MBA BASICS MODULE FOR

THE BATCH OF 2016 -18

A Head Start to MBA

Welcome to IMI!
Dear Batch of 2016-18,
Congratulations to each one of you for making it to one of the best management institutes
of the country. We welcome you to the International Management Institute, New Delhi and
wish you all the best for all your future endeavours.
This module has been prepared to acquaint you with some important concepts of MBA at
an early stage and give you a feel of the academic experience that lies ahead in the next
two years. The module will introduce and illustrate some basic concepts in Accountancy,
Economics, Marketing, HR and Operations. Please feel free to supplement this material
with other course books, in order to develop a deeper understanding.
We appreciate the support of various functional clubs of IMI in compiling this module.
Wishing you a happy reading time ahead!

Warm Regards,
IMI Student Council
studentcouncil@imi.edu

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Table of Contents
Accountancy .............................................................................................................................. 4
Accounting principles ........................................................................................................... 7
Financial Accounting Concepts ............................................................................................ 9
Financial Ratios ................................................................................................................... 12
Financial Markets ................................................................................................................ 14
Banking ................................................................................................................................ 21
Recent Developments .......................................................................................................... 23
Economics ................................................................................................................................25
Microeconomics ................................................................................................................... 25
Macroeconomics .................................................................................................................. 26
Types of Economy .............................................................................................................. 27
Monetary Policy & Role of Central Bank ........................................................................... 31
Marketing .................................................................................................................................34
Glossary of Marketing Terms ............................................................................................. 34
Marketing Concepts ............................................................................................................ 36
Segmentation, Targeting and Positioning ...........................................................................38
BCG Growth sharing Matrix ............................................................................................... 42
Organization Behaviour & HRM ............................................................................................ 47
Basics of OB........................................................................................................................ 47
Industrial Relations ............................................................................................................. 50
Human Resource Management ........................................................................................... 52
Training & Development .................................................................................................... 55
Performance Management System ...................................................................................... 55
Organizational Design ......................................................................................................... 58
Operations ................................................................................................................................ 60
Project management ............................................................................................................ 62
Six Sigma ............................................................................................................................ 65
Inventory Control ................................................................................................................ 66
Types of Layouts ................................................................................................................. 71

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ACCOUNTANCY
What is accounting?
Accounting is the medium through which business organizations communicate their financial
performance and position to the outside world. It is the process of identifying, measuring and
communicating economic information to users of the information. It is defined as the
systematic and comprehensive recording of financial transactions pertaining to a business.
Who are the users of accounting information?
The accounting information is used by both internal and external stakeholders. The most
predominant group of external stakeholders includes the suppliers of capital like
shareholders, lending banks and financial institutions, bond holders and other lenders, etc.
These stakeholders have financial interest in the business and therefore are interested in
knowing the financial performance of the organization. Tax authorities are also interested in
the accounting information to ascertain the tax liability of business units.
What is meant by Accounting Cycle?
The accounting cycle involves:-

1. IDENTIFYING THE BUSINESS TRANSACTIONS: All business transactions

carried out by the firm are identified. Business activities are separated from the nonbusiness activities.
2. CLASSIFYING THE BUSINESS TRANSACTIONS: The business activities are
then classified according to their nature and recording in the financial statements.
3. RECORDING THE BUSINESS TRANSACTIONS: The identified business
transactions are recorded for maintaining proper records of firms activities. Journals,
ledgers and Trial Balance are used for recording transactions.
4. SUMMARIZING THE BUSINESS TRANSACTIONS: The business transactions
are summarized on periodic basis to interpret the firms profitability and performance.
Profit and Loss account, Balance Sheet and Cash Flow statements are used for
summarizing.
5. INTERPRETING THE BUSINESS TRANSACTIONS: The financial performance
of the firm is interpreted to arrive at the profitability position of the firm. Trend
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Analysis, Common Size, Ratio Analysis are used for the interpretation amongst others
available.
What are the different types of accounts?
For the usage in Accounting, Accounts are classified into:
1. REAL ACCOUNTS: They are accounts relating to assets owned by enterprise. E.g.
cash, machinery.
2. PERSONAL ACCOUNTS: They are accounts relating to the persons, both natural
and legal, with whom the enterprise has business transactions. They represent the
amount receivables and payable by the enterprise. For Ex- Capital Account, Loan
from Banks, etc.
3. NOMINAL ACCOUNTS: They are accounts relating to income and expenses. For
E.g. sales, rent earned and paid, etc.
What do you mean by journal entry?
Journal entry is the beginning of the accounting cycle. Journal entries are the logging of
business transactions and their monetary value into the t-accounts of the accounting journal
as either debits or credits. Journal entries are usually backed up with a piece of paper; a
receipt, a bill, an invoice, or some direct record of the transaction.
What is a Ledger?
Ledger is a book of accounts in which data from transactions recorded in journals are posted
and thereby classified and summarized. It is typically used by businesses that employ the
double-entry bookkeeping method - where each financial transaction is posted twice, both as
debit & credit.
What is a Trial Balance?
Trial Balance is the aggregate of all debits and credit balances at the end of an accounting
period. It shows if the general ledger is in balance (total debits equal total credits) before
making closing entries and serves as a worksheet for making closing entries. It provides the
basis for making draft financial statements.

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What do you mean by financial statement and explain types of financial statements and
their functions?
Financial statements can be referred to as representation of the financial status of a company
in a systematically documented form. These written reports help to quantify the financial
strength, performance and liquidity of a company. There are three different types of financial
statements which indicate the different activities occurring in a particular business house.

1. Balance Sheet
2. Income statement
3. Cash flow statement
What is a Balance Sheet?
Balance Sheet presents the financial position of an entity at a given date. It is comprised of
the following three elements:

ASSETS: Something a business owns or controls (e.g. cash, inventory, plant and
machinery)

LIABILITIES: Something a business owes to someone (e.g. creditors, bank loans, etc)

EQUITY (CAPITAL): What the business owes to its owners. This represents the
amount of capital that remains in the business after its assets are used to pay off its
outstanding liabilities. Equity therefore represents the difference between the assets and
liabilities.

What is meant by Income Statement?

Also known as the P&L statement or the Profit And Loss Statement, this statement ascertains
the profit and loss of any business. Income Statement is composed of the following two
elements:

Income: What the business has earned over a period (e.g. sales revenue, dividend
income)

Expense: The cost incurred by the business over a period (e.g. salaries and wages,
depreciation, rental charges, etc.)

What is a Cash Flow Statement?

Cash Flow Statement presents the movement in cash and bank balances over a period. The
movement in cash flows is classified into the following segments:
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Operating Activities: Represents the cash flow from primary activities of a business.
Investing Activities: Represents cash flow from the purchase and sale of assets other
than inventories (e.g. purchase of a factory plant)
Financing Activities: Represents cash flow generated or spent on raising and repaying
share capital and debt together with the payments of interest and dividends.

Accounting principles
Separate Entity Concept
The business entity concept provides that the accounting for a business or organization be
kept separate from the personal affairs of its owner, or from any other business or
organization. The balance sheet of the business must reflect the financial position of the
business alone.
The Going Concern Concept
The going concern concept assumes that a business will continue to operate, unless it is
known that such is not the case. This concept has strong implication on the valuation of assets
of the business.
The Principle of Conservatism
The principle of conservatism provides that accounting for a business should be fair and
reasonable. It is better to understate the financial position of the business rather than
overstate. Probable gains should be ignored but account for probable losses should be made.
The Objectivity Principle
The objectivity principle states that accounting will be recorded on the basis of objective
evidence. Objective evidence means that different people looking at the evidence will arrive
at the same values for the transaction. Simply put, this means that accounting entries will be
based on fact and not on personal opinion or feelings
Accounting Period Concept
This concept provides that accounting takes place over specific time periods known as fiscal
periods. It is usually of 12 months. These fiscal periods are of equal length, and are used
when measuring the financial progress of a business.
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The Accrual Basis of accounting concept

Cash basis- transactions are recorded on receipt and payment of cash.
Accrual basis- revenue is recorded when earned while expenses are recorded when incurred
irrespective of when cash is received or paid.
The Matching Principle
It states that each expense item related to revenue earned must be recorded in the same
accounting period as the period in which the revenue it helped to earn is recorded.
The Cost Concept
The cost principle states that the accounting for purchases must be at their cost price. This is
the figure that appears on the source document for the transaction in almost all cases. The
value recorded in the accounts for an asset is not changed until later if the market value of the
asset changes.
The Consistency Principle
The consistency principle requires accountants to apply the same methods and procedures
from period to period. When they change a method from one period to another they must
explain the change clearly on the financial statements.
The Materiality Principle
The materiality principle states that all information that affects the full understanding of a
company's financial statements must be included with the financial statements provided but
unnecessary details should be avoided.
The Dual Concept
Every transaction affects at least two accounts in such a way that the below equation would
always be balanced. Assets = Capital + Liabilities
Money Measurement Concept
It states that only those events and transactions that can be expressed in money terms form
the subject matter of accounting and are recorded in the financial statements. Also, if
business units earn revenue in different currencies then the financial statements are prepared
using a uniform currency called reporting currency.

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Financial Accounting Concepts

What is an asset in financial accounting?
Any item of economic value owned by an individual or corporation, especially that which
could be converted to cash. E.g.: land, buildings, furniture, patent, etc.
What are the different types of assets?
Assets can be classified into 2 types:
1. TANGIBLE ASSETS: Assets that have a physical substance such as currencies,
buildings, real estate, vehicles, inventories, equipment, and precious metals are called
tangible assets. They can be further classified into current assets and fixed assets.
2. INTANGIBLE ASSETS: They lack physical substance and usually are very hard to
evaluate which includes patents, copyrights, franchises, goodwill, trademarks, trade
names, etc.

What is a liability?
A liability is commonly defined as an obligation of an entity arising from past transactions or
events. They are reported on a balance sheet and are usually divided into two categories:

1. CURRENT LIABILITIES: These liabilities are reasonably expected to be liquidated

within a year. They usually include payables such as wages, accounts, taxes, and
accounts payable, unearned revenue when adjusting entries, short-term obligations
etc.
2. LONG-TERM LIABILITIES: These liabilities are reasonably expected not to be
liquidated within a year. They usually include issued long-term bonds, notes payables,
long-term leases, pension obligations, and long-term product warranties. The balance
sheet is based upon the following equation:

ASSETS = LIABILITIES + OWNER'S EQUITY

What is Owner's equity?

