Thus organisations should:
 Monitor the extent of resignation 
Discover the reasons for it
 Establish what it is costing the organisation
 Compare loss rates with other similar organisations.
Without this understanding, management may be unaware of how many good quality staff are
being lost. This will cost the organisation directly through the bill for separation, recruitment and
induction, but also through a loss of long-term capability.
Having understood the nature and extent of resignation steps can be taken to rectify the situation.
These may be relatively cheap and simple solutions once the reasons for the departure of
employees have been identified. But it will depend on whether the problem is peculiar to your
own organisation, and whether it is concentrated in particular groups (eg by age, gender, grade or
skill).
3. Managing an effective downsizing programme
This is an all too common issue for managers. How is the workforce to be cut painlessly, while at the
same time protecting the long-term interests of the organisation? A question made all the harder by
the time pressures management is under, both because of business necessities and
employee anxieties. HRP helps by considering:
• the sort of workforce envisaged at the end of the exercise
• the pros and cons of the different routes to get there
• how the nature and extent of wastage will change during the run-down
• the utility of retraining, redeployment and transfers
• What the appropriate recruitment levels might be.

36. Such an analysis can be presented to senior managers so that the cost benefit of various methods of
reduction can be assessed, and the time taken to meet targets established.
If instead the CEO announces on day one that there will be no compulsory redundancies and
voluntary severance is open to all staff, the danger is that an unbalanced workforce will result,
reflecting the take-up of the severance offer. It is often difficult and expensive to replace lost
quality and experience.
4. Where will the next generation of managers come from?
Many senior managers are troubled by this issue. They have seen traditional career paths
disappear. They have had to bring in senior staff from elsewhere. But they recognise that while this
may have dealt with a short-term skills shortage, it has not solved the longer term question of
managerial supply: what sort, how many, and where will they come from? To address these
questions you need to understand:
• the present career system (including patterns of promotion and movement, of recruitment
and wastage)
• the characteristics of those who currently occupy senior positions
• the organization’s future supply of talent.
This then can be compared with future requirements, in number and type. These will of course be
affected by internal structural changes and external business or political changes. Comparing your
current supply to this revised demand will show surpluses and shortages which will allow you to take
corrective action such as:
• recruiting to meet a shortage of those with senior management potential
• allowing faster promotion to fill immediate gaps
• developing cross functional transfers for high fliers
• hiring on fixed-term contracts to meet short-term skills/experience deficits
• Reducing staff numbers to remove blockages or forthcoming surpluses.
Thus appropriate recruitment, deployment and severance policies can be pursued to meet
business needs. Otherwise processes are likely to be haphazard and inconsistent.

37. How can HRP be applied?
The report details the sort of approach companies might wish to take. Most organisations are
likely to want HRP systems:
• which are responsive to change
• where assumptions can easily be modified
• that recognize organizational fluidity around skills
• that allow flexibility in supply to be included
• that are simple to understand and use
• Which are not too time demanding.
To operate such systems organisations need:
• appropriate demand models
• good monitoring and corrective action processes
• comprehensive data about current employees and the external labor market
• an understanding how Resourcing works in the organisation.
If HRP techniques are ignored, decisions will still be taken, but without the benefit of
understanding their implications. Graduate recruitment numbers will be set in ignorance of
demand, or management succession problems will develop unnoticed. As George Bernard Shaw
said: ‘to be in hell is to drift; to be in heaven is to steer’. It is surely better if decision makers follow
this maxim in the way they make and execute Resourcing plans.
JOB ANALYSIS
JOB:
“Job is a ‘group of tasks to be performed everyday.”
JOB ANALYSIS
Definition 1: (Process of Collecting Information)
“Job Analysis is a process of studying and collecting information relating to operations and
responsibilities of a specific job. The immediate products of this analysis are ‘Job Description’ and
‘Job Specifications’.”

38. Definition 2: (Systematic Exploration of Activities)
“Job Analysis is a systematic exploration of activities within a job. It is a basic technical
procedure that is used to define duties and responsibilities and accountabilities of the job.”
Definition 3: (Identifying Job Requirements)
“Job is a collection of tasks that can be performed by a single employee to contribute to the
production of some product or service, provided by the organization. Each job has certain ability
requirements (as well as certain rewards) associated with it. Job Analysis is a process used to
identify these requirements.”
MEANING OF JOB ANALYSIS
Job Analysis is a process of collecting information about a job. The process of job analysis
results into two sets of data.
• Job Description
• Job Specification
As a result Job analysis involves the following steps in a logical order.
Steps of Job Analysis
1. Collecting and recording job information
2. Checking the job information for accuracy
3. Writing job description based on information collected to determine the skills, knowledge,
abilities and activities required
4. Updating and upgrading this information
PURPOSE OF JOB ANALYSIS: -
• Human Resource Planning (HRP): - The numbers and types of personnel are
determined by the jobs, which need to be staffed. Job related information in the form of Job
Analysis serves this purpose or use.
• Recruitment & Selection: - Recruitment precedes job analysis. It helps HR to locate
places to obtain employees. It also helps in better continuity and planning in staffing in the
organization. Also selecting a good candidate also requires detailed job information.
Because the objective of hiring is to match the right candidate for right job
• Training & Development: Training and development programs can be designed
depending upon job requirement and analysis. Selection of trainees is also facilitated by job
analysis.

39. • Job Evaluation: Job evaluation means determination of relative worth of each job for
the purpose of establishing wage and salary credentials. This is possible with the help of job
description and specifications; i.e. Job Analysis.
• Remuneration: Job analysis also helps in determining wage and salary for all jobs.
• Performance Appraisal: Performance appraisal, assessments, rewards, promotions, is
facilitated by job analysis by way of fixing standards of job performance.
• Personnel Information: Job analysis is vital for building personnel information
systems and processes for improving administrative efficiency and providing decision
support.
• Safety & Health: Job Analysis helps to uncover hazardous conditions and unhealthy
environmental factors so that corrective measures can be taken to minimize and avoid
possibility of human injury.
PROCESS OF JOB ANALYSIS
Process 1: Strategic Choices
Process 2: Collecting Information
Process 3: Processing Information
Process 4: Job Description
Process 5: Job Specification
Strategic Choices: -
Extent of involvement of employees: Extent of employee involvement is a debatable
point. Too much involvement may result in bias in favor of a job in terms of inflating duties and
responsibilities. Too less involvement leads to suspicion about the motives behind the job.
Besides it may also lead to inaccurate information. Hence extent of involvement depends on the
needs of the organization and employee.
Level of details of job analysis: The nature of jobs being analyzed determines the level of
details in job analysis. If the purpose were for training programs or assessing the worth of job,
levels of details required would be great. If the purpose is just clarification the details required
would be less.

40. Timing and frequency of Job Analysis: When do you do Job Analysis?
• Initial stage, for new organization
• New Job is created
• Changes in Job, Technology and Processes
• Deficiencies and Disparities in Job
• New compensation plan is introduced
• Updating and upgrading is required.
•
Past-oriented and future-oriented Job Analysis: For rapidly changing organization
more future oriented approach would be desired. For traditional organizations past oriented
analysis would be required. However more future oriented analysis may be derived based on past
data.
Sources of Job Data: For job analysis number of human and non-human sources is available
besides jobholder himself. Following can be sources of data available for job analysis.
Non-Human Sources Human Sources
Existing job descriptions and specifications
Job Analysis Job
Equipment maintenance records
Incumbents
Equipment design blueprints
Supervisors
Architectural blueprints of work area Job Experts
Films of employee working
Training manuals and materials
Magazines, newspapers, literatures
Collecting Information: -
Information collection is done on the basis of following 3 parameters
Types of Data for Job Analysis:
• Work Activities (Tasks details)
• Interface with other jobs and equipments (Procedures, Behaviors, Movements)
• Machines, Tools, Equipments and Work Aids (List, Materials, Products, Services)
• Job Context (Physical, Social, Organizational, Work schedule)
• Personal Requirement (Skills, Education, Training, Experience)

41. Methods of Data Collection:
• Observation
• Interview
• Questionnaires
• Checklists
• Technical Conference
• Diary Methods
Who to Collect Data?
• Trained Job Analysts
• Supervisors
• Job Incumbents
Processing Information: -
Once the job information is collected it needs to be processed, so that it would be useful in
various personnel functions. Specifically job related data would be useful to prepare job
description and specifications, which form the next two processes of job analysis.
METHODS OF DATA COLLECTION:
Observation: Job Analyst carefully observes the jobholder and records the information in
terms of what, how the job is done and how much time is taken. It is a simple and accurate
method, but is also time consuming and inapplicable to jobs involving mental activities and
unobservable job cycles. The analysts must be fully trained observers.
Interview: In this analyst interviews the jobholders, his supervisors to elicit information. It can be
Structured or Unstructured Interview. Again this is also a time consuming method in case of large
organizations. Plus there is also a problem of bias.
Questionnaires: A standard questionnaire is given to jobholder about his job, which can be
filled and given back to supervisors or job analysts. The questionnaire may contain job title,
jobholder’s name, managers name, reporting staff, description of job, list of main duties and
responsibilities etc. It is useful in large number of staffs and less time consuming. However the
accuracy of information leaves much to be desired.

42. Checklists: It is more similar to questionnaire but the response sheet contains fewer subjective
judgments and tends to be either yes or no variety. Preparation of checklist is a challenging job
itself.
Technical Conference: Here a conference of supervisors is used. The analysts initiate the
discussions providing job details. However this method lacks accuracy.
Diary Methods: In this method jobholder is required to note down their activities day by day in
their diary. If done faithfully this technique is accurate and eliminates errors caused by
memory lapses etc.
Quantitative Methods of Job Data Collection: -
Position Analysis Questionnaire (PAQ): -
PAQ is a highly specialized instrument for analyzing any job in terms of employee activities.
The PAQ contains 194 job elements on which job is created depending on the degree to which an
element is present. These elements are grouped together into 6 categories.
1. U - Usability / Use of Job
2. I - Importance of Job
3. T - Time
4. P - Possibility of Occurrence of Job
5. A - Applicability of Job
6. S - Specialty Tasks of Job
The primary advantage of PAQ is that it can be used to analyze almost every job. This analysis
provides a comparison of a specific job with other job classifications, particularly for selection and
remuneration purposes. However PAQ needs to be completed by trained job analysts only rather
than incumbents.
Management Position Description Questionnaire (MPDQ): -
Highly structured questionnaire, containing 208 elements relating to managerial responsibilities,
demand, restrictions and other position characteristics These 208 elements are grouped under 13
categories.
PAQ and MPDQ yield standardized information about the worker and the job.
Functional Job Analysis: -

43. It is a worker oriented job analytical approach, which attempts to describe the
whole person on the job.
BARRIERS OF JOB ANALYSIS
• Support from Top Management
• Single means and source, reliance on single method rather than combination
• No Training or Motivation to Jobholders
• Activities and Data may be Distorted
JOB DESCRIPTION
“Job Description implies objective listing of the job title, tasks, and responsibilities involved in a
job.”
Job description is a word picture in writing of the duties, responsibilities and organizational
relationships that constitutes a given job or position. It defines continuing work assignment and a
scope of responsibility that are sufficiently different from those of the other jobs to warrant a
specific title. Job description is a broad statement of purpose, scope, duties and responsibilities of
a particular job.
Contents of Job Description
1. Job Identification
2. Job Summary
3. Job Duties and Responsibilities
4. Supervision specification
5. Machines, tools and materials
6. Work conditions
7. Work hazards
8. Definition of unusual terms
Format of Job Description
• Job Title
• Region/Location
• Department

44. • Reporting to (Operational and Managerial)
• Objective
• Principal duties and responsibilities
Features of Good Job Description
1. Up to date
2. Proper Job Title
3. Comprehensive Job Summary
4. Clear duties and responsibilities
5. Easily understandable
6. State job requirements
7. Specify reporting relationships
8. Showcase degrees of difficulties
9. Indicates opportunities for career development
10. Offer bird’s-eye-view of primary responsibilities
JOB SPECIFICATIONS
“Job Specification involves listing of employee qualifications, skills and abilities required to meet
the job description. These specifications are needed to do job satisfactorily.”
In other words it is a statement of minimum and acceptable human qualities necessary to perform job
properly. Job specifications seeks to indicate what kind of persons may be expected to most closely
approximate the role requirements and thus it is basically concerned with matters of selection,
screening and placement and is intended to serve as a guide in hiring.
Contents of Job Specifications
1. Physical Characteristics
2. Psychological characteristics
3. Personal characteristics
4. Responsibilities
5. Demographic features.