Owner's equity is an individual or company's net worth. This is calculated by taking the value
of all assets and subtracting the value of all liabilities. Owner's equity is used in determining
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an individual's or company's creditworthiness, and can be used in determining the value of a

business when its owner or shareholders want to sell. It may be referred as book value of the
company.
What is Shareholders Fund?
It represents the actual amount put in the business by the owners and the amount raised by
issuance of shares and earnings retained. It is divided into two parts

SHARE CAPITAL: It represents the amount raised by issuance of shares at the face
value.

RESERVE AND SURPLUS: It represents the part of profit that has been retained by
the company after paying out the dividends. It is also called as retained earnings.

What are dividends?

It represents a part of the profit that is distributed to the shareholders. The final dividend is
proposed by the directors of the company. The dividends released attract a tax called as
dividend distribution tax or corporate distribution tax and is deducted from the profit made by
the company.

What is the distinction between debtor and creditor?

A DEBTOR is a person or enterprise that owes money to another party. (The party to whom
the money is owed is often a supplier or bank that will be referred to as the creditor.)
CREDITORS are the entities which give some type of credit to a borrower or debtor. A
creditor could be a company, person, organization, government, a bank, a corporation or a
credit card issuer.
E.g.: If Company X borrowed money from its bank, Company X is the debtor and the bank is
the creditor. If Supplier A sold merchandise to Retailer B, then Supplier A is the creditor and
Retailer B is the debtor.

What are the different types of credits?

SECURED LOAN OR CREDIT: Loan is given only if there is some kind of asset
(collateral) that is pledged by the borrower. If the borrower defaults, the same is
liquidated.

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UNSECURED LOAN OR CREDIT: Some creditors prefer to not entail the pledging
of some kind of asset in exchange for giving a credit or loan to the borrower. The loan
is given on trust based on details furnished by the debtor.

What are trade payables?

Liabilities owed to suppliers for purchases or services rendered. They are also referred as
accounts payable or as sundry creditors.

What is depreciation?
The process of appropriating the cost of a fixed asset over its useful life is called
depreciation. The term depreciation is associated with tangible assets such as plant
machinery, furniture etc. E.g.: If a company buys a piece of equipment for $1 million and
expects it to have a useful life of 10 years. Every accounting year, the company will expend
$100,000 (assuming straight-line depreciation), for ten years.

What is amortization?
It is defined as the deduction of capital expenses over a specific period of time (usually over
the asset's life). This concept is used for measuring the consumption of value of intangible
assets like patents and copyrights over their life.

E.g.: Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and
that the patent on the equipment lasts 15 years, this would mean that $2 million would be
recorded each year as an amortization expense.

Financial Ratios
What is a ratio?
Ratios express one item in relation to other and draw inference of this expression. Ratios are
very important as they help to analyze the financial statements of a company or a firm.

What is profitability ratio? What are the different kinds of profitability ratios?
A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time.

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Following are the different profitability ratios:

Sales Cost of Goods Sold
Gross Profit Ratio =

Sales

Net Profit Ratio = PAT / Sales

Operating Expenses
Operating Expenses Ratio =
Sales

PAT Dividend on Preference Shares (if any)

Earnings Per share =
Number of Equity Shares

What is growth ratio? What are the different kinds of growth ratios?
Growth ratio indicates the growth of the company based on its historical performance.
COMPOUND ANNUAL GROWTH RATIO (CAGR) indicates average annual growth
achieved by an enterprise during a given period of time.
n

A= P(1+g)

A = current value
P = base value
g = CAGR
n = difference between current year and base year.

What is dividend policy ratio? What are the different kinds of dividend policy ratios?
Dividend policy ratios measure how much a company pays out in dividends relative to its
earnings and market value of its shares. These ratios provide insights into the dividend policy
of a company.

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Dividend Rate=Total Dividend

No. of Shares
Dividend Payout Ratio=Dividends + Dividend Distribution Tax
PAT
Dividend Yield =Dividend per Share
Current Market Price

What is Short-term Liquidity ratio? What are the different kinds of Short-term
Liquidity ratios?
Short-term liquidity ratios indicate the adequacy of the companys current assets to meet its
current obligations.

Current Assets
Current Ratio = Current Liabilities
Quick Ratio= Current Assets Inventories
Current Liabilities

What is Capital Structure ratio? What are the different kinds of Capital Structure
ratios?
Capital Structure ratios indicate the proportion of borrowed funds and shareholder funds in
total capital employed.
Debt equity Ratio = Long term debts / Shareholders Fund

Financial Markets
What is a Share?
Total equity capital of a company is divided into equal units of small denominations, each
called a share. Each share forms a unit of ownership of a company and is offered for sale so
as to raise capital for the company. For example, in a company the total equity capital of Rs
2,00,00,000 is divided into 20,00,000 units of Rs. 10 each. Each such unit of Rs 10 is called a
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Share.
Shares can be broadly divided into two categories - equity and preference shares.

EQUITY SHARES give their holders the power to share the earnings/profits in the
company as well as a vote in the AGMs of the company. Such a shareholder has to share
the profits and also bear the losses incurred by the company.

PREFERENCE SHARES earn their holders only dividends, which are fixed, giving no
voting rights.

What is a Derivative?
A derivative is a product whose value is derived from the value of one or more underlying
variables or assets in a contractual manner. The underlying asset can be equity, Forex,
commodity or any other asset.

Some commonly used FINANCIAL DERIVATIVES are:

FORWARDS: A forward contract is a customized contract between two entities, where

settlement takes place at a specific date in the future at todays predetermined price.

FUTURES: A futures contract is an agreement between two parties to buy or sell the
underlying asset at a future date at today's future price. Futures contracts differ from
forward contracts in the sense that they are standardized and exchange traded.

OPTIONS: An Option is a contract which gives the right, but not an obligation, to buy or
sell the underlying at a stated date and at a stated price.

Options are of two types - CALL and PUT options:

o CALLS give the buyer the right, but not the obligation to buy a given quantity of
the underlying asset, at a given price on or before a given future date.

o PUTS give the buyer the right, but not the obligation to sell a given quantity of
underlying asset at a given price on or before a given future date.

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WARRANTS: Longer dated options are called Warrants and are generally traded overthe-counter.

What is a Mutual Fund?

A Mutual Fund is a corporate body registered with SEBI that pools money from
individuals/corporate investors and invests the same in a variety of different financial
instruments or securities such as equity shares, Government securities, Bonds, debentures etc.

What is an Exchange Traded Fund?

An ETF represents a basket of stocks that reflect an index such as the Nifty. An ETF trades
just like any other company on a stock exchange. An ETF's price changes throughout the day,
fluctuating with supply and demand.

What is an Index?
An Index shows how a specified portfolio of share prices is moving in order to give an
indication of market trends. It is a basket of securities and the average price movement of the
basket of securities indicates the index movement, whether upwards or downwards.

NIFTY INDEX: S&P CNX Nifty (Nifty), is a scientifically developed, 50 stock

index, reflecting accurately the market movement of the Indian markets. It comprises
of some of the largest and most liquid stocks traded on the NSE.

SENSEX INDEX: S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive
Index), also-called the BSE 30 or simply the SENSEX, is a free-float market
capitalization-weighted stock market index of 30 well-established and financially
sound companies listed on BSE Ltd.

Define Securities.
Securities includes instruments such as shares, bonds, stocks or other marketable securities of
similar nature in or of any incorporate company or body corporate, government securities,
derivatives of securities, units of collective investment scheme, interest and rights in
securities, security receipt or any other instruments so declared by the Central Government.

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What is the function of Securities Market?

Securities Markets is a place where buyers and sellers of securities can enter into transactions
to purchase and sell shares, bonds, debentures etc.

Who regulates the Securities Market?

The responsibility for regulating the securities market is shared by Department of Economic
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and
Securities and Exchange Board of India (SEBI).

What is SEBI and what is its role?

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under SEBI Act, 1992. Its role includes regulating the business in stock
exchanges and any other securities markets, registering and regulating the working of stock
brokers, subbrokers, promoting and regulating self-regulatory organizations Prohibiting
fraudulent and unfair trade practices, etc.

What are the different segments of Securities Market?

The securities market has two interdependent segments: the primary (new issues) market and
the secondary market. The primary market provides the channel for sale of new securities
while the secondary market deals in securities previously issued. Secondary market
comprises of equity markets and the debt markets.

What is meant by Face Value of a share?

The nominal or stated amount assigned to a security by the issuer. For shares, it is the original
cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder at
maturity. It is also known as par value or simply par.

Why do companies need to issue shares to the public?

Most companies are usually started privately by their promoter(s). However, the promoters
capital and the borrowings from banks and financial institutions may not be sufficient for
setting up or running the business over a long term. So companies invite the public to

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contribute towards the equity and issue shares to individual investors.

What is meant by Market Capitalization?

The market value of a quoted company, which is calculated by multiplying its current share
price (market price) by the number of shares in an issue, is called as market capitalization

What is a Bond?
Bond is a negotiable certificate evidencing indebtedness. The issuer usually pays the bond
holder periodic interest payments over the life of the loan. The various types of Bonds are
zero coupon bonds, convertible bonds, treasury bills, etc.

Define Bull Market.

A bull market is when everything in the economy is great, people are finding jobs, gross
domestic product (GDP) is growing, and stocks are rising.

Define Bear Market.

A bear market is when the economy is bad, recession is looming and stock prices are falling.
Bear markets make it tough for investors to pick profitable stocks.

Define Short Selling.

Selling short is the sale of a stock that you don't own. More specifically, a short sale is the
sale of a security that isn't owned by the seller, but that is promised to be delivered. Short
sellers assume that they will be able to buy the stock at a lower amount than the price at
which they sold short.

What is a Stock Exchange?

The stock exchanges in India, under the overall supervision of the regulatory authority, the
Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and
sellers can meet to transact in securities.

What is a Portfolio?
A Portfolio is a combination of different investment assets mixed and matched for the

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purpose of achieving an investor's goal(s). Items that are considered a part of your portfolio
can include any asset you own-from shares, debentures, bonds, mutual fund units to items
such as gold, art and even real estate etc.
What is meant by Dividends declared by a Company?
Dividend is distribution of part of a company's earnings to shareholders, usually twice a year
in the form of a final dividend and an interim dividend. Dividend is therefore a source of
income for the shareholder.

What is a Stock Split?