45. RECRUITMENT & SELECTION
RECRUITMENT
Definition of Recruitment: Finding and Attracting Applications
“Recruitment is the Process of finding and attracting capable applicants for employment. The
Process begins when new recruits are sought and ends when their applications are submitted. The
result is a pool of application from which new employees are selected.”
MEANING OF RECRUITMENT:
Recruitment is understood as the process of searching for and obtaining applicants for jobs, from
among them the right people can be selected. Though theoretically recruitment process is said to end
with the receipt of applications, in practice the activity extends to the screening of
applications so as to eliminate those who are not qualified for the job.
PURPOSE AND IMPORTANCE OF RECRUITMENT: -
1. Determine the present and future requirements in conjunction with personnel planning
and job analysis activities
2. Increase the pool of job candidates at minimum cost
3. Help increase success rate of selection process by reducing number of under-qualified or
over-qualified applications.
4. Reduce the probability that job applicants once selected would leave shortly
5. Meet legal and social obligations
6. Identify and prepare potential job applicants
7. Evaluate effectiveness of various recruitment techniques and sources for job applicants.
8.
FACTORS GOVERNING RECRUITMENT
External Factors:
• Demand and Supply (Specific Skills)

46. • Unemployment Rate (Area-wise)
• Labor Market Conditions
• Political and Legal Environment (Reservations, Labor laws)
• Image
Internal Factors
• Recruitment Policy (Internal Hiring or External Hiring?)
• Human Resource Planning (Planning of resources required)
• Size of the Organization (Bigger the size lesser the recruitment problems)
• Cost
• Growth and Expansion Plans.
RECRUITMENT PROCESS
Recruitment Planning
• Number of contacts
• Types of contacts
Recruitment Strategy Development
• Make or Buy Employees
• Technological Sophistication
• Where to look
• How to look
Internal Recruitment (Source 1)
• Present employees
• Employee referrals
• Transfers & Promotions
• Former Employees
• Previous Applicants
• Evaluation of Internal Recruitment
External Recruitment (Source 2)
• Professionals or Trade Associations
• Advertisements

47. • Employment Exchanges
• Campus Recruitment
• Walk-ins Interviews
• Consultants
• Contractors
• Displaced Persons
• Radio & Television
• Acquisitions & Mergers
• Competitors
• Evaluation of External Recruitment
Searching
• Source activation
• Selling
• Screening of Applications
Evaluation and Cost Control
• Salary Cost
• Management & Professional Time spent
• Advertisement Cost
• Producing Supporting literature
• Recruitment Overheads and Expenses
• Cost of Overtime and Outsourcing
• Consultant’s fees
Evaluation of Recruitment Process
• Return rate of applications sent out
• Suitable Candidates for selection
• Retention and Performance of selected candidates
• Recruitment Cost
• Time lapsed data
• Image projection
INTERNAL RECRUITMENT
Advantages Disadvantages
1. Less Costly 1. Old concept of doing things

48. 2. Candidates already oriented towards 2. It abets raiding
organization 3. Candidates current work may be
3. Organizations have better knowledge affected
about internal candidates 4. Politics play greater roles
4. Employee morale and motivation is 5. Morale problem for those not
enhanced promoted.
EXTERNAL RECRUITMENT
Advantages Disadvantages
1. Benefits of new skills and talents 2. 1. Better morale and motivation
Benefits of new experiences associated with internal recruiting is
3. Compliance with reservation policy denied
becomes easy 2. It is costly method
4. Scope for resentment, jealousies, and 3. Chances of creeping in false positive
heartburn are avoided. and false negative errors
4. Adjustment of new employees takes
longer time.
SELECTION
MEANING OF SELECTION:
Selection is the process of picking up individuals (out of the pool of job applicants) with
requisite qualifications and competence to fill jobs in the organization. A formal definition of
Selection is as under
Definition of Selection: Process of differentiating
“Selection is the process of differentiating between applicants in order to identify and hire those
with a greater likelihood of success in a job.”
DIFFERENCE BETWEEN RECRUITMENT AND SELECTION:
Recruitment Selection
1. Recruitment refers to the process of 1. Selection is concerned with picking up
identifying and encouraging the right candidates from a pool of
prospective employees to apply for applicants.
jobs. 2. Selection on the other hand is negative

49. 2. Recruitment is said to be positive in its
in its application in as much as it seeks
approach as it seeks to attract as many
to eliminate as many unqualified
candidates as possible.
applicants as possible in order to
identify the right candidates.
PROCESS / STEPS IN SELECTION
1. Preliminary Interview: The purpose of preliminary interviews is basically to eliminate
unqualified applications based on information supplied in application forms. The basic
objective is to reject misfits. On the other hands preliminary interviews is often called a
courtesy interview and is a good public relations exercise.
2. Selection Tests: Jobseekers who past the preliminary interviews are called for tests.
There are various types of tests conducted depending upon the jobs and the company. These
tests can be Aptitude Tests, Personality Tests, and Ability Tests and are conducted to judge how
well an individual can perform tasks related to the job. Besides this there are some other tests
also like Interest Tests (activity preferences), Graphology Test (Handwriting), Medical Tests,
Psychometric Tests etc.
3. Employment Interview: The next step in selection is employment interview. Here
interview is a formal and in-depth conversation between applicant’s acceptability. It is
considered to be an excellent selection device. Interviews can be One-to-One, Panel
Interview, or Sequential Interviews. Besides there can be Structured and Unstructured
interviews, Behavioral Interviews, Stress Interviews.
4. Reference & Background Checks: Reference checks and background checks are
conducted to verify the information provided by the candidates. Reference checks can be
through formal letters, telephone conversations. However it is merely a formality and
selections decisions are seldom affected by it.
5. Selection Decision: After obtaining all the information, the most critical step is the
selection decision is to be made. The final decision has to be made out of applicants who
have passed preliminary interviews, tests, final interviews and reference checks. The views of
line managers are considered generally because it is the line manager who is responsible for the
performance of the new employee.
6. Physical Examination: After the selection decision is made, the candidate is required to
undergo a physical fitness test. A job offer is often contingent upon the candidate passing the
physical examination.

50. 7. Job Offer: The next step in selection process is job offer to those applicants who have
crossed all the previous hurdles. It is made by way of letter of appointment.
8. Contract of Employment: After the job offer is made and candidates accept the offer,
certain documents need to be executed by the employer and the candidate. Here is a need to
prepare a formal contract of employment, containing written contractual terms of
employment etc.
ESSENTIALS OF A GOOD SELECTION PRACTICE
1. Detailed job descriptions and job specifications prepared in advance and endorsed by
personnel and line management
2. Trained the selectors
3. Determine aids to be used for selection process
4. Check competence of recruitment consultants before retention
5. Involve line managers at all stages
6. Attempt to validate the procedure
7. Help the appointed candidate to succeed by training and management development
BARRIERS TO EFFECTIVE SELECTION: -
1. Perception: We all perceive the world differently. Our limited perceptual ability is
obviously a stumbling block to the objective and rational selection of people.
2. Fairness: Barriers of fairness includes discrimination against religion, region, race or
gender etc.
3. Validity: A test that has been validated can differentiate between the employees who can
perform well and those who will not. However it does not predict the job success accurately.
4. Reliability: A reliable test may fail to predict job performance with precision.
5. Pressure: Pressure brought on selectors by politicians, bureaucrats, relatives, friends and
peers to select particular candidate are also barriers to selection.
TRAINING & DEVELOPMENT
Definition of Training & Development: Improve performance

51. “Training & Development is any attempt to improve current or future employee performance by
increasing an employee’s ability to perform through learning, usually by changing the
employee’s attitude or increasing his or her skills and knowledge.”
MEANING OF TRAINING & DEVELOPMENT: -
The need for Training and Development is determined by the employee’s performance
deficiency, computed as follows.
Training & Development Need = Standard Performance - Actual Performance
We can make a distinction among Training, Development and Education.
Distinction between Training and Education
Training Education
Application oriented Theoretical Orientation
Job experience Classroom learning
Specific Task in mind Covers general concepts
Narrow Perspective Has Broad Perspective
Training is Job Specific Education is no bar
Training: Training refers to the process of imparting specific skills. An employee undergoing
training is presumed to have had some formal education. No training program is complete
without an element of education. Hence we can say that Training is offered to operatives.
Education: It is a theoretical learning in classrooms. The purpose of education is to teach
theoretical concepts and develop a sense of reasoning and judgment. That any training and
development program must contain an element of education is well understood by HR
Specialists. Any such program has university professors as resource persons to enlighten
participants about theoretical knowledge of the topics proposed to discuss. In fact organizations
depute or encourage employees to do courses on part time basis. CEOs are known to attend
refresher courses conducted by business schools. The education is more important for managers
and executives rather than low cadre workers. Anyways education is common to all employees,
their grades notwithstanding.

52. What are the Training Inputs?
• Skills
• Education
• Development
• Ethics
• Problem Solving Skills
• Decision Making
• Attitudinal Changes
Importance of Training & Development
• Helps remove performance deficiencies in employees
• Greater stability, flexibility and capacity for growth in an organization
• Accidents, scraps and damages to machinery can be avoided
• Serves as effective source of recruitment
• It is an investment in HR with a promise of better returns in future
• Reduces dissatisfaction, absenteeism, complaints and turnover of employees.
NEED OF TRAINING
Individual level
• Diagnosis of present problems and future challenges
• Improve individual performance or fix up performance deficiency
• Improve skills or knowledge or any other problem
• To anticipate future skill-needs and prepare employee to handle more challenging tasks
• To prepare for possible job transfers
Group level

53. • To face any change in organization strategy at group levels
• When new products and services are launched
• To avoid scraps and accident rates
Identification of Training Needs (Methods)
Individual Training Needs Identification
1. Performance Appraisals
2. Interviews
3. Questionnaires
4. Attitude Surveys
5. Training Progress Feedback
6. Work Sampling
7. Rating Scales.
Group Level Training Needs Identification
1. Organizational Goals and Objectives
2. Personnel / Skills Inventories
3. Organizational Climate Indices
4. Efficiency Indices
5. Exit Interviews
6. MBO / Work Planning Systems
7. Quality Circles
8. Customer Satisfaction Survey
9. Analysis of Current and Anticipated Changes
Benefits of Training Needs Identification
1. Trainers can be informed about the broader needs in advance
2. Trainers Perception Gaps can be reduced between employees and their supervisorsTrainers
can design course inputs closer to the specific needs of the participants
3. Diagnosis of causes of performance deficiencies can be done.

54. Methods of Training:
On the Job Trainings: These methods are generally applied on the workplace while employees is
actually working. Following are the on-the-job methods.
Advantages of On-the-Job Training:
It is directly in the context of job It
is often informal
It is most effective because it is learning by experience It
is least expensive
Trainees are highly motivated
It is free from artificial classroom situations.
Disadvantages of On-the-Job Training:
Trainer may not be experienced enough to train It
is not systematically organized
Poorly conducted programs may create safety hazards.
On the Job Training Methods:
1. Job Rotation: In this method, usually employees are put on different jobs turn by turn
where they learn all sorts of jobs of various departments. The objective is to give a
comprehensive awareness about the jobs of different departments. Advantage - employee
gets to know how his own and other departments also function. Interdepartmental
coordination can be improved, instills team spirit. Disadvantage - It may become too
much for an employee to learn. It is not focused on employees own job responsibilities.
Employees basic talents may remain under utilized.
2. Job Coaching: An experienced employee can give a verbal presentation to explain the
nitty-gritty’s of the job.
3. Job Instruction: It may consist an instruction or directions to perform a particular task or
a function. It may be in the form of orders or steps to perform a task.

55. 4. Apprenticeships: Generally fresh graduates are put under the experienced employee to
learn the functions of job.
5. Internships and Assistantships: An intern or an assistants are recruited to perform a
specific time-bound jobs or projects during their education. It may consist a part of their
educational courses.
Off the Job Trainings: These are used away from work places while employees are not working like
classroom trainings, seminars etc. Following are the off-the-job methods;
Advantages of Off-the-Job Training:
• Trainers are usually experienced enough to train
• It is systematically organized
• Efficiently created programs may add lot of value
Disadvantages of Off-the-Job Training:
• It is not directly in the context of job
• It is often formal
• It is not based on experience
• It is least expensive
• Trainees may not be highly motivated
• It is more artificial in nature
Off the Job Training Methods
1. Classroom Lectures: It is a verbal lecture presentation by an instructor to a large
audience. Advantage - It can be used for large groups. Cost per trainee is low.
Disadvantages - Low popularity. It is not learning by practice. It is One-way
communication. No authentic feedback mechanism. Likely to boredom.
2. Audio-Visual: It can be done using Films, Televisions, Video, and Presentations etc.
Advantages - Wide range of realistic examples, quality control possible,. Disadvantages
- One-way communication, No feedback mechanism. No flexibility for different
audience.
3. Simulation: creating a real life situation for decision-making and understanding the
actual job conditions give it. Following are some of the simulation methods of trainings

56. • Case Studies: It is a written description of an actual situation and trainer is supposed to
analyze and give his conclusions in writing. The cases are generally based on actual
organizational situations. It is an ideal method to promote decision-making abilities
within the constraints of limited data.
• Role Plays: Here trainees assume the part of the specific personalities in a case study and
enact it in front of the audience. It is more emotional orientation and improves
interpersonal relationships. Attitudinal change is another result. These are generally used
in MDP.
• Sensitivity Trainings: This is more from the point of view of behavioral assessment,
under different circumstances how an individual will behave himself and towards others.
There is no preplanned agenda and it is instant. Advantages - increased ability to
empathize, listening skills, openness, tolerance, and conflict resolution skills.
Disadvantage - Participants may resort to their old habits after the training.
4. Programmed Instructions: Provided in the form of blocks either in book or a teaching
machine using questions and Feedbacks without the intervention of trainer. Advantages -
Self paced, trainees can progress at their own speed, strong motivation for repeat
learning, material is structured and self-contained. Disadvantages - Scope for learning is
less; cost of books, manuals or machinery is expensive.
5. Computer Aided Instructions: It is extension of PI method, by using computers.
Advantages - Provides accountabilities, modifiable to technological innovations, flexible
to time. Disadvantages - High cost.
6. Laboratory Training
Barriers to Effective Training:
1. Lack of Management commitment
2. Inadequate Training budget
3. Education degrees lack skills
4. Large scale poaching of trained staff
5. Non-coordination from workers due to downsizing trends
6. Employers and B Schools operating distantly

57. 7. Unions influence.
How To Make Training Effective?
1. Management Commitment
2. Training & Business Strategies Integration
3. Comprehensive and Systematic Approach
4. Continuous and Ongoing approach
5. Promoting Learning as Fundamental Value
6. Creations of effective training evaluation system
WAGES AND SALARY ADMINISTRATION
Wages- Aggregate earnings of a employee for his service for a day, or a week, or a month . It is
the price paid for the services of labor in the process of production.
Includes 2 parts- the basic wages & other allowance
Salary- compensation to an employee for service rendered on a weekly, monthly or annual
basis.
NATURE AND PURPOSE
The basic purpose of wage and salary administration is to establish and maintain an equitable
wage and salary structure. The wage and salary administration is concerned with financial
aspects of needs, motivation and rewards. Managers, therefore, analyze and interpret the needs of
their employees so that rewards can be decided to satisfy those needs. The reward may be money or
promotion, recognition, acceptance etc
OBJECTIVES
A sound wage and salary administration tries to achieve these objectives
FOR EMPLOYEES

58. 1. Employees are paid according to requirements of the job.ie highly skilled jobs are paid
more compensation than low skilled jobs. This eliminates inequalities.
2. the chances of favoritism (while fixing wage rates) are greatly eliminated
3. Job sequences and lines of promotion are established wherever applicable.
4. Employee’s morale and motivation are increased because a wage program can be
explained and is base on facts.
TO EMPLOYERS
They can systematically plan and control labor costs
• In dealing with trade union, they can explain the basis of their wage program because it is
based upon a systematic analysis of job and wage facts
• A wage and salary administration reduces the likelihood of friction and grievances on job
inequalities.
• It enhances an employee’s morale and motivation because adequate and fairly
administered wages are basic to his wants and needs.
• It attracts qualified employees by ensuring adequate payment for all the jobs.
• According to Beach, wage and salary administration have four major purposes
• To recruit persons for a firm
• To control payroll costs
• To satisfy people, to reduce the incidence of quitting grievances, and fractions over pay
• To motivate people to perform better.

59. UNIT III
Financial management entails planning for the future of a person or a business enterprise to
ensure a positive cash flow. It includes the administration and maintenance of financial assets.
Besides, financial management covers the process of identifying and managing risks.
The primary concern of financial management is the assessment rather than the techniques of
financial quantification. A financial manager looks at the available data to judge the performance of
enterprises. Managerial finance is an interdisciplinary approach that borrows from both
managerial accounting and corporate finance.
Some experts refer to financial management as the science of money management. The primary
usage of this term is in the world of financing business activities. However, financial
management is important at all levels of human existence because every entity needs to look
after its finances.
Financial Management can be defined as:
The management of the finances of a business / organisation in order to achieve financial
objectives
Taking a commercial business as the most common organizational structure, the key objectives of
financial management would be to:
• Create wealth for the business
• Generate cash, and
• Provide an adequate return on investment bearing in mind the risks that the business is taking
and the resources invested

60. There are three key elements to the process of financial management:
(1) Financial Planning: Management need to ensure that enough funding is available at the right time
to meet the needs of the business. In the short term, funding may be needed to invest in
equipment and stocks, pay employees and fund sales made on credit.
In the medium and long term, funding may be required for significant additions to the productive
capacity of the business or to make acquisitions.
(2) Financial Control: Financial control is a critically important activity to help the business
ensure that the business is meeting its objectives. Financial control addresses questions such as:
• Are assets being used efficiently?
• Are the businesses assets secure?
• Do management act in the best interest of shareholders and in accordance with business rules?
(3) Financial Decision-making: The key aspects of financial decision-making relate to
investment, financing and dividends:
• Investments must be financed in some way - however there are always financing alternatives that
can be considered. For example it is possible to raise finance from selling new shares, borrowing
from banks or taking credit from suppliers
• A key financing decision is whether profits earned by the business should be retained rather
than distributed to shareholders via dividends. If dividends are too high, the business may be
starved of funding to reinvest in growing revenues and profits further.
• There are two main forms of accounting information:
(1) Financial Accounts.

61. (2) Management Accounts.
Financial Accounts - A Definition
Financial accounts are concerned with classifying, measuring and recording the transactions of a
business. At the end of a period (typically a year), the following financial statements are
prepared to show the performance and position of the business:
Profit and Loss Describing the trading performance of the business over the accounting
Account period
Statement of assets and liabilities at the end of the accounting period (a
Balance Sheet
"snapshot") of the business
Cash Flow
Describing the cash inflows and outflows during the accounting period
Statement
Notes to the Additional details that have to be disclosed to comply with Accounting
Accounts Standards and the Companies Act
Description by the Directors of the performance of the business during the
Directors' Report accounting period + various additional disclosures, particularly in relation to
directors' shareholdings, remuneration etc
Financial accounts are geared towards external users of accounting information. To answer their
needs, financial accountants draw up the profit and loss account, balance sheet and cash flow
statement for the company as a whole in order for users to answer questions such as:
- "Should I invest my money in this company?"
- "Should I lend money to this business?"
- "What are the profits on which this company must pay tax?"
Company Law Requirements for Financial Accounts

62. Annual accounts for Companies Act purposes generally include:
- A directors’ report
- An audit report
- A profit and loss account
- A balance sheet
- A statement of total recognized gains and losses
- A cash flow statement
- Notes to the accounts
Cash Flow Analysis
Financial and accounting concept. Cash flow results from three major groups of activities:
operating activities, investing activities, and financing activities. A cash-flow statement differs from
an income statement in reflecting actual cash on hand rather than money owed (accounts
receivable). Its purpose is to throw light on management's use of its available financial resources
and to help in evaluating a company's liquidity.
Cash flow is essentially the movement of money into and out of your business; it's the cycle of
cash inflows and cash outflows that determine your business' solvency.
Cash flow analysis is the study of the cycle of your business' cash inflows and outflows, with the
purpose of maintaining an adequate cash flow for your business, and to provide the basis for cash
flow management.
Cash flow analysis involves examining the components of your business that affect cash flow,
such as accounts receivable, inventory, accounts payable, and credit terms. By performing a cash
flow analysis on these separate components, you'll be able to more easily identify cash flow
problems and find ways to improve your cash flow.
A quick and easy way to perform a cash flow analysis is to compare the total unpaid purchases to the
total sales due at the end of each month. If the total unpaid purchases are greater than the
total sales due, you'll need to spend more cash than you receive in the next month, indicating a
potential cash flow problem.