A stock split is a corporate action which splits the existing shares of a particular face value
into smaller denominations so that the number of shares increase, however, the market
capitalization or the value of shares held by the investors post-split remains the same as that
before the split.

What is meant by Buy Back of Shares?

It is a method for company to invest in itself by buying shares from other investors in the
market. It helps the company to improve liquidity of its shares as it gains ownership and
control of the firm in proportion to its shareholding.

What are various Short-term financial options available for investment?

SAVINGS BANK ACCOUNT which offers low interest (4%-5% p.a.), making them
only marginally better than fixed deposits.

MONEY MARKET OR LIQUID FUNDS are a specialized form of mutual funds that
invest in extremely short-term fixed income instruments and thereby provide easy
liquidity

FIXED DEPOSITS WITH BANKS are also referred to as term deposits. The
minimum investment period for bank FDs varies from 7 30 days for different
banks.. FDs are for investors with low risk appetite.

What are various Long-term financial options available for investment?

POST OFFICE MONTHLY INCOME SCHEME is a low risk saving instrument,

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which can be availed through any post office. It provides an interest rate of around 8%

per annum, which is paid monthly.

PUBLIC PROVIDENT FUNDS are long term savings instrument with a maturity of
15 years and interest payable at 8.70% per annum which is compounded annually.
Tax benefits can be availed for the amount invested and interest accrued is tax-free.

BONDS are fixed income (debt) instrument issued for a period of more than one year
with the purpose of raising capital. It is a promise to repay the principal along with a
fixed rate of interest on a specified date, called the Maturity Date.

MUTUAL FUNDS are funds operated by an investment company which raises

money from the public and invests in a group of assets (shares, debentures etc.).

What are the different types of Investors in the market?

AGGRESSIVE: They adopt a method of portfolio management and asset allocation

that attempts to achieve maximum return. They take additional risks (more than what
a rational investor would take) to ensure that their investment grows at an above
average rate.

MODERATELY AGGRESSIVE: These investors seek longer term investment gains

through a mix of equity investments. The overall portfolio contains some more
conservative investments. An investor here is with a time frame of 6-10+ years with
average level of return between 10-11% annually.

MODERATELY CONSERVATIVE: They are much less willing to accept variations

in their portfolio's balance and are with a time frame of 3-6 years, or those looking for
a regular income stream. The average level of return is 6-8% annually.

CONSERVATIVE: Typically those investors with either a short term goal (less than
3 years), or those who are in retirement seeking a regular income stream.

Banking
What is a Bank and what are its functions?
The term bank is used generically to refer to any financial institution that is licensed to
accept deposits that are repayable on demand, and lends money. A bank makes money via
Net Interest Income
Net Interest Income (NII) = Interest Earned on Loans Interest Paid on Deposits

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What are the different services offered by a bank to a corporate?

LOANS: Banks provide short and long-term funds to businesses.

CASH DEPOSITS: Corporate deposit surplus funds in a bank.

FOREIGN EXCHANGE TRANSACTIONS: Banks act as authorized dealers to

facilitate foreign exchange transactions.

ADVISORY SERVICES: Banks provide financial advisory services such as

valuations, issue management, mergers & acquisitions, etc. to corporate.

TRADE SERVICES: Banks play the role of the trusted intermediary between parties
involved in trade and facilitate trade and commerce.

What are the different Types of Bank Accounts?

SAVINGS ACCOUNTS: These accounts are meant for individuals. It pays interest.
The interest is calculated on the daily balance in the account.

CURRENT ACCOUNTS: They are held mainly by businesses. Banks do not pay any
interest on them.

TERM/TIME/FIXED DEPOSITS: These are deposits with a fixed maturity, hence

also called Fixed Deposits (FDs). FDs earn higher interest than savings deposits.

RECURRING DEPOSITS: These are a fixed deposit variant. The only difference
being that, the customer has the flexibility to deposit the amount in instalments.

PUBLIC PROVIDENT FUND ACCOUNTS: These are accounts meant for

retirement savings. In India, they are fully tax exempt.

What are the different categories of banks?

SCHEDULED BANKS: Banks which have deposits>INR 200 crores are Scheduled
Banks E.g.: SBI, ICICI

NON-SCHEDULED BANKS: Banks which have deposits<=INR 200 crores E.g.:

Sawai Madhopur Urban Co-operative Bank Ltd, City Co-operative Bank Ltd., Mysore

PUBLIC SECTOR BANKS: Those banks where the government holds a majority
(>50%) ownership. E.g.: SBI, Bank of India

PRIVATE BANKS: Banks which are owned by private Indian entities such as
corporate or individuals. E.g.: ICICI, Axis Bank

FOREIGN BANKS: Banks owned by Multinational/non-Indian entities. E.g.: HSBC,

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Deutsche bank.

URBAN CO-OPERATIVE BANK: These banks are formed by a group of members

and their main focus is to mobilize savings from low income and middle income
groups to ensure credit availability to its members.

What are NBFCs?

Non-Banking Finance Companies (NBFCs) are financial institutions that provide services,
similar to banks, but they do not hold a banking license. NBFCs cannot accept deposits
repayable on demand. Only those NBFCs to which the Bank had given a specific
authorization are allowed to accept/hold public deposits. Motilal Oswal, Tata Capital,
Reliance Capital are some of the NBFCs in India.

Recent Developments
Companies Act
An Act of Parliament which regulates the workings of companies, stating the legal limits
within which companies may do their business. The new Companies bill, 2012 was tabled in
parliament and become Companies Act 2013 with the approval of both the houses on Aug 08
2013.

What are the key highlights of the new Companies Act?

The new legislation introduces the concept of an independent director. For every
listed company, at least one-third of the directors should be independent, with

every such board member allowed a maximum two terms of five years each.

These independent directors should not have monetary transaction of more than or
equivalent to 10% of the companies revenue.

Mandates to setup National Financial Reporting Authority (NFRA), which will

monitor compliance of accounting and auditing standards. NFRA has the power to

investigate the Auditors of the companies.

All the listed companies should have at least one woman at board level.

For the first time, it also permits class action suits against companies.

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It is mandatory for companies with unlisted subsidiaries to publish their

consolidated balance sheets.

Companies with the net worth more than 500 crores or net profit of more than 5
crores, to spend 2% of the annual net profit for towards CSR. In case of NonCompliance the companies are not penalized but have to disclose the reasons for

this.

A companys auditor should have maximum of ten years tenure.

Banking Licenses
Banking licenses are issued by RBI to a financial institute that wishes to provide banking
services. After nationalization of banks in 1969, RBI first allowed private banks to open up
their shops in 1993. During this time, ICICI bank and HDFC bank started functioning. Again
in 2004 Yes Bank and Kotak Mahindra were issued licenses to start operations. This year
RBI had accepted 26 applications from banking aspirants. The license was awarded to IDFC
Ltd and Bandhan Financial Services Pvt. Ltd.
Prime Criterion for Evaluation of Applications -Innovative financial inclusion plans
was the key criteria for evaluation of banking applications. According to the estimates only
40 % of the households in India have bank accounts. RBI in its guidelines had mentioned that
the new banks should have at least 25% of its branches in the rural areas.

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ECONOMICS
Economics is the study of how individuals and groups make decisions with limited resources
as to best satisfy their wants, needs, and desires. Resources include the time and talent people
have available, the land, buildings, equipment, and other tools on hand, and the knowledge of
how to combine them to create useful products and services.
In a market economy, resources are allocated by the forces of demand and supply.
In a non market economy, resources are allocated by a central authority (government).
In a mixed economy, both the public and private sectors decide on allocation of resources.

Macroeconomic
Study of Economics
Microeconomics

Microeconomics
It deals with economic decisions made at a low or micro level. For e.g.: How does the change
of a price of good influence a family's purchasing decisions?
It involves certain key concepts like:
Demand, Supply& Equilibrium:
Demand is an economic principle that describes a consumer's desire and willingness to pay a
price for a specific good or service. There is a significant difference between demand and the
quantity demanded. Law of Demand states that holding all other factors constant, as the
price of that good goes down, the quantity of that good that the market will demand will
increase and vice versa. This relationship between price and quantity demanded is known as
demand relationship.

Supply is an economic concept that describes the total amount of a specific good or service
that is available to consumers. The law of supply states that holding all other factors

23 | P a g e

constant, with increase in quantity supplied, increases the price of the commodity. Simply, as
the price rises for a given product/service, suppliers are willing to supply more.

increases

decreases

At equilibrium, the quantity supplied and quantity demanded intersects and are equal.

Elasticity is the measurement of how responsive an economic variable is to a change in

another variable. Elasticity can be quantified as the ratio of the percentage change in one
variable to the percentage change in another variable. Frequently used elasticitys include
price elasticity of demand, price elasticity of supply, and income elasticity of demand.
A monopoly exists when a single company is the only supplier of a particular commodity.
Perfect competition describes markets such that no participants are large enough to have the
market power to set the price of a homogeneous product. Ex- EBay.
An oligopoly is a market form in which a market or industry is dominated by a small
number of sellers (oligopolists).

Macroeconomics
It deals with the sum total of the decisions made by individuals in a society. For e.g.: how
does a change in interest rates influence national savings.
Key Concepts in Macroeconomics:
Output and income: National output is the total value of everything a country produces in a
given time period. Everything that is produced and sold generates income. Therefore, output
and income are usually considered equivalent and the two terms are often used
interchangeably.
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Macroeconomic output is usually measured by Gross Domestic Product (GDP). It is the

monetary value of all the finished goods and services produced within a country's borders in
a specific time period.
GDP=C+G+I+NX
where:
"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports (NX =
Exports - Imports).
Inflation: The rate at which the general level of prices for goods and services is rising, and,
subsequently, purchasing power is falling. A general price increase across the entire economy
is called inflation. When prices decrease, there is deflation. Economists measure these
changes in prices with price indexes.
Disposable Income: The amount of money that households have available for spending and
saving after income taxes have been accounted for. Disposable personal income is often
monitored as one of the many key economic indicators used to gauge the overall state of the
economy.

Test Yourself: What is the GDP of India and the present inflation rate in India?

Types of Economy
An economy can be of two different types depending on the policies.
Open Economy

It

Closed Economy

and

It prevents its businesses and

individuals to have trade with

individuals to have trade with

allows

its

businesses

businesses and individuals in

other

businesses and individuals in other

25 | P a g e

economies.