63. Cash flow refers to the movement of cash into or out of a business, a project, or a financial
product. It is usually measured during a specified, finite period of time. Measurement of cash
flow can be used
* To determine a project's rate of return or value. The time of cash flows into and out of
projects are used as inputs in financial models such as internal rate of return, and net present
value.
* To determine problems with a business's liquidity. Being profitable does not necessarily
mean being liquid. A company can fail because of a shortage of cash, even while profitable.
* As an alternate measure of a business's profits when it is believed that accrual accounting
concepts do not represent economic realities. For example, a company may be notionally
profitable but generating little operational cash (as may be the case for a company that barters its
products rather than selling for cash). In such a case, the company may be deriving additional
operating cash by issuing shares, or raising additional debt finance.
* Cash flow can be used to evaluate the 'quality' of Income generated by accrual accounting.
When Net Income is composed of large non-cash items it is considered low quality.
* To evaluate the risks within a financial product. E.g. matching cash requirements, evaluating
default risk, re-investment requirements, etc.
Cash flow is a generic term used differently depending on the context. It may be defined by users for
their own purposes. It can refer to actual past flows, or to projected future flows. It can refer to the
total of all the flows involved or to only a subset of those flows. Subset terms include 'net cash flow',
operating cash flow and free cash flow.
Purpose:
The cash flow statement was previously known as the flow of funds statement. The cash flow
statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in
time, and the income statement summarizes a firm's financial transactions over an interval of
time. These two financial statements reflect the accrual basis accounting used by firms to match

64. revenues with the expenses associated with generating those revenues. The cash flow statement
includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not
directly affect cash receipts and payments. These Noncash transactions include depreciation or
write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report
on three types of financial activities: operating activities, investing activities, and
financing activities. Noncash activities are usually reported in footnotes.
The cash flow statement is intended to
1. provide information on a firm's liquidity and solvency and its ability to change cash flows
in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and equity
3. improve the comparability of different firms' operating performance by eliminating the
effects of different accounting methods
4. indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it eliminates
allocations, which might be derived from different accounting methods, such as various
timeframes for depreciating fixed assets.
Preparation methods:
The direct method of preparing a cash flow statement results in a more easily understood
report.The indirect method is almost universally used, because FAS 95 requires a supplementary
report similar to the indirect method if a company chooses to use the direct method.
Direct method
The direct method for creating a cash flow statement reports major classes of gross cash receipts
and payments. Under IAS 7, dividends received may be reported under operating activities or under
investing activities. If taxes paid are directly linked to operating activities, they are
reported under operating activities; if the taxes are directly linked to investing activities or
financing activities, they are reported under investing or financing activities.

65. Sample cash flow statement using the direct method
Cash flows from (used in) operating activities
Cash receipts from customers 27,500
Cash paid to suppliers and employees (20,000)
Cash generated from operations (sum) 7,500
Interest paid (2,000)
Income taxes paid (4,000)
Net cash flows from operating activities 1,500
Cash flows from (used in) investing activities
Proceeds from the sale of equipment 7,500
Dividends received 3,000
Net cash flows from investing activities 10,500
Cash flows from (used in) financing activities
Dividends paid (2,500)
Net cash flows used in financing activities (2,500)
Net increase in cash and cash equivalents 9,500
Cash and cash equivalents, beginning of year 1,000
Cash and cash equivalents, end of year $10,500
Indirect method
The indirect method uses net-income as a starting point, makes adjustments for all transactions
for non-cash items, then adjusts for all cash-based transactions. An increase in an asset account is
subtracted from net income, and an increase in a liability account is added back to net income. This
method converts accrual-basis net income (or loss) into cash flow by using a series of
additions and deductions.
Rules
The following rules are used to make adjustments for changes in current assets and liabilities,
operating items not providing or using cash and no operating items.
• Decrease in non-cash current assets are added to net income
• Increase in non-cash current asset are subtracted from net income
• Increase in current liabilities are added to net income
• Decrease in current liabilities are subtracted from net income

66. • Expenses with no cash outflows are added back to net income (depreciation and/or
amortization expense are the only operating items that have no effect on cash flows in the
period)
• Revenues with no cash inflows are subtracted from net income
• Non operating losses are added back to net income
• Non operating gains are subtracted from net income
Budgetary control methods
a) Budget:
• A formal statement of the financial resources set aside for carrying out specific activities
in a given period of time.
• It helps to co-ordinate the activities of the organisation.
• An example would be an advertising budget or sales force budget.
b) Budgetary control:
• A control technique whereby actual results are compared with budgets.
• Any differences (variances) are made the responsibility of key individuals who can
either exercise control action or revise the original budgets.
Budgetary control and responsibility centers;
These enable managers to monitor organizational functions.
A responsibility centre can be defined as any functional unit headed by a manager who is
responsible for the activities of that unit.
There are four types of responsibility centers:
a) Revenue centers: Organizational units in which outputs are measured in monetary terms but are
not directly compared to input costs.
b) Expense centers: Units where inputs are measured in monetary terms but outputs are not.

67. c) Profit centers: Where performance is measured by the difference between revenues (outputs) and
expenditure (inputs). Inter-departmental sales are often made using "transfer prices".
d) Investment centers: Where outputs are compared with the assets employed in producing
them, i.e. ROI.
Advantages of budgeting and budgetary control
There are a number of advantages to budgeting and budgetary control:
• Compels management to think about the future, which is probably the most important
feature of a budgetary planning and control system. Forces management to look ahead, to
set out detailed plans for achieving the targets for each department, operation and
(ideally) each manager, to anticipate and give the organisation purpose and direction.
• Promotes coordination and communication.
• Clearly defines areas of responsibility. Requires managers of budget centers to be made
responsible for the achievement of budget targets for the operations under their personal
control.
• Provides a basis for performance appraisal (variance analysis). A budget is basically a
yardstick against which actual performance is measured and assessed. Control is provided by
comparisons of actual results against budget plan. Departures from budget can then be
investigated and the reasons for the differences can be divided into controllable and
noncontrollable factors.
• Enables remedial action to be taken as variances emerge.
• Motivates employees by participating in the setting of budgets.
• Improves the allocation of scarce resources.
• Economises management time by using the management by exception principle.

68. Problems in budgeting
Whilst budgets may be an essential part of any marketing activity they do have a number of
disadvantages, particularly in perception terms.
• Budgets can be seen as pressure devices imposed by management, thus resulting in:
a) Bad labor relations
b) inaccurate record-keeping.
• Departmental conflict arises due to:
a) Disputes over resource allocation
b) departments blaming each other if targets are not attained.
• It is difficult to reconcile personal/individual and corporate goals.
• Waste may arise as managers adopt the view, "we had better spend it or we will lose it".
This is often coupled with "empire building" in order to enhance the prestige of a
department.
• Responsibility versus controlling, i.e. some costs are under the influence of more than
one person, e.g. power costs.
• Managers may overestimate costs so that they will not be blamed in the future should
they overspend.
Characteristics of a budget
A good budget is characterized by the following:
Participation: involve as many people as possible in drawing up a budget.
Comprehensiveness: embrace the whole organisation.
Standards: base it on established standards of performance.
Flexibility: allow for changing circumstances.
Feedback: constantly monitor performance.
Analysis of costs and revenues: this can be done on the basis of product lines, departments or
cost centers.

69. Budget organisation and administration:
In organising and administering a budget system the following characteristics may apply:
a) Budget centers: Units responsible for the preparation of budgets. A budget centre may
encompass several cost centers.
b) Budget committee: This may consist of senior members of the organisation, e.g. departmental
heads and executives (with the managing director as chairman). Every part of the organisation
should be represented on the committee, so there should be a representative from sales,
production, marketing and so on. Functions of the budget committee include:
 Coordination of the preparation of budgets, including the issue of a manual
 Issuing of timetables for preparation of budgets
 Provision of information to assist budget preparations
 Comparison of actual results with budget and investigation of variances.
c) Budget Officer: Controls the budget administration the job involves:
 liaising between the budget committee and managers responsible for budget preparation 
dealing with budgetary control problems
 ensuring that deadlines are met
 educating people about budgetary control.
d) Budget manual: This document:
 charts the organisation
 details the budget procedures
 contains account codes for items of expenditure and revenue 
timetables the process
 clearly defines the responsibility of persons involved in the budgeting system.
Budget preparation

70. Firstly, determine the principal budget factor. This is also known as the key budget factor or
limiting budget factor and is the factor which will limit the activities of an undertaking. This
limits output, e.g. sales, material or labor.
a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product and
also in sales value. Methods of sales forecasting include:
 Sales force opinions
 market research
 statistical methods (correlation analysis and examination of trends) 
mathematical models.
In using these techniques consider:
 company's pricing policy
 general economic and political conditions 
changes in the population
 competition
 consumers' income and tastes
 advertising and other sales promotion techniques  after
sales service
 credit terms offered.
b) Production budget: expressed in quantitative terms only and is geared to the sales budget. The
production manager's duties include:
 Analysis of plant utilization
 work-in-progress budgets.
If requirements exceed capacity he may:
 subcontract
 plan for overtime
 introduce shift work
 hire or buy additional machinery
 The materials purchases budget's both quantitative and financial.

71. c) Raw materials and purchasing budget:
 The materials usage budget is in quantities.
 The materials purchases budget is both quantitative and financial.
Factors influencing a) and b) include:
 Production requirements
 planning stock levels 
storage space
 trends of material prices.
d) Labor budget: is both quantitative and financial. This is influenced by:
 production requirements
 man-hours available
 grades of labour required
 wage rates (union agreements) 
the need for incentives.
e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and
payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:
 To maintain control over a firm's cash requirements, e.g. stock and debtors
 To enable a firm to take precautionary measures and arrange in advance for investment and loan
facilities whenever cash surpluses or deficits arises
 To show the feasibility of management's plans in cash terms
 To illustrate the financial impact of changes in management policy, e.g. change of credit
terms offered to customers.
Receipts of cash may come from one of the following:

72.  Cash sales
 payments by debtor’s
 the sale of fixed assets
 the issue of new shares
 the receipt of interest and dividends from investments.
Payments of cash may be for one or more of the following:
 purchase of stocks
 payments of wages or other expenses 
purchase of capital items
 payment of interest, dividends or taxation.
Steps in preparing a cash budget
i) Step 1: set out a pro forma cash budget month by month. Below is a suggested layout.
Month 1 Month 2 Month 3
$ $ $
Cash receipts
Receipts from debtors
Sales of capital items
Loans received
Proceeds from share issues
Any other cash receipts
Cash payments
Payments to creditors
Wages and salaries
Loan repayments
Capital expenditure
Taxation
Dividends
Any other cash expenditure
Receipts less payments
Opening cash balance b/f W X Y
Closing cash balance c/f X Y Z
ii) Step 2: sort out cash receipts from debtors

73. iii) Step 3: other income
iv) Step 4: sort out cash payments to suppliers
v) Step 5: establish other cash payments in the month
COST
In business, retail, and accounting, a cost is the value of money that has been used up to produce
something, and hence is not available for use anymore. In economics, a cost is an alternative that is
given up as a result of a decision. In business, the cost may be one of acquisition, in which case
the amount of money expended to acquire it is counted as cost. In this case, money is the input
that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of
production as incurred by the original producer, and further costs of transaction as incurred by the
acquirer over and above the price paid to the producer. Usually, the price also includes a mark-
up for profit over the cost of production.
Costs are often further described based on their timing or their applicability.
Comparing private, external, social, and psychic costs
When a transaction takes place, it typically involves both private costs and external costs.
Private costs are the costs that the buyer of a good or service pays the seller. This can also be
described as the costs internal to the firm's production function.
External costs: (also called externalities), in contrast, are the costs that people other than the
buyer are forced to pay as a result of the transaction. The bearers of such costs can be either
particular individuals or society at large. Note that external costs are often both non-monetary
and problematic to quantify for comparison with monetary values. They include things like
pollution, things that society will likely have to pay for in some way or at some time in the future,
but that are not included in transaction prices.
Social costs are the sum of private costs and external costs.

74. A psychic cost is a subset of social costs that specifically represent the costs of added stress or
losses to quality of life.
Cost accounting:
In management accounting, cost accounting establishes budget and actual cost of operations,
processes, departments or product and the analysis of variances, profitability or social use of
funds. Managers use cost accounting to support decision-making to cut a company's costs and
improve profitability. As a form of management accounting, cost accounting need not to follow
standards such as GAAP (Generally Accepted Accounting Principles), because its primary use
is for internal managers, rather than outside users, and what to compute is instead decided
pragmatically.
Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as
translating the Supply Chain (the series of events in the production process that, in concert, result
in a product) into financial values.
There are various managerial accounting approaches:
• Standardized or Standard Cost Accounting
• Lean accounting
• Activity-based Costing
• Resource Consumption Accounting
• Throughput Accounting
• Marginal Costing / Cost-Volume-Profit Analysis
Classical Cost Elements are:
1. Raw Materials
2. Labor
3. Indirect Expenses / Overhead.
Elements of Cost
1. Material
o A. Direct Material

75. o B. Indirect Material
2. Labor
o A. Direct Labour
o B. Indirect Labour
3. Overhead
o A. Indirect Material
o B. Indirect Labor
They are grouped further based on their functions as,
1. Production or Works Overheads
2. Administration Overheads
3. Selling Overheads
4. Distribution Overheads
Classification of Costs: Classification of cost means, the grouping of costs according to
their common characteristics. The important ways of classification of costs are :
(1) By nature or element: materials, labour, expenses
(2) By functions: production, selling, distribution, administration, R&D, development,
(3) As direct and indirect
(4) By variability: fixed, variable, and semi-variable
(5) By controllability: controllable, uncontrollable
(6) By normality: normal, abnormal
We first classify costs according to the three elements of cost:
a) Materials b) Labour c) Expenses
Product and Period Costs: We also classify costs as either
1 Product costs: the costs of manufacturing our products; or
2 Period costs: these are the costs other than product costs that are charged to,

76. debited to, or written off to the income statement each period.
The classification of Product Costs:
Direct costs: Direct costs are generally seen to be variable costs and they are called direct costs
because they are directly associated with manufacturing. In turn, the direct costs can include:
• Direct materials: plywood, wooden battens, fabric for the seat and the back, nails, screws,
glue.
• Direct labour: sawyers, drillers, assemblers, painters, polishers, upholsterers
• Direct expense: this is a strange cost that many texts don't include; but (International
Accounting Standard) IAS 2, for example, includes it. Direct expenses can include the
costs of special designs for one batch, or run, of a particular set of tables and/or chairs,
the cost of buying or hiring special machinery to make a limited edition of a set of chairs.
Total direct costs are collectively known as Prime Costs and we can see that Product Costs are
the sum of Prime costs and Overheads.
Indirect Costs: Indirect costs are those costs that are incurred in the factory but that cannot be
directly associate with manufacture. Again these costs are classified according to the three
elements of cost, materials labour and overheads.
• Indirect materials: Some costs that we have included as direct materials would be
included here.
• Indirect labour: Labour costs of people who are only indirectly associated with
manufacture: management of a department or area, supervisors, cleaners, maintenance
and repair technicians
• Indirect expenses: The list in this section could be infinitely long if we were to try to
include every possible indirect cost. Essentially, if a cost is a factory cost and it has not been
included in any of the other sections, it has to be an indirect expense. Here are some
examples include:
Depreciation of equipment, machinery, vehicles, buildings
Electricity, water, telephone, rent, Council Tax, insurance

77. Total indirect costs are collectively known as Overheads.
Finally, within Product Costs, we have Conversion Costs: these are the costs incurred in the
factory that are incurred in the conversion of materials into finished goods.
The classification of Period Costs:
The scheme shows five sub classifications for Period Costs. When we look at different
organisations, we find that they have period costs that might have sub classifications with
entirely different names. Unfortunately, this is the nature of the classification of period costs; it can
vary so much according to the organisation, the industry and so on. Nevertheless, such a scheme
is useful in that it gives us the basic ideas to work on.
Administration Costs: Literally the costs of running the administrative aspects of an
organisation. Administration costs will include salaries, rent, Council Tax, electricity, water,
telephone, depreciation, a potentially infinitely long list. Notice that there are costs here such as
rent, Council Tax, that appear in several sub classifications; in such cases, it should be clear that
we are paying rent on buildings, for example, that we use for manufacturing and storage and
administration and each area of the business must pay for its share of the total cost under review.
Without wishing to overly extend this listing now, we can conclude this discussion by
saying that the costs of Selling, the costs of Distribution and the costs of Research are all
accumulated in a similar way to the way in which Administration Costs are
accumulated. Consequently, our task is to look at the selling process and classify the costs of
running that process accordingly: advertising, market research, salaries, bonuses, electricity, and
so on. The same applies to all other classifications of period costs that we might use.
Finance Costs: Finance costs are those costs associated with providing the permanent, long term and
short term finance. That is, within the section headed finance costs we will find dividends, interest on
long term loans and interest on short term loans.

78. Finally, we should say that we can add any number of sub classifications to our scheme if we
need to do that to clarify the ways in which our organisation operates. We will also add
further sub classifications if we need to refine and further refine out cost analysis.
COST SHEET - FORMAT
Particulars Amount Amount
Opening Stock of Raw Material
Add: Purchase of Raw materials
Add: Purchase Expenses
Less: Closing stock of Raw Materials
Raw Materials Consumed
Direct Wages (Labour)
Direct Charges
Prime cost (1)
Add :- Factory Over Heads:
Factory Rent
Factory Power
Indirect Material
Indirect Wages
Supervisor Salary
Drawing Office Salary
Factory Insurance
Factory Asset Depreciation
Works cost Incurred
Add: Opening Stock of WIP
Less: Closing Stock of WIP
Works cost (2)
Add:- Administration Over Heads:-
Office Rent
Asset Depreciation
General Charges
Audit Fees
Bank Charges
Counting house Salary
Other Office Expenses
Cost of Production (3)
Add: Opening stock of Finished Goods
Less: Closing stock of Finished Goods
Cost of Goods Sold

79. Add:- Selling and Distribution OH:-
Sales man Commission
Sales man salary
Traveling Expenses
Advertisement
Delivery man expenses
Sales Tax
Bad Debts
Cost of Sales (5)
Profit (balancing figure)
Sales
Notes:-
1) Factory Over Heads are recovered as a percentage of direct wages
2) Administration Over Heads, Selling and Distribution Overheads are recovered as a percentage of
works cost.

80. UNIT IV
Marketing is the process associated with promotion for sale goods or services. It is considered a
"social and managerial process by which individuals and groups obtain what they need and want
through creating and exchanging products and values with others."
It is an integrated process through which companies create value for customers and build strong
customer relationships in order to capture value from customers in return.
Marketing is used to create the customer, to keep the customer and to satisfy the customer. With the
customer as the focus of its activities, it can be concluded that marketing management is one of the
major components of business management. The evolution of marketing was caused due to mature
markets and overcapacities in the last decades. Companies then shifted the focus from production
more to the customer in order to stay profitable.
The term marketing concept holds that achieving organisational goals depends on knowing the
needs and wants of target markets and delivering the desired satisfactions.
It proposes that in order to satisfy its organizational objectives, an organization should anticipate the
needs and wants of consumers and satisfy these more effectively than competitors.
Definition:
Philip Kotler defines marketing as 'satisfying needs and wants through an exchange process'
Within this exchange transaction customers will only exchange what they value (money) if they
feel that their needs are being fully satisfied; clearly the greater the benefit provided the higher
transactional value an organisation can charge.

81. Marketing Concept
An orientation, in the marketing context, relates to a perception or attitude a firm holds towards its
product or service, essentially concerning consumers and end-users.
Earlier approaches
The marketing orientation evolved from earlier orientations namely the production orientation, the
product orientation and the selling orientation.[
Western
Orientation Profit European Description
driver timeframe
A firm focusing on a production orientation specializes in
producing as much as possible of a given product or service.
Thus, this signifies a firm exploiting economies of scale, until
Production until the the minimum efficient scale is reached. A production
Production] methods 1950s orientation may be deployed when a high demand for a
product or service exists, coupled with a good certainty that
consumer tastes do not rapidly alter (similar to the sales
orientation).
A firm employing a product orientation is chiefly concerned
Quality of
until the with the quality of its own product. A firm would also
Product the
1960s assume that as long as its product was of a high standard,
product
people would buy and consume the product.
A firm using a sales orientation focuses primarily on the
selling/promotion of a particular product, and not
determining new consumer desires as such. Consequently,
this entails simply selling an already existing product, and
using promotion techniques to attain the highest sales
Selling 1950s and
Selling possible.
methods
1960s
Such an orientation may suit scenarios in which a firm holds
dead stock, or otherwise sells a product that is in high
demand, with little likelihood of changes in consumer tastes
diminishing demand.
The marketing orientation is perhaps the most common
orientation used in contemporary marketing. It involves a
firm essentially basing its marketing plans around the
Needs and 1970 to marketing concept, and thus supplying products to suit new
Marketing wants of present consumer tastes. As an example, a firm would employ market
customers day research to gauge consumer desires, use R&D to develop a
product attuned to the revealed information, and then utilize
promotion techniques to ensure persons know the product
exists.