Open economy is considered stronger

as compared to closed economy.
Open Economy allows participation
in foreign capital markets.

economies.

Closed economy is considered weaker

as compared to open economy.
Closed

Economy

participation

in

do

not

foreign

allow
capital

markets.
Almost all countries have open
economy today.

There are no countries existing today

that have strict closed economy.
Some countries in North Korea
restrict

their

trade

with

limited

countries but those countries are also

not fully closed economies.

Closed Economy: It is an economy in which no activity is conducted with outside

economies. A closed economy is self-sufficient, meaning that no imports are brought in and
no exports are sent out. The goal is to provide consumers with everything that they need from
within the economy's borders.
Open Economy: It is an open economy is an economy in which international trade takes
place. Most nations around the world have open economies, and many nations rely heavily on
international trade to meet economic and social goals.
Aggregate Demand and Aggregate Supply
The Aggregate Supply Curve
The aggregate supply curve shows the relationship between a nation's overall price level, and
the quantity of goods and services produced by that nation's suppliers. The curve is upward
sloping in the short run and vertical, or close to vertical, in the long run.

26 | P a g e

Net investment, technology changes that yield productivity improvements, and positive
institutional changes can increase both short-run and long-run aggregate supply. Some
changes can alter short-run aggregate supply (SAS), while long-run aggregate supply (LAS)
remains the same. Examples include:

Supply Shocks - Supply shocks are sudden surprise events that increase or decrease
output on a temporary basis. Examples include unusually bad or good weather or the

impact from surprise military actions.

Resource Price Changes - These, too, can alter SAS. Unless the price changes reflect
differences in long-term supply, the LAS is not affected.

Changes in Expectations for Inflation - If suppliers expect goods to sell at much

higher prices in the future, their willingness to sell in the current time period will be
reduced and the SAS will shift to the left.

The Aggregate Demand Curve

The aggregate demand curve shows, at various price levels, the quantity of goods and
services produced domestically that consumers, businesses, governments and foreigners (net
exports) are willing to purchase during the period of concern. The curve slopes downward to
the right, indicating that as price levels decrease (increase), more (less) goods and services
are demanded.
Factors that can shift an aggregate demand curve include:

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Real Interest Rate Changes - Such changes will impact capital goods decisions
made by individual consumers and by businesses. Lower real interest rates will lower
the costs of major products such as cars, large appliances and houses; they will
increase business capital project spending because long-term costs of investment
projects are reduced. The aggregate demand curve will shift down and to the right.
Higher real interest rates will make capital goods relatively more expensive and cause

the aggregate demand curve to shift up and to the left.

Changes in Expectations - If businesses and households are more optimistic about

the future of the economy, they are more likely to buy large items and make new

investments; this will increase aggregate demand.

The Wealth Effect - If real household wealth increases (decreases), then aggregate
demand will increase (decrease)

Changes in Income of Foreigners - If the income of foreigners increases (decreases),

then aggregate demand for domestically-produced goods and services should increase

(decrease).

Changes in Currency Exchange Rates - From the viewpoint of the U.S., if the value
of the U.S. dollar falls (rises), foreign goods will become more (less) expensive, while
goods produced in the U.S. will become cheaper (more expensive) to foreigners. The

net result will be an increase (decrease) in aggregate demand.

Inflation Expectation Changes - If consumers expect inflation to go up in the future,

they will tend to buy now, causing aggregate demand to increase. If consumers'
expectations shift so that they expect prices to decline in the future, aggregate demand
will decline and the aggregate demand curve will shift up and to the left.

Monetary Policy & Role of Central Bank

Monetary policy is the process by which the monetary authority (RBI in India) of a country
controls the supply of money, availability of money, and cost of money or rate of interest for
the purpose of achieving the following:

Economic growth

Economic stability

Relatively stable prices

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Low unemployment.

Exchange rates with other currencies

Within almost all modern nations, special institution generally called central bank has
responsibility of formulating monetary policy and supervising the smooth operation of the
financial system.

Monetary policy can either be expansionary or contractionary, where an expansionary

policy increases the total supply of money in the economy more rapidly than usual, this form
of policy is traditionally used to try to combat unemployment in a recession by making easy
credit available in the hope that easy credit will entice businesses to expand. On the other
hand contractionary policy expands the money supply more slowly than usual or even shrinks
it by making credit dearer to discourage borrowing, which is intended to slow inflation in
order to avoid the resulting distortions and deterioration of asset values.

Some ways to manage the monetary policy:

Monetary base
The first tactic manages the money supply. This mainly involves buying government bonds
for expanding the money supply or selling them for contracting the money supply, these are
known as open market operations, because the central bank buys and sells government bonds
in public market. When the central bank disburses or collects payment for these bonds, it
alters the amount of money in the economy, i.e. the change in the amount of money in the
economy which is called monetary base.

Interest rates
The second tactic manages money demand. Demand for money, like demand for most things,
is sensitive to price. For money, the price is the interest rates charged to borrowers. Setting
banking system lending or interest rates in order to manage money demand is a major tool
used by central banks. Ordinarily, a central bank conducts monetary policy by raising or
lowering its interest rate target for the interbank interest rate.

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Reserve requirements
The monetary authoritys third tactic exerts regulatory control over banks. Monetary policy
can be implemented by changing the proportion of total assets that banks must hold in reserve
with the central bank. Banks only maintain a small portion of their assets as cash available for
immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans. By
changing the proportion of total assets to be held as liquid cash, the central bank changes the
availability of loanable funds. This acts as a change in the money supply. Example alteration in cash reserve ratio and statutory liquidity ratio.

What are Policy Rates?

At first let us consider two similar rates bank rate and repo rate.

BANK RATE is the rate of interest that commercial banks and other financial intermediaries
have to pay on the loan that they take from countrys central or federal bank. REPO RATE
is similar to bank rate except that it is applicable to short term loans while bank rate is
applicable to long term loans. In India Reserve Bank of India (RBI) is central bank.
REVERSE REPO RATE is the counterpart of repo rate. It is the rate of interest commercial
banks and other financial intermediaries receive on excess funds they deposit with the central
bank. The three above mentioned rates are also referred to as POLICY RATES.

What are Reserve Ratios?

Cash Reserve Ratio is the percentage of their total deposits that the commercial banks have
to keep in central bank in form of cash. Statutory Liquidity Ratio is similar to CRR except
that apart from cash other liquid assets like precious metals such as gold and approved short
term securities like treasury bills may be used to meet the reserve requirements.

The RBI reviews these rates and ratios on a monthly basis with intent to keep a check on
money supply and inflation rate in economy. In order to increase the supply of money in
economy RBI may decrease its policy rates and reserve ratios. The decrease will have the
combined effect of increasing the deposits available with the commercial banks which may
be offered as loans to general public thereby pumping money into the economy.

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What is Marginal Standing Facility (MSF)?

MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India
(RBI) against approved government securities. This came into effect in May 2011. Under the
Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight
basis against their excess statutory liquidity ratio (SLR) holdings.

MARKETING
Glossary of Marketing Terms
Above the Line Promotion: Above-the-line promotion is based on advertising in mass
media, such as newspapers, television, radio, cinema and the internet. This type of promotion
reaches a wide audience.
Advertising: The activity or profession of producing advertisements for commercial products
or services.
AIDA Concept: The formula used in selling to produce a favourable response from a
customer. It states that first a potential customer should be made Aware about the product.
Then, an Interest is to be generated in the customer about the product. This interest would
stimulate Desire, which would finally result in Action, i.e. buying of the product.
Ansoff Matrix: A model showing the possible product-market strategies of an organization;
these are considered the main marketing strategies and comprise: market penetration, product
development, market and diversification. The 2 x 2 matrix axes are: new and existing
products along one axis and new and existing markets along the other.

Behavioral Segmentation: The division of market into a group based on the customers
knowledge and behavior towards a particular product. Some behavioral dimensions used to
segregate customers are user status, user rate, loyalty status, and buyer readiness status.

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Below the Line Advertising: In general, an advertising strategy in which a product is

promoted in mediums other than radio, television, billboards, print, film and the internet.
Types of below the line advertising commonly include direct mail campaigns, trade shows
and catalogs; this advertising type tends to be less expensive and more focused.
Brand: A unique identifiable name, symbol, image associated with a product which
distinguishes it from its competitors.
Brand Equity: It is a term used in reference to the value of a well-known brand. For e.g.
Apple has greater brand equity than Samsung in mobile phones.
Crowd Sourcing: It is the practice of obtaining information or services by soliciting input
from a large number of people, typically via the Internet, often without offering
compensation. Indiegogo is an example of crowdsourcing in India.
Customer Value Proposition: The sum total of benefits which a seller promises a customer
in return for the customers payment.
Landfill marketing: The large volume of poorly targeted marketing messages found online,
created with little strategic thought for what its purpose is.
Market Segmentation: Breaking down a large target market into smaller sub group of
Customers having similar needs and wants.
Market Share: It is the percentage of total sales captured by a product, company or brand.
Niche Marketing: Niche Marketing is the act of segmenting the market for a specific
product and marketing intently to a small subset of the market, rather than pursuing a smaller
share of a larger market.
Showrooming: Means a specific shopper behaviour, when customers come to the real store
to experience some product and then go back home and order it online at a lower price.
Amazon is best known for this, even going so far as to offer a discount to customers who
found items they wanted and then used Amazons price check app to make a purchase while
still standing in the store.

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SoLoMo: This is the new buzzword being thrown around by marketing teams. SoLoMo,
which stands for Social-Local-Mobile, refers to the integration of social, location-based, and
mobile marketing tools into new customer acquisition platforms. It allows the marketer to
reach the right customer with right message, in the right time and place.
Consumers seamless moves between channels and platforms make it incumbent on
Marketers to have an integrated strategy. Someone can check-in to a store using a location
based app like Foursquare, redeem an offer, share a comment on that platform, and then
immediately post an update to their Facebook wall or other platform, all the while referencing
the retailers Facebook page.
Now more than ever marketers must walk in a customers shoes and identify where the
customer experience isnt up to par.
Target Market: The consumers a company wants to sell its products and services to, and to
whom it directs its marketing efforts.
White label products: A white-label product or service is a product or service produced by
one company (the producer) that other companies (the marketers) rebrand to make it appear
as if they made it. For example the same model of mobile phone may be sold by Spice
Mobiles and Intex under different names.

Marketing Concepts
What is marketing?
In the simplistic sense marketing is managing profitable customer relationships. The twofold
goal of marketing is to attract new customers by promising superior customer value and to
keep and grow current customers by delivering satisfaction.

The Marketing Mix

The Marketing mix is a set of four decisions which need to be taken before launching any
new product. These variables are also known as the 4 Ps of marketing. These four variables
help the firm in making strategic decisions necessary for the smooth running of any product /
organization. These variables are
1. Product
2. Price
33 | P a g e

3. Place
4. Promotions
Marketing mix is mainly of two types.
1) Product marketing mix Comprises of Product, price, place and promotions. This
marketing mix is mainly used in case of Tangible goods.
2) Service marketing mix The service marketing mix has three further variables
included which are people, physical evidence and process.
It has 7Ps of Marketing:
Product: It is the tangible object or an
intangible service that is getting
marketed

through

the

program.

Tangible products may be items like

consumer goods (Toothpaste, Soaps,
and Shampoos) or consumer durables
(Watches, IPods). Intangible products
are service based like the tourism
industry and information technology
based

services

or

codes-based

products like cell phone load and

credits. Product design which leads to
the product attributes is the most important factor. However packaging also needs to be taken
into consideration while deciding this factor. Every product is subject to a life-cycle
including a growth phase followed by an eventual period of decline as the product
approaches market saturation. To retain its competitiveness in the market, continuous product
extensions though innovation and thus differentiation is required and is one of the strategies
to differentiate a product from its competitors.
Price: The price is the amount a customer pays for the product. If the price paid outweigh the
perceived benefits for an individual, the perceived value of the offering will be low and it will
be unlikely to be adopted, but if the benefits are perceived as greater than their costs, chances
of trial and adoption of the product is much greater.

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Place: Place represents the location where a product can be purchased. It is often referred to
as the distribution channel. This may include any physical store (supermarket, departmental
stores) as well as virtual stores (e-markets and e-malls) on the Internet. This is crucial as this
provides the place utility to the consumer, which often becomes a deciding factor for the
purchase of many products across multiple product categories.
Promotion: This represents all of the communications that a marketer may use in the
marketplace to increase awareness about the product and its benefits to the target segment.
Promotion has four distinct elements: advertising, public relations, personal selling and sales
promotion. A certain amount of crossover occurs when promotion uses the four principal
elements together (e.g. in film promotion). Sales staff often plays a major role in promotion
of a product.
People: People are crucial in service delivery. The best food may not seem equally palatable
if the waitress is in a sour mood. A smile always helps. Intensive training for your human
resources on how to handle customers and how to deal with contingencies is crucial for your
success.
Processes: Processes are important to deliver a quality service. Services being intangible,
processes become all the more crucial to ensure standards are met with. Process mapping
ensures that your service is perceived as being dependable by your target segment.
Physical evidence: Physical evidence affects the customers satisfaction. Often, services
being intangible, customers depend on other cues to judge the offering. This is where
physical evidence plays a part. Would you like eating at a joint where the table is greasy or
the waitresses and cooks look untidy and wear a stained apron? Surely you would evaluate
the quality of your experience through proxies such as these.

Segmentation, Targeting and Positioning

Segmentation
For most of the earlier era, marketing worked under the presumption that there was a mass
market for products and services. That is, there was a belief that most consumers were very
similar and hence could be catered with the same goods and services.

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This was considered a lucrative strategy because it created a large potential market and
higher profit margins. Then came the concept of market segmentation, which changed the
way goods and services were designed and catered to different customer segments.
Market segmentation can be said as the division of markets into specific groups that are
homogenous but at the same time different from other groups.
Segmentation allows marketers to:

Quickly detect trends in a rapidly changing environment

Design products and brands that truly meet the demands of the target market

Determine the most effective communication appeal

There exist some criteria for effective segmentation. A few important aspects are:

A segment needs to be able to be identified and measured. Marketers should be

able to distinguish those who fit in the segment and those who do not.

A segment needs to have a distinctive identity that makes it different from the rest
as well as visible elements that make it measurable.

A segment has to be accessible. That means that reaching individuals within the
segment should be economically sustainable.

A segment has to be substantial, i.e. it must be large enough to justify a separate

marketing program.

A segment has to be responsive, so that the efforts of segmentation and catering to

those identified segment(s) are worth undertaking.

Strategies for Segmentation:

There are many ways in which a market can be segmented. Approaches to segmentation
result from answers to the questions: where, who, why and how?
A marketer decides which strategy is best for a given product or service. Sometimes the best
option arises from using different strategies in conjunction.
Geographic segmentation: Where?
Geographic segmentation is the division of the market according to different geographical
units like continents, countries, regions, counties or neighborhoods. This form of

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segmentation provides the marketer with a quick snapshot of consumers within a delimited
area.
But this strategy fails to take into consideration other important variables such as personality,
age and consumer lifestyles.
Demographic segmentation: Who?
A very popular form of dividing the market is through demographic variables. Understanding
who consumers are will enable you to more closely identify and understand their needs,
product and services usage rates and wants.
Understanding who consumers are requires companies to divide consumers into groups based
on variables such as gender, age, income, social class, religion, race or family lifecycle.
A clear advantage of this strategy over others is that there is large amount of secondary data
available that will enable to divide a market according to demographic variables.
Psycho-demographic segmentation: Why?
Unlike demographic segmentation strategies that describe who is purchasing a product or
service, psycho-demographic segmentation attempts to answer the 'why's' regarding
consumer's purchasing behavior. Through this segmentation strategy markets are divided into
groups based on personality, lifestyle and values.
Targeting
After categorizing the consumers into various segments, the firm has to evaluate the various
segments in order to decide how many
and which segments it can serve best.
Some of the most important factors of
evaluation are:
Companys objectives and
resources
Segment attractiveness (current
sales,

growth

rates,

expected

profitability etc.)

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Product and Market variability

Competitors in the segment

Bargaining of suppliers and buyers in the segment

Availability of substitute products

After evaluating different segments, the company must decide which and how many
segments it will target. A Target market consists of a set of buyers who share common needs
or characteristics that the company decides to serve i.e. selection of potential customers to
whom the company wishes to cater to.
For e.g., HUL targets only affluent women who seek moisturizing benefits with Dove while
with Rexona, it seeks to appeal to mass, semi-urban and rural customers.
Positioning
A products position is the way the product is defined by consumers on important attributesThe place the product occupies in consumers minds relative to competing products
E.g. Tide is positioned as a powerful, all-purpose family detergent; Ariel is positioned as the
gentle detergent for fine washables. Maruti Suzuki 800 is positioned on economy, Mercedes
and Cadillac on luxury and BMW
on performance.
Consumers

position

products

with or without help of marketers.

But marketers must make sure
that they dont leave a products
position to chance.
Biggest positioning blunder in
recent times:
The over emphasis on price and
the tag cheap car positioned Nano as in a negative light, something people would not take
pride in ownership. It was perceived as a poor mans car as opposed to the fact that it is a
very much an affordable family car. This has caused the debacle of the car despite its value
engineering and brilliant innovation.

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It has tried to break the cheap tag by adding a

more

emotive

personality

through

its

communication and ads which portray Nano

as a perfect four wheeler for the young,
vibrant, youth who are generally first time
car owners seeking an easy on pocket
product.
Now the brand is trying to resurrect its image
by trying to position itself as a smart city car,
a mobility solution for the soaring city traffic
and parking issues through the latest Tata Nano Twist advertisement.

BCG Growth sharing Matrix

It is a portfolio planning tool developed by Bruce H. Henderson for the Boston consulting
group in 1970. BCG matrix is used to determine what priority should be given to a product in

a product portfolio of business. The BCG matrix has two dimensions called market growth
and market share. To sustain in the market and create long term value, it is necessary that
company have products which are in high growth segment as well as which produce a lot of
cash for the company.
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Products can be placed in 4 categories in BCG matrix.

1. Stars ( high growth , high market share )

Generates large amount of cash due to their leadership in business but also
consumes a lot of cash.

Every effort should be made to hold share as rewards will be great when the
growth rate declines and it turns into cash cow.

2. Cash Cows ( low growth , high market share)

High cash and profit generation due to huge market share.

Least investments are required to sustain; Foundation of any company.

3. Dogs : ( low market share as well as growth rate )

Milk them as long as you can without any further investment

Avoid any big turnaround plan for the product; if product is not generating cash
liquidate them.

4. Question marks( high growth , low market share )

High demand but low return due to low market share.

Absorb a lot of cash to if steps are not taken increase the market share and later
turns into dog.

Either invest heavily to shift them to star category or sell off or invest nothing and
generate whatever cash can be generated.

BCG matrix also has few limitations:

1. Market growth is only one of the indicator of attractiveness of the industry. There can
be several other factors which determines attractiveness of an industry.
2. High market share might be just one success factor. There are many other factors
which play a very important role in products success/failure.
3. Business units are not always independent. Sometimes a dog can earn more cash than
cash cow.

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What is the difference between marketing and branding?

There is a spectrum of opinions here, but majorly, marketing is actively promoting a product
or service. Its a push tactic. Its pushing out a message to get sales results: Buy our product
because its better than theirs. (Or because its cool, or because this celebrity likes it, or
because you have this problem and this thing will fix it, etc.) This is oversimplification, but
thats it in a nutshell.
This is not branding. Branding should both precede and underlie any marketing effort.
Branding is not push, but pull. Branding is the expression of the essential truth or value of an
organization, product, or service. It is communication of characteristics, values, and attributes
that clarify what this particular brand is and is not.
A brand will help encourage someone to buy a product, and it directly supports whatever
sales or marketing activities are in play, but the brand does not explicitly say buy me.
Instead, it says This is what I am. This is why I exist. If you agree, if you like me, you can
buy me, support me, and recommend me to your friends.
Branding is strategic. Marketing is tactical.
Marketing may contribute to a brand, but the brand is bigger than any particular marketing
effort. The brand is what remains after the marketing has swept through the room. Its what
sticks in your mind associated with a product, service, or organizationwhether or not, at
that particular moment, you bought or did not buy.
The brand is ultimately what determines if you will become a loyal customer or not. The
marketing may convince you to buy a particular Toyota, and maybe its the first foreign car
you ever owned, but it is the brand that will determine if you will only buy Toyotas for the
rest of your life.
The brand is built from many things. Very important among these things is the lived
experience of the brand. Did that car deliver on its brand promise of reliability? Did the
maker continue to uphold the quality standards that made them what they are? Did the sales
guy or the service center mechanic know what they were talking about?