82. Product Innovation
In a product innovation approach, the company pursues product innovation, then tries to develop
a market for the product. Product innovation drives the process and marketing research is
conducted primarily to ensure that profitable market segment(s) exist for the innovation. The
rationale is that customers may not know what options will be available to them in the future so
we should not expect them to tell us what they will buy in the future. However, marketers can
aggressively over-pursue product innovation and try to overcapitalize on a niche. When pursuing
a product innovation approach, marketers must ensure that they have a varied and multi-tiered
approach to product innovation. It is claimed that if Thomas Edison depended on marketing
research he would have produced larger candles rather than inventing light bulbs. Many firms,
such as research and development focused companies, successfully focus on product innovation.
Many purists doubt whether this is really a form of marketing orientation at all, because of the ex
post status of consumer research. Some even question whether it is marketing.
Contemporary approaches
Recent approaches in marketing is the relationship marketing with focus on the customer, the
business marketing or industrial marketing with focus on an organization or institution and the
social marketing with focus on benefits to the society. New forms of marketing also uses the internet
and are therefore called internet marketing or more generally e-marketing, online
marketing, desktop advertising or affiliate marketing. It tries to perfect the segmentation strategy
used in traditional marketing. It targets its audience more precisely, and is sometimes called
personalized marketing or one-to-one marketing.
Western
Orientation Profit driver European Description
timeframe
Relationship Building and Emphasis is placed on the whole relationship between
1960s to
marketing / keeping good suppliers and customers. The aim is to give the best
present
Relationship customer possible attention, customer services and therefore build
day
management] relations customer loyalty.
In this context marketing takes place between businesses
Building and
Business keeping 1980s to or organizations. The product focus lies on industrial
marketing / relationships present goods or capital goods than consumer products or end
Industrial between day products. A different form of marketing activities like
marketing promotion, advertising and communication to the
organizations
customer is used.

83. Similar characteristics as marketing orientation but with
1990s to
Social Benefit to the added proviso that there will be a curtailment on any
present
marketing society harmful activities to society, in either product,
day
production, or selling methods.
The Marketing Mix
(The 4 P's of Marketing)
Marketing decisions generally fall into the following four controllable categories:
• Product
• Price
• Place (distribution)
• Promotion
The term "marketing mix" became popularized after Neil H. Borden published his 1964 article,
The Concept of the Marketing Mix. Borden began using the term in his teaching in the late 1940's
after James Culliton had described the marketing manager as a "mixer of ingredients". The
ingredients in Borden's marketing mix included product planning, pricing, branding, distribution
channels, personal selling, advertising, promotions, packaging, display, servicing, physical
handling, and fact finding and analysis. E. Jerome McCarthy later grouped these ingredients into
the four categories that today are known as the 4 P's of marketing, depicted below:
The Marketing Mix

84. These four P's are the parameters that the marketing manager can control, subject to the internal and
external constraints of the marketing environment. The goal is to make decisions that center the four
P's on the customers in the target market in order to create perceived value and generate a positive
response.
Product Decisions: The term "product" refers to tangible, physical products as well as
services. Here are some examples of the product decisions to be made:
• Brand name
• Functionality
• Styling
• Quality
• Safety
• Packaging
• Repairs and Support
• Warranty
• Accessories and services
Price Decisions
Some examples of pricing decisions to be made include:
• Pricing strategy (skim, penetration, etc.)
• Suggested retail price
• Volume discounts and wholesale pricing
• Cash and early payment discounts
• Seasonal pricing
• Bundling
• Price flexibility
• Price discrimination

85. Distribution (Place) Decisions: Distribution is about getting the products to the customer.
Some examples of distribution decisions include:
• Distribution channels
• Market coverage (inclusive, selective, or exclusive distribution)
• Specific channel members
• Inventory management
• Warehousing
• Distribution centers
• Order processing
• Transportation
• Reverse logistics
Promotion Decisions: In the context of the marketing mix, promotion represents the various
aspects of marketing communication, that is, the communication of information about
the product with the goal of generating a positive customer response. Marketing
communication decisions include:
• Promotional strategy (push, pull, etc.)
• Advertising
• Personal selling & sales force
• Sales promotions
• Public relations & publicity
• Marketing communications budget

86. Limitations of the Marketing Mix Framework: The marketing mix framework was
particularly useful in the early days of the marketing concept when physical products
represented a larger portion of the economy. Today, with marketing more integrated
into organizations and with a wider variety of products and markets, some authors have
attempted to extend its usefulness by proposing a fifth P, such as packaging, people,
process, etc. Today however, the marketing mix most commonly remains based on the 4
P's. Despite its limitations and perhaps because of its simplicity, the use of this
framework remains strong and many marketing textbooks have been organized around
it.
Product (business)
The word Product is from the verb produce, from the Latin prōdūce(re) '(to) lead or bring forth'.
Since 1575, the word "product" has referred to anything produced . Since 1695, the word has
referred to "thing or things produced". The economic or commercial meaning of product was first
used by political economist Adam Smith.
In marketing, a product is anything that can be offered to a market that might satisfy a want or
need.
In retailing, products are called merchandise. In manufacturing, products are purchased as raw
materials and sold as finished goods.
Commodities are usually raw materials such as metals and agricultural products, but a
commodity can also be anything widely available in the open market. In project management,
products are the formal definition of the project deliverables that make up or contribute to
delivering the objectives of the project.
In general usage, product may refer to a single item or unit, a group of equivalent products, a
grouping of goods or services, or an industrial classification for the goods or services.
A related concept is subproduct, a secondary but useful result of a production process.

87. The Product Life Cycle
A new product progresses through a sequence of stages from introduction to growth, maturity, and
decline. This sequence is known as the product life cycle and is associated with changes in the
marketing situation, thus impacting the marketing strategy and the marketing mix.
The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the
graph below:
Product Life Cycle Diagram
Introduction Stage
In the introduction stage, the firm seeks to build product awareness and develop a market for the
product. The impact on the marketing mix is as follows:
• Product branding and quality level is established, and intellectual property protection
such as patents and trademarks are obtained.
• Pricing may be low penetration pricing to build market share rapidly, or high skim
pricing to recover development costs.

88. • Distribution is selective until consumers show acceptance of the product.
• Promotion is aimed at innovators and early adopters. Marketing communications seeks
to build product awareness and to educate potential consumers about the product.
Growth Stage
In the growth stage, the firm seeks to build brand preference and increase market share.
• Product quality is maintained and additional features and support services may be added.
• Pricing is maintained as the firm enjoys increasing demand with little competition.
• Distribution channels are added as demand increases and customers accept the product.
• Promotion is aimed at a broader audience.
Maturity Stage
At maturity, the strong growth in sales diminishes. Competition may appear with similar
products. The primary objective at this point is to defend market share while maximizing profit.
• Product features may be enhanced to differentiate the product from that of competitors.
• Pricing may be lower because of the new competition.
• Distribution becomes more intensive and incentives may be offered to encourage
preference over competing products.
• Promotion emphasizes product differentiation.
Decline Stage
As sales decline, the firm has several options:
• Maintain the product, possibly rejuvenating it by adding new features and finding new
uses.
• Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche
segment.
• Discontinue the product, liquidating remaining inventory or selling it to another firm that
is willing to continue the product.

89. The marketing mix decisions in the decline phase will depend on the selected strategy. For
example, the product may be changed if it is being rejuvenated, or left unchanged if it is being
harvested or liquidated. The price may be maintained if the product is harvested, or reduced
drastically if liquidated.
Pricing Strategy
One of the four major elements of the marketing mix is price. Pricing is an important strategic
issue because it is related to product positioning. Furthermore, pricing affects other marketing
mix elements such as product features, channel decisions, and promotion.
While there is no single recipe to determine pricing, the following is a general sequence of steps
that might be followed for developing the pricing of a new product:
1. Develop marketing strategy - perform marketing analysis, segmentation, targeting, and
positioning.
2. Make marketing mix decisions - define the product, distribution, and promotional
tactics.
3. Estimate the demand curve - understand how quantity demanded varies with price.
4. Calculate cost - include fixed and variable costs associated with the product.
5. Understand environmental factors - evaluate likely competitor actions, understand
legal constraints, etc.
6. Set pricing objectives - for example, profit maximization, revenue maximization, or
price stabilization (status quo).
7. Determine pricing - using information collected in the above steps, select a pricing
method, develop the pricing structure, and define discounts.
These steps are interrelated and are not necessarily performed in the above order. Nonetheless, the
above list serves to present a starting framework.
Marketing Strategy and the Marketing Mix
Before the product is developed, the marketing strategy is formulated, including target market
selection and product positioning. There usually is a tradeoff between product quality and price, so
price is an important variable in positioning.

90. Because of inherent tradeoffs between marketing mix elements, pricing will depend on other
product, distribution, and promotion decisions.
Estimate the Demand Curve
Because there is a relationship between price and quantity demanded, it is important to
understand the impact of pricing on sales by estimating the demand curve for the product.
For existing products, experiments can be performed at prices above and below the current price in
order to determine the price elasticity of demand. Inelastic demand indicates that price
increases might be feasible.
Calculate Costs
If the firm has decided to launch the product, there likely is at least a basic understanding of the
costs involved; otherwise, there might be no profit to be made. The unit cost of the product sets
the lower limit of what the firm might charge, and determines the profit margin at higher prices.
The total unit cost of a producing a product is composed of the variable cost of producing each
additional unit and fixed costs that are incurred regardless of the quantity produced. The pricing
policy should consider both types of costs.
Environmental Factors
Pricing must take into account the competitive and legal environment in which the company
operates. From a competitive standpoint, the firm must consider the implications of its pricing on the
pricing decisions of competitors. For example, setting the price too low may risk a price war that
may not be in the best interest of either side. Setting the price too high may attract a large number of
competitors who want to share in the profits.
From a legal standpoint, a firm is not free to price its products at any level it chooses. For
example, there may be price controls that prohibit pricing a product too high. Pricing it too low
may be considered predatory pricing or "dumping" in the case of international trade. Offering a
different price for different consumers may violate laws against price discrimination. Finally,
collusion with competitors to fix prices at an agreed level is illegal in many countries.

91. Pricing Objectives
The firm's pricing objectives must be identified in order to determine the optimal pricing.
Common objectives include the following:
• Current profit maximization - seeks to maximize current profit, taking into account
revenue and costs. Current profit maximization may not be the best objective if it results in
lower long-term profits.
• Current revenue maximization - seeks to maximize current revenue with no regard to
profit margins. The underlying objective often is to maximize long-term profits by
increasing market share and lowering costs.
• Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience
curve.
• Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.
• Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.
• Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.
• Survival - in situations such as market decline and overcapacity, the goal may be to
select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.
• Status quo - the firm may seek price stabilization in order to avoid price wars and
maintain a moderate but stable level of profit.
For new products, the pricing objective often is either to maximize profit margin or to maximize
quantity (market share). To meet these objectives, skim pricing and penetration pricing strategies
often are employed. Joel Dean discussed these pricing policies in his classic HBR article entitled,
Pricing Policies for New Products.

92. Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and
selling to those customers who are less price sensitive. Skimming is a strategy used to pursue the
objective of profit margin maximization.
Skimming is most appropriate when:
• Demand is expected to be relatively inelastic; that is, the customers are not highly price
sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to predict the cost
savings that would be achieved at high volume.
• The company does not have the resources to finance the large capital expenditures
necessary for high volume production with initially low profit margins.
Penetration pricing pursues the objective of quantity maximization by means of a low price. It is
most appropriate when:
• Demand is expected to be highly elastic; that is, customers are price sensitive and the
quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly quickly.
• There is a threat of impending competition.
As the product lifecycle progresses, there likely will be changes in the demand curve and costs. As
such, the pricing policy should be reevaluated over time.
The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, rate of product diffusion, the firm's
resources, and the product's anticipated price elasticity of demand.

93. Pricing Methods
To set the specific price level that achieves their pricing objectives, managers may make use of
several pricing methods. These methods include:
• Cost-plus pricing - set the price at the production cost plus a certain profit margin.
• Target return pricing - set the price to achieve a target return-on-investment.
• Value-based pricing - base the price on the effective value to the customer relative to
alternative products.
• Psychological pricing - base the price on factors such as signals of product quality,
popular price points, and what the consumer perceives to be fair.
In addition to setting the price level, managers have the opportunity to design innovative pricing
models that better meet the needs of both the firm and its customers. For example, software
traditionally was purchased as a product in which customers made a one-time payment and then
owned a perpetual license to the software. Many software suppliers have changed their pricing to
a subscription model in which the customer subscribes for a set period of time, such as one year.
Afterwards, the subscription must be renewed or the software no longer will function. This
model offers stability to both the supplier and the customer since it reduces the large swings in
software investment cycles.
Price Discounts
The normally quoted price to end users is known as the list price. This price usually is
discounted for distribution channel members and some end users. There are several types of
discounts, as outlined below.
• Quantity discount - offered to customers who purchase in large quantities.
• Cumulative quantity discount - a discount that increases as the cumulative quantity
increases. Cumulative discounts may be offered to resellers who purchase large quantities
over time but who do not wish to place large individual orders.

94. • Seasonal discount - based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-season
rates. Such discounts do not have to be based on time of the year; they also can be based
on day of the week or time of the day, such as pricing offered by long distance and
wireless service providers.
• Cash discount - extended to customers who pay their bill before a specified date.
• Trade discount - a functional discount offered to channel members for performing their
roles. For example, a trade discount may be offered to a small retailer who may not
purchase in quantity but nonetheless performs the important retail function.
• Promotional discount - a short-term discounted price offered to stimulate sales.
Distribution - introduction
Distribution (or "Place") is the fourth traditional element of the marketing mix. The other three are
Product, Price and Promotion.
The Nature of Distribution Channels
Most businesses use third parties or intermediaries to bring their products to market. They try to
forge a "distribution channel" which can be defined as
"All the organisations through which a product must pass between its point of production and
consumption"
Why does a business give the job of selling its products to intermediaries? After all, using
intermediaries’ means giving up some control over how products are sold and who they are sold
to.
The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They
have the contacts, experience and scale of operation which means that greater sales can be
achieved than if the producing business tried run a sales operation itself.

95. Functions of a Distribution Channel
The main function of a distribution channel is to provide a link between production and
consumption. Organisations that form any particular distribution channel perform many key
functions:
Information Gathering and distributing market research and intelligence - important
for marketing planning
Promotion Developing and spreading communications about offers
Contact Finding and communicating with prospective buyers
Matching Adjusting the offer to fit a buyer's needs, including grading, assembling
and packaging
Negotiation Reaching agreement on price and other terms of the offer
Physical distribution Transporting and storing goods
Financing Acquiring and using funds to cover the costs of the distribution channel
Risk taking Assuming some commercial risks by operating the channel (e.g. holding
stock)
All of the above functions need to be undertaken in any market. The question is - who performs
them and how many levels there need to be in the distribution channel in order to make it cost
effective.
Numbers of Distribution Channel Levels
Each layer of marketing intermediaries that performs some work in bringing the product to its
final buyer is a "channel level". The figure below shows some examples of channel levels for
consumer marketing channels:
In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no
intermediary levels. In this case the manufacturer sells directly to customers. An example of a
direct marketing channel would be a factory outlet store. Many holiday companies also market
direct to consumers, bypassing a traditional retail intermediary - the travel agent.
The remaining channels are "indirect-marketing channels".
Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The
consumer electrical goods market in the UK is typical of this arrangement whereby producers
such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet,
Dixons and Currys which then sell the goods to the final consumers.

96. Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically
buys and stores large quantities of several producers goods and then breaks into the bulk
deliveries to supply retailers with smaller quantities. For small retailers with limited order
quantities, the use of wholesalers makes economic sense. This arrangement tends to work best
where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful
retailers who have an incentive to cut out the wholesaler. A good example of this channel
arrangement in the UK is the distribution of drugs.
CHOICE OF CHANNEL OF DISTRIBUTION
While selecting a distribution channel, the entrepreneur should compare the costs, sales
volume and profits expected from alternative channels of distribution. In order to select the
right channel for distributing his product, a small-scale manufacturer should keep in mind
the following considerations:
1. Market Considerations: The nature of the market is a key factor influencing the
choice of channels of distribution. The following features of the market should be
considered to determine the channels:
a. Consumer or industrial market: If the product is meant for industrial users, the channel
of distribution will be a short one. This is because industrial users buy in a large quantity
and the producer can easily establish a direct contact with them. But in case for goods
meant for consumers, retailers may have to be included in the channels of distribution.
b. Number and location of buyers: When the number of potential customers is small or the
market is geographically located in a limited area, direct selling is easy and
economical. In case of large number of customers, use of wholesalers and retailers
becomes necessary.
c. Size of order: Direct selling is convenient and economical where customers place
order in big lots as in case of industrial goods. But where the product is sold in small

97. quantities, middlemen are used to distribute such products. A manufacturer may use
different channels for different types of buyers. He may sell directly to big retail stores
and may use wholesalers to sell to small retailers.
d. Customers buying habits: The customer buying habits like the time he is willing to
spend, the desire for credit, the preference of personal attention and one stop shopping
significantly affect the choice of distribution channels.
2. Product Considerations: The type and nature of the product influence the number and
type of middlemen to be chosen for distributing the product. The important factors with
respect to the product are as follows:
a. Unit value: Products of low unit value and common use are generally sold through
middlemen, as they cannot bear the cost of direct selling. On the other hand, expensive
consumer goods and industrial products are sold directly by the producers.
b. Perishability: Perishable products like vegetables, fruits and bakery items have
relatively short channels, as they cannot withstand repeated handling. Goods, which are
subject to frequent changes in fashion and style, are generally distributed through short
channels, as the producer has to maintain close and continuous touch with the market.
c. Bulk and weight: Heavy and bulky products are distributed directly to minimize
handling costs. Coal, bricks, stones, etc., are some examples.
d. Standardisation: Custom-made and non-standardised products usually pass through short
channels due to the need for direct contact between the producer and the consumers.
Standardized and mass-made goods can be distributed through middlemen.
e. Technical nature: Industrial products requiring demonstration, installation and
aftersale service are often sold directly. The consumer products of technical nature are
generally sold through retailers.
f. Product line: An entrepreneur producing a wide range of products may find it

98. economical to set up its own retail outlets. On the other hand, firms with one or two
products find it profitable to distribute through wholesalers and retailers.
g. Age of the product: A new product needs greater promotional effort and few
middlemen may like to handle it. As the product gains acceptance in the market, more
middlemen may be employed for its distribution.
3. Middlemen Considerations: The cost and efficiency of distribution depend largely upon
the nature and type of middlemen as given in the following factors:
a. Availability: When middlemen as desired are not available, an entrepreneur may have
to establish his own distribution network. Non-availability of middlemen may arise when
they are handling competitive products, as they do not like to handle more brands.
b. Attitudes: Middlemen who do not like a firm’s marketing policies may refuse to
handle its products. For instance, some wholesalers and retailers demand sole selling
rights or a guarantee against fall in prices.
c. Services: Use of those middlemen is profitable who provide financing, storage,
promotion and aftersale services.
d. Sale Potential: An entrepreneur generally prefers a dealer who offers the greatest
potential volume of sales.
e. Costs: Choice of a channel should be made after comparing the costs of distribution
through alternative channels.
After deciding the number of middlemen, an entrepreneur has to select the particular

99. dealers through whom he will distribute his products. While selecting a particular
wholesaler or retailer, the following factors should be taken into consideration:
o Location of dealer’s business premises;
o Financial position and credit standing of the dealer;
o Knowledge and experience of the dealer;
o Storage and showroom facilities of the dealer;
o Ability of the dealer to secure adequate business and to cover the market; o
Capacity of the dealer to provide after sale service;
o General reputation of the dealer and his sales force;
o Willingness of the dealer to handle the entrepreneur’s products;
o Degree of co-operation and promotion service he is willing to provide; o
Nature of other products, if any handled by the dealer.
Promotion involves disseminating information about a product, product line, brand, or
company. It is one of the four key aspects of the marketing mix. (The other three elements are
product marketing, pricing, and place.)
Promotion is generally sub-divided into two parts:
• Above the line promotion: Promotion in the media (e.g. TV, radio, newspapers, Internet,
Mobile Phones, and, historically, illustrated songs) in which the advertiser pays an
advertising agency to place the ad
• Below the line promotion: All other promotion. Much of this is intended to be subtle
enough for the consumer to be unaware that promotion is taking place. E.g. sponsorship,
product placement, endorsements, sales promotion, merchandising, direct mail, personal
selling, public relations, trade shows
The specification of these four variables creates a promotional mix or promotional plan. A
promotional mix specifies how much attention to pay to each of the four subcategories, and how
much money to budget for each. A promotional plan can have a wide range of objectives,
including: sales increases, new product acceptance, creation of brand equity, positioning,
competitive retaliations, or creation of a corporate image.

100. The term "promotion" is usually an "in" expression used internally by the marketing company,
but not normally to the public or the market - phrases like "special offer" are more common. An
example of a fully integrated, long-term, large-scale promotion is My Coke Rewards and Pepsi
Stuff.
Promotion Objectives
The possible objectives for marketing promotions may include the following:
• Build Awareness - New products and new companies are often unknown to a market,
which means initial promotional efforts must focus on establishing an identity. In this
situation the marketer must focus promotion to:
1) Effectively reach customers, and
2) Tell the market who they are and what they have to offer.
• Create Interest - Moving a customer from awareness of a product to making a purchase
can present a significant challenge. As we saw with our discussion of consumer and
business buying behavior, customers must first recognize they have a need before they
actively start to consider a purchase. The focus on creating messages that convince
customers that a need exists has been the hallmark of marketing for a long time with
promotional appeals targeted at basic human characteristics such as emotions, fears, sex,
and humor.
• Provide Information - Some promotion is designed to assist customers in the search
stage of the purchasing process. In some cases, such as when a product is so novel it
creates a new category of product and has few competitors, the information is simply
intended to explain what the product is and may not mention any competitors. In other
situations, where the product competes in an existing market, informational promotion
may be used to help with a product positioning strategy.