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Marketing unearths and activates buyers. Branding makes loyal customers, advocates,
even evangelists out of those who buy.
This works the same way for all types of businesses and organizations. All organizations
must sell (including non-profits). How they sell may differ, and everyone in an organization
is, with their every action, either constructing or deconstructing the brand. Every thought,
every action, every policy, every ad, every marketing promotion has the effect of either
inspiring or deterring brand loyalty in whomever is exposed to it. All of this affects sales.
Branding is as vital to the success of a business or non-profit as having financial coherence,
having a vision for the future, or having quality employees.
It is the essential foundation for a successful operation. So yes, its a cost center, like good
employees, financial experts, and business or organizational innovators are. They are cost
centers, but what is REALLY costly is not to have them, or to have substandard ones.

ORGANIZATION BEHAVIOUR & HRM

It is a field of study that investigates the impact that individuals, groups and structures
have on behaviour within an organization, for the purpose of applying such knowledge
towards improving an organizations effectiveness.
Behaviour is a function of person and situation. It is internally caused and externally
determined. Prof. Bhupen Srivastava
ATTITUDE
Attitude is an evaluative statement or judgement concerning objects, people or events.
Attitude has following 3 components that are closely related and impact each other:
i.

Cognitive: The opinion or belief segment, i.e. the evaluation

ii.

Affective: The emotional segment, i.e. the feeling

iii.

Behavioural: The intention to behave a certain way, i.e. the action

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EMOTIONAL INTELLIGENCE
The ability to detect and to manage emotional cues and information; studies suggest that
higher EI, and not IQ, characterizes high performers.
PERSONALITY
Personality = Nature (heredity, genetics) + Nurture (experiences, upbringing, environment)
Myer Briggs Type Indicator: A personality test that measures four characteristics
and classifies people into 16 categories depending on whether they are
1. Extraverted (E) or Introverted (I)

2. Sensing(S) or Intuitive (N)

3. Thinking (T) or Feeling (F)

4. Judging (J) or Perceiving (P)

Big 5 Personality Model: 5 basic dimensions of human personality

1. Extraversion

2. Agreeableness

4. Emotional Stability

5. Openness to experience

3. Conscientiousness

VALUES
Basic convictions that a specific mode of conduct or end-state of existence is personally or
socially preferable to an opposite or converse mode of conduct or end-state of existence.
PERCEPTION
A process by which individuals organize and interpret their sensory impressions in order to
give meaning to their environment
MOTIVATION
It is the process that accounts for an individuals intensity, direction and persistence of effort
toward attaining a goal
Theories of Motivation
a) Hierarchy of Needs Theory
There is a hierarchy of five needsphysiological, safety, social, esteem, and selfactualization; as each need is substantially satisfied, the next need becomes dominant.
Self-Actualization: The drive to become what one is capable of becoming
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b) Theory X and Theory Y (Douglas McGregor)

Theory X: Assumes that employees dislike work, lack ambition, avoid responsibility,
and must be directed and coerced to perform.
Theory Y-Assumes that employees like work, seek responsibility, are capable of
making decisions, and exercise self-direction and self-control when committed to a
goal.
c) Two-Factor Theory (Frederick Herzberg)
Intrinsic factors are related to job satisfaction, while extrinsic factors are associated
with dissatisfaction.
Hygiene Factors- Factorssuch as company policy and administration, supervision,
and salarythat, when adequate in a job, placate workers. When factors are adequate,
people will not be dissatisfied.
d) David McClellands Theory of Needs
Need for Achievement- The drive to excel, to achieve in relation to a set of
standards, to strive to succeed.
Need for Affiliation- The desire for friendly and close personal relationships.
Need for Power- The need to make others behave in a way that they would not have
behaved otherwise.
e) Cognitive Evaluation Theory
Providing an extrinsic reward for behavior that had been previously only intrinsically
rewarding tends to decrease the overall level of motivation.
f) Goal-Setting Theory (Edwin Locke)
The theory that specific and difficult goals, along with feedback, lead to higher
performance is called Goal setting Theory.
Self-Efficacy- It is an individuals belief that he or she is capable of performing a
task.

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g) Equity Theory
Individuals compare their job inputs and outcomes with those of others and then
respond to eliminate any inequities.
h) Expectancy Theory (Victor Vroom)
The strength of a tendency to act in a certain way depends on the strength of an
expectation that the act will be followed by a given outcome and on the attractiveness
of that outcome to the individual.
LEADERSHIP
1. Leadership is the ability to influence a group toward the achievement of a vision or a
set of goals
2. Organizations need strong leadership and strong management for optimal
effectiveness
Trait Theories of Leadership: Theories that consider personal qualities and characteristics
that differentiate leaders from non-leaders
Behavioral Theories of Leadership: Theories proposing that specific behaviors differentiate
leaders from non-leaders
Contingency Theories: These are the contingency theories of Leadership
1. The Fiedler Model
2. Situational leadership theory
3. Leader-Member exchange theory

INDUSTRIAL RELATIONS
The term Industrial Relations comprises of two terms: Industry and Relations.
Industry refers to any productive activity in which an individual (or a group of
individuals) is (are) engaged. By relations we mean the relationships that exist within the
industry between the employer and his workmen. The term industrial relations explains the
relationship between employees and management which stem directly or indirectly from
union-employer relationship.

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IMPORTANT TERMS
1. INDUSTRY- Industrial Disputes Act 1947 defines an industry as any systematic
activity carried on by co-operation between an employer and his workmen for the
production, supply or distribution of goods or services with a view to satisfy human
wants or wishes whether or not any capital has been invested for the purpose of
carrying on such activity; or such activity is carried on with a motive to make any gain
or profit. Thus, an industry is a whole gamut of activities that are carried on by an
employer with the help of his employees and labors for production and distribution of
goods to earn profits.

2. EMPLOYER- As per Industrial Disputes Act 1947 an employer means:

in relation to an industry carried on by or under the authority of any department of

[the Central Government or a State Government], the authority prescribed in this

behalf, or where no authority is prescribed, the head of the department;

in relation to an industry carried on by or on behalf of a local authority, the chief

executive officer of that authority

3. EMPLOYEE- In order to qualify to be an employee, under ESI Act, a person should

belong to any of the categories:

Those who are directly employed for wages by the principal employer within the
premises or outside in connection with work of the factory or establishment.

Those employed for wages by or through an immediate employer in the premises

of the factory or establishment in connection with the work thereof

Those employed for wages by or through an immediate employer in connection

with the factory or establishment outside the premises of such factory or
establishment under the supervision and control of the principal employer or his

agent.

Employees whose services are temporarily lent or let on hire to the principal
employer by an immediate employer under a contract of service (employees of
security contractors, labor contractors, housekeeping contractors etc. come under
this category).

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4. LABOR MARKET- The market in which workers compete for jobs and employers
compete for workers. It acts as the external source from which organizations attract
employees. These markets occur because different conditions characterize different
geographical areas, industries, occupations, and professions at any given time
ACTORS IN THE IR SYSTE

INDUSTRIAL DISPUTES ACT 1947

The objective of the Industrial Disputes Act is to secure industrial peace and harmony by
providing machinery and procedure for the investigation and settlement of

industrial

disputes by negotiations.
FACTORIES ACT 1948
Objectives:
1. To ensure adequate safety measures and to promote the health and welfare of the
workers employed in factories
2. To prevent haphazard growth of factories through the provisions related to the
approval of plans before the creation of a factory
3. To regulate the working condition in factories
4. Regulate the working hours, leave, holidays, overtime, and employment of children,
women and young persons

Human Resource Management

Human Resource Management includes the policies, practices and systems that influence
employees behavior, attitudes and performance. The following practices come under scope
of HRM:

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Job Analysis &

Design

Manpower
Planning

Recruitment
& Selection

Training &
Delopment

Compensation

Performance
Management

Employee
Relation

JOB ANALYSIS
Job analysis is the procedure to determine the duties of jobs & the characteristics of the for
people who should be hired them. It is used to develop job descriptions & job
specifications.
JOB DESCRIPTION
Job descriptions are written statements that describe the following:

Tasks

Duties

Responsibilities

Required qualifications of candidates

Reporting relationship and co-workers of a particular job

Job descriptions are based on objective information obtained through job analysis, an
understanding of the competencies and skills required to accomplish needed tasks, and the
needs of the organization to produce work.

JOB SPECIFICATION
Job specification describes the knowledge, skills, education, experience, and abilities that are
essential to perform a particular job. The job specification is developed from the job analysis.

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Ideally, also developed from a detailed job description, the job specification describes the
person you want to hire for a particular job.
Components of a Job Specification

Experience

Education

Required Skills, Knowledge and Characteristics

High Level Overview of Job Requirements

MANPOWER PLANNING
It is the continuous process of planning the human resource of an organization to meet the
demand in terms of numbers and the quality. The process involves the critical task to balance
the supply and demand of human resource to optimally utilize the resources.
RECRUITMENT
It is a systematic process of generating a pool of qualified applicants to meet an
organizations job requirements. The process includes steps like attracting talent pool and
their basic screening. This process comes just after manpower planning.
SELECTION
The process of selection begins right after recruitment. The purpose is to identify the right fit
for the right job i.e. whether the qualifications of an applicant suit the job for which he is
being considered or not. The applicant who is most likely to perform well on that job is
selected.
EMPLOYEE ENGAGEMENT
Employee Engagement is a measurable degree of an employee's positive or negative
emotional attachment to their job, colleagues and organization that profoundly influences
their willingness to learn and perform at work.

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Training & Development

Training and Development is a planned process through which an organization helps its
employees to acquire job related knowledge, skills, abilities and behaviours, with the goal of
applying these on the job. It ensures that learning and behavioural changes take place in
structured format.
DIFFERENT METHODS OF TRAINING

Class room instruction- less expensive, less time consuming, allows group interaction.

Audio-visual and computer based training

On the job training methods-apprenticeship, internship

Simulation exercise- a real life like situation based training

Business games and case studies- for practicing decision making skills

Behavior modelling- observe desired behaviors, effective for interpersonal skills

Experiential and adventure learning- group dynamics in challenging circumstances

Team training- focus on team achievement of a particular goal

COMPETENCIES
Competency is a set of clustered KSA`s together with behaviors. It is a set of underlying
characteristics of an employee (motive, trait, skill, aspect of one`s self image, social role),
which result in effective and superior performance.