101. • Stimulate Demand - The right promotion can drive customers to make a purchase. In
the case of products that a customer has not previously purchased or has not purchased in
a long time, the promotional efforts may be directed at getting the customer to try the
product. This is often seen on the Internet where software companies allow for free
demonstrations or even free downloadable trials of their products. For products with an
established customer-base, promotion can encourage customers to increase their
purchasing by providing a reason to purchase products sooner or purchase in greater
quantities than they normally do. For example, a pre-holiday newspaper advertisement
may remind customers to stock up for the holiday by purchasing more than they typically
purchase during non-holiday periods.
• Reinforce the Brand - Once a purchase is made, a marketer can use promotion to help
build a strong relationship that can lead to the purchaser becoming a loyal customer. For
instance, many retail stores now ask for a customer’s email address so that follow-up
emails containing additional product information or even an incentive to purchase other
products from the retailer can be sent in order to strengthen the customer-marketer
relationship.
There are four main aspects of a promotional mix. These are:
• Advertising - Any paid presentation and promotion of ideas, goods, or services by an
identified sponsor. Examples: Print ads, radio, television, billboard, direct mail, brochures
and catalogs, signs, in-store displays, posters, motion pictures, Web pages, banner ads,
and emails.
• Personal Selling - A process of helping and persuading one or more prospects to
purchase a good or service or to act on any idea through the use of an oral presentation.
Examples: Sales presentations, sales meetings, sales training and incentive programs for
intermediary salespeople, samples, and telemarketing. Can be face-to-face or via
telephone.

102. • Sales promotion - Media and non-media marketing communication are employed for a
pre-determined, limited time to increase consumer demand, stimulate market demand or
improve product availability. Examples: Coupons, sweepstakes, contests, product
samples, rebates, tie-ins, self-liquidating premiums, trade shows, trade-ins, and
exhibitions.
• Public relations - Paid intimate stimulation of supply for a product, service, or business
unit by planting significant news about it or a favorable presentation of it in the media.
Examples: Newspaper and magazine articles/reports, TVs and radio presentations,
charitable contributions, speeches, issue advertising, and seminars.
• Direct Marketing is often listed as a the fifth part of the marketing mix .
• Sponsorship is sometimes added as a sixth aspect.
Marketing strategy is a process that can allow an organization to concentrate its limited
resources on the greatest opportunities to increase sales and achieve a sustainable competitive
advantage. A marketing strategy should be centered on the key concept that customer satisfaction is
the main goal.
Marketing strategy is a method of focusing an organization's energies and resources on a course of
action which can lead to increased sales and dominance of a targeted market niche.
A marketing strategy combines product development, promotion, distribution, pricing,
relationship management and other elements; identifies the firm's marketing goals, and explains
how they will be achieved, ideally within a stated timeframe.
Marketing strategy determines the choice of target market segments, positioning, marketing mix,
and allocation of resources. It is most effective when it is an integral component of overall firm
strategy, defining how the organization will successfully engage customers, prospects, and
competitors in the market arena. Corporate strategies, corporate missions, and corporate goals.
As the customer constitutes the source of a company's revenue, marketing strategy is closely
linked with sales. A key component of marketing strategy is often to keep marketing in line with a
company's overarching mission statement.

103. Basic theory:
1. Target Audience
2. Proposition/Key Element
3. Implementation
Tactics and actions
A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a
set of specific actions required to successfully implement a marketing strategy.
For example: "Use a low cost product to attract consumers. Once our organization, via our low cost
product, has established a relationship with consumers, our organization will sell additional, higher-
margin products and services that enhance the consumer's interaction with the low-cost
product or service."
A strategy consists of a well thought out series of tactics to make a marketing plan more
effective. Marketing strategies serve as the fundamental underpinning of marketing plans
designed to fill market needs and reach marketing objectives. Plans and objectives are generally
tested for measurable results.
A marketing strategy often integrates an organization's marketing goals, policies, and action
sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy , which might
include advertising, channel marketing, internet marketing, promotion and public relations can be
orchestrated.
Many companies cascade a strategy throughout an organization, by creating strategy tactics that then
become strategy goals for the next level or group. Each one group is expected to take that strategy
goal and develop a set of tactics to achieve that goal. This is why it is important to make each
strategy goal measurable.
Marketing strategies are dynamic and interactive. They are partially planned and partially
unplanned

104. Types of strategies
Marketing strategies may differ depending on the unique situation of the individual business.
However there are a number of ways of categorizing some generic strategies. A brief description of
the most common categorizing schemes is presented below:
• Strategies based on market dominance - In this scheme, firms are classified based on
their market share or dominance of an industry. Typically there are four types of market
dominance strategies:
o Leader
o Challenger
o Follower
o Nicher
• Porter generic strategies - strategy on the dimensions of strategic scope and strategic
strength. Strategic scope refers to the market penetration while strategic strength refers to the
firm’s sustainable competitive advantage. The generic strategy framework (porter
1984) comprises two alternatives each with two alternative scopes. These are
Differentiation and low-cost leadership each with a dimension of Focus-broad or narrow.
o Product differentiation
o Market segmentation
• Innovation strategies - This deals with the firm's rate of the new product development
and business model innovation. It asks whether the company is on the cutting edge of
technology and business innovation. There are three types:
o Pioneers
o Close followers
o Late followers
• Growth strategies - In this scheme we ask the question, “How should the firm grow?”
There are a number of different ways of answering that question, but the most common
gives four answers:
o Horizontal integration
o Vertical integration
o Diversification
o Intensification

105. Entrepreneurship is the act of being an entrepreneur, which is a French word meaning "one who
undertakes an endeavor".
Entrepreneurs assemble resources including innovations, finance and business acumen in an
effort to transform innovations into economic goods. This may result in new organizations or
may be part of revitalizing mature organizations in response to a perceived opportunity or
necessity.
According to Peter Drucker Entrepreneurship is defined as ‘a systematic innovation, which
consists in the purposeful and organized search for changes, and it is the systematic analysis of the
opportunities such changes might offer for economic and social innovation.’
Schumpeter’s entrepreneurial tasks
Schumpeter tied entrepreneurship to the creation of five basic "new combinations."
1. Introduction of a new good
2. Introduction of a new method of production
3. The opening of a new market
4. The conquest of a new source of supply
5. The carrying out of a new organization of industry
Benefits of Entrepreneur:
1. Provides opportunities for self expression and realization of one’s own passion of doing
something new and different.
2. Offer opportunities for growth and self development.
3. Monetary rewards are more.
4. He has the power of decision making.
5. Rewards of working for one are highly satisfying and motivating.
6. Contributes to the development of the community as one generates employment for others.
7. Entrepreneur initiates and constitutes change in the economic development and structure of
business.

106. Characteristics ENTPSHP:
1. Hardworking
2. Desire for high achievement
3. Highly optimistic
4. Independent
5. Have excellent foresight
6. Good organizers
7. Innovative
8. Excellent communication skills
9. Excellent technical knowledge
10. Have very clear objectives
11. High risk taking capability.
Types of risk faced by entrepreneur:
1. Financial risk
2. Family and social risk
3. Career risk
4. Psychological risk.
Roles of entrepreneur:
1. Combining factor of production
2. Risk acceptance.
3. Maximizing shareholders’ return
4. Using market information for opportunities.
Steps in the process of entrepreneurship:
1. Identifying opportunities
2. Establish vision
3. Persuade others
4. Gather resources (Capital, land and manpower)
5. Organize these resources to develop new product
6. Create the product
7. Adapt according to market changes.

107. Difference between Entrepreneur and Entrepreneurship:
Entrepreneurship:
1. Process
2. Organized form of initiation
3. Risk taking activity
4. Innovative process
5. Crux of leadership
6. Decision making activity
7. Planning process of a new enterprise
8. Result of a vision
9. Initiating activity of setting up an enterprise.
Entrepreneur:
1. Person
2. Organizer
3. Risk taker
4. Innovator
5. Leader
6. Decision maker
7. Good planner
8. A visualize
9. Initiator.
Types of entrepreneurs:
1. Based on ownership {a. pure entrepreneur b. Second generation business owned entrepreneur
c. Franchisee d. Owner manager}
2. Based on personality Traits {a. Personal achievers b. Induced entrepreneurs c. expert idea
generators d. Real manager e. Real achievers}
3. Based on type of business {a. Business enterprise entrepreneur b. Trading entrepreneur c.
Industrial entrepreneur d. corporate entrepreneur e. Agricultural entrepreneur}

108. 4. Based on use of technology {a. Technical Entrepreneur b. Non-technical entrepreneur}
5. Based on Motivation {a. Pure entrepreneur b. Induced entrepreneur c. Spontaneous
entrepreneur d. motivated entrepreneur}
6. Based on growth {a. Growth entrepreneur b. Super-growth entrepreneur}
7. Based on stages of development {a. First generation entrepreneur b. Modern entrepreneur c.
Classical entrepreneur d. Women entrepreneur}
8. Other kinds of entrepreneurs {a. Innovative entrepreneur b. Initiative entrepreneur c. Fabian
entrepreneur d. Drone entrepreneur)
Institutional Finance to Entrepreneurs
Industrial Finance Corporation of India (IFCI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Development Bank of India (IDBI)

109. Industrial Finance Corporation of India (IFCI)
• Established on July 1, 1948 to cater to the long-term finance needs of the industrial sector
• Until the establishment of ICICI in 1956 and IDBI in 1964, IFCI remained solely
responsible for implementation of the government’s industrial policy initiatives
• Some sectors that have directly benefited from IFCI’s disbursals include:
- Consumer goods industry (textiles, paper, sugar)
- Service industries (hotels, hospitals)
- Basic industries (iron & steel, fertilizers, basic chemicals, cement)
- Capital & intermediate goods industries (electronics, synthetic fibers, synthetic,
plastics, miscellaneous chemicals)
- Infrastructure (power generation, telecom services)
• IFCI has sanctioned financial assistance of Rs 462 billion to 5707 concerns
• IFCI has promoted Technical Consultancy Organizations (TCOs)
Industrial Credit and Investment Corporation of India (ICICI)
• Incorporated in 1955 at the initiative of the World Bank, the Government of India and
representatives of Indian industry
• Objective of creating a development financial institution for providing medium-term and
long-term project financing
• ICICI Bank, ICICI Venture, ICICI Securities Limited (i-SEC), ICICI Prudential Life
Insurance Company, ICICI Lombard General Insurance Company Limited
• Activities:
- Underwriting of shares, bonds, stocks
- Provision of loans in foreign currency to pay for imported equipment.

110. Industrial Development Bank of India (IDBI)
• Incorporated in 1964
• National Stock Exchange of India (NSE), National Securities Depository Services Ltd.
(NSDL), Stock Holding Corporation of India (SHCIL) are built by IDBI
• Services offered:
- Loans against securities
- Underwriting
- Loans for modernization, renovation
- Assist financial institution by subscription to shares, bonds
- Direct financing of exports
- Refinancing industrial loans granted by banks, financial institutions