Performance Management System

PMS or Performance Management System is a process in which managers decide what
activities and outputs are desired by the organization, observe whether they occur and then
provide feedback. It ensures that employees activities and goals contribute to the
organizations goal.

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PROCESS OF PMS
Vision, Mission and Strategy of Organization

Discussions on setting objectives aligned to vision, mission and strategy

Development of KRA`s by managers and supervisors

Deployment of KRA`S by employees

Regular feedback through coaching and mentoring

One-to-One discussions

Updation of goal sheet by employees

Approval of goal sheet filled by employees with feedbacks by supervisors

Final Rating and Final Discussions with reward giving

METHODS OF PMS IN ORGANIZATIONS

Forced choice method normalization is done among employees ie. Below average,
average, above average, good, excellent

360 degree assessment/Performance Potential Matrix

Rotation of High/Low Performers

Individual and Group Rewards

KRA`s

Drivers of performance

Individual KRA should be aligned with divisional and organizational goals

KRAs should be SMART Specific, Measurable, Achievable, Relevant, Time-Bound

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Compensation
Compensation or Pay is a statement of an employees worth by an employer. It is a
perception of worth by an employee. It is a powerful tool for meeting the organizations
goals. It has large impact on employee attitudes and behaviors. Compensation is an integral
part of human resource management which helps in motivating the employees and improving
organizational effectiveness

BENEFITS
Employee benefits are the indirect financial payments an employee receives. They are
compensation in forms other than cash. They account for over one-third of the total cost of
company payrolls
Benefits are important because:
a) Benefits contribute to attracting, retaining, and motivating employees.
b) The variety of possible benefits helps employers tailor their compensation to the kinds
of employees they need.
c) Employees have come to expect that benefits will help them maintain economic
security.
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d) Providing benefits more than minimum helps an organization compete in labor

market.
e) Benefits impose significant costs and many are required by law.

Organizational Design
OD is a deliberately planned, organization-wide intervention to increase an organizations
effectiveness (improving the impact of a certain strategy) or efficiency (improving
organization productivity). Douglas McGregor and Richard Beckhard coined the term
organization development (OD) to describe an innovative bottoms-up change effort that fit no
traditional consulting categories.
Effective organizational development can assist organizations and individuals to cope with
change. Strategies can be developed to introduce planned change, such as improved
interpersonal and group processes, more effective communication, enhanced ability to cope
with organizational problems of all kinds, more effective decision processes, more
appropriate leadership style, improved skill in dealing with destructive conflict, and higher
levels of trust and cooperation among organizational members, to improve organizational
functioning.
Change will not occur unless the need for change is critical. Because individuals and
organizations usually resist change, they typically do not embrace change unless they must.
Planned change takes conscious and diligent effort on the part of the educator or manager.
Thus, originated the concept of the change master or change agent: a person or organization
adept at the art of anticipating the need for and of leading productive change.
Kurt Lewin is known as the father of OD. He laid the foundations of OD through his work on
Group Dynamics (the way groups and individuals act and react to changing circumstances)
and Action Research (reflective process of problem solving led by individuals working in
teams or as part of a community; composed of a cycle of planning, action and fact-finding
about the result of the action). He founded the "Research Centre for Group Dynamics" from
which the T-groups and group-based OD emerged.
Concerned with social change and, more particularly, with effective, permanent social
change, Lewin believed that the motivation to change was strongly related to action: If people
are active in decisions affecting them, they are more likely to adopt new ways. "Rational
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social management", he said, "proceeds in a spiral of steps, each of which is composed of a

circle of planning, action and fact-finding about the result of action".

OPERATIONS
What is Operations?
Operations is generally used as an umbrella term to refer to the corporate area responsible for
actually producing goods and services. This includes all the activities required to create and
deliver a product or service, from selecting suppliers and/or raw materials to supply chain
management and distribution.
The organization of these different activities within the company implies a vision of the
business as different processes. Of all the corporate divisions, operations tends to require the
greatest number of employees and assets. Generally in charge of product and service quality,
operations is also the key basis on which the companys long-term performance rests. For this
reason, operations is increasingly seen as a source of competitive advantage because correctly
managing this area is fundamental to ensuring the companys carefully crafted strategy
becomes reality; without operations, corporate strategy would run the risk of remaining a
merely theoretical exercise.

What is Operations Management?

Operations Management deals with the design and management of products, processes,
services and supply chains. It considers the acquisition, development, and utilization of
resources that firms need to deliver the goods and services their clients want.
The purview of OM ranges from strategic to tactical and operational levels. Representative
strategic issues include determining the size and location of manufacturing plants, deciding
the structure of service or telecommunications networks, and designing technology supply
chains.
Tactical issues include plant layout and structure, project management methods, and
equipment selection and replacement. Operational issues include production scheduling and
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control, inventory management, quality control and inspection, traffic and materials handling,
and equipment maintenance policies.

Supply Chain Management

Supply chain management is the integration of the activities that procure materials and
services, transform them into intermediate goods and final products, and deliver them
through a distribution system.

Elements of Supply Chain

A simple supply chain is made up of several elements that are linked by the movement of
products along it. The supply chain starts and ends with the customer.
1. Transportation vendors
2. Credit and cash transfers
3. Suppliers
4. Distributors
5. Accounts payable and receivable
6. Warehousing and inventory
7. Order fulfillment
8. Sharing customer, forecasting, and production information

Supply Chain Management Decisions

To ensure that the supply chain is operating as efficient as possible and generating the highest
level of customer satisfaction at the lowest cost, companies have adopted Supply Chain
Management decision making activities at different levels:
1. Strategic : At this level, company management will be looking to high level strategic
decisions concerning the whole organization
2. Tactical: Tactical decisions focus on adopting measures that will produce cost
benefits such as using industry best practices, developing a purchasing strategy with
favored suppliers, working with logistics companies to develop cost effect
transportation and developing warehouse strategies to reduce the cost of storing
inventory.
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3. Operational: Decisions at this level are made each day in businesses that affect how
the products move along the supply chain.

Other Factors to be considered

1. Supply chain Risk
2. Ethics and Sustainability
3. Supply chain Economics
4. Make or Buy Decisions
5. Outsourcing
6. Supply Chain Strategies
a. Supplier Strategies: Few suppliers, many suppliers
b. Vertical integration
c. Joint Ventures
7. Vendor Management: Vendor selection, vendor development, vendor evaluation

Supply Chain Management Technology

Companies make some investment in technology in order to get benefit from their supply
chain management process. The backbone for many large companies has been the vastly
expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. These
enterprise software implementations will encompass a companys entire supply chain, from
purchasing of raw materials to warranty service of items sold.

Project management
It is the application of knowledge, skills and techniques to execute projects effectively and
efficiently. Its a strategic competency for organizations, enabling them to tie project results
to business goals and thus, better compete in their markets.
Planning of projects:
The success of a project will depend critically upon the effort, care and skill you apply in its
initial planning. As a manager, you have to provide some form of framework both to plan and to
communicate what needs doing. Without a structure, the work is a series of unrelated tasks which
provides little sense of achievement and no feeling of advancement. WBS (Work break down
structure) is one technique to achieve the same tools to show a project schedule include
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Gantt chart, Project network diagram (Activity On the Node (AON) diagram, Critical path
analysis, PERT charts, Precedence diagramming method (PDM), Critical chain project
management (CCPM)) the finale of planning calls for project cost estimation. The budget is
determined from the project schedule, the cost assigned to tasks, and other indirect costs or
resources.
Implementation of projects:
Two basic issues why the implicit assumption in the project network numbers that resources
will be available in the required amounts when needed is not realistic:
1. May not have adequate resources
2. Want to use resources efficiently, avoid peaks and valleys in resource utilization

Resource levelling: Any form of network analysis where resources management issues drive
scheduling decisions. It incorporates the resource constraints in terms of human resource, raw
material, working capital management. Time constraint is yet another limiting factor for
projects.
Crashing: This incorporates various techniques to focus on reducing the duration of activities on
the critical path to shorten overall duration of the project. Its a time vs cost trade off.

Project Evaluation & Control:

Mile stone analysis: Milestones

are events or stages of the project that represent a
significant accomplishment.
Tracking Gannt
Chart: Project status is updated by linking task completion to the
schedule baseline
Earned Value Analysis: it includes various steps:

o Clearly define each activity including its resource needs and

budget o Create usage schedules for activities and resources
o

Develop a time-phased budget (PV)

Total the actual costs of doing each task (AC)

o Calculate both the budget variance (CV) and schedule variance (SV)

Project S curve

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Lean Manufacturing
Lean Manufacturing is a way to eliminate waste and improve efficiency in a manufacturing
environment. Lean Manufacturing is the production of goods using less of everything
compared to traditional mass production: less waste, human effort, manufacturing space,
investment in tools, inventory, and engineering time to develop a new product.
It is renowned for its focus on reduction of the seven wastes to improve overall customer
value. The seven wastes are:

Transport (moving products that are not actually required to perform the processing)
Inventory (all components, work in process and finished product not being processed)
Motion (people or equipment moving or walking more than is required to perform the
processing)
Waiting (waiting for the next production step, interruptions of production during shift
change)
Overproduction (production ahead of demand)
Over Processing (resulting from poor tool or product design creating activity)
Defects (the effort involved in inspecting for and fixing defects)

Lean Manufacturing is sometimes called as Toyota Production systems as many major

innovations and developments in lean happened at Toyota. Lean was generated from JIT
(Just-in-time) philosophy of continuous improvement and forced problem solving. JIT is
supplying customers with what they want and when they want.
Key Lean Manufacturing Techniques:
5s: It is a strategy for creating a well organized, smoothly flowing manufacturing process. 5s
include:
1. Sort
2. Stabilize
3. Shine
4. Standardize
5. Sustain

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SMED (Single Minute Exchange of Dies): It is a constant improvement program that

focuses on rapid conversion from manufacturing one product to the next. It reduces the cost
of set ups and decreases the required skill level of operators.
Kanban: It is a system that uses replenishment signals to simplify inventory management. It
usually uses signals (usually cards) that hold the product details like what to make, when to
make, how much to make and where to send

Six Sigma
Six Sigma is a statistical tool to ensure quality by measuring how far a process deviates from
perfection. This is done by measuring number of defects per million opportunities, where
each opportunity is a chance for not meeting the required specification. A six sigma process
is one in which 99.99966% of the products manufactured are statistically expected to be free
of defects (3.4 defective parts/million). It was developed by Motorola in 1986 and
implemented widely in General Electric in 1995.
Applications of Six Sigma:
Six sigma can be used for all kinds of process and hence finds applications in wide range of
industries including manufacturing, health care, construction etc. In short it can be applied to
industries of all sizes to get the benefits of reduced process cycle time, reduced costs,
increased customer satisfaction, increased profits and standardized business development.
Six Sigma Methodology and Tools:
Six sigma employs a systematic methodology for the application of various statistical tools
available using the DMAIC cycle Define, Measure, Analyze, Improve and Control.

Define Identify focus area (process) based on business requirements.

Measure- Determine how to measure the process and its performance.
Analyze Determine potential causes of defects by identifying key variables which
might cause process variations.
Improve Identify means to remove causes of defects, clearly define acceptable
ranges for key variables and modify process to stay within the acceptable range.
Control Standardize the process to ensure the improvements are maintained.

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Some of the tools used for Six sigma include flowcharts, run charts, pareto charts, check
sheets, cause and effect diagrams, opportunity flow diagram, control charts, failure mode and
effect analysis and design of experiments.
Lean Six Sigma:
Lean Six Sigma is a process improvement concept combining Lean and Six Sigma to
eliminate different kinds of wastes and to ensure improved capability of performance to help
organizations operate more efficiently. Lean Six Sigma offers companies the opportunity to
rethink their entire business and create a more innovative environment. Lean Six Sigma finds
its applications in product as well as service industries and the major companies benefitted by
applying this concept include General Electric, Xerox Corporation, Johnson and Johnson,
IBM etc.

Inventory Control
Inventory is the stock of any item or resource used in an organization. An Inventory system
is the set of policies and controls that monitor levels of inventory and determine what levels
should be maintained, when stock should be replenished, and how large orders should be.

Manufacturing Inventory refers to the items that contribute to or become part of a firms
product output. It is classified into raw materials, finished products, component parts,
supplies and work-in-process.
Service Inventory refers to the tangible goods to be sold and the supplies necessary to
administer the service.
Inventory analysis essentially answers the following questions:
1. WHEN items should be ordered
2. HOW LARGE the order should be
Purpose of inventory:
1. To maintain independence of operations: Since the number of production setups is
minimized, the costs associated with each can be reduced.
2. To meet variation in the product demand.

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3. To allow flexibility in product scheduling: It permits smoother flow and lower-cost

operations through larger lot size production.
4. To provide a safeguard for variation in raw material delivery time: It provides a
cushion against delays that can be caused by strikes, lost orders, incorrect or defective
material, etc.
5. To take advantage of economic purchase order size ie. the optimum order size to
reduce various inventory costs.
Inventory Costs:
The various costs associated with maintaining inventory are:
1. Holding/Carrying costs: These include costs for storage facilities, handling, pilferage,
etc.
2. Setup/Production Change Costs: These include material arrangement, equipment
setup, etc.
3. Ordering Costs: These refer to managerial and clerical cost to prepare for the
purchase.
4. Shortage Costs: These are the costs associated with the unavailability of a material.
Independent vs. dependent demand:
Independent demand is that demand which is not related to the demand of another product
whereas dependent demand of product depends on the demand of some other product.

Single Period vs. Multi period Inventory Systems:

A single period inventory model is one in which the inventory is ordered only once, hence the
question of when to order does not arise. However, it is of high significance that the question
of how much to order be predicted as accurately as possible. This is to ensure that profits are
not lost (or loss is not occurred). This can happen because of unavailability of products or
storing extra products that cannot be used afterwards. For example, a newspaper vendor
ordering newspapers in the morning for sales is a perfect example of single period inventory
model. If he orders less, he will lose profits due to shortage of newspapers. On the other
hand, if he orders surplus, he will have bear the cost of the newspapers that are unsold and
cant be sold the subsequent day.

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Multi period inventory models are the ones in which the material can be ordered on more
than one instances. This is to ensure the constant availability of material. These are generally
of two types:
1. Fixed Order Quantity Model (EOQ OR Q-MODEL)
In this model, the inventory size is kept constant and the material is ordered when the
size of the inventory reaches a particular amount. For this reason, this model is known
as an event triggered model.

2. Fixed Time Period Model (P-MODEL)

In this model, the inventory is replenished after a particular period of time. The
inventory is inspected after the certain pre-determined time period and the size of the
inventory can be varied depending upon the available material. Hence, this model is
known as a time triggered model. This might sometimes lead to shortage of
material.
There is an important term known as the safety stock. The previous model assumes that the
demand is constant but in real life, it is rarely the case. Hence, Safety Stock is the amount of
inventory ordered in addition to the expected demand to safeguard any variation in demand.

Forecasting In Business
A process of predicting future trends using observations, past happenings, and by analyzing
past and present data. The process of forecasting can involves using both qualitative methods
and quantitative/statistical methods. While qualitative methods may include judgment,
opinions about future, the quantitative methods rely on developing mathematical models
through analysis of past and present data collected about that situation.
Why are companies investing in forecasting?
With increasing competition and uncertainty in todays business world, more and more
companies are finding ways to understand their business situation and trying to minimize
business risk. Forecasting is one such way of predicting how their business might perform in
future, and how can they work on the they make better decision making at present to
improve.

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Applications of Forecasting:
Some of the applications of forecasting in business1 Predicting demand/sales of the business.
2 Improving financial performance of the firm.
3 Ability to make better decision- making at present to improve business in future.
4 Minimizing risk associated with competition, industry and regulatory changes.
What techniques are being used in present for forecasting?
Qualitative methods: These types of forecasting methods are based on judgments, opinions,
intuition, emotions, or personal experiences and are subjective in nature. They do not rely on
any rigorous mathematical computations.

Quantitative methods: These types of forecasting methods are based on mathematical

(quantitative) models, and are objective in nature. They rely heavily on mathematical
computations.

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Facility Layout
Facility layout can be defined as the process by which the placement of departments,
workgroups within departments, workstations, machines, and stock-holding points within a
facility is determined. The basic objective of layout is to ensure a smooth flow of work,
material, and information through a system. The basic meaning of facility is the space in
which a business's activities take place. The layout and design of that space impact greatly
how the work is donethe flow of work, materials, and information through the system.
Ex:-

If A, B, C, D, E and F are six machines (or departments) and machine (or department) A
interacts more frequently with department C, i.e., goods or people are transported more
frequently then they need to be kept close to each other. So interchanging B and C is a
possible solution to this problem.

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Types of Layouts:
1) Product or Line Layouts - uses standardized processing operations to achieve smooth,
high-volume flow
2) Process or Functional Layouts - can handle varied processing requirements
3) Project or Fixed-Position - the product or project remains stationary, and workers,
materials, and equipment are moved as needed
4) Cellular Layouts
5) Combination Layouts
Product Layout VS Process Layout:
A product layout groups different workstations together according to the products they work
on. Workstations in a product layout can quickly transfer small batches of semi-finished
goods directly to the next station in a production line. Product layouts can be ideal for smaller
manufacturing businesses with lower volume than their large corporate competitors.
A process layout groups workstations together according to the activities being performed,
regardless of which products each workstation is working on. Workstations produce higher
volumes of output at a time before sending semi-finished goods in bulk to the next area,
which may be located as close as the other end of a building or as far as another facility on
the other side of the globe.

What is capacity planning?

Capacity planning is the process of determining the production capacity needed by an
organization to meet changing demand for its products. Capacity is the rate of productive
capability of a facility. Capacity is usually expressed as volume of output per time period. It
is the process of determining the necessary to meet the production objectives. The objectives
of capacity planning are:

To identify and solve capacity problem in a timely manner to meet consumer needs.

To maintain a balance between required capacity and available capacity.

The goal of capacity planning is to minimize this discrepancy.

Capacity is calculated: (number of machines or workers) (number of shifts) (utilization)

(efficiency).
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The need for capacity planning:

Capacity planning is the first step when an organization decided to produce more or a new
product. Once capacity is evaluated and a need for a new expanded facility is determined,
facility location and process technology activities occur. Too much capacity would require
exploring ways to reduce capacity, such as temporarily closing, selling, or consolidating
facilities. Consolidation might involve relocation, a combining of technologies, or a
rearrangement of equipment and processes.
Capacity planning is done in order to estimate whether the demand is higher than capacity or
lower than capacity. That is compare demand versus capacity.
It helps an organization to identify and plan the actions necessary to meet customers present
and future demand.
How is capacity measured?
For some organization capacity is simple to measure. General Motors Corporation can use
numbers of automobiles per year. What about organizations whose product lines are more
diverse? For these firms, it is hard to find a common unit of output.
As a substitute, capacity can be expressed in terms of input. A legal office may express
capacity in terms of the number of attorneys employed per year. A custom job shop or an
auto repair shop may express capacity in terms of available labour hours and/or machine
hours per week, month, or year.
Capacity can be expressed in terms of input & output, depending on the nature of business.
Capacity planning decision:
Capacity planning normally involves the following activities:

Assessing existing capacity.

Forecasting capacity needs.

Identifying alternative ways to modify capacity.

Evaluating financial, economical, and technological capacity alternatives.

Selecting a capacity alternative most suited to achieving strategic mission.

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Simulation
Simulation is an attempt to duplicate the features, appearance, and characteristics of a real
system.
It helps in doing the following tasks:

To imitate a real-world situation mathematically

To study its properties and operating characteristics

To draw conclusions and make action decisions based on the results of the simulation

Process of Simulation:

Advantages of Simulation:
1. Relatively straightforward and flexible
2. Can be used to analyse large and complex real-world situations that cannot be solved
by conventional models
3. Real-world complications can be included that most OM models cannot permit
4. Time compression is possible

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5. Allows what-if types of questions

6. Does not interfere with real-world systems
7. Can study the interactive effects of individual components or variables in order to
determine which ones are important
Disadvantages of Simulation:
1. Can be very expensive and may take months to develop
2. It is a trial-and-error approach that may produce different solutions in repeated runs
3. Managers must generate all of the conditions and constraints for solutions they want
to examine
4. Each simulation model is unique
Some of the simulation applications:

Ambulance location and dispatching

Assembly-line balancing

Parking lot and harbor design

Distribution system design

Scheduling aircraft

Labor-hiring decisions

Personnel scheduling

Traffic-light timing

Voting pattern prediction

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